Issue link: http://catalog.e-digitaleditions.com/i/647001
Components of Net Periodic Pension Cost 2015 2014 2013 Net periodic benefit cost: Service cost $ (36) $ (26) $ (30) Interest cost (10) (13) (13) Expected return on plan assets 11 10 10 Amortization of prior service cost and transition amount 1 1 1 Recognized actuarial loss (13) (7) (8) Net periodic benefit cost $ (47) $ (35) $ (40) Changes in assets and benefit obligations recognized in OCI: Net actuarial gain (loss) $ 26 $ (88) $ 28 Recognized net actuarial loss 13 7 8 Prior service cost and transition amount (1) 4 (1) Total recognized in OCI $ 38 $ (77) $ 35 Total recognized in net periodic benefit cost and OCI $ (9 ) $ (112 ) $ (5 ) Assumptions Weighted-average rates used to determine net periodic benefit cost: Discount rate 2.0% 3.2% 2.9% Expected return on plan assets 4.0% 3.7% 3.7% Rate of compensation increase 2.9% 2.9% 3.0% Weighted-average discount rate used to determine projected benefit obligations 2.1 % 2.0 % 3.2 % Investment Strategy The investment strategy for our defined benefit pension plans is to meet the liabilities of the plans as they fall due and to maximize the return on invested assets within appropriate risk tolerances. 2015 2014 Funded status Fair value of plan assets $ 289 $ 310 Benefit obligations (529) (570) Funded status $ (240) $ (260) Reported as: Current liabilities—accrued compensation $ (1) $ (1) Noncurrent liabilities—other liabilities (239) (259) Pre-tax amounts recognized in AOCI Unrecognized net actuarial loss (155) (195) Unrecognized prior service cost 13 15 Total $ (142 ) $ (180 ) The estimated net actuarial loss for the defined benefit pension plans to be reclassified from AOCI into net periodic benefit cost is $7 in 2016. We estimate that an immaterial amount of amortization of prior service cost and transition amount for the defined benefit pension plans will be reclassified from AOCI into net periodic benefit cost in 2016. Change in Benefit Obligations 2015 2014 Beginning Projected benefit obligations $ 570 $ 456 Service cost 36 26 Interest cost 10 13 Foreign exchange impact (43) (43) Employee contributions 6 6 Actuarial (gains) losses (21) 134 Plan amendments — (5) Acquisitions — 5 Benefits paid (29) (22) Ending Projected benefit obligations $ 529 $ 570 Ending Accumulated benefit obligations $ 505 $ 533 Change in Plan Assets 2015 2014 Beginning Fair value of plan assets $ 310 $ 281 Actual return 2 46 Employer contributions 16 18 Employee contributions 6 6 Foreign exchange impact (18) (24) Acquisition — 3 Benefits paid (27) (20) Ending Fair value of plan assets $ 289 $ 310 Weighted-Average Target and Actual Allocation of Plan Assets by Asset Category 2015 2014 Target Actual Actual Equity securities 29% 31% 30% Debt securities 50 48 48 Other 21 21 22 Total 100% 100% 100% Valuation of Our Pension Plan Assets by Pricing Categories Level 2015 1 2 3 Total Cash and cash equivalents $ 6 $ — $ — $ 6 Equity securities 67 22 — 89 Corporate debt securities 135 — — 135 Other 19 9 31 59 Total $ 227 $ 31 $ 31 $ 289 2014 Cash and cash equivalents $ 6 $ — $ — $ 6 Equity securities 99 26 — 125 Corporate debt securities 121 — — 121 Other 17 8 33 58 Total $ 243 $ 34 $ 33 $ 310 Our Level 3 pension plan assets (See Note 4 for an explanation of our fair value hierarchy) consist primarily of guaranteed investment contracts with insurance companies. The insurance contracts guarantee us principal repayment and a fixed rate of return. Our valuation of Level 3 assets is based on third-party actuarial valuations that are an estimation of the surrender value of the guaranteed investment contract between us and the insurance company. The surrender value equals the actuarial value of the notional investments underlying the guaranteed investment contract, using the actuarial assumptions as stated in the guaranteed investment contract. STRYKER CORPORATION 2015 Form 10-K 30 Dollar amounts in millions except per share amounts or as otherwise specified.