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Pension, Retiree Medical and Retiree Savings Plans
 12 Months Ended
Dec. 31, 2020
Retirement Benefits [Abstract]  
Retiree Medical Benefits Pension, Retiree Medical and Retiree Savings Plans
U.S. Pension Plans

We sponsor qualified and supplemental (non-qualified) noncontributory defined benefit plans covering certain full-time salaried and hourly U.S. employees. The qualified plan meets the requirements of certain sections of the Internal Revenue Code and provides benefits to a broad group of employees with restrictions on discriminating in favor of highly compensated employees with regard to coverage, benefits and contributions. The supplemental plans provides additional benefits to certain employees. We fund our supplemental plans as benefits are paid.
The most significant of our U.S. plans is the YUM Retirement Plan (the “Plan”), which is a qualified plan. Our funding policy with respect to the Plan is to contribute amounts necessary to satisfy minimum pension funding requirements, including requirements of the Pension Protection Act of 2006, plus additional amounts from time-to-time as are determined to be necessary to improve the Plan’s funded status. We do not expect to make any significant contributions to the Plan in 2021. Our two significant U.S. plans, including the Plan and a supplemental plan, were previously amended such that any salaried employee hired or rehired by YUM after September 30, 2001, is not eligible to participate in those plans.

We do not anticipate any plan assets being returned to the Company during 2021 for any U.S. plans.

Obligation and Funded Status at Measurement Date:

The following chart summarizes the balance sheet impact, as well as benefit obligations, assets, and funded status associated with our two significant U.S. pension plans.  The actuarial valuations for all plans reflect measurement dates coinciding with our fiscal year end.

 20202019
Change in benefit obligation:  
Benefit obligation at beginning of year$1,015 $873 
Service cost8 6 
Interest cost35 39 
Plan amendments
1 2 
Special termination benefits2 — 
Benefits paid(46)(57)
Settlement payments— (1)
Actuarial (gain) loss118 153 
Benefit obligation at end of year$1,133 $1,015 
A significant component of the overall increase in the Company's benefit obligation for the year ended December 31, 2020, was due to an actuarial loss, which was primarily due to a decrease in the discount rate used to measure our benefit obligation from 3.50% at December 31, 2019, to 2.80% at December 31, 2020. A significant component of the overall increase in the Company's benefit obligation for the year ended December 31, 2019, was due to an actuarial loss, which was primarily due to a decrease in the discount rate used to measure our benefit obligation from 4.60% at December 31, 2018, to 3.50% at December 31, 2019.

Change in plan assets:  
Fair value of plan assets at beginning of year$886 $755 
Actual return on plan assets168 176 
Employer contributions6 12 
Benefits paid(46)(57)
Fair value of plan assets at end of year$1,014 $886 
 Funded status at end of year$(119)$(129)
Amounts recognized in the Consolidated Balance Sheet:
 20202019
Accrued benefit liability - current$(9)$(4)
Accrued benefit liability - non-current(110)(125)
 $(119)$(129)

The accumulated benefit obligation was $1,111 million and $984 million at December 31, 2020 and December 31, 2019, respectively.
The table below provides information for pension plans with an accumulated benefit obligation in excess of plan assets. These pension plans also have a projected benefit obligation in excess of plan assets.
 20202019
Projected benefit obligation$1,133 $1,015 
Accumulated benefit obligation1,111 984 
Fair value of plan assets1,014 886 

Components of net periodic benefit cost:
202020192018
Service cost$8 $6 $8 
Interest cost35 39 38 
Amortization of prior service cost(a)
5 6 5 
Expected return on plan assets(43)(44)(44)
Amortization of net loss14 1 16 
Net periodic benefit cost$19 $8 $23 

Additional (gain) loss recognized due to:

Settlement charges(b)
$— $3 $— 
Special termination benefits
$2 $— $1 

(a)Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits.

(b)Settlement losses result when benefit payments exceed the sum of the service cost and interest cost within a plan during the year. These losses were recorded in Other pension (income) expense.

Pension gains (losses) in AOCI:
 20202019
Beginning of year$(136)$(123)
Net actuarial gain (loss)7 (22)
Curtailments1 — 
Amortization of net loss14 1 
Amortization of prior service cost5 6 
Prior service cost(2)(2)
Settlement charges— 4 
End of year$(111)$(136)

Accumulated pre-tax losses recognized within AOCI:
 20202019
Actuarial net loss$(96)$(118)
Prior service cost(15)(18)
 $(111)$(136)
Weighted-average assumptions used to determine benefit obligations at the measurement dates:
 20202019
Discount rate2.80 %3.50 %
Rate of compensation increase3.00 %3.00 %
Weighted-average assumptions used to determine the net periodic benefit cost for fiscal years:
 
2020
2019
2018
Discount rate3.50 %4.60 %3.90 %
Long-term rate of return on plan assets5.50 %5.75 %5.65 %
Rate of compensation increase3.00 %3.00 %3.75 %

Our estimated long-term rate of return on plan assets represents the weighted-average of expected future returns on the asset categories included in our target investment allocation based primarily on the historical returns for each asset category and future growth expectations.

Plan Assets

The fair values of our pension plan assets at December 31, 2020 and December 31, 2019, by asset category and level within the fair value hierarchy are as follows:

 20202019
Level 1:
Cash
$9 $5 
Cash Equivalents(a)
10 13 
Fixed Income Securities - U.S. Corporate(b)
164 161 
Equity Securities – U.S. Large cap(b)
306 268 
Equity Securities – U.S. Mid cap(b)
51 44 
Equity Securities – U.S. Small cap(b)
52 43 
Equity Securities – Non-U.S.(b)
102 88 
Level 2:  
Fixed Income Securities – U.S. Corporate(c)
148 120 
Fixed Income Securities – U.S. Government and Government Agencies(d)
354 274 
Fixed Income Securities – Other(d)
30 39 
Total fair value of plan assets(e)
$1,226 $1,055 

(a)Short-term investments in money market funds.

(b)Securities held in common trusts.

(c)Investments held directly by the Plan.

(d)Includes securities held in common trusts and investments held directly by the Plan.

(e)2020 and 2019 exclude net unsettled trade payables of $212 million and $169 million, respectively.

Our primary objectives regarding the investment strategy for the Plan’s assets are to reduce interest rate and market risk and to provide adequate liquidity to meet immediate and future payment requirements.  To achieve these objectives, we are using a combination of active and passive investment strategies.  The Plan's equity securities, currently targeted to be 50% of our investment mix, consist primarily of low-cost index funds focused on achieving long-term capital appreciation.  The Plan diversifies its equity risk by investing in several different U.S. and foreign market index funds.  Investing in these index funds provides the Plan with the adequate liquidity required to fund benefit payments and plan expenses.  The fixed income asset allocation, currently targeted to be 50% of our mix, is actively managed and consists of long-duration fixed income securities that help to reduce exposure to interest rate variation and to better correlate asset maturities with obligations. The fair values of all pension plan assets are determined based on closing market prices or net asset values.

A mutual fund held as an investment by the Plan includes shares of Common Stock valued at $0.3 million at both December 31, 2020 and 2019 (less than 1% of total plan assets in each instance).
Benefit Payments

The benefits expected to be paid in each of the next five years and in the aggregate for the five years thereafter are set forth below:

Year ended:
2021$54 
202252 
202353 
202455 
202558 
2026 - 2030299 

Expected benefit payments are estimated based on the same assumptions used to measure our benefit obligation on the measurement date and include benefits attributable to estimated future employee service.

International Pension Plans

We also sponsor various defined benefit plans covering certain of our non-U.S. employees, the most significant of which are in the UK. Both of our UK plans have previously been frozen such that they are closed to new participants and existing participants can no longer earn future service credits.

At the end of 2020 and 2019, the projected benefit obligations of these UK plans totaled $362 million and $290 million, respectively and plan assets totaled $440 million and $372 million, respectively. These plans were both in a net overfunded position at the end of 2020 and 2019. Total actuarial pre-tax losses related to the UK plans of $18 million and $25 million were recognized in AOCI at the end of 2020 and 2019, respectively. The total net periodic benefit income recorded was less than $1 million in 2020, $2 million in 2019 and $4 million in 2018.

The funding rules for our pension plans outside of the U.S. vary from country to country and depend on many factors including discount rates, performance of plan assets, local laws and regulations. We do not plan to make significant contributions to either of our UK plans in 2021.

Retiree Medical Benefits

Our post-retirement plan provides health care benefits, principally to U.S. salaried retirees and their dependents, and includes retiree cost-sharing provisions and a cap on our liability.  This plan was previously amended such that any salaried employee hired or rehired by YUM after September 30, 2001, is not eligible to participate in this plan.  Employees hired prior to September 30, 2001, are eligible for benefits if they meet age and service requirements and qualify for retirement benefits.  We fund our post-retirement plan as benefits are paid.

At the end of 2020 and 2019, the accumulated post-retirement benefit obligation was $46 million and $44 million, respectively.  Actuarial pre-tax gains of $4 million and $9 million were recognized in AOCI at the end of 2020 and 2019, respectively. The net periodic benefit cost recorded was $1 million in 2020, $1 million in 2019 and $2 million in 2018, the majority of which is interest cost on the accumulated post-retirement benefit obligation.  The weighted-average assumptions used to determine benefit obligations and net periodic benefit cost for the post-retirement medical plan are identical to those as shown for the U.S. pension plans.  

The benefits expected to be paid in each of the next five years are approximately $4 million and in aggregate for the five years thereafter are $14 million.

U.S. Retiree Savings Plan

We sponsor a contributory plan to provide retirement benefits under the provisions of Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) for eligible U.S. salaried and hourly employees.  Participants are able to elect to contribute up to 75% of eligible compensation on a pre-tax basis.  Participants may allocate their contributions to one or any combination of multiple investment options or a self-managed account within the 401(k) Plan.  We match 100% of the participant’s contribution to the
401(k) Plan up to 6% of eligible compensation.  We recognized as compensation expense our total matching contribution of $10 million in 2020, $11 million in 2019 and $12 million in 2018.