Pension and Other Postretirement Benefits

12 Months Ended

Jun. 30, 2019

Compensation And Retirement Disclosure [Abstract]

Pension and Other Postretirement Benefits

NOTE 14. PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company participates in and/or sponsors various pension, savings and postretirement benefit plans. Pension plans and postretirement benefit plans are closed to new participants with the exception of a small group covered by collective bargaining agreements. The Company has a legally enforceable obligation to contribute to some plans and is not required to contribute to others. The plans include both defined benefit pension plans and employee non-contributory and employee contributory accumulation plans covering all eligible employees. The Company makes contributions in accordance with applicable laws or contract terms.

Plans that are sponsored by the Company (“Direct Plans”) are accounted for as defined benefit pension plans. Accordingly, the funded and unfunded position of each Direct Plan is recorded in the Balance Sheets. Actuarial gains and losses that have not yet been recognized through income are recorded in Accumulated other comprehensive (loss) income net of taxes, and they are systematically amortized as a component of net periodic benefit cost. The Company’s benefit obligation for Direct Plans is calculated using assumptions which the Company reviews on a regular basis. The funded status of the Direct Plans can change from year to year, but the assets of the funded plans have been sufficient to pay all benefits that came due in each of fiscal 2019, 2018 and 2017.

Prior to the Distribution, certain of the Company’s employees participated in defined benefit pension and postretirement plans sponsored by 21CF (“Shared Plans”), which include participants of other 21CF subsidiaries. Shared Plans were accounted for as multiemployer benefit plans. Therefore, no asset or liability was recorded to recognize the funded status. The related pension expenses allocated to the Company were based primarily on benefits earned by active employees and accounted for in a manner similar to a defined contribution plan. In contemplation of the Separation, the pension and postretirement benefit assets and liabilities of the Shared Plans allocable to the Company’s employees were transferred to the Company in fiscal 2019. Assets of $630 million, projected benefit obligations of $765 million and $188 million of accumulated other comprehensive loss ($143 million, net of tax) were recorded for pension benefits transferred from 21CF. Projected benefit obligations of $98 million and $18 million of accumulated other comprehensive loss ($14 million, net of tax) were recorded for postretirement benefits transferred from 21CF.

The Company uses a June 30 measurement date for all Direct Plans. The following table sets forth the change in the projected benefit obligation, change in the fair value of plan assets and funded status for the Company’s Direct Plans:

	Pension benefits						Postretirement benefits
	As of June 30,
	2019			2018			2019			2018
	(in millions)
Projected benefit obligation, beginning of the year	$	322		$	350		$	-		$	-
Service cost		19			2			1			-
Interest cost		30			10			2			-
Benefits paid		(17	)		(12	)		(1	)		-
Settlements(a)		(16	)		(21	)		-			-
Actuarial losses (gains)(b)		148			(7	)		4			-
Liabilities assumed from 21CF		765			-			98			-
Other		4			-			(1	)		-
Projected benefit obligation, end of the year		1,255			322			103			-
Change in the fair value of plan assets for the Company's benefit plans:
Fair value of plan assets, beginning of the year		70			70			-			-
Actual return on plan assets		50			3			-			-
Employer contributions		83			30			1			-
Benefits paid		(17	)		(12	)		(1	)		-
Settlements(a)		(16	)		(21	)		-			-
Assets received from 21CF		630			-			-			-
Fair value of plan assets, end of the year		800			70			-			-
Funded status(c)	$	(455	)	$	(252	)	$	(103	)	$	-
Grantor Trust assets(c)	$	249		$	265		$	-		$	-

^(a) Represents the full settlement of former employees deferred pension benefit obligations through lump sum payments.

^(b) The actuarial losses (gains) for June 30, 2019 and 2018 were mainly due to a change in the discount rate assumption utilized in measuring plan obligations.

^(c) The Company has established an irrevocable grantor trust (the “Grantor Trust”), administered by an independent trustee, with the intention of making cash contributions to the Trust to fund certain future pension benefit obligations of the Company. The assets in the Grantor Trust are unsecured funds of the Company and can be used to satisfy the Company’s obligations in the event of bankruptcy or insolvency. Prior to the Distribution, the assets of the Grantor Trust were held by an irrevocable grantor trust of 21CF (the “21CF Grantor Trust”).

