10. PENSION AND POSTRETIREMENT HEALTH AND LIFE BENEFITS

There are approximately 7,200 employees and retirees covered by qualified defined benefit pension plans providing retirement benefits based on compensation and years of service, and approximately 4,000 employees, retirees and dependents covered by postretirement health and life benefit plans. DOE retained the obligation for postretirement health and life benefits for workers who retired prior to July 28, 1998. Pursuant to the supplemental executive retirement plans ("SERP") and pension restoration plan, USEC provides executive officers additional retirement benefits in excess of qualified plan limits imposed by tax law. Employees hired on or after September 1, 2008 and who are not covered by a collective bargaining agreement that provides for participation do not participate in a qualified defined benefit pension plan or the postretirement health and life benefit plan.

Changes in the projected benefit obligations and plan assets and the funded status of the plans follow (in millions):


	Defined Benefit Pension Plans						Postretirement Health and Life Benefit Plans
	Years Ended December 31,						Years Ended December 31,
Changes in Benefit Obligations:	2011			2010			2011			2010
Obligations at beginning of year	$	876.8		$	840.0		$	230.6		$	219.3
Actuarial (gains) losses, net		93.4			10.3			14.7			5.0
Service costs		16.2			19.3			4.3			5.0
Interest costs		50.3			48.9			12.2			11.9
Gross benefits paid		(50.4	)		(41.7	)		(11.5	)		(10.8	)
Less federal subsidy on benefits paid		-			-			0.7			0.2
Curtailment losses		3.2			-			1.9			-
Obligations at end of year		989.5			876.8			252.9			230.6
Changes in Plan Assets:
Fair value of plan assets at beginning of year		728.5			661.7			51.9			50.4
Actual return on plan assets		34.1			95.7			(1.8	)		5.4
USEC contributions		15.6			12.8			6.5			6.9
Benefits paid		(50.4	)		(41.7	)		(11.5	)		(10.8	)
Fair value of plan assets at end of year		727.8			728.5			45.1			51.9
(Unfunded) status at end of year		(261.7	)		(148.3	)		(207.8	)		(178.7	)

Amounts recognized in assets and liabilities:
Current liabilities	$	(3.4	)	$	(2.9	)	$	-		$	-
Noncurrent liabilities		(258.3	)		(145.4	)		(207.8	)		(178.7	)
	$	(261.7	)	$	(148.3	)	$	(207.8	)	$	(178.7	)
Amounts recognized in accumulated other comprehensive income, pre-tax:
Net actuarial loss	$	280.5		$	176.7		$	59.9		$	43.6
Prior service cost (credit)		3.2			4.8			-			0.1
	$	283.7		$	181.5		$	59.9		$	43.7

Assumptions used to determine benefit obligations at end of year:
Discount rate	4.95	%	5.77	%	4.46	%	5.32	%
Compensation increases	4.25		4.25		4.25		4.25

The discount rates above are the estimated rates at which the benefit obligations could be effectively settled on the measurement date and are based on yields of high quality fixed income investments whose cash flows match the timing and amount of expected benefit payments of the plans.

Assets and benefit obligations of the pension and postretirement health and life benefit plans are measured as of the year-end balance sheet date. The overfunded or underfunded status of the plans are recognized as either assets or liabilities in the balance sheet, and offsetting amounts are recognized in accumulated other comprehensive income (loss), a component of stockholders' equity. Net actuarial losses and prior service costs and benefits are therefore recognized in the balance sheet, and are deferred and recognized as net periodic benefit costs in the statement of income over time.

The expected return on plan assets is based on the weighted average of long-term return expectations for the composition of the plans' equity and debt securities. Expected returns on equity securities are based on historical long term returns of equity markets. Expected returns on debt securities are based on the current interest rate environment. The differences between the actual return on plan assets and expected return on plan assets are accumulated in Net Actuarial Gains and (Losses).

The current portion of underfunded plan liabilities represents the expected benefit payments for the following year in excess of the fair value of the plan assets at year-end. The current liability reflects projected benefit payments for SERP and the pension restoration plan in the following year.

Projected benefit obligations are based on actuarial assumptions including future increases in compensation. Accumulated benefit obligations are based on actuarial assumptions but do not include possible future increases in compensation. The accumulated benefit obligation for all defined benefit pension plans was $933.8 million at December 31, 2011 and $798.3 million at December 31, 2010. At December 31, 2011, none of USEC's plans had fair value of plan assets in excess of accumulated benefit obligations.

The expected cost of providing pension benefits is accrued over the years employees render service, and actuarial gains and losses are amortized over the employees' average future service life. For the postretirement health and life benefit plan, actuarial gains and losses and prior service costs or benefits are amortized over the employees' average remaining years of service from age 40 until the date of full benefit eligibility. Participants in the postretirement health and life benefit plan are generally eligible for benefits at retirement after age 50 with 10 years of continuous credited service at the time of retirement.

