XML 41 R20.htm IDEA: XBRL DOCUMENT v3.6.0.2
Pension and Postretirement Benefit Plans
12 Months Ended
Dec. 31, 2016
Pension and Postretirement Benefit Plans  
Pension and Postretirement Benefit Plans

NOTE 11.  Pension and Postretirement Benefit Plans

 

3M has company-sponsored retirement plans covering substantially all U.S. employees and many employees outside the United States. In total, 3M has over 80 defined benefit plans in 27 countries. Pension benefits associated with these plans generally are based on each participant’s years of service, compensation, and age at retirement or termination. The primary U.S. defined-benefit pension plan was closed to new participants effective January 1, 2009. The Company also provides certain postretirement health care and life insurance benefits for its U.S. employees who reach retirement age while employed by the Company and were employed by the Company prior to January 1, 2016. Most international employees and retirees are covered by government health care programs. The cost of company-provided postretirement health care plans for international employees is not material and is combined with U.S. amounts in the tables that follow.

 

The Company has made deposits for its defined benefit plans with independent trustees. Trust funds and deposits with insurance companies are maintained to provide pension benefits to plan participants and their beneficiaries. There are no plan assets in the non-qualified plan due to its nature. For its U.S. postretirement health care and life insurance benefit plans, the Company has set aside amounts at least equal to annual benefit payments with an independent trustee.

 

3M’s primary U.S. qualified defined benefit plan does not have a mandatory cash contribution because the Company has a significant credit balance from previous discretionary contributions that can be applied to any Pension Protection Act funding requirements.

 

The Company also sponsors employee savings plans under Section 401(k) of the Internal Revenue Code. These plans are offered to substantially all regular U.S. employees. Beginning on January 1, 2016, for U.S. employees, the Company reduced its match on employee 401(k) contributions. For eligible employees hired prior to January 1, 2009, employee 401(k) contributions of up to 5% (down from 6% prior to 2016) of eligible compensation matched in cash at rates of 45% or 60%, depending on the plan in which the employee participates. Employees hired on or after January 1, 2009, receive a cash match of 100% for employee 401(k) contributions of up to 5% (down from 6% prior to 2016) of eligible compensation and receive an employer retirement income account cash contribution of 3% of the participant’s total eligible compensation. All contributions are invested in a number of investment funds pursuant to the employees’ elections. Employer contributions to the U.S. defined contribution plans were $139 million, $165 million and $153 million for 2016,  2015 and 2014, respectively. 3M subsidiaries in various international countries also participate in defined contribution plans. Employer contributions to the international defined contribution plans were $87 million, $77 million and $75 million for 2016,  2015 and 2014, respectively.

 

As a result of changes made to its U.S. postretirement health care benefit plans in 2010, the Company has transitioned all current and future retirees to a savings account benefits-based plan. These changes became effective beginning January 1, 2013, for all Medicare eligible retirees and their Medicare eligible dependents and became effective beginning January 1, 2016, for all non-Medicare eligible retirees and their eligible dependents. In August 2015, 3M modified the 3M Retiree Welfare Benefit Plan postretirement medical benefit reducing the future benefit for participants not retired as of January 1, 2016. For participants retiring after January 1, 2016, the Retiree Medical Savings Account (RMSA) is no longer credited with interest and the indexation on both the RMSA and the Medicare Health Reimbursement Arrangement is reduced from 3 percent to 1.5 percent per year (for those employees who are eligible for these accounts). Also effective January 1, 2016, 3M no longer offers 3M Retiree Health Care Accounts to new hires. Due to these changes the plan was re-measured in the third quarter of 2015, resulting in a decrease to the projected benefit obligation liability of approximately $233 million, and a related increase to shareholders’ equity, specifically accumulated other comprehensive income.

 

As of December 31, 2014, the Company converted to the “RP 2014 Mortality Tables” and updated the mortality improvement scale it used for calculating the year-end 2014 U.S. defined benefit pension annuitant and postretirement obligations and 2015 expense. The impact of this change increased the year-end 2014 U.S. pension projected benefit obligation (PBO) by approximately $820 million and the U.S. accumulated postretirement benefit obligation by approximately $100 million. As of December 31, 2016, the Company updated the mortality improvement scale to Scale MP-2016, which was released by the Society of Actuaries in October 2016. The impact of this change decreased the year-end 2016 U.S. pension PBO by approximately $440 million and the U.S. accumulated postretirement benefit obligation by approximately $60 million.

 

In March 2015, 3M Japan modified the Japan Limited Defined Benefit Corporate Pension Plan (DBCPP). Beginning July 1, 2015, eligible employees receive a company provided contribution match of 6.12% of their eligible salary to their defined contribution plan. Employees no longer earn additional service towards their defined benefit pension plans after July 1, 2015, except for eligible salaries above the statutory defined contribution limits. As a result of this plan modification, the Company re-measured the DBCPP, which resulted in a $17 million pre-tax curtailment gain for the year ended December 31, 2015. In March 2015, 3M also received a favorable Internal Revenue Service tax determination letter to terminate a frozen defined benefit pension plan of one of 3M’s acquired subsidiaries. By the end of 2015, this plan made final distributions of $16 million to participants. The Company also had other settlements, curtailments, special termination benefits and other items in 2015 aggregating to the amounts indicated in these components in the applicable tables that follow.

 

3M was informed during the first quarter of 2009, that the general partners of WG Trading Company, in which 3M’s benefit plans hold limited partnership interests, are the subject of a criminal investigation as well as civil proceedings by the SEC and CFTC (Commodity Futures Trading Commission). In March 2011, over the objections of 3M and six other limited partners of WG Trading Company, the district court judge ruled in favor of the court appointed receiver’s proposed distribution plan (and in April 2013, the United States Court of Appeals for the Second Circuit affirmed the district court’s ruling). The benefit plan trustee holdings of WG Trading Company interests were adjusted to reflect the decreased estimated fair market value, inclusive of estimated insurance proceeds, as of the annual measurement dates. The Company has insurance that it believes, based on what is currently known, will result in the probable recovery of a portion of the decrease in original asset value. In the first quarter of 2014, 3M and certain 3M benefit plans filed a lawsuit in the U.S. District Court for the District of Minnesota against five insurers seeking insurance coverage for the WG Trading Company claim. In September 2015, the court ruled in favor of the defendant insurance companies on a motion for summary judgment and dismissed the lawsuit. In October 2015, 3M and the 3M benefit plans filed a notice of appeal to the United States Court of Appeals for the Eighth Circuit. As of the 2016 measurement date, these holdings represented less than one half of one percent of 3M’s fair value of total plan assets. 3M currently believes that the resolution of these events will not have a material adverse effect on the consolidated financial position of the Company.

 

The following tables include a reconciliation of the beginning and ending balances of the benefit obligation and the fair value of plan assets as well as a summary of the related amounts recognized in the Company’s consolidated balance sheet as of December 31 of the respective years. 3M also has certain non-qualified unfunded pension and postretirement benefit plans, inclusive of plans related to supplement/excess benefits for employees impacted by particular relocations and other matters, that individually and in the aggregate are not significant and which are not included in the tables that follow. The obligations for these plans are included within other liabilities in the Company’s consolidated balance sheet and aggregated less than $35 million as of December 31, 2016 and 2015.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Qualified and Non-qualified

 

 

 

 

 

 

 

 

 

Pension Benefits

 

Postretirement

 

 

 

United States

 

International

 

Benefits

 

(Millions)

    

2016

    

2015

    

2016

    

2015

    

2016

    

2015

 

Change in benefit obligation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit obligation at beginning of year

 

$

15,856

 

$

16,452

 

$

6,322

 

$

6,979

 

$

2,216

 

$

2,462

 

Acquisitions/Transfers

 

 

 —

 

 

 —

 

 

(5)

 

 

94

 

 

 —

 

 

 —

 

Service cost

 

 

259

 

 

293

 

 

133

 

 

154

 

 

54

 

 

75

 

Interest cost

 

 

575

 

 

655

 

 

171

 

 

206

 

 

79

 

 

98

 

Participant contributions

 

 

 —

 

 

 —

 

 

8

 

 

9

 

 

 —

 

 

14

 

Foreign exchange rate changes

 

 

 —

 

 

 —

 

 

(472)

 

 

(589)

 

 

7

 

 

(22)

 

Plan amendments

 

 

5

 

 

 —

 

 

(4)

 

 

(6)

 

 

 —

 

 

(211)

 

Actuarial (gain) loss

 

 

427

 

 

(657)

 

 

724

 

 

(274)

 

 

7

 

 

(80)

 

Medicare Part D Reimbursement

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1

 

