EMPLOYEE BENEFIT PLANS

Pension Plans

We historically sponsored several defined benefit pension plans covering most employees not covered by union-administered plans, including certain employees in foreign countries. These plans generally provided participants with benefits based on years of service and career-average compensation levels. The funding policy for these plans is to make contributions based on annual service costs plus amortization of unfunded past service liability, but not greater than the maximum allowable contribution deductible for federal income tax purposes. We may, from time to time, make voluntary contributions to our pension plans, which exceed the amount required by statute. The majority of the plans’ assets are invested in a master trust that, in turn, is invested primarily in commingled funds whose investments are listed stocks and bonds. As discussed under the Pension Curtailments and Settlements section, we have frozen all of our major defined benefit pension plans.

We have a non-qualified supplemental pension plan covering certain U.S. employees, which provides for incremental pension payments from our funds so that total pension payments equal the amounts that would have been payable from our principal pension plans if it were not for limitations imposed by income tax regulations. The accrued pension liability related to this plan was $46 million and $42 million at December 31, 2012 and 2011, respectively.

Pension Expense

Pension expense from continuing operations was as follows:



	Years ended December 31,
	2012			2011		2010
	(In thousands)
Company-administered plans:
Service cost	$	15,479		14,719		15,239
Interest cost	94,605			97,526		96,125
Expected return on plan assets	(96,342		)	(101,803	)	(93,135	)
Settlement loss	—			—		1,487
Amortization of:
Transition obligation	—			(31	)	(25	)
Net actuarial loss	31,200			20,226		19,025
Prior service credit	(2,275		)	(2,278	)	(2,256	)
	42,667			28,359		36,460
Union-administered plans	6,746			5,988		5,199
Net pension expense	$	49,413		34,347		41,659

Company-administered plans:
U.S.	$	38,992		28,974		33,733
Foreign	3,675			(615	)	2,727
	42,667			28,359		36,460
Union-administered plans	6,746			5,988		5,199
	$	49,413		34,347		41,659

The following table sets forth the weighted-average actuarial assumptions used for Ryder’s pension plans in determining annual pension expense:



	U.S. Plans Years ended December 31,						Foreign Plans Years ended December 31,
	2012		2011		2010		2012		2011		2010
Discount rate	4.90	%	5.70	%	6.20	%	4.76	%	5.55	%	5.93	%
Rate of increase in compensation levels	4.00	%	4.00	%	4.00	%	3.54	%	3.55	%	3.54	%
Expected long-term rate of return on plan assets	7.05	%	7.45	%	7.65	%	6.00	%	6.84	%	7.04	%
Transition amortization in years	—		—		—		1		1		2
Gain and loss amortization in years	24		25		26		27		27		28

The return on plan assets assumption reflects the weighted-average of the expected long-term rates of return for the broad categories of investments held in the plans. The expected long-term rate of return is adjusted when there are fundamental changes in expected returns or in asset allocation strategies of the plan assets.

Pension Curtailments and Settlements

In recent years, we made amendments to defined benefit retirement plans which froze the retirement benefits for non-grandfathered and certain non-union employees in the U.S., Canada and the United Kingdom (U.K.). As a result of these amendments, non-grandfathered plan participants ceased accruing benefits under the plan as of the respective amendment effective date and began receiving an enhanced benefit under a defined contribution plan. All retirement benefits earned as of the amendment effective date were fully preserved and will be paid in accordance with the plan and legal requirements. There was no material impact to our financial condition and operating results from the plan amendments.

During 2010, a number of employees in our Canadian pension plan elected to receive a lump-sum payment under the plan which resulted in a partial settlement of our benefit plan obligation. Accounting guidance requires that when a partial settlement occurs, the employer should recognize a pro rata portion of the unamortized net loss as pension expense. Accordingly, we recognized a pre-tax settlement loss during 2010 of $1.5 million, which reflects the partial reduction in the projected benefit obligation due to the partial settlement.

Obligations and Funded Status

The following table sets forth the benefit obligations, assets and funded status associated with our pension plans:



	December 31,
	2012			2011
	(In thousands)
Change in benefit obligations:
Benefit obligations at January 1	$	1,967,586		1,744,233
Service cost	15,479			14,719
Interest cost	94,605			97,526
Actuarial loss	189,936			187,390
Benefits paid	(76,742		)	(71,910	)
Foreign currency exchange rate changes	16,557			(4,372	)
Benefit obligations at December 31	2,207,421			1,967,586

Change in plan assets:
Fair value of plan assets at January 1	1,418,042			1,428,784
Actual return on plan assets	174,650			(1,431	)
Employer contribution	81,116			65,224
Participants’ contributions	52			61
Benefits paid	(76,742		)	(71,910	)
Foreign currency exchange rate changes	15,809			(2,686	)
Fair value of plan assets at December 31	1,612,927			1,418,042
Funded status	$	(594,494	)	(549,544	)

Amounts recognized in the Consolidated Balance Sheets consisted of:



	December 31,
	2012			2011
	(In thousands)
Noncurrent asset	$	6,090		257
Current liability	(3,309		)	(3,120	)
Noncurrent liability	(597,275		)	(546,681	)
Net amount recognized	$	(594,494	)	(549,544	)

Amounts recognized in accumulated other comprehensive loss (pre-tax) consisted of:



	December 31,
	2012			2011
	(In thousands)
Transition obligation	$	(20	)	(20	)
Prior service credit	(3,077		)	(5,352	)
Net actuarial loss	1,007,315			927,004
Net amount recognized	$	1,004,218		921,632

In 2013, we expect to recognize approximately $2 million of the prior service credit and $36 million of the net actuarial loss as a component of pension expense.

The following table sets forth the weighted-average actuarial assumptions used in determining funded status:



	U.S. Plans December 31,				Foreign Plans December 31,
	2012		2011		2012		2011
Discount rate	4.10	%	4.90	%	4.43	%	4.76	%
Rate of increase in compensation levels	4.00	%	4.00	%	3.55	%	3.54	%

At December 31, 2012 and 2011, our pension obligations (accumulated benefit obligations (ABO) and projected benefit obligations (PBO) greater than the fair value of related plan assets for our U.S. and foreign plans were as follows:



	U.S. Plans December 31,			Foreign Plans December 31,		Total December 31,
	2012		2011	2012	2011	2012	2011
	(In thousands)
Accumulated benefit obligations	$	1,747,610	1,551,211	418,245	378,768	2,165,855	1,929,979
Plans with ABO in excess of plan assets:
PBO	$	1,786,025	1,586,341	83,618	380,330	1,869,643	1,966,671
ABO	$	1,747,610	1,551,211	80,468	377,854	1,828,078	1,929,065
Fair value of plan assets	$	1,202,565	1,063,386	66,494	353,484	1,269,059	1,416,870
Plans with PBO in excess of plan assets:
PBO	$	1,786,025	1,586,341	83,618	380,330	1,869,643	1,966,671
ABO	$	1,747,610	1,551,211	80,648	377,854	1,828,258	1,929,065
Fair value of plan assets	$	1,202,565	1,063,386	66,494	353,484	1,269,059	1,416,870

Plan Assets

Our pension investment strategy is to generate a total rate of return that is sufficient, coupled with existing assets and funding contributions, to support payment of the ongoing plan obligations with an acceptable, appropriate and reasonable level of total asset-liability risk. The plans utilize several investment strategies, including actively and passively managed equity and fixed income strategies. The investment policy establishes targeted allocations for each asset class that incorporate measures of asset and liability risks. Deviations between actual pension plan asset allocations and targeted asset allocations may occur as a result of investment performance and changes in the funded status from time to time. Rebalancing of our pension plan asset portfolios is evaluated periodically and rebalanced if actual allocations exceed an acceptable range. U.S. plans account for approximately 75% of our total pension plan assets. Equity securities primarily include investments in both domestic and international common collective trusts and publicly traded equities. Fixed income securities primarily include domestic collective trusts and corporate bonds. Other types of investments include private equity fund-of-funds and hedge fund-of-funds. Equity and fixed income securities in our international plans include actively and passively managed mutual funds.

