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Employee Benefit Plans
 12 Months Ended
Dec. 31, 2019
Retirement Benefits [Abstract]  
Employee Benefit Plans Employee Benefit Plans
Defined Benefit Plans
PPG has defined benefit pension plans that cover certain employees worldwide. The principal defined benefit pension plans are those in the U.S., Canada, the Netherlands and the U.K. These plans in the aggregate represent approximately 93% of PPG’s total projected benefit obligation at December 31, 2019, of which the U.S. defined benefit pension plans represent the largest component.
As of January 1, 2006, the Company’s U.S. salaried defined benefit plans were closed to new entrants. In 2011, the Company approved amendments related to certain U.S. defined benefit plans so that depending upon the affected employee’s combined
age and years of service to PPG, certain employees stopped or will stop accruing benefits either in 2011 or at the end of 2020. The affected employees will participate in the Company’s defined contribution retirement plans from the date their benefits under their respective defined benefit plans are frozen.
The Company has amended other defined benefit plans in other countries in a similar way and plans to continue reviewing and potentially amending other PPG defined benefit plans in the future.
Postretirement medical
PPG sponsors welfare benefit plans that provide postretirement medical and life insurance benefits for certain U.S. and Canadian employees and their dependents of which the U.S. welfare benefit plans represent approximately 87% of PPG’s total projected benefit obligation at December 31, 2019. Salaried and certain hourly employees in the U.S. hired on or after October 1, 2004, or rehired on or after October 1, 2012 are not eligible for postretirement medical benefits.
These plans in the U.S. and Canada require retiree contributions based on retiree-selected coverage levels for certain retirees and their dependents and provide for sharing of future benefit cost increases between PPG and participants based on management discretion. The Company has the right to modify, amend or terminate certain of these benefit plans in the future.
Effective January 1, 2017, the Company-sponsored Medicare-eligible plans were replaced by a Medicare private exchange. The announcement of this plan design change triggered a remeasurement of PPG’s retiree medical benefit obligation using prevailing interest rates. The plan design change resulted in a $306 million reduction in the Company's postretirement benefit obligation. PPG accounted for the plan design change prospectively, and the impact will be amortized to periodic postretirement benefit cost over a 5.6 year period through 2022.
The following table sets forth the changes in projected benefit obligations (“PBO”) (as calculated as of December 31), plan assets, the funded status and the amounts recognized on the accompanying consolidated balance sheet for the Company’s defined benefit pension and other postretirement benefit plans:
 
Defined Benefit Pension Plans
 
United States
International
Total PPG
($ in millions)
2019

2018

2019

2018

2019

2018

Projected benefit obligation, January 1

$1,582


$1,706


$1,518


$1,756


$3,100


$3,462

Service cost
13

17

10

11

23

28

Interest cost
64

57

41

40

105

97

Actuarial losses (gains) - net
263

(129
)
186

(117
)
449

(246
)
Benefits paid
(80
)
(70
)
(64
)
(55
)
(144
)
(125
)
Plan transfers
—

—

—

(8
)
—

(8
)
Foreign currency translation adjustments
—

—

34

(88
)
34

(88
)
Settlements and curtailments
—

—

(4
)
(24
)
(4
)
(24
)
Other
—

1

(2
)
3

(2
)
4

Projected benefit obligation, December 31

$1,842


$1,582


$1,719


$1,518


$3,561


$3,100

Market value of plan assets, January 1

$1,140


$1,196


$1,478


$1,687


$2,618


$2,883

Actual return on plan assets
219

(82
)
190

(53
)
409

(135
)
Company contributions
—

75

13

24

13

99

Benefits paid
(55
)
(49
)
(56
)
(53
)
(111
)
(102
)
Plan settlements
—

—

(4
)
(24
)
(4
)
(24
)
Foreign currency translation adjustments
—

—

42

(95
)
42

(95
)
Other
—

—

(2
)
(8
)
(2
)
(8
)
Market value of plan assets, December 31

$1,304


$1,140


$1,661


$1,478


$2,965


$2,618

Funded Status

($538
)

