Pfizer Inc.
235 East 42nd Street
New York, NY 10017-5755
_________________________________________
September 6, 2010
Sir David Tweedie
Chairman, International Accounting Standards Board
30 Cannon Street
London EC4M 6XH
United Kingdom
Subject: Exposure Draft – Proposed amendments to IAS 19 Defined Benefit Plans
Dear Sir David:
Pfizer Inc. is a research-based, global pharmaceutical company. We discover, develop,
manufacture and market leading prescription medicines for humans and animals. In 2009,
we reported revenues of $50 billion, total assets of $213 billion and had approximately
116,000 employees at year end.
On behalf of Pfizer, we appreciate the opportunity to share our views with respect to the
recently issued exposure draft, Defined Benefit Plans, Proposed Amendments to IAS 19.
Although we currently report in US GAAP, we understand that global standards are a likely
eventuality. In addition, the FASB has a project on its agenda to comprehensively
reconsider employers’ accounting for pensions and OPEB, which we believe will be
influenced by the final IAS 19 Employee benefits guidance. This issue is of particular
significance to Pfizer because for the year ended December 31, 2009 we recognized $1.1
billion in net periodic benefit costs.
We ask the International Accounting Standards Board (the “IASB”) to consider the following
comments with respect to the Defined Benefit plan proposed amendments:
General Comments

As we support the convergence efforts of the FASB and the IASB, we believe that
changes to the accounting for defined benefit plans under IFRS should be deferred until
the two boards can work together and agree on fundamental concepts for both benefit
plan accounting and the components of Other Comprehensive Income and their
interaction (or not) with Net Income.

We object to the elimination of a long-term expected return on plan assets approach and
replacing it with the application of the discount rate to the net asset or liability. We do
not think that this bright-line approach should supplant management’s independent
judgment as to the expected long-term rate of return on plan assets and the discount
rate to be applied to the liability.

We support timely information for users of financial statements, but do not see the merit
of more routine full re-measurements of plan assets and liabilities (absent the
occurrence of significant events). Although quarterly re-measurements will provide
investors with more contemporaneous information, the mechanics of re-measurement
will be challenging, especially for companies that are required to file quarterly reports
within accelerated timeframes. The character of these assets and liabilities are generally
very long-term in nature, therefore, we think that annual measurements provide
sufficient information to users (again, absent a significant intervening event).
Answers to Specific Comment Letter questions
In addition to the above general comments, Pfizer’s responses to the specific questions
posed in the Exposure Draft are set forth in an Appendix to this letter.
Final Comments
We appreciate this opportunity to comment and encourage the IASB to continue to engage
its constituents and the international community. If requested, we would be pleased to
discuss our comments with you at any time.
Sincerely,
Loretta Cangialosi
Loretta V. Cangialosi
Senior Vice President and Controller
cc:
Frank D’Amelio
Senior Vice President and Chief Financial Officer
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Appendix to Pfizer Comment Letter
Response to detailed questions in the Exposure Draft, Defined Benefit Plans:
‘Proposed Amendments to IAS 19’
Recognition
Question 1
The exposure draft proposes that entities should recognise all changes in the
present value of the defined benefit obligation and in the fair value of plan assets
when they occur. (Paragraphs 54, 61 and BC9–BC12) Do you agree? Why or why
not?
We believe that annual updates are sufficient, absent significant intervening events that
would merit a full interim re-measurement process.
Question 2
Should entities recognize unvested past service cost when the related plan
amendment occurs? (Paragraphs 54, 61 and BC13) Why or why not?
We view benefit plan assets and liabilities as the reflection of a long-term commitment to
employees. Therefore, we believe that a longer-term amortization approach better matches
the nature of the commitment.
Disaggregation
Question 3
Should entities disaggregate defined benefit cost into three components: service
cost, finance cost and re-measurements? (Paragraphs 119A and BC14–BC18) Why
or why not?
Pfizer agrees with the disaggregation and presentation of these three components and
believes the standardization of the accounting in this fashion will improve comparability
between entities. We believe the disaggregation provides a valuable perspective for
understanding the various aspects and predictive elements of each cost:

Service costs are pension costs that accrue under various pension formulas, are
related to employment of participants, and are properly presented in operations,
within the same line items as the related salary expense.

