We have defined benefit pension plans covering certain of our North American employees. In May 2019, the U.S. qualified pension plan was amended such that all employees who were not participants in the plan as of December 31, 2019, will not become participants after such date. All benefit accruals were frozen as of December 31, 2019 for all plan participants with less than eleven years of service as of December 31, 2019. For participants with more than eleven years of service as of December 31, 2019, benefit accruals will be frozen as of December 31, 2022. Participants will continue to accrue interest in accordance with the plan’s provisions.

We also sponsor postretirement medical and life insurance plans, which are available to most of our retired U.S. employees. These plans are contributory and are not funded. The measurement date of the assets and liabilities is the month-end date that is closest to our fiscal year end. The following tables set forth the plans’ changes in benefit obligations and plan assets, funded status, and amounts recognized in the Consolidated Balance Sheets:

(1)	In connection with the pension litigation, the Company reformed its U.S. qualified pension plan during the second quarter of 2018 in accordance with the court’s order.


	Pension Benefits				Postretirement Benefits
	2019		2018		2019		2018
Amounts recognized in accumulated other
comprehensive loss, pre-tax:
Net loss (gain)	$	392	$	391	$	(5)	$	(6)
Prior service cost		—		1		—		—
	$	392	$	392	$	(5)	$	(6)

The Canadian qualified pension plan’s assets exceeded its accumulated benefit obligation for both 2019 and 2018. The Company’s non-qualified pension plans have an accumulated benefit obligation in excess of plan assets, as these plans are unfunded. Accordingly, the table below reflects both the U.S. qualified plan and the non-qualified plans for both 2019 and 2018.


	2019		2018
	($ in millions)
Projected benefit obligation	$	727	$	696
Accumulated benefit obligation		727		696
Fair value of plan assets		664		593

The following tables set forth the changes in AOCL (pre-tax) at February 1, 2020:


	Pension		Postretirement
	Benefits		Benefits
	($ in millions)
Net actuarial loss (gain) at beginning of year	$	391	$	(6)
Amortization of net (loss) gain		(12)		1
Loss arising during the year		13		—
Foreign currency fluctuations		—		—
Net actuarial loss (gain) at end of year ⁽¹⁾	$	392	$	(5)

(1)	The amounts in AOCL that are expected to be recognized as components of net periodic benefit cost (income) during the next year are approximately $12 million and $(1) million related to the pension and postretirement plans, respectively.

The following weighted-average assumptions were used to determine the benefit obligations under the plans:


	Pension Benefits				Postretirement Benefits
	2019		2018		2019		2018
Discount rate	2.9	%	4.0	%	3.0	%	4.1	%
Rate of compensation increase	3.6	%	3.6	%

Pension expense is actuarially calculated annually based on data available at the beginning of each year. The expected return on plan assets is determined by multiplying the expected long-term rate of return on assets by the market-related value of plan assets for the U.S. qualified pension plan and market value for the Canadian qualified pension plan. The market-related value of plan assets is a calculated value that recognizes investment gains and losses in fair value related to equities over three or five years, depending on which computation results in a market-related value closer to market value. Market-related value for the U.S. qualified plan was $601 million and $615 million for 2019 and 2018, respectively.

Assumptions used in the calculation of net benefit cost include the discount rate selected and disclosed at the end of the previous year, as well as other assumptions detailed in the table below:


	Pension Benefits						Postretirement Benefits
	2019		2018		2017		2019		2018		2017
Discount rate ⁽¹⁾	4.0	%	4.0	%	4.0	%	4.1	%	3.7	%	4.0	%
Rate of compensation increase	3.6	%	3.6	%	3.6	%
Expected long-term rate of return on assets	5.8	%	5.9	%	5.8	%

(1)	The U.S qualified pension plan was remeasured during the second quarter of 2018 in connection with the pension litigation. The discount rate used to determine the benefit obligation in 2018 before the remeasurement was 3.7%.

The expected long-term rate of return on invested plan assets is based on the plans’ weighted-average target asset allocation, as well as historical and future expected performance of those assets. The target asset allocation is selected to obtain an investment return that is sufficient to cover the expected benefit payments and to reduce the variability of future contributions by the Company.

The following are the components of net periodic pension benefit cost and net periodic postretirement benefit income.


