This note provides details about defined benefit and defined contribution plans we sponsor for our employees. The "Pension and Other Postretirement Benefit Plans" section of Note 1: Summary of Significant Accounting Policies provides information about employee eligibility for pension plans and postretirement health care and life insurance benefits, as well as how we account for the plans and benefits.

The defined benefit pension plans we sponsor in the U.S. and Canada differ according to each country’s requirements. In the U.S., we have plans that qualify under the Internal Revenue Code (qualified plans), as well as plans for select employees that provide additional benefits not qualified under the Internal Revenue Code (nonqualified plans). In Canada, we have plans that are registered under the Income Tax Act and applicable provincial pension acts (registered plans), as well as nonregistered plans for select employees that provide additional benefits that may not be registered under the Income Tax Act or provincial pension acts (nonregistered plans). We also offer other postretirement benefit plans in the U.S. and Canada, including retiree medical and life insurance plans.

As a part of our continued efforts to reduce pension plan obligations, we transferred approximately $1.5 billion of U.S. qualified pension plan assets and liabilities to an insurance company through the purchase of a group annuity contract in January 2019 (2019 Retiree Annuity Purchase). In connection with this transaction, we recorded a preliminary noncash pretax settlement charge of $455 million during first quarter 2019, accelerating the recognition of previously unrecognized losses in “Accumulated other comprehensive loss”, that would have been recognized in subsequent periods. In second quarter 2019, we finalized the prior year-end fair value of pension plan assets and obligations, which reduced the settlement charge by $6 million for a final settlement charge of $449 million.

This settlement triggered a remeasurement of plan assets and liabilities. We updated the discount rate used to measure our projected benefit obligation for the U.S. qualified pension plan as of January 31, 2019, as well as our discount rate used to calculate the related net periodic benefit cost for the remainder of 2019 to 4.30 percent from 4.40 percent. All other assumptions remained unchanged. The net effect of the remeasurement was a $24 million reduction in funded status, primarily driven by the decrease in discount rate. This change in funded status was reflected in our first quarter 2019 Consolidated Balance Sheet.

Additionally, we settled the assets and liabilities associated with three Canadian registered pension plans through the purchase of a group annuity contract in October 2019. As a result of the transaction, we recorded a noncash pretax settlement charge of $6 million.

During 2018, we offered select U.S. terminated vested plan participants the opportunity to elect an immediate lump sum distribution. Lump sum distributions were paid from plan assets totaling $664 million during fourth quarter 2018. We recorded a settlement charge of $200 million during fourth quarter 2018 related to this transaction. The settlement triggered a plan remeasurement, however due to the short period between the settlement and our normal year-end remeasurement, the effect on net periodic benefit cost was insignificant.

To maintain the U.S. qualified pension plan's funded status in connection with these transactions, we contributed $300 million to the plan during third quarter 2018. Refer to Note 21: Income Taxes for details on the tax effects of this transaction.

The funded status of the plans we sponsor is determined by comparing the projected benefit obligation with the fair value of plan assets at the end of the year. The following table demonstrates how our plans' funded status is reflected on the Consolidated Balance Sheet.

DOLLAR AMOUNTS IN MILLIONS
	PENSION						OTHER POSTRETIREMENT BENEFITS
	2019			2018			2019			2018
Funded status:
Fair value of plan assets⁽¹⁾	$	3,719		$	4,930		$	19		$	18
Projected benefit obligations		(4,260	)		(5,263	)		(151	)		(166	)

Funded status		(541	)		(333	)		(132	)		(148	)

Presentation on our Consolidated Balance Sheet:
Noncurrent assets	$	47		$	74		$	—		$	—
Current liabilities		(19	)		(18	)		(8	)		(10	)
Noncurrent liabilities		(569	)		(389	)		(124	)		(138	)

Funded status	$	(541	)	$	(333	)	$	(132	)	$	(148	)

Assets and liabilities on the Consolidated Balance Sheet are different from the cumulative income or expense that we have recorded associated with the plans. The differences are actuarial gains and losses and prior service costs and credits that are deferred and amortized into periodic benefit costs in future periods. Unamortized amounts are recorded in "Accumulated Other Comprehensive Loss", which is a component of total equity on our Consolidated Balance Sheet. The "Accumulated Other Comprehensive Loss" section of Note 15: Shareholders’ Interest details changes in these amounts by component.

