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Pensions and Postretirement Benefits Other Than Pensions
 12 Months Ended
Dec. 31, 2011
General Discussion of Pension and Other Postretirement Benefits [Abstract]  
Pensions and Postretirement Benefits Other Than Pensions
PENSIONS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors several U.S. defined benefit and defined contribution pension plans covering substantially all of our U.S. employees. Additionally, the Company has many non-U.S. defined benefit and defined contribution pension plans covering non-U.S. eligible employees. Postretirement benefits, other than pensions, provide healthcare benefits, and in some instances, life insurance benefits for certain eligible employees.
Pension Plans
The Company has noncontributory defined benefit pension plans covering substantially all U.S. employees. Most of the plans for non-collectively bargained U.S. employees provide benefits on an average pay formula while most plans for collectively bargained U.S. employees provide benefits on a flat dollar benefit formula. Effective January 1, 2010, non-collectively bargained U.S. employees of Trane began to participate in the Company’s primary defined benefit pension plan for U.S. non-collectively bargained employees. In addition, the Company maintains non-U.S. pension plans for certain eligible non-U.S. employees. These plans generally provide benefits based on earnings and years of service. The Company also maintains additional other supplemental plans for officers and other key employees.
In connection with the Hussmann divestiture, the Company transferred its obligation for pension benefits for all current and former employees related to the divestiture that were participants in the Hussmann International Plan.
The following table details information regarding the Company’s pension plans at December 31:
 
In millions
 
2011
 
2010
Change in benefit obligations:
 
 
 
 
Benefit obligation at beginning of year
 
$
3,799.5

 
$
3,598.9

Service cost
 
93.5

 
87.1

Interest cost
 
185.5

 
194.5

Employee contributions
 
1.9

 
1.8

Amendments
 
0.9

 
4.7

Actuarial (gains) losses
 
273.4

 
184.7

Benefits paid
 
(244.4
)
 
(231.2
)
Currency translation
 
(6.0
)
 
(34.6
)
Curtailments and settlements
 
(254.8
)
 
(1.6
)
Other, including expenses paid
 
(8.4
)
 
(4.8
)
Benefit obligation at end of year
 
$
3,841.1

 
$
3,799.5

Change in plan assets:
 
 
 
 
Fair value at beginning of year
 
$
3,248.6

 
$
2,695.9

Actual return on assets
 
270.3

 
316.9

Company contributions
 
57.3

 
499.2

Employee contributions
 
1.9

 
1.8

Benefits paid
 
(244.4
)
 
(231.2
)
Currency translation
 
(3.8
)
 
(25.4
)
Settlements
 
(221.1
)
 
(3.8
)
Other, including expenses paid
 
(8.4
)
 
(4.8
)
Fair value of assets end of year
 
$
3,100.4

 
$
3,248.6

Funded status:
 
 
 
 
Plan assets less than the benefit obligations
 
$
(740.7
)
 
$
(550.9
)
Amounts included in the balance sheet:
 
 
 
 
Other noncurrent assets
 
$
4.7

 
$
5.1

Accrued compensation and benefits
 
(14.8
)
 
(40.3
)
Postemployment and other benefit liabilities
 
(730.6
)
 
(477.9
)
Liabilities held for sale
 
—

 
(37.8
)
Net amount recognized
 
$
(740.7
)
 
$
(550.9
)


It is the Company’s objective to contribute to the pension plans to ensure adequate funds are available in the plans to make benefit payments to plan participants and beneficiaries when required. However, certain plans are not or cannot be funded due to either legal, accounting, or tax requirements in certain jurisdictions. As of December 31, 2011, approximately five percent of our projected benefit obligation relates to plans that cannot be funded.
The pretax amounts recognized in Accumulated other comprehensive income (loss) were as follows:
 
In millions
 
Prior service cost
 
Net actuarial losses
 
Total
December 31, 2010
 
$
(38.2
)
 
$
(1,121.0
)
 
$
(1,159.2
)
Current year changes recorded to Accumulated other comprehensive income (loss)
 
(0.9
)
 
(219.7
)
 
(220.6
)
Amortization reclassified to earnings
 
5.6

 
51.1

 
56.7

Settlements/curtailments reclassified to earnings
 
3.1

 
90.2

 
93.3

Currency translation and other
 
—

 
(0.6
)
 
(0.6
)
December 31, 2011
 
$
(30.4
)
 
$
(1,200.0
)
 
$
(1,230.4
)

 
Weighted-average assumptions used:
Benefit obligations at December 31,
 
2011
 
2010
Discount rate:
 
 
 
