Employee Benefits

12 Months Ended

Dec. 31, 2018

Retirement Benefits [Abstract]

Employee Benefits

Employee Benefits

Pension, Post-Retirement and Other Post-Employment Benefits

We sponsor various defined benefit pension plans (qualified and non-qualified) which, in the aggregate, cover a substantial portion of our employees including legacy CenturyLink, legacy Qwest Communications International Inc. ("Qwest") and legacy Embarq employees. Pension benefits for participants of the CenturyLink Combined Pension Plan ("Combined Pension Plan") who are represented by a collective bargaining agreement are based on negotiated schedules. All other participants' pension benefits are based on each individual participant's years of service and compensation. We also maintain non-qualified pension plans for certain current and former highly compensated employees. We maintain post-retirement benefit plans that provide health care and life insurance benefits for certain eligible retirees. We also provide other post-employment benefits for certain eligible former employees. We use a December 31 measurement date for all our plans.

Pension Benefits

In connection with the acquisition of Level 3 Communications, Inc. on November 1, 2017, we assumed defined benefit pension plans sponsored by various Level 3 companies for their employees. Based on a valuation analysis, we recognized a $20 million liability on November 1, 2017 for the unfunded status of the Level 3 pension plans. The net unfunded status recognized on our balance sheets at December 31, 2018 and 2017 was $11 million and $20 million, respectively, representing liabilities of $144 million and $167 million, and assets of $133 million and $147 million, respectively. Due to the insignificant impact of these pension plans on our consolidated financial statements, we have predominantly excluded them from the remaining employee benefit disclosures in this Note.

United States funding laws require a company with a pension shortfall to fund the annual cost of benefits earned in addition to a seven-year amortization of the shortfall. Our funding policy for our Combined Pension Plan is to make contributions with the objective of accumulating ample assets to pay all qualified pension benefits when due under the terms of the plan. The accounting unfunded status of our qualified pension plan was $1.6 billion and $2.0 billion as of December 31, 2018 and 2017, respectively.

We made a voluntary cash contribution to our qualified pension plan of $500 million and $100 million in 2018 and 2017, respectively, and paid $5 million of benefits directly to participants of our non-qualified pension plans in both 2018 and 2017, respectively. Based on current laws and circumstances, we are not required to make any contributions to our qualified pension plan in 2019. We currently do not expect to make a voluntary contribution to the trust for our qualified pension plan in 2019. We estimate that in 2019 we will pay $5 million of benefits directly to participants of our non-qualified pension plans.

As previously mentioned, we sponsor unfunded non-qualified pension plans for certain current and former highly-compensated employees. The net unfunded status of our non-qualified pension plans was $52 million and $58 million for the years ended December 31, 2018 and 2017, respectively. Due to the insignificant impact of these pension plans on our consolidated financial statements, we have predominantly excluded them from the remaining employee benefit disclosures in this Note.

Post-Retirement Benefits

In connection with our acquisition of Level 3 Communications, Inc. on November 1, 2017, we assumed post-retirement benefit plans sponsored by Level 3 Communications, L.L.C. and Continental Level 3, Inc. for certain of its current and former employees. Based on a valuation analysis, we recognized less than $1 million in liability for the unfunded status of Level 3’s post-retirement benefit plans. Though largely unfunded, these post-retirement plans, in the aggregate, are immaterial to our consolidated financial statements. Due to the insignificant amount of these post-retirement plans, we have predominantly excluded them from the remaining employee benefit disclosures in this Note.

Our post-retirement benefit plans provide post-retirement benefits to qualified retirees and allow (i) eligible employees retiring before certain dates to receive benefits at no or reduced cost and (ii) eligible employees retiring after certain dates to receive benefits on a shared cost basis. The post-retirement benefits not paid by the trusts are funded by us and we expect to continue funding these post-retirement obligations as benefits are paid. The accounting unfunded status of our qualified post-retirement benefit plan was $3.0 billion and $3.4 billion as of December 31, 2018 and 2017, respectively.