DOLLAR AMOUNTS IN MILLIONS
	PENSION						OTHER POSTRETIREMENT BENEFITS
	2019			2018			2019			2018
Fair value of plan assets at beginning of year (estimated)	$	4,930		$	5,514		$	18		$	—
Adjustment for final fair value of plan assets		16			44			—			—
Actual return on plan assets		449			123			1			—
Foreign currency translation		38			(73	)		—			—
Employer contributions and benefit payments		30			345			15			36
Plan participants’ contributions		—			—			2			4
Plan transfers		1			1			—			—
Benefits paid (includes lump sum and annuity transfers)		(1,745	)		(1,024	)		(17	)		(22	)

Fair value of plan assets at end of year (estimated)	$	3,719		$	4,930		$	19		$	18

We estimate the fair value of pension plan assets based on the information available during the year-end reporting process. In some cases, primarily with regard to private equity funds, the available information consists of net asset values as of an interim date, plus cash flows and market events between the interim date and the end of the year. We update the year-end estimated fair value of pension plan assets during the first half of the next year to incorporate year-end net asset values received after we have filed our Annual Report on Form 10-K.

During second quarter 2019, we recorded an increase in the beginning of year fair value of the pension assets of $16 million, or less than 1 percent. We also updated our census data that is used to estimate our beginning of year projected obligation for our pension plans, which resulted in a projected benefit obligation decrease of $6 million, or less than 1 percent. The net effect of these updates was a $22 million improvement in funded status as of December 31, 2018. This change in funded status was reflected in our second quarter 2019 Consolidated Balance Sheet.

See additional details about the changes in the fair value of plan assets in the "Pension Assets" section below.

Changes in Projected Benefit Obligations of Our Pension and Other Postretirement Benefit Plans

DOLLAR AMOUNTS IN MILLIONS
	PENSION						OTHER POSTRETIREMENT BENEFITS

	2019			2018			2019			2018
Projected benefit obligation beginning of year	$	5,263		$	6,795		$	166		$	200
Service cost		32			37			—			—
Interest cost		160			236			6			7
Plan participants’ contributions		—			—			2			4
Actuarial (gains) losses		510			(718	)		(8	)		(18	)
Foreign currency translation		39			(69	)		2			(5	)
Benefits paid (includes lump sum and annuity transfers)		(1,745	)		(1,024	)		(17	)		(22	)
Plan amendments and other		—			5			—			—
Plan transfers		1			1			—			—

Projected benefit obligation at end of year	$	4,260		$	5,263		$	151		$	166

Generally, the largest changes in our “Actuarial (gains) losses” line within the table above are due to changes in discount rates year over year. See additional details about the actuarial assumptions and changes in the projected benefit obligation in the "Actuarial Assumptions" section below.

As of December 31, 2019, pension plans with projected benefit obligations greater than plan assets had:

As of December 31, 2018, pension plans with projected benefit obligations greater than plan assets had:

As of December 31, 2019, pension plans with accumulated benefit obligations greater than plan assets had:

As of December 31, 2018, pension plans with accumulated benefit obligations greater than plan assets had:

The accumulated benefit obligation for all of our defined benefit pension plans was:

Our investment policies and strategies guide and direct how the funds are managed for the benefit plans we sponsor. These funds include our:

At the end of 2018, we began to shift pension plan assets to an allocation that will more closely match the pension plan liability profile going forward. The former investment strategy included investments in hedge funds, private equity funds, derivative instruments and other investments. These asset classes are now generally in redemption and run-off mode however, given the long-term nature of these investments, they will continue to comprise a material portion of the plan assets for several years. We expect all investments in redemption to be redeemed at amounts materially consistent with their net asset values. As these investments are redeemed or liquidated, cash proceeds available for investment will be invested in accordance with our revised investment strategy.

