DuPont 2011 Annual Report Download - page 35

Table of Contents
Part II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, continued
Long-term Employee Benefits
The company has various obligations to its employees and retirees. The company maintains retirement-related programs in many countries that have a long-
term impact on the company's earnings and cash flows. These plans are typically defined benefit pension plans, as well as medical, dental and life insurance
benefits for pensioners and survivors and disability and life insurance protection for employees (other long-term employee benefits). Approximately
80 percent of the company's worldwide benefit obligation for pensions and essentially all of the company's worldwide other long-term employee benefit
obligations are attributable to the U.S. benefit plans. Pension coverage for employees of the company's non-U.S. consolidated subsidiaries is provided, to the
extent deemed appropriate, through separate plans. The company regularly explores alternative solutions to meet its global pension obligations in the most
cost effective manner possible as demographics, life expectancy and country-specific pension funding rules change. Where permitted by applicable law, the
company reserves the right to change, modify or discontinue its plans that provide pension, medical, dental, life insurance and disability benefits.
The majority of employees hired in the U.S. on or after January 1, 2007 are not eligible to participate in the pension and post-retirement medical, dental and
life insurance plans, but receive benefits in the defined contribution plans.
Benefits under defined benefit pension plans are based primarily on years of service and employees' pay near retirement. Pension benefits are paid primarily
from trust funds established to comply with applicable laws and regulations. Unless required by law, the company does not make contributions that are in
excess of tax deductible limits. The actuarial assumptions and procedures utilized are reviewed periodically by the plans' actuaries to provide reasonable
assurance that there will be adequate funds for the payment of benefits. The company made a contribution of $500 million in 2010 to its principal U.S.
pension plan and no contributions were made in 2011. In January 2012, the company contributed $500 million to its principal U.S. pension plan. The
company expects to make contributions to its principal U.S. pension plan beyond 2012; however, the amount of any contributions is heavily dependent on the
future economic environment and investment returns on pension trust assets. U.S. pension benefits that exceed federal limitations are covered by separate
unfunded plans and these benefits are paid to pensioners and survivors from operating cash flows.
Funding for each pension plan is governed by the rules of the sovereign country in which it operates. Thus, there is not necessarily a direct correlation
between pension funding and pension expense. In general, however, improvements in plans funded status tends to moderate subsequent funding needs. The
company contributed $341 million to its pension plans in 2011 and anticipates that it will make approximately $345 million in contributions in 2012 to
pension plans other than the principal U.S. pension plan.
The company's other long-term employee benefits are unfunded and the cost of the approved claims is paid from operating cash flows. Pre-tax cash
requirements to cover actual net claims costs and related administrative expenses were $312 million, $321 million and $323 million for 2011, 2010 and 2009,
respectively. This amount is expected to be about $315 million in 2012. Changes in cash requirements reflect the net impact of higher per capita health care
costs, demographic changes and changes in participant premiums, co-pays and deductibles.
The company's income can be significantly affected by pension and defined contribution benefits as well as other long-term employee benefits. The following
table summarizes the extent to which the company's income over each of the last 3 years was affected by pre-tax charges related to long-term employee
benefits:
(Dollars in millions) 2011 2010 2009
Defined benefit plan charges $ 656 $ 557 $ 155
Defined contribution plan charges 294 254 245
Other long-term employee benefit plan charges 184 219 220
$ 1,134 $ 1,030 $ 620
The above charges for pension and other long-term employee benefits are determined as of the beginning of each year. The increase in pension expense in
2011 is primarily related to the decrease in discount rates and the increase in pension expense in 2010 is primarily related to decreases in the market-related
value of the assets in the principal U.S. pension plan. See "Long-term Employee Benefits" under the Critical Accounting Estimates section beginning on
page 28 of this report for additional information on determining annual expense for the principal U.S. pension plan.
The company's key assumptions used in calculating its pension and other long-term employee benefits are the expected return on plan assets, the rate of
compensation increases and the discount rate (see Note 17 to the Consolidated Financial Statements). For
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