USEC's contracts for maintaining the Portsmouth site facilities and performing services for DOE at Portsmouth expired in 2011. The transition of Portsmouth site contract services workers from USEC to DOE's new contractor began in the first quarter of 2011 and was completed on September 30, 2011. The elimination of expected years of future service for certain employees at the Portsmouth site in the actuarial calculation resulted in a curtailment loss of $3.2 million for the defined benefit pension plan in the first quarter of 2011. A curtailment loss of $1.9 million for the postretirement health and life benefit plans was recognized in the second quarter of 2011 based on greater clarity of employee decisions regarding the plan offered by the new employer and further refinement of actuarial assumptions. Similarly, a curtailment loss of $0.4 million was recognized in 2010 related to unamortized prior service costs since it was known that a substantial number of employees would be leaving USEC as a result of the transition. The curtailment losses were included in cost of sales for the contract services segment.

Components of Net Periodic Benefit Costs and Other Amounts Recognized in Other Comprehensive Income


	Defined Benefit Pension Plans									Postretirement Health and Life Benefit Plans
(in millions)	Years Ended December 31,									Years Ended December 31,
	2011			2010			2009			2011			2010			2009
Net Periodic Benefit Costs
Service costs	$	16.2		$	19.3		$	18.7		$	4.3		$	5.0		$	4.6
Interest costs		50.3			48.9			47.7			12.2			11.9			12.6
Expected return on plan assets (gains)		(54.0	)		(48.7	)		(42.6	)		(3.7	)		(3.6	)		(3.0	)
Amortization of prior service costs (credits)		1.7			1.8			1.7			-			(8.5	)		(14.4	)
Amortization of actuarial (gains) losses, net		9.4			16.0			23.9			2.6			2.7			4.2
Curtailment losses		3.2			0.4			-			1.9			-			-
Net periodic benefit costs	$	26.8		$	37.7		$	49.4		$	17.3		$	7.5		$	4.0

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Net (gain) loss	$	115.4		$	(36.7	)	$	(48.7	)	$	20.8		$	3.2		$	(7.8	)
Prior service costs		-			-			1.3			-			-			0.2
Amortization of actuarial (gains) losses, net		(11.6	)		(16.0	)		(23.9	)		(4.6	)		(2.7	)		(4.2	)
Amortization of prior service costs (credits)		(1.6	)		(2.2	)		(1.7	)		-			8.5			14.4
Total (gain) loss recognized in other comprehensive income, pre-tax	$	102.2		$	(54.9	)	$	(73.0	)	$	16.2		$	9.0		$	2.6

Total (gain) loss recognized in net periodic benefit costs (income) and other comprehensive income, pre-tax	$	129.0		$	(17.2	)	$	(23.6	)	$	33.5		$	16.5		$	6.6


Assumptions used to determine net periodic benefit costs:
Discount rate	5.77	%	5.84	%	6.09	%	5.32	%	5.44	%	6.00	%
Expected return on plan assets	7.50		7.50		7.75		7.50		7.50		7.50
Compensation increases	4.25		4.25		4.25		4.25		4.25		4.25

The estimated actuarial net loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic pension benefit cost during 2012 are $19.7 million and $1.5 million, respectively. The estimated actuarial net loss for the postretirement health and life benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2012 is $4.5 million.

Healthcare cost trend rates used to measure postretirement health benefit obligations follow:


	December 31,
	2011			2010
Healthcare cost trend rate for the following year		8.00	%		8.00	%
Long-term rate that the healthcare cost trend rate gradually declines to		5	%		5	%
Year that the healthcare cost trend rate is expected to reach the long-term rate		2018			2018

A one-percentage-point change in the assumed healthcare cost trend rates would have an effect on the postretirement health benefit obligation and costs, as follows (in millions):


	One Percentage Point
	Increase		Decrease
Postretirement health benefit obligation	$	8.5	$	(8.0	)
Net periodic benefit costs	$	1.0	$	(0.9	)

Benefit Plan Assets

Independent advisors manage investment assets of our defined benefit pension plans and postretirement health and life benefit plans. USEC has the fiduciary responsibility for reviewing performance of the various investment advisors. The investment policy of the plans is to maximize portfolio returns within reasonable and prudent levels of risk in order to meet projected liabilities and maintain sufficient cash to make timely payments of all participant benefits. Risk is reduced by diversifying plan assets in a broad mix of asset classes and by following a strategic asset allocation approach. Asset classes and target weights are adjusted periodically to optimize the long-term portfolio risk/return tradeoff, to provide liquidity for benefit payments, and to align portfolio risk with the underlying obligations. The investment policy of the plans prohibits the use of leverage, direct investments in tangible assets, or any investment prohibited by applicable laws or regulations.

