NOTE 17—Pension Plans and Other Postretirement Benefits:

We have certain noncontributory defined benefit pension plans covering certain U.S., German, Japanese, and the Netherlands employees. We also have a contributory defined benefit plan covering certain Belgian employees. The benefits for these plans are based primarily on compensation and/or years of service. The funding policy for each plan complies with the requirements of relevant governmental laws and regulations. The pension information for all periods presented includes amounts related to salaried and hourly plans.

During 2009, the U.S. defined benefit pension plans were amended to be in compliance with the Pension Protection Act of 2006 (PPA), which was signed into law on August 16, 2006. This law amended the Employee Retirement Income Security Act of 1974 (ERISA) and included new rules regarding methods and assumptions, including measuring the benefit obligation and plan assets, use of interest rate assumptions, mortality tables, valuation date, credit balances for carryover, and pre-funded balances, etc.

Our U.S. defined benefit plan for non-represented employees was closed to new participants effective March 31, 2004. For participants who retire on or after December 31, 2012, final average earnings shall be determined as of December 31, 2012, and for participants who retire on or after December 31, 2020, final average earnings shall be determined as of December 31, 2014.

On March 31, 2004, a new defined contribution pension plan for U.S. non-represented employees hired after March 31, 2004 was adopted. The annual contribution to the defined contribution plan is based on 5% of eligible employee compensation and was amended January 1, 2007 to increase the pension contributions to 6% and 7% for certain employees depending on years of service. Contributions amounted to $4.5 million, $3.9 million and $3.5 million in 2011, 2010 and 2009, respectively. We also have a defined contribution pension plan for employees in the United Kingdom. The annual contribution to the United Kingdom defined contribution plan is based on a percentage of eligible employee compensation and amounted to $0.3 million, $0.4 million and $0.4 million for 2011, 2010 and 2009, respectively.

We have two benefit plans that cover employees in the Netherlands—a defined benefit plan and a plan similar to a collective defined contribution plan. Our defined benefit plan is a transitional arrangement in which benefits are based primarily on employee compensation and/or years of service. This plan is for certain individuals born on or before 1949 whom had a prior agreement, which we elected to honor, in connection with the refinery catalysts business acquisition in 2004. The collective defined contribution plan is supported by annuity contracts through an insurance company. The insurance company unconditionally undertakes the legal obligation to provide specific benefits to specific individuals in return for a fixed amount of premiums. Our obligation under this plan is limited to a variable calculated employer match for each participant plus an additional fixed amount of contributions to assist in covering estimated cost of living and salary increases (indexing) and administrative costs for the overall plan. We paid approximately $9.9 million, $8.8 million and $9.0 million in 2011, 2010 and 2009, respectively, in annual premiums and related costs pertaining to this plan.

Pension coverage for the employees of our other foreign subsidiaries is provided through separate plans. The plans are funded in conformity with the funding requirements of applicable governmental regulations. The pension cost, actuarial present value of benefit obligations and plan assets for all plans are combined in the other pension disclosure information presented.

The following provides a reconciliation of benefit obligations, plan assets, and funded status of the plans, as well as a summary of significant assumptions for our pension benefit plans (in thousands):


	Year Ended December 31, 2011						Year Ended December 31, 2010
	Total Pension Benefits			Domestic Pension Benefits			Total Pension Benefits			Domestic Pension Benefits
Change in benefit obligations:
Benefit obligation at January 1	$	613,880		$	572,963		$	570,871		$	526,478
Service cost		12,830			11,169			11,271			9,577
Interest cost		32,933			30,945			31,844			29,934
Plan amendments		508			508			288			288
Actuarial loss		49,729			48,977			40,289			40,124
Benefits paid		(35,249	)		(30,378	)		(37,528	)		(33,438	)
Employee contributions		299			—			258			—
Foreign exchange loss (gain)		(265	)		—			(3,413	)		—

Benefit obligation at December 31	$	674,665		$	634,184		$	613,880		$	572,963


Change in plan assets:
Fair value of plan assets at January 1	$	507,064		$	498,967		$	417,125		$	410,037
Actual return on plan assets		3,107			2,662			50,988			50,471
Employer contributions		56,105			51,157			76,841			71,897
Benefits paid		(35,249	)		(30,378	)		(37,528	)		(33,438	)
Employee contributions		299			—			258			—
Foreign exchange gain (loss)		(221	)		—			(620	)		—

Fair value of plan assets at December 31	$	531,105		$	522,408		$	507,064		$	498,967

Funded status at December 31	$	(143,560	)	$	(111,776	)	$	(106,816	)	$	(73,996	)


	December 31, 2011						December 31, 2010
	Total Pension Benefits			Domestic Pension Benefits			Total Pension Benefits			Domestic Pension Benefits
Amounts recognized in consolidated balance sheets:
Current liabilities (accrued expenses)	$	(15,596	)	$	(13,927	)	$	(3,980	)	$	(1,332	)
Noncurrent liabilities (pension benefits)		(127,964	)		(97,849	)		(102,836	)		(72,664	)

Net pension liability	$	(143,560	)	$	(111,776	)	$	(106,816	)	$	(73,996	)


Amounts recognized in accumulated other comprehensive loss:
Prior service benefit	$	(7,200	)	$	(7,623	)	$	(8,661	)	$	(9,141	)
Net actuarial loss		420,909			416,314			351,778			346,699

Net amount recognized	$	413,709		$	408,691		$	343,117		$	337,558


Weighted-average assumption percentages:
Discount rate		5.04	%		5.07	%		5.40	%		5.45	%
Rate of compensation increase		3.96	%		4.11	%		3.93	%		4.11	%

The accumulated benefit obligation for all defined benefit pension plans was $657.0 million and $598.6 million at December 31, 2011 and 2010, respectively.

Postretirement medical benefits and life insurance is provided for certain groups of U.S. retired employees. Medical and life insurance benefit costs have been funded principally on a pay-as-you-go basis. Although the availability of medical coverage after retirement varies for different groups of employees, the majority of employees who retire before becoming eligible for Medicare can continue group coverage by paying a portion of the cost of a monthly premium designed to cover the claims incurred by retired employees subject to a cap on payments allowed. The availability of group coverage for Medicare-eligible retirees also varies by employee group with coverage designed either to supplement or coordinate with Medicare. Retirees generally pay a portion of the cost of the coverage. Plan assets for retiree life insurance are held under an insurance contract and are reserved for retiree life insurance benefits. In 2005, the postretirement medical benefit available to U.S. employees was changed to provide that employees who are under age 50 as of December 31, 2005 would no longer be eligible for a company-paid retiree medical premium subsidy. Employees who are of age 50 and above as of December 31, 2005 and who retire after January 1, 2006 will have their retiree medical premium subsidy capped. Effective January 1, 2008, our medical insurance for certain groups of U.S. retired employees is now insured through a medical carrier.

In connection with the acquisition of the refinery catalysts business in 2004, we assumed the obligation for postretirement medical benefits for employees in the Netherlands who will retire after August 2009. The benefit costs are funded principally on a pay-as-you-go basis. However, effective January 1, 2007, the Netherlands postretirement plan was terminated.

The following provides a reconciliation of benefit obligations, plan assets, and funded status of the plans, as well as a summary of significant assumptions for our postretirement benefit plans (in thousands):


	Year Ended December 31,
	2011			2010
	Total Other Postretirement Benefits			Total Other Postretirement Benefits
Change in benefit obligations:
Benefit obligation at January 1	$	66,436		$	65,739
Service cost		263			382
Interest cost		3,393			3,564
Actuarial loss		3,555			552
Benefits paid		(4,712	)		(3,801	)

Benefit obligation at December 31	$	68,935		$	66,436


Change in plan assets:
Fair value of plan assets at January 1	$	7,985		$	8,207
Actual return on plan assets		740			315
Employer contributions		3,668			3,264
Benefits paid		(4,712	)		(3,801	)

Fair value of plan assets at December 31	$	7,681		$	7,985

Funded status at December 31	$	(61,254	)	$	(58,451	)


	December 31,
	2011			2010
	Total Other Postretirement Benefits			Total Other Postretirement Benefits
Amounts recognized in consolidated balance sheets:
Current liabilities (accrued expenses)	$	(3,666	)	$	(3,437	)
Noncurrent liabilities (postretirement benefits)		(57,588	)		(55,014	)

Net postretirement liability	$	(61,254	)	$	(58,451	)


Amounts recognized in accumulated other comprehensive loss:
Prior service benefit		(620	)		(1,317	)
Net actuarial loss		19,801			18,885