Benefit payments

 

 

(919)

 

 

(874)

 

 

(245)

 

 

(232)

 

 

(104)

 

 

(122)

 

Settlements, curtailments, special termination benefits and other

 

 

(1)

 

 

(13)

 

 

(7)

 

 

(19)

 

 

 —

 

 

1

 

Benefit obligation at end of year

 

$

16,202

 

$

15,856

 

$

6,625

 

$

6,322

 

$

2,259

 

$

2,216

 

Change in plan assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of plan assets at beginning of year

 

$

13,966

 

$

14,643

 

$

5,669

 

$

5,957

 

$

1,367

 

$

1,436

 

Acquisitions/Transfers

 

 

 —

 

 

 —

 

 

 —

 

 

8

 

 

 —

 

 

 —

 

Actual return on plan assets

 

 

779

 

 

100

 

 

512

 

 

287

 

 

90

 

 

36

 

Company contributions

 

 

259

 

 

113

 

 

121

 

 

151

 

 

3

 

 

3

 

Participant contributions

 

 

 —

 

 

 —

 

 

8

 

 

9

 

 

 —

 

 

14

 

Foreign exchange rate changes

 

 

 —

 

 

 —

 

 

(444)

 

 

(498)

 

 

 —

 

 

 —

 

Benefit payments

 

 

(919)

 

 

(874)

 

 

(245)

 

 

(232)

 

 

(104)

 

 

(122)

 

Settlements, curtailments, special termination benefits and other

 

 

(4)

 

 

(16)

 

 

(4)

 

 

(13)

 

 

 —

 

 

 —

 

Fair value of plan assets at end of year

 

$

14,081

 

$

13,966

 

$

5,617

 

$

5,669

 

$

1,356

 

$

1,367

 

Funded status at end of year

 

$

(2,121)

 

$

(1,890)

 

$

(1,008)

 

$

(653)

 

$

(903)

 

$

(849)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Qualified and Non-qualified

 

 

 

 

 

 

 

 

 

Pension Benefits

 

Postretirement

 

 

 

United States

 

International

 

Benefits

 

(Millions)

    

2016

    

2015

    

2016

    

2015

    

2016

    

2015

 

Amounts recognized in the Consolidated Balance Sheet as of Dec. 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

$

4

 

$

3

 

$

48

 

$

185

 

$

 —

 

$

 —

 

Accrued benefit cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

(52)

 

 

(47)

 

 

(10)

 

 

(10)

 

 

(4)

 

 

(3)

 

Non-current liabilities

 

 

(2,073)

 

 

(1,846)

 

 

(1,046)

 

 

(828)

 

 

(899)

 

 

(846)

 

Ending balance

 

$

(2,121)

 

$

(1,890)

 

$

(1,008)

 

$

(653)

 

$

(903)

 

$

(849)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Qualified and Non-qualified

 

 

 

 

 

 

 

 

 

Pension Benefits

 

Postretirement

 

 

 

United States

 

International

 

Benefits

 

(Millions)

    

2016

    

2015

    

2016

    

2015

    

2016

    

2015

 

Amounts recognized in accumulated other comprehensive income as of Dec. 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net transition obligation (asset)

 

$

 —

 

$

 —

 

$

 —

 

$

(2)

 

$

 —

 

$

 —

 

Net actuarial loss (gain)

 

 

5,704

 

 

5,366

 

 

1,933

 

 

1,610

 

 

761

 

 

815

 

Prior service cost (credit)

 

 

(198)

 

 

(227)

 

 

(56)

 

 

(68)

 

 

(214)

 

 

(270)

 

Ending balance

 

$

5,506

 

$

5,139

 

$

1,877

 

$

1,540

 

$

547

 

$

545

 

 

 

The balance of amounts recognized for international plans in accumulated other comprehensive income as of December 31 in the preceding table are presented based on the foreign currency exchange rate on that date.

 

The pension accumulated benefit obligation represents the actuarial present value of benefits based on employee service and compensation as of the measurement date and does not include an assumption about future compensation levels. The accumulated benefit obligation of the U.S. pension plans was $15.149 billion and $14.834 billion at December 31, 2016 and 2015, respectively. The accumulated benefit obligation of the international pension plans was $6.058 billion and $5.773 billion at December 31, 2016 and 2015, respectively.