($442
)

($58
)

($40
)

($596
)

($482
)
Amounts recognized in the Consolidated Balance Sheet:
 
 
 
 
 
 
Other assets (long-term)
—

—

183

189

183

189

Accounts payable and accrued liabilities
(26
)
(18
)
(8
)
(8
)
(34
)
(26
)
Accrued pensions
(512
)
(424
)
(233
)
(221
)
(745
)
(645
)
Net liability recognized

($538
)

($442
)

($58
)

($40
)

($596
)

($482
)

 
Other Postretirement Benefit Plans
 
United States
International
Total PPG
($ in millions)
2019

2018

2019

2018

2019

2018

Projected benefit obligation, January 1

$587


$641


$94


$112


$681


$753

Service cost
8

9

—

1

8

10

Interest cost
23

21

3

3

26

24

Plan amendments
(17
)
—

—

—

(17
)
—

Actuarial losses (gains) - net
59

(38
)
1

(9
)
60

(47
)
Benefits paid
(44
)
(45
)
(5
)
(4
)
(49
)
(49
)
Foreign currency translation adjustments
—

—

4

(8
)
4

(8
)
Other
—

(1
)
(1
)
(1
)
(1
)
(2
)
Projected benefit obligation, December 31

$616


$587


$96


$94


$712


$681

Amounts recognized in the Consolidated Balance Sheet:
 
 
 
 
 
 
Accounts payable and accrued liabilities
(46
)
(48
)
(5
)
(4
)
(51
)
(52
)
Other postretirement benefits
(570
)
(539
)
(91
)
(90
)
(661
)
(629
)
Net liability recognized

($616
)

($587
)

($96
)

($94
)

($712
)

($681
)
The PBO is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future pay increases. The accumulated benefit obligation (“ABO”) is the actuarial present value of benefits attributable to employee service rendered to date, but does not include the effects of estimated future pay increases. The ABO for all defined benefit pension plans as of December 31, 2019 and 2018 was $3.4 billion and $2.9 billion, respectively.
The following table details the pension plans where the benefit liability exceeds the fair value of the plan assets:
 
Pensions
($ in millions)
2019

 
2018

Plans with PBO in Excess of Plan Assets:
 
 
 
Projected benefit obligation

$2,223

 

$1,935

Fair value of plan assets

$1,449

 

$1,269

Plans with ABO in Excess of Plan Assets:
 
 
 
Accumulated benefit obligation

$2,176

 

$1,883

Fair value of plan assets

$1,449

 

$1,269


Net actuarial losses and prior service cost/(credit) deferred in accumulated other comprehensive loss
 
Pensions
 
Other Postretirement Benefits
($ in millions)
2019

2018

 
2019

2018

Accumulated net actuarial losses

$920


$800

 

$166


$113

Accumulated prior service cost (credit)
2

2

 
(138
)
(178
)
Total

$922


$802

 

$28


($65
)

The accumulated net actuarial losses for pensions and other postretirement benefits relate primarily to historical declines in the discount rates. The accumulated net actuarial losses exceeded 10% of the higher of the market value of plan assets or the PBO at the beginning of each of the last three years; therefore, amortization of such excess has been included in net periodic benefit costs for pension and other postretirement benefits in these periods. The amortization period is the average remaining service period of active employees expected to receive benefits unless a plan is mostly inactive in which case the amortization period is the average remaining life expectancy of the plan participants. Accumulated prior service cost (credit) is amortized over the future service periods of those employees who are active at the dates of the plan amendments and who are expected to receive benefits.
The net increase in Accumulated other comprehensive loss (pretax) in 2019 relating to defined benefit pension and other postretirement benefits is primarily attributable to pension and other postretirement plan discount rate declines, as follows:
($ in millions)
Pensions

 
Other Postretirement Benefits

Net actuarial loss arising during the year

$179

 

$60

New prior service credit
—

 
(17
)
Amortization of actuarial loss
(62
)
 
