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Employee benefit plans

12 Months Ended

Dec. 31, 2019

19. EMPLOYEE BENEFIT PLANS

Defined contribution plans

The Company maintains a defined contribution plan for some of its employees in the U.S., whereby the Company pays contributions based on a percentage of the employees’ annual salary. For the years ended December 31, 2019, 2018 and 2017, the Company recorded expense of $12 million, $12 million and $11 million, respectively, related to the plan.

Pension and other postretirement benefit plans

The Company maintains a defined benefit pension plan covering a portion of its employees in within the SSL business. The Space Infrastructure pension and other postretirement plan benefits were frozen on December 31, 2013. The defined benefit plan provides pension benefits based on various factors including prior earnings and length of service. The defined benefit plan is funded and the Company’s funding requirements are based on the plans’ actuarial measurement framework as established by the plan agreements or applicable laws. The funded plans’ assets are legally separated from the Company and are held by an independent trustee. The trustee is responsible for ensuring that the funds are protected as per applicable laws.

The Company also provides for other postretirement benefits, comprised of life insurance covering a portion of its employees within the SSL business. The cost of these benefits is primarily funded out of operating income.

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


	Pension				Other Postretirement
	2019		2018		2019		2018
Change in benefit obligation:
Benefit obligation at beginning of year	$	519	$	568	$	13	$	16
Service cost		2		2		—		—
Interest cost		21		19		1		1
Actuarial losses (gains)		71		(37)		—		(2)
Benefits paid		(30)		(33)		—		(2)
Benefit obligation at end of year	$	583	$	519	$	14	$	13

Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	352	$	391	$	—	$	—
Actuarial return (loss) on plan assets		70		(19)		—		—
Employer contributions		12		13		—		2
Benefits paid		(28)		(31)		—		(2)
Expenses paid		(2)		(2)		—		—
Fair value of plan assets at end of year		404		352		—		—
Unfunded status at end of year	$	(179)	$	(167)	$	(14)	$	(13)

Assets and (liabilities) recognized in the Consolidated Balance Sheets:
Accrued compensation and benefits	$	(1)	$	(1)	$	(1)	$	(1)
Pension and other postretirement benefits		(178)		(166)		(13)		(12)
	$	(179)	$	(167)	$	(14)	$	(13)

The $64 million increase in the pension benefit obligation from 2018 to 2019 was primarily due to the decrease in the discount rate. The $52 million increase in the fair value of plan assets from 2018 to 2019 was primarily due to increased return on assets.

The accumulated benefit obligation for the defined pension benefit plans was $583 million and $519 million at December 31, 2019 and 2018, respectively.

Amounts recognized in accumulated other comprehensive income consist of the following:


	Pension				Other Postretirement
	2019		2018		2019		2018
Net (loss) gain	$	(70)	$	(45)	$	10	$	12

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
	2019			2018		2019		2018
Discount rate		3.0	%	4.1	%	3.0	%	4.1	%

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


	Pension						Other Postretirement
	2019		2018		2017		2019		2018		2017
Interest cost	$	21	$	19	$	21	$	1	$	1	$	2
Expected return on plan assets		(24)		(27)		(24)		—		—		—
Amortization of prior service credit		—		—		—		—		—		(2)
Amortization of net gain		—		—		—		(1)		(1)		(1)
Curtailment gain¹		—		—		—		—		—		(26)
Expenses paid		2		2		2		—		—		—
Net periodic benefit cost	$	(1)	$	(6)	$	(1)	$	—	$	—	$	(27)

¹ The Company amended its postretirement plan in by eliminating employer paid subsidies toward retiree medical benefits.

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
	2019		2018		2017		2019		2018		2017
Net loss (gain)	$	25	$	9	$	5	$	—	$	(2)	$	(1)
Amortization of prior service credit		—		—		—		—		—		2
Amortization of net gain		—		—		—		1		1		1
Curtailment loss		—		—		—		—		—		1
Total recognized in other comprehensive loss (income)	$	25	$	9	$	5	$	1	$	(1)	$	3
Total recognized in net periodic benefit cost (credit) and other comprehensive loss (income)	$	24	$	3	$	4	$	1	$	(1)	$	(24)

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
	2019			2018		2017		2019			2018		2017
Discount rate		4.1	%	3.4	%	3.9	%		4.1	%	3.4	%	3.9	%
Expected long-term return on plan assets		7.0	%	7.0	%	7.0	%		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.

Plan Assets. The Company’s Pension Committee (the “Committee”) has the responsibility to formulate the investment policies and strategies for the plan assets. The Committee structures 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 Committee has 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 Committee has established a target allocation that the plan assets may be invested in for each major asset category and has established guidelines regarding diversification within asset categories to limit risk and exposure to a single or limited number of securities. The investment manager is required to rebalance the portfolio within two percentage points for any individual asset or combination of assets defined within policy targets. Asset allocation targets are re-balanced quarterly and re-assessed annually for the upcoming year. The investments of the plan 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 a summary of target asset allocations for each major category of the plan assets as well as the actual asset allocations at December 31, 2019:



Asset Allocation	Target			Actual
Cash and cash equivalents		0	%		1	%
U.S. equity securities		26	%		26	%
Global equity securities		36	%		35	%
Fixed income		34	%		34	%
Other		4	%		4	%
					100	%

Cash and cash equivalents consist of cash and short-term investments. U.S. and global equity securities, fixed income and other investment assets are primarily commingled fund investments. The pension plans’ commingled fund investments are managed by several fund managers and are valued at the net asset value per share for each fund. Although the majority of the underlying assets in the funds consist of actively traded equity securities and bonds, the unit of account is considered to be at the fund level. These funds are traded daily and settled the following day at the net asset value per share.

The Committee regularly monitors the investment of plan assets to ensure that the actual asset allocation remains in proximity to the target. The Committee also regularly measures and monitors 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, 2019								December 31, 2018
Asset Category	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	5	$	—	$	—	$	5	$	2	$	—	$	—	$	2
Global equity securities		—		—		1		1		—		—		1		1
Commingled Funds ¹								398								349
Total assets at fair value	$	5	$	—	$	1	$	404	$	2	$	—	$	1	$	352

Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in the fair value hierarchy table. The total fair value of these amounts are presented in this table to permit reconciliation of the fair value hierarchy to the amounts presented for total defined benefit pension plan assets

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, 2019, all legal funding requirements had been met. The Company expects to contribute approximately $20 million to its pension plan, and approximately $1 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.


		2020		2021		2022		2023		2024		2025 through 2029
Pension	$	31	$	31	$	31	$	32	$	32	$	159
Other Postretirement		1		1		1		1		1		5
	$	32	$	32	$	32	$	33	$	33	$	164