Note 11 Post-Employment Benefits

AbbVie sponsors various pension and other post-employment benefit plans, including defined benefit, defined contribution and termination indemnity plans, which cover most employees worldwide. In addition, AbbVie provides medical benefits, primarily to eligible retirees in the United States and Puerto Rico, through other post-retirement benefit plans. Net obligations for these plans have been reflected in the consolidated balance sheets as of December 31, 2015 and 2014.

AbbVie's principal domestic defined benefit plan is the AbbVie Pension Plan. AbbVie employees who were eligible to participate in the Abbott pension plan on December 31, 2012 automatically became eligible for the AbbVie Pension Plan. During the first quarter of 2013, the AbbVie Pension Plan assumed the obligations and related assets for AbbVie employees from Abbott. AbbVie made voluntary contributions of $150 million, $370 million, and $145 million in 2015, 2014, and 2013 respectively, to this plan. AbbVie also made a voluntary contribution of $150 million to this plan subsequent to December 31, 2015.

The benefit plan information in the table below pertains to the global AbbVie-sponsored defined benefit and other post-employment plans:

	Defined benefit plans						Other post-employment plans
as of and for the years ended December 31 (in millions)	2015			2014			2015			2014

Projected benefit obligations
Beginning of period	$	5,681		$	4,484		$	538		$	403
Service cost		227			173			25			22
Interest cost		219			217			23			22
Employee contributions		2			1			—			—
Plan amendments		—			1			—			(13	)
Actuarial (gain) loss		(467	)		1,108			(17	)		111
Benefits paid		(158	)		(163	)		(11	)		(8	)
Other, primarily foreign currency translation adjustments		(117	)		(140	)		(1	)		1

End of period		5,387			5,681			557			538

Fair value of plan assets
Beginning of period		4,173			3,666			—			—
Actual (loss) return on plan assets		(25	)		282			—			—
Company contributions		217			430			11			8
Employee contributions		2			1			—			—
Benefits paid		(158	)		(163	)		(11	)		(8	)
Other, primarily foreign currency translation adjustments		(35	)		(43	)		—			—

End of period		4,174			4,173			—			—

Funded status end of period	$	(1,213	)	$	(1,508	)	$	(557	)	$	(538	)


Amounts recognized in the consolidated balance sheets
Other non-current assets	$	214		$	210		$	—		$	—
Accounts payable and accrued liabilities		(24	)		(26	)		(11	)		(10	)
Other long-term liabilities		(1,403	)		(1,692	)		(546	)		(528	)

Net obligation	$	(1,213	)	$	(1,508	)	$	(557	)	$	(538	)


Actuarial losses, net	$	1,939		$	2,216		$	154		$	181
Prior service cost		16			19			(45	)		(53	)

Accumulated other comprehensive loss at December 31	$	1,955		$	2,235		$	109		$	128

The projected benefit obligations (PBO) in the table above included $1.5 billion and $1.4 billion at December 31, 2015 and 2014, respectively, related to international defined benefit plans, a number of which generally are not funded as permitted by local regulations. Benefit payments under those plans are funded from company assets. AbbVie considered the release of the new mortality tables and projection scales by the Society of Actuaries in 2014 and determined they were an improvement of the estimate of future mortality and opted to change to the new tables in determining the funded status as of December 31, 2014. In 2015, the Society of Actuaries released an improvement scale that adjusted the previously issued 2014 scale which AbbVie determined was appropriate to utilize in determining the funded status as of December 31, 2015.

For plans reflected in the table above, the accumulated benefit obligations (ABO) were $4.8 billion and $5.0 billion at December 31, 2015 and 2014, respectively. For those plans reflected in the table above in which the ABO exceeded plan assets at December 31, 2015, the ABO, PBO and aggregate plan assets were $3.1 billion, $3.6 billion and $2.2 billion, respectively.

