EMPLOYEE BENEFITS

Pension Plans. Following is a discussion of FCX’s pension plans.

FMC Plans. FMC has trusteed, non-contributory pension plans covering substantially all of its U.S. employees and some employees of its international subsidiaries hired before 2007. The applicable FMC plan design determines the manner in which benefits are calculated for any particular group of employees. For certain of these plans, benefits are calculated based on final average monthly compensation and years of service. In the case of other plans, benefits are calculated based on a fixed amount for each year of service. Participants in the FMC plans generally vest in their accrued benefits after five years of service. Non-bargained FMC employees hired after December 31, 2006, are not eligible to participate in the FMC U.S. pension plan.

FCX’s funding policy for these plans provides that contributions to pension trusts shall be at least equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974, as amended, for U.S. plans; or, in the case of international plans, the minimum legal requirements that may be applicable in the various countries. Additional contributions also may be made from time to time.

FCX’s policy for determining asset-mix targets for the Freeport-McMoRan Corporation Defined Benefit Master Trust (Master Trust) includes the periodic development of asset/liability studies to determine expected long-term rates of return and expected risk for various investment portfolios. FCX’s retirement plan administration and investment committee considers these studies in the formal establishment of asset-mix targets. FCX’s investment objective emphasizes the need to maintain a well-diversified investment program through both the allocation of the Master Trust assets among asset classes and the selection of investment managers whose various styles are fundamentally complementary to one another and serve to achieve satisfactory rates of return. Diversification, by asset class and by investment manager, is FCX’s principal means of reducing volatility and exercising prudent investment judgment. FCX’s present target asset allocation approximates 54 percent equity investments (43 percent global equities, 7 percent emerging markets equities and 4 percent U.S. equities), 35 percent fixed income (18 percent U.S. fixed income, 5 percent international fixed income, 5 percent high yield, 4 percent treasury inflation-protection securities and 3 percent emerging markets fixed income) and 11 percent alternative investments (5 percent private equity, 3 percent private real estate and 3 percent real estate investment trusts).

The expected rate of return on plan assets is evaluated at least annually, taking into consideration asset allocation, historical returns on the types of assets held in the Master Trust and the current economic environment. Based on these factors, FCX expects the pension assets will earn an average of 7.5 percent per annum during the 10 years beginning January 1, 2012. The 7.5 percent estimation was based on a passive return on a compound basis of 7.0 percent and a premium for active management of 0.5 percent reflecting the target asset allocation and current investment array.

For estimation purposes, FCX assumes the long-term asset mix for these plans generally will be consistent with the current mix. Changes in the asset mix could impact the amount of recorded pension income or expense, the funded status of the plans and the need for future cash contributions. A lower-than-expected return on assets also would decrease plan assets and increase the amount of recorded pension expense in future years. When calculating the expected return on plan assets, FCX uses the market value of assets.

Among the assumptions used to estimate the benefit obligation is a discount rate used to calculate the present value of expected future benefit payments for service to date. The discount rate assumption for FCX’s U.S. plans is designed to reflect yields on high-quality, fixed-income investments for a given duration. The determination of the discount rate for these plans is based on expected future benefit payments for service to date together with the Mercer Pension Discount Curve. The Mercer Pension Discount Curve consists of spot (i.e., zero coupon) interest rates at one-half year increments for each of the next 30 years and is developed based on pricing and yield information for high-quality corporate bonds. Prior to December 31, 2010, FCX determined its discount rate based on expected future benefit payments for service to date together with the Citigroup Pension Discount Curve. Changes in the discount rate are reflected in FCX’s benefit obligation and, therefore, in future pension costs.

Other FCX Plans. In February 2004, FCX established an unfunded Supplemental Executive Retirement Plan (SERP) for its two most senior executive officers. The SERP provides for retirement benefits payable in the form of a joint and survivor annuity or an equivalent lump sum. The annuity will equal a percentage of the executive’s highest average compensation for any consecutive three-year period during the five years immediately preceding the earlier of the executive’s retirement or completion of 25 years of credited service. The SERP benefit will be reduced by the value of all benefits paid or due under any defined benefit or defined contribution plan sponsored by FM Services Company, FCX’s wholly owned subsidiary, FCX or its predecessor, but not including accounts funded exclusively by deductions from participant’s pay. FCX also has an unfunded pension plan for its directors and an excess benefits plan for its executives, both of which no longer accrue benefits.

