12. Retirement Benefit Plans for Employees The Company has a defined benefit plan and a defined contribution plan. Domestic consolidated subsidiaries have defined benefit plans, tax-qualified pension plans and lump-sum payment plans covering substantially all employees who are entitled to lump-sum or annuity payments, the amounts of which are determined by reference to their basic rates of pay, length of service and the conditions under which termination occurs. The following table sets forth the funded and accrued status of the plans, and the amounts recognized in the consolidated balance sheets as of December 31, 2010 and 2009 related to the Company’s and the consolidated subsidiaries’ defined benefit plans: Millions of yen Thousands of U.S. dollars 2010 2009 2010 Projected benefit obligation................. \(12,356) \(15,895) $(151,633) Plan assets at fair value............................. 10,704 13,082 131,357 Funded status................................................. (1,652) (2,812) (20,275) Unrecognized actuarial gain................. 3,305 4,028 40,565 Unrecognized prior service cost......... (205) (177) (2,527) Prepaid pension cost................................. 1,987 1,607 24,389 Accrued retirement benefits................. \ (540) \ (568) $ (6,627) The components of net periodic retirement benefit expenses for the years ended December 31, 2010 and 2009 were outlined as follows: Millions of yen Thousands of U.S. dollars 2010 2009 2010 Service cost...................................................... \ 641 \ 730 $ 7,876 Interest cost..................................................... 251 306 3,091 Expected return on plan assets........... (161) (166) (1,979) Amortization of actuarial loss............... 411 441 5,055 Amortization of unrecognized prior service cost........................................ (20) (25) (253) Other (*).............................................................. 108 . 1,333 Total...................................................................... \1,232 \1,286 $15,123 (*) Contribution to defined contribution plan The assumptions used in accounting for the defined benefit plans for the years ended December 31, 2010 were as follows: 2010 2009 Discount rate........................................................................ Mainly 1.5% Mainly 2.0% Expected rate of return on plan assets................ Mainly 2.0% Mainly 2.0% 13. Income Taxes The Company and its domestic consolidated subsidiaries are subject to a number of taxes based on earnings, i.e. corporation tax, inhabitants’ taxes and enterprise tax, which, in the aggregate, resulted in a statutory tax rate of approximately 40.5 percent for the years ended December 31, 2010 and 2009. The effective tax rate reflected in the consolidated statements of income for the year ended December 31, 2010 differs from the statutory tax rate for the following reasons: 2010 Statutory tax rate...................................................................................................... 40.5% Effect of: Permanent difference . entertainment expenses........................ 0.5 Permanent difference . dividend income......................................... (0.3) Inhabitants’ per capita taxes....................................................................... 0.4 Amortization of goodwill.............................................................................. 0.7 Equity in earnings of affiliates.................................................................... (0.8) Valuation allowance......................................................................................... (13.2) Different tax rates applied to income of foreign consolidated subsidiaries......................................................... (4.9) Tax deduction of experiment and research expenses............... (1.5) Other, net................................................................................................................ 0.8 Effective tax rate........................................................................................................ 22.4% Reconciliation for the year ended December 31, 2009 is not presented herein as the difference between the statutory tax rate and the effective tax rate was less than 5 percent of the statutory tax rate. Significant components of the deferred tax assets and liabilities as of December 31, 2010 and 2009 were as follows: Millions of yen Thousands of U.S. dollars 2010 2009 2010 Deferred tax assets: Loss on valuation of investment in securities.................. \ 943 \ 957 $ 11,576 Elimination of unrealized profit..... 1,509 1,437 18,519 Accrued retirement benefits........... 1,206 1,413 14,810 Accrued enterprise tax....................... 403 147 4,951 Allowance for doubtful receivables.... 2,357 2,416 28,931 Accrued bonuses................................... 22 57 275 Net operating loss carry forwards.... 714 1,654 8,766 Impairment loss on property, plant and equipment........................ 2,123 1,470 26,063 Nondeductible loss on discontinued operations......... 21 198 268 Other.............................................................. 1,253 1,226 15,376 Gross deferred tax assets................... 10,556 10,978 129,539 Valuation allowance............................. (3,101) (6,067) (38,056) Total deferred tax assets.......................... 7,454 4,911 91,482 Deferred tax liabilities: Reserve under Special Taxation Measures Law........................................ (398) (419) (4,889) Undistributed earnings of overseas partnerships....................... (467) (509) (5,743) Gain on contribution of securities to retirement benefit trust............... (754) (795) (9,253) Unrealized holding gain on securities............................................ (809) (758) (9,930) Other.............................................................. (21) (6) (262) Total deferred tax liabilities.................... (2,451) (2,488) (30,079) Net deferred tax assets.............................. \ 5,003 \ 2,422 $ 61,403 Toagosei Co., Ltd. 37