Assets in the post-retirement trusts were substantially depleted as of December 31, 2016; however, we continue to pay certain post-retirement benefits through the trusts. No contributions were made to the post-retirement trusts in 2018 and 2017. Benefits not paid from the trusts are expected to be paid directly by us with available cash. In 2018, we paid $249 million of post-retirement benefits, net of participant contributions and direct subsidies. In 2019, we expect to pay $270 million of post-retirement benefits, net of participant contributions and direct subsidies. The increase in anticipated post-retirement benefit payments is the result of increased utilization coupled with a continued rise in the cost of care.

We expect our health care cost trend rate to range from 5.0% to 7.0% in 2019, 5.0% to 6.5% in 2020 and grading to 4.50% by 2025. Our post-retirement benefit cost, for certain eligible legacy Qwest retirees and certain eligible legacy CenturyLink retirees, is capped at a set dollar amount. Therefore, those health care benefit obligations are not subject to increasing health care trends after the effective date of the caps.

Expected Cash Flows

The Combined Pension Plan payments, post-retirement health care benefit payments and premiums, and life insurance premium payments are either distributed from plan assets or paid by us. The estimated benefit payments provided below are based on actuarial assumptions using the demographics of the employee and retiree populations and have been reduced by estimated participant contributions.

	Combined Pension Plan		Post-Retirement Benefit Plans	Medicare Part D Subsidy Receipts
	(Dollars in millions)
Estimated future benefit payments:
2019	$	966	277	(7	)
2020	938		269	(7	)
2021	916		261	(7	)
2022	891		252	(7	)
2023	867		243	(6	)
2024 - 2028	3,971		1,065	(26	)

Net Periodic Benefit Expense

We utilize a full yield curve approach in connection with estimating the service and interest components of net periodic benefit expense by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flow.

The actuarial assumptions used to compute the net periodic benefit expense for our Combined Pension Plan and post-retirement benefit plans are based upon information available as of the beginning of the year, as presented in the following table.

	Combined Pension Plan						Post-Retirement Benefit Plans
	2018		2017		2016		2018		2017		2016
Actuarial assumptions at beginning of year:
Discount rate	3.14% - 3.69%		3.25% - 4.14%		3.34% - 4.46%		4.26	%	3.90	%	4.15	%
Rate of compensation increase	3.25	%	3.25	%	3.25	%	N/A		N/A		N/A
Expected long-term rate of return on plan assets (1)	6.50	%	6.50	%	7.00	%	4.00	%	5.00	%	7.00	%
Initial health care cost trend rate	N/A		N/A		N/A		7.00% / 5.00%		7.00% / 5.00%		5.00% / 5.25%
Ultimate health care cost trend rate	N/A		N/A		N/A		4.50	%	4.50	%	4.50	%
Year ultimate trend rate is reached	N/A		N/A		N/A		2025		2025		2025

_______________________________________________________________________________

N/A - Not applicable

(1) Rates are presented net of projected fees and administrative costs.

Net periodic benefit (income) expense for our combined pension plan includes the following components:

	Combined Pension Plan Years Ended December 31,
	2018			2017		2016
	(Dollars in millions)
Service cost	$	66		63		64
Interest cost	392			409		425
Expected return on plan assets	(685		)	(666	)	(733	)
Special termination benefits charge	15			—		13
Recognition of prior service credit	(8		)	(8	)	(8	)
Recognition of actuarial loss	178			204		174
Net periodic pension benefit (income) expense	$	(42	)	2		(65	)

Net periodic benefit expense for our post-retirement benefit plans includes the following components:

	Post-Retirement Plans Years Ended December 31,
	2018			2017		2016
	(Dollars in millions)
Service cost	$	18		18		19
Interest cost	97			100		111
Expected return on plan assets	(1		)	(2	)	(7	)
Special termination benefits charge	—			—		3
Recognition of prior service cost	20			20		20
Net periodic post-retirement benefit expense	$	134		136		146

We report service costs for our Combined Pension Plan and post-retirement benefit plans in cost of services and products and selling, general and administrative expenses in our consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016. Additionally, a portion of the service cost is also allocated to certain assets under construction, which are capitalized and reflected as part of property, plant and equipment in our consolidated balance sheets. The remaining components of net periodic benefit expense (income) are reported in other income, net in our consolidated statements of operations. As a result of ongoing efforts to reduce our workforce, we recognized a one-time charge in 2018 of $15 million for special termination benefit enhancements paid to certain eligible employees upon voluntary retirement.

