Notes to Consolidated Financial Statements
Note 4 — Post-Employment Benefits
Retirement plans consist of defined benefit, defined contribution and medical and dental plans. Information for Abbott’s major defined benefit plans and post-employment medical and dental benefit plans is as follows:
(dollars in millions) |
Defined Benefit Plans |
Medical and Dental Plans |
||||
2011 |
2010 |
2009 |
2011 |
2010 |
2009 |
|
Projected benefit obligations, January 1 |
$8,606 |
$6,852 |
$5,541 |
$1,673 |
$1,705 |
$1,443 |
Service cost — benefits earned during the year |
332 |
288 |
221 |
55 |
60 |
45 |
Interest cost on projected benefit obligations |
446 |
421 |
368 |
88 |
101 |
94 |
Losses (gains), primarily changes in discount rates, plan design changes, law changes and differences between actual and estimated health care costs |
608 |
565 |
747 |
(104) |
(153) |
175 |
Benefits paid |
(294) |
(289) |
(251) |
(62) |
(74) |
(58) |
Acquisition of Solvay’s pharmaceuticals business |
— |
1,045 |
— |
— |
28 |
— |
Settlement |
(776) |
— |
— |
— |
— |
— |
Other, primarily foreign currency translation |
41 |
(276) |
226 |
7 |
6 |
6 |
Projected benefit obligations, December 31 |
$8,963 |
$8,606 |
$6,852 |
$1,657 |
$1,673 |
$1,705 |
Plans’ assets at fair value, January 1 |
$7,451 |
$5,812 |
$3,997 |
$396 |
$341 |
$266 |
Actual return on plans’ assets |
29 |
782 |
1,096 |
5 |
55 |
62 |
Company contributions |
394 |
525 |
862 |
40 |
74 |
71 |
Benefits paid |
(294) |
(289) |
(251) |
(52) |
(74) |
(58) |
Acquisition of Solvay’s pharmaceuticals business |
— |
763 |
— |
— |
— |
— |
Settlement |
(776) |
— |
— |
— |
— |
— |
Other, primarily foreign currency translation |
157 |
(142) |
108 |
— |
— |
— |
Plans’ assets at fair value, December 31 |
$6,961 |
$7,451 |
$5,812 |
$389 |
$396 |
$341 |
Projected benefit obligations greater than plans’ assets, December 31 |
$(2,002) |
$(1,155) |
$(1,040) |
$(1,268) |
$(1,277) |
$(1,364) |
Long-term assets |
$66 |
$27 |
$21 |
$— |
$— |
$— |
Short-term liabilities |
(35) |
(34) |
(31) |
— |
— |
— |
Long-term liabilities |
(2,033) |
(1,148) |
(1,030) |
(1,268) |
(1,277) |
(1,364) |
Net liability |
$(2,002) |
$(1,155) |
$(1,040) |
$(1,268) |
$(1,277) |
$(1,364) |
Amounts Recognized in Accumulated Other Comprehensive Income (loss): |
||||||
Actuarial losses, net |
$3,822 |
$2,879 |
$2,699 |
$601 |
$713 |
$685 |
Prior service cost (credits) |
25 |
30 |
34 |
(364) |
(406) |
(184) |
Total |
$3,847 |
$2,909 |
$2,733 |
$237 |
$307 |
$501 |
The projected benefit obligations for non-U.S. defined benefit plans was $2.3 billion, $3.0 billion and $2.0 billion at December 31, 2011, 2010 and 2009, respectively. The accumulated benefit obligations for all defined benefit plans was $7.7 billion, $7.5 billion and $5.8 billion at December 31, 2011, 2010 and 2009, respectively. For plans where the accumulated benefit obligations exceeded plan assets at December 31, 2011, 2010 and 2009, the aggregate accumulated benefit obligations were $6.7 billion, $2.0 billion and $1.5 billion, respectively; the projected benefit obligations were $7.9 billion, $2.2 billion and $1.8 billion, respectively; and the aggregate plan assets were $5.8 billion, $1.1 billion and $780 million, respectively.
