Benefit Plans

The Company has various pension and other defined benefit and defined contribution plans, in which substantially all employees may participate. The Company also has non-qualified supplemental executive and board retirement plans.

Financial information on changes in benefit obligation and plan assets funded and balance sheets status as of August 31, 2012 and 2011 is as follows:



	Qualified Pension Benefits						Non-Qualified Pension Benefits						Other Benefits
	2012			2011			2012			2011			2012			2011
	(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at beginning of period	$	501,053		$	493,601		$	29,728		$	47,233		$	56,864		$	46,262
Service cost	26,010			25,232			279			1,246			2,556			1,771
Interest cost	24,119			22,257			1,343			1,933			2,638			2,194
Transfers in from Agriliance Employee Retirement Plan	84,498
Actuarial loss (gain)	982			759			2,498			(1,233		)	(1,997		)	1,199
Assumption change	62,755			(11,014		)	1,956			(514		)	6,437			912
Plan amendments				365						1,047			(899		)
Medicare D													625			216
Excise tax on high cost healthcare plans																6,279
Benefits paid	(28,351		)	(30,147		)	(1,334		)	(19,984		)	(2,035		)	(1,969		)
Benefit obligation at end of period	$	671,066		$	501,053		$	34,470		$	29,728		$	64,189		$	56,864
Change in plan assets:
Fair value of plan assets at beginning of period	$	540,822		$	478,361		$	—		$	—		$	—		$	—
Actual gain on plan assets	50,515			57,608
Company contributions	28,000			35,000			1,334			19,984			2,035			1,969
Transfers in from Agriliance Employee Retirement Plan	97,210
Benefits paid	(28,351		)	(30,147		)	(1,334		)	(19,984		)	(2,035		)	(1,969		)
Fair value of plan assets at end of period	$	688,196		$	540,822		$	—		$	—		$	—		$	—
Funded status at end of period	$	17,130		$	39,769		$	(34,470	)	$	(29,728	)	$	(64,189	)	$	(56,864	)
Amounts recognized on balance sheet:
Non-current assets	$	17,695		$	40,047
Accrued benefit cost:
Current liabilities							$	(3,325	)	$	(3,205	)	$	(3,297	)	$	(3,111	)
Non-current liabilities	(565		)	(278		)	(31,145		)	(26,523		)	(60,892		)	(53,753		)
Ending balance	$	17,130		$	39,769		$	(34,470	)	$	(29,728	)	$	(64,189	)	$	(56,864	)
Amounts recognized in accumulated other comprehensive loss (pretax):
Net transition obligation													$	563		$	1,651
Prior service cost (credit)	$	9,392		$	11,223		$	1,316		$	497		(17		)	(190		)
Net loss	331,420			247,669			10,104			7,124			683			14,076
Noncontrolling interests				(20,524		)				(82		)				(3,821		)
Ending balance	$	340,812		$	238,368		$	11,420		$	7,539		$	1,229		$	11,716

The accumulated benefit obligation of the qualified pension plans was $628.5 million and $466.8 million at August 31, 2012 and 2011, respectively. The accumulated benefit obligation of the non-qualified pension plans was $19.7 million and $17.0 million at August 31, 2012 and 2011, respectively.

As discussed in Note 4, Investments, Agriliance is owned and governed by CHS (50)% and Land O'Lakes Inc. (50)% and has essentially ceased its business activities. During the year ended August 31, 2012, the Agriliance Employee Retirement Plan (Agriliance Plan) transferred its assets and liabilities to CHS and Land O'Lakes. CHS received pension plan assets and liabilities of $97.2 million and $84.5 million, respectively, and recorded the net $12.7 million pension plan asset as a non-cash dividend. Half of the Agriliance Plan's accumulated other comprehensive loss, or $44.8 million, is reflected in the Company's ending pre-tax balance for accumulated other comprehensive loss.

The assumption change for the fiscal year ended August 31, 2012, related to reductions in the discount rate for both CHS and NCRA qualified pension plans. The reduction in the discount rate was due to the reduction in the yield curves for investment grade corporate bonds that CHS and NCRA have historically used.

Components of net periodic benefit costs for the years ended August 31, 2012, 2011 and 2010 are as follows:



	Qualified Pension Benefits									Non-Qualified Pension Benefits									Other Benefits
	2012			2011			2010			2012			2011			2010			2012			2011			2010
	(Dollars in thousands)
Components of net periodic benefit costs:
Service cost	$	26,010		$	25,232		$	20,774		$	279		$	1,246		$	1,220		$	2,556		$	1,771		$	1,385
Interest cost	24,119			22,257			23,034			1,343			1,933			2,235			2,638			2,194			2,153
Expected return on assets	(40,904		)	(41,770		)	(36,875		)
Settlement of retiree obligations													4,735
Special agreements																									1,722
Prior service cost (credit) amortization	1,831			2,327			2,193			228			141			419			(104		)	(122		)	(186		)
Actuarial loss amortization	15,131			16,090			10,578			428			967			617			891			513			12
Transition amount amortization																			936			935			936
Net periodic benefit cost	$	26,187		$	24,136		$	19,704		$	2,278		$	9,022		$	4,491		$	6,917		$	5,291		$	6,022
Weighted-average assumptions to determine the net periodic benefit cost:
Discount rate	5.00		%	4.75		%	5.75		%	5.00		%	4.75		%	5.75		%	4.75		%	4.75		%	5.75		%
Expected return on plan assets	7.25		%	7.75		%	8.25		%	N/A			N/A			N/A			N/A			N/A			N/A
Rate of compensation increase	4.50		%	4.50		%	4.50		%	4.75		%	4.75		%	4.50		%	4.50		%	4.50		%	4.50		%
Weighted-average assumptions to determine the benefit obligations:
Discount rate	3.80		%	5.00		%	4.75		%	4.00		%	5.00		%	4.75		%	3.75		%	4.75		%	4.75		%
Rate of compensation increase	4.50		%	4.50		%	4.50		%	4.75		%	4.50		%	4.50		%	4.50		%	4.50		%	4.50		%

The estimated amortization in fiscal 2013 from accumulated other comprehensive income into net periodic benefit cost is as follows:



	Qualified Pension Benefits		Non-Qualified Pension Benefits			Other Benefits
	(Dollars in thousands)
Amortization of transition obligation						$	563
Amortization of prior service cost (benefit)	$	1,597	$	(33	)	$	(17	)
Amortization of net actuarial loss	$	22,516	$	32		$	1,152

For measurement purposes, a 7.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for the year ended August 31, 2012. The rate was assumed to decrease gradually to 5.0% by 2018 and remain at that level thereafter.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point change in the assumed health care cost trend rates would have the following effects:



	1% Increase		1% Decrease
	(Dollars in thousands)
Effect on total of service and interest cost components	$	630	$	(510	)
Effect on postretirement benefit obligation	6,200		(5,400		)

The Company provides defined life insurance and health care benefits for certain retired employees and Board of Directors’ participants. The plan is contributory based on years of service and family status, with retiree contributions adjusted annually.

The Company has other contributory defined contribution plans covering substantially all employees. Total contributions by the Company to these plans were $20.6 million, $18.6 million and $17.3 million, for the years ended August 31, 2012, 2011 and 2010, respectively.

The Company contributed $28.0 million to qualified pension plans in fiscal 2012. Based on the funded status of the qualified pension plans as of August 31, 2012, the Company does not expect to contribute to these plans in fiscal 2013. The Company expects to pay $6.6 million to participants of the non-qualified pension and postretirement benefit plans during fiscal 2013.

The Company’s retiree benefit payments which reflect expected future service are anticipated to be paid as follows:



	Qualified Pension Benefits		Non-Qualified Pension Benefits		Other Benefits
	Qualified Pension Benefits		Non-Qualified Pension Benefits		Gross		Medicare D
	(Dollars in thousands)
2013	$	36,805	$	3,325	$	3,297	$	100
2014	39,083		1,276		3,455		100
2015	42,954		1,002		3,671		100
2016	44,523		1,869		4,018		100
2017	47,263		4,293		4,249		100
2018-2022	278,194		13,187		23,644		500

The Company has trusts that hold the assets for the defined benefit plans. The Company and NCRA have qualified plan committees that set investment guidelines with the assistance of external consultants. Investment objectives for the Company’s plan assets are as follows:


•	optimization of the long-term returns on plan assets at an acceptable level of risk


•	maintenance of a broad diversification across asset classes and among investment managers


•	focus on long-term return objectives

Asset allocation targets promote optimal expected return and volatility characteristics given the long-term time horizon for fulfilling the obligations of the pension plans. The plans’ target allocation percentages are 35% in fixed income securities and 65% in equity securities. An annual analysis of the risk versus the return of the investment portfolio is conducted to justify the expected long-term rate of return assumption. 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.

The discount rate reflects the rate at which the associated benefits could be effectively settled as of the measurement date. In estimating this rate, the Company looks at rates of return on fixed-income investments of similar duration to the liabilities in the plans that receive high, investment-grade ratings by recognized ratings agencies.

The investment portfolio contains a diversified portfolio of investment categories, including domestic and international equities, fixed-income securities and real estate. Securities are also diversified in terms of domestic and international securities, short and long-term securities, growth and value equities, large and small cap stocks, as well as active and passive management styles.

The committees believe that with prudent risk tolerance and asset diversification, the plans should be able to meet pension obligations in the future.

