Pension and Postretirement Benefit Plans

12 Months Ended

Dec. 31, 2011

Pension and Postretirement Benefit Plans

Pension and Postretirement Benefit Plans

NOTE 11.  Pension and Postretirement Benefit Plans

3M has company-sponsored retirement plans covering substantially all U.S. employees and many employees outside the United States. In total, 3M has over 65 plans in 25 countries. Pension benefits associated with these plans generally are based on each participant’s years of service, compensation, and age at retirement or termination. The U.S. defined-benefit pension plan was closed to new participants effective January 1, 2009. The Company also provides certain postretirement health care and life insurance benefits for substantially all of its U.S. employees who reach retirement age while employed by the Company. Most international employees and retirees are covered by government health care programs. The cost of company-provided postretirement health care plans for international employees is not material and is combined with U.S. amounts in the tables that follow.

The Company’s pension funding policy is to deposit with independent trustees amounts allowable by law. Trust funds and deposits with insurance companies are maintained to provide pension benefits to plan participants and their beneficiaries. There are no plan assets in the non-qualified plan due to its nature. For its U.S. postretirement health care and life insurance benefit plans, the Company has set aside amounts at least equal to annual benefit payments with an independent trustee.

In August 2006, the Pension Protection Act (PPA) was signed into law in the U.S. The PPA transition rules increased the funding target for defined benefit pension plans to 100% of the target liability by 2011. 3M’s U.S. qualified defined benefit plan does not have a mandatory cash contribution because the Company has a significant credit balance from previous discretionary contributions that can be applied to any PPA funding requirements.

In 2008, the Company made modifications to its U.S. postretirement benefits plan. The changes were effective beginning January 1, 2009, and allow current retired employees and employees who retire before January 1, 2013 the option to continue on the existing postretirement plans or elect the new plans. Current employees who retire after December 31, 2012, will receive a savings account benefits-based plan. In 2009, the Company made further modifications to its U.S. postretirement benefit plan. The changes were effective beginning January 1, 2010, and limit the amount of medical inflation absorbed by the Company to three percent a year. As a result, as of the December 31, 2009 measurement date, the Accumulated Postretirement Benefit Obligation (APBO) was reduced by $168 million.

In the fourth quarter of 2010, the Company made further changes to its U.S. postretirement benefit plans. As a result of these changes, the Company will transition all current and future retirees to the savings account benefits-based plan announced in 2008. These changes become effective beginning January 1, 2013, for all Medicare eligible retirees and their Medicare eligible dependents and January 1, 2015, for all non-Medicare eligible retirees and their eligible dependents. As a result, as of the December 31, 2010 measurement date, the APBO increased by $69 million.

In the second quarter 2010, 3M’s Brazilian subsidiary received approval from the government in Brazil to freeze its defined benefit pension plan. Effective March 31, 2010, participants in this subsidiary’s pension plan no longer accrue additional pension benefits. As a result, the Company recorded a $22 million curtailment gain in the second quarter of 2010.

During the second quarter of 2009, the Company offered a voluntary early retirement incentive program to certain eligible participants of its U.S. pension plans who met age and years of pension service requirements. The eligible participants who accepted the offer and retired by June 1, 2009, received an enhanced pension benefit. Pension benefits were enhanced by adding one additional year of pension service and one additional year of age for certain benefit calculations. Approximately 700 participants accepted the offer and retired by June 1, 2009. As a result, the Company incurred a $21 million charge related to these special termination benefits.

During 2009, 3M Sumitomo (Japan) experienced a higher number of retirements than normal, largely due to early retirement incentive programs, which required eligible employees who elected to leave the Company to retire by September 2009. Participants in the Japan pension plan had the option of receiving cash lump sum payments when exiting the plan, which a number of participants exiting the pension plan elected to receive. In accordance with ASC 715, Compensation — Retirement Benefits, settlement accounting is required when the lump sum distributions in a year are greater than the sum of the annual service and interest costs. Due to the large number of lump sum payment elections in 2009, the Company incurred $17 million of settlement charges.

3M was informed during the first quarter of 2009 that the general partners of WG Trading Company, in which 3M’s benefit plans hold limited partnership interests, are the subject of a criminal investigation as well as civil proceedings by the SEC and CFTC (Commodity Futures Trading Commission). In March 2011, over the objections of 3M and six other limited partners of WG Trading Company, the district court judge ruled in favor of the court appointed receiver’s proposed distribution plan. In April 2011, the 3M benefit plans received their share under the court-ordered distribution plan. 3M and six other limited partners of WG Trading Company have appealed the court’s order to the United States Court of Appeals for the Second Circuit. The benefit plan trustee holdings of WG Trading Company interests were adjusted to reflect the decreased estimated fair market value, inclusive of estimated insurance proceeds, as of the annual measurement dates. The Company has insurance that it believes, based on what is currently known, will result in the recovery of a portion of the decrease in original asset value. As of the 2011 measurement date these holdings represented less than one percent of 3M’s fair value of total plan assets. 3M currently believes that the resolution of these events will not have a material adverse effect on the consolidated financial position of the Company.