The revised investment strategy targets a percentage allocation to growth assets and a percentage allocation to liability hedging assets based on each plan’s funded status. We expect to increase the allocation to liability hedging assets over time as the funded status of the pension plan improves. As of December 31, 2019, we reached a 50 percent allocation to growth assets and a 50 percent allocation to liability hedging assets in the U.S. qualified plan. Growth assets include investments in global equities, hedge funds, which are generally in redemption, and private equity assets, which are generally in run-off mode. Liability hedging assets include corporate credit and government issued fixed income securities and treasury futures selected to align with the plan liabilities.

Cash and short-term investments include highly liquid money market and government securities and are primarily held to fund benefit payments, capital calls, margin requirements or to meet regulatory requirements. Cash at December 31, 2019, includes amounts that will be invested in liability hedging assets such as fixed income investments.

Fixed income investments include publicly traded corporate and government issued debt. These bonds have varying maturities, credit quality and sector exposure and are selected to align with the duration of our plan liabilities. Additionally, our fixed income portfolio includes repurchase agreements, which represent short-term borrowings to hedge against interest rate risk. We have an obligation to return the cash related to these borrowings in accordance with the agreements, which are collateralized by our government bonds. Due to the nature of these agreements, the outstanding balance of the borrowing approximates fair value.

Public equity investments consist of investments in several publicly traded companies as well as exchange traded funds.

Hedge fund and related investments are privately-offered managed pools primarily structured as limited liability entities. General members or partners of these limited liability entities serve as portfolio managers and are thus responsible for the fund’s underlying investment decisions. Underlying investments within these funds may include long and short public and private equities, corporate, mortgage and sovereign debt, options, swaps, forwards and other derivative positions. These funds have varying degrees of leverage, liquidity and redemption provisions.

Private equity and related investments are investments in private equity, mezzanine, distressed, co-investments and other structures. Private equity funds generally participate in buyouts and venture capital of limited liability entities through unlisted equity and debt instruments. These funds may also borrow at the underlying entity level. Mezzanine and distressed funds generally invest in the debt of public or private companies with additional participation through warrants or other equity options.

Derivative instruments have historically been comprised of swaps, futures, forwards or options. Consistent with our shift in asset strategy, our positions in derivative instruments have been significantly reduced. At December 31, 2019, only a small amount of futures remain in our portfolio.

Assets within our qualified and registered pension plans in our U.S. and Canadian pension trusts were invested as follows:

	DECEMBER 31, 2019			DECEMBER 31, 2018
Cash and short-term investments	3.2%			5.8%
Fixed income investments:
Corporate		33.9			21.5
Government		25.4			8.6
Repurchase agreements		(4.7	)		—
Public equity investments		0.1			—
Hedge funds and related investments		14.3			36.9
Private equity and related investments		27.7			21.9
Derivative instruments, net		0.3			5.6
Accrued liabilities		(0.2	)		(0.3	)

Total	100.0%			100.0%

Retirement compensation arrangements fund a portion of our Canadian nonregistered pension plans. As required by Canadian tax rules, approximately 50 percent of these assets are invested into a noninterest-bearing refundable tax account held by the Canada Revenue Agency. This portion of the portfolio does not earn returns. The remaining portion is invested in a portfolio of equities.

Investments and contracts are subject to risks including market price, interest rate, credit, currency and liquidity risks. The following provides an overview of these risks and describes governance processes and actions we take to mitigate these risks on our pension plan asset portfolios.

Market price risk is the risk that market fluctuations will adversely affect the value of plan assets. The trusts mitigate market price risk by investing in a diversified portfolio. In addition, we and our investment advisers perform regular monitoring with ongoing qualitative assessments, quantitative assessments, and comprehensive investment and operational due diligence.

