Medtronic 2013 Annual Report Download - page 128

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Table of Contents
Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
Equity Mutual
Total Level 3 Funds/Commingled
(in millions) Investments Trusts Partnership Units
Balance as of April 29, 2011 $ 102 $ 36 $ 66
Total realized gains (losses) included in earnings 2 2 —
Total unrealized (losses) gains included in accumulated other
comprehensive loss (2) (1) (1)
Purchases and sales, net 6 (9) 15
Balance as of April 27, 2012 $ 108 $ 28 $ 80
Retirement Benefit Plan Funding It is the Company’s policy to fund retirement costs within the limits of allowable tax deductions.
During fiscal year 2013, the Company made discretionary contributions of approximately $190 million to the U.S. pension plan
and approximately $20 million to fund post-retirement benefits. Internationally, the Company contributed approximately $49
million for pension benefits during fiscal year 2013. During fiscal year 2014, the Company anticipates that its contribution for
pension benefits and post-retirement benefits will be less than those contributions made during fiscal year 2013. Based on the
guidelines under the U.S. Employee Retirement Income Security Act of 1974 and the various guidelines which govern the plans
outside the U.S., the majority of anticipated fiscal year 2014 contributions will be discretionary. The Company believes that, along
with pension assets, the returns on invested pension assets, and Company contributions, the Company will be able to meet its
pension and other post-retirement obligations in the future.
Retiree benefit payments, which reflect expected future service, are anticipated to be paid as follows:
U.S. Pension Non-U.S.
(in millions) Benefits Pension Benefits Post-Retirement Benefits
Gross Gross Gross Gross Medicare
Fiscal Year Payments Payments Payments Part D Receipts
2014 $ 51 $ 25 $ 10 $ —
2015 59 26 11 —
2016 68 27 12 —
2017 77 28 14 —
2018 87 30 16 —
2019 – 2023 597 161 107 —
Total $ 939 $ 297 $ 170 $ —
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA) and the Health Care
and Education Affordability Reconciliation Act (Reconciliation Act). Included among the major provisions of these laws is a
change in the tax treatment of the Medicare Part D subsidy. The subsidy came into existence with the enactment of the Medicare
Modernization Act (MMA) in 2003 and is available to sponsors of retiree health benefit plans with a prescription drug benefit that
is actuarially equivalent to the benefit provided by the Medicare Part D program. Prior to the enactment of the PPACA and the
Reconciliation Act, the Company was allowed to deduct the full cost of its retiree drug plans without reduction for subsidies
received.
Under U.S. GAAP, the Company records a liability on its balance sheet for the expected cost of earned future retiree health benefits.
When the MMA was enacted in 2003, this liability was reduced to reflect expected future subsidies from the Medicare Part D
program. In addition, the Company recorded a reduction to the deferred tax liability on the balance sheet for the value of future
tax deductions for these retiree health benefits. Each year, as additional benefits are earned and benefit payments are made, the
Company adjusts the post-retirement benefits liability and deferred tax liability.
After the passage of the PPACA and the Reconciliation Act, the Company must reduce the tax deduction for retiree drug benefits
paid by the amount of the Medicare Part D subsidy beginning in 2013. U.S. GAAP requires the impact of a change in tax law to
be recognized immediately in the income statement in the period that includes the enactment date, regardless of the effective date
of the change in tax law. As a result of this change in tax law, the Company recorded a non-cash charge of $15 million in fiscal
year 2010 to increase the deferred tax liability. As a result of this legislation, the Company will be evaluating prospective changes
to the active and retiree health care benefits offered by the Company.
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