In December 2011, the Company began offering a voluntary early retirement incentive program to certain eligible participants of its U.S. pension plans who meet age and years of pension service requirements. The eligible participants who accept the offer and retire on February 1, 2012, receive an enhanced pension benefit. Pension benefits are enhanced by adding one additional year of pension service and one additional year of age for certain benefit calculations. Subsequent to year-end, 616 participants accepted the offer and retired on February 1, 2012. As a result, the Company will incur a $26 million charge related to these special termination benefits in the first quarter of 2012.

Following is a reconciliation of the beginning and ending balances of the benefit obligation and the fair value of plan assets as of December 31:

	Qualified and Non-qualified Pension Benefits												Postretirement
	United States						International						Benefits
(Millions)	2011			2010			2011			2010			2011			2010
Change in benefit obligation
Benefit obligation at beginning of year	$	12,319		$	11,391		$	4,912		$	4,685		$	1,828		$	1,579
Acquisitions	—			—			48			4			—			—
Service cost	206			201			124			105			61			55
Interest cost	626			638			261			241			92			88
Participant contributions	—			—			5			4			56			59
Foreign exchange rate changes	—			—			(84		)	16			(9		)	6
Plan amendments	8			—			(31		)	(75		)	—			69
Actuarial (gain) loss	2,022			760			318			167			228			125
Medicare Part D Reimbursement	—			—			—			—			7			13
Benefit payments	(680		)	(668		)	(221		)	(194		)	(155		)	(166		)
Settlements, curtailments, special termination benefits and other	(2		)	(3		)	—			(41		)	—			—
Benefit obligation at end of year	$	14,499		$	12,319		$	5,332		$	4,912		$	2,108		$	1,828
Change in plan assets
Fair value of plan assets at beginning of year	$	11,575		$	10,493		$	4,355		$	3,897		$	1,149		$	1,075
Acquisitions	—			—			26			4			—			—
Actual return on plan assets	972			1,463			272			360			94			119
Company contributions	237			290			280			266			65			62
Participant contributions	—			—			5			4			56			59
Foreign exchange rate changes	—			—			(74		)	18			—			—
Benefit payments	(680		)	(668		)	(221		)	(194		)	(155		)	(166		)
Settlements, curtailments, special termination benefits and other	(2		)	(3		)	—			—			—			—
Fair value of plan assets at end of year	$	12,102		$	11,575		$	4,643		$	4,355		$	1,209		$	1,149
Funded status at end of year	$	(2,397	)	$	(744	)	$	(689	)	$	(557	)	$	(899	)	$	(679	)

	Qualified and Non-qualified Pension Benefits												Postretirement
	United States						International						Benefits
(Millions)	2011			2010			2011			2010			2011			2010
Amounts recognized in the Consolidated Balance Sheet as of Dec. 31,
Non-current assets	$	—		$	—		$	40		$	74		$	—		$	—
Accrued benefit cost
Current liabilities	(41		)	(30		)	(8		)	(7		)	(4		)	(4		)
Non-current liabilities	(2,356		)	(714		)	(721		)	(624		)	(895		)	(675		)
Ending balance	$	(2,397	)	$	(744	)	$	(689	)	$	(557	)	$	(899	)	$	(679	)
Amounts recognized in accumulated other comprehensive income as of Dec. 31,
Net transition obligation (asset)	$	—		$	—		$	(8	)	$	(7	)	$	—		$	—
Net actuarial loss (gain)	5,623			3,981			1,858			1,670			1,171			1,063
Prior service cost (credit)	30			33			(167		)	(144		)	(269		)	(341		)
Ending balance	$	5,653		$	4,014		$	1,683		$	1,519		$	902		$	722

The balance of amounts recognized for international plans in accumulated other comprehensive income as of December 31 in the preceding table are presented based on the foreign currency exchange rate on that date.

The pension accumulated benefit obligation represents the actuarial present value of benefits based on employee service and compensation as of the measurement date and does not include an assumption about future compensation levels. The accumulated benefit obligation of the U.S. pension plans was $13.804 billion and $11.754 billion at December 31, 2011 and 2010, respectively. The accumulated benefit obligation of the international pension plans was $4.889 billion and $4.532 billion at December 31, 2011 and 2010, respectively.

