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Postemployment benefit plans
12 Months Ended
Dec. 31, 2012
Compensation and Retirement Disclosure [Abstract]  
Postemployment benefit plans
Postemployment benefit plans
 
We have both U.S. and non-U.S. pension plans covering substantially all of our U.S. employees and a portion of our non-U.S. employees, located primarily in Europe, Japan and Brazil. Our defined benefit plans provide a benefit based on years of service and/or the employee’s average earnings near retirement. Our defined contribution plans allow employees to contribute a portion of their salary to help save for retirement, and in certain cases, we provide a matching contribution. We also have defined benefit retirement health care and life insurance plans covering substantially all of our U.S. employees.
  
As announced in August 2010, on January 1, 2011, our retirement benefits for U.S. support and management employees began transitioning from defined benefit pension plans to defined contribution plans.  The transition date was determined for each employee based upon age and years of service or proximity to retirement.  Pension benefit accruals were frozen for certain employees on December 31, 2010, and will freeze for remaining employees on December 31, 2019. On the respective transition dates employees move to a retirement benefit that provides a frozen pension benefit and a 401(k) plan that provides an annual employer contribution. The plan change required a re-measurement as of August 31, 2010, which resulted in an increase in our Liability for postemployment benefits of $1.32 billion and a decrease in Accumulated other comprehensive income (loss) of $831 million net of tax.  The increase in the liability was due to a decline in the discount rate and lower than expected asset returns at the re-measurement date.  Curtailment expense of $28 million was also recognized in 2010 as a result of the plan change.
 
In February 2012, we announced the closure of the Electro-Motive Diesel facility located in London, Ontario. As a result of the closure, we recognized a $37 million other postretirement benefits curtailment gain. This excludes a $21 million loss of a third-party receivable for other postretirement benefits that was eliminated due to the closure. In addition, a $10 million special termination benefit expense was recognized related to statutory pension benefits required to be paid to certain affected employees. As a result, a net gain of $6 million related to the facility closure was recognized in Other operating (income) expenses in Statement 1.

In August 2012, we announced changes to our U.S. hourly pension plan, which impacted certain hourly employees. For impacted employees, pension benefit accruals will freeze on January 1, 2013 or January 1, 2016, at which time employees will become eligible for various provisions of company sponsored 401(k) plans including a matching contribution and an annual employer contribution. The plan changes resulted in a curtailment and required a remeasurement as of August 31, 2012. The curtailment and the remeasurement resulted in a net increase in our Liability for postemployment benefits of $243 million and a net loss of $153 million, net of tax, recognized in Accumulated other comprehensive income (loss). The increase in the liability was primarily due to a decline in the discount rate. Also, the curtailment resulted in expense of $7 million which was recognized in Other operating (income) expenses in Statement 1.
A.
Benefit obligations
 
 
 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other Postretirement 
Benefits
(Millions of dollars)
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
Change in benefit obligation:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Benefit obligation, beginning of year
 
$
14,782

 
$
13,024

 
$
12,064

 
$
4,299

 
$
3,867

 
$
3,542

 
$
5,381

 
$
5,184

 
$
4,537

Service cost
 
185

 
158

 
210

 
108

 
115

 
92

 
92

 
84

 
68

Interest cost
 
609

 
651

 
652

 
182

 
182

 
162

 
221

 
253

 
245

Plan amendments
 

 
1

 
4

 
12

 
(24
)
 
35

 
(38
)
 
(121
)
 

Actuarial losses (gains)
 
1,168

 
1,635

 
1,140

 
385

 
312

 
153

 
186

 
306

 
602

Foreign currency exchange rates
 

 

 

 
49

 
(32
)
 
34

 
(11
)
 
(19
)
 
14

Participant contributions
 

 

 

 
9

 
9

 
9

 
48

 
44

 
45

Benefits paid - gross
 
(831
)
 
(823
)
 
(820
)
 
(190
)
 
(187
)
 
(168
)
 
(394
)
 
(388
)
 
(379
)
Less: federal subsidy on benefits paid
 

 

 

 

 

 

 
16

 
14

 
15

Curtailments, settlements and special termination benefits
 

 
(3
)
 
(235
)
 
(67
)
 
(83
)
 
(52
)
 
(48
)
 
(6
)
 