	Pension Benefits						Postretirement Benefits
	2019		2018		2017		2019		2018		2017

Service cost	$	20	$	18	$	17	$	—	$	—	$	—
Interest cost		27		29		25		—		—		1
Expected return on plan assets		(37)		(38)		(37)		—		—		—
Amortization of net loss (gain)		12		12		13		(1)		(1)		(2)
Net benefit expense (income)	$	22	$	21	$	18	$	(1)	$	(1)	$	(1)

Service cost is recognized as a component of SG&A and the remaining pension and postretirement expense components are recognized as part of Other income, net. In 2017 all components of net benefit expense (income) were recognized as part of SG&A.

Beginning in 2001, new retirees were charged the expected full cost of the medical plan, and then-existing retirees will incur 100 percent of the expected future increases in medical plan costs. Any changes in the health care cost trend rates assumed would not affect the accumulated benefit obligation or net benefit income, since retirees will incur 100 percent of such expected future increases.

The Company maintains a Supplemental Executive Retirement Plan (“SERP”), which is an unfunded plan that includes provisions for the continuation of medical and dental insurance benefits to certain executive officers and other key employees of the Company (“SERP Medical Plan”). The SERP Medical Plan’s accumulated projected benefit obligation at February 1, 2020 was $10 million. The following initial and ultimate cost trend rate assumptions were used to determine the benefit obligations under the SERP Medical Plan:


	Medical Trend Rate						Dental Trend Rate
	2019		2018		2017		2019		2018		2017
Initial cost trend rate	6.5	%	6.5	%	7.0	%	5.0	%	5.0	%	5.0	%
Ultimate cost trend rate	5.0	%	5.0	%	5.0	%	5.0	%	5.0	%	5.0	%
Year that the ultimate cost trend rate is reached	2025		2025		2025		2020		2019		2018

The following initial and ultimate cost trend rate assumptions were used to determine the net periodic cost under the SERP Medical Plan:


	Medical Trend Rate						Dental Trend Rate
	2019		2018		2017		2019		2018		2017
Initial cost trend rate	6.5	%	7.0	%	7.0	%	5.0	%	5.0	%	5.0	%
Ultimate cost trend rate	5.0	%	5.0	%	5.0	%	5.0	%	5.0	%	5.0	%
Year that the ultimate cost trend rate is reached	2025		2025		2021		2019		2018		2017

A one percentage-point change in the assumed health care cost trend rates would have the following effects on the SERP Medical Plan:

The mortality assumption used to value the Company’s 2019 U.S. pension obligations was the Pri-2012 mortality table with generational projection using modified MP-2019 for both males and females, while in the prior year the obligation was valued using the RP-2017 mortality table with generational projection using modified MP-2017. The Company used the 2014 CPM Private Sector mortality table projected generationally with Scale CPM-B for both males and females to value its Canadian pension obligations for 2019, while in the prior year the obligation was valued using the RP-2000 mortality table with generational projection using scale AA. For the SERP Medical Plan, the mortality assumption used to value the 2019 obligation was updated to the PriH-2012 table with generational projection using MP-2019, while in the prior year the obligation was valued using the RPH-2018 table with generational projection using MP-2018.

Plan Assets

The target composition of the Company’s Canadian qualified pension plan assets is 95 percent fixed-income securities and 5 percent equities. The Company believes plan assets are invested in a conservative manner with the same overall objective and investment strategy as noted below for the U.S. pension plan. The bond portfolio is comprised of government and corporate bonds chosen to match the duration of the pension plan’s benefit payment obligations. This current asset allocation will limit future volatility with regard to the funded status of the plan.

The target composition of the Company’s U.S. qualified pension plan assets is 60 percent fixed-income securities, 36.5 percent equities, and 3.5 percent real estate. The Company may alter the asset allocation targets from time to time depending on market conditions and the funding requirements of the pension plan. This current asset allocation has and is expected to limit volatility with regard to the funded status of the plan, but may result in higher pension expense due to the lower long-term rate of return associated with fixed-income securities. Due to market conditions and other factors, actual asset allocations may vary from the target allocation outlined above.

The Company believes plan assets are invested in a conservative manner with an objective of providing a total return that, over the long term, provides sufficient assets to fund benefit obligations, taking into account the Company’s expected contributions and the level of funding risk deemed appropriate. The Company’s investment strategy seeks to diversify assets among classes of investments with differing rates of return, volatility, and correlation in order to reduce funding risk. Diversification within asset classes is also utilized to ensure that there are no significant concentrations of risk in plan assets and to reduce the effect that the return on any single investment may have on the entire portfolio.

Valuation of Investments

Significant portions of plan assets are invested in commingled trust funds. These funds are valued at the net asset value of units held by the plan at year end. Stocks traded on U.S. and Canadian security exchanges are valued at closing market prices on the measurement date.