Benefit Obligations

The actuarial assumptions used to compute the funded status for the plans are based upon information available as of December 31, 2018 and 2017 and are as follows:

	Combined Pension Plan				Post-Retirement Benefit Plans
	December 31,				December 31,
	2018		2017		2018		2017
Actuarial assumptions at end of year:
Discount rate	4.29	%	3.57	%	4.26	%	3.53	%
Rate of compensation increase	3.25	%	3.25	%	N/A		N/A
Initial health care cost trend rate	N/A		N/A		7.00% / 5.00%		7.00% / 5.00%
Ultimate health care cost trend rate	N/A		N/A		4.50	%	4.50	%
Year ultimate trend rate is reached	N/A		N/A		2025		2025

_______________________________________________________________________________

N/A - Not applicable

In 2018, 2017 and 2016, we adopted the revised mortality tables and projection scales released by the Society of Actuaries, which decreased the projected benefit obligation of our benefit plans by $38 million, $113 million and $268 million, respectively. The change in the projected benefit obligation of our benefit plans was recognized as part of the net actuarial (gain) loss and is included in accumulated other comprehensive loss, a portion of which is subject to amortization over the remaining estimated life of plan participants, which was approximately 8 to 9 years as of December 31, 2018.

The following tables summarize the change in the benefit obligations for the Combined Pension Plan and post-retirement benefit plans:

	Combined Pension Plan Years Ended December 31,
	2018			2017		2016
	(Dollars in millions)
Change in benefit obligation
Benefit obligation at beginning of year	$	13,064		13,244		13,287
Service cost	66			63		64
Interest cost	392			409		425
Plan amendments	—			—		2
Special termination benefits charge	15			—		13
Actuarial (gain) loss	(765		)	586		487
Benefits paid by company	—			—		—
Benefits paid from plan assets	(1,178		)	(1,238	)	(1,034	)
Benefit obligation at end of year	$	11,594		13,064		13,244

	Post-Retirement Benefit Plans Years Ended December 31,
	2018			2017		2016
	(Dollars in millions)
Change in benefit obligation
Benefit obligation at beginning of year	$	3,375		3,413		3,567
Service cost	18			18		19
Interest cost	97			100		111
Participant contributions	54			54		57
Direct subsidy receipts	8			7		5
Special termination benefits charge	—			—		3
Plan Amendment	(36		)	—		—
Actuarial (gain) loss	(224		)	112		(13	)
Benefits paid by company	(311		)	(298	)	(191	)
Benefits paid from plan assets	(4		)	(31	)	(145	)
Benefit obligation at end of year	$	2,977		3,375		3,413

Our aggregate benefit obligation as of December 31, 2018, 2017 and 2016 was $14.8 billion, $16.5 billion and $16.7 billion, respectively.

Plan Assets

We maintain plan assets for our Combined Pension Plan and certain post-retirement benefit plans. The following tables summarize the change in the fair value of plan assets for the Combined Pension Plan and post-retirement benefit plans:

	Combined Pension Plan Years Ended December 31,
	2018			2017		2016
	(Dollars in millions)
Change in plan assets
Fair value of plan assets at beginning of year	$	11,060		10,892		11,072
Return on plan assets	(349		)	1,306		754
Employer contributions	500			100		100
Benefits paid from plan assets	(1,178		)	(1,238	)	(1,034	)
Fair value of plan assets at end of year	$	10,033		11,060		10,892

	Post-Retirement Benefit Plans Years Ended December 31,
	2018			2017		2016
	(Dollars in millions)
Change in plan assets
Fair value of plan assets at beginning of year	$	23		53		193
Return on plan assets	(1		)	1		5
Benefits paid from plan assets	(4		)	(31	)	(145	)
Fair value of plan assets at end of year	$	18		23		53

The expected rate of return on plan assets is the long-term rate of return we expect to earn on the plans' assets, net of administrative expenses paid from plan assets. It is determined annually based on the strategic asset allocation and the long-term risk and return forecast for each asset class.

