Pension Benefit Plans and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2019

Pension Benefit Plans and Other Postretirement Benefits

Pension Benefit Plans and Other Postretirement Benefits

10. Pension Benefit Plans and Other Postretirement Benefits

Pension Benefit Plans

The Company has defined benefit pension plans covering a substantial number of employees located in the United States and several other non-U.S. jurisdictions. Benefits generally are based on compensation for salaried employees and on length of service for hourly employees. The Company’s policy is to fund pension plans such that sufficient assets will be available to meet future benefit requirements. The Company’s defined benefit pension plans use a December 31 measurement date.

The changes in the pension benefit obligations for the year are as follows:

	U.S.				Non-U.S.
	2019		2018		2019		2018
Obligations at beginning of year	$	1,413	$	1,650	$	1,022	$	1,148
Change in benefit obligations:
Service cost		12		14		12		15
Interest cost		58		59		33		32
Actuarial (gain) loss, including the effect of change in discount rates		144		(108)		116		(23)
Settlements		(35)		(114)		(44)		(35)
Acquisitions						30
Participant contributions						1		2
Benefit payments		(87)		(91)		(37)		(51)
Other				3		(6)		(2)
Foreign currency translation						23		(64)
Net change in benefit obligations		92		(237)		128		(126)
Obligations at end of year	$	1,505	$	1,413	$	1,150	$	1,022

The changes in the fair value of the pension plans’ assets for the year are as follows:

	U.S.				Non-U.S.
	2019		2018		2019		2018
Fair value at beginning of year	$	1,094	$	1,394	$	843	$	975
Change in fair value:
Actual gain (loss) on plan assets		235		(96)		110		(15)
Benefit payments		(87)		(91)		(37)		(51)
Employer contributions		8		1		25		33
Participant contributions						1		2
Settlements		(35)		(114)		(44)		(35)
Acquisitions						30
Foreign currency translation						26		(58)
Other						(7)		(8)
Net change in fair value of assets		121		(300)		104		(132)
Fair value at end of year	$	1,215	$	1,094	$	947	$	843

The Company recognizes the funded status of each pension benefit plan on the balance sheet. The funded status of each plan is measured as the difference between the fair value of plan assets and actuarially calculated benefit obligations as of the balance sheet date. Actuarial gains and losses are accumulated in Other

Comprehensive Income and the portion of each plan that exceeds 10% of the greater of that plan’s assets or projected benefit obligation is amortized to income on a straight-line basis over the average remaining service period of employees still accruing benefits or the expected life of participants not accruing benefits if all, or almost all, of the plan’s participants are no longer accruing benefits.

The funded status of the pension plans at year end is as follows:

	U.S.				Non-U.S.
	2019		2018		2019		2018
Plan assets at fair value	$	1,215	$	1,094	$	947	$	843
Projected benefit obligations		1,505		1,413		1,150		1,022
Plan assets less than projected benefit obligations		(290)		(319)		(203)		(179)
Items not yet recognized in pension expense:
Actuarial loss		722		785		327		285
Prior service cost (credit)						5		4
		722		785		332		289
Net amount recognized	$	432	$	466	$	129	$	110

The net amount recognized is included in the Consolidated Balance Sheets at December 31, 2019 and 2018 as follows:

	U.S.				Non-U.S.
	2019		2018		2019		2018
Pension assets	$	—	$	—	$	42	$	44
Current pension liability, included with other accrued liabilities		(1)		(3)		(6)		(5)
Pension benefits		(289)		(316)		(239)		(218)
Accumulated other comprehensive loss		722		785		332		289
Net amount recognized	$	432	$	466	$	129	$	110

The following changes in plan assets and benefit obligations were recognized in accumulated other comprehensive income at December 31, 2019 and 2018 as follows (amounts are pretax):

	U.S.				Non-U.S.
	2019		2018		2019		2018
Current year actuarial (gain) loss	$	(6)	$	86	$	54	$	43
Amortization of actuarial loss		(41)		(51)		(10)		(11)
Settlement		(22)		(61)		(9)		(13)
Other		5		(1)		1		6
		(64)		(27)		36		25
Translation						8		(18)
Change in accumulated other comprehensive income	$	(64)	$	(27)	$	44	$	7

The accumulated benefit obligation for all defined benefit pension plans was $2,622 million and $2,379 million at December 31, 2019 and 2018, respectively.

