NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

Defined Benefit Plans

Description of Plans

The Company sponsors several defined benefit pension plans covering U.S. salaried employees and certain foreign and other employee groups. These plans provide retirement benefits based primarily on employee compensation and years of service. Plan assets consist primarily of equity investments and fixed income securities. The Company also sponsors defined benefit plans that provide postretirement health and life insurance benefits for eligible U.S. employees who have attained specific age and service levels. The health benefits are funded by the Company as the costs of those benefits are incurred. The plan design includes cost-sharing features such as deductibles and coinsurance. The life insurance benefits are funded with deposits to a reserve account held by an insurance company. The Company has the right to amend or discontinue its pension and other postretirement benefit plans at any time.

Effective March 31, 2009, the Company adopted the measurement timing provisions of SFAS 158 (now part of Topic 715 of the FASB Accounting Standards Codification), which require that the funded status of defined benefit plans be measured as of the balance sheet date. Previously, companies were allowed to measure funded status up to three months before the balance sheet date. As a result of adopting the new measurement timing provisions, the Company changed its annual measurement date from December 31 to March 31. As required by the guidance, the benefit expense related to the intervening three-month transition period, which totaled $2.3 million before income taxes and $1.5 million after tax, was recorded as a direct adjustment to retained earnings.

In the following disclosures, the term "accumulated benefit obligation" ("ABO") represents the actuarial present value of estimated future benefit payments earned by participants in the Company's defined benefit pension plans as of the balance sheet date without regard to the estimated effect of future compensation increases on those benefits. The term does not apply to other postretirement benefits. "Projected benefit obligation" refers to the projected benefit obligation ("PBO") for pension benefits and the accumulated postretirement benefit obligation ("APBO") for other postretirement benefits. These amounts represent the actuarial present value of estimated future benefit payments earned by participants in the benefit plans as of the balance sheet date. For pension benefits, the projected benefit obligation includes the estimated effect of future compensation increases on those benefits.

Actuarial Assumptions

Assumptions used for financial reporting purposes to compute net periodic benefit cost and benefit obligations were as follows:

	Pension Benefits									Other Postretirement Benefits
	2011			2010			2009			2011			2010			2009
Discount rates:
Benefit cost for plan year		6.00	%		7.75	%		6.00	%		6.00	%		7.75	%		6.00	%
Benefit obligation at end of plan year		5.50	%		6.00	%		7.75	%		5.50	%		6.00	%		7.75	%
Expected long-term return on plan assets:
Benefit cost for plan year		8.00	%		7.75	%		7.75	%		4.30	%		4.30	%		4.30	%
Benefit obligation at end of plan year		8.00	%		8.00	%		7.75	%		4.30	%		4.30	%		4.30	%
Salary scale		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%
Healthcare cost trend rate		N/A			N/A			N/A			8.00	%		8.30	%		8.50	%

The discount rate used to calculate the benefit obligation at March 31, 2009, reflected market volatility and a temporary expansion of credit spreads on corporate bonds that returned to more normal levels after that measurement date. The increase in the expected long-term return on plan assets at March 31, 2010, reflected changes made to the Company's investment allocation during fiscal year 2010. The healthcare cost trend rate used by the Company is based on a recent study of medical cost inflation rates. The revised trend assumption of 8.00% in 2011 declines gradually to 4.50% in 2028.

Benefit Obligations, Plan Assets, and Funded Status

The following table reflects the changes in benefit obligations and plan assets in 2011 and 2010, and the funded status of the plans at March 31, 2011 and 2010:

	Pension Benefits						Other Postretirement Benefits
	March 31,						March 31,
	2011			2010			2011			2010
Actuarial present value of benefit obligation:
Accumulated benefit obligation	$	236,701		$	213,646		$	—		$	—
Projected benefit obligation		262,085			243,760			43,888			43,429

