XML 50 R27.htm IDEA: XBRL DOCUMENT v3.6.0.2
Pension, Retiree Medical and Savings Plans (Tables)
 12 Months Ended
Dec. 31, 2016
Defined Benefit Plan Disclosure [Line Items]  
Pension and Retiree Medical Plan Contributions [Table Text Block]
Contributions to our pension and retiree medical plans were as follows:
 
Pension
 
Retiree Medical
 
2016

 
2015

 
2014

 
2016

 
2015

 
2014

Discretionary (a)
$
459

 
$
—

 
$
407

 
$
—

 
$
—

 
$
—

Non-discretionary
200

 
162

 
184

 
36

 
43

 
64

Total
$
659

 
$
162

 
$
591

 
$
36

 
$
43

 
$
64

(a)
Includes $452 million in 2016 relating to the funding of the group annuity contract purchase from an unrelated insurance company and $388 million in 2014 pertaining to pension lump sum payments.
Schedule Of Plan Assets Measured At Fair Value Table Text Block
Plan assets measured at fair value as of fiscal year-end 2016 and 2015 are categorized consistently by level in both years, and are as follows:
 
2016
 
2015
 
Total
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Total
U.S. plan assets (a)
 
 
 
 
 
 
 
 
 
Equity securities, including preferred stock (b)
$
6,489

 
$
6,480

 
$
9

 
$
—

 
$
6,109

Government securities (c)
1,173

 
—

 
1,173

 
—

 
1,181

Corporate bonds (c)
3,012

 
—

 
3,012

 
—

 
3,191

Mortgage-backed securities (c)
187

 
—

 
187

 
—

 
207

Contracts with insurance companies (d)
7

 
—

 
—

 
7

 
7

Cash and cash equivalents
196

 
196

 
—

 
—

 
267

Sub-total U.S. plan assets
11,064

 
$
6,676

 
$
4,381

 
$
7

 
10,962

Real estate commingled funds measured at net asset value (f)
651

 
 
 
 
 
 
 
735

Dividends and interest receivable, net of payables
63

 
 
 
 
 
 
 
54

Total U.S. plan assets
$
11,778

 
 
 
 
 
 
 
$
11,751

International plan assets
 
 
 
 
 
 
 
 
 
Equity securities (b)
$
1,556

 
$
1,528

 
$
28

 
$
—

 
$
1,492

Government securities (c)
432

 
—

 
432

 
—

 
433

Corporate bonds (c)
453

 
—

 
453

 
—

 
439

Fixed income commingled funds (e)
316

 
316

 
—

 
—

 
308

Contracts with insurance companies (d)
35

 
—

 
—

 
35

 
32

Cash and cash equivalents
12

 
12

 
—

 
—

 
12

Sub-total international plan assets
2,804

 
$
1,856

 
$
913

 
$
35

 
2,716

Real estate commingled funds measured at net asset value (f)
84

 
 
 
 
 
 
 
100

Dividends and interest receivable
6

 
 
 
 
 
 
 
7

Total international plan assets
$
2,894

 
 
 
 
 
 
