PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

We sponsor several retirement programs for our employees.

This note provides details about:


•	types of plans we sponsor,


•	significant transactions and events affecting plans we sponsor,


•	funded status of plans we sponsor,


•	pension assets,


•	activity of plans we sponsor and


•	actuarial assumptions.

TYPES OF PLANS WE SPONSOR

The plans we sponsor in the U.S. and Canada differ according to each country’s requirements.

In the U.S., our pension plans are:


•	qualified — plans that qualify under the Internal Revenue Code; and


•	nonqualified — plans for select employees that provide additional benefits not qualified under the Internal Revenue Code.

In Canada, our pension plans are:


•	registered — plans that are registered under the Income Tax Act and applicable provincial pension acts; and


•	nonregistered — plans for select employees that provide additional benefits that may not be registered under the Income Tax Act or provincial pension acts.

We also offer retiree medical and life insurance plans in the U.S. and Canada. These plans are referred to as other postretirement benefit plans in the following disclosures.

Employee Eligibility and Accounting

The Pension and Other Postretirement Benefit Plans section of Note 1: Summary of Significant Accounting Policies provides information about employee eligibility for pension plans and postretirement health care and life insurance benefits, as well as how we account for the plans and benefits. See "Effects of Significant Transactions and Events" below for changes to eligibility in the pension and other postretirement benefit plans.

Measurement Date

We measure the fair value of pension plan assets and pension and other postretirement benefit obligations as of the end of our fiscal year. The fair value of pension plan assets are estimated at the end of the year and are revised in the first half of the following year when the information needed to finalize fair values is received.

EFFECTS OF SIGNIFICANT TRANSACTIONS AND EVENTS

The information that is provided in this footnote is affected by the following transactions and events.

Amendments of Pension and Other Postretirement Benefit Plans for Salaried Employees

Pension Benefit Plan Amendments

During fourth quarter 2011, we ratified an amendment to the Weyerhaeuser Pension Plan that eliminated the Retiree Medical Enhancement for active employees effective July 1, 2012. This change reduced the Plan's projected benefit obligation by $16 million. This change was announced to affected participants during January 2012.

Effective December 31, 2010, the Weyerhaeuser Company Retirement Plan for Hourly Rated Employees was merged into the Weyerhaeuser Company Retirement Plan for Salaried Employees resulting in the Weyerhaeuser Pension Plan. There were no changes to the provisions as a result of the plan merger.

During third quarter 2009, we announced changes to the Weyerhaeuser Company Retirement Plan for Salaried Employees for service earned on and after January 1, 2010. The changes included a reduced pension benefit, changes in how benefits payable before age 65 are determined and a change from a single lump sum optional form of payment to an option for seven equal annual installments. There were no changes in the plan’s projected benefit obligation (PBO) for the 2009 plan year as a result of these changes. However, there was a change to the plan’s minimum benefit, which increased for all years of service including those earned prior to January 1, 2010. This change did not have a significant effect on the plan’s PBO, but the change was reflected in the PBO at December 31, 2009 and prior service cost was established as of December 31, 2009. All of the changes affected net periodic pension benefit credits (costs) and required funding beginning in 2010.

Postretirement Medical and Life Insurance Benefit Plan Amendments

During fourth quarter 2011, we ratified amendments to our postretirement medical and life insurance benefit plans for U.S. salaried employees that reduced or eliminated certain medical and life insurance benefits that were available to both past and present employees. The changes included the elimination of the Pre-Medicare Plan II company subsidy for those not enrolled as of July 1, 2012, and eliminated the Post-Medicare Health Reimbursement Account (HRA) for those not enrolled or Medicare eligible, if enrolled, as of July 1, 2012. These changes resulted in a $108 million reduction in the company's postretirement liability as of December 31, 2011. These changes were announced to affected participants during January 2012.

During third quarter 2010, we made changes to our postretirement medical plan for certain retirees in the U.S. Specifically, Medicare eligible retirees will be covered by a Health Reimbursement Account (HRA) as of January 1, 2011. The HRA will allow these retirees to purchase coverage through a healthcare exchange, and will provide additional options for coverage. As a result of this plan change, the company will not be receiving a Medicare Part D subsidy for plan years beginning on or after January 1, 2011. The loss of Medicare Part D subsidy is considered in the calculation of the net prior service credit of $3 million resulting from the plan change. This amount will be amortized into the net periodic benefit costs (credits) over the life expectancy of the affected plan participants.

During third quarter 2009, amendments were approved for our postretirement medical and life insurance benefits for certain retirees and employees covered by plans in Canada. The changes to the Canadian plans included a decrease in the amounts paid for postretirement medical and life insurance for certain retirees and employees. As a result of the plan changes, the plans’ liabilities were re-measured at August 31, 2009. The remeasurement and the annual remeasurement at January 1, 2009 reduced the unrecognized gain by $19 million. The plan changes also generated an unrecognized prior service credit of $97 million which will be amortized into net periodic benefit costs (credits) over the remaining future service years of plan members.

During fourth quarter 2009, an amendment was approved for our postretirement life insurance benefit for certain U.S. salaried retirees. The change eliminated the life insurance benefit for certain salaried retirees effective January 1, 2010. The plan’s liabilities were re-measured at November 30, 2009. This remeasurement and the annual remeasurement at January 1, 2009 increased the unrecognized loss by $6 million. This change resulted in a $16 million prior service credit, which was fully recognized in 2009.

Restructuring Activities

The information that is provided in this footnote is affected by restructuring activities that occurred in 2011, 2010 and 2009.

2011 Restructuring

The 2011 curtailments and special termination benefits are related to involuntary terminations due to company-wide restructuring activities, and the sale of our hardwoods and Westwood Shipping Lines operations. The total curtailment charge for U.S. pension plans was $9 million. In addition, we recognized a $3 million settlement charge for a Canadian pension plan in fourth quarter 2011. There were no curtailment charges or credits to the U.S. or Canadian postretirement plans.

Termination benefits were provided under the pension plan in the U.S. for those terminated employees who were not yet eligible to retire but whose age plus service was at least 65 and had at least ten years of service (Rule of 65). Special termination charges were $6 million.

2010 Restructuring

The 2010 curtailments and special termination benefits are related to involuntary terminations due to company-wide restructuring activities, the closure of Wood Products facilities and the sale of five short line railroads. The total curtailment charge for U.S. pension plans was $5 million. There were no curtailment charges or credits to the Canadian pension plans, or the U.S. or Canadian postretirement plans.

2009 Restructuring

The cumulative lump sum distributions for the year triggered two settlements in the U.S. Settlement charges of $60 million and $16 million were recognized in third and fourth quarter 2009, respectively.

The 2009 curtailments and special termination benefits were related to involuntary terminations due to company-wide restructuring activities and the closure of Wood Products facilities. The total curtailment charge for the U.S. and Canadian pension plans was $22 million. The net curtailment credit to the Canadian postretirement benefit plans was less than $1 million. There were no curtailment charges or credits to the U.S. postretirement plans.

Termination benefits were available under both the pension and postretirement benefit plans in the U.S. and Canada, for those terminated employees who were not yet eligible to retire but whose age plus service was at least 65 and had at least ten years of service (Rule of 65). Special termination charges were $14 million and $9 million for the pension and postretirement benefit plans, respectively.

Midyear Remeasurement of Assets and Liabilities

Our pension and other postretirement benefit plans are only remeasured at fiscal year-end unless a significant event occurs that requires remeasurement of the assets or liabilities at an interim date. There were no significant events that triggered remeasurement in 2011 and 2010.

During 2009, the following events required interim remeasurements:


•	The amendment to the other postretirement benefit plans for certain retirees in the U.S. required remeasurement of the plans’ liabilities as of November 30, 2009.


•	The amendment to the other postretirement benefit plans for certain retirees and employees in Canada required remeasurement of the plans’ liabilities as of August 31, 2009.


•	The volume of lump sum distributions from our U.S. qualified pension plan for salaried employees required remeasurement of the plan’s assets and liabilities as of August 31, 2009, the date the settlement was triggered.

The discount rate used to remeasure the plans’ liabilities is reflective of current bond rates on the remeasurement date. As a result of the midyear remeasurements, multiple discount rates were used in estimating our net periodic benefit cost (credit) for 2009. These rates are discussed further in the Actuarial Assumptions portion of this footnote.

Receivable From Pension Trust

During 2009 and 2008, there was a high volume of lump sum distributions from our U.S. qualified pension plans. Retirement-eligible employees whose employment with the company terminated in connection with the sale of our Containerboard, Packaging and Recycling business or corporate restructuring activities could elect to receive their pension benefit as a lump sum distribution if permitted in accordance with the plans’ provisions. In addition, market events in late 2008 and early 2009 adversely affected liquidity. For instance, many of the funds in which plan assets are invested changed their redemption terms which delayed some of the pension trusts’ cash receipts. To avoid liquidating assets at depressed prices and, as permitted by law, we elected to provide $285 million of short-term liquidity to the U.S. pension trust through short-term loans. These short-term loans were made in 2008 and first quarter 2009. The pension trust repaid $139 million in fourth quarter 2009 and the remaining $146 million in 2010.

FUNDED STATUS OF PLANS WE SPONSOR

The funded status of the plans we sponsor is determined by comparing the projected benefit obligation with the fair value of plan assets at the end of the year.

Changes in Projected Benefit Obligations of Our Pension and Other Postretirement Benefit Plans



DOLLAR AMOUNTS IN MILLIONS
	PENSION						OTHER POSTRETIREMENT BENEFITS
	2011			2010			2011			2010
Reconciliation of projected benefit obligation:
Projected benefit obligation beginning of year	$	5,267		$	4,759		$	496		$	591
Service cost	48			44			2			2
Interest cost	276			278			24			24
Plan participants’ contributions	—			—			19			26
Actuarial (gains) losses	611			458			29			(78		)
Foreign currency exchange rate changes	(15		)	44			(1		)	4
Benefits paid (includes lump sum settlements)	(338		)	(332		)	(59		)	(73		)
Plan amendments	(14		)	9			(108		)	(3		)
Special termination benefits	6			5			—			—
Plan assumptions in connection with an acquisition	—			2			—			3
Projected benefit obligation at end of year	$	5,841		$	5,267		$	402		$	496

Changes in Fair Value of Plan Assets



DOLLAR AMOUNTS IN MILLIONS
	PENSION						OTHER POSTRETIREMENT BENEFITS
	2011			2010			2011			2010
Fair value of plan assets at beginning of year (estimated)	$	4,773		$	4,159		$	—		$	—
Adjustment for final fair value of plan assets	138			166			—			—
Actual return on plan assets	49			515			—			—
Foreign currency exchange rate changes	(11		)	32			—			—
Employer contributions	103			233			40			47
Plan participants’ contributions	—			—			19			26
Benefits paid (includes lump sum settlements)	(338		)	(332		)	(59		)	(73		)
Fair value of plan assets at end of year (estimated)	$	4,714		$	4,773		$	—		$	—

Funded Status of Our Pension and Other Postretirement Benefit Plans



DOLLAR AMOUNTS IN MILLIONS
	PENSION						OTHER POSTRETIREMENT BENEFITS
	2011			2010			2011			2010
Noncurrent assets	$	1		$	—		$	—		$	—
Current liabilities	(21		)	(20		)	(42		)	(45		)
Noncurrent liabilities	(1,107		)	(474		)	(360		)	(451		)
Funded status	$	(1,127	)	$	(494	)	$	(402	)	$	(496	)

Our qualified and registered pension plans and a portion of our nonregistered pension plans are funded. We contribute to these plans according to established funding standards. The nonqualified pension plan, a portion of the nonregistered pension plans, and the other postretirement benefit plans are unfunded. For the unfunded plans, we pay benefits to retirees from our general assets as they come due.

The values reported for our pension plan assets at the end of 2011 and 2010 were estimated. Additional information regarding the year-end values generally becomes available to us during the first half of the following year. We increased the fair value of plan assets by $138 million to reflect final valuations as of December 31, 2010.

During 2011, we contributed $78 million to our Canadian registered plan and $25 million to our nonqualified and nonregistered plans.

The asset or liability on our Consolidated Balance Sheet representing the funded status of the plans is different from the cumulative income or expense that we have recorded related to these plans. These differences are actuarial gains and losses and prior service costs and credits that are deferred and will be amortized into our periodic benefit costs in future periods. These unamortized amounts are recorded in cumulative other comprehensive income, which is a component of total equity on our Consolidated Balance Sheet.

Changes in Amounts Included in Cumulative Other Comprehensive Income



DOLLAR AMOUNTS IN MILLIONS
	PENSION						OTHER POSTRETIREMENT BENEFITS
	2011			2010			2011			2010
Net amount at beginning of year	$	(1,258	)	$	(1,080	)	$	45		$	24
Net change during the year:
Net actuarial gain (loss):
Net actuarial gain (loss) arising during the year, including foreign currency exchange rate changes	(837		)	(250		)	(22		)	78
Amortization of net actuarial loss	140			61			13			11
Taxes	240			1			3			(67		)
Net actuarial gain (loss), net of tax	(457		)	(188		)	(6		)	22
Prior service credit (cost):
Prior service credit (cost) arising during the year	14			(9		)	116			7
Amortization of prior service (credit) cost	23			23			(22		)	(21		)
Taxes	(15		)	(4		)	(34		)	13
Prior service credit (cost), net of tax	22			10			60			(1		)
Net amount recorded during the year	(435		)	(178		)	54			21
Net amount at end of year	$	(1,693	)	$	(1,258	)	$	99		$	45

During 2010, we reversed net tax benefits related to pension and other postretirement benefit loss and prior service credit not yet recognized in earnings by $43 million as a result of our conversion to a REIT. We also reduced our estimated tax rate, which increased actuarial net losses and prior service credit, net of tax by $34 million.

Accumulated Benefit Obligations Greater Than Plan Assets

As of December 31, 2011, pension plans with accumulated benefit obligations greater than plan assets had:


•	$5.8 billion in projected benefit obligations,


•	$5.7 billion in accumulated benefit obligations and


•	assets with a fair value of $4.7 billion.

As of December 31, 2010, pension plans with accumulated benefit obligations greater than plan assets had:


•	$1.1 billion in projected benefit obligations,


•	$1.0 billion in accumulated benefit obligations and


•	assets with a fair value of $639 million.

The accumulated benefit obligation for all of our defined benefit pension plans was:


•	$5.7 billion at December 31, 2011; and


•	$5.1 billion at December 31, 2010.

PENSION ASSETS

Our Investment Policies and Strategies

Our investment policies and strategies guide and direct how we manage funds for the benefit plans we sponsor. These funds include our:


•	U.S. Pension Trust — funds our U.S. qualified pension plans;


•	Canadian Pension Trust — funds our Canadian registered pension plans; and


•	Retirement Compensation Arrangements — fund a portion of our Canadian nonregistered pension plans.

U.S. and Canadian Pension Trusts

Our U.S. pension trust holds the funds for our U.S. qualified pension plans, while our Canadian pension trust holds the funds for our Canadian registered pension plans.

Our strategy within the trusts is to invest:


•	directly in a diversified mix of nontraditional investments; and


•	indirectly through derivatives to promote effective use of capital, increase returns and manage associated risk.

Consistent with past practice and in accordance with investment guidelines established by the company’s investment committee, the investment managers of the company’s pension plan asset portfolios utilize a diversified set of investment strategies.

Our direct investments include:


•	cash and short-term investments,


•	hedge funds,


•	private equity,


•	real estate fund investments and


•	common and preferred stocks.

Our indirect investments include:


•	equity index derivatives,


•	fixed income derivatives and


•	swaps and other derivative instruments.

The overall return for our pension trusts includes:


•	returns earned on our direct investments and


•	returns earned on the derivatives we use.

Cash and short-term investments generally consist of highly liquid money market and government securities and are primarily held to fund benefit payments, capital calls and margin requirements.

Hedge fund investments generally consist of privately-offered managed pools primarily structured as limited liability entities, with the general members or partners of such limited liability entities serving as portfolio manager and thus being responsible for the fund’s underlying investment decisions. Generally, these funds have varying degrees of liquidity and redemption provisions. Underlying investments within these funds may include long and short public and private equities, corporate, mortgage and sovereign debt, options, swaps, forwards and other derivative positions. These funds may also use varying degrees of leverage.

Private equity investments consist of investments in private equity, mezzanine, distressed, co-investments and other structures. Private equity funds generally participate in buyouts and venture capital of limited liability entities through unlisted equity and debt instruments. These funds may also employ borrowing at the underlying entity level. Mezzanine and distressed funds generally follow strategies of investing in the debt of public or private companies with additional participation through warrants or other equity type options.

Real estate fund investments in real property may be initiated through private transactions between principals or public market vehicles such as real estate investment trusts and are generally held in limited liability entities.

Common and preferred stocks are equity instruments that generally have resulted from transactions related to private equity investment holdings.

Swaps and other derivative instruments generally are comprised of swaps, futures, forwards or options. In accordance with our investment risk and return objectives, some of these instruments are utilized to achieve target equity and bond asset exposure or to reduce exposure to certain market risks or to help manage the liquidity of our investments. The resulting asset mix achieved is intended to allow the assets to perform comparably with established benchmarks. Others, mainly total return swaps with limited exchange of principal, are designed to gain exposure to the return characteristics of specific financial strategies.

All swap, forward and option contracts are executed in a diversified manner through a number of financial institutions and in accordance with our investment guidelines.

Retirement Compensation Arrangements

Retirement Compensation Arrangements fund a portion of our Canadian nonregistered pension plans.

Under Retirement Compensation Arrangements, our contributions are split:


•	50 percent to our investments in a portfolio of equities; and


•	50 percent to a noninterest-bearing refundable tax account held by Canada Revenue Agency — as required by Canadian tax rules.

The Canadian tax rules requirement means that — on average, over time — approximately 50 percent of our Canadian nonregistered pension plans’ assets do not earn returns.

Managing Risk

Investments and contracts, in general, are subject to risk, including market price, liquidity, currency, interest rate and credit risks. We have established governance practices to manage certain risks. The following provides an overview of these risks and describes actions we take to mitigate the potential adverse effects of these risks on the performance of our pension plan assets. Generally, we manage these risks through:


•	selection and diversification of managers and strategies,


•	use of limited-liability vehicles,


•	diversification and


•	constraining risk profiles to predefined limits on the percentage of pension trust assets that can be invested in certain categories.

Market price risk is the risk that the future value of a financial instrument will fluctuate as a result of changes in its market price, whether caused by factors specific to the individual investment, its issuer, or any other market factor that may affect its price. We attempt to mitigate market price risk on the company’s pension plan asset portfolios by investing in a diversified set of assets whose returns exhibit low correlation to those of traditional asset classes and each other. In addition, we and our investment advisers monitor the investments on a regular basis to ensure the decision to invest in particular assets continues to be suitable, including performing ongoing qualitative and quantitative assessments and comprehensive investment and operational due diligence. Special attention is paid to organizational changes made by the underlying fund managers and to changes in policy relative to their investment objectives, valuation, hedging strategy, degree of diversification, leverage, alignment of fund principles and investors, risk governance and costs.

Liquidity risk is the risk that the pension trusts will encounter difficulty in meeting obligations associated with their financial liabilities. Our financial obligations as they relate to the pension plans may consist of distributions and redemptions payable to pension plan participants, payments to counterparties and fees to service providers. As established, pension plan assets primarily consist of investments in limited liability pools for which there is no active secondary market. As a result, the investments may be illiquid. Further, hedge funds are subject to potential restrictions that may affect the timing of the realization of pending redemptions. Private equity funds are subject to distribution and funding schedules that are set by the private equity funds’ respective managers and market activity. To mitigate liquidity risk on the company’s pension plan asset portfolios, the hedge fund portfolios have been diversified across manager’s strategies and funds that possess varying liquidity provisions and the private equity portfolios have been diversified across different vintage years and strategies. In addition, the investment committee regularly reviews cash flows of the pension trusts and sets appropriate guidelines to address liquidity needs.

Currency risk arises from holding pension plan assets denominated in a currency other than the currency in which its liabilities are settled. Such risk is managed generally through notional contracts designed to hedge the net exposure to non-functional currencies.

Interest rate risk is the risk that a change in interest rates will adversely affect the fair value of fixed income securities. The pension trust’s primary exposure to interest rate risk is indirect and through their investments in limited liability pools. Such indirect exposure is managed by the respective fund managers in conjunction with their investment level decisions and predefined investment mandates.

