3M 2009 Annual Report Download - page 88

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NOTE 11. Pension and Postretirement Benefit Plans
3M has company-sponsored retirement plans covering substantially all U.S. employees and many employees outside
the United States. In total, 3M has over 60 plans in 24 countries. Pension benefits associated with these plans
generally are based on each participant’s years of service, compensation, and age at retirement or termination. In
addition to providing pension benefits, the Company provides certain postretirement health care and life insurance
benefits for substantially all of its U.S. employees who reach retirement age while employed by the Company. Most
international employees and retirees are covered by government health care programs. The cost of company-
provided postretirement health care plans for international employees is not material and is combined with U.S.
amounts in the tables that follow.
The Company’s pension funding policy is to deposit with independent trustees amounts allowable by law. Trust funds
and deposits with insurance companies are maintained to provide pension benefits to plan participants and their
beneficiaries. There are no plan assets in the non-qualified plan due to its nature. For its U.S. postretirement health
care and life insurance benefit plans, the Company has set aside amounts at least equal to annual benefit payments
with an independent trustee.
In August 2006, the Pension Protection Act (PPA) was signed into law in the U.S. The PPA increases the funding
target for defined benefit pension plans to 100% of the target liability. The PPA transition rules require a funding
liability target of 92% in 2008, reaching 100% by 2011. 3M’s U.S. qualified defined benefit plans are funded at the
applicable transition funding liability target for 2009.
During the first quarter of 2008, the Company made modifications to its U.S. postretirement benefits plan. The
changes were effective beginning January 1, 2009, and allow current retired employees and employees who retire
before January 1, 2013 the option to continue on the existing postretirement plans or elect the new plans. Current
employees who retire after December 31, 2012, will receive a savings account benefits-based plan. As a result of the
modification to the U.S. postretirement benefits plan, the Company remeasured its U.S. plans’ assets and
accumulated postretirement benefit obligation (APBO) as of March 31, 2008. The impact of the plan modifications
reduced the APBO by $148 million, which was partially offset by asset values being $97 million lower than on
December 31, 2007. Therefore, the accrued benefit cost liability recorded on the balance sheet as of March 31,
2008, was reduced by $51 million. The remeasurement reduced the 2008 expense by $15 million.
In 2009, the Company made further modifications to its U.S. postretirement benefit plan. The changes are effective
beginning January 1, 2010, and limit the amount of medical inflation absorbed by the Company to three percent a
year. As a result, as of the December 31, 2009 measurement date, the APBO was reduced by $168 million.
During the second quarter of 2009, the Company offered a voluntary early retirement incentive program to certain
eligible participants of its U.S. pension plans who met age and years of pension service requirements. The eligible
participants who accepted the offer and retired by June 1, 2009, received an enhanced pension benefit. Pension
benefits were enhanced by adding one additional year of pension service and one additional year of age for certain
benefit calculations. Approximately 700 participants accepted the offer and retired by June 1, 2009. As a result, the
Company incurred a $21 million charge related to these special termination benefits.
During 2009, 3M Sumitomo (Japan) experienced a higher number of retirements than normal, largely due to early
retirement incentive programs, which required eligible employees who elected to leave the Company to retire by
September 2009. Participants in the Japan pension plan had the option of receiving cash lump sum payments when
exiting the plan, which a number of participants exiting the pension plan elected to receive. In accordance with ASC
715, Compensation — Retirement Benefits, settlement accounting is required when the lump sum distributions in a
year are greater than the sum of the annual service and interest costs. Due to the large number of lump sum
payment elections in 2009 the Company incurred $17 million of settlement charges.
3M was informed during the first quarter of 2009 that the general partners of WG Trading Company, in which 3M’s
benefit plans hold limited partnership interests, are the subject of a criminal investigation as well as civil proceedings
by the SEC and CFTC (Commodity Futures Trading Commission). As of December 31, 2009 these holdings
represented less than 2 percent of 3M’s fair value of total plan assets. The court appointed receiver has taken control
of WG Trading Company and other entities controlled by its general partners, and further redemptions of limited
partnership interests are restricted pending court proceedings. 3M currently believes that the resolution of these
events will not have a material adverse effect on the consolidated financial position of the Company. The Company
has insurance that it believes, based on what is currently known, is applicable to this potential loss.