Amounts recognized in the Balance Sheets consist of:

	Pension benefits						Postretirement benefits
	As of June 30,
	2019			2018			2019			2018
	(in millions)
Accrued pension liabilities	$	(455	)	$	(252	)	$	(103	)	$	-
Net amount recognized	$	(455	)	$	(252	)	$	(103	)	$	-

Amounts recognized in Accumulated other comprehensive (loss) income, before tax, consist of:

	Pension benefits				Postretirement benefits
	As of June 30,
	2019		2018		2019		2018
	(in millions)
Actuarial losses(a)	$	385	$	80	$	22	$	-
Prior service cost		3		5		-		-
Net amounts recognized	$	388	$	85	$	22	$	-

^(a) The increase in actuarial losses was primarily related to the accumulated actuarial losses transferred to the Company from 21CF of $188 million and $18 million for pension and postretirement benefits, respectively, and the change in the discount rate assumption utilized in measuring plan obligations.

Amounts in Accumulated other comprehensive (loss) income, before tax, expected to be recognized as a component of net periodic benefit costs in fiscal 2020:

	As of June 30, 2019
	Pension benefits		Postretirement benefits
	(in millions)
Actuarial losses	$	28	$	1
Net amounts expected to be recognized	$	28	$	1

Accumulated pension benefit obligations as of June 30, 2019 and 2018 were $1,113 million and $311 million, respectively. For the Direct Plans, the accumulated benefit obligation exceeds fair value of the plan assets. Information about funded and unfunded pension plans is presented below:

	Funded plans				Unfunded plans
	As of June 30,
	2019		2018		2019			2018
	(in millions)
Projected benefit obligation	$	976	$	82	$	279		$	240
Accumulated benefit obligation		842		82		271			229
Fair value of plan assets		800		70		-	(a)		-	(a)

^(a) The fair value of the assets in the Grantor Trust as of June 30, 2019 and 21CF Grantor Trust attributable to the Company as of June 30, 2018 was $249 million and $265 million, respectively.

The components of periodic benefit costs were as follows:

	Pension benefits									Postretirement benefits
	For the years ended June 30,
	2019			2018			2017			2019			2018		2017
	(in millions)
Service cost benefits earned during the period	$	19		$	2		$	2		$	1		$	-	$	-
Interest costs on projected benefit obligations		30			10			9			2			-		-
Expected return on plan assets		(30	)		(5	)		(4	)		-			-		-
Amortization of deferred losses		11			3			3			1			-		-
Other		7			1			1			(1	)		-		-
Net periodic benefit costs- Direct plans		37			11			11			3			-		-
Shared Plans		14			33			39			4			7		9
Net periodic benefit costs- Total		51			44			50			7			7		9
Settlement loss
Direct Plans		-			4			4			-			-		-
Shared Plans		-			49			21			-			-		-
Total periodic benefit costs	$	51		$	97		$	75		$	7		$	7	$	9

The components of net periodic benefit costs other than the service cost component are included in Other, net in the Statements of Operations.

	Pension benefits									Postretirement benefits
	For the years ended June 30,
	2019			2018			2017			2019			2018	2017
Additional information
Weighted-average assumptions used to determine benefit obligations
Discount rate		3.6	%		4.2	%		3.8	%		3.6	%	N/A	N/A
Weighted-average assumptions used to determine net periodic benefit costs
Discount rate for service cost		4.6	%		4.1	%		4.3	%		4.4	%	N/A	N/A
Discount rate for interest cost		4.1	%		3.1	%		2.7	%		3.9	%	N/A	N/A
Expected return on plan assets		7.0	%		7.0	%		7.0	%	N/A			N/A	N/A

N/A – not applicable.

The Company utilizes a full yield curve approach in the estimation of the service and interest components of net periodic benefit costs for pension and postretirement benefits by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to their underlying projected cash flows. The Company utilizes the latest mortality table released by the Society of Actuaries.

The following assumed health care cost trend rates as of June 30 were also used in accounting for postretirement benefits:

	Postretirement benefits
	Fiscal 2019
Health care cost trend rate		7.8	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		4.5	%
Year that the rate reaches the ultimate trend rate		2039

The following table sets forth the estimated benefit payments and estimated settlements for the next five fiscal years and in aggregate for the five fiscal years thereafter. These payments are estimated based on the same assumptions used to measure the Company’s benefit obligation at the end of the fiscal year and include benefits attributable to estimated future employee service:

	Expected benefit payments
	Pension benefits		Postretirement benefits
	(in millions)
Fiscal year
2020	$	53	$	5
2021		56		5
2022		54		5
2023		56		5
2024		60		6
2025-2029		344		28

The above table shows expected benefits payments for the postretirement benefits net of a nominal amount of U.S. Medicare subsidy receipts per year.

Plan Assets and Grantor Trust

The Company applies the provisions of ASC 715, which requires disclosures including: (i) investment policies and strategies; (ii) the major categories of plan assets; (iii) the inputs and valuation techniques used to measure plan assets; (iv) the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period; and (v) significant concentrations of risk within plan assets.

The table below presents the Company’s plan assets by level within the fair value hierarchy, as described in Note 6—Fair Value, as of June 30, 2019:

	As of June 30, 2019
			Fair value measurements at reporting date using					Assets measured
	Total		Level 1			Level 2		at NAV(a)
	(in millions)
ASSETS
Pooled funds(b)
Money market funds	$	83	$	-		$	83	$	-
Domestic equity funds		72		72			-		-
International equity funds		132		132			-		-
International fixed income funds		39		-			-		39
Balanced funds		198		136			-		62
Common stocks(c)
U.S. common stocks		131		131			-		-
Government and Agency obligations(d)
Domestic government obligations		17		-			17		-
Domestic agency obligations		12		-			12		-
Corporate obligations(d)		44		-			44		-
Partnership interests		13		-			-		13
Exchange traded funds(c)		32		32			-		-
Other		27		(3	)		30		-
Total fair value of plan assets	$	800	$	500		$	186	$	114

^(a) As a practical expedient, pooled funds are valued at the net asset value (“NAV”) provided by the fund issuer and partnership interests are based on the fair value obtained from the general partner.

^(b) Open-ended pooled funds that are registered and/or available to the general public are valued at the daily published NAV.

^(c) Common stock investments that are publicly traded and exchange traded funds are valued at the closing price reported on active markets in which the securities are traded.

^(d) The fair value of corporate, government and agency obligations are valued based on a compilation of primary observable market information or a broker quote in a non-active market.

In fiscal 2018, the Company had an undivided interest in a master trust (the “21CF Master Trust”) which was held by 21CF. The fair value of the Company’s undivided interest in the net assets of the 21CF Master Trust was $70 million as of June 30, 2018.

The Company’s investment strategy for its pension plans is to maximize the long-term rate of return on plan assets within an acceptable level of risk in order to minimize the cost of providing pension benefits while maintaining adequate funding levels. The Company’s practice is to conduct a periodic review of its asset allocation. The Company’s current broad strategic targets are to have a pension asset portfolio comprising of 50% equity securities, 25% fixed income securities and 25% in other investments. In developing the expected long-term rate of return, the Company considered the pension asset portfolio’s future return expectations of the various asset classes. A portion of the other allocation is reserved in short-term cash to provide for expected benefits to be paid in the short-term. The Company’s equity portfolios are managed in such a way as to achieve optimal diversity. The Company’s fixed income portfolio is investment grade in the aggregate. The Company does not manage any assets internally.

The Company’s benefit plan weighted-average asset allocations, by asset category, are as follows:

	Pension benefits
	As of June 30, 2019
Asset Category
Equity securities		47	%
Fixed income securities		18
Other, including cash		35
Total		100	%

Required pension plan contributions for the next fiscal year are not expected to be material; however, actual contributions may be affected by pension asset and liability valuation changes during the year. The Company will continue to make voluntary contributions as necessary to improve funded status.

In addition, the Company has established the Grantor Trust to satisfy the Company’s unfunded pension obligations. The table below presents the assets by level within the fair value hierarchy, as described in Note 6—Fair Value, for the Grantor Trust as of June 30, 2019 and for the 21CF Grantor Trust as of June 30, 2018:

	As of June 30, 2019
	Total		Level 1		Assets measured at NAV
	(in millions)
Assets
Balanced funds	$	213	$	213	$	-
Partnership interests(a)		15		-		15
Total(b)	$	228	$	213	$	15
	As of June 30, 2018
	Total		Level 1		Assets measured at NAV
	(in millions)
Assets
Balanced funds	$	205	$	205	$	-
Partnership interests(a)		15		-		15
Total(b)	$	220	$	205	$	15

^(a) As a practical expedient, partnership interests held in the Grantor Trust and 21CF Grantor Trust are based on the fair value obtained from the general partner.

^(b) The fair value of the assets in the Grantor Trust as of June 30, 2019 and the 21CF Grantor Trust attributable to the Company as of June 30, 2018 was $249 million and $265 million, respectively. The remaining assets held by the Grantor Trust and 21CF Grantor Trust not presented in the table above are cash and cash equivalents.

Defined Contribution Plans

The Company has defined contribution plans for the benefit of substantially all employees meeting certain eligibility requirements. Employer contributions to such plans were $39 million, $38 million and $34 million for fiscal 2019, 2018 and 2017, respectively.