Pepsi 2015 Annual Report Download - page 122
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Table of Contents
105
These future benefit payments to beneficiaries include payments from both funded and unfunded plans.
In 2016, we expect to make pension and retiree medical contributions of approximately $215 million, with
approximately $65 million for retiree medical benefits.
Plan Assets
Our pension plan investment strategy includes the use of actively managed accounts and is reviewed
periodically in conjunction with plan liabilities, an evaluation of market conditions, tolerance for risk and
cash requirements for benefit payments. This strategy is also applicable to funds held for the retiree medical
plans. Our investment objective includes ensuring that funds are available to meet the plans’ benefit
obligations when they become due. Our overall investment policy 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.
For 2016 and 2015, our expected long-term rate of return on U.S. plan assets is 7.5%. Our target investment
allocations for U.S. plan assets are as follows:
2016 2015
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 plan assets is based on our 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 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.
Contributions to our pension and retiree medical plans were as follows:
Pension Retiree Medical
2015 2014 2013 2015 2014 2013
Discretionary (a) $—
$ 407 $ 23 $—
$—$—
Non-discretionary 162 184 177 43 64 62
Total $ 162 $ 591 $ 200 $ 43 $ 64 $ 62
(a) Includes $388 million in 2014 pertaining to pension lump sum payments.