Employment Benefit Plans

BNSF provides a funded, noncontributory qualified pension plan, the BNSF Retirement Plan, which covers most non-union employees, and an unfunded non-tax-qualified pension plan, the BNSF Supplemental Retirement Plan, which covers certain officers and other employees. The benefits under these pension plans are based on years of credited service and the highest consecutive sixty months of compensation for the last ten years of salaried employment with BNSF. The Company also provides two funded, noncontributory qualified pension plans which cover certain union employees of the former The Atchison, Topeka and Santa Fe Railway Company. The benefits under these pension plans are based on elections made at the time the plans were implemented. BNSF’s funding policy is to contribute annually not less than the regulatory minimum and not more than the maximum amount deductible for income tax purposes with respect to the funded plans.

Certain salaried employees of BNSF who have met age and years of service requirements are eligible for medical benefits, including prescription drug coverage, during retirement. The postretirement medical and prescription drug benefit is contributory and provides benefits to retirees and their covered dependents. Retiree contributions are adjusted annually. The plan also contains fixed deductibles, coinsurance and out-of-pocket limitations. In addition, a basic life insurance plan is noncontributory and covers retirees only. Optional life insurance coverage is available for some retirees; however, the retiree is responsible for the full cost. BNSF’s policy is to fund the life insurance premiums and medical benefits as they come due. Generally, employees beginning salaried employment with BNSF subsequent to September 22, 1995, are not eligible for medical benefits during retirement. These benefits are collectively referred to as retiree health and welfare benefits.

Plan Amendment

Effective January 1, 2013, Medicare-eligible retirees who are enrolled in the retiree medical program received a contribution to a Health Reimbursement Account, which can be used to reimburse plan participants for health insurance premiums and to pay eligible out-of-pocket medical expenses.

Components of the net cost for certain employee benefit plans were as follows (in millions):



	Pension Benefits
	Successor									Predecessor
	Year Ended			Year Ended			February 13 - December 31, 2010			January 1 - February 12, 2010
	December 31, 2012			December 31, 2011			February 13 - December 31, 2010			January 1 - February 12, 2010
Service cost	$	39		$	32		$	28		$	3
Interest cost	100			102			95			12
Expected return on plan assets	(118		)	(120		)	(108		)	(14		)
Amortization of net loss	10			—			—			4
Settlements	—			1			—			—
Net cost recognized	$	31		$	15		$	15		$	5



	Retiree Health and Welfare Benefits
	Successor						Predecessor
	Year Ended		Year Ended		February 13 - December 31, 2010		January 1 - February 12, 2010
	December 31, 2012		December 31, 2011		February 13 - December 31, 2010		January 1 - February 12, 2010
Service cost	$	1	$	1	$	1	$	—
Interest cost	13		14		13		2
Amortization of net loss	1		—		—		—
Net cost recognized	$	15	$	15	$	14	$	2

The projected benefit obligation is the present value of benefit earned to date by plan participants, including the effect of assumed future salary increases and expected healthcare cost trend rate increases. The following table shows the change in projected benefit obligation (in millions):



	Pension Benefits
	Successor
	Year Ended			Year Ended
Change in Benefit Obligation	December 31, 2012			December 31, 2011
Projected benefit obligation at beginning of period	$	2,324		$	2,068
Service cost	39			32
Interest cost	100			102
Actuarial loss	212			277
Benefits paid	(141		)	(139		)
Administrative expenses	(1		)	—
Settlements	(16		)	(16		)
Projected benefit obligation at end of period	2,517			2,324
Component representing future salary increases	(130		)	(95		)
Accumulated benefit obligation at end of period	$	2,387		$	2,229



	Retiree Health and Welfare Benefits
	Successor
	Year Ended			Year Ended
Change in Benefit Obligation	December 31, 2012			December 31, 2011
Projected benefit obligation at beginning of period	$	293		$	279
Service cost	1			1
Interest cost	13			14
Plan participants’ contributions	5			6
Actuarial loss	31			17
Plan amendment	(5		)	—
Medicare subsidy	2			4
Benefits paid	(26		)	(28		)
Projected benefit obligation at end of period	$	314		$	293

BNSF’s pension plans had accumulated and projected benefit obligations in excess of plan assets at December 31, 2012 and 2011.