The components of the net pension expense for the year are as follows:

	U.S.						Non-U.S.
	2019		2018		2017		2019		2018		2017
Service cost	$	12	$	14	$	14	$	12	$	15	$	15
Interest cost		58		59		78		33		32		40
Expected asset return		(86)		(98)		(128)		(48)		(52)		(63)
Amortization:
Actuarial loss		41		51		57		10		11		16
Net expense	$	25	$	26	$	21	$	7	$	6	$	8

Effective January 1, 2016, the Company amended its salary pension plan in North America to freeze future pension benefits. This action required an obligation remeasurement for the curtailment of benefits, which resulted in a reduction of the Company’s pension expense.

In 2019, the Company settled a portion of its pension obligations in the U.S., the United Kingdom and Mexico, resulting in settlement charges of $17 million, $7 million and $2 million, respectively. In 2018, the Company settled a portion of its pension obligations in the U.S. and the United Kingdom, resulting in settlement charges of $61 million and $13 million, respectively. A retiree annuity contract purchase transaction in the U.S. amounting to approximately $94 million in 2018 gave rise to the majority of the settlement charges, with lump-sum payments directly to plan participants comprising the remainder. In 2017, the Company settled a portion of its pension obligations in the U.S., Canada and the United Kingdom, resulting in settlement charges of $176 million, $27 million and $15 million, respectively. Retiree annuity contract purchase transactions in the U.S. and Canada amounting to approximately $369 million and $123 million, respectively, with several insurers, gave rise to the majority of the settlement transactions, with lump-sum payments directly to plan participants comprising the remainder.

The components of pension expense, other than the service cost component, as well as pension settlement charges are included in Other expense, net on the Consolidated Results of Operations.

Amounts that are expected to be amortized from accumulated other comprehensive income into net pension expense during 2020:

	U.S.		Non-U.S.
Actuarial loss	$	56	$	13

The following information is for plans with projected and accumulated benefit obligations in excess of the fair value of plan assets at year end:

	Projected Benefit Obligation Exceeds								Accumulated Benefit Obligation Exceeds
	the Fair Value of Plan Assets								the Fair Value of Plan Assets
	U.S.				Non-U.S.				U.S.				Non-U.S.
	2019		2018		2019		2018		2019		2018		2019		2018
Projected benefit obligations	$	1,505	$	1,413	$	952	$	815	$	1,505	$	1,413	$	952	$	815
Accumulated benefit obligation		1,505		1,412		927		793		1,505		1,412		927		793
Fair value of plan assets		1,215		1,094		706		591		1,215		1,094		706		591

The weighted average assumptions used to determine benefit obligations are as follows:

	U.S.				Non-U.S.
	2019		2018		2019		2018
Discount rate	3.39	%	4.36	%	2.53	%	3.01	%
Rate of compensation increase	N/A		N/A		2.89	%	2.75	%

The weighted average assumptions used to determine net periodic pension costs are as follows:

	U.S.						Non-U.S.
	2019		2018		2017		2019		2018		2017
Discount rate	4.36	%	3.69	%	4.17	%	3.01	%	2.76	%	2.94	%
Rate of compensation increase	N/A		N/A		N/A	%	2.76	%	2.78	%	2.90	%
Expected long-term rate of return on assets	7.25	%	7.25	%	7.50	%	5.50	%	5.52	%	6.32	%

Future benefits are assumed to increase in a manner consistent with past experience of the plans, which, to the extent benefits are based on compensation, includes assumed salary increases as presented above.

