Note 14: Retirement Benefits

We use a measurement date of December 31 to develop the change in benefit obligation, change in plan assets, funded status, and amounts recognized in the consolidated balance sheets at December 31 for our defined benefit pension and retiree health benefit plans, which were as follows:


	Defined Benefit Pension Plans		Retiree Health Benefit Plans
	2011	2010		2011	2010

Change in benefit obligation
Benefit obligation at beginning of year	$8,115.0	$7,553.9		$2,088.5	$2,032.8
Service cost	236.3	219.2		72.4	56.5
Interest cost	447.9	431.6		118.0	121.4
Actuarial loss	794.7	342.2		110.2	10.0
Benefits paid	(400.1)	(387.8)		(77.9)	(98.0)
Plan amendments	10.0	0.3		1.1	(64.2)
Foreign currency exchange rate changes and other adjustments	(12.6)	(44.4)		(3.7)	30.0
Benefit obligation at end of year	$9,191.2	$8,115.0		$2,308.6	$2,088.5


	Defined Benefit Pension Plans		Retiree Health Benefit Plans
	2011	2010		2011	2010

Change in plan assets
Fair value of plan assets at beginning of year	$6,983.0	$6,008.5		$1,327.7	$1,180.7
Actual return on plan assets	209.2	818.3		16.6	152.2
Employer contribution	402.4	563.5		72.6	92.8
Benefits paid	(400.1)	(387.8)		(77.9)	(98.0)
Foreign currency exchange rate changes and other adjustments	(8.2)	(19.5)		0.0	0.0
Fair value of plan assets at end of year	$7,186.3	$6,983.0		$1,339.0	$1,327.7


	Defined Benefit Pension Plans		Retiree Health Benefit Plans
	2011	2010		2011	2010

Funded status	$(2,004.9)	$(1,132.0)		$ (969.6)	$ (760.8)
Unrecognized net actuarial loss	4,857.5	3,796.6		1,367.4	1,235.3
Unrecognized prior service cost(benefit)	57.3	56.1		(215.1)	(261.1)
Net amount recognized	$ 2,909.9	$ 2,720.7		$ 182.7	$ 213.4


	Defined Benefit Pension Plans		Retiree Health Benefit Plans
	2011	2010		2011	2010

Amounts recognized in the consolidated balance sheet consisted of
Prepaid expenses and other	$ 160.8	$ 58.5		$ 0.0	$ 0.0
Other current liabilities	(57.5)	(54.7)		(9.3)	(9.2)
Accrued retirement benefit	(2,108.2)	(1,135.8)		(960.3)	(751.6)
Accumulated other comprehensive loss before income taxes	4,914.8	3,852.7		1,152.3	974.2
Net amount recognized	$2,909.9	$2,720.7		$ 182.7	$ 213.4

The unrecognized net actuarial loss and unrecognized prior service cost (benefit) have not yet been recognized in net periodic pension costs and are included in accumulated other comprehensive loss at December 31, 2011.

For the year ended December 31, 2012, we expect to recognize from accumulated other comprehensive loss as components of net periodic benefit cost, $285.3 million of unrecognized net actuarial loss and $3.3 million of unrecognized prior service loss related to our defined benefit pension plans, and $95.7 million of unrecognized net actuarial loss and $35.1 million of unrecognized prior service benefit related to our retiree health benefit plans. We do not expect any plan assets to be returned to us in 2012.

