Freeport-McMoRan 2011 Annual Report Download - page 86

84 | FREEPORT-McMoRan COPPER & GOLD INC.
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 benet obligation
is a discount rate used to calculate the present value of expected
future benet payments for service to date. e discount rate
assumption for FCX’s U.S. plans is designed to reect yields on
high-quality, xed-income investments for a given duration. e
determination of the discount rate for these plans is based on
expected future benet payments for service to date together with
the Mercer Pension Discount Curve. e 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 benet payments for service to date
together with the Citigroup Pension Discount Curve. Changes in
the discount rate are reected in FCX’s benet 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 ocers. e SERP provides for
retirement benets payable in the form of a joint and survivor
annuity or an equivalent lump sum. e annuity will equal a
percentage of the executive’s highest average compensation for any
consecutive three-year period during the ve years immediately
preceding the earlier of the executive’s retirement or completion of
25 years of credited service. e SERP benet will be reduced by
the value of all benets paid or due under any dened benet or
dened 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 benets plan for its executives, both of
which no longer accrue benets.
PT Freeport Indonesia Plan. PT Freeport Indonesia has a dened
benet 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. e 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 benets to employees
upon employment termination based on the reason for termination
and the employee’s years of service. PT Freeport Indonesia’s
pension benet disclosures include benets 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. e 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
benet obligations, while in the remainder, the accumulated
benet obligations exceed the plan assets. Information for those
plans where the accumulated benet 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 benets plans), PTFreeport Indonesia and
Atlantic Copper plans as of December31 follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS