10. Employee Benefit Plans

In the periods presented, certain employees of Con-way and its subsidiaries in the U.S. were covered under several retirement benefit plans, including defined benefit pension plans, defined contribution retirement plans and a postretirement medical plan. Con-way's defined benefit pension plans include "qualified" plans that are eligible for certain beneficial treatment under the Internal Revenue Code ("IRC"), as well as "non-qualified" plans that do not meet IRC criteria.

Defined Benefit Pension Plans

Con-way's qualified defined benefit pension plans (collectively, the "Qualified Pension Plans") consist mostly of a primary qualified defined benefit pension plan (the "Primary DB Plan"), which covers the non-contractual employees and former employees of Con-way's continuing operations as well as former employees of its discontinued operations. Con-way's other qualified defined benefit pension plans cover only the former employees of discontinued operations.

Con-way also sponsors non-qualified defined benefit pension plans (collectively, the "Non-Qualified Pension Plans") consisting mostly of the primary non-qualified supplemental defined benefit pension plan (the "Supplemental DB Plan") and several other unfunded non-qualified benefit plans. The Supplemental DB Plan provides additional benefits for certain employees who are affected by IRC limitations on compensation eligible for benefits available under the qualified Primary DB Plan.

Some of Con-way's foreign subsidiaries sponsor defined benefit pension plans that have a comparatively insignificant effect on Con-way's consolidated financial statements. Accordingly, these international defined benefit pension plans are excluded from the disclosures below.

Benefits

Effective April 30, 2009, Con-way amended the Primary DB Plan and the Supplemental DB Plan to permanently curtail benefits associated with future increases in employee compensation. Prior to the amendment, future retirement benefits considered participants' eligible compensation increases through 2016. As a result of the April 2009 amendment and an earlier amendment in January 2007, no additional benefits accrue under these plans and already-accrued benefits will not be adjusted for future increases in compensation. In connection with the curtailments, Con-way re-measured its plan-related assets and liabilities as of April 30, 2009.

Plan Assets

Investment Policies and Strategies

Assets of the Qualified Pension Plans are managed pursuant to a long-term allocation strategy that seeks to mitigate the Plans' funded status volatility by increasing the Plans' investment in fixed-income investments over time. This strategy was developed by analyzing a variety of diversified asset-class combinations in conjunction with the projected liabilities of the Qualified Pension Plans. In 2011, the Plans lowered their percentage of investments in equity securities and increased their percentage of investments in fixed-income securities.

The Plans' current investment strategy is to achieve a mix of approximately 55% of investments in equity securities, 42% in fixed-income securities and 3% in real estate. The target allocations for equity securities include 27% in U.S. large companies, 8% in U.S. small companies and 20% in international companies. Investments in equity securities are allocated between growth- and value-style investment strategies and are diversified across industries and investment managers. Investments in fixed-income securities consist primarily of high-quality U.S. corporate debt instruments in a variety of industries. The Plans' investments in equity and fixed-income securities consist of individual securities held in managed separate accounts as well as commingled investment funds.

The Plans' investment strategy does not include a meaningful long-term investment allocation to cash and cash equivalents; however, the Plan's cash allocation may rise periodically in response to timing considerations regarding contributions, investments, and the payment of benefits and eligible plan expenses. Additionally, the level of cash and cash equivalents may reflect the un-invested balance of each manager's allocated portfolio balance. This "un-invested cash" is typically held in a short-term fund that invests in money-market instruments, including commercial paper and other liquid short-term interest-bearing instruments.

The Plans' investment policy does not allow investment managers to use market-timing strategies or financial derivative instruments for speculative purposes, but these investment managers can use financial derivative instruments to manage risk. Generally, the investment managers are prohibited from short selling, trading on margin, and trading commodities, warrants or other options, except when acquired as a result of the purchase of another security, or in the case of options, when sold as part of a covered position. Con-way's investment policies also restrict the investment managers from accumulating concentrations by issuer, country or industry segment.

The assumption of 7.65% for the overall expected long-term rate of return in 2012 was developed using asset allocation, return, risk (defined as standard deviation), and correlation expectations. The return expectations are created using long-term historical returns and current market expectations for inflation, interest rates and economic growth.

