Note 19. PENSION, POSTRETIREMENT AND POSTEMPLOYMENT LIABILITIES

The Company and certain of its subsidiaries sponsor defined benefit pension plans, defined contribution plans and termination indemnity plans for regular full-time employees. The principal defined benefit pension plan is the Bristol-Myers Squibb Retirement Income Plan, which covers most U.S. employees and represents approximately 71% and 64% of the consolidated pension plan assets and obligations respectively. The funding policy is to contribute at least the minimum amount required by the Employee Retirement Income Security Act of 1974 (ERISA). Plan benefits are based primarily on the participant’s years of credited service and final average compensation. Plan assets consist principally of equity and fixed-income securities.

Comprehensive medical and group life benefits are provided for substantially all U.S. retirees who elect to participate in comprehensive medical and group life plans. The medical plan is contributory. Contributions are adjusted periodically and vary by date of retirement. The life insurance plan is noncontributory. Plan assets consist principally of equity and fixed-income securities. Similar plans exist for employees in certain countries outside of the U.S.

The net periodic benefit (credit)/cost of defined benefit pension and postretirement benefit plans includes:



	Pension Benefits									Other Benefits
Dollars in Millions	2013			2012			2011			2013			2012			2011
Service cost — benefits earned during the year	$	38		$	32		$	43		$	8		$	8		$	8
Interest cost on projected benefit obligation	302			319			337			13			22			26
Expected return on plan assets	(519		)	(508		)	(464		)	(26		)	(25		)	(26		)
Amortization of prior service credits	(4		)	(3		)	(1		)	(2		)	(2		)	(3		)
Amortization of net actuarial loss	134			129			112			1			10			7
Curtailments	—			(1		)	(3		)	—			—			(1		)
Settlements	165			160			15			—			—			—
Total net periodic benefit (credit)/cost	$	116		$	128		$	39		$	(6	)	$	13		$	11

Pension settlement charges were recognized after determining the annual lump sum payments will exceed the annual interest and service costs for certain pension plans, including the primary U.S. pension plan in 2013 and 2012.

Changes in defined benefit and postretirement benefit plan obligations, assets, funded status and amounts recognized in the consolidated balance sheets were as follows:



	Pension Benefits						Other Benefits
Dollars in Millions	2013			2012			2013			2012
Benefit obligations at beginning of year	$	8,200		$	7,499		$	460		$	582
Service cost—benefits earned during the year	38			32			8			8
Interest cost	302			319			13			22
Plan participants’ contributions	2			2			23			24
Curtailments	—			(19		)	—			—
Settlements	(350		)	(260		)	—			—
Plan amendments	(1		)	(8		)	—			—
Actuarial losses/(gains)	(761		)	838			(43		)	(107		)
Retiree Drug Subsidy	—			—			6			6
Benefits paid	(206		)	(227		)	(63		)	(76		)
Exchange rate losses	9			24			—			1
Benefit obligations at end of year	$	7,233		$	8,200		$	404		$	460

Fair value of plan assets at beginning of year	$	6,542		$	5,842		$	311		$	305
Actual return on plan assets	1,154			761			61			41
Employer contributions	251			396			9			11
Plan participants’ contributions	2			2			23			24
Settlements	(350		)	(260		)	—			—
Retiree Drug Subsidy	—			—			6			6
Benefits paid	(206		)	(227		)	(63		)	(76		)
Exchange rate gains	13			28			—			—
Fair value of plan assets at end of year	$	7,406		$	6,542		$	347		$	311

Funded status	$	173		$	(1,658	)	$	(57	)	$	(149	)

Assets/(Liabilities) recognized:
Other assets	$	731		$	22		$	87		$	12
Accrued expenses	(35		)	(37		)	(12		)	(12		)
Pension and other postretirement liabilities	(523		)	(1,643		)	(132		)	(149		)
Funded status	$	173		$	(1,658	)	$	(57	)	$	(149	)

Recognized in accumulated other comprehensive loss:
Net actuarial losses/(gains)	$	2,878		$	4,572		$	(44	)	$	34
Net obligation at adoption	—			1			—			—
Prior service credit	(41		)	(44		)	(4		)	(6		)
Total	$	2,837		$	4,529		$	(48	)	$	28

The accumulated benefit obligation for all defined benefit pension plans was $7,125 million and $8,068 million at December 31, 2013 and 2012, respectively.

