Pension and Other Postemployment Benefits

12 Months Ended

Dec. 31, 2011

Pension and Other Postemployment Benefits [Abstract]

Pension and Other Postemployment Benefits [Text Block]

Pension and Other Postemployment Benefits

Defined Contribution Plans

Our domestic and international subsidiaries provide retirement benefits for their employees primarily through defined contribution profit sharing and savings plans. Contributions to these plans vary by subsidiary and have generally been in amounts up to the maximum percentage of total eligible compensation of participating employees that is deductible for income tax purposes. Contribution expense in 2011, 2010 and 2009 was $102.1 million, $83.9 million and $75.7 million, respectively.

Defined Benefit Pension Plans

Certain of our subsidiaries sponsor noncontributory defined benefit pension plans. Two of our U.S. businesses and several of our non-U.S. businesses sponsor pension plans. These plans provide benefits to employees based on formulas recognizing length of service and earnings. The U.S. plans cover approximately 1,200 participants and are closed to new participants. Effective January 1, 2011, the U.S. plans do not accrue future benefit credits. The non-U.S. plans cover approximately 6,500 participants, are not covered by ERISA and include plans required by local laws.

In addition, we have a Senior Executive Restrictive Covenant and Retention Plan (“Retention Plan”) for certain executive officers of Omnicom selected to participate by the Compensation Committee. The Retention Plan was adopted to secure non-competition, non-solicitation, non-disparagement and ongoing consulting services from such executive officers, and to strengthen the retention aspect of executive officer compensation. The Retention Plan provides for annual payments to the participants or to their beneficiaries upon termination following at least seven years of service with Omnicom or its subsidiaries. A participant’s annual benefit is payable for 15 consecutive calendar years following termination, but in no event prior to age 55. The annual benefit is equal to the lesser of (i) the participant’s final average pay times an applicable percentage, which is based upon the executive’s years of service as an executive officer, not to exceed 35% or (ii) $1.5 million. The Retention Plan is unfunded and benefits will be paid when due.

The assets, liabilities and expense associated with these plans are not material to our results of operations or financial position.

The components of net periodic benefit cost for the three years ended December 31, 2011 were (in millions):

	2011			2010			2009
Service cost	$	5.8		$	3.9		$	4.4
Interest cost	6.5			6.1			6.7
Expected return on plan assets	(3.5		)	(3.5		)	(3.6		)
Amortization of prior service cost	3.1			2.5			2.5
Amortization of actuarial (gains) losses	0.3			0.6			1.6
Curtailments and settlements	—			1.2			1.4
	$	12.2		$	10.8		$	13.0

Included in accumulated other comprehensive income at December 31, 2011 and 2010 were unrecognized actuarial gains and losses and unrecognized prior service cost of $66.2 million, $41.2 million net of tax, and $44.7 million, $27.5 million net of tax, respectively, that have not yet been recognized in net periodic benefit cost. The unrecognized actuarial gains and losses and unrecognized prior service cost included in accumulated other comprehensive income and expected to be recognized in net periodic benefit cost in 2012 is $4.6 million.

The weighted average assumptions used to determine net periodic benefit cost for the three years ended December 31, 2011 were:

	2011		2010		2009
Discount rate	5.1	%	5.6	%	5.6	%
Compensation increases	1.6	%	2.3	%	2.1	%
Expected return on plan assets	6.2	%	6.7	%	6.4	%

The expected long-term rate of return for plan assets for our U.S. plans is based on several factors, including current and expected asset allocations, historical and expected returns on various asset classes and current and future market conditions. A total return investment approach using a mix of equities and fixed income investments maximizes the long-term return. This strategy is intended to minimize plan expense by achieving long-term returns in excess of the growth in plan liabilities over time. The discount rate used to compute net periodic benefit cost is based on yields of available high-quality bonds and reflects the expected cash flow as of the measurement date.

The expected returns on plan assets and discount rates for our non-U.S. plans are based on local factors, including each plan’s investment approach, local interest rates and plan participant profiles. The assumptions exclude a plan for one of our Japaneses subsidiaries that was recently terminated.

Experience gains and losses and the effects of changes in actuarial assumptions are generally amortized over a period no longer than the expected average future service of active employees.

