Plan Assets

Note 17. Employee Benefit Plans

The Company provides substantially all U.S. employees and employees at certain international subsidiaries with pension benefits. Eligible U.S. employees with five or more years of service prior to January 1, 2009 participate in a defined benefit pension plan. Eligible U.S. employees hired on or after January 1, 2009 and eligible salaried employees with less than five years of service prior to January 1, 2009 participate in a “cash balance” pension formula. The Company provides eligible U.S. employees who retire under qualifying conditions with access to postretirement health care, at full cost to the retiree (certain employees are “grandfathered” into subsidized coverage).

The Company also maintains 401(k) plans covering substantially all U.S. employees. The Company contributes cash to the plans to match qualifying employee contributions, and also provides a non-matching employer contribution of 1% of pay to eligible participants. Under an employee stock ownership component of the 401(k) plans, employees may choose to invest in ADM stock as part of their own investment elections. The employer contributions are expensed when paid. Assets of the Company’s 401(k) plans consist primarily of listed common stocks and pooled funds. The Company’s 401(k) plans held 15.0 million shares of Company common stock at June 30, 2012, with a market value of $443 million. Cash dividends received on shares of Company common stock by these plans during the year ended June 30, 2012 were $11 million.



	Pension Benefits						Postretirement Benefits
	2012		2011		2010		2012		2011		2010
	(In millions)						(In millions)
Retirement plan expense
Defined benefit plans:
Service cost (benefits earned during
the period)	$	71	$	71	$	58	$	7	$	8	$	9
Interest cost		130		120		119		12		13		16
Expected return on plan assets		(141)		(132)		(117)		-		-		-
Remeasurement charge⁽¹⁾		30		-		-		4		-		-
Amortization of actuarial loss		52		59		31		-		-		5
Other amortization		5		5		6		(2)		(1)		(1)
Net periodic defined benefit plan expense		147		123		97		21		20		29
Defined contribution plans		45		43		40		-		-		-
Total retirement plan expense	$	192	$	166	$	137	$	21	$	20	$	29

⁽¹⁾See Note 19

The Company uses a June 30 measurement date for all defined benefit plans. The following tables set forth changes in the defined benefit obligation and the fair value of defined benefit plan assets:



	Pension Benefits					Postretirement Benefits
	2012		2011			2012		2011
	(In millions)					(In millions)

Benefit obligation, beginning	$	2,470		$	2,299	$	229	$	224
Service cost		71			71		7		8
Interest cost		130			120		12		13
Actuarial loss (gain)		569			(63)		74		(32)
Employee contributions		2			2		-		-
Remeasurement charge		30			-		4		-
Business combinations		-			36		-		22
Benefits paid		(102)			(90)		(8)		(6)
Plan amendments		2			(9)		(13)		-
Foreign currency effects		(77)			104		-		-
Benefit obligation, ending	$	3,095		$	2,470	$	305	$	229

Fair value of plan assets, beginning	$	2,134		$	1,721	$	-	$	-
Actual return on plan assets		140			283		-		-
Employer contributions		123			116		8		6
Employee contributions		2			2		-		-
Business combinations		-			22		-		-
Benefits paid		(102)			(90)		(8)		(6)
Foreign currency effects		(61)			80		-		-
Fair value of plan assets, ending	$	2,236		$	2,134	$	-	$	-

Funded status	$	(859)		$	(336)	$	(305)	$	(229)

Prepaid benefit cost	$	25		$	51	$	-	$	-
Accrued benefit liability – current		(14)			(16)		(11)		(8)
Accrued benefit liability – long-term		(870)			(371)		(294)		(221)
Net amount recognized in the balance sheet	$	(859)		$	(336)	$	(305)	$	(229)

Included in accumulated other comprehensive income for pension benefits at June 30, 2012, are the following amounts that have not yet been recognized in net periodic pension cost: unrecognized transition obligation of $2 million, unrecognized prior service cost of $12 million and unrecognized actuarial loss of $1.2 billion. The prior service cost and actuarial loss included in accumulated other comprehensive income expected to be recognized in net periodic pension cost during the six months ending December 31, 2012, is $2 million and $42 million, respectively.

