Pension coverage for employees of PMI’s subsidiaries is provided, to the extent deemed appropriate, through separate plans, many of which are governed by local statutory requirements. In addition, PMI provides health care and other benefits to substantially all U.S. retired employees and certain non-U.S. retired employees. In general, health care benefits for non-U.S. retired employees are covered through local government plans.



(in millions)	2019			2018			2017
Net pension costs (income)	$	(18	)	$	(51	)	$	(20	)
Net postemployment costs	100			80			85
Net postretirement costs	7			12			13
Total pension and other employee benefit costs	$	89		$	41		$	78

The postretirement health care plans are not funded. The projected benefit obligations, plan assets and funded status of PMI’s pension plans, and the accumulated benefit obligation and net amount accrued for PMI's postretirement health care plans, at December 31, 2019 and 2018, were as follows:



	Pension⁽¹⁾						Postretirement
(in millions)	2019			2018			2019			2018
Benefit obligation at January 1	$	9,152		$	9,028		$	209		$	248
Service cost	214			210			2			4
Interest cost	118			109			7			9
Net benefits paid	(250		)	(218		)	(8		)	(8		)
Settlement and curtailment	50			1						—
Actuarial losses (gains)	1,430			210			27			(34		)
Currency	29			(196		)	—			(9		)
Deconsolidation of RBH	(166		)	—			(42		)	—
Other	35			8			(5		)	(1		)
Benefit obligation at December 31,	10,612			9,152			190			209
Fair value of plan assets at January 1,	6,888			7,598
Actual return on plan assets	1,211			(447		)
Employer contributions	200			110
Standard employee contributions	44			24
Net benefits paid	(250		)	(218		)
Settlement and curtailment	—			—
Currency	7			(179		)
Deconsolidation of RBH	(172		)	—
Fair value of plan assets at December 31,	7,928			6,888
Net pension and postretirement liability recognized at December 31,	$	(2,684	)	$	(2,264	)	$	(190	)	$	(209	)

At December 31, 2019, actuarial losses (gains) consisted primarily of losses for assumption changes related to lower discount rate for Swiss, German and Dutch plans. At December 31, 2018, actuarial losses (gains) consisted of losses for experience differences related to the change in population profile, coupled with updated mortality table assumptions for the Swiss plan.

At December 31, 2019 and 2018, the Swiss pension plan represented 62% and 60% of the benefit obligation, respectively, and approximately 59% and 57% of the fair value of plan assets at December 31, 2019 and 2018, respectively. At December 31, 2019 and 2018, the U.S. pension plan represented 4% and 4% of the benefit obligation, respectively, and approximately 4% and 4% of the fair value of plan assets at December 31, 2019 and 2018, respectively.



	Pension						Postretirement
(in millions)	2019			2018			2019			2018
Other assets	$	43		$	37
Accrued liabilities — employment costs	(23		)	(20		)	$	(8	)	$	(10	)
Long-term employment costs	(2,704		)	(2,281		)	(182		)	(199		)
	$	(2,684	)	$	(2,264	)	$	(190	)	$	(209	)

For pension plans with accumulated benefit obligations in excess of plan assets, the accumulated benefit obligation and fair value of plan assets were $8,962 million and $6,825 million, respectively, as of December 31, 2019. The accumulated benefit obligation and fair value of plan assets were $7,641 million and $5,866 million, respectively, as of December 31, 2018.

For pension plans with projected benefit obligations in excess of plan assets, the projected benefit obligation and fair value of plan assets were $10,364 million and $7,654 million, respectively, as of December 31, 2019. The projected benefit obligation and fair value of plan assets were $8,807 million and $6,504 million, respectively, as of December 31, 2018.



	Pension				Postretirement
	2019		2018		2019		2018
Discount rate	0.83	%	1.61	%	3.28	%	3.97	%
Rate of compensation increase	1.82		1.86
Interest crediting rate	3.20		3.40
Health care cost trend rate assumed for next year					6.21		6.17
Ultimate trend rate					5.09		4.59
Year that rate reaches the ultimate trend rate					2023		2040

The discount rate for the largest pension plans is based on a yield curve constructed from a portfolio of high quality corporate bonds that produces a cash flow pattern equivalent to each plan’s expected benefit payments. The discount rate for the remaining plans is developed from local bond indices that match local benefit obligations as closely as possible.



