Employee Retirement Plans (Notes)

12 Months Ended

Dec. 31, 2020

Compensation and Employee Benefit Plans [Text Block]

NOTE S – EMPLOYEE RETIREMENT PLANS

Defined Benefit Pension Plans

Domestic Retirement Plans

Following our 2006 acquisition of Guidant, we assumed the Guidant Supplemental Retirement Plan, a frozen, non-qualified defined benefit plan for certain former officers and employees of Guidant. The Guidant Supplemental Retirement Plan was partially funded through a Rabbi Trust that contains segregated company assets within restricted cash used to pay the benefit obligations related to the plan.

We also maintain an Executive Retirement Plan, a defined benefit plan covering executive officers and division presidents. Participants may retire with benefits once retirement conditions have been satisfied.

U.K. Plan

As a result of our acquisition of BTG, we assumed a benefit obligation related to a defined benefit pension plan sponsored by BTG for eligible United Kingdom (U.K.) employees (U.K. Plan). The U.K. Plan was closed to new entrants as of June 1, 2004. Prior to the acquisition close date of August 19, 2019, the Trustees of the U.K. Plan executed buy-in arrangements (Buy-in Contracts), which effectively, as structured under the Buy-in Contracts, are intended to provide payments designed to equal all future designated contractual benefit payments to covered participants. The benefit obligation of the pension plan is not transferred to the insurers, and we remain responsible for paying pension benefits. We do not anticipate any additional material contributions or payments to the U.K. Plan or the insurer.

In connection with the final purchase price allocation of BTG, we recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The following assumptions were used to measure the fair value of the benefit obligation and associated plan assets as of the August 19, 2019 measurement date:


	Discount Rate	Expected Return on Plan Assets	Rate of Compensation Increase
U.K. Plan	0.4%	0.4%	3.4%

As of the measurement date of August 19, 2019, the funded status was as follows:


(in millions)
Fair value of plan assets	$	213
Benefit obligation	(216)
Funded status	$	(3)

Refer to Note B – Acquisitions and Strategic Investments for additional information on our acquisition of BTG.

Information about the U.K. Plan presented below are as of the December 31, 2020 and 2019 measurement dates.

Other International Retirement Plans

In addition, we maintain retirement plans covering certain international employees.

We use a December 31 measurement date for these plans and record the net unfunded and underfunded portion as a liability within non-current liabilities, with the current portion within accrued expenses, on the consolidated balance sheets, recognizing changes primarily through OCI. As of December 31, 2020 and 2019, the funded status of our plans were unfunded or underfunded in aggregate. The outstanding obligation is as follows:


	As of December 31, 2020
(in millions)	Accumulated Benefit Obligation (ABO)		Projected Benefit Obligation (PBO)		Fair value of Plan Assets		Unfunded/Underfunded PBO Recognized
Domestic Retirement Plans	$	54	$	58	$	—	$	58

U.K. Plan	226		226		223		3
Other International Retirement Plans	225		247		132		115
	$	506	$	532	$	355	$	177


	As of December 31, 2019
(in millions)	Accumulated Benefit Obligation (ABO)		Projected Benefit Obligation (PBO)		Fair value of Plan Assets		Unfunded/Underfunded PBO Recognized
Domestic Retirement Plans	$	50	$	54	$	—	$	54
U.K. Plan	212		212		209		3
Other International Retirement Plans	204		223		123		100
	$	466	$	488	$	332	$	156

A rollforward of the changes in the PBO for our retirement plans is as follows:


	Year Ended December 31,
(in millions)	2020		2019
Beginning obligations	$	488	$	232
Acquired plans	—		216
Service costs	19		15
Interest costs	5		5
Actuarial (gain) loss	22		—
Plan amendments and assumption changes	(5)		11
Benefits paid	(23)		(10)
Impact of foreign currency fluctuations	26		19
Ending obligation	$	532	$	488

The critical assumptions associated with our employee retirement plans for 2020 are as follows:


	Weighted Average Discount Rate	Weighted Average Expected Return on Plan		Weighted Average Rate of Compensation Increase(1)

Domestic Retirement Plans	1.90%	n/a	1.50%
U.K. Plan	0.10%	0.10%	n/a
Other International Retirement Plans	0.67%		1.98%	2.40%

(1) Rates of compensation increase were not weighted by the relative fair value of the instruments. As such, the amount represents the median of the inputs and is not a weighted average.

The critical assumptions associated with our employee retirement plans for 2019 are as follows:


	Weighted Average Discount Rate	Weighted Average Expected Return on Plan	Weighted Average Rate of Compensation Increase(1)
Domestic Retirement Plans	2.94%	n/a	1.50%
U.K. Plan	0.60%	0.60%	3.00%
Other International Retirement Plans	0.75%	2.05%	2.65%

(1) Rates of compensation increase were not weighted by the relative fair value of the instruments. As such, the amount represents the median of the inputs and is not a weighted average.

A rollforward of the changes in the fair value of plan assets for our funded retirement plans is as follows:


	Year Ended December 31,
(in millions)	2020		2019
Beginning fair value	$	332	$	107
Acquired plans	—		213
Actual return on plan assets	2		7
Employer contributions	12		13
Participant contributions	2		2
Actuarial gain (loss)	14		(20)
Benefits paid	(23)		(10)
Impact of foreign currency fluctuations	16		19
Ending fair value	$	355	$	332

For our defined benefit plans excluding our U.K. Plan, we base our discount rate on the rates of return available on high-quality bonds with maturities approximating the expected period over which benefits will be paid. The rate of compensation increase is based on historical and expected rate increases. We base our rate of expected return on plan assets on historical experience, our

investment guidelines and expectations for long-term rates of return. Our assets are invested in a variety of securities, primarily equity securities and government bonds. These securities are considered Level 1 and Level 2 investments.

For our U.K. Plan, we utilize the insurance buy-in methodology and base our discount rate on a yield curve reflective of the market pricing obtained in the most recent buy-in transaction, which occurred prior to the acquisition of BTG, and movements in market-observed buy-in pricing as of December 31, 2020. We believe this is a reasonable proxy for an effective settlement rate of the buy-in assets. The discount rate is calculated as the single equivalent assumption that gives the same value of the liabilities as if the figures were calculated using the full yield curve. We assume that all pension increases will continue to be linked to the Retail Price Inflation (RPI), both before and after retirement, for all members, with the exception of post-88 Guaranteed Minimum Pensions (GMP), which will be based on Consumer Price Inflation (CPI). We base our rate of expected return on plan assets as equal to the discount rate used to value the buy-in assets. The U.K. Plan assets' investment policy is to invest in fully matching assets. This has been achieved through the purchase of two buy-in policies (Buy-in contracts), which provide payments designed to equal all future benefit payments due from the fund. As of December 31, 2020, the Buy-in contracts represented 100% of the total plan assets, as compared to the target percentage of 100 percent, and are considered Level 3 investments. As of December 31, 2019, the Buy-in contracts represented 99 percent of the total plan assets, as compared to the target percentage of 100 percent, and are considered Level 3 investments.

The following table presents the fair value hierarchy of the U.K. Plan assets measured at fair value as of December 31, 2020:


	As of
	December 31, 2020
(in millions)	Level 1		Level 2		Level 3		Total
Buy-in contracts	$	—	$	—	$	223	$	223

Total assets	$	—	$	—	$	223	$	223

The following table presents the fair value hierarchy of the U.K. Plan assets measured at fair value as of December 31, 2019:


	As of
	As of December 31, 2019
(in millions)	Level 1		Level 2		Level 3		Total
Buy-in contracts	$	—	$	—	$	207	$	207
Cash	1		—		—		1
Total assets	$	1	$	—	$	207	$	209

Changes in the fair value of the U.K. Plan Level 3 assets were as follows:


(in millions)	Buy-in Contracts
Balance as of December 31, 2019	$	209
Actual return on plan assets	1
Actuarial gain (loss)	15


Transfers out for benefits paid	(9)
Impact of foreign currency fluctuations	7
Balance as of December 31, 2020	$	223

Defined Contribution Plan

We also sponsor a voluntary 401(k) Retirement Savings Plan for eligible employees. We match 200 percent of employee elective deferrals for the first two percent of employee eligible compensation and 50 percent of employee elective deferrals greater than two percent, but not exceeding six percent, of employee eligible compensation. Total expense for our matching contributions to the plan was $102 million in 2020, $98 million in 2019 and $87 million in 2018.