Included in accumulated other comprehensive income for postretirement benefits at June 30, 2012, are the following amounts that have not yet been recognized in net periodic pension cost: unrecognized prior service credit of $16 million and unrecognized actuarial loss of $63 million. The prior service credit and actuarial loss included in accumulated other comprehensive income expected to be recognized in net periodic benefit cost during the six months ending December 31, 2012, is $2 million and $2 million, respectively.

The following table sets forth the principal assumptions used in developing net periodic pension cost:



	Pension Benefits				Postretirement Benefits
	2012		2011		2012		2011
Discount rate	5.5	%	5.2	%	5.5	%	5.4	%
Expected return on plan assets	7.1	%	7.1	%	N/A		N/A
Rate of compensation increase	3.9	%	3.9	%	N/A		N/A

The following table sets forth the principal assumptions used in developing the year-end actuarial present value of the projected benefit obligations:



	Pension Benefits				Postretirement Benefits
	2012		2011		2012		2011
Discount rate	4.0	%	5.5	%	4.0	%	5.5	%
Rate of compensation increase	4.0	%	3.9	%	N/A		N/A

The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with projected benefit obligations in excess of plan assets were $2.8 billion, $2.5 billion, and $1.9 billion, respectively, as of June 30, 2012, and $2.1 billion, $1.9 billion, and $1.7 billion, respectively, as of June 30, 2011. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $2.7 billion, $2.5 billion, and $1.8 billion, respectively, as of June 30, 2012, and $671 million, $657 million, and $425 million, respectively, as of June 30, 2011. The accumulated benefit obligation for all pension plans as of June 30, 2012 and 2011, was $2.7 billion and $ 2.3 billion, respectively.

For postretirement benefit measurement purposes, a 7.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2012. The rate was assumed to decrease gradually to 5% by 2022 and remain at that level thereafter.

A 1% change in assumed health care cost trend rates would have the following effects:

1% Increase

1% Decrease

(In millions)

Effect on combined service and interest cost components

Effect on accumulated postretirement benefit obligations

The Company’s employee benefit plan assets are principally comprised of the following types of investments:

Common stock:

Equity securities are valued based on quoted exchange prices and are classified within Level 1 of the valuation hierarchy.

Mutual funds:

Mutual funds are valued at the closing price reported on the active market on which they are traded and are classified within Level 1 of the valuation hierarchy.

Common collective trust (CCT) funds:

The fair values of the CCTs are based on the cumulative net asset value (NAV) of their underlying investments. The investments in CCTs are comprised of international equity funds, a small cap U.S. equity fund, large cap U.S. equity funds, fixed income funds, and other funds. The fund units are valued at NAV based on the closing market value of the units bought or sold as of the valuation date and are classified in Level 2 of the fair value hierarchy. The CCTs seek primarily to provide investment results approximating the aggregate price, dividend performance, total return, and income stream of underlying investments of the funds. Issuances and redemptions of certain of the CCT investments may be restricted by date and/or amount.

Corporate debt instruments:

Corporate debt instruments are valued at the closing price reported on the active market on which they are traded and are classified within Level 2 of the valuation hierarchy.

U.S. Treasury instruments:

U.S. Treasury instruments are valued at the closing price reported on the active market on which they are traded and are classified within Level 1 of the valuation hierarchy.

U.S. government agency, state, and local government bonds:

U.S. government agency obligations and state and municipal debt securities are valued using third-party pricing services and are classified within Level 2 of the valuation hierarchy.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants’ methods, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following tables set forth, by level within the fair value hierarchy, the fair value of plan assets as of June 30, 2012 and 2011.



	Fair Value Measurements at June 30, 2012
	Quoted Prices in		Significant Other		Significant
	Active Markets		Observable		Unobservable		Total
	for Identical		Inputs		Inputs
	Assets
	(Level 1)		(Level 2)		(Level 3)
	(In millions)
Common stock
U.S. companies	$	184	$	-	$	-	$	184
International companies		2		-		-		2
Equity mutual funds
Emerging markets		77		-		-		77
International		109		-		-		109
Large cap U.S.		415		-		-		415
Common collective trust
funds
International equity		-		372		-		372
Large cap U.S. equity		-		16		-		16
Fixed income		-		409		-		409
Other		-		59		-		59
Debt instruments
Corporate bonds		-		447		-		447
U.S. Treasury
instruments		108		-		-		108
U.S. government agency,
state and local
government bonds		-		33		-		33
Other		-		5		-		5
Total assets at fair value	$	895	$	1,341	$	-	$	2,236



	Fair Value Measurements at June 30, 2011
	Quoted Prices in		Significant Other		Significant
	Active Markets		Observable		Unobservable		Total
	for Identical		Inputs		Inputs
	Assets
	(Level 1)		(Level 2)		(Level 3)
	(In millions)
Common stock
U.S. companies	$	180	$	-	$	-	$	180
International companies		5		-		-		5
Equity mutual funds				-
Emerging markets		70		-		-		70
International		99		-		-		99
Large cap U.S.		378		-		-		378
Other		1		-		-		1
Common collective trust
funds
International equity		-		341		-		341
Large cap U.S. equity		-		24		-		24
Fixed income		-		444		-		444
Other		-		60		-		60
Debt instruments
Corporate bonds		-		442		-		442
U.S. Treasury instruments		49		-		-		49
U.S. government agency,
state and local government
bonds		-		35		-		35
Other		-		6		-		6
Total assets at fair value	$	782	$	1,352	$	-	$	2,134

Level 3 Gains and Losses:

There are no Plan assets classified as Level 3 in the fair value hierarchy; therefore there are no gains or losses associated with Level 3 assets.

The following table sets forth the actual asset allocation for the Company’s global pension plan assets as of the measurement date:


	2012^(1),(2)		2011⁽²⁾

Equity securities	51	%	52	%
Debt securities	48	%	47	%
Other	1	%	1	%
Total	100	%	100	%

⁽¹⁾ The Company’s U.S. pension plans contain approximately 68% of the Company’s global pension plan assets. The actual asset allocation for the Company’s U.S. pension plans as of the measurement date consists of 60% equity securities and 40% debt securities. The target asset allocation for the Company’s U.S. pension plans is the same as the actual asset allocation. The actual asset allocation for the Company’s foreign pension plans as of the measurement date consists of 32% equity securities, 65% debt securities, and 3% in other investments. The target asset allocation for the Company’s foreign pension plans is approximately the same as the actual asset allocation.

⁽²⁾ The Company’s pension plans did not hold any shares of Company common stock as of the June 30, 2012 and 2011 measurement dates. Cash dividends received on shares of Company common stock by these plans during the twelve-month period ended June 30, 2012 and 2011, were $0 and $0.1 million, respectively.

Investment objectives for the Company’s plan assets are to:

Optimize the long-term return on plan assets at an acceptable level of risk.
Maintain a broad diversification across asset classes and among investment managers.
Maintain careful control of the risk level within each asset class.

Asset allocation targets promote optimal expected return and volatility characteristics given the long-term time horizon for fulfilling the obligations of the pension plans. Selection of the targeted asset allocation for plan assets was based upon a review of the expected return and risk characteristics of each asset class, as well as the correlation of returns among asset classes. The U.S. pension plans target asset allocation is also based on an asset and liability study that is updated periodically.

Investment guidelines are established with each investment manager. These guidelines provide the parameters within which the investment managers agree to operate, including criteria that determine eligible and ineligible securities, diversification requirements, and credit quality standards, where applicable. In some countries, derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of underlying investments.

The Company uses external consultants to assist in monitoring the investment strategy and asset mix for the Company’s plan assets. To develop the Company’s expected long-term rate of return assumption on plan assets, the Company generally uses long-term historical return information for the targeted asset mix identified in asset and liability studies. Adjustments are made to the expected long-term rate of return assumption when deemed necessary based upon revised expectations of future investment performance of the overall investment markets.

Contributions and Expected Future Benefit Payments

Based on actuarial calculations, the Company expects to contribute $26 million to the pension plans and $5 million to the postretirement benefit plan during the six months ending December 31, 2012. The Company may elect to make additional discretionary contributions during this period.

The following benefit payments, which reflect expected future service, are expected to be paid by the benefit plans:



	Pension		Postretirement
	Benefits		Benefits
	(In millions)

2013		$109		$11
2014		115		11
2015		118		12
2016		122		12
2017		126		13
2018 – 2022		738		76