 
$
2,823

(a)
2016 and 2015 amounts include $320 million and $354 million, respectively, of retiree medical plan assets that are restricted for purposes of providing health benefits for U.S. retirees and their beneficiaries.
(b)
The equity securities portfolio was invested in U.S. and International common stock and commingled funds, and the preferred stock portfolio in the U.S. was invested in domestic and international corporate preferred stock investments. The common stock is based on quoted prices in active markets. The U.S. commingled funds are based on fair values of the investments owned by these funds that are benchmarked against various U.S. large, mid-cap and small company indices, and includes one large-cap fund that represents 19% and 18% of total U.S. plan assets for 2016 and 2015, respectively. The international commingled funds are based on the fair values of the investments owned by these funds that track various non-U.S. equity indices. The preferred stock investments are based on quoted bid prices for comparable securities in the marketplace and broker/dealer quotes in active markets.
(c)
These investments are based on quoted bid prices for comparable securities in the marketplace and broker/dealer quotes in active markets. Corporate bonds of U.S.-based companies represent 22% and 23% of total U.S. plan assets for 2016 and 2015, respectively.
(d)
Based on the fair value of the contracts as determined by the insurance companies using inputs that are not observable. The changes in Level 3 amounts were not significant in the years ended December 31, 2016 and December 26, 2015.
(e)
Based on the fair value of the investments owned by these funds that track various government and corporate bond indices.
(f)
The real estate commingled funds include investments in limited partnerships. These funds are based on the net asset value of the appraised value of investments owned by these funds as determined by independent third parties using inputs that are not observable. The majority of the funds are redeemable quarterly subject to availability of cash and have notice periods ranging from 45 to 90 days.
Selected Financial Information For Pension And Retiree Medical Plans
Pension, Retiree Medical and Savings Plans
In 2016, the U.S. qualified defined benefit pension plans purchased a group annuity contract whereby an unrelated insurance company assumed the obligation to pay and administer future annuity payments for certain retirees. In 2016, we made discretionary contributions of $452 million primarily to fund the transfer of the obligation. This transaction triggered a pre-tax settlement charge of $242 million ($162 million after-tax or $0.11 per share). See additional unaudited information in “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Effective as of the beginning of 2016, we prospectively changed the method we use to estimate the service and interest cost components of net periodic benefit cost. The pre-tax reduction in net periodic benefit cost associated with this change in 2016 was $125 million ($81 million after-tax or $0.06 per share). See “Pension and Retiree Medical Plans” in “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for further unaudited information on this change in accounting estimate.
In 2014, we offered certain former employees who had vested benefits in our U.S. defined benefit pension plans the option of receiving a one-time lump sum payment equal to the present value of the participant’s pension benefit (payable in cash or rolled over into a qualified retirement plan or IRA). In 2014, we made a discretionary contribution of $388 million to fund substantially all of these payments. We recorded a pre-tax settlement charge of $141 million ($88 million after-tax or $0.06 per share) in 2014 as a result of this transaction. See additional unaudited information in “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Gains and losses resulting from actual experience differing from our assumptions, including the difference between the actual return on plan assets and the expected return on plan assets, and from changes in our assumptions are determined at each measurement date. These differences are recognized as a component of net gain or loss in accumulated other comprehensive loss. If this net accumulated gain or loss exceeds 10% of the greater of the market-related value of plan assets or plan liabilities, a portion of the net gain or loss is included in expense for the following year based upon the average remaining service period of active plan participants, which in 2016 was approximately 11 years for pension expense and approximately 7 years for retiree medical expense. The cost or benefit of plan changes that increase or decrease benefits for prior employee service (prior service (credit)/cost) is included in earnings on a straight-line basis over the average remaining service period of active plan participants.
In 2016, we approved an amendment to reorganize the U.S. qualified defined benefit pension plans that resulted in the combination of two plans effective December 31, 2016, and the spinoff of a portion of the combined plan into a pre-existing plan effective January 1, 2017. The benefits offered to the plans’ participants were unchanged. The result of the reorganization was the creation of the PepsiCo Employees Retirement Plan A, or active plan, and the PepsiCo Employees Retirement Plan I, or inactive plan. The reorganization was made to facilitate a targeted investment strategy over time and to provide additional flexibility in evaluating opportunities to reduce risk and volatility. Actuarial gains and losses associated with the active plan will continue to be amortized over the average remaining service life of the active participants (approximately 11 years beginning in 2017), while the actuarial gains and losses associated with the inactive plan will be amortized over the remaining life expectancy of the inactive participants (approximately 27 years beginning in 2017). As a result of these changes, benefit plan pre-tax expense is expected to decrease by approximately $40 million in 2017, primarily impacting corporate unallocated.
Selected financial information for our pension and retiree medical plans is as follows: 
 
Pension
 
Retiree Medical
 
U.S.
 
International
 
 
 
 
 
2016

 
2015

 
2016

 
2015

 
2016

 
2015

Change in projected benefit liability
 
 
 
 
 
 
 
 
 
 
 
Liability at beginning of year
$
13,033

 
$
13,409

 
$
2,872

 
$
3,247

 
$
1,300

 
$
1,439

Service cost
393

 
435

 
80

 
99

 
31

 
35

Interest cost
484

 
546

 
94

 
115

 
41

 
52

Plan amendments
18

 
16

 
—

 
1

 
(15
)
 
—

Participant contributions
—

 
—

 
2

 
2

 
—

 
—

Experience loss/(gain)
614

 
(583
)
 
560

 
(221
)
 
(51
)
 
(115
)
Benefit payments
(347
)
 
(808
)
 
(83
)
 
(89
)
 
(100
)
 
(102
)
Settlement/curtailment
(1,014
)
 
—

 
(19
)
 
(19
)
 
—

 
—

Special termination benefits
11

 
18

 
1

 
1

 
1

 
1

Foreign currency adjustment
—

 
—

 
(383
)
 
(264
)
 
1

 
(10
)
Liability at end of year
$
13,192

 
$
13,033

 
$
3,124

 
$
2,872

 
$
1,208

 
$
1,300

 
 
 
 
 
 
 
 
 
 
 
 
Change in fair value of plan assets
 
 
 
 
 
 
 
 
 
 
 
Fair value at beginning of year
$
11,397

 
$
12,224

 
$
2,823

 
$
3,002

 
$
354

 
$
415

Actual return on plan assets
880

 
(85
)
 
409

 
77

 
30

 
(2
)
Employer contributions/funding
541

 
66

 
118

 
96

 
36

 
43

Participant contributions
—

 
—

 
2

 
2

 
—

 
—

Benefit payments
(347
)
 
(808
)
 
(83
)
 
(89
)
 
(100
)
 
(102
)
Settlement
(1,013
)
 
—

 
(22
)
 
(16
)
 
—

 
—

Foreign currency adjustment
—

 
—

 
(353
)
 
(249
)
 
—

 
—

Fair value at end of year
$
11,458

 
$
11,397

 
$
2,894

 
$
2,823

 
$
320

 
$
354

Funded status
$
(1,734
)
 
$
(1,636
)
 
$
(230
)
 
$
(49
)
 
$
(888
)
 
$
(946
)
 
Pension
 
Retiree Medical
 
U.S.
 
International
 
 
 
 
 
2016

 
2015

 
2016

 
2015

 
2016

 
2015

Amounts recognized
 
 
 
 
 
 
 
 
 
 
 
Other assets
$
—

 
$
—

 
$
51

 
$
56

 
$
—

 
$
—

Other current liabilities
(42
)
 
(47
)
 
(1
)
 
(1
)
 
(54
)
 
(63
)
Other liabilities
(1,692
)
 
(1,589
)
 
(280
)
 
(104
)
 
(834
)
 
(883
)
Net amount recognized
$
(1,734
)
 
$
(1,636
)
 
$
(230
)
 
$
(49
)
 
$
(888
)
 
$
(946
)
 
 
 
 
 
 
 
 
 
 
 
 
Amounts included in accumulated other comprehensive loss (pre-tax)
 
 
 
 
 
 
 
 
Net loss/(gain)
$
3,220

 
$
3,065

 
$
884

 
$
733

 
$
(193
)
 
$
(138
)
Prior service cost/(credit)
20

 
1

 
(5
)
 
(7
)
 
(91
)
 
(127
)
Total
$
3,240

 
$
3,066

 
$
879

 
$
726

 
$
(284
)
 
$
(265
)
 
 
 
 
 
 
 
 
 
 
 
 
Components of the increase/(decrease) in net loss/(gain) included in accumulated other comprehensive loss
 
 
Change in discount rate
$
296

 
$
(593
)
 
$
554

 
$
(150
)
 
$
21

 
$
(42
)
Employee-related assumption changes
5

 
(35
)
 
8

 
6

 
(50
)
 
(37
)
Liability-related experience different from assumptions
318

 
51

 
(2
)
 
(77
)
 
(22
)
 
(36
)
Actual asset return different from expected return
(46
)
 
935

 
(246
)
 
97

 
(6
)
 
29

Amortization and settlement of (losses)/gains
(413
)
 
(205
)
 
(46
)
 
(77
)
 
1

 
(2
)
Other, including foreign currency adjustments
(5
)
 
(6
)
 
(117
)
 
(69
)
 
1

 
(1
)
Total
$
155

 
$
147

 
$
151

 
$
(270
)
 
$
(55
)
 
$
(89
)
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated benefit obligation at end of year
$
12,211

 
$
12,077

 
$
2,642

 
$
2,453

 
 
 
 
Estimated Amounts To Be Amortized From Accumulated Other Comprehensive Loss Into Benefit Expense In 2012 For Pension And Retiree Medical Plans
The estimated amounts to be amortized from accumulated other comprehensive loss into pre-tax expense in 2017 for our pension and retiree medical plans are as follows:
 
Pension
 
Retiree Medical
 
U.S.
 
