3M 2015 Annual Report Download - page 86

TableofContents
Weighted-averageassumptionsusedtodeterminebenefitobligationsasofDecember31
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QualifiedandNon-qualifiedPensionBenefits Postretirement 
UnitedStates International Benefits 
 2015  2014  2013  2015  2014  2013  2015  2014  2013 
          
Discountrate  4.47 % 4.10 % 4.98 % 3.12 % 3.11 % 4.02 % 4.48 % 4.07 % 4.83 %
Compensationrateincrease  4.10 % 4.10 % 4.00 % 2.90 % 3.33 % 3.35 % N/A N/A N/A 
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Weighted-averageassumptionsusedtodeterminenetcostforyearsendedDecember31
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QualifiedandNon-qualifiedPensionBenefits Postretirement 
UnitedStates International Benefits 
 2015  2014  2013  2015  2014  2013  2015  2014  2013 
          
Discountrate  4.10 % 4.98 % 4.14 % 3.11 % 4.02 % 3.78 % 4.07 % 4.83 % 4.00 %
Expectedreturnonassets  7.75 % 7.75 % 8.00 % 5.90 % 5.83 % 5.87 % 6.91 % 7.11 % 7.19 %
Compensationrateincrease  4.10 % 4.00 % 4.00 % 3.33 % 3.35 % 3.31 % N/A N/A N/A 
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TheCompanyisintheprocessoftransitioningallcurrentandfutureretireesintheU.S.postretirementhealthcarebenefitplanstoa
savingsaccountbenefits-basedplan.ThecontributionsprovidedbytheCompanytothehealthsavingsaccountsincrease3percent
peryearforemployeeswhoretiredpriortoJanuary1,2016andincrease1.5percentforemployeeswhoretireonorafterJanuary1,
2016.Therefore,theCompanynolongerhasmaterialexposuretohealthcarecostinflation.
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TheCompanydeterminesthediscountrateusedtomeasureplanliabilitiesasoftheDecember31measurementdateforthepension
andpostretirementbenefitplans,whichisalsothedateusedfortherelatedannualmeasurementassumptions.Thediscountrate
reflectsthecurrentrateatwhichtheassociatedliabilitiescouldbeeffectivelysettledattheendoftheyear.TheCompanysetsitsrate
toreflecttheyieldofaportfolioofhighquality,fixed-incomedebtinstrumentsthatwouldproducecashflowssufficientintiming
andamounttosettleprojectedfuturebenefits.Usingthismethodology,theCompanydeterminedadiscountrateof4.47%for
pensionand4.48%forpostretirementbenefitstobeappropriateforitsU.S.plansasofDecember31,2015,whichisanincreaseof
0.37percentagepointsand0.41percentagepoints,respectively,fromtheratesusedasofDecember31,2014.Fortheinternational
pensionandpostretirementplansthediscountratesalsoreflectthecurrentrateatwhichtheassociatedliabilitiescouldbeeffectively
settledattheendoftheyear.IfthecountryhasadeepmarketincorporatebondstheCompanymatchestheexpectedcashflowsfrom
theplaneithertoaportfolioofbondsthatgeneratesufficientcashfloworanotionalyieldcurvegeneratedfromavailablebond
information.Incountriesthatdonothaveadeepmarketincorporatebonds,governmentbondsareconsideredwithariskpremium
toapproximatecorporatebondyields.Beginningin2016,3Mchangedthemethodusedtoestimatetheserviceandinterestcost
componentsofthenetperiodicpensionandotherpostretirementbenefitcosts.Thenewmethodmeasuresserviceandinterestcosts
separatelyusingthespotyieldcurveapproachappliedtoeachcorrespondingobligation.Servicecostsaredeterminedbasedon
duration-specificspotratesappliedtotheservicecostcashflows.Theinterestcostcalculationisdeterminedbyapplyingduration-
specificspotratestotheyear-by-yearprojectedbenefitpayments.Thespotyieldcurveapproachdoesnotaffectthemeasurementof
thetotalbenefitobligationsasthechangeinserviceandinterestcostsoffsetintheactuarialgainsandlossesrecordedinother
comprehensiveincome.TheCompanychangedtothenewmethodtoprovideamoreprecisemeasureofserviceandinterestcostsby
improvingthecorrelationbetweentheprojectedbenefitcashflowsandthediscretespotyieldcurverates.TheCompanyaccounted
forthischangeasachangeinestimateprospectivelybeginninginthefirstquarterof2016.
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FortheprimaryU.S.qualifiedpensionplan,theCompany’sassumptionfortheexpectedreturnonplanassetswas7.75%in2015.
Projectedreturnsarebasedprimarilyonbroad,publiclytradedequityandfixed-incomeindicesandforward-lookingestimatesof
activeportfolioandinvestmentmanagement.AsofDecember31,2015,theCompany’s2016expectedlong-termrateofreturnon
U.S.planassetsis7.50%,adecreaseof0.25percentagepointsfrom2015.Theexpectedreturnassumptionisbasedonthestrategic
assetallocationoftheplan,longtermcapitalmarketreturnexpectationsandexpectedperformancefromactiveinvestment
management.The2015expectedlong-termrateofreturn
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