Financing costs are imputed net interest income, or net interest expense, on the net
funded or unfunded status of the plan. Accordingly, if a company has a plan in a net
funded position, it, in effect, has a receivable from the plan available to offset future
benefit payments and would accrue finance income. Conversely, if a company has a
plan in a net unfunded position, it in effect has a payable to the plan for future
payments and should accrue finance expense. In this fashion, the company’s
decisions regarding how it funds its plans are reflected in finance costs, within the
determination of net income.

Re-measurement costs are comprised of investment results and other actuarial
changes in the plan assets and defined benefit obligations. Because these remeasurements are external to the core operations of the company, we agree with the
presentation in other comprehensive income.
Defining the service cost component
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Question 4
Should the service cost component exclude changes in the defined benefit
obligation resulting from changes in demographic assumptions? (Paragraphs 7
and BC19–BC23) Why or why not?
We believe that service costs, whether current or past, represent costs related to
employment performance of plan participants and should therefore be presented in the
determination of operating income. However, changes related to demographic assumptions
are not directly related to employment performance, and are therefore more properly
presented with other actuarial and re-measurement items in other comprehensive income.
Defining the finance cost component
Question 5
The exposure draft proposes that the finance cost component should comprise net
interest on the net defined benefit liability (asset) determined by applying the
discount rate specified in paragraph 78 to the net defined benefit liability (asset).
As a consequence, it eliminates from IAS 19 the requirement to present an
expected return on plan assets in profit or loss. Should net interest on the net
defined benefit liability (asset) be determined by applying the discount rate
specified in paragraph 78 to the net defined benefit liability (asset)? Why or why
not? If not, how would you define the finance cost component and why?
(Paragraphs 7, 119B, 119C and BC23–BC32)
Conceptually, we understand the view that a funded pension plan is an asset or long-term
receivable a company has available to reduce future benefit payments, and an unfunded plan
is a liability owed to the plan or its employees. Consistent with accounting practice for other
long-term liabilities or receivables, we accept that it is reasonable to accrue an interest
charge on a plan liability or accrue interest income on a plan receivable. Therefore, including
a net finance cost component, which gives current period profit and loss recognition of a
plans funded status, is reflective of this asset and liability approach and is reasonable.
However, we do not agree that this approach should be used as it replaces management
judgment with a prescriptive approach. We would support the continued use of an expected
return on plan assets (which would distinguish between high-risk investments and lowerrisk investments) and the growth in the projected benefit obligation (using a discount rate
reflective of lower risk, bond returns). We believe that this approach will be more
representationally faithful.
Presentation
Question 6
Should entities present:
a) service cost in profit or loss?
b) net interest on the net defined benefit liability (asset) as part of finance
costs in profit or loss?
c) re-measurements in other comprehensive income?
(Paragraphs 119A and BC35–BC45) Why or why not?
We agree with the presentation options for the above components of pension costs, but see
also our other comments in this letter concerning the calculation of “net interest.”
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Settlements and curtailments
Question 7
a) Do you agree that gains and losses on routine and non-routine settlement
are actuarial gains and losses and should therefore be included in the
remeasurement component? (Paragraphs 119D and BC47) Why or why
not?
b) Do you agree that curtailments should be treated in the same way as plan
amendments, with gains and losses presented in profit or loss? (Paragraphs
98A, 119A(a) and BC48)
c) Should entities disclose (i) a narrative description of any plan amendments,
curtailments and non-routine settlements, and (ii) their effect on the
statement of comprehensive income? (Paragraphs 125C(c), 125E, BC49 and
BC78) Why or why not?
We concur with the above, as follows:
a) Plan settlements gains or losses represent the difference between the defined benefit
contribution liability settled and the settlement cost at the transaction date. As such,
a settlement transaction does not directly relate to the cost of providing employment,
(service costs) and is more properly considered a remeasurment component.
b) We agree that curtailment gains should be included in profit and loss because
curtailments typically change or reduce the benefits a plan will provide to employees.
Since a curtailment is a current period decision by the company that impacts the cost
of providing employment, we believe it is similar to service costs and should be
treated in the same fashion as an operating expense.
c) We agree that a narrative description of plan amendments, curtailments or nonroutine settlements, if material, would provide useful disclosure for readers of
financial statements.