The following tables show the change in plan assets of the plans (in millions):



	Pension Benefits
	Successor
	Year Ended			Year Ended
Change in Plan Assets	December 31, 2012			December 31, 2011
Fair value of plan assets at beginning of period	$	1,817		$	1,828
Actual return on plan assets	302			86
Employer contributions^a	53			58
Benefits paid	(141		)	(139		)
Administrative expenses	(1		)	—
Settlements	(16		)	(16		)
Fair value of plan assets at measurement date	$	2,014		$	1,817

^aOther than contributions to the qualified pension plan, employer contributions were classified as Other, Net under Operating Activities in the Company’s Consolidated Statements of Cash Flows.



	Retiree Health and Welfare Benefits
	Successor
	Year Ended			Year Ended
Change in Plan Assets	December 31, 2012			December 31, 2011
Fair value of plan assets at beginning of period	$	—		$	—
Employer contributions^a	21			22
Plan participants’ contributions	5			6
Benefits paid	(26		)	(28		)
Fair value of plan assets at measurement date	$	—		$	—

^a Employer contributions were classified as Other, Net under Operating Activities in the Company’s Consolidated Statements of Cash Flows.

The following table shows the funded status, defined as plan assets less the projected benefit obligation (in millions):



	Pension Benefits						Retiree Health and Welfare Benefits
	Successor						Successor
	December 31, 2012			December 31, 2011			December 31, 2012			December 31, 2011
Funded status (plan assets less projected benefit obligations)	$	(503	)	$	(507	)	$	(314	)	$	(293	)

Of the combined pension and retiree health and welfare benefits liability of $817 million and $800 million recognized as of December 31, 2012 and 2011, respectively, $31 million was included in other current liabilities in both the years ended December 31, 2012 and 2011.

Actuarial gains and losses and prior service credits are recognized in the Consolidated Balance Sheets through an adjustment to AOCL. The following table shows the pre-tax change in AOCL attributable to the components of the net cost and the change in benefit obligation (in millions):



	Pension Benefits
	Successor								Predecessor
	Year Ended			Year Ended			February 13 - December 31, 2010		January 1 - February 12, 2010
Change in AOCL	December 31, 2012			December 31, 2011			February 13 - December 31, 2010		January 1 - February 12, 2010
Beginning balance^a	$	311		$	2		$	—	$	792
Amortization of actuarial loss	(10		)	—			—		(3		)
Actuarial loss	29			310			2		—
Settlements	—			(1		)	—		—
Ending balance	$	330		$	311		$	2	$	789

^a Upon application of acquisition method accounting due to the Merger, the Company eliminated the beginning balance in AOCL.



	Retiree Health and Welfare Benefits
	Successor							Predecessor
	Year Ended			Year Ended		February 13 - December 31, 2010		January 1 - February 12, 2010
Change in AOCL	December 31, 2012			December 31, 2011		February 13 - December 31, 2010		January 1 - February 12, 2010
Beginning balance^a	$	35		$	19	$	—	$	19
Amortization of actuarial loss	(1		)	—		—		—
Plan amendment	(5		)	—		—		—
Actuarial loss	31			16		19		—
Ending balance	$	60		$	35	$	19	$	19

^a Upon application of acquisition method accounting due to the Merger, the Company eliminated the beginning balance in AOCL.

