PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

Defined Benefit and Post-retirement Healthcare Plans

ABX sponsors a qualified defined benefit pension plan for ABX crewmembers and a qualified defined benefit pension plan for a major portion of its other ABX employees that meet minimum eligibility requirements. ABX also sponsors non-qualified defined benefit pension plans for certain employees. These non-qualified plans are unfunded. Employees are no longer accruing benefits under any of the defined benefit pension plans. ABX also sponsors a post-retirement healthcare plan for its ABX employees, which is unfunded.

The accounting and valuation for these post-retirement obligations are determined by prescribed accounting and actuarial methods that consider a number of assumptions and estimates. The selection of appropriate assumptions and estimates is significant due to the long time period over which benefits will be accrued and paid. The long term nature of these benefit payouts increases the sensitivity of certain estimates of our post-retirement costs. The assumptions considered most sensitive in actuarially valuing ABX’s pension obligations and determining related expense amounts are discount rates and expected long term investment returns on plan assets. Additionally, other assumptions concerning retirement ages, mortality and employee turnover also affect the valuations. Actual results and future changes in these assumptions could result in future costs significantly higher than those recorded in our results of operations.

ABX measures plan assets and benefit obligations as of December 31 of each year. Information regarding ABX’s sponsored defined benefit pension plans and post-retirement healthcare plans follow below. The accumulated benefit obligation reflects pension benefit obligations based on the actual earnings and service to-date of current employees.

Funded Status (in thousands):



	Pension Plans						Post-retirement Healthcare Plans
	2011			2010			2011			2010
Accumulated benefit obligation	$	772,612		$	694,548		$	9,275		$	10,135
Change in benefit obligation
Obligation as of January 1	$	694,548		$	629,236		$	10,135		$	33,142
Service cost	—			2,286			247			341
Interest cost	37,163			36,678			389			800
Curtailment gain	—			—			—			—
Special termination benefits	—			—			—			—
Plan amendment	—			—			—			(24,648		)
Plan transfers	871			2,204			—			—
Benefits paid	(23,501		)	(20,833		)	(1,304		)	(1,278		)
Actuarial (gain) loss	63,531			44,977			(192		)	1,778
Obligation as of December 31	$	772,612		$	694,548		$	9,275		$	10,135
Change in plan assets
Fair value as of January 1	$	588,494		$	509,656		$	—		$	—
Actual gain on plan assets	10,842			60,892			—			—
Plan transfers	871			2,204			—			—
Employer contributions	17,991			36,575			1,304			1,278
Benefits paid	(23,501		)	(20,833		)	(1,304		)	(1,278		)
Fair value as of December 31	$	594,697		$	588,494		$	—		$	—
Funded status
Recorded liabilities—net underfunded	$	(177,915	)	$	(106,054	)	$	(9,275	)	$	(10,135	)

Components of Net Periodic Benefit Cost

ABX’s net periodic benefit costs for its defined benefit pension plans and post-retirement healthcare plans for the years ended December 31, 2011, 2010 and 2009, are as follows (in thousands):



	Pension Plans									Post-Retirement Healthcare Plans
	2011			2010			2009			2011			2010			2009
Service cost	$	—		$	2,286		$	12,870		$	247		$	341		$	650
Interest cost	37,163			36,678			37,699			389			800			1,767
Expected return on plan assets	(39,027		)	(35,600		)	(29,569		)	—			—			—
Curtailment loss	—			—			25,048			—			—			—
Special termination benefits	—			—			1,550			—			—			—
Net amortization and deferral	2,700			2,069			27,434			(5,023		)	(3,803		)	—
Net periodic benefit cost	$	836		$	5,433		$	75,032		$	(4,387	)	$	(2,662	)	$	2,417

The net periodic expense includes a net curtailment charge of $25.0 million for 2009 to recognize prior service costs of employees terminated in conjunction with the DHL restructuring, as prescribed by FASB ASC Topic 715-30. During 2009, the Company amended each defined benefit pension plan to freeze the accrual of additional benefits and notified the affected employees. In December 2009, the defined benefit pension plans for ABX crewmembers were amended to grant more service credit to active participants for their years of service that occurred before the pension plan was initiated. In 2010, the Company modified the post-retirement health plans for ABX employees. Benefits for covered individuals now terminates upon reaching age 65 under the modified post-retirement healthcare plans.

Unrecognized Net Periodic Benefit Expense

The pre-tax amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit expense at December 31, 2011, are as follows (in thousands):



	Pension Plans				Post-Retirement Healthcare Plans
	2011		2010		2011			2010
Unrecognized prior service cost	$	—	$	—	$	(14,929	)	$	(20,481	)
Unrecognized net actuarial loss	165,505		76,490		3,061			3,783
Accumulated other comprehensive loss (gain)	$	165,505	$	76,490	$	(11,868	)	$	(16,698	)

The following table sets forth the amounts of unrecognized net actuarial gain and loss recorded in accumulated other comprehensive income that is expected to be recognized as components of net periodic benefit expense during 2012 (in thousands):



	Pension Plans		Post- Retirement Healthcare Plans
Amortization of actuarial loss	$	10,681	$	433
Prior Service Cost	—		(5,552		)

Assumptions

Assumptions used in determining ABX’s pension obligations at December 31 were as follows:



	Pension Plans
	2011	2010	2009
Discount rate	4.65% - 5.10%	5.35% - 5.55%	5.85% - 6.00%
Expected return on plan assets	6.75%	6.75%	7.00%
Rate of compensation increase (pilots)	not applicable	not applicable	4.50%
Rate of compensation increase (non-pilots)	not applicable	not applicable	4.00%

Net periodic benefit cost was based on the discount rate assumptions at the end of the previous year.

The discount rate used to determine post-retirement healthcare obligations was 4.60% for pilots and 4.05% for non-pilots at December 31, 2011. The discount rate used to determine post-retirement healthcare obligations for both pilots and non-pilots was 4.15% at December 31, 2010 and 5.85% at December 31, 2009, respectively. Post-retirement healthcare plan obligations have not been funded. The Company's retiree healthcare contributions have been fixed for each participant, accordingly healthcare cost trend rates do not effect the post-retirement healthcare obligations.

Plan Assets

The weighted-average asset allocations by asset category are as shown below:



	Composition of Plan Assets as of December 31
Asset category	2011		2010
Cash	2	%	1	%
Equity securities	46	%	48	%
Fixed income securities	50	%	49	%
Real estate	2	%	2	%
	100	%	100	%

ABX uses an investment management firm to advise it in developing and executing an investment policy. The portfolio is managed with consideration for diversification, quality and marketability. The investment policy permits the following ranges of asset allocation: equities – 22.5% to 69.3%; fixed income securities – 38.0% to 76.5%; real estate – 3% to 7%; cash – 0% to 10%. Except for U.S. Treasuries, no more than 10% of the fixed income portfolio and no more than 5% of the equity portfolio can be invested in securities of any single issuer.

An actuarial firm advised ABX in developing the overall expected long term rate of return on plan assets. The overall expected long term rate of return was developed using various market assumptions in conjunction with the plans’ targeted asset allocation. The assumptions were based on historical market returns.

Cash Flows

In 2011 and 2010, ABX made contributions to its defined benefit pension plans of $18.0 million and $36.6 million, respectively. The Company estimates that its contributions in 2012 will be approximately $25.0 million for its defined benefit pension plans and $1.2 million for its post-retirement healthcare plans.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid out of the respective plans as follows (in thousands):



	Pension Benefits		Post-retirement Healthcare Benefits
2012	$	25,837	$	1,241
2013	27,354		1,113
2014	31,518		1,028
2015	31,452		964
2016	33,914		904
Years 2017 to 2021	204,455		4,372

Fair Value Measurements

The pension plan assets are valued at fair value. The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.

Temporary Cash Investments—These investments consist of U.S. dollars and foreign currencies held in master trust accounts at The Northern Trust Company. Foreign currencies held are reported in terms of U.S. dollars based on currency exchange rates readily available in active markets. These temporary cash investments are classified as Level 1 investments.

Corporate Stock—This investment category consists of common and preferred stock issued by domestic and international corporations that are regularly traded on exchanges and price quotes for these shares are readily available. These investments are classified as Level 1 investments.

Common Trust Funds—Common trust funds are comprised of shares or units in non-publicly traded funds whereby the underlying assets in these funds (cash, cash equivalents, fixed income securities and equity securities) are publicly traded on exchanges and price quotes for the assets held by these funds are readily available. Holdings of common trust funds are classified as Level 2 investments.

Mutual Funds—Investments in this category include shares in registered mutual funds, unit trust and commingled funds. These funds consist of domestic equity, international equity and fixed income strategies. Investments in this category that are publicly traded on an exchange and have a share price published at the close of each business day are classified as Level 1 investments and holdings in the other mutual funds are classified as Level 2 investments.

