
0.	Pensions and Other Benefit Plans

The Company sponsors various retirement and pension plans, including defined benefit, defined contribution and termination indemnity plans, which cover most employees worldwide. The Company also provides post-retirement benefits, primarily health care, to all eligible U.S. retired employees and their dependents.

Many international employees are covered by government-sponsored programs and the cost to the Company is not significant.

Retirement plan benefits are primarily based on the employee’s compensation during the last three to five years before retirement and the number of years of service. International subsidiaries have plans under which funds are deposited with trustees, annuities are purchased under group contracts, or reserves are provided.

The Company does not fund retiree health care benefits in advance and has the right to modify these plans in the future.

The Company uses the date of its consolidated financial statements (December 30, 2012 and January 1, 2012, respectively) as the measurement date for all U.S. and international retirement and other benefit plans.

Net periodic benefit costs for the Company’s defined benefit retirement plans and other benefit plans for 2012, 2011 and 2010 include the following components:



	Retirement Plans							Other Benefit Plans
(Dollars in Millions)	2012			2011		2010		2012		2011		2010
Service cost	$	722		638		550		175		149		134
Interest cost	878			853		791		165		188		202
Expected return on plan assets	(1,236		)	(1,108	)	(1,005	)	(4	)	(1	)	(1	)
Amortization of prior service cost (credit)	6			9		10		(3	)	(3	)	(4	)
Amortization of net transition obligation	1			1		1		—		—		—
Recognized actuarial losses	494			388		236		76		45		48
Curtailments and settlements	—			—		1		—		—		—
Net periodic benefit cost	$	865		781		584		409		378		379

Amounts expected to be recognized in net periodic benefit cost in the coming year for the Company’s defined benefit retirement plans and other post-retirement plans:



(Dollars in Millions)
Amortization of net transition obligation	$	1
Amortization of net actuarial losses	775
Amortization of prior service cost	6

Unrecognized gains and losses for the U.S. pension plans are amortized over the average remaining future service for each plan. For plans with no active employees, they are amortized over the average life expectancy. The amortization of gains and losses for the other U.S. benefit plans is determined by using a 10% corridor of the greater of the market value of assets or the projected benefit obligation. Total unamortized gains and losses in excess of the corridor are amortized over the average remaining future service.

Prior service costs/benefits for the U.S. pension plans are amortized over the remaining future service of plan participants at the time of the plan amendment. Prior service cost/benefit for the other U.S. benefit plans is amortized over the average remaining service to full eligibility age of plan participants at the time of the plan amendment.

The weighted-average assumptions in the following table represent the rates used to develop the actuarial present value of projected benefit obligation for the year listed and also the net periodic benefit cost for the following year.



	Retirement Plans						Other Benefit Plans
	2012		2011		2010		2012		2011		2010
Worldwide Benefit Plans
Discount rate	4.25	%	5.13	%	5.71	%	4.55	%	5.25	%	6.00	%
Expected long-term rate of return on plan assets	8.45	%	8.62	%	8.68	%
Rate of increase in compensation levels	4.08	%	4.19	%	4.19	%	4.28	%	4.28	%	4.29	%

The Company’s discount rates are determined by considering current yield curves representing high quality, long-term fixed income instruments. The resulting discount rates are consistent with the duration of plan liabilities.

The expected rates of return on plan asset assumptions represent the Company's assessment of long-term returns on diversified investment portfolios globally. The assessment is determined using projections from external financial sources, long-term historical averages, actual returns by asset class and the various asset class allocations by market.

The following table displays the assumed health care cost trend rates, for all individuals:



Health Care Plans	2012		2011
Health care cost trend rate assumed for next year	6.50	%	7.50	%
Rate to which the cost trend rate is assumed to decline (ultimate trend)	4.50	%	5.00	%
Year the rate reaches the ultimate trend rate	2032		2018

A one-percentage-point change in assumed health care cost trend rates would have the following effect:



	One-Percentage-		One-Percentage-
(Dollars in Millions)	Point Increase		Point Decrease
Health Care Plans
Total interest and service cost	$	42	$	(33	)
Post-retirement benefit obligation	496		(394		)

The following table sets forth information related to the benefit obligation and the fair value of plan assets at year-end 2012 and 2011 for the Company’s defined benefit retirement plans and other post-retirement plans:



	Retirement Plans					Other Benefit Plans
(Dollars in Millions)	2012			2011		2012			2011
Change in Benefit Obligation
Projected benefit obligation — beginning of year	$	17,424		14,993		3,790			3,572
Service cost	722			638		175			149
Interest cost	878			853		165			188
Plan participant contributions	35			54		—			—
Amendments	12			(24	)	—			—
Actuarial losses	2,662			1,698		459			213
Divestitures & acquisitions	629			14		—			—
Curtailments & settlements & restructuring	(6		)	(6	)	—			—
Benefits paid from plan	(697		)	(659	)	(432		)	(320	)
Effect of exchange rates	170			(137	)	2			(12	)
Projected benefit obligation — end of year	$	21,829		17,424		4,159			3,790
Change in Plan Assets
Plan assets at fair value — beginning of year	$	13,736		13,433		8			14
Actual return (loss) on plan assets	1,926			(102	)	3			(1	)
Company contributions	1,838			1,135		543			315
Plan participant contributions	35			54		—			—
Settlements	(2		)	(2	)	—			—
Divestitures & acquisitions	593			(2	)	—			—
Benefits paid from plan assets	(697		)	(659	)	(432		)	(320	)
Effect of exchange rates	107			(121	)	—			—
Plan assets at fair value — end of year	$	17,536		13,736		122			8
Funded status — end of year	$	(4,293	)	(3,688	)	(4,037		)	(3,782	)
Amounts Recognized in the Company’s Balance Sheet consist of the following:
Non-current assets	$	194		249		$	—		—
Current liabilities	(65		)	(59	)	(307		)	(346	)
Non-current liabilities	(4,422		)	(3,878	)	(3,730		)	(3,436	)
Total recognized in the consolidated balance sheet — end of year	$	(4,293	)	(3,688	)	$	(4,037	)	(3,782	)
Amounts Recognized in Accumulated Other Comprehensive Income consist of the following:
Net actuarial loss	$	7,586		6,030		$	1,601		1,218
Prior service cost (credit)	9			6		(14		)	(18	)
Unrecognized net transition obligation	2			3		—			1
Total before tax effects	$	7,597		6,039		$	1,587		1,201

Accumulated Benefit Obligations — end of year	$	19,267		15,452



	Retirement Plans					Other Benefit Plans
(Dollars in Millions)	2012			2011		2012			2011
Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Net periodic benefit cost	$	865		781		$	409		378
Net actuarial loss	2,007			2,903		458			197
Amortization of net actuarial (loss) gain	(494		)	(388	)	(76		)	8
Prior service cost	12			(24	)	—			—
Amortization of prior service (cost) credit	(6		)	(9	)	3			3
Effect of exchange rates	79			(25	)	1			(3	)
Total recognized in other comprehensive income, before tax	$	1,598		2,457		$	386		205
Total recognized in net periodic benefit cost and other comprehensive income	$	2,463		3,238		$	795		583

The Company plans to continue to fund its U.S. Qualified Plans to comply with the Pension Protection Act of 2006. International Plans are funded in accordance with local regulations. Additional discretionary contributions are made when deemed appropriate to meet the long-term obligations of the plans. For certain plans, funding is not a common practice, as funding provides no economic benefit. Consequently, the Company has several pension plans that are not funded.

In 2012, the Company contributed $1,399 million and $439 million to its U.S. and international pension plans, respectively.

The following table displays the funded status of the Company's U.S. Qualified & Non-Qualified pension plans and international funded and unfunded pension plans at December 30, 2012 and January 1, 2012, respectively:



	U.S. Plans									International Plans
	Qualified Plans					Non-Qualified Plans				Funded Plans				Unfunded Plans
(Dollars in Millions)	2012			2011		2012		2011		2012		2011		2012		2011
Plan Assets	$	11,464		9,132		—		—		6,072		4,604		—		—
Projected Benefit Obligation	12,420			10,283		1,343		1,155		7,586		5,626		480		360
Accumulated Benefit Obligation	11,001			9,147		1,070		903		6,774		5,078		422		324
Over (Under) Funded Status
Projected Benefit Obligation	$	(956	)	(1,151	)	(1,343	)	(1,155	)	(1,514	)	(1,022	)	(480	)	(360	)
Accumulated Benefit Obligation	463			(15	)	(1,070	)	(903	)	(702	)	(474	)	(422	)	(324	)

Plans with accumulated benefit obligations in excess of plan assets have an accumulated benefit obligation, projected benefit obligation and plan assets of $6.5 billion, $7.4 billion and $4.0 billion, respectively at the end of 2012 and $13.8 billion, $15.4 billion and $11.7 billion, respectively, at the end of 2011.

The following table displays the projected future benefit payments from the Company’s retirement and other benefit plans:



(Dollars in Millions)	2013			2014	2015	2016	2017	2018-2022
Projected future benefit payments
Retirement plans	$	695		715	736	775	820	4,934
Other benefit plans — gross	327			221	220	220	220	1,121
Medicare rebates	(11		)	—	—	—	—	—
Other benefit plans — net	$	316		221	220	220	220	1,121

The following table displays the projected future minimum contributions to the Company’s U.S. and international unfunded retirement plans. These amounts do not include any discretionary contributions that the Company may elect to make in the future.



(Dollars in Millions)	2013		2014	2015	2016	2017	2018-2022
Projected future contributions
Unfunded U.S. retirement plans	$	43	46	49	52	56	354
Unfunded international retirement plans	$	25	20	22	24	24	148

Each pension plan is overseen by a local committee or board that is responsible for the overall administration and investment of the pension plans. In determining investment policies, strategies and goals, each committee or board considers factors including, local pension rules and regulations; local tax regulations; availability of investment vehicles (separate accounts, commingled accounts, insurance funds, etc.); funded status of the plans; ratio of actives to retirees; duration of liabilities; and other relevant factors including; diversification, liquidity of local markets and liquidity of base currency. A majority of the Company’s pension funds are open to new entrants and are expected to be on-going plans. Permitted investments are primarily liquid and/or listed, with little reliance on illiquid and non-traditional investments such as hedge funds.