Net amount recognized	$	19,181		$	17,568


Weighted-average assumption percentages:
Discount rate		5.10	%		5.30	%
Rate of compensation increase		4.00	%		4.00	%

The components of pension benefits expense are as follows (in thousands):


	Year Ended December 31, 2011						Year Ended December 31, 2010						Year Ended December 31, 2009
	Total Pension Benefits			Domestic Pension Benefits			Total Pension Benefits			Domestic Pension Benefits			Total Pension Benefits			Domestic Pension Benefits
Service cost	$	12,830		$	11,169		$	11,271		$	9,577		$	10,568		$	8,544
Interest cost		32,933			30,945			31,844			29,934			32,967			30,608
Expected return on assets		(48,645	)		(48,235	)		(41,941	)		(41,630	)		(42,341	)		(42,080	)
Amortization of net transition asset		—			—			(9	)		(9	)		(10	)		(10	)
Amortization of prior service benefit		(953	)		(1,009	)		(986	)		(1,038	)		(984	)		(1,039	)
Amortization of net loss		26,137			24,934			17,410			16,222			12,348			11,440

Benefits expense	$	22,302		$	17,804		$	17,589		$	13,056		$	12,548		$	7,463


Weighted-average assumption percentages:
Discount rate		5.40	%		5.45	%		5.77	%		5.86	%		6.45	%		6.50	%
Expected return on plan assets		8.19	%		8.25	%		8.19	%		8.25	%		8.69	%		8.75	%
Rate of compensation increase		3.93	%		4.11	%		3.90	%		4.11	%		4.11	%		4.33	%

The estimated amounts to be amortized from accumulated other comprehensive loss into net periodic pension costs during 2012 are as follows (in thousands):


	Total Pension Benefits			Domestic Pension Benefits
Amortization of prior service benefit	$	(1,027	)	$	(1,084	)
Amortization of net actuarial loss	$	36,635		$	35,228

The components of postretirement benefits expense (income) are as follows (in thousands):


	Year Ended December 31,
	2011			2010			2009
	Total Other Postretirement Benefits			Total Other Postretirement Benefits			Total Other Postretirement Benefits
Service cost	$	263		$	382		$	438
Interest cost		3,393			3,564			3,769
Expected return on assets		(509	)		(526	)		(571	)
Amortization of prior service benefit		(697	)		(1,704	)		(7,572	)
Amortization of net loss		2,409			1,688			1,096

Benefits expense (income)	$	4,859		$	3,404		$	(2,840	)


Weighted-average assumption percentages:
Discount rate		5.30	%		5.70	%		6.55	%
Expected return on plan assets		7.00	%		7.00	%		7.00	%
Rate of compensation increase		4.00	%		4.00	%		4.25	%

The estimated amounts to be amortized from accumulated other comprehensive loss into net periodic postretirement costs during 2012 are as follows (in thousands):


	Total Other Postretirement Benefits
Amortization of prior service benefit	$	(95	)
Amortization of net actuarial loss	$	2,576

In estimating the expected return on plan assets, consideration is given to past performance and future performance expectations for the types of investments held by the plan, as well as the expected long term allocations of plan assets to these investments. The expected rate of return on plan assets for our domestic pension plans was 8.25% at December 31, 2011 and 2010. There has been no change to the assumed rate of return on our domestic pension plan assets effective January 1, 2012. At December 31, 2011 and 2010, the expected rate of return on plan assets for our other postretirement benefit plan was 7.00%. At December 31, 2011 and 2010, the weighted-average expected rate of return on pension plan assets for foreign plans was 4.50%.

In December 2008, new accounting guidance was issued regarding employers' disclosures about postretirement benefit plan assets. This new guidance was effective for fiscal years ending after December 15, 2009 and requires additional disclosures regarding benefit plan assets including (a) the investment allocation decision process, (b) the fair value of each major category of plan assets and (c) the inputs and valuation techniques used to measure the fair value of plan assets. We have adopted this guidance and have provided the additional disclosures required upon adoption.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The inputs used to measure fair value are classified into the following hierarchy:


Level 1		Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2		Unadjusted quoted prices in active markets for similar assets or liabilities, or

		Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or

		Inputs other than quoted prices that are observable for the asset or liability

Level 3		Unobservable inputs for the asset or liability

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Investments for which market quotations are readily available are valued at the closing price on the last business day of the year. Listed securities for which no sale was reported on such date are valued at the mean between the last reported bid and asked price. Securities traded in the over-the-counter market are valued at the closing price on the last business day of the year or at bid price. The net asset value of shares or units is based on the quoted market value of the underlying assets. The market value of corporate bonds is based on institutional trading lots and is most often reflective of bid price. Government securities are valued at the mean between bid and ask prices. Holdings in private investment companies are typically valued using the net asset valuations provided by the underlying private investment companies.

The following table sets forth our financial assets that were accounted for at fair value on a recurring basis as of December 31, 2011 (in thousands):


	December 31, 2011		Quoted Prices in Active Markets for Identical Items (Level 1)		Quoted Prices in Active Markets for Similar Items (Level 2)		Unobservable Inputs (Level 3)
Pension Assets:
Domestic Equity^(a)	$	229,842	$	173,710	$	56,132	$	—
International Equity^(b)		90,056		—		90,056		—
Fixed Income^(c)		129,608		46,308		83,300		—
Absolute Return^(d)		78,432		5,407		—		73,025
Cash		3,167		3,167		—		—

Total Pension Assets	$	531,105	$	228,592	$	229,488	$	73,025


Postretirement Assets:
Fixed Income^(c)	$	7,681	$	—	$	7,681	$	—

(a)	Consists primarily of U.S. equity securities covering a diverse group of companies and U.S. stock funds that primarily track or are actively managed and measured against indices including the S&P 500 and the Russell 2000.

(b)	Consists primarily of international equity funds which include stocks and debt obligations of non-U.S. entities that primarily track or are actively managed and measured against various MSCI indices.

(c)	Consists primarily of fixed income mutual funds, corporate bonds, U.S. Treasury notes, other government securities and insurance policies.

(d)	Consists primarily of holdings in private investment companies. See additional information about the Absolute Return investments below.

The table below sets forth a summary of changes in the fair value of the plans' Level 3 assets for the year ended December 31, 2011 (in thousands):


Absolute Return:	Year Ended December 31, 2011
Beginning Balance	$	69,399
Total gains relating to assets sold during the period^(a)		4,471
Total unrealized losses relating to assets still held at the reporting date^(a)		(6,367	)
Purchases		25,000
Sales		(19,478	)

Ending Balance	$	73,025

(a)	These gains (losses) are recognized in the consolidated balance sheets and are included as changes in plan assets in the tables above.

The following table sets forth our financial assets that were accounted for at fair value on a recurring basis as of December 31, 2010 (in thousands):


	December 31, 2010		Quoted Prices in Active Markets for Identical Items (Level 1)		Quoted Prices in Active Markets for Similar Items (Level 2)		Unobservable Inputs (Level 3)
Pension Assets:
Domestic Equity^(a)(e)	$	233,788	$	173,079	$	60,709	$	—
International Equity^(b)		91,239		—		91,239		—
Fixed Income^(c)		108,471		38,859		69,612		—
Absolute Return^(d)(e)		70,520		1,121		—		69,399
Cash		3,046		3,046		—		—

Total Pension Assets	$	507,064	$	216,105	$	221,560	$	69,399


Postretirement Assets:
Fixed Income^(c)	$	7,985	$	—	$	7,985	$	—

(a)	Consists primarily of U.S. equity securities covering a diverse group of companies and U.S. stock funds that primarily track or are actively managed and measured against indices including the S&P 500 and the Russell 2000.

(b)	Consists primarily of international equity funds which include stocks and debt obligations of non-U.S. entities that primarily track or are actively managed and measured against various MSCI indices.

(c)	Consists primarily of fixed income mutual funds, corporate bonds, U.S. Treasury notes, other government securities and insurance policies.

(d)	Consists primarily of holdings in private investment companies. See additional information about the Absolute Return investments below.

(e)	In 2011, amounts were reclassified from Absolute Return to Domestic Equity, levels 1 and 2 only. These reclassifications had no impact on total pension assets by level.

The table below sets forth a summary of changes in the fair value of the plans' Level 3 assets for the year ended December 31, 2010 (in thousands):


Absolute Return:	Year Ended December 31, 2010
Beginning Balance	$	65,902
Total gains relating to assets sold during the period^(a)		79
Total unrealized gains relating to assets still held at the reporting date^(a)		4,537
Sales		(1,119	)

Ending Balance	$	69,399

(a)	These gains are recognized in the consolidated balance sheets and are included as changes in plan assets in the tables above.

