CUMMINS INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. PENSION AND OTHER POSTRETIREMENT BENEFITS(Continued)

   In addition to the pension and other postretirement benefit plans in the above table, we also maintain less significant defined benefit pension plans in twelve other countries outside the United States that comprise less than three percent of our pension plan assets and obligations. Additional postretirement plans are maintained in three other countries outside the United States and also comprise less than one percent of our postretirement obligations. These plans are reflected in ‘‘Other liabilities and deferred revenue’’ on our Consolidated Balance Sheets. In the table above, ‘‘Other’’ primarily represents the transfer of several insignificant pension plans to ‘‘Other liabilities and deferred revenue.’’

   The following table presents information regarding underfunded pension plans that are included in the preceding table:

Components of Net Periodic Pension Cost and Other Comprehensive Income

   The following table presents the net periodic pension and other postretirement benefits cost under our plans:

   Other changes in plan assets and benefit obligations recognized in other comprehensive income in 2007 are as follows:

   The amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost (credit) during the next fiscal year are as follows:

Assumptions

   The table below presents various assumptions used in determining the benefit obligation for each year and reflects weighted-average percentages for the various plans (Non-U.S. is primarily the United Kingdom):

   The table below presents various assumptions used in determining the net periodic cost and reflects weighted-average percentages for the various plans (Non-U.S. is primarily the United Kingdom):

   Our consolidated other postretirement benefit obligation is determined by application of the terms of health care and life insurance plans, together with relevant actuarial assumptions and health care cost trend rates. For measurement purposes, a 9 percent annual rate of increase in the per capita cost of covered health care benefits was assumed in 2008. The rate was assumed to decrease on a linear basis to 5 percent through 2014 and remain at that level thereafter. An increase in the health care cost trends of 1 percent would increase our APBO by $21 million as of December 31, 2007 and the net periodic postretirement benefit expense for 2007 by $1 million. A decrease in the health care cost trends of 1 percent would decrease our APBO by $19 million as of December 31, 2007 and the net periodic postretirement benefit expense for 2007 by $1 million.

   The Medicare Prescription Drug Improvement and Modernization Act of 2003 was reflected in the APBO beginning December 31, 2004, assuming we will continue to provide a prescription drug benefit to retirees that is at least actuarially equivalent to Medicare Part D and we will receive the federal subsidy.

   The net periodic postretirement benefit cost was reduced by approximately $4 million each year for 2007, 2006 and 2005 related to the recognition of the federal subsidy under Medicare Part D.

   The plan assets for our defined benefit pension plans do not include any of our common stock. The table below presents our pension plan asset allocation at December 31, 2007, 2006 and target allocation for 2008:

Estimated Future Contributions and Benefit Payments

   We plan to contribute approximately $95 million to $105 million to our defined benefit pension plans in 2008. The table below presents expected future benefit payments under our pension plans:

Other Plans

   We also sponsor defined contribution plans for certain hourly and salaried employees. During 2007, we incurred expenses related to our contributions to these plans of $25 million, while 2006 and 2005 expenses were both $27 million.

The accompanying notes are an integral part of the Consolidated Financial Statements.