Note 11. Retirement Plans

The Company sponsors for the benefit of most of its employees in the U.S., Canada and certain other international locations, various defined benefit retirement income pension plans, including both funded and unfunded arrangements. Further benefit accruals under the primary defined benefit plans maintained by the Company have been frozen. Benefits are generally based upon years of service and compensation. These defined benefit retirement income plans are funded in conformity with the applicable government regulations. The Company funds at least the minimum amount required for all funded plans using actuarial cost methods and assumptions acceptable under government regulations.

On December 20, 2012, the Company announced a freeze on further benefit accruals under its U.K. pension plan as of December 31, 2012. Beginning January 1, 2013, participants ceased earning additional benefits under the plans and no new participants entered these plans. The U.K. plan freeze required a remeasurement of the plan’s assets and obligations as of December 31, 2012, which resulted in a non-cash curtailment gain of $3.7 million, which was recognized in the Consolidated Statement of Operations during the fourth quarter of 2012. Additionally, on February 1, 2012, the Company announced a freeze on further benefit accruals under its Canadian pension plans as of March 31, 2012. On November 2, 2011, the Company announced a freeze on further benefit accruals under all of its U.S. pension plans as of December 31, 2011. The remeasurement of the U.S. pension plans’ assets and obligations as of November 2, 2011, resulted in a non-cash curtailment gain of $38.7 million, which was recognized in the Consolidated Statement of Operations during the fourth quarter of 2011. The remeasurement of the U.S. pension plans’ assets and obligations also resulted in a reduction in the Company’s pension liability of $61.6 million as of December 31, 2011.

The Company also participates in various multi-employer pension plans in the U.S. and makes contributions pursuant to the terms of the applicable collective bargaining agreements. In addition to the pension plans, the Company sponsors a 401(k) savings plan, which is a defined contribution retirement income plan.

Former employees are entitled to certain healthcare and life insurance benefits provided they have met certain eligibility requirements. Generally, the Company’s benefits eligible U.S. employees become eligible for these retiree healthcare benefits if they meet all of the following requirements at the time of termination: (a) have attained at least 55 or more points (full years of service and age combined), (b) are at least fifty years of age, (c) have at least two years of continuous, regular, full-time, benefits-eligible service and (d) have completed at least two or more years of continuous service with a participating employer, which ends on their termination date. Different requirements need to be met in order to receive subsidized medical and life insurance coverage. Certain of the plan expenses are paid through a tax-exempt trust. Most of the assets of the trust are invested in trust-owned life insurance policies covering certain current and former employees of the Company. The underlying assets of the policies are invested primarily in marketable equity, corporate fixed income and government securities.

On August 3, 2011, the Company announced the decision to convert its current prescription drug program for certain medicare-eligible retirees to a group-based Company sponsored Medicare Part D program, or Employer Group Waiver Program (“EGWP”), available due to the adoption of the Patient Protection and Affordable Care Act. Beginning January 1, 2013, the EGWP subsidies provided to or for the benefit of this program will be used to reduce the Company’s net retiree medical and prescription drug costs on a group by group basis until such net costs of the Company for such group are eliminated, and any EGWP subsidies received in excess of the amount necessary to offset such net costs will be used to reduce the included group of retirees’ premiums. The Company accounted for this change as a plan amendment requiring remeasurement of plan assets and obligations, which resulted in the Company reducing its postretirement benefits liability by $81.5 million in the second quarter of 2011.

As noted above, the Company also maintains several pension and other postretirement benefit plans in certain international locations. The expected returns on plan assets and discount rates for these plans are determined based on each plan’s investment approach, local interest rates and plan participant profiles.

The pension and other postretirement benefit plan obligations are calculated using generally accepted actuarial methods and are measured as of December 31. Prior to the plan freezes, actuarial gains and losses were amortized using the corridor method over the average remaining service life of active plan participants. Actuarial gains and losses for frozen plans are amortized using the corridor method over the average remaining expected life of active plan participants.