The investment objective of the U.S. pension plan assets is maximum return with a strong emphasis on preservation of capital. Assets should participate in rising markets, with defensive action in declining markets expected to an even greater degree. Target asset allocations include 65% in long equity holdings and the remaining 35% in asset classes that provide diversification from traditional long equity holdings. Depending on market conditions, the broad asset class targets may range up or down by approximately 10%. These asset classes include, but are not limited to hedge fund of funds, bonds and other fixed income vehicles, high yield equities and distressed debt.

Our Absolute Return investments consist primarily of our investments in hedge fund of funds. These are holdings in private investment companies with fair values that are based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment. Investment managers or fund managers associated with these investments provide valuations of the investments on a monthly basis utilizing the net asset valuation approach for determining fair values. These valuations are reviewed by the Company for reasonableness based on applicable sector, benchmark and company performance to validate the appropriateness of the net asset values as a fair value measurement. Where available, audited financial statements are obtained and reviewed for the investments as support for the manager's investment valuation. In general, the investment objective of these funds is high risk-adjusted returns with an emphasis on preservation of capital. The investment strategies of each of the funds vary; however, the objective of our Absolute Return investments is complementary to the overall investment objective of our U.S. pension plan assets.

At December 31, 2011 and 2010, equity securities held by our pension and other postretirement benefit plans did not include Albemarle common stock.

On January 3, 2011, we made a $50.0 million contribution to our domestic qualified pension plans. We expect contributions to our domestic nonqualified and foreign qualified and nonqualified pension plans in 2012, including our SERP, to approximate $17 million. Also, we expect to pay approximately $5.3 million in premiums to our U.S. postretirement benefit plan in 2012. However, we may choose to make additional voluntary pension contributions in excess of these amounts.

The current forecast of benefit payments, which reflect expected future service, amounts to (in millions):


	Total Pension Benefits		Domestic Pension Benefits		Total Postretirement Benefits
2012	$	47.9	$	46.0	$	5.1
2013	$	38.0	$	35.2	$	5.2
2014	$	39.5	$	36.6	$	5.3
2015	$	39.9	$	38.0	$	5.3
2016	$	40.8	$	39.2	$	5.3
2017-2021	$	235.1	$	222.6	$	23.5

We have a supplemental executive retirement plan, or SERP, which provides unfunded supplemental retirement benefits to certain management or highly compensated employees. The SERP provides for incremental pension payments to offset the limitations imposed by federal income tax regulations. Expenses relating to the SERP of $4.5 million, $3.6 million and $3.6 million were recorded for the years ended December 31, 2011, 2010 and 2009, respectively. The projected benefit obligation for the SERP recognized in the consolidated balance sheets at December 31, 2011 and 2010 was $31.9 million and $28.2 million, respectively. The benefit expenses and obligations of this SERP are included in the tables above. Benefits of $13.9 million are expected to be paid to SERP retirees in 2012. The SERP was amended to reflect the same changes as the U.S. qualified defined benefit plan. For participants who retire on or after December 31, 2012, final average earnings shall be determined as of December 31, 2012, and for participants who retire on or after December 31, 2020, final average earnings shall be determined as of December 31, 2014.

In selecting the rate of increase in the per capita cost of covered health care benefits, we consider past performance and forecasts of future health care cost trends in relation to the employer-paid premium cap. At December 31, 2011, the previously assumed ultimate rate of increase in the pre-65 and post-65 per capita cost of covered health care benefits for U.S. retirees was reduced to zero as the employer-paid premium cap is expected to meet the cap starting January 1, 2013. For 2012, the assumed trend rate for pre-65 coverage is 8.0% per year, ultimately decreasing to zero in the year 2013 due to the employer-paid premium cap. The 2012 assumed trend rate for post-65 coverage is expected to be zero due to the employer-paid premium cap.

A 1% increase or decrease in the U.S. health care cost trend rate would not have a material effect on the benefit obligation and service and interest benefit cost components.

Other Postemployment Benefits

Certain postemployment benefits to former or inactive employees who are not retirees are funded on a pay-as-you-go basis. These benefits include salary continuance, severance and disability health care and life insurance, which are accounted for in accordance with authoritative guidance. The accrued postemployment benefit liability was $0.6 million and $0.7 million at December 31, 2011 and 2010, respectively.