Pension and Postretirement Benefit Plans



The following table provides the components of net periodic benefit cost:
	Three Months Ended
	Pension Plans
	U.S. Qualified^(a)						U.S. Supplemental (Non-Qualified)^(b)				International^(c)						Postretirement Plans^(d)
(MILLIONS OF DOLLARS)	Apr 3, 2016			Mar 29, 2015			Apr 3, 2016		Mar 29, 2015		Apr 3, 2016			Mar 29, 2015			Apr 3, 2016			Mar 29, 2015
Net periodic benefit cost/(credit):
Service cost^(e)	$	63		$	72		$	5	$	6	$	42		$	48		$	10		$	14
Interest cost^(e)	134			169			12		14		60			79			22			32
Expected return on plan assets	(241		)	(272		)	—		—		(98		)	(106		)	(8		)	(13		)
Amortization of:
Actuarial losses	99			83			9		12		23			32			7			9
Prior service credits	1			(2		)	—		—		—			(2		)	(41		)	(31		)
Curtailments	2			2			—		—		—			—			(6		)	(10		)
Settlements	15			26			10		15		1			—			—			—
	$	73		$	78		$	35	$	45	$	27		$	51		$	(16	)	$	1

^(a)

The decrease in net periodic benefit costs for the three months ended April 3, 2016, compared to the three months ended March 29, 2015, for our U.S. qualified pension plans was primarily driven by (i) lower service and interest costs, resulting from a change in methodology for measuring service and interest costs (see (e) below) and (ii) lower settlement activity. The aforementioned decreases were partially offset by (i) a lower expected return on plan assets resulting from a net decrease of approximately $1.1 billion in the asset base due in part to lump-sum payments made in 2015 to certain terminated colleagues to settle Pfizer’s pension obligation, partially offset by a voluntary contribution of $1.0 billion made at the beginning of January 2016 and (ii) an increase in the amounts amortized for actuarial losses.


^(b)	The decrease in net periodic benefit costs for the three months ended April 3, 2016, compared to the three months ended March 29, 2015, for our U.S. non-qualified pension plans was primarily driven by (i) lower settlement activity and (ii) a decrease in the amounts amortized for actuarial losses resulting from the increase, in 2015, in the discount rate used to determine the benefit obligation.

^(c)

The decrease in net periodic benefit costs for the three months ended April 3, 2016, compared to the three months ended March 29, 2015, for our international pension plans was primarily driven by (i) lower service and interest costs, resulting from foreign exchange rate changes and a change in methodology for measuring service and interest costs (see (e) below), and (ii) a decrease in the amounts amortized for actuarial losses resulting from large gains in 2015, which decreased the plan net loss position, partially offset by (i) a decrease in the expected return on plan assets due to a lower expected rate of return on plan assets, and foreign exchange rates changes.

^(d)

The decrease in net periodic benefit costs for the three months ended April 3, 2016, compared to the three months ended March 29, 2015, for our postretirement plans was primarily driven by (i) lower service and interest costs, resulting from a change in methodology for measuring service and interest costs (see (e) below) and (ii) an increase in prior service credits due to the postretirement medical plan cap changes during 2015. The aforementioned changes were partially offset by (i) a decrease in expected return on plan assets, primarily resulting from a decrease in plan assets reflecting Internal Revenue Code 401(h) reimbursements to Pfizer for eligible 2014 and 2015 prescription drug expenses for certain retirees, and (ii) lower curtailment gains.

^(e)

Effective January 1, 2016, the Company changed the approach used to measure service and interest costs for U.S. and certain international pension and other postretirement benefits. For fiscal 2015, the Company measured service and interest costs utilizing a single weighted-average discount rate derived from the bond model or yield curve used to measure the respective plan obligations. For fiscal 2016, we elected to measure service and interest costs by applying the spot rates along the yield curve, or a yield curve implied from the bond model, to the plans' liability cash flows. The Company believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis. The expected reduction in expense for 2016 associated with this change in estimate is $191 million, which is expected to be recognized evenly over each quarter of the year.

As of and for the three months ended April 3, 2016, we contributed and expect to contribute from our general assets as follows:



	Pension Plans
(MILLIONS OF DOLLARS)	U.S. Qualified		U.S. Supplemental (Non-Qualified)		International		Postretirement Plans
Contributions from/reimbursements of our general assets for the three months ended April 3, 2016^(a)	$	1,000	$	70	$	50	$	(148	)
Expected contributions from our general assets during 2016^(b)	$	1,000	$	126	$	174	$	(6	)


^(a)	Contributions to the postretirement plans reflect Internal Revenue Code 401(h) reimbursements totaling $198 million received for eligible 2014 and 2015 prescription drug expenses for certain retirees.

^(b)

Contributions expected to be made for 2016 are inclusive of amounts contributed during the three months ended April 3, 2016, including the $1.0 billion voluntary contribution that was made in January 2016 for the U.S. qualified plans, which was considered pre-funding for future anticipated mandatory contributions and is also expected to reduce Pension Benefit Guaranty Corporation variable rate premiums. The U.S. supplemental (non-qualified) pension plan, international pension plan and the postretirement plan contributions from our general assets include direct employer benefit payments.