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Employee Benefit Plans
 12 Months Ended
Dec. 31, 2011
Employee Benefit Plans [Abstract]  
Pension and Other Postretirement Benefits Disclosure [Text Block]
(14)    Employee Benefit Plans

Domestic Operations

Defined Benefit Plans

PacifiCorp sponsors defined benefit pension plans that cover the majority of its employees. PacifiCorp's pension plans include a noncontributory defined benefit pension plan and a supplemental executive retirement plan ("SERP"). MidAmerican Energy sponsors defined benefit pension plans covering a majority of all employees of MEHC and its domestic energy subsidiaries other than PacifiCorp. MidAmerican Energy's pension plans include a noncontributory defined benefit pension plan and a SERP. The Utilities also provide certain postretirement healthcare and life insurance benefits through various plans to eligible retirees.

Changes to the Company's domestic pension and other postretirement benefit plans include the following:
•
Effective January 1, 2012, the Utilities changed the medical benefits for the majority of Medicare-eligible participants in the PacifiCorp-sponsored and MidAmerican Energy-sponsored other postretirement benefit plans. Medicare-eligible participants now enroll in individual medical plans, rather than company-sponsored plans, under which the Utilities contribute fixed amounts to the participant's health reimbursement account. As a result of this change, the Company's benefit obligations for its other postretirement benefit plans and its related regulatory assets decreased $72 million as of December 31, 2011.
•
Non-union employees hired on or after January 1, 2008 are not eligible to participate in the PacifiCorp-sponsored or MidAmerican Energy-sponsored noncontributory defined benefit pension plans. These non-union employees are eligible to receive enhanced benefits under the PacifiCorp-sponsored and MidAmerican Energy-sponsored 401(k) plans.
•
Certain union employees hired on or after specified dates in their union contracts are not eligible to participate in the PacifiCorp-sponsored or MidAmerican Energy-sponsored noncontributory defined benefit pension plans. During the past three years, several unions have elected to cease participation in the PacifiCorp-sponsored or MidAmerican Energy-sponsored noncontributory defined benefit pension plans. As a result of these elections, the benefits for these union employees have been frozen and they are eligible to receive enhanced benefits under the PacifiCorp-sponsored and MidAmerican Energy-sponsored 401(k) plans.

In March 2010, the President signed into law healthcare reform legislation that included provisions to reduce the tax deductibility of other postretirement costs by the amount of retiree drug subsidies received from the federal government beginning after December 31, 2012. As a result of this legislation, the Company increased deferred income tax liabilities and, consistent with the expectation that such additional income tax expense amounts are probable of inclusion in regulated rates, recorded a $53 million increase to net regulatory assets during the year ended December 31, 2010.

The law also contains a provision that requires a 40% excise tax for group health benefits that are provided to employees above certain premium thresholds beginning in 2018. The tax would apply to the amount of premiums in excess of the thresholds. Virtually all major areas of the healthcare reform legislation, including the 40% excise tax, are subject to interpretation and implementation rules that may take several years to complete. As of December 31, 2010, the Company's other postretirement benefit obligation increased by $12 million as a result of the projected impact of the excise tax on benefits provided to a certain bargaining unit.

Net Periodic Benefit Cost

For purposes of calculating the expected return on plan assets, a market-related value is used. The market-related value of plan assets is calculated by spreading the difference between expected and actual investment returns over a five-year period beginning after the first year in which they occur.

Net periodic benefit cost for the plans included the following components for the years ended December 31 (in millions):
 
Pension
 
Other Postretirement
 
2011
 
2010
 
2009
 
2011
 
2010
 
2009
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
28

 
$
29

 
$
35

 
$
11

 
$
10

 
$
9

Interest cost
102

 
105

 
113

 
41

 
42

 
43

Expected return on plan assets
(118
)
 
(114
)
 
(113
)
 
(43
)
 
(43
)
 
(41
)
Net amortization
20

 
12

 
—

 
16

 
13

 
13

Net periodic benefit cost
$
32

 
$
32

 
$
35

 
$
25

 
$
22

 
$
24


Funded Status

The following table is a reconciliation of the fair value of plan assets for the years ended December 31 (in millions):
 
Pension
 
Other Postretirement
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
Plan assets at fair value, beginning of year
$
1,506

 
$
1,322

 
$
605

 
$
554

Employer contributions
126

 
141

 
30

 
26

Participant contributions
—

 
—

 
16

 
17

Actual return on plan assets
(13
)
 
164

 
—

 
63

Benefits paid
(133
)
 
(121
)
 
(54
)
 
(55
)
Plan assets at fair value, end of year
$
1,486

 
$
1,506

 
$
597

 
$
605


The following table is a reconciliation of the benefit obligations for the years ended December 31 (in millions):
 
Pension
 
Other Postretirement
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
Benefit obligation, beginning of year
$
1,974

 
$
1,887

 
$
770

 
$
746

Service cost
28

 
29

 
11

 
10

Interest cost
102

 
105

 
41

 
42

Participant contributions
—

 
—

 
16

 
17

Plan amendments
(4
)
 
—

 
(72
)
 
(7
)
Curtailment
—

 
(14
)
 
—

 
—

Actuarial loss
123

 
88

 
58

 
14

Benefits paid, net of Medicare subsidy
(133
)
 
(121
)
 
(51
)
 
(52
)
Benefit obligation, end of year
$
2,090

 
$
1,974

 
$
773

 
$
770

Accumulated benefit obligation, end of year
$
2,060

 
$
1,937

 
 
 
 

The funded status of the plans and the amounts recognized on the Consolidated Balance Sheets as of December 31 are as follows (in millions):
 
Pension
 
Other Postretirement
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
Plan assets at fair value, end of year
$
1,486

 
$
1,506

 
$
597

 
$
605

Less - Benefit obligation, end of year
2,090

 
1,974

 
773

 
770

Funded status
$
(604
)
 
$
(468
)
 
$
(176
)
 
$
(165
)
 
 
 
 
 
 
 
 
Amounts recognized on the Consolidated Balance Sheets:
 
 
 
 
 
 
 
Other assets
$
—

 
$
—

 
$
15

 
$
27

Other current liabilities
(12
)
 
(12
)
 
—

 
—

Other long-term liabilities
(592
)
 
(456
)
 
(191
)
 
(192
)
Amounts recognized
$
(604
)
 
$
(468
)
 
$
(176
)
 
$
(165
)

The SERPs have no plan assets; however the Company has Rabbi trusts that hold corporate-owned life insurance and other investments to provide funding for the future cash requirements of the SERPs. The cash surrender value of all of the policies included in the Rabbi trusts, net of amounts borrowed against the cash surrender value, plus the fair market value of other Rabbi trust investments, was $170 million and $165 million as of December 31, 2011 and 2010, respectively. These assets are not included in the plan assets in the above table, but are reflected in noncurrent investments and restricted cash and investments on the Consolidated Balance Sheets. The portion of the pension plans' projected benefit obligation related to the SERPs was $175 million and $165 million as of December 31, 2011 and 2010, respectively.

Unrecognized Amounts

The portion of the funded status of the plans not yet recognized in net periodic benefit cost as of December 31 is as follows (in millions):
 
Pension
 
Other Postretirement
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
Net loss
$
734

 
$
518

 
$
254

 
$
163

Prior service credit
(41
)
 
(45
)
 
(104
)
 
(43
)
Net transition obligation
—

 
—

 
—

 
19

Regulatory deferrals
(7
)
 
(18
)
 
3

 
4

Total
$
686

 
$
455

 
$
153

 
$
143


A reconciliation of the amounts not yet recognized as components of net periodic benefit cost for the years ended December 31, 2011 and 2010 is as follows (in millions):
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
Other
 
 
 
Regulatory
 
Regulatory
 
Comprehensive
 
 
 
Asset
 
Liability
 
Loss
 
Total
Pension
 
 
 
 
 
 
 
Balance, December 31, 2009
$
444

 
$
(9
)
 
$
7

 
$
442

Net loss arising during the year
30

 
7

 
3

 
40

Curtailment
(14
)
 
—

 
—

 
(14
)
Net amortization
(13
)
 