The following amounts relate to pension plans with accumulated benefit obligations in excess of plan assets as of December 31:

	Qualified and Non-qualified Pension Plans
	United States				International
(Millions)	2011		2010		2011		2010
Projected benefit obligation	$	14,499	$	443	$	2,983	$	1,676
Accumulated benefit obligation	13,804		441		2,740		1,563
Fair value of plan assets	12,102		25		2,321		1,122

Components of net periodic benefit cost and other supplemental information for the years ended December 31 follow:

Components of net periodic benefit cost and other amounts recognized in other comprehensive income

	Qualified and Non-qualified Pension Benefits																		Postretirement
	United States									International									Benefits
(Millions)	2011			2010			2009			2011			2010			2009			2011			2010			2009
Net periodic benefit cost (benefit)
Service cost	$	206		$	201		$	183		$	124		$	105		$	98		$	61		$	55		$	51
Interest cost	626			638			619			261			241			235			92			88			97
Expected return on plan assets	(927		)	(929		)	(906		)	(289		)	(278		)	(260		)	(77		)	(83		)	(86		)
Amortization of transition (asset) obligation	—			—			—			(2		)	1			3			—			—			—
Amortization of prior service cost (benefit)	11			13			16			(14		)	(4		)	(4		)	(72		)	(94		)	(81		)
Amortization of net actuarial (gain) loss	334			221			99			116			84			42			102			85			66
Net periodic benefit cost (benefit)	$	250		$	144		$	11		$	196		$	149		$	114		$	106		$	51		$	47
Settlements, curtailments, special termination benefits and other	1			—			26			2			(22		)	25			—			—			—
Net periodic benefit cost (benefit) after settlements, curtailments, special termination benefits and other	$	251		$	144		$	37		$	198		$	127		$	139		$	106		$	51		$	47
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss
Transition (asset) obligation	$	—		$	—		$	—		$	(2	)	$	(1	)	$	(2	)	$	—		$	—		$	—
Amortization of transition (asset) obligation	—			—			—			2			(1		)	(3		)	—			—			—
Prior service cost (benefit)	8			—			—			(32		)	(91		)	19			—			69			(169		)
Amortization of prior service cost (benefit)	(11		)	(13		)	(16		)	14			4			4			72			94			81
Net actuarial (gain) loss	1,976			227			585			315			104			224			212			89			36
Amortization of net actuarial (gain) loss	(334		)	(221		)	(99		)	(116		)	(84		)	(42		)	(102		)	(85		)	(66		)
Foreign currency	—			—			—			(17		)	(19		)	(101		)	(2		)	(1		)	(1		)
Total recognized in other comprehensive (income) loss	$	1,639		$	(7	)	$	470		$	164		$	(88	)	$	99		$	180		$	166		$	(119	)
Total recognized in net periodic benefit cost (benefit) and other comprehensive (income) loss	$	1,890		$	137		$	507		$	362		$	39		$	238		$	286		$	217		$	(72	)

The estimated amortization from accumulated other comprehensive income into net periodic benefit cost in 2012 follows:

Amounts expected to be amortized from accumulated other comprehensive income into net periodic benefit costs over next fiscal year

	Qualified and Non-qualified Pension Benefits					Postretirement
(Millions)	United States		International			Benefits
Amortization of transition (asset) obligation	$	—	$	(2	)	$	—
Amortization of prior service cost (benefit)	6		(17		)	(72		)
Amortization of net actuarial (gain) loss	470		120			109
Total amortization expected over the next fiscal year	$	476	$	101		$	37

Other supplemental information for the years ended December 31 follows:

Weighted-average assumptions used to determine benefit obligations

	Qualified and Non-qualified Pension Benefits												Postretirement
	United States						International						Benefits
	2011		2010		2009		2011		2010		2009		2011		2010		2009
Discount rate	4.15	%	5.23	%	5.77	%	4.58	%	5.04	%	5.30	%	4.04	%	5.09	%	5.62	%
Compensation rate increase	4.00	%	4.00	%	4.30	%	3.52	%	3.59	%	3.72	%	N/A		N/A		N/A

As noted above, effective January 1, 2010, the Company made modifications to its postretirement health plan to limit the amount of inflation it will cover to three percent per year; the remaining inflation will be passed on to plan participants. Also, in 2010 the Company announced that it will transition all current and future retirees to the savings account benefits-based plan announced in 2008. Therefore, the Company no longer has material exposure to health care cost inflation.

