PENSION, POSTRETIREMENT AND POSTEMPLOYMENT LIABILITIES

BMS sponsors defined benefit pension plans, defined contribution plans and termination indemnity plans for regular full-time employees. The principal defined benefit pension plan is the Bristol-Myers Squibb Retirement Income Plan, covering most U.S. employees and representing approximately 65% of the consolidated pension plan assets and 61% of the obligations. Future benefits related to service for this plan were eliminated in 2009. BMS contributes at least the minimum amount required by the Employee Retirement Income Security Act of 1974 (ERISA). Plan benefits are based primarily on the participant’s years of credited service and final average compensation. Plan assets consist principally of equity and fixed-income securities.

Comprehensive medical and group life benefits are provided for substantially all U.S. retirees electing to participate in comprehensive medical and group life plans. The medical plan is contributory. Contributions are adjusted periodically and vary by date of retirement. The life insurance plan is noncontributory. Plan assets consist principally of equity and fixed-income securities.

The net periodic benefit cost/(credit) of defined benefit pension and postretirement benefit plans includes:



	Pension Benefits									Other Benefits
Dollars in Millions	2015			2014			2013			2015			2014			2013
Service cost — benefits earned during the year	$	25		$	34		$	38		$	4		$	4		$	8
Interest cost on projected benefit obligation	242			305			302			13			14			13
Expected return on plan assets	(405		)	(508		)	(519		)	(27		)	(27		)	(26		)
Amortization of prior service credits	(3		)	(3		)	(4		)	(6		)	(1		)	(2		)
Amortization of net actuarial (gain)/loss	91			110			134			3			(2		)	1
Curtailments	(1		)	1			—			—			(4		)	—
Settlements	161			866			165			—			—			—
Special termination benefits	—			14			—			—			—			—
Net periodic benefit cost/(credit)	$	110		$	819		$	116		$	(13	)	$	(16	)	$	(6	)

In September 2014, BMS and Fiduciary Counselors Inc., as an independent fiduciary of the Bristol-Myers Squibb Company Retirement Income Plan, entered into a definitive agreement to transfer certain U.S. pension assets to The Prudential Insurance Company of America (Prudential) to settle approximately $1.5 billion of pension obligations. BMS purchased a group annuity contract from Prudential in December 2014, who irrevocably assumed the obligation to make future annuity payments to certain BMS retirees. The transaction does not change the amount of the monthly pension benefit received by affected retirees and surviving beneficiaries and resulted in a pretax settlement charge of $713 million. Pension settlement charges were also recognized after determining the annual lump sum payments will exceed the annual interest and service costs for certain pension plans, including the primary U.S. pension plan in 2015, 2014 and 2013.

Changes in defined benefit and postretirement benefit plan obligations, assets, funded status and amounts recognized in the consolidated balance sheets were as follows:



	Pension Benefits						Other Benefits
Dollars in Millions	2015			2014			2015			2014
Benefit obligations at beginning of year	$	7,068		$	7,233		$	402		$	404
Service cost—benefits earned during the year	25			34			4			4
Interest cost	242			305			13			14
Plan participants’ contributions	2			2			24			22
Curtailments	—			(27		)	—			(3		)
Settlements	(336		)	(1,774		)	—			—
Plan amendments	(3		)	(2		)	—			(7		)
Actuarial (gains)/losses	(321		)	1,673			(26		)	28
Retiree Drug Subsidy	—			—			5			6
Benefits paid	(105		)	(216		)	(62		)	(62		)
Exchange rate gains	(154		)	(160		)	(5		)	(4		)
Benefit obligations at end of year	$	6,418		$	7,068		$	355		$	402

Fair value of plan assets at beginning of year	$	6,148		$	7,406		$	357		$	347
Actual return on plan assets	(5		)	750			(4		)	36
Employer contributions	118			124			8			8
Plan participants’ contributions	2			2			24			22
Settlements	(336		)	(1,774		)	—			—
Retiree Drug Subsidy	—			—			5			6
Benefits paid	(105		)	(216		)	(62		)	(62		)
Exchange rate losses	(135		)	(144		)	—			—
Fair value of plan assets at end of year	$	5,687		$	6,148		$	328		$	357

Funded status	$	(731	)	$	(920	)	$	(27	)	$	(45	)

Assets/(Liabilities) recognized:
Other assets	$	71		$	40		$	96		$	91
Accrued expenses	(37		)	(36		)	(10		)	(11		)
Pension and other postretirement liabilities	(765		)	(924		)	(113		)	(125		)
Funded status	$	(731	)	$	(920	)	$	(27	)	$	(45	)

Recognized in accumulated other comprehensive loss:
Net actuarial (gains)/losses	$	3,140		$	3,304		$	(22	)	$	(24	)
Prior service credit	(39		)	(40		)	(4		)	(9		)
Total	$	3,101		$	3,264		$	(26	)	$	(33	)

The accumulated benefit obligation for all defined benefit pension plans was $6,363 million and $7,001 million at December 31, 2015 and 2014, respectively.

Additional information related to pension plans was as follows:



Dollars in Millions	2015		2014
Pension plans with projected benefit obligations in excess of plan assets:
Projected benefit obligation	$	5,310	$	5,877
Fair value of plan assets	4,508		4,917
Pension plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation	$	5,156	$	5,731
Fair value of plan assets	4,386		4,823

Actuarial Assumptions

Weighted-average assumptions used to determine benefit obligations at December 31 were as follows:



	Pension Benefits				Other Benefits
	2015		2014		2015		2014
Discount rate	3.8	%	3.6	%	3.6	%	3.4	%
Rate of compensation increase	0.5	%	0.8	%	2.0	%	2.0	%

Weighted-average actuarial assumptions used to determine net periodic benefit (credit)/cost for the years ended December 31 were as follows:



	Pension Benefits						Other Benefits
	2015		2014		2013		2015		2014		2013
Discount rate	3.6	%	4.2	%	4.1	%	3.4	%	3.7	%	3.0	%
Expected long-term return on plan assets	7.2	%	7.6	%	8.0	%	7.8	%	8.3	%	8.8	%
Rate of compensation increase	0.8	%	2.3	%	2.3	%	2.0	%	2.1	%	2.1	%

The yield on high quality corporate bonds matching the duration of the benefit obligations is used in determining the discount rate. The Citigroup Pension Discount curve is used in developing the discount rate for the U.S. plans.

The expected return on plan assets was determined using the expected rate of return and a calculated value of assets, referred to as the “market-related value”. The market-related value of plan assets exceeded the fair value by approximately $225 million at December 31, 2015. Differences between assumed and actual returns are amortized to the market-related value on a straight-line basis over a three-year period. Several factors are considered in developing the expected return on plan assets, including long-term historical returns and input from external advisors. Individual asset class return forecasts were developed based upon market conditions, for example, price-earnings levels and yields and long-term growth expectations. The expected long-term rate of return is the weighted-average of the target asset allocation of each individual asset class. Historical long-term actual annualized returns for U.S. pension plans were as follows:



	2015		2014		2013
10 years	6.7	%	7.9	%	8.0	%
15 years	6.0	%	6.4	%	6.8	%
20 years	8.1	%	9.3	%	8.8	%

Actuarial gains and losses resulted from changes in actuarial assumptions (such as changes in the discount rate and revised mortality rates) and from differences between assumed and actual experience (such as differences between actual and expected return on plan assets). Gains and losses are amortized over the life expectancy of the plan participants for U.S. plans (35 years in 2016) and expected remaining service periods for most other plans to the extent they exceed 10% of the higher of the market-related value or the projected benefit obligation for each respective plan. The amortization of net actuarial loss and prior service credit is expected to be approximately $70 million in 2016. The periodic benefit cost or credit is included in cost of products sold, research and development, and marketing, selling and administrative expenses, except for curtailments, settlements and other special termination benefits which are included other expenses.

Assumed healthcare cost trend rates at December 31 were as follows:



	2015		2014		2013
Healthcare cost trend rate assumed for next year	5.5	%	6.0	%	6.4	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.5	%	4.5	%	4.5	%
Year that the rate reaches the ultimate trend rate	2018		2018		2019

A one-percentage-point change in assumed healthcare cost trend rates would not have a material impact on the cost or benefit obligation.

Plan Assets

The fair value of pension and postretirement plan assets by asset category at December 31, 2015 and 2014 was as follows:



	December 31, 2015								December 31, 2014
Dollars in Millions	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Equity Securities	$	785	$	—	$	—	$	785	$	1,115	$	—	$	—	$	1,115
Equity Funds	521		1,174		—		1,695		446		1,113		—		1,559
Fixed Income Funds	249		724		—		973		340		777		—		1,117
Corporate Debt Securities	—		1,382		—		1,382		—		1,481		—		1,481
Venture Capital and Limited Partnerships	—		—		249		249		—		—		327		327
U.S. Treasury and Agency Securities	—		517		—		517		—		557		—		557
Short-Term Investment Funds	—		103		—		103		—		63		—		63
Insurance Contracts	—		—		115		115		—		—		119		119
Event Driven Hedge Funds	—		72		—		72		—		71		—		71
Cash and Cash Equivalents	106		—		—		106		76		—		—		76
Other	4		14		—		18		4		16		—		20
Total plan assets at fair value	$	1,665	$	3,986	$	364	$	6,015	$	1,981	$	4,078	$	446	$	6,505

The investment valuation policies per investment class are as follows:

Level 1 inputs utilize unadjusted quoted prices in active markets accessible at the measurement date for identical assets or liabilities. The fair value hierarchy provides the highest priority to Level 1 inputs. These instruments include equity securities, equity funds and fixed income funds publicly traded on a national securities exchange, and cash and cash equivalents. Cash and cash equivalents are highly liquid investments with original maturities of three months or less at the time of purchase and are recognized at cost, which approximates fair value. Pending trade sales and purchases are included in cash and cash equivalents until final settlement.

Level 2 inputs utilize observable prices for similar instruments, quoted prices for identical or similar instruments in non-active markets, and other observable inputs that can be corroborated by market data for substantially the full term of the assets or liabilities. Equity funds, fixed income funds, event driven hedge funds and short-term investment funds classified as Level 2 within the fair value hierarchy are valued at the net asset value of their shares held at year end. There were no significant unfunded commitments or restrictions on redemptions related to investments valued at NAV as of December 31, 2015. Corporate debt securities and U.S. treasury and agency securities classified as Level 2 within the fair value hierarchy are valued utilizing observable prices for similar instruments and quoted prices for identical or similar instruments in markets that are not active.

Level 3 unobservable inputs are used when little or no market data is available. Venture capital and limited partnerships classified as Level 3 within the fair value hierarchy invest in underlying securities whose market values are determined using pricing models, discounted cash flow methodologies, or similar techniques. Some of the most significant unobservable inputs used in the valuation methodologies include discount rates, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) multiples, and revenue multiples. Significant changes in any of these inputs could result in significantly lower or higher fair value measurements. Insurance contracts are held by certain foreign pension plans and are carried at contract value, which approximates the estimated fair value and is based on the fair value of the underlying investment of the insurance company.

The following summarizes the activity for financial assets utilizing Level 3 fair value measurements:



Dollars in Millions	Venture Capital and Limited Partnerships			Insurance Contracts			Total
Fair value at January 1, 2014	$	369		$	142		$	511
Purchases, sales and settlements, net	(88		)	(15		)	(103		)
Realized gains/(losses)	61			(15		)	46
Unrealized gains/(losses)	(15		)	7			(8		)
Fair value at December 31, 2014	327			119			446
Purchases, sales and settlements, net	(92		)	7			(85		)
Realized gains/(losses)	41			(11		)	30
Unrealized losses	(27		)	—			(27		)
Fair value at December 31, 2015	$	249		$	115		$	364

The investment strategy emphasizes equities in order to achieve higher expected returns and lower expenses and required cash contributions over the long-term. A target asset allocation of 43% public equity (16% international, 14% global and 13% U.S.), 7% private equity and 50% long-duration fixed income is maintained for the U.S. pension plans. Investments are diversified within each of the three major asset categories. Approximately 88% of the U.S. pension plans equity investments are actively managed. Venture capital and limited partnerships are typically valued on a three month lag using latest available information. BMS common stock represents less than 1% of the plan assets at December 31, 2015 and 2014.

Contributions and Estimated Future Benefit Payments

Contributions to pension plans were $118 million in 2015, $124 million in 2014 and $251 million in 2013 and are expected to be approximately $100 million in 2016. Estimated annual future benefit payments (including lump sum payments) range from $300 million to $400 million in each of the next five years, and aggregate $1.7 billion in the subsequent five year period.

Savings Plans

The principal defined contribution plan is the Bristol-Myers Squibb Savings and Investment Program. The contribution is based on employee contributions and the level of Company match. The expense attributed to defined contribution plans in the U.S. was approximately $190 million in 2015, 2014 and 2013.