Credit risk relates to the extent to which failures by counterparties to discharge their obligations could reduce the amount of future cash flows on hand at the balance sheet date. The pension trusts’ exposure to counterparty credit risk is reflected as settlement receivables from derivative contracts within the pension plan assets. In evaluating credit risk, we will often be dependent upon information provided by the counterparty or a rating agency, which may be inaccurate. We decrease exposure to credit risk by only dealing with highly-rated financial counterparties, and as of year-end, our counterparties each had a credit rating of at least A from Standard and Poor’s.

We further manage this risk through:


•	diversification of counterparties,


•	predefined settlement and margining provisions and


•	documented agreements.

We expect that none of our counterparties will fail to meet its obligations. Also, no principal is at risk as a result of these types of investments. Only the amount of unsettled net receivables is at risk.

We are also exposed to credit risk indirectly through counterparty relationships struck by the underlying managers of investments in limited liability pools. This indirect exposure is mitigated through a due diligence process, which focuses on monitoring each investment fund to ensure the decision to invest in or maintain exposure to a fund continues to be suitable for the pension plans’ asset portfolios.

While we do not target specific direct investment or derivative allocations, we have established guidelines on the percentage of pension trust assets that can be invested in certain categories to provide diversification by investment type fund and investment managers, as well as to manage overall liquidity.

Assets within our qualified and registered pension plans in our U.S. and Canadian pension trusts were invested as follows:



	DECEMBER 31, 2011		DECEMBER 31, 2010
Fixed income	11.5	%	16.4	%
Hedge funds	51.9		48.0
Private equity and related funds	35.1		33.1
Real estate and related funds	2.1		2.5
Common and preferred stock and equity index instruments	—		0.4
Accrued liabilities	(0.6	)	(0.4	)
Total	100.0	%	100.0	%

For our nonregistered plans, we invest 50 percent of the funds we contribute to our nonregistered pension plans. Under Canadian tax rules for Retirement Compensation Arrangements, the other 50 percent is allocated to a noninterest-bearing refundable tax account held by the Canada Revenue Agency. We have invested the assets that we are allowed to manage as follows:



	DECEMBER 31, 2011		DECEMBER 31, 2010
Equities	23.0	%	44.0	%
Cash and cash equivalents	77.0		56.0
Total	100.0	%	100.0	%

Valuation of Our Plan Assets

The pension assets are stated at fair value based upon the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date. We do not value pension investments based upon a forced or distressed sale scenario. Instead, we consider both observable and unobservable inputs that reflect assumptions applied by market participants when setting the exit price of an asset or liability in an orderly transaction within the principal market of that asset or liability.

We value the pension plan assets based upon the observability of exit pricing inputs and classify pension plan assets based upon the lowest level input that is significant to the fair value measurement of the pension plan assets in their entirety. The fair value hierarchy we follow is outlined below:

Level 1: Inputs are unadjusted quoted prices for identical assets and liabilities traded in an active market.

Level 2: Inputs are quoted prices in non-active markets for which pricing inputs are observable either directly or indirectly at the reporting date.

Level 3: Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

The pension assets are comprised of cash and short-term investments, derivative contracts, common and preferred stock and fund units. The fund units are typically limited liability interests in hedge funds, private equity funds, real estate funds and cash funds. Each of these assets participates in its own unique principal market.

Cash and short-term investments, when held directly, are valued at cost.

Common and preferred stocks are valued at exit prices quoted in the public markets.

Derivative contracts held by our pension trusts are not publicly traded and each derivative contract is specifically negotiated with a unique financial counterparty and references either illiquid fund units or a unique number of synthetic units of a publicly reported market index. The derivative contracts are valued based upon valuation statements received from the financial counterparties. We review embedded calculations in the valuation statements and compare referenced values to external sources.

Fund units are valued based upon the net asset values of the funds which we believe represent the per-unit prices at which new investors are permitted to invest and the prices at which existing investors are permitted to exit. To the degree net asset values as of the end of the year have not been received, we use the most recently reported net asset values and adjust for market events and cash flows that have occurred between the interim date and the end of the year to estimate the fair values as of the end of the year.

Assets that do not have readily available quoted prices in an active market require a higher degree of judgment to value and have a higher degree of risk that the value that could have been realized upon sale as of the valuation date could be different from the reported value than assets with observable pricing inputs. It is possible that the full extent of market price, liquidity, currency, interest rate, or credit risks may not be fully factored into the fair values of our pension plan assets that use significant unobservable inputs. Approximately $4.2 billion, or 89 percent, of our pension plan assets were classified as Level 3 assets as of December 31, 2011.

We estimate the fair value of pension plan assets based upon the information available during the year-end reporting process. In some cases, primarily private equity funds, the information available consists of net asset values as of an interim date, cash flows between the interim date and the end of the year, and market events. When the difference are significant, we revise the year-end estimated fair value of pension plan assets to incorporate year-end net asset values received after we have filed our annual report on Form 10-K. We increased the fair value of pension assets in the second quarter of 2011 by $138 million, or 2.9 percent.