 

The following amounts relate to pension plans with accumulated benefit obligations in excess of plan assets as of December 31:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Qualified and Non-qualified Pension Plans

 

 

 

United States

 

International

 

(Millions)

    

2016

    

2015

    

2016

    

2015

 

Projected benefit obligation

 

$

16,202

 

$

15,856

 

$

2,590

 

$

2,382

 

Accumulated benefit obligation

 

 

15,149

 

 

14,834

 

 

2,351

 

 

2,149

 

Fair value of plan assets

 

 

14,081

 

 

13,966

 

 

1,635

 

 

1,566

 

 

Components of net periodic cost and other amounts recognized in other comprehensive income

 

Net periodic benefit cost is recorded in cost of sales, selling, general and administrative expenses, and research, development and related expenses. Components of net periodic benefit cost and other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31 follow:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Qualified and Non-qualified

 

 

 

 

 

 

 

 

 

 

 

 

Pension Benefits

 

Postretirement

 

 

 

United States

 

International

 

Benefits

 

(Millions)

    

2016

    

2015

    

2014

    

2016

    

2015

    

2014

    

2016

    

2015

    

2014

 

Net periodic benefit cost (benefit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

259

 

$

293

 

$

241

 

$

133

 

$

154

 

$

141

 

$

54

 

$

75

 

$

65

 

Interest cost

 

 

575

 

 

655

 

 

676

 

 

171

 

 

206

 

 

252

 

 

79

 

 

98

 

 

97

 

Expected return on plan assets

 

 

(1,043)

 

 

(1,069)

 

 

(1,043)

 

 

(308)

 

 

(308)

 

 

(312)

 

 

(90)

 

 

(91)

 

 

(90)

 

Amortization of transition (asset) obligation

 

 

 —

 

 

 —

 

 

 —

 

 

(1)

 

 

(1)

 

 

(1)

 

 

 —

 

 

 —

 

 

 —

 

Amortization of prior service cost (benefit)

 

 

(24)

 

 

(24)

 

 

4

 

 

(13)

 

 

(13)

 

 

(16)

 

 

(55)

 

 

(42)

 

 

(47)

 

Amortization of net actuarial (gain) loss

 

 

354

 

 

409

 

 

243

 

 

91

 

 

144

 

 

121

 

 

61

 

 

73

 

 

56

 

Settlements, curtailments, special termination benefits and other

 

 

4

 

 

2

 

 

 —

 

 

4

 

 

(6)

 

 

4

 

 

 —

 

 

1

 

 

 —

 

Net periodic benefit cost (benefit) after settlements, curtailments, special termination benefits and other

 

$

125

 

$

266

 

$

121

 

$

77

 

$

176

 

$

189

 

$

49

 

$

114

 

$

81

 

Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of transition (asset) obligation

 

 

 —

 

 

 

 

 —

 

 

1

 

 

1

 

 

1

 

 

 

 

 

 

 —

 

Prior service cost (benefit)

 

 

5

 

 

 —

 

 

(266)

 

 

(5)

 

 

10

 

 

3

 

 

 —

 

 

(212)

 

 

 —

 

Amortization of prior service cost (benefit)

 

 

24

 

 

24

 

 

(4)

 

 

13

 

 

13

 

 

16

 

 

55

 

 

42

 

 

47

 

Net actuarial (gain) loss

 

 

692

 

 

312

 

 

2,167

 

 

512

 

 

(270)

 

 

592

 

 

8

 

 

(23)

 

 

358

 

Amortization of net actuarial (gain) loss

 

 

(354)

 

 

(409)

 

 

(243)

 

 

(91)

 

 

(144)

 

 

(121)

 

 

(61)

 

 

(73)

 

 

(56)

 

Foreign currency

 

 

 —

 

 

 

 

 —

 

 

(93)

 

 

(174)

 

 

(215)

 

 

 —

 

 

(1)

 

 

(1)

 

Total recognized in other comprehensive (income) loss

 

$

367

 

$

(73)

 

$

1,654

 

$

337

 

$

(564)

 

$

276

 

$

2

 

$

(267)

 

$

348

 

Total recognized in net periodic benefit cost (benefit) and other comprehensive (income) loss

 

$

492

 

$

193

 

$

1,775

 

$

414

 

$

(388)

 

$

465

 

$

51

 

$

(153)

 

$

429

 

 

Amounts expected to be amortized from accumulated other comprehensive income into net periodic benefit costs over the next fiscal year