1

 
(1
)
 
(13
)
Total
3

 
8

 
2

 
13

Balance, December 31, 2010
447

 
(1
)
 
9

 
455

Net loss arising during the year
246

 
1

 
8

 
255

Prior service credit arising during the year
(4
)
 
—

 
—

 
(4
)
Net amortization
(20
)
 
—

 
—

 
(20
)
Total
222

 
1

 
8

 
231

Balance, December 31, 2011
$
669

 
$
—

 
$
17

 
$
686


 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
Deferred
 
Other
 
 
 
Regulatory
 
Regulatory
 
Income
 
Comprehensive
 
 
 
Asset
 
Liability
 
Taxes
 
Loss
 
Total
Other Postretirement
 
 
 
 
 
 
 
 
 
Balance, December 31, 2009
$
152

 
$
(16
)
 
$
33

 
$
—

 
$
169

Net loss (gain) arising during the year
5

 
(11
)
 
—

 
—

 
(6
)
Prior service credit arising during the year
—

 
(7
)
 
—

 
—

 
(7
)
Income tax benefits no longer realizable(1)
23

 
10

 
(33
)
 
—

 
—

Net amortization
(15
)
 
2

 
—

 
—

 
(13
)
Total
13

 
(6
)
 
(33
)
 
—

 
(26
)
Balance, December 31, 2010
165

 
(22
)
 
—

 
—

 
143

Net loss arising during the year
86

 
12

 
—

 
1

 
99

Prior service credit arising during the year
(61
)
 
(3
)
 
—

 
(1
)
 
(65
)
Reduction in net transition obligation
(8
)
 
—

 
—

 
—

 
(8
)
Net amortization
(17
)
 
1

 
—

 
—

 
(16
)
Total
—

 
10

 
—

 
—

 
10

Balance, December 31, 2011
$
165

 
$
(12
)
 
$
—

 
$
—

 
$
153


(1)
Represents adjustments to regulatory assets associated with income tax benefits that will no longer be realized when the net periodic benefit cost is recognized as a result of the healthcare reform legislation.

The net loss, prior service credit and regulatory deferrals that will be amortized in 2012 into net periodic benefit cost are estimated to be as follows (in millions):
 
Net
 
Prior Service
 
Regulatory
 
 
 
Loss
 
Credit
 
Deferrals
 
Total
 
 
 
 
 
 
 
 
Pension
$
47

 
$
(7
)
 
$
(2
)
 
$
38

Other postretirement
13

 
(13
)
 
1

 
1

Total
$
60

 
$
(20
)
 
$
(1
)
 
$
39


Plan Assumptions

Assumptions used to determine benefit obligations and net periodic benefit cost were as follows:
 
Pension
 
Other Postretirement
 
2011
 
2010
 
2009
 
2011
 
2010
 
2009
 
 
 
 
 
 
 
 
 
 
 
 
Benefit obligations as of December 31:
 
 
 
 
 
 
 
 
 
 
 
PacifiCorp-sponsored plans
 
 
 
 
 
 
 
 
 
 
 
Discount rate
4.90
%
 
5.35
%
 
5.80
%
 
4.95
%
 
5.45
%
 
5.85
%
Rate of compensation increase
3.50
%
 
3.50
%
 
3.00
%
 
N/A

 
N/A

 
N/A

MidAmerican Energy-sponsored plans
 
 
 
 
 
 
 
 
 
 
 
Discount rate
4.75
%
 
5.50
%
 
6.00
%
 
4.75
%
 
5.50
%
 
6.00
%
Rate of compensation increase
3.50
%
 
3.50
%
 
3.00
%
 
N/A

 
N/A

 
N/A

 
 
 
 
 
 
 
 
 
 
 
 
Net periodic benefit cost for the years ended December 31:
 
 
 
 
 
 
 
 
 
 
 
PacifiCorp-sponsored plans
 
 
 
 
 
 
 
 
 
 
 