PT Freeport Indonesia Plan. PT Freeport Indonesia has a defined benefit pension plan denominated in Indonesian rupiah covering substantially all of its Indonesian national employees. PT Freeport Indonesia funds the plan and invests the assets in accordance with Indonesian pension guidelines. The pension obligation was valued at an exchange rate of 9,060 rupiah to one U.S. dollar on December 31, 2011, and 8,990 rupiah to one U.S. dollar on December 31, 2010. Indonesian labor laws enacted in 2003 require that companies provide a minimum level of benefits to employees upon employment termination based on the reason for termination and the employee’s years of service. PT Freeport Indonesia’s pension benefit disclosures include benefits related to this law. PT Freeport Indonesia’s expected rate of return on plan assets is evaluated at least annually, taking into consideration its historical yield and the long-range estimated return for the plan based on the asset mix. Based on these factors, PT Freeport Indonesia expects pension assets will earn an average of 8.5 percent per annum.

Atlantic Copper Plan. Atlantic Copper has a contractual obligation denominated in euros to supplement amounts paid to certain retired Spanish national employees. As required by Spanish law, beginning in August 2002, Atlantic Copper began funding 7.2 million euros ($9 million based on a December 31, 2011, exchange rate of $1.29 per euro) annually for 15 years to an approved insurance company for its estimated 72 million euro contractual obligation to the retired employees. The insurance company invests the plan assets in accordance with Spanish regulations, and Atlantic Copper has no control over these investments.

Plan Information. FCX uses a measurement date of December 31 for its plans. In some plans, the plan assets exceed the accumulated benefit obligations, while in the remainder, the accumulated benefit obligations exceed the plan assets. Information for those plans where the accumulated benefit obligations exceed the plan assets follows:



	December 31,
	2011		2010
Projected benefit obligation	$	2,055	$	1,662
Accumulated benefit obligation	1,874		1,581
Fair value of plan assets	1,261		1,122

Information on the FCX (including FMC’s plans; and FCX’s SERP, director and excess benefits plans), PT Freeport Indonesia and Atlantic Copper plans as of December 31 follows:



	FCX						PT Freeport Indonesia						Atlantic Copper
	2011			2010			2011			2010			2011			2010
Change in benefit obligation:
Benefit obligation at beginning
of year	$	1,598		$	1,472		$	135		$	80		$	71		$	79
Service cost	24			26			13			8			—			—
Interest cost	83			82			11			8			3			3
Actuarial losses	172			104			55			41			—			—
Foreign exchange losses (gains)	(1		)	(1		)	(1		)	4			(1		)	(4		)
Benefits paid	(85		)	(85		)	(7		)	(6		)	(8		)	(7		)
Benefit obligation at end of year	1,791			1,598			206			135			65			71

Change in plan assets:
Fair value of plan assets at
beginning of year	1,112			1,067			97			78			23			21
Actual return on plan assets	88			126			9			13			—			—
Employer contributions^a	26			5			9			8			11			9
Foreign exchange gains (losses)	—			(1		)	(1		)	4			—			—
Benefits paid	(85		)	(85		)	(7		)	(6		)	(8		)	(7		)
Fair value of plan assets at end
of year	1,141			1,112			107			97			26			23
Funded status	$	(650	)	$	(486	)	$	(99	)	$	(38	)	$	(39	)	$	(48	)

Accumulated benefit obligation	$	1,701		$	1,517		$	115		$	68		$	65		$	71

Weighted-average assumptions
used to determine benefit obligations:
Discount rate^b	4.60		%	5.40		%	7.00		%	8.50		%	6.77		%	6.77		%
Rate of compensation increase^c	3.75		%	3.75		%	8.00		%	8.00		%	NA			NA

