Note 11. Pension and Postretirement Benefit Plans

We sponsor various defined benefit, qualified and nonqualified, pension plans covering eligible employees. Other postretirement benefits (OPEB), including medical and life insurance, are provided for certain employees upon retirement.

We also sponsor various defined contribution plans that cover the majority of our employees. Under the terms of the qualified defined contribution retirement plans, employee and employer contributions may be directed into a number of diverse investments. None of these qualified defined contribution plans allow direct investment in our stock.

Components of net periodic benefit costs and other amounts recognized in OCI —

	Pension Benefits
	2012						2011						2010
	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.
Interest cost	$	85		$	12		$	92		$	13		$	100		$	17
Expected return on plan assets		(111	)		(1	)		(104	)		(2	)		(99	)		(5	)
Service cost					5						5						5
Amortization of net actuarial loss		14						20						19
Settlement loss											5						2
Net periodic benefit cost (credit)		(12	)		16			8			21			20			19

Recognized in OCI:
Amount due to net actuarial (gains) losses		131			51			66			(1	)		29			3
Prior service cost from plan amendments					6
Amortization of net actuarial losses in net periodic cost		(14	)					(20	)		(5	)		(19	)		(2	)
Total recognized in OCI		117			57			46			(6	)		10			1
Net recognized in benefit cost and OCI	$	105		$	73		$	54		$	15		$	30		$	20

	OPEB - Non-U.S.
	2012			2011		2010
Interest cost	$	5		$	7	$	7
Service cost		1
Net periodic benefit cost		6			7		7

Recognized in OCI:
Amount due to net actuarial (gains) losses		(8	)		7		(1	)
Total recognized in OCI		(8	)		7		(1	)
Net recognized in benefit cost and OCI	$	(2	)	$	14	$	6

Our U.S. pension plans are frozen and no additional service cost is being accrued. The estimated net actuarial loss for the defined benefit pension plans that will be amortized from AOCI into benefit cost in 2013 is $21 for our U.S. plans and $4 for our non-U.S. plans. In January 2012, in accordance with our policy, we changed the amortization period related to deferred losses in accumulated other comprehensive income (AOCI) from the average remaining service period of active participants to the average remaining life expectancy of inactive participants for one of our U.S. plans as a result of almost all of the plan’s participants being inactive. There is no net actuarial gain or loss related to OPEB plans that will be amortized from AOCI into benefit cost in 2013 for our non-U.S. plans.

During the third quarter of 2012, we recorded a $6 charge to other comprehensive income (OCI) for the prior service cost of a plan amendment resulting from a change in the Venezuelan labor code. The prior service cost will be amortized as a component of net periodic pension cost over the average future service period of active participants.

Funded status — The following tables provide reconciliations of the changes in benefit obligations, plan assets and funded status.

	Pension Benefits
	2012						2011						OPEB - Non-U.S.
	U.S.			Non-U.S.			U.S.			Non-U.S.			2012			2011
Reconciliation of benefit obligation:
Obligation at beginning of period	$	1,931		$	243		$	1,866		$	325		$	137		$	132
Interest cost		85			12			92			13			5			7
Service cost					5						5			1
Actuarial (gain) loss		182			51			114			(2	)		(8	)		7
Benefit payments		(137	)		(12	)		(141	)		(17	)		(7	)		(6	)
Plan amendments					6
New plans					3
Settlements					(3	)					(77	)
Translation adjustments					4						(4	)		4			(3	)
Obligation at end of period	$	2,061		$	309		$	1,931		$	243		$	132		$	137

	Pension Benefits
	2012						2011						OPEB - Non-U.S.
	U.S.			Non-U.S.			U.S.			Non-U.S.			2012			2011
Reconciliation of fair value of plan assets:
Fair value at beginning of period	$	1,497		$	43		$	1,456		$	120		$	-		$	-
Actual return on plan assets		162			1			152			1
Employer contributions		212			12			30			14			7			6
Benefit payments		(137	)		(12	)		(141	)		(17	)		(7	)		(6	)
Settlements					(3	)					(77	)
Translation adjustments					1						2
Fair value at end of period	$	1,734		$	42		$	1,497		$	43		$	-		$	-

Funded status at end of period	$	(327	)	$	(267	)	$	(434	)	$	(200	)	$	(132	)	$	(137	)

Amounts recognized in the balance sheet —

	Pension Benefits
	2012						2011						OPEB - Non-U.S.
	U.S.			Non-U.S.			U.S.			Non-U.S.			2012			2011
Amounts recognized in the consolidated balance sheet:
Noncurrent assets	$	-		$	7		$	-		$	8		$	-		$	-
Current liabilities					(11	)					(10	)		(7	)		(7	)
Noncurrent liabilities		(327	)		(263	)		(434	)		(198	)		(125	)		(130	)
Net amount recognized	$	(327	)	$	(267	)	$	(434	)	$	(200	)	$	(132	)	$	(137	)

