Pension, Retiree Medical and Retiree Savings Plans

Pension Benefits

We sponsor qualified and supplemental (non-qualified) noncontributory defined benefit plans covering certain full-time salaried and hourly U.S. employees. The qualified plan meets the requirements of certain sections of the Internal Revenue Code. A qualified plan typically provides benefits to a broad group of employees with restrictions on discriminating in favor of highly compensated employees with regard to coverage, benefits and contributions. The supplemental plans provide additional benefits to certain employees. We fund our supplemental plans as benefits are paid.

The most significant of these plans is the YUM Retirement Plan (the “Plan”), which is a qualified plan. Our funding policy with respect to the Plan is to contribute amounts necessary to satisfy minimum pension funding requirements, including requirements of the Pension Protection Act of 2006, plus additional amounts from time to time as are determined to be necessary to improve the Plan’s funded status. We currently do not anticipate making any contributions to the Plan in 2014. We expect to make $8 million in benefit payments related to our significant U.S. non-qualified plan in 2014. During 2001, our two significant U.S. plans were amended such that any salaried employee hired or rehired by YUM after September 30, 2001 is not eligible to participate in those plans.

We also sponsor various defined benefit plans covering certain of our non-U.S. employees, the most significant of which are in the UK. During the quarter ended March 23, 2013, one of our UK plans was frozen such that existing participants can no longer earn future service credits. Our other UK plan was previously frozen to future service credits in 2011.

The funding rules for our pension plans outside of the U.S. vary from country to country and depend on many factors including discount rates, performance of plan assets, local laws and regulations. We do not plan to make any significant contributions to any pension plan outside of the U.S. in 2014.

We do not anticipate any plan assets being returned to the Company during 2014 for any plans.

During the fourth quarter of 2012 and continuing through 2013, the Company allowed certain former employees with deferred vested balances in our U.S. pension plans an opportunity to voluntarily elect an early payout of their pension benefits. See Note 4 for details.

Obligation and Funded Status at Measurement Date:

The following chart summarizes the balance sheet impact, as well as benefit obligations, assets, and funded status associated with our significant U.S. and International pension plans. The actuarial valuations for all plans reflect measurement dates coinciding with our fiscal year ends.



	U.S. Pension Plans						International Pension Plans
	2013			2012			2013			2012
Change in benefit obligation
Benefit obligation at beginning of year	$	1,290		$	1,381		$	193		$	187
Service cost	21			26			1			2
Interest cost	54			66			8			8
Participant contributions	—			—			—			1
Plan amendments	—			5			—			—
Curtailments	(3		)	(10		)	(5		)	—
Special termination benefits	5			3			—			—
Exchange rate changes	—			—			4			5
Benefits paid	(21		)	(14		)	(3		)	(4		)
Settlements^(a)(b)	(151		)	(278		)	—			—
Actuarial (gain) loss	(170		)	111			28			(6		)
Benefit obligation at end of year	$	1,025		$	1,290		$	226		$	193
Change in plan assets
Fair value of plan assets at beginning of year	$	945		$	998		$	226		$	183
Actual return on plan assets	116			144			30			21
Employer contributions	22			100			1			19
Participant contributions	—			—			—			1
Settlement payments^(a)	(123		)	(278		)	—			—
Benefits paid	(21		)	(14		)	(3		)	(4		)
Exchange rate changes	—			—			5			6
Administrative expenses	(6		)	(5		)	—			—
Fair value of plan assets at end of year	$	933		$	945		$	259		$	226
Funded status at end of year	$	(92	)	$	(345	)	$	33		$	33



Amounts recognized in the Consolidated Balance Sheet:
	U.S. Pension Plans						International Pension Plans
	2013			2012			2013		2012
Prepaid benefit asset - non-current	$	10		$	—		$	33	$	33
Accrued benefit liability - current	(8		)	(19		)	—		—
Accrued benefit liability - non-current	(94		)	(326		)	—		—
	$	(92	)	$	(345	)	$	33	$	33


(a)	For discussion of the settlement payments and settlement losses, see Pension Settlement Charges section of Note 4.


(b)	2013 includes the transfer of certain non-qualified pension benefits into a defined benefit plan not included in the table above due to its insignificance.

The accumulated benefit obligation for the U.S. and International pension plans was $1,209 million and $1,426 million at December 28, 2013 and December 29, 2012, respectively.



