The Company sponsors defined benefit pension plans for certain employees and retirees outside of the U.S. Using appropriate actuarial methods and assumptions, the Company’s defined benefit pension plans are accounted for in accordance with FASB ASC Topic 715, Compensation—Retirement Benefits. The Company’s primary non-U.S. plans are located in the U.K., France and Mexico. The U.K. and certain Mexican plans are funded. In addition, the Company has defined benefit plans in South Korea, Turkey and Italy for which amounts are payable to employees immediately upon separation. The obligations for these plans are recorded over the requisite service period. Delphi Technologies does not have any U.S. pension assets or liabilities.

Effective March 31, 2019, the Company has frozen future accruals for nearly all U.K. based employees under the related defined benefit plans, replacing them with contributions under defined contribution plans effective April 1, 2019, including additional contributions and other payments to impacted employees over a two-year transition period. As a result of this change, the Company realized a one-time reduction to its pension obligation of $33 million, along with a one-time charge of $15 million in the year ended December 31, 2019, related to curtailing the defined benefit pension plans in the U.K. The Company also recognized a charge of $13 million in the year ended December 31, 2019 related to transitional payments to impacted employees. The Company excluded these charges, and expects to exclude related future charges, from our calculation of Adjusted Operating Income.



	Year Ended December 31,
	2019			2018
	(in millions)
Benefit obligation at beginning of year	$	1,442		$	1,604
Service cost	12			37
Interest cost	34			36
Actuarial (gain) loss	138			(112		)
Benefits paid	(54		)	(47		)
Impact of curtailments	(60		)	—
Plan amendments and other	—			20
Exchange rate movements and other	43			(96		)
Benefit obligation at end of year	1,555			1,442
Change in plan assets:
Fair value of plan assets at beginning of year	976			1,074
Actual return (loss) on plan assets	144			(36		)
Contributions	51			47
Benefits paid	(54		)	(47		)
Exchange rate movements and other	35			(62		)
Fair value of plan assets at end of year	1,152			976
Underfunded status	(403		)	(466		)
Amounts recognized in the consolidated balance sheets consist of:
Non-current assets	—			1
Current liabilities	—			(1		)
Non-current liabilities	(403		)	(466		)
Total	(403		)	(466		)
Amounts recognized in accumulated other comprehensive income consist of (pre-tax):
Actuarial loss	274			285
Prior service cost	6			21
Total	$	280		$	306

The projected benefit obligation (“PBO”), accumulated benefit obligation (“ABO”), and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets and with plan assets in excess of accumulated benefit obligations are as follows:



	December 31,
	2019		2018
	(in millions) Plans with ABO in Excess of Plan Assets
PBO	$	1,529	$	1,420
ABO	1,520		1,290
Fair value of plan assets at end of year	1,130		954
	Plans with Plan Assets in Excess of ABO
PBO	$	26	$	22
ABO	21		18
Fair value of plan assets at end of year	22		22
	Total
PBO	$	1,555	$	1,442
ABO	1,541		1,308
Fair value of plan assets at end of year	1,152		976



	Year Ended December 31,
	2019			2018			2017
	(in millions)
Service cost	$	12		$	37		$	34
Interest cost	34			36			34
Expected return on plan assets	(56		)	(54		)	(47		)
Curtailment loss	15			—			—
Amortization of actuarial losses	7			24			26
Net periodic benefit cost	$	12		$	43		$	47

During the first quarter of 2017, the Company elected to early adopt ASU 2017-07. As a result, service costs are classified as employee compensation costs within cost of sales and selling, general and administrative expense within the consolidated statement of operations. All other components of net periodic benefit cost are classified within other expense for all periods presented.

Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions are recognized in other comprehensive income. Cumulative gains and losses in excess of 10% of the PBO for a particular plan are amortized over the average future service period or average future lifetime of the employees in that plan, as applicable. The estimated actuarial loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2020 is $8 million.



	Pension Benefits
	2019		2018		2017
Weighted-average discount rate	2.75	%	2.46	%	2.58	%
Weighted-average rate of increase in compensation levels (1)	3.96	%	3.98	%	3.97	%
Weighted-average expected long-term rate of return on plan assets	5.40	%	5.50	%	5.50	%

Delphi Technologies selects discount rates by analyzing the results of matching each plan’s projected benefit obligations with a portfolio of high-quality fixed income investments rated AA-or higher by Standard and Poor’s.

The primary funded plans are in the U.K. and Mexico. For the determination of 2019 expense, Delphi Technologies assumed a long-term expected asset rate of return of approximately 5.39% and 8.00% for the U.K. and Mexico, respectively. Delphi Technologies evaluated input from local actuaries and asset managers, including consideration of recent fund performance and historical returns, in developing the long-term rate of return assumptions. The assumptions for the U.K. and Mexico are primarily long-term, prospective rates. To determine the expected return on plan assets, the market-related value of approximately 25% of our plan assets is actual fair value. The expected return on the remainder of our plan assets is determined by applying the expected long-term rate of return on assets to a calculated market-related value of these plan assets, which recognizes changes in the fair value of the plan assets in a systematic manner over five years.

Delphi Technologies’ pension expense for 2020 is determined at the 2019 year end measurement date. For purposes of analysis, the following table highlights the sensitivity of the Company’s pension obligations and expense to changes in key assumptions:



Change in Assumption	Impact on Pension Expense	Impact on PBO
25 basis point (“bp”) decrease in discount rate	+ $0 million	+ $76 million
25 bp increase in discount rate	- $0 million	- $70 million
25 bp decrease in long-term expected return on assets	+ $3 million	—
25 bp increase in long-term expected return on assets	- $3 million	—

The above sensitivities reflect the effect of changing one assumption at a time. It should be noted that economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear. The above sensitivities also assume no changes to the design of the pension plans and no major restructuring programs.

Certain pension plans sponsored by Delphi Technologies invest in a diversified portfolio consisting of an array of asset classes that attempts to maximize returns while minimizing volatility. These asset classes include developed market equities, emerging market equities, private equity, global high quality and high yield fixed income, real estate and absolute return strategies.



	Fair Value Measurements at December 31, 2019
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash	$	105	$	105	$	—	$	—
Time deposits	7		—		7		—
Equity mutual funds	120		—		120		—
Bond mutual funds	205		—		205		—
Real estate trust funds	74		—		—		74
Hedge funds	625		—		520		105
Debt securities	10		10		—		—
Equity securities	6		6		—		—
Total	$	1,152	$	121	$	852	$	179



	Fair Value Measurements at December 31, 2018
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash	$	55	$	55	$	—	$	—
Time deposits	9		—		9		—
Equity mutual funds	258		—		258		—
Bond mutual funds	464		—		464		—
Real estate trust funds	91		—		—		91
Hedge funds	85		—		2		83
Debt securities	8		8		—		—
Equity securities	6		6		—		—
Total	$	976	$	69	$	733	$	174

Real estate—The fair value of real estate properties is estimated using an appraisal provided by the administrator of the property or infrastructure investment. Management believes this is an appropriate methodology to obtain the fair value of these assets.

Hedge funds—The fair value of the hedge funds is accounted for by a custodian. The custodian obtains valuations from the underlying hedge fund managers based on market quotes for the most liquid assets and alternative methods for assets that do not have sufficient trading activity to derive prices. Management and the custodian review the methods used by the underlying managers to value the assets. Management believes this is an appropriate methodology to obtain the fair value of these assets.



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Real Estate Trust Fund			Hedge Funds
	(in millions)
Beginning balance at January 1, 2018	$	50		$	100
Actual return on plan assets:
Relating to assets still held at the reporting date	9			(2		)
Purchases, sales and settlements	36			(9		)
Foreign currency translation and other	(4		)	(6		)
Ending balance at December 31, 2018	$	91		$	83
Actual return on plan assets:
Relating to assets still held at the reporting date	$	2		$	(1	)
Purchases, sales and settlements	(22		)	20
Foreign currency translation and other	3			3
Ending balance at December 31, 2019	$	74		$	105

Prior to the Separation, certain hourly and salaried employees of Delphi Technologies participated in defined contribution plans sponsored by the Former Parent. In connection with the Separation, Delphi Technologies has established plans with substantially similar terms. Expense related to the contributions for these plans recorded by Delphi Technologies was approximately $24 million, $18 million, and $11 million for the years ended December 31, 2019, 2018 and 2017, respectively.