Johnson and Johnson 2015 Annual Report Download - page 63

Amounts expected to be recognized in net periodic benefit cost in the coming year for the Company’s defined benefit
retirement plans and other post-retirement plans:
(Dollars in Millions)
Amortization of net transition obligation $–
Amortization of net actuarial losses 638
Amortization of prior service credit 29
Unrecognized gains and losses for the U.S. pension plans are amortized over the average remaining future service for each
plan. For plans with no active employees, they are amortized over the average life expectancy. The amortization of gains
and losses for the other U.S. benefit plans is determined by using a 10% corridor of the greater of the market value of
assets or the accumulated postretirement benefit obligation. Total unamortized gains and losses in excess of the corridor
are amortized over the average remaining future service.
Prior service costs/benefits for the U.S. pension plans are amortized over the average remaining future service of plan
participants at the time of the plan amendment. Prior service cost/benefit for the other U.S. benefit plans is amortized over
the average remaining service to full eligibility age of plan participants at the time of the plan amendment.
The following table represents the weighted-average actuarial assumptions:
Retirement Plans Other Benefit Plans
Worldwide Benefit Plans 2015 2014 2013 2015 2014 2013
Net Periodic Benefit Cost
Discount rate 3.78% 4.78 4.25 4.31 5.25 4.55
Rate of increase in compensation levels 4.05% 4.08 4.08 4.11 4.29 4.28
Expected long-term rate of return on plan assets 8.53% 8.46 8.45
Benefit Obligation
Discount rate 4.11% 3.78 4.78 4.63 4.31 5.25
Rate of increase in compensation levels 4.01% 4.05 4.08 4.28 4.11 4.29
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. For the fiscal year
2016, the Company will change its methodology in determining service and interest cost from the single weighted average
discount rate approach to duration specific spot rates along that yield curve to the plans’ liability cash flows, which
management has concluded is a more precise estimate. Prior to this change in methodology, the Company measured
service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure
the plan obligations. The Company has accounted for this change as a change in accounting estimate and, accordingly,
has accounted for it on a prospective basis. This change will not impact the benefit obligation and will not have a material
impact to the 2016 full year results.
The expected rates of return on plan asset assumptions represent the Company’s assessment of long-term returns on
diversified investment portfolios globally. The assessment is determined using projections from external financial sources,
long-term historical averages, actual returns by asset class and the various asset class allocations by market.
In 2014, for measurement of U.S. retirement benefit obligations, the mortality assumption was updated to a newly
established 2014 mortality table resulting in an increase to the projected benefit obligation.
The following table displays the assumed health care cost trend rates, for all individuals:
Health Care Plans 2015 2014
Health care cost trend rate assumed for next year 6.60% 6.00%
Rate to which the cost trend rate is assumed to decline (ultimate trend) 4.50% 4.50%
Year the rate reaches the ultimate trend rate 2038 2032
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