Combined Pension Plan: Our investment objective for the qualified pension plan assets is to achieve an attractive risk-adjusted return over time that will provide for the payment of benefits and minimize the risk of large losses. We employ a liability-aware investment strategy designed to reduce the volatility of pension assets relative to pension liabilities. This strategy is evaluated frequently and is expected to evolve over time with changes in the funded status and other factors. Approximately 31% of plan assets is targeted to long-duration investment grade bonds and interest rate sensitive derivatives and 29% is targeted to assets expected to outperform the liability with moderate funded status risk. Approximately 26% is targeted to public equities and 14% is targeted to private market investments. At the beginning of 2019, our expected annual long-term rate of return on pension assets before consideration of administrative expenses is assumed to be 7.0%. Projected PBGC (Pension Benefit Guaranty Corporation) premium rates reduce the annual long-term expected return net of administrative expenses to 6.5%.

The short term and long term interest crediting rates during 2018 for cash balance components of the Combined Pension Plan 2018 were 3.25% and 4.00%, respectively.

Post-Retirement Benefit Plans: Our investment objective for the post-retirement benefit plans' assets is to achieve an attractive risk-adjusted return and minimize the risk of large losses over the expected life of the assets. At the beginning of 2019, our expected annual long-term rate of return on post-retirement benefit plan assets is assumed to be 4.0%.

Permitted investments: Plan assets are managed consistent with the restrictions set forth by the Employee Retirement Income Security Act of 1974, as amended.

Derivative instruments: Derivative instruments are used to reduce risk as well as provide return. The gross notional exposure of the derivative instruments directly held by the pension benefit plan is shown below. The notional amount of the derivatives corresponds to market exposure but does not represent an actual cash investment. Our post-retirement plans were not invested in derivative instruments for the years ended December 31, 2018 or 2017.

	Gross Notional Exposure
	Combined Pension Plan
	Years Ended December 31,
	2018		2017
	(Dollars in millions)
Derivative instruments:
Exchange-traded U.S. equity futures	$	300	256
Exchange-traded Treasury and other interest rate futures	3,901		1,830
Interest rate swaps	83		137
Credit default swaps	66		100
Equity index swaps	—		1
Foreign exchange forwards	295		293
Options	192		259

Fair Value Measurements: Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between independent and knowledgeable parties who are willing and able to transact for an asset or liability at the measurement date. We use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value and then we rank the estimated values based on the reliability of the inputs used following the fair value hierarchy set forth by the FASB. For additional information on the fair value hierarchy, see Note 13—Fair Value of Financial Instruments.

At December 31, 2018, we used the following valuation techniques to measure fair value for assets. There were no changes to these methodologies during 2018:

• Level 1—Assets were valued using the closing price reported in the active market in which the individual security was traded.

• Level 2—Assets were valued using quoted prices in markets that are not active, broker dealer quotations, net asset value of shares held by the plans and other methods by which all significant inputs were observable at the measurement date.

• Level 3—Assets were valued using unobservable inputs in which little or no market data exists as reported by the respective institutions at the measurement date.

The tables below present the fair value of plan assets by category and the input levels used to determine those fair values at December 31, 2018. It is important to note that the asset allocations do not include market exposures that are gained with derivatives. Investments include dividend and interest receivables, pending trades and accrued expenses.

	Fair Value of Combined Pension Plan Assets at December 31, 2018
	Level 1		Level 2		Level 3	Total
	(Dollars in millions)
Investment grade bonds (a)	$	458	1,393		—	$	1,851
High yield bonds (b)	—		277		7	284
Emerging market bonds (c)	151		181		—	332
U.S. stocks (e)	764		2		2	768
Non-U.S. stocks (f)	601		—		—	601
Private debt (i)	—		—		15	15
Multi-asset strategies (l)	342		—		—	342
Derivatives (m)	7		(2	)	—	5
Cash equivalents and short-term investments (n)	3		907		—	910
Total investments, excluding investments valued at NAV	$	2,326	2,758		24	5,108
Investments valued at NAV						4,925
Total pension plan assets						$	10,033

	Fair Value of Post-Retirement Plan Assets at December 31, 2018
	Level 1		Level 2	Level 3	Total
	(Dollars in millions)
Total investments, excluding investments valued at NAV	$	—	—	—	—
Investments valued at NAV					18
Total post-retirement plan assets					$	18

The tables below present the fair value of plan assets by category and the input levels used to determine those fair values at December 31, 2017. It is important to note that the asset allocations do not include market exposures that are gained with derivatives. Investments include dividend and interest receivable, pending trades and accrued expenses.

