Note 11 Post-Employment Benefits

AbbVie sponsors various pension and other post-employment benefit plans, including defined benefit, defined contribution and termination indemnity plans, which cover most employees worldwide. In addition, AbbVie provides medical benefits, primarily to eligible U.S. retirees, through other post-retirement benefit plans. Net obligations for these plans have been reflected in the consolidated balance sheets as of December 31, 2014 and 2013.

Abbott Sponsored Plans

Prior to separation, AbbVie employees participated in certain U.S. and international defined benefit pension and other post-employment benefit (OPEB) plans sponsored by Abbott. These plans included participants of Abbott's other businesses and were accounted for as multiemployer benefit plans in AbbVie's combined financial statements as of and for the year ended December 31, 2012. As a result, no asset or liability was recorded by AbbVie in the historical combined balance sheets through December 31, 2012 to recognize the funded status of these plans. Effective January 1, 2013, in connection with the separation of AbbVie from Abbott, these plans were separated and AbbVie assumed net benefit plan obligations that were previously provided by Abbott. For Abbott-sponsored defined benefit and post-employment benefit plans, AbbVie recorded expenses of $200 million in 2012. Abbott made voluntary contributions to its defined benefit pension plans that AbbVie accounted for as multiemployer benefit plans totaling $310 million in 2012.

AbbVie Sponsored Plans

Prior to the separation, AbbVie employees participated in the Abbott Laboratories Annuity Retirement Plan, which was Abbott's principal domestic defined benefit pension plan. In connection with the separation, AbbVie established the AbbVie Pension Plan, which is AbbVie's principal domestic defined benefit pension plan, with substantially the same terms as the Abbott Laboratories Annuity Retirement Plan. AbbVie employees who were eligible to participate in the Abbott Laboratories Annuity Retirement Plan on December 31, 2012 automatically became eligible for the AbbVie Pension Plan. During the first quarter of 2013, the AbbVie Pension Plan assumed the obligations and related assets for its employees from the Abbott Laboratories Annuity Retirement Plan. AbbVie made voluntary contributions of $370 million and $145 million in 2014 and 2013, respectively, to this plan. AbbVie also made a voluntary contribution of $150 million to this plan subsequent to December 31, 2014.

The benefit plan information in the table below pertains to the global AbbVie-sponsored defined benefit pension and other post-employment plans.

	Defined benefit plans						Other post-employment plans
as of and for the years ended December 31 (in millions)	2014			2013			2014			2013

Projected benefit obligations
Beginning of period	$	4,484		$	1,669		$	403		$	231
Service cost		173			184			22			23
Interest cost		217			196			22			19
Employee contributions		1			1			—			—
Plan amendments		1			(1	)		(13	)		—
Assumption of plan liabilities		—			3,009			—			209
Removal of plans		—			—			—			(12	)
Actuarial (gain) loss		1,108			(455	)		111			(55	)
Benefits paid		(163	)		(146	)		(8	)		(12	)
Other, primarily foreign currency translation loss		(140	)		27			1			—

End of period	$	5,681		$	4,484		$	538		$	403

Fair value of plan assets
Beginning of period	$	3,666		$	898		$	—		$	—
Actual return on plan assets		282			491			—			—
Company contributions		430			198			8			12
Employee contributions		1			1			—			—
Assumption of plan assets		—			2,221			—			—
Benefits paid		(163	)		(146	)		(8	)		(12	)
Other, primarily foreign currency translation gain		(43	)		3			—			—

End of period	$	4,173		$	3,666		$	—		$	—

Funded status at December 31	$	(1,508	)	$	(818	)	$	(538	)	$	(403	)


Amounts recognized in consolidated balance sheets
Other assets	$	210		$	442		$	—		$	—
Current liabilities		(26	)		(27	)		(10	)		(8	)
Long-term liabilities		(1,692	)		(1,233	)		(528	)		(395	)

Net liability at December 31	$	(1,508	)	$	(818	)	$	(538	)	$	(403	)


Actuarial losses, net	$	2,216		$	1,194		$	181		$	74
Prior service cost		19			22			(53	)		(47	)

AOCI at December 31	$	2,235		$	1,216		$	128		$	27

The projected benefit obligations (PBO) in the table above included $1.4 billion and $1.2 billion at December 31, 2014 and 2013, respectively, related to international defined benefit pension plans, a number of which generally are not funded in accordance with local regulations. Benefit payments under those plans are funded from company assets. The funded status at December 31, 2014 reflects that AbbVie considered the release of the new mortality tables and projection scales by the Society of Actuaries as an improvement of the estimate of future mortality and opted to change to the new tables in 2014.