Discount rate
5.35
%
 
5.80
%
 
6.90
%
 
5.45
%
 
5.85
%
 
6.90
%
Expected return on plan assets
7.50
%
 
7.75
%
 
7.75
%
 
7.50
%
 
7.75
%
 
7.75
%
Rate of compensation increase
3.50
%
 
3.00
%
 
3.50
%
 
N/A

 
N/A

 
N/A

MidAmerican Energy-sponsored plans
 
 
 
 
 
 
 
 
 
 
 
Discount rate
5.50
%
 
6.00
%
 
6.50
%
 
5.50
%
 
6.00
%
 
6.50
%
Expected return on plan assets
7.50
%
 
7.50
%
 
7.50
%
 
7.50
%
 
7.50
%
 
7.50
%
Rate of compensation increase
3.50
%
 
3.00
%
 
4.00
%
 
N/A

 
N/A

 
N/A


 
2011
 
2010
Assumed healthcare cost trend rates as of December 31:
 
 
 
PacifiCorp-sponsored plans
 
 
 
Healthcare cost trend rate assumed for next year
8.50
%
 
8.00
%
Rate that the cost trend rate gradually declines to
5.00
%
 
5.00
%
Year that the rate reaches the rate it is assumed to remain at
2016
 
2016
MidAmerican Energy-sponsored plans
 
 
 
Healthcare cost trend rate assumed for next year
7.40
%
 
8.00
%
Rate that the cost trend rate gradually declines to
5.00
%
 
5.00
%
Year that the rate reaches the rate it is assumed to remain at
2016
 
2016

In establishing its assumption as to the expected return on plan assets, the Company utilizes the expected asset allocation and return assumptions for each asset class based on historical performance and forward-looking views of the financial markets.

A one percentage-point change in assumed healthcare cost trend rates would have the following effects (in millions):
 
One Percentage-Point
 
Increase
 
Decrease
Increase (decrease) in:
 
 
 
Total service and interest cost
$
3

 
$
(2
)
Other postretirement benefit obligation
48

 
(38
)

Contributions and Benefit Payments

Employer contributions to the pension and other postretirement benefit plans are expected to be $81 million and $9 million, respectively, during 2012. Funding to the established pension trusts is based upon the actuarially determined costs of the plans and the requirements of the Internal Revenue Code, the Employee Retirement Income Security Act of 1974 and the Pension Protection Act of 2006, as amended. The Company considers contributing additional amounts from time to time in order to achieve certain funding levels specified under the Pension Protection Act of 2006, as amended. The Company's funding policy for its other postretirement benefit plans is to contribute an amount equal to the sum of the net periodic benefit cost.

The expected benefit payments to participants in the Company's pension and other postretirement benefit plans for 2012 through 2016 and for the five years thereafter are summarized below (in millions):
 
Projected Benefit Payments
 
 
 
Other Postretirement
 
Pension
 
Gross
 
Medicare Subsidy
 
Net of Subsidy
 
 
 
 
 
 
 
 
2012
$
151

 
$
49

 
$
—

 
$
49

2013
156

 
51

 
(1
)
 
50

2014
160

 
52

 
(1
)
 
51

2015
161

 
53

 
(1
)
 
52

2016
167

 
55

 
(1
)
 
54

2017-21
808

 
294

 
(9
)
 
285


Plan Assets

Investment Policy and Asset Allocations

The Company's investment policy for its pension and other postretirement benefit plans is to balance risk and return through a diversified portfolio of debt securities, equity securities and other alternative investments. Maturities for debt securities are managed to targets consistent with prudent risk tolerances. The plans retain outside investment advisors to manage plan investments within the parameters outlined by each plan's Pension and Employee Benefits Plans Administrative Committee. The investment portfolio is managed in line with the investment policy with sufficient liquidity to meet near-term benefit payments. The return on assets assumption for each plan is based on a weighted-average of the expected historical performance for the types of assets in which the plans invest.

