Retirement And Postretirement Benefit Plans

12 Months Ended

Sep. 30, 2011

Retirement And Postretirement Benefit Plans

Retirement And Postretirement Benefit Plans

NOTE 7. RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

Our retirement plans consist of defined benefit plans, a postretirement healthcare plan, and defined contribution savings plans. Plans cover certain employees both in and outside of the U.S.

Retirement Plans

We sponsor four defined benefit plans. Those plans include a master defined benefit retirement plan, a nonqualified supplemental executive defined benefit retirement plan, and two defined benefit retirement plans covering employees in Germany and France. During 2010, we merged the defined benefit plan related to our fiscal 2004 acquisition of Mediq, Inc. (Mediq) into the master defined benefit plan. Benefits for such plans are based primarily on years of service and the employee's level of compensation during specific periods of employment. We contribute funds to trusts as necessary to provide for current service and for any unfunded projected future benefit obligation over a reasonable period of time. All of our plans have a September 30th measurement date.

As discussed in Note 9, we announced a restructuring plan during our second quarter of fiscal 2009. The restructuring resulted in a curtailment and remeasurement of both the master defined benefit retirement plan and the postretirement health care plan. The impact of the remeasurement in each plan is included within the following tables as curtailment and special termination benefits.

Effect on Operations

The components of net pension expense for our defined benefit retirement plans were as follows:

	Years Ended September 30
	2011			2010			2009
Service cost	$	5.2		$	5.1		$	4.0
Interest cost		13.2			13.2			13.3
Expected return on plan assets		(16.7	)		(13.1	)		(12.9	)
Amortization of unrecognized prior service cost, net		0.6			0.6			0.6
Amortization of net (gain) loss		4.0			2.6			(0.1	)
Net periodic benefit cost		6.3			8.4			4.9
Curtailment and special termination benefits		-			-			2.8
Net pension expense	$	6.3		$	8.4		$	7.7

Obligations and Funded Status

The change in benefit obligations, plan assets and funded status, along with amounts recognized in the Consolidated Balance Sheets for our defined benefit retirement plans were as follows:

	September 30
	2011			2010
Change in benefit obligation:
Benefit obligation at beginning of year	$	266.5		$	246.2
Service cost		5.2			5.1
Interest cost		13.2			13.2
Actuarial loss		19.4			11.0
Benefits paid		(8.2	)		(8.1	)
Exchange rate (gain)		(0.2	)		(0.9	)
Benefit obligation at end of year		295.9			266.5
Change in plan assets:
Fair value of plan assets at beginning of year		215.7			152.8
Actual return on plan assets		8.8			19.7
Employer contributions		1.0			51.3
Benefits paid		(8.2	)		(8.1	)
Fair value of plan assets at end of year		217.3			215.7
Funded status and net amounts recognized	$	(78.6	)	$	(50.8	)
Amounts recorded in the Consolidated Balance Sheets:
Accrued pension benefits, current portion	$	(0.1	)	$	(1.0	)
Accrued pension benefits, long-term		(78.5	)		(49.8	)
Net amount recognized	$	(78.6	)	$	(50.8	)

In addition to the amounts above, net actuarial losses of $104.2 million and prior service costs of $2.9 million, less an applicable aggregate tax effect of $40.7 million are included as components of Accumulated Other Comprehensive Income (Loss) at September 30, 2011. At September 30, 2010, net actuarial losses of $81.4 million and prior service costs of $3.5 million, less an applicable aggregate tax effect of $31.5 million, were included as components of Accumulated Other Comprehensive Income (Loss).

The estimated net actuarial loss and prior service cost for our defined benefit retirement plans that will be amortized from Accumulated Other Comprehensive Income (Loss) into net periodic benefit cost over the next fiscal year are $6.1 million and $0.6 million.

