Note 15 – Postretirement Plans

The majority of our employees are covered by defined benefit pension plans. All nonunion and some union employees hired after December 31, 2008 are not covered by defined benefit plans. We fund our major pension plans through trusts. Pension assets are placed in trust solely for the benefit of the plans' participants, and are structured to maintain liquidity that is sufficient to pay benefit obligations as well as to keep pace over the long-term with the growth of obligations for future benefit payments.

We also have other postretirement benefits (OPB) other than pensions which consist principally of health care coverage for eligible retirees and qualifying dependents, and to a lesser extent, life insurance to certain groups of retirees. Retiree health care is provided principally until age 65 for approximately half those retirees who are eligible for health care coverage. Certain employee groups, including employees covered by most United Auto Workers bargaining agreements, are provided lifetime health care coverage.

The funded status of the plans is measured as the difference between the plan assets at fair value and the projected benefit obligation (PBO). We have recognized the aggregate of all overfunded plans in Pension plan assets, net, and the aggregate of all underfunded plans in either Accrued retiree health care or Accrued pension plan liability, net. The portion of the amount by which the actuarial present value of benefits included in the PBO exceeds the fair value of plan assets, payable in the next 12 months, is reflected in Accrued liabilities.

The components of net periodic benefit cost are as follows:


	Pension									Other Postretirement Plans
Years ended December 31,	2011			2010			2009			2011			2010			2009
Service cost	$	1,406		$	1,176		$	1,090		$	221		$	121		$	132
Interest cost		3,116			3,002			2,964			484			404			466
Expected return on plan assets		(3,741	)		(3,850	)		(3,738	)		(6	)		(6	)		(5	)
Amortization of prior service costs		244			248			242			(96	)		(78	)		(90	)
Recognized net actuarial loss		1,254			777			650			178			56			92
Settlement/curtailment/transfer loss		64			14			13			3
Net periodic benefit cost	$	2,343		$	1,367		$	1,221		$	784		$	497		$	595

Net periodic benefit cost included in Earnings from operations	$	1,648		$	1,101		$	879		$	692		$	480		$	615

During the quarter ended September 30, 2011, we determined the accumulated benefit obligation (ABO) for certain other postretirement benefit plans was understated. As a result, we recognized an additional $294 of postretirement benefit obligations at September 30, 2011. This increased net periodic benefit cost during 2011 by $184, which includes service cost of $73, interest cost of $68 and recognized net actuarial loss of $43. Had the understatement been recorded at December 31, 2010, the postretirement benefit obligation would have increased by $274 from $8,546 to $8,820. Management believes that these understatements were not material to the current period or prior periods.

Under our accounting policy, a portion of net periodic benefit cost is allocated to production as inventoried costs. Of the $184 increase in net periodic benefit cost described above, the associated cost included in Earnings from operations was $161 for the quarter ended September 30, 2011, with the remaining cost of $23 classified as inventory.

The following tables show changes in the benefit obligation, plan assets and funded status of both pensions and OPB for the years ended December 31, 2011 and 2010. Benefit obligation balances presented below reflect the PBO for our pension plans, and accumulated postretirement benefit obligations (APBO) for our OPB plans.


	Pension						Other Postretirement Benefits
	2011			2010			2011			2010
Change in benefit obligation
Beginning balance	$	59,106		$	52,166		$	8,546		$	7,576
Service cost		1,406			1,176			221			121
Interest cost		3,116			3,002			484			404
Plan participants' contributions		9			9
Amendments		186			142			(719	)		(130	)
Actuarial (gain)/loss		6,586			5,243			(63	)		1,061
Settlement/curtailment/acquisitions/ dispositions, net		(104	)		(93	)		3			32
Gross benefits paid		(2,644	)		(2,567	)		(503	)		(555	)
Medicare Part D subsidy								31			31
Exchange rate adjustment		(10	)		28			(3	)		6
Ending balance	$	67,651		$	59,106		$	7,997		$	8,546

Change in plan assets
Beginning balance at fair value	$	49,252		$	45,810		$	98		$	89
Actual return on plan assets		3,953			5,979			4			11
Company contribution		531			35			17			15
Plan participants' contributions		9			9			3			2
Settlement/curtailment/acquisitions/ dispositions, net		(104	)		(98	)
Benefits paid		(2,581	)		(2,507	)		(20	)		(19	)
Exchange rate adjustment		(9	)		24
Ending balance at fair value	$	51,051		$	49,252		$	102		$	98

