Employee Retirement Plans

12 Months Ended

Dec. 31, 2019

Employee Retirement Plans [Abstract]

12.Employee Retirement Plans

Defined Benefit Plans

We have defined benefit pension plans covering certain domestic and international employees. Our funding policy has been to contribute, as necessary, an amount exceeding the minimum requirements in order to achieve the Company’s long-term funding targets. In 2019, we made no voluntary contributions to our domestic defined benefit pension plan and cash contributions of $2 million to our international pension plans. In 2018, we made voluntary cash contributions to our domestic defined benefit pension plan and our international pension plans in the amount of $105 million and $12 million, respectively. During 2020, we anticipate making cash contributions of $85 million to our U.S. qualified pension plan and $54 million to our international pension plans.

Corning offers postretirement plans that provide health care and life insurance benefits for retirees and eligible dependents. Certain employees may become eligible for such postretirement benefits upon reaching retirement age and service requirements. For current retirees (including surviving spouses) and active employees eligible for the salaried retiree medical program, we have placed a “cap” on the amount we will contribute toward retiree medical coverage in the future. The cap is equal to 120% of our 2005 contributions toward retiree medical benefits. Once our contributions toward salaried retiree medical costs reach this cap, impacted retirees will have to pay the excess amount in addition to their regular contributions for coverage. This cap was attained for post-65 retirees in 2008 and attained for pre-65 retirees in 2010. Furthermore, employees hired or rehired on or after January 1, 2007 will be eligible for Corning retiree medical benefits upon retirement; however, these employees will pay 100% of the cost.

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12.Employee Retirement Plans (continued)

Obligations and Funded Status

The change in benefit obligation and funded status of our employee retirement plans are as follows (in millions):




	Total ‎pension benefits				Domestic ‎pension benefits				International ‎pension benefits
December 31,	2019		2018		2019		2018		2019		2018

Change in benefit obligation
Benefit obligation at beginning of year	$	4,003	$	4,188	$	3,358	$	3,522	$	645	$	666
Service cost		101		103		76		78		25		25
Interest cost		148		132		133		116		15		16
Plan participants’ contributions		1		1		1		1
Plan amendments				21				20				1
Actuarial loss (gain)		533		(210)		462		(200)		71		(10)
Other		6		(1)		6						(1)
Benefits paid		(214)		(202)		(180)		(179)		(34)		(23)
Foreign currency translation		3		(29)						3		(29)
Benefit obligation at end of year	$	4,581	$	4,003	$	3,856	$	3,358	$	725	$	645

Change in plan assets
Fair value of plan assets at beginning of year	$	3,239	$	3,539	$	2,742	$	3,004	$	497	$	535
Actual gain (loss) on plan assets		615		(201)		576		(202)		39		1
Employer contributions		22		135		14		118		8		17
Plan participants’ contributions		1		1		1		1
Benefits paid		(214)		(208)		(180)		(179)		(34)		(29)
Foreign currency translation		8		(27)						8		(27)
Fair value of plan assets at end of year	$	3,671	$	3,239	$	3,153	$	2,742	$	518	$	497

Funded status at end of year
Fair value of plan assets	$	3,671	$	3,239	$	3,153	$	2,742	$	518	$	497
Benefit obligations		(4,581)		(4,003)		(3,856)		(3,358)		(725)		(645)
Funded status of plans	$	(910)	$	(764)	$	(703)	$	(616)	$	(207)	$	(148)

Amounts recognized in the consolidated ‎ balance sheets consist of:
Noncurrent asset	$	82	$	81					$	82	$	81
Current liability		(20)		(29)	$	(13)	$	(13)		(7)		(16)
Noncurrent liability		(972)		(816)		(690)		(603)		(282)		(213)
Recognized liability	$	(910)	$	(764)	$	(703)	$	(616)	$	(207)	$	(148)

Amounts recognized in accumulated other ‎ comprehensive income consist of:
Net actuarial loss	$	338	$	338	$	306	$	324	$	32	$	14
Prior service cost (credit)		29		36		30		37		(1)		(1)
Amount recognized at end of year	$	367	$	374	$	336	$	361	$	31	$	13

The accumulated benefit obligation for defined benefit pension plans was $4.3 billion and $3.8 billion at December 31, 2019 and 2018, respectively.