Acquisitions, divestitures and other 1
 

 
139

 
9

 
(50
)
 
140

 
60

 

 
30

 
37

Benefit obligation, end of year
 
$
15,913

 
$
14,782

 
$
13,024

 
$
4,737

 
$
4,299

 
$
3,867

 
$
5,453

 
$
5,381

 
$
5,184

Accumulated benefit obligation, end of year
 
$
15,132

 
$
14,055

 
$
12,558

 
$
4,329

 
$
3,744

 
$
3,504

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average assumptions used to determine benefit obligation:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Discount rate
 
3.7
%
 
4.3
%
 
5.1
%
 
3.7
%
 
4.3
%
 
4.6
%
 
3.7
%
 
4.3
%
 
5.0
%
Rate of compensation increase
 
4.5
%
 
4.5
%
 
4.5
%
 
3.9
%
 
3.9
%
 
4.2
%
 
4.4
%
 
4.4
%
 
4.4
%
 
1 
See Note 23 regarding the acquisitions of Electro-Motive Diesel in 2010 and Bucyrus International in 2011. See Note 25 regarding the divestiture of the third party logistics business in 2012.
2 
End of year rates are used to determine net periodic cost for the subsequent year. See Note 12E.
 
 
 
 
 


Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

(Millions of dollars)
 
One-percentage-
point increase
 
One-percentage-
point decrease
Effect on 2012 service and interest cost components of other postretirement benefit cost
 
$
27

 
$
(22
)
Effect on accumulated postretirement benefit obligation
 
$
343

 
$
(285
)
B.
Plan assets

 
 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other Postretirement 
Benefits
(Millions of dollars)
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
Change in plan assets:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fair value of plan assets, beginning of year
 
$
9,997

 
$
10,760

 
$
9,029

 
$
2,818

 
$
2,880

 
$
2,797

 
$
814

 
$
996

 
$
1,063

Actual return on plan assets
 
1,235

 
(270
)
 
1,628

 
368

 
(83
)
 
193

 
117

 
(45
)
 
129

Foreign currency exchange rates
 

 

 

 
47

 
(1
)
 
17

 

 

 

Company contributions
 
580

 
212

 
919

 
446

 
234

 
58

 
204

 
207

 
138

Participant contributions
 

 

 

 
9

 
9

 
9

 
48

 
44

 
45

Benefits paid
 
(831
)
 
(823
)
 
(820
)
 
(190
)
 
(187
)
 
(168
)
 
(394
)
 
(388
)
 
(379
)
Settlements and special termination benefits
 

 

 

 
(72
)
 
(41
)
 
(51
)
 

 

 

Acquisitions / other 1 
 

 
118

 
4

 

 
7

 
25

 

 

 

Fair value of plan assets, end of year
 
$
10,981

 
$
9,997

 
$
10,760

 
$
3,426

 
$
2,818

 
$
2,880

 
$
789

 
$
814

 
$
996

 
1 
See Note 23 regarding the acquisitions of Electro-Motive Diesel in 2010 and Bucyrus International in 2011.
 
 
 
 
 


Our U.S. pension target asset allocations reflect our investment strategy of maximizing the long-term rate of return on plan assets and the resulting funded status, within an appropriate level of risk. In August 2012, as part of our pension de-risking strategy, we revised our U.S. investment policy to better align assets with liabilities and reduce risk in our portfolio. Our current target allocations for the U.S. pension plans are 70 percent equities and 30 percent fixed income.  Within equity securities, approximately 65 percent includes investments in U.S. large cap, small cap and private companies.  The remaining portion is invested in international companies, including emerging markets.  Fixed income securities primarily include corporate bonds, mortgage-backed securities and U.S. Treasuries. While target allocation percentages will vary over time, our current strategy is to gradually reduce our equity allocation. Target allocation policies will be revisited periodically to ensure they reflect the overall objectives of the fund.
 
In general, our non-U.S. pension target asset allocations reflect our investment strategy of maximizing the long-term rate of return on plan assets and the resulting funded status, within an appropriate level of risk.  The weighted-average target allocations for the non-U.S. pension plans are 58 percent equities, 31 percent fixed income, 7 percent real estate and 4 percent other.  The target allocations for each plan vary based upon local statutory requirements, demographics of plan participants and funded status.  Plan assets are primarily invested in non-U.S. securities.
 
