3M 2009 Annual Report Download - page 92

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associated with prescription drugs in the 65 or older age group. The assumed health care trend rates as of
December 31 are as follows:
2009 2008
Pre-65 Post-65 Pre-65 Post-65
Health care cost trend rate used to determine
benefit obligations............................................ 7.75% 8.50% 8.00% 9.25%
Rate that the cost trend rate is assumed to
decline to (ultimate trend rate)......................... 5.00% 5.00% 5.00% 5.00%
Years to Ultimate Trend Rate.............................. 6 6 7 7
The assumed health care trend rates shown above reflect 3M’s expected medical and drug claims experience. As
noted above, the Company made modifications to its postretirement health plan to limit the amount of inflation it will
cover to three percent; the remaining inflation will be passed on to plan participants. Since the Company has limited
its inflationary costs a change in medical trend rate only impacts the amount of Medicare Subsidy it will receive. A
one percentage point change in assumed health cost trend rates would have the following effects:
Health Care Cost
(Millions)
One Percentage
Point Increase
One Percentage
Point Decrease
Effect on total of service and interest cost ................................................................
.
$ 14 $ (11)
Effect on postretirement benefit obligation................................................................
.
(13) 11
Future Pension and Postretirement Benefit Payments
The following table provides the estimated pension and postretirement benefit payments that are payable from the
plans to participants, and also provides the Medicare subsidy receipts expected to be received.
Qualified and Non-qualified
Pension Benefits Postretirement
Medicare
Subsidy
(Millions) United States International Benefits Receipts
2010 Benefit Payments ................................................... $ 652 $ 194 $ 127 $ 12
2011 Benefit Payments ................................................... 670 196 130 14
2012 Benefit Payments ................................................... 691 213 132 15
2013 Benefit Payments ................................................... 712 220 138 17
2014 Benefit Payments ................................................... 735 235 146 18
Following five years......................................................... 4,032 1,385 794 101
Plan Asset Management
3M’s investment strategy for its pension and postretirement plans is to manage the funds on a going-concern basis.
The primary goal of the funds is to meet the obligations as required. The secondary goal is to earn the highest rate of
return possible, without jeopardizing its primary goal, and without subjecting the Company to an undue amount of
contribution rate volatility. Fund returns are used to help finance present and future obligations to the extent possible
within actuarially determined funding limits and tax-determined asset limits, thus reducing the level of contributions
3M must make. The investment strategy has used long duration cash and derivative instruments to offset
approximately 50 percent of the interest rate sensitivity of U.S. pension liabilities. In addition, credit risk is managed
through mandates for public securities and maximum issuer limits that are established and monitored on a regular
basis.
During 2009, $600 million of 3M common stock was contributed to the principal U.S. qualified pension plan. All of the
3M shares contributed to the U.S. pension plan were sold before year end by an independent fiduciary to the plan.
Normally, 3M does not buy or sell any of its own stock as a direct investment for its pension and other postretirement
benefit funds. However, due to external investment management of the funds, the plans may indirectly buy, sell or
hold 3M stock. The aggregate amount of the shares would not be considered to be material relative to the aggregate
fund percentages.
The discussion that follows references the fair value measurements of certain assets in terms of levels 1, 2 and 3.
See Note 13 for descriptions of these levels.