Pensions And Other Postretirement Benefits

12 Months Ended

Dec. 31, 2019

Pensions and Other Postretirement Benefits

Employee Pension and Other Postretirement Benefit Plans

Defined Benefit Pension Plans Defined benefit pension plans covering eligible U.S. hourly employees (hired prior to October 2007) and Canadian hourly employees (hired prior to October 2016) generally provide benefits of negotiated, stated amounts for each year of service and supplemental benefits for employees who retire with 30 years of service before normal retirement age. The benefits provided by the defined benefit pension plans covering eligible U.S. (hired prior to January 1, 2001) and Canadian salaried employees and employees in certain other non-U.S. locations are generally based on years of service and compensation history. Accrual of defined pension benefits ceased in 2012 for U.S. and Canadian salaried employees. There is also an unfunded nonqualified pension plan primarily covering U.S. executives for service prior to January 1, 2007 and it is based on an “excess plan” for service after that date.

The funding policy for qualified defined benefit pension plans is to contribute annually not less than the minimum required by applicable laws and regulations or to directly pay benefit payments where appropriate. In the year ended December 31, 2019 all legal funding requirements were met. The following table summarizes contributions made to the defined benefit pension plans:



	Years Ended December 31,
	2019		2018		2017
U.S. hourly and salaried	$	83	$	76	$	77
Non-U.S.	532		1,624		1,153
Total	$	615	$	1,700	$	1,230

We expect to contribute approximately $70 million to our U.S. non-qualified plans and approximately $500 million to our non-U.S. pension plans in 2020.

Based on our current assumptions, over the next five years we expect no significant mandatory contributions to our U.S. qualified pension plans and mandatory contributions totaling $368 million to our U.K. and Canada pension plans.

Other Postretirement Benefit Plans Certain hourly and salaried defined benefit plans provide postretirement medical, dental, legal service and life insurance to eligible U.S. and Canadian retirees and their eligible dependents. Certain other non-U.S. subsidiaries have postretirement benefit plans, although most non-U.S. employees are covered by government sponsored or administered programs. We made contributions to the U.S. OPEB plans of $326 million, $325 million and $323 million in the years ended December 31, 2019, 2018 and 2017. Plan participants' contributions were insignificant in the years ended December 31, 2019, 2018 and 2017.

Defined Contribution Plans We have defined contribution plans for eligible U.S. salaried and hourly employees that provide discretionary matching contributions. Contributions are also made to certain non-U.S. defined contribution plans. We made contributions to our defined contribution plans of $537 million, $617 million and $650 million in the years ended December 31, 2019, 2018 and 2017.

Significant Plan Amendments, Benefit Modifications and Related Events

Other Remeasurements The SOA issued mortality improvement tables in the three months ended December 31, 2019. We determined our current mortality improvement assumptions are appropriate to measure our December 31, 2019 U.S. pension and OPEB plans obligations. In 2018 we reviewed our mortality experience and updated our base mortality assumptions in the U.S. This change in assumption decreased the December 31, 2018 U.S. pension and OPEB plans' obligations by $264 million.

Pension and OPEB Obligations and Plan Assets



	Year Ended December 31, 2019									Year Ended December 31, 2018
	Pension Benefits						Global OPEB Plans			Pension Benefits						Global OPEB Plans
	U.S.			Non-U.S.			Global OPEB Plans			U.S.			Non-U.S.			Global OPEB Plans
Change in benefit obligations
Beginning benefit obligation	$	61,190		$	19,904		$	5,744		$	68,450		$	22,789		$	6,374
Service cost	179			120			17			209			149			20
Interest cost	2,264			456			220			2,050			464			195
Actuarial (gains) losses	6,444			1,653			641			(4,449		)	(272		)	(389		)
Benefits paid	(4,753		)	(1,234		)	(395		)	(4,898		)	(1,595		)	(388		)
Foreign currency translation adjustments	—			561			54			—			(1,452		)	(106		)
Curtailments, settlements and other	(640		)	(62		)	23			(172		)	(179		)	38
Ending benefit obligation	64,684			21,398			6,304			61,190			19,904			5,744
Change in plan assets
Beginning fair value of plan assets	56,102			13,528			—			62,639			14,495			—
Actual return on plan assets	8,454			1,669			—			(1,419		)	301			—
Employer contributions	83			532			370			76			1,624			369
Benefits paid	(4,753		)	(1,234		)	(395		)	(4,898		)	(1,595		)	(388		)
Foreign currency translation adjustments	—			668			—			—			(1,106		)	—
Settlements and other	(647		)	(202		)	25			(296		)	(191		)	19
Ending fair value of plan assets	59,239			14,961			—			56,102			13,528			—
Ending funded status	$	(5,445	)	$	(6,437	)	$	(6,304	)	$	(5,088	)	$	(6,376	)	$	(5,744	)
Amounts recorded in the consolidated balance sheets
Non-current assets	$	—		$	698		$	—		$	—		$	496		$	—
Current liabilities	(68		)	(342		)	(369		)	(73		)	(349		)	(374		)
Non-current liabilities	(5,377		)	(6,793		)	(5,935		)	(5,015		)	(6,523		)	(5,370		)
Net amount recorded	$	(5,445	)	$	(6,437	)	$	(6,304	)	$	(5,088	)	$	(6,376	)	$	(5,744	)
Amounts recorded in Accumulated other comprehensive loss
Net actuarial loss	$	(1,980	)	$	(4,688	)	$	(1,364	)	$	(752	)	$	(3,983	)	$	(752	)
Net prior service (cost) credit	14			(78		)	27			19			(64		)	34
Total recorded in Accumulated other comprehensive loss	$	(1,966	)	$	(4,766	)	$	(1,337	)	$	(733	)	$	(4,047	)	$	(718	)

The following table summarizes the total accumulated benefit obligations (ABO), the ABO and fair value of plan assets for defined benefit pension plans with ABO in excess of plan assets, and the PBO and fair value of plan assets for defined benefit pension plans with PBO in excess of plan assets:



	December 31, 2019				December 31, 2018
	U.S.		Non-U.S.		U.S.		Non-U.S.
ABO	$	64,669	$	21,319	$	61,177	$	19,822
Plans with ABO in excess of plan assets
ABO	$	64,669	$	10,996	$	61,177	$	10,289
Fair value of plan assets	$	59,239	$	3,940	$	56,102	$	3,485
Plans with PBO in excess of plan assets
PBO	$	64,684	$	11,079	$	61,190	$	10,356
Fair value of plan assets	$	59,239	$	3,940	$	56,102	$	3,485

The following table summarizes the components of net periodic pension and OPEB expense along with the assumptions used to determine benefit obligations:



	Year Ended December 31, 2019									Year Ended December 31, 2018									Year Ended December 31, 2017
	Pension Benefits						Global OPEB Plans			Pension Benefits						Global OPEB Plans			Pension Benefits						Global OPEB Plans
	U.S.			Non-U.S.			Global OPEB Plans			U.S.			Non-U.S.			Global OPEB Plans			U.S.			Non-U.S.			Global OPEB Plans
Components of expense
Service cost	$	393		$	132		$	17		$	330		$	163		$	20		$	315		$	199		$	19
Interest cost	2,264			456			220			2,050			464			195			2,145			473			202
Expected return on plan assets	(3,483		)	(786		)	—			(3,890		)	(825		)	—			(3,677		)	(750		)	—
Amortization of net actuarial (gains) losses	11			122			30			10			144			54			(6		)	157			23
Curtailments, settlements and other	21			142			(23		)	(19		)	43			(19		)	(37		)	8			(5		)
Net periodic pension and OPEB (income) expense	$	(794	)	$	66		$	244		$	(1,519	)	$	(11	)	$	250		$	(1,260	)	$	87		$	239
Weighted-average assumptions used to determine benefit obligations(a)
Discount rate	3.20		%	2.16		%	3.24		%	4.22		%	2.86		%	4.19		%	3.53		%	2.66		%	3.52		%
Weighted-average assumptions used to determine net expense(a)
Discount rate	3.92		%	3.36		%	4.07		%	3.19		%	2.99		%	3.29		%	3.35		%	2.94		%	3.39		%
Expected rate of return on plan assets	6.37		%	5.76		%	N/A			6.61		%	6.09		%	N/A			6.23		%	5.82		%	N/A

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(a)	The rate of compensation increase does not have a significant effect on our U.S. pension and OPEB plans.

The non-service cost components of the net periodic pension and OPEB income are presented in Interest income and other non-operating income, net. Refer to Note 19 for additional information.

U.S. pension plan service cost includes administrative expenses and Pension Benefit Guarantee Corporation premiums of $214 million and $121 million for the years ended December 31, 2019 and 2018. Weighted-average assumptions used to determine net expense are determined at the beginning of the period and updated for remeasurements. Non-U.S. pension plan administrative expenses included in service cost were insignificant in the years ended December 31, 2019 and 2018.

Estimated amounts to be amortized from Accumulated other comprehensive loss into net periodic benefit cost in the year ending December 31, 2020 based on December 31, 2019 plan measurements are $258 million, primarily consisting of amortization of the net actuarial loss in the non-U.S. pension plans.

Assumptions

Investment Strategies and Long-Term Rate of Return Detailed periodic studies are conducted by our internal asset management group as well as outside actuaries and are used to determine the long-term strategic mix among asset classes, risk mitigation strategies and the expected long-term return on asset assumptions for the U.S. pension plans. The U.S. study includes a review of alternative asset allocation and risk mitigation strategies, anticipated future long-term performance and risk of the individual asset classes that comprise the plans' asset mix. Similar studies are performed for the significant non-U.S. pension plans with the assistance of outside actuaries and asset managers. While the studies incorporate data from recent plan performance and historical returns, the expected rate of return on plan assets represents our estimate of long-term prospective rates of return.

We continue to pursue various options to fund and de-risk our pension plans, including continued changes to the pension asset portfolio mix to reduce funded status volatility. The strategic asset mix and risk mitigation strategies for the plans are tailored specifically for each plan. Individual plans have distinct liabilities, liquidity needs and regulatory requirements. Consequently there are different investment policies set by individual plan fiduciaries. Although investment policies and risk mitigation strategies may differ among plans, each investment strategy is considered to be appropriate in the context of the specific factors affecting each plan.

In setting new strategic asset mixes, consideration is given to the likelihood that the selected asset mixes will effectively fund the projected pension plan liabilities, while aligning with the risk tolerance of the plans' fiduciaries. The strategic asset mixes for U.S. defined benefit pension plans are increasingly designed to satisfy the competing objectives of improving funded positions

(market value of assets equal to or greater than the present value of the liabilities) and mitigating the possibility of a deterioration in funded status.

Derivatives may be used to provide cost effective solutions for rebalancing investment portfolios, increasing or decreasing exposure to various asset classes and for mitigating risks, primarily interest rate, equity and currency risks. Equity and fixed income managers are permitted to utilize derivatives as efficient substitutes for traditional securities. Interest rate derivatives may be used to adjust portfolio duration to align with a plan's targeted investment policy and equity derivatives may be used to protect equity positions from downside market losses. Alternative investment managers are permitted to employ leverage, including through the use of derivatives, which may alter economic exposure.

In December 2019, an investment policy study was completed for the U.S. pension plans. As a result of changes to our capital market assumptions, the weighted-average long-term rate of return on assets decreased from 6.4% at December 31, 2018 to 5.9% at December 31, 2019. The expected long-term rate of return on plan assets used in determining pension expense for non-U.S. plans is determined in a similar manner to the U.S. plans.

Target Allocation Percentages The following table summarizes the target allocations by asset category for U.S. and non-U.S. defined benefit pension plans:



	December 31, 2019				December 31, 2018
	U.S.		Non-U.S.		U.S.		Non-U.S.
Equity	12	%	14	%	12	%	14	%
Debt	64	%	67	%	64	%	66	%
Other(a)	24	%	19	%	24	%	20	%
Total	100	%	100	%	100	%	100	%

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(a)	Primarily includes private equity, real estate and absolute return strategies which mainly consist of hedge funds.

Assets and Fair Value Measurements The following tables summarize the fair value of U.S. and non-U.S. defined benefit pension plan assets by asset class:



	December 31, 2019									December 31, 2018
	Level 1			Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
U.S. Pension Plan Assets
Common and preferred stocks	$	6,232		$	19	$	1	$	6,252	$	4,914	$	18	$	2	$	4,934
Government and agency debt securities(a)	—			13,843		—		13,843		—		12,077		—		12,077
Corporate and other debt securities	—			24,809		—		24,809		—		24,645		—		24,645
Other investments, net(b)	(47		)	25		401		379		350		80		371		801
Net plan assets subject to leveling	$	6,185		$	38,696	$	402	45,283		$	5,264	$	36,820	$	373	42,457
Plan assets measured at net asset value
Investment funds								7,031								6,465
Private equity and debt investments								2,951								3,021
Real estate investments								3,484								3,504
Total plan assets measured at net asset value								13,466								12,990
Other plan assets, net(c)								490								655
Net plan assets								$	59,239							$	56,102



	December 31, 2019										December 31, 2018
	Level 1			Level 2			Level 3		Total		Level 1		Level 2		Level 3		Total
Non-U.S. Pension Plan Assets
Common and preferred stocks	$	489		$	1		$	—	$	490	$	441	$	1	$	5	$	447
Government and agency debt securities(a)	—			3,927			—		3,927		—		3,640		—		3,640
Corporate and other debt securities	—			3,230			—		3,230		—		2,589		1		2,590
Other investments, net(b)(d)	(5		)	(107		)	248		136		59		128		242		429
Net plan assets subject to leveling	$	484		$	7,051		$	248	7,783		$	500	$	6,358	$	248	7,106
Plan assets measured at net asset value
Investment funds									5,608								5,081
Private equity and debt investments									511								526
Real estate investments									982								980
Total plan assets measured at net asset value									7,101								6,587
Other plan assets (liabilities), net(c)									77								(165		)
Net plan assets									$	14,961							$	13,528

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(a)	Includes U.S. and sovereign government and agency issues.


(b)	Includes net derivative assets (liabilities).


(c)	Cash held by the plans, net of amounts receivable/payable for unsettled security transactions and payables for investment manager fees, custody fees and other expenses.


(d)	Level 2 Other investments, net includes Canadian reverse repurchase agreements.

The activity attributable to U.S. and non-U.S. Level 3 defined benefit pension plan investments was insignificant in the years ended December 31, 2019 and 2018.

Investment Fund Strategies Investment funds include hedge funds, funds of hedge funds, equity funds and fixed income funds. Hedge funds and funds of hedge funds managers typically seek to achieve their objectives by allocating capital across a broad array of funds and/or investment managers. Equity funds invest in U.S. common and preferred stocks as well as similar equity securities issued by companies incorporated, listed or domiciled in developed and/or emerging market countries. Fixed income funds include investments in high quality funds and, to a lesser extent, high yield funds. High quality fixed income funds invest in government securities, investment-grade corporate bonds and mortgage and asset-backed securities. High yield fixed income funds invest in high yield fixed income securities issued by corporations which are rated below investment grade. Other investment funds also included in this category primarily represent multi-strategy funds that invest in broadly diversified portfolios of equity, fixed income and derivative instruments.

Private equity and debt investments primarily consist of investments in private equity and debt funds. These investments provide exposure to and benefit from long-term equity investments in private companies, including leveraged buy-outs, venture capital and distressed debt strategies.

Real estate investments include funds that invest in entities which are primarily engaged in the ownership, acquisition, development, financing, sale and/or management of income-producing real estate properties, both commercial and residential. These funds typically seek long-term growth of capital and current income that is above average relative to public equity funds.

Significant Concentrations of Risk The assets of the pension plans include certain investment funds, private equity and debt investments and real estate investments. Investment managers may be unable to quickly sell or redeem some or all of these investments at an amount close or equal to fair value in order to meet a plan's liquidity requirements or to respond to specific events such as deterioration in the creditworthiness of any particular issuer or counterparty.

Illiquid investments held by the plans are generally long-term investments that complement the long-term nature of pension obligations and are not used to fund benefit payments when currently due. Plan management monitors liquidity risk on an ongoing basis and has procedures in place that are designed to maintain flexibility in addressing plan-specific, broader industry and market liquidity events.

The pension plans may invest in financial instruments denominated in foreign currencies and may be exposed to risks that the foreign currency exchange rates might change in a manner that has an adverse effect on the value of the foreign currency denominated assets or liabilities. Forward currency contracts may be used to manage and mitigate foreign currency risk.

The pension plans may invest in debt securities for which any change in the relevant interest rates for particular securities might result in an investment manager being unable to secure similar returns upon the maturity or the sale of securities. In addition changes to prevailing interest rates or changes in expectations of future interest rates might result in an increase or decrease in the fair value of the securities held. Interest rate swaps and other financial derivative instruments may be used to manage interest rate risk.

Benefit Payments Benefits for most U.S. pension plans and certain non-U.S. pension plans are paid out of plan assets rather than our Cash and cash equivalents. The following table summarizes net benefit payments expected to be paid in the future, which include assumptions related to estimated future employee service:



	Pension Benefits				Global OPEB Plans
	U.S. Plans		Non-U.S. Plans		Global OPEB Plans
2020	$	4,942	$	1,529	$	372
2021	$	4,755	$	1,201	$	369
2022	$	4,631	$	1,164	$	365
2023	$	4,515	$	1,130	$	360
2024	$	4,407	$	1,104	$	357
2025 - 2029	$	20,257	$	5,166	$	1,755