Our target allocations for the other postretirement benefit plans are 80 percent equities and 20 percent fixed income.  Within equity securities, approximately two-thirds include investments in U.S. large cap and small cap companies.  The remaining portion is invested in international companies, including emerging markets.  Fixed income securities primarily include corporate bonds, mortgage-backed securities and U.S. Treasuries.
 
The U.S. plans are rebalanced to plus or minus 5 percentage points of the target asset allocation ranges on a monthly basis.  The frequency of rebalancing for the non-U.S. plans varies depending on the plan. As a result of our diversification strategies, there are no significant concentrations of risk within the portfolio of investments except for the holdings in Caterpillar stock as discussed below.
 
The use of certain derivative instruments is permitted where appropriate and necessary for achieving overall investment policy objectives.  The plans do not engage in derivative contracts for speculative purposes.
 
The accounting guidance on fair value measurements specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques (Level 1, 2 and 3).  See Note 17 for a discussion of the fair value hierarchy.
 
Fair values are determined as follows:
 
Equity securities are primarily based on valuations for identical instruments in active markets.
Fixed income securities are primarily based upon models that take into consideration such market-based factors as recent sales, risk-free yield curves and prices of similarly rated bonds.
Real estate is stated at the fund’s net asset value or at appraised value.
Cash, short-term instruments and other are based on the carrying amount, which approximates fair value, or at the fund’s net asset value.

The fair value of the pension and other postretirement benefit plan assets by category is summarized below:
 
 
 
December 31, 2012
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
at Fair Value
U.S. Pension
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
4,460

 
$
3

 
$
98

 
$
4,561

Non-U.S. equities
 
2,691

 
2

 

 
2,693

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 

 
1,490

 
23

 
1,513

Non-U.S. corporate bonds
 

 
231

 
10

 
241

U.S. government bonds
 

 
694

 
8

 
702

U.S. governmental agency mortgage-backed securities
 

 
794

 
1

 
795

Non-U.S. government bonds
 

 
33

 
3

 
36

 
 
 
 
 
 
 
 
 
Real estate
 

 

 
8

 
8

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
13

 
419

 

 
432

Total U.S. pension assets
 
$
7,164

 
$
3,666

 
$
151

 
$
10,981

 
 
 
December 31, 2011
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
at Fair Value
U.S. Pension
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
4,314

 
$

 
$
77

 
$
4,391

Non-U.S. equities
 
2,366

 

 

 
2,366

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 

 
1,178

 
35

 
1,213

Non-U.S. corporate bonds
 

 
143

 
6

 
149

U.S. government bonds
 

 
462

 
7

 
469

U.S. governmental agency mortgage-backed securities
 

 
891

 
3

 
894

Non-U.S. government bonds
 

 
31

 

 
31

 
 
 
 
 
 
 
 
 
Real estate
 

 

 
8

 
8

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
48

 
428

 

 
476

Total U.S. pension assets
 
$
6,728

 
$
3,133

 
$
136

 
$
9,997

 
 
 
December 31, 2010
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
 at Fair Value
U.S. Pension
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
4,975

 
$
1

 
$
46

 
$
5,022

Non-U.S. equities
 
2,884

 

 
4

 
2,888

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 

 
1,412

 
38

 
1,450

Non-U.S. corporate bonds
 

 
92

 
1

 
93

U.S. government bonds
 

 
299

 
5

 
304

U.S. governmental agency mortgage-backed securities
 

 
634

 
4

 
638

Non-U.S. government bonds
 

 
22

 

 
22

 
 
 
 
 
 
 
 
 
Real estate
 

 

 
10

 
10

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
70

 
263

 

 
333

Total U.S. pension assets
 
$
7,929

 
$
2,723

 
$
108

 
$
10,760

 
 
 
 
 
 
 
 
 

 
 
December 31, 2012
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
 at Fair Value
Non-U.S. Pension
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
436

 
$
2

 
$

 
$
438

Non-U.S. equities
 
1,038

 
118

 

 
1,156

Global equities
 
244

 
27

 

 
271

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 

 
37

 
3

 
40

Non-U.S. corporate bonds
 

 
494

 
2

 
496

U.S. government bonds
 

 
3

 

