

NOTE 14	RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

Occidental has various benefit plans for its salaried, domestic union and nonunion hourly, and certain foreign national employees.

DEFINED CONTRIBUTION PLANS

All domestic employees and certain foreign national employees are eligible to participate in one or more of the defined contribution retirement or savings plans that provide for periodic contributions by Occidental based on plan-specific criteria, such as base pay, level and employee contributions. Certain salaried employees participate in a supplemental retirement plan that restores benefits lost due to governmental limitations on qualified retirement benefits. The accrued liabilities for the supplemental retirement plan were $201 million and $175 million as of December 31, 2018, and 2017, respectively, and Occidental expensed $152 million in 2018, $130 million in 2017 and $113 million in 2016 under the provisions of these defined contribution and supplemental retirement plans.

DEFINED BENEFIT PLANS

Participation in defined benefit plans is limited. Approximately 400 domestic and 1,000 foreign national employees, mainly union, nonunion hourly and certain employees that joined Occidental from acquired operations with grandfathered benefits, are currently accruing benefits under these plans.

Pension costs for Occidental’s defined benefit pension plans, determined by independent actuarial valuations, are generally funded by payments to trust funds, which are administered by independent trustees.

POSTRETIREMENT AND OTHER BENEFIT PLANS

Occidental provides medical and dental benefits and life insurance coverage for certain active, retired and disabled employees and their eligible dependents. Occidental generally funds the benefits as they are paid during the year. These benefit costs, including the postretirement costs, were approximately $182 million in 2018, $181 million in 2017 and $182 million in 2016.

During the third quarter of 2018, Occidental adopted a postretirement benefit plan design change, which replaced the previous self-insured benefit with a Medicare Advantage PPO plan for Medicare-eligible retirees. As a result of this change, the postretirement benefit obligation was remeasured as of August 31, 2018. The remeasurement resulted in a decrease to the benefit obligation of $178 million, with a corresponding offset to accumulated other comprehensive income.

OBLIGATIONS AND FUNDED STATUS

The following tables show the amounts recognized in the consolidated balance sheets of Occidental related to its pension and postretirement benefit plans:



(in millions)	Pension Benefits						Postretirement Benefits
As of December 31,	2018			2017			2018			2017
Amounts recognized in the consolidated balance sheet:
Other assets	$	60		$	82		$	—		$	—
Accrued liabilities	(25		)	(5		)	(45		)	(59		)
Deferred credits and other liabilities — pension and postretirement obligations	(46		)	(65		)	(763		)	(940		)
	$	(11	)	$	12		$	(808	)	$	(999	)



Accumulated other comprehensive loss included the following after-tax balances:
Net loss	$	91	$	59	$	151		$	192
Prior service cost	—		—		(72		)	1
	$	91	$	59	$	79		$	193

The following tables show the funding status, obligations and plan asset fair values of Occidental related to its pension and postretirement benefit plans:



	Pension Benefits						Postretirement Benefits
For the years ended December 31,	2018			2017			2018			2017
Changes in the benefit obligation:
Benefit obligation — beginning of year	$	391		$	399		$	999		$	950
Service cost — benefits earned during the period	5			6			23			21
Interest cost on projected benefit obligation	15			17			34			38
Actuarial (gain) loss	(19		)	14			(90		)	61
Foreign currency exchange rate gain	(3		)	—			—			—
Liability gain due to curtailment	—			(2		)	—			(9		)
Special termination benefits	—			1			—			—
Benefits paid	(40		)	(44		)	(57		)	(62		)
Settlements	—			—			—			—
Plan amendments	—			—			(101		)	—
Benefit obligation — end of year	$	349		$	391		$	808		$	999

Changes in plan assets:
Fair value of plan assets — beginning of year	$	403		$	386		$	—		$	—
Actual return on plan assets	(33		)	52			—			—
Foreign currency exchange rate loss	—			—			—			—
Employer contributions	8			9			—			—
Benefits paid	(40		)	(44		)	—			—
Settlements	—			—			—			—
Fair value of plan assets — end of year	$	338		$	403		$	—		$	—
Funded/(Unfunded) status:	$	(11	)	$	12		$	(808	)	$	(999	)

The following table sets forth details of the obligations and assets of Occidental's defined benefit pension plans:



(in millions)	Accumulated Benefit Obligation in Excess of Plan Assets				Plan Assets in Excess of Accumulated Benefit Obligation
As of December 31,	2018		2017		2018		2017
Projected Benefit Obligation	$	173	$	161	$	176	$	230
Accumulated Benefit Obligation	$	169	$	157	$	176	$	230
Fair Value of Plan Assets	$	98	$	91	$	240	$	312

Occidental does not expect any plan assets to be returned during 2019.

COMPONENTS OF NET PERIODIC BENEFIT COST

The following table sets forth the components of net periodic benefit costs:



	Pension Benefits									Postretirement Benefits
For the years ended December 31, (in millions)	2018			2017			2016			2018			2017		2016
Net periodic benefit costs:
Service cost — benefits earned during the period	$	5		$	6		$	7		$	23		$	21	$	20
Interest cost on projected benefit obligation	15			17			18			34			38		39
Expected return on plan assets	(25		)	(24		)	(24		)	—			—		—
Recognized actuarial loss	7			10			12			14			14		15
Other costs and adjustments	1			3			4			(2		)	1		—
Net periodic benefit cost	$	3		$	12		$	17		$	69		$	74	$	74

The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from Accumulated Other Comprehensive Income (AOCI) into net periodic benefit cost over the next fiscal year are $9 million and zero, respectively. The estimated net loss and prior service cost for the defined benefit postretirement plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year are $9 million and $(8) million, respectively.

ADDITIONAL INFORMATION

The following table sets forth the weighted-average assumptions used to determine Occidental's benefit obligation and net periodic benefit cost for domestic plans:



	Pension Benefits				Postretirement Benefits
For the years ended December 31,	2018		2017		2018		2017
Benefit Obligation Assumptions:
Discount rate	4.09	%	3.45	%	4.29	%	3.61	%
Net Periodic Benefit Cost Assumptions:
Discount rate for January 1 - August 31 expense	3.45	%	3.90	%	3.61	%	4.15	%
Discount rate for September 1 - December 31 expense	3.45	%	3.90	%	4.14	%	4.15	%
Assumed long-term rate of return on assets	6.50	%	6.50	%	—		—

For domestic pension plans and postretirement benefit plans, Occidental based the discount rate on the Aon/Hewitt AA-AAA Universe yield curve in 2018 and 2017. The assumed long-term rate of return on assets is estimated with regard to current market factors but within the context of historical returns for the asset mix that exists at year end.

In 2018, Occidental adopted the Society of Actuaries 2018 Mortality Improvement Scale, which updated the mortality assumptions that private defined-benefit plans in the United States use in the actuarial valuations that determine a plan sponsor’s pension obligations. The new mortality improvement scale reflects additional data that the Social Security Administration has released since the MP-2017 scale released in 2017. This additional data shows a lower degree of mortality improvement than previously reflected. The changes in the mortality improvement scale results in a decrease of $1 million and $1 million in the pension and postretirement benefit obligation at December 31, 2018, respectively.

For pension plans outside the United States, Occidental based its discount rate on rates indicative of government or investment grade corporate debt in the applicable country, taking into account hyperinflationary environments when necessary. The discount rates used for the foreign pension plans ranged from 1.0 percent to 8.9 percent at December 31, 2018 and from 1.0 percent to 10.8 percent at December 31, 2017. The average rate of increase in future compensation levels ranged from 1.0 percent to 8.0 percent in 2018, depending on local economic conditions.

The postretirement benefit obligation was determined by application of the terms of medical and dental benefits and life insurance coverage, including the effect of established maximums on covered costs, together with relevant actuarial assumptions and health care cost trend rates. Health care cost trend rates for Medicare advantaged prescription drug (MAPD) plans of 22-34 percent in 2019, 6-10 percent in 2020, then grading down to 4.50 percent in 2027 and beyond. Health care cost trend rates used for non-MAPD plans are 7.75 percent in 2018, then grading down to 4.50 percent in 2025 and beyond. In 2017, health care cost trend rates were projected at an assumed U.S. Consumer Price Index (CPI) increase of 1.97 percent for salaried employees. For union employees, Occidental projected that health care cost trend rates would decrease from 8.0 percent in 2017 until they reached 4.50 percent in 2025, and remain at 4.50 percent thereafter.

A 1 percent increase or a 1 percent decrease in these assumed health care cost trend rates would result in an increase of $102 million or a reduction of $82 million, respectively, in the postretirement benefit obligation and increase of $10 million or a reduction of $8 million in the annual service and interest costs as of December 31, 2018.

The actuarial assumptions used could change in the near term as a result of changes in expected future trends and other factors that, depending on the nature of the changes, could cause increases or decreases in the plan assets and liabilities.

FAIR VALUE OF PENSION PLAN ASSETS

Occidental employs a total return investment approach that uses a diversified blend of equity and fixed-income investments to optimize the long-term return of plan assets at a prudent level of risk. The investments are monitored by Occidental’s Pension and Retirement Trust and Investment Committee (Investment Committee) in its role as fiduciary. The Investment Committee, consisting of senior Occidental executives, selects and employs various external professional investment management firms to manage specific investments across the spectrum of asset classes. Equity investments are diversified across U.S. and non-U.S. stocks, as well as differing styles and market capitalizations. Other asset classes, such as private equity and real estate, may be used with the goals of enhancing long-term returns and improving portfolio diversification. The target allocation of plan assets is 65 percent equity securities and 35 percent debt securities. Investment performance is measured and monitored on an ongoing basis through quarterly investment portfolio and manager guideline compliance reviews, annual liability measurements and periodic studies.

The fair values of Occidental’s pension plan assets by asset category are as follows:



(in millions)	Fair Value Measurements at December 31, 2018, Using
Description	Level 1		Level 2		Level 3		Total
Asset Class:
U.S. government securities	$	17	$	—	$	—	$	17
Corporate bonds ^(a)	—		66		—		66
Common/collective trusts ^(b)	—		9		—		9
Mutual funds:
Bond funds	31		—		—		31
Blend funds	48		—		—		48
Common and preferred stocks ^(c)	141		—		—		141
Other	—		31		—		31
Total pension plan assets ^(d)	$	237	$	106	$	—	$	343



(in millions)	Fair Value Measurements at December 31, 2017, Using
Description	Level 1		Level 2		Level 3		Total
Asset Class:
U.S. government securities	$	12	$	—	$	—	$	12
Corporate bonds ^(a)	—		83		—		83
Common/collective trusts ^(b)	—		20		—		20
Mutual funds:
Bond funds	19		—		—		19
Blend funds	59		—		—		59
Common and preferred stocks ^(c)	188		—		—		188
Other	—		30		—		30
Total pension plan assets ^(d)	$	278	$	133	$	—	$	411


(a)	This category represents investment grade bonds of U.S. and non-U.S. issuers from diverse industries.


(b)	This category includes investment funds that primarily invest in U.S. and non-U.S. common stocks and fixed-income securities.


(c)	This category represents direct investments in common and preferred stocks from diverse U.S. and non-U.S. industries.


(d)	Amounts exclude net payables of approximately $6 million and $8 million as of December 31, 2018 and 2017, respectively.

Occidental expects to contribute $26 million in cash to its defined benefit pension plans during 2019. Estimated future benefit payments, which reflect expected future service, as appropriate, are as follows:



For the years ended December 31, (in millions)	Pension Benefits		Postretirement Benefits
2019	$	60	$	46
2020	$	27	$	50
2021	$	28	$	50
2022	$	27	$	50
2023	$	26	$	50
2024 - 2028	$	129	$	249