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Postemployment benefit plans

12 Months Ended

Dec. 31, 2011

12. 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, primarily in our European and Japanese facilities. 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 discussed in Note 26, during 2009 voluntary and involuntary separation programs impacted employees participating in certain U.S. and non-U.S. pension and other postretirement benefit plans. Due to the significance of these events, certain plans were re-measured as follows:

U.S. Separation Programs — Plan re-measurements as of January 31, 2009, March 31, 2009 and December 31, 2009 resulted in net curtailment losses of $127 million to pension and $55 million to other postretirement benefit plans. Early retirement pension benefit costs of $6 million were also recognized.

Non-U.S. Separation Programs — Certain plans were re-measured as of March 31, 2009 and December 31, 2009, resulting in pension settlement losses of $34 million, special termination benefits of $2 million to pension and curtailment losses of $1 million to other postretirement benefit plans.

In March 2009, we amended our U.S. support and management other postretirement benefit plan. Beginning in 2010, certain retirees age 65 and older enrolled in individual health plans that work with Medicare and will no longer participate in a Caterpillar-sponsored group health plan. In addition, Caterpillar began funding a tax-advantaged Health Reimbursement Arrangement (HRA) to assist the retirees with medical expenses. The plan amendment required a plan re-measurement as of March 31, 2009, which resulted in a decrease in our Liability for postemployment benefits of $432 million and an increase in Accumulated other comprehensive income (loss) of $272 million, net of tax. The plan was further amended in December 2009 to define the HRA benefit that active employees will receive once they are retired and reach age 65. The plan was re-measured at year-end 2009 and the December amendment resulted in a decrease in our Liability for postemployment benefits of $101 million and an increase in Accumulated other comprehensive income (loss) of $64 million, net of tax. These decreases will be amortized into earnings on a straight-line basis over approximately 7 years, the average remaining service period of active employees in the plan. The amendments reduced other postretirement benefits expense by approximately $110 million in 2011 and 2010 and $60 million in 2009.

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. As of these dates employees will move to the new retirement benefit that will provide a frozen pension benefit and a 401(k) plan that will include a matching contribution and a new 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 March 2010, the Patient Protection and Affordable Care Act (the PPACA) and the Health Care and Education Reconciliation Act of 2010 (H.R. 4872) which amends certain provisions of the PPACA were signed into law. As discussed in Note 5, the Medicare Part D retiree drug subsidies effectively become taxable beginning in 2013.

A. Benefit Obligations

	U.S. Pension Benefits									Non-U.S. Pension Benefits									Other Postretirement Benefits
(Millions of dollars)	2011			2010			2009			2011			2010			2009			2011			2010			2009
Change in benefit obligation:
Benefit obligation, beginning of year	$	13,024		$	12,064		$	11,493		$	3,867		$	3,542		$	3,219		$	5,184		$	4,537		$	5,017
Service cost	158			210			176			115			92			86			84			68			70
Interest cost	651			652			688			182			162			146			253			245			280
Plan amendments	1			4			—			(24		)	35			—			(121		)	—			(549		)
Actuarial losses (gains)	1,635			1,140			380			312			153			45			306			602			(58		)
Foreign currency exchange rates	—			—			—			(32		)	34			322			(19		)	14			29
Participant contributions	—			—			—			9			9			10			44			45			51
Benefits paid - gross	(823		)	(820		)	(796		)	(187		)	(168		)	(212		)	(388		)	(379		)	(390		)
Less: federal subsidy on benefits paid	—			—			—			—			—			—			14			15			21
Curtailments, settlements and special termination benefits	(3		)	(235		)	123			(83		)	(52		)	(74		)	(6		)	—			66
Acquisitions / other1	139			9			—			140			60			—			30			37			—
Benefit obligation, end of year	$	14,782		$	13,024		$	12,064		$	4,299		$	3,867		$	3,542		$	5,381		$	5,184		$	4,537
Accumulated benefit obligation, end of year	$	14,055		$	12,558		$	11,357		$	3,744		$	3,504		$	3,082

Weighted-average assumptions used to determine benefit obligation:
Discount rate2	4.3		%	5.1		%	5.7		%	4.3		%	4.6		%	4.8		%	4.3		%	5.0		%	5.6		%
Rate of compensation increase2	4.5		%	4.5		%	4.5		%	3.9		%	4.2		%	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.

