Pension and Other Benefit Plans

The Company offers a defined benefit pension plan, a retiree medical plan, life insurance benefits, deferred compensation plans and defined contribution plans. The Company’s defined benefit pension and retiree medical plans are not admitting new participants; therefore, changes to pension and OPEB liabilities are primarily due to market fluctuations of investments, actuarial assumptions for the measurement of liabilities and changes in interest rates.

Defined Benefit Plans

As a result of the Mergers, the Company sponsors defined benefit pension and retiree medical plans for the benefit of eligible employees acquired in the Mergers. At the date of the Mergers, the net projected benefit obligations and assets were $489 million and $419 million, respectively, of which $7 million was recorded in other assets and $77 million in other long-term liabilities. The Company did not contribute to the defined benefit pension and other postretirement benefit plans during the fiscal years ended March 31, 2020 and 2019.

The following table provides a reconciliation of the Company’s benefit obligation, plan assets and funded status:



	Fiscal Year Ended March 31, 2020						Fiscal Year Ended March 31, 2019
(in millions)	Defined Benefit Pension Plan			Retiree Medical Plan			Defined Benefit Pension Plan			Retiree Medical Plan
Projected benefit obligation at beginning of year	$	491		$	7		$	—		$	—
Benefit obligation assumed as a result of the Mergers	—			—			482			7
Service cost	—			—			—			—
Interest cost	18			—			16			—
Actuarial loss	35			—			13			1
Plan participant contributions	—			—			—			1
Benefits paid	(21		)	—			(20		)	(2		)
Projected benefit obligation at end of year	523			7			491			7

Fair value of plan assets at beginning of year	388			13			—			—
Assets assumed as a result of the Mergers	—			—			405			14
Actual return on plan assets	(8		)	(1		)	3			—
Plan participant contributions	—			—			—			1
Expenses paid	(2		)	—			—			—
Benefits paid	(21		)	—			(20		)	(2		)
Fair value of plan assets at end of year	357			12			388			13
(Unfunded) funded status at end of year	$	(166	)	$	5		$	(103	)	$	6

The following table provides amounts recognized on our balance sheet for the funded status:



	March 31, 2020				March 31, 2019
(in millions)	Defined Benefit Pension Plan		Retiree Medical Plan		Defined Benefit Pension Plan		Retiree Medical Plan
Other assets	$	—	$	5	$	—	$	6
Other long-term liabilities	166		—		103		—
Accumulated other comprehensive loss	—		3		—		—

The components of net periodic benefit cost recognized in other expense, net on our statement of operations consisted of the following:



	Fiscal Year Ended March 31, 2020					Fiscal Year Ended March 31, 2019
(in millions)	Defined Benefit Pension Plan			Retiree Medical Plan		Defined Benefit Pension Plan			Retiree Medical Plan
Service cost	$	—		$	—	$	—		$	—
Interest cost	18			—		16			—
Expected return on plan assets	(28		)	—		(24		)	(1		)
Recognition of net actuarial loss	72			—		35			—
Net periodic benefit cost (benefit)	$	62		$	—	$	27		$	(1	)

The weighted-average rates used to determine the benefit obligation at March 31, 2020 and net periodic benefit cost for the subsequent year were as follows:



	March 31, 2020				March 31, 2019
	Defined Benefit Pension Plan		Retiree Medical Plan		Defined Benefit Pension Plan		Retiree Medical Plan
Discount rate	3.7	%	3.5	%	4.1	%	4.0	%
Expected long-term rate of return on assets	7.4	%	6.2	%	7.8	%	6.7	%

Plan Asset Allocations

The Company has the fiduciary responsibility for making investment decisions related to the assets of our postretirement benefit plans. The objectives for the assets of the defined benefit pension and retiree medical plans are (1) to minimize the net present value of expected funding contributions; (2) to ensure there is a high probability that each plan meets or exceeds our actuarial long‑term rate of return assumptions; and (3) to diversify assets to minimize the risk of large losses. The nature and duration of benefit obligations, along with assumptions concerning asset class returns and return correlations, are considered when determining an appropriate asset allocation to achieve the investment objectives. Investment policies and strategies governing the assets of the plans are designed to achieve investment objectives within prudent risk parameters. Risk management practices include the use of external investment managers; the maintenance of a portfolio diversified by asset class, investment approach, and security holdings; and the maintenance of sufficient liquidity to meet benefit obligations as they come due.

Pursuant to the investment policies established, the following target asset allocations have been established and will be utilized for the qualified defined benefit pension plan assets as of March 31, 2020:



Asset Category	Defined Benefit Pension Plan		Retiree Medical Plan
Cash	2.5	%	5.0	%
Equity funds	37.5	%	50.0	%
Fixed income	17.5	%	45.0	%
Real estate funds	10.0	%	—	%
Other	32.5	%	—	%

Fair Value of Plan Assets

The rules related to accounting for postretirement benefit plans under GAAP require certain fair value disclosures related to postretirement benefit plan assets, even though those assets are not included on our balance sheets. The following table presents the fair value of our defined benefit pension plan and retiree medical plan assets at March 31, 2019 by asset category and their level within the fair value hierarchy, which has three levels based on the uncertainty of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets, Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs. Certain other investments are measured at fair value using their net asset value (“NAV”) per share and do not have readily determined values and are thus not subject to leveling in the fair value hierarchy. The NAV is the total value of the fund divided by the number of shares outstanding.



	March 31, 2020								March 31, 2019
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Investments measured at fair value:
Cash and cash equivalents	$	—	$	6	$	—	$	6	$	—	$	12	$	—	$	12
Equity funds	17		43		—		60		18		104		—		122
Fixed income	29		6		—		35		—		35		—		35
Real estate funds	—		—		46		46		—		—		53		53
Hedge funds	—		—		8		8		—		—		25		25
Total investments measured at fair value	$	46	$	55	$	54	155		$	18	$	151	$	78	247
Investments measured at NAV:
Equity funds							116								20
Fixed income							15								32
Hedge funds							83								102
Total investments measured at NAV							214								154
Total investments							$	369							$	401

Changes in fair value measurements of level 3 investments for the defined benefit plans were as follows:



(in millions)	Real Estate Funds			Hedge Funds			Total
Balance at April 1, 2018	$	—		$	—		$	—
Assets assumed as a result of the Mergers	49			28			77
Actual return on plan assets held at the reporting date	5			(3		)	2
Purchases, sales and settlements	(1		)	—			(1		)
Balance at March 31, 2019	53			25			78
Actual return on plan assets held at the reporting date	2			(1		)	1
Purchases, sales and settlements	(9		)	(16		)	(25		)
Balance at March 31, 2020	$	46		$	8		$	54

Valuation Techniques

Cash equivalents are mostly comprised of short‑term money‑market instruments and are valued at cost, which approximates fair value.

Equity funds are categorized as Level 1 if the securities trade on national or international exchanges and are valued at their last reported closing price. Equity assets in commingled funds reporting a NAV are categorized as Level 2 and valued using published quotes of securities with similar characteristics. Certain commingled equity funds, consisting of equity mutual funds, are valued using the NAV.

Fixed income funds are categorized as Level 2 if investments in corporate bonds are primarily investment grade bonds, generally priced using model-based pricing methods that use observable market data as inputs. Broker dealer bids or quotes of securities with similar characteristics may also be used. Certain fixed income commingled funds, consisting of emerging market bonds, are valued using NAV.

The real estate and hedge funds categorized as Level 3 are valued using nominal methods based on valuation models that include significant unobservable inputs and cannot be corroborated using verifiable observable market data. Use of these inputs involves significant and subjective judgments to be made by a reporting entity. If a change in Level 3 inputs occur, the resulting amount might result in a significantly higher or lower fair value measurement. Valuations for hedge funds are valued by independent administrators. Certain hedge funds are valued using NAV and are generally based on the valuation of the underlying investments. Investments in hedge funds have no discernible concentration in nature of risk.

Expected Future Contributions and Benefit Payments



Fiscal Year (in millions)	Defined Benefit Pension Plan		Retiree Medical Plan
Employer contributions:
2021	$	7	$	—
Benefit payments:
2021	$	26	$	1
2022	25		—
2023	26		1
2024	26		—
2025	27		1
2025 - 2029	144		2
Total	$	274	$	5

Defined Contribution Plans

The Company offers various defined contribution plans for employees. We match most employees’ eligible contributions at rates specified in the plan documents. Our defined contribution expense was $44 million, $33 million and $15 million during the fiscal years ended March 31, 2020, 2019 and 2018, respectively. In April 2019, the Company terminated two acquired defined contribution plans and transferred the employees and their related assets into the legacy USPS 401(k). That plan was subsequently amended and is now the primary defined contribution plan, aligning benefits across Perspecta. Subsequent to the amendment, the Company’s matching contributions are deposited in a participant’s account twice per year based on each participant’s contributions during the preceding period. The Company matches 100% of the participant’s contributions up to the first 3% of the participant’s annual salary, and 50% on the next 2% of the participant’s annual salary, subject to statutory limitations.

Deferred Compensation Plans

On October 9, 2018, Perspecta’s Board of Directors, upon the recommendation of its Human Resources and Compensation Committee, adopted a framework for a new, Company-sponsored non-qualified deferred compensation plan (the “Plan”), to replace the existing deferred compensation plans. The Plan was effective January 1, 2019.

The Plan is an unfunded, non-qualified deferred compensation plan maintained for the benefit of a select group of management or highly compensated employees of the Company, including the Company’s principal executive officer, principal financial officer and other “named executive officers.” Non-employee directors of the Company are also eligible to participate and defer their cash fees under the Plan.

The Plan is an account-based plan that allows participants to defer voluntarily the payment of current compensation to future years. The Plan permits each participant to defer cash compensation up to any limits set forth in the Plan, which amounts are credited to a bookkeeping account established for the participant under the Plan. The amounts credited to a participant’s account are fully vested. The Plan does not provide for any employer contributions.

Amounts credited to a participant’s account are indexed to one or more deemed investment alternatives chosen by the participant from a range of alternatives available under the Plan. Each participant’s account is adjusted to reflect gains and losses based on the performance of the selected investment alternatives. None of the deemed investment options provide for an above-market or preferential rate of return.

A participant may receive distributions from the Plan upon separation from service or on in-service dates specified by the participant, in the form of distribution elected by the participant available under the Plan. There will be a six-month delay for commencement of payment upon termination of employment to any “specified employee” as defined under Internal Revenue Code Section 409A. The Human Resources and Compensation Committee (or its authorized delegate) will be the administrator of the Plan.

Under the deferred compensation plans described above, certain management and highly compensated employees are eligible to defer up to 75% of their regular salary that exceeds the limitation set forth in the Internal Revenue Code of 1986 (the “Code”) Section 401(a)(17) and all or a portion of their incentive compensation. Non-employee directors are eligible to defer up to 100% of their cash compensation. As of March 31, 2020 and 2019, a deferred compensation liability of $12 million and $13 million, respectively, was included in other long-term liabilities on the accompanying balance sheets.