13. Employee Retirement Plans

Defined Benefit Plans

We have defined benefit pension plans covering certain domestic and international employees. Our funding policy has been to contribute, as necessary, an amount in excess of the minimum requirements in order to achieve the Company's long-term funding targets. In 2011, we made a voluntary contribution of $5 million to our international pension plans. In 2010, we made voluntary contributions of $355 million to our domestic and international pension plans.

In 2000, we amended our U.S. pension plan to include a cash balance pension feature. Certain salaried and non-union hourly employees remain in the traditional defined benefit plan. All salaried and non-union hourly employees hired after July 1, 2000, are automatically participants in the new cash balance plan. Under the cash balance plan, employee accounts are credited monthly with a percentage of eligible pay based on age and years of service. The Pension Protection Act of 2006 requires vesting after three years for cash balance plans by January 1, 2008. Corning adopted this measure on January 1, 2008.

Corning offers postretirement plans that provide health care and life insurance benefits for retirees and eligible dependents. Certain employees may become eligible for such postretirement benefits upon reaching retirement age. Prior to January 1, 2003, our principal retiree medical plans required retiree contributions each year equal to the excess of medical cost increases over general inflation rates. For current retirees (including surviving spouses) and active employees eligible for the salaried retiree medical program, we have placed a "cap" on the amount we will contribute toward retiree medical coverage in the future. The cap is equal to 120% of our 2005 contributions toward retiree medical benefits. Once our contributions toward salaried retiree medical costs reach this cap, impacted retirees will have to pay the excess amount in addition to their regular contributions for coverage. This cap was attained for post-65 retirees in 2008 and has impacted their contribution rate in 2009 and going forward. The pre-65 retirees have triggered the cap in 2010, which impacted their contribution rate in 2011 and going forward. Furthermore, employees hired or rehired on or after January 1, 2007 will be eligible for Corning retiree medical benefits upon retirement; however, these employees will pay 100% of the cost.

In 2009, Corning recorded restructuring charges of $50 million for U.S. pension and postretirement benefit plans. This included a curtailment charge of $33 million for the qualified defined benefit plan (U.S. pension plan) and the U.S. postretirement benefit plan. Accordingly, we remeasured the U.S. pension and postretirement benefit plan as of March 31, 2009. The remeasurement resulted in an increase of $115 million to the Company's U.S. pension liability and a decrease of $12 million to the U.S. postretirement benefit plan liability. As part of the remeasurement, we updated the assumed discount rate for both plans to 6.25%, which reflected a 25 basis point increase from December 31, 2009.

Obligations and Funded Status

The change in benefit obligation and funded status of our employee retirement plans follows (in millions):


	Pension benefits				Postretirement benefits
December 31,	2011		2010		2011		2010

Change in benefit obligation
Benefit obligation at beginning of year	$	3,008	$	2,791	$	976	$	928
Service cost		53		46		13		12
Interest cost		156		157		49		50
Plan participants' contributions		1		1		12		9
Amendments		3		22				(31)
Actuarial losses (gain)		175		163		(31)		77
Other				9
Benefits paid		(171)		(173)		(67)		(75)
Medicare subsidy received						5		6
Foreign currency translation		(1)		(8)
Benefit obligation at end of year	$	3,224	$	3,008	$	957	$	976

Change in plan assets
Fair value of plan assets at beginning of year	$	2,690	$	2,270
Actual gain on plan assets		232		233
Employer contributions		18		367
Plan participants' contributions		1		1
Benefits paid		(171)		(173)
Foreign currency translation				(8)
Fair value of plan assets at end of year	$	2,770	$	2,690

Funded status at end of year
Fair value of plan assets	$	2,770	$	2,690
Benefit obligations		(3,224)		(3,008)	$	(957)	$	(976)
Funded status of plans	$	(454)	$	(318)	$	(957)	$	(976)

Amounts recognized in the consolidated balance sheets consist of:
Noncurrent asset			$	21
Current liability	$	(11)		(15)	$	(60)	$	(63)
Noncurrent liability		(443)		(324)		(897)		(913)
Recognized liability	$	(454)	$	(318)	$	(957)	$	(976)

Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial loss	$	1,019	$	993	$	269	$	318
Prior service cost (credit)		29		35		(35)		(41)
Amount recognized at end of year	$	1,048	$	1,028	$	234	$	277

The accumulated benefit obligation for defined benefit pension plans was $3.1 billion and $2.9 billion at December 31, 2011 and 2010, respectively.

The following information is presented for pension plans where the projected benefit obligation and the accumulated benefit obligation as of December 31, 2011 and 2010 exceeded the fair value of plan assets (in millions):


	December 31,
	2011		2010

Projected benefit obligation	$	388	$	356
Accumulated benefit obligation	$	360	$	330
Fair value of plan assets	$	14	$	13

In 2011, the fair value of plan assets exceeded the accumulated benefit obligation for the United States and United Kingdom pension plans.

The components of net periodic benefit expense for our employee retirement plans follow (in millions):


	Pension benefits						Postretirement benefits
	2011		2010		2009		2011		2010		2009

Service cost	$	53	$	46	$	46	$	13	$	12	$	11
Interest cost		156		157		157		49		50		51
Expected return on plan assets		(161)		(168)		(179)
Amortization of net loss		76		50		31		18		15		11
Amortization of prior service cost (credit)		9		9		8		(6)		(6)		(3)
Total periodic benefit expense	$	133	$	94	$	63	$	74	$	71	$	70
Curtailment charge				(1)		22						10
Total expense	$	133	$	93	$	85	$	74	$	71	$	80

Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Curtailment effects			$	1	$	(2)					$	2
Current year actuarial loss (gain)	$	104		106		2	$	(31)	$	77		66
Amortization of actuarial loss		(76)		(50)		(31)		(18)		(15)		(11)
Current year prior service (credit)/loss		3		23						(31)
Amortization of prior service (cost) credit		(9)		(9)		(9)		6		6		3
Total recognized in other comprehensive income (loss)	$	22	$	71	$	(40)	$	(43)	$	37	$	60

Total recognized in net periodic benefit cost and other comprehensive income	$	155	$	164	$	45	$	31	$	108	$	140

The Company expects to recognize $67 million of net loss and $5 million of net prior service cost as components of net periodic pension cost in 2012 for its defined benefit pension plans. The Company expects to recognize $15 million of net loss and $6 million of net prior service credit as components of net periodic postretirement benefit cost in 2012.

Corning uses a hypothetical yield curve and associated spot rate curve to discount the plan's projected benefit payments. Once the present value of projected benefit payments is calculated, the suggested discount rate is equal to the level rate that results in the same present value. The yield curve is based on actual high-quality corporate bonds across the full maturity spectrum, which also includes private placements as well as Eurobonds that are denominated in U.S. currency. The curve is developed from yields on approximately 350-375 bonds from four grading sources, Moody's, S&P, Fitch and the Dominion Bond Rating Service. A bond will be included if at least half of the grades from these sources are Aa, non-callable bonds. The very highest 10th percentile yields and the lowest 40th percentile yields are excluded from the curve to eliminate outliers in the bond population.

Measurement of postretirement benefit expense is based on assumptions used to value the postretirement benefit obligation at the beginning of the year.

The weighted-average assumptions used to determine benefit obligations at December 31 follow:


	Pension benefits						Postretirement benefits
	Domestic			International			Domestic
	2011	2010	2009	2011	2010	2009	2011	2010	2009
Discount rate	4.75%	5.25%	5.75%	4.40%	4.75%	5.75%	4.75%	5.25%	5.75%
Rate of compensation increase	4.25%	4.25%	4.25%	3.44%	4.35%	4.04%

The weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 follow:


	Pension benefits						Postretirement benefits
	Domestic			International			Domestic
	2011	2010	2009	2011	2010	2009	2011	2010	2009
Discount rate	5.25%	5.75%	6.00/6.25%(1)	4.75%	5.75%	5.12%	5.25%	5.75%	6.00/6.25%(1)
Expected return on plan assets	6.50%	7.25%	7.75%	5.59%	6.01%	6.08%
Rate of compensation increase	4.25%	4.25%	5.00%	4.35%	4.04%	4.20%

(1)	The discount rate at December 31, 2008 was 6.00%. At March 31, 2009 remeasurement date, the discount rate was changed to 6.25%.

The assumed rate of return was determined based on the current interest rate environment and historical market premiums relative to fixed income rates of equities and other asset classes. Reasonableness of the results is tested using models provided by the plan actuaries.

Assumed health care trend rates at December 31	2011	2010
Health care cost trend rate assumed for next year	8.0%	8.0%
Rate that the cost trend rate gradually declines to	5%	5%
Year that the rate reaches the ultimate trend rate	2018	2017

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 (in millions):

	One-percentage-point increase	One-percentage-point decrease
Effect on annual total of service and interest cost	$ 5	$ (4)
Effect on postretirement benefit obligation	$56	$(45)

Plan Assets

The Company's overall investment strategy is to obtain sufficient return and provide adequate liquidity to meet the benefit obligations of the pension plan. Investments are made in public securities to ensure adequate liquidity to support benefit payments. Domestic and international stocks and bonds provide diversification to the portfolio. The target allocation range for domestic equity investment is 10.0%-12.5% which includes large, mid and small cap companies. The target allocation range of international equities is 10.0%-12.5%, which includes investments in both developed and emerging markets. The target allocation for bond investments is 60%, which predominately includes both government and corporate bonds. Long duration fixed income assets are utilized to mitigate the sensitivity of funding ratios to changes in interest rates. The target allocation range for non-public investments in private equity and real estate is 5%-15%, and is used to enhance returns and offer additional asset diversification. The target allocation range for commodities is 0%-5%, which provides some inflation protection to the portfolio.