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12.Employee Retirement Plans (continued)



	Postretirement benefits
December 31,	2019		2018

Change in benefit obligation
Benefit obligation at beginning of year	$	699	$	789
Service cost		9		10
Interest cost		27		24
Plan participants’ contributions		8		8
Plan amendments		5		(40)
Actuarial loss (gain)		6		(48)
Other		1
Benefits paid		(50)		(46)
Medicare subsidy received				2
Benefit obligation at end of year	$	705	$	699

Funded status at end of year
Fair value of plan assets
Benefit obligations	$	(705)	$	(699)
Funded status of plans	$	(705)	$	(699)

Amounts recognized in the consolidated balance sheets consist of:
Current liability	$	(34)	$	(37)
Noncurrent liability		(671)		(662)
Recognized liability	$	(705)	$	(699)

Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial loss	$	28	$	21
Prior service credit		(32)		(44)
Amount recognized at end of year	$	(4)	$	(23)

The following information is presented for pension plans where the projected benefit obligation exceeded the fair value of plan assets (in millions):



	December 31,
	2019		2018

Projected benefit obligation	$	4,298	$	3,754
Fair value of plan assets	$	3,305	$	2,910

In 2019 and 2018, the fair value of plan assets exceeded the projected benefit obligation for the United Kingdom pension plan.

12.Employee Retirement Plans (continued)

The following information is presented for pension plans where the accumulated benefit obligation exceeded the fair value of plan assets (in millions):



	December 31,
	2019		2018

Accumulated benefit obligation	$	3,904	$	3,410
Fair value of plan assets	$	3,178	$	2,766

In 2019, the fair value of plan assets exceeded the accumulated benefit obligation for the United Kingdom and South Korea pension plans. In 2018, the fair value of plan assets exceeded the accumulated benefit obligation for the United Kingdom, South Korea and one of the Taiwan pension plans.

The components of net periodic benefit cost for our employee retirement plans in the following tables (in millions):



	Total pension benefits						Domestic pension benefits						International pension benefits
December 31,	2019		2018		2017		2019		2018		2017		2019		2018		2017

Service cost	$	101	$	103	$	92	$	76	$	78	$	66	$	25	$	25	$	26
Interest cost		148		132		126		133		116		112		15		16		14
Expected return on plan assets		(171)		(189)		(174)		(161)		(178)		(163)		(10)		(11)		(11)
Amortization of prior service ‎ cost (credit)		6		6		5		7		7		6		(1)		(1)		(1)
Recognition of actuarial loss		90		145		21		66		143		18		24		2		3
Total net periodic benefit expense	$	174	$	197	$	70	$	121	$	166	$	39	$	53	$	31	$	31
Settlement charge				(1)												(1)
Special termination benefit charge		6						6
Total expense	$	180	$	196	$	70	$	127	$	166	$	39	$	53	$	30	$	31

Other changes in plan assets and ‎ benefit obligations recognized ‎ in other comprehensive (income) loss:
Settlements			$	1											$	1
Current year actuarial loss (gain)	$	88		180	$	(30)	$	47	$	182	$	(8)	$	41		(2)	$	(22)
Amortization of actuarial loss		(90)		(145)		(21)		(66)		(143)		(18)		(24)		(2)		(3)
Current year prior service cost				20						20
Amortization of prior service ‎ (cost) credit		(6)		(6)		(5)		(7)		(7)		(6)		1		1		1
Total recognized in other ‎ comprehensive (income) loss	$	(8)	$	50	$	(56)	$	(26)	$	52	$	(32)	$	18	$	(2)	$	(24)

12.Employee Retirement Plans (continued)



	Postretirement benefits
	2019		2018		2017

Service cost	$	9	$	10	$	10
Interest cost		27		24		26
Amortization of net gain		(7)				(1)
Amortization of prior service credit				(7)		(3)
Recognition of actuarial gain		(1)
Total net periodic benefit expense	$	28	$	27	$	32
Special termination benefit charge		1
Total expense	$	29	$	27	$	32

Other changes in plan assets and benefit obligations ‎ recognized in other comprehensive loss (income):
Current year actuarial loss (gain)	$	6	$	(47)	$	17
Amortization of actuarial gain		1				1
Current year prior service cost (credit)		5		(40)
Amortization of prior service credit		7		7		3
Total recognized in other comprehensive loss (income)	$	19	$	(80)	$	21

The Company expects to recognize $5 million of net prior service cost as a component of net periodic pension cost in 2020 for its defined benefit pension plans. The Company expects to recognize $1 million of net actuarial loss and $6 million of net prior service credit as components of net periodic postretirement benefit cost in 2020.

