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POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK OWNERSHIP PLAN
 12 Months Ended
Jun. 30, 2016
Compensation and Retirement Disclosure [Abstract]  
Pension and Other Postretirement Benefits Disclosure [Text Block]
POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK OWNERSHIP PLAN
We offer various postretirement benefits to our employees.
Defined Contribution Retirement Plans
We have defined contribution plans which cover the majority of our U.S. employees, as well as employees in certain other countries. These plans are fully funded. We generally make contributions to participants' accounts based on individual base salaries and years of service. Total global defined contribution expense was $292, $305 and $311 in 2016, 2015 and 2014, respectively.
The primary U.S. defined contribution plan (the U.S. DC plan) comprises the majority of the expense for the Company's defined contribution plans. For the U.S. DC plan, the contribution rate is set annually. Total contributions for this plan approximated 14% of total participants' annual wages and salaries in 2016 and 2015 and 15% in 2014.
We maintain The Procter & Gamble Profit Sharing Trust (Trust) and Employee Stock Ownership Plan (ESOP) to provide a portion of the funding for the U.S. DC plan and other retiree benefits (described below). Operating details of the ESOP are provided at the end of this Note. The fair value of the ESOP Series A shares allocated to participants reduces our cash contribution required to fund the U.S. DC plan.
Defined Benefit Retirement Plans and Other Retiree Benefits
We offer defined benefit retirement pension plans to certain employees. These benefits relate primarily to local plans outside the U.S. and, to a lesser extent, plans assumed in previous acquisitions covering U.S. employees.
We also provide certain other retiree benefits, primarily health care and life insurance, for the majority of our U.S. employees who become eligible for these benefits when they meet minimum age and service requirements. Generally, the health care plans require cost sharing with retirees and pay a stated percentage of expenses, reduced by deductibles and other coverages. These benefits are primarily funded by ESOP Series B shares and certain other assets contributed by the Company.
Obligation and Funded Status. The following provides a reconciliation of benefit obligations, plan assets and funded status of these defined benefit plans:
 
Pension Benefits (1)
 
Other Retiree Benefits (2)
Years ended June 30
2016
 
2015
 
2016
 
2015
CHANGE IN BENEFIT OBLIGATION
 
 
 
 
 
 
 
Benefit obligation at beginning of year (3)
$
15,951


$
17,053


$
4,904


$
5,505

Service cost
314

 
317

 
124

 
156

Interest cost
466

 
545

 
219

 
240

Participants' contributions
17

 
19

 
74

 
71

Amendments
8

 
17

 
(40
)
 
(325
)
Actuarial loss/(gain)
1,927

 
524

 
589

 
(399
)
Acquisitions/(divestitures)
(21
)
 
7

 
(7
)
 
—

Special termination benefits
6

 
11

 
12

 
23

Currency translation and other
(826
)
 
(1,908
)
 
(14
)
 
(134
)
Benefit payments
(557
)
 
(634
)
 
(229
)
 
(233
)
BENEFIT OBLIGATION AT END OF YEAR (3)
$
17,285

 
$
15,951

 
$
5,632

 
$
4,904

CHANGE IN PLAN ASSETS
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
10,605

 
$
11,098

 
$
3,470

 
$
3,574

Actual return on plan assets
630

 
1,016

 
408

 
10

Acquisitions/(divestitures)
(13
)
 
—

 
—

 
—

Employer contributions
306

 
262

 
32

 
18

Participants' contributions
17

 
19

 
74

 
71

Currency translation and other
(719
)
 
(1,156
)
 
(8
)
 
(6
)
ESOP debt impacts (4)
—

 
—

 
40

 
36

Benefit payments
(557
)
 
(634
)
 
(229
)
 
(233
)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR
$
10,269

 
$
10,605

 
$
3,787

 
$
3,470

Reclassification of net obligation to held for sale liabilities
402

 
336

 
16

 
—

FUNDED STATUS
$
(6,614
)
 
$
(5,010
)
 
$
(1,829
)
 
$
(1,434
)
(1) 
Primarily non-U.S.-based defined benefit retirement plans.
(2) 
Primarily U.S.-based other postretirement benefit plans.
(3) 
For the pension benefit plans, the benefit obligation is the projected benefit obligation. For other retiree benefit plans, the benefit obligation is the accumulated postretirement benefit obligation.
(4) 
Represents the net impact of ESOP debt service requirements, which is netted against plan assets for other retiree benefits.
The underfunding of pension benefits is primarily a function of the different funding incentives that exist outside of the U.S. In certain countries, there are no legal requirements or financial incentives provided to companies to pre-fund pension obligations prior to their due date. In these instances, benefit payments are typically paid directly from the Company's cash as they become due.
 
Pension Benefits
 
Other Retiree Benefits
Years ended June 30
2016
 
2015
 
2016
 
2015
CLASSIFICATION OF NET AMOUNT RECOGNIZED
 
 
 
 
 
 
 
Noncurrent assets
$
180

 
$
276

 
$
—

 
$
—

Current liabilities
(33
)
 
(39
)
 
(21
)
 
(20
)
Noncurrent liabilities
(6,761
)
 
(5,247
)
 
(1,808
)
 
(1,414
)
NET AMOUNT RECOGNIZED
$
(6,614
)
 
$
(5,010
)
 
$
(1,829
)
 
$
(1,434
)
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)
 
 
Net actuarial loss
$
6,088

 
$
4,488

 
$
2,247

 
$
1,731

Prior service cost/(credit)
270

 
300

 
(334
)
 
(346
)
NET AMOUNTS RECOGNIZED IN AOCI
$
6,358

 
$
4,788

 
$
1,913

 
$
1,385


The accumulated benefit obligation for all defined benefit pension plans was $15,546 and $14,239 as of June 30, 2016 and 2015, respectively. Pension plans with accumulated benefit obligations in excess of plan assets and plans with projected benefit obligations in excess of plan assets consisted of the following:
 
Accumulated Benefit Obligation  Exceeds the Fair Value of Plan Assets
 
Projected Benefit Obligation  Exceeds the Fair Value of Plan Assets
Years ended June 30
2016
 
2015
 
2016
 
2015
Projected benefit obligation
$
15,233

 
$
13,411

 
$
15,853

 
$
14,057

Accumulated benefit obligation
13,587

 
11,918

 
14,149

 
12,419

Fair value of plan assets
8,082

 
7,931

 
8,657

 
8,435


Net Periodic Benefit Cost. Components of the net periodic benefit cost were as follows:
 
Pension Benefits
 
Other Retiree Benefits
Years ended June 30
2016
 
2015
 
2014
 
2016
 
2015
 
2014
AMOUNTS RECOGNIZED IN NET PERIODIC BENEFIT COST
 
 
 
 
 
 
 
 
 
 
Service cost
$
314

 
$
317

 
$
298

 
$
124

 
$
156

 
$
149

Interest cost
466

 
545

 
590

 
219

 
240

 
256

Expected return on plan assets
(731
)
 
(732
)
 
(701
)
 
(416
)
 
(406
)
 
(385
)
Prior service cost/(credit) amortization
29

 
30

 
26

 
(52
)
 
(20
)
 
(20
)
Net actuarial loss amortization
265

 
275

 
214

 
78

 
105

 
118

Special termination benefits
6

 
11

 
5

 
12

 
23

 
9

GROSS BENEFIT COST/(CREDIT)
349

 
446

 
432

 
(35
)
 
98

 
127

Dividends on ESOP preferred stock
—

 
—

 
—

 
(52
)
 
(58
)
 
(64
)
NET PERIODIC BENEFIT COST/(CREDIT)
$
349

 
$
446

 
$
432

 
$
(87
)
 
$
40

 
$
63

CHANGE IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN AOCI
 
 
 
 
 
 
Net actuarial loss/(gain) - current year
$
2,028

 
$
240

 
 
 
$
597

 
$
(3
)
 
 
Prior service cost/(credit) - current year
8

 
17

 
 
 
(40
)
 
(325
)
 
 
Amortization of net actuarial loss
(265
)
 
(275
)
 
 
 
(78
)
 
(105
)
 
 
Amortization of prior service (cost)/credit
(29
)
 
(30
)
 
 
 
52

 
20

 
 
Currency translation and other
(172
)
 
(677
)
 
 
 
(3
)
 
(34
)
 
 
TOTAL CHANGE IN AOCI
1,570

 
(725
)
 
 
 
528

 
(447
)
 
 
NET AMOUNTS RECOGNIZED IN PERIODIC BENEFIT COST AND AOCI
$
1,919

 
$
(279
)
 
 
 
$
441

 
$
(407
)
 
 

Net periodic benefit costs include amounts related to discontinued operations, which are not material for any period.
Amounts expected to be amortized from AOCI into net periodic benefit cost during the year ending June 30, 2017, are as follows:
 
Pension Benefits
 
Other Retiree Benefits
Net actuarial loss
$
400

 
$
126

Prior service cost/(credit)
28

 
(45
)

Assumptions. We determine our actuarial assumptions on an annual basis. These assumptions are weighted to reflect each country that may have an impact on the cost of providing retirement benefits. The weighted average assumptions used to determine benefit obligations recorded on the Consolidated Balance Sheets as of June 30, were as follows: (1) 
 
