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Retirement Benefit Plans

12 Months Ended

Apr. 26, 2019

The Company sponsors various retirement benefit plans, including defined benefit pension plans, post-retirement medical plans, defined contribution savings plans, and termination indemnity plans, covering substantially all U.S. employees and many employees outside the U.S. The expense related to these plans was $539 million, $552 million, and $602 million in fiscal years 2019, 2018, and 2017, respectively.

In the U.S., the Company maintains a qualified pension plan designed to provide guaranteed minimum retirement benefits to all eligible U.S. employees. Pension coverage for non-U.S. employees is provided, to the extent deemed appropriate, through separate plans. In addition to the benefits provided under the qualified pension plan, retirement benefits associated with wages in excess of the IRS allowable limits are provided to certain employees under a non-qualified plan. U.S. and Puerto Rico employees are also eligible to receive a medical benefit component, in addition to normal retirement benefits, through the Company’s post-retirement benefits.

At April 26, 2019 and April 27, 2018, the net underfunded status of the Company’s benefit plans was $1.1 billion and $942 million, respectively.

Effective May 1, 2019, the Company split the U.S. Pension Plan (Medtronic Retirement Plan) into two new plans. The plan split has no impact to participant benefits, or to the accumulated benefit obligation as of April 26, 2019.

During fiscal year 2017, the company offered certain eligible U.S. employees voluntary early retirement packages. The acceptance of this offer by eligible U.S. employees caused incremental expenses of $73 million to be recognized during fiscal year 2017. Of this amount, $60 million related to U.S. pension benefits, $7 million related to U.S. post-retirement benefits, $4 million related to defined contribution plans, and $2 million related to cash payments and administrative fees.

Defined Benefit Pension Plans The change in benefit obligation and funded status of the Company’s U.S. and Non-U.S. pension benefits are as follows:



	U.S. Pension Benefits						Non-U.S. Pension Benefits
	Fiscal Year						Fiscal Year
(in millions)	2019			2018			2019			2018
Accumulated benefit obligation at end of year:	$	3,121		$	2,943		$	1,621		$	1,580
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	3,202		$	3,232		$	1,791		$	1,734
Service cost	109			116			59			67
Interest cost	129			117			30			28
Employee contributions	—			—			12			12
Plan curtailments and settlements	—			(168		)	(5		)	(8		)
Actuarial loss (gain)	54			12			119			(74		)
Benefits paid	(100		)	(107		)	(49		)	(51		)
Currency exchange rate changes and other	10			—			(125		)	146
Divestiture	—			—			—			(63		)
Projected benefit obligation at end of year	$	3,404		$	3,202		$	1,832		$	1,791
Change in plan assets:
Fair value of plan assets at beginning of year	$	2,661		$	2,479		$	1,404		$	1,235
Actual return on plan assets	64			243			62			67
Employer contributions	93			215			78			90
Employee contributions	—			—			12			13
Plan settlements	—			(168		)	(3		)	(4		)
Benefits paid	(100		)	(108		)	(49		)	(51		)
Currency exchange rate changes and other	10			—			(95		)	108
Divestiture	—			—			—			(54		)
Fair value of plan assets at end of year	$	2,728		$	2,661		$	1,409		$	1,404
Funded status at end of year:
Fair value of plan assets	$	2,728		$	2,661		$	1,409		$	1,404
Benefit obligations	3,404			3,202			1,832			1,791
Underfunded status of the plans	(676		)	(541		)	(423		)	(387		)
Recognized liability	$	(676	)	$	(541	)	$	(423	)	$	(387	)
Amounts recognized on the consolidated balance sheets consist of:
Non-current assets	$	—		$	—		$	31		$	16
Current liabilities	(18		)	(17		)	(8		)	(8		)
Non-current liabilities	(658		)	(524		)	(446		)	(395		)
Recognized liability	$	(676	)	$	(541	)	$	(423	)	$	(387	)
Amounts recognized in accumulated other comprehensive loss:
Prior service cost (benefit)	$	2		$	2		$	(7	)	$	(9	)
Net actuarial loss	1,216			1,088			452			380
Ending balance	$	1,218		$	1,090		$	445		$	371