Amounts recognized in AOCI —

	Pension Benefits
	2012					2011					OPEB - Non-U.S.
	U.S.		Non-U.S.			U.S.		Non-U.S.			2012			2011
Amounts recognized in AOCI:
Net actuarial loss (gain)	$	560	$	63		$	443	$	12		$	(8	)	$	-
Prior service cost				12					6
Gross amount recognized		560		75			443		18			(8	)
Deferred tax benefits				(18	)				(2	)		2
Noncontrolling and equity interests				(1	)				(1	)
Net amount recognized	$	560	$	56		$	443	$	15		$	(6	)	$	-

As a result of the closure of several facilities in Canada, we are required to settle the related pension obligations. During the first half of 2011, we settled portions of our Canadian pension benefit obligations by making lump-sum payments or by purchasing nonparticipating annuity contracts to cover vested benefits. As a result of these actions, we reduced the benefit obligations by $77 and also reduced the fair value of plan assets by $77. The related settlement loss of $5 representing the recognition of a portion of the actuarial loss deferred in AOCI was included in restructuring charges. During 2010, similar settlement actions resulted in concurrent reductions in benefit obligations and fair value of plan assets by $32 and a related settlement loss of $2 which was also included in restructuring charges.

Aggregate funding levels — The following table presents information regarding the aggregate funding levels of our defined benefit pension plans at December 31:

	2012				2011
	U.S.		Non-U.S.		U.S.		Non-U.S.
Plans with fair value of plan assets in excess of obligations:
Accumulated benefit obligation	$	17	$	16	$	16	$	16
Projected benefit obligation		17		17		16		16
Fair value of plan assets		17		24		16		24
Plans with obligations in excess of fair value of plan assets:
Accumulated benefit obligation		2,044		260		1,915		209
Projected benefit obligation		2,044		292		1,915		227
Fair value of plan assets		1,717		18		1,481		19

At December 31, 2012, benefit obligations of $256 for certain non-U.S. pension plans and $132 for OPEB benefits are in plans that are not required to be funded.

Fair value of pension plan assets —

			Fair Value Measurements at December 31, 2012
			U.S.						Non-U.S.
			Quoted		Significant				Significant
			Prices in		Other		Significant		Other		Significant
			Active		Observable		Unobservable		Observable		Unobservable
			Markets		Inputs		Inputs		Inputs		Inputs
Asset Category	Total		(Level 1)		(Level 2)		(Level 3)		(Level 2)		(Level 3)
Equity securities:
U.S. all cap (a)	$	75	$	75	$	-	$	-	$	-	$	-
U.S. large cap		132		132
EAFE composite		150		150
Emerging markets		84		84
Fixed income securities:
U.S. core bonds (b)		179				179
Corporate bonds		597				597
U.S. Treasury strips		232				232
Non-U.S. government securities		13								13
Emerging market debt		52				52
Alternative Investments:
Hedge fund of funds (c)		78						78
Insurance contracts (d)		9										9
Real estate		46						46
Other		9				4				5
Cash and cash equivalents		120				105				15
Total	$	1,776	$	441	$	1,169	$	124	$	33	$	9

			Fair Value Measurements at December 31, 2011
			U.S.						Non-U.S.
			Quoted		Significant				Significant
			Prices in		Other		Significant		Other		Significant
			Active		Observable		Unobservable		Observable		Unobservable
			Markets		Inputs		Inputs		Inputs		Inputs
Asset Category	Total		(Level 1)		(Level 2)		(Level 3)		(Level 2)		(Level 3)
Equity securities:
U.S. all cap (a)	$	56	$	56	$	-	$	-	$	-	$	-
U.S. large cap		114		114
U.S. small cap		35		35
EAFE composite		127		127
Emerging markets		52		52
Fixed income securities:
U.S. core bonds (b)		163				163
Corporate bonds		501				501
U.S. Treasury strips		265				265
Non-U.S. government securities		24								24
Emerging market debt		44				44
Alternative Investments:
Hedge fund of funds (c)		73						73
Insurance contracts (d)		10										10
Real estate		42						42
Other		6						1		5
Cash and cash equivalents		28				24				4
Total	$	1,540	$	384	$	997	$	116	$	33	$	10

Notes:

(a)

This category comprises a combination of small-, mid- and large-cap equity stocks that are allocated at the investment manager's discretion. Investments include common and preferred securities as well as equity funds that invest in these instruments.

(b)

This category represents a combination of investment grade corporate bonds, sovereign bonds, Yankee bonds, asset backed securities and U.S. government bonds. Investments include fixed income funds that invest in these instruments.

(c)

This category includes fund managers that invest in a well-diversified group of hedge funds where strategies include, but are not limited to, event driven, relative value, long/short market neutral, multistrategy and global macro. Investments may be made directly or through pooled funds.

(d)

This category comprises contracts placed with insurance companies where the underlying assets are invested in fixed interest securities.

	2012								2011
	U.S.					Non-U.S.			U.S.					Non-U.S.
Reconciliation of Level 3 Assets	Hedge fund of funds		Real Estate and Other			Insurance contract			Hedge fund of funds			Real Estate and Other		Insurance contract
Fair value at beginning of period	$	73	$	43		$	10		$	78		$	20	$	10
Unrealized gains (losses) relating to:
Assets sold during the period							(1	)
Assets still held at the reporting date		5		1						(5	)		4
Purchases				3									19
Transfers out of Level 3				(1	)
Fair value at end of period	$	78	$	46		$	9		$	73		$	43	$	10

Valuation Methods

The fair value of equity securities is determined by either direct or indirect quoted market prices. When the value of assets held in separate accounts is not published, the value is based on the underlying holdings, which are primarily direct quoted market prices on regulated financial exchanges.

The fair value of fixed income securities is determined by either direct or indirect quoted market prices. When the value of assets held in separate accounts is not published, the value is based on the underlying holdings, which are primarily direct quoted market prices on regulated financial exchanges.

The fair value of hedge funds is accounted for by a custodian. The custodian obtains valuations from underlying managers based on market quotes for the most liquid assets and alternative methods for assets that do not have sufficient trading activity to derive prices. We review with the custodian the methods used by the underlying managers to value the assets. We believe this is an appropriate methodology to obtain the fair value of these assets.

The fair value of insurance contracts is determined by reference to the contract provided by the insurance company.

The fair value of investments in real estate is provided by fund managers. The fund managers value the real estate investments via independent third party appraisals on a periodic basis. Assumptions used to revalue the properties are updated every quarter. We believe this is an appropriate methodology to obtain the fair value of these assets. For the component of the real estate portfolio under development, the investments are carried at cost until they are completed and valued by a third party appraiser.

The fair value of cash and cash equivalents is set equal to its cost.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Investment policy — Target asset allocations of U.S. pension plans are established through an investment policy, which is updated periodically and reviewed by an Investment Committee, comprised of certain company officers and directors. The investment policy allows for a flexible asset allocation mix which is intended to provide appropriate diversification to lessen market volatility while assuming a reasonable level of economic risk.

Our policy recognizes that properly managing the relationship between pension assets and pension liabilities serves to mitigate the impact of market volatility on our funding levels. The investment policy permits plan assets to be invested in a number of diverse categories, including a Growth Portfolio, an Immunizing Portfolio and a Liquidity Portfolio. These three sub-portfolios are intended to balance the generation of incremental returns with the management of overall risk.

The Growth Portfolio is invested in a diversified pool of assets in order to generate an incremental return with an acceptable level of risk. The Immunizing Portfolio is a hedging portfolio that may be comprised of fixed income securities and overlay positions. This portfolio is designed to offset changes in the value of the pension liability due to changes in interest rates. The Liquidity Portfolio is a cash portfolio designed to meet short-term liquidity needs and reduce the plans’ overall risk. As a result of our diversification strategies, there are no significant concentrations of risk within the portfolio of investments.

The allocations among portfolios may be adjusted to meet changing objectives and constraints. We expect that as the funded status of the plan changes, we will increase or decrease the size of the Growth Portfolio in order to manage the risk of losses in the plan. As of December 31, 2012, the Growth Portfolio (U.S. and non-U.S. equities, core and high-yield fixed income, as well as hedge fund of funds, real estate and emerging market debt) comprises 50% of total assets, the Immunizing Portfolio (long duration U.S. Treasury strips and corporate bonds) comprises 49% and the Liquidity Portfolio (cash and short-term securities) comprises 1%. During 2012, the Growth Portfolio target was 48%, the Immunizing Portfolio target was 48% and the Liquidity Portfolio target was 4%.

Significant assumptions — The significant weighted average assumptions used in the measurement of pension benefit obligations at December 31 of each year and the net periodic benefit cost for each year are as follows:

	2012						2011						2010
	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.
Pension benefit obligations:
Discount rate		3.77	%		3.93	%		4.57	%		4.98	%		5.23	%		4.87	%
Net periodic benefit cost:
Discount rate		4.57	%		4.98	%		5.23	%		4.87	%		5.79	%		5.36	%
Rate of compensation increase		N/A			3.14	%		N/A			3.21	%		N/A			3.19	%
Expected return on plan assets		7.00	%		3.74	%		7.50	%		4.09	%		7.50	%		4.12	%

The pension plan discount rate assumptions are evaluated annually in consultation with our outside actuarial advisors. Long-term interest rates on high quality corporate debt instruments are used to determine the discount rate. For our largest plans, discount rates are developed using a discounted bond portfolio analysis, with appropriate consideration given to defined benefit payment terms and duration of the liabilities.

The expected rate of return on plan assets was selected on the basis of our long-term view of return and risk assumptions for major asset classes. We define long-term as forecasts that span at least the next ten years. Our long-term outlook is influenced by a combination of return expectations by individual asset class, actual historical experience and our diversified investment strategy. We consult with and consider the opinions of financial professionals in developing appropriate capital market assumptions. Return projections are also validated using a simulation model that incorporates yield curves, credit spreads and risk premiums to project long-term prospective returns. The appropriateness of the expected rate of return is assessed on an annual basis and revised if necessary. We have a high percentage of total assets in fixed income securities since the benefit accruals are frozen for all of our U.S. pension plans. Based on this assessment, we have selected a 7.00% expected return on asset assumption for 2013 for our U.S. plans, the same rate we used for 2012.

The significant weighted average assumptions used in the measurement of OPEB obligations at December 31 of each year and the net periodic benefit cost for each year are as follows:

	2012			2011			2010
	Non-U.S.			Non-U.S.			Non-U.S.
OPEB benefit obligations:
Discount rate		3.90	%		4.18	%		5.11	%
Net periodic benefit cost:
Discount rate		4.18	%		5.11	%		5.79	%
Initial health care costs trend rate		6.40	%		6.70	%		7.00	%
Ultimate health care costs trend rate		5.02	%		5.02	%		5.02	%
Year ultimate reached		2018			2018			2015

The discount rate selection process was similar to the process used for the pension plans. Assumed health care cost trend rates have a significant effect on the health care obligation. To determine the trend rates, consideration is given to the plan design, recent experience and health care economics.

A one-percentage-point change in assumed health care cost trend rates would have the following effects for 2012:

	1% Point		1% Point
	Increase		Decrease
Effect on total of service and interest cost components	$	1	$	(1	)
Effect on OPEB obligations		14		(12	)

Estimated future benefit payments and contributions — Expected benefit payments by our pension and OPEB plans for each of the next five years and for the period 2018 through 2022 are as follows:

	Pension Benefits				OPEB
Year	U.S.		Non-U.S.		Non-U.S.
2013	$	137	$	14	$	7
2014		133		14		7
2015		132		14		7
2016		127		14		7
2017		124		16		7
2018 to 2022		594		103		35
Total	$	1,247	$	175	$	70

Pension benefits are funded through deposits with trustees that satisfy, at a minimum, the applicable funding regulations. OPEB benefits are funded as they become due. Projected contributions to be made during 2013 to the defined benefit pension plans are $15 for our non-U.S. plans. We currently plan to make a discretionary contribution of $40 to our U.S. plans in 2013.

Multiemployer pension plans —

We participate in the Steelworkers Pension Trust (SPT) multiemployer pension plan which provides pension benefits to substantially all of our U.S. union-represented employees. We also have a small participation in the IAM National Pension Fund. Benefit levels are set by trustees who manage the plans. Contributions are made in accordance with our collective bargaining agreements and rates are generally based on hours worked. The collective bargaining agreement expires May 31, 2014. The trustees of the SPT have provided us with the latest data available for the plan year ended December 31, 2012. As of that date, the plan is not fully funded. We could be held liable to the plan for our obligations as well as those of other employers’ as a result of our participation in the plan. Contribution rates could increase if the plan is required to adopt a funding improvement plan or a rehabilitation plan, if the performance of plan assets do not meet expectations or as a result of future collectively bargained wage and benefit agreements. If we choose to stop participating in the plan, we may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Pension Protection Act (PPA) defines a zone status for each plan. Plans in the green zone are at least 80% funded, plans in the yellow zone are at least 65% funded and plans in the red zone are generally less than 65% funded. The SPT plan has utilized extended amortization provisions to amortize its losses from 2008. The plan recertified its zone status after using the extended amortization provisions as allowed by law. The SPT plan has not implemented a funding improvement or rehabilitation plan, nor are such plans pending. Our contributions to the SPT have not exceeded 5% of the total contributions to the plan. Contributions in 2011 increased from those made in 2010 due to increased levels of overtime. Contributions in 2012 increased from those made in 2011 as a result of changes in the contribution rate and increased levels of employment and overtime.

Employer

Identification

PPA

Funding Plan

Pension

Number /

Zone Status

Pending /

Contributions by Dana

Surcharge

Fund

Plan Number

2012

2011

Implemented

2012

2011

2010

Imposed

SPT

23-6648508 / 499

Green