(dollars in millions) |
Defined Benefit Plans |
Medical and Dental Plans |
||||
2011 |
2010 |
2009 |
2011 |
2010 |
2009 |
|
Service cost — benefits earned during the year |
$332 |
$288 |
$221 |
$55 |
$60 |
$45 |
Interest cost on projected benefit obligations |
446 |
421 |
368 |
88 |
101 |
94 |
Expected return on plans’ assets |
(608) |
(571) |
(506) |
(34) |
(31) |
(24) |
Settlement |
40 |
— |
— |
— |
— |
— |
Amortization of actuarial losses |
163 |
136 |
52 |
38 |
38 |
30 |
Amortization of prior service cost (credits) |
4 |
4 |
4 |
(42) |
(22) |
(22) |
Total cost |
$377 |
$278 |
$139 |
$105 |
$146 |
$123 |
Other comprehensive income (loss) for 2011 includes amortization of actuarial losses and prior service cost of $163 million and $4 million, respectively, and net actuarial losses of $1.1 billion for defined benefit plans and amortization of actuarial losses and prior service credits of $38 million and $42 million, respectively, and net actuarial gains of $66 million for medical and dental plans. Other comprehensive income (loss) for 2010 includes amortization of actuarial losses and prior service cost of $136 million and $4 million, respectively, and net actuarial losses of $305 million for defined benefit plans and amortization of actuarial losses and prior service credits of $38 million and $22 million, respectively, and net actuarial gains of $177 million for medical and dental plans. Other comprehensive income (loss) for 2009 includes amortization of actuarial losses and prior service cost of $52 million and $4 million, respectively, and net actuarial losses of $197 million for defined benefit plans and amortization of actuarial losses and prior service credits of $30 million and $22 million, respectively, and net actuarial losses of $128 million for medical and dental plans. The pretax amount of actuarial losses and prior service cost (credits) included in Accumulated other comprehensive income (loss) at December 31, 2011 that is expected to be recognized in the net periodic benefit cost in 2012 is $253 million and $4 million, respectively, for defined benefit pension plans and $35 million and $(42) million, respectively, for medical and dental plans.
The weighted average assumptions used to determine benefit obligations for defined benefit plans and medical and dental plans are as follows:
2011 |
2010 |
2009 |
|
Discount rate |
5.0% |
5.4% |
5.8% |
Expected aggregate average long-term change in compensation |
5.3% |
5.1% |
5.2% |
The weighted average assumptions used to determine the net cost for defined benefit plans and medical and dental plans are as follows:
2011 |
2010 |
2009 |
|
Discount rate |
5.4% |
5.8% |
6.7% |
Expected return on plan assets |
7.8% |
7.8% |
8.2% |
Expected aggregate average long-term change in compensation |
5.1% |
4.9% |
4.3% |
The assumed health care cost trend rates for medical and dental plans at December 31 were as follows:
2011 |
2010 |
2009 |
|
Health care cost trend rate assumed for the next year |
7 % |
7 % |
7 % |
Rate that the cost trend rate gradually declines to |
5 % |
5 % |
5 % |
Year that rate reaches the assumed ultimate rate |
2019 |
2016 |
2016 |
The discount rates used to measure liabilities were determined based on high-quality fixed income securities that match the duration of the expected retiree benefits. The health care cost trend rates represent Abbott’s expected annual rates of change in the cost of health care benefits and is a forward projection of health care costs as of the measurement date. A one-percentage point increase/(decrease) in the assumed health care cost trend rate would increase/(decrease) the accumulated post-employment benefit obligations as of December 31, 2011, by $231 million/$(188) million, and the total of the service and interest cost components of net post-employment health care cost for the year then ended by approximately $25 million/$(20) million.
The following table summarizes the bases used to measure defined benefit plans’ assets at fair value:
(dollars in millions) |
Basis of Fair Value Measurement |
|||
| December 31, 2011: | Outstanding Balances |
Quoted Prices In Active Markets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
Equities: |
||||
U.S. large cap (a) |
$1,470 |
$1,449 |
$21 |
$— |
U.S. mid cap (b) |
423 |
152 |
271 |
— |
International (c) |
1,217 |
485 |
732 |
— |
Fixed income securities: |
||||
U.S. government securities (d) |
857 |
370 |
487 |
— |
Corporate debt instruments (e) |
527 |
223 |
304 |
— |
Non-U.S. government securities (f) |
450 |
228 |
222 |
— |
Other (g) |
45 |
21 |
24 |
— |
Absolute return funds (h) |
1,709 |
334 |
751 |
624 |
Commodities (i) |
183 |
8 |
165 |
10 |
Other (j) |
80 |
78 |
— |
2 |
$6,961 |
$3,348 |
$2,977 |
$636 |
|
December 31, 2010: |
||||
Equities: |
||||
U.S. large cap (a) |
$1,523 |
$1,499 |
$24 |
$— |
U.S. mid cap (b) |
437 |
162 |
275 |
— |
International (c) |
1,552 |
758 |
794 |
— |
Fixed income securities: |
||||
U.S. government securities (d) |
793 |
355 |
438 |
— |
Corporate debt instruments (e) |
524 |
237 |
286 |
1 |
Non-U.S. government securities (f) |
758 |
172 |
586 |
— |
Other (g) |
40 |
20 |
19 |
1 |
Absolute return funds (h) |
1,426 |
258 |
582 |
586 |
Commodities (i) |
242 |
5 |
234 |
3 |
Other (j) |
156 |
156 |
— |
— |
$7,451 |
$3,622 |
$3,238 |
$591 |
|
December 31, 2009: |
||||
Equities: |
||||
U.S. large cap (a) |
$1,267 |
$1,247 |
$20 |
$— |
U.S. mid cap (b) |
339 |
105 |
234 |
— |
International (c) |
1,186 |
455 |
731 |
— |
Fixed income securities: |
||||
U.S. government securities (d) |
753 |
321 |
430 |
2 |
Corporate debt instruments (e) |
478 |
203 |
272 |
3 |
Non-U.S. government securities (f) |
346 |
163 |
183 |
— |
Other (g) |
46 |
21 |
23 |
2 |
Absolute return funds (h) |
1,296 |
237 |
536 |
523 |
Other (j) |
101 |
74 |
27 |
— |
$5,812 |
$2,826 |
$2,456 |
$530 |
|
|
(a) A mix of index funds that track the S&P 500 (45 percent in 2011 and 2010 and 40 percent in 2009) and separate actively managed equity accounts that are benchmarked to the Russell 1000 (55 percent in 2011 and 2010 and 60 percent in 2009).
(b) A mix of index funds (75 percent) and separate actively managed equity accounts (25 percent) that track or are benchmarked to the S&P 400 midcap index.
(c) Primarily separate actively managed pooled investment accounts that are benchmarked to the MSCI and MSCI emerging market indices.
(d) Index funds not actively managed (45 percent in 2011 and 2010 and 75 percent in 2009) and separate actively managed accounts (55 percent in 2011 and 2010 and 25 percent in 2009).
(e) Index funds not actively managed (40 percent in 2011, 15 percent in 2010 and 75 percent in 2009) and separate actively managed accounts (60 percent in 2011, 85 percent in 2010 and 25 percent in 2009).
(f) Primarily United Kingdom, Japan and Irish government-issued bonds.
(g) Primarily mortgage backed securities.
(h) Primarily funds invested by managers that have a global mandate with the flexibility to allocate capital broadly across a wide range of asset classes and strategies including, but not limited to equities, fixed income, commodities, interest rate futures, currencies and other securities to outperform an agreed upon benchmark with specific return and volatility targets.
(i) Primarily investments in liquid commodity future contracts.
(j) Primarily cash and cash equivalents.
|
||||
Equities that are valued using quoted prices are valued at the published market prices. Equities in a common collective trust or a registered investment company that are valued using significant other observable inputs are valued at the net asset value (NAV) provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund minus its liabilities. Fixed income securities that are valued using significant other observable inputs are valued at prices obtained from independent financial service industry-recognized vendors. Absolute return funds and commodities are valued at the NAV provided by the fund administrator.
The following table summarizes the change in the value of assets that are measured using significant unobservable inputs:
(dollars in millions) |
2011 |
2010 |
2009 |
January 1 |
$591 |
$530 |
$303 |
Transfers (out of) in from other categories |
(1) |
(37) |
3 |
Actual return on plan assets: |
|||
Assets on hand at year end |
(14) |
41 |
99 |
Assets sold during the year |
(1) |
(2) |
(5) |
Purchases, sales and settlements, net |
61 |
59 |
130 |
December 31 |
$636 |
$591 |
$530 |
The investment mix of equity securities, fixed income and other asset allocation strategies is based upon achieving a desired return, balancing higher return, more volatile equity securities, and lower return, less volatile fixed income securities. Investment allocations are made across a range of markets, industry sectors, capitalization sizes, and in the case of fixed income securities, maturities and credit quality. The plans do not directly hold any securities of Abbott. There are no known significant concentrations of risk in the plans’ assets. Abbott’s medical and dental plans’ assets are invested in a similar mix as the pension plan assets.
The plans’ expected return on assets, as shown above, is based on management’s expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, management considers historical and expected returns for the asset classes in which the plans are invested, as well as current economic and capital market conditions.
Abbott funds its domestic pension plans according to IRS funding limitations. International pension plans are funded according to similar regulations. Abbott funded $394 million in 2011, $525 million in 2010 and $862 million in 2009 to defined pension plans. Abbott expects pension funding for its main domestic pension plan of $200 million annually.
Total benefit payments expected to be paid to participants, which includes payments funded from company assets as well as paid from the plans, are as follows:
(dollars in millions) |
Defined Benefit Plans |
Medical and Dental Plans |
2012 |
$284 |
$80 |
2013 |
297 |
82 |
2014 |
311 |
87 |
2015 |
331 |
92 |
2016 |
351 |
98 |
2017 to 2021 |
2,082 |
592 |
The Abbott Stock Retirement Plan is the principal defined contribution plan. Abbott’s contributions to this plan were $151 million in 2011, $147 million in 2010 and $137 million in 2009.
Abbott provides certain other post-employment benefits, primarily salary continuation plans, to qualifying domestic employees, and accrues for the related cost over the service lives of the employees.