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Qualified and Non-qualified

 

 

 

 

 

 

Pension Benefits

 

Postretirement

 

(Millions)

    

United States

    

International

    

Benefits

 

Amortization of transition (asset) obligation

 

$

 

$

 —

 

$

 

Amortization of prior service cost (benefit)

 

 

(23)

 

 

(12)

 

 

(53)

 

Amortization of net actuarial (gain) loss

 

 

387

 

 

119

 

 

56

 

Total amortization expected over the next fiscal year

 

$

364

 

$

107

 

$

3

 

 

The Company primarily amortizes amounts recognized as prior service cost (benefit) over the average future service period of active employees at the date of the amendment.

 

Weighted-average assumptions used to determine benefit obligations as of December 31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Qualified and Non-qualified Pension Benefits

 

Postretirement

 

 

 

United States

 

International

 

Benefits

 

 

    

2016

    

2015

    

2014

    

2016

    

2015

    

2014

    

2016

    

2015

    

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

4.21

%  

4.47

%  

4.10

%  

2.54

%  

3.12

%  

3.11

%  

4.26

%  

4.48

%  

4.07

%

Compensation rate increase

 

4.10

%  

4.10

%  

4.10

%  

2.90

%  

2.90

%  

3.33

%  

N/A

 

N/A

 

N/A

 

 

Weighted-average assumptions used to determine net cost for years ended December 31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Qualified and Non-qualified Pension Benefits

 

Postretirement

 

 

 

United States

 

International

 

Benefits

 

 

    

2016

    

2015

    

2014

    

2016

    

2015

    

2014

    

2016

    

2015

    

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate - service cost

 

4.70

%  

4.10

%  

4.98

%  

2.84

%  

3.11

%  

4.02

%  

4.70

%  

4.07

%  

4.83

%

Discount rate - interest cost

 

3.73

%  

4.10

%  

4.98

%  

2.72

%  

3.11

%  

4.02

%  

3.80

%  

4.07

%  

4.83

%

Expected return on assets

 

7.50

%  

7.75

%  

7.75

%  

5.77

%  

5.90

%  

5.83

%  

6.91

%  

6.91

%  

7.11

%

Compensation rate increase

 

4.10

%  

4.10

%  

4.00

%  

2.90

%  

3.33

%  

3.35

%  

N/A

 

N/A

 

N/A

 

 

The Company provides eligible retirees in the U.S. postretirement health care benefit plans to a savings account benefits-based plan. The contributions provided by the Company to the health savings accounts increase 3 percent per year for employees who retired prior to January 1, 2016 and increase 1.5 percent for employees who retire on or after January 1, 2016. Therefore, the Company no longer has material exposure to health care cost inflation.

 

The Company determines the discount rate used to measure plan liabilities as of the December 31 measurement date for the pension and postretirement benefit plans, which is also the date used for the related annual measurement assumptions. The discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year. The Company sets its rate to reflect the yield of a portfolio of high quality, fixed-income debt instruments that would produce cash flows sufficient in timing and amount to settle projected future benefits. Using this methodology, the Company determined a discount rate of 4.21% for pension and 4.26% for postretirement benefits to be appropriate for its U.S. plans as of December 31, 2016, which is a decrease of 0.26 percentage points and 0.22 percentage points, respectively, from the rates used as of December 31, 2015. For the international pension and postretirement plans the discount rates also reflect the current rate at which the associated liabilities could be effectively settled at the end of the year. If the country has a deep market in corporate bonds the Company matches the expected cash flows from the plan either to a portfolio of bonds that generate sufficient cash flow or a notional yield curve generated from available bond information. In countries that do not have a deep market in corporate bonds, government bonds are considered with a risk premium to approximate corporate bond yields. 

 

Beginning in 2016, 3M changed the method used to estimate the service and interest cost components of the net periodic pension and other postretirement benefit costs. The new method measures service cost and interest cost separately using the spot yield curve approach applied to each corresponding obligation. Service costs are determined based on duration-specific spot rates applied to the service cost cash flows. The interest cost calculation is determined by applying duration-specific spot rates to the year-by-year projected benefit payments. The spot yield curve approach does not affect the measurement of the total benefit obligations as the change in service and interest costs offset in the actuarial gains and losses recorded in other comprehensive income. The Company changed to the new method to provide a more precise measure of service and interest costs by improving the correlation between the projected benefit cash flows and the discrete spot yield curve rates. The Company accounted for this change as a change in estimate prospectively beginning in the first quarter of 2016. As a result of the change to the spot yield curve approach, 2016 annual defined benefit pension and postretirement net periodic benefit cost decreased approximately $180 million.