In the fourth quarter of 2012, we modified our U.S. pension investment policy and strategy to reduce the effects of future volatility on the fair value of our pension assets relative to our pension liabilities as a result of an asset-liability study. Under the new strategy, we will increase our allocation to high quality, longer-term fixed income securities and reduce our allocation of equity investments as the funded status of the plan improves.

The following table presents the fair value of each major category of pension plan assets and the level of inputs used to measure fair value as of December 31, 2012 and 2011:



	Fair Value Measurements at December 31, 2012
Asset Category	Total		Level 1	Level 2	Level 3
	(In thousands)
Equity securities:
U.S. companies	$	76,660	76,660	—	—
U.S. common collective trusts	471,504		—	471,504	—
Foreign common collective trusts	497,315		—	497,315	—
Fixed income securities:
Corporate bonds	61,571		—	61,571	—
Common collective trusts	434,670		—	434,670	—
Private equity and hedge funds	71,207		—	—	71,207
Total	$	1,612,927	76,660	1,465,060	71,207



	Fair Value Measurements at December 31, 2011
Asset Category	Total		Level 1	Level 2	Level 3
	(In thousands)
Equity securities:
U.S. companies	$	63,069	63,069	—	—
U.S. common collective trusts	500,298		—	500,298	—
Foreign common collective trusts	337,185		—	337,185	—
Fixed income securities:
Corporate bonds	53,424		—	53,424	—
Common collective trusts	394,714		—	394,714	—
Other (primarily mortgage-backed securities)	809		—	809	—
Private equity funds	68,543		—	—	68,543
Total	$	1,418,042	63,069	1,286,430	68,543

The following is a description of the valuation methodologies used for our pension assets as well as the level of input used to measure fair value:

Equity securities — These investments include common and preferred stocks and index common collective trusts that track U.S. and foreign indices. Fair values for the common and preferred stocks were based on quoted prices in active markets and were therefore classified within Level 1 of the fair value hierarchy. The common collective trusts were valued at the unit prices established by the funds’ sponsors based on the fair value of the assets underlying the funds. Since the units of the funds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy.

Fixed income securities — These investments include investment grade bonds of U.S. issuers from diverse industries, government issuers, index common collective trusts that track the Barclays Aggregate Index and other fixed income investments (primarily mortgage-backed securities). Fair values for the corporate bonds were valued using third-party pricing services. These sources determine prices utilizing market income models which factor in, where applicable, transactions of similar assets in active markets, transactions of identical assets in infrequent markets, interest rates, bond or credit default swap spreads and volatility. Since the corporate bonds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy. The common collective trusts were valued at the unit prices established by the funds’ sponsors based on the fair value of the assets underlying the funds. Since the units of the funds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy. The other investments are not actively traded and fair values are estimated using bids provided by brokers, dealers or quoted prices of similar securities with similar characteristics or pricing models. Therefore, the other investments have been classified within Level 2 of the fair value hierarchy.

Private equity and hedge funds — These investments represent limited partnership interests in private equity and hedge funds. The partnership interests are valued by the general partners based on the underlying assets in each fund. The limited partnership interests are valued using unobservable inputs and have been classified within Level 3 of the fair value hierarchy.

The following table presents a summary of changes in the fair value of the pension plans’ Level 3 assets for the years ended December 31, 2012 and 2011:



	2012			2011
	(In thousands)
Beginning balance at January 1	$	68,543		17,745
Return on plan assets:
Relating to assets still held at the reporting date	(551		)	(2,277	)
Relating to assets sold during the period	5,990			3,051
Purchases, sales, settlements and expenses	(2,775		)	50,024
Ending balance at December 31	$	71,207		68,543

The following table details pension benefits expected to be paid in each of the next five fiscal years and in aggregate for the five fiscal years thereafter:



	(In thousands)
2013	$	89,652
2014	93,336
2015	98,442
2016	103,940
2017	108,462
2018-2022	619,205

For 2013, required pension contributions to our pension plans are estimated to be $66 million.