 
3

Non-U.S. government bonds
 

 
169

 

 
169

Global fixed income
 

 
403

 

 
403

 
 
 
 
 
 
 
 
 
Real estate
 

 
114

 
104

 
218

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
185

 
47

 

 
232

Total non-U.S. pension assets
 
$
1,903

 
$
1,414

 
$
109

 
$
3,426

 
 
 
December 31, 2011
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
at Fair Value
Non-U.S. Pension
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
356

 
$
1

 
$

 
$
357

Non-U.S. equities
 
822

 
84

 

 
906

Global equities
 
198

 
40

 

 
238

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 

 
16

 
4

 
20

Non-U.S. corporate bonds
 

 
395

 
5

 
400

U.S. government bonds
 

 
3

 

 
3

Non-U.S. government bonds
 

 
200

 

 
200

Global fixed income
 

 
363

 

 
363

 
 
 
 
 
 
 
 
 
Real estate
 

 
100

 
97

 
197

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
109

 
25

 

 
134

Total non-U.S. pension assets
 
$
1,485

 
$
1,227

 
$
106

 
$
2,818

 
 
 
December 31, 2010
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
 at Fair Value
Non-U.S. Pension
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
359

 
$

 
$

 
$
359

Non-U.S. equities
 
916

 
90

 
1

 
1,007

Global equities
 
153

 
37

 

 
190

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 

 
18

 
2

 
20

Non-U.S. corporate bonds
 

 
374

 
5

 
379

U.S. government bonds
 

 
5

 

 
5

Non-U.S. government bonds
 

 
163

 
1

 
164

Global fixed income
 

 
374

 

 
374

 
 
 
 
 
 
 
 
 
Real estate
 

 
89

 
90

 
179

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
61

 
107

 
35

 
203

Total non-U.S. pension assets
 
$
1,489

 
$
1,257

 
$
134

 
$
2,880

 

1 
Includes funds that invest in both U.S. and non-U.S. securities.
2 
Includes funds that invest in multiple asset classes, hedge funds and other.
 
 
 
 
 

 
 
December 31, 2012
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
at Fair Value
Other Postretirement Benefits
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
387

 
$

 
$

 
$
387

Non-U.S. equities
 
194

 

 

 
194

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 

 
70

 

 
70

Non-U.S. corporate bonds
 

 
11

 

 
11

U.S. government bonds
 

 
27

 

 
27

U.S. governmental agency mortgage-backed securities
 

 
33

 

 
33

Non-U.S. government bonds
 

 
2

 

 
2

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
18

 
47

 

 
65

Total other postretirement benefit assets
 
$
599

 
$
190

 
$

 
$
789

 
 
 
December 31, 2011
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
 at Fair Value
Other Postretirement Benefits
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
410

 
$

 
$

 
$
410

Non-U.S. equities
 
191

 

 

 
191

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 

 
67

 

 
67

Non-U.S. corporate bonds
 

 
8

 

 
8

U.S. government bonds
 

 
21

 

 
21

U.S. governmental agency mortgage-backed securities
 

 
47

 

 
47

Non-U.S. government bonds
 

 
1

 

 
1

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
4

 
65

 

 
69

Total other postretirement benefit assets
 
$
605

 
$
209

 
$

 
$
814

 
 
 
December 31, 2010
(Millions of dollars)
 
Level 1
 
Level 2
 
Level 3
 
Total Assets,
at Fair Value
Other Postretirement Benefits
 
 

 
 

 
 

 
 

Equity securities:
 
 

 
 

 
 

 
 

U.S. equities
 
$
512

 
$

 
$

 
$
512

Non-U.S. equities
 
289

 

 

 
289

 
 
 
 
 
 
 
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. corporate bonds
 

 
79

 

 
79

Non-U.S. corporate bonds
 

 
6

 

 
6

U.S. government bonds
 

 
14

 

 
14

U.S. governmental agency mortgage-backed securities
 

 
43

 

 
43

Non-U.S. government bonds
 

 
1

 

 
1

 
 
 
 
 
 
 
 
 
Cash, short-term instruments and other
 
19

 
33

 

 
52

Total other postretirement benefit assets
 
$
820

 
$
176

 
$

 
$
996

 
 
 
 
 


Below are roll-forwards of assets measured at fair value using Level 3 inputs for the years ended December 31, 2012, 2011 and 2010.  These instruments were valued using pricing models that, in management’s judgment, reflect the assumptions a marketplace participant would use.
 