Balance sheet classification of
funded status:
Other assets	$	6		$	6		$	—		$	—		$	—		$	—
Accounts payable and
accrued liabilities	(4		)	(4		)	—			—			—			—
Other liabilities	(652		)	(488		)	(99		)	(38		)	(39		)	(48		)
Total	$	(650	)	$	(486	)	$	(99	)	$	(38	)	$	(39	)	$	(48	)


a.	Employer contributions for 2012 are expected to approximate $97 million for the FCX plans, $14 million for the PT Freeport Indonesia plan (based on a December 31, 2011, exchange rate of 9,060 Indonesian rupiah to one U.S. dollar) and $9 million for the Atlantic Copper plan (based on a December 31, 2011, exchange rate of $1.29 per euro).


b.	The discount rate shown in 2011 and 2010 for the FCX plans relates to all plans except the SERP plan. The SERP plan’s discount rate in 2011 and 2010 was 4.00 percent.


c.	The rate of compensation increase shown for the FCX plans only relates to the FMC plans. The rate of compensation increase shown for the PT Freeport Indonesia plan relates to the years after 2012. For the PT Freeport Indonesia plan, the rate of compensation increase for 2012 ranges from 10 percent to 13 percent.

The weighted-average assumptions used to determine net periodic benefit cost and the components of net periodic benefit cost for FCX’s pension plans (FMC’s plans; and FCX’s SERP, director and excess benefits plans) for the years ended December 31 follows:



	2011			2010			2009
Weighted-average assumptions:
Discount rate:
FCX SERP	4.00		%	4.00		%	4.00		%
FMC plans	5.40		%	5.80		%	6.10		%
Expected return on plan assets^a	8.00		%	8.50		%	8.50		%
Rate of compensation increase^a	3.75		%	4.25		%	4.25		%

Service cost	$	24		$	26		$	26
Interest cost	83			82			85
Expected return on plan assets	(86		)	(87		)	(73		)
Amortization of prior service cost	(1		)	(1		)	—
Amortization of net actuarial losses	19			22			26
Curtailments and special retirement
benefits	—			—			(4		)
Net periodic benefit cost	$	39		$	42		$	60


a.	The assumptions shown only relate to the FMC plans.

The weighted-average assumptions used to determine net periodic benefit cost and the components of net periodic benefit cost for PT Freeport Indonesia’s and Atlantic Copper’s pension plans for the years ended December 31 follows:



	PT Freeport Indonesia
	2011			2010			2009
Weighted-average assumptions:
Discount rate	8.50		%	10.50		%	12.00		%
Expected return on plan assets	9.25		%	8.25		%	10.00		%
Rate of compensation increase	8.00		%	8.00		%	8.00		%

Service cost	$	13		$	8		$	5
Interest cost	11			8			7
Expected return on plan assets	(9		)	(7		)	(5		)
Amortization of prior service cost	1			1			1
Amortization of net actuarial loss	3			—			1
Net periodic benefit cost	$	19		$	10		$	9



	Atlantic Copper
	2011			2010			2009
Weighted-average assumption:
Discount rate	6.77		%	6.77		%	6.77		%

Interest cost	$	3		$	3		$	4
Amortization of net actuarial loss	1			1			1
Net periodic benefit cost	$	4		$	4		$	5

Included in accumulated other comprehensive income (loss) are the following amounts that have not been recognized in net periodic pension cost: unrecognized prior service credits of $2 million ($1 million net of tax and noncontrolling interests) and unrecognized actuarial losses of $642 million ($390 million net of tax and noncontrolling interests) at December 31, 2011; and unrecognized prior service credits of $2 million ($1 million net of tax and noncontrolling interests) and unrecognized actuarial losses of $440 million ($267 million net of tax and

noncontrolling interests) at December 31, 2010. The amounts expected to be recognized in net periodic pension cost for 2012 are less than $1 million for prior service credits and $40 million ($25 million net of tax and noncontrolling interests) for actuarial losses.

FCX does not expect to have any plan assets returned to it in 2012.