Approximately $10 million, net of tax, of the actuarial losses from defined benefit pension plans and approximately $3 million, net of tax, of retiree health and welfare benefit plans in AOCL are required to be amortized into net periodic benefit cost over the next fiscal year. Pre-tax amounts currently recognized in AOCL consist of the following (in millions):



	Pension Benefits						Retiree Health and Welfare Benefits
	Successor						Successor
	2012			2011			2012			2011
Net actuarial loss	$	341		$	312		$	66		$	35
Plan amendment	—			—			(5		)	—
Amortization of net loss	(10		)	—			(1		)	—
Settlements	(1		)	(1		)	—			—
Pre-tax amount recognized in AOCL at December 31,	$	330		$	311		$	60		$	35
After-tax amount recognized in AOCL at December 31,	$	204		$	192		$	37		$	21

The assumptions used in accounting for the BNSF plans were as follows:



	Pension Benefits
	Successor						Predecessor
	Year Ended		Year Ended		February 13 - December 31, 2010		January 1 - February 12, 2010
Assumptions Used to Determine Net Cost	December 31, 2012		December 31, 2011		February 13 - December 31, 2010		January 1 - February 12, 2010
Discount rate	4.50	%	5.25	%	5.75	%	5.75	%
Expected long-term rate of return on plan assets	6.75	%	7.50	%	8.00	%	8.00	%
Rate of compensation increase	3.80	%	3.80	%	3.80	%	3.80	%



	Retiree Health and Welfare Benefits
	Successor						Predecessor
	Year Ended		Year Ended		February 13 - December 31, 2010		January 1 - February 12, 2010
Assumptions Used to Determine Net Cost	December 31, 2012		December 31, 2011		February 13 - December 31, 2010		January 1 - February 12, 2010
Discount rate	4.50	%	5.25	%	5.75	%	5.75	%
Rate of compensation increase	3.80	%	3.80	%	3.80	%	3.80	%



	Pension Benefits				Retiree Health and Welfare Benefits
	Successor				Successor
Assumptions Used to Determine Benefit Obligations	December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
Discount rate	3.75	%	4.50	%	3.75	%	4.50	%
Rate of compensation increase	3.80	%	3.80	%	3.80	%	3.80	%

BNSF determined the discount rate based on a yield curve that utilizes year-end market yields of high-quality corporate bonds whose maturities match expected payments. The discount rate used for the 2013 calculation of net benefit cost decreased to 3.75 percent which reflects market conditions at the December 31, 2012, measurement date.

Pension plan assets are generally invested with the long-term objective of earning sufficient amounts to cover expected benefit obligations, while assuming a prudent level of risk. Allocations may change as a result of changing market conditions and investment opportunities. The expected rates of return on plan assets reflect subjective assessments of expected invested asset returns over a period of several years. Generally, past investment returns are not given significant consideration when establishing assumptions for expected long-term rates of returns on plan assets. Actual experience will differ from the assumed rates. The expected rate of return on plan assets was 6.75 percent for 2012 and will be 6.75 percent for 2013. During 2012, BNSF changed the investment management of the BNSF Retirement Plan to an affiliated company.

The following table is an estimate of the impact on future net benefit cost that could result from hypothetical changes to the most sensitive assumptions, the discount rate and rate of return on plan assets:



Sensitivity Analysis
	Change in Net Benefit Cost
Hypothetical Discount Rate Change	Pension				Retiree Health and Welfare
50 basis point decrease	$	11	million	increase	$	1	million	increase
50 basis point increase	$	9	million	decrease	$	1	million	decrease
Hypothetical Rate of Return on Plan Assets Change	Pension
50 basis point decrease	$	9	million	increase
50 basis point increase	$	9	million	decrease

The following table presents assumed health care cost trend rates:



	Successor						Predecessor
	Year Ended		Year Ended		February 13 - December 31, 2010		January 1 - February 12, 2010
	December 31, 2012		December 31, 2011		February 13 - December 31, 2010		January 1 - February 12, 2010
Assumed health care cost trend rate for next year (participants under 65)	8.40	%	8.70	%	9.00	%	9.00	%
Assumed health care cost trend rate for next year (participants over 65)^a	3.00	%	8.70	%	9.00	%	9.00	%
Rate to which health care cost trend rate is expected to decline and remain^b	4.50	%	4.50	%	4.80	%	5.00	%
Year that the rate reaches the ultimate trend rate^b	2028		2028		2022		2016

^a See section heading "Plan Amendment" for a description of changes to this program.