Disclosures
Defined benefit plans
Question 8
The exposure draft states that the objectives of disclosing information about an
entity’s defined benefit plans are:
a) to explain the characteristics of the entity’s defined benefit plans;
b) to identify and explain the amounts in the entity’s financial statements
arising from its defined benefit plans; and
c) to describe how defined benefit plans affect the amount, timing and
variability of the entity’s future cash flows. (Paragraphs 125A and BC52–
BC59);
d) Are these objectives appropriate? Why or why not? If not, how would you
amend the objectives and why?
We agree that these disclosures are appropriate and should prove useful to financial
statement users. However, consideration should be given to the appropriate level of detail
to be provided to meet each objective and possible effects of future pension guidance. The
Board has expressed a view that the current exposure draft is intended to be a short-term
targeted document to improve some key areas of pension accounting, with a comprehensive
review planned to begin after mid-2011. It may be prudent to postpone the pension
disclosure modifications until the more comprehensive review; because it is likely additional
disclosure considerations will arise during that process.
Question 9
To achieve the disclosure objectives, the exposure draft proposes new disclosure
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requirements, including:
a) information about risk, including sensitivity analyses. (Paragraphs 125C(b),
125I, BC60(a), BC62(a) and BC63–BC66)
b) information about the process used to determine demographic actuarial
assumptions. (Paragraphs 125G(b) and BC60(d) and (e)); the present value
of the defined benefit obligation, modified to exclude the effect of projected
salary growth. (Paragraphs 125H and BC60(f))
c) information about asset-liability matching strategies. (Paragraphs 125J and
BC62(b)); and information about factors that could cause contributions to
differ from service cost. (Paragraphs 125K and BC62(c))
Are the proposed new disclosure requirements appropriate? Why or why not?
If not, what disclosures do you propose to achieve the disclosure objectives?
We believe the proposed disclosure requirements would require companies to provide
additional detailed narrative and actuarial information that may be of limited usefulness to
the average reader of financial statements beyond information that is already required.
Present US GAAP disclosures include a brief description of the plans, the presentation of
amounts in the balance sheet, the expected return on plan assets, the rate of salary
increases, the plans funded status and asset makeup, and the expected benefit payments
over the next ten years. We believe the existing disclosures presently meet the objectives
expressed in Question 8.
Specifically we have reservations about additional disclosures above as follows:
a) Risk and sensitivity analysis – we believe the existing disclosures regarding the
funded status of plans, coupled with the expected benefit payment information are
adequate to address the major plan risks.
b) Information about the process used to determine actuarial assumptions and present
value information – we believe these disclosures are extremely technical in nature
and of limited usefulness to users without actuarial training.
c) Information about asset/liability matching strategies and factors that could cause
contributions to differ from service cost – by currently disclosing the expected future
payouts and the plans’ investment allocation, we believe the reader already has the
information necessary to make an assessment of the assets available in the plan
portfolio available to meet the payment liabilities as they occur.
As stated in the response to Question 9 above, consideration should be given to postponing
these additional disclosure requirements, pending the completion of a more comprehensive
review of pensions. In addition, the elimination of deferred recognition and the disaggregation
of pension cost under the exposure draft have already improved disclosures by providing for
more relevant financial statement presentation of pension related amounts.
Multi-employer plans
Question 10
The exposure draft proposes additional disclosures about participation in
multi-employer plans. Should the Board add to, amend or delete these
requirements? (Paragraphs 33A and BC67–BC69) Why or why not?
As expressed in the response to Question 8 and 9, we believe that the Board should
postpone the consideration of additional disclosures until the completion of the more
comprehensive review.
State plans and defined benefit plans that share risks between various
entities under common control
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Question 11
The exposure draft updates, without further reconsideration, the disclosure
requirements for entities that participate in state plans or defined benefit plans
that share risks between various entities under common control to make them
consistent with the disclosures in Paragraphs 125A–125K. Should the Board add
to, amend or delete these requirements? (Paragraphs 34B, 36, 38 and BC70) Why
or why not?
As expressed in the responses to Question 8 and 9, we believe that the Board should
postpone the consideration of additional disclosures until the completion of the more
comprehensive review.
Other comments
Question 12
Do you have any other comments about the proposed disclosure requirements?
