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Defined Benefit Plans
 12 Months Ended
Dec. 31, 2019
Retirement Benefits [Abstract]  
Defined Benefit Plans
Defined Benefit Plans
C&W maintains various funded defined benefit plans for its employees, including (i) the Cable & Wireless Superannuation Fund (CWSF), which is C&W’s largest defined benefit plan, and (ii) plans in Jamaica, Barbados, the Bahamas and Curacao. A significant portion of these defined benefit plans are closed to new entrants, and existing participants do not accrue any additional benefits.
C&W also operates unfunded defined benefit arrangements in the U.K., which are governed by individual trust deeds (the U.K. unfunded plans). One arrangement incorporates a covenant requiring C&W to hold security against the value of the liabilities. The security is in the form of U.K. Government Gilts, which are included in other assets, net, in our consolidated balance sheets. At December 31, 2019 and 2018, the carrying value of our investment in the U.K. Government Gilts was $37 million and $35 million, respectively.
Prior to the UTS Acquisition, UTS had unfunded defined benefit liabilities for certain of its employees. In connection with the UTS Acquisition, an insurance policy was purchased for 64 million Netherlands Antillean Guilders ($36 million). The payments from this policy effectively match the corresponding obligations to the UTS employees.
Annual service costs for these employee benefit plans is determined using the projected unit credit actuarial method. The C&W subsidiaries that maintain funded plans have established investment policies for plan assets. The investment strategies are long-term in nature and generally designed to meet the following objectives:
•ensure that funds are available to pay benefits as they become due;
•maximize the total returns on plan assets subject to prudent risk taking; and
•preserve or improve the funded status of the trusts over time.
The weighted average assumptions used in determining our benefit obligations and net periodic pension cost are as follows:
 
December 31,
 
2019
 
2018
 
 
 
 
Expected rate of salary increase
0.8%
 
0.7%
Discount rate
3.0%
 
3.6%
Return on plan assets
3.0%
 
3.6%
Retail price index inflation rate
3.0%
 
3.5%
Consumer price index inflation rate
2.1%
 
2.2%

The present value of the CWSF vested benefit obligations has been calculated and, together with the U.K. unfunded plans, represents 75% of the overall projected benefit obligation as of December 31, 2019. Assumptions used are best estimates from a range of possible actuarial assumptions, which may not necessarily be borne out in practice. The assumptions related to mortality rates for the CWSF and the U.K. unfunded plans are based upon the third series of Self-Administered Pension Scheme and the actual experience of the plan participants and dependents. In addition, allowance was made for future mortality improvements in line with the 2018 Continuous Mortality Investigation core projections with a long-term rate of improvement of 1.25% per annum. Based on these assumptions, the life expectancies of participants aged 60 are as follows:
 
December 31,
 
2019
 
2029
 
2039
 
years
 
 
 
 
 
 
Male participants and dependents
27
 
28
 
29
Female participants
28
 
28
 
29
Female dependents
28
 
29
 
30

Risk
Through our defined benefit pension plans, we are exposed to a number of risks, the most significant of which are detailed below. The net pension liability can be significantly influenced by short-term market factors.
The calculation of the net surplus or deficit of the respective plans depends on factors that are beyond our control, principally (i) the value at the balance sheet date of equity securities in which the respective plan has invested and (ii) long-term interest rates, which are used to discount future liabilities. The funding of the respective plans is based on long-term trends and assumptions relating to market growth, as advised by qualified actuaries and investment advisors, including:
•
Investment returns: Our net pension assets (liabilities) and contribution requirements are heavily dependent upon the return on the invested assets;
•
Longevity: The cost to the company of the pensions promised to members is dependent upon the expected term of these payments. To the extent that members live longer than expected this will increase the cost of these arrangements; and
•
Inflation rate risk: In the U.K., pension obligations are impacted by inflation and, as such, higher inflation will lead to higher pension liabilities.
At December 31, 2019, the above risks have been mitigated for approximately 67% of the CWSF’s liabilities, 66% of the Jamaican plan’s liabilities and 100% of the UTS liabilities through the purchase of insurance policies, the payments from which match the corresponding obligations to employees. The remaining investment risks in the plans have also been mitigated to a reasonable extent by a combination of matching assets and diversification of the return-seeking assets.
Sensitivity analysis
The following table summarizes (i) the impact a 1.0% increase or decrease in the applicable actuarial assumed rate would have on the valuation of our pension plans, (ii) the impact a 1.0% increase or decrease in the assumed inflation rate would have on the valuation of the CWSF and the U.K. unfunded plans and (iii) the impact of plan participants living, on average, one year longer or one year less than assumed would have on the valuation of our pension plans:
 
Increase
 
Decrease
 
in millions
CWSF and U.K. unfunded arrangements
 
 
 
Discount rate:
 
 
 
Effect on defined benefit obligation
$
(208
)
 
$
258

Effect on defined benefit obligation, net of annuity insurance policies
$
(92
)
 
$
120

Inflation (and related increases):
 
 
 
Effect on defined benefit obligation
$
147

 
$
(137
)
Effect on defined benefit obligation, net of annuity insurance policies
$
72

 
$
(64
)
Life expectancy:
 
 
 
Effect on defined benefit obligation
$
84

 
$
(82
)
Effect on defined benefit obligation, net of annuity insurance policies
$
21

 
$
(21
)
Other plans
 
 
 
Effect on defined benefit obligation:
 
 
 
Discount rate
$
(51
)
 
$
63

Life expectancy
$
11

 
$
(10
)

The sensitivity analysis is based on a standalone change in each assumption while holding all other assumptions constant. As reflected above, the impact on the net pension liability is significantly reduced for the CWSF as a result of the annuity insurance policies we hold.
Using the projected unit credit method for the valuation of liabilities, the current service cost is expected to increase when expressed as a percentage of pensionable payroll as the members of the plans approach retirement.
The following tables summarize the activities of the C&W pension plans for 2019, 2018 and 2017, as applicable.
The following is a summary of the funded status of our defined benefit plans:
 
December 31,
 
2019
 
2018
 
in millions
 
 
 
 
Projected benefit obligation at beginning of period
$
2,096.7

 
$
2,020.0

UTS acquisition (a)
36.0

 
—

Bahamas plan adjustment (b)
—

 
328.4

Service cost
4.6

 
6.3

Prior service cost (c)
—

 
16.4

Contributions by plan participants
1.2

 
1.3

Interest cost
73.5

 
69.1

Actuarial (gain) loss
148.3

 
(123.6
)
Benefits paid
(114.4
)
 
(124.3
)
Other
3.6

 
6.4

Effect of changes in foreign currency exchange rates
63.9

 
(103.3
)
Projected benefit obligation at end of period
$
2,313.4

 
$
2,096.7

 
 
 
 
Accumulated benefit obligation at end of period
$
2,302.5

 
$
2,084.1

 
 
 
 
Fair value of plan assets at beginning of period
$
2,068.1

 
$
2,118.7

UTS acquisition (a)
36.0

 
—

Bahamas plan adjustment (b)
—

 
152.3

Actual return on plan assets
197.0

 
24.2

Contributions by employer
6.9

 
7.0

Contributions by plan participants
1.2

 
1.3

Benefits paid
(114.4
)
 
(124.3
)
Other
0.6

 
0.2

Effect of changes in foreign currency exchange rates
68.0

 
(111.3
)
Fair value of plan assets at end of period
$
2,263.4

 
$
2,068.1

Net pension liability
$
(50.0
)
 
$
(28.6
)

(a)
Amounts represent the initial projected benefit obligation of the UTS unfunded defined benefit plan at the UTS Acquisition date and a corresponding plan asset associated with the expected cash flows from the insurance policy covering the projected benefit obligation.
(b)
During 2018, C&W recognized a net pension liability that is largely indemnified by a government entity. At December 31, 2019 and 2018, the indemnification asset balance was $155 million and $132 million, respectively, which is included in other assets, net, in our consolidated balance sheets.
(c)
The 2018 amount relates to an allowance recorded in connection with expected costs associated with guaranteed minimum pension equalization in the CWSF.
Defined benefit plan amounts included in our consolidated balance sheets are as follows:
 
December 31,
 
2019
 
2018
 
in millions
 
 
 
 
Noncurrent assets
$
184.9

 
$
177.3

Noncurrent liabilities
(234.9
)
 
(205.9
)
  Net pension liability
$
(50.0
)
 
$
(28.6
)

The asset allocation by asset category, asset mix and fair value hierarchy level (as further described in note 6) of our defined benefit plan assets are as follows:
 
Asset
mix (a)
 
December 31, 2019
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
%
 
in millions
 
 
 
 
 
 
 
 
 
 
Equity securities
11.5
 
$
259.1

 
$
157.0

 
$
102.1

 
$
—

Bonds (b)
28.6
 
646.9

 
633.9

 
13.0

 
—

Insurance annuity contracts (c)
56.8
 
1,285.5

 
—

 
142.0

 
1,143.5

Real estate
1.2
 
28.0

 
12.5

 
1.6

 
13.9

Private equity
0.4
 
9.9

 
—

 
—

 
9.9

Cash
1.5
 
34.0

 
34.0

 
—

 
—

Total
100.0
 
$
2,263.4

 
$
837.4

 
$
258.7

 
$
1,167.3

 
Asset
mix (a)
 