(8
)
Amortization of prior service credit
—

 
57

Foreign currency translation adjustments
5

 
1

Impact of settlements and curtailments
(2
)
 
—

Net change

$120

 

$93

 
The 2019 net actuarial loss related to the Company’s pension and other postretirement benefit plans was primarily due to a decrease in the weighted average discount rate used to determine the benefit obligation at December 31, 2019, partially offset by asset performance gains on plan assets for the year.
Net periodic benefit cost
 
Pensions
 
Other Postretirement Benefits
($ in millions)
2019

2018

2017

 
2019

2018

2017

Service cost

$23


$28


$33

 

$8


$10


$10

Interest cost
105

97

98

 
26

24

24

Expected return on plan assets
(139
)
(150
)
(141
)
 
—

—

—

Amortization of prior service credit
—

—

—

 
(57
)
(60
)
(59
)
Amortization of actuarial losses
62

63

75

 
8

19

12

Settlements, curtailments, and special termination benefits
3

5

60

 
—

—

—

Net periodic benefit cost/(income)

$54


$43


$125

 

($15
)

($7
)

($13
)

Service cost for net periodic pension and other postretirement benefit costs is included in Cost of sales, exclusive of depreciation and amortization, Selling, general and administrative, and Research and development, net in the accompanying consolidated statements of income. Except for Pension settlement charges in 2017, all other components of net periodic benefit cost are recorded in Other charges in the accompanying consolidated statements of income.
Key assumptions
The following weighted average assumptions were used to determine the benefit obligation for the Company’s defined benefit pension and other postretirement plans as of December 31, 2019 and 2018:
 
United States
 
International
 
Total PPG
 
2019

2018

 
2019

2018

 
2019

2018

Discount rate
3.3
%
4.4
%
 
2.2
%
2.9
%
 
2.8
%
3.7
%
Rate of compensation increase
2.5
%
1.5
%
 
2.8
%
0.9
%
 
2.6
%
1.2
%

The following weighted average assumptions were used to determine the net periodic benefit cost for the Company’s defined benefit pension and other postretirement benefit plans for the three years in the period ended December 31, 2019:
 
2019

 
2018

 
2017

Discount rate
3.7
%
 
3.2
%
 
3.6
%
Expected return on assets
5.4
%
 
5.4
%
 
5.4
%
Rate of compensation increase
1.8
%
 
1.2
%
 
1.3
%

These assumptions for each plan are reviewed on an annual basis. In determining the expected return on plan asset assumption, the Company evaluates the mix of investments that comprise each plan’s assets and external forecasts of future long-term investment returns. The Company compares the expected return on plan assets assumption to actual historic returns to ensure reasonability. For 2019, the return on plan assets assumption for PPG’s U.S. defined benefit pension plans was 7.4%. A change in the rate of return of 100 basis points, with other assumptions held constant, would impact 2019 net periodic pension expense by $13 million. The global expected return on plan assets assumption to be used in determining 2020 net periodic pension expense will be 5.0% (7.4% for the U.S. plans only).
The discount rates used in accounting for pension and other postretirement benefits are determined using a yield curve constructed of high-quality fixed-income securities as of the measurement date and using the plans’ projected benefit payments. The Company has elected to use a full yield curve approach in the estimation of the service and interest cost components of net periodic pension benefit cost (income) for countries with significant pension plans. The full yield curve approach (also known as the split-rate or spot-rate method) allows the Company to align the applicable discount rates with the cost of additional service being earned and the interest being accrued on these obligations. A change in the discount rate of 100 basis points, with all other assumptions held constant, would impact 2020 net periodic benefit expense for our defined benefit pension and other postretirement benefit plans by $16 million and $6 million, respectively.
In 2019, the Company updated mortality tables used to calculate its U.S. defined benefit pension and other postretirement benefit liabilities. The Company considered the available mortality tables released by the Society of Actuaries’ Retirement Plans Experience Committee and performed a review of its own mortality history, as well the industry in which the Company operates to assess future improvements in mortality rates based on its U.S. population. The Company chose to value its U.S. defined benefit pension and other postretirement benefit liabilities using a slightly modified assumption of future mortality which better approximates our plan participant population.
The weighted-average health care cost trend rate (inflation) used for 2019 was 5.0% declining to a projected 4.3% in the year 2039. For 2020, the assumed weighted-average health care cost trend rate used will be 4.8% declining to a projected 4.3% between 2020 and 2039 for medical and prescription drug costs, respectively. These assumptions are reviewed on an annual basis. In selecting rates for current and long-term health care cost assumptions, the Company takes into consideration a number of factors, including the Company’s actual health care cost increases, the design of the Company’s benefit programs, the demographics of the Company’s active and retiree populations and external expectations of future medical cost inflation rates.
Contributions to defined benefit pension plans
($ in millions)
2019