The following represents our weighted-average assumptions as of December 31:


	Defined Benefit Pension Plans			Retiree Health Benefit Plans
(Percents)	2011	2010	2009	2011	2010	2009

Weighted-average assumptions as of December 31
Discount rate for benefit obligation	5.0	5.6	5.9	5.1	5.8	6.0
Discount rate for net benefit costs	5.6	5.9	6.7	5.8	6.0	6.9
Rate of compensation increase for benefit obligation	3.7	3.7	3.7
Rate of compensation increase for net benefit costs	3.7	3.7	4.1
Expected return on plan assets for net benefit costs	8.5	8.8	8.8	8.8	9.0	9.0

In evaluating the expected return on plan assets annually we consider numerous factors, including our historical assumptions compared with actual results, an analysis of current and future market conditions, our current and expected asset allocations, historical returns, and the views of leading financial advisers and economists for future asset class returns. As noted, historical returns are just one of several factors considered and are not the starting point for determining the expected return. Health-care-cost trend rates are assumed to increase at an annual rate of 7.4 percent for the year ended December 31, 2012, decreasing by approximately 0.3 percent per year to an ultimate rate of 5.0 percent by 2020.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

	2012	2013	2014	2015	2016	2017-2021

Defined benefit pension plans	$416.1	$424.2	$437.2	$449.9	$464.2	$2,609.2

Retiree health benefit plans-gross	$118.7	$119.1	$123.6	$127.3	$135.2	$790.8
Medicare rebates	(11.7)	(9.9)	(11.0)	(12.4)	(13.5)	(91.7)
Retiree health benefit plans-net	$107.0	$109.2	$112.6	$114.9	$121.7	$ 699.1

The total accumulated benefit obligation for our defined benefit pension plans was $8.20 billion and $7.23 billion at December 31, 2011 and 2010, respectively. The projected benefit obligation and fair value of the plan assets for the defined benefit pension plans with projected benefit obligations in excess of plan assets were $8.12 billion and $5.96 billion, respectively, as of December 31, 2011, and $7.12 billion and $5.93 billion, respectively, as of December 31, 2010. The accumulated benefit obligation and fair value of the plan assets for the defined benefit pension plans with accumulated benefit obligations in excess of plan assets were $7.03 billion and $5.75 billion, respectively, as of December 31, 2011, and $1.10 billion and $136.3 million, respectively, as of December 31, 2010.

Net pension and retiree health benefit expense included the following components:


	Defined Benefit Pension Plans			Retiree Health Benefit Plans
	2011	2010	2009	2011	2010	2009
Components of net periodic benefit cost
Service cost	$236.3	$219.2	$242.1	$ 72.4	$ 56.5	$ 53.7
Interest cost	447.9	431.6	417.5	118.0	121.4	119.6
Expected return on plan assets	(685.9)	(638.2)	(584.9)	(129.4)	(122.6)	(117.9)
Amortization of prior service cost(benefit)	8.6	8.8	8.0	(42.9)	(37.2)	(36.0)
Recognized actuarial loss	200.4	163.0	84.5	88.7	85.0	71.8
Net periodic benefit cost	$207.3	$184.4	$167.2	$106.8	$103.1	$ 91.2

If the health-care-cost trend rates were to be increased by one percentage point each future year, the December 31, 2011, accumulated postretirement benefit obligation would increase by $209.4 million and the aggregate of the service cost and interest cost components of the 2011 annual expense would increase by $15.1 million. A one percentage point decrease in these rates would decrease the December 31, 2011, accumulated postretirement benefit obligation by $187.1 million and the aggregate of the 2011 service cost and interest cost by $12.3 million.

The following represents the amounts recognized in other comprehensive income (loss) for the year ended December 31, 2011:

	Defined Benefit Pension Plans	Retiree Health Benefit Plans
Actuarial loss arising during period	$1,266.0	$221.3
Plan amendments during period	10.0	1.1
Amortization of prior service cost (benefit) included in net income	(8.6)	42.9
Amortization of net actuarial loss included in net income	(200.4)	(88.7)
Foreign currency exchange rate changes	(4.9)	1.5
Total other comprehensive loss during period	$1,062.1	$178.1

We have defined contribution savings plans that cover our eligible employees worldwide. The purpose of these defined contribution plans is generally to provide additional financial security during retirement by providing employees with an incentive to save. Our contributions to the plan are based on employee contributions and the level of our match. Expenses under the plans totaled $117.6 million, $119.8 million, and $127.6 million for the years ended December 31, 2011, 2010, and 2009, respectively.