For 2019, the Company’s weighted average expected long-term rate of return on assets was 7.25% for the U.S. plans and 5.50% for the non-U.S. plans. In developing this assumption, the Company considered its historical 10-year average return (through December 31, 2019) and evaluated input from its third party pension plan asset consultants, including their review of asset class return expectations.

It is the Company’s policy to invest pension plan assets in a diversified portfolio consisting of an array of asset classes within established target asset allocation ranges. The investment risk of the assets is limited by appropriate diversification both within and between asset classes. Plan assets are primarily invested in a broad mix of domestic and international equities, domestic and international bonds, and real estate, subject to target asset allocation ranges, which may differ by individual plan. The assets are managed with a view to ensuring that sufficient liquidity will be available to meet expected cash flow requirements.

The investment valuation policy of the Company is to value investments at fair value. Equity securities for which market quotations are readily available are valued at the last reported sales price on their principal exchange on valuation date or official close for certain markets. Fixed income investments are valued by an independent pricing service. Investments in registered investment companies or collective pooled funds are valued at their respective net asset values. Short-term investments are stated at amortized cost, which approximates fair value. The fair value of real estate is determined by periodic appraisals.

The assets of the U.S. plans are maintained in a group trust. The U.S. plans hold no individual assets other than the investment in the group trust. The Company’s U.S. pension plan assets held in the group trust are measured at net asset value in the fair value hierarchy. The total U.S. plan assets amounted to $1,215 million and $1,094 million as of December 31, 2019 and 2018, respectively. In 2019, the group trust assets consisted of approximately 65% equity securities, 28% debt securities, and 7% real estate and other.

In 2019, the non-U.S. plan assets consisted of approximately 12% equity securities, 62% debt securities, and 26% real estate and other. The following table sets forth by level, within the fair value hierarchy, the Company’s non-U.S. pension plan assets at fair value as of December 31, 2019 and 2018:

	2019								2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	8	$	—	$	—	$	8	$	9	$	—	$	—	$	9
Equity securities								—								—
Debt securities		55		3				58		34		7				41
Real estate								—								—
Other				23				23				30				30
Total	$	63	$	26	$	—			$	43	$	37	$	—
Investments measured at net asset value							$	858							$	763
Total non-U.S. assets at fair value							$	947							$	843

In order to maintain minimum funding requirements, the Company is required to make contributions to its defined benefit pension plans of approximately $52 million in 2020.

The following estimated future benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated:

Year(s)	U.S.		Non-U.S.
2020	$	97	$	55
2021		96		53
2022		96		57
2023		94		59
2024		94		59
2025-2029		448		313

The Company also sponsors several defined contribution plans for all salaried and hourly U.S. employees, and employees in Canada, the United Kingdom, the Netherlands and Australia. Participants’ contributions are based on their compensation. The Company matches contributions of participants, up to various limits, in substantially all plans. Company contributions to these plans amounted to $33 million in 2019, $36 million in 2018, and $33 million in 2017.

Postretirement Benefits Other Than Pensions

The Company provides retiree health care and life insurance benefits covering certain U.S. salaried and hourly employees, and substantially all employees in Canada. Benefits provided by the Company for hourly retirees are determined by collective bargaining. Employees are generally eligible for benefits upon retirement and completion of a specified number of years of creditable service. The Company uses a December 31 measurement date to measure its postretirement benefit obligations.

The changes in the postretirement benefit obligations for the year are as follows:

	U.S.				Non-U.S.
	2019		2018		2019		2018
Obligations at beginning of year	$	74	$	89	$	80	$	89
Change in benefit obligations:
Service cost						1		1
Interest cost		4		3		3		3
Actuarial (gain) loss, including the effect of changing discount rates		3		(9)		(15)		(4)
Benefit payments		(9)		(9)		(2)		(2)
Foreign currency translation						4		(7)
Other
Net change in benefit obligations		(2)		(15)		(9)		(9)
Obligations at end of year	$	72	$	74	$	71	$	80

The funded status of the postretirement benefit plans at year end is as follows:

	U.S.				Non-U.S.
	2019		2018		2019		2018
Postretirement benefit obligations	$	(72)	$	(74)	$	(71)	$	(80)
Items not yet recognized in net postretirement benefit cost:
Actuarial gain (loss)		1		(8)		(1)		(2)
Prior service credit		8		15
		9		7		(1)		(2)
Net amount recognized	$	(63)	$	(67)	$	(72)	$	(82)

The net amount recognized is included in the Consolidated Balance Sheets at December 31, 2019 and 2018 as follows:

	U.S.				Non-U.S.
	2019		2018		2019		2018
Current nonpension postretirement benefit, included with Other accrued liabilities	$	(5)	$	(6)	$	(3)	$	(3)
Nonpension postretirement benefits		(67)		(68)		(68)		(77)
Accumulated other comprehensive income (loss)		9		7		(1)		(2)
Net amount recognized	$	(63)	$	(67)	$	(72)	$	(82)

The following changes in benefit obligations were recognized in accumulated other comprehensive income at December 31, 2019 and 2018 as follows (amounts are pretax):

	U.S.				Non-U.S.
	2019		2018		2019		2018
Current year actuarial (gain) loss	$	3	$	(8)	$	(15)	$	(4)
Amortization of actuarial loss		(1)		(2)
Amortization of prior service credit		8		7
	$	10	$	(3)	$	(15)	$	(4)

The components of the net postretirement benefit cost for the year are as follows:

	U.S.						Non-U.S.
	2019		2018		2017		2019		2018		2017
Service cost	$	—	$	—	$	—	$	1	$	1	$	1
Interest cost		4		3		4		3		3		3
Amortization:
Actuarial loss		1		2		2
Prior service credit		(8)		(7)		(8)
Net amortization		(7)		(5)		(6)		—		—		—
Net postretirement benefit (income) cost	$	(3)	$	(2)	$	(2)	$	4	$	4	$	4

Amounts that are expected to be amortized from accumulated other comprehensive income into net postretirement benefit cost during 2020:

	U.S.		Non-U.S.
Amortization:
Actuarial loss	$	1	$	(1)
Prior service credit		(8)
Net amortization	$	(7)	$	(1)

Amortization included in net postretirement benefit cost is based on the average remaining service of employees. The weighted average discount rates used to determine the accumulated postretirement benefit obligation and net postretirement benefit cost are as follows:

	U.S.						Non-U.S.
	2019		2018		2017		2019		2018		2017
Accumulated postretirement benefit obligation	3.31	%	4.30	%	3.61	%	3.00	%	3.60	%	3.35	%
Net postretirement benefit cost	4.30	%	3.61	%	4.11	%	3.60	%	3.35	%	3.55	%

The weighted average assumed health care cost trend rates at December 31 are as follows:

	U.S.				Non-U.S.
	2019		2018		2019		2018
Health care cost trend rate assumed for next year	5.80	%	6.00	%	5.00	%	5.00	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)	5.00	%	5.00	%	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2025		2025		N/A		N/A

Assumed health care cost trend rates affect the amounts reported for the postretirement benefit plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	U.S.				Non-U.S.
	1-Percentage-Point				1-Percentage-Point
	Increase		Decrease		Increase		Decrease
Effect on total of service and interest cost	$	—	$	—	$	1	$	(1)
Effect on accumulated postretirement benefit obligations		3		(2)		11		(9)

Amortization included in net postretirement benefit cost is based on the average remaining service of employees.

The following estimated future benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated:

Year(s)	U.S.		Non-U.S.
2020	$	6	$	3
2021		6		3
2022		6		3
2023		5		3
2024		5		3
2025  -  2029		21		15

Other U.S. hourly retirees receive health and life insurance benefits from a multi-employer trust established by collective bargaining. Payments to the trust as required by the bargaining agreements are based upon specified amounts per hour worked and were $5 million in 2019, $6 million in 2018 and $6 million in 2017. Postretirement health and life benefits for retirees of foreign subsidiaries are generally provided through the national health care programs of the countries in which the subsidiaries are located.