Previous
Note 4 — Post-Employment Benefits
(dollars in thousands)
Retirement plans consist of defined benefit, defined contribution and medical and dental plans. Information for Abbott's major defined benefit plans and post-employment medical and dental benefit plans is as follows:
| Defined Benefit Plans | Medical and Dental Plans | |||||
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |
| Projected benefit obligations, January 1 | $5,614,060 | $5,041,086 | $4,753,225 | $1,520,412 | $1,292,301 | $1,112,124 |
| Service cost — benefits earned during the year | 249,098 | 218,662 | 205,286 | 57,991 | 55,618 | 43,554 |
| Interest cost on projected benefit obligations | 316,163 | 275,389 | 259,709 | 97,030 | 79,988 | 64,088 |
| Losses (gains), primarily changes in discount and medical cost trend rates, plan design changes, law changes and differences between actual and estimated health care costs | (308,760) | 64,003 | 142,453 | (100,739) | 133,766 | 138,442 |
| Benefits paid | (228,009) | (212,630) | (195,964) | (61,048) | (67,511) | (65,907) |
| Acquisitions | — | 86,024 | — | — | 26,250 | — |
| Other, primarily foreign currency translation | 140,821 | 141,526 | (123,623) | — | — | — |
| Projected benefit obligations, December 31 | $5,783,373 | $5,614,060 | $5,041,086 | $1,513,646 | $1,520,412 | $1,292,301 |
| Plans' assets at fair value, January 1 | $5,085,626 | $4,348,779 | $3,465,666 | $212,035 | $149,080 | $— |
| Actual return on plans' assets | 442,536 | 507,223 | 384,912 | 19,578 | 22,955 | 9,080 |
| Company contributions | 282,619 | 266,269 | 755,982 | 136,048 | 107,511 | 205,907 |
| Benefits paid | (228,009) | (212,630) | (195,964) | (61,048) | (67,511) | (65,907) |
| Acquisitions | — | 92,760 | — | — | — | — |
| Other, primarily foreign currency translation | 83,902 | 83,225 | (61,817) | — | — | — |
| Plans' assets at fair value, December 31 | $5,666,674 | $5,085,626 | $4,348,779 | $306,613 | $212,035 | $149,080 |
| Projected benefit obligations greater than plans' assets, December 31 | $(116,699) | $(528,434) | $(692,307) | $(1,207,033) | $(1,308,377) | $(1,143,221) |
| Unrecognized actuarial losses, net | 1,501,409 | 697,717 | ||||
| Unrecognized prior service cost (credits) | 5,004 | (264,499) | ||||
| Net prepaid (accrued) benefit cost | $814,106 | $(710,003) | ||||
| Long-term assets | $576,146 | $84,266 | $— | $— | ||
| Short-term liabilities | (27,360) | (23,552) | — | — | ||
| Long-term liabilities | (665,485) | (589,148) | (1,207,033) | (1,308,377) | ||
| Net liability | $(116,699) | $(528,434) | $(1,207,033) | $(1,308,377) | ||
| Accrued benefit cost | $(463,789) | $(710,003) | ||||
| Prepaid benefit cost | 1,262,892 | — | ||||
| Intangible assets | 130 | — | ||||
| Accumulated other comprehensive income (loss) | 14,873 | — | ||||
| Net prepaid (accrued) benefit cost | $814,106 | $(710,003) | ||||
| Amounts Recognized in Accumulated Other Comprehensive Income (loss): | ||||||
| Actuarial losses, net | $919,710 | $1,343,052 | $635,302 | $785,778 | ||
| Prior service cost (credits) | 39,911 | 42,659 | (227,397) | (248,947) | ||
| Total | $959,621 | $1,385,711 | $407,905 | $536,831 | ||
The projected benefit obligations for non-U.S. defined benefit plans was $1,754,000, $1,483,000 and $1,148,000 at December 31, 2007, 2006 and 2005, respectively. The accumulated benefit obligations for all defined benefit plans was $4,920,000, $4,738,000 and $4,158,000 at December 31, 2007, 2006 and 2005, respectively. For plans where the accumulated benefit obligations exceeded plan assets at December 31, 2007, 2006 and 2005, the aggregate accumulated benefit obligations were $697,000, $544,000 and $465,000, respectively; the projected benefit obligations were $770,000, $592,000 and $508,000, respectively; and the aggregate plan assets were $84,000, $22,000 and $5,000, respectively.