The fair values of the Canadian pension plan assets at February 1, 2020 and February 2, 2019 were as follows:


	Level 1		Level 2		Level 3		2019 Total		2018 Total*
	($ in millions)
Cash equivalents	$	—	$	1	$	—	$	1	$	1
Equity securities:
Canadian and international ⁽¹⁾		2		—		—		2		3
Fixed-income securities:
Cash matched bonds ⁽²⁾		—		48		—		48		47
Total assets at fair value	$	2	$	49	$	—	$	51	$	51

*	Each category of plan assets is classified within the same level of the fair value hierarchy for 2019 and 2018.

(1)	This category comprises one mutual fund that invests primarily in a diverse portfolio of Canadian securities.

(2)	This category consists of fixed-income securities, including strips and coupons, issued or guaranteed by the Government of Canada, provinces or municipalities of Canada including their agencies and crown corporations, as well as other governmental bonds and corporate bonds.

The fair values of the Company’s U.S. pension plan assets at February 1, 2020 and February 2, 2019 were as follows:


	Level 1		Level 2		Level 3		2019 Total		2018 Total*
	($ in millions)
Cash equivalents	$	—	$	3	$	—	$	3	$	3
Equity securities:
U.S. large-cap ⁽¹⁾		—		116		—		116		106
U.S. mid-cap ⁽¹⁾		—		34		—		34		32
International ⁽²⁾		—		78		—		78		72
Corporate stock ⁽³⁾		15		—		—		15		22
Fixed-income securities:
Long duration corporate and government bonds ⁽⁴⁾		—		273		—		273		234
Intermediate duration corporate and government bonds ⁽⁵⁾		—		121		—		121		104
Other types of investments:
Real estate securities ⁽⁶⁾		—		23		—		23		20
Insurance contracts		—		1		—		1		—
Total assets at fair value	$	15	$	649	$	—	$	664	$	593

*	Each category of plan assets is classified within the same level of the fair value hierarchy for 2019 and 2018.

(1)	These categories consist of various managed funds that invest primarily in common stocks, as well as other equity securities and a combination of other funds.

(2)	This category comprises three managed funds that invest primarily in international common stocks, as well as other equity securities and a combination of other funds.

(3)	This category consists of the Company’s common stock.

(4)	This category consists of various fixed-income funds that invest primarily in long-term bonds, as well as a combination of other funds, that together are designed to exceed the performance of related long-term market indices.

(5)	This category consists of two fixed-income funds that invest primarily in intermediate duration bonds, as well as a combination of other funds, that together are designed to exceed the performance of related indices.

(6)	This category consists of one fund that invests in global real estate securities.

Contributions and Expected Payments

We made a contribution of $55 million and $128 million to our U.S. qualified pension plan during 2019 and 2018, respectively. During 2019, we also paid $2 million in pension benefits related to our non-qualified pension plans. We do not anticipate making any contributions to the U.S. qualified pension plans in 2020, however we continually evaluate the amount and timing of any potential contributions based on market conditions and other factors.

Estimated future benefit payments for each of the next five years and the five years thereafter are as follows:


	Pension		Postretirement
	Benefits		Benefits
	($ in millions)
2020	$	103	$	1
2021		52		1
2022		52		1
2023		49		—
2024		46		—
2025-2029		211		2

Savings Plans

The Company has two qualified savings plans, a 401(k) plan that is available to employees whose primary place of employment is the U.S., and another plan that is available to employees whose primary place of employment is in Puerto Rico. Eligible associates may contribute to the plans following 28 days of employment and are eligible for Company matching contributions upon completion of one year of service consisting of at least 1,000 hours. As of January 1, 2020, the savings plans allow eligible employees to contribute up to 40 percent of their compensation on a pre-tax basis, subject to a maximum of $19,500 for the U.S. plan and $15,000 for the Puerto Rico plan. Prior to January 1, 2020, the Company matched 25 percent of employees’ pre-tax contributions on up to the first 4 percent of the employees’ compensation (subject to certain limitations). Effective January 1, 2020, the Company matches 100 percent of employees’ pre-tax contributions on up to the first 1 percent and 50 percent of the next 5 percent of the employees’ compensation (subject to certain limitations). Prior to January 1, 2020, such matching contributions are vested incrementally over the first five years of participation for both plans. Effective January 1, 2020, matching contributions are vested over two years. The charge to operations for the Company’s matching contribution was $4 million for both 2019 and 2018.

1% Increase

1% (Decrease)

($ in millions)

Effect on total service and interest cost components

Effect on accumulated postretirement benefit obligation