In certain countries outside the U.S., fully funding pension plans is not a common practice, as funding provides no income tax benefit. Consequently, certain pension plans were partially funded at April 26, 2019 and April 27, 2018. U.S. and non-U.S. plans with accumulated benefit obligations in excess of plan assets consist of the following:



	Fiscal Year
(in millions)	2019		2018
Accumulated benefit obligation	$	4,683	$	4,110
Projected benefit obligation	4,822		4,282
Plan assets at fair value	3,829		3,472

Plans with projected benefit obligations in excess of plan assets consist of the following:



	Fiscal Year
(in millions)	2019		2018
Projected benefit obligation	$	4,963	$	4,736
Plan assets at fair value	3,833		3,793

The net periodic benefit cost of the plans include the following components:



	U.S. Pension Benefits									Non-U.S. Pension Benefits
	Fiscal Year									Fiscal Year
(in millions)	2019			2018			2017			2019			2018			2017
Service cost	$	109		$	116		$	117		$	59		$	67		$	70
Interest cost	129			117			109			30			28			26
Expected return on plan assets	(215		)	(205		)	(195		)	(57		)	(53		)	(48		)
Amortization of prior service cost	1			1			1			(1		)	—			(1		)
Amortization of net actuarial loss	76			82			88			12			18			17
Settlement loss (gain)	—			16			—			(2		)	—			—
Special termination benefits	—			—			60			—			—			—
Net periodic benefit cost	$	100		$	127		$	180		$	41		$	60		$	64

The other changes in plan assets and projected benefit obligations recognized in accumulated other comprehensive loss for fiscal year 2019 are as follows:



(in millions)	U.S. Pension Benefits			Non-U.S. Pension Benefits
Net actuarial gain	$	205		$	113
Amortization of prior service cost	(1		)	1
Amortization of net actuarial loss	(76		)	(12		)
Effect of exchange rates	—			(29		)
Total recognized in accumulated other comprehensive loss	$	128		$	73
Total recognized in net periodic benefit cost and accumulated other comprehensive loss	$	228		$	114

The estimated net actuarial loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost, before tax, in fiscal year 2020 for U.S. and non-U.S. pension benefits is expected to be $57 million and $13 million, respectively.

The actuarial assumptions are as follows:



	U.S. Pension Benefits						Non-U.S. Pension Benefits
	Fiscal Year						Fiscal Year
	2019		2018		2017		2019		2018		2017
Critical assumptions – projected benefit obligation:
Discount rate	3.90% - 4.20%		4.20% - 4.35%		3.70% - 4.30%		0.40% - 13.90%		0.70% - 11.00%		0.45% - 11.40%
Rate of compensation increase	3.90	%	3.90	%	3.90	%	2.87	%	2.88	%	2.89	%
Critical assumptions – net periodic benefit cost:
Discount rate – benefit obligation	4.20% - 4.30%		4.00% - 4.30%		3.55% - 4.30%		0.50% - 11.00%		0.45% - 11.40%		0.25% - 10.20%
Discount rate – service cost	4.10% - 4.40%		3.70% - 4.45%		3.60% - 4.45%		0.50% - 11.00%		0.20% - 11.40%		0.05% - 10.20%
Discount rate – interest cost	4.00% - 4.10%		3.45% - 3.80%		2.90% - 3.80%		0.50% - 11.00%		0.45% - 11.40%		0.30% - 10.20%
Expected return on plan assets	7.90	%	7.90	%	8.20	%	4.23	%	4.20	%	4.45	%
Rate of compensation increase	3.90	%	3.90	%	3.90	%	2.88	%	2.89	%	2.83	%

The Company utilizes a full yield curve approach methodology to estimate the service and interest cost components of net periodic pension cost and net periodic post-retirement benefit cost for the Company’s pension and other post-retirement benefits. The full yield curve approach applies specific spot rates along the yield curve to their underlying projected cash flows in estimation of the cost components. The current yield curves represent high quality, long-term fixed income instruments.

The expected long-term rate of return on plan assets assumptions are determined using a building block approach, considering historical averages and real returns of each asset class. In certain countries, where historical returns are not meaningful, consideration is given to local market expectations of long-term returns.