Our funding policy is to contribute amounts sufficient to meet minimum funding requirements in accordance with the applicable employee benefit and tax laws that the plans are subject to, plus such additional amounts as we may determine to be appropriate. In 2011, 2010 and 2009, we contributed $7.8 million, $7.5 million, $6.4 million, respectively, to our defined benefit pension plans. We do not expect our 2012 contributions to differ materially from our 2011 contributions.

At December 31, 2011 and 2010, the benefit obligation, fair value of plan assets and the funded status of our defined benefit pension plans were (in millions):

	2011			2010
Benefit Obligation
Benefit obligation January 1	$	130.0		$	120.9
Service cost	5.8			3.9
Interest cost	6.5			6.1
Amendments, curtailments, and settlements	(13.6		)	2.6
Actuarial (gains) losses	23.1			7.2
Benefits paid	(5.1		)	(10.3		)
Foreign currency translation	(0.4		)	(0.4		)
Benefit obligation December 31	$	146.3		$	130.0
Fair Value of Plan Assets
Fair value of assets January 1	$	53.9		$	52.4
Actual return on plan assets	(0.6		)	4.5
Employer contributions	7.8			7.5
Benefits paid	(5.1		)	(10.3		)
Settlements	(5.4		)	—
Foreign currency translation	(0.1		)	(0.2		)
Fair value of plan assets December 31	$	50.5		$	53.9
Funded Status December 31	$	(95.8	)	$	(76.1	)

At December 31, 2011 and 2010 the funded status was classified as follows (in millions):

	2011			2010
Other assets	$	1.9		$	3.0
Other current liabilities	(1.3		)	(1.1		)
Long-term liabilities	(96.4		)	(78.0		)
	$	(95.8	)	$	(76.1	)

At December 31, 2011 and 2010, the accumulated benefit obligations for our defined benefit pension plans were $135.8 million and $119.2 million, respectively.

At December 31, 2011 and 2010, plans with benefit obligations in excess of plan assets were (in millions):

	2011		2010
Benefit obligation	$	136.4	$	114.1
Plan assets	38.7		35.0
	$	97.7	$	79.1

At December 31, 2011 and 2010, the weighted average assumptions used to determine the benefit obligation were:

	2011		2010
Discount rate	4.6	%	5.0	%
Compensation increases	1.4	%	1.9	%

At December 31, 2011, the estimated future benefit payments expected to be paid are (in millions):

2012	$	4.1
2013	4.9
2014	7.7
2015	5.5
2016	5.8
2017 -2021	41.4
Thereafter	76.9
	$	146.3

The fair value of plan assets at December 31, 2011 and 2010 were (in millions):

	Level 1		Level 2		Level 3		Total
2011
Cash	$	1.6					$	1.6
Mutual funds (a)	29.7						29.7
Unit trusts (b)	17.3						17.3
Insurance contracts (c)	—				$	1.7	1.7
Other (d)	—		$	0.2	—		0.2
	$	48.6	$	0.2	$	1.7	$	50.5

________________

(a) Equity funds represent 67% of the total and are primarily composed of U.S. large-cap and mid-cap companies, international companies and emerging market companies. Debt funds represent 33% of the total and are primarily composed of U.S. Treasury securities, corporate debt and mortgage securities.

(b) Equity funds represent 46% of the total and are primarily composed of U.K. large-cap companies and U.K., U.S. and eurozone equity index funds. Debt funds represent 54% of the total and are composed of U.K. government bonds and U.K. and eurozone corporate bonds.

(c) Insurance contracts are primarily composed of guaranteed insurance contracts.

(d) Commingled short-term investment funds.

	Level 1		Level 2		Level 3		Total
2010
Cash	$	1.0					$	1.0
Mutual funds (a)	24.9						24.9
Unit trusts (b)	18.8						18.8
Insurance contracts (c)	—				$	6.1	6.1
Other (d)	—		$	3.1	—		3.1
	$	44.7	$	3.1	$	6.1	$	53.9

________________

(a) Equity funds represent 63% of the total and are primarily composed of U.S. large-cap and mid-cap companies, international companies and emerging market companies. Debt funds represent 37% of the total and are primarily composed of U.S. Treasury securities, corporate debt and mortgage securities.