Amounts recognized in Consolidated Statement of Financial Position at December 31 consist of:
Pension plan assets, net	$	1		$	6
Other accrued liabilities		(64	)		(60	)	$	(375	)	$	(423	)
Accrued retiree health care								(7,520	)		(8,025	)
Accrued pension plan liability, net		(16,537	)		(9,800	)
Net amount recognized	$	(16,600	)	$	(9,854	)	$	(7,895	)	$	(8,448	)

Amounts recognized in Accumulated other comprehensive loss at December 31 are as follows:


	Pension				Other Postretirement Benefits
	2011		2010		2011			2010
Net actuarial loss	$	24,448	$	19,343	$	1,885		$	2,148
Prior service cost/(credit)		1,118		1,225		(1,008	)		(384	)
Total recognized in Accumulated other comprehensive loss	$	25,566	$	20,568	$	877		$	1,764

The estimated amount that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost during the year ended December 31, 2012 is as follows:


	Pensions		Other Postretirement Benefits
Recognized net actuarial loss	$	1,935	$	123
Amortization of prior service costs/(credits)		226		(197	)
Total	$	2,161	$	(74	)

The ABO for all pension plans was $61,902 and $53,513 at December 31, 2011 and 2010. Key information for our plans with ABO in excess of plan assets as of December 31 is as follows:


	2011		2010
Projected benefit obligation	$	67,418	$	58,772
Accumulated benefit obligation		61,675		53,202
Fair value of plan assets		50,820		48,926

The Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act of 2010 increased our APBO by $300 at December 31, 2010. This includes the impact of the excise tax on high cost health plans scheduled to become payable beginning in 2018. This increase is recognized as an actuarial loss and is amortized over the expected future service of current employees.

Assumptions

The following assumptions, which are the weighted average for all plans, are used to calculate the benefit obligation at December 31 of each year and the net periodic benefit cost for the subsequent year.


December 31,	2011			2010			2009
Discount rate:
Pension		4.40	%		5.30	%		5.80	%
Other postretirement benefits		4.00	%		4.90	%		5.40	%
Expected return on plan assets		7.75	%		7.75	%		8.00	%
Rate of compensation increase		3.90	%		5.20	%		5.50	%

The discount rate for each plan is determined based on the plans' expected future benefit payments using a yield curve developed from high quality bonds that are rated as Aa or better by Moody's as of the measurement date. The yield curve is fitted to yields developed from bonds at various maturity points. Bonds with the ten percent highest and the ten percent lowest yields are omitted. A portfolio of about 400 bonds is used to construct the yield curve. Since corporate bond yields are generally not available at maturities beyond 30 years, it is assumed that spot rates will remain level beyond that 30-year point. The present value of each plan's benefits is calculated by applying the spot/discount rates to projected benefit cash flows. All bonds are U.S. issues, with a minimum outstanding of $50.

The pension fund's expected return on plan assets assumption is derived from a review of actual historical returns achieved by the pension trust and anticipated future long-term performance of individual asset classes. While consideration is given to recent trust performance and historical returns, the assumption represents a long-term, prospective return. The expected return on plan assets component of the net periodic benefit cost for the upcoming plan year is determined based on the expected return on plan assets assumption and the market-related value of plan assets (MRVA). Since our adoption of the accounting standard for pensions in 1987, we have determined the MRVA based on a five-year moving average of plan assets. As of December 31, 2011, the MRVA is approximately $790 less than the fair market value of assets.