The Company’s pension plans’ fair value measurements at August 31, 2012 and 2011 are as follows:



	2012
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Cash and cash equivalents	$	2,588	$	21,380			$	23,968
Equities:
Mutual funds	115,515		289,286				404,801
Fixed income securities:
Mutual funds	76,795		164,380		$	1,868	243,043
Real estate funds					16,257		16,257
Hedge funds					127		127
Total	$	194,898	$	475,046	$	18,252	$	688,196



	2011
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Cash and cash equivalents	$	3,073	$	22,325			$	25,398
Equities:
Mutual funds	100,508		198,828				299,336
Fixed income securities:
Mutual funds	66,124		135,251				201,375
Real estate funds					$	14,522	14,522
Hedge funds					191		191
Total	$	169,705	$	356,404	$	14,713	$	540,822

Definitions for valuation levels are found in Note 12, Fair Value Measurements. The Company uses the following valuation methodologies for assets measured at fair value.

Mutual funds: Valued at quoted market prices, which are based on the net asset value of shares held by the plan at year end. Mutual funds traded in active markets are classified within Level 1 of the fair value hierarchy. Certain of the mutual fund investments held by the plan have observable inputs other than Level 1 and are classified within Level 2 of the fair value hierarchy.

Real Estate funds: Valued quarterly at estimated fair value based on the underlying investee funds in which the real estate fund invests. This information is compiled, in addition to any other assets and liabilities (accrued expenses and unit-holder transactions), to determine the fund’s unit value. The real estate fund is not traded on an active market and is classified within Level 3 of the fair value hierarchy.

Hedge funds: Valued at estimated fair value based on prices quoted by various national markets and publications and/or independent financial analysts. These investments are classified within Level 3 of the fair value hierarchy.

The preceding methods described may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values. Furthermore, although the Company believes its 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 fair value measurement at the reporting date. The following tables set forth a summary of changes in the fair value of the plan’s Level 3 assets for the years ended August 31, 2012 and 2011:



	2012
	Mutual Funds			Real Estate Funds			Hedge Funds			Total
	(Dollars in thousands)
Balances at beginning of period	$	—		$	14,522		$	191		$	14,713
Unrealized gains (losses)	48			1,763			(68		)	1,743
Realized losses (gains)	90			(48		)				42
Sales	(8		)	(2		)				(10		)
Purchases				22			4			26
Transfers into level 3	1,738									1,738
Total	$	1,868		$	16,257		$	127		$	18,252



	2011
	Real Estate Funds		Hedge Funds			Total
	(Dollars in thousands)
Balances at beginning of period	$	9,407	$	2,705		$	12,112
Unrealized gains	2,104		132			2,236
Purchases, sales, issuances and settlements, net	3,011		(2,646		)	365
Total	$	14,522	$	191		$	14,713

The Company is one of approximately 400 employers that contribute to the Co-op Retirement Plan (Co-op Plan), which is a defined benefit plan constituting a “multiple employer plan” under the Internal Revenue Code of 1986, as amended, and a “multiemployer plan” under the accounting standards. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:


•	Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers;


•	If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and


•	If CHS chooses to stop participating in the multiemployer plan, CHS may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Company's participation in the Co-op Plan for the years ended August 31, 2012, 2011, and 2010 is outlined in the table below:



		Contributions of CHS
		(Dollars in thousands)
Plan Name	EIN/Plan Number	2012		2011		2010		Surcharge Imposed	Expiration Date of Collective Bargaining Agreement
Co-op Retirement Plan	01-0689331 / 001	$	1,885	$	1,279	$	1,325	N/A	N/A

The Company's contributions for the years stated above did not represent more than 5% of total contributions to the Co-op Plan as indicated in the Plan's most recently available annual report (Form 5500). Acquisitions during the years ended August 31, 2012 and 2011 increased the number of CHS covered participants in the Plan by approximately 70%, affecting the period-to-period comparability of the contributions for the years ending August 31, 2012, 2011 and 2010.

The Pension Protection Act (PPA) of 2006 does not apply to the Co-op Plan because it is covered and defined as a single-employer plan. There is a special exemption for cooperative plans defining them under the single-employer plan as long as the plan is maintained by more than one employer and at least 85% of the employers are rural cooperatives or cooperative organizations owned by agricultural producers. In the Co-op Plan, a “zone status” determination is not required, and therefore not determined. In addition, the accumulated benefit obligations and plan assets are not determined or allocated separately by individual employer. The most recent financial statements available in 2012 and 2011 are for the Co-op Plan's year-end at March 31, 2011 and 2010, respectively. In total, the Co-op Plan was at least 80% funded on those dates based on the total plan assets and accumulated benefit obligations.

Because the provisions of the PPA do not apply to the Co-op Plan, funding improvement plans and surcharges are not applicable. Future contribution requirements are determined each year as part of the actuarial valuation of the plan and may change as a result of plan experience.

In addition to the contributions to the Co-op Plan listed above, total contributions to individually insignificant multi-employer pension plans were $8 thousand in fiscal years 2012 and 2011 and $10 thousand in fiscal year 2010.