Item 1.01
|
Entry into a Material Definitive Agreement.
|
On January 1, 2018, the Administrative Committee of
the Compensation Committee of the Board of Directors of Baxter International Inc. (the Company) approved an amendment to reorganize the Baxter International Inc. and Subsidiaries Pension Plan (the U.S. Pension Plan).
Specifically, effective January 1, 2018, the amendment spun off the assets and liabilities of the U.S. Pension Plan attributable to current Company employees to a new Company plan (the Active Plan). The assets and liabilities under
the U.S. Pension Plan attributable to retired and former Company employees under the U.S. Pension Plan remained with that plan, after giving effect to the
spin-off
(the Inactive Plan).
The Active Plan, the Inactive Plan and the Baxter International Inc. and Subsidiaries Supplemental Pension Plan (the Supplemental Pension Plan)
were further amended on January 5, 2018 to cease the accruals of additional benefits thereunder effective December 31, 2022 (the Freeze). As a result, years of additional service earned and eligible compensation received after
December 31, 2022 will not be included in the determination of the benefits payable under the Active Plan, the Inactive Plan or the Supplemental Pension Plan. There are no anticipated changes to the benefits eligible to be earned under any plan
until January 1, 2023.
The Inactive Plan and the Supplemental Pension Plan were further amended on January 5, 2018 to
provide transition
benefits for a limited number of former Company employees who are accruing (or may be entitled to accrue) disability pension benefits on (or as of) January 5, 2018 and will not yet be 65 years of age on December 31, 2022. Those individuals
will be credited with the service through age 65 that they would have received had the Freeze not occurred for purposes of determining their pension benefits.
The Company also amended the Baxter International Inc. and Subsidiaries Incentive Investment Plan (the U.S. 401(k)) and the Baxter International
Inc. and Subsidiaries Deferred Compensation Plan (the Deferred Compensation Plan and collectively with the U.S. 401(k), the Savings Plans) to provide five years of transition contributions to participants under the Active
Plan and the Supplemental Pension Plan that were employed by the Company as of December 31, 2017. Those additional benefits will begin accruing on January 1, 2023. Eligible participants will receive transition benefit contributions under
the applicable Savings Plan(s) of (a) 20% of an employees eligible annual compensation (to $60,000), and (b) 3% of eligible annual compensation over $60,000 for each of the five years beginning January 1, 2023. Payment of these transition
contributions is subject to satisfaction of related eligibility requirements as of each payment date.
The Companys obligations under the U.S.
Pension Plan and the Supplemental Pension Plan represented approximately 40% of the Companys long-term financial obligations (excluding the fair value of net assets already contributed to the plans) as of September 30, 2017 and
constituted the Companys largest financial obligation as of that date. After giving effect to contributions of $115 million to the U.S. Pension Plan in the fourth quarter of 2017 and the Freeze, the Company expects that the U.S. Pension
Plan was nearly fully funded as of December 31, 2017.
The Company has decided to make these changes, consistent with actions previously taken by
many Company peers, in the interest of minimizing the financial impact of changes in the value of the Companys pension investments. Estimated impacts of these actions will be included in the Companys 2018 financial guidance, to be
provided on the Companys fourth quarter 2017 earnings call on February 1, 2018.
The actions described above will have no negative impact on
former employees currently receiving or accruing pension benefits under the Inactive Plan or the Supplemental Pension Plan or participants in the Active Plan or the Supplemental Pension Plan who retire in the next five years. Those participants whom
retire after 2023 will receive a pension benefit consistent with the terms of the Active Plan or the Supplemental Pension Plan, as applicable, each as described above. The U.S. Pension Plan and the Supplemental Pension Plan were generally closed to
U.S. employees hired on or after December 31, 2006. As of December 31, 2017, approximately 30% of the Companys U.S. employees were participants under the U.S. Pension Plan or the Supplemental Pension Plan.
The descriptions of the amended Inactive Plan, the amended Active Plan, the amended Supplemental Pension Plan and the amended Deferred Compensation Plan
contained herein are qualified in their entirety by reference to the full text of each such document, copies of which are filed as Exhibits 10.1, 10.2, 10.3 and 10.4, respectively, and are incorporated by reference.