Weighted-average assumptions used to determine net cost for years ended

	Qualified and Non-qualified Pension Benefits												Postretirement
	United States						International						Benefits
	2011		2010		2009		2011		2010		2009		2011		2010		2009
Discount rate	5.23	%	5.77	%	6.14	%	5.04	%	5.30	%	5.53	%	5.09	%	5.62	%	6.14	%
Expected return on assets	8.50	%	8.50	%	8.50	%	6.58	%	6.90	%	6.86	%	7.38	%	7.30	%	7.24	%
Compensation rate increase	4.00	%	4.30	%	4.30	%	3.59	%	3.72	%	3.50	%	N/A		N/A		N/A

The Company determines the discount rate used to measure plan liabilities as of the December 31 measurement date for the pension and postretirement benefit plans, which is also the date used for the related annual measurement assumptions. The discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year. The Company sets its rate to reflect the yield of a portfolio of high quality, fixed-income debt instruments that would produce cash flows sufficient in timing and amount to settle projected future benefits. Using this methodology, the Company determined a discount rate of 4.15% for pension and 4.04% for postretirement benefits to be appropriate for its U.S. plans as of December 31, 2011, which is a decrease of 1.08  percentage points and 1.05 percentage points, respectively, from the rates used as of December 31, 2010. For the international pension and postretirement plans the discount rates also reflect the current rate at which the associated liabilities could be effectively settled at the end of the year. If the country has a deep market in corporate bonds the Company matches the expected cash flows from the plan either to a portfolio of bonds that generate sufficient cash flow or a notional yield curve generated from available bond information. In countries that do not have a deep market in corporate bonds, government bonds are considered with a risk premium to approximate corporate bond yields.

For the U.S. qualified pension plans, the Company’s assumption for the expected return on plan assets was 8.50% in 2011. The Company is lowering the 2012 expected return on plan assets for its U.S. pension plan by 0.25 percentage points to 8.25%. This will increase the 2012 expected pension expense by approximately $30 million. Projected returns are based primarily on broad, publicly traded equity and fixed-income indices and forward-looking estimates of active portfolio and investment management. As of December 31, 2011, the Company’s 2012 expected long-term rate of return on U.S. plan assets is based on an asset allocation assumption of 37% global equities, with an expected long-term rate of return of 7.75%; 16% private equities, with an expected long-term rate of return of 11.75%; 26% fixed-income securities, with an expected long-term rate of return of 4.23%; 16% absolute return investments independent of traditional performance benchmarks, with an expected long term return of 6.0%; and 5% commodities, with an expected long-term rate of return of 6.0%. The Company expects additional positive return from active investment management. These assumptions result in an 8.25% expected rate of return on an annualized basis in 2012. The actual rate of return on plan assets in 2011 was 8.7%. In 2010 the plan earned a rate of return of 14.4% and in 2009 earned a return of 12.6%. The average annual actual return on the plan assets over the past 10 and 25 years has been 8.1% and 10.4%, respectively. Return on assets assumptions for international pension and other post-retirement benefit plans are calculated on a plan-by-plan basis using plan asset allocations and expected long-term rate of return assumptions.

During 2011, the Company contributed $517 million to its U.S. and international pension plans and $65 million to its postretirement plans. During 2010, the Company contributed $556 million to its U.S. and international pension plans and $62 million to its postretirement plans. In 2012, the Company expects to contribute an amount in the range of $800 million to $1 billion of cash to its U.S. and international retirement plans. The Company does not have a required minimum cash pension contribution obligation for its U.S. plans in 2012. Therefore, the amount of the anticipated discretionary contribution could vary significantly depending on the U.S. plans’ funded status and the anticipated tax deductibility of the contribution. Future contributions will also depend on market conditions, interest rates and other factors.

Future Pension and Postretirement Benefit Payments

The following table provides the estimated pension and postretirement benefit payments that are payable from the plans to participants, and also provides the Medicare subsidy receipts expected to be received.

	Qualified and Non-qualified Pension Benefits				Postretirement		Medicare Subsidy
(Millions)	United States		International		Benefits		Receipts
2012 Benefit Payments	$	730	$	216	$	112	$	10
2013 Benefit Payments	752		219		122		—
2014 Benefit Payments	774		233		135		—
2015 Benefit Payments	796		245		137		—
2016 Benefit Payments	818		257		152		—
Following five years	4,407		1,500		771		—

Plan Asset Management

3M’s investment strategy for its pension and postretirement plans is to manage the funds on a going-concern basis. The primary goal of the funds is to meet the obligations as required. The secondary goal is to earn the highest rate of return possible, without jeopardizing its primary goal, and without subjecting the Company to an undue amount of contribution rate volatility. Fund returns are used to help finance present and future obligations to the extent possible within actuarially determined funding limits and tax-determined asset limits, thus reducing the level of contributions 3M must make. The investment strategy has used long duration cash and derivative instruments to offset a significant portion of the interest rate sensitivity of U.S. pension liabilities. In addition, credit risk is managed through mandates for public securities and maximum issuer limits that are established and monitored on a regular basis.

During 2009, $600 million of 3M common stock was contributed to the principal U.S. qualified pension plan. All of the 3M shares contributed to the U.S. pension plan were sold before 2009 year end by an independent fiduciary to the plan. Normally, 3M does not buy or sell any of its own stock as a direct investment for its pension and other postretirement benefit funds. However, due to external investment management of the funds, the plans may indirectly buy, sell or hold 3M stock. The aggregate amount of the shares would not be considered to be material relative to the aggregate fund percentages.