We provide certain other postemployment benefits primarily related to disability benefits and accrue for the related cost over the service lives of employees. Expenses associated with these benefit plans for the years ended December 31, 2011, 2010, and 2009 were not significant.

Benefit Plan Investments

Our benefit plan investment policies are set with specific consideration of return and risk requirements in relationship to the respective liabilities. U.S. and Puerto Rico plans represent 81 percent of our global investments. Given the long-term nature of our liabilities, these plans have the flexibility to manage an above average degree of risk in the asset portfolios. At the investment-policy level, there are no specifically prohibited investments. However, within individual investment manager mandates, restrictions and limitations are contractually set to align with our investment objectives, ensure risk control, and limit concentrations.

We manage our portfolio to minimize any concentration of risk by allocating funds within asset categories. In addition, within a category we use different managers with various management objectives to eliminate any significant concentration of risk.

Our global benefit plans may enter into contractual arrangements (derivatives) to implement the local investment policy or manage particular portfolio risks. Derivatives are principally used to increase or decrease exposure to a particular public equity, fixed income, commodity, or currency market more rapidly or less expensively than could be accomplished through the use of the cash markets. The plans utilize both exchange traded and over-the-counter instruments. The maximum exposure to either a market or counterparty credit loss is limited to the carrying value of the receivable, and is managed within contractual limits. We expect all of our counterparties to meet their obligations. The gross values of these derivative receivables and payables are not material to the global asset portfolio, and their values are reflected within the tables below.

The defined benefit pension and retiree health benefit plan allocation strategy for the U.S. and Puerto Rico currently comprises approximately 81 percent growth investments and 19 percent fixed income investments. The growth investment allocation encompasses U.S. and international public equity securities, hedge funds, private equity-like investments, and real estate. These portfolio allocations are intended to reduce overall risk by providing diversification, while seeking moderate to high returns over the long term.

Public equity securities are well diversified and invested in U.S. and international small-to-large companies across various asset managers and styles. The remaining portion of the growth portfolio is invested in private alternative investments.

Fixed income investments primarily consist of fixed income securities in U.S. treasuries and agencies, emerging market debt obligations, corporate bonds, mortgage-backed securities and commercial mortgage-backed obligations.

Hedge funds are privately owned institutional investment funds that generally have moderate liquidity. Hedge funds seek specified levels of absolute return regardless of overall market conditions, and generally have low correlations to public equity and debt markets. Hedge funds often invest substantially in financial market instruments (stocks, bonds, commodities, currencies, derivatives, etc.) using a very broad range of trading activities to manage portfolio risks. Hedge fund strategies focus primarily on security selection and seek to be neutral with respect to market moves. Common groupings of hedge fund strategies include relative value, tactical, and event driven. Relative value strategies include arbitrage, when the same asset can simultaneously be bought and sold at different prices, achieving an immediate profit. Tactical strategies often take long and short positions to reduce or eliminate overall market risks while seeking a particular investment opportunity. Event strategy opportunities can evolve from specific company announcements such as mergers and acquisitions, and typically have little correlation to overall market directional movements. Our hedge fund investments are made through limited partnership interests primarily in fund of funds structures to ensure diversification across many strategies and many individual managers. Plan holdings in hedge funds are valued based on net asset values (NAVs) calculated by each fund or general partner, as applicable, and we have the ability to redeem these investments at NAV.

