3M 2015 Annual Report Download - page 35

TableofContents
Pension and Postretirement Obligations:
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3Mhasvariouscompany-sponsoredretirementplanscoveringsubstantiallyallU.S.employeesandmanyemployeesoutsidethe
UnitedStates.TheprimaryU.S.defined-benefitpensionplanwasclosedtonewparticipantseffectiveJanuary1,2009.The
Companyaccountsforitsdefinedbenefitpensionandpostretirementhealthcareandlifeinsurancebenefitplansinaccordancewith
AccountingStandardCodification(ASC)715,Compensation—RetirementBenefits,inmeasuringplanassetsandbenefit
obligationsandindeterminingtheamountofnetperiodicbenefitcost.ASC715requiresemployerstorecognizetheunderfundedor
overfundedstatusofadefinedbenefitpensionorpostretirementplanasanassetorliabilityinitsstatementoffinancialpositionand
recognizechangesinthefundedstatusintheyearinwhichthechangesoccurthroughaccumulatedothercomprehensiveincome,
whichisacomponentofstockholders’equity.Whilethecompanybelievesthevaluationmethodsusedtodeterminethefairvalueof
planassetsareappropriateandconsistentwithothermarketparticipants,theuseofdifferentmethodologiesorassumptionsto
determinethefairvalueofcertainfinancialinstrumentscouldresultinadifferentestimateoffairvalueatthereportingdate.See
Note11foradditionaldiscussionofactuarialassumptionsusedindeterminingpensionandpostretirementhealthcareliabilitiesand
expenses.
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Pensionbenefitsassociatedwiththeseplansaregenerallybasedprimarilyoneachparticipant’syearsofservice,compensation,and
ageatretirementortermination.Thebenefitobligationrepresentsthepresentvalueofthebenefitsthatemployeesareentitledtoin
thefutureforservicesalreadyrenderedasofthemeasurementdate.TheCompanymeasuresthepresentvalueofthesefuturebenefits
byprojectingbenefitpaymentcashflowsforeachfutureperiodanddiscountingthesecashflowsbacktotheDecember31
measurementdate,usingtheyieldsofaportfolioofhighquality,fixed-incomedebtinstrumentsthatwouldproducecashflows
sufficientintimingandamounttosettleprojectedfuturebenefits.Historically,thesingleaggregateddiscountrateusedforeachplan
’sbenefitobligationwasalsousedforthecalculationofallnetperiodicbenefitcosts,includingthemeasurementoftheserviceand
interestcosts.Beginningin2016,3Mchangedthemethodusedtoestimatetheserviceandinterestcostcomponentsofthenet
periodicpensionandotherpostretirementbenefitcosts.Thenewmethodmeasuresservicecostandinterestcostseparatelyusingthe
spotyieldcurveapproachappliedtoeachcorrespondingobligation.Servicecostsaredeterminedbasedonduration-specificspot
ratesappliedtotheservicecostcashflows.Theinterestcostcalculationisdeterminedbyapplyingduration-specificspotratestothe
year-by-yearprojectedbenefitpayments.Thespotyieldcurveapproachdoesnotaffectthemeasurementofthetotalbenefit
obligationsasthechangeinserviceandinterestcostsoffsetintheactuarialgainsandlossesrecordedinothercomprehensive
income.TheCompanychangedtothenewmethodtoprovideamoreprecisemeasureofserviceandinterestcostsbyimprovingthe
correlationbetweentheprojectedbenefitcashflowsandthediscretespotyieldcurverates.TheCompanyaccountedforthischange
asachangeinestimateprospectivelybeginninginthefirstquarterof2016.Asaresultofthechangetothespotyieldcurve
approach,2016definedbenefitpensionandpostretirementnetperiodicbenefitcostisexpectedtodecreaseby$180million.
Includingthis$180million,3Mexpectsglobaldefinedbenefitpensionandpostretirementexpensein2016(beforesettlements,
curtailments,specialterminationbenefitsandother)todecreasebyapproximately$320millionpre-taxwhencomparedto2015.
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Usingthismethodology,theCompanydetermineddiscountratesforitsplansasfollow:

U.S.Qualified
Pension 
International
Pension
(weighted
average) 
U.S.
Postretirement
Medical 
December31,2014Liabilityand2015NetPeriodicBenefitCost:       
Singlediscountrate  4.10 % 3.11 % 4.07 %
December31,2015Liability:    
Benefitobligation  4.47 % 3.12 % 4.32 %
2016NetPeriodicBenefitCostComponents:    
Servicecost  4.72 % 2.84 % 4.60 %
Interestcost  3.77 % 2.72 % 3.44 %
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AnothersignificantelementindeterminingtheCompany’spensionexpenseinaccordancewithASC715istheexpectedreturnon
planassets,whichisbasedonhistoricalresultsforsimilarallocationsamongassetclasses.FortheprimaryU.S.qualifiedpension
plan,theexpectedlong-termrateofreturnonanannualizedbasisfor2016is7.50%,0.25%lowerthan2015.RefertoNote11for
informationonhowthe2015ratewasdetermined.Returnonassetsassumptionsfor
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