Categories and Fair-Value Measurements of Plan Assets

The following table summarizes the fair value of Con-way's pension plan assets within the fair-value hierarchy:


	December 31, 2011
(Dollars in thousands)	Total		Level 1		Level 2		Level 3

Cash and cash equivalents
Short-term investment fund [a]	$	52,076	$	--	$	52,076	$	--
Equity
U.S. large companies
S&P 500 index fund [a]		116,391		--		116,391		--
Growth [b]		133,556		133,556		--		--
Value [b]		138,241		138,241		--		--
U.S. small companies
Growth [b]		36,483		36,483		--		--
Value [b]		64,764		64,764		--		--
International
Growth [b]		69,982		69,982		--		--
Value fund [a]		79,855		--		79,855		--
Fixed-income securities
U.S. long-term debt instruments [c]		287,828		42,663		245,165		--
Low-duration fund [d]		72,066		72,066		--		--
Real estate
Private fund [e]		34,520		--		--		34,520
Real estate investment trust index fund [a]		19,608		--		19,608		--
Total	$	1,105,370	$	557,755	$	513,095	$	34,520


	December 31, 2010
(Dollars in thousands)	Total		Level 1		Level 2		Level 3

Cash and cash equivalents
Short-term investment fund [a]	$	17,356	$	--	$	17,356	$	--
Equity
U.S. large companies
S&P 500 index fund [a]		113,869		--		113,869		--
Growth [b]		123,153		123,153		--		--
Value [b]		145,553		145,553		--		--
U.S. small companies
Growth [b]		43,793		43,793		--		--
Value [b]		68,986		68,986		--		--
International
Growth [b]		84,069		84,069		--		--
Value fund [a]		95,240		--		95,240		--
Fixed-income securities
U.S. long-term debt instruments [c]		247,968		25,859		222,109		--
Low-duration fund [d]		85,659		85,659		--		--
Real estate
Private fund [e]		29,553		--		--		29,553
Real estate investment trust index fund [a]		18,014		--		18,014		--
Total	$	1,073,213	$	577,072	$	466,588	$	29,553

[a]

These funds are not publicly traded and do not have readily determinable fair values. Accordingly, they are valued at their net asset value per share. The underlying investments in the funds consist primarily of publicly traded securities with quoted market prices.

[b] Publicly traded equity securities are valued at their closing market prices.

[c]	U.S. government securities are valued at their quoted market price, while corporate-debt instruments are generally valued using observable bid-ask spreads or broker-provided pricing.

[d] The low-duration fund is valued at its published net asset value per share.

[e]

The fair value of the private real estate fund is based on the fair values of the underlying assets, which consist of commercial and residential properties valued using periodic appraisals.

The following table summarizes the change in fair value for pension assets valued using Level 3 inputs:


(Dollars in thousands)	Private real estate fund

Balance at December 31, 2009	$	27,323
Actual return on plan assets:
Relating to assets still held at the reporting date		2,230
Balance at December 31, 2010	$	29,553
Actual return on plan assets:
Relating to assets still held at the reporting date		4,967
Balance at December 31, 2011	$	34,520

Funding

Con-way's funding practice is to evaluate its tax and cash position, as well as the Qualified Pension Plans' funded status, in determining its planned contributions. Con-way estimates that it will contribute $51 million to its Qualified Pension Plans in 2012; however, this could change based on variations in interest rates, asset returns, Pension Protection Act requirements and other factors.

Funded Status of Defined Benefit Pension Plans

The following table reports the changes in the projected benefit obligation, the fair value of plan assets and the determination of the amounts recognized in the consolidated balance sheets for Con-way's defined benefit pension plans at December 31:


(Dollars in thousands)	Qualified Pension Plans						Non-Qualified Pension Plans
	2011			2010			2011			2010
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	1,314,650		$	1,166,176		$	69,934		$	66,847
Interest cost on projected benefit obligation		71,308			69,136			3,787			3,879
Actuarial loss		183,293			118,385			7,587			4,155
Benefits paid		(43,115	)		(39,047	)		(5,079	)		(4,947	)
Projected and accumulated benefit obligation at
end of year	$	1,526,136		$	1,314,650		$	76,229		$	69,934

Change in plan assets:
Fair value of plan assets at beginning of year	$	1,073,213		$	902,276		$	--		$	--
Actual return on plan assets		12,657			116,223			--			--
Con-way contributions		62,615			93,761			5,079			4,947
Benefits paid		(43,115	)		(39,047	)		(5,079	)		(4,947	)
Fair value of plan assets at end of year	$	1,105,370		$	1,073,213		$	--		$	--

Funded status of the plans	$	(420,766	)	$	(241,437	)	$	(76,229	)	$	(69,934	)

Amounts recognized in the balance sheet consist of:
Current liabilities	$	--		$	--		$	(5,051	)	$	(4,757	)
Long-term liabilities		(420,766	)		(241,437	)		(71,178	)		(65,177	)
Net amount recognized	$	(420,766	)	$	(241,437	)	$	(76,229	)	$	(69,934	)

Plans with a projected and accumulated benefit obligation in
excess of plan assets:
Projected and accumulated benefit obligation	$	1,503,510		$	1,290,483		$	76,229		$	69,934
Fair value of plan assets		1,074,284			1,040,882			--			--

Weighted-average assumptions as of December 31:
Discount rate		4.65	%		5.55	%		4.65	%		5.55	%

The amounts included in accumulated other comprehensive loss that have not yet been recognized in net periodic benefit expense, consist of the following:


(Dollars in thousands)	Qualified Pension Plans						Non-Qualified Pension Plans
	2011			2010			2011			2010
Actuarial loss	$	(690,688	)	$	(444,663	)	$	(31,421	)	$	(24,512	)

The actuarial loss for the Qualified Pension Plans and the Non-Qualified Pension Plans that will be amortized from accumulated other comprehensive loss during 2012 is $19.3 million and $0.9 million, respectively.

Net Periodic Benefit Expense (Income) for Defined Benefit Pension Plans

Net periodic benefit expense (income) and amounts recognized in other comprehensive income or loss for the years ended December 31 includes the following:


(Dollars in thousands)	Qualified Pension Plans									Non-Qualified Pension Plans
	2011			2010			2009			2011			2010			2009
Net periodic benefit expense (income):
Interest cost on benefit obligation	$	71,308		$	69,136		$	69,857		$	3,787		$	3,879		$	4,203
Expected return on plan assets		(85,935	)		(75,039	)		(60,527	)		--			--			--
Amortization of actuarial loss (gain)		10,546			9,071			17,235			678			452			(2,366	)
Net periodic benefit expense (income)	$	(4,081	)	$	3,168		$	26,565		$	4,465		$	4,331		$	1,837

Amounts recognized in other comprehensive income or loss
Actuarial loss (gain)	$	256,571		$	77,201		$	(192,798	)	$	7,587		$	4,219		$	(6,419	)
Amortization of actuarial loss (gain)		(10,546	)		(9,071	)		(17,235	)		(678	)		(452	)		2,366
Loss (gain) recognized in other comprehensive income or loss	$	246,025		$	68,130		$	(210,033	)	$	6,909		$	3,767		$	(4,053	)

Weighted-average assumptions used to calculate net cost:
Discount rate		5.55	%		6.05	%		6.10	%		5.55	%		6.05	%		6.10	%
Discount rate – curtailment		N/A			N/A			7.85	%		N/A			N/A			7.85	%
Expected long-term rate of return on plan assets		8.00	%		8.50	%		8.50	%		--			--			--

Expected benefit payments for the defined benefit pension plans are summarized below. These estimates are based on assumptions about future events. Actual benefit payments may vary from these estimates.


(Dollars in thousands)	Qualified		Non-Qualified
	Pension Plans		Pension Plans
Year ending December 31:
2012	$	46,428	$	5,051
2013		49,444		4,963
2014		52,795		4,951
2015		56,468		4,925
2016		60,498		4,947
2017-2021		366,223		24,684

Defined Contribution Retirement Plans

Con-way's defined contribution retirement plans consist mostly of the primary defined contribution retirement plan (the "Primary DC Plan"), which covers non-contractual U.S. employees who were participating in the plan as of December 31, 2009. Prior to the implementation of Con-way's cost-reduction actions, which were announced in March 2009, Con-way made "matching" contributions equal to 50% of the first six percent of employees' eligible compensation and made additional discretionary contributions to employees' 401(k) accounts for the Primary DC Plan. The additional contributions, which were based on employees' years of service, consisted of a "basic" contribution that ranged from 3% to 5% of eligible compensation and a "transition" contribution that ranged from 1% to 3% of eligible compensation. Effective in April 2009, the "matching" and "transition" contributions were suspended and the "basic" contribution was limited to no more than 3% of an employee's eligible compensation. Con-way prospectively reinstated the "basic" and "transition" contributions to the defined contribution retirement plan to their prior levels in the fourth quarter of 2011. The "matching" contributions have not been reinstated.

Con-way's expense for the defined contribution retirement plans was $38.2 million in 2011, $36.7 million in 2010, and $45.0 million in 2009. At December 31, 2011 and 2010, Con-way had accrued liabilities of $14.7 million and $10.4 million, respectively, for its contributions related to the defined contribution retirement plans. In the periods presented, Con-way's contributions included allocations of Con-way preferred stock and contributions of cash and Con-way common stock. From January 2009 through June 2011, the common stock contributions were made with treasury stock, rather than open-market purchases from cash contributed by Con-way. In 2011, 2010, and 2009 Con-way used 461,151 shares, 1,130,515 shares and 733,219 shares, respectively, of treasury stock to fund $17.3 million, $36.8 million and $23.3 million, respectively, of contributions to the defined contributions retirement plans.