Pension Benefits
 
Other Retiree Benefits
 
2016
 
2015
 
2016
 
2015
Discount rate
2.1
%
 
3.1
%
 
3.6
%
 
4.5
%
Rate of compensation increase
2.9
%
 
3.1
%
 
N/A

 
N/A

Health care cost trend rates assumed for next year
N/A

 
N/A

 
7.2
%
 
6.8
%
Rate to which the health care cost trend rate is assumed to decline (ultimate trend rate)
N/A

 
N/A

 
4.9
%
 
5.0
%
Year that the rate reaches the ultimate trend rate
N/A

 
N/A

 
2021

 
2021

(1) 
Determined as of end of year.
The weighted average assumptions used to determine net benefit cost recorded on the Consolidated Statement of Earnings for the years ended June 30, were as follows: (1) 
 
Pension Benefits
 
Other Retiree Benefits
Years ended June 30
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Discount rate
3.1
%
 
3.5
%
 
4.0
%
 
4.5
%
 
4.4
%
 
4.8
%
Expected return on plan assets
7.2
%
 
7.2
%
 
7.2
%
 
8.3
%
 
8.3
%
 
8.3
%
Rate of compensation increase
3.1
%
 
3.2
%
 
3.2
%
 
N/A

 
N/A

 
N/A


(1) 
Determined as of beginning of year and adjusted for acquisitions.
Several factors are considered in developing the estimate for the long-term expected rate of return on plan assets. For the defined benefit retirement plans, these factors include historical rates of return of broad equity and bond indices and projected long-term rates of return obtained from pension investment consultants. The expected long-term rates of return for plan assets are 8 - 9% for equities and 5 - 6% for bonds. For other retiree benefit plans, the expected long-term rate of return reflects that the assets are comprised primarily of Company stock. The expected rate of return on Company stock is based on the long-term projected return of 8.5% and reflects the historical pattern of returns.
Assumed health care cost trend rates could have a significant effect on the amounts reported for the other retiree benefit plans. A one percentage point change in assumed health care cost trend rates would have the following effects:
 
One-Percentage
Point Increase
 
One-Percentage
Point Decrease
Effect on the total service and interest cost components
$
80

 
$
(59
)
Effect on the accumulated postretirement benefit obligation
1,057

 
(809
)
Plan Assets. Our investment objective for defined benefit retirement plan assets is to meet the plans' benefit obligations, while minimizing the potential for future required Company plan contributions. The investment strategies focus on asset class diversification, liquidity to meet benefit payments and an appropriate balance of long-term investment return and risk. Target ranges for asset allocations are determined by matching the actuarial projections of the plans' future liabilities and benefit payments with expected long-term rates of return on the assets, taking into account investment return volatility and correlations across asset classes. Plan assets are diversified across several investment managers and are generally invested in liquid funds that are selected to track broad market equity and bond indices. Investment risk is carefully controlled with plan assets rebalanced to target allocations on a periodic basis and with continual monitoring of investment managers' performance relative to the investment guidelines established with each investment manager.
Our target asset allocation for the year ended June 30, 2016, and actual asset allocation by asset category as of June 30, 2016 and 2015, were as follows:
 
Target Asset Allocation
 
Actual Asset Allocation at June 30
 
Pension Benefits
 
Other Retiree
Benefits
 
Pension Benefits
 
Other Retiree Benefits
Asset Category
 
 
2016
 
2015
 
2016
 
2015
Cash
2
%
 
2
%
 
2
%
 
2
%
 
2
%
 
1
%
Debt securities
55
%
 
3
%
 
55
%
 
50
%
 
4
%
 
5
%
Equity securities
43
%
 
95
%
 
43
%
 
48
%
 
94
%
 
94
%
TOTAL
100
%
 
100
%
 
100
%
 
100
%
 
100
%
 
100
%

The following tables set forth the fair value of the Company's plan assets as of June 30, 2016 and 2015 segregated by level within the fair value hierarchy (refer to Note 9 for further discussion on the fair value hierarchy and fair value principles). Collective funds are valued using the net asset value reported by the managers of the funds and as supported by the unit prices of actual purchase and sale transactions. Company stock listed as Level 2 in the hierarchy represents preferred shares which are valued based on the value of Company common stock. The majority of our Level 3 pension assets are insurance contracts. Their fair values are based on their cash equivalent or models that project future cash flows and discount the future amounts to a present value using market-based observable inputs, including credit risk and interest rate curves. There was no significant activity within the Level 3 pension and other retiree benefits plan assets during the years presented.
 
Pension Benefits
 
Other Retiree Benefits
Years ended June 30
Fair Value Hierarchy Level
 
2016
 
2015
 
Fair Value Hierarchy Level
 
2016
 
2015
ASSETS AT FAIR VALUE
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
1 & 2
 
$
262

 
$
266

 
1
 
$
70

 
$
36

Company stock (1)
 
 
—

 
—

 
2
 
3,545

 
3,239

Collective fund - equity
2
 
4,381

 
5,054

 
2
 
14

 
17

Collective fund - fixed income
2
 
5,498

 
5,162

 
2
 
158

 
178

Other (2)
1 & 3
 
128

 
123

 
 
 
—

 
—

TOTAL ASSETS AT FAIR VALUE
 
 
$
10,269

 
$
10,605

 
 
 
$
3,787

 
$
3,470

(1) 
Company stock is net of ESOP debt discussed below.
(2) 
The Company's other pension and other retiree benefit plan assets measured at fair value are generally classified as Level 3 within the fair value hierarchy. There are no material other pension and other retiree benefit plan asset balances classified as Level 1 within the fair value hierarchy.

Cash Flows. Management's best estimate of cash requirements and discretionary contributions for the defined benefit retirement plans and other retiree benefit plans for the year ending June 30, 2017, is $217 and $37, respectively. For the defined benefit retirement plans, this is comprised of $93 in expected benefit payments from the Company directly to participants of unfunded plans and $124 of expected contributions to funded plans. For other retiree benefit plans, this is comprised of $22 in expected benefit payments from the Company directly to participants of unfunded plans and $15 of expected contributions to funded plans. Expected contributions are dependent on many variables, including the variability of the market value of the plan assets as compared to the benefit obligation and other market or regulatory conditions. In addition, we take into consideration our business investment opportunities and resulting cash requirements. Accordingly, actual funding may differ significantly from current estimates.
Total benefit payments expected to be paid to participants, which include payments funded from the Company's assets and payments from the plans are as follows:
Years ending June 30
Pension
Benefits
 
Other Retiree
Benefits
EXPECTED BENEFIT PAYMENTS
 
 
2017
$
516

 
$
190

2018
527

 
207

2019
537

 
221

2020
550

 
233

2021
588

 
244

2022 - 2026
3,232

 
1,365


Employee Stock Ownership Plan
We maintain the ESOP to provide funding for certain employee benefits discussed in the preceding paragraphs.
The ESOP borrowed $1.0 billion in 1989 and the proceeds were used to purchase Series A ESOP Convertible Class A Preferred Stock to fund a portion of the U.S. DC plan. Principal and interest requirements of the borrowing were paid by the Trust from dividends on the preferred shares and from advances provided by the Company. The original borrowing of $1.0 billion has been repaid in full, and advances from the Company of $74 remain outstanding at June 30, 2016. Each share is convertible at the option of the holder into one share of the Company's common stock. The dividend for the current year was equal to the common stock dividend of $2.66 per share. The liquidation value is $6.82 per share.
In 1991, the ESOP borrowed an additional $1.0 billion. The proceeds were used to purchase Series B ESOP Convertible Class A Preferred Stock to fund a portion of retiree health care benefits. These shares, net of the ESOP's debt, are considered plan assets of the other retiree benefits plan discussed above. Debt service requirements are funded by preferred stock dividends, cash contributions and advances provided by the Company, of which $718 is outstanding at June 30, 2016. Each share is convertible at the option of the holder into one share of the Company's common stock. The dividend for the current year was equal to the common stock dividend of $2.66 per share. The liquidation value is $12.96 per share.
Our ESOP accounting practices are consistent with current ESOP accounting guidance, including the permissible continuation of certain provisions from prior accounting guidance. ESOP debt, which is guaranteed by the Company, is recorded as debt (see Note 10) with an offset to the reserve for ESOP debt retirement, which is presented within Shareholders' equity. Advances to the ESOP by the Company are recorded as an increase in the Reserve for ESOP debt retirement. Interest incurred on the ESOP debt is recorded as Interest expense. Dividends on all preferred shares, net of related tax benefits, are charged to Retained earnings.
The series A and B preferred shares of the ESOP are allocated to employees based on debt service requirements. The number of preferred shares outstanding at June 30 was as follows:
Shares in thousands
2016
 
2015
 
2014
Allocated
39,241

 
42,044

 
44,465

Unallocated
6,095

 
7,228

 
8,474

TOTAL SERIES A
45,336

 
49,272

 
52,939

 
 
 
 
Allocated
23,925

 
23,074

 
22,085

Unallocated
32,319

 
34,096

 
35,753

TOTAL SERIES B
56,244

 
57,170

 
57,838


For purposes of calculating diluted net earnings per common share, the preferred shares held by the ESOP are considered converted from inception.