11. Employee Benefit and Retirement Plans

401(k) Plans

Our U.S.-based employees may participate in the Tellabs 401(k) Plan. Upon meeting eligibility requirements, we match (dollar-for-dollar) up to the first 4% of the employee's contribution. Both employee and employer contributions are vested immediately. The plan provides for a discretionary Company contribution, which is subject to Board of Directors approval and is funded entirely by the Company. The amount of the contribution, if approved, is based on a percent of pay for a specific period. All 401(k) eligible employees actively employed on the last business day of the declared period are immediately eligible to receive this fully vested contribution. The investment of these funds follows the participants' elections on file for the program. The Board of Directors approved a 2% contribution in 2011, 2010 and 2009. We maintain similar plans for the benefit of eligible employees at most subsidiaries outside North America.

Contributions to these programs were $27.6 million in 2011, $27.5 million in 2010 and $26.5 million in 2009.

Deferred Income Plan

We provide a Deferred Income Plan that permits certain officers and management employees to defer portions of their compensation. As of December 30, 2011, the $20.9 million long-term portion of the deferred income obligation is included in Other Long-Term Liabilities and the $2.0 million current portion is included in Other accrued liabilities. Adjustments to reflect changes in the fair value of the amount owed to the employee are made to the applicable liability account with a corresponding charge (or credit) to compensation expense.

Retiree Medical Plan

We maintain a defined-benefit Retiree Medical Plan. Under the plan, we provide qualified retirees with a subsidy to offset their insurance premiums and allow the retirees to participate in the Company-sponsored healthcare plan. We made no contributions in 2011 or 2010. We currently do not anticipate making a contribution to the plan in 2012, as it is adequately funded.

The following table summarizes benefit obligations, plan assets and funded status of the Retiree Medical Plan:


	12/30/11			12/31/10
Change in benefit obligation
Accumulated postretirement benefit obligation—beginning of year	$	10.3		$	10.1
Service cost		0.7			0.7
Interest cost		0.6			0.5
Actuarial loss (gain)		1.4			(0.8	)
Benefits paid		(0.2	)		(0.2	)
Curtailment		(0.8	)		—

Accumulated postretirement benefit obligation—end of year	$	12.0		$	10.3

Change in plan assets
Assets at fair value—beginning of year	$	10.1		$	9.5
Return on plan assets		(0.1	)		0.8
Benefits paid		(0.2	)		(0.2	)

Assets at fair value—end of year	$	9.8		$	10.1

Funded status	$	(2.2	)	$	(0.2	)

Our investment strategy for the plan's assets focuses on asset allocation and diversification. As a result, the assets are diversified across asset classes to achieve a conservative risk profile. The plan's assets were 37% invested in a guaranteed income fund, 37% invested in equity securities and 26% invested in fixed income securities at December 30, 2011. The plan's assets were 47% invested in a guaranteed income fund, 28% invested in equity securities and 25% invested in fixed income securities at December 31, 2010. The actuarial loss in 2011 was caused primarily by the change in the discount rate. The actuarial gain in 2010 was caused primarily by demographic changes.

We use the three-tier fair value hierarchy to measure the fair value of these investments. We classify the guaranteed fund as a Level 2 asset because the fund's value is based on the contract value as determined by the custodian. The other assets are classified as Level 1 because they are invested in highly liquid, publicly traded securities which are valued daily using quoted prices in active markets.

The following table presents by level, within the fair value hierarchy, the value of assets of the Retiree Medical Plan at December 30, 2011 and December 31, 2010:


Fair Value Measurements at December 30, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
Equity securities	$	3.6	$	—	$	—	$	3.6
Fixed income securities		2.6		—		—		2.6
Guaranteed income fund		—		3.6		—		3.6

Total assets	$	6.2	$	3.6	$	—	$	9.8


Fair Value Measurements at December 31, 2010
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance
Equity securities	$	2.8	$	—	$	—	$	2.8
Fixed income securities		2.5		—		—		2.5
Guaranteed income fund		—		4.8		—		4.8

Total assets	$	5.3	$	4.8	$	—	$	10.1

The following table summarizes components of net periodic benefit (credit) cost of the Retiree Medical Plan:


	2011			2010			2009
Components of net periodic postretirement benefit cost
Service cost	$	0.7		$	0.7		$	0.6
Interest cost		0.6			0.5			0.6
Expected return on assets		(0.6	)		(0.6	)		(0.6	)
Amortization of actuarial gain		(0.3	)		(0.3	)		(0.3	)
Amortization of unrecognized prior service cost		0.1			0.1			0.1

Net periodic postretirement benefit cost	$	0.5		$	0.4		$	0.4
Curtailment		(0.7	)		—			—

Total (credit) cost for the year	$	(0.2	)	$	0.4		$	0.4

The curtailment of $0.7 million in 2011 was primarily due to the reduction of employees during 2011. We amortize the prior service cost using a straight-line method over the average remaining years of service to full eligibility for benefits of the active Retiree Medical Plan participants. We expect to amortize $0.1 million of unrecognized prior service cost and $0.1 million of actuarial gain in 2012.

The following table summarizes the weighted average assumptions used to determine benefit costs and benefit obligations:


	2011			2010			2009
Discount rate used to determine benefit costs		5.75	%		6.00	%		6.75	%
Discount rate used to determine benefit obligation		5.00	%		5.75	%		6.00	%
Expected long-term rate of return on assets		6.50	%		6.50	%		6.50	%

There is no trend rate assumption required for this plan because all liabilities are related to a fixed-dollar subsidy and are not related to medical claims. Therefore, any change in future medical inflation trends or assumptions will not affect the liabilities of this plan.

The discount rates used to determine benefit costs and benefit obligations were based on hypothetical zero coupon corporate bond yield curves that replicate the cash flows of the plan. The discount rate used decreased in 2011 and 2010 due to the decrease in the hypothetical zero coupon corporate bond yield curve.

The long-term historical relationships between equities and fixed-income securities consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. The long-term portfolio return takes into consideration the diversification and the future rebalancing of our assets. We evaluate current market factors, such as inflation and interest rates, before determining long-term capital return. We also consider the evaluation of external investment advisors.

The following table presents estimated future benefit payments for the Retiree Medical Plan as of December 30, 2011:


2012	$	0.3
2013	$	0.4
2014	$	0.4
2015	$	0.4
2016	$	0.5
2017 – 2021	$	3.6

There is $0.2 million of unrecognized prior service cost, net of tax, and $2.0 million of unrecognized net gain, net of tax, in Accumulated other comprehensive income at December 30, 2011.