Sara Lee 2010 Annual Report Download - page 84

Notes to financial statements
Multi-employer Plans The corporation participates in multi-employer
plans that provide defined benefits to certain employees covered by
collective bargaining agreements. Such plans are usually adminis-
tered by a board of trustees composed 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.
These contributions were $50 million in 2010, $49 million in 2009
and $48 million in 2008. Assets contributed to such plans are not
segregated or otherwise restricted to provide benefits only to the
employees of the corporation. The future cost of these plans is
dependent on a number of factors including the funded status of
the plans and the ability of the other participating companies to
meet ongoing funding obligations.
In addition to regular contributions, the corporation could be
obligated to pay additional contributions (known as complete or
partial withdrawal liabilities) if a multi-employer pension plan (MEPP)
has unfunded vested benefits. The corporation recognized a partial
withdrawal liability in 2010 of $22 million related to one collective
bargaining agreement, all of which was recognized in Selling, general
and administrative expenses in the Consolidated Statements of
Income. The corporation also recognized a partial withdrawal liability
of $31 million in 2009 as a result of the cessation of contributions
to a MEPP with respect to one collective bargaining unit. Of the total
charge to income in 2009, $13 million was recognized in Cost of
sales and $18 million was recognized in Selling, general and admin-
istrative expenses in the Consolidated Statements of Income. The
charges for both years was recognized in the results of the North
American Fresh Bakery segment.
Note 17– Postretirement Health-Care and Life-Insurance Plans
The corporation provides health-care and life-insurance benefits
to certain retired employees and their covered dependents and
beneficiaries. Generally, employees who have attained age 55 and
have rendered 10 or more years of service are eligible for these
postretirement benefits. Certain retirees are required to contribute
to plans in order to maintain coverage.
During 2009, the corporation entered into a new collective labor
agreement in the Netherlands which eliminated post retirement
health care benefits for certain employee groups, while also reduc-
ing benefits provided to others. The elimination of benefits resulted
in the recognition of a curtailment gain of $17 million, of which
$12 million impacted continuing operations, related to a portion
of the unamortized prior service cost credit which was reported
in accumulated other comprehensive income. The plan changes
also resulted in a $32 million reduction in the accumulated post
retirement benefit obligation with an offset to accumulated other
comprehensive income.
During the third quarter of 2009, the corporation approved a
change to its U.S. postretirement medical plan. Effective January 1,
2010 the corporation will no longer subsidize retiree medical cover-
age for U.S. salaried employees and retirees. After this date, retirees
will have access to medical coverage but will have to pay 100% of
the premium. This change resulted in the recognition of a negative
plan amendment which reduced the accumulated postretirement
benefit obligation by $50 million with an offset to unamortized prior
service cost in accumulated other comprehensive income.
Measurement Date and Assumptions Beginning in 2009, a fiscal
year end measurement date is utilized to value plan assets and
obligations for the corporation’s postretirement health-care and life-
insurance plans pursuant to the new accounting rules. Previously,
the corporation used a March 31 measurement date. The impact
of adopting the new measurement date provision was recorded in
2009 as an adjustment to beginning of year retained earnings of
$(1) million, net of tax. The adjustment to retained earnings repre-
sents the net periodic benefit costs for the period from March 28,
2008 to June 28, 2008, the end of the previous fiscal year, which
was determined using the 15-month approach to proportionally
allocate the net periodic benefit cost to this period.
The weighted average actuarial assumptions used in measuring
the net periodic benefit cost and plan obligations for the three
years ending July 3, 2010 were:
2010 2009 2008
Net periodic benefit cost
Discount rate 6.3% 6.4% 5.7%
Plan obligations
Discount rate 5.1 6.3 6.4
Health-care cost trend assumed
for the next year 8.0 8.5 9.5
Rate to which the cost trend is
assumed to decline 5.0 5.0 5.5
Year that rate reaches the
ultimate trend rate 2016 2016 2015
82 Sara Lee Corporation and Subsidiaries