Johnson and Johnson 2010 Annual Report Download - page 58

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56 JOHNSON & JOHNSON 2010 ANNUAL REPORT
The following table displays the projected future benefit payments from the Company’s retirement and other benefit plans:
(Dollars in Millions) 2011 2012 2013 2014 2015 2016-2020
Projected future benefit payments
Retirement plans $596 598 614 642 682 4,153
Other benefit plans —gross $263 212 200 202 203 1,075
Medicare rebates (10) (12) ————
Other benefit plans —net$253 200 200 202 203 1,075
The 2011 other benefit plan projected future benefit payments
exclude $345 million of severance payments associated with the
2009 worldwide restructuring program.
In 2010, the Company contributed $1,236 million and $375 mil-
lion to its U.S. and international pension plans, respectively.
The Company plans to continue to fund its U.S. defined benefit
plans to comply with the Pension Protection Act of 2006.
International plans are funded in accordance with local regula-
tions. Additional discretionary contributions are made when
deemed appropriate to meet the long-term obligations of the plans.
For certain plans, funding is not a common practice, as funding pro-
vides no economic benefit. Consequently the Company has several
pension plans that are not funded.
The following table displays the projected future minimum contributions to the Company’s U.S. and international unfunded retirement
plans. These amounts do not include any discretionary contributions that the Company may elect to make in the future.
(Dollars in Millions) 2011 2012 2013 2014 2015 2016-2020
Projected future contributions
Unfunded U.S. retirement plans $36 38 40 43 46 300
Unfunded international retirement plans $18 17 19 19 23 128
Each pension plan is overseen by a local committee or board that is responsible for the overall administration and investment of the pension
plans. In determining investment policies, strategies and goals, each committee or board considers factors including, local pension rules
and regulations; local tax regulations; availability of investment vehicles (separate accounts, commingled accounts, insurance funds, etc.);
funded status of the plans; ratio of actives to retirees; duration of liabilities; and other relevant factors including, diversification, liquidity of
local markets and liquidity of base currency. A majority of the Company’s pension funds are open to new entrants and are expected to be
on-going plans. Permitted investments are primarily liquid and/or listed, with little reliance on illiquid and non-traditional investments such
as hedge funds. An asset allocation of 75% equities and 25% fixed income is generally pursued unless local regulations and illiquidity
require otherwise.
The Company’s retirement plan asset allocation at the end of 2010 and 2009 and target allocations for 2011 are as follows:
Percent ofTarget
Plan Assets Allocation
_______________________
2010 2009 2011
U.S. Retirement Plans
Equity securities 79% 76% 75%
Debt securities 21 24 25
Total plan assets 100% 100% 100%
International Retirement Plans
Equity securities 65% 65% 65%
Debt securities 35 34 35
Real estate and other —1—
Total plan assets 100% 100% 100%
The Company’s other benefit plans are unfunded except for U.S. life
insurance contract assets of $14 million and $16 million at January 2,
2011 and January 3, 2010, respectively.
The fair value of Johnson & Johnson Common Stock directly
held in plan assets was $453 million (3.4% of total plan assets)
at January 2, 2011 and $469 million (4.3% of total plan assets) at
January 3, 2010.
DETERMINATION OF FAIR VALUE
The Plan has an established and well-documented process for
determining fair values. Fair value is based upon quoted market
prices, where available. If listed prices or quotes are not available,
fair value is based upon models that primarily use, as inputs,
market-based or independently sourced market parameters, includ-
ing yield curves, interest rates, volatilities, equity or debt prices,
foreign exchange rates and credit curves.
While the Plan believes its valuation methods are appropriate
and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain
financial instruments could result in a different estimate of fair value
at the reporting date.
VALUATION HIERARCHY
The authoritative literature establishes a three-level hierarchy to
prioritize the inputs used in measuring fair value. The levels within
the hierarchy are described in the table below with Level 1 having
the highest priority and Level 3 having the lowest.
A financial instrument’s categorization within the valuation
hierarchy is based upon the lowest level of input that is significant
to the fair value measurement.