	Fair Value of Combined Pension Plan Assets at December 31, 2017
	Level 1		Level 2	Level 3	Total
	(Dollars in millions)
Investment grade bonds (a)	$	432	1,315	—	$	1,747
High yield bonds (b)	—		575	7	582
Emerging market bonds (c)	217		219	1	437
U.S. stocks (e)	1,030		2	3	1,035
Non-U.S. stocks (f)	706		—	—	706
Private debt (i)	—		—	15	15
Multi-asset strategies (l)	440		—	—	440
Derivatives (m)	2		—	—	2
Cash equivalents and short-term investments (n)	—		476	1	477
Total investments, excluding investments valued at NAV	$	2,827	2,587	27	5,441
Investments valued at NAV					5,619
Total pension plan assets					$	11,060

	Fair Value of Post-Retirement Plan Assets at December 31, 2017
	Level 1		Level 2	Level 3	Total
	(Dollars in millions)
U.S. stocks (e)	1		—	—	1
Total investments, excluding investments valued at NAV	$	1	—	—	1
Investments valued at NAV					22
Total post-retirement plan assets					$	23

The table below presents the fair value of plan assets valued at NAV by category for our pension and post-retirement plans at December 31, 2018 and 2017.

	Fair Value of Plan Assets Valued at NAV
	Combined Pension Plan at December 31,			Post-Retirement Benefit Plans at December 31,
	2018		2017	2018	2017
	(Dollars in millions)
Investment grade bonds (a)	$	109	163	—	—
High yield bonds (b)	388		483	—	—
Emerging market bonds (c)	—		14	—	—
Diversified strategies (d)	—		538	—	—
U.S. stocks (e)	150		73	—	—
Non-U.S. stocks (f)	500		627	—	—
Emerging market stocks (g)	75		98	—	—
Private equity (h)	347		460	6	10
Private debt (i)	452		374	1	1
Market neutral hedge funds (j)	746		769	—	—
Directional hedge funds (j)	512		636	—	—
Real estate (k)	821		903	—	1
Multi-asset strategies (l)	763		424	—	—
Cash equivalents and short-term investments (n)	62		57	11	10
Total investments valued at NAV	$	4,925	5,619	18	22

The plans' assets are invested in various asset categories utilizing multiple strategies and investment managers. Interests in commingled funds are valued using the net asset value ("NAV") per unit of each fund. The NAV reported by the fund manager is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding. Commingled funds can be redeemed at NAV, generally within a year of the financial statement date. Investments in private funds, primarily limited partnerships, represent long-term commitments with a fixed maturity date and are also valued at NAV. The plan has unfunded commitments related to certain private fund investments, which in aggregate are not material to the plan. Valuation inputs for these private fund interests are generally based on assumptions and other information not observable in the market. The assumptions and valuation methodologies of the pricing vendors, account managers, fund managers and partnerships are monitored and evaluated for reasonableness. Below is an overview of the asset categories, the underlying strategies and valuation inputs used to value the assets in the preceding tables:

(a) Investment grade bonds represent investments in fixed income securities as well as commingled bond funds comprised of U.S. Treasury securities, agencies, corporate bonds, mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. Treasury securities are valued at the bid price reported in the active market in which the security is traded and are classified as Level 1. The valuation inputs of other investment grade bonds primarily utilize observable market information and are based on a spread to U.S. Treasury securities and consider yields available on comparable securities of issuers with similar credit ratings. The primary observable inputs include references to the new issue market for similar securities, the secondary trading markets and dealer quotes. Option adjusted spread models are utilized to evaluate securities such as asset backed securities that have early redemption features. These securities are classified as Level 2.

(b) High yield bonds represent investments in below investment grade fixed income securities as well as commingled high yield bond funds. The valuation inputs for the securities primarily utilize observable market information and are based on a spread to U.S. Treasury securities and consider yields available on comparable securities of issuers with similar credit ratings. These securities are primarily classified as Level 2. Securities whose valuation inputs are not based on observable market information are classified as Level 3.

(c) Emerging market bonds represent investments in securities issued by governments and other entities located in developing countries as well as registered mutual funds and commingled emerging market bond funds. The valuation inputs for the securities utilize observable market information and are primarily based on dealer quotes or a spread relative to the local government bonds. The registered mutual fund is classified as Level 1 while individual securities are primarily classified as Level 2. Securities whose valuation inputs are not based on observable market information are classified as Level 3.