Interest rate risk exists with respect to both assets and liabilities and is the risk that a change in interest rates will adversely affect the fair value of interest rate securities or liabilities, thereby affecting the overall funded status. With the change in investment strategy to more closely match the plan liabilities, interest rate risk will be reduced.

Credit risk is the risk that counterparties’ failure to discharge their obligations could affect cash flows. The trusts have exposure primarily through investments in fixed income securities. This risk is mitigated by investing in a diversified portfolio.

We are also exposed to credit risk indirectly through counterparty relationships initiated by underlying managers of investments in limited liability pools. This risk is mitigated through initial due diligence and ongoing monitoring processes.

Currency risk arises from holding plan assets denominated in a currency other than the currency in which its liabilities are settled. With the change in investment strategy, currency risk will be mitigated going forward by investing more of the Canadian plan assets in Canadian dollar fixed income investments.

Liquidity risk is the risk that the trust will not be able to settle liabilities such as payments to participants, counterparties, and service providers. Private equity and hedge fund investments generally have less liquidity than publicly traded investments. With the change in investment strategy and a larger percentage of the plan assets invested in more liquid instruments such as publicly traded fixed income investments, liquidity risk is greatly reduced.

Pension assets are stated at fair value or net asset value (NAV) as of the reporting date. Fair value is based on the amount that would be received to sell an asset or paid to settle a liability in an orderly transaction between market participants at the reporting date. We do not consider forced or distressed sale scenarios. Instead, we consider both observable and unobservable inputs that reflect assumptions applied by market participants when setting the exit price of an asset or liability in an orderly transaction within the principal market for that asset or liability.

We value the pension plan assets based upon the observability of exit pricing inputs and classify pension plan assets based upon the lowest level input that is significant to the fair value measurement of the pension plan assets in their entirety. The fair value hierarchy is:

Investments for which fair value is measured using the NAV per share as a practical expedient are not categorized within the fair value hierarchy.

Fixed income and public equity investments are valued at exit prices quoted in active or non-active markets or based on observable inputs.

Hedge funds, private equities, and related fund units are valued based on the NAVs of the funds. These values represent the per-unit price at which new investors are permitted to invest and existing investors are permitted to exit. When NAVs as of the end of the year have not been received, we estimate fair value by adjusting the most recently reported NAVs for market events and cash flows between the interim date and the end of the year.

Derivative instruments are valued based upon valuation statements received from each derivative’s counterparty.

The net pension plan assets, when categorized in accordance with this fair value hierarchy, are as follows. Investments valued using NAV as a practical expedient are presented to reconcile with total plan assets.

DOLLAR AMOUNTS IN MILLIONS
2019	LEVEL 1		LEVEL 2			LEVEL 3		NAV		TOTAL
Pension trust investments:
Cash and short-term investments	$	120	$	—		$	—	$	—	$	120
Fixed income investments:
Corporate		—		1,260			—		—		1,260
Government		—		941			—		—		941
Repurchase agreements		—		(176	)		—		—		(176	)
Public equity investments		4		—			—		—		4
Hedge fund and related investments		—		—			13		518		531
Private equity and related investments		—		—			86		942		1,028
Derivative instruments		—		10			—		—		10

Total pension trust investments		124		2,035			99		1,460		3,718
Accrued liabilities, net											(9	)

Pension trust net assets											3,709
Canadian nonregistered plan assets:
Cash and short-term investments		5		—			—		—		5
Public equity investments		5		—			—		—		5

Total Canadian nonregistered plan assets		10		—			—		—		10

Total plan assets										$	3,719

DOLLAR AMOUNTS IN MILLIONS
2018	LEVEL 1		LEVEL 2		LEVEL 3		NAV		TOTAL
Pension trust investments:
Cash and short-term investments	$	275	$	12	$	—	$	—	$	287
Fixed income investments:
Corporate		—		1,054		—		—		1,054
Government		—		426		—		—		426
Hedge fund and related investments		—		—		3		1,811		1,814
Private equity and related investments		—		—		65		1,014		1,079
Derivative instruments		—		15		262		—		277

