Employee Benefits

6 Months Ended

Jun. 30, 2020


Note 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 event. 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 June 30,	2020		2019		2020		2019
Service cost - Cost of services	$	59	$	50	$	23	$	19
Service cost - Selling, general and administrative expense	14		12		5		5
Service cost	$	73	$	62	$	28	$	24

Amortization of prior service cost (credit)	$	15	$	16	$	(242)	$	(243)
Expected return on plan assets	(296)		(282)		(6)		(10)
Interest cost	137		176		107		158
Remeasurement loss, net	153		—		—		—

Other components	$	9	$	(90)	$	(141)	$	(95)

Total	$	82	$	(28)	$	(113)	$	(71)


	(dollars in millions)
	Pension						Health Care and Life
Six Months Ended June 30,	2020		2019		2020		2019
Service cost - Cost of services	$	118	$	100	$	45	$	39
Service cost - Selling, general and administrative expense	28		23		10		9
Service cost	$	146	$	123	$	55	$	48

Amortization of prior service cost (credit)	$	30	$	31	$	(483)	$	(486)
Expected return on plan assets	(593)		(564)		(13)		(19)
Interest cost	277		354		214		315
Remeasurement loss (gain), net	335		(96)		—		—

Other components	$	49	$	(275)	$	(282)	$	(190)

Total	$	195	$	(152)	$	(227)	$	(142)

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 remeasurement adjustments, if any, are recorded in Other income (expense), net.

2018 Voluntary Separation Program

In December 2018, eligible employees began separating from the Company under a Voluntary Separation Program. The program finished at the end of June 2019. The severance benefits payments to these employees were substantially completed by the end of September 2019.

Severance Payments

During the three and six months ended June 30, 2020, we paid severance benefits of $52 million and $175 million, respectively. During the six months ended June 30, 2020, we recorded net pre-tax severance charges of an insignificant amount. At June 30, 2020, we had a remaining severance liability of $443 million, a portion of which includes future contractual payments to separated employees.

Employer Contributions

During the six months ended June 30, 2020, we made no contributions to our qualified pension plans. During both the three and six months ended June 30, 2020, we made insignificant contributions to our nonqualified pension plans. During the six months ended June 30, 2019, we made a discretionary pension contribution of $300 million to our qualified pension plans. We do not expect mandatory pension funding through December 31, 2020. There have been no significant changes with respect to the nonqualified pension and other postretirement benefit plans contributions in 2020.

Remeasurement loss (gain), net

During the three and six months ended June 30, 2020, we recorded net pre-tax remeasurement losses of $153 million and $335 million in our pension plans, respectively, triggered by settlements.

During the three months ended June 30, 2020, we recorded a net pre-tax remeasurement loss of $153 million primarily driven by a $163 million charge mainly due to the difference between our estimated return on assets and our actual return on assets and changes in our lump sum interest rate assumptions used to determine the current year liabilities of our pension plans, offset by a credit due to changes in our discount rate.

During the three months ended March 31, 2020, we recorded a net pre-tax remeasurement loss of $182 million primarily driven by a $196 million charge mainly due to changes in our discount rate and lump sum interest rate assumptions used to determine the current year liabilities of our pension plans, offset by a credit due to the difference between our estimated return on assets and our actual return on assets.

During the six months ended June 30, 2019, we recorded a net pre-tax remeasurement gain of $96 million in our pension plans triggered by the Voluntary Separation Program for select U.S.-based management employees and other headcount reduction initiatives, primarily driven by a $150 million credit due to the difference between our estimated return on assets and our actual return on assets, offset by a $54 million charge due to a change in our discount rate assumption used to determine the current year liabilities of our pension plans.