(Millions of dollars)
 
Equities
 
Fixed Income
 
Real Estate
 
Other
U.S. Pension
 
 

 
 

 
 

 
 

Balance at December 31, 2009
 
$
51

 
$
57

 
$
10

 
$

Unrealized gains (losses)
 
11

 
1

 

 

Realized gains (losses)
 
(1
)
 
3

 

 

Purchases, issuances and settlements, net
 
32

 
(9
)
 

 

Transfers in and/or out of Level 3
 
(43
)
 
(4
)
 

 

Balance at December 31, 2010
 
$
50

 
$
48

 
$
10

 
$

Unrealized gains (losses)
 
(4
)
 
(2
)
 
(2
)
 

Realized gains (losses)
 
1

 

 

 

Purchases, issuances and settlements, net
 
30

 
17

 

 

Transfers in and/or out of Level 3
 

 
(12
)
 

 

Balance at December 31, 2011
 
$
77

 
$
51

 
$
8

 
$

Unrealized gains (losses)
 
(4
)
 

 

 
(1
)
Realized gains (losses)
 
4

 
2

 

 

Purchases, issuances and settlements, net
 
21

 
(4
)
 

 
1

Transfers in and/or out of Level 3
 

 
(4
)
 

 

Balance at December 31, 2012
 
$
98

 
$
45

 
$
8

 
$

 
 
 
 
 
 
 
 
 
Non-U.S. Pension
 
 

 
 

 
 

 
 

Balance at December 31, 2009
 
$
5

 
$
14

 
$
71

 
$
51

Unrealized gains (losses)
 
(1
)
 

 
7

 
1

Realized gains (losses)
 
1

 

 

 
5

Purchases, issuances and settlements, net
 
(2
)
 
(3
)
 
12

 
(22
)
Transfers in and/or out of Level 3
 
(2
)
 
(3
)
 

 

Balance at December 31, 2010
 
$
1

 
$
8

 
$
90

 
$
35

Unrealized gains (losses)
 

 
1

 
7

 

Realized gains (losses)
 

 

 

 
3

Purchases, issuances and settlements, net
 
(1
)
 

 

 
(38
)
Transfers in and/or out of Level 3
 

 

 

 

Balance at December 31, 2011
 
$

 
$
9

 
$
97

 
$

Unrealized gains (losses)
 

 

 
8

 

Realized gains (losses)
 

 

 

 

Purchases, issuances and settlements, net
 

 
(1
)
 
(1
)
 

Transfers in and/or out of Level 3
 

 
(3
)
 

 

Balance at December 31, 2012
 
$

 
$
5

 
$
104

 
$

 
 
 
 
 
 
 
 
 

 
Equity securities within plan assets include Caterpillar Inc. common stock in the amounts of:
 
 
 
U.S. Pension Benefits1
 
Non-U.S. Pension Benefits
 
Other Postretirement
Benefits
(Millions of dollars)
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
Caterpillar Inc. common stock
 
$
597

 
$
653

 
$
779

 
$
1

 
$
1

 
$
2

 
$
1

 
$
1

 
$
3

 
1 
Amounts represent 5 percent of total plan assets for 2012 and 7 percent of total plan assets for 2011 and 2010.
 
 
 
 
 
C.
Funded status
 
The funded status of the plans, reconciled to the amount reported on Statement 3, is as follows:
 
 
 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other Postretirement Benefits
(Millions of dollars)
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
End of Year
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Fair value of plan assets
 
$
10,981

 
$
9,997

 
$
10,760

 
$
3,426

 
$
2,818

 
$
2,880

 
$
789

 
$
814

 
$
996

Benefit obligations
 
15,913

 
14,782

 
13,024

 
4,737

 
4,299

 
3,867

 
5,453

 
5,381

 
5,184

Over (under) funded status recognized in financial position
 
$
(4,932
)
 
$
(4,785
)
 
$
(2,264
)
 
$
(1,311
)
 
$
(1,481
)
 
$
(987
)
 
$
(4,664
)
 
$
(4,567
)
 