 

For the primary U.S. qualified pension plan, the Company’s assumption for the expected return on plan assets was 7.50% in 2016. Projected returns are based primarily on broad, publicly traded equity and fixed-income indices and forward-looking estimates of active portfolio and investment management. As of December 31, 2016, the Company’s 2017 expected long-term rate of return on U.S. plan assets is 7.25%, a decrease of 0.25 percentage points from 2016. The expected return assumption is based on the strategic asset allocation of the plan, long term capital market return expectations and expected performance from active investment management. The 2016 expected long-term rate of return is based on an asset allocation assumption of 25% global equities, 18% private equities, 41% fixed-income securities, and 16% absolute return investments independent of traditional performance benchmarks, along with positive returns from active investment management. The actual net rate of return on plan assets in 2016 was 5.8%. In 2015 the plan earned a rate of return of 0.7% and in 2014 earned a return of 13.0%. The average annual actual return on the plan assets over the past 10 and 25 years has been 7.2% and 9.2%, respectively. Return on assets assumptions for international pension and other post-retirement benefit plans are calculated on a plan-by-plan basis using plan asset allocations and expected long-term rate of return assumptions.

 

During 2016, the Company contributed $380 million to its U.S. and international pension plans and $3 million to its postretirement plans. During 2015, the Company contributed $264 million to its U.S. and international pension plans and $3 million to its postretirement plans. In 2017, the Company expects to contribute an amount in the range of $300 million to $500 million of cash to its U.S. and international retirement plans. The Company does not have a required minimum cash pension contribution obligation for its U.S. plans in 2017. Future contributions will depend on market conditions, interest rates and other factors.

 

Future Pension and Postretirement Benefit Payments

 

The following table provides the estimated pension and postretirement benefit payments that are payable from the plans to participants.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Qualified and Non-qualified

 

 

 

 

 

 

Pension Benefits

 

Postretirement

 

(Millions)

    

United States

    

International

    

Benefits

 

2017 Benefit Payments

 

$

1,020

 

$

203

 

$

129

 

2018 Benefit Payments

 

 

1,040

 

 

212

 

 

139

 

2019 Benefit Payments

 

 

1,057

 

 

228

 

 

147

 

2020 Benefit Payments

 

 

1,071

 

 

235

 

 

157

 

2021 Benefit Payments

 

 

1,088

 

 

256

 

 

166

 

Next five years

 

 

5,586

 

 

1,452

 

 

839

 

 

Plan Asset Management

 

3M’s investment strategy for its pension and postretirement plans is to manage the funds on a going-concern basis. The primary goal of the trust funds is to meet the obligations as required. The secondary goal is to earn the highest rate of return possible, without jeopardizing its primary goal, and without subjecting the Company to an undue amount of contribution risk. Fund returns are used to help finance present and future obligations to the extent possible within actuarially determined funding limits and tax-determined asset limits, thus reducing the potential need for additional contributions from 3M. The investment strategy has used long duration cash bonds and derivative instruments to offset a significant portion of the interest rate sensitivity of U.S. pension liabilities.

 

Normally, 3M does not buy or sell any of its own securities as a direct investment for its pension and other postretirement benefit funds. However, due to external investment management of the funds, the plans may indirectly buy, sell or hold 3M securities. The aggregate amount of 3M securities are not considered to be material relative to the aggregate fund percentages.

 

The discussion that follows references the fair value measurements of certain assets in terms of levels 1, 2 and 3. See Note 13 for descriptions of these levels. While the company believes the 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.

 

U.S. Pension Plans and Postretirement Benefit Plan Assets

 

In order to achieve the investment objectives in the U.S. pension plans and U.S. postretirement benefit plans, the investment policies include a target strategic asset allocation. The investment policies allow some tolerance around the target in recognition that market fluctuations and illiquidity of some investments may cause the allocation to a specific asset class to vary from the target allocation, potentially for long periods of time. Acceptable ranges have been designed to allow for deviation from strategic targets and to allow for the opportunity for tactical over- and under-weights. The portfolios will normally be rebalanced when the quarter-end asset allocation deviates from acceptable ranges. The allocation is reviewed regularly by the named fiduciary of the plans. Approximately 42% of the postretirement benefit plan assets are in a 401(h) account. The 401(h) account assets are in the same trust as the primary U.S. pension plan and invested with the same investment objectives as the primary U.S. pension plan.

