Note 21

Employee Benefit Plans

The company has defined benefit pension plans for many employees. The company typically prefunds defined benefit plans as required by local regulations or in certain situations where prefunding provides economic advantages. In the United States, all qualified plans are subject to the Employee Retirement Income Security Act (ERISA) minimum funding standard. The company does not typically fund U.S. nonqualified pension plans that are not subject to funding requirements under laws and regulations because contributions to these pension plans may be less economic and investment returns may be less attractive than the company’s other investment alternatives.

The company also sponsors other postretirement (OPEB) plans that provide medical and dental benefits, as well as life insurance for some active and qualifying retired employees. The plans are unfunded, and the company and retirees share the costs. Medical coverage for Medicare-eligible retirees in the company’s main U.S. medical plan is secondary to Medicare (including Part D) and the increase to the company contribution for retiree medical coverage is limited to no more than 4 percent each year. Certain life insurance benefits are paid by the company.

Under accounting standards for postretirement benefits (ASC 715), the company recognizes the overfunded or underfunded status of each of its defined benefit pension and OPEB plans as an asset or liability on the Consolidated Balance Sheet.

The funded status of the company’s pension and other postretirement benefit plans for 2011 and 2010 follows:


	Pension Benefits
	2011						2010						Other Benefits
	U.S.			Int’l.			U.S.			Int’l.			2011			2010

Change in Benefit Obligation
Benefit obligation at January 1	$	10,271		$	5,070		$	9,664		$	4,715		$	3,605		$	3,065
Service cost		374			174			337			153			58			39
Interest cost		463			325			486			307			180			175
Plan participants’ contributions		–			6			–			7			148			147
Plan amendments		–			27			–			–			–			12
Actuarial loss (gain)		1,920			318			568			200			149			486
Foreign currency exchange rate changes		–			(98	)		–			(17	)		(19	)		11
Benefits paid		(863	)		(303	)		(784	)		(295	)		(346	)		(330	)
Curtailment		–			–			–			–			(10	)		–

Benefit obligation at December 31		12,165			5,519			10,271			5,070			3,765			3,605

Change in Plan Assets
Fair value of plan assets at January 1		8,579			3,503			7,304			3,235			–			–
Actual return on plan assets		(143	)		118			867			361			–			–
Foreign currency exchange rate changes		–			(66	)		–			(63	)		–			–
Employer contributions		1,147			319			1,192			258			198			183
Plan participants’ contributions		–			6			–			7			148			147
Benefits paid		(863	)		(303	)		(784	)		(295	)		(346	)		(330	)

Fair value of plan assets at December 31		8,720			3,577			8,579			3,503			–			–

Funded Status at December 31	$	(3,445	)	$	(1,942	)	$	(1,692	)	$	(1,567	)	$	(3,765	)	$	(3,605	)

Amounts recognized on the Consolidated Balance Sheet for the company’s pension and other postretirement benefit plans at December 31, 2011 and 2010, include:


	Pension Benefits
	2011						2010						Other Benefits
	U.S.			Int’l.			U.S.			Int’l.			2011			2010

Deferred charges and other assets	$	5		$	116		$	7		$	77		$	–		$	–
Accrued liabilities		(72	)		(84	)		(134	)		(71	)		(222	)		(225	)
Reserves for employee benefit plans		(3,378	)		(1,974	)		(1,565	)		(1,573	)		(3,543	)		(3,380	)

Net amount recognized at December 31	$	(3,445	)	$	(1,942	)	$	(1,692	)	$	(1,567	)	$	(3,765	)	$	(3,605	)

Amounts recognized on a before-tax basis in “Accumulated other comprehensive loss” for the company’s pension and OPEB plans were $9,279 and $6,749 at the end of 2011 and 2010, respectively. These amounts consisted of:


	Pension Benefits
	2011					2010					Other Benefits
	U.S.			Int’l.		U.S.			Int’l.		2011			2010

Net actuarial loss	$	5,982		$	2,250	$	3,919		$	1,903	$	1,002		$	935
Prior service (credit) costs		(44	)		152		(52	)		179		(63	)		(135	)

Total recognized at December 31	$	5,938		$	2,402	$	3,867		$	2,082	$	939		$	800

The accumulated benefit obligations for all U.S. and international pension plans were $11,198 and $4,518, respectively, at December 31, 2011, and $9,535 and $4,161, respectively, at December 31, 2010.

Information for U.S. and international pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2011 and 2010, was:


	Pension Benefits
	2011				2010
	U.S.		Int’l.		U.S.		Int’l.