Multi-employer Plans

We also participate in multi-employer plans that provide defined benefits to certain employees covered by collective-bargaining agreements. Such plans are usually administered by a board of trustees comprised of the management of the participating companies and labor representatives. The net pension cost of these plans is equal to the annual contribution determined in accordance with the provisions of negotiated labor contracts. Assets contributed to such plans are not segregated or otherwise restricted to provide benefits only to our employees. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects: 1) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers; 2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and 3) if we choose to stop participating in some of our multi-employer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, which is referred to as a withdrawal liability.

Our participation in these plans is outlined in the table below. Unless otherwise noted, the most recent Pension Protection Act zone status available in 2012 and 2011 is for the plan year ended December 31, 2011 and December 31, 2010, respectively. The zone status is based on information that we received from the plan. Among other factors, plans in the red zone are generally less than sixty-five percent funded, plans in the yellow zone are less than eighty percent funded, and plans in the green zone are at least eighty percent funded.



		Pension Protection Act Zone Status			Ryder Contributions					Date of Collective-Bargaining Agreement
Pension Fund	Employer Identification Number	2012	2011	FIP/RP Status Pending/ Implemented ⁽¹⁾	2012		2011	2010	Surcharge Imposed	Date of Collective-Bargaining Agreement
					(Dollars in thousands)
Western Conference Teamsters	91-6145047	Green	Green	No	$	1,943	1,855	1,494	No	6/30/14 to 3/31/16
IAM National	51-6031295	Green	Green	No	2,038		1,794	1,573	No	4/30/13 to 3/31/17
Automobile Mechanics Local No. 701	36-6042061	Red	Red	FIP Adopted	1,527		1,203	1,076	Yes	5/31/13 to 10/31/14
International Association of Machinists Motor City	38-6237143	Red ⁽²⁾	Red ⁽²⁾	RP adopted	437		392	372	No	1/31/14 to 3/31/16
Central States Southeast and Southwest Areas	36-6044243	Red	Red	RP adopted	226		182	158	No	6/1/12 to 5/31/17
Other Funds					575		562	526
Total contributions:					$	6,746	5,988	5,199

_____________


(1)	The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented.


(2)	Plan years ended June 30, 2012 and 2011.

Our contributions to the International Association of Machinists Motor City Pension Fund were 17% of the total plan contributions for the plan year ended June 30, 2012.

Savings Plans

Employees who do not actively participate in pension plans and are not covered by union-administered plans are generally eligible to participate in enhanced savings plans. These plans provide for (i) a company contribution even if employees do not make contributions, (ii) a company match of employee contributions of eligible pay, subject to tax limits and (iii) a discretionary company match. Savings plan costs totaled $33 million in 2012, $33 million in 2011, and $27 million in 2010.

Deferred Compensation and Long-Term Compensation Plans

We have deferred compensation plans that permit eligible U.S. employees, officers and directors to defer a portion of their compensation. The deferred compensation liability, including Ryder matching amounts and accumulated earnings, totaled $27 million and $23 million at December 31, 2012 and 2011, respectively.

We have established grantor trusts (Rabbi Trusts) to provide funding for benefits payable under the supplemental pension plan, deferred compensation plans and long-term incentive compensation plans. The assets held in the trusts at December 31, 2012 and 2011 amounted to $26 million and $23 million, respectively. The Rabbi Trusts’ assets consist of short-term cash investments and a managed portfolio of equity securities, including our common stock. These assets, except for the investment in our common stock, are included in “Direct financing leases and other assets” because they are available to our general creditors in the event of insolvency. The equity securities are classified as trading securities and stated at fair value. Both realized and unrealized gains and losses are included in “Miscellaneous income, net.” The Rabbi Trusts’ investment of $4 million in our common stock at December 31, 2012 and 2011 is reflected at historical cost and recorded against shareholders’ equity.