The Company’s retirement plan asset allocation at the end of 2012 and 2011 and target allocations for 2013 are as follows:



	Percent of Plan Assets				Target Allocation
	2012		2011		2013
Worldwide Retirement Plans
Equity securities	75	%	70	%	71	%
Debt securities	25		30		29
Total plan assets	100	%	100	%	100	%

Determination of Fair Value of Plan Assets

The Plan has an established and well-documented process for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon models that primarily use, as inputs, market-based or independently sourced market parameters, including yield curves, interest rates, volatilities, equity or debt prices, foreign exchange rates and credit curves.

While the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Valuation Hierarchy

The authoritative literature establishes a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels within the hierarchy are described in the table below with Level 1 having the highest priority and Level 3 having the lowest.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Following is a description of the valuation methodologies used for the investments measured at fair value.

•

Short-term investments — Cash and quoted short-term instruments are valued at the closing price or the amount held on deposit by the custodian bank. Other investments are through investment vehicles valued using the Net Asset Value (NAV) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is a quoted price in a market that is not active and classified as Level 2.

•

Government and agency securities — A limited number of these investments are valued at the closing price reported on the major market on which the individual securities are traded. Where quoted prices are available in an active market, the investments are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. When quoted market prices for a security are not available in an active market, they are classified as Level 2.

•

Debt instruments — A limited number of these investments are valued at the closing price reported on the major market on which the individual securities are traded. Where quoted prices are available in an active market, the investments are classified as Level 1. If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows and are classified as Level 2. Level 3 debt instruments are priced based on unobservable inputs.


•	Equity securities — Common stocks are valued at the closing price reported on the major market on which the individual securities are traded. Substantially all common stock is classified within Level 1 of the valuation hierarchy.


•	Commingled funds — The investments are public investment vehicles valued using the NAV provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. Assets in the Level 2 category have a quoted market price in a market that is not active.

•

Insurance contracts — The instruments are issued by insurance companies. The fair value is based on negotiated value and the underlying investments held in separate account portfolios as well as considering the credit worthiness of the issuer. The underlying investments are government, asset-backed and fixed income securities. In general, insurance contracts are classified as Level 3 as there are no quoted prices nor other observable inputs for pricing.

•

Other assets — Other assets are represented primarily by limited partnerships and real estate investments, as well as commercial loans and commercial mortgages that are not classified as corporate debt. Other assets that are exchange listed and actively traded are classified as Level 1, while inactively traded assets are classified as Level 2. Most limited partnerships represent investments in private equity and similar funds that are valued by the general partners. These, as well as any other assets valued using unobservable inputs, are classified as Level 3.

The following table sets forth the Retirement Plans' trust investments measured at fair value as of December 30, 2012 and January 1, 2012:



	Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs		Significant Unobserv- able Inputs
	(Level 1)			(Level 2)		(Level 3)		Total Assets
(Dollars in Millions)	2012		2011	2012	2011	2012	2011	2012	2011
Short-term investment funds	$	155	161	627	632	—	—	782	793
Government and agency securities	53		59	1,706	1,528	—	—	1,759	1,587
Debt instruments	2		1	1,641	1,106	3	9	1,646	1,116
Equity securities	8,104		6,682	1	2	4	16	8,109	6,700
Commingled funds	11		8	4,985	3,375	50	33	5,046	3,416
Insurance contracts	—		—	—	—	24	25	24	25
Other assets	—		1	101	33	69	65	170	99
Trust investments at fair value	$	8,325	6,912	9,061	6,676	150	148	17,536	13,736

The Company's Other Benefit Plans are unfunded except for U.S. commingled funds (Level 2) of $67 million and $8 million at December 30, 2012 and January 1, 2012, respectively, and $55 million of U.S. short-term-investment funds (Level 2) at December 30, 2012.

The fair value of Johnson & Johnson Common Stock directly held in plan assets was $512 million (2.9% of total plan assets) at December 30, 2012 and $476 million (3.5% of total plan assets) at January 1, 2012.

Level 3 Gains and Losses

The table below sets forth a summary of changes in the fair value of the Plan’s Level 3 assets for the years ended December 30, 2012 and January 1, 2012:



(Dollars in Millions)	Debt Instruments			Equity Securities		Commingled Funds		Insurance Contracts		Other Assets		Total Level 3
Balance January 2, 2011	$	13		24		35		29		82		183
Realized gains (losses)	—			3		—		1		—		4
Unrealized gains (losses)	1			(2	)	(6	)	(2	)	(17	)	(26	)
Purchases, sales, issuances and settlements, net	(5		)	(9	)	4		(3	)	—		(13	)
Balance January 1, 2012	9			16		33		25		65		148
Realized gains (losses)	—			(1	)	—		—		(5	)	(6	)
Unrealized gains (losses)	—			—		—		—		—		—
Purchases, sales, issuances and settlements, net	(6		)	(11	)	17		(1	)	9		8
Balance December 30, 2012	$	3		4		50		24		69		150