DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS

We have noncontributory defined benefit pension plans covering substantially all employees. Benefits under these plans have been based primarily on age, years of service and final average pensionable earnings. The years of service component of this formula was frozen as of December 31, 2009. Benefits for service beginning January 1, 2010 are based on a cash balance formula with an annual percentage of eligible pay credited based upon age and years of service. Eligible employees in our Retail segment accrue benefits under a defined contribution plan for service years beginning January 1, 2010.

We also have other postretirement benefits covering most employees. Health care benefits are provided through comprehensive hospital, surgical and major medical benefit provisions subject to various cost-sharing features. Retiree life insurance benefits are provided to a closed group of retirees. Other postretirement benefits are not funded in advance.

In connection with the Andeavor acquisition, we assumed a number of additional noncontributory benefit pension plans, covering substantially all former Andeavor employees. Benefits under these plans are determined based on final average compensation and years of service through December 31, 2010 and a cash balance formula for service beginning January 1, 2011. These plans were frozen as of December 31, 2018. We also assumed a number of additional postretirement benefits covering eligible employees. These benefits were merged with our existing benefits beginning January 1, 2019.

Obligations and Funded Status

The accumulated benefit obligation for all defined benefit pension plans was $2,632 million and $2,008 million as of December 31, 2018 and 2017.

The following summarizes our defined benefit pension plans that have accumulated benefit obligations in excess of plan assets.



	December 31,
(In millions)	2018		2017
Projected benefit obligations	$	2,779	$	2,164
Accumulated benefit obligations	2,632		2,008
Fair value of plan assets	2,089		1,840

The following summarizes the projected benefit obligations and funded status for our defined benefit pension and other postretirement plans:



	Pension Benefits						Other Benefits
(In millions)	2018			2017			2018			2017
Change in benefit obligations:
Benefit obligations at January 1	$	2,164		$	2,024		$	826		$	740
Service cost	159			132			30			25
Interest cost	83			75			30			30
Actuarial (gain) loss	(159		)	150			(71		)	61
Benefits paid	(273		)	(217		)	(36		)	(30		)
Plan amendments	(90		)	—			34			—
Acquisitions	895			—			71			—
Benefit obligations at December 31	2,779			2,164			884			826
Change in plan assets:
Fair value of plan assets at January 1	1,840			1,659			—			—
Actual return on plan assets	(115		)	270			—			—
Employer contributions	115			128			36			30
Benefits paid from plan assets	(273		)	(217		)	(36		)	(30		)
Acquisitions	522			—			—			—
Fair value of plan assets at December 31	2,089			1,840			—			—
Funded status of plans at December 31	$	(690	)	$	(324	)	$	(884	)	$	(826	)
Amounts recognized in the consolidated balance sheets:
Current liabilities	$	(21	)	$	(18	)	$	(44	)	$	(33	)
Noncurrent liabilities	(669		)	(306		)	(840		)	(793		)
Accrued benefit cost	$	(690	)	$	(324	)	$	(884	)	$	(826	)
Pretax amounts recognized in accumulated other comprehensive loss:^(a)
Net actuarial loss	$	517		$	537		$	9		$	80
Prior service cost (credit)	(295		)	(238		)	35			(3		)


^(a)	Amounts exclude those related to LOOP and Explorer, equity method investees with defined benefit pension and postretirement plans for which net losses of $18 million and less than $1 million were recorded in accumulated other comprehensive loss in 2018, reflecting our ownership share.

Components of Net Periodic Benefit Cost and Other Comprehensive Loss

The following summarizes the net periodic benefit costs and the amounts recognized as other comprehensive loss for our defined benefit pension and other postretirement plans.