(d) Diversified strategies represent an investment in a commingled fund that primarily has exposures to global government, corporate and inflation linked bonds, global stocks and commodities. This asset category includes investments in a registered mutual fund which is classified at Level 1. The valuation inputs utilize observable market information including published prices for exchange traded securities, bid prices for government bonds, and spreads and yields available for comparable fixed income securities with similar credit ratings.

(e) U.S. stocks represent investments in stocks of U.S. based companies as well as commingled U.S. stock funds. The valuation inputs for U.S. stocks are based on the last published price reported on the major stock market on which the securities are traded and are primarily classified as Level 1. Securities whose valuation inputs are not based on observable market information are classified as Level 3.

(f) Non-U.S. stocks represent investments in stocks of companies based in developed countries outside the U.S. as well as commingled funds. The valuation inputs for non-U.S. stocks are based on the last published price reported on the major stock market on which the securities are traded and are primarily classified as Level 1.

(g) Emerging market stocks represent investments in commingled funds comprised of stocks of companies located in developing markets. The commingled funds are valued at NAV based on the market value of the underlying investments using the same valuation inputs described previously for individual stocks.

(h) Private equity represents non-public investments in domestic and foreign buy out and venture capital funds. Private equity funds are primarily structured as limited partnerships and are valued according to the valuation policy of each partnership, subject to prevailing accounting and other regulatory guidelines. The partnerships are valued at NAV using valuation methodologies that consider a range of factors, including but not limited to the price at which investments were acquired, the nature of the investments, market conditions, trading values on comparable public securities, current and projected operating performance, and financing transactions subsequent to the acquisition of the investments. These valuation methodologies involve a significant degree of judgment.

(i) Private debt represents non-public investments in distressed or mezzanine debt funds and pension group insurance contracts. Pension group insurance contracts are valued based on actuarial assumptions, and are classified as Level 3. Mezzanine debt instruments are debt instruments that are subordinated to other debt issues and may include embedded equity instruments such as warrants. Private debt funds are primarily structured as limited partnerships and are valued at NAV according to the valuation policy of each partnership, subject to prevailing accounting and other regulatory guidelines. The valuation of underlying fund investments are based on factors including the issuer's current and projected credit worthiness, the security's terms, reference to the securities of comparable companies, and other market factors. These valuation methodologies involve a significant degree of judgment.

(j) Market neutral hedge funds hold investments in a diversified mix of instruments that are intended in combination to exhibit low correlations to market fluctuations. These investments are typically combined with futures to achieve uncorrelated excess returns over various markets. Directional hedge funds—This asset category represents investments that may exhibit somewhat higher correlations to market fluctuations than the market neutral hedge funds. Investments in hedge funds include both direct investments and investments in diversified funds of funds. Hedge funds are valued at NAV based on the market value of the underlying investments which include publicly traded equity and fixed income securities and privately negotiated debt securities. The hedge funds are valued by third party administrators using the same valuation inputs previously described.

(k) Real estate represents investments in commingled funds and limited partnerships that invest in a diversified portfolio of real estate properties. These investments are valued at NAV according to the valuation policy of each fund or partnership, subject to prevailing accounting and other regulatory guidelines. The valuation inputs of the underlying properties are generally based on third-party appraisals that use comparable sales or a projection of future cash flows to determine fair value.

(l) Multi-asset strategies represent broadly diversified strategies that have the flexibility to tactically adjust exposures to different asset classes through time. This asset category includes investments in a registered mutual fund which is classified as Level 1 and a commingled fund which is valued at NAV based on the market value of the underlying investments.

(m) Derivatives include exchange traded futures contracts which are classified as Level 1, as well as privately negotiated over the counter swaps and options that are valued based on the change in interest rates or a specific market index and are classified as Level 2. The market values represent gains or losses that occur due to fluctuations in interest rates, foreign currency exchange rates, security prices, or other factors.

(n) Cash equivalents and short-term investments represent investments that are used in conjunction with derivatives positions or are used to provide liquidity for the payment of benefits or other purposes. The valuation inputs of securities are based on a spread to U.S. Treasury Bills, the Federal Funds Rate, or London Interbank Offered Rate and consider yields available on comparable securities of issuers with similar credit ratings and are primarily classified as Level 2. The commingled funds are valued at NAV based on the market value of the underlying investments using the same valuation inputs described above.

