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Pension and Other Postretirement Plans | 12 Months Ended
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Dec. 31, 2020
Retirement Benefits [Abstract] |
Pension and Other Postretirement Plans | PENSION AND OTHER POSTRETIREMENT PLANS The following summarizes the significant pension and other postretirement plans of United: Pension Plans. United maintains two primary defined benefit pension plans, one covering certain pilot employees and another covering certain U.S. non-pilot employees. Each of these plans provide benefits based on a combination of years of benefit accruals service and an employee's final average compensation. Additional benefit accruals are frozen under the plan covering certain pilot employees and for management and administrative employees covered under the non-pilot plan. Benefit accruals for certain non-pilot employees continue. United maintains additional defined benefit pension plans, which cover certain international employees. Other Postretirement Plans. United maintains postretirement medical programs which provide medical benefits to certain retirees and eligible dependents, as well as life insurance benefits to certain retirees participating in the plan. Benefits provided are subject to applicable contributions, co-payments, deductibles and other limits as described in the specific plan documentation. During 2020, the Company offered voluntary separation programs ("VSPs") to its U.S.-based front-line employees and management and administrative employees. The Company offered certain of its eligible front-line employees, based on employee group, age and completed years of service, special termination benefits in the form of additional years of pension service and additional subsidies for retiree medical costs. These benefits resulted in a $54 million special termination benefit charges for the pension plans and $201 million for the retiree medical plan. The VSPs and other separation programs caused the lump sum settlements to increase in 2020. In 2020, the primary defined benefit pension plans paid $1.4 billion in lump sum distributions resulting in the recognition of $430 million of settlement losses. Settlement losses trigger the recognition of losses previously reported as unrealized in accumulated other comprehensive loss in an amount that is proportionate to the lump sum distributions as a percentage of the obligations of the plan. Actuarial assumption changes are reflected as a component of the net actuarial (gain) loss during 2020 and 2019. The 2020 actuarial losses were mainly related to a decrease in the discount rate applied at December 31, 2020 compared to December 31, 2019. Actuarial (gains) losses will be amortized over the average remaining service life of the covered active employees or the average life expectancy of inactive participants. The following tables set forth the reconciliation of the beginning and ending balances of the benefit obligation and plan assets, the funded status and the amounts recognized in these financial statements for the defined benefit and other postretirement plans (in millions):
| Pension Benefits
| Year Ended December 31, 2020 |  | Year Ended December 31, 2019
Accumulated benefit obligation: | $ | 5,387 |  |  | $ | 5,333 |
Change in projected benefit obligation: |  |  |
Projected benefit obligation at beginning of year | $ | 6,398 |  |  | $ | 5,396 |
Service cost | 216 |  |  | 184 |
Interest cost | 209 |  |  | 226 |
Actuarial loss | 1,181 |  |  | 784 |
Special termination benefit | 54 |  |  | — |
Benefits paid | (1,445) |  |  | (200) |
Curtailment | (105) |  |  | — |
Other | 17 |  |  | 8 |
Projected benefit obligation at end of year | $ | 6,525 |  |  | $ | 6,398 |
Change in plan assets: |  |  |
Fair value of plan assets at beginning of year | $ | 4,964 |  |  | $ | 3,827 |
Actual return on plan assets | 521 |  |  | 684 |
Employer contributions | 16 |  |  | 649 |
Benefits paid | (1,445) |  |  | (200) |
Other | 13 |  |  | 4 |
Fair value of plan assets at end of year | $ | 4,069 |  |  | $ | 4,964 |
Funded status—Net amount recognized | $ | (2,456) |  |  | $ | (1,434) |
| Pension Benefits
| December 31, 2020 |  | December 31, 2019
Amounts recognized in the consolidated balance sheets consist of: |  |  |
Noncurrent asset | $ | 8 |  |  | $ | 14 |
Current liability | (4) |  |  | (2) |