International
 
 
Net loss/(gain)
$
122

 
$
51

 
$
(12
)
Prior service cost/(credit)
1

 
—

 
(25
)
Total
$
123

 
$
51

 
$
(37
)
Weighted-Average Assumptions Used To Determine Projected Benefit Liability And Benefit Expense For Pension And Retiree Medical Plans
The following table provides the weighted-average assumptions used to determine projected benefit liability and benefit expense for our pension and retiree medical plans:
 
Pension
 
Retiree Medical
 
U.S.
 
International
 
 
 
 
 
 
 
2016

 
2015

 
2014

 
2016

 
2015

 
2014

 
2016

 
2015

 
2014

Weighted-average assumptions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liability discount rate
4.4
%
 
4.5
%
 
4.2
%
 
3.1
%
 
4.0
%
 
3.8
%
 
4.0
%
 
4.2
%
 
3.8
%
Expense discount rate (a)
n/a

 
4.2
%
 
5.0
%
 
n/a

 
3.8
%
 
4.7
%
 
n/a

 
3.8
%
 
4.3
%
Service cost discount rate (a)
4.6
%
 
n/a

 
n/a

 
4.1
%
 
n/a

 
n/a

 
4.3
%
 
n/a

 
n/a

Interest cost discount rate (a)
3.8
%
 
n/a

 
n/a

 
3.5
%
 
n/a

 
n/a

 
3.3
%
 
n/a

 
n/a

Expected return on plan assets
7.5
%
 
7.5
%
 
7.5
%
 
6.2
%
 
6.5
%
 
6.6
%
 
7.5
%
 
7.5
%
 
7.5
%
Liability rate of salary increases
3.1
%
 
3.1
%
 
3.5
%
 
3.6
%
 
3.6
%
 
3.6
%
 
 
 
 
 
 
Expense rate of salary increases
3.1
%
 
3.5
%
 
3.7
%
 
3.6
%
 
3.6
%
 
3.9
%
 
 
 
 
 
 
Selected Information About Plans With Liability For Service To Date And Total Benefit Liability In Excess Of Plan Assets
(a)
Effective as of the beginning of 2016, we prospectively changed the method we use to estimate the service and interest cost components of pension and retiree medical expense. See additional unaudited information in “Pension and Retiree Medical Plans” in “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following table provides selected informati
Future Benefit Payments
Our estimated future benefit payments are as follows:
 
2017

 
2018

 
2019

 
2020

 
2021

 
2022 - 26

Pension
$
725

 
$
780

 
$
825

 
$
870

 
$
925

 
$
5,270

Retiree medical (a)
$
120

 
$
120

 
$
115

 
$
110

 
$
110

 
$
485

(a)
Expected future benefit payments for our retiree medical plans do not reflect any estimated subsidies expected to be received under the 2003 Medicare Act. Subsidies are expected to be approximately $2-$3 million for each of the years from 2017 through 2021 and approximately $7 million in total for 2022 through 2026.
These future benefit payments to beneficiaries include payments from both funded and unfunded plans.
In 2017, we expect to make pension and retiree medical contributions of approximately $184 million, with approximately $54 million for retiree medical benefits.
Target Investment Allocation
Plan Assets
Our pension plan investment strategy includes the use of actively managed accounts and is reviewed periodically in conjunction with plan liabilities, an evaluation of market conditions, tolerance for risk and cash requirements for benefit payments. This strategy is also applicable to funds held for the retiree medical plans. Our investment objective includes ensuring that funds are available to meet the plans’ benefit obligations when they become due. Our overall investment policy is to prudently invest plan assets in a well-diversified portfolio of equity and high-quality debt securities and real estate to achieve our long-term return expectations. Our investment policy also permits the use of derivative instruments, such as futures and forward contracts, to reduce interest rate and foreign currency risks. Futures contracts represent commitments to purchase or sell securities at a future date and at a specified price. Forward contracts consist of currency forwards.
For 2017 and 2016, our expected long-term rate of return on U.S. plan assets is 7.5%. Our target investment allocations for U.S. plan assets are as follows:
 
