RETIREMENT PLANS

We provide certain employees with defined contribution plans. A portion of our retirement plan expense under the defined contribution plans is funded with Stryker common stock. The use of Stryker common stock represents a non-cash operating activity that is not reflected in the consolidated statements of cash flows.



	2013			2012			2011
Defined contribution retirement plan expense	$	132		$	112		$	106
Defined contribution plan expense funded with Stryker common stock	16			15			12
Stryker common stock held by defined contribution plan
Dollar amount	150			104			91
Shares (in millions of shares)	2.0			1.9			1.8
Value as a percentage of total plan assets	9		%	9		%	9		%

Certain of our subsidiaries have both funded and unfunded defined benefit pension plans covering some or all of their employees. Substantially all of the defined benefit pension plans have projected benefit obligations in excess of plan assets.



Obligations and Funded Status	December 31
	2013			2012
Funded status
Fair value of plan assets	$	281		$	254
Benefit obligations	456			447
Funded status	$	(175	)	$	(193	)
Amounts recognized in the Consolidated Balance Sheets
Current liabilities—accrued compensation	(1		)	(1		)
Noncurrent liabilities—other liabilities	(174		)	(192		)
Pre-tax amounts recognized in AOCI
Unrecognized net actuarial loss	$	(115	)	$	(150	)
Unrecognized prior service cost	12			12
	$	(103	)	$	(138	)

The estimated net actuarial loss for the defined benefit pension plans to be reclassified from AOCI into net periodic benefit cost in the year ended 12/31/2014 is ($4). We estimate that an immaterial amount of amortization of prior service cost and transition amount for the defined benefit pension plans will be reclassified from AOCI into net periodic benefit cost in the year ended 12/31/2014.

Pension plans with an accumulated benefit obligation in excess of plan assets had projected benefit obligations, accumulated benefit obligations and fair value of plan assets of $456, $427, and $281, respectively, at December 31, 2013 and $447, $417 and $254, respectively, at December 31, 2012.



Change in Benefit Obligations and Plan Assets	December 31
Change in Benefit Obligations and Plan Assets	2013			2012
Change in projected benefit obligations:
Projected benefit obligations at beginning of year	$	447		$	316
Service cost	30			21
Interest cost	13			13
Foreign exchange impact	2			2
Employee contributions	6			6
Actuarial (gains) losses	(29		)	110
Plan amendments	(1		)	(1		)
Benefits paid	(12		)	(20		)
Projected benefit obligations at end of year	$	456		$	447
Accumulated benefit obligations at end of year	427			$	417

	December 31
	2013			2012
Change in plan assets:
Fair value of plan assets at beginning of year	254			210
Actual return	11			33
Employer contributions	20			21
Employee contributions	6			6
Foreign exchange impact	1			2
Benefits paid	(11		)	(18		)
Fair value of plan assets at end of year	$	281		$	254

Components of Net Periodic Pension Cost



	2013			2012			2011
Net periodic benefit cost:
Service cost	$	(30	)	$	(21	)	$	(20	)
Interest cost	(13		)	(13		)	(13		)
Expected return on plan assets	10			9			10
Amortization of prior service cost and transition amount	1			1			—
Recognized actuarial loss	(8		)	(5		)	(2		)
Net periodic benefit cost	(40		)	(29		)	(25		)
Other changes in plan assets and benefit obligations, recognized in OCI:
Net actuarial gain (loss)	28			(87		)	(10		)
Recognized net actuarial loss	8			5			2
Prior service cost and transition amount	(1		)	—			12
Total recognized in OCI	35			(82		)	4
Total recognized in net periodic benefit cost and OCI	$	(5	)	$	(111	)	$	(21	)

Assumptions
Weighted-average rates used in the determination of net periodic benefit cost:
Discount rate	2.9		%	4.2		%	4.2		%
Expected return on plan assets	3.7		%	4.2		%	4.6		%
Rate of compensation increase	3.0		%	3.0		%	1.5		%
Weighted-average discount rate used in the determination of the projected benefit obligations	3.2		%	2.9		%	4.2		%

Discount rate

The discount rates were selected using a hypothetical portfolio of high quality bonds at December 31 that would provide the necessary cash flows to match our projected benefit payments.

Expected return on plan assets

The expected return on plan assets is determined by applying the target allocation in each asset category of plan investments to the anticipated return for each asset category based on historical and projected returns.

Investment strategy

The investment strategy for our defined benefit pension plans is to meet the liabilities of the plans as they fall due and to maximize the return on invested assets within appropriate risk tolerances. The weighted-average target and actual allocation of plan assets by asset category is as follows:



	Target		December 31
	2013		2013		2012
Equity securities	31.8	%	33.5	%	31.2	%
Debt securities	50.0		45.5		47.9
Other	18.2		21.0		20.9
	100.0	%	100.0	%	100.0	%

Valuation of Our Pension Plan Assets by Pricing Categories



	Total				(Level 1)				(Level 2)				(Level 3)
	2013		2012		2013		2012		2013		2012		2013		2012
Cash and cash equivalents	$	10	5		$	10	$	5	$	—	$	—	$	—	$	—
Equity securities	94		100		94		100		—		—		—		—
Corporate debt securities	128		93		127		93		2		—		—		—
Other	49		56		18		22		8		11		22		23
Total	$	281	$	254	$	249	$	220	$	10	$	11	$	22	$	23

Our Level 3 pension plan assets (See Note 3 for an explanation of our fair value hierarchy) consist primarily of guaranteed investment contracts with insurance companies. The insurance contracts guarantee us principal repayment and a fixed rate of return. Our valuation of Level 3 assets is based on third-party actuarial valuations that are an estimation of the surrender value of the guaranteed investment contract between us and the insurance company. The surrender value equals the actuarial value of the notional investments underlying the guaranteed investment contract, using the actuarial assumptions as stated in the guaranteed investment contract.

Rollforward of Level 3 Pension Plan Assets



	2013			2012
Balance at January 1	$	23		$	17
Actual return on plan assets held at the reporting date	—			—
Purchases, sales, and settlements	(1		)	6
Balance at December 31	$	22		$	23

We expect to contribute $20 to our defined benefit pension plans in 2014. The estimated future benefit payments by year based on expected future service as appropriate are:



	2014		2015		2016		2017		2018		2019-2023
Expected benefit payments	$	16	$	15	$	15	$	15	$	15	$	81