Amounts Recognized in Accumulated Other Comprehensive Loss and Other Comprehensive (Loss) Income

The defined benefit and other post-employment plans' actuarial (gains) or losses and prior service costs or (credits) not yet recognized in net periodic benefit cost are included in AOCI, net of tax, and will be amortized to net periodic benefit cost in future periods. The following table summarizes the pre-tax gains and losses included in other comprehensive (loss) income:

years ended December 31 (in millions)	2015			2014			2013

Defined benefit plans
Actuarial (gain) loss	$	(117	)	$	1,127		$	(715	)
Prior service cost		—			1			15
Amortization of actuarial losses and prior service costs		(127	)		(68	)		(114	)
Foreign exchange (gain) loss		(37	)		(41	)		2

Total pre-tax (gain) loss recognized in other comprehensive (income) loss	$	(281	)	$	1,019		$	(812	)


Other post-employment plans
Actuarial (gain) loss	$	(17	)	$	111		$	(42	)
Prior service cost		—			(13	)		(53	)
Amortization of actuarial losses and prior service costs		(2	)		3			—

Total pre-tax (gain) loss recognized in other comprehensive (income) loss	$	(19	)	$	101		$	(95	)

The pre-tax amount of actuarial loss and prior service cost included in AOCI at December 31, 2015 that is expected to be recognized in net periodic benefit cost in 2016 is $87 million for defined benefit plans and $1 million for other post-employment plans.

Net Periodic Benefit Cost

years ended December 31 (in millions)	2015			2014			2013

Defined benefit plans
Service cost	$	227		$	173		$	184
Interest cost		219			217			196
Expected return on plan assets		(325	)		(302	)		(259	)
Amortization of actuarial losses and prior service costs		127			68			114

Net periodic benefit cost	$	248		$	156		$	235


Other post-employment plans
Service cost	$	25		$	22		$	23
Interest cost		23			22			19
Amortization of actuarial (gain) loss and prior service costs		2			(2	)		(1	)

Net periodic benefit cost	$	50		$	42		$	41

Weighted-Average Assumptions Used in Determining Benefit Obligations at the Measurement Date

as of December 31	2015			2014

Defined benefit plans
Discount rate		4.4	%		3.9	%
Rate of compensation increases		4.4	%		4.4	%
Other post-employment plans
Discount rate		4.9	%		4.5	%

The assumptions used in calculating the December 31, 2015 measurement date benefit obligations will be used in the calculation of net periodic benefit cost in 2016.

Weighted-Average Assumptions Used in Determining Net Periodic Benefit Cost

years ended December 31	2015			2014			2013

Defined benefit plans
Discount rate		3.9	%		4.9	%		4.3	%
Expected long-term rate of return on plan assets		7.8	%		7.9	%		8.2	%
Expected rate of change in compensation		4.4	%		5.0	%		5.0	%
Other post-employment plans
Discount rate		4.5	%		5.3	%		4.5	%

Effective December 31, 2015, AbbVie elected to change the method it uses to estimate the service and interest cost components of net periodic benefit costs for the AbbVie Pension Plan and its primary other post-employment benefit plan in the United States as well as certain international defined benefit plans and other post-employment benefit plans. Historically, AbbVie estimated these service and interest cost components of this expense utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. In late 2015, AbbVie elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. AbbVie elected to make this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. AbbVie has accounted for this change prospectively as a change in accounting estimate that is inseparable from a change in accounting principle. Based on current economic conditions, this change is expected to reduce AbbVie's net periodic benefit cost by approximately $41 million in 2016. This change had no effect on the 2015 expense and will not affect the measurement of AbbVie's total benefit obligations as the change in service cost and interest cost will be completely offset in the actuarial (gain) loss reported.

For 2015, for purposes of measuring post-retirement health care obligations as of the measurement date, the company assumed a 7.3 percent pre-65 (8.3 percent post-65) annual rate of increase in the per capita cost of covered health care benefits. The rate was assumed to decrease gradually to 4.5 percent in 2064 and remain at that level thereafter. For purposes of measuring post-retirement health care costs, the company assumed a 7.5 percent pre-65 (7.3 percent post-65) annual rate of increase in the per capita cost of covered health care benefits. The rate was assumed to decrease gradually to 4.5 percent for 2064 and remain at that level thereafter.

Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. As of December 31, 2015, a 1 percentage point change in assumed health care cost trend rates would have the following effects:

	One percentage point
year ended December 31, 2015 (in millions) (brackets denote a reduction)	Increase		Decrease

Service cost and interest cost	$	12	$	(9	)
Projected benefit obligation	$	116	$	(90	)

Defined Benefit Pension Plan Assets

			Basis of fair value measurement
as of December 31 (in millions)	2015		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Equities
U.S. large cap(a)	$	1,041	$	542	$	499	$	—
U.S. mid cap(b)		260		35		225		—
International(c)		688		100		588		—
Fixed income securities
U.S. government securities(d)		178		15		163		—
Corporate debt instruments(d)		440		124		297		19
Non-U.S. government securities(d)		182		33		149		—
Other(d)		156		122		34		—
Absolute return funds(e)		1,097		2		498		597
Real assets		39		8		7		24
Other(f)		93		93		—		—

Fair value of plan assets	$	4,174	$	1,074	$	2,460	$	640

				Basis of fair value measurement
as of December 31 (in millions)		2014		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Equities
U.S. large cap(a)		$	1,314	$	588	$	726	$	—
U.S. mid cap(b)			267		67		200		—
International(c)			608		137		471		—
Fixed income securities
U.S. government securities(d)			216		—		216		—
Corporate debt instruments(d)			326		101		225		—
Non-U.S. government securities(d)			425		201		224		—
Other(d)			37		29		8		—
Absolute return funds(e)			848		3		371		474
Real assets			53		7		46		—
Other(f)			79		79		—		—

Fair value of plan assets		$	4,173	$	1,212	$	2,487	$	474



(a)	A mix of pooled index funds and actively managed equity accounts that are benchmarked to various large cap indices.
(b)	A mix of pooled index funds and actively managed equity accounts that are benchmarked to various mid cap indices.
(c)	A mix of pooled index funds and actively managed equity accounts that are benchmarked to various non-US equity indices in both developed and emerging markets.
(d)	Securities held by actively managed accounts, pooled index funds, and mutual funds.
(e)	Funds having global mandates with the flexibility to allocate capital broadly across a wide range of asset classes and strategies, including but not limited to equities, fixed income, commodities, financial futures, currencies, and other securities, with objectives to outperform agreed upon benchmarks of specific return and volatility targets.
(f)	Investments in cash and cash equivalents.

Equities that are valued using quoted prices are valued at the published market prices. Equities in a common collective trust or a registered investment company that are valued using significant other observable inputs are valued at the net asset value (NAV) provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund minus its liabilities. Fixed income securities that are valued using significant other observable inputs are valued at prices obtained from independent financial service industry-recognized vendors. Absolute return funds and commodities are valued at the NAV provided by the fund administrator.

The following table summarizes the change in the value of plan assets that are measured using significant unobservable inputs (Level 3):

as of and for the years ended December 31 (in millions)	2015		2014

Beginning of period	$	474	$	411
Actual return on plan assets on hand at end of period		5		21
Purchases, sales and settlements, net		161		42

End of period	$	640	$	474

The investment mix of equity securities, fixed income and other asset allocation strategies is based upon achieving a desired return, balancing higher return, more volatile equity securities, and lower return, less volatile fixed income securities. Investment allocations are established for each plan and are generally made across a range of markets, industry sectors, capitalization sizes, and in the case of fixed income securities, maturities and credit quality. The target investment allocations for the AbbVie Pension Plan is 35 percent in equity securities, 20 percent in fixed income securities and 45 percent in asset allocation strategies and other holdings. There are no known significant concentrations of risk in the plan assets of the AbbVie Pension Plan or any other plans' assets.

The plans' expected return on plan assets assumption, as shown above, is based on management's expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, management considers historical and expected returns for the asset classes in which the plans are invested, as well as current economic and capital market conditions.

Expected Defined Benefit and Other Post-Employment Plan Payments

years ended December 31 (in millions)	Defined benefit plans		Other post-employment plans

2016	$	168	$	11
2017	$	177	$	14
2018	$	188	$	17
2019	$	199	$	20
2020	$	212	$	19
2021 to 2025	$	1,295	$	133

The above table reflects total benefit payments expected to be paid to participants, which includes payments funded from company assets as well as paid from the plans.

Other

AbbVie's principal defined contribution plan is the AbbVie Savings Plan. AbbVie recorded expense of $73 million in 2015, $67 million in 2014, and $62 million in 2013 related to this plan. AbbVie provides certain other post-employment benefits, primarily salary continuation arrangements, to qualifying employees and accrues for the related cost over the service lives of the employees.