Medtronic 2012 Annual Report Download - page 126

Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
109
The estimated amounts that will be amortized from accumulated other comprehensive (loss)/income
into net periodic benefit cost, before tax, in fiscal year 2013 are as follows:
Non-U.S. Post-
U.S. Pension Pension Retirement
(in millions) Benefits Benefits Benefits
___________ ___________ ___________ ___________
Amortization of prior service cost . . . . . . . . . . . . . . . . . . $ –$ 1 $ –
Amortization of net actuarial loss . . . . . . . . . . . . . . . . . . 71 85
___________ ___________ ___________
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71 $ 9 $ 5
___________ ___________ ___________
___________ ___________ ___________
The actuarial assumptions are as follows:
U.S. Pension Benefits Non-U.S. Pension Benefits Post-Retirement Benefits
_____________________________ ____________________________ ____________________________
Fiscal Year Fiscal Year Fiscal Year
_____________________________ ____________________________ ____________________________
2012 2011 2010 2012 2011 2010 2012 2011 2010
________ ________ ________ ________ ________ ________ ________ ________ ________
Weighted average assumptions –
projected benefit obligation:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . 5.05% 5.80% 6.05% 3.98% 4.75% 4.68% 5.05% 5.80% 6.05%
Rate of compensation increase . . . . . . . . . 3.80% 3.80% 3.80% 2.85% 2.97% 3.05% N/A N/A N/A
Initial health care cost trend rate pre-65 . N/A N/A N/A N/A N/A N/A 7.50% 7.75% 8.00%
Initial health care cost trend rate post-65 N/A N/A N/A N/A N/A N/A 7.25% 7.50% 7.75%
Weighted average assumptions –
net periodic benefit cost:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . 5.80% 6.05% 8.25% 4.75% 4.68% 5.41% 5.80% 6.05% 8.25%
Expected return on plan assets . . . . . . . . . 8.25% 8.25% 8.25% 5.82% 5.71% 5.78% 8.25% 8.25% 8.25%
Rate of compensation increase . . . . . . . . . 3.80% 3.80% 4.00% 2.97% 3.05% 2.90% N/A N/A N/A
Initial health care cost trend rate pre-65 . N/A N/A N/A N/A N/A N/A 7.75% 8.00% 8.50%
Initial health care cost trend rate post-65 N/A N/A N/A N/A N/A N/A 7.50% 7
.75% 8.00%
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.
The expected long-term rate of return on plan assets assumptions are determined using a building
block approach, considering historical averages and real returns of each asset class. In certain countries,
where historical returns are not meaningful, consideration is given to local market expectations of long-
term returns.
Retirement Benefit Plan Investment Strategy The Company has an account that holds the assets for
both the U.S. pension plan and other post-retirement benefits, primarily retiree medical benefits. For
investment purposes, the plans are managed in an identical way, as their objectives are similar.
The Company has a Qualified Plan Committee (the Plan Committee) that sets investment guidelines
with the assistance of an external consultant. These guidelines are established based on market conditions,
risk tolerance, funding requirements, and expected benefit payments. The Plan Committee also oversees
the investment allocation process, selects the investment managers, and monitors asset performance. As
pension liabilities are long-term in nature, the Company employs a long-term total return approach to
maximize the long-term rate of return on plan assets for a prudent level of risk. An annual analysis on the
risk versus the return of the investment portfolio is conducted to justify the expected long-term rate of
return assumption.
The investment portfolio contains a diversified portfolio of investment categories, including equities,
fixed income securities, hedge funds, and private equity. Securities are also diversified in terms of domestic
and international securities, short- and long-term securities, growth and value styles, large cap and small
cap stocks, active and passive management, and derivative-based styles. The Plan Committee believes with
prudent risk tolerance and asset diversification, the account should be able to meet its pension and other
post-retirement obligations in the future.
Outside the U.S., pension plan assets are typically managed by decentralized fiduciary committees.
There is significant variation in policy asset allocation from country to country. Local regulations, local
funding rules, and local financial and tax considerations are part of the funding and investment allocation
process in each country.