Employee Benefit Plan

12 Months Ended

Dec. 31, 2012

Employee Benefit Plan

Note 19.     Employee Benefit Plan

During the year ended December 31, 2012, we recorded net actuarial losses of $13 million (net of tax) related to various employee benefit plans. These losses were recorded in other comprehensive income. The amortization of the net actuarial loss, a component of other comprehensive income, for the year ended December 31, 2012 was $2 million (net of tax).

Included in accumulated other comprehensive (loss) income at December 31, 2012 are unrecognized net actuarial losses of $98 million ($86 million, net of tax) that have not yet been recognized in net periodic pension cost. The actuarial loss included in accumulated other comprehensive (loss) income that is expected to be recognized in net periodic pension cost during the year ended December 31, 2013 is $3 million ($2 million, net of tax).

Defined Benefit and Postretirement Benefit Plans.    We sponsor or previously sponsored numerous funded and unfunded domestic and international pension plans. All defined benefit plans covering U.S. employees are frozen. Certain plans covering non-U.S. employees remain active.

We also sponsor the Starwood Hotels & Resorts Worldwide, Inc. Retiree Welfare Program. This plan provides health care and life insurance benefits for certain eligible retired employees. We have prefunded a portion of the life insurance obligations through trust funds where such prefunding can be accomplished on a tax effective basis. We also fund this program on a pay-as-you-go basis.

The following table sets forth the benefit obligation, fair value of plan assets, the funded status and the accumulated benefit obligation of our defined benefit pension and postretirement benefit plans at December 31 (in millions):

	Domestic Pension  Benefits						Foreign Pension Benefits						Postretirement Benefits
	2012			2011			2012			2011			2012			2011
Change in Benefit Obligation
Benefit obligation at beginning of year	$	20		$	19		$	206		$	183		$	20		$	20
Service cost		—			—			—			—			—			—
Interest cost		1			1			10			10			1			1
Actuarial loss		3			1			19			18			—			1
Effect of foreign exchange rates		—			—			4			(1	)		—			—
Plan participant contributions		—			—			—			—			1			1
Benefits paid		(1	)		(1	)		(7	)		(5	)		(2	)		(3	)
Other		—			—			—			1			—			—
Benefit obligation at end of year	$	23		$	20		$	232		$	206		$	20		$	20
Change in Plan Assets
Fair value of plan assets at beginning of year	$	—		$	—		$	190		$	176		$	—		$	1
Actual return on plan assets, net of expenses		—			—			19			12			—			—
Employer contribution		1			1			11			8			1			1
Plan participant contributions		—			—			—			—			1			1
Effect of foreign exchange rates		—			—			4			(1	)		—			—
Benefits paid		(1	)		(1	)		(7	)		(5	)		(2	)		(3	)
Fair value of plan assets at end of year	$	—		$	—		$	217		$	190		$	—		$	—
Unfunded status	$	(23	)	$	(20	)	$	(14	)	$	(16	)	$	(20	)	$	(20	)
Accumulated benefit obligation	$	23		$	20		$	229		$	205			n/a			n/a
Plans with Accumulated Benefit Obligations in excess of Plan Assets
Projected benefit obligation	$	23		$	20		$	158		$	140			n/a			n/a
Accumulated benefit obligation	$	23		$	20		$	157		$	140			n/a			n/a
Fair value of plan assets	$	—		$	—		$	121		$	105			n/a			n/a

The net underfunded status of the plans at December 31, 2012 was $57 million, of which $76 million is recorded in other liabilities, $3 million is recorded in accrued expenses and $22 million is recorded in other assets in the accompanying balance sheet.

All domestic pension plans are frozen plans, whereby employees do not accrue additional benefits. Therefore, at December 31, 2012 and 2011, the projected benefit obligation is equal to the accumulated benefit obligation.

The following table presents the components of net periodic benefit cost for the years ended December 31 (in millions):

	Domestic Pension Benefits						Foreign Pension Benefits									Postretirement Benefits
	2012		2011		2010		2012			2011			2010			2012		2011		2010
Service cost	$	—	$	—	$	—	$	—		$	—		$	—		$	—	$	—	$	—
Interest cost		1		1		1		10			10			10			1		1		1
Expected return on plan assets		—		—		—		(12	)		(12	)		(10	)		—		—		—
Amortization of net actuarial loss		—		—		—		2			1			1			—		—		—
Other		—		—		—		—			1			—			—		—		—
Settlement and curtailment (gain) loss		—		—		—		—			—			—			—		—		—
Net periodic benefit cost	$	1	$	1	$	1	$	—		$	—		$	1		$	1	$	1	$	1

For measurement purposes, a 9% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2013, gradually decreasing to 5% in 2020. A one-percentage point change in assumed health care cost trend rates would have approximately a $1 million effect on the postretirement obligation and a nominal impact on the total of service and interest cost components of net periodic benefit cost. The majority of participants in the Foreign Pension Plans are employees of managed hotels, for which we are reimbursed for costs related to their benefits. The impact of these reimbursements is not reflected above.

