Pension, Other Postretirement Benefits and Savings Plans

We provide employees with defined benefit pension or defined contribution savings plans. Our hourly U.S. pension plans are frozen and provide benefits based on length of service. The principal salaried U.S. pension plans are frozen and provide benefits based on final five-year average earnings formulas. Salaried employees who made voluntary contributions to these plans receive higher benefits. We also provide certain U.S. employees and employees at certain non-U.S. subsidiaries with health care benefits or life insurance benefits upon retirement. Substantial portions of the health care benefits for U.S. salaried retirees are not insured and are funded from operations.

During 2018, we recognized settlement charges of $13 million in Other (Income) Expense for our frozen U.K. pension plan. These settlement charges related primarily to an offer of lump sum payments over a limited time during 2018 to non-retiree participants of the plan. Lump sum payments of $103 million, primarily related to this offer, were made from existing plan assets in 2018. As a result, total lump sum payments related to this plan exceeded annual interest cost for 2018.

During 2018, we recognized settlement charges of $8 million in Other (Income) Expense related to certain of our U.S. pension plans. The settlement charges resulted from total lump sum payments exceeding annual service and interest cost for the applicable plans.

During 2018, we increased the obligation for our U.K. pension plan by $13 million to recognize the estimated impact to our plan from an October 2018 court ruling, involving a plan with similar features to ours that was sponsored by another company, that required equal guaranteed minimum pension benefits for males and females. The increase was recognized in AOCL as prior service cost from plan amendments. The actual impact to our U.K. pension plan is still subject to the finalization of plan amendments in response to the court ruling and potential future judicial decisions.

During 2018, the Brazil pension regulator approved our plan to replace certain benefits in our Brazil retiree medical plan with an increase in benefits in our Brazil pension plan. The changes are expected to be effective in the first quarter of 2019 and resulted in an increase to our pension obligation of $16 million and a decrease in our other postretirement benefits obligation of $14 million at December 31, 2018. The increase to the pension obligation and decrease to the other postretirement benefits obligation were recognized in AOCL as prior service cost and prior service credit, respectively.

During 2017, we recognized settlement charges of $32 million, primarily related to our frozen salaried U.S. pension plan. The settlement charges resulted from total lump sum benefit payments exceeding annual interest cost. Of the total settlement charges, $19 million was recorded in Other (Income) Expense and $13 million was included in rationalization charges for employees who terminated service as a result of ongoing rationalization plans.

During the second quarter of 2016, annuities were purchased from existing plan assets to fully settle $41 million in obligations of a separate pension plan in the U.K. which resulted in a settlement charge of $14 million recorded in Other (Income) Expense.

Total benefits cost (credit) and amounts recognized in other comprehensive (income) loss follows:



	Pension Plans
	U.S.									Non-U.S.									Other Postretirement Benefits
(In millions)	2018			2017			2016			2018			2017			2016			2018			2017			2016
Benefits cost (credit):
Service cost	$	4		$	4		$	5		$	28		$	31		$	29		$	3		$	4		$	3
Interest cost	157			160			164			69			71			80			12			13			12
Expected return on plan assets	(219		)	(241		)	(255		)	(70		)	(80		)	(88		)	—			(1		)	—
Amortization of prior service credit	—			—			—			—			—			—			(8		)	(29		)	(45		)
Amortization of net losses	112			111			109			29			32			27			4			6			5
Net periodic cost (credit)	54			34			23			56			54			48			11			(7		)	(25		)
Net curtailments/settlements/termination benefits	8			29			—			13			3			16			—			—			2
Total benefits cost (credit)	$	62		$	63		$	23		$	69		$	57		$	64		$	11		$	(7	)	$	(23	)
Recognized in other comprehensive (income) loss before tax and minority:
Prior service cost (credit) from plan amendments	$	—		$	—		$	—		$	31		$	3		$	—		$	(16	)	$	3		$	—
Increase (decrease) in net actuarial losses	14			128			81			(18		)	25			35			(14		)	(15		)	(1		)
Amortization of prior service credit in net periodic cost	—			—			—			—			—			—			8			29			45
Amortization of net losses in net periodic cost	(112		)	(111		)	(109		)	(30		)	(29		)	(27		)	(5		)	(6		)	(5		)
Immediate recognition of prior service cost and unrecognized gains and losses due to curtailments, settlements, and divestitures	(11		)	(29		)	—			(14		)	(12		)	(17		)	—			—			—
Total recognized in other comprehensive (income) loss before tax and minority	(109		)	(12		)	(28		)	(31		)	(13		)	(9		)	(27		)	11			39
Total recognized in total benefits cost (credit) and other comprehensive (income) loss before tax and minority	$	(47	)	$	51		$	(5	)	$	38		$	44		$	55		$	(16	)	$	4		$	16

Service cost is recorded in CGS or SAG. Other components of net periodic cost (credit) are recorded in Other (Income) Expense. Net curtailments, settlements and termination benefits are recorded in Other (Income) Expense or Rationalizations if related to a rationalization plan.