Assumed health care cost trend rates were as follows:


December 31,	2011			2010			2009
Health care cost trend rate assumed next year		7.50	%		7.50	%		7.00	%
Ultimate trend rate		5.00	%		5.00	%		5.00	%
Year that trend reached ultimate rate		2018			2018			2014

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. To determine the health care cost trend rates we look at a combination of information including ongoing claims cost monitoring, annual statistical analyses of claims data, reconciliation of forecast claims against actual claims, review of trend assumptions of other plan sponsors and national health trends, and adjustments for plan design changes, workforce changes, and changes in plan participant behavior. A one-percentage-point change in assumed health care cost trend rates would have the following effect:


	Increase		Decrease
Effect on total of service and interest cost	$	63	$	(54	)
Effect on postretirement benefit obligation		642		(572	)

Plan Assets

Investment Strategy The overall objective of our pension assets is to earn a rate of return over time to satisfy the benefit obligations of the pension plans and to maintain sufficient liquidity to pay benefits and address other cash requirements of the pension fund. Specific investment objectives for our long-term investment strategy include reducing the volatility of pension assets relative to pension liabilities, achieving a competitive, total investment return, achieving diversification between and within asset classes and managing other risks. Investment objectives for each asset class are determined based on specific risks and investment opportunities identified.

We periodically update our long-term, strategic asset allocations. We use various analytics to determine the optimal asset mix and consider plan liability characteristics, liquidity characteristics, funding requirements, expected rates of return and the distribution of returns. We identify investment benchmarks for the asset classes in the strategic asset allocation that are market-based and investable where possible.

Actual allocations to each asset class vary from target allocations due to periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions (such as private equity and real estate), and the timing of benefit payments and contributions. Short term investments and exchange-traded derivatives are used to rebalance the actual asset allocation to the target asset allocation. The asset allocation is monitored and rebalanced on a monthly basis.

The actual allocations for the pension assets at December 31 and target allocations by asset class, are as follows:


	Percentage of Plan Assets						Target Allocations
Asset Class	2011			2010			2011			2010
Fixed income		53	%		49	%		49	%		45	%
Global equity		26			33			30			28
Private equity		6			5			6			6
Real estate and real assets		6			5			6			10
Global strategies		4			4			4			5
Hedge funds		5			4			5			6
Total		100	%		100	%		100	%		100	%

Fixed income securities are invested broadly and primarily in long duration instruments. Global equity securities are invested broadly in U.S. and non-U.S. companies which are in various industries and countries and through a range of market capitalizations.

Real estate and real assets include global private investments and publicly traded investments (such as REITs in the case of real estate). Real estate includes but is not limited to investments in office, retail, apartment and industrial properties. Real assets include but are not limited to investments in natural resources (such as energy, farmland and timber), commodities and infrastructure. Private equity investment vehicles are primarily limited partnerships (LPs) and fund-of-funds that mainly invest in U.S. and non-U.S. leveraged buyout, venture capital and special situation strategies.

Global strategies seek to capitalize on inefficiencies identified across different asset classes or markets, primarily using long-short positions in derivatives and physical securities. Hedge fund strategy types include, but are not limited to event driven, relative value, long-short and market neutral. A well-diversified number of hedge funds are held.

Investment managers are retained for explicit investment roles specified by contractual investment guidelines. Certain investment managers are authorized to invest in derivatives, such as equity or bond futures, swaps, options and currency futures or forwards. Derivatives are used to achieve the desired market exposure of a security or an index, transfer value-added performance between asset classes, achieve the desired currency exposure, adjust portfolio duration or rebalance the total portfolio to the target asset allocation.

As a percentage of total plan assets, derivative net notional amounts were 3.9% and 9.8% for fixed income, including to-be-announced mortgage-backed securities and treasury forwards, and 3.5% and negative 0.2% for global equity and currency overlay at December 31, 2011 and 2010.

In November 2009, the Company elected to contribute $1,500 of our common stock to the pension fund. An independent fiduciary was retained to manage and liquidate the stock over time at its discretion. The liquidation of the common stock holdings was completed during 2011.

Risk Management In managing the plan assets, we review and manage risk associated with funded status risk, interest rate risk, market risk, counterparty risk, liquidity risk and operational risk. Liability management and asset class diversification are central to our risk management approach and are integral to the overall investment strategy. Further, asset classes are constructed to achieve diversification by investment strategy, by investment manager, by industry or sector and by holding. Investment manager guidelines for publicly traded assets are specified and are monitored regularly through the custodian. Credit parameters for counterparties have been established for managers permitted to trade over-the-counter derivatives.

Fair Value Measurements The following table presents our plan assets using the fair value hierarchy as of December 31, 2011 and 2010. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs.


	December 31, 2011											December 31, 2010
	Total			Level 1			Level 2			Level 3		Total			Level 1		Level 2			Level 3
Fixed income securities:
Corporate	$	13,921					$	13,910		$	11	$	13,038				$	13,034		$	4
U.S. government and agencies		4,500						4,500					3,734					3,734
Mortgage backed and asset backed		714						703			11		880					847			33
Other		4,352		$	215			4,134			3		3,469		$	19		3,450
Derivatives:
Assets		25						25					18					18
Liabilities		(41	)					(41	)				(20	)				(20	)
Cash equivalents and other short-term investments		3,187			2,634			553					2,781			2,342		439
Currency overlay derivatives:
Assets		89						89					106					106
Liabilities		(94	)					(94	)				(121	)				(121	)
Equity securities:
U.S. common and preferred stock		4,837			4,837								4,925			4,925
Non-U.S. common and preferred stock		6,258			6,257			1					6,414			6,367		47
Boeing company stock													1,498			1,498
Common/collective/ pooled funds		2,235			27			2,208					3,097			105		2,992
Derivatives:
Assets		4			4								21					21
Liabilities		(5	)		(5	)							(11	)				(11	)
Private equity		2,869			10						2,859		2,636			10					2,626
Real estate and real assets		3,110			714			29			2,367		2,488			665		5			1,818
Global strategies		2,202						2,127			75		2,015			443		1,503			69
Hedge funds		2,451									2,451		1,918								1,918
Total	$	50,614		$	14,693		$	28,144		$	7,777	$	48,886		$	16,374	$	26,044		$	6,468

Cash	$	206										$	79
Receivables		503											393
Payables		(272	)										(106	)
Total	$	51,051										$	49,252

Fixed income securities are primarily valued using a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported trades.

Cash equivalents and other short-term investments, which are used to pay benefits, are primarily held in registered money market funds which are valued using a market approach based on the quoted market prices of identical instruments. Other cash equivalent and short-term investments are valued daily by the fund using a market approach with inputs that include quoted market prices for similar instruments.

Common and preferred stock equity securities are primarily valued using a market approach based on the quoted market prices of identical instruments. Common/collective/pooled funds are typically common or collective trusts valued at their net asset values (NAVs) that are calculated by the investment manager or sponsor of the fund and have daily or monthly liquidity. Active currency managers, through an overlay program, invest in a broad set of currency derivatives. Derivatives leveled in the table above are over-the-counter and are primarily valued using an income approach with inputs that include benchmark yields, swap curves, cash flow analysis, rating agency data and interdealer broker rates. Exchange-traded derivative positions are reported in accordance with changes in daily variation margin which is settled daily and therefore reflected in the payables and receivables portion of the table.

Private equity valuations are reported by the fund manager and are based on the valuation of the underlying investments, which include inputs such as cost, operating results, discounted future cash flows and market based comparable data.

Real estate and real asset fund values are primarily reported by the fund manager and are based on valuation of the underlying investments, which include inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data. Publically traded REITs and infrastructure stocks are valued using a market approach based on quoted market prices of identical instruments. Exchange-traded commodities futures positions are reported in accordance with changes in daily variation margin which is settled daily and therefore reflected in the payables and receivables portion of the table.

Global strategies are primarily limited liability company (LLC) or mutual fund structures. The LLCs are primarily valued using a market approach based on NAVs calculated by the fund and have monthly liquidity. Global strategies mutual funds are valued using a market approach based on the quoted market prices of identical instruments.

Hedge funds consist of fund-of-fund LLC or commingled fund structures and direct hedge funds. The LLCs are primarily valued using a market approach based on NAVs calculated by the fund and are not publicly available. Liquidity for the LLCs is monthly and is subject to liquidity of the underlying hedge funds. The commingled fund NAV is calculated by the manager on a daily basis and has monthly liquidity. Direct hedge funds are primarily valued by each fund's third party administrator based on valuation of the underlying securities and instruments and primarily applying a market or income valuation methodology depending on the specific type of security or instrument, equity, fixed income, currency or derivative, held. Direct hedge fund NAVs based on valuation of the underlying holdings are not publicly available and have monthly liquidity.

Some of our assets, primarily our private equity, real estate and real assets, hedge funds and global strategies, do not have readily determinable market values given the specific investment structures involved and the nature of the underlying investments. For the December 31, 2011 and 2010 plan asset reporting, publicly traded asset pricing was used where possible. For assets without readily determinable values, estimates were derived from investment manager discussions focusing on underlying fundamentals and significant events. For those investments reported on a one-quarter lagged basis (primarily LPs) we use net asset values, adjusted for subsequent cash flows and significant events.

The following tables present a reconciliation of Level 3 assets held during the year ended December 31, 2011 and 2010. Transfers into and out of Level 3 are treated as beginning of year values.


	January 1, 2011 Balance		Net Realized and Unrealized Gains/(Losses)			Net Purchases, Issuances and Settlements			Net Transfers Into/(Out of) Level 3		December 31, 2011 Balance
Fixed income securities:
Corporate	$	4				$	6		$	1	$	11
Mortgage backed and asset backed		33	$	2			(25	)		1		11
Other							3					3
Private equity		2,626		327			(94	)				2,859
Real estate and real assets		1,818		246			303					2,367
Global strategies		69		6								75
Hedge funds		1,918		(52	)		585					2,451
Total	$	6,468	$	529		$	778		$	2	$	7,777

For the year ended December 31, 2011, the change in unrealized gain/(loss) for Level 3 assets still held at December 31, 2011 were $234 for private equity, $287 for real estate and real assets and $(46) for hedge funds.


	January 1, 2010 Balance		Net Realized and Unrealized Gains/(Losses)			Net Purchases, Issuances and Settlements			Net Transfers Into/(Out of) Level 3			December 31, 2010 Balance
Fixed income securities:
Corporate	$	5				$	(1	)				$	4
Mortgage backed and asset backed		23	$	(1	)		15			(4	)		33
Private equity		2,291		379			(44	)					2,626
Real estate and real assets		1,337		157			324						1,818
Global strategies				(1	)		70						69
Hedge funds		1,011		92			815						1,918
Total	$	4,667	$	626		$	1,179		$	(4	)	$	6,468

For the year ended December 31, 2010, the change in unrealized gain for Level 3 assets still held at December 31, 2010 were $397 for private equity, $136 for real estate and real assets and $92 for hedge funds.

OPB Plan Assets The majority of OPB plan assets are invested in a balanced index fund which is comprised of approximately 60% equities and 40% debt securities. The index fund is valued using a market approach based on the quoted market price of an identical instrument (Level 1). The expected rate of return on these assets does not have a material effect on the net periodic benefit cost.

Cash Flows

Contributions Required pension contributions under the Employee Retirement Income Security Act (ERISA) as well as rules governing funding of our non-U.S. pension plans, are expected to be minimal in 2012. We expect to make discretionary contributions to our plans of approximately $1,500 in 2012. We expect to contribute approximately $15 to our OPB plans in 2012.

Estimated Future Benefit Payments The table below reflects the total pension benefits expected to be paid from the plans or from our assets, including both our share of the benefit cost and the participants' share of the cost, which is funded by participant contributions. OPB payments reflect our portion only.


Year(s)	2012			2013			2014			2015			2016			2017–2021
Pensions	$	2,829		$	2,979		$	3,140		$	3,313		$	3,448		$	19,501
Other postretirement benefits:
Gross benefits paid		498			520			545			570			599			3,351
Medicare Part D subsidy		(21	)		(22	)		(23	)		(24	)		(24	)		(126	)
Net other postretirement benefits	$	477		$	498		$	522		$	546		$	575		$	3,225

Termination Provisions

Certain of the pension plans provide that, in the event there is a change in control of the Company which is not approved by the Board of Directors and the plans are terminated within five years thereafter, the assets in the plan first will be used to provide the level of retirement benefits required by ERISA, and then any surplus will be used to fund a trust to continue present and future payments under the postretirement medical and life insurance benefits in our group insurance benefit programs.

We have an agreement with the U.S. government with respect to certain pension plans. Under the agreement, should we terminate any of the plans under conditions in which the plan's assets exceed that plan's obligations, the U.S. government will be entitled to a fair allocation of any of the plan's assets based on plan contributions that were reimbursed under U.S. government contracts.

Defined Contribution Plans

We provide certain defined contribution plans to all eligible employees. The principal plans are the Company-sponsored 401(k) plans. The expense for these defined contribution plans was $658, $614 and $591 in 2011, 2010 and 2009, respectively.