Corning uses a hypothetical yield curve and associated spot rate curve to discount the plan’s projected benefit payments. Once the present value of projected benefit payments is calculated, the suggested discount rate is equal to the level rate that results in the same present value. The yield curve is based on actual high-quality corporate bonds across the full maturity spectrum, which also includes private placements as well as Eurobonds that are denominated in U.S. currency. The curve is developed from yields on hundreds of bonds from four grading sources, Moody’s, S&P, Fitch and the Dominion Bond Rating Service. A bond will be included if at least half of the grades from these sources are Aa, non-callable bonds. The very highest 10% yields and the lowest 40% yields are excluded from the curve to eliminate outliers in the bond population.

Mortality is one of the key assumptions used in valuing liabilities of retirement plans. It is used to assign a probability of payment for future plan benefits that are contingent upon participants’ survival. To make this assumption, benefit plan sponsors typically use a base mortality table and an improvement scale that adjusts the rates of mortality for future anticipated changes to historical death rates.

Corning last updated the adjustment factors applied to its base mortality assumption (RP-2014 white collar table and RP-2014 blue collar table for non-union and union participants respectively) to value its U.S. benefit plan obligations as of December 31, 2017. In addition, Corning also updated to the MP-2017 projection scale at year-end 2017. As the Society of Actuaries publishes additional mortality improvement scales (i.e. MP-2019) and base mortality tables (i.e. Pri-2012), each year Corning has considered these revised schedules in setting its mortality assumptions. As of December 31, 2019, Corning decided to continue application of both its future improvement scale to the MP-2017 scale and base mortality assumptions to the RP-2014 tables.

Furthermore, Corning updated for the year ended 2017 the mortality assumption applied to disabled participants to be the RP-2014 disabled mortality base table with future improvements using MP-2017. These assumptions were unchanged for the year ended 2019.

Measurement of postretirement benefit expense is based on assumptions used to value the postretirement benefit obligation at the beginning of the year.

12.Employee Retirement Plans (continued)

The weighted-average assumptions used to determine benefit obligations at December 31 were as follows:



	Pension benefits
	Domestic						International						Postretirement benefits
	2019		2018		2017		2019		2018		2017		2019		2018		2017
Discount rate	3.28	%	4.28	%	3.58	%	1.34	%	1.96	%	1.93	%	3.41	%	4.33	%	3.63	%
Rate of compensation increase	3.50	%	3.50	%	3.50	%	2.96	%	2.96	%	2.81	%

The weighted-average assumptions used to determine net periodic benefit cost for years ended December 31 were as follows:



	Pension benefits
	Domestic						International						Postretirement benefits
	2019		2018		2017		2019		2018		2017		2019		2018		2017
Discount rate	4.28	%	3.58	%	4.01	%	1.96	%	1.93	%	2.29	%	4.33	%	3.63	%	4.06	%
Expected return on plan assets	6.00	%	6.00	%	6.00	%	2.01	%	2.13	%	3.97	%
Rate of compensation increase	3.50	%	3.50	%	3.50	%	2.96	%	2.81	%	2.06	%

Expected long-term returns on plan assets is based on long-term expectations for future returns informed by historical data in conjunction with the investment policies further described within “Plan Assets” below. Reasonableness of the results is tested using models provided by the plan actuaries.



Assumed health care trend rates at December 31	2019	2018
Health care cost trend rate assumed for next year	6.75%	7.00%
Rate that the cost trend rate gradually declines to	5%	5%
Year that the rate reaches the ultimate trend rate	2027	2027

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects (in millions):



	One-percentage-point ‎increase		One-percentage-point ‎decrease
Effect on annual total of service and interest cost (credit)	$	2	$	(2)
Effect on postretirement benefit obligation	$	42	$	(35)

Plan Assets

The Company’s primary objective is to ensure the plan has sufficient return on assets to fund the plan’s current and future obligations as they become due. Investments are primarily made in public securities to ensure adequate liquidity to support benefit payments. Domestic and international stocks provide diversification to the portfolio. The target allocation range for global equity investment is 20%-25% which includes large, mid and small cap companies and investments in both developed and emerging markets. The target allocation for bond investments is 60%, which predominately includes corporate bonds. Long duration fixed income assets are utilized to mitigate the sensitivity of funding ratios to changes in interest rates. The target allocation range for non-public investments in private equity and real estate is 5%-15%, and is used to enhance returns and offer additional asset diversification. The target allocation range for commodities is 0%-5%, which provides some inflation protection to the portfolio.