Retirement Benefit Plan Investment Strategy The Company sponsors trusts that hold the assets for U.S. pension plans and other U.S. post-retirement benefit plans, primarily retiree medical benefits. For investment purposes, the legacy Medtronic U.S. pension and other U.S. post-retirement benefit plans are managed in an identical way, as their objectives are similar.

The Company has a Qualified Plan Committee (the Plan Committee) that sets investment guidelines for U.S. pension plans and other U.S. post-retirement benefit plans with the assistance of external consultants. These guidelines are established based on market conditions, risk tolerance, funding requirements, and expected benefit payments. The Plan Committee also oversees the investment allocation process, selects the investment managers, and monitors asset performance. As pension liabilities are long-term in nature, the Company employs a long-term total return approach to maximize the long-term rate of return on plan assets for a prudent level of risk. An annual analysis on the risk versus the return of the investment portfolio is conducted to justify the expected long-term rate of return assumption.

The investment portfolios contain a diversified allocation of investment categories, including equities, fixed income securities, hedge funds, and private equity. Securities are also diversified in terms of domestic and international, short- and long-term, growth and value styles, large cap and small cap stocks, and active and passive management.

Outside the U.S., pension plan assets are typically managed by decentralized fiduciary committees. There is significant variation in policy asset allocation from country to country. Local regulations, funding rules, and financial and tax considerations are part of the funding and investment allocation process in each country. The weighted average target asset allocations at April 26, 2019 for the plans are 38% equity securities, 30% debt securities, and 32% other.

The plans did not hold any investments in the Company’s ordinary shares at April 26, 2019 or April 27, 2018.

The Company’s U.S. plans target asset allocations at April 26, 2019, compared to the U.S. plans actual asset allocations at April 26, 2019 and April 27, 2018 by asset category, are as follows:



U.S. Plans
	Target Allocation		Actual Allocation
	April 26, 2019		April 26, 2019		April 27, 2018
Asset Category:
Equity securities	49	%	50	%	49	%
Debt securities	32		34		32
Other	19		16		19
Total	100	%	100	%	100	%

Retirement Benefit Plan Asset Fair Values The following is a description of the valuation methodologies used for retirement benefit plan assets measured at fair value:

Short-term investments: Valued at the closing price reported in the active markets in which the individual security is traded.

U.S. government securities: Certain U.S. government securities are valued at the closing price reported in the active markets in which the individual security is traded. Other U.S. government securities are valued based on inputs other than quoted prices that are observable.

Corporate debt securities: Valued based on inputs other than quoted prices that are observable.

Equity commingled trusts: Comprised of investments in equity securities held in pooled investment vehicles. The valuations of equity commingled trusts are based on the respective net asset values which are determined by the fund daily at market close. The net asset values are calculated based on the valuation of the underlying assets which are determined using observable inputs. The net asset values are not publicly reported and funds are valued at the net asset value practical expedient.

Fixed income commingled trusts: Comprised of investments in fixed income securities held in pooled investment vehicles. The valuations of fixed income commingled trusts are based on the respective net asset values which are determined by the fund daily at market close. The net asset values are calculated based on the valuation of the underlying assets which are determined using observable inputs. The net asset values are not publicly reported and funds are valued at the net asset value practical expedient.

Partnership units: Valued based on the year-end net asset values of the underlying partnerships. The net asset values of the partnerships are based on the fair values of the underlying investments of the partnerships. Quoted market prices are used to value the underlying investments of the partnerships, where the partnerships consist of the investment pools which invest primarily in common stocks. Partnership units include partnerships, private equity investments, and real asset investments. Partnerships primarily include long/short equity and absolute return strategies. These investments may be redeemed monthly with notice periods ranging from 45 to 95 days. At April 26, 2019, there are no funds in the process of liquidation. Private equity investments consist of common stock and debt instruments of private companies. For private equity funds, the sum of the unfunded commitments at April 26, 2019 is $337 million, and the estimated liquidation period of these funds is expected to be one to 15 years. Real asset investments consist of commodities, derivatives, Real Estate Investment Trusts, and illiquid real estate holdings. These investments have redemption and liquidation periods ranging from 30 days to 10 years. At April 26, 2019, there are no real estate investments in the process of liquidation. Valuation procedures are utilized to arrive at fair value if a quoted market price is not available for a partnership investment.