(Paragraphs 125A–125K and BC50–BC70)
We have no other additional comments regarding the proposed disclosure requirements
beyond the responses already provided.
Other issues
Question 13
The exposure draft also proposes to amend IAS 19 as summarized below:
(a) The requirements in IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction, as amended in
November 2009, are incorporated without substantive change. (Paragraphs
115A–115K and BC73)
(b) ‘Minimum funding requirement’ is defined as any enforceable requirement for
the entity to make contributions to fund a post-employment or other long-term
defined benefit plan. (Paragraphs 7 and BC80)
(c) Tax payable by the plan shall be included in the return on plan assets or in the
measurement of the defined benefit obligation, depending on the nature of the
tax. (Paragraphs 7, 73(b), BC82 and BC83)
(d) The return on plan assets shall be reduced by administration costs only if those
costs relate to managing plan assets. (Paragraphs 7, 73(b), BC82 and BC84–
BC86)
(e) Expected future salary increases shall be considered in determining whether a
benefit formula expressed in terms of current salary allocates a materially
higher level of benefits in later years. (Paragraphs 71A and BC87–BC90)
(f) The mortality assumptions used to determine the defined benefit obligation are
current estimates of the expected mortality rates of plan members, both during
and after employment. (Paragraphs 73(a)(i) and BC91)
(g) Risk-sharing and conditional indexation features shall be considered in
determining the best estimate of the defined benefit obligation. (Paragraphs
64A, 85(c) and BC92–BC96)
Do you agree with the proposed amendments? Why or why not? If not, what
alternative(s) do you propose and why?
We support the above technical amendments to IAS 19 for reasons expressed in the Basis
for Conclusions and have no additional comments.
Multi-employer plans
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Question 14
IAS 19 requires entities to account for a defined benefit multi-employer plan as a
defined contribution plan if it exposes the participating entities to actuarial risks
associated with the current and former employees of other entities, with the result
that there is no consistent and reliable basis for allocating the obligation, plan
assets and cost to individual entities participating in the plan. In the Board’s view,
this would apply to many plans that meet the definition of a defined benefit
multiemployer plan. (Paragraphs 32(a) and BC75(b))
Please describe any situations in which a defined benefit multi-employer plan has a
consistent and reliable basis for allocating the obligation, plan assets and cost to
the individual entities participating in the plan. Should participants in such multiemployer plans apply defined benefit accounting? Why or why not?
We have no comments on the proposals regarding multi-employer plans.
Transition
Question 15
Should entities apply the proposed amendments retrospectively? (Paragraphs 162
and BC97–BC101) Why or why not?
We support the Boards proposal that the proposed amendments be applied retrospectively
to all years presented. In our opinion, the required defined benefit plan and actuarial
information required to apply the proposed amendments should generally be available to
most entities.
Benefits and costs
Question 16
In the Board’s assessment:
a) the main benefits of the proposals are:
a. reporting changes in the carrying amount of defined benefit
obligations and changes in the fair value of plan assets in a more
understandable way.
b. eliminating some presentation options currently allowed by IAS 19,
thus improving comparability.
c. clarifying requirements that have resulted in diverse practices.
d. improving information about the risks arising from an entity’s
involvement in defined benefit plans.
b) the costs of the proposal should be minimal, because entities are already
required to obtain much of the information required to apply the proposed
amendments when they apply the existing version of IAS 19.
Do you agree with the Board’s assessment? (Paragraphs BC103–BC107) Why or
why not?
We agree with the Boards assessment of the benefits of the new proposals and believe that
the costs would not be unduly burdensome because most of information is presently
required under either US GAAP, or existing IAS 19 requirements. We have certain
reservations regarding the additional disclosures regarding risks of involvement in defined
benefit plans for reasons expressed in the responses to Questions 8 and 9.
We refer to our observations under the General Comments heading of this letter regarding
the desire for mitigation of the possible interim reporting burden that may be created due to
the proposed requirement of regular re-measurement of defined benefit obligations and plan
assets.
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Other comments
Question 17
Do you have any other comments on the proposals?
We refer to our observations under the General Comments heading of this letter regarding
the desire for mitigation of the possible interim reporting burden that may be created due to
the proposed requirement of regular re-measurement of defined benefit obligations and plan
assets.
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