The net pension plan assets, when categorized in accordance with this fair value hierarchy, are as follows:



DOLLAR AMOUNTS IN MILLIONS
2011	Level 1		Level 2		Level 3		Total
Pension trust investments:
Fixed income instruments	$	470	$	71	$	—	$	541
Hedge funds	—		—		2,436		2,436
Private equity and related funds	—		2		1,649		1,651
Real estate and related funds	—		—		96		96
Common and preferred stock and equity index instruments	1		1		—		2
Total pension trust investments	$	471	$	74	$	4,181	$	4,726
Accrued liabilities, net							(27		)
Pension trust net assets							$	4,699
Canadian nonregistered plan assets:
Cash	$	12	$	—	$	—	$	12
Investments	3		—		—		3
Total Canadian nonregistered plan assets	$	15	$	—	$	—	$	15
Total plan assets							$	4,714



DOLLAR AMOUNTS IN MILLIONS
2010	Level 1		Level 2			Level 3		Total
Pension trust investments:
Fixed income instruments	$	711	$	68		$	—	$	779
Hedge funds	—		—			2,284		2,284
Private equity and related funds	—		(4		)	1,575		1,571
Real estate and related funds	—		—			120		120
Common and preferred stock and equity index instruments	2		17			—		19
Total pension trust investments	$	713	$	81		$	3,979	$	4,773
Accrued liabilities, net								(16		)
Pension trust net investments								$	4,757
Canadian nonregistered plan assets:
Cash	$	11	$	—		$	—	$	11
Investments	5		—			—		5
Total Canadian nonregistered plan assets	$	16	$	—		$	—	$	16
Total plan assets								$	4,773

A reconciliation of the beginning and ending balances of the pension plan assets measured at fair value using significant unobservable inputs (Level 3) is presented below:



DOLLAR AMOUNTS IN MILLIONS
	INVESTMENTS
	Hedge funds			Private equity and related funds			Real estate and related funds			Total
Balance as of December 31, 2009	$	2,320		$	1,473		$	122		$	3,915
Net realized gains	161			146			10			317
Net change in unrealized appreciation (depreciation)	317			120			(1		)	436
Net purchases, (sales) and (settlements)	(514		)	(164		)	(11		)	(689		)
Balance as of December 31, 2010	2,284			1,575			120			3,979
Net realized gains (losses)	95			(6		)	—			89
Net change in unrealized appreciation (depreciation)	(180		)	122			(21		)	(79		)
Net purchases, (sales) and (settlements)	237			(42		)	(3		)	192
Balance as of December 31, 2011	$	2,436		$	1,649		$	96		$	4,181

This table shows the fair value of the derivatives held by our pension trusts — which fund our qualified and registered plans — at the end of the last two years.



DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2011		DECEMBER 31, 2010
Equity index instruments	$	1	$	17
Forward contracts	2		(4		)
Swaps	220		315
Total	$	223	$	328

This table shows the aggregate notional amount of the derivatives held by our pension trusts — which fund our qualified and registered plans — at the end of the last two years.



DOLLAR AMOUNTS IN MILLIONS
	DECEMBER 31, 2011		DECEMBER 31, 2010
Equity index instruments	$	390	$	393
Forward contracts	208		221
Swaps	1,291		1,220
Total	$	1,889	$	1,834

ACTIVITY OF PLANS WE SPONSOR

Net Periodic Benefit Costs (Credits)



DOLLAR AMOUNTS IN MILLIONS
	PENSION									OTHER POSTRETIREMENT BENEFITS
	2011			2010			2009			2011			2010			2009
Net periodic benefit cost (credit):
Service cost ⁽¹⁾	$	48		$	44		$	56		$	2		$	2		$	2
Interest cost	276			278			275			24			24			38
Expected return on plan assets	(421		)	(448		)	(472		)	—			—			—
Amortization of actuarial loss	136			61			29			13			11			16
Amortization of prior service cost (credit)	14			18			19			(22		)	(21		)	(101		)
Recognition of curtailments, settlements and special termination benefits due to closures, restructuring or divestitures ⁽¹⁾	18			10			112			—			—			8
Other	—			—			—			4			—			—
Net periodic benefit cost (credit)	$	71		$	(37	)	$	19		$	21		$	16		$	(37	)
⁽¹⁾Service cost includes $2 million in 2011 and $3 million in 2010 for employees that were part of the sale of our hardwoods operations. Curtailment and special termination benefits includes charges of $11 million in 2011 related to the sale of our hardwoods and Westwood Shipping Lines operations. These charges are included in our results of discontinued operations.

Estimated Amortization from Cumulative Other Comprehensive Income in 2012

Amortization of the net actuarial loss and prior service cost (credit) of our pension and postretirement benefit plans will affect our other comprehensive income in 2012. The net effect of the estimated amortization will be an increase in net periodic benefit costs or a decrease in net periodic benefit credits in 2012.



DOLLAR AMOUNTS IN MILLIONS
	PENSION		POSTRETIREMENT			TOTAL
Net actuarial loss	$	170	$	15		$	185
Prior service cost (credit)	8		(126		)	(118		)
Net effect cost (credit)	$	178	$	(111	)	$	67

Expected Pension Funding

Established funding standards govern the funding requirements for our qualified and registered pension plans. We fund the benefit payments of our nonqualified and nonregistered plans as benefit payments come due.