 
U.S. plans
 
4.25
%
 
5.00
%
Non-U.S. plans
 
5.00
%
 
5.50
%
Rate of compensation increase:
 
 
 
 
U.S. plans
 
4.00
%
 
4.00
%
Non-U.S. plans
 
4.00
%
 
4.50
%

The accumulated benefit obligation for all defined benefit pension plans was $3,637.8 million and $3,630.6 million at December 31, 2011 and 2010, respectively. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations more than plan assets were $3,750.6 million, $3,560.1 million and $3,009.3 million, respectively, as of December 31, 2011, and $2,210.5 million, $2,120.9 million and $1,683.2 million, respectively, as of December 31, 2010.
Pension benefit payments are expected to be paid as follows:
 
In millions
  
2012
$
215.0

2013
211.4

2014
214.1

2015
230.2

2016
227.8

2017 - 2021
1,258.2



The components of the Company’s pension related costs for the years ended December 31 include the following:
 
In millions
 
2011
 
2010
 
2009
Service cost
 
$
93.5

 
$
87.1

 
$
65.4

Interest cost
 
185.5

 
194.5

 
197.2

Expected return on plan assets
 
(219.6
)
 
(196.3
)
 
(178.4
)
Net amortization of:
 
 
 
 
 
 
Prior service costs
 
5.6

 
8.2

 
8.5

Transition amount
 
—

 
0.1

 
0.2

Plan net actuarial losses
 
51.1

 
55.5

 
59.4

Net periodic pension benefit cost
 
116.1

 
149.1

 
152.3

Net curtailment and settlement (gains) losses
 
62.5

 
6.2

 
2.0

Net periodic pension benefit cost after net curtailment and settlement (gains) losses
 
$
178.6

 
$
155.3

 
$
154.3

Amounts recorded in continuing operations
 
$
177.2

 
$
148.4

 
$
142.9

Amounts recorded in discontinued operations
 
1.4

 
6.9

 
11.4

Total
 
$
178.6

 
$
155.3

 
$
154.3


The curtailment and settlement losses in 2011 are associated with the divestiture of Hussmann, and lump sum distributions under supplemental benefit plans for officers and other key employees. The curtailment and settlement losses in 2010 and 2009 are associated with lump sum distributions under supplemental benefit plans for officers and other key employees.
Pension expense for 2012 is projected to be approximately $158.6 million, utilizing the assumptions for calculating the pension benefit obligations at the end of 2011. The amounts expected to be recognized in net periodic pension cost during the year ended 2012 for prior service cost and plan net actuarial losses are $5.5 million and $59.8 million, respectively.
Weighted-average assumptions used:
Net periodic pension cost for the year ended December 31,
 
2011
 
2010
 
2009
Discount rate:
 
 
 
 
 
 
U.S. plans
 
5.00
%
 
5.75
%
 
6.25
%
Non-U.S. plans
 
5.50
%
 
5.50
%
 
6.50
%
Rate of compensation increase:
 
 
 
 
 
 
U.S. plans
 
4.00
%
 
4.00
%
 
4.00
%
Non-U.S. plans
 
4.50
%
 
4.50
%
 
4.50
%
Expected return on plan assets:
 
 
 
 
 
 
U.S. plans
 
7.25
%
 
7.75
%
 
7.75
%
Non-U.S. plans
 
6.25
%
 
7.00
%
 
7.25
%

The expected long-term rate of return on plan assets reflects the average rate of returns expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. The expected long-term rate of return on plan assets is based on what is achievable given the plan’s investment policy, the types of assets held and target asset allocations. The expected long-term rate of return is determined as of the measurement date. The Company reviews each plan and its historical returns and target asset allocations to determine the appropriate expected long-term rate of return on plan assets to be used.
The Company's objective in managing its defined benefit plan assets is to ensure that all present and future benefit obligations are met as they come due. It seeks to achieve this goal while trying to mitigate volatility in plan funded status, contribution and expense by better matching the characteristics of the plan assets to that of the plan liabilities. Prior to 2011, the Company utilized asset/liability modeling studies as the basis for global asset allocation decisions. In 2011, the Company adopted a dynamic approach to asset allocation whereby a plan's allocation to fixed income assets increases progressively over time towards an ultimate target of 90% as a plan moves toward full funding. The Company monitors plan funded status and asset allocation regularly in addition to investment manager performance.
The fair values of the Company’s pension plan assets at December 31, 2011 by asset category are as follows:
 
 
 