Total pension trust investments		275		1,507		330		2,825		4,937
Accrued liabilities, net										(17	)

Pension trust net assets										4,920
Canadian nonregistered plan assets:
Cash and short-term investments		5		—		—		—		5
Public equity investments		5		—		—		—		5

Total Canadian nonregistered plan assets		10		—		—		—		10

Total plan assets									$	4,930

Assets that do not have readily available quoted prices in an active market require more judgment to value and have increased valuation risk. As of December 31, 2019, $99 million, or 2.7 percent, of our pension plan assets were classified as Level 3 assets.

A reconciliation of the beginning and ending balances of the pension plan assets measured at fair value using significant unobservable inputs (Level 3) is presented below:

DOLLAR AMOUNTS IN MILLIONS
	INVESTMENTS
	Hedge funds and related investments			Private equity and related investments			Derivative instruments, net			Total
Balance as of December 31, 2017	$	10		$	102		$	445		$	557
Net realized gains (losses)		—			—			238			238
Net change in unrealized gains (losses)		1			(5	)		(184	)		(188	)
Purchases		—			5			—			5
Sales		—			(2	)		—			(2	)
Settlements		—			—			(237	)		(237	)
Transfers into Level 3		—			18			—			18
Transfers out of Level 3		(8	)		(53	)		—			(61	)

Balance as of December 31, 2018		3			65			262			330
Net realized gains (losses)		1			(1	)		237			237
Net change in unrealized gains (losses)		(1	)		—			(262	)		(263	)
Purchases		—			—			—			—
Sales		(3	)		(3	)		—			(6	)
Settlements		—			—			(237	)		(237	)
Transfers into Level 3		13			28			—			41
Transfers out of Level 3		—			(3	)		—			(3	)

Balance as of December 31, 2019	$	13		$	86		$	—		$	99

The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. We evaluate the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total net assets available for benefits.

The table below shows the fair value and aggregate notional amount of the derivative instruments held by our pension trusts at the end of the last two years.

DOLLAR AMOUNTS IN MILLIONS
	FAIR VALUE				NOTIONAL
	DECEMBER 31, 2019		DECEMBER 31, 2018		DECEMBER 31, 2019		DECEMBER 31, 2018
Foreign currency derivatives, net	$	—	$	—	$	—	$	13
Futures contracts, net		10		15		813		1,073
Total return swaps, net		—		262		—		558

Total	$	10	$	277	$	813	$	1,644

We use actuarial assumptions to estimate our benefit obligations and our net periodic benefit costs. The following tables show the rates used to estimate our benefit obligations and periodic net benefit costs.

The discount rates used for our U.S. other postretirement benefit plans were 3.00 percent and 4.20 percent for the years ended December 31, 2019, and December 31, 2018, respectively. Additionally, the discount rates used for our Canadian other postretirement benefit plans were 3.00 percent and 3.70 percent for the years ended December 31, 2019, and December 31, 2018, respectively.

	PENSION
	2019	2018	2017
Discount rates:
United States⁽¹⁾	4.30%	3.70%	4.30%
Canada	3.70%	3.50%	3.70%
Lump sum distributions⁽²⁾⁽³⁾	PPA Table	PPA Table	PPA Table
Expected return on plan assets:
Qualified/registered plans	7.00%	8.00%	8.00%
Rate of compensation increase:
Salaried:
United States	13.00% to 2.00% decreasing with participant age	13.00% to 2.00% decreasing with participant age	13.00% to 2.00% decreasing with participant age
Canada	3.25%	3.25%	3.50%
Hourly:
United States	13.00% to 2.30% decreasing with participant age	13.00% to 2.30% decreasing with participant age	13.00% to 2.30% decreasing with participant age
Canada	3.00%	3.00%	3.25%
Lump sum distributions election⁽³⁾	60.00%	60.00%	60.00%

The discount rates used for our U.S. other postretirement benefit plans were 4.20 percent, 3.50 percent and 3.70 percent for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively. Additionally, the discount rates used for our Canadian other postretirement benefit plans were 3.70 percent, 3.40 percent and 3.60 percent for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, respectively.

