Pepsi 2013 Annual Report Download - page 64

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loss exceeds 10% of the greater of the market-related value of plan assets or plan liabilities, a portion of the
net gain or loss is included in expense for the following year based upon the average remaining service period
of active plan participants, which is approximately 11 years for pension expense and approximately 9 years
for retiree medical expense. The cost or benefit of plan changes that increase or decrease benefits for prior
employee service (prior service cost/(credit)) is included in earnings on a straight-line basis over the average
remaining service period of active plan participants.
The health care trend rate used to determine our retiree medical plan’s liability and expense is reviewed
annually. Our review is based on our claim experience, information provided by our health plans and actuaries,
and our knowledge of the health care industry. Our review of the trend rate considers factors such as
demographics, plan design, new medical technologies and changes in medical carriers.
Weighted-average assumptions for pension and retiree medical expense are as follows:
2014 2013 2012
Pension
Expense discount rate 5.0% 4.2% 4.6%
Expected rate of return on plan assets 7.3% 7.5% 7.6%
Expected rate of salary increases 3.7% 3.7% 3.8%
Retiree medical
Expense discount rate 4.6% 3.7% 4.4%
Expected rate of return on plan assets 7.5% 7.8% 7.8%
Current health care cost trend rate 6.4% 6.6% 6.8%
Based on our assumptions, we expect our pension and retiree medical expenses to decrease in 2014 primarily
driven by higher discount rates.
Sensitivity of Assumptions
A decrease in the discount rate or in the expected rate of return assumptions would increase pension expense.
A 25-basis-point decrease in the discount rate and expected rate of return assumptions would increase the
2014 pension expense as follows:
Assumption Amount
Discount rate $64 million
Expected rate of return $33 million
See Note 7 to our consolidated financial statements for information about the sensitivity of our retiree medical
cost assumptions.
Funding
We make contributions to pension trusts that provide plan benefits for certain pension plans. These
contributions are made in accordance with applicable tax regulations that provide for current tax deductions
for our contributions and taxation to the employee only upon receipt of plan benefits. Generally, we do not
fund our pension plans when our contributions would not be currently tax deductible. As our retiree medical
plans are not subject to regulatory funding requirements, we generally fund these plans on a pay-as-you-go
basis, although we periodically review available options to make additional contributions toward these
benefits.
Our pension contributions were $200 million, $1,614 million and $239 million for 2013, 2012 and 2011,
respectively, of which $23 million, $1,375 million and $61 million, respectively, was discretionary.
Discretionary contributions for 2012 included $405 million pertaining to pension lump sum payments. In