Private equity-like investment funds typically have low liquidity and are made through long-term partnerships or joint ventures that invest in pools of capital invested in primarily non-publicly traded entities. Underlying investments include venture capital (early stage investing), buyout, and special situation investing. Private equity management firms typically acquire and then reorganize private companies to create increased long term value. Private equity-like funds usually have a limited life of approximately 10-15 years, and require a minimum investment commitment from their limited partners. Our private investments are made both directly into funds and through fund of funds structures to ensure broad diversification of management styles and assets across the portfolio. Plan holdings in private equity-like investments are valued using the value reported by the partnership, adjusted for known cash flows and significant events through our reporting date. Values provided by the partnerships are primarily based on analysis of and judgments about the underlying investments. Inputs to these valuations include underlying NAVs, discounted cash flow valuations, comparable market valuations, and may also include adjustments for currency, credit, liquidity and other risks as applicable. The vast majority of these private partnerships provide us with annual audited financial statements including their compliance with fair valuation procedures consistent with applicable accounting standards.

Real estate is composed of both public and private holdings. Real estate investments in registered investment companies that trade on an exchange are classified as Level 1 on the fair value hierarchy. Real estate investments in funds measured at fair value on the basis of NAV provided by the fund manager are classified as Level 3. These NAVs are developed with inputs including discounted cash flow, independent appraisal, and market comparable analyses.

Other assets include cash and cash equivalents and mark-to-market value of derivatives.

The cash value of the trust-owned insurance contract is invested in investment grade publicly traded equity and fixed income securities.

Other than hedge funds, private equity-like investments, and real estate, which are discussed above, we determine fair values based on a market approach using quoted market values, significant other observable inputs for identical or comparable assets or liabilities, or discounted cash flow analyses.

The fair values of our defined benefit pension plan and retiree health plan assets as of December 31, 2011 by asset category are as follows:


			Fair Value Measurements Using
Asset Class	Total	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Defined Benefit Pension Plans
Public equity securities U.S.	$ 454.5	$ 317.2		$ 137.3	$
International	1,462.4	505.9		956.5
Fixed income Developed markets	929.1	100.9		828.2
Emerging markets	341.5	0.1		341.4
Private alternative investments Hedge funds	2,312.6			1,064.2	1,248.4
Equity-like funds	870.2				870.2
Real estate	409.2	271.2			138.0
Other	406.8	177.7		229.1
Total	$7,186.3	$1,373.0		$3,556.7	$2,256.6
Retiree Health Benefit Plans
Public equity securities U.S.	$ 40.9	$28.0		$ 12.9	$
International	97.1	27.5		69.6
Fixed income Developed markets	55.3			55.3
Emerging markets	34.6			34.6
Private alternative investments Hedge funds	213.1			107.8	105.3
Equity-like funds	79.9				79.9
Cash value of trust owned insurance contract	767.9			767.9
Real estate	27.5	27.5
Other	22.7	8.6		14.1
Total	$1,339.0	$91.6		$1,062.2	$185.2

No material transfers between Level 1, Level 2, or Level 3 occurred during the year ended December 31, 2011.

The activity in the Level 3 investments during the year ended December 31, 2011 was as follows:



	Hedge Funds	Equity-like Funds	Real Estate	Total
Defined Benefit Pension Plans
Beginning balance at January 1, 2011	$1,241.9	$ 802.9	$126.5	$2,171.3
Actual return on plan assets, including changes in foreign exchange rates:
Relating to assets still held at the reporting date	(8.1)	34.4	3.9	30.2
Relating to assets sold during the period	(18.1)	0.0	0.0	(18.1)
Purchases	217.7	159.1	11.5	388.3
Sales	(25.2)	0.0	(3.9)	(29.1)
Settlements	(159.8)	(126.2)	0.0	(286.0)
Ending balance at December 31, 2011	$1,248.4	$ 870.2	$138.0	$2,256.6
Retiree Health Benefit Plans
Beginning balance at January 1, 2011	$ 106.6	$ 74.5		$ 181.1
Actual return on plan assets, including changes in foreign exchange rates:
Relating to assets still held at the reporting date	0.5	3.3		3.8
Relating to assets sold during the period	(1.8)	0.0		(1.8)
Purchases	18.2	14.4		32.6
Sales	(2.0)	0.0		(2.0)
Settlements	(16.2)	(12.3)		(28.5)
Ending balance at December 31, 2011	$ 105.3	$ 79.9		$ 185.2