Concentrations of Risk: Investments, in general, are exposed to various risks, such as significant world events, interest rate, credit, foreign currency and overall market volatility risk. These risks are managed by broadly diversifying assets across numerous asset classes and strategies with differing expected returns, volatilities and correlations. Risk is also broadly diversified across numerous market sectors and individual companies. Financial instruments that potentially subject the plans to concentrations of counterparty risk consist principally of investment contracts with high quality financial institutions. These investment contracts are typically collateralized obligations and/or are actively managed, limiting the amount of counterparty exposure to any one financial institution. Although the investments are well diversified, the value of plan assets could change materially depending upon the overall market volatility, which could affect the funded status of the plans.

The table below presents a rollforward of the pension plan assets valued using Level 3 inputs:

	Combined Pension Plan Assets Valued Using Level 3 Inputs
	High Yield Bonds			Emerging Market Bonds		U.S. Stocks		Private Debt	Cash		Total
	(Dollars in millions)
Balance at December 31, 2016	$	11		—		—		—	—		11
Net transfers	(1		)	—		—		14	—		13
Acquisitions	2			1		—		1	1		5
Dispositions	(5		)	—		3		—	—		(2	)
Balance at December 31, 2017	7			1		3		15	1		27
Dispositions	—			—		(2	)	—	(1	)	(3	)
Actual return on plan assets	—			(1	)	1		—	—		—
Balance at December 31, 2018	$	7		—		2		15	—		24

Certain gains and losses are allocated between assets sold during the year and assets still held at year-end based on transactions and changes in valuations that occurred during the year. These allocations also impact our calculation of net acquisitions and dispositions.

For the year ended December 31, 2018, the investment program produced actual losses on qualified pension and post-retirement plan assets of $350 million as compared to expected returns of $686 million for a difference of $1.0 billion. For the year ended December 31, 2017, the investment program produced actual gains on qualified pension and post-retirement plan assets of $1.3 billion as compared to the expected returns of $668 million for a difference of $639 million. The short-term annual returns on plan assets will almost always be different from the expected long-term returns and the plans could experience net gains or losses, due primarily to the volatility occurring in the financial markets during any given year.

Unfunded Status

The following table presents the unfunded status of the Combined Pension Plan and post-retirement benefit plans:

	Combined Pension Plan					Post-Retirement Benefit Plans
	Years Ended December 31,					Years Ended December 31,
	2018			2017		2018		2017
	(Dollars in millions)
Benefit obligation	$	(11,594	)	(13,064	)	(2,977	)	(3,375	)
Fair value of plan assets	10,033			11,060		18		23
Unfunded status	(1,561		)	(2,004	)	(2,959	)	(3,352	)
Current portion of unfunded status	—			—		(252	)	(262	)
Non-current portion of unfunded status	$	(1,561	)	(2,004	)	(2,707	)	(3,090	)

The current portion of our post-retirement benefit obligations is recorded on our consolidated balance sheets in accrued expenses and other current liabilities-salaries and benefits.

Accumulated Other Comprehensive Loss-Recognition and Deferrals

The following table presents cumulative items not recognized as a component of net periodic benefits expense as of December 31, 2017, items recognized as a component of net periodic benefits expense in 2018, additional items deferred during 2018 and cumulative items not recognized as a component of net periodic benefits expense as of December 31, 2018. The items not recognized as a component of net periodic benefits expense have been recorded on our consolidated balance sheets in accumulated other comprehensive loss:

	As of and for the Years Ended December 31,
	2017			Recognition of Net Periodic Benefits Expense		Deferrals		Net Change in AOCL		2018
	(Dollars in millions)
Accumulated other comprehensive loss:
Pension plans:
Net actuarial (loss) gain	$	(2,892	)	179		(260	)	(81	)	(2,973	)
Prior service benefit (cost)	54			(8	)	—		(8	)	46
Deferred income tax benefit (expense)(1)	1,107			(418	)	65		(353	)	754
Total pension plans	(1,731		)	(247	)	(195	)	(442	)	(2,173	)
Post-retirement benefit plans:
Net actuarial (loss) gain	(250		)	—		257		257		7
Prior service (cost) benefit	(107		)	20		—		20		(87	)
Deferred income tax benefit (expense)(2)	122			(37	)	(63	)	(100	)	22
Total post-retirement benefit plans	(235		)	(17	)	194		177		(58	)
Total accumulated other comprehensive loss	$	(1,966	)	(264	)	(1	)	(265	)	(2,231	)

