Pepsi 2011 Annual Report Download - page 71

The following table provides the weighted- average assumptions used to determine projected benet liability and benet expense for our
pension and retiree medical plans:
Pension Retiree Medical
U.S. International
2011 2010 2009 2011 2010 2009 2011 2010 2009
Weighted- average assumptions
Liability discount rate 4.6% 5.7% 6.1% 4.8% 5.5% 5.9% 4.4% 5.2% 6.1%
Expense discount rate 5.7% 6.0% 6.2% 5.5% 6.0% 6.3% 5.2% 5.8% 6.2%
Expected return on plan assets 7.8% 7.8% 7.8% 6.7% 7.1% 7.1% 7.8% 7.8% –
Liability rate of salary increases 3.7% 4.1% 4.4% 4.1% 4.1% 4.1%
Expense rate of salary increases 4.1% 4.4% 4.4% 4.1% 4.1% 4.2%
The following table provides selected information about plans with liability for service to date and total benet liability in excess of
plan assets:
Pension Retiree Medical
U.S. International
2011 2010 2011 2010 2011 2010
Selected information for plans with liability for service to date in
excess of plan assets
Liability for service to date $ (11,205) $ (525) $ (471) $ (610)
Fair value of plan assets $ 9,072 $ – $ 344 $ 474
Selected information for plans with projected benefit liability in
excess of plan assets
Benet liability $ (11,901) $ (5,806) $ (2,191) $ (1,949) $ (1,563) $ (1,770)
Fair value of plan assets $ 9,072 $ 4,778 $ 1,786 $ 1,638 $ 190 $ 190
Of the total projected pension benet liability at year- end 2011, $787million relates to plans that we do not fund because the funding of
such plans does not receive favorable tax treatment.
Future Benefit Payments and Funding
Our estimated future benet payments are as follows:
2012 2013 2014 2015 2016 2017–21
Pension $560 $560 $560 $600 $645 $4,050
Retiree medical(a) $135 $135 $140 $145 $145 $ 730
(a) Expected future benet payments for our retiree medical plans do not reect any estimated subsidies expected to be received under the 2003 Medicare Act. Subsidies are expected to be
approximately $13million for each of the years from 2012 through 2016 and approximately $100million in total for 2017 through 2021.
These future benets to beneciaries include payments from
both funded and unfunded pension plans.
In 2012, we expect to make pension and retiree medical con-
tributions of approximately $1.3billion, with up to approximately
$1billion expected to be discretionary. Our net cash payments
for retiree medical are estimated to be approximately $124million
in 2012.
Plan Assets
Pension
Our pension plan investment strategy includes the use of actively
managed securities and is reviewed periodically in conjunction with
plan liabilities, an evaluation of market conditions, tolerance for risk
and cash requirements for benet payments. Our investment objec-
tive is to ensure that funds are available to meet the plans’ benet
obligations when they become due. Our overall investment strategy
is to prudently invest plan assets in a well- diversied portfolio of
equity and high- quality debt securities to achieve our long- term
return expectations. Our investment policy also permits the
use of derivative instruments which are primarily used to reduce
risk. Our expected long- term rate of return on U.S. plan assets
is 7.8%. Our 2011 target investment allocation was 40% for U.S.
equity, 20% for international equity and 40% for xed income. For
2012, our target allocations are as follows: 40% for xed income,
33% for U.S. equity, 22% for international equity and 5% for real
estate. The change to the 2012 target asset allocations was made to
increase diversication. Actual investment allocations may vary from
our target investment allocations due to prevailing market condi-
tions. We regularly review our actual investment allocations and
periodically rebalance our investments to our target allocations.
The expected return on pension plan assets is based on our pen-
sion plan investment strategy, our expectations for long- term rates
of return by asset class taking into account volatility and correlation
among asset classes and our historical experience. We also review
PepsiCo, Inc.  Annual Report
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Notes to Consolidated Financial Statements