Pepsi 2013 Annual Report Download - page 114

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96
Future Benefit Payments and Funding
Our estimated future benefit payments are as follows:
2014 2015 2016 2017 2018 2019-23
Pension $ 565 $ 595 $ 640 $ 695 $ 750 $ 4,655
Retiree medical(a) $ 130 $ 130 $ 130 $ 135 $ 135 $ 655
(a) Expected future benefit payments for our retiree medical plans do not reflect any estimated subsidies expected to be received under the
2003 Medicare Act. Subsidies are expected to be approximately $15 million for each of the years from 2014 through 2018 and approximately
$85 million in total for 2019 through 2023.
These future benefits to beneficiaries include payments from both funded and unfunded plans.
In 2014, we expect to make pension and retiree medical contributions of approximately $260 million, with
approximately $70 million for retiree medical benefits.
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 benefit payments. Our investment objective is to ensure that funds are available to
meet the plans’ benefit obligations when they become due. Our overall investment strategy is to prudently
invest plan assets in a well-diversified portfolio of equity and high-quality debt securities and real estate 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 7.5% for 2014 and 7.8% for 2013. Our target investment allocations are as follows:
2014 2013
Fixed income 40% 40%
U.S. equity 33% 33%
International equity 22% 22%
Real estate 5% 5%
Actual investment allocations may vary from our target investment allocations due to prevailing market
conditions. 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 pension plan investment strategy and 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 current levels of interest rates and inflation to
assess the reasonableness of the long-term rates. We evaluate our expected return assumptions annually to
ensure that they are reasonable. To calculate the expected return on pension plan assets, our market-related
value of assets for fixed income is the actual fair value. For all other asset categories, we use a method that
recognizes investment gains or losses (the difference between the expected and actual return based on the
market-related value of assets) over a five-year period. This has the effect of reducing year-to-year volatility.
Our pension contributions were $200 million, $1,614 million and $239 million for 2013, 2012 and 2011,
respectively, of which $23 million, $1,375 million and $61 million, respectively, was discretionary.
Discretionary contributions for 2012 included $405 million pertaining to pension lump sum payments.