For plans reflected in the table above, the accumulated benefit obligations (ABO) were $5.0 billion and $3.9 billion at December 31, 2014 and 2013, respectively. For those plans reflected in the table above in which the ABO exceeded plan assets at December 31, 2014, the ABO, PBO and aggregate plan assets were $2.9 billion, $3.5 billion and $1.8 billion, respectively.

Amounts Recognized in AOCI and OCI

The defined benefit pension and other post-employment plans' actuarial gains or losses and prior service costs or credits not yet recognized in net periodic benefit cost are recognized on a net-of-tax basis in AOCI and will be amortized to net periodic benefit cost in the future. The following is a summary of the pretax gains and losses included in OCI.

years ended December 31 (in millions)	2014			2013			2012

Defined benefit plans
Actuarial (gain) loss	$	1,127		$	(715	)	$	98
Prior service cost		1			15			9
Amortization of actuarial losses and prior service costs		(68	)		(114	)		(7	)
Foreign exchange loss		(41	)		2			5

Total pretax (gain) loss recognized in OCI	$	1,019		$	(812	)	$	105


Other post-employment plans
Actuarial (gain) loss	$	111		$	(42	)	$	69
Prior service cost		(13	)		(53	)		—
Amortization of actuarial losses and prior service costs		3			—			—

Total pretax (gain) loss recognized in OCI	$	101		$	(95	)	$	69

The pretax amount of actuarial (gain) loss and prior service cost included in AOCI at December 31, 2014 that is expected to be recognized in the net periodic benefit cost in 2015 is $114 million for defined benefit plans and $2 million for other post-employment plans.

Net Periodic Benefit Cost

years ended December 31 (in millions)	2014			2013			2012

Defined benefit plans
Service cost	$	173		$	184		$	21
Interest cost		217			196			38
Expected return on plan assets		(302	)		(259	)		(29	)
Amortization of actuarial losses and prior service costs		68			114			7

Net periodic pension benefit cost	$	156		$	235		$	37


Other post-employment plans
Service cost	$	22		$	23		$	—
Interest cost		22			19			—
Amortization of actuarial gain and prior service costs		(2	)		(1	)		—

Net periodic OPEB cost	$	42		$	41		$	—

Weighted-Average Assumptions Used in Determining Benefit Obligations at the Measurement Date

	2014			2013

Defined benefit plans
Discount rate		3.9	%		4.9	%
Rate of compensation increases		4.4	%		5.0	%
Other post-employment plans
Discount rate		4.5	%		5.3	%
Rate of compensation increases		—			6.0	%

The assumptions above, which were used in calculating the December 31, 2014 measurement date benefit obligations, will be used in the calculation of net periodic benefit cost in 2015.

Weighted-Average Assumptions Used in Determining Net Periodic Benefit Cost

	2014			2013			2012

Defined benefit plans
Discount rate		4.9	%		4.3	%		5.1	%
Expected long-term rate of return on plan assets		7.9	%		8.2	%		8.5	%
Expected rate of change in compensation		5.0	%		5.0	%		4.2	%
Other post-employment plans
Discount rate		5.3	%		4.5	%		N/A

For 2014, for purposes of measuring post-retirement health care obligations as of the measurement date, the company assumed a 7.5% pre-65 (7.3% post-65) annual rate of increase in the per capita cost of covered health care benefits. The rate was assumed to decrease gradually to 4.5% in 2064 and remain at that level thereafter. For purposes of measuring post-retirement health care costs, the company assumed a 7.9% pre-65 (7.6% post-65) annual rate of increase in the per capita cost of covered health care benefits. The rate was assumed to decrease gradually to 5% for 2051 and remain at that level thereafter.

Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. As of December 31, 2014, a 1 percentage point change in assumed health care cost trend rates would have the following effects:

	One percentage point
year ended December 31, 2014 (in millions)	Increase		Decrease

Service cost and interest cost	$	9	$	(7	)
Projected benefit obligation		121		(92	)

Defined Benefit Pension Plan Assets

			Basis of fair value measurement
(in millions)	Balance at December 31, 2014		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Equities
U.S. large cap(a)	$	1,314	$	588	$	726	$	—
U.S. mid cap(b)		267		67		200		—
International(c)		608		137		471		—
Fixed income securities
U.S. government securities(d)		216		—		216		—
Corporate debt instruments(e)		326		101		225		—
Government Securities International		425		201		224		—
Other		37		29		8		—
Absolute return funds(f)		848		3		371		474
Real assets		53		7		46		—
Other(g)		79		79		—		—

Fair value of plan assets	$	4,173	$	1,212	$	2,487	$	474

				Basis of fair value measurement
(in millions)		Balance at December 31, 2013		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Equities
U.S. large cap(a)		$	1,197	$	576	$	621	$	—
U.S. mid cap(b)			244		62		182		—
International(c)			614		225		389		—
Fixed income securities
U.S. government securities(d)			292		35		257		—
Corporate debt instruments(e)			212		57		155		—
Government Securities International			216		159		57		—
Other			52		45		7		—
Absolute return funds(f)			704		3		290		411
Real assets			70		8		62		—
Other(g)			65		62		3		—

Fair value of plan assets		$	3,666	$	1,232	$	2,023	$	411


(a)	A mix of pooled index funds and actively managed equity accounts that are benchmarked to various large cap indices.
(b)	A mix of pooled index funds and actively managed equity accounts that are benchmarked to various mid cap indices.
(c)	A mix of pooled index funds and actively managed equity accounts that are benchmarked to various non-US equity indices in both developed and emerging markets.
(d)	Securities held by actively managed accounts, pooled index funds, and mutual funds.
(e)	Securities held by actively managed accounts, pooled index funds, and mutual funds.
(f)	Funds having global mandates with the flexibility to allocate capital broadly across a wide range of asset classes and strategies, including but not limited to equities, fixed income, commodities, financial futures, currencies, and other securities, with objectives to outperform agreed upon benchmarks of specific return and volatility targets.
(g)	Investments in cash and cash equivalents.

Equities that are valued using quoted prices are valued at the published market prices. Equities in a common collective trust or a registered investment company that are valued using significant other observable inputs are valued at the net asset value (NAV) provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund minus its liabilities. Fixed income securities that are valued using significant other observable inputs are valued at prices obtained from independent financial service industry-recognized vendors. Absolute return funds and commodities are valued at the NAV provided by the fund administrator.

The following table summarizes the change in the value of plan assets that are measured using significant unobservable inputs (Level 3):

(in millions)	2014		2013

Balance as of January 1	$	411	$	33
Actual return on plan assets on hand at year end		21		4
Assumption of level 3 assets		—		372
Purchases, sales and settlements, net		42		2

Balance as of December 31	$	474	$	411

The investment mix of equity securities, fixed income and other asset allocation strategies is based upon achieving a desired return, balancing higher return, more volatile equity securities, and lower return, less volatile fixed income securities. Investment allocations are established for each plan and are generally made across a range of markets, industry sectors, capitalization sizes, and in the case of fixed income securities, maturities and credit quality. The target investment allocations for the AbbVie Pension Plan is 50% in equity securities, 20% in fixed income securities and 30% in asset allocation strategies and other holdings. There are no known significant concentrations of risk in the plan assets of the AbbVie Pension Plan or any other plans' assets.

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.

Expected Pension and Other Post-Employment Payments

(in millions)	Defined benefit plans		Other post-employment plans

2015	$	161	$	10
2016		170		12
2017		180		14
2018		192		15
2019		204		17
2020 to 2024		1,239		115

The above table reflects total benefit payments expected to be paid to participants, which includes payments funded from company assets as well as paid from the plans.

Other

Prior to the separation, AbbVie employees also participated in the Abbott Laboratories Stock Retirement Plan, which was Abbott's principal defined contribution plan. AbbVie recorded expense of $67 million in 2012 related to this plan. In connection with the separation, AbbVie established the AbbVie Savings Plan, which is AbbVie's principal defined contribution plan, with substantially the same terms as the Abbott Laboratories Stock Retirement Plan. AbbVie employees who were eligible to participate in the Abbott Laboratories Stock Retirement Plan on December 31, 2012 automatically became eligible for the AbbVie Savings Plan. AbbVie recorded expense of $67 million in 2014 and $62 million in 2013 related to this plan.

AbbVie provides certain other post-employment benefits, primarily salary continuation plans, to qualifying employees and accrues for the related cost over the service lives of the employees.