The discussion that follows references the fair value measurements of certain assets in terms of levels 1, 2 and 3. See Note 13 for descriptions of these levels. While the company believes the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

U.S. Pension Plans Assets

In order to achieve the investment objectives in the U.S. pension plans, the investment policy includes a target strategic asset allocation. The investment policy allows some tolerance around the target in recognition that market fluctuations and illiquidity of some investments may cause the allocation to a specific asset class to stray from the target allocation, potentially for long periods of time. Acceptable ranges have been designed to allow for deviation from long-term targets and to allow for the opportunity for tactical over- and under-weights. The portfolio will normally be rebalanced when the quarter-end asset allocation deviates from acceptable ranges. The allocation is reviewed regularly by the named fiduciary of the plans.

The fair values of the assets held by the U.S. pension plans by asset class are as follows:

	Fair Value Measurements Using Inputs Considered as															Fair Value at
(Millions)	Level 1					Level 2						Level 3				Dec 31,
Asset Class	2011		2010			2011			2010			2011		2010		2011			2010
Equities
U.S. equities	$	1,186	$	1,190		$	14		$	5		$	5	$	7	$	1,205		$	1,202
Non-U.S. equities	1,095		1,244			1			—			—		—		1,096			1,244
Derivatives	—		—			(3		)	—			—		—		(3		)	—
EAFE index funds	—		—			476			684			—		—		476			684
Index funds	—		—			128			253			1		—		129			253
Long/short equity	—		—			—			—			436		499		436			499
Total Equities	$	2,281	$	2,434		$	616		$	942		$	442	$	506	$	3,339		$	3,882
Fixed Income
U.S. government securities	$	776	$	562		$	869		$	473		$	—	$	—	$	1,645		$	1,035
Non-U.S. government securities	—		—			314			289			—		—		314			289
Preferred and convertible securities	4		20			5			8			—		—		9			28
U.S. corporate bonds	168		168			1,049			874			5		—		1,222			1,042
Non-U.S. corporate bonds	—		—			244			205			—		—		244			205
Asset backed securities	—		—			23			16			—		—		23			16
Collateralized mortgage obligations	—		—			137			31			—		—		137			31
Private placements	—		—			125			135			69		144		194			279
Derivative instruments	2		(2		)	200			(53		)	—		—		202			(55		)
Other	—		—			24			34			—		—		24			34
Total Fixed Income	$	950	$	748		$	2,990		$	2,012		$	74	$	144	$	4,014		$	2,904
Private Equity
Buyouts	$	—	$	—		$	—		$	—		$	618	$	613	$	618		$	613
Distressed debt	—		—			—			—			333		376		333			376
Growth equity	1		4			—			—			27		19		28			23
Mezzanine	—		—			—			—			90		93		90			93
Real estate	—		—			—			—			148		159		148			159
Secondary	—		—			—			—			181		165		181			165
Other	—		—			—			—			—		67		—			67
Venture capital	—		—			—			—			665		583		665			583
Total Private Equity	$	1	$	4		$	—		$	—		$	2,062	$	2,075	$	2,063		$	2,079
Absolute Return
Hedge funds and hedge fund of funds	$	—	$	—		$	1,235		$	1,142		$	88	$	59	$	1,323		$	1,201
Bank loan and other fixed income funds	—		—			—			—			432		564		432			564
Total Absolute Return	$	—	$	—		$	1,235		$	1,142		$	520	$	623	$	1,755		$	1,765
Commodities	$	—	$	—		$	435		$	338		$	105	$	111	$	540		$	449
Cash and Cash Equivalents	$	295	$	35		$	600		$	609		$	—	$	—	$	895		$	644
Total	$	3,527	$	3,221		$	5,876		$	5,043		$	3,203	$	3,459	$	12,606		$	11,723
Other items to reconcile to fair value of plan assets																$	(504	)	$	(148	)
Fair value of plan assets																$	12,102		$	11,575

Publicly traded equities are valued at the closing price reported in the active market in which the individual securities are traded. Index funds are valued at the net asset value (NAV) as determined by the custodian of the fund. The NAV is based on the fair value of the underlying assets owned by the fund, minus its liabilities then divided by the number of units outstanding. Long/short equity interests are valued using the most recent general partner statement of fair value, updated for any subsequent partnership interests’ cash flows or expected changes in fair value.

Fixed income includes derivative instruments such as credit default swaps, interest rate swaps and futures contracts that are used to help manage risks. U.S. government and government agency bonds and notes are valued at the closing price reported in the active market in which the individual security is traded. Corporate bonds and notes, asset backed securities and collateralized mortgage obligations are valued at either the yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flows approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks. Private placement funds are valued using the most recent general partner statement of fair value, updated for any subsequent partnership interests’ cash flows or expected changes in fair value. Swaps and derivative instruments are valued by the custodian using closing market swap curves and market derived inputs.