Determining our expected return requires a high degree of judgment. We consider actual pension fund asset performance over multiple years, and current and expected valuation levels in the global equity and credit markets. Historical fund returns are used as a base and we place added weight on more recent pension plan asset performance.

As discussed in the “Our Investment Policies and Strategies” section above, at the end of 2018, we began implementing a change in our asset strategy to an allocation that will more closely match the plan’s liability profile moving forward, resulting in a larger allocation of our assets into fixed income securities. With this change, we determined that it was appropriate to reduce our assumption of long-term rate of return on plan assets to 7.0 percent for the year ended December 31, 2019. As this strategy has been in place throughout 2019 and a larger percentage of our portfolio has been allocated to fixed income securities, we have determined that an additional reduction in our assumption of long-term rate of return on plan assets to 6.5 percent is appropriate for the year ended December 31, 2020.

Rising costs of health care affect the costs of our other postretirement plans. We use assumptions about health care cost trend rates to estimate the cost of benefits we provide. Our trend rate assumptions are based on historical market experience, current environment and future expectations. During 2019, the assumed weighted health care cost trend rate used to calculate the net periodic benefit cost was:

This table shows the assumptions we use in estimating the annual cost increase for health care benefits we provide.

DOLLAR AMOUNTS IN MILLIONS
	PENSION									OTHER POSTRETIREMENT BENEFITS
	2019			2018			2017			2019			2018			2017
Net periodic benefit cost (credit):
Service cost	$	32		$	37		$	35		$	—		$	—		$	—
Interest cost		160			236			264			6			7			8
Expected return on plan assets		(223	)		(399	)		(409	)		—			—			—
Amortization of actuarial loss		112			225			195			7			8			8
Amortization of prior service cost (credit)		4			3			4			(5	)		(8	)		(8	)
Settlement charges		455			200			—			—			—			—

Net periodic benefit cost (credit)	$	540		$	302		$	89		$	8		$	7		$	8

Established funding standards govern the funding requirements for our qualified and registered pension plans. We fund the benefit payments of our nonqualified and nonregistered plans as benefit payments come due. We voluntarily contributed $300 million to our U.S. qualified pension plans during 2018, although there was no minimum required contribution for the year.

During 2019, we contributed $10 million for our Canadian registered plans, we made contributions and benefit payments of $2 million for our Canadian nonregistered pension plans and made contributions and benefit payments of $18 million for our U.S. nonqualified pension plans.

During 2020, based on estimated year-end asset values and projections of plan liabilities, we expect to:

We do not anticipate contributions being required for our U.S. qualified pension plan for 2020.

During 2019, we contributed $11 million and $4 million to our U.S. and Canadian postretirement benefit plans, respectively. In 2020, we expect to make contributions of $9 million for our U.S. and Canadian other postretirement benefit plans, including $5 million expected to be required to cover benefit payments under collectively bargained contractual obligations.

We contribute to multiemployer defined benefit plans under the terms of collective-bargaining agreements. These plans cover a small number of our employees and on an annual basis our contributions are immaterial.

These plans have different risks than single-employer plans. Our contributions may be used to fund benefits for employees of other participating employers. If we choose to stop participating, we may be required to pay a withdrawal liability based on the underfunded status of the plan. If another participating employer stops contributing to the plan, we may become responsible for remaining plan unfunded obligations.

We sponsor various defined contribution plans for our U.S. and Canadian salaried and hourly employees. Our contributions to these plans were: