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Retirement Plan Benefits
 12 Months Ended
Dec. 31, 2011
Retirement Plan Benefits

M.       Retirement Plan Benefits

 

401(k) Plan

 

EMC's Information Infrastructure business has established a deferred compensation program for certain employees that is qualified under Section 401(k) of the Code. EMC will match pre-tax employee contributions up to 6% of eligible compensation during each pay period (subject to a $750 maximum match each quarter). Matching contributions are immediately 100% vested. Our contributions amounted to $73.2 million, $34.3 million and $27.1 million in 2011, 2010 and 2009, respectively.

 

Employees may elect to invest their contributions in a variety of funds, including an EMC stock fund. The deferred compensation program limits an employee's maximum investment allocation in the EMC stock fund to 30% of their total contribution. Our matching contribution mirrors the investment allocation of the employee's contribution.

 

Defined Benefit Pension Plan

 

We have noncontributory defined benefit pension plans which were assumed as part of the Data General acquisition, which cover substantially all former Data General employees located in the U.S. In addition, certain of the former Data General foreign subsidiaries also have retirement plans covering substantially all of their employees. All of these plans were frozen in 1999 resulting in employees no longer accruing pension benefits for future services. Certain of our foreign subsidiaries also have a defined benefit pension plan.

 

Benefits under these plans are generally based on either career average or final average salaries and creditable years of service as defined in the plans. The annual cost for these plans is determined using the projected unit credit actuarial cost method that includes actuarial assumptions and estimates which are subject to change. The measurement date for the plans is December 31.

 

The Data General U.S. pension plan's (the “Pension Plan”) investment policy provides that no security, except issues of the U.S. Government, shall comprise more than 5% of total plan assets, measured at market. At December 31, 2011, the Pension Plan held $0.3 million of our common stock.

 

The Pension Plan is summarized in the following tables. The other pension plans are not presented because they do not have a material impact on our consolidated financial position or results of operations.

 

The components of the change in benefit obligation of the Pension Plan is as follows (table in thousands):

 

 December 31, December 31,
2011 2010
Benefit obligation, at beginning of year $427,213 $386,316
Interest cost  22,663  22,685
Benefits paid  (15,493)  (15,516)
Actuarial loss  48,226  33,728
Benefit obligation, at end of year $482,609 $427,213

The reconciliation of the beginning and ending balances of the fair value of the assets of the Pension Plan is as follows (table in thousands):

 

 December 31,  December 31,
2011  2010  
Fair value of plan assets, at beginning of year $379,617 $353,562
Actual return on plan assets  31,735  41,571
Benefits paid  (15,493)  (15,516)
Fair value of plan assets, at end of year $395,859 $379,617

We did not make any contributions to the Pension Plan in 2011 or 2010 and we do not expect to make a contribution to the Pension Plan in 2012. The under-funded status of the Pension Plan at December 31, 2011 and 2010 was $86.8 million and $47.6 million, respectively. This amount is classified as a component of other long-term liabilities on the consolidated balance sheets.

 

In 2011, $11.2 million of the accumulated actuarial loss and prior services cost associated with the Pension Plan were reclassified from accumulated comprehensive loss to a component of net periodic benefit cost. Additionally, the Pension Plan had net losses of $41.5 million primarily the result of a decrease in the discount rate at the end of 2011. We expect that $12.9 million of the total balance included in accumulated other comprehensive loss at December 31, 2011 will be recognized as a component of net periodic benefit costs in 2012. We do not expect to receive any refunds from the Pension Plan in 2012.

 

The components of net periodic expense (benefit) of the Pension Plan are as follows (table in thousands):

 

 2011 2010 2009
Interest cost $22,663 $22,685 $22,027
Expected return on plan assets  (25,008)  (23,304)  (23,832)
Recognized actuarial loss  11,174  12,616  14,584
Net periodic expense (benefit) $8,829 $11,997 $12,779

The weighted-average assumptions used in the Pension Plan to determine benefit obligations at December 31 are as follows:

  December 31, December 31, December 31,
 2011 2010   2009  
Discount rate  4.6% 5.4% 6.0%
Rate of compensation increase  N/A N/A N/A

The weighted-average assumptions used in the Pension Plan to determine periodic benefit cost for the years ended December 31 are as follows:

 

  December 31, December 31, December 31,
 2011 2010   2009  
Discount rate  5.4% 6.0% 6.6%
Expected long-term rate of return on plan assets  6.75% 6.75% 8.25%
Rate of compensation increase  N/A  N/A  N/A 

The benefit payments are expected to be paid in the following years (table in thousands):

 

 2012$20,260
 2013 21,247
 2014 22,343
 2015 23,642
 2016 25,168
 2017-2021 148,392

Fair Value of Plan Assets

 

Following is a description of the valuation methodologies used for assets measured at fair value at December 31, 2011:

 

Common Collective Trusts – valued at the net asset value calculated by the fund manager based on the underlying investments. These are all classified within Level 2 of the valuation hierarchy. These include: Collective Trust High Yield Fund, EB Daily Valued Large Cap Growth Stock Index Fund, EB Daily Valued Large Cap Value Stock Index Fund, EB Daily Valued Small Cap Stock Index Fund, EB Daily Valued Stock Index Fund, EB Daily Valued International Stock Index Fund, EB Daily Valued Emerging Markets Index Fund, EB Long Term Credit Bond Index and EB Long Term Government Bond Index Fund.

 

Corporate Debt Securities – valued daily at the closing price reported in active U.S. financial markets and are classified within Level 2 of the valuation hierarchy.

 

The following table sets forth, by level within the fair value hierarchy, the Pension Plan's assets at fair value as of December 31, 2011 and 2010 (tables in thousands):

 

 December 31, 2011
 Level 1 Level 2 Level 3 Total
Common collective trusts $— $284,250 $— $284,250
Mutual funds  —  2,666  —  2,666
U.S. treasury securities  2,979  —  —  2,979
Corporate debt securities  —  105,082  —  105,082
Total $2,979 $391,998 $0 $394,977
Plan payables, net of accrued interest and dividends           882
Total          $395,859
            
 December 31, 2010
 Level 1 Level 2 Level 3 Total
Common collective trusts $— $278,447 $— $278,447
Mutual funds  —  3,656  —  3,656
U.S. agency securities  —  20,700  —  20,700
U.S. treasury securities  11,799  —  —  11,799
Corporate debt securities  —  57,067  —  57,067
Municipal obligations  —  980  —  980
Asset-backed securities  —  2,602  —  2,602
Mortgaged-backed securities  —  3,837  —  3,837
Total $11,799 $367,289 $0 $379,088
Plan payables, net of accrued interest and dividends           529
Total          $379,617

Dividends, accrued interest and net plan payables are not material to the plan assets. Accordingly, we have not classified these into the fair value hierarchy above at December 31, 2011 and 2010.

 

Concentration of Risks

 

Pension Plan investments at fair value as of December 31, 2011 and 2010 which represented 5% or more of the Pension Plan's net assets were as follows:

 

  2011 2010
 Collective Trust High Yield Fund $0 $21,956
 EB Daily Valued Large Cap Growth Stock Index Fund  0  18,497
 EB Daily Valued Large Cap Value Stock Index Fund  0  19,605
 EB Daily Valued Small Cap Stock Index Fund  23,038  34,069
 EB Daily Valued Stock Index Fund  82,060  110,030
 EB Daily Valued International Stock Index Fund  21,938  33,967
 EB Long Term Government Bond Index 44,058  0
 EB Long Term Credit Bond Index 60,111  21,765
 U.S. Treasury Securities  0  11,799
 U.S. Agency Securities  0  20,700
 Corporate Debt Securities  105,082  57,067
  $336,287 $349,455

Investment Strategy

 

The Pension Plan's assets are managed by outside investment managers. Our investment strategy with respect to pension assets is to maximize returns while preserving principal.

 

The expected long-term rate of return on the Pension Plan assets considers the current level of expected returns on risk free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was weighted based on the target asset allocation to develop the expected long-term rate of return on assets. We continue to shift the asset allocation to lower the percentage of investments in equities and increase the percentage of investments in long-duration fixed-income securities. The continued changes could result in a reduction in the long-term rate of return on the Pension Plan assets and increase future pension expense. The long-term weighted average target asset allocations are as follows:

 

   December 31,
  2011
 U.S. large capitalization equities  17%
 U.S. small capitalization equities  4
 International equities  4
 U.S. long-duration fixed income  75
 High yield fixed income  0
  Total  100%

The actual allocation of the assets in the Pension Plan at December 31, 2011 and 2010 were as follows:

 

   December 31, December 31,
  2011 2010  
 U.S. large capitalization equities  29% 39%
 U.S. small capitalization equities  6 9
 International equities  7 11
 U.S. long-duration fixed income 55 0
 U.S. core fixed income  0 35
 High yield fixed income  3 6
  Total  100% 100%