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 2011 service and interest cost components of other postretirement benefit cost	$	28	$	(23	)
Effect on accumulated postretirement benefit obligation	$	328	$	(277	)

B. Plan Assets

	U.S. Pension Benefits									Non-U.S. Pension Benefits									Other Postretirement Benefits
(Millions of dollars)	2011			2010			2009			2011			2010			2009			2011			2010			2009
Change in plan assets:
Fair value of plan assets, beginning of year	$	10,760		$	9,029		$	6,745		$	2,880		$	2,797		$	2,175		$	996		$	1,063		$	1,042
Actual return on plan assets	(270		)	1,628			2,194			(83		)	193			390			(45		)	129			266
Foreign currency exchange rates	—			—			—			(1		)	17			243			—			—			—
Company contributions1	212			919			886			234			58			263			207			138			94
Participant contributions	—			—			—			9			9			10			44			45			51
Benefits paid	(823		)	(820		)	(796		)	(187		)	(168		)	(212		)	(388		)	(379		)	(390		)
Settlements and special termination benefits	—			—			—			(41		)	(51		)	(72		)	—			—			—
Acquisitions / other2	118			4			—			7			25			—			—			—			—
Fair value of plan assets, end of year	$	9,997		$	10,760		$	9,029		$	2,818		$	2,880		$	2,797		$	814		$	996		$	1,063

1 Includes $650 million of Caterpillar stock contributed to U.S. pension plans in 2009.

2 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. Our target allocations for the U.S. pension plans are 70% equities and 30% debt securities. Within equity securities, approximately 60% includes investments in U.S. large and small-cap companies. The remaining portion is invested in international companies, including emerging markets, and private equity. Fixed income securities primarily include corporate bonds, mortgage backed securities and U.S. Treasuries.

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% equities, 34% debt securities, 6% real estate and 2% 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% equities and 20% debt securities. Within equity securities, approximately two-thirds include investments in U.S. large 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 five 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 approximated 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, 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, 2009
(Millions of dollars)	Level 1		Level 2		Level 3		Total Assets, at Fair Value
U.S. Pension
Equity securities:
U.S. equities	$	4,634	$	2	$	17	$	4,653
Non-U.S. equities	1,803		—		34		1,837

Fixed income securities:
U.S. corporate bonds	—		1,179		56		1,235
Non-U.S. corporate bonds	—		70		1		71
U.S. government bonds	—		323		—		323
U.S. governmental agency mortgage-backed securities	—		562		—		562
Non-U.S. government bonds	—		9		—		9

Real estate	—		—		10		10

Cash, short-term instruments and other	113		216		—		329
Total U.S. pension assets	$	6,550	$	2,361	$	118	$	9,029

	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 equities1	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 income1	—		363		—		363

Real estate	—		100		97		197

Cash, short-term instruments and other2	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 equities1	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 income1	—		374		—		374

Real estate	—		89		90		179

Cash, short-term instruments and other2	61		107		35		203
Total non-U.S. pension assets	$	1,489	$	1,257	$	134	$	2,880

	December 31, 2009
(Millions of dollars)	Level 1		Level 2		Level 3		Total Assets, at Fair Value
Non-U.S. Pension
Equity securities:
U.S. equities	$	330	$	—	$	—	$	330
Non-U.S. equities	863		84		5		952
Global equities1	144		14		—		158

Fixed income securities:
U.S. corporate bonds	—		22		1		23
Non-U.S. corporate bonds	—		355		11		366
U.S. government bonds	—		1		—		1
Non-U.S. government bonds	—		156		2		158
Global fixed income1	—		361		—		361

Real estate	—		80		71		151

Cash, short-term instruments and other2	107		139		51		297
Total non-U.S. pension assets	$	1,444	$	1,212	$	141	$	2,797

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, 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

	December 31, 2009
(Millions of dollars)	Level 1		Level 2		Level 3		Total Assets, at Fair Value
Other Postretirement Benefits
Equity securities:
U.S. equities	$	531	$	—	$	—	$	531
Non-U.S. equities	273		6		—		279

Fixed income securities:
U.S. corporate bonds	—		95		—		95
Non-U.S. corporate bonds	—		8		—		8
U.S. government bonds	—		24		—		24
U.S. governmental agency mortgage-backed securities	—		54		—		54
Non-U.S. government bonds	—		1		—		1

Cash, short-term instruments and other	19		52		—		71
Total other postretirement benefit assets	$	823	$	240	$	—	$	1,063

Below are roll-forwards of assets measured at fair value using Level 3 inputs for the years ended December 31, 2011, 2010 and 2009. 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, 2008	$	16		$	73		$	9		$	—
Unrealized gains (losses)	3			34			1			—
Realized gains (losses)	—			(2		)	—			—
Purchases, issuances and settlements	31			(12		)	—			—
Transfers in and/or out of Level 3	1			(36		)	—			—
Balance at December 31, 2009	$	51		$	57		$	10		$	—
Unrealized gains (losses)	11			1			—			—
Realized gains (losses)	(1		)	3			—			—
Purchases, issuances and settlements	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	30			17			—			—
Transfers in and/or out of Level 3	—			(12		)	—			—
Balance at December 31, 2011	$	77		$	51		$	8		$	—

Non-U.S. Pension
Balance at December 31, 2008	$	—		$	5		$	61		$	67
Unrealized gains (losses)	2			1			10			63
Realized gains (losses)	—			—			—			(41		)
Purchases, issuances and settlements	3			6			—			(38		)
Transfers in and/or out of Level 3	—			2			—			—
Balance at December 31, 2009	$	5		$	14		$	71		$	51
Unrealized gains (losses)	(1		)	—			7			1
Realized gains (losses)	1			—			—			5
Purchases, issuances and settlements	(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	(1		)	—			—			(38		)
Transfers in and/or out of Level 3	—			—			—			—
Balance at December 31, 2011	$	—		$	9		$	97		$	—

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)	2011		2010		20092		2011		2010		2009		2011		2010		2009
Caterpillar Inc. common stock	$	653	$	779	$	1,016	$	1	$	2	$	1	$	1	$	3	$	1

1 Amounts represent 7% of total plan assets for 2011 and 2010 and 11% of total plan assets for 2009.

2 Includes $650 million of Caterpillar stock contributed to U.S. pension plans in 2009.

C. Funded status

The funded status of the plans, reconciled to the amount reported on Statement 2, is as follows:

	U.S. Pension Benefits									Non-U.S. Pension Benefits									Other Postretirement Benefits
(Millions of dollars)	2011			2010			2009			2011			2010			2009			2011			2010			2009
End of Year
Fair value of plan assets	$	9,997		$	10,760		$	9,029		$	2,818		$	2,880		$	2,797		$	814		$	996		$	1,063
Benefit obligations	14,782			13,024			12,064			4,299			3,867			3,542			5,381			5,184			4,537
Over (under) funded status recognized in financial position	$	(4,785	)	$	(2,264	)	$	(3,035	)	$	(1,481	)	$	(987	)	$	(745	)	$	(4,567	)	$	(4,188	)	$	(3,474	)

Components of net amount recognized in financial position:
Other assets (non-current asset)	$	—		$	—		$	—		$	3		$	4		$	22		$	—		$	—		$	—
Accrued wages, salaries and employee benefits (current liability)	(21		)	(18		)	(17		)	(26		)	(18		)	(18		)	(171		)	(171		)	(113		)
Liability for postemployment benefits (non-current liability)	(4,764		)	(2,246		)	(3,018		)	(1,458		)	(973		)	(749		)	(4,396		)	(4,017		)	(3,361		)
Net liability recognized	$	(4,785	)	$	(2,264	)	$	(3,035	)	$	(1,481	)	$	(987	)	$	(745	)	$	(4,567	)	$	(4,188	)	$	(3,474	)

Amounts recognized in Accumulated other comprehensive income (pre-tax) consist of:
Net actuarial loss (gain)	$	7,044		$	4,795		$	5,132		$	1,712		$	1,273		$	1,200		$	1,495		$	1,195		$	659
Prior service cost (credit)	63			83			132			15			43			8			(188		)	(122		)	(177		)
Transition obligation (asset)	—			—			—			—			—			—			5			7			9
Total	$	7,107		$	4,878		$	5,264		$	1,727		$	1,316		$	1,208		$	1,312		$	1,080		$	491

The estimated amounts that will be amortized from Accumulated other comprehensive income (loss) at December 31, 2011 into net periodic benefit cost (pre-tax) in 2012 are as follows:

(Millions of dollars)	U.S. Pension Benefits		Non-U.S. Pension Benefits		Other Postretirement Benefits
Actuarial loss (gain)	$	496	$	94	$	101
Prior service cost (credit)	20		1		(68		)
Transition obligation (asset)	—		—		2
Total	$	516	$	95	$	35

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)	2011			2010			2009			2011			2010			2009
Projected benefit obligation	$	(14,782	)	$	(13,024	)	$	(12,064	)	$	(4,293	)	$	(3,846	)	$	(3,350	)
Accumulated benefit obligation	$	(14,055	)	$	(12,558	)	$	(11,357	)	$	(3,738	)	$	(3,485	)	$	(2,933	)
Fair value of plan assets	$	9,997		$	10,760		$	9,029		$	2,809		$	2,855		$	2,584

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)	2011			2010			2009			2011			2010			2009
Projected benefit obligation	$	(14,782	)	$	(13,024	)	$	(12,064	)	$	(4,112	)	$	(3,452	)	$	(1,594	)
Accumulated benefit obligation	$	(14,055	)	$	(12,558	)	$	(11,357	)	$	(3,600	)	$	(3,179	)	$	(1,503	)
Fair value of plan assets	$	9,997		$	10,760		$	9,029		$	2,661		$	2,514		$	1,145

The accumulated postretirement benefit obligation exceeds plan assets for all of our other postretirement benefit plans.