$
(4,188
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Components of net amount recognized in financial position:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Other assets (non-current asset)
 
$

 
$

 
$

 
$
30

 
$
3

 
$
4

 
$

 
$

 
$

Accrued wages, salaries and employee benefits (current liability)
 
(23
)
 
(21
)
 
(18
)
 
(27
)
 
(26
)
 
(18
)
 
(169
)
 
(171
)
 
(171
)
Liability for postemployment benefits (non-current liability)
 
(4,909
)
 
(4,764
)
 
(2,246
)
 
(1,314
)
 
(1,458
)
 
(973
)
 
(4,495
)
 
(4,396
)
 
(4,017
)
Net liability recognized
 
$
(4,932
)
 
$
(4,785
)
 
$
(2,264
)
 
$
(1,311
)
 
$
(1,481
)
 
$
(987
)
 
$
(4,664
)
 
$
(4,567
)
 
$
(4,188
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts recognized in Accumulated other comprehensive income (pre-tax) consist of:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net actuarial loss (gain)
 
$
7,286

 
$
7,044

 
$
4,795

 
$
1,907

 
$
1,712

 
$
1,273

 
$
1,528

 
$
1,495

 
$
1,195

Prior service cost (credit)
 
36

 
63

 
83

 
22

 
15

 
43

 
(159
)
 
(188
)
 
(122
)
Transition obligation (asset)
 

 

 

 

 

 

 
3

 
5

 
7

Total
 
$
7,322

 
$
7,107

 
$
4,878

 
$
1,929

 
$
1,727

 
$
1,316

 
$
1,372

 
$
1,312

 
$
1,080

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
The estimated amounts that will be amortized from Accumulated other comprehensive income (loss) at December 31, 2012 into net periodic benefit cost (pre-tax) in 2013 are as follows:
 
(Millions of dollars)
 
U.S.
Pension Benefits
 
Non-U.S.
Pension Benefits
 
Other
Postretirement
Benefits
Net actuarial loss (gain)
 
$
546

 
$
133

 
$
108

Prior service cost (credit)
 
18

 
1

 
(73
)
Transition obligation (asset)
 

 

 
2

Total
 
$
564

 
$
134

 
$
37

 
 
 
 
 
 
 

 
The following amounts relate to our pension plans with projected benefit obligations in excess of plan assets:
 
 
 
U.S. Pension Benefits at Year-end
 
Non-U.S. Pension Benefits at Year-end
(Millions of dollars)
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
Projected benefit obligation
 
$
15,913

 
$
14,782

 
$
13,024

 
$
4,310

 
$
4,293

 
$
3,846

Accumulated benefit obligation
 
$
15,132

 
$
14,055

 
$
12,558

 
$
3,903

 
$
3,738

 
$
3,485

Fair value of plan assets
 
$
10,981

 
$
9,997

 
$
10,760

 
$
2,969

 
$
2,809

 
$
2,855


 
The following amounts relate to our pension plans with accumulated benefit obligations in excess of plan assets:
 
 
 
U.S. Pension Benefits at Year-end
 
Non-U.S. Pension Benefits at Year-end
(Millions of dollars)
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
Projected benefit obligation
 
$
15,913

 
$
14,782

 
$
13,024

 
$
4,107

 
$
4,112

 
$
3,452

Accumulated benefit obligation
 
$
15,132

 
$
14,055

 
$
12,558

 
$
3,752

 
$
3,600

 
$
3,179

Fair value of plan assets
 
$
10,981

 
$
9,997

 
$
10,760

 
$
2,806

 
$
2,661

 
$
2,514


 
The accumulated postretirement benefit obligation exceeds plan assets for all of our other postretirement benefit plans for all years presented.
D.
Expected cash flow
 
Information about the expected cash flow for the pension and other postretirement benefit plans is as follows:
 
(Millions of dollars)
 
U.S.
Pension Benefits
 
Non-U.S.
Pension Benefits
 
Other
Postretirement
Benefits
Employer contributions:
 
 

 
 

 
 

2013 (expected)
 
$
160

 
$
320

 
$
200

 
 
 
 
 
 
 
Expected benefit payments:
 
 

 
 

 
 

