Sara Lee 2011 Annual Report Download - page 112

NOTES TO FINANCIAL STATEMENTS
Defined Contribution Plans The corporation sponsors defined contribution plans, which cover certain salaried and hourly employees. The corporation’s cost is determined by the amount of contributions it makes to these plans. The amounts charged to expense for con- tributions made to these defined contribution plans related to continuing operations totaled $34 million in 2011, $31 million in 2010 and $29 million in 2009. 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. The contributions for plans related to continuing operations were $3 mil- lion in 2011, $4 million in 2010 and $5 million in 2009. 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 par- tial withdrawal liabilities) if a multi-employer pension plan (MEPP) has unfunded vested benefits. The corporation recognized a partial withdrawal liability of $22 million in 2010 related to one collective bargaining agreement and 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. The charges for both years were recognized in the results of discontinued opera- tions in the Consolidated Statements of Income as they both related to the North American fresh bakery business. 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.
For plans outside the U.S., the investment strategy is also subject
to local regulations. These specific circumstances result in a level of equity exposure that is typically higher than the U.S. plans. In aggregate, the asset allocation targets of the international plans are broadly categorized as a mix of 25% equity securities, 70% fixed- income securities and 5% of real estate and other investments.
As noted, the asset allocation varies by plan and, on an
aggregate fair value basis, it is currently at 72% fixed income secu- rities and 20% equity securities. On a notional value basis, the plan assets include investments in equity market futures which effectively moves the asset allocation to the established targets of 72% fixed income and 22% equity. Fixed income securities can include, but are not limited to, direct bond investments, pooled or indirect bond investments and cash. Other investments can include, but are not limited to, international and domestic equities, real estate, commodi- ties and private equity. Derivative instruments may also be used in concert with either fixed income or equity investments to achieve desired exposure or to hedge certain risks. Derivative instruments can include, but are not limited to, futures, options, swaps or swap- tions. The assets are managed by professional investment firms and performance is evaluated against specific benchmarks. The respon- sibility for the investment strategies typically lies with a committee and the composition of the committee depends on plan jurisdiction.
Pension assets at the 2011 and 2010 measurement dates do
not include any direct investment in the corporation’s debt or equity securities. Substantially all pension benefit payments are made from assets of the pension plans. Using foreign currency exchange rates as of July 2, 2011 and expected future service, it is anticipated that the future benefit payments for the combined U.S. and interna- tional plans will be as follows: $234 million in 2012, $222 million in 2013, $228 million in 2014, $234 million in 2015, $243 million in 2016 and $1,344 million from 2017 to 2021.
As part of a previously announced capital plan, the corporation
made a voluntary contribution of $200 million into its U.S. defined benefit pension plans in the fourth quarter of 2010. At the present time, the corporation expects to contribute approximately $200 mil- lion of cash to its pension plans in 2012, of which approximately $194 million is expected to be to its international plans.
During 2006, the corporation entered into an agreement with
the plan trustee to fully fund certain U.K. pension obligations by the end of calendar 2015. The anticipated 2012 contributions reflect the amounts agreed upon with the trustees of these U.K. plans. Subsequent to 2015, the corporation has agreed to keep the U.K. plans fully funded in accordance with certain local funding stan- dards. The exact amount of cash contributions made to pension plans in any year is dependent upon a number of factors including minimum funding requirements in the jurisdictions in which the company operates, the tax deductibility of amounts funded and arrangements made with the trustees of certain foreign plans.