	Pension									Postretirement
(in millions)	2019			2018			2017			2019		2018			2017
Service cost	$	214		$	210		$	208		$	2	$	4		$	4
Interest cost	118			109			108			7		9			8
Expected return on plan assets	(328		)	(349		)	(326		)	—		—			—
Amortization:
Net losses	189			172			186			—		4			5
Prior service cost	(1		)	2			6			—		(1		)	—
Settlement and curtailment	4			15			6			—		—			—
Net periodic pension and postretirement costs	$	196		$	159		$	188		$	9	$	16		$	17



	Pension						Postretirement
	2019		2018		2017		2019		2018		2017
Discount rate - service cost	2.14	%	1.92	%	1.68	%	3.97	%	3.79	%	3.68	%
Discount rate - interest cost	1.35		1.25		1.27		3.97		3.79		3.68
Expected rate of return on plan assets	4.70		4.76		4.80
Rate of compensation increase	1.86		1.65		1.68
Interest crediting rate	3.40		3.40		3.40
Health care cost trend rate							6.17		6.17		7.15

PMI’s expected rate of return on pension plan assets is determined by the plan assets’ historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class.

PMI and certain of its subsidiaries sponsor defined contribution plans. Amounts charged to expense for defined contribution plans totaled $63 million, $66 million and $58 million for the years ended December 31, 2019, 2018 and 2017, respectively.

PMI’s investment strategy for pension plans is based on an expectation that equity securities will outperform debt securities over the long term. Accordingly, the target allocation of PMI’s plan assets is broadly characterized as approximately 60% in equity securities and approximately 40% in debt securities and other assets. The strategy primarily utilizes indexed U.S. equity securities, international equity securities and investment-grade debt securities. PMI’s plans have no investments in hedge funds, private equity or derivatives. PMI attempts to mitigate investment risk by rebalancing between equity and debt asset classes once a year or as PMI’s contributions and benefit payments are made.



Asset Category (in millions)	At December 31, 2019		Quoted Prices In Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	276	$	276
Equity securities:
U.S. securities	170		170
International securities	563		563
Investment funds^(a)	6,125		4,625		$	1,500
International government bonds	197		137		60
Corporate bonds	282		282
Other	6		6
Total assets in the fair value hierarchy	$	7,619	$	6,059	$	1,560	$	—
Investment funds measured at net asset value^(b)	309
Total assets	$	7,928

^(a) Investment funds whose objective seeks to replicate the returns and characteristics of specified market indices (primarily MSCI — Europe, Switzerland, North America, Asia Pacific, Japan; Russell 3000; S&P 500 for equities, and Citigroup EMU and JP Morgan EMBI for bonds), primarily consist of mutual funds, common trust funds and commingled funds. Of these funds, 63% are invested in U.S. and international equities; 16% are invested in U.S. and international government bonds; 12% are invested in real estate and other money markets, and 9% are invested in corporate bonds.

^(b) In accordance with FASB ASC Subtopic 820-10, certain investments measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.



Asset Category (in millions)	At December 31, 2018		Quoted Prices In Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	84	$	84
Equity securities:
U.S. securities	139		139
International securities	442		442
Investment funds^(a)	5,508		3,595		$	1,913
International government bonds	176		120		56
Corporate bonds	232		232
Other	19		19
Total assets in the fair value hierarchy	$	6,600	$	4,631	$	1,969	$	—
Investment funds measured at net asset value^(b)	288
Total assets	$	6,888

^(a)Investment funds whose objective seeks to replicate the returns and characteristics of specified market indices (primarily MSCI — Europe, Switzerland, North America, Asia Pacific, Japan; Russell 3000; S&P 500 for equities, and Citigroup EMU and Barclays Capital U.S. for bonds), primarily consist of mutual funds, common trust funds and commingled funds. Of these funds, 57% were invested in U.S. and international equities; 20% were invested in U.S. and international government bonds; 12% were invested in real estate and other money markets, and 11% were invested in corporate bonds.

PMI makes, and plans to make, contributions to the extent that they are tax deductible and to meet specific funding requirements of its funded pension plans. Currently, PMI anticipates making contributions of approximately $77 million in 2020 to its pension plans, based on current tax and benefit laws. However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension assets, or changes in interest and currency rates.

PMI and certain of its subsidiaries sponsor postemployment benefit plans covering substantially all salaried and certain hourly employees. The cost of these plans is charged to expense over the working life of the covered employees. Net postemployment costs were $171 million, $158 million and $144 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The amounts recognized in accrued postemployment costs on PMI's consolidated balance sheets at December 31, 2019 and 2018, were $751 million and $708 million, respectively. The change in the liability is primarily due to actuarial losses of $152 million in 2019 resulting from increased employee severance rate primarily in countries in the European Union segment, coupled with the periodic expense, partially offset by cash payments.