^b For the year ended December 31, 2012, the ultimate trend rate only applies to participants under 65.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects (in millions):



	One Percentage- Point Increase		One Percentage- Point Decrease
Effect on total service and interest cost	$	1	$	(1	)
Effect on postretirement benefit obligation	$	24	$	(20	)

Investments are stated at fair value. The various types of investments are valued as follows:

(i) Equity securities are valued at the last trade price at primary exchange close time on the last business day of the year (Level 1 input). If the last trade price is not available, values are based on bid, ask/offer quotes from contracted pricing vendors, brokers, or investment managers (Level 3 input or Level 2 if corroborated).

(ii) Corporate debt securities, government debt securities, and collateralized obligations and mortgage backed securities are valued based on institutional bid evaluations from contracted vendors. Where available, vendors use observable market-based data to evaluate prices (Level 2 input). This also applies to U.S. Treasury securities included in cash and cash equivalents. If observable market-based data is not available, unobservable inputs such as extrapolated data, proprietary models, and indicative quotes are used to arrive at estimated prices representing the price a dealer would pay for the security (Level 3 input).

(iii) Shares of real estate commingled funds are valued at the quarterly net asset value of units held at year end. Net asset value is based on significant unobservable inputs such as discount rates, capitalization rates and cash flows (Level 3 input).

(iv) Registered investment companies and common/collective trusts are valued at the daily net asset value of shares held at year end. Net asset value is considered a Level 1 input if net asset value is computed daily and redemptions at this value are available to all shareholders without restriction. Net asset value is considered a Level 2 input if the fund may restrict share redemptions under limited circumstances or if net asset value is not computed daily. Net asset value is considered a Level 3 input if shares could not be redeemed on the reporting date and net asset value can not be corroborated by trading activity.

The following table summarizes the investments of BNSF’s funded pension plans as of December 31, 2012 (Successor), based on the inputs used to value them (in millions):



	Total as of
Asset Category	December 31, 2012		Level 1 Inputs ^a		Level 2 Inputs ^a		Level 3 Inputs ^a
U.S. equity securities^b	$	1,364	$	1,364	$	—	$	—
Corporate debt securities	13		—		13		—
Registered investment companies	54		54		—		—
U.S. government debt securities	13		—		13		—
Real estate	32		—		—		32
Collateralized obligations and mortgage backed securities (MBS)	1		—		1		—
Cash and cash equivalents	536		—		536		—
Total^c	$	2,013	$	1,418	$	563	$	32

^aSee Note 2 to the Consolidated Financial Statements under the heading “Fair Value Measurements” for a definition of each of these levels of inputs.

^bAs of December 31, 2012, three U.S. equity securities each exceeded 10 percent of total plan assets. These investments represent approximately 45 percent of total plan assets.

^c Excludes $1 million accrued for dividend and interest receivable.

The table below sets forth a summary of changes in the fair value of Level 3 assets held by BNSF's funded pension plans for the year ended December 31, 2012 (Successor) (in millions):



Level 3 Inputs	Total			U.S. Government Debt Securities			Real Estate
Balance as of December 31, 2011	$	130		$	1		$	129
Actual return on plan assets:
Relating to assets still held at reporting date	1			—			1
Relating to assets sold during the period	3			—			3
Purchases, sales and settlements	(102		)	(1		)	(101		)
Balance as of December 31, 2012	$	32		$	—		$	32

Comparative Prior Year Information

The following table summarizes the investments of BNSF’s funded pension plans as of December 31, 2011 (Successor), based on the inputs used to value them (in millions):



