17. EMPLOYEE BENEFIT PLANS

Defined contribution plans

The Company maintains defined contribution plans for some of its employees in the U.S and Canada, whereby the Company pays contributions based on a percentage of the employees’ annual salary. For the years ended December 31, 2018, 2017 and 2016, the Company recorded expense of $17 million, $15 million and $14 million, respectively, related to these plans.

Pension and other postretirement benefit plans

The Company maintains various defined benefit pension plans covering a portion of its employees in the U.S. and Canada. The defined benefit plans provide pension benefits based on various factors including earnings and length of service. The defined benefit plans are funded and the Company’s funding requirements are based on each of the plans’ actuarial measurement framework as established by the plan agreements or applicable laws. Employees are required to contribute to some of the funded plans. The funded plans’ assets are legally separated from the Company and are held by independent trustees. The trustees are responsible for ensuring that the funds are protected as per applicable laws.

The Company also provides for other postretirement benefits, comprised of extended health benefits, dental care and life insurance covering a portion of its employees in the U.S. and Canada. The cost of these benefits is funded primarily out of general revenues.

The table below summarizes changes in the benefit obligations, the fair value of plan assets and funded status for all of the Company’s pension and other postretirement benefit plans, as well as the aggregate balance sheets impact.


	Pension				Other Postretirement
	2018		2017		2018		2017
Change in benefit obligation:
Benefit obligation at beginning of year	$	654	$	614	$	39	$	64
Valuation effect at beginning of year		—		—		—		(2)
Service cost		6		5		—		—
Interest cost		22		24		2		2
Actuarial (gains) losses		(43)		38		(4)		1
Prior service credit		—		—		—		(1)
Benefits paid		(37)		(32)		(2)		(2)
Curtailments 1		—		—		—		(24)
Foreign exchange		(7)		5		(3)		1
Benefit obligation at end of year	$	595	$	654	$	32	$	39

Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	478	$	437	$	—	$	—
Actual (loss) return on plan assets		(20)		59		—		—
Employer contributions		16		9		3		2
Benefits paid		(35)		(30)		(3)		(2)
Expenses paid		(3)		(3)		—		—
Foreign exchange		(7)		6		—		—
Fair value of plan assets at end of year		429		478		—		—
Unfunded status at end of year	$	(166)	$	(176)	$	(32)	$	(39)

Assets and (liabilities) recognized in the Consolidated Balance Sheets:
Other assets	$	4	$	4	$	—	$	—
Accrued compensation and benefits		—		—		(1)		(2)
Pension and other postretirement benefits		(170)		(180)		(31)		(37)
	$	(166)	$	(176)	$	(32)	$	(39)

1The Company amended a postretirement plan at one of its operating divisions by eliminating employer paid subsidies toward retiree medical benefits as of December 31, 2017. The Company recognized a gain on settlement of $24 million during fiscal 2017, with an offsetting reduction to the benefit obligation.

The $59 million decrease in the pension benefit obligation from 2017 to 2018 was primarily due to the increase in the discount rate. The $49 million decrease in the fair value of plan assets from 2017 to 2018 was primarily due to benefit payments and negative return on assets.

The following table summarizes the net actuarial (loss) gain and prior service credits for the year ended December 31, in accumulated other comprehensive loss (income), before related tax effects, for all of the Company’s pension and other postretirement benefit plans:


	Pension						Other Postretirement
	2018		2017		2016		2018		2017		2016
Net actuarial (loss) gain	$	(63)	$	(54)	$	(89)	$	17	$	12	$	3
Prior service credit		—		—		—		1		1		3
Total recognized in accumulated other comprehensive loss (income)	$	(63)	$	(54)	$	(89)	$	18	$	13	$	6

The aggregate accumulated benefit obligation (“ABO”) for the Company’s pension plans was $593 million at December 31, 2018 and $652 million at December 31, 2017. The following table presents information only for the pension plans with an ABO in excess of the fair value of plan assets at December 31:


	Pension
	2018		2017
Accumulated benefit obligation	$	536	$	587
Fair value of plan assets	$	367	$	407

The following table presents information for the Company’s pension plans with a projected benefit obligation in excess of plan assets at December 31:


	Pension
	2018		2017
Projected benefit obligation	$	553	$	605
Fair value of plan assets	$	383	$	425

The ABO for the Company’s other postretirement benefit plans with an accumulated postretirement benefit obligation in excess of the fair value of plan assets was $32 million and $39 million at December 31, 2018 and 2017, respectively.

The following table summarizes the weighted average assumptions used to determine the benefit obligations for the Company’s pension and other postretirement plans at December 31:


	Pension					Other Postretirement
	2018			2017		2018		2017
Discount rate		4.1	%	3.4	%	3.8	%	3.4	%
Rate of future compensation increase		3.5	%	3.5	%	3.6	%	3.6	%

The following table summarizes the components of net periodic benefit (credits) costs for the Company’s pension and other postretirement benefit plans for the years ended December 31:


	Pension						Other Postretirement
	2018		2017		2016		2018		2017		2016
Service cost	$	4	$	3	$	2	$	—	$	—	$	1
Interest cost		22		24		26		2		2		2
Expected return on plan assets		(32)		(29)		(31)		—		—		—
Amortization of prior service credit		—		—		—		—		(2)		(2)
Amortization of net loss (gain)		1		1		2		(1)		—		—
Curtailment gain		—		—		—		—		(26)		—
Settlement loss recognized		—		—		3		—		—		—
Expenses paid		2		3		4		—		—		—
Net periodic benefit (credit) cost	$	(3)	$	2	$	6	$	1	$	(26)	$	1

The following table summarizes the components recognized in other comprehensive loss (income) for the Company’s pension and other postretirement benefit plans for the years ended December 31:


	Pension						Other Postretirement
	2018		2017		2016		2018		2017		2016
Net loss (gain)	$	10	$	8	$	11	$	(6)	$	—	$	(4)
Prior service credit		—		—		—		—		(1)		—
Amortization of prior service (cost) credit		—		—		—		—		2		—
Amortization of net (loss) gain		(1)		(1)		(4)		1		1		—
Curtailment loss		—		—		—		—		1		2
Total recognized in other comprehensive loss (income)	$	9	$	7	$	7	$	(5)	$	3	$	(2)
Total recognized in net periodic benefit (credit) cost and other comprehensive loss (income)	$	6	$	9	$	13	$	(4)	$	(23)	$	(1)

The following table summarizes the weighted average assumptions used to determine the net periodic benefit (credit) cost for the Company’s pension and other postretirement benefit plans for the years ended December 31:


	Pension							Other Postretirement
	2018			2017		2016		2018		2017		2016
Discount rate		3.4	%	3.9	%	4.3	%	3.4	%	3.8	%	4.1	%
Rate of future compensation increase		3.5	%	3.5	%	3.5	%	3.6	%	3.6	%	3.5	%
Expected long-term return on plan assets		6.9	%	6.8	%	6.8	%	N/A		N/A		N/A

The expected long-term return on plan assets assumption represents the average rate that the Company expects to earn over the long-term on the assets of the Company’s benefit plans, including those from dividends, interest income and capital appreciation. The Company utilizes a third-party consultant to assist in the development of the expected long-term return on plan assets, which is based on expectations regarding future long-term rates of return for the plans investment portfolio, with consideration given to the allocation of investments by asset class and historical rates of return for each individual asset class.

The annual increase in the cost of benefits (health care cost trend rate) for the Company’s other postretirement benefit plans is assumed to be an average of 6.5% in 2019 and is assumed to decline to a rate of 4.5% in 2026 and thereafter. Health care cost trend assumptions are based primarily on industry and plan experience expectations as well as current market conditions. Assumed health care cost trend rates can have a significant effect on amounts reported for postretirement medical benefit plans.

Plan Assets. The Company’s Pension Committees (“Committees”) have the responsibility to formulate the investment policies and strategies for the plan assets. The Committees structure the investment of plan assets to maximize the plans long-term rate of return for an acceptable level of risk and limit the volatility of investment returns. In the pursuit of these goals, the Committees have formulated the following investment policies and objectives: (1) preserve the plan assets; (2) maintain sufficient liquidity to fund benefit payments and pay plan expenses; and (3) achieve a minimum total rate of return equal to the established benchmarks for each asset category.

The Committees have established the allowable range that the plan assets may be invested in for each major asset category. In addition, the Committees have established guidelines regarding diversification within asset categories to limit risk and exposure to a single or limited number of securities. The investments of the plans include a diversified portfolio of both equity and fixed income investments. Equity investments are further diversified across U.S. and international stocks, small to large capitalization stocks, and growth and value stocks. Fixed income assets are diversified across U.S. and international issuers, corporate and governmental issuers, and credit quality.

The following table presents the allowable range for each major category of the plan assets at December 31, 2018 as well as the Company’s pension plan and other postretirement benefit plan weighted average asset allocations at December 31, 2018:


	Asset Allocation
Asset Allocation	Range			2018
Cash and cash equivalents		0 - 16	%		1	%
U.S. equity securities		15 - 50	%		29	%
International equity securities		9 - 33	%		31	%
Fixed income		30 - 52	%		37	%
Other		0 - 14	%		2	%
					100	%

Cash and cash equivalents consist of cash amounts in both U.S. and Canadian dollars and short-term investments. U.S. and international securities consist primarily of investments in common stock of U.S. and Canadian companies. The fair value of equity securities is based on quoted market prices available in active markets at the close of trading. Fixed income securities consist primarily of U.S. and Canadian corporate and government fixed-income securities. The fair values for of these investments are based on yields currently available on comparable bonds of issuers with similar credit ratings, quoted prices of similar bonds in an active market.

The Committees regularly monitor the investment of the plan assets to ensure that the actual investment allocation remains within the established range. The Committees also regularly measure and monitor investment risk through ongoing performance reporting and investment manager reviews.

The following table presents the fair value of the Company’s pension plan assets by asset category segregated by level within the fair value hierarchy, as described below:


	December 31, 2018								December 31, 2017
Asset Category	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	5	$	5	$	—	$	—	$	6	$	6	$	—	$	—
U.S. equity securities		126		11		115		—		147		14		133		—
International equity securities		133		19		113		1		150		20		129		1
Fixed income		158		—		158		—		167		—		167		—
Other		7		—		7		—		8		—		8		—
Total assets at fair value	$	429	$	35	$	393	$	1	$	478	$	40	$	437	$	1

Contributions. The funding policy for the Company’s pension and postretirement benefit plans is to contribute at least the minimum required by applicable laws and regulations or to directly make benefit payments where appropriate. At December 31, 2018, all legal funding requirements had been met. The Company expects to contribute approximately $14 million to its pension plans, and approximately $2 million to its other postretirement benefit plans for the year ending December 31, 2019.

Estimated Future Benefit Payments. The following table presents expected pension and other postretirement benefit payments which reflect expected future service, as appropriate.



	Pension		Other Postretirement
2019	$	34	$	2
2020		34		2
2021		34		2
2022		35		2
2023		35		2
Years 2024 - 2028		182		10