We use the fair value of pension assets in the calculation of pension expense for all plans.

Total benefits cost (credit) for our other postretirement benefits was $4 million, $(17) million and $(31) million for our U.S. plans in 2018, 2017 and 2016, respectively, and $7 million, $10 million and $8 million for our non-U.S. plans in 2018, 2017 and 2016, respectively.

The estimated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from AOCL into benefits cost in 2019 is $114 million and $0 million, respectively, for our U.S. plans and $29 million and $2 million, respectively, for our non-U.S. plans.

The estimated prior service credit and net actuarial loss for the other postretirement benefit plans that will be amortized from AOCL into benefits cost in 2019 are a benefit of $9 million and expense of $4 million, respectively.

The Medicare Prescription Drug Improvement and Modernization Act provides plan sponsors a federal subsidy for certain qualifying prescription drug benefits covered under the sponsor’s postretirement health care plans. Our other postretirement benefits cost is presented net of this subsidy, which is approximately $1 million annually.

The change in benefit obligation and plan assets for 2018 and 2017 and the amounts recognized in our Consolidated Balance Sheet at December 31, 2018 and 2017 are as follows:



	Pension Plans
	U.S.						Non-U.S.						Other Postretirement Benefits
(In millions)	2018			2017			2018			2017			2018			2017
Change in benefit obligation:
Beginning balance	$	(5,331	)	$	(5,285	)	$	(3,109	)	$	(2,863	)	$	(286	)	$	(294	)
Service cost — benefits earned	(4		)	(4		)	(28		)	(31		)	(3		)	(4		)
Interest cost	(157		)	(160		)	(69		)	(71		)	(12		)	(13		)
Plan amendments	—			—			(29		)	(3		)	14			(3		)
Actuarial gain (loss)	315			(303		)	40			(29		)	19			15
Participant contributions	—			—			(2		)	(2		)	(13		)	(14		)
Curtailments/settlements/termination benefits	25			55			113			21			—			—
Foreign currency translation	—			—			177			(280		)	15			(9		)
Benefit payments	418			366			133			149			32			36
Ending balance	$	(4,734	)	$	(5,331	)	$	(2,774	)	$	(3,109	)	$	(234	)	$	(286	)
Change in plan assets:
Beginning balance	$	4,978		$	4,972		$	2,806		$	2,507		$	4		$	4
Actual return on plan assets	(110		)	417			4			146			—			—
Company contributions to plan assets	—			—			36			56			2			2
Cash funding of direct participant payments	17			10			21			24			16			20
Participant contributions	—			—			2			2			13			14
Settlements	(22		)	(55		)	(112		)	(11		)	—			—
Foreign currency translation	—			—			(160		)	231			—			—
Benefit payments	(418		)	(366		)	(133		)	(149		)	(32		)	(36		)
Ending balance	$	4,445		$	4,978		$	2,464		$	2,806		$	3		$	4
Funded status at end of year	$	(289	)	$	(353	)	$	(310	)	$	(303	)	$	(231	)	$	(282	)

Other postretirement benefits unfunded status was $112 million and $132 million for our U.S. plans at December 31, 2018 and 2017, respectively, and $119 million and $150 million for our non-U.S. plans at December 31, 2018 and 2017, respectively.

The funded status recognized in the Consolidated Balance Sheets consists of:



	Pension Plans
	U.S.						Non-U.S.						Other Postretirement Benefits
(In millions)	2018			2017			2018			2017			2018			2017
Noncurrent assets	$	—		$	—		$	325		$	349		$	—		$	—
Current liabilities	(20		)	(16		)	(20		)	(21		)	(17		)	(20		)
Noncurrent liabilities	(269		)	(337		)	(615		)	(631		)	(214		)	(262		)
Net amount recognized	$	(289	)	$	(353	)	$	(310	)	$	(303	)	$	(231	)	$	(282	)

The amounts recognized in AOCL, net of tax, consist of:



	Pension Plans
	U.S.						Non-U.S.						Other Postretirement Benefits
(In millions)	2018			2017			2018			2017			2018			2017
Prior service (credit) cost	$	(3	)	$	(4	)	$	31		$	4		$	(32	)	$	(27	)
Net actuarial loss	2,493			2,603			611			669			25			47
Gross amount recognized	2,490			2,599			642			673			(7		)	20
Deferred income taxes	(77		)	(103		)	(105		)	(109		)	(19		)	(26		)
Minority shareholders’ equity	—			—			(1		)	(1		)	—			—
Net amount recognized	$	2,413		$	2,496		$	536		$	563		$	(26	)	$	(6	)

The following table presents significant weighted average assumptions used to determine benefit obligations at December 31:



	Pension Plans				Other Postretirement Benefits
	2018		2017		2018		2017
Discount rate:
— U.S.	4.24	%	3.56	%	4.16	%	3.44	%
— Non-U.S.	2.69		2.53		5.03		4.92
Rate of compensation increase:
— U.S.	N/A		N/A		N/A		N/A
— Non-U.S.	2.91		2.91		N/A		N/A

The following table presents significant weighted average assumptions used to determine benefits cost for the years ended December 31:



	Pension Plans						Other Postretirement Benefits
	2018		2017		2016		2018		2017		2016
Discount rate for determining interest cost:
— U.S.	3.09	%	3.18	%	3.23	%	2.99	%	3.02	%	2.98	%
— Non-U.S.	2.56		2.70		3.37		6.13		5.98		6.31
Expected long term return on plan assets:
— U.S.	4.58		5.08		5.33		N/A		N/A		N/A
— Non-U.S.	3.02		3.12		3.81		N/A		N/A		N/A
Rate of compensation increase:
— U.S.	N/A		N/A		N/A		N/A		N/A		N/A
— Non-U.S.	2.91		3.18		2.63		N/A		N/A		N/A

For 2018, a weighted average discount rate of 3.09% was used to determine interest cost for the U.S. pension plans. This rate was derived from spot rates along a yield curve developed from a portfolio of bonds from issuers rated AA or higher by established rating agencies as of December 31, 2017, applied to our expected benefit payment cash flows. For our non-U.S. locations, a weighted average discount rate of 2.56% was used. This rate was developed based on the nature of the liabilities and local environments, using available bond indices, yield curves, projected cash flows, and long term inflation.

For 2018, an assumed weighted average long term rate of return of 4.58% was used for the U.S. pension plans. In developing the long term rate of return, we evaluated input from our pension fund consultant on asset class return expectations, including determining the appropriate rate of return for our plans, which are primarily invested in fixed income securities. For our non-U.S. locations, an assumed weighted average long term rate of return of 3.02% was used. Input from local pension fund consultants concerning asset class return expectations and long term inflation form the basis of this assumption.

The U.S. pension plan mortality assumption is based on our actual historical experience and expected future mortality improvements based on published actuarial tables. For our non-U.S. locations, mortality assumptions are based on published actuarial tables which include projections of future mortality improvements.

The following table presents estimated future benefit payments from the plans as of December 31, 2018. Benefit payments for other postretirement benefits are presented net of retiree contributions and Medicare Part D Subsidy Receipts:



	Pension Plans				Other Postretirement Benefits
(In millions)	U.S.		Non-U.S.
2019	$	417	$	123	$	18
2020	388		120		18
2021	380		122		17
2022	363		128		17
2023	353		130		16
2024-2028	1,650		693		76

The following table presents selected information on our pension plans:



	U.S.				Non-U.S.
(In millions)	2018		2017		2018		2017
All plans:
Accumulated benefit obligation	$	4,725	$	5,320	$	2,688	$	3,017
Plans not fully-funded:
Projected benefit obligation	$	4,732	$	5,329	$	908	$	945
Accumulated benefit obligation	4,723		5,318		852		887
Fair value of plan assets	4,443		4,976		281		302

Certain non-U.S. subsidiaries maintain unfunded pension plans consistent with local practices and requirements. At December 31, 2018, these plans accounted for $218 million of our accumulated pension benefit obligation, $244 million of our projected pension benefit obligation, and $59 million of our AOCL adjustment. At December 31, 2017, these plans accounted for $227 million of our accumulated pension benefit obligation, $251 million of our projected pension benefit obligation, and $59 million of our AOCL adjustment.

We expect to contribute approximately $25 million to $50 million to our funded non-U.S. pension plans in 2019.