12.Employee Retirement Plans (continued)

The following tables provide fair value measurement information for the Company’s major categories; Level 1 (quoted market prices in active markets for identical assets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) of our domestic defined benefit plan assets:



	December 31, 2019								December 31, 2018
(in millions)	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Equity securities:
U.S. companies	$	494	$	2	$	492			$	363	$	2	$	361
International companies		387				387				324				324

Fixed income:
U.S. corporate bonds		2,017		226		1,791				1,626		183		1,443

Private equity (1)		64					$	64		82					$	82
Real estate (2)		145						145		148						148
Cash equivalents		46		46						199		199
Total	$	3,153	$	274	$	2,670	$	209	$	2,742	$	384	$	2,128	$	230

(1)This category includes venture capital, leverage buyouts and distressed debt limited partnerships invested primarily in U.S. companies. The inputs are valued by discounted cash flow analysis and comparable sale analysis.

(2)This category includes industrial, office, apartments, hotels, infrastructure and retail investments which are limited partnerships predominately in the U.S. The inputs are valued by discounted cash flow analysis; comparable sale analysis and periodic external appraisals.



	December 31, 2019								December 31, 2018
(in millions)	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Fixed income:
International fixed income	$	455	$	373	$	82			$	428	$	361	$	67

Insurance contracts		2					$	2		2					$	2
Mortgages		21						21		22						22
Cash equivalents		40		40						45		45
Total	$	518	$	413	$	82	$	23	$	497	$	406	$	67	$	24

The following table sets forth a summary of changes in the fair value of the defined benefit plans Level 3 assets:



	Level 3 assets – Domestic				Level 3 assets – International
(in millions)	Private ‎equity		Real ‎estate		Mortgages		Insurance ‎contracts

Balance at December 31, 2017	$	105	$	147	$	16	$	2

Actual return on plan assets relating to assets ‎ still held at the reporting date		15		9
Transfers in or out of level 3		(38)		(8)		6

Balance at December 31, 2018	$	82	$	148	$	22	$	2

Actual return on plan assets relating to assets ‎ still held at the reporting date				2
Transfers in or out of level 3		(18)		(5)		(1)
Balance at December 31, 2019	$	64	$	145	$	21	$	2

12.Employee Retirement Plans (continued)

Credit Risk

64% of domestic plan assets are invested in long duration bonds. The average rating for these bonds is A-. These bonds are subject to credit risk, such that a decline in credit ratings for the underlying companies, countries or assets (for asset-backed securities) would result in a decline in the value of the bonds. These bonds are also subject to default risk.

Currency Risk

12% of domestic assets are valued in non-U.S. dollar denominated investments that are subject to currency fluctuations. The value of these securities will decline if the U.S. dollar increases in value relative to the value of the currencies in which these investments are denominated.

Liquidity Risk

7% of the domestic securities are invested in Level 3 securities. These are long-term investments in private equity and private real estate investments that may not mature or be sellable in the near-term without significant loss.

At December 31, 2019 and 2018, the amount of Corning common stock included in equity securities was not significant.

Cash Flow Data

The following reflects the gross benefit payments that are expected to be paid for our domestic and international defined benefit pension plans and the postretirement medical and life plans (in millions):



	Expected benefit payments
	Domestic ‎pension ‎benefits		International ‎pension ‎benefits		Postretirement ‎benefits
2020	$	207	$	25	$	34
2021	$	214	$	33	$	37
2022	$	223	$	30	$	37
2023	$	233	$	30	$	37
2024	$	239	$	34	$	37
2025-2029	$	1,299	$	210	$	190

Other Benefit Plans

We offer defined contribution plans covering employees meeting certain eligibility requirements. Total consolidated defined contribution plan expense was $108 million, $67 million and $60 million for the years ended December 31, 2019, 2018 and 2017, respectively.