Information for pension plans with an accumulated benefit obligation in excess of plan assets:
	U.S. Pension Plans				International Pension Plans
	2013		2012		2013		2012
Projected benefit obligation	$	102	$	1,290	$	—	$	—
Accumulated benefit obligation	94		1,239		—		—
Fair value of plan assets	—		945		—		—



Information for pension plans with a projected benefit obligation in excess of plan assets:
	U.S. Pension Plans				International Pension Plans
	2013		2012		2013		2012
Projected benefit obligation	$	102	$	1,290	$	—	$	—
Accumulated benefit obligation	94		1,239		—		—
Fair value of plan assets	—		945		—		—

Components of net periodic benefit cost:



	U.S. Pension Plans									International Pension Plans
Net periodic benefit cost	2013			2012			2011			2013			2012			2011
Service cost	$	21		$	26		$	24		$	1		$	2		$	5
Interest cost	54			66			64			8			8			10
Amortization of prior service cost^(a)	2			1			1			—			—			—
Expected return on plan assets	(59		)	(71		)	(71		)	(12		)	(11		)	(12		)
Amortization of net loss	48			63			31			1			1			2
Net periodic benefit cost	$	66		$	85		$	49		$	(2	)	$	—		$	5
Additional (gain) loss recognized due to: Settlements^(b)	$	30		$	89		$	—		$	—		$	—		$	—
Special termination benefits^(c)	$	5		$	3		$	5		$	—		$	—		$	—
Curtailment^(d)	$	—		$	—		$	—		$	(5	)	$	—		$	—


(a)	Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits.


(b)	Settlement losses result from benefit payments exceeding the sum of the service cost and interest cost for each plan during the year. $10 million and $84 million for 2013 and 2012, respectively of these settlement losses, were not allocated for performance reporting purposes. See Note 4 for discussion of the settlement payments and settlement losses.


(c)	Special termination benefits primarily related to the U.S. business transformation measures taken in 2013, 2012 and 2011.


(d)	Gain is a result of terminating future service benefits for all participants in one of our UK plans in 2013. The gain was recorded in YRI's G&A expenses, as amounts in Accumulated other comprehensive income (loss) related to this plan were in a net gain position.



Pension (gains) losses in Accumulated other comprehensive income (loss):
	U.S. Pension Plans						International Pension Plans
	2013			2012			2013			2012
Beginning of year	$	428		$	543		$	14		$	30
Net actuarial (gain) loss	(221		)	43			10			(15		)
Curtailments	(3		)	(10		)	—			—
Amortization of net loss	(48		)	(63		)	(1		)	(1		)
Amortization of prior service cost	(2		)	(1		)	—			—
Prior service cost	—			5			—			—
Settlement charges	(30		)	(89		)	—			—
Exchange rate changes	—			—			—			—
End of year	$	124		$	428		$	23		$	14



Accumulated pre-tax losses recognized within Accumulated Other Comprehensive Income:
	U.S. Pension Plans				International Pension Plans
	2013		2012		2013		2012
Actuarial net loss	$	119	$	421	$	23	$	14
Prior service cost	5		7		—		—
	$	124	$	428	$	23	$	14

The estimated net loss for the U.S. and International pension plans that will be amortized from Accumulated other comprehensive income (loss) into net periodic pension cost in 2014 is $17 million and less than $1 million, respectively. The estimated prior service cost for the U.S. pension plans that will be amortized from Accumulated other comprehensive income (loss) into net periodic pension cost in 2014 is $1 million.



Weighted-average assumptions used to determine benefit obligations at the measurement dates:
	U.S. Pension Plans				International Pension Plans
	2013		2012		2013			2012
Discount rate	5.40	%	4.40	%	4.70	%		4.70	%
Rate of compensation increase	3.75	%	3.75	%	N/A		^(a)	3.70	%



Weighted-average assumptions used to determine the net periodic benefit cost for fiscal years:
	U.S. Pension Plans						International Pension Plans
	2013		2012		2011		2013		2012		2011
Discount rate	4.40	%	4.90	%	5.90	%	4.69	%	4.75	%	5.40	%
Long-term rate of return on plan assets	7.25	%	7.25	%	7.75	%	5.37	%	5.55	%	6.64	%
Rate of compensation increase	3.75	%	3.75	%	3.75	%	1.74	%	3.85	%	4.41	%

(a) As of 2013, both plans presented are now frozen to future service cost credits.

Our estimated long-term rate of return on plan assets represents the weighted-average of expected future returns on the asset categories included in our target investment allocation based primarily on the historical returns for each asset category.