Registered investment companies: Valued at net asset values which are not publicly reported. The net asset values are calculated based on the valuation of the underlying assets. The underlying assets are valued at the quoted market prices of shares held by the plan at year-end in the active market on which the individual securities are traded.

Insurance contracts: Comprised of investments in collective (group) insurance contracts, consisting of individual insurance policies. The policyholder is the employer and each member is the owner/beneficiary of their individual insurance policy. These policies are a part of the insurance company’s general portfolio and participate in the insurer’s profit-sharing policy on an excess yield basis.

The methods described above may produce fair values that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methodologies are appropriate and consistent with other market

participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

There were no transfers between Level 1, Level 2, or Level 3 during fiscal years 2019 or 2018.

The following tables provide information by level for the retirement benefit plan assets that are measured at fair value, as defined by U.S. GAAP. See Note 1 for discussion of the fair value measurement terms of Levels 1, 2, and 3. In accordance with authoritative guidance adopted in fiscal year 2017, certain investments for which the fair value is measured using the net asset value per share (or its equivalent) practical expedient are not presented within the fair value hierarchy. The fair value amounts presented for these investments are intended to permit reconciliation to the total fair value of plan assets at April 26, 2019 and April 27, 2018.

U.S. Pension Benefits



	Fair Value at		Fair Value Measurements Using Inputs Considered as						Investments Measured at Net Asset Value
(in millions)	April 26, 2019		Level 1		Level 2		Level 3		Investments Measured at Net Asset Value
Short-term investments	$	61	$	61	$	—	$	—	$	—
U.S. government securities	228		228		—		—		—
Corporate debt securities	144		—		144		—		—
Equity commingled trusts	1,365		—		—		—		1,365
Fixed income commingled trusts	301		—		—		—		301
Partnership units	629		—		—		629		—
	$	2,728	$	289	$	144	$	629	$	1,666



	Fair Value at		Fair Value Measurements Using Inputs Considered as						Investments Measured at Net Asset Value
(in millions)	April 27, 2018		Level 1		Level 2		Level 3		Investments Measured at Net Asset Value
Short-term investments	$	181	$	181	$	—	$	—	$	—
U.S. government securities	181		181		—		—		—
Corporate debt securities	142		—		142		—		—
Equity commingled trusts	1,322		—		—		—		1,322
Fixed income commingled trusts	298		—		—		—		298
Partnership units	537		—		—		537		—
	$	2,661	$	362	$	142	$	537	$	1,620

The following tables provide a reconciliation of the beginning and ending balances of U.S. pension benefit assets measured at fair value that used significant unobservable inputs (Level 3):



(in millions)	Partnership Units
April 27, 2018	$	537
Total realized losses	(1		)
Total unrealized gains	52
Purchases and sales, net	41
April 26, 2019	$	629



(in millions)	Partnership Units
April 28, 2017	$	468
Total realized losses	(42		)
Total unrealized gains	141
Purchases and sales, net	(30		)
April 27, 2018	$	537

Non-U.S. Pension Benefits



	Fair Value at		Fair Value Measurements Using Inputs Considered as						Investments Measured at Net Asset Value
(in millions)	April 26, 2019		Level 1		Level 2		Level 3		Investments Measured at Net Asset Value
Registered investment companies	$	1,368	$	—	$	—	$	—	$	1,368
Insurance contracts	41		—		—		41		—
	$	1,409	$	—	$	—	$	41	$	1,368



	Fair Value at		Fair Value Measurements Using Inputs Considered as						Investments Measured at Net Asset Value
(in millions)	April 27, 2018		Level 1		Level 2		Level 3		Investments Measured at Net Asset Value
Registered investment companies	$	1,362	$	—	$	—	$	—	$	1,362
Insurance contracts	42		—		—		42		—
	$	1,404	$	—	$	—	$	42	$	1,362

