Eli Lilly 2012 Annual Report Download - page 86

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74
Net pension and retiree health benefit expense included the following components:
Defined Benefit
Pension Plans Retiree Health
Benefit Plans
2012 2011 2010 2012 2011 2010
Components of net periodic benefit cost
Service cost . . . . . . . . . . . . . . . . . . . . . . . $ 253.1 $ 236.3 $ 219.2 $ 63.3 $ 72.4 $ 56.5
Interest cost. . . . . . . . . . . . . . . . . . . . . . . 455.1 447.9 431.6 114.9 118.0 121.4
Expected return on plan assets. . . . . . . (684.8) (685.9) (638.2) (127.2) (129.4) (122.6)
Amortization of prior service (benefit)
cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 8.6 8.8 (39.8)(42.9) (37.2)
Recognized actuarial loss. . . . . . . . . . . . 285.7 200.4 163.0 98.4 88.7 85.0
Net periodic benefit cost. . . . . . . . . . . . . $ 313.3 $ 207.3 $ 184.4 $ 109.6 $ 106.8 $ 103.1
If the health-care-cost trend rates were to be increased by one percentage point, the December 31, 2012,
accumulated postretirement benefit obligation would increase by $218.2 million and the aggregate of the
service cost and interest cost components of the 2012 annual expense would increase by $15.6 million. A one
percentage point decrease in these rates would decrease the December 31, 2012, accumulated
postretirement benefit obligation by $193.6 million, and the aggregate of the 2012 service cost and interest
cost by $12.6 million.
The following represents the amounts recognized in other comprehensive income (loss) for the year ended
December 31, 2012:
Defined Benefit
Pension Plans Retiree Health
Benefit Plans
Actuarial (gain) loss arising during period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 598.9 $ (113.2)
Plan amendments during period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.6) (28.4)
Amortization of prior service (benefit) cost included in net income. . . . . . . . . . . (4.2) 39.8
Amortization of net actuarial loss included in net income . . . . . . . . . . . . . . . . . . (285.7) (98.4)
Foreign currency exchange rate changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.3 1.1
Total other comprehensive (income) loss during period. . . . . . . . . . . . . . . . . . . . $ 327.7 $ (199.1)
We have defined contribution savings plans that cover our eligible employees worldwide. The purpose of these
defined contribution plans is generally to provide additional financial security during retirement by providing
employees with an incentive to save. Our contributions to the plan are based on employee contributions and
the level of our match. Expenses under the plans totaled $127.3 million, $117.6 million, and $119.8 million for
the years ended December 31, 2012, 2011, and 2010, respectively.
We provide certain other postemployment benefits primarily related to disability benefits and accrue for the
related cost over the service lives of employees. Expenses associated with these benefit plans for the years
ended December 31, 2012, 2011, and 2010 were not material.
Benefit Plan Investments
Our benefit plan investment policies are set with specific consideration of return and risk requirements in
relationship to the respective liabilities. U.S. and Puerto Rico plans represent 81 percent of our global
investments. Given the long-term nature of our liabilities, these plans have the flexibility to manage an above-
average degree of risk in the asset portfolios. At the investment-policy level, there are no specifically
prohibited investments. However, within individual investment manager mandates, restrictions and
limitations are contractually set to align with our investment objectives, ensure risk control, and limit
concentrations.
We manage our portfolio to minimize any concentration of risk by allocating funds within asset categories. In
addition, within a category we use different managers with various management objectives to eliminate any
significant concentration of risk.
Our global benefit plans may enter into contractual arrangements (derivatives) to implement the local
investment policy or manage particular portfolio risks. Derivatives are principally used to increase or
decrease exposure to a particular public equity, fixed income, commodity, or currency market more rapidly or