| Defined Benefit Plans | Medical and Dental Plans | |||||
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |
| Service cost — benefits earned during the year | $249,098 | $218,662 | $205,286 | $57,991 | $55,618 | $43,554 |
| Interest cost on projected benefit obligations | 316,163 | 275,389 | 259,709 | 97,030 | 79,988 | 64,088 |
| Expected return on plans' assets | (425,639) | (382,220) | (360,304) | (24,569) | (16,253) | (11,948) |
| Amortization of actuarial losses | 81,110 | 78,288 | 65,744 | 54,727 | 44,612 | 31,569 |
| Amortization of prior service cost (credits) | 3,573 | 341 | 68 | (21,550) | (21,160) | (21,160) |
| Total cost | $224,305 | $190,460 | $170,503 | $163,629 | $142,805 | $106,103 |
Other comprehensive income (loss) for 2007 includes amortization of actuarial losses and prior service cost of $81,110 and $3,573, respectively, and net actuarial gains of $341,408 for defined benefit plans. Other comprehensive income (loss) for 2007 includes amortization of actuarial losses and prior service credits of $54,727 and $21,550, respectively, and net actuarial gains of $95,748 for medical and dental plans. The pretax amount of actuarial losses and prior service cost (credits) included in Accumulated other comprehensive income (loss) at December 31, 2007, that is expected to be recognized in the net periodic benefit cost in 2008 is $46,100 and $3,800, respectively, for defined benefit pension plans and $42,600 and $(21,500), respectively, for medical and dental plans.
The weighted average assumptions used to determine benefit obligations for defined benefit plans and medical and dental plans as of December 31, the measurement date of the plans, are as follows:
| 2007 | 2006 | 2005 | ||
| Discount rate | 6.2% | 5.7% | 5.5% | |
| Expected aggregate average long-term change in compensation | 4.2% | 4.2% | 4.2% |
The weighted average assumptions used to determine the net cost for defined benefit plans and medical and dental plans are as follows:
| 2007 | 2006 | 2005 | |
| Discount rate | 5.7% | 5.5% | 5.6% |
| Expected return on plan assets | 8.3% | 8.5% | 8.4% |
| Expected aggregate average long-term change in compensation | 4.2% | 4.2% | 4.2% |
The assumed health care cost trend rates for medical and dental plans at December 31 were as follows:
| 2007 | 2006 | 2005 | |
| Health care cost trend rate assumed for the next year | 7% | 7% | 7% |
| Rate that the cost trend rate gradually declines to | 5% | 5% | 5% |
| Year that rate reaches the assumed ultimate rate | 2012 | 2012 | 2012 |
The discount rates used to measure liabilities were determined based on high-quality fixed income securities that match the duration of the expected retiree benefits. The health care cost trend rates represent Abbott's expected annual rates of change in the cost of health care benefits and is a forward projection of health care costs as of the measurement date. A one-percentage point increase/(decrease) in the assumed health care cost trend rate would increase/(decrease) the accumulated post-employment benefit obligations as of December 31, 2007, by $205,600/$(163,500), and the total of the service and interest cost components of net post-employment health care cost for the year then ended by approximately $28,700/$(22,400).
Approximately 70% of Abbott's U.S. defined benefit plans and medical and dental plans assets are invested in equity securities with the remainder invested in primarily fixed income securities. The investment mix between equity securities and fixed income securities is based upon achieving a desired return, balancing higher return, more volatile equity securities, and lower return, less volatile fixed income securities. Abbott's domestic plans are invested in diversified portfolios of public-market equity and fixed income securities. Investment allocations are made across a range of markets, industry sectors, capitalization sizes, and, in the case of fixed income securities, maturities and credit quality. The plans do not directly hold any securities of Abbott. Abbott's international defined benefit plans are invested in a corresponding manner, with some variance in portfolio structure around local practices.
The plans' expected return on assets, as shown above, is based on management's expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, management considers historical and expected returns for the asset classes in which the plans are invested, as well as current economic and capital market conditions.
Abbott funds its domestic pension plans according to IRS funding limitations. In 2007 and 2006, $200,000 was funded to the main domestic pension plan and in 2005, $641,000 was funded to the main domestic pension plan. International pension plans are funded according to similar regulations. Abbott expects pension funding for its main domestic pension plan of $200,000 annually.
Total benefit payments expected to be paid to participants, which includes payments funded from company assets as well as paid from the plans, are as follows:
| Defined Benefit Plans |
Medical and Dental Plans |
|
| 2008 | $234,600 | $79,200 |
| 2009 | 237,800 | 84,500 |
| 2010 | 247,500 | 89,800 |
| 2011 | 256,800 | 95,600 |
| 2012 | 270,800 | 99,700 |
| 2013 to 2017 | 1,621,800 | 567,900 |
The Abbott Stock Retirement Plan is the principal defined contribution plan. Abbott's contributions to this plan were $119,000 in 2007, $102,000 in 2006 and $100,000 in 2005.
Abbott provides certain other post-employment benefits, primarily salary continuation plans, to qualifying domestic employees, and accrues for the related cost over the service lives of the employees.
Page Top