Noncurrent liability | (2,460) |  |  | (1,446) |
Total liability | $ | (2,456) |  |  | $ | (1,434) |
Amounts recognized in accumulated other comprehensive loss consist of: |  |  |
Net actuarial loss | $ | (1,924) |  |  | $ | (1,652) |
Prior service cost | (3) |  |  | (4) |
Total accumulated other comprehensive loss | $ | (1,927) |  |  | $ | (1,656) |
| Other Postretirement Benefits
| Year Ended December 31, 2020 |  | Year Ended December 31, 2019
Change in benefit obligation: |  |  |
Benefit obligation at beginning of year | $ | 842 |  |  | $ | 1,391 |
Service cost | 10 |  |  | 10 |
Interest cost | 28 |  |  | 47 |
Plan participants' contributions | 58 |  |  | 67 |
Benefits paid | (164) |  |  | (180) |
Actuarial loss | 107 |  |  | 99 |
Plan amendments | — |  |  | (597) |
Special termination benefit | 201 |  |  | — |
Other | — |  |  | 5 |
Benefit obligation at end of year | $ | 1,082 |  |  | $ | 842 |
Change in plan assets: |  |  |
Fair value of plan assets at beginning of year | $ | 52 |  |  | $ | 53 |
Actual return on plan assets | 1 |  |  | 1 |
Employer contributions | 104 |  |  | 111
Plan participants' contributions | 58 |  |  | 67 |
Benefits paid | (164) |  |  | (180) |
Fair value of plan assets at end of year | 51 |  |  | 52 |
Funded status—Net amount recognized | $ | (1,031) |  |  | $ | (790) |
| Other Postretirement Benefits
| December 31, 2020 |  | December 31, 2019
Amounts recognized in the consolidated balance sheets consist of: |  |  |
Current liability | $ | (37) |  |  | $ | (1) |
Noncurrent liability | (994) |  |  | (789) |
Total liability | $ | (1,031) |  |  | $ | (790) |
Amounts recognized in accumulated other comprehensive income consist of: |  |  |
Net actuarial gain | $ | 255 |  |  | $ | 403 |
Prior service credit | 570 |  |  | 693 |
Total accumulated other comprehensive income | $ | 825 |  |  | $ | 1,096 |
The following information relates to all pension plans with an accumulated benefit obligation and a projected benefit obligation in excess of plan assets at December 31 (in millions):
| 2020 |  | 2019
Projected benefit obligation | $ | 6,250 |  |  | $ | 6,161 |
Accumulated benefit obligation | 5,163 |  |  | 5,137 |
Fair value of plan assets | 3,786 |  |  | 4,714 |
Net periodic benefit cost for the years ended December 31 included the following components (in millions):
| 2020 |  | 2019 |  | 2018
| Pension Benefits |  | Other Postretirement Benefits |  | Pension Benefits |  | Other Postretirement Benefits |  | Pension Benefits |  | Other Postretirement Benefits
Service cost | $ | 216 |  |  | $ | 10 |  |  | $ | 184 |  |  | $ | 10 |  |  | $ | 228 |  |  | $ | 12 |
Interest cost | 209 |  |  | 28 |  |  | 226 |  |  | 47 |  |  | 217 |  |  | 61 |
Expected return on plan assets | (328) |  |  | (1) |  |  | (291) |  |  | (1) |  |  | (292) |  |  | (2) |
Amortization of unrecognized actuarial (gain) loss | 162 |  |  | (40) |  |  | 118 |  |  | (52) |  |  | 130 |  |  | (32) |
Amortization of prior service credits | — |  |  | (124) |  |  | — |  |  | (73) |  |  | — |  |  | (37) |
Settlement loss - VSPs | 430 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Special termination benefit - VSPs | 54 |  |  | 201 |  |  | — |  |  | — |  |  | — |  |  | — |
Curtailment | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Other | 22 |  |  | — |  |  | 5 |  |  | — |  |  | 1 |  |  | — |
Net periodic benefit cost (credit) | $ | 766 |  |  | $ | 74 |  |  | $ | 242 |  |  | $ | (69) |  |  | $ | 284 |  |  | $ | 2 |
Service cost is recorded in Salaries and related costs on the statement of consolidated operations. All other components of net periodic benefit costs are recorded in Miscellaneous, net on the statement of consolidated operations. The assumptions used for the benefit plans were as follows:
|  | Pension Benefits
Assumptions used to determine benefit obligations |  | 2020 |  | 2019
Discount rate |  | 2.72 | % |  | 3.52 | %
Rate of compensation increase |  | 3.88 | % |  | 3.89 | %
Assumptions used to determine net expense |  |
Discount rate |  | 3.51 | % |  | 4.21 | %
Expected return on plan assets |  | 7.31 | % |  | 7.40 | %
Rate of compensation increase |  | 3.88 | % |  | 3.89 | %
A 50 basis points decrease in the weighted average discount rate would have increased the Company's December 31, 2020 pension benefit liability by approximately $0.8 billion and increased the estimated 2020 pension benefit expense by approximately $78 million.