	Total as of
Asset Category	December 31, 2011		Level 1 Inputs ^a		Level 2 Inputs^a		Level 3 Inputs ^a
Equity securities:
U.S.	$	546	$	546	$	—	$	—
International	298		298		—		—
Corporate debt securities	411		—		411		—
Registered investment companies	95		95		—		—
Government debt securities:
U.S.	151		—		150		1
International	12		—		12		—
Real estate	129		—		—		129
Common/collective trust	107		—		107		—
Collateralized obligations and mortgage backed securities (MBS)	32		—		32		—
Cash and cash equivalents	26		11		15		—
Total ^b	$	1,807	$	950	$	727	$	130

^a See Note 2 to the Consolidated Financial Statements under the heading “Fair Value Measurements” for a definition of each of these levels of inputs.

^b Excludes $10 million accrued for dividend and interest receivable.

The table below sets forth a summary of changes in the fair value of Level 3 assets held by BNSF’s funded pension plans for the year ended December 31, 2011 (Successor) (in millions):



Level 3 Inputs	Total			U.S. Government Debt Securities		Real Estate		Collateralized Obligations & MBS
Balance as of December 31, 2010	$	120		$	1	$	116	$	3
Actual return on plan assets:
Relating to assets still held at reporting date	13			—		13		—
Purchases, sales and settlements	(1		)	—		—		(1		)
Transfers out of Level 3	(2		)	—		—		(2		)
Balance as of December 31, 2011	$	130		$	1	$	129	$	—

The Company is not required to make contributions to the BNSF Retirement Plan in 2013. The Company is required to make contributions of $9 million to its other funded pension plans. The Company expects to make benefit payments in 2013 of $7 million from its unfunded non-qualified pension plan.

The following table shows expected benefit payments from its defined benefit pension plans and expected claim payments for the retiree health and welfare plan for the next five fiscal years and the aggregate five years thereafter (in millions):



Fiscal year	Expected Pension Plan Benefit Payments		^a	Expected Retiree Health and Welfare Payments
2013	$	162		$	25
2014	$	156		$	24
2015	$	157		$	24
2016	$	157		$	23
2017	$	155		$	22
2018–2022	$	736		$	101

^aPrimarily consists of the BNSF Retirement Plan payments, which are made from the plan trust and do not represent an immediate cash outflow to the Company.

Defined Contribution Plans

BNSF sponsors qualified 401(k) plans that cover substantially all employees and a non-qualified defined contribution plan that covers certain officers and other employees. BNSF matches 50 percent of the first six percent of non-union employees’ contributions and matches 25 percent on the first four percent of a limited number of union employees’ contributions, which are subject to certain percentage limits of the employees’ earnings, at each pay period. Non-union employees are eligible to receive an annual discretionary matching contribution of up to 30 percent of the first six percent of their contributions. Employer contributions are subject to a five-year length of service vesting schedule. BNSF’s 401(k) matching expense was $32 million, $31 million, $25 million and $3 million during the year ended December 31, 2012 (Successor), the year ended December 31, 2011 (Successor), the period February 13 – December 31, 2010 (Successor) and the period January 1 – February 12, 2010 (Predecessor), respectively.

Other

Under collective bargaining agreements, BNSF participates in multi-employer benefit plans that provide certain postretirement health care and life insurance benefits for eligible union employees. Insurance premiums paid attributable to retirees, which are generally expensed as incurred, were $71 million, $73 million, $55 million and $8 million during the year ended December 31, 2012 (Successor), the year ended December 31, 2011 (Successor), the period February 13 - December 31, 2010 (Successor) and the period January 1 - February 12, 2010 (Predecessor), respectively. The average number of employees covered under these plans were 36 thousand, 35 thousand, 33 thousand and 31 thousand during the year ended December 31, 2012 (Successor), the year ended December 31, 2011 (Successor), the period February 13 - December 31, 2010 (Successor) and the period January 1 - February 12, 2010 (Predecessor), respectively.