In the second quarter of 2009, Con-way exercised its right to redeem all shares of its preferred stock that were outstanding on June 30, 2009, as more fully discussed in Note 9, "Shareholders' Equity." Prior to the redemption, allocation of preferred stock to participants' accounts was based upon the ratio of the current year's principal and interest payments to the total plan-related debt. Deferred compensation expense was recognized as the preferred shares were allocated to participants and was equivalent to the cost of the preferred shares allocated. Deferred compensation expense of $10.4 million was recognized in 2009.

Postretirement Medical Plan

Con-way sponsors a postretirement medical plan that provides health benefits to certain non-contractual employees at least 55 years of age with at least 10 years of service (the "Postretirement Plan"). The Postretirement Plan does not provide employer-subsidized retiree medical benefits for employees hired on or after January 1, 1993.

In March 2010, the Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act, was signed into law. Certain provisions of this legislation eliminated future tax deductions for expenditures reimbursed under the Medicare Part D retiree drug subsidy program. Elimination of this tax deduction resulted in a $2.3 million income-tax charge in the first quarter of 2010. The effect from other provisions of the legislation were included in the determination of the benefit obligation at the actuarial plan measurement date on December 31, 2010, without a material impact on the liability.

Funded Status of Postretirement Medical Plan

The following sets forth the changes in the benefit obligation and the determination of the amounts recognized in the consolidated balance sheets for the Postretirement Plan at December 31:


(Dollars in thousands)
	2011			2010
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	92,993		$	89,843
Service cost – benefits earned during the year		1,441			1,405
Interest cost on projected benefit obligation		4,492			4,832
Actuarial loss		3,493			2,354
Participant contributions		2,911			2,856
Plan amendments		--			(198	)
Benefits paid		(6,913	)		(8,099	)
Projected and accumulated benefit obligation at end of year	$	98,417		$	92,993

Funded status of the plan	$	(98,417	)	$	(92,993	)
Amounts recognized in the balance sheet consist of :
Current liabilities	$	(6,822	)	$	(6,763	)
Long-term liabilities		(91,595	)		(86,230	)
Net amount recognized	$	(98,417	)	$	(92,993	)

Discount rate assumption as of December 31		4.30	%		5.00	%

The amounts included in accumulated other comprehensive loss that have not yet been recognized in net periodic benefit expense consist of the following:


(Dollars in thousands)	2011		2010
Actuarial gain	$	374	$	3,867
Prior-service credit		2,786		3,998
	$	3,160	$	7,865

During 2012, prior-service credits of $1.2 million will be amortized from accumulated other comprehensive loss.

Net Periodic Benefit Expense for Postretirement Medical Plan

Net periodic benefit expense and amounts recognized in other comprehensive income or loss for the years ended December 31 includes the following:


(Dollars in thousands)
	2011			2010			2009
Net periodic benefit expense:
Service cost - benefits earned during the year	$	1,441		$	1,405		$	1,539
Interest cost on benefit obligation		4,492			4,832			5,578
Amortization of prior-service credit		(1,212	)		(1,202	)		(1,222	)
Net periodic benefit expense	$	4,721		$	5,035		$	5,895

Amounts recognized in other comprehensive income or loss:
Actuarial loss (gain)	$	3,493		$	2,354		$	(10,353	)
Plan amendments		--			(198	)		--
Amortization of prior-service credit		1,212			1,202			1,222
Loss (gain) recognized in other comprehensive income or loss	$	4,705		$	3,358		$	(9,131	)

Discount rate assumption used to calculate interest cost:		5.00	%		5.65	%		6.38	%

Expected benefit payments, which reflect expected future service, as appropriate, are summarized below. These estimates are based on assumptions about future events. Actual benefit payments may vary from these estimates.


(Dollars in thousands)
		Benefit Payments
Year ending December 31:
	2012	$ 6,822
	2013	7,044
	2014	7,347
	2015	7,603
	2016	7,948
	2017-2021	41,068

The assumed health-care cost trend rates used to determine the benefit obligation are as follows:


	2011	2010
Health-care cost trend rate assumed for next year	7.60%	7.80%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.50%	4.50%
Year that the rate reaches the ultimate trend rate	2027	2027

Assumed health-care cost trends affect the amounts reported for Con-way's postretirement benefits. A one-percentage-point change in assumed health-care cost trend rates would not have a material effect on the aggregate service and interest cost, but would change the accumulated and projected benefit obligation by approximately $3 million.