The weighted average assumptions used to determine benefit obligations at December 31 were as follows:

	Domestic Pension Benefits						Foreign Pension Benefits						Postretirement Benefits
	2012			2011			2012			2011			2012			2011
Discount rate		3.50	%		4.25	%		4.01	%		4.68	%		3.50	%		4.00	%
Rate of compensation increase		n/a			n/a			3.03	%		3.26	%		n/a			n/a

The weighted average assumptions used to determine net periodic benefit cost for the years ended December 31 were as follows:

	Domestic Pension Benefits									Foreign Pension Benefits									Postretirement Benefits
	2012			2011			2010			2012			2011			2010			2012			2011			2010
Discount rate		4.25	%		5.00	%		5.51	%		4.68	%		5.34	%		5.93	%		4.00	%		4.75	%		5.50	%
Rate of compensation increase		n/a			n/a			n/a			3.26	%		3.64	%		3.50	%		n/a			n/a			n/a
Expected return on plan assets		n/a			n/a			n/a			6.31	%		6.52	%		6.56	%		0.00	%		7.10	%		7.10	%

Our investment objectives are to minimize the volatility of the value of the assets and to ensure the assets are sufficient to pay plan benefits. The target asset allocation is 63% debt securities and 36% equity securities and 1% other.

A number of factors were considered in the determination of the expected return on plan assets. These factors included current and expected allocation of plan assets, the investment strategy, historical rates of return and our expectations, as well as investment expert expectations, for investment performance over approximately a ten year period.

The following table presents our fair value hierarchy of the plan assets measured at fair value on a recurring basis as of December 31, 2012 (in millions):

	Level 1		Level 2		Level 3		Total
Assets:
Mutual Funds	$	61	$	—	$	—	$	61
Collective Trusts		—		6		—		6
Equity Index Funds		—		75		—		75
Money Markets		1		—		—		1
Bond Index Funds		—		74		—		74
Total	$	62	$	155	$	—	$	217

The following table presents our fair value hierarchy of the plan assets measured at fair value on a recurring basis as of December 31, 2011 (in millions):

	Level 1		Level 2		Level 3		Total
Assets:
Mutual Funds	$	55	$	—	$	—	$	55
Collective Trusts		—		5		—		5
Equity Index Funds		—		67		—		67
Bond Index Funds		—		63		—		63
Total	$	55	$	135	$	—	$	190

All assets are valued using quoted market prices in active markets.

The following table represents our expected pension and postretirement benefit plan payments for the next five years and the five years thereafter (in millions):

	Domestic Pension Benefits		Foreign  Pension Benefits		Postretirement Benefits
2013	$	1	$	8	$	2
2014		1		9		2
2015		2		9		1
2016		2		10		1
2017		2		10		1
2018-2022		7		58		6

We expect to contribute $14 million to the plans during 2013. A significant portion of the contributions relate to the Foreign Pension Plans, for which we are reimbursed.

Defined Contribution Plans.    We sponsor various defined contribution plans, including the Starwood Hotels & Resorts Worldwide, Inc. Savings and Retirement Plan, which is a “401(k)” plan. The plan allows participation by employees on U.S. payroll who are at least age 21. Each participant may contribute on a pretax basis between 1% and 50% of his or her eligible compensation to the plan subject to certain maximum limits. Eligible employees are automatically enrolled after 90 days (unless they opt out). A company-paid matching contribution is provided to participants who have completed at least one year of service. The amount of expense for matching contributions totaled $16 million in 2012, $15 million in 2011, and $13 million in 2010. The plan includes our publicly traded common stock as an investment choice. The balances held in Starwood’s stock were $69 million and $67 million at December 31, 2012 and 2011, respectively.

Multi-Employer Pension Plans.    Certain employees are covered by union sponsored multi-employer pension plans pursuant to agreements between us and various unions. Our participation in these plans is outlined in the table below (in millions):

Pension Fund	EIN/ Pension Plan Number		Pension Protection Act Zone Status						Contributions
			2012			2011			2012		2011		2010
New York Hotel Trades Council and Hotel Association of New York City, Inc. Pension Fund		13-1764242/001		Yellow	(a)		Yellow	(b)	$	4	$	4	$	4
Other Funds		Various								5		5		5
Total Contributions									$	9	$	9	$	9

(a) As of January 1, 2012

(b) As of January 1, 2011

Eligible employees at our owned hotels in New York City participate in the New York Hotel Trades Council and Hotel Association of New York City, Inc. Pension Fund. Our contributions are based on a percentage of all union employee wages as dictated by the collective bargaining agreement that expires on June 30, 2019. Our contributions did not exceed 5% of the total contributions to the pension fund in 2012, 2011 or 2010. The pension fund has implemented a funding improvement plan and we have not paid a surcharge.

Multi-Employer Health Plans. Certain employees are covered by union sponsored multi-employer health plans pursuant to agreements between us and various unions. The plan benefits can include medical, dental and life insurance for eligible participants and retirees. Our contributions to these plans, which were charged to expense during 2012, 2011 and 2010, were approximately $24 million, $26 million and $27 million, respectively.