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Benefit Plans
 12 Months Ended
Dec. 31, 2017
Retirement Benefits [Abstract]  
Benefit Plans
Benefit Plans:

Pension coverage for employees of PMI’s subsidiaries is provided, to the extent deemed appropriate, through separate plans, many of which are plans outside of the U.S., which are governed by local statutory requirements, and to a lesser extent U.S. plans that are closed to new participants. In addition, PMI provides health care and other benefits to substantially all U.S. retired employees and certain non-U.S. retired employees. In general, health care benefits for non-U.S. retired employees are covered through local government plans.

Pension and Postretirement Benefit Plans

Obligations and Funded Status

The postretirement health care plans are not funded. The projected benefit obligations, plan assets and funded status of PMI’s pension plans, and the accumulated benefit obligation and net amount accrued for PMI's postretirement health care plans, at December 31, 2017 and 2016, were as follows:
 
Pension(1)
 
Postretirement
(in millions)
2017
 
2016
 
2017
 
2016
Benefit obligation at January 1,
$
8,387

 
$
8,086

 
$
227

 
$
211

Service cost
208

 
207

 
4

 
3

Interest cost
108

 
146

 
8

 
9

Benefits paid
(226
)
 
(240
)
 
(10
)
 
(10
)
Settlement and curtailment
—

 
(1
)
 
—

 
—

Actuarial losses (gains)
(93
)
 
427

 
12

 
15

Currency
621

 
(329
)
 
7

 
(2
)
Other
23

 
91

 
—

 
1

Benefit obligation at December 31,
9,028

 
8,387

 
248

 
227

Fair value of plan assets at January 1,
6,457

 
6,404

 
 
 
 
Actual return on plan assets
742

 
322

 
 
 
 
Employer contributions
66

 
191

 
 
 
 
Employee contributions
40

 
39

 
 
 
 
Benefits paid
(226
)
 
(240
)
 
 
 
 
Settlement and curtailment
—

 
—

 
 
 
 
Currency
519

 
(259
)
 
 
 
 
Fair value of plan assets at December 31,
7,598

 
6,457

 
 
 
 
Net pension and postretirement liability recognized at December 31,
$
(1,430
)
 
$
(1,930
)
 
$
(248
)
 
$
(227
)


(1) Primarily non-U.S. based defined benefit retirement plans.

At December 31, 2017 and 2016, the Swiss pension plan represented 57% and 57% of the benefit obligation, respectively, and approximately 57% of the fair value of plan assets for each of the years. At December 31, 2017 and 2016, the U.S. pension plan represented 5% and 5% of the benefit obligation, respectively, and approximately 4% and 5% of the fair value of plan assets at December 31, 2017 and 2016, respectively.

At December 31, 2017 and 2016, the amounts recognized on PMI's consolidated balance sheets for the pension and postretirement plans were as follows:

 
Pension
 
Postretirement
(in millions)
2017
 
2016
 
2017
 
2016
Other assets
$
47

 
$
33

 
 
 
 
Accrued liabilities — employment costs
(26
)
 
(23
)
 
$
(10
)
 
$
(10
)
Long-term employment costs
(1,451
)
 
(1,940
)
 
(238
)
 
(217
)
 
$
(1,430
)
 
$
(1,930
)
 
$
(248
)
 
$
(227
)


The accumulated benefit obligation, which represents benefits earned to date, for the pension plans was $8,496 million and $7,931 million at December 31, 2017 and 2016, respectively.

For pension plans with accumulated benefit obligations in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets were $7,287 million, $6,953 million and $5,835 million, respectively, as of December 31, 2017. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets were $6,934 million, $6,622 million and $5,009 million, respectively, as of December 31, 2016.

The following weighted-average assumptions were used to determine PMI’s pension and postretirement benefit obligations at December 31:
 
Pension
 
Postretirement
 
2017
 
2016
 
2017
 
2016
Discount rate
1.51
%
 
1.52
%
 
3.79
%
 
3.68
%
Rate of compensation increase
1.65

 
1.68

 
 
 
 
Health care cost trend rate assumed for next year
 
 
 
 
6.17

 
7.15

Ultimate trend rate
 
 
 
 
4.62

 
5.08

Year that rate reaches the ultimate trend rate
 
 
 
 
2029
 
2029



The discount rate for the largest pension plans is based on a yield curve constructed from a portfolio of high quality corporate bonds that produces a cash flow pattern equivalent to each plan’s expected benefit payments.  The discount rate for the remaining plans is developed from local bond indices that match local benefit obligations as closely as possible.

Components of Net Periodic Benefit Cost

Net periodic pension and postretirement health care costs consisted of the following for the years ended December 31, 2017, 2016 and 2015:
 
Pension
 
Postretirement
(in millions)
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Service cost
$
208

 
$
207

 
$
205

 
$
4

 
$
3

 
$
4

Interest cost
108

 
146

 
156

 
8

 
9

 
9

Expected return on plan assets
(326
)
 
(346
)
 
(340
)
 
—

 
—

 
—

Amortization:
 
 
 
 
 
 
 
 
 
 
 
Net losses
186

 
186

 
194

 
5

 
2

 
4

Prior service cost
6

 
4

 
4

 
—

 
—

 
—

Settlement and curtailment
6

 
4

 
3

 
—

 
—

 
—

Net periodic pension and postretirement costs
$
188

 
$
201

 
$
222

 
$
17

 
$
14

 
$
17



As of December 31, 2016, PMI elected to change the method used to calculate the service and interest cost components of the net periodic pension benefit costs. Historically, these costs were determined utilizing a single weighted-average discount rate based on a yield curve used to measure the benefit obligation at the beginning of the period. As of January 1, 2017, PMI utilized a full yield curve approach in the estimation of the service and interest costs by applying the specific spot rates along the yield curve to the relevant projected cash flows. Specifically, service costs were determined based on duration-specific spot rates applied to service cost cash flows, and interest costs were determined by applying duration-specific spot rates to the year-by-year projected benefit payments.  PMI changed to the new method to provide a more precise measurement of service and interest costs by improving the correlation between the projected benefit cash flows to the corresponding spot rates along the yield curve. PMI accounted for this change as a change in accounting estimate on a prospective basis. This change did not affect the measurement of PMI’s pension plan obligations and did not have a material impact on PMI’s consolidated results of operations, financial position or cash flows.

Settlement and curtailment charges were due primarily to early retirement programs.

For the pension plans, the estimated net loss and prior service cost that are expected to be amortized from accumulated other comprehensive earnings into net periodic benefit cost during 2018 are $171 million and $2 million, respectively.

The following weighted-average assumptions were used to determine PMI’s net pension and postretirement health care costs:
 
Pension
 
Postretirement
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Discount rate - service cost
1.68
%
 
1.81
%
 
2.04
%
 
3.68
%
 
4.45
%
 
4.20
%
Discount rate - interest cost
1.27

 
1.81

 
2.04

 
3.68

 
4.45

 
4.20

Expected rate of return on plan assets
4.80

 
5.36

 
5.38

 
 
 
 
 
 
Rate of compensation increase
1.68

 
2.03

 
2.12

 
 
 
 
 
 
Health care cost trend rate
 
 
 
 
 
 
7.15

 
6.23

 
6.62



PMI’s expected rate of return on pension plan assets is determined by the plan assets’ historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class.

PMI and certain of its subsidiaries sponsor defined contribution plans. Amounts charged to expense for defined contribution plans totaled $58 million, $56 million and $52 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Plan Assets

PMI’s investment strategy for pension plans is based on an expectation that equity securities will outperform debt securities over the long term. Accordingly, the target allocation of PMI’s plan assets is broadly characterized as approximately a 60%/40% split between equity and debt securities. The strategy primarily utilizes indexed U.S. equity securities, international equity securities and investment-grade debt securities. PMI’s plans have no investments in hedge funds, private equity or derivatives. PMI attempts to mitigate investment risk by rebalancing between equity and debt asset classes once a year or as PMI’s contributions and benefit payments are made.

The fair value of PMI’s pension plan assets at December 31, 2017 and 2016, by asset category was as follows:
Asset Category
(in millions)
At December 31, 2017
 
Quoted Prices 
In Active 
Markets for 
Identical
Assets/Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
$
17

 
$
17

 


 


Equity securities:
 
 
 
 
 
 
 
U.S. securities
146

 
146

 


 


International securities
518

 
518

 


 


Investment funds(a)
6,219

 
4,191

 
$
2,028

 


International government bonds
119

 
119

 


 


Corporate bonds
247

 
247

 


 


Other
22

 
22

 


 


Total assets in the fair value hierarchy
$
7,288

 
$
5,260

 
$
2,028

 
$
—

Investment funds measured at net asset value(b)
310

 
 
 
 
 
 
Total assets
$
7,598

 
 
 
 
 
 

(a) Investment funds whose objective seeks to replicate the returns and characteristics of specified market indices (primarily MSCI — Europe, Switzerland, North America, Asia Pacific, Japan; Russell 3000; S&P 500 for equities, and Citigroup EMU and Barclays Capital U.S. for bonds), primarily consist of mutual funds, common trust funds and commingled funds. Of these funds, 60% are invested in U.S. and international equities; 20% are invested in U.S. and international government bonds; 10% are invested in real estate and other money markets, and 10% are invested in corporate bonds.

(b) In accordance with FASB ASC Subtopic 820-10, certain investments measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

Asset Category
(in millions)
At December 31, 2016
 
Quoted Prices 
In Active 
Markets for 
Identical
Assets/Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
$
8

 
$
8

 


 


Equity securities:
 
 
 
 
 
 
 
U.S. securities
131

 
131

 


 


International securities
432

 
432

 


 


Investment funds(a)
5,270

 
3,530

 
$
1,740

 


International government bonds
309

 
309

 


 


Other
10

 
10

 


 


Total assets in the fair value hierarchy
$
6,160

 
$
4,420

 
$
1,740

 
$
—

Investment funds measured at net asset value(b)
297

 
 
 
 
 
 
Total assets
$
6,457

 
 
 
 
 
 

(a) Investment funds whose objective seeks to replicate the returns and characteristics of specified market indices (primarily MSCI — Europe, Switzerland, North America, Asia Pacific, Japan; Russell 3000; S&P 500 for equities, and Citigroup EMU and Barclays Capital U.S. for bonds), primarily consist of mutual funds, common trust funds and commingled funds. Of these funds, 60% were invested in U.S. and international equities; 19% were invested in U.S. and international government bonds; 11% were invested in real estate and other money markets, and 10% were invested in corporate bonds.

(b) In accordance with FASB ASC Subtopic 820-10, certain investments measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

See Note 16. Fair Value Measurements for a discussion of the fair value of pension plan assets.

PMI makes, and plans to make, contributions to the extent that they are tax deductible and to meet specific funding requirements of its funded pension plans. Currently, PMI anticipates making contributions of approximately $53 million in 2018 to its pension plans, based on current tax and benefit laws. However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension assets, or changes in interest and currency rates.

The estimated future benefit payments from PMI pension plans at December 31, 2017, are as follows:
(in millions)
 
2018
$
295

2019
290

2020
309

2021
318

2022
330

2023 - 2027
1,879


PMI's expected future annual benefit payments for its postretirement health care plans are estimated to be not material through 2027.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care trend rates would have the following effects as of December 31, 2017:
 
One-Percentage-Point Increase

 
One-Percentage-Point Decrease

Effect on total service and interest cost
21.7
%
 
(16.7
)%
Effect on postretirement benefit obligation
16.3

 
(13.0
)

Postemployment Benefit Plans

PMI and certain of its subsidiaries sponsor postemployment benefit plans covering substantially all salaried and certain hourly employees. The cost of these plans is charged to expense over the working life of the covered employees. Net postemployment costs were $144 million, $166 million and $187 million for the years ended December 31, 2017, 2016 and 2015, respectively.

The estimated net loss for the postemployment benefit plans that will be amortized from accumulated other comprehensive losses into net postemployment costs during 2018 is approximately $60 million.

The amounts recognized in accrued postemployment costs on PMI's consolidated balance sheets at December 31, 2017 and 2016, were $671 million and $727 million, respectively.

The accrued postemployment costs were determined using a weighted-average discount rate of 3.0% and 2.8% in 2017 and 2016, respectively; an assumed ultimate annual weighted-average turnover rate of 2.6% and 2.8% in 2017 and 2016, respectively; assumed compensation cost increases of 2.3% in 2017 and 2.6% in 2016, and assumed benefits as defined in the respective plans. In accordance with local regulations, certain postemployment plans are funded. As a result, the accrued postemployment costs disclosed above are presented net of the related assets of $33 million and $25 million at December 31, 2017 and 2016, respectively. Postemployment costs arising from actions that offer employees benefits in excess of those specified in the respective plans are charged to expense when incurred.

Comprehensive Earnings (Losses)

The amounts recorded in accumulated other comprehensive losses at December 31, 2017, consisted of the following:

(in millions)
Pension
 
Post-
retirement
 
Post-
employment
 
Total
Net losses
$
(2,624
)
 
$
(80
)
 
$
(617
)
 
$
(3,321
)
Prior service cost
(35
)
 
4

 
—

 
(31
)
Net transition obligation
(5
)
 
—

 
—

 
(5
)
Deferred income taxes
327

 
28

 
186

 
541

Losses to be amortized
$
(2,337
)
 
$
(48
)
 
$
(431
)
 
$
(2,816
)

The amounts recorded in accumulated other comprehensive losses at December 31, 2016, consisted of the following:

(in millions)
Pension
 
Post-
retirement
 
Post-
employment
 
Total
Net losses
$
(3,314
)
 
$
(73
)
 
$
(713
)
 
$
(4,100
)
Prior service cost
(53
)
 
4

 
—

 
(49
)
Net transition obligation
(5
)
 
—

 
—

 
(5
)
Deferred income taxes
350

 
24

 
215

 
589

Losses to be amortized
$
(3,022
)
 
$
(45
)
 
$
(498
)
 
$
(3,565
)

The amounts recorded in accumulated other comprehensive losses at December 31, 2015, consisted of the following:

(in millions)
Pension
 
Post-
retirement
 
Post-
employment
 
Total
Net losses
$
(3,074
)
 
$
(61
)
 
$
(710
)
 
$
(3,845
)
Prior service cost
(40
)
 
5

 
—

 
(35
)
Net transition obligation
(5
)
 
—

 
—

 
(5
)
Deferred income taxes
320

 
20

 
213

 
553

Losses to be amortized
$
(2,799
)
 
$
(36
)
 
$
(497
)
 
$
(3,332
)


The movements in other comprehensive earnings (losses) during the year ended December 31, 2017, were as follows:

(in millions)
Pension
 
Post-
retirement
 
Post-
employment
 
Total
Amounts transferred to earnings as components of net periodic benefit cost:
 
 
 
 
 
 
 
Amortization:
 
 
 
 
 
 
 
Net losses
$
175

 
$
5

 
$
68

 
$
248

Prior service cost
5

 
—

 
—

 
5

Other income/expense:
 
 
 
 
 
 
 
Net losses
6

 
—

 
—

 
6

    Prior service cost
—

 
—

 
—

 
—

Deferred income taxes
(10
)
 
(1
)
 
(20
)
 
(31
)
 
176

 
4

 
48

 
228

Other movements during the year:
 
 
 
 
 
 
 
Net losses
509

 
(12
)
 
28

 
525

Prior service cost
13

 
—

 
—

 
13

Deferred income taxes
(13
)
 
5

 
(9
)
 
(17
)
 
509

 
(7
)
 
19

 
521

Total movements in other comprehensive earnings (losses)
$
685

 
$
(3
)
 
$
67

 
$
749


The movements in other comprehensive earnings (losses) during the year ended December 31, 2016, were as follows:
(in millions)
Pension
 
Post-
retirement
 
Post-
employment
 
Total
Amounts transferred to earnings as components of net periodic benefit cost:
 
 
 
 
 
 
 
Amortization:
 
 
 
 
 
 
 
Net losses
$
193

 
$
2

 
$
62

 
$
257

Prior service cost
6

 
—

 
—

 
6

Other income/expense:
 
 
 
 
 
 
 
Net losses
4

 
—

 
—

 
4

Prior service cost
—

 
—

 
—

 
—

Deferred income taxes
(26
)
 
—

 
(17
)
 
(43
)
 
177

 
2

 
45

 
224

Other movements during the year:
 
 
 
 
 
 
 
Net losses
(437
)
 
(15
)
 
(65
)
 
(517
)
Prior service cost
(18
)
 
—

 
—

 
(18
)
Deferred income taxes
55

 
4

 
19

 
78

 
(400
)
 
(11
)
 
(46
)
 
(457
)
Total movements in other comprehensive earnings (losses)
$
(223
)
 
$
(9
)
 
$
(1
)
 
$
(233
)

The movements in other comprehensive earnings (losses) during the year ended December 31, 2015, were as follows:
(in millions)
Pension
 
Post-
retirement
 
Post-
employment
 
Total
Amounts transferred to earnings as components of net periodic benefit cost:
 
 
 
 
 
 
 
Amortization:
 
 
 
 
 
 
 
Net losses
$
194

 
$
4

 
$
69

 
$
267

Prior service cost
4

 
—

 
—

 
4

Other income/expense:
 
 
 
 
 
 
 
Net losses
3

 
—

 
—

 
3

Prior service cost
1

 
—

 
—

 
1

Deferred income taxes
(26
)
 
(2
)
 
(20
)
 
(48
)
 
176

 
2

 
49

 
227

Other movements during the year:
 
 
 
 
 
 
 
Net losses
(510
)
 
12

 
(58
)
 
(556
)
Deferred income taxes
4

 
(4
)
 
17

 
17

 
(506
)
 
8

 
(41
)
 
(539
)
Total movements in other comprehensive earnings (losses)
$
(330
)
 
$
10

 
$
8

 
$
(312
)