Change in projected benefit obligation:
Projected benefit obligation, beginning of year	$	243,760		$	199,907		$	43,429		$	38,420
Service cost		4,835			3,815			787			581
Interest cost		14,168			14,899			2,534			2,789
Effect of discount rate change		15,174			48,324			2,245			7,870
Foreign currency exchange rate changes		1,626			2,983			—			—
Curtailment		966			—			—			—
Settlements		(8,483	)		(2,498	)		—			—
Other		5,411			(6,718	)		(1,222	)		(2,271	)
Benefit payments		(15,372	)		(16,952	)		(3,885	)		(3,960	)
Projected benefit obligation, end of year	$	262,085		$	243,760		$	43,888		$	43,429

Change in plan assets:
Plan assets at fair value, beginning of year	$	182,792		$	132,080		$	3,499		$	3,687
Actual return on plan assets		26,077			47,553			238			197
Employer contributions		9,211			20,674			3,432			3,575
Settlements		(8,483	)		(2,498	)		—			—
Foreign currency exchange rate changes		1,490			1,935			—			—
Benefit payments		(15,372	)		(16,952	)		(3,885	)		(3,960	)
Plan assets at fair value, end of year	$	195,715		$	182,792		$	3,284		$	3,499

Funded status:
Funded status of the plans, end of year	$	(66,370	)	$	(60,968	)	$	(40,604	)	$	(39,930	)

The funded status of the Company's plans at the end of fiscal years 2011 and 2010 was reported in the consolidated balance sheets as follows:

	Pension Benefits						Other Postretirement Benefits
	March 31,						March 31,
	2011			2010			2011			2010

Non-current asset (reported in other noncurrent assets)	$	1,493		$	1,444		$	—		$	—
Current liability (included in accounts payable and accrued expenses)		(2,098	)		(2,023	)		(3,511	)		(3,431	)
Non-current liability (reported as pensions and other postretirement benefits)		(65,765	)		(60,389	)		(37,093	)		(36,499	)
Amounts recognized in the consolidated balance sheets	$	(66,370	)	$	(60,968	)	$	(40,604	)	$	(39,930	)

Additional information on the funded status of the Company's plans as of the respective measurement dates for the fiscal years ended March 31, 2011 and 2010, is as follows:

	Pension Benefits				Other Postretirement Benefits
	March 31,				March 31,
	2011		2010		2011		2010
For plans with a projected benefit obligation in excess of plan assets:
Aggregate projected benefit obligation	$	257,240	$	240,741	$	43,889	$	43,429
Aggregate fair value of plan assets		189,378		178,329		3,284		3,499
For plans with an accumulated benefit obligation in excess of plan assets:
Aggregate accumulated benefit obligation		232,342		207,507		N/A		N/A
Aggregate fair value of plan assets		189,378		174,192		N/A		N/A

Net Periodic Benefit Cost

The components of the Company's net periodic benefit cost were as follows:

	Pension Benefits									Other Postretirement Benefits
	2011			2010			2009			2011			2010			2009
Components of net periodic benefit cost:
Service cost	$	4,835		$	3,815		$	4,724		$	787		$	581		$	787
Interest cost		14,168			14,899			13,594			2,534			2,789			2,790
Expected return on plan assets		(14,938	)		(13,687	)		(13,380	)		(144	)		(152	)		(157	)
Curtailment loss		966			—			800			—			—			—
Settlement cost		3,119			4,640			5,449			—			—			—
Net amortization and deferral		3,937			1,387			2,245			(253	)		(1,083	)		(48	)
Net periodic benefit cost	$	12,087		$	11,054		$	13,432		$	2,924		$	2,135		$	3,372

A one-percentage-point increase in the assumed healthcare cost trend rate would increase the March 31, 2011, accumulated postretirement benefit obligation by approximately $1.4 million, while a one-percentage-point decrease would reduce the accumulated benefit obligation by approximately $1.2 million. The aggregate service and interest cost components of the net periodic postretirement benefit expense for fiscal year 2012 would not change by a significant amount as a result of a one-percentage-point increase or decrease in the assumed healthcare cost trend rate.

Amounts Included in Accumulated Other Comprehensive Loss

The amounts recognized in other comprehensive income or loss for fiscal years 2011 and 2010 and the amounts included in accumulated other comprehensive loss at the end of those fiscal years are shown below. Reclassification adjustments represent amounts included in accumulated other comprehensive loss at the beginning of the year that were recognized in net periodic benefit cost during the year. All amounts shown are before allocated income taxes.

	Pension Benefits						Other Postretirement Benefits
	March 31,						March 31,
	2011			2010			2011			2010
Change in net actuarial loss (gain):
Net actuarial loss (gain), beginning of year	$	73,301		$	70,912		$	(7,452	)	$	(13,665	)
Losses (gains) arising during the year		5,996			3,890			478			5,169
Reclassification adjustments during the year		(4,159	)		(1,501	)		252			1,044
Net actuarial loss, end of year		75,138			73,301			(6,722	)		(7,452	)

Change in prior service cost (benefit):
Prior service cost (benefit), beginning of year		(3,145	)		(3,400	)		—			(38	)
Reclassification adjustments during the year		(248	)		255			—			38
Prior service cost (benefit), end of year		(3,393	)		(3,145	)		—			—

Total amounts in accumulated other comprehensive loss at end of year, before income taxes	$	71,745		$	70,156		$	(6,722	)	$	(7,452	)

Amounts in the above table reflect the Company and its consolidated subsidiaries. The accumulated other comprehensive loss reported in the consolidated balance sheets also includes pension and other postretirement benefit adjustments related to ownership interests in unconsolidated affiliates. The Company expects to recognize approximately $5.9 million of the March 31, 2011 net actuarial loss and $0.3 million of the March 31, 2011 prior service benefit in net periodic benefit cost during fiscal year 2012.

Allocation of Pension Plan Assets

The Pension Investment Committee of the Board of Directors (the "Committee") oversees the investment of funds for the Company's U.S. ERISA-regulated defined benefit pension plans, which represents 91% of total plan assets and 81% of total PBO. The Committee has established, and periodically adjusts, target asset allocations for those investments to reflect a balance of the needs for liquidity, total return, and risk control. The assets are required to be diversified across asset classes and investment styles to achieve that balance. During the year, the asset allocation is reviewed for adherence to the target policy and rebalanced to the targeted weights.

The Committee, with the help of a consultant, reviews the expected long-term returns of the asset allocation each year to help determine whether changes are needed. The return is evaluated on a weighted average basis in relation to inflation. The assumed long-term rate of return used to calculate annual benefit expense is based on the asset allocation and expected market returns for those asset classes.

The weighted–average target pension asset allocation and target ranges at the March 31, 2011, measurement date and the actual asset allocations at the March 31, 2011 and March 31, 2010, measurement dates by major asset category were as follows:

					Actual Allocation
	Target				March 31,
Major Asset Category	Allocation			Range	2011			2010

Domestic equity securities		44.0	%	37% - 51%		45.6	%		53.7	%
International equity securities		13.0	%	10% - 16%		13.6	%		14.5	%
Fixed income securities (1)		33.0	%	26% - 40%		31.2	%		31.8	%
Alternative investments:
Real estate funds		5.0	%	3% - 7%		4.7	%		—
Hedge funds		5.0	%	3% - 7%		4.9	%		—
Total		100.0	%			100.0	%		100.0	%

(1) Actual amounts include high yield securities and cash balances held for the payment of benefits.

With the assistance of a consultant, the Committee selects investment managers to invest the funds within its guidelines. To provide for diversification, equity fund managers are limited in the level of investment in any single security, and limits are placed on the minimum size of the issuer of the security. There is no allocation to Universal Corporation equity. One fixed income manager must invest in U.S. dollar-denominated bonds, excluding U.S. Treasury bonds, with limitations on the amounts that may be invested in any single issuer. The minimum credit rating of issuers is BBB, and limits are placed on the amount that can be invested in issuers rated at that level. The other fixed income manager invests in high yield bonds for which credit ratings are lower. In addition, certain speculative transactions are prohibited in either equity or fixed income management, as appropriate. These prohibitions include margin buying, short selling, and transactions in lettered or restricted stock, puts, and straddles. Managers are evaluated based on their adherence to the policies and their ability to exceed certain standards for returns while limiting the amount of risk over three- to five- year periods. For commingled funds, the Committee reviews the fund manager's policies to ensure that they are consistent with fund guidelines or otherwise appropriate for the asset class.

Universal makes regular contributions to its pension and other postretirement benefit plans. As previously noted, for postretirement health benefits, contributions reflect funding of those benefits as they are incurred. The Company provided additional contributions to its U.S. pension plans in fiscal years 2009 and 2010. With the regular and additional contributions and an increase in plan asset values during fiscal years 2010 and 2011, the Company believes that it is in full compliance with all funding requirements of the Pension Protection Act of 2006. The Company expects to make contributions of approximately $9.6 million to its pension plans in fiscal year 2012.

Estimated future benefit payments to be made from the Company's plans are as follows:

Fiscal Year:	Pension Benefits		Other Postretirement Benefits
2012	$	20,838	$	3,511
2013		14,784		3,597
2014		15,446		3,584
2015		16,201		3,533
2016		14,853		3,468
2017 - 2021		99,558		17,030

Fair Values of Pension Plan Assets

Assets held by the Company's defined benefit pension plans primarily consist of domestic and international equity securities, fixed income securities, and alternative investments. Domestic and international equities include common stock, as well as commingled funds and common collective trusts. The methodologies for determining the fair values of the plan assets are outlined below. Where the values are based on quoted prices for the securities in an active market, they are classified as Level 1 of the fair value hierarchy. Where secondary pricing sources are used, they are classified as Level 2 of the hierarchy. Pricing models that use significant unobservable inputs are classified as Level 3.

Domestic and international equity securities:

Common stock: Shares of common stock are valued at the unadjusted official closing price as defined by the most active market, or at the most recent trade price of the security at the close of the active market. Secondary pricing sources are used when one of these primary sources is not available. Instances requiring secondary pricing sources are reviewed for evidence of inactive, delisted, bankrupt, or suspended equities.

Commingled funds and common collective trusts: These assets are valued at the net asset value of shares held at the valuation date, based on the quoted market prices of the underlying assets of the funds or trusts. The investments are valued using the Net Asset Value of the fund or trust as a practical expedient for fair market value. These investment vehicles hold equity securities and cash.

Fixed income securities: Some fixed income investments are held through mutual funds for which an active market is available (Level 1). Other fixed income investments are valued at an estimated price that a dealer would pay for a similar security on the valuation date using observable market inputs (Level 2). These measures may include yield curves for similarly rated securities. Small amounts of cash are held in common collective trusts. Fixed income securities include insurance assets, which are valued based on an actuarial calculation (Level 3).

Alternative investments: Real estate assets are valued using valuation models that incorporate income and market approaches, including external appraisals, to derive fair values. The hedge fund allocation is a fund of hedge funds and is valued by the manager based on the net asset value of each fund. These models use significant unobservable inputs and are classified as Level 3 within the fair value hierarchy.

Fair values of the assets of the Company's pension plans as of March 31, 2011 and 2010, classified based on how their values were determined under the fair value hierarchy are as follows:

	March 31, 2011
	Level 1		Level 2		Level 3		Total
Domestic equity securities	$	27,300	$	52,768	$	—	$	80,068
International equity securities		23,925		—		—		23,925
Fixed income securities (1)		16,974		52,425		5,362		74,761
Alternative investments:
Real estate fund		—		—		8,338		8,338
Hedge fund		—		—		8,623		8,623
Total investments	$	68,199	$	105,193	$	22,323	$	195,715

	March 31, 2010
	Level 1		Level 2		Level 3		Total
Domestic equity securities	$	29,368	$	57,647	$	—	$	87,015
International equity securities		23,452		14,748		—		38,200
Fixed income securities (1)		13,410		44,167		—		57,577
Total investments	$	66,230	$	116,562	$	—	$	182,792

(1) Includes high yield securities and cash and cash equivalent balances.

The Company added a real estate fund investment and a hedge fund investment during fiscal year 2011.

Other Benefit Plans

Universal and several U.S. subsidiaries offer an employer-matched defined contribution savings plan. Amounts charged to expense for these plans were approximately $1.3 million for fiscal year 2011, $1.4 million for fiscal year 2010, and $1.4 million for fiscal year 2009.