United Parcel Service, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS (Tables)

COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS (Tables)

12 Months Ended

Dec. 31, 2011

Net Periodic Benefit Cost for Pension and Postretirement Benefit Plans

Information about net periodic benefit cost for the company-sponsored pension and postretirement benefit plans is as follows (in millions):


	U.S. Pension Benefits									U.S. Postretirement Medical Benefits									International Pension Benefits
	2011			2010			2009			2011			2010			2009			2011			2010			2009
Net Periodic Cost:
Service cost	$	870		$	723		$	689		$	89		$	86		$	85		$	34		$	24		$	17
Interest cost		1,309			1,199			1,130			207			214			211			39			34			28
Expected return on assets		(1,835	)		(1,381	)		(1,151	)		(16	)		(22	)		(27	)		(43	)		(36	)		(26	)
Amortization of:
Transition obligation		—			—			4			—			—			—			—			—			—
Prior service cost		171			172			178			7			4			6			1			1			1
Actuarial (gain) loss		736			70			—			—			—			—			91			42			16
Other		—			—			3			—			—			—			—			6			1

Net periodic benefit cost	$	1,251		$	783		$	853		$	287		$	282		$	275		$	122		$	71		$	37

Effects of One Percent Change in Assumed Health Care Cost Trend

A one-percent change in assumed health care cost trend rates would have had the following effects on 2011 results (in millions):


	1% Increase		1% Decrease
Effect on total of service cost and interest cost	$	6	$	(6	)
Effect on postretirement benefit obligation	$	61	$	(65	)

Reconciliation of the Changes in the Plans' Benefit Obligations and Fair Value of Plan Assets

The following table provides a reconciliation of the changes in the plans’ benefit obligations and fair value of plan assets as of the respective measurement dates in each year (in millions).


	U.S. Pension Benefits						U.S. Postretirement Medical Benefits						International Pension Benefits
	2011			2010			2011			2010			2011			2010
Benefit Obligations:
Projected benefit obligation at beginning of year	$	21,342		$	17,763		$	3,597		$	3,336		$	680		$	575
Service cost		870			723			89			86			34			24
Interest cost		1,309			1,199			207			214			39			34
Gross benefits paid		(657	)		(574	)		(219	)		(207	)		(15	)		(13	)
Plan participants’ contributions		—			—			16			17			1			1
Plan amendments		3			(7	)		(24	)		8			7			—
Actuarial (gain)/loss		1,519			2,238			170			142			99			58
Foreign currency exchange rate changes		—			—			—			—			(4	)		(4	)
Curtailments and settlements		—			—			—			—			—			(1	)
Other		—			—			—			1			—			6

Projected benefit obligation at end of year	$	24,386		$	21,342		$	3,836		$	3,597		$	841		$	680


	U.S. Pension Benefits						U.S. Postretirement Medical Benefits						International Pension Benefits
	2011			2010			2011			2010			2011			2010
Fair Value of Plan Assets:
Fair value of plan assets at beginning of year	$	20,092		$	15,351		$	233		$	298		$	561		$	481
Actual return on plan assets		1,956			2,215			9			30			10			48
Employer contributions		1,272			3,100			108			95			56			45
Plan participants’ contributions		—			—			16			17			1			1
Gross benefits paid		(657	)		(574	)		(219	)		(207	)		(15	)		(13	)
Foreign currency exchange rate changes		—			—			—			—			—			—
Curtailments and settlements		—			—			—			—			—			(1	)
Other		—			—			27			—			—			—

Fair value of plan assets at end of year	$	22,663		$	20,092		$	174		$	233		$	613		$	561

Funded Status as of the Respective Measurement Dates in Each Year and the Amounts Recognized in Balance Sheet

The following table discloses the funded status of our plans and the amounts recognized in our balance sheet as of December 31 (in millions):


	U.S. Pension Benefits						U.S. Postretirement Medical Benefits						International Pension Benefits
	2011			2010			2011			2010			2011			2010
Funded Status:
Fair value of plan assets	$	22,663		$	20,092		$	174		$	233		$	613		$	561
Benefit obligation		(24,386	)		(21,342	)		(3,836	)		(3,597	)		(841	)		(680	)

Funded status recognized at December 31	$	(1,723	)	$	(1,250	)	$	(3,662	)	$	(3,364	)	$	(228	)	$	(119	)

Funded Status Amounts Recognized in our Balance Sheet:
Other non-current assets	$	—		$	42		$	—		$	—		$	1		$	1
Other current liabilities		(13	)		(11	)		(93	)		(99	)		(3	)		(3	)
Pension and postretirement benefit obligations		(1,710	)		(1,281	)		(3,569	)		(3,265	)		(226	)		(117	)

Net liability at December 31	$	(1,723	)	$	(1,250	)	$	(3,662	)	$	(3,364	)	$	(228	)	$	(119	)

Amounts Recognized in AOCI:
Unrecognized net prior service cost	$	(1,492	)	$	(1,660	)	$	(82	)	$	(113	)	$	(14	)	$	(8	)
Unrecognized net actuarial loss		(2,439	)		(1,777	)		(307	)		(157	)		(52	)		(22	)

Gross unrecognized cost at December 31		(3,931	)		(3,437	)		(389	)		(270	)		(66	)		(30	)
Deferred tax asset at December 31		1,479			1,292			146			102			16			3

Net unrecognized cost at December 31	$	(2,452	)	$	(2,145	)	$	(243	)	$	(168	)	$	(50	)	$	(27	)

Projected Benefit Obligation, Accumulated Benefit Obligation, and Fair Value of Plan Assets for Pension Plans With an Accumulated Benefit Obligation in Excess of Plan Assets

At December 31, 2011 and 2010, the projected benefit obligation, the accumulated benefit obligation, and the fair value of plan assets for pension plans with benefit obligations in excess of plan assets were as follows (in millions):


	Projected Benefit Obligation Exceeds the Fair Value of Plan Assets				Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets
	2011		2010		2011		2010
U.S. Pension Benefits
Projected benefit obligation	$	24,386	$	3,227	$	7,499	$	3,227
Accumulated benefit obligation		22,574		3,195		7,395		3,195
Fair value of plan assets		22,663		1,934		6,646		1,934

International Pension Benefits
Projected benefit obligation	$	814	$	662	$	499	$	362
Accumulated benefit obligation		714		323		448		323
Fair value of plan assets		594		543		296		257

Amounts in AOCI Expected to be Amortized and Recognized as a Component of Net Periodic Benefit Cost

The estimated amounts of prior service cost in AOCI expected to be amortized and recognized as a component of net periodic benefit cost in 2012 are as follows (in millions):


	U.S. Pension Benefits		U.S. Postretirement Medical Benefits		International Pension Benefits
Prior service cost / (benefit)	$	173	$	5	$	2

Fair Values of U.S. Pension and Postretirement Benefit Plan Assets by Asset Category as Well as the Percentage That Each Category Comprises of Total Plan Assets and the Respective Target Allocations

The fair values of U.S. pension and postretirement benefit plan assets by asset category as of December 31, 2011 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations.


	Level 1		Level 2		Level 3		Total Assets		Percentage of Plan Assets - 2011			Target Allocation 2011
Asset Category:
Cash and cash equivalents	$	74	$	1	$	—	$	75		0.3	%		0-5	%
Equity Securities:
U.S. Large Cap		2,264		2,460		—		4,724
U.S. Small Cap		706		27		—		733
Global Equity		1,115		12		—		1,127
International Core		592		926		—		1,518
Emerging Markets		389		264		—		653
International Small Cap		362		165		—		527

Total Equity Securities		5,428		3,854		—		9,282		40.7			40-60

Fixed Income Securities:
U.S. Government Securities		3,412		1,217		—		4,629
Corporate Bonds		9		3,462		80		3,551
Municipal Bonds		—		104		—		104

Total Fixed Income Securities		3,421		4,783		80		8,284		36.3			20-40

Other Investments:
Hedge Funds		—		—		2,743		2,743		12.0			5-15
Real Estate		151		—		948		1,099		4.8			1-10
Private Equity		—		—		1,354		1,354		5.9			1-10

Total U.S. Plan Assets	$	9,074	$	8,638	$	5,125	$	22,837		100.0	%

The fair values of U.S. pension and postretirement benefit plan assets by asset category as of December 31, 2010 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations.


	Level 1		Level 2		Level 3		Total Assets		Percentage of Plan Assets - 2010			Target Allocation 2010
Asset Category:
Cash and cash equivalents	$	—	$	579	$	—	$	579		2.9	%		0-5	%
Equity Securities:
U.S. Large Cap		4,897		—		—		4,897
U.S. Small Cap		874		—		—		874
International Core		1,219		920		—		2,139
Emerging Markets		528		281		—		809
International Small Cap		117		196		—		313

Total Equity Securities		7,635		1,397		—		9,032		44.4			40-60

Fixed Income Securities:
U.S. Government Securities		3,502		313		—		3,815
Corporate Bonds		608		1,694		193		2,495
Mortgage-Backed Securities		—		50		—		50

Total Fixed Income Securities		4,110		2,057		193		6,360		31.3			20-40

Other Investments:
Hedge Funds		—		—		2,023		2,023		10.0			5-15
Real Estate		98		135		789		1,022		5.0			1-10
Private Equity		—		—		1,309		1,309		6.4			1-10

Total U.S. Plan Assets	$	11,843	$	4,168	$	4,314	$	20,325		100.0	%

Fair Value Measurement of Plan Assets Using Significant Unobservable Inputs (Level 3)

The following tables presents the changes in the Level 3 instruments measured on a recurring basis for the years ended December 31, 2011 and 2010 (in millions):


	Corporate Bonds			Hedge Funds			Real Estate			Private Equity			Total
Balance on January 1, 2010	$	201		$	1,284		$	550		$	1,145		$	3,180
Actual Return on Assets:
Assets Held at End of Year		(5	)		129			100			177			401
Assets Sold During the Year		13			10			—			1			24
Purchases		41			711			152			149			1,053
Sales		(57	)		(111	)		(13	)		(163	)		(344	)
Settlements		—			—			—			—			—
Transfers Into (Out of) Level 3		—			—			—			—			—

Balance on December 31, 2010	$	193		$	2,023		$	789		$	1,309		$	4,314

Actual Return on Assets:
Assets Held at End of Year		(14	)		122			144			145			397
Assets Sold During the Year		3			22			5			—			30
Purchases		57			757			150			164			1,128
Sales		(159	)		(181	)		(140	)		(264	)		(744	)
Settlements		—			—			—			—			—
Transfers Into (Out of) Level 3		—			—			—			—			—

Balance on December 31, 2011	$	80		$	2,743		$	948		$	1,354		$	5,125

Expected Cash Flows for Pension and Postretirement Benefit Plans

Information about expected cash flows for the pension and postretirement benefit plans is as follows (in millions):


	U.S. Pension Benefits		U.S. Postretirement Medical Benefits		International Pension Benefits
Employer Contributions:
2012 (expected) to plan trusts	$	355	$	371	$	53
2012 (expected) to plan participants		13		101		3

Expected Benefit Payments:
2012	$	708	$	233	$	18
2013		789		253		17
2014		873		230		19
2015		966		246		21
2016		1,065		260		23
2017 - 2021		7,112		1,466		153

Net Periodic Benefit Cost

Weighted Average Actuarial Assumptions Used Disclosure

The table below provides the weighted-average actuarial assumptions used to determine the net periodic benefit cost.


	U.S. Pension Benefits									U.S. Postretirement Medical Benefits									International Pension Benefits
	2011			2010			2009			2011			2010			2009			2011			2010			2009
Discount rate		5.98	%		6.58	%		6.75	%		5.77	%		6.43	%		6.66	%		5.36	%		5.84	%		6.17	%
Rate of compensation increase		4.50	%		4.50	%		4.50	%		N/A			N/A			N/A			3.57	%		3.62	%		3.65	%
Expected return on assets		8.75	%		8.75	%		8.96	%		8.75	%		8.75	%		9.00	%		7.31	%		7.25	%		7.09	%

Benefit Obligations

Weighted Average Actuarial Assumptions Used Disclosure

The table below provides the weighted-average actuarial assumptions used to determine the benefit obligations of our plans.


	U.S. Pension Benefits						U.S. Postretirement Medical Benefits						International Pension Benefits
	2011			2010			2011			2010			2011			2010
Discount rate		5.64	%		5.98	%		5.47	%		5.77	%		4.63	%		5.36	%
Rate of compensation increase		4.50	%		4.50	%		N/A			N/A			3.58	%		3.57	%