The following tables provide a reconciliation of the beginning and ending balances of non-U.S. pension benefit assets measured at fair value that used significant unobservable inputs (Level 3):



(in millions)	Insurance Contracts
April 27, 2018	$	42
Total unrealized gains	1
Purchases and sales, net	1
Currency exchange rate changes	(3		)
April 26, 2019	$	41



(in millions)	Insurance Contracts
April 28, 2017	$	44
Total unrealized gains	2
Purchases and sales, net	(7		)
Currency exchange rate changes	3
April 27, 2018	$	42

Retirement Benefit Plan Funding It is the Company’s policy to fund retirement costs within the limits of allowable tax deductions. During fiscal year 2019, the Company made discretionary contributions of approximately $93 million to the U.S. pension plan. Internationally, the Company contributed approximately $78 million for pension benefits during fiscal year 2019. The Company anticipates that it will make contributions of $93 million and $60 million to its U.S. pension benefit plans and non-U.S. pension benefit plans, respectively, in fiscal year 2020. Based on the guidelines under the U.S. Employee Retirement Income Security Act of 1974 and the various guidelines which govern the plans outside the U.S., the majority of anticipated fiscal year 2020 contributions

will be discretionary. The Company believes that, along with pension assets, the returns on invested pension assets, and Company contributions, the Company will be able to meet its pension and other post-retirement obligations in the future.

Retiree benefit payments, which reflect expected future service, are anticipated to be paid as follows:



(in millions)	Gross Payments
Fiscal Year	U.S. Pension Benefits		Non-U.S. Pension Benefits
2020	$	115	$	51
2021	123		49
2022	133		51
2023	144		57
2024	154		56
2025 – 2029	954		350
Total	$	1,623	$	614

Post-retirement Benefit Plans The net periodic benefit cost associated with the Company’s post-retirement benefit plans was income of $17 million and $9 million in fiscal years 2019 and 2018, respectively, and expense of $11 million in fiscal year 2017. The Company’s projected benefit obligation for all post-retirement benefit plans was $323 million and $317 million at April 26, 2019 and April 27, 2018, respectively. The Company’s fair value of plan assets for all post-retirement benefit plans was $297 million and $303 million at April 26, 2019 and April 27, 2018, respectively.

Defined Contribution Savings Plans The Company has defined contribution savings plans that cover substantially all U.S. employees and certain non-U.S. employees. The general purpose of these plans is to provide additional financial security during retirement by providing employees with an incentive to make regular savings. Company contributions to the plans are based on employee contributions and Company performance. Expense recognized under these plans was $415 million, $374 million, and $347 million in fiscal years 2019, 2018, and 2017, respectively.

Effective May 1, 2005, the Company froze participation in the original defined benefit pension plan in the U.S. and implemented two new plans: an additional defined benefit pension plan, the Personal Pension Account (PPA), and a new defined contribution plan, the Personal Investment Account (PIA). Employees in the U.S. hired on or after May 1, 2005 but before January 1, 2016 had the option to participate in either the PPA or the PIA. Participants in the PPA receive an annual allocation of their salary and bonus on which they will receive an annual guaranteed rate of return, which is based on the ten-year Treasury bond rate. Participants in the PIA also receive an annual allocation of their salary and bonus; however, they are allowed to determine how to invest their funds among identified fund alternatives. The cost associated with the PPA is included in U.S. Pension Benefits in the tables presented earlier. The defined contribution cost associated with the PIA was approximately $54 million, $56 million, and $58 million in fiscal years 2019, 2018, and 2017, respectively.

Effective January 1, 2016, the Company froze participation in the existing defined benefit (PPA) and contribution (PIA) pension plans in the U.S. and implemented a new form of benefit under the existing defined contribution plan for legacy Covidien employees and employees in the U.S. hired on or after January 1, 2016. Participants in the Medtronic Core Contribution (MCC) also receive an annual allocation of their salary and bonus and are allowed to determine how to invest their funds among identified fund alternatives. The defined contribution cost associated with the MCC was approximately $58 million, $49 million, and $45 million and in fiscal years 2019, 2018, and 2017, respectively.