The target allocations (percentage of plan assets) for the Company's pension and other postretirement benefit plan assets are as follows as of December 31, 2011:
 
 
 
Other
 
Pension(1)
 
Postretirement(1)
 
%
 
%
PacifiCorp:
 
 
 
Debt securities(2)
33-37
 
33-37
Equity securities(2)
53-57
 
61-65
Limited partnership interests
8-12
 
1-3
Other
0-1
 
0-1
 
 
 
 
MidAmerican Energy:
 
 
 
Debt securities(2)
20-30
 
25-35
Equity securities(2)
65-75
 
60-80
Real estate funds
0-10
 
0
Other
0-5
 
0-5

(1)
PacifiCorp's retirement plan trust includes a separate account that is used to fund benefits for the other postretirement plan. In addition to this separate account, the assets for the other postretirement benefit plans are held in two Voluntary Employees' Beneficiary Association ("VEBA") Trusts, each of which has its own investment allocation strategies. Target allocations for the other postretirement benefit plan include the separate account of the retirement plan trust and the two VEBA trusts.
(2)
For purposes of target allocation percentages and consistent with the plans' investment policy, investment funds have been allocated based on the underlying investments in debt and equity securities.

Fair Value Measurements

The following table presents the fair value of plan assets, by major category, for the Company's defined benefit pension plans (in millions):
 
Input Levels for Fair Value Measurements(1)
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
As of December 31, 2011
 
 
 
 
 
 
 
Cash equivalents
$
—

 
$
18

 
$
—

 
$
18

Debt securities:
 
 
 
 
 
 
 
United States government obligations
27

 
—

 
—

 
27

International government obligations
—

 
73

 
—

 
73

Corporate obligations
—

 
92

 
—

 
92

Municipal obligations
—

 
12

 
—

 
12

Agency, asset and mortgage-backed obligations
—

 
80

 
—

 
80

Equity securities:
 
 
 
 
 
 
 
United States companies
481

 
—

 
—

 
481

International companies
7

 
—

 
—

 
7

Investment funds(2)
180

 
421

 
—

 
601

Limited partnership interests(3)
—

 
—

 
71

 
71

Real estate funds
—

 
—

 
24

 
24

Total
$
695

 
$
696

 
$
95

 
$
1,486

 
 
 
 
 
 
 
 
As of December 31, 2010
 
 
 
 
 
 
 
Cash equivalents
$
—

 
$
19

 
$
—

 
$
19

Debt securities:
 
 
 
 
 
 
 
United States government obligations
29

 
—

 
—

 
29

International government obligations
—

 
81

 
—

 
81

Corporate obligations
—

 
77

 
—

 
77

Municipal obligations
—

 
7

 
—

 
7

Agency, asset and mortgage-backed obligations
—

 
78

 
—

 
78

Equity securities:
 
 
 
 
 
 
 
United States companies
489

 
—

 
—

 
489

International companies
7

 
—

 
—

 
7

Investment funds(2)
182

 
436

 
—

 
618

Limited partnership interests(3)
—

 
—

 
84

 
84

Real estate funds
—

 
—

 
17

 
17

Total
$
707

 
$
698

 
$
101

 
$
1,506


(1)
Refer to Note 6 for additional discussion regarding the three levels of the fair value hierarchy.
(2)
Investment funds are comprised of mutual funds and collective trust funds. These funds consist of equity and debt securities of approximately 69% and 31%, respectively, for 2011 and 70% and 30%, respectively, for 2010. Additionally, these funds are invested in United States and international securities of approximately 66% and 34%, respectively, for 2011 and 62% and 38%, respectively, for 2010.
(3)
Limited partnership interests include several funds that invest primarily in buyout, growth equity and venture capital.


The following table presents the fair value of plan assets, by major category, for the Company's defined benefit other postretirement plans (in millions):
 
Input Levels for Fair Value Measurements(1)
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
As of December 31, 2011
 
 
 
 
 
 
 
Cash equivalents
$
9

 
$
—

 
$
—

 
$
9

Debt securities:
 
 
 
 
 
 
 
United States government obligations
8

 
—

 
—

 
8

International government obligations
—

 
5

 
—

 
5

Corporate obligations
—

 
12

 
—

 
12

Municipal obligations
—

 
31

 
—

 
31

Agency, asset and mortgage-backed obligations
—

 
15

 
—

 
15

Equity securities:
 
 
 
 
 
 
 
