

8.	Employee Benefits

We maintain non-contributory defined benefit pension plans for certain employees. In addition, we maintain postretirement health care and life insurance plans for certain retirees and their dependents, which are both contributory and non-contributory, and include a limit on our share of the cost for certain current and future retirees. In accordance with our accounting policy for pension and other postretirement benefits, operating expenses include service costs associated with pension and other postretirement benefits while other credits and/or charges based on actuarial assumptions, including projected discount rates, an estimated return on plan assets, and impact from health care trend rates are reported in Other income (expense), net. These estimates are updated in the fourth quarter to reflect actual return on plan assets and updated actuarial assumptions or upon a remeasurement. The adjustment is recognized in the income statement during the fourth quarter or upon a remeasurement event pursuant to our accounting policy for the recognition of actuarial gains and losses.

Net Periodic Benefit Cost (Income)

The following table summarizes the components of net periodic benefit cost (income) related to our pension and postretirement health care and life insurance plans:



	(dollars in millions)
	Pension						Health Care and Life
Three Months Ended September 30,	2018			2017			2018			2017
Service cost - Cost of services	$	57		$	55		$	26		$	29
Service cost - Selling, general and administrative expense	13			15			6			8
Service cost	$	70		$	70		$	32		$	37

Amortization of prior service cost (credit)	$	13		$	10		$	(244	)	$	(235	)
Expected return on plan assets	(321		)	(315		)	(11		)	(13		)
Interest cost	176			171			153			164
Remeasurement gain, net	(454		)	—			—			—
Other components	$	(586	)	$	(134	)	$	(102	)	$	(84	)

Total	$	(516	)	$	(64	)	$	(70	)	$	(47	)



	(dollars in millions)
	Pension						Health Care and Life
Nine Months Ended September 30,	2018			2017			2018			2017
Service cost - Cost of services	$	174		$	165		$	78		$	87
Service cost - Selling, general and administrative expense	41			45			18			24
Service cost	$	215		$	210		$	96		$	111

Amortization of prior service cost (credit)	$	33		$	29		$	(732	)	$	(705	)
Expected return on plan assets	(979		)	(947		)	(33		)	(39		)
Interest cost	508			513			460			494
Remeasurement gain, net	(454		)	—			—			—
Other components	$	(892	)	$	(405	)	$	(305	)	$	(250	)

Total	$	(677	)	$	(195	)	$	(209	)	$	(139	)

The service cost component of net periodic benefit cost (income) is recorded in Cost of services and Selling, general and administrative expense in the condensed consolidated statements of income while the other components, including mark-to-market adjustments, if any, are recorded in Other income (expense), net.

Severance Payments

During the three and nine months ended September 30, 2018, we paid severance benefits of $0.1 billion and $0.4 billion, respectively. During the nine months ended September 30, 2018, we recorded net pre-tax severance charges of $0.3 billion, exclusive of acquisition related severance charges. At September 30, 2018, we had a remaining severance liability of $0.5 billion, a portion of which includes future contractual payments to employees separated as of September 30, 2018.

Employer Contributions

During the nine months ended September 30, 2018, we made a discretionary contribution of $1.0 billion to our qualified pension plans. As a result of the $1.0 billion and $3.4 billion discretionary pension contributions during the nine months ended September 30, 2018 and 2017, respectively, we do not expect mandatory pension funding through December 31, 2018. During the nine months ended September 30, 2018, we made a discretionary contribution of $0.7 billion to a retiree benefit account to fund health and welfare benefits. There was no contribution made to our nonqualified pension plans during the three and nine months ended September 30, 2018. There have been no significant changes with respect to the nonqualified pension and other postretirement benefit plans contributions in 2018.

2018 Collective Bargaining Negotiations

In August 2018, the agreement we reached with the Communications Workers of America and the International Brotherhood of Electrical Workers to extend our collective bargaining agreements, which were due to expire on August 3, 2019, until August 5, 2023 was ratified based on votes from the union members.

Remeasurement gain, net

During the three and nine months ended September 30, 2018, we recorded a net pre-tax remeasurement gain of $0.5 billion triggered by the collective bargaining negotiations, primarily driven by a $1.1 billion credit due to a change in our discount rate assumption used to determine the current year liabilities of our pension plans, offset by a $0.6 billion charge due to the difference between our estimated return on assets and our actual return on assets.

Change in Defined Benefit Pension Plans

During the three months ended September 30, 2018, amendments triggered by the collective bargaining negotiations were made to certain pension plans for management and certain union represented employees and retirees. The impact of the plan amendments was an increase in our defined benefit pension plans plan obligations and a net decrease to Accumulated other comprehensive income of $0.2 billion. The annual impact of the amount recorded in Accumulated other comprehensive income that will be reclassified to net periodic benefit cost is minimal.

2018 Voluntary Separation Program

In September 2018, we announced a Voluntary Separation Program for select U.S.-based management employees. The volunteer period opened in October 2018. Management at its discretion will accept volunteers for separation based on the needs of the business, and these employees will be notified in December 2018. We expect to take a severance charge related to the program in the fourth quarter of 2018, which could be significant. The ultimate financial statement impact will be based on the number of volunteers accepted.