(b) Equity funds represent 54% of the total and are primarily composed of U.K. large-cap companies and U.K., U.S. and eurozone equity index funds. Debt funds represent 46% of the total and are composed of U.K. government bonds and U.K. and eurozone corporate bonds.

(c) Insurance contracts are primarily composed of guaranteed insurance contracts.

(d) Commingled short-term investment funds.

At December 31, 2011 and 2010, changes in the fair value of plan assets measured using Level 3 inputs were (in millions):

	2011			2010
Beginning balance January 1	$	6.1		$	5.6
Actual return on assets	0.1			0.1
Purchases, sales and settlements, net	(4.5		)	0.4
Balance December 31	$	1.7		$	6.1

The weighted average asset allocations at December 31, 2011 and 2010 were:

	2011				2010
	Target Allocation		Actual Allocation		Actual Allocation
Cash	2	%	3	%	2	%
Mutual funds	55	%	59	%	46	%
Unit trusts	37	%	34	%	35	%
Insurance contracts	3	%	3	%	11	%
Other	3	%	1	%	6	%
	100	%	100	%	100	%

Risk tolerance for these plans is established through consideration of plan liabilities, funded status and evaluation of the overall investment environment. The investment portfolios contain a diversified blend of equity and fixed-income investments. Equity investments are diversified across geography and market capitalization through investment in large and medium capitalization U. S. and international equities and U. S. and international debt securities. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, and periodic asset / liability studies and investment portfolio reviews.

Postemployment Arrangements

We have executive retirement agreements under which benefits will be paid to participants or to their beneficiaries over periods up to 10 years beginning after cessation of full-time employment. Our postemployment arrangements are unfunded and benefits are paid when due. In December 2010, the Compensation Committee increased the number of employees eligible to participate in these agreements. As a result of this action, we recorded an increase in the benefit obligation for our postemployment arrangements of $20.4 million in 2010.

The components of net periodic benefit cost for the three years ended December 31, 2011 were (in millions):

	2011		2010		2009
Service cost	$	3.9	$	1.8	$	1.8
Interest cost	4.7		3.9		4.0
Amortization of prior service cost	0.6		0.6		0.8
Amortization of actuarial (gains) losses	2.1		1.0		0.5
	$	11.3	$	7.3	$	7.1

Included in accumulated other comprehensive income at December 31, 2011 and 2010 were unrecognized actuarial gains and losses and unrecognized prior service cost of $44.9 million, $26.9 million net of income taxes, and $45.0 million, $27.0 million net of income taxes, respectively, that have not yet been recognized in the net periodic benefit cost. The unrecognized actuarial gains and losses and unrecognized prior service cost included in accumulated other comprehensive income and expected to be recognized in net periodic benefit cost in 2012 is $2.0 million.

The weighted average assumptions used to determine net periodic benefit cost for the three years ended December 31, 2011 were:

	2011		2010		2009
Discount rate	5.0	%	5.0	%	5.3	%
Compensation increases	3.5	%	3.5	%	3.5	%

Experience gains and losses and effects of changes in actuarial assumptions are amortized over a period no longer than the expected average future service of active employees.

At December 31, 2011 and 2010, the benefit obligation was (in millions):

	2011			2010
Benefit obligation January 1	$	104.7		$	87.7
Service cost	3.9			1.8
Interest cost	4.7			3.9
Plan amendment	—			20.4
Actuarial (gains) losses	2.6			0.9
Benefits paid	(10.7		)	(10.0		)
Benefit obligation December 31	$	105.2		$	104.7

At December 31, 2011 and 2010, the liability was classified as follows (in millions):

	2011		2010
Other current liabilities	$	10.2	$	10.7
Long-term liabilities	95.0		94.0
	$	105.2	$	104.7

At December 31, 2011 and 2010, the weighted average assumptions used to determine the benefit obligation were:

	2011		2010
Discount rate	4.9	%	5.0	%
Compensation increases	3.5	%	3.5	%

At December 31, 2011, the estimated future benefit payments expected to be paid are (in millions):

2012	$	10.2
2013	9.8
2014	8.3
2015	7.2
2016	7.5
2017 - 2021	28.1
Thereafter	34.1
	$	105.2