United States companies
219

 
—

 
—

 
219

International companies
2

 
—

 
—

 
2

Investment funds(2)
196

 
94

 
—

 
290

Limited partnership interests(3)
—

 
—

 
6

 
6

Total
$
434

 
$
157

 
$
6

 
$
597

 
 
 
 
 
 
 
 
As of December 31, 2010
 
 
 
 
 
 
 
Cash equivalents
$
8

 
$
1

 
$
—

 
$
9

Debt securities:
 
 
 
 
 
 
 
United States government obligations
5

 
—

 
—

 
5

International government obligations
—

 
7

 
—

 
7

Corporate obligations
—

 
16

 
—

 
16

Municipal obligations
—

 
28

 
—

 
28

Agency, asset and mortgage-backed obligations
—

 
12

 
—

 
12

Equity securities:
 
 
 
 
 
 
 
United States companies
219

 
—

 
—

 
219

International companies
3

 
—

 
—

 
3

Investment funds(2)
192

 
107

 
—

 
299

Limited partnership interests(3)
—

 
—

 
7

 
7

Total
$
427

 
$
171

 
$
7

 
$
605


(1)
Refer to Note 6 for additional discussion regarding the three levels of the fair value hierarchy.
(2)
Investment funds are comprised of mutual funds and collective trust funds. These funds consist of equity and debt securities of approximately 56% and 44%, respectively, for 2011 and 56% and 44%, respectively, for 2010. Additionally, these funds are invested in United States and international securities of approximately 67% and 33%, respectively, for both 2011 and 2010.
(3)
Limited partnership interests include several funds that invest primarily in buyout, growth equity and venture capital.

When available, a readily observable quoted market price or net asset value of an identical security in an active market is used to record the fair value. In the absence of a quoted market price or net asset value of an identical security, the fair value is determined using pricing models or net asset values based on observable market inputs and quoted market prices of securities with similar characteristics. When observable market data is not available, the fair value is determined using unobservable inputs, such as estimated future cash flows, purchase multiples paid in other comparable third-party transactions or other information. Investments in limited partnerships are valued at estimated fair value based on the Plan's proportionate share of the partnerships' fair value as recorded in the partnerships' most recently available financial statements adjusted for recent activity and forecasted returns. The fair values recorded in the partnerships' financial statements are generally determined based on closing public market prices for publicly traded securities and as determined by the general partners for other investments based on factors including estimated future cash flows, purchase multiples paid in other comparable third-party transactions, comparable public company trading multiples and other information. The real estate funds determine fair value of their underlying assets using independent appraisals given there is no current liquid market for the underlying assets.

The following table reconciles the beginning and ending balances of the Company's plan assets measured at fair value using significant Level 3 inputs for the years ended December 31 (in millions):
 
 
 
Other
 
Pension
 
Postretirement-
 
Limited
 
Real
 
Limited
 
Partnership
 
Estate
 
Partnership
 
Interests
 
Funds
 
Interests
 
 
 
 
 
 
Balance, December 31, 2008
$
78

 
$
27

 
$
7

Actual return on plan assets still held at December 31, 2009
5

 
(9
)
 
1

Purchases, sales, distributions and settlements
(3
)
 
(3
)
 
—

Balance, December 31, 2009
80

 
15

 
8

Actual return on plan assets still held at December 31, 2010
10

 
2

 
—

Purchases, sales, distributions and settlements
(6
)
 
—

 
(1
)
Balance, December 31, 2010
84

 
17

 
7

Actual return on plan assets still held at December 31, 2011
7

 
4

 
1

Purchases, sales, distributions and settlements
(20
)
 
3

 
(2
)
Balance, December 31, 2011
$
71

 
$
24

 
$
6


Defined Contribution Plans

The Company sponsors defined contribution plans (401(k) plans) covering substantially all employees. The Company's contributions vary depending on the plan, but are based primarily on each participant's level of contribution and cannot exceed the maximum allowable for tax purposes. The Company's contributions to these plans were $60 million, $57 million and $56 million for the years ended December 31, 2011, 2010 and 2009, respectively. As previously described, certain participants now receive enhanced benefits in the 401(k) plans and no longer accrue benefits in the noncontributory defined benefit pension plans.