Accumulated Benefit Obligation

The accumulated benefit obligation for all defined benefit pension plans was $271.6 million and $243.6 million at September 30, 2011 and 2010. Selected information for our plans, including plans with accumulated benefit obligations exceeding plan assets, was as follows:

	September 30
	2011						2010
	PBO		ABO		Plan Assets		PBO		ABO		Plan Assets
Supplemental executive plan	$	4.4	$	3.7	$	-	$	4.2	$	3.2	$	-
Master plan		278.5		255.7		216.9		248.3		227.2		215.3
German plan		10.5		10.5		-		11.5		11.5		-
French plan		2.5		1.7		0.4		2.5		1.7		0.4
	$	295.9	$	271.6	$	217.3	$	266.5	$	243.6	$	215.7

Actuarial Assumptions

The weighted average assumptions used in accounting for our domestic pension plans were as follows:

	2011	2010	2009
Weighted average assumptions to determined benefit
obligations at the measurement date:
Discount rate for obligation	4.6%	5.1%	5.5%
Rate of compensation increase	3.5%	3.5%	4.0%
Weighted average assumptions to determined benefit
cost for the year:
Discount rate for expense	5.1%	5.5%	7.5%
Expected rate of return on plan assets	7.5%	7.5%	7.5%
Rate of compensation increase	3.5%	4.0%	4.0%

The discount rates used in the valuation of our defined benefit pension plans are evaluated annually based on current market conditions. In setting these rates we utilize long-term bond indices and yield curves as a preliminary indication of interest rate movements, and then make adjustments to the respective indices to reflect differences in the terms of the bonds covered under the indices in comparison to the projected outflow of our pension obligations. The overall expected long-term rate of return is based on historical and expected future returns, which are inflation adjusted and weighted for the expected return for each component of the investment portfolio, as well as taking into consideration economic and capital market conditions. The rate of assumed compensation increase is also based on our specific historical trends of past wage adjustments.

Plan Assets

The weighted average asset allocations of our master defined benefit retirement plan at September 30, 2011 and 2010, by asset category, along with target allocations, are as follows:

	2011	2010	2011	2010
	Target	Target	Actual	Actual
	Allocation	Allocation	Allocation	Allocation
Equity securities	40- 60%	40- 60%	47%	50%
Fixed income securities	40- 60%	40- 60%	53%	50%
Total			100%	100%

We have a Plan Committee that sets investment guidelines with the assistance of an external consultant. These guidelines are established based on market conditions, risk tolerance, funding requirements and expected benefit payments. The Plan Committee also oversees the investment allocation process, selects the investment managers and monitors asset performance. As pension liabilities are long-term in nature, we employ a long-term total return approach to maximize the long-term rate of return on plan assets for a prudent level of risk.  Target allocations are guidelines, not limitations, and plan fiduciaries may occasionally approve allocations above or below a target range or elect to rebalance the portfolio within the targeted range.

The investment portfolio contains a diversified portfolio of primarily equities and fixed income securities.  Securities are also diversified in terms of domestic and international securities, short- and long-term securities, growth and value styles, large cap and small cap stocks. The Plan Committee believes with prudent risk tolerance and asset diversification, the account should be able to meet its pension obligations in the future.

Trust assets are invested subject to the following policy restrictions: short-term securities must be rated A2/P2 or higher; all fixed-income securities shall have a credit quality rating "BBB" or higher; investments in equities in any one company may not exceed 10 percent of the equity portfolio.  At both September 30, 2011 and 2010 the master trust assets did not include any Hill-Rom common stock.  All Hill-Rom common stock previously held in the master defined benefit retirement plan was sold in fiscal 2010.

Fair Value Measurements of Plan Assets

The following table summarizes the valuation of our pension plan assets by pricing categories:

			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Balance at		Assets		Inputs		Inputs
	September 30, 2011		(Level 1)		(Level 2)		(Level 3)
Cash	$	2.3	$	2.3	$	-	$	-
Equities
US companies		70.3		70.3		-		-
International companies		30.7		30.7		-		-
Fixed income securities		113.6		58.4		55.2		-
Other		0.4		0.4		-		-
Total plan assets at fair value	$	217.3	$	162.1	$	55.2	$	-

			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Balance at		Assets		Inputs		Inputs
	September 30, 2010		(Level 1)		(Level 2)		(Level 3)
Cash	$	3.6	$	3.6	$	-	$	-
Equities
US companies		72.9		72.9		-		-
International companies		33.4		33.4		-		-
Fixed income securities		105.4		53.4		52.0		-
Other		0.4		0.4		-		-
Total plan assets at fair value	$	215.7	$	163.7	$	52.0	$	-

The Level 2 fixed income securities are commingled funds valued using the net asset value ("NAV") unit price provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund, all of which are publicly traded securities. For further descriptions of the asset Levels used in the above chart, refer to Note 6.