_______________________________________________________________________________

(1) Amounts currently recognized in net periodic benefits expense include $375 million of benefit arising from the adoption of ASU 2018-02. See Note 1— Background and Summary of Significant Accounting Policies for further detail.

(2) Amounts currently recognized in net periodic benefits expense include $32 million arising from the adoption of ASU 2018-02. See Note 1— Background and Summary of Significant Accounting Policies for further detail.

The following table presents cumulative items not recognized as a component of net periodic benefits expense as of December 31, 2016, items recognized as a component of net periodic benefits expense in 2017, additional items deferred during 2017 and cumulative items not recognized as a component of net periodic benefits expense as of December 31, 2016. The items not recognized as a component of net periodic benefits expense have been recorded on our consolidated balance sheets in accumulated other comprehensive loss:

	As of and for the Years Ended December 31,
	2016			Recognition of Net Periodic Benefits Expense		Deferrals		Net Change in AOCL		2017
	(Dollars in millions)
Accumulated other comprehensive loss:
Pension plans:
Net actuarial (loss) gain	$	(3,148	)	205		51		256		(2,892	)
Prior service benefit (cost)	62			(8	)	—		(8	)	54
Deferred income tax benefit (expense)	1,191			(72	)	(12	)	(84	)	1,107
Total pension plans	(1,895		)	125		39		164		(1,731	)
Post-retirement benefit plans:
Net actuarial (loss) gain	(137		)	—		(113	)	(113	)	(250	)
Prior service (cost) benefit	(127		)	20		—		20		(107	)
Deferred income tax benefit (expense)	102			(7	)	27		20		122
Total post-retirement benefit plans	(162		)	13		(86	)	(73	)	(235	)
Total accumulated other comprehensive loss	$	(2,057	)	138		(47	)	91		(1,966	)

Medicare Prescription Drug, Improvement and Modernization Act of 2003

We sponsor post-retirement health care plans with several benefit options that provide prescription drug benefits that we deem actuarially equivalent to or exceeding Medicare Part D. We recognize the impact of the federal subsidy received under the Medicare Prescription Drug, Improvement and Modernization Act of 2003 in the calculation of our post-retirement benefit obligation and net periodic post-retirement benefit expense.

Other Benefit Plans

Health Care and Life Insurance

We provide health care and life insurance benefits to essentially all of our active employees. We are largely self-funded for the cost of the health care plan. Our health care benefit expense for current employees was $434 million, $341 million and $399 million for the years ended December 31, 2018, 2017 and 2016, respectively. Union-represented employee benefits are based on negotiated collective bargaining agreements. Employees contributed $142 million, $128 million and $127 million for the years ended December 31, 2018, 2017 and 2016, respectively. Our group basic life insurance plans are fully insured and the premiums are paid by us.

401(k) Plans

We sponsor qualified defined contribution plans covering substantially all of our employees. Under these plans, employees may contribute a percentage of their annual compensation up to certain maximums, as defined by the plans and by the Internal Revenue Service ("IRS"). Currently, we match a percentage of employee contributions in cash. At December 31, 2018 and 2017, the assets of the plans included approximately 12 million shares and 7 million shares, respectively, of our common stock all of which were the result of the combination of previous employer match and participant directed contributions. We recognized expenses related to these plans of $93 million, $77 million and $79 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Upon the November 1, 2017 closing of our acquisition of Level 3, we assumed various defined contribution plans covering substantially all eligible employees of Level 3. On December 31, 2017, we merged the Level 3 Communications, Inc. 401(k) Plan into the CenturyLink Dollar & Sense 401(k) Plan. The resulting plan covers substantially all eligible non-represented employees of the combined company in the US.

Deferred Compensation Plans

We sponsored non-qualified deferred compensation plans for various groups that included certain of our current and former highly compensated employees. The value of liabilities related to these plans was not significant.