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Employee Benefit Plans
 9 Months Ended
Sep. 30, 2020
Retirement Benefits [Abstract]  
Employee Benefit Plans Employee Benefit Plans
Pension and Postretirement Plans. We sponsor both funded and unfunded domestic and foreign defined benefit pension and other postretirement benefit plans, and defined contribution plans. Contributions to our plans were as follows:
 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Defined benefit plans$8 $7 $28 $25 
Defined contribution plans12 10 42 31 
Multi-employer pension plans46 39 119 117 

The following table illustrates the components of net periodic benefit cost for our defined benefit pension plans:

 Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)2020201920202019
Service cost$10 $8 $30 $25 
Interest cost4 5 12 16 
Expected return on plan assets(6)(5)(19)(17)
Amortization of prior service credit— — — (1)
Recognized actuarial net loss4 2 11 7 
Net settlement and curtailment loss— — — 1 
Total net periodic benefit cost$12 $10 $34 $31 

Postretirement Benefit Plans. We sponsor postretirement benefit plans that provide health and life benefits to eligible retirees. The postretirement plans are unfunded. The net periodic benefit cost was less than $1 million for the quarters and nine months ended September 30, 2020 and 2019, respectively.

UTC Sponsored Defined Benefit Plans. Defined benefit pension and postretirement benefit plans sponsored by UTC have been accounted for as multi-employer plans in these Condensed Consolidated Financial Statements, in accordance with FASB ASC Topic 715-30: Defined Benefit Plans – Pension and FASB ASC Topic 715-60: Defined Benefit Plans – Other Postretirement. FASB ASC Topic 715: Compensation-Retirement Benefits provides that an employer that participates in a multi-employer defined benefit plan is not required to report a liability beyond the contributions currently due and unpaid to the plan. Therefore, no assets or liabilities related to these plans have been included on the Condensed Consolidated Balance Sheets.

These pension and postretirement expenses were allocated to the Company and reported in Cost of products and services sold, Selling, general and administrative and Non-service pension cost (benefit) on the Condensed Consolidated Statements of Operations. The Company's participation in the defined pension and postretirement benefit plans sponsored by UTC concluded upon the completion of the Separation on April 3, 2020. The amounts for pension and postretirement expenses for the quarter and nine months ended September 30, 2020 were as follows:

Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)
2020201920202019
Service cost$— $4 $1 $11 
Non-service pension benefit— (20)(5)(45)
Total$— $(16)$(4)$(34)

Stock-based Compensation. Prior to the Separation, certain of the Company's employees participated in stock-based compensation plans sponsored by UTC. The UTC stock-based compensation plans included various types of market and performance-based incentive awards, including stock options, stock appreciation rights, restricted stock units, and performance-based share units. All awards granted under the plans were based on UTC common shares, and only the activity attributable to Otis employees from these awards is reflected in the accompanying Condensed Consolidated Financial Statements for the quarter and nine months ended September 30, 2020.
In conjunction with the Separation, the Company adopted the 2020 Long-Term Incentive Plan (the "Plan"). The Plan became effective on April 3, 2020. A total of 45 million shares of common stock are authorized under the Plan. The Plan provides for the grant of various types of awards including restricted share unit awards, stock appreciation rights, stock options, and performance-based awards. Under the Plan, the exercise price of awards, if any, is set on the grant date and may not be less than the fair market value per share on that date. Generally, stock appreciation rights and stock options have a term of ten years and a three-year vesting period, subject to limited exceptions. In the event of retirement, annual stock appreciation rights, stock options, and restricted share units held for more than one year may become vested and exercisable (if applicable), subject to certain terms and conditions. Awards with performance-based vesting generally have a minimum three-year vesting period and vest based on actual performance against pre-established metrics. In the event of retirement, performance-based awards held for more than one year, remain eligible to vest based on actual performance relative to target metrics.

In conjunction with the Separation, and in accordance with the EMA, the Company's employees with outstanding former UTC stock-based awards received replacement stock-based awards under the Plan at Separation. The value of the replaced stock-based awards was designed to preserve the aggregate intrinsic value of the award immediately after the Separation when compared to the aggregate intrinsic value of the award immediately prior to Separation. The incremental expense incurred by the Company was not material. As of September 30, 2020, approximately 28 million shares remain available for awards under the 2020 Plan.

Stock-based Compensation Expense

We measure the cost of all share-based payments, including stock options, at fair value on the grant date and recognize this cost in the Condensed Consolidated Statements of Operations. A forfeiture rate assumption is applied on grant date to adjust the expense recognition for awards that are not expected to vest. For the first three months of the nine months ended September 30, 2020, stock-based compensation expense includes expense attributable to Otis, which is based on the awards and terms previously granted under the UTC incentive compensation plan to Otis employees. Accordingly, the amounts presented for the nine months ended September 30, 2020 and 2019 are not necessarily indicative of future awards and do not necessarily reflect the results that Otis would have experienced as an independent publicly-traded company.

Stock-based compensation expense and the resulting tax benefits were as follows:

Quarter Ended September 30,Nine Months Ended September 30,
(dollars in millions)
2020201920202019
Stock-based compensation expense (Share Based)* $17 $12 $44 $29 
Stock-based compensation expense (Cash Based)2 4 (6)7 
Total gross stock-based compensation expense$19 $16 $38 $36 
Less: future tax benefit3 1 7 3 
Stock-based compensation expense, net of tax$16 $15 $31 $33 

* Includes Directors compensation of approximately $2 million in 2020

As of September 30, 2020, there was approximately $82 million of total unrecognized compensation cost related to non-vested equity awards granted under the Plan. This cost is expected to be recognized ratably over a weighted-average period of 2.4 years.
A summary of the transactions under the new Otis Plan for the nine months ended September 30, 2020 follows:

Stock Appreciation RightsRestricted Share UnitsPerformance Share UnitsStock Options
(shares in thousands)SharesAverage Price*SharesAverage Price**SharesAverage Price**SharesAverage Price**
Outstanding at:
March 31, 2020— $— — $— — $— — $— 
Converted from UTC1
12,782 60.161,376 68.1438 67.53520 53.99
Granted2
172 52.39593 54.045 65.45— —
Exercised / Earned2
(215)46.23(109)59.69(1)65.90(10)45.88
Cancelled(42)70.54(7)70.26— —— —
September 30, 202012,697 $60.26 1,853 $64.09 42 $67.33 510 $54.15 

*weighted-average grant price
**weighted-average grant fair value
1 Converted shares include Carrier and Legacy UTC employees receiving Otis awards on spin
2 Includes annual retainer awards issued to the Board of Directors

The following table summarizes information about equity awards outstanding that are vested and expected to vest and equity awards outstanding that are exercisable at September 30, 2020:

Equity Awards Vested and Expected to VestEquity Awards That Are Exercisable
(shares in thousands; aggregate intrinsic value in millions)AwardsAverage Price*Aggregate Intrinsic ValueRemaining Term**AwardsAverage Price*Aggregate Intrinsic ValueRemaining Term**
Stock Options/Stock Appreciation Rights13,026$59.83 $78 5.7 years8,389$53.56 $76 4.2 years
Performance Share Units/Restricted Stock1,805—$113 2.0 years

*weighted-average grant price per share
**weighted-average contractual remaining term in years