2018

2017

U.S. defined benefit pension plans

$—


$75


$54

Non-U.S. defined benefit pension plans

$13


$24


$33


PPG made voluntary contributions of $75 million to its U.S. defined benefit pension plans in 2018. Contributions made to PPG’s non-U.S. defined benefit pension plans in 2019 and 2018 were required by local funding requirements. PPG expects to make mandatory contributions to its non-U.S. plans in the range of $15 million to $20 million in 2020. PPG may make voluntary contributions to its defined benefit pension plans in 2020 and beyond.
Benefit payments
The estimated benefits expected to be paid under the Company’s defined benefit pension and other postretirement benefit plans are:
($ in millions)
Pensions

 
Other Postretirement Benefits

2020

$145

 

$51

2021

$143

 

$51

2022

$146

 

$50

2023

$153

 

$49

2024

$160

 

$48

2025 to 2029

$845

 

$209


U.S. Qualified Pension
Beginning in 2012, the Company offered a lump sum payout option that gave certain terminated vested participants in certain U.S. defined benefit pension plans the opportunity to take a one-time lump sum cash payment in lieu of receiving a future monthly annuity. During 2017, PPG paid $87 million in lump sum benefits to terminated vested participants who elected to participate in the program. As the lump-sum payments were in excess of the expected 2017 service and interest costs for the qualified pension plans, PPG remeasured the periodic benefit obligation of the qualified plans and recorded a settlement charge totaling $35 million.
U.S. Non-qualified Pension
In the first quarter 2017, PPG made lump-sum payments to certain retirees who had participated in PPG's U.S. non-qualified pension plan (the "Nonqualified Plan") totaling approximately $40 million. As the lump-sum payments were in excess of the
expected 2017 service and interest costs for the Nonqualified Plan, PPG remeasured the periodic benefit obligation of the Nonqualified Plan as of March 1, 2017 and recorded a settlement charge totaling $22 million.
Plan assets
Each PPG sponsored defined benefit pension plan is managed in accordance with the requirements of local laws and regulations governing defined benefit pension plans for the exclusive purpose of providing pension benefits to participants and their beneficiaries. Investment committees comprised of PPG managers have fiduciary responsibility to oversee the management of pension plan assets by third party asset managers. Pension plan assets are held in trust by financial institutions and managed on a day-to-day basis by the asset managers. The asset managers receive a mandate from each investment committee that is aligned with the asset allocation targets established by each investment committee to achieve the plan’s investment strategies. The performance of the asset managers is monitored and evaluated by the investment committees throughout the year. 
Pension plan assets are invested to generate investment earnings over an extended time horizon to help fund the cost of benefits promised under the plans while mitigating investment risk. The asset allocation targets established for each pension plan are intended to diversify the investments among a variety of asset categories and among a variety of individual securities within each asset category to mitigate investment risk and provide each plan with sufficient liquidity to fund the payment of pension benefits to retirees.
The following summarizes the weighted average target pension plan asset allocation as of December 31, 2019 and 2018 for all PPG defined benefit plans:
Asset Category
2019
 
2018
Equity securities
15-45%
 
15-45%
Debt securities
30-65%
 
30-65%
Real estate
0-10%
 
0-10%
Other
20-40%
 
20-40%
 
The fair values of the Company’s pension plan assets at December 31, 2019 and 2018, by asset category, are as follows:
 
December 31, 2019
 
December 31, 2018
($ in millions)
Level 1(1)

Level 2(1)

Level 3(1)

Total

 
Level 1(1)

Level 2(1)

Level 3(1)

Total

Asset Category
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
U.S.
 