The components of the net periodic benefit (income) expense and total (income) expense were as follows:


	Pension Benefits									Postretirement Benefits
	2012			2011			2010			2012			2011			2010
Service cost	$	5.9		$	86.6		$	80.4		$	6.6		$	8.2		$	12.2
Interest cost		189.2			192.0			184.0			18.4			22.7			28.4
Expected return on plan assets		(262.6	)		(266.4	)		(258.7	)		(13.9	)		(14.8	)		(15.5	)
Amortization of prior service credit		0.6			(4.4	)		(1.9	)		(19.7	)		(12.5	)		(10.8	)
Amortization of actuarial loss (gain)		32.1			50.1			29.7			(0.1	)		0.1			1.3
Curtailments		(3.7	)		(38.7	)		(0.4	)		—			—			—
Settlements		1.1			—			—			—			—			—

Net periodic benefit (income) expense		(37.4	)		19.2			33.1			(8.7	)		3.7			15.6

Weighted average assumption used to calculate net periodic benefit expense:
Discount rate		4.9	%		5.5	%		6.0	%		4.8	%		5.2	%		5.7	%
Rate of compensation increase		0.9	%		4.0	%		4.0	%		3.6	%		3.6	%		4.0	%
Expected return on plan assets		8.4	%		8.4	%		8.3	%		7.6	%		7.6	%		7.6	%


	Pension Benefits						Postretirement Benefits
	2012			2011			2012			2011
Benefit obligation at beginning of year	$	3,923.6		$	3,583.1		$	403.1		$	490.3
Service cost		5.9			86.6			6.6			8.2
Interest cost		189.2			192.0			18.4			22.7
Plan participants’ contributions		1.2			1.2			14.4			17.8
Medicare reimbursements		—			—			3.3			3.3
Actuarial loss (gain)		411.2			306.4			27.6			(22.5	)
Plan amendments and other		2.6			(0.5	)		0.5			(72.4	)
Curtailments and settlements		(6.5	)		(61.6	)		—			—
Foreign currency translation		17.5			(5.4	)		1.1			(0.8	)
Benefits paid		(175.9	)		(178.2	)		(44.8	)		(43.5	)

Benefit obligation at end of year	$	4,368.8		$	3,923.6		$	430.2		$	403.1

Fair value of plan assets at beginning of year	$	2,849.6		$	3,029.6		$	174.7		$	191.9
Actual return on assets		389.9			(44.4	)		21.0			(4.7	)
Settlements		(3.7	)		—			—			—
Employer contributions		140.7			44.7			8.0			13.2
Medicare reimbursements		—			—			3.3			—
Plan participants’ contributions		1.2			1.2			14.4			17.8
Other		—			—			10.2			—
Foreign currency translation		13.5			(3.3	)		0.3			—
Benefits paid		(175.9	)		(178.2	)		(44.8	)		(43.5	)

Fair value of plan assets at end of year	$	3,215.3		$	2,849.6		$	187.1		$	174.7

Funded status at end of year	$	(1,153.5	)	$	(1,074.0	)	$	(243.1	)	$	(228.4	)

The accumulated benefit obligation for all defined benefit pension plans was $4,343.9 million and $3,901.7 million at December 31, 2012 and 2011, respectively.

Amounts recognized in the Consolidated Balance Sheets as of December 31, 2012 and 2011 were as follows:


	Pension Benefits						Postretirement Benefits
	2012			2011			2012			2011
Prepaid pension cost (included in other noncurrent assets)	$	4.4		$	9.5		$	—		$	—
Accrued benefit cost (included in accrued liabilities)		(7.4	)		(7.2	)		(1.4	)		(1.1	)
Pension liabilities		(1,150.5	)		(1,076.3	)		—			—
Postretirement benefits		—			—			(241.7	)		(227.3	)

Net liabilities recognized in the consolidated balance sheets	$	(1,153.5	)	$	(1,074.0	)	$	(243.1	)	$	(228.4	)

The amounts included in accumulated other comprehensive loss in the Consolidated Balance Sheets, excluding tax effects, that have not yet been recognized as components of net periodic benefit cost at December 31, 2012 and 2011 were as follows:


	Pension Benefits				Postretirement Benefits
	2012		2011		2012			2011
Accumulated other comprehensive loss (income)
Net actuarial loss (gain)	$	1,828.9	$	1,574.3	$	1.6		$	(9.1	)
Net transition obligation		0.2		0.2		—			—
Net prior service credit		—		—		(68.0	)		(87.8	)

Total	$	1,829.1	$	1,574.5	$	(66.4	)	$	(96.9	)

The pre-tax amounts recognized in other comprehensive income (loss) in 2012 as components of net periodic benefit costs were as follows:


	Pension Benefits			Postretirement Benefits
Amortization of:
Net actuarial (loss) gain	$	(32.1	)	$	0.1
Net prior service credit		(0.6	)		19.7
Amounts arising during the period:
Net actuarial loss		283.9			10.5
Net prior service credit		0.6			—
Foreign currency gain		2.8			0.2

