A global pharmaceutical company offers defined benefit

plans to its employees #3295

A global pharmaceutical company offers defined-benefit plans to its employees. The following
table presents select data about Eli Lilly’s defined-benefits pension plan. Eli Lilly reports under
U.S. GAAP. Use this information to answer the questions that follow regarding Eli Lilly’s defined-
benefits pension plan, including its pension costs and liability.a. What is Eli Lilly’s pension cost
in 2013, 2012, and 2011? What are the components of its pension cost? What are pension
costs after taxes as a percentage of net income? Comment on any changes in pension costs as
a percentage of net income. Consider the growth in net income compared to the growth in
pension costs after taxes. Assume a 35% tax rate.b. What is the funded status of Eli Lilly’s
defined- benefit pension plans in 2013, 2012, and 2011? How has the funded status changed
over time? What is the percent of the net pension liability to total liabilities in 2013, 2012, and
2011?c. How have the settlement rate and expected return on plan assets changed from 2013
to 2012? How does the change in the settlement rate affect the pension obligation and pension
cost? How does the change in the expected return on plan assets affect the pension cost?d. If
Eli Lilly had reported all actuarial gains and losses in net income rather than other
comprehensive income, what would its pension cost have been in 2013, 2012, and 2011?
Comment on the changes in its pension cost.e. From Example 19.27 in the text, compare
pensions at Eli Lilly to Johnson & Johnson. Specifically, compare the pension costs as a
percentage of net income and the net pension obligation as a percentage of liabilities.View
Solution:
A global pharmaceutical company offers defined benefit plans to its employees

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