Assumed health care cost trend rates at December 31 follow:



	2018		2017
Health care cost trend rate assumed for the next year	6.5	%	6.5	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.0		5.0
Year that the rate reaches the ultimate trend rate	2025		2025

A 1% change in the assumed health care cost trend would have increased (decreased) the accumulated other postretirement benefits obligation at December 31, 2018 and the aggregate service and interest cost for the year then ended as follows:



(In millions)	1% Increase		1% Decrease
Accumulated other postretirement benefits obligation	$	13	$	(10	)
Aggregate service and interest cost	1		(1		)

Our pension plan weighted average investment allocation at December 31, by asset category, follows:



	U.S.				Non-U.S.
	2018		2017		2018		2017
Cash and short term securities	2	%	2	%	1	%	1	%
Equity securities	6		6		4		9
Debt securities	92		92		94		85
Alternatives	—		—		1		5
Total	100	%	100	%	100	%	100	%

Our pension investment policy recognizes the long term nature of pension liabilities, and is primarily designed to offset the future impact of discount rate movements on the funded status for our plans. All assets are managed externally according to target asset allocation guidelines we have established. Manager guidelines prohibit the use of any type of investment derivative without our prior approval. Portfolio risk is controlled by having managers comply with guidelines, establishing the maximum size of any single holding in their portfolios and using managers with different investment styles. We periodically undertake asset and liability modeling studies to determine the appropriateness of the investments.

The portfolio of our U.S. pension plan assets includes holdings of global high quality and high yield fixed income securities, short term interest bearing deposits, and private equities. The target asset allocation of our U.S. pension plans is 94% in duration-matched fixed income securities and 6% in equity securities. Actual U.S. pension fund asset allocations are reviewed on a periodic basis and the pension funds are rebalanced to target ranges on an as needed basis.

The portfolios of our non-U.S. pension plans include holdings of U.S. and non-U.S. equities, global high quality and high yield fixed income securities, hedge funds, currency derivatives, insurance contracts, repurchase agreements, and short term interest bearing deposits. The weighted average target asset allocation of the non-U.S. pension funds is approximately 5% equities and 95% fixed income.

The fair values of our pension plan assets at December 31, 2018, by asset category are as follows:



	U.S.								Non-U.S.
(In millions)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Other Unobservable Inputs (Level 3)
Cash and Short Term Securities	$	48	$	48	$	—	$	—	$	29		$	26	$	3		$	—
Equity Securities
Common and Preferred Stock	—		—		—		—		19			19		—			—
Commingled Funds	—		—		—		—		14			14		—			—
Mutual Funds	—		—		—		—		4			4		—			—
Debt Securities
Corporate Bonds	2,344		—		2,344		—		171			17		154			—
Government Bonds	968		—		968		—		2,158			62		2,096			—
Repurchase Agreements	—		—		—		—		(641		)	—		(641		)	—
Asset Backed Securities	63		—		63		—		67			5		62			—
Mutual Funds	—		—		—		—		18			8		10			—
Alternatives
Insurance Contracts	2		—		—		2		19			—		—			19
Other Investments	—		—		—		—		6			—		4			2
Total Investments in the Fair Value Hierarchy	3,425		$	48	$	3,375	$	2	1,864			$	155	$	1,688		$	21

Investments Measured at Net Asset Value, as Practical Expedient:
Equity Securities
Commingled Funds	11								56
Mutual Funds	—								7
Partnership Interests	247								—
Debt Securities
Mutual Funds	90								7
Commingled Funds	603								638
Short Term Securities
Commingled Funds	59								7
Alternatives
Commingled Funds	—								5
Total Investments	4,435								2,584
Other	10								(120		)
Total Plan Assets	$	4,445							$	2,464

The fair values of our pension plan assets at December 31, 2017, by asset category are as follows:



	U.S.									Non-U.S.
(In millions)	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Other Unobservable Inputs (Level 3)
Cash and Short Term Securities	$	55		$	39	$	16	$	—	$	20		$	19	$	1		$	—
Equity Securities
Common and Preferred Stock	—			—		—		—		24			24		—			—
Commingled Funds	—			—		—		—		148			17		—			131
Mutual Funds	—			—		—		—		5			5		—			—
Debt Securities
Corporate Bonds	2,699			—		2,698		1		156			14		142			—
Government Bonds	1,033			—		1,033		—		2,358			73		2,285			—
Repurchase Agreements	—			—		—		—		(763		)	—		(763		)	—
Asset Backed Securities	58			—		58		—		47			4		43			—
Commingled Funds	—			—		—		—		10			—		10			—
Mutual Funds	—			—		—		—		7			7		—			—
Alternatives
Real Estate	—			—		—		—		4			—		—			4
Insurance Contracts	2			—		—		2		18			—		—			18
Other Investments	—			—		—		—		10			—		7			3
Total Investments in the Fair Value Hierarchy	3,847			$	39	$	3,805	$	3	2,044			$	163	$	1,725		$	156

Investments Measured at Net Asset Value, as Practical Expedient:
Equity Securities
Commingled Funds	54									66
Mutual Funds	—									18
Partnership Interests	238									—
Debt Securities
Mutual Funds	111									7
Commingled Funds	682									579
Short Term Securities
Commingled Funds	67									6
Alternatives
Commingled Funds	—									95
Total Investments	4,999									2,815
Other	(21		)							(9		)
Total Plan Assets	$	4,978								$	2,806

At December 31, 2018 and 2017, the Plans did not directly hold any of our common stock.

The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement. Investments that are measured at Net Asset Value ("NAV") as a practical expedient to estimate fair value are not classified in the fair value hierarchy. Under the practical expedient approach, the NAV is based on the fair value of the underlying investments held by each fund less its liabilities. This practical expedient would not be used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to total plan assets. Valuation methodologies used for assets and liabilities measured at fair value are as follows:


•	Cash and Short Term Securities: Cash and cash equivalents consist of U.S. and foreign currencies. Foreign currencies are reported in U.S. dollars based on currency exchange rates readily available in active markets. Short term securities held in commingled funds are valued at the NAV of units held at year end, as determined by the investment manager.

•

Equity Securities: Common and preferred stock, which are held in non-U.S. companies, are valued at the closing price reported on the active market on which the individual securities are traded. Commingled funds are valued at the NAV of units held at year end, as determined by a pricing vendor or the fund family. Mutual funds are valued at the NAV of shares held at year end, as determined by the closing price reported on the active market on which the individual securities are traded, or a pricing vendor or the fund family if an active market is not available. Partnership interests are priced based on valuations using the partnership’s available financial statements coinciding with our year end and the plan's percent ownership, adjusted for any cash transactions which occurred between the date of those financial statements and our year end.

•

Debt Securities: Corporate and government bonds, including asset backed securities, are valued at the closing price reported on the active market on which the individual securities are traded, or based on institutional bid evaluations using proprietary models if an active market is not available. Repurchase agreements are valued at the contract price plus accrued interest. These secured borrowings are collateralized by government bonds held by the non-U.S. plans and have maturities less than one year. Commingled funds are valued at the NAV of units held at year end, as determined by a pricing vendor or the fund family. Mutual funds are valued at the NAV of shares held at year end, as determined by the closing price reported on the active market on which the individual securities are traded, or a pricing vendor or the fund family if an active market is not available.

•

Alternatives: Commingled funds are invested in hedge funds and currency derivatives, which are valued based on the NAV as determined by the fund manager using the most recent financial information available. Participation in real estate funds are valued based on institutional bid evaluations as determined by the fund manager using the most recent financial information available. Other investments include derivative financial instruments, which are primarily valued using independent pricing sources which utilize industry standard derivative valuation models, and directed insurance contracts, which are valued as reported by the issuer.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following table sets forth a summary of changes in fair value of the pension plan investments classified as Level 3 for the year ended December 31, 2018:



	Non-U.S.
(In millions)	Insurance Contracts			Real Estate			Equity Securities - Commingled Funds			Other
Balance, beginning of year	$	18		$	4		$	131		$	3
Realized gains (losses)	—			—			(1		)	—
Purchases, sales, issuances and settlements (net)	2			(4		)	(128		)	(1		)
Foreign currency translation	(1		)	—			(2		)	—
Balance, end of year	$	19		$	—		$	—		$	2

The following table sets forth a summary of changes in fair value of the pension plan investments classified as Level 3 for the year ended December 31, 2017:



	Non-U.S.
(In millions)	Insurance Contracts		Real Estate			Equity Securities - Commingled Funds			Other
Balance, beginning of year	$	14	$	61		$	118		$	3
Realized gains (losses)	—		4			2			—
Unrealized (losses) gains relating to instruments still held at the reporting date	—		1			18			—
Purchases, sales, issuances and settlements (net)	2		(65		)	(18		)	—
Foreign currency translation	2		3			11			—
Balance, end of year	$	18	$	4		$	131		$	3

Other postretirement benefits plan assets at December 31, 2018 and 2017, which relate to a non-U.S. plan, are invested primarily in mutual funds, which are traded on an active market, and are considered a Level 1 investment.

Savings Plans

Substantially all employees in the U.S. and employees of certain non-U.S. locations are eligible to participate in a defined contribution savings plan. Expenses recognized for contributions to these plans were $111 million, $111 million and $122 million for 2018, 2017 and 2016, respectively.