	Pension Benefits									Other Benefits
(In millions)	2018			2017			2016			2018			2017			2016
Components of net periodic benefit cost:
Service cost	$	159		$	132		$	114		$	30		$	25		$	32
Interest cost	83			75			73			30			30			35
Expected return on plan assets	(109		)	(100		)	(98		)	—			—			—
Amortization – prior service credit	(33		)	(39		)	(46		)	(3		)	(3		)	(3		)
– actuarial (gain) loss	31			36			38			(1		)	(2		)	2
– settlement loss	53			52			7			—			—			—
Net periodic benefit cost^(a)	$	184		$	156		$	88		$	56		$	50		$	66
Other changes in plan assets and benefit obligations recognized in other comprehensive loss (pretax):
Actuarial (gain) loss	$	64		$	(20	)	$	(33	)	$	(71	)	$	61		$	(101	)
Prior service cost (credit)	(90		)	—			—			34			—			—
Amortization of actuarial gain (loss)	(84		)	(88		)	(45		)	1			2			(2		)
Amortization of prior service credit	33			39			46			3			3			3
Other	—			—			—			—			—			—
Total recognized in other comprehensive loss	$	(77	)	$	(69	)	$	(32	)	$	(33	)	$	66		$	(100	)
Total recognized in net periodic benefit cost and other comprehensive loss	$	107		$	87		$	56		$	23		$	116		$	(34	)


^(a)	Net periodic benefit cost reflects a calculated market-related value of plan assets which recognizes changes in fair value over three years.

Lump sum payments to employees retiring in 2018, 2017 and 2016 exceeded the plan’s total service and interest costs expected for those years. Settlement losses are required to be recorded when lump sum payments exceed total service and interest costs. As a result, pension settlement expenses were recorded in 2018, 2017 and 2016 related to our cumulative lump sum payments made during those years.

The estimated net actuarial loss and prior service credit for our defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2019 are $18 million and $45 million, respectively. The estimated amount that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2019 is less than $1 million for both the net actuarial gain and prior service credit for our other defined benefit postretirement plans.

Plan Assumptions

The following summarizes the assumptions used to determine the benefit obligations at December 31, and net periodic benefit cost for the defined benefit pension and other postretirement plans for 2018, 2017 and 2016.



	Pension Benefits						Other Benefits
	2018		2017		2016		2018		2017		2016
Weighted-average assumptions used to determine benefit obligation:
Discount rate	4.21	%	3.55	%	3.90	%	4.26	%	3.70	%	4.25	%
Rate of compensation increase	5.00	%	5.00	%	5.00	%	5.00	%	5.00	%	5.00	%
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate	3.88	%	3.85	%	3.80	%	3.72	%	4.25	%	4.50	%
Expected long-term return on plan assets	6.15	%	6.50	%	6.50	%	—	%	—	%	—	%
Rate of compensation increase	4.80	%	5.00	%	5.00	%	5.00	%	5.00	%	5.00	%

Expected Long-term Return on Plan Assets

The overall expected long-term return on plan assets assumption is determined based on an asset rate-of-return modeling tool developed by a third-party investment group. The tool utilizes underlying assumptions based on actual returns by asset category and inflation and takes into account our asset allocation to derive an expected long-term rate of return on those assets. Capital market assumptions reflect the long-term capital market outlook. The assumptions for equity and fixed income investments are developed using a building-block approach, reflecting observable inflation information and interest rate information available in the fixed income markets. Long-term assumptions for other asset categories are based on historical results, current market characteristics and the professional judgment of our internal and external investment teams.

Assumed Health Care Cost Trend

The following summarizes the assumed health care cost trend rates.



	December 31,
	2018		2017		2016
Health care cost trend rate assumed for the following year:
Medical: Pre-65	6.80	%	6.75	%	7.00	%
Prescription drugs	9.50	%	8.75	%	9.00	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate):
Medical: Pre-65	4.50	%	4.50	%	4.50	%
Prescription drugs	4.50	%	4.50	%	4.50	%
Year that the rate reaches the ultimate trend rate:
Medical: Pre-65	2027		2026		2026
Prescription drugs	2027		2026		2026

Increases in the post-65 medical plan premium for the Marathon Petroleum Health Plan and the Marathon Petroleum Retiree Health Plan are the lower of the trend rate or four percent.