Plan assets are classified within a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1), then to significant observable inputs (Level 2) and the lowest priority to significant unobservable inputs (Level 3). For further discussion of the different levels of the fair value hierarchy, refer to Note 16.

A summary of the fair value hierarchy for pension plan assets associated with the FCX plans follows:



	Fair Value at December 31, 2011
	Total			Level 1		Level 2		Level 3
Commingled/collective funds:
Global equity	$	408		$	—	$	408	$	—
U.S. real estate securities	52			—		52		—
U.S. small-cap equity	45			—		45		—
Real estate property	35			—		—		35
Short-term investments	22			—		22		—
Open-ended mutual funds:
Government bonds	50			50		—		—
Emerging markets equity	36			36		—		—
Corporate bonds	22			22		—		—
Mutual funds:
Foreign bonds	43			43		—		—
Emerging markets bond	32			32		—		—
Emerging markets equity	24			24		—		—
Fixed income:
Government bonds	233			—		233		—
Corporate bonds	73			—		73		—
Private equity investments	50			—		—		50
Other investments	23			—		23		—
Total investments	1,148			$	207	$	856	$	85

Cash and receivables	6
Payables	(13		)
Total pension plan net assets	$	1,141



	Fair Value at December 31, 2010
	Total			Level 1		Level 2		Level 3
Commingled/collective funds:
U.S. large-cap equity	$	134		$	—	$	134	$	—
U.S. small-cap equity^a	101			—		101		—
International equity	71			—		71		—
U.S. real estate securities^a	47			—		47		—
Real estate property	28			—		—		28
Short-term investments^a	19			—		19		—
Open-ended mutual funds:
Emerging markets equity	46			46		—		—
Government bonds	38			38		—		—
Corporate bonds	30			30		—		—
Mutual funds:
Foreign bonds	38			38		—		—
Emerging markets bond	30			30		—		—
Emerging markets equity	29			29		—		—
Equity securities:
U.S. large-cap equity	161			161		—		—
International equity	57			57		—		—
Fixed income:
Government bonds	147			—		147		—
Corporate bonds	74			—		74		—
Private equity investments	46			—		—		46
Other investments	28			1		27		—
Total investments	1,124			$	430	$	620	$	74

Cash and receivables	81
Payables	(93		)
Total pension plan net assets	$	1,112

At the end of 2011, FCX reevaluated its level determinations, including those reported at December 31, 2010. While the majority of the underlying investments consists of publicly traded securities with actively quoted market values, the reported fair value of the investment vehicle containing these securities is based on net asset values that are not published publicly; therefore, FCX concluded these investments are more appropriately classified within Level 2 of the fair value hierarchy.

Following is a description of the pension plan asset categories and the valuation techniques used to measure fair value. There have been no changes in the techniques used at December 31, 2011.

Commingled/collective funds are managed by several fund managers and are valued at the net asset value per unit of the fund. For most of these funds, the majority of the underlying assets are actively traded equity securities; however, the unit level is considered to be at the fund level and, as such, are classified within Level 2 (except the real estate property funds) of the fair value hierarchy. These funds require less than a month's notice for redemptions. Real estate property funds are valued at net realizable value using information from independent appraisal firms, who have knowledge and expertise about the current market values of real property in the same vicinity as the investments and, as such, are classified within Level 3 of the fair value hierarchy. Redemptions of the real estate property funds are allowed once per quarter, subject to available cash.

Open-ended mutual funds are managed by registered investment companies and are valued at the daily published net asset value of shares/units held. Because redemptions and purchases of shares/units occur at the net asset value without any adjustments to the published net asset value that is provided on an ongoing basis (active-market criteria is met), these investments are classified within Level 1 of the fair value hierarchy.

Mutual funds and equity securities are valued at the closing price reported on the active market on which the individual securities are traded and, as such, are classified within Level 1 of the fair value hierarchy.

Fixed income investments include government and corporate bonds held directly by us or through commingled funds. Fixed income securities are valued using a bid evaluation or a mid evaluation and, as such, are classified within Level 2 of the fair value hierarchy. A bid evaluation is an estimated price at which a dealer would pay for a security. A mid evaluation is the average of the estimated price at which a dealer would sell a security and the estimated price at which a dealer would pay for a security. These evaluations are based on quoted prices, if available, or models that use observable inputs.