Cash Flows

Our U.S. qualified defined benefit plan is funded in excess of 80 percent, and therefore we expect that the plans will not be subject to the "at risk" funding requirements of the Pension Protection Act.

During 2011 and 2010, we contributed cash of $1.0 million and $51.3 million to our defined benefit retirement plans. We do not expect to contribute to our master defined benefit retirement plan in fiscal year 2012, due to the significant contribution made during 2010, however, minimal contributions will be required for our unfunded plans.

Estimated Future Benefit Payments

The benefit payments, which are expected to be funded through plan assets and company contributions and reflect expected future service, are expected to be paid as follows:

	Pension Benefits
2012	$	9.7
2013		10.3
2014		10.9
2015		11.7
2016		12.5
2017-2021		76.9

Defined Contribution Savings Plans

We have defined contribution savings plans that cover substantially all U.S. employees and certain non-U.S. employees. The general purpose of these plans is to provide additional financial security during retirement by providing employees with an incentive to make regular savings. Company contributions to the plans are based on eligibility and employee contributions. Expense under these plans was $13.0 million, $12.6 million and $13.0 million in fiscal years 2011, 2010 and 2009.

Postretirement Health Care Plan

In addition to defined benefit retirement plans, we also offer a domestic postretirement health care plan that provides health care benefits to qualified retirees and their dependents. The plan includes retiree cost sharing provisions and generally extends retiree coverage for medical, prescription and dental benefits beyond the COBRA continuation period to the date of Medicare eligibility. We use a measurement date of September 30 for this plan. The postretirement health care plan was remeasured at March 31, 2009 in connection with the restructuring mentioned previously.

The postretirement health care plan reflected (benefit) or cost during fiscal 2011, 2010 and 2009 of ($0.1) million, ($0.1) million and $1.0 million.  The change in the accumulated postretirement benefit obligation was as follows:

	Years Ended September 30
	2011			2010
Change in benefit obligation:
Benefit obligation at beginning of year	$	9.7		$	9.7
Service cost		0.4			0.4
Interest cost		0.4			0.5
Actuarial (gain) loss		(0.6	)		0.1
Benefits paid		(0.7	)		(1.3	)
Retiree contributions		0.3			0.3
Benefit obligation at end of year	$	9.5		$	9.7
Amounts recorded in the Consolidated Balance Sheets:
Accrued benefits obligation, current portion	$	0.6		$	0.5
Accrued benefits obligation,  long-term		8.9			9.2
Net amount recognized	$	9.5		$	9.7

During fiscal 2011 and 2010, we contributed $0.4 million and $1.0 million to the plan.

In addition to the amounts above, net actuarial gains of $1.7 million and prior service credits of $4.8 million, less an applicable aggregate tax effect of $2.5 million are included as components of Accumulated Other Comprehensive Income (Loss) at September 30, 2011. At September 30, 2010, net actuarial gains of $1.2 million and prior service credits of $5.7 million, less an applicable aggregate tax effect of $2.7 million, were included as components of Accumulated Other Comprehensive Income (Loss).

The discount rate used to determine the net periodic benefit cost for the postretirement health care plan during the fiscal year ended September 30, 2011, 2010 and 2009 was 4.4, 5.5 and 7.5 percent. The discount rate used to determine the benefit obligation as of September 30, 2011, 2010 and 2009 was 4.0, 4.4 and 5.5 percent. As of September 30, 2011 the health care-cost trend rates were assumed to decrease as follows:

	2011	2010	2009
Year 1	7.25%	7.75%	8.25%
Year 2	6.75%	7.25%	7.75%
Year 3	6.25%	6.75%	7.25%
Year 4	5.75%	6.25%	6.75%
Year 5	5.25%	5.75%	6.25%
Year 6	5.00%	5.25%	5.75%
Year 7	5.00%	5.00%	5.25%
Year 8 and beyond	5.00%	5.00%	5.00%

A one-percentage-point increase/decrease in the assumed health care cost trend rates as of September 30, 2011 would cause an increase/decrease in service and interest costs of less than $0.1 million, along with an increase/decrease in the benefit obligation of $0.9 million and $0.8 million.

We fund the postretirement health care plan as benefits are paid, and current plan benefits are expected to require net company contributions of approximately $0.6 million in fiscal 2012 and less than $1 million per year thereafter.