The private equity portfolio is a diversified mix of partnership interests including buyouts, distressed debt, growth equity, mezzanine, real estate and venture capital investments. Partnership interests are valued using the most recent general partner statement of fair value, updated for any subsequent partnership interests’ cash flows or expected changes in fair value.

Absolute return consists primarily of private partnership interests in hedge funds, hedge fund of funds and bank loan funds. Partnership interests are valued using the NAV as determined by the administrator or custodian of the fund. Hedge fund partnership interests, which have a redemption right and are past any lock-up redemption period, are classified as level 2.

Commodities consist of commodity-linked notes and commodity-linked derivative contracts designed to deliver investment returns similar to the Goldman Sachs Commodities Index (GSCI) or Dow Jones UBS Commodity index returns. Commodities are valued at closing prices determined by calculation agents for outstanding transactions.

Other items to reconcile to fair value of plan assets is the net of insurance receivable for WG Trading Company, interest receivable, amounts due for securities sold, amounts payable for securities purchased and interest payable.

The following table sets forth a summary of changes in the fair values of the U.S. pension plans’ level 3 assets for the years ended December 31, 2011 and 2010:

	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
(Millions)	Equities			Fixed Income			Private Equity			Absolute Return			Commodities			Total
Beginning balance at Jan. 1, 2010	$	4		$	185		$	1,961		$	728		$	237		$	3,115
Net transfers into / (out of) level 3	49			(37		)	27			(49		)	(140		)	(150		)
Purchases, sales, issuances, and settlements, net	412			(34		)	(55		)	(201		)	—			122
Realized gain/(loss)	—			1			133			4			—			138
Change in unrealized gains/(losses) relating to instruments still held at the reporting date	41			29			9			141			14			234
Ending balance at Dec. 31, 2010	506			144			2,075			623			111			3,459
Net transfers into / (out of) level 3	—			5			—			(59		)	—			(54		)
Purchases, sales, issuances and settlements, net	(52		)	(97		)	(108		)	3			—			(254		)
Realized gain/(loss)	3			21			(50		)	5			—			(21		)
Change in unrealized gains/(losses) relating to instruments sold during the period	(8		)	(17		)	133			(36		)	—			72
Change in unrealized gains/(losses) relating to instruments still held at the reporting date	(7		)	18			12			(16		)	(6		)	1
Ending balance at Dec. 31, 2011	$	442		$	74		$	2,062		$	520		$	105		$	3,203

International Pension Plans Assets

Outside the U.S., pension plan assets are typically managed by decentralized fiduciary committees. The disclosure below of asset categories is presented in aggregate for over 65 plans in 24 countries; however, there is significant variation in policy asset allocation from country to country. Local regulations, local funding rules, and local financial and tax considerations are part of the funding and investment allocation process in each country. 3M’s Treasury group provides standard funding and investment guidance to all international plans with more focused guidance to the larger plans.

Each plan has its own strategic asset allocation. The asset allocations are reviewed periodically and rebalanced when necessary.

The fair values of the assets held by the international pension plans by asset class are as follows:

	Fair Value Measurements Using Inputs Considered as
(Millions)	Level 1				Level 2				Level 3				Fair Value at Dec 31,
Asset Class	2011		2010		2011		2010		2011		2010		2011			2010
Equities
Growth equities	$	374	$	300	$	141	$	70	$	—	$	1	$	515		$	371
Value equities	401		369		98		27		—		—		499			396
Core equities	227		549		430		361		5		97		662			1,007
Total Equities	$	1,002	$	1,218	$	669	$	458	$	5	$	98	$	1,676		$	1,774
Fixed Income
Domestic government debt	$	188	$	194	$	579	$	455	$	6	$	7	$	773		$	656
Foreign government debt	93		51		647		345		2		2		742			398
Corporate debt securities	113		139		404		555		19		13		536			707
Mortgage backed debt	—		—		25		14		—		—		25			14
Other debt obligations	—		—		39		2		12		12		51			14
Total Fixed Income	$	394	$	384	$	1,694	$	1,371	$	39	$	34	$	2,127		$	1,789
Private Equity
Private equity funds	$	—	$	—	$	47	$	15	$	20	$	14	$	67		$	29
Real estate	3		—		38		3		47		56		88			59
Total Private Equity	$	3	$	—	$	85	$	18	$	67	$	70	$	155		$	88
Absolute Return
Hedge funds	$	—	$	—	$	172	$	130	$	—	$	—	$	172		$	130
Insurance	—		—		—		—		369		344		369			344
Derivatives	—		—		58		50		—		—		58			50
Other	—		—		2		3		1		—		3			3
Total Absolute Return	$	—	$	—	$	232	$	183	$	370	$	344	$	602		$	527
Cash and Cash Equivalents	$	106	$	233	$	2	$	9	$	—	$	—	$	108		$	242
Total	$	1,505	$	1,835	$	2,682	$	2,039	$	481	$	546	$	4,668		$	4,420
Other items to reconcile to fair value of plan assets													$	(25	)	$	(65	)
Fair value of plan assets													$	4,643		$	4,355

Equities consist primarily of mandates in public equity securities managed to the Morgan Stanley Capital All Country World Index. Publicly traded equities are valued at the closing price reported in the active market in which the individual securities are traded.