Private equity investments are valued at net realizable value using information from general partners and, as such, are classified within Level 3 of the fair value hierarchy because of the inherent restrictions on redemptions that may affect the ability to sell the investments at their net asset value in the near term.

A summary of changes in the fair value of FCX’s Level 3 pension plan assets for the years ended December 31, follows:



	Private Equity Investments			Real Estate Property		Total
Balance at January 1, 2010	$	40		$	25	$	65
Actual return on plan assets:
Realized gains	—			2		2
Net unrealized gains related to
assets still held at the end of the year	2			1		3
Purchases	7			—		7
Settlements, net	(3		)	—		(3		)
Balance at December 31, 2010	46			28		74
Actual return on plan assets:
Realized gains (losses)	(2		)	2		—
Net unrealized gains related to
assets still held at the end of the year	5			5		10
Purchases	5			—		5
Settlements, net	(4		)	—		(4		)
Balance at December 31, 2011	$	50		$	35	$	85

A summary of the fair value hierarchy for pension plan assets associated with the PT Freeport Indonesia plan follows:



	Fair Value at December 31, 2011
	Total		Level 1		Level 2		Level 3
Common stocks	$	29	$	29	$	—	$	—
Government bonds	22		22		—		—
Total investments	51		$	51	$	—	$	—

Cash and receivables^a	56
Total pension plan net assets	$	107



	Fair Value at December 31, 2010
	Total		Level 1		Level 2		Level 3
Common stocks	$	29	$	29	$	—	$	—
Government bonds	19		19		—		—
Total investments	48		$	48	$	—	$	—

Cash and receivables^a	49
Total pension plan net assets	$	97


a.	Cash consists primarily of short-term time deposits.

Following is a description of the valuation techniques used for pension plan assets measured at fair value associated with the PT Freeport Indonesia plan. There have been no changes in the techniques used at December 31, 2011.

Common stocks and government bonds are valued at the closing price reported on the active market on which the individual securities are traded.

The techniques 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 FCX believes its valuation techniques are appropriate and consistent with other market participants, the use of different techniques or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Atlantic Copper’s plan is administered by a third-party insurance company, and Atlantic Copper is not provided asset allocations.

The expected benefit payments for FCX’s (including FMC’s plans; and FCX’s SERP, director and excess benefits plans), PT Freeport Indonesia’s and Atlantic Copper’s pension plans follows:



	FCX		PT Freeport Indonesia^a		Atlantic Copper^b
2012	$	88	$	16	$	7
2013	88		11		7
2014	90		11		7
2015	91		13		7
2016	94		14		7
2017 through 2021	515		123		36


a.	Based on a December 31, 2011, exchange rate of 9,060 Indonesian rupiah to one U.S. dollar.


b.	Based on a December 31, 2011, exchange rate of $1.29 per euro.

Postretirement and Other Benefits. FCX also provides postretirement medical and life insurance benefits for certain U.S. employees and, in some cases, employees of certain international subsidiaries. These postretirement benefits vary among plans, and many plans require contributions from retirees. The expected cost of providing such postretirement benefits is accrued during the years employees render service.

The discount rate for FCX’s postretirement medical and life insurance benefit plans was determined on the same basis as FCX’s pension plans.

Information on the postretirement benefit plans as of December 31 follows:



	2011			2010
Change in benefit obligation:
Benefit obligation at beginning of year	$	240		$	265
Service cost	1			1
Interest cost	11			13
Actuarial gains	(7		)	(13		)
Benefits paid, net of employee and partner contributions,
and Medicare Part D subsidy	(22		)	(26		)
Benefit obligation at end of year	223			240

Change in plan assets:
Fair value of plan assets at beginning of year	—			—
Employer and partner contributions	25			30
Employee contributions	12			11
Benefits paid	(37		)	(41		)
Fair value of plan assets at end of year	—			—

Funded status	$	(223	)	$	(240	)