Total	$	254.6		$	30.5

Actuarial gains and losses in excess of 10.0% of the greater of the projected benefit obligation or the market-related value of plan assets were recognized as a component of net periodic benefit costs over the average remaining service period of a plan’s active employees. As a result of the plan freezes, the actuarial gains and losses are recognized as a component of net periodic benefit costs over the average remaining life of a plan’s active employees. Unrecognized prior service costs or credit are also recognized as a component of net periodic benefit cost over the average remaining service period of a plan’s active employees. The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit costs in 2013 are shown below:


	Pension Benefits		Postretirement Benefits
Amortization of:
Net actuarial loss	$	50.2	$	0.1
Net prior service credit		—		(19.7	)

Total	$	50.2	$	(19.6	)

The weighted average assumptions used to determine the benefit obligation at the measurement date were as follows:


	Pension Benefits						Postretirement Benefits
	2012			2011			2012			2011
Discount rate		4.2	%		4.9	%		3.9	%		4.8	%
Rate of compensation increase		n/a			0.9	%		3.6	%		3.6	%
Health care cost trend:
Current
Pre-Age 65		—			—			7.4	%		7.0	%
Post-Age 65		—			—			7.4	%		7.0	%
Ultimate		—			—			5.8	%		5.9	%

The following table provides a summary of under-funded or unfunded pension benefit plans with projected benefit obligation in excess of plan assets as of December 31, 2012 and 2011:


	Pension Benefits
	2012		2011
Projected benefit obligation	$	4,348.3	$	3,906.7
Fair value of plan assets		3,190.3		2,823.2

The following table provides a summary of pension plans with accumulated benefit obligations in excess of plan assets as of December 31, 2012 and 2011:


	Pension Benefits
	2012		2011
Accumulated benefit obligation	$	4,321.6	$	3,881.6
Fair value of plan assets		3,187.4		2,818.7

The current health care cost trend rate gradually declines through 2019 to the ultimate trend rate and remains level thereafter. A one-percentage point change in assumed health care cost trend rates would have the following effects:


	1.0% Increase		1.0% Decrease
Postretirement benefit obligation	$	6.8	$	(5.7	)
Total postretirement service and interest cost components		0.5		(0.5	)

The Company determines its assumption for the discount rate to be used for purposes of computing annual service and interest costs based on an index of high-quality corporate bond yields and matched-funding yield curve analysis as of the measurement date.

On July 6, 2012, the Surface Transportation Extension Act of 2012 (the “Act”) was signed into law. The Act includes certain pension-related provisions designed to stabilize interest rates used to calculate the minimum required annual contributions for defined benefit pension plans. The Company anticipates that provisions in the Act will significantly reduce the minimum required annual contributions related to its defined benefit pension plans over the next few years, though these contributions are dependent on many factors, including returns on invested assets and discount rates used to determine pension obligations. The Company made contributions of $140.7 million to its pension plans and $8.0 million to its postretirement plans during the year ended December 31, 2012. The Company expects to make cash contributions of approximately $21.7 million to its pension plans and approximately $1.4 million to its postretirement plans in 2013, and additional non-required contributions could be made. The Company currently estimates the amount of pension and other postretirement benefit plan contributions that will be required in 2014 to be approximately $85 million.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 included a prescription drug benefit under Medicare Part D, as well as a federal subsidy that began in 2006, to sponsors of retiree health care plans that provide a benefit that is at least actuarially equivalent, as defined in the Act, to Medicare Part D. Two of the Company’s retiree health care plans are at least actuarially equivalent to Medicare Part D and were eligible for the federal subsidy. During the years ended December 31, 2012 and 2011, the Company received approximately $3.3 million in subsidies in each year. The Company will no longer receive certain of these subsidies after January 1, 2013, when the EGWP subsidies became effective.

Benefit payments are expected to be paid as follows:


	Pension Benefits		Postretirement Benefits-Gross		Estimated Subsidy Reimbursements
2013	$	189.3	$	35.7	$	5.9
2014		192.2		36.1		6.3
2015		195.6		36.6		6.8
2016		201.1		37.0		7.1
2017		210.3		37.3		7.6
2018-2022		1,178.8		188.0		44.1

Plan Assets

The Company employed a total return investment approach for its pension and other postretirement benefit plans, whereby a mix of equities, fixed income and alternative investments are used to maximize the long-term return of pension and other postretirement benefit plan assets. The intent of this strategy is to minimize plan expenses by outperforming plan liabilities over the long run. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and corporate financial condition. The investment portfolios contain a diversified blend of equity, fixed income and alternative investments. Furthermore, equity investments are diversified across geography, market capitalization and investment style. Fixed income investments are diversified across geography and include holdings of corporate bonds, government and agency bonds and asset-backed securities. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews. The expected long-term rate of return for plan assets is based upon many factors including asset allocations, historical asset returns, current and expected future market conditions, risk and active management premiums. The target asset allocation percentage for both the pension and other postretirement benefit plans was approximately 75% for equity and other securities and approximately 25% for fixed income.