2013
 
$
850

 
$
220

 
$
350

2014
 
870

 
210

 
350

2015
 
880

 
220

 
360

2016
 
900

 
230

 
370

2017
 
910

 
220

 
370

2018-2022
 
4,680

 
1,120

 
1,890

Total
 
$
9,090

 
$
2,220

 
$
3,690

 
 
 
 
 
 
 

 
The above table reflects the total employer contributions and benefits expected to be paid from the plan or from company assets and does not include the participants’ share of the cost. The expected benefit payments for our other postretirement benefits include payments for prescription drug benefits. Medicare Part D subsidy amounts expected to be received by the company which will offset other postretirement benefit payments are as follows:
 
(Millions of dollars)
 
2013
 
2014
 
2015
 
2016
 
2017
 
2018-2022
 
Total
Other postretirement benefits
 
$
15

 
$
20

 
$
20

 
$
20

 
$
20

 
$
110

 
$
205

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
E.
Net periodic cost
 
 
 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Other Postretirement Benefits
(Millions of dollars)
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
Components of net periodic benefit cost:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Service cost
 
$
185

 
$
158

 
$
210

 
$
108

 
$
115

 
$
92

 
$
92

 
$
84

 
$
68

Interest cost
 
609

 
651

 
652

 
182

 
182

 
162

 
221

 
253

 
245

Expected return on plan assets
 
(812
)
 
(798
)
 
(773
)
 
(215
)
 
(210
)
 
(192
)
 
(63
)
 
(70
)
 
(93
)
Curtailments, settlements and special termination benefits
 
7

 

 
28

 
38

 
19

 
22

 
(40
)
 

 

Amortization of:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Transition obligation (asset)
 

 

 

 

 

 

 
2

 
2

 
2

Prior service cost (credit)
 
19

 
20

 
25

 
1

 
3

 
1

 
(68
)
 
(55
)
 
(55
)
Net actuarial loss (gain)
 
504

 
451

 
385

 
97

 
74

 
65

 
100

 
108

 
33

Total cost included in operating profit
 
$
512

 
$
482

 
$
527

 
$
211

 
$
183

 
$
150

 
$
244

 
$
322

 
$
200

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other changes in plan assets and benefit obligations recognized in other comprehensive income (pre-tax):
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Current year actuarial loss (gain)
 
$
745

 
$
2,700

 
$
47

 
$
225

 
$
526

 
$
136

 
$
133

 
$
408

 
$
570

Amortization of actuarial (loss) gain
 
(504
)
 
(451
)
 
(385
)
 
(97
)
 
(72
)
 
(62
)
 
(100
)
 
(108
)
 
(33
)
Current year prior service cost (credit)
 
(7
)
 

 
(24
)
 
10

 
(25
)
 
35

 
(38
)
 
(121
)
 

Amortization of prior service (cost) credit
 
(19
)
 
(20
)
 
(25
)
 
(1
)
 
(3
)
 
(1
)
 
68

 
55

 
55

Amortization of transition (obligation) asset
 

 

 

 

 

 

 
(2
)
 
(2
)
 
(2
)
Total recognized in other comprehensive income
 
215

 
2,229

 
(387
)
 
137

 
426

 
108

 
61

 
232

 
590

Total recognized in net periodic cost and other comprehensive income
 
$
727

 
$
2,711

 
$
140

 
$
348

 
$
609

 
$
258

 
$
305

 
$
554

 
$
790

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average assumptions used to determine net cost:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Discount rate
 
4.3
%
 
5.1
%
 
5.4
%
 
4.3
%
 
4.6
%
 
4.8
%
 
4.3
%
 
5.0
%
 
5.6
%
Expected return on plan assets
 
8.0
%
 
8.5
%
 
8.5
%
 
7.1
%
 
7.1
%
 
7.0
%
 
8.0
%
 
8.5
%
 
8.5
%
Rate of compensation increase
 
4.5
%
 
4.5
%
 
4.5
%
 
3.9
%
 
4.1
%
 
4.2
%
 
4.4
%
 
4.4
%
 
4.4
%
1 
Curtailments, settlements and special termination benefits were recognized in Other operating (income) expenses in Statement 1.
2 
Prior service cost (credit) and net actuarial loss (gain) for both pension and other postretirement benefits are generally amortized using the straight-line method over the average remaining service period to the full retirement eligibility date of employees expected to receive benefits from the plan. For other postretirement benefit plans in which all or almost all of the plan's participants are fully eligible for benefits under the plan, prior service cost (credit) and net actuarial loss (gain) are amortized using the straight-line method over the remaining life expectancy of those participants.
3 
The weighted-average rates for 2013 are 7.8 percent and 6.7 percent for U.S. and non-U.S. pension plans, respectively.
 
