3M 2011 Annual Report Download - page 83

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NOTE 11. Pension and Postretirement Benefit Plans
3M has company-sponsored retirement plans covering substantially all U.S. employees and many employees outside
the United States. In total, 3M has over 65 plans in 25 countries. Pension benefits associated with these plans
generally are based on each participant’s years of service, compensation, and age at retirement or termination. The
U.S. defined-benefit pension plan was closed to new participants effective January 1, 2009. The Company also
provides certain postretirement health care and life insurance benefits for substantially all of its U.S. employees who
reach retirement age while employed by the Company. Most international employees and retirees are covered by
government health care programs. The cost of company-provided postretirement health care plans for international
employees is not material and is combined with U.S. amounts in the tables that follow.
The Company’s pension funding policy is to deposit with independent trustees amounts allowable by law. Trust funds
and deposits with insurance companies are maintained to provide pension benefits to plan participants and their
beneficiaries. There are no plan assets in the non-qualified plan due to its nature. For its U.S. postretirement health
care and life insurance benefit plans, the Company has set aside amounts at least equal to annual benefit payments
with an independent trustee.
In August 2006, the Pension Protection Act (PPA) was signed into law in the U.S. The PPA transition rules increased
the funding target for defined benefit pension plans to 100% of the target liability by 2011. 3M’s U.S. qualified defined
benefit plan does not have a mandatory cash contribution because the Company has a significant credit balance
from previous discretionary contributions that can be applied to any PPA funding requirements.
In 2008, the Company made modifications to its U.S. postretirement benefits plan. The changes were effective
beginning January 1, 2009, and allow current retired employees and employees who retire before January 1, 2013
the option to continue on the existing postretirement plans or elect the new plans. Current employees who retire after
December 31, 2012, will receive a savings account benefits-based plan. In 2009, the Company made further
modifications to its U.S. postretirement benefit plan. The changes were effective beginning January 1, 2010, and limit
the amount of medical inflation absorbed by the Company to three percent a year. As a result, as of the
December 31, 2009 measurement date, the Accumulated Postretirement Benefit Obligation (APBO) was reduced by
$168 million.
In the fourth quarter of 2010, the Company made further changes to its U.S. postretirement benefit plans. As a result
of these changes, the Company will transition all current and future retirees to the savings account benefits-based
plan announced in 2008. These changes become effective beginning January 1, 2013, for all Medicare eligible
retirees and their Medicare eligible dependents and January 1, 2015, for all non-Medicare eligible retirees and their
eligible dependents. As a result, as of the December 31, 2010 measurement date, the APBO increased by $69
million.
In the second quarter 2010, 3M’s Brazilian subsidiary received approval from the government in Brazil to freeze its
defined benefit pension plan. Effective March 31, 2010, participants in this subsidiary’s pension plan no longer
accrue additional pension benefits. As a result, the Company recorded a $22 million curtailment gain in the second
quarter of 2010.
During the second quarter of 2009, the Company offered a voluntary early retirement incentive program to certain
eligible participants of its U.S. pension plans who met age and years of pension service requirements. The eligible
participants who accepted the offer and retired by June 1, 2009, received an enhanced pension benefit. Pension
benefits were enhanced by adding one additional year of pension service and one additional year of age for certain
benefit calculations. Approximately 700 participants accepted the offer and retired by June 1, 2009. As a result, the
Company incurred a $21 million charge related to these special termination benefits.
During 2009, 3M Sumitomo (Japan) experienced a higher number of retirements than normal, largely due to early
retirement incentive programs, which required eligible employees who elected to leave the Company to retire by
September 2009. Participants in the Japan pension plan had the option of receiving cash lump sum payments when
exiting the plan, which a number of participants exiting the pension plan elected to receive. In accordance with ASC
715, Compensation ² Retirement Benefits, settlement accounting is required when the lump sum distributions in a
year are greater than the sum of the annual service and interest costs. Due to the large number of lump sum
payment elections in 2009, the Company incurred $17 million of settlement charges.
3M was informed during the first quarter of 2009 that the general partners of WG Trading Company, in which 3M’s
benefit plans hold limited partnership interests, are the subject of a criminal investigation as well as civil proceedings
by the SEC and CFTC (Commodity Futures Trading Commission). In March 2011, over the objections of 3M and six