 
 
 
 
 
 
 
 
Large cap

$58


$80


$—


$138

 

$43


$94


$—


$137

Small cap
41

—

—

41

 
23

—

—

23

Non-U.S.
 
 
 
 
 
 
 
 
 
Developed and emerging markets(2)
143

84

—

227

 
115

103

—

218

Debt securities:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
10

16

—

26

 
3

19

—

22

Corporate(3)
 
 
 
 
 
 
 
 
 
U.S.(4)
—

337

77

414

 
—

220

77

297

Developed and emerging markets(2)
—

2

—

2

 
—

4

—

4

Diversified(5)
—

237

—

237

 
—

142

—

142

Government
 
 
 
 
 
 
 
 
 
U.S.(4)
72

9

—

81

 
68

8

—

76

Developed markets
—

7

—

7

 
—

6

—

6

Other(6)
—

18

377

395

 
—

14

359

373

Real estate, hedge funds, and other
—

303

381

684

 
—

304

359

663

Total assets in the fair value hierarchy

$324


$1,093


$835


$2,252

 

$252


$914


$795


$1,961

Common-collective trusts(7)
—

—

—

713

 
—

—

—

657

Total Investments

$324


$1,093


$835


$2,965

 

$252


$914


$795


$2,618

(1)
These levels refer to the accounting guidance on fair value measurement described in Note 10, “Financial Instruments, Hedging Activities and Fair Value Measurements.”
(2)
These amounts represent holdings in investment grade debt or equity securities of issuers in both developed markets and emerging economies.
(3)
This category represents investment grade debt securities from a diverse set of industry issuers.
(4)
These investments are primarily long duration fixed income securities.
(5)
This category represents commingled funds invested in diverse portfolios of debt securities.
(6)
This category includes mortgage-backed and asset backed debt securities, municipal bonds and other debt securities including derivatives.
(7)
Certain investments that are measured at net asset value per share (or its equivalent) are not required to be classified in the fair value hierarchy.
The change in the fair value of the Company’s Level 3 pension assets for the years ended December 31, 2019 and 2018 was as follows:
($ in millions)
Real Estate

 
Other Debt Securities

 
Hedge Funds and Other Assets

 
Total

January 1, 2018

$138

 

$418

 

$446

 

$1,002

Realized gains/(losses)
9

 
(29
)
 
10

 
(10
)
Unrealized losses
—

 
—

 
(28
)
 
(28
)
Transfers out, net
(6
)
 
(12
)
 
(119
)
 
(137
)
Foreign currency losses
(4
)
 
(18
)
 
(10
)
 
(32
)
December 31, 2018

$137

 

$359

 

$299

 

$795

Realized gains/(losses)
18

 
38

 
(3
)
 
53

Unrealized (losses)/gains
(7
)
 
—

 
15

 
8

Transfers (out)/in, net
(27
)
 
(12
)
 
17

 
(22
)
Foreign currency gains/(losses)
2

 
(8
)
 
7

 
1

December 31, 2019

$123

 

$377

 

$335

 