 
 
 
 


The assumed discount rate is used to discount future benefit obligations back to today’s dollars.  The U.S. discount rate is based on a benefit cash flow-matching approach and represents the rate at which our benefit obligations could effectively be settled as of our measurement date, December 31.  The benefit cash flow-matching approach involves analyzing Caterpillar’s projected cash flows against a high quality bond yield curve, calculated using a wide population of corporate Aa bonds available on the measurement date.  The very highest and lowest yielding bonds (top and bottom 10 percent) are excluded from the analysis.  A similar process is used to determine the assumed discount rate for our most significant non-U.S. plans. This rate is sensitive to changes in interest rates. A decrease in the discount rate would increase our obligation and future expense.
 
Our U.S. expected long-term rate of return on plan assets is based on our estimate of long-term passive returns for equities and fixed income securities weighted by the allocation of our pension assets. Based on historical performance, we increase the passive returns due to our active management of the plan assets. To arrive at our expected long-term return, the amount added for active management was 1 percent for 2012, 2011 and 2010.  A similar process is used to determine this rate for our non-U.S. plans.
 
The assumed health care trend rate represents the rate at which health care costs are assumed to increase. We assumed a weighted-average increase of 7.4 percent in our calculation of 2012 benefit expense.  We expect a weighted-average increase of 7.1 percent during 2013.  The 2012 and 2013 rates are assumed to decrease gradually to the ultimate health care trend rate of 5 percent in 2019. This rate represents 3 percent general inflation plus 2 percent additional health care inflation.
F.
Other postemployment benefit plans
 
We offer long-term disability benefits, continued health care for disabled employees, survivor income benefit insurance and supplemental unemployment benefits to substantially all eligible U.S. employees.
G.
Defined contribution plans
 
We have both U.S. and non-U.S. employee defined contribution plans to help employees save for retirement. Our U.S. 401(k) plan allows eligible employees to contribute a portion of their salary to the plan on a tax-deferred basis, and we provide a matching contribution equal to 100 percent of employee contributions to the plan up to 6 percent of compensation. Various other U.S. and non-U.S. defined contribution plans allow eligible employees to contribute a portion of their salary to the plans, and in some cases, we provide a matching contribution to the funds.
 
On January 1, 2011, matching contributions to our U.S. 401(k) plan changed for certain employees that are still accruing benefits under a defined benefit pension plan.  Matching contributions changed from 100 percent of employee contributions to the plan up to 6 percent of compensation to 50 percent of employee contributions up to 6 percent of compensation.  For employees whose defined benefit pension accruals were frozen as of December 31, 2010, we began providing a new annual employer contribution in 2011, which ranges from 3 to 5 percent of compensation, depending on years of service and age.
 
From June 2009 to October 2010, we funded our employer matching contribution for certain U.S. defined contribution plans in Caterpillar stock, held as treasury stock.  In 2010, we made $94 million (1.5 million shares) of matching contributions in Caterpillar stock.
 
Total company costs related to U.S. and non-U.S. defined contribution plans were as follows:
 
(Millions of dollars)
 
2012
 
2011
 
2010
U.S. plans
 
$
260

 
$
219

 
$
231

Non-U.S. plans
 
60

 
54

 
39

 
 
$
320

 
$
273

 
$
270

 
 
 
 
 
 
 
H.
Summary of long-term liability:
 
 
 
December 31,
(Millions of dollars)
 
2012
 
2011
 
2010
Pensions:
 
 

 
 

 
 

U.S. pensions
 
$
4,909

 
$
4,764

 
$
2,246

Non-U.S. pensions
 
1,314

 
1,458

 
973

Total pensions
 
6,223

 
6,222

 
3,219

Postretirement benefits other than pensions
 
4,495

 
4,396

 
4,017

Other postemployment benefits
 
81

 
73

 
69

Defined contribution
 
286

 
265

 
279

 
 
$
11,085

 
$
10,956

 
$
7,584