Sara Lee 2011 Annual Report Download - page 109

Net Periodic Benefit Cost and Funded Status The components of the net periodic benefit cost for continuing operations were as follows: In millions 2011 2010 2009 U.S. Plans Components of defined benefit
net periodic benefit cost Service cost $÷÷«7 $÷«17 $÷«21 Interest cost 73 74 69 Expected return on assets (80) (65) (66) Amortization of
prior service cost 1 (2) – Net actuarial loss 12 33 (1)
Net periodic benefit cost $÷«13 $«««57 $÷«23 International Plans Components of defined benefit
net periodic benefit cost Service cost $÷«32 $÷«31 $÷«30 Interest cost 161 166 166 Expected return on assets (198) (176) (180) Amortization of
prior service cost 578 Net actuarial loss 23 14 12
Net periodic benefit cost $÷«23 $«««42 $÷«36
In the fourth quarter of 2011, certain modifications to the
corporation’s defined benefit plan in the Netherlands were approved. The modifications included changes to the method of benefit index- ation and employee contribution and salary participation levels. The plan amendments resulted in a $24 million reduction in the projected benefit obligation with a corresponding offset to the unamortized prior service cost balance in Accumulated Other Comprehensive Income. The corporation also expects to make an additional €60
million contribution to this plan in 2012 related to the agreed upon plan modifications.
In 2011, the corporation recognized a curtailment loss of
$5 million associated with the fresh bakery businesses as a result of the expected decline in expected years of future service associ- ated with the planned disposition of this business. This amount is being reported as part of the results of discontinued operations. See Note 5 – “Discontinued Operations” for additional information.
In March 2010, the corporation announced changes to its U.S.
defined benefit pension plans for salaried employees whereby par- ticipants would no longer accrue benefits under these plans. All future retirement benefits will be provided through a defined contri- bution plan. The benefit plan changes resulted in the elimination of any expected years of future service associated with these plans. As a result, a pretax curtailment gain of $25 million was recognized, of which $20 million impacted continuing operations and $5 million impacted discontinued operations. The curtailment gain resulted from the recognition of $3 million of previously unamortized net prior service credits associated with these benefit plans as well as a $22 million reduction in the projected benefit obligation associated with one of the plans.
Note 16 Defined Benefit Pension Plans The corporation sponsors a number of U.S. and foreign pension plans to provide retirement benefits to certain employees. The benefits provided under these plans are based primarily on years of service and compensation levels. Measurement Date and Assumptions A fiscal year end measurement date is utilized to value plan assets and obligations for all of the corporation’s defined benefit pension plans. Prior to 2009 the cor- poration had utilized a measurement date of March 31.
The weighted average actuarial assumptions used in measuring
the net periodic benefit cost and plan obligations of continuing operations were as follows:
2011 2010 2009
U.S. Plans Net periodic benefit cost
Discount rate 5.4% 6.5% 6.7% Long-term rate of return on plan assets 7.3 7.6 7.5 Rate of compensation increase NA 3.5 3.8
Plan obligations
Discount rate 5.6% 5.4% 6.5%
Rate of compensation increase NA NA 3.5
International Plans Net periodic benefit cost
Discount rate 5.2% 6.4% 6.1% Long-term rate of return on plan assets 6.7 6.6 6.7 Rate of compensation increase 3.3 3.3 3.3
Plan obligations
Discount rate 5.6% 5.2% 6.4% Rate of compensation increase 3.1 3.3 3.3
The discount rate is determined by utilizing a yield curve based
on high-quality fixed-income investments that have a AA bond rating to discount the expected future benefit payments to plan participants. Compensation increase assumptions are based upon historical expe- rience and anticipated future management actions. Compensation changes for participants in the U.S. plans no longer have an impact on the benefit cost or plan obligations as the participants in the U.S. salaried plan will no longer accrue additional benefits. In deter- mining the long-term rate of return on plan assets, the corporation assumes that the historical long-term compound growth rates of equity and fixed-income securities and other plan investments will predict the future returns of similar investments in the plan portfolio. Investment management and other fees paid out of plan assets are factored into the determination of asset return assumptions.
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