Medtronic 2012 Annual Report Download - page 131

Medtronic, Inc.
Notes to Consolidated Financial Statements (Continued)
114
Retiree benefit payments, which reflect expected future service, are anticipated to be paid as follows:
(in millions) U.S. Pension Benefits Non-U.S. Pension Benefits Post-Retirement Benefits
____________________ _________________________ ___________________________________
Gross Gross Gross Gross Medicare
Fiscal Year Payments Payments Payments Part D Receipts
___________ _______________ _______________ _______________ _______________
2013 . . . . . . . . . . . . . . . . . . $ 53 $ 19 $ 11 $ 1
2014 . . . . . . . . . . . . . . . . . . 59 21 12 1
2015 . . . . . . . . . . . . . . . . . . 65 22 14 1
2016 . . . . . . . . . . . . . . . . . . 72 24 16 1
2017 . . . . . . . . . . . . . . . . . . 80 25 19 2
2018 – 2022 . . . . . . . . . . . . 528 152 134 15
_______________ _______________ _______________ _______________
Total . . . . . . . . . . . . . . . . . . $ 857 $ 263 $ 206 $ 21
_______________ _______________ _______________ _______________
_______________ _______________ _______________ _______________
In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act
(PPACA) and the Health Care and Education Affordability Reconciliation Act (Reconciliation Act).
Included among the major provisions of these laws is a change in the tax treatment of the Medicare Part D
subsidy. The subsidy came into existence with the enactment of the Medicare Modernization Act (MMA)
in 2003 and is available to sponsors of retiree health benefit plans with a prescription drug benefit that is
actuarially equivalent to the benefit provided by the Medicare Part D program. Prior to the enactment of
the PPACA and the Reconciliation Act, the Company was allowed to deduct the full cost of its retiree drug
plans without reduction for subsidies received.
Under U.S. GAAP, the Company records a liability on its balance sheet for the expected cost of earned
future retiree health benefits. When the MMA was enacted in 2003, this liability was reduced to reflect
expected future subsidies from the Medicare Part D program. In addition, the Company recorded a
reduction to the deferred tax liability on the balance sheet for the value of future tax deductions for these
retiree health benefits. Each year, as additional benefits are earned and benefit payments are made, the
Company adjusts the post-retirement benefits liability and deferred tax liability.
After the passage of the PPACA and the Reconciliation Act, the Company must reduce the tax
deduction for retiree drug benefits paid by the amount of the Medicare Part D subsidy beginning in 2013.
U.S. GAAP requires the impact of a change in tax law to be recognized immediately in the income statement
in the period that includes the enactment date, regardless of the effective date of the change in tax law. As
a result of this change in tax law, the Company recorded a non-cash charge of $15 million in fiscal year 2010
to increase the deferred tax liability. As a result of this legislation, the Company will be evaluating
prospective changes to the active and retiree health care benefits offered by the Company.
The Company’s U.S. qualified defined benefit plans are funded in excess of 80 percent, and therefore,
the Company expects that the plans will not be subject to the “at risk” funding requirements of the Pension
Protection Act and that the law will not have a material impact on future contributions.
The initial health care cost trend rates for post-retirement benefit plans was 7.50 percent for pre-65 and
7.25 percent for post-65 at April 27, 2012. Based on actuarial data, the trend rates are expected to decline to
5.0 percent over a five-year period. Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in assumed health care cost
trend rates would have the following effects:
One-Percentage- One-Percentage-
(in millions) Point Decrease Point Increase
___________ ________________ ________________
Effect on post-retirement benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . $ 2 $ (2)
Effect on post-retirement benefit obligation . . . . . . . . . . . . . . . . . . . 7 (16)
Defined Contribution Savings Plans The Company has defined contribution savings plans that cover
substantially all U.S. employees and certain non-U.S. employees. The general purpose of these plans is to
provide additional financial security during retirement by providing employees with an incentive to make
regular savings. Company contributions to the plans are based on employee contributions and Company
performance and since fiscal year 2006, the entire match has been made in cash. Expense under these plans
was $106 million, $147 million, and $110 million in fiscal years 2012, 2011, and 2010, respectively.