Assumed health care cost trend rates have a significant effect on the amounts reported for defined benefit retiree health care plans. A one percentage point change in assumed health care cost trend rates would have the following effects:



	1-Percentage-		1-Percentage-
(In millions)	Point Increase		Point Decrease
Effect on total of service and interest cost components	$	5	$	(4	)
Effect on other postretirement benefit obligations	34		(30		)

Plan Investment Policies and Strategies

The investment policies for our pension plan assets reflect the funded status of the plans and expectations regarding our future ability to make further contributions. Long-term investment goals are to: (1) manage the assets in accordance with the legal requirements of all applicable laws; (2) diversify plan investments across asset classes to achieve an optimal balance between risk and return and between income and growth of assets through capital appreciation; and (3) source benefit payments primarily through existing plan assets and anticipated future returns.

The investment goals are implemented to manage the plans’ funded status volatility and minimize future cash contributions. The asset allocation strategy will change over time in response to changes primarily in funded status, which is dictated by current and anticipated market conditions, the independent actions of our investment committee, required cash flows to and from the plans and other factors deemed appropriate. Such changes in asset allocation are intended to allocate additional assets to the fixed income asset class should the funded status improve. The fixed income asset class shall be invested in such a manner that its interest rate sensitivity correlates highly with that of the plans’ liabilities. Other asset classes are intended to provide additional return with associated higher levels of risk. Investment performance and risk is measured and monitored on an ongoing basis through quarterly investment meetings and periodic asset and liability studies. At December 31, 2018, the primary plan’s targeted asset allocation was 42 percent equity, private equity, real estate, and timber securities and 58 percent fixed income securities.

Fair Value Measurements

Plan assets are measured at fair value. The following provides a description of the valuation techniques employed for each major plan asset category at December 31, 2018 and 2017.

Cash and cash equivalents – Cash and cash equivalents include a collective fund serving as the investment vehicle for the cash reserves and cash held by third-party investment managers. The collective fund is valued at net asset value (“NAV”) on a scheduled basis using a cost approach, and is considered a Level 2 asset. Cash and cash equivalents held by third-party investment managers are valued using a cost approach and are considered Level 2.

Equity – Equity investments includes common stock, mutual and pooled funds. Common stock investments are valued using a market approach, which are priced daily in active markets and are considered Level 1. Mutual and pooled equity funds are well diversified portfolios, representing a mix of strategies in domestic, international and emerging market strategies. Mutual funds are publicly registered, valued at NAV on a daily basis using a market approach and are considered Level 1 assets. Pooled funds are valued at NAV using a market approach and are considered Level 2.

Fixed Income – Fixed income investments include corporate bonds, U.S. dollar treasury bonds and municipal bonds. These securities are priced on observable inputs using a combination of market, income and cost approaches. These securities are considered Level 2 assets. Fixed income also includes a well diversified bond portfolio structured as a pooled fund. This fund is valued at NAV on a daily basis using a market approach and is considered Level 2. Other investments classified as Level 1 include mutual funds that are publicly registered, valued at NAV on a daily basis using a market approach.

Private Equity – Private equity investments include interests in limited partnerships which are valued using information provided by external managers for each individual investment held in the fund. These holdings are considered Level 3.

Real Estate – Real estate investments consist of interests in limited partnerships. These holdings are either appraised or valued using investment manager’s assessment of assets held. These holdings are considered Level 3.

Other – Other investments include two limited liability companies (“LLCs”) with no public market. The LLCs were formed to acquire timberland in the northwest U.S. These holdings are either appraised or valued using investment manager’s assessment of assets held. These holdings are considered Level 3. Other investments classified as Level 1 include publicly traded depository receipts.

The following tables present the fair values of our defined benefit pension plans’ assets, by level within the fair value hierarchy, as of December 31, 2018 and 2017.



	December 31, 2018
(In millions)	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	—	$	25	$	—	$	25
Equity:
Common stocks	89		86		—		175
Mutual funds	159		—		—		159
Pooled funds	—		297		—		297
Fixed income:
Corporate	176		684		—		860
Government	98		141		—		239
Pooled funds	—		201		—		201
Private equity	—		—		41		41
Real estate	—		—		29		29
Other	45		—		18		63
Total investments, at fair value	$	567	$	1,434	$	88	$	2,089