Additional information related to pension plans was as follows:



Dollars in Millions	2013		2012
Pension plans with projected benefit obligations in excess of plan assets:
Projected benefit obligation	$	1,291	$	8,112
Fair value of plan assets	732		6,432
Pension plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation	$	1,101	$	7,987
Fair value of plan assets	608		6,432

Actuarial Assumptions

Weighted-average assumptions used to determine benefit obligations at December 31 were as follows:



	Pension Benefits				Other Benefits
	2013		2012		2013		2012
Discount rate	4.4	%	3.7	%	3.8	%	3.0	%
Rate of compensation increase	2.3	%	2.3	%	2.1	%	2.0	%

Weighted-average actuarial assumptions used to determine net periodic benefit (credit)/cost for the years ended December 31 were as follows:



	Pension Benefits						Other Benefits
	2013		2012		2011		2013		2012		2011
Discount rate	4.1	%	4.4	%	5.2	%	3.0	%	4.1	%	4.8	%
Expected long-term return on plan assets	8.0	%	8.2	%	8.3	%	8.8	%	8.8	%	8.8	%
Rate of compensation increase	2.3	%	2.3	%	2.4	%	2.1	%	2.0	%	2.0	%

The yield on high quality corporate bonds that matches the duration of the benefit obligations is used in determining the discount rate. The Citigroup Pension Discount curve is used in developing the discount rate for the U.S. plans.

Several factors are considered in developing the expected return on plan assets, including long-term historical returns and input from external advisors. Individual asset class return forecasts were developed based upon market conditions, for example, price-earnings levels and yields and long-term growth expectations. The expected long-term rate of return is the weighted-average of the target asset allocation of each individual asset class. Historical long-term actual annualized returns for U.S. pension plans were as follows:



	2013		2012		2011
10 years	8.0	%	8.5	%	5.6	%
15 years	6.8	%	6.5	%	7.0	%
20 years	8.8	%	8.5	%	8.1	%

The accumulated other comprehensive loss was reduced by $1,475 million during 2013 as a result of actuarial gains attributed to the benefit obligation ($805 million) and higher than expected return on plan assets ($670 million). These actuarial gains resulted from prevailing equity and fixed income market conditions and an increase in interest rates in 2013.

The expected return on plan assets was determined using the expected rate of return and a calculated value of assets, referred to as the “market-related value”. The fair value of plan assets exceeded the market-related value by $455 million at December 31, 2013. Differences between the assumed and actual returns are amortized to the market-related value on a straight-line basis over a three-year period.

Gains and losses have resulted from changes in actuarial assumptions (such as changes in the discount rate) and from differences between assumed and actual experience (such as differences between actual and expected return on plan assets). These gains and losses (except those differences being amortized to the market-related value) are only amortized to the extent they exceed 10% of the higher of the market-related value or the projected benefit obligation for each respective plan. The majority of the remaining actuarial losses are amortized over the life expectancy of the plans’ participants for U.S. plans (28 years) and expected remaining service periods for most other plans into cost of products sold, research and development, and marketing, selling and administrative expenses. The amortization of net actuarial loss and prior service credit is expected to be approximately $100 million in 2014.

Assumed healthcare cost trend rates at December 31 were as follows:



	2013		2012		2011
Healthcare cost trend rate assumed for next year	6.4	%	6.8	%	7.4	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.5	%	4.5	%	4.5	%
Year that the rate reaches the ultimate trend rate	2019		2018		2018

Assumed healthcare cost trend rates have an effect on the amounts reported for the healthcare plans. A one-percentage-point change in assumed healthcare cost trend rates would not have a material impact on the service and interest cost or post retirement benefit obligation.

Plan Assets

The fair value of pension and postretirement plan assets by asset category at December 31, 2013 and 2012 was as follows:



	December 31, 2013								December 31, 2012
Dollars in Millions	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Equity Securities	$	1,804	$	—	$	—	$	1,804	$	2,196	$	—	$	—	$	2,196
Equity Funds	534		1,679		—		2,213		410		1,555		—		1,965
Fixed Income Funds	238		657		—		895		234		401		—		635
Corporate Debt Securities	—		1,410		—		1,410		—		453		3		456
Venture Capital and Limited Partnerships	—		—		369		369		—		—		381		381
Government Mortgage Backed Securities	—		1		—		1		—		350		8		358
U.S. Treasury and Agency Securities	—		514		—		514		—		259		—		259
Short-Term Investment Funds	—		122		—		122		—		189		—		189
Insurance Contracts	—		—		142		142		—		—		132		132
Event Driven Hedge Funds	—		122		—		122		—		92		—		92
Collateralized Mortgage Obligation Bonds	—		—		—		—		—		50		6		56
State and Municipal Bonds	—		24		—		24		—		44		3		47
Asset Backed Securities	—		—		—		—		—		23		3		26
Real Estate	4		—		—		4		3		—		—		3
Cash and Cash Equivalents	133		—		—		133		58		—		—		58
Total plan assets at fair value	$	2,713	$	4,529	$	511	$	7,753	$	2,901	$	3,416	$	536	$	6,853

The investment valuation policies per investment class are as follows:

Level 1 inputs utilize quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. These instruments include equity securities, equity funds, real estate funds and fixed income funds publicly traded on a national securities exchange, and cash and cash equivalents. Cash and cash equivalents are highly liquid investments with original maturities of three months or less at the time of purchase and are recognized at cost, which approximates fair value. Pending trade sales and purchases are included in cash and cash equivalents until final settlement.

Level 2 inputs include observable prices for similar instruments, quoted prices for identical or similar instruments in markets that are not active, and other observable inputs that can be corroborated by market data for substantially the full term of the assets or liabilities. Equity funds, fixed income funds, event driven hedge funds and short-term investment funds classified as Level 2 within the fair value hierarchy are valued at the net asset value of their shares held at year end. There were no significant unfunded commitments or restrictions on redemptions related to investments valued at NAV as of December 31, 2013. Corporate debt securities, government mortgage backed securities, collateralized mortgage obligation bonds, asset backed securities, U.S. treasury and agency securities, and state and municipal bonds classified as Level 2 within the fair value hierarchy are valued utilizing observable prices for similar instruments and quoted prices for identical or similar instruments in markets that are not active.

Level 3 unobservable inputs are used when little or no market data is available. Venture capital and limited partnerships classified as Level 3 within the fair value hierarchy invest in underlying securities whose market values are determined using pricing models, discounted cash flow methodologies, or similar techniques. Some of the most significant unobservable inputs used in the valuation methodologies include discount rates, Earning Before Interest, Taxes, Depreciation and Amortization (EBITDA) multiples, and revenue multiples. Significant changes in any of these inputs could result in significantly lower or higher fair value measurements. Insurance contract interests are carried at contract value, which approximates the estimated fair value and is based on the fair value of the underlying investment of the insurance company. Insurance contracts are held by certain foreign pension plans. Valuation models for corporate debt securities, government mortgage backed securities, collateralized mortgage obligation bonds and asset backed securities classified as Level 3 within the fair value hierarchy are based on estimated bids from brokers or other third-party vendor sources that utilize expected cash flow streams and collateral values including assessments of counterparty credit quality, default risk, discount rates and overall capital market liquidity.

The following summarizes the activity for financial assets utilizing Level 3 fair value measurements:



Dollars in Millions	Venture Capital and Limited Partnerships			Insurance Contracts			Other			Total
Fair value at January 1, 2012	$	408		$	125		$	33		$	566
Purchases	43			5			—			48
Sales	(8		)	(7		)	(10		)	(25		)
Settlements	(51		)	—			(2		)	(53		)
Realized (losses)/gains	53			—			(4		)	49
Unrealized gains/(losses)	(64		)	9			6			(49		)
Fair value at December 31, 2012	381			132			23			536
Purchases	22			4			—			26
Sales	(12		)	(8		)	(4		)	(24		)
Settlements	(101		)	—			(19		)	(120		)
Realized gains	48			5			—			53
Unrealized gains	31			9			—			40
Fair value at December 31, 2013	$	369		$	142		$	—		$	511

The investment strategy emphasizes equities in order to achieve higher expected returns and lower expenses and required cash contributions over the long-term. A target asset allocation of 53% public equity (20% U.S. and 20% international and 13% global), 7% private equity and 40% long-duration fixed income is maintained for the U.S. pension plans. Investments are diversified within each of the three major asset categories. Approximately 95% of the U.S. pension plans equity investments are actively managed. Venture capital and limited partnerships are typically valued on a three month lag using latest available information. BMS common stock represents less than 1% of the plan assets at December 31, 2013 and 2012.

Contributions

Contributions to the U.S. pension plans were $184 million in 2013, $335 million in 2012 and $343 million in 2011. Contributions to the international pension plans were $67 million in 2013, $61 million in 2012 and $88 million in 2011. Aggregate contributions to the U.S. and international plans are expected to be approximately $100 million in 2014.

Estimated Future Benefit Payments



	Pension		Other
Dollars in Millions	Benefits		Benefits
2014	$	411	$	44
2015	366		42
2016	377		40
2017	382		38
2018	380		35
Years 2019 – 2023	1,974		144

Savings Plans

The principal defined contribution plan is the Bristol-Myers Squibb Savings and Investment Program. The contribution is based on employee contributions and the level of Company match. The expense attributed to defined contribution plans in the U.S. were $190 million in both 2013 and 2012 and $181 million in 2011.

Post Employment Benefit Plans

Post-employment liabilities for long-term disability benefits were $63 million and $90 million at December 31, 2013 and 2012, respectively, with a related credit of $8 million in 2013 and expense of $17 million in 2012 and $18 million in 2011.

Termination Indemnity Plans

International statutory termination obligations are recognized on an undiscounted basis assuming employee termination at each measurement date. The liability recognized for these obligations was $23 million and $29 million at December 31, 2013 and 2012, respectively.