Based on estimated year-end asset values and projections of plan liabilities, we expect to contribute the following to pension plans during 2012:


•	approximately $60 million to our U.S. qualified pension plan for 2012, which is payable by September 15, 2013;


•	approximately $20 million to our U.S. nonqualified pension plans; and


•	approximately $83 million for required contributions to our Canadian registered and nonregistered pension plans.

Expected Postretirement Benefit Funding

Our retiree medical and life insurance plans are unfunded. Benefits for these plans are paid from our general assets as they come due. Except for benefits provided to certain unionized employees, we retain the right to terminate other postretirement benefits. We expect to contribute approximately $42 million to our U.S. and Canadian other postretirement benefit plans in 2012, including approximately $10 million expected to be required to cover benefit payments under collectively bargained contractual obligations.

Estimated Projected Benefit Payments for the Next 10 Years



DOLLAR AMOUNTS IN MILLIONS
	PENSION		OTHER POSTRETIREMENT BENEFITS
2012	$	317	$	42
2013	$	323	$	39
2014	$	331	$	36
2015	$	337	$	34
2016	$	347	$	32
2017-2021	$	1,848	$	140

ACTUARIAL ASSUMPTIONS

We use actuarial assumptions to estimate our benefit obligations and our net periodic benefit costs.

Rates We Use in Estimating Our Benefit Obligations

We use assumptions to estimate our benefit obligations that include:


•	discount rates in the U.S. and Canada, including discount rates used to value lump sum distributions;


•	rates of compensation increases for our salaried and hourly employees in the U.S. and Canada; and


•	estimated percentages of eligible retirees who will elect lump sum payments of benefits.

Discount Rates and Rates of Compensation Increase Used in Estimating Our Pension and Other Postretirement Benefit Obligation



	PENSION				OTHER POSTRETIREMENT BENEFITS
	DECEMBER 31, 2011		DECEMBER 31, 2010		DECEMBER 31, 2011		DECEMBER 31, 2010
Discount rates:
U.S.	4.50	%	5.40	%	4.10	%	5.00	%
Canada	4.90	%	5.30	%	4.80	%	5.20	%
Lump sum distributions (US salaried and nonqualified plans only) ⁽¹⁾	Variable		Variable		N/A		N/A
Rate of compensation increase:
Salaried:
United States	2.00% for 2011 2.00% for 2012 and 3.5% thereafter		1.75% for 2010 2.00% for 2011 and 3.5% thereafter		N/A		N/A
Canada	2.00% for 2011 2.10% for 2012 and 3.5% thereafter		1.75% for 2010 2.00% for 2011 and 3.5% thereafter		2.00% for 2011 2.10% for 2012 and 3.5% thereafter		3.50	%
Hourly:
United States	3.00	%	3.00	%	3.00	%	3.00	%
Canada	3.25	%	3.25	%	N/A		N/A
Election of lump sum or installment distributions (US salaried and nonqualified plans only)	60.00	%	65.00	%	N/A		N/A
⁽¹⁾ The discount rates applicable to lump sum distributions vary based on expected retirement dates of the covered employees. The discount rates are determined in accordance with the Pension Protection Act.

Estimating Our Net Periodic Benefit Costs

The assumptions we use to estimate our net periodic benefit costs include:


•	discount rates in the U.S. and Canada, including discount rates used to value lump sum distributions;


•	expected returns on our plan assets;


•	rates of compensation increases for our salaried and hourly employees in the U.S. and Canada; and


•	estimated percentages of eligible retirees who will elect lump sum payments of benefits.

This table shows the discount rates, expected returns on our plan assets and rates of compensation increases we used the last three years to estimate our net periodic benefit costs.

Rates Used to Estimate Our Net Periodic Benefit Costs



	PENSION						OTHER POSTRETIREMENT BENEFITS
	2011		2010		2009		2011		2010		2009
Discount rates:
U.S. ⁽¹⁾	5.40	%	5.90	%	6.30	%	5.00	%	5.20	%	6.30	%
Salaried – lump sum distributions (U.S. salaried and nonqualified plan only) ⁽²⁾	PPA phased Table		PPA phased Table		PPA phased Table		N/A		N/A		N/A
Remeasurement:
Salaried settlement at August 31, 2009					6.10	%
Remeasurement for elimination of life insurance for certain salaried retirees on November 30, 2009											5.60	%
Canada	5.30	%	6.10	%	7.30	%	5.20	%	6.00	%	7.30	%
Remeasurement:
Rate after August 31, 2009 remeasurement for postretirement plan changes											5.90	%
Expected return on plan assets:
Qualified/registered plans	9.50	%	9.50	%	9.50	%
Nonregistered plans (Canada only)	4.75	%	4.75	%	4.75	%
Rate of compensation increase:
Salaried
U.S.	2.00% for 2011 3.50% thereafter		1.75% for 2010 3.50% thereafter		0% for 2009 3.50% thereafter		N/A		N/A		N/A
Canada	2.00% for 2011 3.50 thereafter		1.75% for 2010 3.50% thereafter		0% for 2009 3.50% thereafter		2% for 2011 3.50% thereafter		3.50	%	3.50	%
Hourly:
U.S.	3.00	%	3.00	%	3.00	%	3.00	%	3.00	%	3.00	%
Canada	3.25	%	3.25	%	3.25	%	N/A		N/A		N/A
Election of lump sum distributions (U.S. salaried and nonqualified plans only)	65.00	%	72.00	%	75.00	%	N/A		N/A		N/A
⁽¹⁾2009 rate is for salaried and hourly employees, excluding settlements and elimination of retiree life for certain salaried retirees. ⁽²⁾ PPA Phased Table: Interest and mortality assumptions as mandated by Pension Protection Act of 2006 including the phase out of the prior interest rate basis in 2012.