Projected benefit obligations	$	12,157	$	4,207	$	10,265	$	3,668
Accumulated benefit obligations		11,191		3,586		9,528		3,113
Fair value of plan assets		8,707		2,357		8,566		2,190

The components of net periodic benefit cost and amounts recognized in other comprehensive income for 2011, 2010 and 2009 are shown in the table below:


							Pension Benefits
	2011							2010						2009						Other Benefits
	U.S.			Int’l.				U.S.			Int’l.			U.S.			Int’l.			2011			2010			2009
Net Periodic Benefit Cost
Service cost	$	374		$	174			$	337		$	153		$	266		$	128		$	58		$	39		$	43
Interest cost		463			325				486			307			481			292			180			175			180
Expected return on plan assets		(613	)		(283	)			(538	)		(241	)		(395	)		(203	)		–			–			–
Amortization of prior service (credits) costs		(8	)		19				(8	)		22			(7	)		23			(72	)		(75	)		(81	)
Recognized actuarial losses		310			101				318			98			298			108			64			27			27
Settlement losses		298			–				186			6			141			1			–			–			–
Curtailment losses (gains)		–			35				–			–			–			–			(10	)		–			(5	)

Total net periodic benefit cost		824			371				781			345			784			349			220			166			164

Changes Recognized in Other Comprehensive Income
Net actuarial loss during period		2,671			448				242			118			823			194			131			497			82
Amortization of actuarial loss		(608	)		(101	)			(504	)		(104	)		(439	)		(109	)		(64	)		(27	)		(27	)
Prior service cost during period		–			27				–			–			1			13			–			12			20
Amortization of prior service credits (costs)		8			(54	)			8			(22	)		7			(23	)		72			75			81

Total changes recognized in other comprehensive income		2,071			320				(254	)		(8	)		392			75			139			557			156

Recognized in Net Periodic Benefit Cost and Other Comprehensive Income	$	2,895		$	691			$	527		$	337		$	1,176		$	424		$	359		$	723		$	320

Net actuarial losses recorded in “Accumulated other comprehensive loss” at December 31, 2011, for the company’s U.S. pension, international pension and OPEB plans are being amortized on a straight-line basis over approximately 10, 12 and eight years, respectively. These amortization periods represent the estimated average remaining service of employees expected to receive benefits under the plans. These losses are amortized to the extent they exceed 10 percent of the higher of the projected benefit obligation or market-related value of plan assets. The amount subject to amortization is determined on a plan-by-plan basis. During 2012, the company estimates actuarial losses of $476, $142 and $75 will be amortized from “Accumulated other comprehensive loss” for U.S. pension, international pension and OPEB plans, respectively. In addition, the company estimates an additional $260 will be recognized from “Accumulated other comprehensive loss” during 2012 related to lump-sum settlement costs from U.S. pension plans.

The weighted average amortization period for recognizing prior service costs (credits) recorded in “Accumulated other comprehensive loss” at December 31, 2011, was approximately six and seven years for U.S. and international pension plans, respectively, and two years for other postretirement benefit plans. During 2012, the company estimates prior service (credits) costs of $(8), $21 and $(72) will be amortized from “Accumulated other comprehensive loss” for U.S. pension, international pension and OPEB plans, respectively.

Assumptions The following weighted-average assumptions were used to determine benefit obligations and net periodic benefit costs for years ended December 31:


	Pension Benefits
				2011						2010						2009			Other Benefits
	U.S.			Int’l.			U.S.			Int’l.			U.S.			Int’l.			2011			2010			2009

Assumptions used to determine benefit obligations:
Discount rate		3.8	%		5.9	%		4.8	%		6.5	%		5.3	%		6.8	%		4.2	%		5.2	%		5.9	%
Rate of compensation increase		4.5	%		5.7	%		4.5	%		6.7	%		4.5	%		6.3	%		N/A			N/A			N/A
Assumptions used to determine net periodic benefit cost:
Discount rate		4.8	%		6.5	%		5.3	%		6.8	%		6.3	%		7.5	%		5.2	%		5.9	%		6.3	%
Expected return on plan assets		7.8	%		7.8	%		7.8	%		7.8	%		7.8	%		7.5	%		N/A			N/A			N/A
Rate of compensation increase		4.5	%		6.7	%		4.5	%		6.3	%		4.5	%		6.8	%		N/A			N/A			N/A

Expected Return on Plan Assets The company’s estimated long-term rates of return on pension assets are driven primarily by actual historical asset-class returns, an assessment of expected future performance, advice from external actuarial firms and the incorporation of specific asset-class risk factors. Asset allocations are periodically updated using pension plan asset/liability studies, and the company’s estimated long-term rates of return are consistent with these studies.