The following tables provide fair value measurement information for the Company's major categories of defined benefit plan assets (in millions):


			Fair value measurements at reporting date using
	December 31, 2011		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Equity securities:
U.S. companies	$	315	$	215	$	100
International companies		312		80		232

Fixed income:
U.S. treasuries/agencies
U.S. corporate bonds		1,446				1,446
International fixed income		173				173
Other fixed income

Private equity (1)		241					$	241
Real estate (2)		91						91
Insurance contracts		5						5
Cash equivalents		97		97
Commodities (3)		90				90
Total	$	2,770	$	392	$	2,041	$	337

(1)	This category includes venture capital, leverage buyouts and distressed debt limited partnerships invested primarily in the U.S. companies. The inputs are valued by internally generated Discounted Cash Flow Analysis and comparable sale analysis.

(2)	This category includes industrial, office, apartments, hotels, infrastructure, and retail investments which are limited partnerships predominately in the U.S. The inputs are valued by internally generated Discounted Cash Flow Analysis; compare sale analysis and periodic external appraisals.

(3)	This category includes investments in energy, industrial metals, precious metals, agricultural and livestock primarily through futures, options, swaps, and exchange traded funds.


			Fair value measurements at reporting date using
	December 31, 2010		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Equity securities:
U.S. companies	$	312	$	220	$	92
International companies		322		45		277

Fixed income:
U.S. treasuries/agencies		103				103
U.S. corporate bonds		953				953
International fixed income		392				392
Other fixed income		146				146

Private equity (1)		234					$	234
Real estate (2)		74						74
Insurance contracts		5						5
Cash equivalents		45		15		30
Commodities (3)		104				104
Total	$	2,690	$	280	$	2,097	$	313

(1)	This category includes venture capital, leverage buyouts and distressed debt limited partnerships invested primarily in the U.S. companies. The inputs are valued by internally generated Discounted Cash Flow Analysis and comparable sale analysis.

(2)	This category includes industrial, office, apartments, hotels, infrastructure, and retail investments which are limited partnerships predominately in the U.S. The inputs are valued by internally generated Discounted Cash Flow Analysis; comparable sale analysis and periodic external appraisals.

(3)	This category includes investments in energy, industrial metals, precious metals, agricultural and livestock primarily through futures, options, swaps, and exchange traded funds.

The tables below set forth a summary of changes in the fair value of the defined benefit plans Level 3 assets for the years ended December 31, 2011 and 2010 (in millions):


	Level 3 assets
	Year ended December 2011
	Private equity		Real estate		Insurance contracts

Beginning balance at December 31, 2010	$	234	$	74	$	5

Actual return on plan assets relating to assets still held at the reporting date		27		6
Purchases, sales, and settlements
Transfers in and/or out of level 3		(20)		11
Ending balance at December 31, 2011	$	241	$	91	$	5


	Level 3 assets
	Year ended December 2010
	Private equity		Real estate		Insurance contracts

Beginning balance at December 31, 2009	$	222	$	61	$	5

Actual return on plan assets relating to assets still held at the reporting date		25		(5)
Purchases, sales, and settlements
Transfers in and/or out of level 3		(13)		18
Ending balance at December 31, 2010	$	234	$	74	$	5

Credit Risk

57% of plan assets are invested in long duration bonds. The average rating for these bonds is A. These bonds are subject to credit risk, such that a decline in credit ratings for the underlying companies, countries or assets (for assets backed securities) would result in a decline in the value of the bonds. These bonds are also subject to default risk.

Currency Risk

11% of assets are valued in non U.S. dollar denominated investments that are subject to currency fluctuations. The value of these securities will decline if the U.S. dollar increases in value relative to the value of the currencies in which these investments are denominated.

Liquidity Risk

13% of the securities are invested in Level 3 securities. These are long-term investments in private equity and private real estate investments that may not mature or be sellable in the near-term without significant loss.

At December 31, 2011 and 2010, the amount of Corning common stock included in equity securities was not significant.

Cash Flow Data

We anticipate making voluntary cash contributions of approximately $105 million to our domestic and international plans in 2012.

The following reflects the gross benefit payments that are expected to be paid for the domestic and international plans and the gross amount of annual Medicare Part D federal subsidy expected to be received (in millions):


	Expected benefit payments
	Pension benefits	Postretirement benefits	Expected federal subsidy payments post retirement benefits
2012	$ 188	$ 79	$ 6
2013	$ 188	$ 84	$ 7
2014	$ 190	$ 88	$ 7
2015	$ 197	$ 91	$ 8
2016	$ 198	$ 94	$ 8
2017-2021	$1,085	$509	$47

Other Benefit Plans

We offer defined contribution plans covering employees meeting certain eligibility requirements. Total consolidated defined contribution plan expense was $44 million, $46 million and $50 million for the years ended December 31, 2011, 2010 and 2009, respectively.