Intel Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Retirement Benefit Plans

Retirement Benefit Plans

12 Months Ended

Dec. 31, 2016

Compensation and Retirement Disclosure [Abstract]

Retirement Benefit Plans [Text Block]

Note 18: Retirement Benefit Plans

Retirement Contribution Plans

We provide tax-qualified retirement contribution plans for the benefit of eligible employees, former employees, and retirees in the U.S. and certain other countries. The plans are designed to provide employees with an accumulation of funds for retirement on a tax-deferred basis. Employees hired prior to January 1, 2011 are eligible for and receive discretionary employer contributions in the U.S. Intel Retirement Contribution Plan. Employees hired on or after January 1, 2011 receive discretionary employer contributions in the Intel 401(k) Savings Plan, which are participant-directed. Our CEO determines the annual discretionary employer contribution amounts for the U.S. Intel Retirement Contribution Plan and the Intel 401(k) Savings Plan under delegation of authority from our Board of Directors, pursuant to the terms of the plans. Effective January 1, 2015, the U.S. Intel Retirement Contribution plan assets and future discretionary employer contributions are participant-directed.

For the benefit of eligible U.S. employees, we also provide a non-tax-qualified supplemental deferred compensation plan for certain highly compensated employees. This plan is designed to permit certain discretionary employer contributions and to permit employees to defer a portion of compensation in addition to their Intel 401(k) Savings Plan deferrals. This plan is unfunded.

We expensed $326 million for the qualified and non-qualified U.S. retirement contribution plans in 2016 ($337 million in 2015 and $286 million in 2014). In the first quarter of 2017, we funded $314 million for the 2016 contributions to the qualified U.S. retirement contribution plans.

Pension and Postretirement Benefit Plans

U.S. Pension Benefits. For employees hired prior to January 1, 2011, we provide a tax-qualified defined-benefit pension plan, the U.S. Intel Minimum Pension Plan, for eligible employees, former employees, and retirees in the U.S. Beginning on January 1, 2015, future benefit accruals in the U.S. Intel Minimum Pension Plan were frozen to all employees at or above a specific grade level, and generally covering all highly compensated employees in the plan. Beginning in 2016, the impacted employees received discretionary employer contributions in the Intel 401(k) Savings Plan, instead of the U.S. Intel Retirement Contribution Plan. This change was contingent on receiving a favorable private letter ruling from the U.S. Internal Revenue Service (IRS), which we received in October 2014. As a result, our projected benefit obligation was reduced by $1.1 billion in 2014, most of which was also included as a change in actuarial valuation on the consolidated statements of comprehensive income.

The U.S. Intel Minimum Pension Plan benefit is determined by a participant’s years of service and final average compensation, as defined by the plan document. The plan generates a minimum pension benefit if the participant's U.S. Intel Minimum Pension Plan benefit exceeds the annuitized value of the employee's U.S. Intel Retirement Contribution Plan benefit. If participant balances in the U.S. Intel Retirement Contribution Plan do not grow sufficiently, the projected benefit obligation of the U.S. Intel Minimum Pension Plan could increase significantly. Consistent with applicable law, assets of the U.S. Intel Minimum Pension Plan are held in trust, solely for the benefit of plan participants, and are not available for general corporate purposes.

Non-U.S. Pension Benefits. We also provide defined-benefit pension plans in certain other countries, most significantly Ireland, Germany, and Israel. Consistent with the requirements of local law, we deposit funds for certain plans with insurance companies, with third-party trustees, or into government-managed accounts, and/or accrue for the unfunded portion of the obligation.

U.S. Postretirement Medical Benefits. Upon retirement, eligible U.S. employees who were hired prior to January 1, 2014 are credited with a defined dollar amount, based on years of service, into a U.S. Sheltered Employee Retirement Medical Account (SERMA). These credits can be used to pay all or a portion of the cost to purchase coverage in the retiree’s choice of medical plan. If the available credits are not sufficient to pay the entire cost of the coverage, the remaining cost is the retiree’s responsibility. Employees hired on or after January 1, 2014 are not eligible to earn a SERMA benefit.

Funding Policy. Our practice is to fund the various pension plans in amounts sufficient to meet the minimum requirements of applicable local laws and regulations. Additional funding may be provided as deemed appropriate. Funding for the U.S. postretirement medical benefits plan is discretionary under applicable laws and regulations; additional funding may be provided as deemed appropriate. Depending on the design of the plan, local customs, and market circumstances, the liabilities of a plan may exceed qualified plan assets.