The fair values of our defined benefit pension plan and retiree health plan assets as of December 31, 2010 by asset category are as follows:


			Fair Value Measurements Using
Asset Class	Total	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Defined Benefit Pension Plans
Public equity securities U.S.	$ 589.4	$ 421.4		$ 168.0	$
International	1,868.3	907.1		961.2
Fixed income Developed markets	791.6	77.6		714.0
Emerging markets	336.2			336.2
Private alternative investments Hedge funds	2,020.3			778.4	1,241.9
Equity-like funds	812.9	10.0			802.9
Real estate	126.5				126.5
Other	437.8	195.9		241.9
Total	$6,983.0	$1,612.0		$3,199.7	$2,171.3
Retiree Health Benefit Plans
Public equity securities U.S.	$ 56.0	$ 39.7		$ 16.3	$
International	131.6	67.8		63.8
Fixed income Developed markets	50.5			50.5
Emerging markets	33.9			33.9
Private alternative investments Hedge funds	185.2			78.6	106.6
Equity-like funds	74.5				74.5
Cash value of trust owned insurance contract	761.7			761.7
Other	34.3	12.6		21.7
Total	$1,327.7	$ 120.1		$1,026.5	$ 181.1

The activity in the Level 3 investments during the year ended December 31, 2010 was as follows:



	Hedge Funds	Equity-like Funds	Inter-national Equity	Fixed Income- Developed Markets	Real Estate	Total
Defined Benefit Pension Plans
Beginning balance at January 1, 2010	$1,381.5	$658.2	$ 3.9	$ 3.5	$85.4	$2,132.5
Actual return on plan assets, including changes in foreign exchange rates:
Relating to assets still held at the reporting date	106.1	66.2	0.1	0.1	4.2	176.7
Relating to assets sold during the period	0.0	11.3	(0.4)	(0.1)	(5.3)	5.5
Purchases	215.8	131.4	0.1	0.0	41.4	388.7
Sales	(21.4)	0.0	(3.1)	(3.4)	0.0	(27.9)
Settlements	(18.1)	(64.2)	0.0	(0.1)	0.0	(82.4)
Transfers in and/or out of Level 3	(422.0)	0.0	(0.6)	0.0	0.8	(421.8)
Ending balance at December 31, 2010	$1,241.9	$802.9	$ 0.0	$ 0.0	$126.5	$2,171.3
Retiree Health Benefit Plans
Beginning balance at January 1, 2010	$ 140.9	$ 63.6	$ 0.4	$ 0.4	$ 0.0	$ 205.3
Actual return on plan assets, including changes in foreign exchange rates:
Relating to assets still held at the reporting date	5.4	4.6	0.0	0.0	0.0	10.0
Relating to assets sold during the period	0.0	0.6	0.0	0.0	0.0	0.6
Purchases	5.3	11.9	0.0	0.0	0.0	17.2
Sales	(0.6)	0.0	(0.4)	(0.4)	0.0	(1.4)
Settlements	(1.8)	(6.2)	0.0	0.0	0.0	(8.0)
Transfers in and/or out of Level 3	(42.6)	0.0	0.0	0.0	0.0	(42.6)
Ending balance at December 31, 2010	$ 106.6	$ 74.5	$ 0.0	$ 0.0	$ 0.0	$ 181.1

Substantially all of the Level 3 transfers are associated with assets that can be redeemed at their NAV per share within a reasonable period of time. This reclassification is in accordance with current accounting guidance.

For the year ended December 31, 2012, we expect to contribute approximately $75 million to our defined benefit pension plans to satisfy minimum funding requirements for the year. In addition, we expect to contribute approximately $300 million of additional discretionary funding in the aggregate during the year ended December 31, 2012 to several of our global defined benefit pension and post-retirement health benefit plans.