 

The fair values of the assets held by the U.S. pension plans by asset class are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using Inputs Considered as

 

Fair Value at

 

(Millions)

 

Level 1

 

Level 2

 

Level 3

 

Dec. 31,

 

Asset Class

    

2016

    

2015

    

2016

    

2015

    

2016

    

2015

    

2016

    

2015

 

Equities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. equities

 

$

1,522

 

$

1,897

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

1,522

 

$

1,897

 

Non-U.S. equities

 

 

1,179

 

 

1,149

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,179

 

 

1,149

 

Index and long/short equity funds*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

414

 

 

578

 

Total Equities

 

$

2,701

 

$

3,046

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

3,115

 

$

3,624

 

Fixed Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government securities

 

$

1,701

 

$

1,095

 

$

560

 

$

456

 

$

 —

 

$

 —

 

$

2,261

 

$

1,551

 

Non-U.S. government securities

 

 

 —

 

 

 —

 

 

146

 

 

126

 

 

 —

 

 

 —

 

 

146

 

 

126

 

Preferred and convertible securities

 

 

4

 

 

4

 

 

1

 

 

8

 

 

 —

 

 

 —

 

 

5

 

 

12

 

U.S. corporate bonds

 

 

10

 

 

9

 

 

3,392

 

 

2,820

 

 

 —

 

 

 —

 

 

3,402

 

 

2,829

 

Non-U.S. corporate bonds

 

 

 —

 

 

 —

 

 

672

 

 

616

 

 

 —

 

 

 —

 

 

672

 

 

616

 

Derivative instruments

 

 

(1)

 

 

(1)

 

 

(31)

 

 

40

 

 

 —

 

 

 —

 

 

(32)

 

 

39

 

Other*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

11

 

Total Fixed Income

 

$

1,714

 

$

1,107

 

$

4,740

 

$

4,066

 

$

 —

 

$

 —

 

$

6,461

 

$

5,184

 

Private Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

(83)

 

$

(106)

 

$

(83)

 

$

(106)

 

Growth equity

 

 

19

 

 

24

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

19

 

 

24

 

Partnership investments*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,188

 

 

2,450

 

Total Private Equity

 

$

19

 

$

24

 

$

 —

 

$

 —

 

$

(83)

 

$

(106)

 

$

2,124

 

$

2,368

 

Absolute Return

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments

 

$

 —

 

$

 —

 

$

(7)

 

$

(5)

 

$

 —

 

$

 —

 

$

(7)

 

$

(5)

 

Fixed income and other

 

 

29

 

 

253

 

 

78

 

 

46

 

 

 —

 

 

 —

 

 

107

 

 

299

 

Hedge fund/fund of funds*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,793

 

 

1,409

 

Partnership investments*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

296

 

 

355

 

Total Absolute Return

 

$

29

 

$

253

 

$

71

 

$

41

 

$

 —

 

$

 —

 

$

2,189

 

$

2,058

 

Cash and Cash Equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

55

 

$

102

 

$

 —

 

$

1

 

$

2

 

$

 —

 

$

57

 

$

103

 

Repurchase agreements and derivative margin activity

 

 

 —

 

 

 —

 

 

(545)

 

 

5

 

 

 —

 

 

 —

 

 

(545)

 

 

5

 

Cash and cash equivalents, valued at net asset value*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

931

 

 

783

 

Total Cash and Cash Equivalents

 

$

55

 

$

102

 

$

(545)

 

$

6

 

$

2

 

$

 —

 

$

443

 

$

891

 

Total

 

$

4,518

 

$

4,532

 

$

4,266

 

$

4,113

 

$

(81)

 

$

(106)

 

$

14,332

 

$

14,125

 

Other items to reconcile to fair value of plan assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(251)

 

$

(159)

 

Fair value of plan assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

14,081

 

$

13,966

 

 

* In accordance with ASC 820-10, certain investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The NAV is based on the fair value of the underlying assets owned by the fund, minus its liabilities then divided by the number of units outstanding and is determined by the investment manager or custodian of the fund. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.

The fair values of the assets held by the postretirement benefit plans by asset class are as follows: