Our principal retirement plans in the United States are a defined contribution plan; an enhanced defined contribution plan; and qualified and non-qualified defined benefit pension plans. The defined benefit plans were closed to new participants in 1997, and then current participants were allowed to make a one-time election to continue accruing a benefit in the plans or to cease accruing a benefit and instead to participate in the enhanced defined contribution plan described below.

Both defined contribution plans offer an employer-matching savings option that allows employees to make pretax and post-tax contributions to various investment choices. Employees who elected to continue accruing a benefit in the qualified defined benefit pension plans may also participate in the defined contribution plan, where employer-matching contributions are provided for up to 2% of the employee’s annual eligible earnings. Employees who elected not to continue accruing a benefit in the defined benefit pension plans, and employees hired after November 1997 and through December 31, 2003, may participate in the enhanced defined contribution plan. This plan provides for a fixed employer contribution of 2% of the employee’s annual eligible earnings, plus an employer-matching contribution of up to 4% of the employee’s annual eligible earnings. Employees hired after December 31, 2003, do not receive the fixed employer contribution of 2% of the employee’s annual eligible earnings.

As of December 31, 2019 and 2018, as a result of employees’ elections, TI’s U.S. defined contribution plans held shares of TI common stock totaling 8 million shares and 9 million shares valued at $988 million and $821 million, respectively. Dividends paid on these shares in 2019 and 2018 were $26 million and $24 million, respectively. Effective April 1, 2016, the TI common stock fund was frozen to new contributions or transfers into the fund.

The defined benefit pension plans include employees still accruing benefits, as well as employees and participants who no longer accrue service-related benefits, but instead, may participate in the enhanced defined contribution plan. Benefits under the qualified defined benefit pension plan are determined using a formula based on years of service and the highest five consecutive years of compensation. We intend to contribute amounts to this plan to meet the minimum funding requirements of applicable local laws and regulations, plus such additional amounts as we deem appropriate. The non-qualified defined benefit plans are unfunded and closed to new participants.

U.S. employees who meet eligibility requirements are offered medical coverage during retirement. We make a contribution toward the cost of those retiree medical benefits for certain retirees and their dependents. The contribution rates are based upon various factors, the most important of which are an employee’s date of hire, date of retirement, years of service and eligibility for Medicare benefits. The balance of the cost is borne by the plan’s participants. Employees hired after January 1, 2001, are responsible for the full cost of their medical benefits during retirement.

We provide retirement coverage for non-U.S. employees, as required by local laws or to the extent we deem appropriate, through a number of defined benefit and defined contribution plans. Retirement benefits are generally based on an employee’s years of service and compensation. Funding requirements are determined on an individual country and plan basis and are subject to local country practices and market circumstances.

As of December 31, 2019 and 2018, as a result of employees’ elections, TI’s non-U.S. defined contribution plans held TI common stock valued at $28 million and $23 million, respectively. Dividends paid on these shares of TI common stock in 2019 and 2018 were not material.


	U.S. Defined Benefit										U.S. Retiree Health Care								Non-U.S. Defined Benefit
	2019		2018		2017		2019		2018		2017		2019		2018		2017
Service cost	$	18	$	19	$	22	$	3	$	5	$	5	$	31	$	36	$	37
Interest cost	38		35		42		14		15		17		43		45		44
Expected return on plan assets	(41)		(42)		(41)		(14)		(15)		(17)		(86)		(67)		(62)
Amortization of prior service cost (credit)	—		—		—		(1)		(3)		(4)		1		(1)		(2)
Recognized net actuarial loss	9		17		14		—		2		3		29		20		28
Net periodic benefit costs	24		29		37		2		4		4		18		33		45
Settlement losses	10		23		36		—		—		—		3		3		2
Total, including other postretirement losses	$	34	$	52	$	73	$	2	$	4	$	4	$	21	$	36	$	47

For the U.S. qualified pension and retiree health care plans, the expected return on plan assets component of net periodic benefit cost is based upon a market-related value of assets. In accordance with U.S. GAAP, the market-related value of assets is the fair value adjusted by a smoothing technique whereby certain gains and losses are phased in over a period of three years.


