Form 10-K - Union Pacific

The ABO for all defined benefit pension plans was $3.0 billion and $2.7 billion at December 31, 2011 and
2010, respectively.
Assumptions – The weighted-average actuarial assumptions used to determine benefit obligations at
December 31:
Pension
OPEB
Percentages 2011 2010 2011 2010
Discount rate 4.54% 5.35% 4.36% 5.01%
Compensation increase 4.60% 3.36% N/A N/A
Health care cost trend rate (employees under 65) N/A N/A 6.91% 7.07%
Ultimate health care cost trend rate N/A N/A 4.50% 4.50%
Year ultimate trend rate reached N/A N/A 2028 2028
Expense
Both pension and OPEB expense are determined based upon the annual service cost of benefits (the
actuarial cost of benefits earned during a period) and the interest cost on those liabilities, less the
expected return on plan assets. The expected long-term rate of return on plan assets is applied to a
calculated value of plan assets that recognizes changes in fair value over a five-year period. This practice
is intended to reduce year-to-year volatility in pension expense, but it can have the effect of delaying the
recognition of differences between actual returns on assets and expected returns based on long-term rate
of return assumptions. Differences in actual experience in relation to assumptions are not recognized in
net income immediately, but are deferred and, if necessary, amortized as pension or OPEB expense.
The components of our net periodic pension and OPEB cost/(benefit) were as follows for the years ended
December 31:
Pension
OPEB
Millions 2011 2010 2009 2011 2010 2009
Net Periodic Benefit Cost:
Service cost $ 40 $ 34 $ 38 $ 2 $ 2 $ 2
Interest cost 145 143 140 15 16 18
Expected return on plan assets (180) (178) (159) - - -
Amortization of:
Prior service cost/(credit) 2 3 5 (34) (45) (44)
Actuarial loss 71 49 30 11 13 12
Net periodic benefit cost/(benefit) $ 78 $ 51 $ 54 $ (6) $ (14) $ (12)
Assumptions – The weighted-average actuarial assumptions used to determine expense were as follows
for the years ended December 31:
Pension
OPEB
Percentages 2011 2010 2009 2011 2010 2009
Discount rate 5.35% 5.90% 6.25% 5.01% 5.55% 6.25%
Expected return on plan assets 7.50% 8.00% 8.00% N/A N/A N/A
Compensation increase 4.48% 3.45% 3.50% N/A N/A N/A
Health care cost trend rate (employees under 65) N/A N/A N/A 7.07% 7.24% 7.50%
Health care cost trend rate (employees over 65) N/A N/A N/A N/A N/A 9.10%
Ultimate health care cost trend rate N/A N/A N/A 4.50% 4.50% 4.50%
Year ultimate trend reached N/A N/A N/A 2028 2028 2028
The discount rate was based on a yield curve of high quality corporate bonds with cash flows matching
our plans’ expected benefit payments. The expected return on plan assets is based on our asset
allocation mix and our historical return, taking into account current and expected market conditions. The
actual return on pension plan assets, net of fees, was approximately 2% in 2011, 14% in 2010, and 23%
in 2009.
64