	December 31, 2017
(In millions)	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	—	$	14	$	—	$	14
Equity:
Common stocks	36		—		—		36
Mutual funds	227		—		—		227
Pooled funds	—		507		—		507
Fixed income:
Corporate	—		673		1		674
Government	—		98		—		98
Pooled funds	—		176		—		176
Private equity	—		—		51		51
Real estate	—		—		34		34
Other	2		2		19		23
Total investments, at fair value	$	265	$	1,470	$	105	$	1,840

The following is a reconciliation of the beginning and ending balances recorded for plan assets classified as Level 3 in the fair value hierarchy:



	2018
(In millions)	Private Equity			Real Estate			Other			Total
Beginning balance	$	51		$	34		$	20		$	105
Actual return on plan assets:
Realized	9			2			—			11
Unrealized	2			(1		)	—			1
Purchases	1			1			—			2
Sales	(22		)	(7		)	(2		)	(31		)
Ending balance	$	41		$	29		$	18		$	88



	2017
(In millions)	Private Equity			Real Estate			Other			Total
Beginning balance	$	60		$	39		$	19		$	118
Actual return on plan assets:
Realized	11			3			—			14
Unrealized	(1		)	—			1			—
Purchases	2			1			1			4
Sales	(21		)	(9		)	(1		)	(31		)
Ending balance	$	51		$	34		$	20		$	105

Cash Flows

Contributions to defined benefit plans – Our funding policy with respect to the funded pension plans is to contribute amounts necessary to satisfy minimum pension funding requirements, including requirements of the Pension Protection Act of 2006, plus such additional, discretionary, amounts from time to time as determined appropriate by management. In 2018, we made pension contributions totaling $115 million. We have no required funding for 2019, but may make voluntary contributions at our discretion. Cash contributions to be paid from our general assets for the unfunded pension and postretirement plans are estimated to be approximately $19 million and $44 million, respectively, in 2019.

Estimated future benefit payments – The following gross benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated.



(In millions)	Pension Benefits		Other Benefits
2019	$	238	$	44
2020	254		46
2021	219		48
2022	218		50
2023	213		51
2024 through 2028	1,048		271

Contributions to defined contribution plans – We also contribute to several defined contribution plans for eligible employees. Contributions to these plans totaled $144 million, $116 million and $113 million in 2018, 2017 and 2016, respectively.

Multiemployer Pension Plan

We contribute to one multiemployer defined benefit pension plan under the terms of a collective-bargaining agreement that covers some of our union-represented employees. The risks of participating in this multiemployer plan are different from single-employer plans in the following aspects:


•	Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.


•	If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.


•	If we choose to stop participating in the multiemployer plan, we may be required to pay that plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

Our participation in this plan for 2018, 2017 and 2016 is outlined in the table below. The “EIN” column provides the Employee Identification Number for the plan. The most recent Pension Protection Act zone status available in 2018 and 2017 is for the plan’s year ended December 31, 2017 and December 31, 2016, respectively. The zone status is based on information that we received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded. The “FIP/RP Status Pending/Implemented” column indicates a financial improvement plan or a rehabilitation plan has been implemented. The last column lists the expiration date of the collective-bargaining agreement to which the plan is subject. There have been no significant changes that affect the comparability of 2018, 2017 and 2016 contributions. Our portion of the contributions does not make up more than five percent of total contributions to the plan.



		Pension Protection Act Zone Status		FIP/RP Status Pending/Implemented	MPC Contributions (In millions)						Surcharge Imposed	Expiration Date of Collective – Bargaining Agreement
Pension Fund	EIN	2018	2017	FIP/RP Status Pending/Implemented	2018		2017		2016		Surcharge Imposed	Expiration Date of Collective – Bargaining Agreement
Central States, Southeast and Southwest Areas Pension Plan^(a)	366044243	Red	Red	Implemented	$	4	$	4	$	4	No	January 31, 2024


^(a)	This agreement has a minimum contribution requirement of $328 per week per employee for 2019. A total of 258 employees participated in the plan as of December 31, 2018.

Multiemployer Health and Welfare Plan

We contribute to one multiemployer health and welfare plan that covers both active employees and retirees. Through the health and welfare plan employees receive medical, dental, vision, prescription and disability coverage. Our contributions to this plan totaled $6 million, $7 million and $6 million for 2018, 2017 and 2016, respectively.