December 31, 2018
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
%
 
in millions
 
 
 
 
 
 
 
 
 
 
Equity securities
17.9
 
$
369.7

 
$
207.8

 
$
161.9

 
$
—

Bonds (b)
25.1
 
518.9

 
504.6

 
14.3

 
—

Insurance annuity contracts (c)
54.1
 
1,119.3

 
—

 
91.0

 
1,028.3

Real estate
1.3
 
26.0

 
9.9

 
1.2

 
14.9

Private equity
0.4
 
9.7

 
—

 
—

 
9.7

Cash
1.2
 
24.5

 
24.5

 
—

 
—

Total
100.0
 
$
2,068.1

 
$
746.8

 
$
268.4

 
$
1,052.9

(a)
We review the asset allocations within the respective portfolios on a regular basis. Generally, the plans do not have explicit asset mix targets other than for the equity securities and bond portfolios within the CWSF on a consolidated basis. The asset mix is primarily subject to, among other considerations, a de-risking plan related to the CWSF.
(b)
Amounts primarily include (i) fixed-interest and index-linked U.K. Government Gilts held by the CWSF and (ii) bonds held by the Bahamas and Jamaica plans.
(c)
The trustees of the CWSF, Jamaica plan and UTS unfunded liabilities have each purchased annuity policies pursuant to which the insurer assumed responsibility for the benefits payable to certain participants of the CWSF, Jamaica plan and UTS liabilities. The liabilities in the CWSF, Jamaica plan and at UTS are matched by related annuity policy assets, which reduces our funding risk for these plans, as follows:
 
December 31,
 
2019
 
2018
 
 
 
 
CWSF
67
%
 
66
%
Jamaica plan
66
%
 
64
%
UTS
100
%
 
NA


A reconciliation of the beginning and ending balances of our plan assets measured at fair value using Level 3 inputs is as follows:
 
December 31,
 
2019
 
2018
 
in millions
 
 
 
 
Balance at beginning of year
$
1,052.9

 
$
1,171.4

Gains relating to assets still held at year-end
94.9

 
10.4

Purchases, sales and settlements of investments, net
(24.9
)
 
(64.4
)
Foreign currency translation adjustments
44.4

 
(64.5
)
Balance at end of year
$
1,167.3

 
$
1,052.9

 
The components of net periodic pension benefit (expense) recorded in our consolidated statements of operations are as follows:
 
Year ended December 31,
 
2019
 
2018
 
2017
 
in millions
 
 
 
 
 
 
Included in operating income – service costs
$
3.4

 
$
3.7

 
$
1.2

 
 
 
 
 
 
Other income (expense), net:
 
 
 
 
 
Interest costs
57.6

 
64.5

 
58.8

Expected return on plan assets
(59.6
)
 
(74.8
)
 
(73.0
)
Other
—

 
(1.9
)
 
(0.3
)
 
(2.0
)
 
(12.2
)
 
(14.5
)
Total net periodic pension benefit (expense)
$
1.4

 
$
(8.5
)
 
$
(13.3
)

In addition to the net periodic pension expense in 2019, we incurred $5 million in restructuring charges related to employee severance and termination costs at C&W, which impacted our net pension liability. For information on our restructuring charges, see note 14.
The net actuarial gain (loss) recognized in accumulated other comprehensive earnings (loss) during each period and not yet recognized as a component of net period benefit cost at each period end is as follows:
 
Year ended December 31,
 
2019
 
2018
 
2017
 
in millions
 
 
 
 
 
 
Balance at beginning of year
$
10.7

 
$
(19.8
)
 
$
(9.7
)
Actuarial gain (loss) on projected benefit obligation
(134.5
)
 
81.9

 
47.2

Actuarial gain (loss) on plan assets (a)
131.9

 
(51.1
)
 
(59.2
)
Foreign currency translation adjustments and other
0.5

 
(0.3
)
 
1.9

Balance at end of year
$
8.6

 
$
10.7

 
$
(19.8
)
(a)
Represents the actual less expected return on plan assets.
Based on December 31, 2019 exchange rates, the benefits that we currently expect to pay during the next five years and in the aggregate for the five years thereafter with respect to our defined benefit plans are as follows (in millions):
Year ending December 31:
 
2020
$
112.0

2021
114.1

2022
116.5

2023
120.7

2024
121.7

2025 – 2029
649.7


2020 Expected Contributions
Based on December 31, 2019 foreign exchange rates and information available as of that date, we expect contributions of $8 million in aggregate to our defined benefit plans in 2020.