Note 14. Retirement Plans

Pension and Postretirement Health Care Benefits Plans

The company has a noncontributory defined benefit pension plan covering most of its U.S. employees. Plan benefits are based on years of service and highest average compensation for five consecutive years of employment. Various international subsidiaries also have defined benefit pension plans.

The company provides post-retirement health care benefits to certain U.S. employees. The plan is contributory based on years of service and family status, with retiree contributions adjusted annually. Employees outside the U.S. are generally covered under government-sponsored programs and the expense and obligation for providing benefits under company plans was not significant.

A reconciliation of changes in the benefit obligations and fair value of assets of the company’s U.S. pension and postretirement health care benefits plans is as follows:

A reconciliation of the funded status and the actuarial assumptions for the U.S. pension and postretirement plans is as follows:

For postretirement benefit measurement purposes, 6.5 percent (for pre-age 65 retirees) and 5.5 percent (for post-age 65 retirees) annual rates of increase in the per capita cost of covered health care were assumed for 2002 and will remain at that level thereafter. Health care costs which are eligible for subsidy by the company are limited to a 4 percent annual increase beginning in 1996 for most employees.

Pension and postretirement health care benefits expense for the company’s U.S. and International operations was:

The company also has noncontributory non-qualified defined benefit plans which provide for benefits to employees in excess of limits permitted under its U.S. pension plan. The recorded obligation for these plans was approximately $14 million at December 31, 2001. The annual expense for these plans was approximately $3 million in 2001, $4 million in 2000 and $3 million in 1999.

Assumed health care cost trend rates have a significant effect on the amounts reported for the company’s postretirement health care benefits plan. A one-percentage point change in the assumed health care cost trend rates would have the following effects:

Effective March 2002, the company will change its postretirement health care benefits plan to discontinue the employer subsidy for postretirement health care benefits for most active employees. These subsidized benefits will continue to be provided to certain defined active employees and all existing retirees. As a result of these actions, the company will record a curtailment gain of approximately $6 million in the first quarter of 2002.

Savings Plan

The company provides a 401(k) savings plan for substantially all U.S. employees. Employee contributions of up to 6 percent of eligible compensation are matched 50 percent by the company. The company’s contributions are invested in Ecolab common stock and amounted to $9,491,000 in 2001, $9,036,000 in 2000 and $8,475,000 in 1999.

In March 2002, the company will change its 401(k) savings plan and add an employee stock ownership plan (ESOP). Employee before-tax contributions of up to 3 percent of eligible compensation will be matched 100 percent by the company and employee before-tax contributions between 3 percent and 5 percent of eligible compensation will be matched 50 percent by the company. The match will be 100 percent vested immediately.

Henkel-Ecolab Pension Plans

Henkel-Ecolab sponsors several pension plans for its employees throughout Europe including Germany, France, Netherlands, Belgium, Turkey, Greece, the United Kingdom, Italy, Spain, Austria, Slovenia, Norway, Switzerland and Ireland.

The accrued benefit obligation of Henkel-Ecolab was recorded by the company at the date of acquisition. The benefit obligation, fair value of plan assets, funded status, and actuarial assumptions for these plans as of November 30, 2001 are as follows: