Pensions and Postretirement Benefits Other than Pensions

9 Months Ended

Sep. 30, 2012

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 noncontributory defined benefit pension plans covering 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. The non-U.S. pension 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.

On June 8, 2012, the Board of Directors approved amendments to the Company's retirement pension plans for certain U.S. and Puerto Rico non-bargained employees. All eligible non-bargained employees hired prior to July 1, 2012 will be given a choice of remaining in the applicable defined benefit plan until the plans freeze on December 31, 2022 or freezing their accrued benefits in their respective defined benefit plans as of December 31, 2012 and receiving an additional 2% non-matching Company contribution into the Company's applicable defined contribution plan. Eligible employees who elect to remain in a defined benefit plan until the plan freezes on December 31, 2022 will receive the 2% non-matching contribution into the defined contribution savings plan beginning January 1, 2023. All employees hired or rehired on or after July 1, 2012 will automatically receive the 2% non-matching contribution into the applicable defined contribution savings plan. As a result of these changes, the Company's projected benefit obligations for the amended plans were remeasured as of June 8, 2012, which included updating the discount rate assumption to 4.00% from the 4.25% assumed at December 31, 2011. The amendments resulted in a curtailment loss of $4.0 million. The amendment and remeasurement resulted in an increase of $1.0 million to the projected benefit obligation, an increase of $29.4 million to the plan assets, an actuarial gain of $28.4 million and a credit of $4.0 million to prior service cost.

In connection with the Hussmann divestiture, the Company transferred its obligations for pension benefits for all current and former employees related to the divestiture.

The components of the Company’s net periodic pension benefit costs for the three and nine months ended September 30 were as follows:

	Three months ended						Nine months ended
In millions	2012			2011			2012			2011
Service cost	$	23.5		$	23.1		$	73.0		$	71.4
Interest cost	40.9			46.3			122.3			141.8
Expected return on plan assets	(43.9		)	(55.8		)	(129.5		)	(167.8		)
Net amortization of:
Prior service costs	1.3			1.5			4.0			4.3
Plan net actuarial losses	15.7			12.0			45.0			39.4
Net periodic pension benefit cost	37.5			27.1			114.8			89.1
Net curtailment and settlement losses	0.4			1.6			4.5			7.4
Net periodic pension benefit cost after net curtailment and  settlement losses	$	37.9		$	28.7		$	119.3		$	96.5
Amounts recorded in continuing operations	$	36.6		$	28.1		$	112.2		$	95.5
Amounts recorded in discontinued operations	1.3			0.6			7.1			1.0
Total	$	37.9		$	28.7		$	119.3		$	96.5

The Company made required and discretionary employer contributions of $34.6 million and $45.3 million to its defined benefit pension plans during the nine months ended September 30, 2012 and 2011, respectively.

Pension expense for 2012 is projected to be $155.8 million as compared to $158.6 million projected at December 31, 2011. The curtailment and settlement losses in 2012 are associated with the recent amendments to the pension plans and lump sum distributions under the supplemental benefit plans for officers and key employees. The curtailment and settlement losses in 2011 are only associated with lump sum distributions under supplemental benefit plans.

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.

The Board of Directors approved healthcare benefit amendments on February 1, 2012 to its postretirement plans for post-65 retiree medical coverage. Effective January 1, 2013, the Company will discontinue offering company-sponsored retiree medical coverage for certain individuals 65 and older. The Company will transition such individuals to coverage through the individual Medicare market and will provide a tax-advantaged subsidy to those retirees currently eligible for subsidized company coverage that can be used toward reimbursing premiums for individual Medicare supplemental coverage purchased through the Company's third-party Medicare coordinator and other qualified medical expenses. As a result of these changes, the Company's projected benefit obligations were remeasured as of February 1, 2012, which included updating the discount rate assumption to 3.75% from the 4.00% assumed at December 31, 2011. The remeasurement resulted in a decrease of $40.5 million to the projected benefit obligation, an actuarial loss of $21.3 million and a credit of $61.8 million to prior service cost. Postretirement benefit cost for 2012 is projected to be $39.7 million as compared to $51.8 million projected at December 31, 2011.

The Company will continue to monitor 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.

In connection with the Hussmann divestiture, the Company transferred its obligations for postretirement benefits other than pensions for all current and former employees related to the divestiture.

The components of net periodic postretirement benefit cost for the three and nine months ended September 30 were as follows:

	Three months ended						Nine months ended
In millions	2012			2011			2012			2011
Service cost	$	1.6		$	2.2		$	5.5		$	6.4
Interest cost	7.0			10.6			23.2			31.8
Net amortization of:
Prior service gains	(2.6		)	(0.9		)	(7.5		)	(2.6		)
Net actuarial losses	0.1			0.7			5.4			2.2
Net periodic postretirement benefit cost	$	6.1		$	12.6		$	26.6		$	37.8
Amounts recorded in continuing operations	$	4.4		$	8.5		$	17.5		$	25.3
Amounts recorded in discontinued operations	1.7			4.1			9.1			12.5
Total	$	6.1		$	12.6		$	26.6		$	37.8