2017

 
2016

Fixed income
40
%
 
40
%
U.S. equity
33
%
 
33
%
International equity
22
%
 
22
%
Real estate
5
%
 
5
%

Actual investment allocations may vary from our target investment allocations due to prevailing market conditions. We regularly review our actual investment allocations and periodically rebalance our investments.
The expected return on plan assets is based on our investment strategy and our expectations for long-term rates of return by asset class, taking into account volatility and correlation among asset classes and our historical experience. We also review current levels of interest rates and inflation to assess the reasonableness of the long-term rates. We evaluate our expected return assumptions annually to ensure that they are reasonable. To calculate the expected return on plan assets, our market-related value of assets for fixed income is the actual fair value. For all other asset categories, such as equity securities, we use a method that recognizes investment gains or losses (the difference between the expected and actual return based on the market-related value of assets) over a five-year period. This has the effect of reducing year-to-year volatility.
Effects Of 1-Percentage-Point Change In The Assumed Health Care Trend Rate
Retiree Medical Cost Trend Rates
 
2017
 
2016
Average increase assumed
6
%
 
6
%
Ultimate projected increase
5
%
 
5
%
Year of ultimate projected increase 
2039

 
2039


These assumed health care cost trend rates have an impact on the retiree medical plan expense and liability, however the cap on our share of retiree medical costs limits the impact. A 1-percentage-point change in the assumed health care trend rate would have the following effects:
 
1% Increase
 
1% Decrease
2016 service and interest cost components
$
3

 
$
(3
)
2016 benefit liability
$
39

 
$
(34
)
Savings Plan
Certain U.S. employees are eligible to participate in 401(k) savings plans, which are voluntary defined contribution plans. The plans are designed to help employees accumulate additional savings for retirement, and we make Company matching contributions for certain employees on a portion of eligible pay based on years of service.
Certain U.S. salaried employees, who are not eligible to participate in a defined benefit pension plan, are also eligible to receive an employer contribution to the 401(k) savings plan based on age and years of service regardless of employee contribution.
In 2016, 2015 and 2014, our total Company contributions were $164 million, $148 million and $130 million, respectively.
For additional unaudited information on our pension and retiree medical plans and related accounting policies and assumptions, see “Our Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Schedule of Net Benefit Costs [Table Text Block]
The components of benefit expense are as follows:
 
Pension
 
Retiree Medical
 
U.S.
 
International
 
 
 
 
 
 
 
2016

 
2015

 
2014

 
2016

 
2015

 
2014

 
2016

 
2015

 
2014

Components of benefit expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
393

 
$
435

 
$
393

 
$
80

 
$
99

 
$
98

 
$
31

 
$
35

 
$
36

Interest cost
484

 
546

 
580

 
94

 
115

 
131

 
41

 
52

 
58

Expected return on plan assets
(834
)
 
(850
)
 
(784
)
 
(163
)
 
(174
)
 
(176
)
 
(24
)
 
(27
)
 
(27
)
Amortization of prior service (credit)/cost
(1
)
 
(3
)
 
21

 
—

 
—

 
—

 
(38
)
 
(39
)
 
(28
)
Amortization of net loss/(gain)
168

 
205

 
175

 
40

 
71

 
53

 
(1
)
 
2

 
(4
)
 
210

 
333

 
385

 
51

 
111

 
106

 
9

 
23

 
35

Settlement/curtailment loss/(gain) (a)
245

 
—

 
141

 
9

 
3

 
7

 
(14
)
 
—

 
—

Special termination benefits
11

 
18

 
24

 
1

 
1

 
—

 
1

 
1

 
3

Total
$
466

 
$
351

 
$
550

 
$
61

 
$
115

 
$
113

 
$
(4
)
 
$
24

 
$
38


(a)
U.S. includes a settlement charge of $242 million related to the group annuity contract purchase in 2016 and a pension lump sum settlement charge of $141 million in 2014. See additional unaudited information in “Items Affecting Comparability” in Management’s Discussion and Analysis of Financial Condition and Results of Operations.