Medtronic 2013 Annual Report Download - page 122

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Table of Contents
Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
The estimated amounts that will be amortized from accumulated other comprehensive (loss) income into net periodic benefit cost,
before tax, in fiscal year 2013 are as follows:
Non-U.S. Post-
U.S. Pension Pension Retirement
(in millions) Benefits Benefits Benefits
Amortization of prior service cost $ 1 $ — $ —
Amortization of net actuarial loss 85 11 1
$ 86 $ 11 $ 1
The actuarial assumptions are as follows:
U.S. Pension Benefits Non-U.S. Pension Benefits Post-Retirement Benefits
Fiscal Year Fiscal Year Fiscal Year
2013 2012 2011 2013 2012 2011 2013 2012 2011
Weighted average assumptions –
projected benefit obligation:
Discount rate 4.55% 5.05% 5.80% 3.53% 3.98% 4.75% 4.55% 5.05% 5.80%
Rate of compensation increase 3.90% 3.80% 3.80% 2.78% 2.85% 2.97% N/A N/A N/A
Initial health care cost trend rate pre-65 N/A N/A N/A N/A N/A N/A 7.75% 7.50% 7.75%
Initial health care cost trend rate
post-65 N/A N/A N/A N/A N/A N/A 7.00% 7.25% 7.50%
Weighted average assumptions – net
periodic benefit cost:
Discount rate 5.05% 5.80% 6.05% 3.98% 4.75% 4.68% 5.05% 5.80% 6.05%
Expected return on plan assets 8.25% 8.25% 8.25% 5.19% 5.82% 5.71% 8.25% 8.25% 8.25%
Rate of compensation increase 3.80% 3.80% 3.80% 2.85% 2.97% 3.05% N/A N/A N/A
Initial health care cost trend rate pre-65 N/A N/A N/A N/A N/A N/A 7.50% 7.75% 8.00%
Initial health care cost trend rate
post-65 N/A N/A N/A N/A N/A N/A 7.25% 7.50% 7.75%
The Company’s discount rates are determined by considering current yield curves representing high quality, long-term fixed income
instruments. The resulting discount rates are consistent with the duration of plan liabilities.
The expected long-term rate of return on plan assets assumptions are determined using a building block approach, considering
historical averages and real returns of each asset class. In certain countries, where historical returns are not meaningful, consideration
is given to local market expectations of long-term returns.
Retirement Benefit Plan Investment Strategy The Company has an account that holds the assets for both the U.S. pension plan
and other U.S. post-retirement benefits, primarily retiree medical benefits. For investment purposes, the plans are managed in an
identical way, as their objectives are similar.
The Company has a Qualified Plan Committee (the Plan Committee) that sets investment guidelines for U.S. pension plan and
other U.S. post-retirement benefits with the assistance of an external consultant. These guidelines are established based on market
conditions, risk tolerance, funding requirements, and expected benefit payments. The Plan Committee also oversees the investment
allocation process, selects the investment managers, and monitors asset performance. As pension liabilities are long-term in nature,
the Company employs a long-term total return approach to maximize the long-term rate of return on plan assets for a prudent level
of risk. An annual analysis on the risk versus the return of the investment portfolio is conducted to justify the expected long-term
rate of return assumption.
The investment portfolio contains a diversified portfolio of investment categories, including equities, fixed income securities,
hedge funds, and private equity. Securities are also diversified in terms of domestic and international securities, short- and long-
term securities, growth and value styles, large cap and small cap stocks, active and passive management, and derivative-based
styles.
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