There have been no changes in the expected long-term rate of return on plan assets since 2002 for U.S. plans, which account for 70 percent of the company’s pension plan assets. At December 31, 2011, the estimated long-term rate of return on U.S. pension plan assets was 7.8 percent.

The market-related value of assets of the major U.S. pension plan used in the determination of pension expense was based on the market values in the three months preceding the year-end measurement date, as opposed to the maximum allowable period of five years under U.S. accounting rules. Management considers the three-month time period long enough to minimize the effects of distortions from day-to-day market volatility and still be contemporaneous to the end of the year. For other plans, market value of assets as of year-end is used in calculating the pension expense.

Discount Rate The discount rate assumptions used to determine U.S. and international pension and postretirement benefit plan obligations and expense reflect the prevailing rates available on high-quality, fixed-income debt instruments. At December 31, 2011, the company selected a 3.8 percent discount rate for the U.S. pension plans and 4.0 percent for the U.S. postretirement benefit plan. This rate was based on a cash flow analysis that matched estimated future benefit payments to the Citigroup Pension Discount Yield Curve as of year-end 2011. The discount rates at the end of 2010 and 2009 were 4.8 and 5.3 percent and 5.0 and 5.8 percent for the U.S. pension plans and the U.S. OPEB plan, respectively.

Other Benefit Assumptions For the measurement of accumulated postretirement benefit obligation at December 31, 2011, for the main U.S. postretirement medical plan, the assumed health care cost-trend rates start with 8 percent in 2012 and gradually decline to 5 percent for 2023 and beyond. For this measurement at December 31, 2010, the assumed health care cost-trend rates started with 8 percent in 2011 and gradually declined to 5 percent for 2018 and beyond. In both measurements, the annual increase to company contributions was capped at 4 percent.

Assumed health care cost-trend rates can have a significant effect on the amounts reported for retiree health care costs. The impact is mitigated by the 4 percent cap on the company’s medical contributions for the primary U.S. plan. A one-percentage-point change in the assumed health care cost-trend rates would have the following effects:


	1 Percent		1 Percent
	Increase		Decrease

Effect on total service and interest cost components	$	17	$	(15	)
Effect on postretirement benefit obligation	$	177	$	(150	)

Plan Assets and Investment Strategy The fair value hierarchy of inputs the company uses to value the pension assets is divided into three levels:

Level 1: Fair values of these assets are measured using unadjusted quoted prices for the assets or the prices of identical assets in active markets that the plans have the ability to access.

Level 2: Fair values of these assets are measured based on quoted prices for similar assets in active markets; quoted prices for identical or similar assets in inactive markets; inputs other than quoted prices that are observable for the asset; and inputs that are derived principally from or corroborated by observable market data through correlation or other means. If the asset has a contractual term, the Level 2 input is observable for substantially the full term of the asset. The fair values for Level 2 assets are generally obtained from third-party broker quotes, independent pricing services and exchanges.

Level 3: Inputs to the fair value measurement are unobservable for these assets. Valuation may be performed using a financial model with estimated inputs entered into the model.

The fair value measurements of the company’s pension plans for 2011 and 2010 are below:


	U.S.										Int’l.
	Total Fair Value			Level 1			Level 2		Level 3		Total Fair Value		Level 1			Level 2		Level 3

At December 31, 2011
Equities
U.S.¹	$	1,470		$	1,470		$	–	$	–	$	497	$	497		$	–	$	–
International		1,203			1,203			–		–		693		693			–		–
Collective Trusts/Mutual Funds²		2,633			14			2,619		–		596		28			568		–
Fixed Income
Government		622			146			476		–		635		25			610		–
Corporate		338			–			338		–		319		16			276		27
Mortgage-Backed Securities		107			–			107		–		2		–			–		2
Other Asset Backed		61			–			61		–		5		–			5		–
Collective Trusts/Mutual Funds²		1,046			–			1,046		–		345		61			284		–
Mixed Funds³		10			10			–		–		102		13			89		–
Real Estate⁴		843			–			–		843		155		–			–		155
Cash and Cash Equivalents		404			404			–		–		211		211			–		–
Other⁵		(17	)		(79	)		8		54		17		(2	)		17		2

Total at December 31, 2011	$	8,720		$	3,168		$	4,655	$	897	$	3,577	$	1,542		$	1,849	$	186

At December 31, 2010
Equities
U.S.¹	$	2,121		$	2,121		$	–	$	–	$	465	$	465		$	–	$	–
International		1,405			1,405			–		–		721		721			–		–
Collective Trusts/Mutual Funds²		2,068			5			2,063		–		578		80			498		–
Fixed Income
Government		659			19			640		–		568		38			530		–
Corporate		314			–			314		–		351		24			299		28
Mortgage-Backed Securities		82			–			82		–		2		–			–		2
Other Asset Backed		74			–			74		–		16		–			16		–
Collective Trusts/Mutual Funds²		1,064			–			1,064		–		332		19			313		–
Mixed Funds³		9			9			–		–		105		16			89		–
Real Estate⁴		596			–			–		596		142		–			–		142
Cash and Cash Equivalents		213			213			–		–		217		217			–		–
Other⁵		(26	)		(87	)		8		53		6		(5	)		9		2

Total at December 31, 2010	$	8,579		$	3,685		$	4,245	$	649	$	3,503	$	1,575		$	1,754	$	174


¹	U.S. equities include investments in the company’s common stock in the amount of $35 at December 31, 2011, and $38 at December 31, 2010.

²	Collective Trusts/Mutual Funds for U.S. plans are entirely index funds; for International plans, they are mostly index funds. For these index funds, the Level 2 designation is partially based on the restriction that advance notification of redemptions, typically two business days, is required.

³	Mixed funds are composed of funds that invest in both equity and fixed-income instruments in order to diversify and lower risk.

⁴	The year-end valuations of the U.S. real estate assets are based on internal appraisals by the real estate managers, which are updates of third-party appraisals that occur at least once a year for each property in the portfolio.

⁵	The “Other” asset class includes net payables for securities purchased but not yet settled (Level 1); dividends and interest- and tax-related receivables (Level 2); insurance contracts and investments in private-equity limited partnerships (Level 3).

The effects of fair value measurements using significant unobservable inputs on changes in Level 3 plan assets for the period are outlined below:


	Fixed Income
				Mortgage-Backed
	Corporate			Securities		Real Estate		Other			Total

Total at December 31, 2009		$ 18			$ 2		$ 610		$ 52			$ 682
Actual Return on Plan Assets:
Assets held at the reporting date		3			–		34		1			38
Assets sold during the period		–			–		1		–			1
Purchases, Sales and Settlements		7			–		93		2			102
Transfers in and/or out of Level 3		–			–		–		–			–

Total at December 31, 2010		$ 28			$ 2		$ 738		$ 55			$ 823

Actual Return on Plan Assets:
Assets held at the reporting date		–			–		103		4			107
Assets sold during the period		–			–		1		(2	)		(1	)
Purchases, Sales and Settlements		(1	)		–		156		(1	)		154
Transfers in and/or out of Level 3		–			–		–		–			–

Total at December 31, 2011		$ 27			$ 2		$ 998		$ 56			$1,083

The primary investment objectives of the pension plans are to achieve the highest rate of total return within prudent levels of risk and liquidity, to diversify and mitigate potential downside risk associated with the investments, and to provide adequate liquidity for benefit payments and portfolio management.

The company’s U.S. and U.K. pension plans comprise 86 percent of the total pension assets. Both the U.S. and U.K. plans have an Investment Committee that regularly meets during the year to review the asset holdings and their returns. To assess the plans’ investment performance, long-term asset allocation policy benchmarks have been established.

For the primary U.S. pension plan, the Chevron Board of Directors has established the following approved asset allocation ranges: Equities 40–70 percent, Fixed Income and Cash 20–65 percent, Real Estate 0–15 percent, and Other 0–5 percent. For the U.K. pension plan, the U.K. Board of Trustees has established the following asset allocation guidelines, which are reviewed regularly: Equities 60–80 percent and Fixed Income and Cash 20–40 percent. The other significant international pension plans also have established maximum and minimum asset allocation ranges that vary by plan. Actual asset allocation within approved ranges is based on a variety of current economic and market conditions and consideration of specific asset class risk. To mitigate concentration and other risks, assets are invested across multiple asset classes with active investment managers and passive index funds.

The company does not prefund its OPEB obligations.

Cash Contributions and Benefit Payments In 2011, the company contributed $1,147 and $319 to its U.S. and international pension plans, respectively. In 2012, the company expects contributions to be approximately $600 and $300 to its U.S. and international pension plans, respectively. Actual contribution amounts are dependent upon investment returns, changes in pension obligations, regulatory environments and other economic factors. Additional funding may ultimately be required if investment returns are insufficient to offset increases in plan obligations.