Plan Assets

The fair values of our pension plan assets at December 28, 2013 by asset category and level within the fair value hierarchy are as follows:



	U.S. Pension Plans		International Pension Plans
Level 1:
Cash^(a)	$	—	$	1
Level 2:
Cash Equivalents^(a)	5		—
Equity Securities – U.S. Large cap^(b)	329		—
Equity Securities – U.S. Mid cap^(b)	55		—
Equity Securities – U.S. Small cap^(b)	53		—
Equity Securities – Non-U.S.^(b)	110		159
Fixed Income Securities – U.S. Corporate^(b)	234		—
Fixed Income Securities – Non-U.S. Corporate^(b)	—		33
Fixed Income Securities – U.S. Government and Government Agencies^(c)	129		—
Fixed Income Securities – Other^(d)	15		66
Total fair value of plan assets^(e)	$	930	$	259


(a)	Short-term investments in money market funds


(b)	Securities held in common trusts


(c)	Investments held directly by the Plan


(d)	Includes securities held in common trusts and investments held directly by the Plan


(e)	U. S. plans exclude net unsettled trades receivable of $3 million

Our primary objectives regarding the investment strategy for the Plan’s assets, which make up 78% of total pension plan assets at the 2013 measurement date, are to reduce interest rate and market risk and to provide adequate liquidity to meet immediate and future payment requirements. To achieve these objectives, we are using a combination of active and passive investment strategies. Our equity securities, currently targeted to be rebalanced to 45% from 55% of our investment mix, consist primarily of low-cost index funds focused on achieving long-term capital appreciation. We diversify our equity risk by investing in several different U.S. and foreign market index funds. Investing in these index funds provides us with the adequate liquidity required to fund benefit payments and plan expenses. The fixed income asset allocation, currently targeted to be rebalanced to 55% from 45% of our mix, is actively managed and consists of long-duration fixed income securities that help to reduce exposure to interest rate variation and to better correlate asset maturities with obligations. The fair values of all pension plan assets are determined based on closing market prices or net asset values.

A mutual fund held as an investment by the Plan includes shares of YUM common stock valued at $0.2 million at December 28, 2013 and $0.7 million at December 29, 2012 (less than 1% of total plan assets in each instance).

Benefit Payments

The benefits expected to be paid in each of the next five years and in the aggregate for the five years thereafter are set forth below:



Year ended:	U.S. Pension Plans		International Pension Plans
2014	$	50	$	1
2015	46		1
2016	48		1
2017	47		1
2018	50		1
2019 - 2023	282		7

Expected benefits are estimated based on the same assumptions used to measure our benefit obligation on the measurement date and include benefits attributable to estimated future employee service.

Retiree Medical Benefits

Our post-retirement plan provides health care benefits, principally to U.S. salaried retirees and their dependents, and includes retiree cost-sharing provisions. During 2001, the plan was amended such that any salaried employee hired or rehired by YUM after September 30, 2001 is not eligible to participate in this plan. Employees hired prior to September 30, 2001 are eligible for benefits if they meet age and service requirements and qualify for retirement benefits. We fund our post-retirement plan as benefits are paid.

At the end of 2013 and 2012, the accumulated post-retirement benefit obligation was $70 million and $83 million, respectively. An actuarial gain of $2 million was recognized in Accumulated other comprehensive loss at the end of 2013, and an actuarial loss of $8 million was recognized in Accumulated other comprehensive loss at the end of 2012. The net periodic benefit cost recorded was $5 million in 2013, and was $6 million in both 2012 and 2011, the majority of which is interest cost on the accumulated post-retirement benefit obligation. The weighted-average assumptions used to determine benefit obligations and net periodic benefit cost for the post-retirement medical plan are identical to those as shown for the U.S. pension plans. Our assumed heath care cost trend rates for the following year as of 2013 and 2012 are 7.2% and 7.4%, respectively, with expected ultimate trend rates of 4.5% reached in 2028.

There is a cap on our medical liability for certain retirees. The cap for Medicare-eligible retirees was reached in 2000 and the cap for non-Medicare eligible retirees is expected to be reached in 2014; once the cap is reached, our annual cost per retiree will not increase. A one-percentage-point increase or decrease in assumed health care cost trend rates would have less than a $1 million impact on total service and interest cost and on the post-retirement benefit obligation. The benefits expected to be paid in each of the next five years are approximately $6 million and in aggregate for the five years thereafter are $23 million.

Retiree Savings Plan

We sponsor a contributory plan to provide retirement benefits under the provisions of Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) for eligible U.S. salaried and hourly employees. Participants are able to elect to contribute up to 75% of eligible compensation on a pre-tax basis. Participants may allocate their contributions to one or any combination of multiple investment options or a self-managed account within the 401(k) Plan. We match 100% of the participant’s contribution to the 401(k) Plan up to 6% of eligible compensation. We recognized as compensation expense our total matching contribution of $12 million in 2013, $13 million in 2012 and $14 million in 2011.