Fair value measurements
 
Total
fair value
In millions
 
Level 1
 
Level 2
 
Level 3
 
Cash and cash equivalents
 
$
1.5

 
$
29.0

 
$
—

 
$
30.5

Equity investments:
 
 
 
 
 
 
 
 
Commingled funds – equity specialty(a)
 
—

 
863.8

 
—

 
863.8

 
 
—

 
863.8

 
—

 
863.8

Fixed income investments:
 
 
 
 
 
 
 
 
U.S. government and agency obligations(b)
 
—

 
866.6

 
—

 
866.6

Corporate and non-U.S. bonds
 
—

 
781.9

 
—

 
781.9

Asset-backed and mortgage-backed securities
 
—

 
33.6

 
—

 
33.6

Commingled funds – fixed income specialty(c)
 
25.2

 
410.8

 
—

 
436.0

Other fixed income(d)
 
—

 
—

 
21.0

 
21.0

 
 
25.2

 
2,092.9

 
21.0

 
2,139.1

Derivatives
 
—

 
0.1

 
—

 
0.1

Real estate(e)
 
—

 
—

 
33.6

 
33.6

Other(f)
 
—

 
—

 
42.6

 
42.6

Total assets at fair value
 
$
26.7

 
$
2,985.8

 
$
97.2

 
$
3,109.7

Receivables and payables, net
 
 
 
 
 
 
 
(9.3
)
Net assets available for benefits
 
 
 
 
 
 
 
$
3,100.4

(a)
This class includes commingled funds that focus on equity investments. It includes both indexed and actively managed funds.
(b)
This class represents U.S. treasuries and state and municipal bonds.
(c)
This class comprises commingled funds that focus on fixed income securities.
(d)
This class includes group annuity and guaranteed interest contracts as well as other miscellaneous fixed income securities.
(e)
This class includes several private equity funds that invest in real estate. It includes both direct investment funds and funds-of-funds.
(f)
This investment comprises the Company’s non-significant, non-U.S. pension plan assets. It mostly includes insurance contracts.
The fair values of the Company’s pension plan assets at December 31, 2010 by asset category are as follows:
 
 
 
Fair value measurements
 
Total
fair value
In millions
 
Level 1
 
Level 2
 
Level 3
 
Cash and cash equivalents
 
$
40.6

 
$
169.6

 
$
—

 
$
210.2

Equity investments:
 
 
 
 
 
 
 
 
Commingled funds – equity specialty(a)
 
—

 
1,381.4

 
—

 
1,381.4

 
 
—

 
1,381.4

 
—

 
1,381.4

Fixed income investments:
 
 
 
 
 
 
 
 
U.S. government and agency obligations(b)
 
—

 
449.0

 
—

 
449.0

Corporate and non-U.S. bonds
 
—

 
532.3

 
—

 
532.3

Asset-backed and mortgage-backed securities
 
—

 
202.6

 
—

 
202.6

Commingled funds – fixed income specialty(c)
 
25.4

 
369.8

 
—

 
395.2

Other fixed income(d)
 
—

 
—

 
22.2

 
22.2

 
 
25.4

 
1,553.7

 
22.2

 
1,601.3

Derivatives
 
—

 
(0.4
)
 
—

 
(0.4
)
Real estate(e)
 
—

 
—

 
28.5

 
28.5

Other(f)
 
—

 
—

 
45.4

 
45.4

Total assets at fair value
 
$
66.0

 
$
3,104.3

 
$
96.1

 
$
3,266.4

Receivables and payables, net
 
 
 
 
 
 
 
(17.8
)
Net assets available for benefits
 
 
 
 
 
 
 
$
3,248.6

(a)
This class includes commingled funds that focus on equity investments. It includes both indexed and actively managed funds.
(b)
This class represents U.S. treasuries and state and municipal bonds.
(c)
This class comprises commingled funds that focus on fixed income securities.
(d)
This class includes group annuity and guaranteed interest contracts as well as other miscellaneous fixed income securities.
(e)
This class includes several private equity funds that invest in real estate. It includes both direct investment funds and funds-of-funds.
(f)
This investment comprises the Company’s non-significant, non-U.S. pension plan assets. It mostly includes insurance contracts.
Cash equivalents are valued using a market approach with inputs including quoted market prices for either identical or similar instruments. Fixed income securities are valued through a market approach with inputs including, but not limited to, benchmark yields, reported trades, broker quotes and issuer spreads. Commingled funds are valued at their daily net asset value (NAV) per share or the equivalent. NAV per share or the equivalent is used for fair value purposes as a practical expedient. NAVs are calculated by the investment manager or sponsor of the fund. Private real estate fund values are reported by the fund manager and are based on valuation or appraisal of the underlying investments.
See Note 11 for additional information related to the fair value hierarchy defined by ASC 820.
The Company made required and discretionary contributions to its pension plans of $57.3 million in 2011, $499.2 million in 2010, and $113.5 million in 2009. The Company currently projects that it will contribute approximately $98.3 million to its plans worldwide in 2012. The Company’s policy allows it to fund an amount, which could be in excess of or less than the pension cost expensed, subject to the limitations imposed by current tax regulations. The Company anticipates funding the plans in 2012 in accordance with contributions required by funding regulations or the laws of each jurisdiction.
Most of the Company’s U.S. employees are covered by savings and other defined contribution plans. Employer contributions are determined based on criteria specific to the individual plans and amounted to approximately $79.2 million, $69.9 million, and $86.0 million in 2011, 2010 and 2009, respectively. The Company’s contributions relating to non-U.S. defined contribution plans and other non-U.S. benefit plans were $28.8 million, $20.4 million and $19.5 million in 2011, 2010 and 2009, respectively.
Multiemployer Pension Plans
The Company also participates in a number of multiemployer defined benefit pension plans related to collectively bargained U.S. employees of Trane. The Company's contributions, and the administration of the fixed retirement payments, are determined by the terms of the related collective-bargaining agreements. These multiemployer plans pose different risks to the Company than single-employer plans, including:
1.
The Company's contributions to multiemployer plans may be used to provide benefits to all participating employees of the program, including employees of other employers.
2.
In the event that another participating employer ceases contributions to a plan, the Company may be responsible for any unfunded obligations along with the remaining participating employers.
3.
If the Company chooses to withdraw from any of the multiemployer plans, the Company may be required to pay a withdrawal liability, based on the underfunded status of the plan.
As of December 31, 2011, the Company does not contribute to any plans which are individually significant, nor is the Company an individually significant contributor to any of these plans. Total contributions to multiemployer plans, excluding Hussmann, for the years ended December 31 were as follows:
In millions
 
2011
 
2010
 
2009
Total contributions
 
$
5.2

 
$
4.8

 
$
4.1


Contributions to these plans may increase in the event that any of these plans are underfunded.
During 2011, the Company divested the Hussmann Business and Branches which participated in various multiemployer pension plans. For the years ended December 31, 2011, 2010, and 2009, the Company contributed approximately $6.4 million, $9.4 million and $8.6 million, respectively, to such plans. These contributions will not occur in future periods.
Postretirement Benefits Other Than Pensions
The Company sponsors several postretirement plans that provide for healthcare benefits, and in some instances, life insurance benefits that cover certain eligible employees. These plans are unfunded and have no plan assets, but are instead funded by the Company on a pay-as-you-go basis in the form of direct benefit payments. Generally, postretirement health benefits are contributory with contributions adjusted annually. Life insurance plans for retirees are primarily noncontributory.
In March 2010, the Patient Protection and Affordable Care Act and the Healthcare and Education Reform Reconciliation Bill of 2010 (collectively, the Healthcare Reform Legislation) were signed into law. The Healthcare Reform Legislation contains provisions which could impact our accounting for retiree medical benefits in future periods. The retiree medical plans currently receive the retiree drug subsidy under Medicare Part D. No later than 2014, a significant portion of the drug coverage will be moved to an Employer Group Waiver Plan while retaining the same benefit provisions. This change allowable under the Healthcare Reform Legislation resulted in an actuarial gain which decreased the December 31, 2010 retiree medical plan liability, as well as the net actuarial losses in other comprehensive income by $41.1 million.
The Company will continue to monitor the Healthcare Reform Legislation to review provisions which could impact its accounting for retiree medical benefits in future periods. The Company may consider future plan amendments, which may have accounting implications as further regulations are promulgated and interpretations of the legislation become available. Additionally, the Company continues to monitor the individual market place for post-65 retiree medical coverage and will consider amendments to its health plans, which may have accounting implications on its plans.
In connection with the Hussmann divestiture, the Company transferred its obligation for postretirement benefits other than pensions for all current and former employees related to the divestiture.
The following table details information regarding the Company’s postretirement plans at December 31:
 
In millions
 
2011
 
2010
Change in benefit obligations:
 
 
 
 
Benefit obligation at beginning of year
 
$
883.0

 
$
979.4

Service cost
 
8.4

 
8.9

Interest cost
 
42.0

 
48.1

Plan participants’ contributions
 
20.5

 
20.7

Actuarial (gains) losses
 
63.3

 
(86.2
)
Benefits paid, net of Medicare Part D subsidy *
 
(81.2
)
 
(83.4
)
Settlements/curtailments
 
(12.7
)
 
—

Amendments
 
(2.2
)
 
(5.5
)
Other
 
(1.2
)
 
1.0

Benefit obligations at end of year
 
$
919.9

 
$
883.0

* Amounts are net of Medicare Part D subsidy of $7.4 and $7.9 million in 2011 and 2010, respectively
 
Funded status:
 
 
 
 
Plan assets less than benefit obligations
 
$
(919.9
)
 
$
(883.0
)
Amounts included in the balance sheet:
 
 
 
 
Accrued compensation and benefits
 
$
(71.8
)
 
$
(75.3
)
Postemployment and other benefit liabilities
 
(848.1
)
 
(794.3
)
Liabilities held for sale
 
—

 
(13.4
)
Total
 
$
(919.9
)
 
$
(883.0
)


The pretax amounts recognized in Accumulated other comprehensive income (loss) were as follows:
 
In millions
 
Prior service gains
 
Net actuarial losses
 
Total
Balance at December 31, 2010
 
$
6.3

 
$
(113.0
)
 
$
(106.7
)
Current year changes recorded to Accumulated other comprehensive income (loss)
 
2.2

 
(63.3
)
 
(61.1
)
Amortization reclassified to earnings
 
(3.5
)
 
1.6

 
(1.9
)
Settlements/curtailments reclassified to earnings
 
—

 
2.6

 
2.6

Currency translation and other
 
—

 
(0.1
)
 
(0.1
)
Balance at December 31, 2011
 
$
5.0

 
$
(172.2
)
 
$
(167.2
)

The components of net periodic postretirement benefit (income) cost for the years ended December 31 were as follows:
 
In millions
 
2011
 
2010
 
2009
Service cost
 
$
8.4

 
$
8.9

 
$
9.0

Interest cost
 
42.0

 
48.1

 
55.8

Net amortization of:
 
 
 
 
 
 
Prior service gains
 
(3.5
)
 
(3.4
)
 
(3.2
)
Net actuarial losses
 
1.6

 
11.0

 
11.6

Net periodic postretirement benefit cost
 
48.5

 
64.6

 
73.2

Net curtailment and settlement (gains) losses
 
(10.1
)
 
—

 
(0.5
)
Net periodic postretirement benefit (income) cost after net curtailment and settlement (gains) losses
 
$
38.4

 
$
64.6

 
$
72.7

Amounts recorded in continuing operations
 
$
20.9

 
$
39.4

 
$
43.9

Amounts recorded in discontinued operations
 
17.5

 
25.2

 
28.8

Total
 
$
38.4

 
$
64.6

 
$
72.7


The curtailment and settlement gains and losses in 2011 are associated with the divestiture of Hussmann. The curtailment and settlement gains and losses in 2009 are associated with the restructuring of U.S. operations. Postretirement cost for 2012 is projected to be $51.8 million. Amounts expected to be recognized in net periodic postretirement benefits cost in 2012 for prior service gains and plan net actuarial losses are $1.3 million and $8.5 million, respectively.
 
Assumptions:
 
2011
 
2010
 
2009
Weighted-average discount rate assumption to determine:
 
 
 
 
 
 
Benefit obligations at December 31
 
4.00
%
 
5.00
%
 
5.50
%
Net periodic benefit cost
 
5.00
%
 
5.50
%
 
6.25
%
Assumed health-care cost trend rates at December 31:
 
 
 
 
 
 
Current year medical inflation
 
8.45
%
 
8.85
%
 
9.25
%
Ultimate inflation rate
 
5.00
%
 
5.00
%
 
5.00
%
Year that the rate reaches the ultimate trend rate
 
2021

 
2021

 
2021


A 1% change in the medical trend rate assumed for postretirement benefits would have the following effects at December 31, 2011:
 
In millions
 
1%
Increase
 
1%
Decrease
Effect on total of service and interest cost components
 
$
1.8

 
$
(1.7
)
Effect on postretirement benefit obligation
 
42.5

 
(37.1
)


Benefit payments for postretirement benefits, which are net of expected plan participant contributions and Medicare Part D subsidy, are expected to be paid as follows:
 
In millions
  
2012
$
73.2

2013
72.5

2014
70.1

2015
69.1

2016
68.5

2017 - 2021
321.1