The allocation of plan assets between equity and debt securities and the target allocation range by asset category follows:


	Percentage of Plan Assets						Target Allocation
	December 31,						Range
	2011			2010			2012
Defined Benefit Pension Plans:
Equity securities		50	%		54	%		40 -	60	%
Debt securities		50			46			40 -	60
		100	%		100	%
Postretirement Health and Life Benefit Plans:
Equity securities		69	%		67	%		55 -	75	%
Debt securities		31			33			25 -	45
		100	%		100	%

Plan assets are measured at fair value. Following are the plan investments as of December 31, 2011 categorized by the fair value hierarchy levels described in Note 9 (in millions):


	Defined Benefit Pension Plans
	Level 1		Level 2		Level 3		Total
U.S. government securities	$	-	$	70.1	$	-	$	70.1
Collective trust – money market funds		-		21.4		-		21.4
Collective trust – bond funds		-		41.5		-		41.5
Collective trust – equity funds		-		362.9		-		362.9
Preferred equity		0.3		-		-		0.3
Corporate debt		-		218.1		0.9		219.0
Municipal bonds		-		7.2		-		7.2
Mortgage and asset backed securities		-		0.8		-		0.8
Fair value of investments by hierarchy level	$	0.3	$	722.0	$	0.9	$	723.2
Accrued interest receivable								4.2
Unsettled transactions receivable								0.4
Plan assets at December 31, 2011							$	727.8


	Postretirement Health and Life Benefit Plans
	Level 1		Level 2		Level 3		Total
Money market funds	$	1.2	$	-	$	-	$	1.2
Bond mutual funds		14.4		-		-		14.4
Equity mutual funds		29.5		-		-		29.5
Fair value of investments by hierarchy level	$	45.1	$	-	$	-	$	45.1

Level 1 assets include preferred equity that are valued based on observable prices in active markets. Money market funds are valued based on a Net Asset Value ("NAV") of one dollar. Mutual funds that have publicly available NAVs are also included in Level 1.

Level 2 asset fair values are based on inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets, quoted prices for identical or similar assets in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets. Level 2 of the valuation hierarchy includes investments in U.S. government agency securities, corporate and municipal debt and mortgage and asset backed securities that are valued based on estimated prices using observable, market-based inputs. Bond and equity funds in collective trusts are valued based on the NAVs provided by administrators of the funds. A collective trust fund is an investment vehicle with a NAV quoted in a private market. The NAV for each fund is based on the underlying assets owned by the fund, less any expenses accrued against the fund, divided by the number of fund shares outstanding. Investments in these funds are classified within Level 2 of the valuation hierarchy because the NAV's unit price is not quoted in an active market; however, the unit price is based on underlying investments which are traded in an active market.

Level 3 asset fair values are based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets. Level 3 of the valuation hierarchy includes investments in corporate debt that is valued based on estimated prices that include unobservable inputs such as extrapolated data, indicative quotes and proprietary models of third-party pricing sources. The table below sets forth a summary of changes in the fair value of Level 3 assets of the defined benefit pension plans for the year ended December 31, 2011 (in millions):


	Corporate Debt
Beginning balance	$	-
Transfer in to Level 3		0.9
Net investment gain (loss)		-
Ending balance	$	0.9

Benefit Plan Cash Flows

In 2012, USEC expects to fund the defined benefit pension plans with the required contribution under the Employee Retirement Income Security Act ("ERISA"), or $36.1 million. USEC expects to contribute $3.9 million to the postretirement health and life benefit plans in 2012. There is no required contribution for postretirement health and life benefit plans under ERISA. Certain contributions to the plans are recoverable under USEC's contracts with DOE. USEC receives federal subsidy payments for sponsoring prescription drug benefits that are at least actuarially equivalent to Medicare Part D.

Estimated future benefit plan payments and expected subsidies from Medicare follow (in millions):


	Defined Benefit Pension Plans		Postretirement Health and Life Benefit Plans		Expected Subsidies From Medicare
2012	$	58.1	$	15.6	$	0.5
2013		69.8		17.0		0.7
2014		58.7		18.3		0.9
2015		59.1		20.4		1.1
2016		59.5		23.5		1.4
2017 to 2021		307.8		125.4		9.7

Other Plans

USEC sponsors a 401(k) defined contribution plan for employees. Employee contributions are matched at established rates. Amounts contributed are invested in a range of investment options available to participants, and the funds are administered by an independent trustee. USEC's matching cash contributions amounted to $7.7 million in 2011, $8.4 million in 2010 and $8.2 million in 2009. Under the Executive Deferred Compensation Plan, qualified employees contribute and USEC matches contributions in excess of amounts eligible under the 401(k) plan. USEC's matching contributions amounted to $0.1 million in each of 2011, 2010 and 2009.