Note 13. Retirement Benefits

The Company sponsors several retirement plans, including defined benefit plans, defined contribution plans and a postretirement health plan. The Company uses an August 31 annual measurement date for its pension plans.

Defined Benefit Pension Plans (non-US plans)

The principal defined benefit pension plan is the Boots Pension Plan, which covers certain employees in the United Kingdom (the “Boots Plan”). The Boots Plan is a funded final salary defined benefit plan providing pensions and death benefits to members. The Boots Plan was closed to future accrual effective July 1, 2010, with pensions calculated based on salaries up until that date. The Boots Plan is governed by a trustee board, which is independent of the Company. The plan is subject to a full funding actuarial valuation on a triennial basis. The Company also has two smaller defined benefit pension plans in the United Kingdom, both of which were closed to future accruals effective July 1, 2010. Other defined benefit pension plans include smaller plans in Germany and France.

The obligation related to the Company’s pension plans was acquired as a result of the Second Step Transaction. The pension costs presented for 2015 represent the costs for the period from December 31, 2014 through May 31, 2015. Prior to December 31, 2014, Alliance Boots was accounted for as an equity method investee and as such, pension costs for fiscal 2015 prior to the date of the Second Step Transaction were reflected within Equity earnings in Alliance Boots on the Consolidated Condensed Statement of Earnings.

Components of net periodic pension costs for the defined benefit pension plans (in millions):

	Three Months Ended						Nine Months Ended
	May 31, 2016			May 31, 2015			May 31, 2016			May 31, 2015
Service costs	$	1		$	2		$	3		$	3
Interest costs		77			79			236			132
Expected returns on plan assets		(62	)		(65	)		(189	)		(108	)
Settlements		-			(2	)		-			(1	)
Total net periodic pension costs	$	16		$	14		$	50		$	26

The Company made cash contributions to its defined benefit pension plans of $71 million for the nine month period ended May 31, 2016, which primarily related to committed funded payments. The Company does not expect to make further contributions to its defined benefit pension plans in fiscal 2016.

Defined Contribution Plans

The principal retirement plan for U.S. employees is the Walgreen Profit-Sharing Retirement Trust, to which both the Company and participating employees contribute. The Company’s contribution, which has historically related to adjusted FIFO earnings before interest and taxes and a portion of which is in the form of a guaranteed match, is determined annually at the discretion of the Walgreens Boots Alliance Board of Directors (or Compensation Committee thereof). The profit-sharing provision was an expense of $58 million and $169 million for the three and nine months ended May 31, 2016, respectively, compared to a benefit of $64 million for the three months and expense of $118 million for the nine months ended May 31, 2015, respectively.

The Company also has a contract based defined contribution arrangement, the Alliance Boots Retirement Savings Plan, to which both the Company and participating employees contribute. The obligation related to the Alliance Boots Retirement Savings Plan was acquired as a result of the Second Step Transaction. The cost recognized in the Consolidated Condensed Statements of Earnings for the three and nine month periods ended May 31, 2016 was $33 million and $102 million, respectively compared to $57 million in the prior year three and nine month periods. Prior to December 31, 2014, Alliance Boots was accounted for as an equity method investee and as such, such costs for fiscal 2015 prior to the date of the Second Step Transaction were reflected within Equity earnings in Alliance Boots on the Consolidated Condensed Statement of Earnings.

Postretirement Healthcare Plan

The Company provides certain health insurance benefits to retired U.S. employees who meet eligibility requirements, including age, years of service and date of hire. The costs of these benefits are accrued over the service life of the employee. The Company’s postretirement health benefit plan is not funded.

Components of net periodic benefit cost for the postretirement health benefit plan (in millions):

	Three Months Ended						Nine Months Ended
	May 31, 2016			May 31, 2015			May 31, 2016			May 31, 2015
Service cost	$	3		$	3		$	8		$	8
Interest cost		4			5			14			13
Amortization of actuarial loss		5			4			14			14
Amortization of prior service cost		(7	)		(6	)		(21	)		(18	)
Total postretirement benefit cost	$	5		$	6		$	15		$	17