	U.S. Defined Benefit						U.S. Retiree Health Care						Non-U.S. Defined Benefit
	2019		2018		2019		2018		2019		2018
Change in plan benefit obligation
Benefit obligation at beginning of year:	$	874	$	998	$	361	$	414	$	2,411	$	2,469
Service cost	18		19		3		5		31		36
Interest cost	38		35		14		15		43		45
Participant contributions	—		—		13		11		7		7
Benefits paid	(11)		(10)		(41)		(41)		(103)		(87)
Settlements	(66)		(100)		—		—		(12)		(16)
Curtailments	—		—		—		—		(1)		—
Actuarial loss (gain)	107		(68)		9		(43)		193		6
Plan amendments	—		—		—		—		—		7
Effects of exchange rate changes	—		—		—		—		12		(56)
Benefit obligation at end of year	$	960	$	874	$	359	$	361	$	2,581	$	2,411

Change in plan assets
Fair value of plan assets at beginning of year:	$	869	$	995	$	330	$	394	$	2,410	$	2,593
Actual return on plan assets	185		(56)		53		(12)		337		(52)
Employer contributions (qualified plans)	—		20		1		1		9		19
Employer contributions (non-qualified plans)	10		20		—		—		—		—
Participant contributions	—		—		13		11		7		7
Benefits paid	(11)		(10)		(41)		(41)		(103)		(87)
Settlements	(66)		(100)		—		—		(12)		(16)
Effects of exchange rate changes	—		—		—		—		13		(54)
Other	—		—		—		(23)		—		—
Fair value of plan assets at end of year	$	987	$	869	$	356	$	330	$	2,661	$	2,410

Funded status at end of year	$	27	$	(5)	$	(3)	$	(31)	$	80	$	(1)


	U.S. Defined Benefit		U.S. Retiree Health Care		Non-U.S. Defined Benefit		Total
2019
Overfunded retirement plans	$	73	$	—	$	145	$	218
Accrued expenses and other liabilities & other long-term liabilities	(17)		—		(4)		(21)
Underfunded retirement plans	(29)		(3)		(61)		(93)
Funded status at end of 2019	$	27	$	(3)	$	80	$	104

2018
Overfunded retirement plans	$	40	$	—	$	52	$	92
Accrued expenses and other liabilities & other long-term liabilities	(8)		—		(3)		(11)
Underfunded retirement plans	(37)		(31)		(50)		(118)
Funded status at end of 2018	$	(5)	$	(31)	$	(1)	$	(37)

Accumulated benefit obligations, which are generally less than the projected benefit obligations as they exclude the impact of future salary increases, were $878 million and $793 million as of December 31, 2019 and 2018, respectively, for the U.S. defined benefit plans, and $2.46 billion and $2.29 billion as of December 31, 2019 and 2018, respectively, for the non-U.S. defined benefit plans.


	U.S. Defined Benefit		U.S. Retiree Health Care						Non-U.S. Defined Benefit						Total
	Net Actuarial Loss		Net Actuarial Loss		Prior Service Credit		Net Actuarial Loss		Prior Service Credit		Net Actuarial Loss		Prior Service Credit
AOCI balance, net of taxes, December 31, 2018	$	135	$	21	$	(5)	$	317	$	3	$	473	$	(2)
Changes in AOCI by category:
Adjustments	(36)		(31)		—		(58)		—		(125)		—
Recognized within net income	(19)		—		1		(32)		(1)		(51)		—
Tax effect	11		7		—		32		—		50		—
Total change to AOCI	(44)		(24)		1		(58)		(1)		(126)		—
AOCI balance, net of taxes, December 31, 2019	$	91	$	(3)	$	(4)	$	259	$	2	$	347	$	(2)


	December 31, 2019
	Level 1		Level 2		Other (a)		Total
Assets of U.S. defined benefit plan:
Fixed income securities and cash equivalents	$	—	$	—	$	640	$	640
Equity securities	—		—		347		347
Total	$	—	$	—	$	987	$	987

Assets of U.S. retiree health care plan:
Fixed income securities and cash equivalents	$	62	$	—	$	168	$	230
Equity securities	—		—		126		126
Total	$	62	$	—	$	294	$	356

Assets of non-U.S. defined benefit plans:
Fixed income securities and cash equivalents	$	59	$	126	$	1,762	$	1,947
Equity securities	41		2		671		714
Total	$	100	$	128	$	2,433	$	2,661


	December 31, 2018
	Level 1		Level 2		Other (a)		Total
Assets of U.S. defined benefit plan:
Fixed income securities and cash equivalents	$	—	$	—	$	563	$	563
Equity securities	—		—		306		306
Total	$	—	$	—	$	869	$	869

Assets of U.S. retiree health care plan:
Fixed income securities and cash equivalents	$	59	$	—	$	155	$	214
Equity securities	—		—		116		116
Total	$	59	$	—	$	271	$	330

Assets of non-U.S. defined benefit plans:
Fixed income securities and cash equivalents	$	47	$	139	$	1,602	$	1,788
Equity securities	33		1		588		622
Total	$	80	$	140	$	2,190	$	2,410

The investments in our major benefit plans largely consist of low-cost, broad-market index funds to mitigate risks of concentration within market sectors. Our investment policy is designed to better match the interest rate sensitivity of the plan assets and liabilities. The appropriate mix of equity and bond investments is determined primarily through the use of detailed asset-liability modeling studies that look to balance the impact of changes in the discount rate against the need to provide asset growth to cover future service cost. Most of our plans around the world have a greater proportion of fixed income securities with return characteristics that are more closely aligned with changes in the liabilities caused by discount rate volatility.


	U.S. Defined Benefit			U.S. Retiree Health Care			Non-U.S. Defined Benefit
	2019	2018	2019	2018	2019	2018
Weighted average assumptions used to determine benefit obligations:
Discount rate	3.62%	4.37%	3.63%	4.30%	1.46%	1.85%
Long-term pay progression	3.30%	3.30%	n/a	n/a	3.06%	2.96%

Weighted average assumptions used to determine net periodic benefit cost:
Discount rate	4.35%	3.77%	4.30%	3.63%	1.85%	1.84%
Long-term rate of return on plan assets	4.90%	4.80%	4.40%	4.10%	3.62%	2.58%
Long-term pay progression	3.30%	3.30%	n/a	n/a	3.03%	2.96%

We utilize a variety of methods to select an appropriate discount rate depending on the depth of the corporate bond market in the country in which the benefit plan operates. In the United States, we use a settlement approach whereby a portfolio of bonds is selected from the universe of actively traded high-quality U.S. corporate bonds. The selected portfolio is designed to provide cash flows sufficient to pay the plan’s expected benefit payments when due. The resulting discount rate reflects the rate of return of the selected portfolio of bonds. For our non-U.S. locations with a sufficient number of actively traded high-quality bonds, an analysis is performed in which the projected cash flows from the defined benefit plans are discounted against a yield curve constructed with an appropriate universe of high-quality corporate bonds available in each country. In this manner, a present value is developed. The discount rate selected is the single equivalent rate that produces the same present value. For countries that lack a sufficient corporate bond market, a government bond index adjusted for an appropriate risk premium is used to establish the discount rate.

Assumptions for the expected long-term rate of return on plan assets are based on future expectations for returns for each asset class and the effect of periodic target asset allocation rebalancing. We adjust the results for the payment of reasonable expenses of the plan from plan assets. We believe our assumptions are appropriate based on the investment mix and long-term nature of the plans’ investments. Assumptions used for the non-U.S. defined benefit plans reflect the different economic environments within the various countries.

The following assumed future benefit payments to plan participants in the next 10 years are used to measure our benefit obligations. Almost all of the payments, which may vary significantly from these assumptions, will be made from plan assets and not from company assets.

We have deferred compensation plans that allow U.S. employees whose base salary and management responsibility exceed a certain level to defer receipt of a portion of their cash compensation. Payments under these plans are made based on the participant’s distribution election and plan balance. Participants can earn a return on their deferred compensation based on notional investments in the same investment funds that are offered in our defined contribution plans.

As of December 31, 2019, our liability to participants of the deferred compensation plans was $298 million and is recorded in other long-term liabilities on our Consolidated Balance Sheets. This amount reflects the accumulated participant deferrals and earnings thereon as of that date. As of December 31, 2019, we held $272 million in mutual funds related to these plans that are recorded in long-term investments on our Consolidated Balance Sheets, and serve as an economic hedge against changes in fair values of our other deferred compensation liabilities. We record changes in the fair value of the liability and the related investment in SG&A as discussed in Note 6.