International Paper 2012 Annual Report Download - page 106

The components of the $1.2 billion and $24 million
increase related to U.S. plans and non-U.S. plans,
respectively, in the amounts recognized in OCI dur-
ing 2012 consisted of:
In millions
U.S.
Plans
Non-
U.S.
Plans
Current year actuarial (gain) loss $1,494 $ 24
Amortization of actuarial loss (307) —
Current year prior service cost 20 —
Amortization of prior service cost (32) —
Settlements ——
$1,175 $ 24
The accumulated benefit obligation at December 31,
2012 and 2011 was $13.8 billion and $10.3 billion,
respectively, for our U.S. defined benefit plans and
$206 million and $171 million, respectively, at
December 31, 2012 and 2011 for our non-U.S.
defined benefit plans.
The following table summarizes information for
pension plans with an accumulated benefit obliga-
tion in excess of plan assets at December 31, 2012
and 2011:
2012 2011
In millions
U.S.
Plans Non-U.S. Plans
U.S.
Plans
Non-U.S.
Plans
Projected benefit
obligation $14,201 $200 $10,555 $40
Accumulated benefit
obligation 13,772 188 10,275 33
Fair value of plan assets 10,111 143 8,185 2
ASC 715, “Compensation – Retirement Benefits”
provides for delayed recognition of actuarial gains
and losses, including amounts arising from changes
in the estimated projected plan benefit obligation
due to changes in the assumed discount rate, differ-
ences between the actual and expected return on
plan assets and other assumption changes. These
net gains and losses are recognized prospectively
over a period that approximates the average remain-
ing service period of active employees expected to
receive benefits under the plans (approximately 9
years as of December 31, 2012 for the U.S. plans) to
the extent that they are not offset by gains in sub-
sequent years. The estimated net loss and prior serv-
ice cost that will be amortized from AOCI into net
periodic pension cost for the U.S. plans during the
next fiscal year are expected to be $490 million and
$34 million, respectively.
NET PERIODIC PENSION EXPENSE
Service cost is the actuarial present value of benefits
attributed by the plans’ benefit formula to services
rendered by employees during the year. Interest cost
represents the increase in the projected benefit obli-
gation, which is a discounted amount, due to the
passage of time. The expected return on plan assets
reflects the computed amount of current-year earn-
ings from the investment of plan assets using an
estimated long-term rate of return.
Net periodic pension expense for qualified and
nonqualified U.S. defined benefit plans comprised
the following:
2012 2011 2010
In millions
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
U.S.
Plans
Non-
U.S.
Plans
Service cost $ 152 $ 3 $ 121 $ 2 $ 116 $ 3
Interest cost 604 12 544 12 541 12
Expected return
on plan assets (753) (12) (713) (12) (631) (11)
Actuarial loss /
(gain) 307 — 212 — 174 —
Amortization of
prior service
cost 32 — 31 — 31 —
Curtailment gain —— —— — (2)
Settlement gain —— —(1)—(2)
Net periodic
pension
expense $ 342 $ 3 195 $ 1 $ 231 $ —
The increase in 2012 pension expense reflects a
decrease in the discount rate from 5.60% in 2011 to
5.10% in 2012, a lower expected return on assets
assumption of 8.00% in 2012 compared with 8.25%
in 2011 and the acquisition of Temple-Inland.
ASSUMPTIONS
International Paper evaluates its actuarial assump-
tions annually as of December 31 (the measurement
date) and considers changes in these long-term fac-
tors based upon market conditions and the require-
ments for employers’ accounting for pensions. These
assumptions are used to calculate benefit obligations
as of December 31 of the current year and pension
expense to be recorded in the following year (i.e., the
discount rate used to determine the benefit obliga-
tion as of December 31, 2012 was also the discount
rate used to determine net pension expense for the
2013 year).
Major actuarial assumptions used in determining the
benefit obligations and net periodic pension cost for
our defined benefit plans are presented in the
following table:
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