Benefit Obligation and Plan Assets

The vested benefit obligation for a defined benefit pension plan is the actuarial present value of the vested benefits to which the employee is currently entitled based on the employee's expected date of separation or retirement. The changes in the projected benefit obligations and fair value of plan assets at the end of each period for the plans described above were as follows:



	U.S. Pension Benefits						Non-U.S. Pension Benefits						U.S. Postretirement Medical Benefits
(In Millions)	Dec 31, 2016			Dec 26, 2015			Dec 31, 2016			Dec 26, 2015			Dec 31, 2016			Dec 26, 2015
Beginning projected benefit obligation	$	990		$	892		$	2,140		$	2,423		$	560		$	546
Service cost	17			18			113			128			26			30
Interest cost	43			33			63			63			23			21
Actuarial (gain) loss	482			126			93			(250		)	(26		)	(21		)
Currency exchange rate changes	—			—			(80		)	(190		)	—			—
Plan settlements	(162		)	(70		)	(40		)	—			—			—
Other	9			(9		)	(28		)	(34		)	5			(16		)
Ending projected benefit obligation	$	1,379		$	990		$	2,261		$	2,140		$	588		$	560



	U.S. Pension Benefits						Non-U.S. Pension Benefits						U.S. Postretirement Medical Benefits
(In Millions)	Dec 31, 2016			Dec 26, 2015			Dec 31, 2016			Dec 26, 2015			Dec 31, 2016			Dec 26, 2015
Beginning fair value of plan assets	$	627		$	623		$	1,011		$	1,017		$	410		$	427
Actual return on plan assets	41			(4		)	40			42			29			6
Employer contributions	289			90			127			72			—			1
Currency exchange rate changes	—			—			(26		)	(66		)	—			—
Plan settlements	(162		)	(70		)	(40		)	—			—			—
Benefits paid to plan participants	(11		)	—			(73		)	(84		)	(26		)	(17		)
Other	(2		)	(12		)	(125		)	30			(4		)	(7		)
Ending fair value of plan assets	$	782		$	627		$	914		$	1,011		$	409		$	410

The amounts recognized on the consolidated balance sheets at the end of each period were as follows:



	U.S. Pension Benefits						Non-U.S. Pension Benefits						U.S. Postretirement Medical Benefits
(In Millions)	Dec 31, 2016			Dec 26, 2015			Dec 31, 2016			Dec 26, 2015			Dec 31, 2016			Dec 26, 2015
Other long-term assets	$	—		$	—		$	—		$	15		$	—		$	—
Accrued compensation and benefits	—			—			(4		)	—			—			—
Other long-term liabilities	(597		)	(363		)	(1,343		)	(1,144		)	(179		)	(150		)
Accumulated other comprehensive loss (income), before tax	548			158			1,055			908			12			39
Net amount recognized	$	(49	)	$	(205	)	$	(292	)	$	(221	)	$	(167	)	$	(111	)

The amounts recorded in accumulated other comprehensive income (loss) before taxes at the end of each period were as follows:



	U.S. Pension Benefits						Non-U.S. Pension Benefits						U.S. Postretirement Medical Benefits
(In Millions)	Dec 31, 2016			Dec 26, 2015			Dec 31, 2016			Dec 26, 2015			Dec 31, 2016			Dec 26, 2015
Net prior service credit (cost)	$	—		$	—		$	(17	)	$	(12	)	$	(38	)	$	(43	)
Net actuarial gain (loss)	(548		)	(158		)	(1,038		)	(896		)	26			4
Accumulated other comprehensive income (loss), before tax	$	(548	)	$	(158	)	$	(1,055	)	$	(908	)	$	(12	)	$	(39	)

We use a corridor approach to amortize actuarial gains and losses. Under this approach, net actuarial gains or losses in excess of 10% of the larger of the projected benefit obligation or the fair value of plan assets are amortized on a straight-line basis. The period of amortization is the average remaining service of active participants who are expected to receive benefits under the plans.