The accrued postemployment costs were determined using a weighted-average discount rate of 3.0% and 3.1% in 2019 and 2018, respectively; an assumed ultimate annual weighted-average turnover rate of 3.0% and 3.2% in 2019 and 2018, respectively; assumed compensation cost increases of 2.6% in 2019 and 2.6% in 2018, and assumed benefits as defined in the respective plans. In accordance with local regulations, certain postemployment plans are funded. As a result, the accrued postemployment costs disclosed above are presented net of the related assets of $40 million and $38 million at December 31, 2019 and 2018, respectively. Postemployment costs arising from actions that offer employees benefits in excess of those specified in the respective plans are charged to expense when incurred.



(in millions)	Pension			Post- retirement			Post- employment			Total
Net losses	$	(3,718	)	$	(63	)	$	(775	)	$	(4,556	)
Prior service cost	3			2			—			5
Net transition obligation	(4		)	—			—			(4		)
Deferred income taxes	520			24			182			726
Losses to be amortized	$	(3,199	)	$	(37	)	$	(593	)	$	(3,829	)



(in millions)	Pension			Post- retirement			Post- employment			Total
Net losses	$	(3,438	)	$	(41	)	$	(702	)	$	(4,181	)
Prior service cost	(27		)	3			—			(24		)
Net transition obligation	(4		)	—			—			(4		)
Deferred income taxes	379			20			164			563
Losses to be amortized	$	(3,090	)	$	(18	)	$	(538	)	$	(3,646	)



(in millions)	Pension			Post- retirement			Post- employment			Total
Net losses	$	(2,624	)	$	(80	)	$	(617	)	$	(3,321	)
Prior service cost	(35		)	4			—			(31		)
Net transition obligation	(5		)	—			—			(5		)
Deferred income taxes	327			28			186			541
Losses to be amortized	$	(2,337	)	$	(48	)	$	(431	)	$	(2,816	)



(in millions)	Pension			Post- retirement			Post- employment			Total
Amounts transferred to earnings as components of net periodic benefit cost:
Amortization:
Net losses	$	198		$	3		$	77		$	278
Prior service cost	32			(1		)	—			31
Other income/expense:
Net losses	3			—			—			3
Deferred income taxes	(51		)	(1		)	(17		)	(69		)
	182			1			60			243
Other movements during the year:
Net losses	(521		)	(27		)	(150		)	(698		)
Prior service cost	(2		)	—			—			(2		)
Deconsolidation of RBH (net of deferred income taxes)	26			1						27
Deferred income taxes	206			6			35			247
	(291		)	(20		)	(115		)	(426		)
Total movements in other comprehensive earnings (losses)	$	(109	)	$	(19	)	$	(55	)	$	(183	)



(in millions)	Pension			Post- retirement			Post- employment			Total
Amounts transferred to earnings as components of net periodic benefit cost:
Amortization:
Net losses	$	180		$	5		$	62		$	247
Prior service cost	—			(1		)	—			(1		)
Net transition obligation	1			—			—			1
Other income/expense:
Net losses	14			—			—			14
Deferred income taxes	(28		)	(1		)	(14		)	(43		)
	167			3			48			218
Other movements during the year:
Net losses	(1,008		)	34			(147		)	(1,121		)
Prior service cost	8			—			—			8
Deferred income taxes	80			(7		)	(8		)	65
	(920		)	27			(155		)	(1,048		)
Total movements in other comprehensive earnings (losses)	$	(753	)	$	30		$	(107	)	$	(830	)



(in millions)	Pension			Post- retirement			Post- employment			Total
Amounts transferred to earnings as components of net periodic benefit cost:
Amortization:
Net losses	$	175		$	5		$	68		$	248
Prior service cost	5			—			—			5
Other income/expense:
Net losses	6			—			—			6
Deferred income taxes	(10		)	(1		)	(20		)	(31		)
	176			4			48			228
Other movements during the year:
Net losses	509			(12		)	28			525
Prior service cost	13			—			—			13
Deferred income taxes	(13		)	5			(9		)	(17		)
	509			(7		)	19			521
Total movements in other comprehensive earnings (losses)	$	685		$	(3	)	$	67		$	749