|  | Other Postretirement Benefits
Assumptions used to determine benefit obligations |  | 2020 |  | 2019
Discount rate |  | 2.43 | % |  | 3.35 | %
Assumptions used to determine net expense |  |  |  |
Discount rate |  | 3.35 | % |  | 4.30 | %
Expected return on plan assets |  | 3.00 | % |  | 3.00 | %
Health care cost trend rate assumed for next year |  | 5.80 | % |  | 6.00 | %
Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2033) |  | 4.50 | % |  | 5.00 | %
A 50 basis points decrease in the weighted average discount rate would have increased the Company's December 31, 2020 postretirement benefit liability by approximately $48 million and increased the estimated 2020 benefits expense by approximately $2 million. The Company used the Society of Actuaries' PRI-2012 Private Retirement Plans Mortality Tables projected generationally using the Society of Actuaries' MP-2020 projection scale. The Company selected the 2020 discount rate for substantially all of its plans by using a hypothetical portfolio of high-quality bonds at December 31, 2020, that would provide the necessary cash flows to match projected benefit payments. We develop our expected long-term rate of return assumption for our defined benefit plans based on historical experience and by evaluating input from the trustee managing the plans' assets. Our expected long-term rate of return on plan assets for these plans is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining risk at acceptable levels. The plans strive to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. Plan fiduciaries regularly review our actual asset allocation and the pension plans' investments are periodically rebalanced to our targeted allocation when considered appropriate. United's plan assets are allocated within the following guidelines:
| Percent of Total |  | Expected Long-Term Rate of Return
Equity securities | 30-45 | % |  | 10 |  | %
Fixed-income securities | 35-50 |  |  | 4 |  |
Alternatives | 15-25 |  |  | 7 |  |
A 50 basis points decrease in the expected long-term rate of return on plan assets would have increased estimated 2020 pension expense by approximately $25 million. Fair Value Information. Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:
Level 1 | Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value
Level 2 | Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs
Level 3 | Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities
Assets and liabilities measured at fair value are based on the valuation techniques identified in the tables below. The valuation techniques are as follows: (a) Market approach. Prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities; and (b) Income approach. Techniques to convert future amounts to a single current value based on market expectations (including present value techniques, option-pricing and excess earnings models). The following tables present information about United's pension and other postretirement plan assets at December 31 (in millions):
|  | 2020 |  |  | 2019
Pension Plan Assets: |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Assets Measured at NAV(a) |  |  | Total |  | Level 1 |  | Level 2 |  | Level 3 |  | Assets Measured at NAV(a)
Equity securities funds |  | $ | 1,606 |  |  | $ | 55 |  |  | $ | 125 |  |  | $ | 96 |  |  | $ | 1,330 |  |  |  | $ | 1,957 |  |  | $ | 47 |  |  | $ | 117 |  |  | $ | 71 |  |  | $ | 1,722 |
Fixed-income securities |  | 1,644 |  |  | — |  |  | 548 |  |  | 49 |  |  | 1,047 |  |  |  | 1,732 |  |  | — |  |  | 687 |  |  | 69 |  |  | 976 |
Alternatives |  | 669 |  |  | — |  |  | — |  |  | 195 |  |  | 474 |  |  |  | 776 |  |  | — |  |  | — |  |  | 205 |  |  | 571 |
Other investments |  | 150 |  |  | 132 |  |  | 8 |  |  | 10 |  |  | — |  |  |  | 499 |  |  | 466 |  |  | 21 |  |  | 12 |  |  | — |
Total |  | $ | 4,069 |  |  | $ | 187 |  |  | $ | 681 |  |  | $ | 350 |  |  | $ | 2,851 |  |  |  | $ | 4,964 |  |  | $ | 513 |  |  | $ | 825 |  |  | $ | 357 |  |  | $ | 3,269 |
Other Postretirement Benefit Plan Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposit administration fund |  | $ | 51 |  |  | $ | — |  |  | $ | — |  |  | $ | 51 |  |  | $ | — |  |  |  | $ | 52 |  |  | $ | — |  |  | $ | — |  |  | $ | 52 |  |  | $ | — |
(a) In accordance with the relevant accounting standards, certain investments that are measured at fair value using the net asset value ("NAV") per share (or its equivalent) have not been classified in the fair value hierarchy. These investments are commingled funds that invest in fixed-income instruments including bonds, debt securities, and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities. Redemption periods for these investments range from daily to semiannually. Equity and Fixed-Income. Equities include investments in both developed market and emerging market equity securities. Fixed-income includes primarily U.S. and non-U.S. government fixed-income securities and U.S. and non-U.S. corporate fixed-income securities. Deposit Administration Fund. This investment is a stable value investment product structured to provide investment income. Alternatives. Alternative investments consist primarily of investments in hedge funds, real estate and private equity interests. Other investments. Other investments consist of primarily cash, as well as insurance contracts. The reconciliation of United's benefit plan assets measured at fair value using unobservable inputs (Level 3) for the years ended December 31, 2020 and 2019 is as follows (in millions):
| 2020 |  | 2019
Balance at beginning of year | $ | 409 |  |  | $ | 350 |
Actual return (loss) on plan assets: |  |  |
Sold during the year | 4 |  |  | 12 |
Held at year end | 13 |  |  | (1) |
Purchases, sales, issuances and settlements (net) | (25) |  |  | 48 |
Balance at end of year | $ | 401 |  |  | $ | 409 |
Funding requirements for tax-qualified defined benefit pension plans are determined by government regulations. The Company did not have any minimum required contributions for 2020 and does not expect any for 2021. The Company expects to make approximately $82 million in contributions to United's postretirement plans in 2021. The estimated future benefit payments, net of expected participant contributions, in United's pension plans and other postretirement benefit plans as of December 31, 2020 are as follows (in millions):
| Pension |  | Other Postretirement |  |
2021 | $ | 325 |  |  | $ | 88 |  |  |
2022 | 339 |  |  | 118 |  |  |
2023 | 353 |  |  | 100 |  |  |
2024 | 351 |  |  | 87 |  |  |
2025 | 376 |  |  | 83 |  |  |
Years 2026 – 2030 | 2,113 |  |  | 359 |  |  |
Defined Contribution Plans. United offers several defined contribution plans to its employees. Depending upon the employee group, employer contributions consist of matching contributions and/or non-elective employer contributions. United's employer contribution percentages to its primary 401(k) defined contribution plans vary from 1% to 16% of eligible earnings depending on the terms of each plan. United recorded expenses for its primary 401(k) defined contribution plans of $687 million, $735 million and $693 million in the years ended December 31, 2020, 2019 and 2018, respectively. Multi-Employer Plans. United's participation in the IAM National Pension Plan ("IAM Plan") for the annual period ended December 31, 2020 is outlined in the table below. In addition to the additional required contributions described in table below, contributions in 2020 were affected by COVID-19 impacts on United's operations and consequently employee hours paid. The risks of participating in these multi-employer plans are different from single-employer plans, as United may be subject to additional risks that others do not meet their obligations, which in certain circumstances could revert to United. The IAM Plan reported $510 million in employers' contributions for the year ended December 31, 2019. For 2019, the Company's contributions to the IAM Plan represented more than 10% of total contributions to the IAM Plan. The 2020 information is not available as Form 5500 is not final for the plan year.
Pension Fund | IAM National Pension Fund ("Fund")
EIN/ Pension Plan Number | 51-6031295 — 002
Pension Protection Act Zone Status (2020 and 2019) | Critical (2020) and Endangered (2019). A plan generally is in "endangered" status if its funded percentage is less than 80 percent. A plan is in "critical" status if the funded percentage is less than 65 percent. On April 17, 2019, the IAM National Pension Fund Board of Trustees voluntarily elected for the Fund to be in critical status effective for the plan year beginning January 1, 2019 to strengthen the Fund's financial health.
FIP/RP Status Pending/Implemented | A 10-year Rehabilitation Plan effective, January 1, 2022, was adopted on April 17, 2019 that requires the Company to make an additional contribution of 2.5% of the hourly contribution rate, compounded annually for the length of the Rehabilitation Plan, effective June 1, 2019.
United's Contributions | $53 million, $59 million and $52 million in the years ended December 31, 2020, 2019 and 2018, respectively
Surcharge Imposed | No
Expiration Date of Collective Bargaining Agreement | N/A
Profit Sharing. Substantially all employees participate in profit sharing based on a percentage of pre-tax earnings, excluding special charges, profit sharing expense and share-based compensation. Profit sharing percentages range from 5% to 20% depending on the work group, and in some cases profit sharing percentages vary above and below certain pre-tax margin thresholds. Eligible U.S. co-workers in each participating work group receive a profit sharing payout using a formula based on the ratio of each qualified co-worker's annual eligible earnings to the eligible earnings of all qualified co-workers in all domestic work groups. Eligible non-U.S. co-workers receive profit sharing based on the calculation under the U.S. profit sharing plan for management and administrative employees. As a result of the pre-tax losses in 2020, no profit sharing was recorded. However, the Company recorded profit sharing and related payroll tax expense of $491 million and $334 million in 2019 and 2018, respectively. Profit sharing expense is recorded as a component of Salaries and related costs in the Company's statements of consolidated operations.

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