As of December 31, 2016, the accumulated benefit obligation was $1.3 billion for the U.S. Intel Minimum Pension Plan ($899 million as of December 26, 2015) and $1.7 billion for the non-U.S. defined-benefit pension plans ($1.6 billion as of December 26, 2015). Included in the aggregate data in the following tables are the amounts applicable to our pension plans with accumulated benefit obligations in excess of plan assets, as well as plans with projected benefit obligations in excess of plan assets. Amounts related to such plans at the end of each period were as follows:



	U.S. Pension Benefits				Non-U.S. Pension Benefits
(In Millions)	Dec 31, 2016		Dec 26, 2015		Dec 31, 2016		Dec 26, 2015
Plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligations	$	1,282	$	899	$	1,694	$	1,239
Plan assets	$	782	$	627	$	914	$	645
Plans with projected benefit obligations in excess of plan assets:
Projected benefit obligations	$	1,379	$	990	$	2,261	$	2,079
Plan assets	$	782	$	627	$	914	$	934

On a worldwide basis, our pension and postretirement benefit plans were 50% funded as of December 31, 2016. The U.S. Intel Minimum Pension Plan, which accounts for 33% of the worldwide pension and postretirement benefit obligations, was 57% funded. Funded status is not indicative of our ability to pay ongoing pension benefits or of our obligation to fund retirement trusts. Required pension funding for U.S. retirement plans is determined in accordance with the Employee Retirement Income Security Act (ERISA), which sets required minimum contributions. Cumulative company funding to the U.S. Intel Minimum Pension Plan currently exceeds the minimum ERISA funding requirements.

Assumptions

Weighted average actuarial assumptions used to determine benefit obligations for the plans at the end of each period were as follows:



	U.S. Pension Benefits				Non-U.S. Pension Benefits				U.S. Postretirement Medical Benefits
	Dec 31, 2016		Dec 26, 2015		Dec 31, 2016		Dec 26, 2015		Dec 31, 2016		Dec 26, 2015
Discount rate	4.3	%	4.0	%	2.5	%	3.1	%	4.2	%	4.1	%
Rate of compensation increase	3.6	%	3.7	%	3.6	%	3.8	%	n/a		n/a

Weighted average actuarial assumptions used to determine costs for the plans for each period were as follows:



	U.S. Pension Benefits						Non-U.S. Pension Benefits						U.S. Postretirement Medical Benefits
	2016		2015		2014		2016		2015		2014		2016		2015		2014
Discount rate	3.7	%	3.8	%	4.6	%	3.1	%	2.8	%	4.0	%	3.8	%	3.9	%	4.6	%
Expected long-term rate of return on plan assets	5.6	%	6.1	%	5.4	%	5.5	%	5.7	%	5.7	%	7.0	%	7.4	%	7.4	%
Rate of compensation increase	3.7	%	3.8	%	3.8	%	3.8	%	4.0	%	4.1	%	n/a		n/a		n/a

For the U.S. plans, we developed the discount rate by calculating the benefit payment streams by year to determine when benefit payments will be due. We then matched the benefit payment streams by year to the AA corporate bond rates to match the timing and amount of the expected benefit payments, and discounted back to the measurement date to determine the appropriate discount rate. For the non-U.S. plans, we used two approaches to develop the discount rate. In certain countries, we used a model consisting of a theoretical bond portfolio for which the timing and amount of cash flows approximated the estimated benefit payments of our pension plans. In other countries, we analyzed current market long-term bond rates and matched the bond maturity with the average duration of the pension liabilities.

We establish the long-term expected rate of return by developing a forward-looking, long-term return assumption for each pension fund asset class, taking into account factors such as the expected real return for the specific asset class and inflation. A single, long-term rate of return is then calculated as the weighted average of the target asset allocation percentages and the long-term return assumption for each asset class.

Net Periodic Benefit Cost

In 2016, the net periodic benefit cost for U.S. pension benefits, non-U.S. pension benefits, and U.S. postretirement medical benefits was $134 million ($26 million in 2015 and $36 million in 2014), $225 million ($198 million in 2015 and $165 million in 2014) and $56 million ($26 million in 2015 and $17 million in 2014), respectively.

The increase in the U.S. net periodic pension benefit cost in 2016 compared to 2015 is primarily attributed to plan settlement and remeasurement in conjunction with our 2016 Restructuring Program. For more information on the 2016 Restructuring Program, see "Note 7: Restructuring and Other Charges."

U.S. Pension Plan Assets

In general, the investment strategy for U.S. Intel Minimum Pension Plan assets is to maximize risk-adjusted returns, taking into consideration the investment horizon and expected volatility to help ensure that sufficient assets are available to pay pension benefits as they come due. The allocation to each asset class will fluctuate with market conditions, such as volatility and liquidity concerns, and will typically be rebalanced when outside the target ranges, which were 45% for equity investments and 55% for fixed-income investments in 2016. For 2017, the expected long-term rate of return for the U.S. Intel Minimum Pension Plan assets is 4.9%.

U.S. Intel Minimum Pension Plan assets measured at fair value on a recurring basis consisted of the following investment categories at the end of each period:



	December 31, 2016								Dec 26, 2015
	Fair Value Measured at Reporting Date Using
(In Millions)	Level 1		Level 2		Level 3		Total		Total
Equity securities	$	80	$	1	$	—	$	81	$	56
Fixed income	20		187		51		258		200
Other investments	—		—		—		—		4
Assets measured by fair value hierarchy	$	100	$	188	$	51	$	339	$	260
Assets measured at net asset value							436		367
Cash							7		—
Total U.S. pension plan assets at fair value							$	782	$	627

Substantially all of the fixed income investments in the preceding table are asset-backed securities, corporate debt, and government debt. Government debt includes instruments such as non-U.S. government securities, U.S. agency securities, and U.S. treasury securities.

The assets measured at net asset value are invested in common collective trust funds, limited partnerships, and limited liability companies.

Non-U.S. Plan Assets

The investments of the non-U.S. plans are managed by insurance companies, pension funds, or third-party trustees, consistent with regulations or market practice of the country where the assets are invested. The investment manager makes investment decisions within the guidelines set by Intel or local regulations. The investment manager evaluates performance by comparing the actual rate of return to the return on similar assets. Investments managed by qualified insurance companies or pension funds under standard contracts follow local regulations, and we are not actively involved in their investment strategies. For the assets that we have discretion to set investment guidelines, the assets are invested in developed country equity investments and fixed-income investments, either through index funds or direct investment. In general, the investment strategy is designed to accumulate a diversified portfolio among markets, asset classes, or individual securities to reduce market risk and to help ensure that the pension assets are available to pay benefits as they come due. The target allocation of the non-U.S. plan assets that we have control over is 55% equity investments and 45% fixed-income investments. For 2017, the average expected long-term rate of return for the non-U.S. plan assets is 4.3%.

Non-U.S. plan assets measured at fair value on a recurring basis consisted of the following investment categories at the end of each period:



	December 31, 2016								Dec 26, 2015
	Fair Value Measured at Reporting Date Using
(In Millions)	Level 1		Level 2		Level 3		Total		Total
Equity securities	$	231	$	—	$	16	$	247	$	238
Fixed income	—		30		16		46		99
Assets measured by fair value hierarchy	$	231	$	30	$	32	$	293	$	337
Assets measured at net asset value							608		652
Cash							13		22
Total non-U.S. plan assets at fair value							$	914	$	1,011

Most of the equity investments in the preceding table are invested in a diversified mix of equities of developed countries, including the U.S., and emerging markets throughout the world.

We have control over the majority of the assets measured at net asset value, which are invested in hedge funds, bond index, and equity index funds.

U.S. Postretirement Medical Plan Assets

In general, the investment strategy for U.S. postretirement medical benefits plan assets is to invest primarily in liquid assets, due to the level of expected future benefit payments. The assets are invested solely in a tax-aware global equity portfolio, which is actively managed by an external investment manager. The tax-aware global equity portfolio is composed of a diversified mix of equities in developed countries. For 2017, the expected long-term rate of return for the U.S. postretirement medical benefits plan assets is 6.5%. As of December 31, 2016, substantially all of the U.S. postretirement medical benefits plan assets were invested in exchange-traded equity securities and were measured at fair value using Level 1 inputs.

Concentrations of Risk

We manage a variety of risks, including credit, liquidity, and market risks, across our plan assets through our investment managers. We define a concentration of risk as an undiversified exposure to one of the aforementioned risks that unnecessarily increases the exposure to a loss of plan assets. We monitor exposure to such risks in both the U.S. and non-U.S. plans by monitoring the magnitude of the risk in each plan and diversifying our exposure to such risks across a variety of counterparties, instruments, and markets. As of December 31, 2016, we did not have concentrations of risk in any single entity, manager, counterparty, sector, industry, or country.

Funding Expectations

Under applicable law for the U.S. Intel Minimum Pension Plan, we are not required to make any contributions during 2017. Our expected required funding for the non-U.S. plans during 2017 is approximately $36 million.

Estimated Future Benefit Payments

Estimated benefit payments over the next 10 fiscal years are as follows:



(In Millions)	U.S. Pension Benefits		Non-U.S. Pension Benefits		U.S. Postretirement Medical Benefits
2017	$	80	$	23	$	29
2018	$	88	$	25	$	31
2019	$	85	$	25	$	33
2020	$	85	$	28	$	35
2021	$	89	$	30	$	38
2022-2026	$	415	$	213	$	238