The company anticipates paying other postretirement benefits of approximately $223 in 2012, compared with $198 paid in 2011.

The following benefit payments, which include estimated future service, are expected to be paid by the company in the next 10 years:


	Pension Benefits				Other
	U.S.		Int’l.		Benefits

2012	$	1,053	$	268	$	223
2013	$	1,043	$	316	$	229
2014	$	1,046	$	320	$	234
2015	$	1,050	$	344	$	240
2016	$	1,062	$	375	$	245
2017–2021	$	5,261	$	2,153	$	1,287

Employee Savings Investment Plan Eligible employees of Chevron and certain of its subsidiaries participate in the Chevron Employee Savings Investment Plan (ESIP).

Charges to expense for the ESIP represent the company’s contributions to the plan, which are funded either through the purchase of shares of common stock on the open market or through the release of common stock held in the leveraged employee stock ownership plan (LESOP), which is described in the section that follows. Total company matching contributions to employee accounts within the ESIP were $263, $253 and $257 in 2011, 2010 and 2009, respectively. This cost was reduced by the value of shares released from the

LESOP totaling $38, $97 and $184 in 2011, 2010 and 2009, respectively. The remaining amounts, totaling $225, $156 and $73 in 2011, 2010 and 2009, respectively, represent open market purchases.

Employee Stock Ownership Plan Within the Chevron ESIP is an employee stock ownership plan (ESOP). In 1989, Chevron established a LESOP as a constituent part of the ESOP. The LESOP provides partial prefunding of the company’s future commitments to the ESIP.

As permitted by accounting standards for share-based compensation (ASC 718), the debt of the LESOP is recorded as debt, and shares pledged as collateral are reported as “Deferred compensation and benefit plan trust” on the Consolidated Balance Sheet and the Consolidated Statement of Equity.

The company reports compensation expense equal to LESOP debt principal repayments less dividends received and used by the LESOP for debt service. Interest accrued on LESOP debt is recorded as interest expense. Dividends paid on LESOP shares are reflected as a reduction of retained earnings. All LESOP shares are considered outstanding for earnings-per-share computations.

Total credits to expense for the LESOP were $1, $1 and $3 in 2011, 2010 and 2009, respectively. The net credit for the respective years was composed of credits to compensation expense of $5, $6 and $15 and charges to interest expense for LESOP debt of $4, $5 and $12.

Of the dividends paid on the LESOP shares, $18, $46 and $110 were used in 2011, 2010 and 2009, respectively, to service LESOP debt. No contributions were required in 2011, 2010 or 2009, as dividends received by the LESOP were sufficient to satisfy LESOP debt service.

Shares held in the LESOP are released and allocated to the accounts of plan participants based on debt service deemed to be paid in the year in proportion to the total of current-year and remaining debt service. LESOP shares as of December 31, 2011 and 2010, were as follows:


Thousands	2011		2010

Allocated shares		19,047		20,718
Unallocated shares		1,864		2,374

Total LESOP shares		20,911		23,092

Benefit Plan Trusts Prior to its acquisition by Chevron, Texaco established a benefit plan trust for funding obligations under some of its benefit plans. At year-end 2011, the trust contained 14.2 million shares of Chevron treasury stock. The trust will sell the shares or use the dividends from the shares to pay benefits only to the extent that the company does not pay such benefits. The company intends to continue to pay its obligations under the benefit plans. The trustee will vote the shares held in the trust as instructed by the trust’s beneficiaries. The shares held in the trust are not considered outstanding for earnings-per-share purposes until distributed or sold by the trust in payment of benefit obligations.

Prior to its acquisition by Chevron, Unocal established various grantor trusts to fund obligations under some of its benefit plans, including the deferred compensation and supplemental retirement plans. At December 31, 2011 and 2010, trust assets of $51 and $57, respectively, were invested primarily in interest-earning accounts.

Employee Incentive Plans The Chevron Incentive Plan is an annual cash bonus plan for eligible employees that links awards to corporate, unit and individual performance in the prior year. Charges to expense for cash bonuses were $1,217, $766 and $561 in 2011, 2010 and 2009, respectively. Chevron also has the LTIP for officers and other regular salaried employees of the company and its subsidiaries who hold positions of significant responsibility. Awards under the LTIP consist of stock options and other share-based compensation that are described in Note 20, beginning on page FS-48.