Fixed Income Investments—Securities in this category consist of U.S. Government or Agency securities, state and local government securities, corporate fixed income securities or pooled fixed income securities. Securities in this category that are valued utilizing published prices at the close of each business day are classified as Level 1 investments. Those investments valued by bid data prices provided by independent pricing sources are classified as Level 2 investments.

Real Estate—The real estate investment in a commingled trust account consists of publicly traded real estate investment trusts and collateralized mortgage backed securities as well as private market direct property investments. The valuations for the holdings in these investments are not based on readily observable inputs and are classified as Level 3 investments.

Hedge Funds and Private Equity—These investments are not readily tradeable and have valuations that are not based on readily observable data inputs. The fair value of these assets is estimated based on information provided by the fund managers or the general partners. Therefore, these assets are classified as Level 3.

The pension plan assets measured at fair value on a recurring basis were as follows (in thousands):



As of December 31, 2011	Fair Value Measurement Using						Total
	Level 1		Level 2		Level 3		Total
Plan assets
Temporary cash investments	$	14	$	—	$	—	$	14
Common trust funds	—		17,495		—		17,495
Corporate stock	49,169		197		—		49,366
Mutual funds	73,910		125,027		—		198,937
Fixed income investments	17,009		271,560		—		288,569
Real estate	—		—		14,557		14,557
Hedge funds and private equity	—		—		25,759		25,759
Total plan assets	$	140,102	$	414,279	$	40,316	$	594,697



As of December 31, 2010	Fair Value Measurement Using						Total
	Level 1		Level 2		Level 3		Total
Plan assets
Temporary cash investments	$	656	$	—	$	—	$	656
Common trust funds	—		20,769		—		20,769
Corporate stock	49,368		—		—		49,368
Mutual funds	156,501		121,100		—		277,601
Fixed income investments	31,769		170,607		—		202,376
Real estate	—		—		12,214		12,214
Hedge funds and private equity	—		—		25,510		25,510
Total plan assets	$	238,294	$	312,476	$	37,724	$	588,494

ABX’s pension investments include hedge funds, private equity and real estate funds whose fair values have been estimated in the absence of readily determinable fair values. Management’s estimates are based on information provided by the fund managers or general partners of those funds. The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant Level 3 unobservable inputs (in thousands):



	Hedge Funds & Private Equity			Real Estate Investments		Total
January 1, 2010	$	23,109		$	11,160	$	34,269
Unrealized gains	1,504			1,054		2,558
Purchases & settlements	897			—		897
December 31, 2010	$	25,510		$	12,214	$	37,724
Unrealized gains	713			2,343		3,056
Purchases & settlements	(464		)	—		(464		)
December 31, 2011	$	25,759		$	14,557	$	40,316

Crew Sick Leave Post-retirement Benefit

ATI provided a sick leave benefit for ATI crewmembers that accumulated through participant retirement dates. During 2011, the plan was terminated and completely settled. The status of the plan as of December 31, 2011 and 2010 is summarized as follows (in thousands):



	Post-retirement Sick Leave
	2011			2010
Accumulated benefit obligation	$	—		$	3,556
Change in benefit obligation
Obligation as of January 1	$	3,556		$	3,002
Service cost	297			228
Interest cost	155			151
Benefits paid	(3,802		)	(35		)
Actuarial (gain) loss	(206		)	210
Obligation as of December 31	$	—		$	3,556
Change in plan assets
Fair value as of January 1	$	—		$	—
Employer contributions	3,802			35
Benefits paid	(3,802		)	(35		)
Fair value as of December 31	$	—		$	—
Funded status
Recorded liabilities—net underfunded	$	—		$	(3,556	)
Accumulated other comprehensive income	$	—		$	426

Assumptions used in determining the crew sick leave post-retirement obligations at December 31 were as follows:



	Post-Retirement Plan
	2010		2009
Discount rate	4.64	%	5.32	%
Rate of compensation increase	4.00	%	4.00	%

Defined Contribution Plans

The Company sponsors defined contribution capital accumulation plans (401k) that are funded by both voluntary employee salary deferrals and by employer contributions. ABX had also sponsored a defined contribution profit sharing plan, which was coordinated and used to offset obligations accrued under the qualified defined benefit plans. Contributions to this plan were discontinued in 2000 for all non-pilot participants and in 2009 for all pilot participants. Expenses for defined contribution retirement plans were as follows (in thousands):



	Years Ended December 31
	2011		2010		2009
Capital accumulation plans	$	4,938	$	4,527	$	5,299
Profit sharing plans	—		110		547
Total expense	$	4,938	$	4,637	$	5,846