Foreign Operations

Defined Benefit Plan

Certain wholly-owned subsidiaries of Northern Powergrid Holdings participate in the Northern Electric group of the United Kingdom industry-wide Electricity Supply Pension Scheme (the "UK Plan"), which provides pension and other related defined benefits, based on final pensionable pay, to the majority of the employees of Northern Powergrid Holdings. The UK Plan is closed to employees hired after July 23, 1997. Employees hired after that date are covered by defined contribution plans sponsored by certain wholly-owned subsidiaries of Northern Powergrid Holdings.

Net Periodic Benefit Cost

For purposes of calculating the expected return on pension plan assets, a market-related value is used. The market-related value of plan assets is calculated by spreading the difference between expected and actual investment returns over a five-year period beginning after the first year in which they occur.

Net periodic benefit cost for the UK Plan included the following components for the years ended December 31 (in millions):
 
2011
 
2010
 
2009
 
 
 
 
 
 
Service cost
$
19

 
$
15

 
$
13

Interest cost
92

 
89

 
84

Expected return on plan assets
(115
)
 
(102
)
 
(104
)
Net amortization
37

 
30

 
13

Net periodic benefit cost
$
33

 
$
32

 
$
6


Funded Status

The following table is a reconciliation of the fair value of plan assets for the years ended December 31 (in millions):
 
2011
 
2010
 
 
 
 
Plan assets at fair value, beginning of year
$
1,633

 
$
1,523

Employer contributions
79

 
68

Participant contributions
4

 
5

Actual return on plan assets
141

 
156

Benefits paid
(85
)
 
(68
)
Foreign currency exchange rate changes
(13
)
 
(51
)
Plan assets at fair value, end of year
$
1,759

 
$
1,633


The following table is a reconciliation of the benefit obligation for the years ended December 31 (in millions):
 
2011
 
2010
 
 
 
 
Benefit obligation, beginning of year
$
1,655

 
$
1,651

Service cost
19

 
15

Interest cost
92

 
89

Participant contributions
4

 
5

Actuarial loss
101

 
19

Benefits paid
(85
)
 
(68
)
Foreign currency exchange rate changes
(13
)
 
(56
)
Benefit obligation, end of year
$
1,773

 
$
1,655

Accumulated benefit obligation, end of year
$
1,587

 
$
1,557


The funded status of the UK Plan and the amounts recognized on the Consolidated Balance Sheets as of December 31 are as follows (in millions):
 
2011
 
2010
 
 
 
 
Plan assets at fair value, end of year
$
1,759

 
$
1,633

Less - Benefit obligation, end of year
1,773

 
1,655

Funded status
$
(14
)
 
$
(22
)
 
 
 
 
Amounts recognized on the Consolidated Balance Sheets-other long-term liabilities
$
(14
)
 
$
(22
)

Unrecognized Amounts

The portion of the funded status of the UK Plan not yet recognized in net periodic benefit cost as of December 31 is as follows (in millions):
 
2011
 
2010
 
 
 
 
Net loss
$
653

 
$
619

Prior service cost
3

 
5

Total
$
656

 
$
624


A reconciliation of the amounts not yet recognized as components of net periodic benefit cost, which are included in accumulated other comprehensive loss on the Consolidated Balance Sheets, for the years ended December 31 is as follows (in millions):
 
2011
 
2010
 
 
 
 
Balance, beginning of year
$
624

 
$
709

Net loss (gain) arising during the year
74

 
(35
)
Net amortization
(37
)
 
(30
)
Foreign currency exchange rate changes
(5
)
 
(20
)
Total
32

 
(85
)
Balance, end of year
$
656

 
$
624


The net loss and prior service cost that will be amortized from accumulated other comprehensive loss in 2012 into net periodic benefit cost are estimated to be $54 million and $1 million, respectively.