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:
2012 (expected)	$	570	$	430	$	200

Expected benefit payments:
2012	$	840	$	190	$	370
2013	850		180		380
2014	860		190		390
2015	870		200		390
2016	880		200		400
2017-2021	4,540		1,000		2,040
Total	$	8,840	$	1,960	$	3,970

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)	2012		2013		2014		2015		2016		2017-2021		Total
Other postretirement benefits	$	15	$	15	$	20	$	20	$	20	$	110	$	200

E. Net periodic cost

	U.S. Pension Benefits									Non-U.S. Pension Benefits									Other Postretirement Benefits
(Millions of dollars)	2011			2010			2009			2011			2010			2009			2011			2010			2009
Components of net periodic benefit cost:
Service cost	$	158		$	210		$	176		$	115		$	92		$	86		$	84		$	68		$	70
Interest cost	651			652			688			182			162			146			253			245			280
Expected return on plan assets	(798		)	(773		)	(777		)	(210		)	(192		)	(181		)	(70		)	(93		)	(111		)
Curtailments, settlements and special termination benefits1	—			28			133			19			22			36			—			—			56
Amortization of:
Transition obligation (asset)	—			—			—			—			—			—			2			2			2
Prior service cost (credit)2	20			25			29			3			1			1			(55		)	(55		)	(40		)
Net actuarial loss (gain)	451			385			248			74			65			35			108			33			20
Total cost included in operating profit	$	482		$	527		$	497		$	183		$	150		$	123		$	322		$	200		$	277

Other changes in plan assets and benefit obligations recognized in other comprehensive income (pre-tax):
Current year actuarial loss (gain)	$	2,700		$	47		$	(1,037	)	$	526		$	136		$	(88	)	$	408		$	570		$	(200	)
Amortization of actuarial (loss) gain	(451		)	(385		)	(248		)	(72		)	(62		)	(32		)	(108		)	(33		)	(20		)
Current year prior service cost (credit)	—			(24		)	(10		)	(25		)	35			(2		)	(121		)	—			(537		)
Amortization of prior service (cost) credit	(20		)	(25		)	(29		)	(3		)	(1		)	(1		)	55			55			40
Amortization of transition (obligation) asset	—			—			—			—			—			—			(2		)	(2		)	(2		)
Total recognized in other comprehensive income	2,229			(387		)	(1,324		)	426			108			(123		)	232			590			(719		)
Total recognized in net periodic cost and other comprehensive income	$	2,711		$	140		$	(827	)	$	609		$	258		$	—		$	554		$	790		$	(442	)

Weighted-average assumptions used to determine net cost:
Discount rate	5.1		%	5.4		%	6.3		%	4.6		%	4.8		%	4.7		%	5.0		%	5.6		%	6.3		%
Expected return on plan assets3	8.5		%	8.5		%	8.5		%	7.1		%	7.0		%	6.6		%	8.5		%	8.5		%	8.5		%
Rate of compensation increase	4.5		%	4.5		%	4.5		%	4.1		%	4.2		%	3.8		%	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 costs 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 amendment. 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 costs are amortized using the straight-line method over the remaining life expectancy of those participants.
3 The weighted-average rates for 2012 are 8.0% and 7.1% for U.S. and non-U.S. 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%) 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% for 2011, 2010 and 2009. 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. To calculate the 2011 benefit expense, we assumed a weighted-average increase of 7.9% for 2011. We expect a weighted-average increase of 7.4% during 2012. The 2011 and 2012 rates are assumed to decrease gradually to the ultimate health care trend rate of 5.0% in 2019. This rate represents 3.0% general inflation plus 2.0% 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% of employee contributions to the plan up to six percent of their 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% of employee contributions to the plan up to six percent of their compensation to 50% of employee contributions up to six 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 three to five 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 and 2009, we made $94 million (1.5 million shares) and $68 million (1.4 million shares) of matching contributions in Caterpillar stock, respectively.

Total company costs related to U.S. and non-U.S. defined contribution plans were as follows:

(Millions of dollars)	2011		2010		2009
U.S. plans	$	219	$	231	$	206
Non-U.S. plans	54		39		29
	$	273	$	270	$	235

H. Summary of long-term liability:

	December 31,
(Millions of dollars)	2011		2010		2009
Pensions:
U.S. pensions	$	4,764	$	2,246	$	3,018
Non-U.S. pensions	1,458		973		749
Total pensions	6,222		3,219		3,767
Postretirement benefits other than pensions	4,396		4,017		3,361
Other postemployment benefits	73		69		63
Defined contribution	265		279		229
	$	10,956	$	7,584	$	7,420