Discount rate assumption	4.20		%	4.90		%

Balance sheet classification of funded status:
Accounts payable and accrued liabilities	$	(23	)	$	(26	)
Other liabilities	(200		)	(214		)
Total	$	(223	)	$	(240	)

Included in accumulated other comprehensive income (loss) are amounts not recognized in net periodic benefit cost for unrecognized actuarial losses of $4 million ($3 million net of tax and noncontrolling interests) at December 31, 2011, and $3 million ($2 million net of tax and noncontrolling interests) at December 31, 2010. No amount is expected to be recognized in net periodic benefit cost in 2012 for unrecognized actuarial losses.

Expected benefit payments for these plans total $23 million for 2012, $21 million for 2013, $20 million for 2014, $19 million for 2015, $18 million for 2016 and $82 million for 2017 through 2021.

The weighted-average assumptions used to determine net periodic benefit cost and the components of net periodic benefit cost for FCX’s postretirement benefits for the years ended December 31 follow:



	2011			2010			2009
Weighted-average assumptions:
Discount rate	4.90		%	5.20		%	6.30		%

Service cost	$	1		$	1		$	1
Interest cost	11			13			15
Curtailments and special retirement benefits	—			—			(1		)
Net periodic benefit cost	$	12		$	14		$	15

The assumed medical-care trend rates at December 31 follow:



	2011		2010
Medical-care cost trend rate assumed for
the next year	8.00	%	8.25	%
Rate to which the cost trend rate is assumed
to decline (the ultimate trend rate)	4.50	%	4.75	%
Year that the rate reaches the ultimate trend rate	2026		2025

The effect of a one-percent increase or decrease in the medical-care cost trend rates assumed for postretirement medical benefits would result in increases or decreases of less than $1 million in the aggregate service and interest cost components; for the postretirement benefit obligation, the effect of a one-percent increase is approximately $8 million and the effect of a one-percent decrease is approximately $7 million.

FCX has a number of postemployment plans covering severance, long-term disability income, continuation of health and life insurance coverage for disabled employees or other welfare benefits. The accumulated postemployment benefit consisted of a current portion of $7 million (included in accounts payable and accrued liabilities) and a long-term portion of $57 million (included in other liabilities) at December 31, 2011, and a current portion of $8 million (included in accounts payable and accrued liabilities) and a long-term portion of $53 million (included in other liabilities) at December 31, 2010.

FCX also sponsors savings plans for the majority of its U.S. employees. The plans allow employees to contribute a portion of their pre-tax income in accordance with specified guidelines. These savings plans are principally qualified 401(k) plans for all U.S. salaried and non-bargained hourly employees. In these plans, participants exercise control and direct the investment of their contributions and account balances among various investment options. FCX matches a percentage of employee pre-tax deferral contributions up to certain limits, which vary by plan.

During 2000, FCX and FM Services Company enhanced their primary savings plan for substantially all their employees following their decision to terminate their defined benefit pension plans. Subsequent to the enhancement, FCX and FM Services Company contribute amounts to individual accounts totaling either 4 percent or 10 percent of each employee’s pay, depending on a combination of each employee’s age and years of service as of June 30, 2000. For employees whose eligible compensation exceeds certain levels, FCX provides an unfunded defined contribution plan. The balance of this liability totaled $56 million on December 31, 2011, and $49 million on December 31, 2010.

FMC had a defined contribution plan for its eligible employees hired on or after January 1, 2007, which was merged into the FCX savings plan effective January 1, 2009. Subsequent to January 1, 2009, FMC contributes enhanced amounts for its eligible employees hired on or after January 1, 2007, totaling 4 percent of each eligible employee’s earnings, regardless of years of service. However, most eligible FMC employees who were receiving more than 4 percent of their eligible earnings under the previous FMC defined contribution plan will continue to receive this higher percentage of their eligible earnings.

The costs charged to operations for employee savings plans and defined contribution plans totaled $35 million in 2011, $36 million in 2010 and $30 million in 2009.

FCX has other employee benefit plans, certain of which are related to FCX’s financial results, which are recognized in operating costs.