3M 2014 Annual Report Download - page 83

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NOTE 10. Pension and Postretirement Benefit Plans
3M has company-sponsored retirement plans covering substantially all U.S. employees and many employees outside the
United States. In total, 3M has over 80 defined benefit plans in 28 countries. Pension benefits associated with these plans
generally are based on each participant’s years of service, compensation, and age at retirement or termination. The
primary U.S. defined-benefit pension plan was closed to new participants effective January 1, 2009. The Company also
provides certain postretirement health care and life insurance benefits for substantially all of its U.S. employees who reach
retirement age while employed by the Company. Most international employees and retirees are covered by government
health care programs. The cost of company-provided postretirement health care plans for international employees is not
material and is combined with U.S. amounts in the tables that follow.
The Company also sponsors employee savings plans under Section 401(k) of the Internal Revenue Code. These plans
are offered to substantially all regular U.S. employees. For eligible employees hired prior to January 1, 2009, employee
401(k) contributions of up to 6% of eligible compensation are matched in cash at rates of 60% or 75%, depending on the
plan in which the employee participates. Employees hired on or after January 1, 2009, receive a cash match of 100% for
employee 401(k) contributions of up to 6% of eligible compensation and also receive an employer retirement income
account cash contribution of 3% of the participant’s total eligible compensation. All contributions are invested in a number
of investment funds pursuant to the employees’ elections. Employer contributions to the U.S. defined contribution plans
were $153 million, $136 million and $124 million for 2014, 2013 and 2012, respectively. 3M subsidiaries in various
international countries also participate in defined contribution plans. Employer contributions to the international defined
contribution plans were $75 million, $71 million and $58 million for 2014, 2013 and 2012, respectively.
The Company has made deposits for its defined benefit plans with independent trustees. Trust funds and deposits with
insurance companies are maintained to provide pension benefits to plan participants and their beneficiaries. There are no
plan assets in the non-qualified plan due to its nature. For its U.S. postretirement health care and life insurance benefit
plans, the Company has set aside amounts at least equal to annual benefit payments with an independent trustee.
In August 2006, the Pension Protection Act (PPA) was signed into law in the U.S. The PPA transition rules increased the
funding target for defined benefit pension plans to 100% of the target liability by 2011. 3M’s primary U.S. qualified defined
benefit plan does not have a mandatory cash contribution because the Company has a significant credit balance from
previous discretionary contributions that can be applied to any PPA funding requirements.
In the fourth quarter of 2010, the Company made further changes to its U.S. postretirement health care benefit plans. As a
result of these changes, the Company will transition all current and future retirees to the savings account benefits-based
plan announced in 2008. These changes became effective beginning January 1, 2013, for all Medicare eligible retirees
and their Medicare eligible dependents and will become effective beginning January 1, 2016, for all non-Medicare eligible
retirees and their eligible dependents.
In December 2011, the Company offered a voluntary early retirement incentive program to certain eligible participants of
its U.S. pension plans who met age and years of pension service requirements. The eligible participants who accepted the
offer and retired on February 1, 2012, received an enhanced pension benefit. Pension benefits were enhanced by adding
one additional year of pension service and one additional year of age for certain benefit calculations. 616 participants
accepted the offer and retired on February 1, 2012. As a result, the Company incurred a $26 million charge related to
these special termination benefits in the first quarter of 2012.
Effective July 1, 2012, 3M Canada closed its pension plans for salaried employees to new participants. The change did
not trigger a plan remeasurement and therefore there was no immediate impact to the liability and expense.
In the third quarter of 2014, former U.S. employees who have a pension benefit for which they have not begun receiving
payment (term vested) were offered a lump sum payout of their pension benefit. As a result of this action, the projected
benefit obligation (PBO) liability was reduced in the fourth quarter of 2014 by approximately $270 million, with the actual
cash payout of approximately the same amount paid from the plan’s assets in the fourth quarter of 2014. The PBO liability
reduction was 34% of the term vested eligible PBO and a 2% reduction in the overall U.S. pension PBO liability based on
the December 31, 2013, valuation. There was no pension expense impact as a result of this action on 3M’s consolidated
statement of income in 2014.
In the fourth quarter of 2014, 3M’s Board of Directors approved an amendment of the U.S. defined benefit pension plan to
include a lump sum payment option for employees that have vested retirement benefits who commence their pension
January 1, 2015, or later. This option is also available to vested employees who leave 3M before becoming eligible to
retire at the time of termination. This change reduced 3M’s year-end 2014 PBO liability by approximately $266 million.