Expected Return on Plan Assets

We estimate the expected long-term return on assets for our:


•	qualified and registered pension plans and


•	nonregistered plans.

Qualified and Registered Pension Plans. We reduced our expected long-term rate of return assumption for plan assets to 9.0 percent at the end of 2011. The revised rate will affect the amount of net periodic benefit costs that we record in 2012. The rate is comprised of:


•	a 7.75 percent assumed return from direct investments and


•	a 1.25 percent assumed return from derivatives.

Determining our expected return:


•	requires a high degree of judgment,


•	uses our historical fund returns as a base and


•	places added weight on more recent pension plan asset performance.

Over the 27 years it has been in place, our U.S. pension trust investment strategy has achieved a 14.8 percent net compound annual return rate.

Based on valuations received as of year-end, our total actual return on assets held by our pension trusts for the registered and qualified plans was a gain of approximately $49 million in 2011.

These trusts fund our qualified, registered and a portion of our nonregistered pension plans.

Actual Returns (Losses) on Assets Held by Our Pension Trusts



DOLLAR AMOUNTS IN MILLIONS
	2011		2010		2009
Direct investments	$	48	$	362	$	525
Derivatives	1		153		166
Total	$	49	$	515	$	691

Nonregistered plans. Canadian tax rules require that 50 percent of the assets for nonregistered plans go to a noninterest-bearing refundable tax account. As a result, the return we earn investing the other 50 percent is spread over 100 percent of the assets.

Our expected long-term annual rate of return on the equity portion of this portfolio — the portion we are allowed to invest and manage — is 7 percent. We base that expected rate of return on:


•	historical experience and


•	future return expectations.

We reduced the expected overall annual return on assets that fund our nonregistered plan to 3.5 percent at the end of 2011. The revised rate will affect the amount of net periodic benefit costs that we record in 2012.

HEALTH CARE COSTS

Rising costs of health care affect the costs of our other postretirement plans.

Health Care Cost Trend Rates

We use assumptions about health care cost trend rates to estimate the cost of benefits we provide. In 2011, the assumed weighted health care cost trend rate for the next year was:


•	6.8 percent in the U.S. and


•	7.3 percent in Canada.

This table shows the assumptions we use in estimating the annual cost increase for health care benefits we provide.

Assumptions We Use in Estimating Health Care Benefit Costs



	2011				2010
	U.S.		CANADA		U.S.		CANADA
Weighted health care cost trend rate assumed for next year	6.80	%	7.30	%	8.00	%	7.50	%
Rate to which cost trend rate is assumed to decline (ultimate trend rate)	4.50	%	4.50	%	4.50	%	4.50	%
Year that the rate reaches the ultimate trend rate	2029		2030		2030		2030

A 1 percent change in our assumed health care cost trend rates can affect our accumulated benefit obligations.

Effect of a 1 Percent Change in Health Care Costs



AS OF DECEMBER 31, 2011 (DOLLAR AMOUNTS IN MILLIONS)
	1% INCREASE		1% DECREASE
Effect on total service and interest cost components	$	1	$	(1	)
Effect on accumulated postretirement benefit obligation	$	12	$	(11	)

UNION-ADMINISTERED MULTIEMPLOYER BENEFIT PLANS

We contribute to multiemployer defined benefit plans under the terms of collective-bargaining agreements that cover some of our union-represented employees.

The U.S. plans are established to provide retirement income for eligible employees who meet certain age and service requirements at retirement. The benefits are generally based on:


•	a percentage of the employer contributions paid into the plan on the eligible employee's behalf or


•	a formula considering an eligible employee's service, the total contributions paid on their behalf plus a benefit based on the value of an eligible employee's account.

The Canadian plan is a negotiated cost defined benefit plan. The plan is established to provide retirement income for members based on their number of years of service in the industry, and the benefit rate that applied to that service.

The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:


•	Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.


•	If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.


•	If we choose to stop participating in some of the multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

As of December 31, 2011, these plans covered approximately 1,330 of our employees

Our contributions were approximately:


•	$4 million in 2011,


•	$4 million in 2010 and


•	$3 million in 2009.

There have been no significant changes that affect the comparability of the 2011, 2010 and 2009 contributions. None of our contributions exceeded more than five percent of any plan's total contributions during 2011, 2010 and 2009.

DEFINED CONTRIBUTION PLANS

We sponsor various defined contribution plans for our U.S. and Canadian salaried and hourly employees. Our contributions to these plans were:


•	$19 million in 2011,


•	$12 million in 2010 and


•	$15 million in 2009.

Effective May 1, 2009, the company match for the salaried defined contribution plan was temporarily suspended. The suspension was lifted in July 2010.