Fixed Income investments include domestic and foreign government, corporate, mortgage backed and other debt. Governments, corporate bonds and notes and mortgage backed securities are valued at the closing price reported if traded on an active market or at yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flows approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks.

Private equity funds consist of both active and passive mandates.  Partnership interests are valued using the most recent general partner statement of fair value, updated for any subsequent partnership interests’ cash flows or expected changes in fair value. Real estate consists of property funds and REITS (Real Estate Investment Trusts). Property funds are valued using the most recent partnership statement of fair value, updated for any subsequent partnership interests’ cash flows. REITS are valued at the closing price reported in the active market in which it is traded.

Absolute return consists of private partnership interests in hedge funds, insurance contracts, derivative instruments, hedge fund of funds, and bank loan funds. Insurance consists of insurance contracts, which are valued using cash surrender values which is the amount the plan would receive if the contract was cashed out at year end. Derivative instruments consist of interest rate swaps that are used to help manage risks. Hedge funds are valued at the NAV as determined by the independent administrator or custodian of the fund.

Other items to reconcile to fair value of plan assets is the net of interest receivable, amounts due for securities sold, amounts payable for securities purchased and interest payable.

The following table sets forth a summary of changes in the fair values of the international pension plans level 3 assets for the years ended December 31, 2011 and 2010:

	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
(Millions)	Equities			FixedIncome			Private Equity			Absolute Return			Total
Beginning balance at January 1, 2010	$	14		$	22		$	59		$	375		$	470
Net transfers into / (out of) level 3	97			17			—			—			114
Foreign currency exchange	2			—			4			(18		)	(12		)
Purchases, sales, issuances and settlements, net	(15		)	—			7			10			2
Realized gain/(loss)	(18		)	—			(3		)	—			(21		)
Change in unrealized gains/(losses) relating to instruments still held at the reporting date	18			(5		)	3			(23		)	(7		)
Ending balance at December 31, 2010	98			34			70			344			546
Net transfers into / (out of) level 3	(93		)	—			(21		)	18			(96		)
Foreign currency exchange	—			(1		)	(1		)	(10		)	(12		)
Purchases, sales, issuances and settlements, net	—			—			17			3			20
Realized gain/(loss)	—			—			—			1			1
Change in unrealized gains/(losses) relating to instruments still held at the reporting date	—			6			2			14			22
Ending balance at December 31, 2011	$	5		$	39		$	67		$	370		$	481

Postretirement Benefit Plans Assets

In order to achieve the investment objectives in the U.S. postretirement plan, the investment policy includes a target strategic asset allocation. The investment policy allows some tolerance around the target in recognition that market fluctuations and illiquidity of some investments may cause the allocation to a specific asset class to stray from the target allocation, potentially for long periods of time. Acceptable ranges have been designed to allow for deviation from long-term targets and to allow for the opportunity for tactical over- and under-weights. The portfolio will normally be rebalanced when the quarter-end asset allocation deviates from acceptable ranges. The allocation is reviewed regularly by the named fiduciary of the plan.

The fair values of the assets held by the postretirement benefits plans by asset class are as follows:

	Fair Value Measurements Using Inputs Considered as													Fair Value at
(Millions)	Level 1				Level 2					Level 3				Dec 31,
Asset Class	2011		2010		2011		2010			2011		2010		2011			2010
Equities
U.S. equities	$	396	$	392	$	—	$	—		$	—	$	—	$	396		$	392
Non-U.S. equities	44		48		—		—			—		—		44			48
EAFE index funds	—		—		15		21			—		—		15			21
Index funds	—		—		43		45			—		—		43			45
Long/short equity	—		—		—		—			14		16		14			16
Total Equities	$	440	$	440	$	58	$	66		$	14	$	16	$	512		$	522
Fixed Income
U.S. government securities	$	55	$	50	$	197	$	160		$	—	$	—	$	252		$	210
Non-U.S. government securities	—		—		12		10			—		—		12			10
Preferred and convertible securities	—		1		—		—			—		—		—			1
U.S. corporate bonds	6		5		62		49			—		—		68			54
Non-U.S. corporate bonds	—		—		14		11			—		—		14			11
Asset backed securities	—		—		5		3			—		—		5			3
Collateralized mortgage obligations	—		—		7		7			—		—		7			7
Private placements	—		—		9		8			2		4		11			12
Derivative instruments	—		—		7		(2		)	—		—		7			(2		)
Other	—		—		1		2			—		—		1			2
Total Fixed Income	$	61	$	56	$	314	$	248		$	2	$	4	$	377		$	308
Private Equity
Buyouts	$	—	$	—	$	—	$	—		$	56	$	57	$	56		$	57
Distressed debt	—		—		—		—			17		18		17			18
Growth equity	—		—		—		—			1		1		1			1
Mezzanine	—		—		—		—			3		3		3			3
Real estate	—		—		—		—			4		5		4			5
Secondary	—		—		—		—			6		5		6			5
Other	—		—		—		—			—		43		—			43
Venture capital	—		—		—		—			100		94		100			94
Total Private Equity	$	—	$	—	$	—	$	—		$	187	$	226	$	187		$	226
Absolute Return
Hedge funds and hedge fund of funds	$	—	$	—	$	40	$	36		$	3	$	2	$	43		$	38
Bank loan and other fixed income funds	—		—		—		—			14		18		14			18
Total Absolute Return	$	—	$	—	$	40	$	36		$	17	$	20	$	57		$	56
Commodities	$	—	$	—	$	14	$	11		$	4	$	3	$	18		$	14
Cash and Cash Equivalents	$	10	$	1	$	51	$	42		$	—	$	—	$	61		$	43
Total	$	511	$	497	$	477	$	403		$	224	$	269	$	1,212		$	1,169
Other items to reconcile to fair value of plan assets														$	(3	)	$	(20	)
Fair value of plan assets														$	1,209		$	1,149

Publicly traded equities are valued at the closing price reported in the active market in which the individual securities are traded. Index funds are valued at the NAV as determined by the custodian of the fund. The NAV is based on the fair value of the underlying assets owned by the fund, minus its liabilities then divided by the number of units outstanding. Long/short equity interests are valued using the most recent general partner statement of fair value, updated for any subsequent partnership interests’ cash flows or expected changes in fair value.

Fixed income includes derivative investments such as credit default swaps, interest rate swaps and futures contracts that are used to help manage risks. U.S. government and government agency bonds and notes are valued at the closing price reported in the active market in which the individual security is traded. Corporate bonds and notes, asset backed securities and collateralized mortgage obligations are valued at either the yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flows approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks. Swaps and derivative instruments are valued by the custodian using market swap curves and market derived inputs.

The private equity portfolio is a diversified mix of partnership interests including buyouts, distressed debt, growth equity, mezzanine, real estate and venture capital investments. Partnership interests are valued using the most recent general partner statement of fair value, updated for any subsequent partnership interests’ cash flows or expected changes in fair value.

Absolute return primarily consists of private partnership interests in hedge funds, hedge fund of funds and bank loan funds. Partnership interests are valued using the NAV as determined by the independent administrator or custodian of the fund.

Commodities consist of commodity-linked notes and commodity-linked derivative contracts designed to deliver investment returns similar to the GSCI or Dow Jones UBS Commodity index returns. Commodities are valued at closing prices determined by calculation agents for outstanding transactions.

Other items to reconcile to fair value of plan assets is the net of interest receivable, amounts due for securities sold, foreign currency fluctuations, amounts payable for securities purchased and interest payable.

The following table sets forth a summary of changes in the fair values of the postretirement plans’ level 3 assets for the years ended December 31, 2011 and 2010:

	Fair Value Measurement Using Significant Unobservable Inputs (Level 3)
(Millions)	Equities			Fixed Income			Private Equity			Absolute Return			Commodities			Total
Beginning balance at Jan. 1, 2010	$	—		$	6		$	245		$	22		$	7		$	280
Net transfers into / (out of) level 3	2			(2		)	—			(1		)	(4		)	(5		)
Purchases, sales, issuances and settlements, net	13			(1		)	(11		)	(6		)	—			(5		)
Realized gain/(loss)	—			—			16			—			—			16
Change in unrealized gains/(losses) relating to instruments still held at the reporting date	1			1			(24		)	5			—			(17		)
Ending balance at Dec. 31, 2010	16			4			226			20			3			269
Net transfers into / (out of) level 3	—			—			—			(2		)	—			(2		)
Purchases, sales, issuances and settlements, net	(1		)	(3		)	(43		)	1			—			(46		)
Realized gain/(loss)	—			1			(31		)	—			—			(30		)
Change in unrealized gains/(losses) relating to instruments sold during the period	(1		)	(1		)	20			(1		)	—			17
Change in unrealized gains/(losses) relating to instruments still held at the reporting date	—			1			15			(1		)	1			16
Ending balance at Dec. 31, 2011	$	14		$	2		$	187		$	17		$	4		$	224