$835


Real estate properties are externally appraised at least annually by reputable, independent appraisal firms. Property valuations are also reviewed on a regular basis and are adjusted if there has been a significant change in circumstances related to the property since the last valuation.
Other debt securities consist of insurance contracts, which are externally valued by insurance companies based on the present value of the expected future cash flows.
Hedge funds consist of a wide range of investments which target a relatively stable investment return. The underlying funds are valued at different frequencies, some monthly and some quarterly, based on the value of the underlying investments. Other assets consist primarily of small investments in private equity funds and senior secured debt obligations of non-investment grade borrowers.
Sale of the flat glass business
In 2018, PPG transferred pension assets of $20 million as a result of the sale of its flat glass business in 2016 and subsequent finalization of the transfer of pension obligations to the buyer.
Other Plans
Employee savings plans
PPG’s Employee Savings Plans (“Savings Plans”) cover substantially all employees in the U.S., Puerto Rico and Canada. The Company makes matching contributions to the Savings Plans, at management’s discretion, based upon participants’ savings, subject to certain limitations. For most participants not covered by a collective bargaining agreement, Company-matching contributions are established each year at the discretion of the Company and are applied to participant savings up to a maximum of 6% of eligible participant compensation. For those participants whose employment is covered by a collective bargaining agreement, the level of Company-matching contribution, if any, is determined by the relevant collective bargaining agreement. The Company-matching contribution remained at 100% for 2019.
Compensation expense and cash contributions related to the Company match of participant contributions to the Savings Plans for 2019, 2018, and 2017 totaled $49 million, $47 million and $46 million, respectively. A portion of the Savings Plans qualifies under the Internal Revenue Code as an Employee Stock Ownership Plan. Accordingly, dividends received on PPG shares held in that portion of the Savings Plans totaling $11 million, $13 million, and $14 million for 2019, 2018, and 2017, respectively, are deductible for PPG’s U.S. Federal tax purposes.
Defined contribution plans
Additionally, the Company has defined contribution plans for certain employees in the U.S., China, United Kingdom, Australia, Italy, and other countries. The U.S. defined contribution plan is in the Employee Savings Plan and eligible employees receive a contribution equal to between 2% and 5% of annual compensation, based on age and years of service. For the years ended December 31, 2019, 2018, and 2017, the Company recognized expense for its defined contribution retirement plans of $70 million, $63 million and $57 million, respectively. The Company’s annual cash contributions to its defined contribution retirement plans approximated the expense recognized in each year.
Deferred compensation plan
The Company has a deferred compensation plan for certain key managers which allows them to defer a portion of their compensation in a phantom PPG stock account or other phantom investment accounts. The amount deferred earns a return based on the investment options selected by the participant. The amount owed to participants is an unfunded and unsecured general obligation of the Company. Upon retirement, death, disability, termination of employment, scheduled payment or unforeseen emergency, the compensation deferred and related accumulated earnings are distributed in accordance with the participant’s election in cash or in PPG stock, based on the accounts selected by the participant.
The plan provides participants with investment alternatives and the ability to transfer amounts between the phantom non-PPG stock investment accounts. To mitigate the impact on compensation expense of changes in the market value of the liability, the Company has purchased a portfolio of marketable securities that mirror the phantom non-PPG stock investment accounts selected by the participants, except the money market accounts. These investments are carried by PPG at fair market value, and the changes in market value of these securities are also included in Income before income taxes in the consolidated statement of income. Trading occurs in this portfolio to align the securities held with the participant’s phantom non-PPG stock investment accounts, except the money market accounts.
The cost (benefit) of the deferred compensation plan, comprised of dividend equivalents accrued on the phantom PPG stock account, investment income and the change in market value of the liability, was $21 million, $(1) million and $19 million in 2019, 2018 and 2017, respectively. These amounts are included in Selling, general and administrative in the consolidated statements of income. The change in market value of the investment portfolio was income (expense) of $20 million, $(2) million, and $18 million in 2019, 2018 and 2017, respectively, and is also included in Selling, general and administrative in the consolidated statements of income.
The Company’s obligations under this plan, which are included in Accounts payable and accrued liabilities and Other liabilities on the consolidated balance sheet, totaled $123 million and $110 million as of December 31, 2019 and 2018, respectively,
and the investments in marketable securities, which are included in Investments and Other current assets on the accompanying consolidated balance sheet, were $85 million and $73 million as of December 31, 2019 and 2018, respectively.