Plan Assumptions
Assumptions used to determine benefit obligations and net periodic benefit cost were as follows:
 
2011
 
2010
 
2009
 
 
 
 
 
 
Benefit obligations as of December 31:
 
 
 
 
 
Discount rate
4.80
%
 
5.50
%
 
5.70
%
Rate of compensation increase
2.80
%
 
3.20
%
 
2.75
%
Rate of future price inflation
2.80
%
 
3.20
%
 
3.20
%
 
 
 
 
 
 
Net periodic benefit cost for the years ended December 31:
 
 
 
 
 
Discount rate
5.50
%
 
5.70
%
 
6.40
%
Expected return on plan assets
6.80
%
 
6.60
%
 
7.00
%
Rate of compensation increase
3.20
%
 
2.75
%
 
3.25
%
Rate of future price inflation
3.20
%
 
3.20
%
 
3.00
%

Contributions and Benefit Payments

Employer contributions to the UK Plan are expected to be £50 million during 2012. The expected benefit payments to participants in the UK Plan for 2012 through 2016 and for the five years thereafter, using the foreign currency exchange rate as of December 31, 2011, are summarized below (in millions):
2012
$
81

2013
83

2014
85

2015
87

2016
89

2017-2021
478


Plan Assets

Investment Policy and Asset Allocations

The investment policy for the UK Plan is to balance risk and return through a diversified portfolio of debt securities, equity securities and real estate. Maturities for debt securities are managed to targets consistent with prudent risk tolerances. The UK Plan retains outside investment advisors to manage plan investments within the parameters set by the trustees of the UK Plan in consultation with Northern Powergrid Holdings. The investment portfolio is managed in line with the investment policy with sufficient liquidity to meet near-term benefit payments. The return on assets assumption is based on a weighted-average of the expected historical performance for the types of assets in which the UK Plan invests.

The target allocations (percentage of plan assets) for the UK Plan assets are as follows as of December 31, 2011:
Debt securities(1)
55
%
Equity securities(1)
35

Real estate funds
10


(1)
For purposes of target allocation percentages and consistent with the plans' investment policy, investment funds have been allocated based on the underlying investments in debt and equity securities.

Fair Value Measurements

The following table presents the fair value of the UK Plan assets, by major category, (in millions):
 
Input Levels for Fair Value Measurements(1)
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
As of December 31, 2011
 
 
 
 
 
 
 
Cash equivalents
$
9

 
$
—

 
$
—

 
$
9

Debt securities:
 
 
 
 
 
 
 
United Kingdom government obligations
360

 
—

 
—

 
360

Other international government obligations
—

 
26

 
—

 
26

Corporate obligations
—

 
139

 
—

 
139

Investment funds(2)
93

 
974

 
—

 
1,067

Real estate funds
—

 
—

 
158

 
158

Total
$
462

 
$
1,139

 
$
158

 
$
1,759

 
 
 
 
 
 
 
 
As of December 31, 2010
 
 
 
 
 
 
 
Cash equivalents
$
11

 
$
—

 
$
—

 
$
11

Debt securities:
 
 
 
 
 
 
 
United Kingdom government obligations
298

 
—

 
—

 
298

Other international government obligations
—

 
14

 
—

 
14

Corporate obligations
—

 
122

 
—

 
122

Investment funds(2)
90

 
950

 
—

 
1,040

Real estate funds
—

 
—

 
148

 
148

Total
$
399

 
$
1,086

 
$
148

 
$
1,633


(1)
Refer to Note 6 for additional discussion regarding the three levels of the fair value hierarchy.
(2)
Investment funds are comprised of mutual funds and collective trust funds. These funds consist of equity and debt securities of approximately 45% and 55%, respectively, for 2011 and 52% and 48%, respectively, for 2010.

The fair value of the UK Plan's assets are determined similar to the plan assets of the domestic plans as discussed previously in the note.

The following table reconciles the beginning and ending balances of the UK Plan assets measured at fair value using significant Level 3 inputs for the years ended December 31 (in millions):
 
Real Estate Funds
 
2011
 
2010
 
2009
 
 
 
 
 

Beginning balance
$
148

 
$
133

 
$
116

Actual return on plan assets still held at period end
11

 
19

 
6

Foreign currency exchange rate changes
(1
)
 
(4
)
 
11

Ending balance
$
158

 
$
148

 
$
133