The Company segregated its plan assets by the following major categories and levels for determining their fair value as of December 31, 2012 and 2011:

Cash and cash equivalents—Carrying value approximates fair value. As such, these assets were classified as Level 1. The Company also invests in certain short-term investments which are valued using the amortized cost method. As such, these assets were classified as Level 2.

Equity—The values of individual equity securities were based on quoted prices in active markets. As such, these assets are classified as Level 1. Additionally, the Company invests in certain equity funds that are valued at calculated net asset value per share (“NAV”), but are not quoted on active markets. As such, these assets were classified as Level 2. Additionally, this category includes underlying securities in trust owned life insurance policies which are invested in certain equity securities. These investments are not quoted on active markets; therefore, they are classified as Level 2.

Fixed income—Fixed income securities are typically priced based on a valuation model rather than a last trade basis and are not exchange-traded. These valuation models involve utilizing dealer quotes, analyzing market information, estimating prepayment speeds and evaluating underlying collateral. Accordingly, the Company classified these fixed income securities as Level 2. Fixed income securities also include investments in various asset-backed securities that are part of a government sponsored program. The prices of these asset-backed securities were obtained by independent third parties using multi-dimensional, collateral specific prepayments tables. Inputs include monthly payment information and collateral performance. As the values of these assets was determined based on models incorporating observable inputs, these assets were classified as Level 2. The Company also invests in certain fixed income funds that were priced on active markets and were classified as Level 1. Additionally, this category includes underlying securities in trust owned life insurance policies which are invested in certain fixed income securities. These investments are not quoted on active markets; therefore, they are classified as Level 2.

Derivatives and other—This category includes assets and liabilities that are futures or swaps traded on a primary exchange and are priced by multiple providers. Accordingly, the Company classified these assets and liabilities as Level 1. This category also includes various other assets in which carrying value approximates fair value. Additionally, this category includes investments in commodity and structured credit funds that are not quoted on active markets; therefore, they are classified as Level 2.

Real estate—The fair market value of real estate investment trusts is based on observable inputs for similar assets in active markets, for instance, appraisals and market comparables. Accordingly, the real estate investments were categorized as Level 2. The Company also invests in certain exchange-traded real estate investment trust funds that were classified as Level 1.

Private equity—Includes the Company’s interest in various private equity funds that are valued by the investment manager on a periodic basis with models that use market, income and cost valuation methods. The valuation inputs are not highly observable, and these interests are not actively traded on an open market. Accordingly, this interest was categorized as Level 3.

For Level 2 and Level 3 plan assets, management reviews significant investments on a quarterly basis including investigation of unusual fluctuations in price or returns and obtaining an understanding of the pricing methodology to assess the reliability of third-party pricing estimates.

The valuation methodologies described above may generate a fair value calculation that may not be indicative of net realizable value or future fair values. While the Company believes the valuation methodologies used are appropriate, the use of different methodologies or assumptions in calculating fair value could result in different amounts. The Company invests in various assets in which valuation is determined by NAV. The Company believes that the NAV is representative of fair value at the reporting date, as there are no significant restrictions on redemption of these investments or other reasons to indicate that the investment would be redeemed at an amount different than the NAV.

The fair values of the Company’s pension plan assets at December 31, 2012 and 2011, by asset category were as follows:


	December 31, 2012								December 31, 2011
Asset Category	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	56.9	$	27.4	$	29.5	$	—	$	65.2	$	43.4	$	21.8	$	—
Equity		2,169.0		1,887.4		281.6		—		1,857.0		1,604.4		252.6		—
Fixed income		828.0		240.5		587.5		—		779.1		214.8		564.3		—
Derivatives and other		8.9		0.5		8.4		—		6.9		3.6		3.3		—
Real estate		113.6		—		113.6		—		111.3		7.1		104.2		—
Private equity		38.9		—		—		38.9		30.1		—		—		30.1

Total	$	3,215.3	$	2,155.8	$	1,020.6	$	38.9	$	2,849.6	$	1,873.3	$	946.2	$	30.1

The fair values of the Company’s other postretirement benefit plan assets at December 31, 2012 and 2011, all of which were determined to be Level 2 under the fair value hierarchy, by asset category were as follows:


Asset Category	2012		2011
Cash and cash equivalents	$	8.4	$	17.7
Equity		133.3		114.3
Fixed income		35.9		42.7
Derivatives and other		9.5		—

Total	$	187.1	$	174.7

The following table provides a summary of changes in the fair value of the Company’s Level 3 assets:


	Private Equity
Balance at January 1, 2011	$	15.5
Unrealized losses—net		3.2
Purchases, sales and settlements		11.4

Balance at December 31, 2011	$	30.1

Unrealized gains—net		5.8
Purchases, sales and settlements		3.0

Balance at December 31, 2012	$	38.9

Employee 401(k) Savings Plan—For the benefit of most of its U.S. employees, the Company maintains a defined contribution retirement savings plan that is intended to be qualified under Section 401(a) of the Internal Revenue Code. Under this plan, employees may contribute a percentage of eligible compensation on both a before-tax and after-tax basis. The Company may match a percentage of a participating employee’s before-tax contributions. The plan provides that annual matching contributions are discretionary. In 2012, the Company made matching contributions for most U.S. employees on a pay period basis equal to 40% of contributions on up to 6% of eligible compensation. The cost of the match was determined by the level of eligible employee before-tax contributions and Roth 401(k) contributions made to the plan. The Company recognized expense of $30.8 million for matching contributions under its reinstated 401(k) match for the year ended December 31, 2012. The Company suspended its 401(k) match for 2013 and did not make any matching contributions in 2011 and 2010.

Multi-Employer Pension Plans—The Company contributes to six defined benefit multi-employer pension plans in which employees across several facilities within the U.S. Print and Related Services segment do or did participate. The Company is required to make contributions to these plans as determined by the terms and conditions of collective bargaining agreements and plan terms. For the years ended December 31, 2012, 2011 and 2010, the Company made regular contributions of $1.3 million, $1.7 million and $1.7 million, respectively, to these multi-employer pension plans. The Company cannot currently estimate the amount of multi-employer pension plan contributions that will be required in 2013 and future years, but these contributions could significantly increase due to other employers’ withdrawals, changes in the funded status of the plans or changes in the Company’s workforce. The Company’s contributions for 2012, 2011 and 2010 represented more than 5.0% of total contributions for three of the multi-employer pension plans.

Multi-employer plans receive contributions from two or more unrelated employers pursuant to one or more collective bargaining agreements and the assets contributed by one employer may be used to fund the benefits of all employees covered within the plan. The risk and level of uncertainty related to participating in these multi-employer pension plans differs significantly from the risk associated with the Company-sponsored defined benefit plans. For example, investment decisions are made by parties unrelated to the Company and the financial stability of other employers participating in a plan may affect the Company’s obligations under the plan. In addition, the Company’s liability, were it to withdraw from a plan, may be disproportionate to the Company’s obligations for continuing to participate in the plan.

The Company’s participation in multi-employer pension plans is subject to collective bargaining agreements with expiration dates ranging from December 5, 2012 (contract renewal negotiations are ongoing) to December 31, 2013. All six plans to which the Company contributes are estimated to be underfunded as of December 31, 2012, with five plans having a Pension Protection Act zone status of red and one having a zone status of yellow. All six plans have rehabilitation plans in place. A zone status of red identifies plans that are under 65.0% funded, with a short-term credit balance deficiency. A zone status of yellow identifies plans that are 65% or more, but less than 80.0% funded. All six of the plans have imposed surcharges due to their critical funding status. Surcharges are imposed by a multi-employer pension plan when the plan reaches critical status, as defined under the Pension Protection Act, and such surcharges are based on a percentage of required contributions for each plan year.

There were no charges due to partial or complete withdrawal liabilities for the year ended December 31, 2012. For the year ended December 31, 2011, the Company recorded charges of $15.1 million relating to the complete or partial withdrawal from certain multi-employer pension plans primarily resulting from the closure of three manufacturing facilities. These charges were recorded as restructuring and impairment charges and represent the Company’s best estimate of the expected settlement of these withdrawal liabilities. For the year ended December 31, 2010, the Company recorded charges of $13.6 million relating to the partial withdrawal from certain multi-employer pension plans resulting from the closure of two manufacturing facilities. As of December 31, 2011, the Company had completely withdrawn from two multi-employer pension plans and had partially withdrawn from three other plans. While it is not possible to quantify the potential impact of future events or circumstances, further reductions in participation or withdrawal from these multi-employer pension plans could have a material impact on the Company’s consolidated annual results of operations, financial position, or cash flows.