18)

PENSIONS AND POST-EMPLOYMENT BENEFITS

Defined contribution pension plans

The consolidated costs of defined contribution plans for the years ended December 31, 2018, 2017 and 2016 were Ps863, Ps922 and Ps865, respectively. CEMEX contributes periodically the amounts offered by the pension plan to the employee’s individual accounts, not retaining any remaining liability as of the financial statements’ date.

Defined benefit pension plans

Most of CEMEX’s defined benefit plans have been closed to new participants for several years. Actuarial results related to pension and other post-retirement benefits are recognized in earnings and/or in “Other comprehensive income” for the period in which they are generated, as appropriate. For the years ended December 31, 2018, 2017 and 2016, the effects of pension plans and other post-employment benefits are summarized as follows:


		Pensions								Other benefits							Total
Net period cost (income):		2018			2017			2016		2018		2017			2016		2018			2017			2016
Recorded in operating costs and expenses
Service cost	Ps		193			221			151		35		33			25		228			254			176
Past service cost			168			(55	)		8		—		—			—		168			(55	)		8

			361			166			159		35		33			25		396			199			184

Recorded in other financial expenses
Net interest cost			691			693			711		84		74			57		775			767			768

Recorded in other comprehensive income
Actuarial (gains) losses for the period			(3,415	)		20			3,985		11		(23	)		34		(3,404	)		(3	)		4,019

	Ps		(2,363	)		879			4,855		130		84			116		(2,233	)		963			4,971

For the years 2018, 2017 and 2016, actuarial (gains) losses for the period were generated by the following main factors as follows:


		2018			2017			2016
Actuarial (gains) losses due to experience	Ps		(1,110	)		121			(511	)
Actuarial (gains) losses due to demographic assumptions			(1,104	)		(46	)		(231	)
Actuarial (gains) losses due financial assumptions			(1,190	)		(78	)		4,761

	Ps		(3,404	)		(3	)		4,019

In 2018, net actuarial gains due to financial assumptions were mainly generated by a general increase in the discounts rates applied for the calculation of the pension benefit obligations in the United Kingdom, Germany, United States and Mexico, among others, resulting from the increase in market interest rates after several years in which such rates reached historically low levels. In 2017, net actuarial gains due to financial assumptions were mainly driven by an increase in the discount rates applicable to the benefits’ obligations in Germany and Mexico and by actual returns higher than estimated in the United States, partially offset by a decrease in the discount rate in the United Kingdom. Net actuarial losses due to financial assumptions during 2016 were mainly generated by a significant reduction in the discount rates applicable to the benefit obligations in the United Kingdom, Germany and other European countries, considering macroeconomic and political uncertainty prevailing at that time, partially offset by an increase in the discount rate in Mexico. These actuarial losses originated by the reduction in the discount rates in 2016 were also partially offset by actual returns higher than estimated in some of the plan assets related to CEMEX’s defined benefit plans.

As of December 31, 2018 and 2017, the reconciliation of the actuarial benefits’ obligations and pension plan assets, are presented as follows:


		Pensions						Other benefits						Total
		2018			2017			2018			2017			2018			2017
Change in benefits obligation:
Projected benefit obligation at beginning of the period	Ps		54,910			51,055			1,436			1,164			56,346			52,219
Service cost			193			221			35			33			228			254
Interest cost			1,608			1,625			87			76			1,695			1,701
Actuarial (gains) losses			(5,126	)		727			8			(24	)		(5,118	)		703
Additions through business combinations			—			2,801			111			271			111			3,072
Reduction from disposal of assets			(9	)		—			—			—			(9	)		—
Plan amendments			168			(55	)		—			—			168			(55	)
Benefits paid			(2,807	)		(2,920	)		(102	)		(81	)		(2,909	)		(3,001	)
Foreign currency translation			(2,226	)		1,456			(30	)		(3	)		(2,256	)		1,453

Projected benefit obligation at end of the period			46,711			54,910			1,545			1,436			48,256			56,346

Change in plan assets:
Fair value of plan assets at beginning of the period			32,665			28,828			28			26			32,693			28,854
Return on plan assets			917			932			3			2			920			934
Actuarial (gains) losses			(1,711	)		707			(3	)		(1	)		(1,714	)		706
Employer contributions			1,562			1,494			102			81			1,664			1,575
Additions through business combinations			—			2,841			—			—			—			2,841
Reduction for disposal of assets			—			(4	)		—			—			—			(4	)
Benefits paid			(2,807	)		(2,920	)		(102	)		(81	)		(2,909	)		(3,001	)
Foreign currency translation			(1,335	)		787			—			1			(1,335	)		788

Fair value of plan assets at end of the period			29,291			32,665			28			28			29,319			32,693

Net projected liability in the statement of financial position	Ps		17,420			22,245			1,517			1,408			18,937			23,653

As of December 31, 2018 and 2017, based on the hierarchy of fair values, plan assets are detailed as follows:


		2018								2017
		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash	Ps		701		—		—		701	Ps	579		—		—		579
Investments in corporate bonds			131		6,720		—		6,851		144		6,067		1		6,212
Investments in government bonds			1,649		6,786		—		8,435		1,701		9,407		—		11,108

Total fixed-income securities			2,481		13,506		—		15,987		2,424		15,474		1		17,899

Investment in marketable securities			5,089		1,557		—		6,646		6,212		1,735		—		7,947
Other investments and private funds			973		4,172		1,541		6,686		991		3,279		2,577		6,847

Total variable-income securities			6,062		5,729		1,541		13,332		7,203		5,014		2,577		14,794

Total plan assets	Ps		8,543		19,235		1,541		29,319	Ps	9,627		20,488		2,578		32,693

The most significant assumptions used in the determination of the benefit obligation were as follows:


	2018								2017
			United		United		Range of rates in				United		United		Rates ranges in
	Mexico		States		Kingdom		other countries		Mexico		States		Kingdom		other countries
Discount rates		10.8%		4.5%		2.9%		1.3% – 7.5%		9.3%		3.9%		2.4%		1.3% – 6.3%
Rate of return on plan assets		10.8%		4.5%		2.9%		1.3% – 7.5%		9.3%		3.9%		2.4%		1.3% – 6.3%
Rate of salary increases		4.0%		—		3.3%		2.3% – 6.0%		4.0%		—		3.2%		1.5% – 6.0%

As of December 31, 2018, estimated payments for pensions and other post-employment benefits over the next 10 years were as follows:


		2018
2019	Ps		2,904
2020			2,663
2021			2,641
2022			2,662

2023 – 2028			15,714

As of December 31, 2018 and 2017, the aggregate projected benefit obligation (“PBO”) for pension plans and other post-employment benefits and the plan assets by country were as follows:


		2018							2017
		PBO		Assets		Deficit			PBO		Assets		Deficit
Mexico	Ps		3,300		582		2,718	Ps		3,213		840		2,373
United States			5,619		3,428		2,191			6,378		4,031		2,347
United Kingdom¹			28,771		20,775		7,996			35,602		23,145		12,457
Germany			3,973		195		3,778			4,362		213		4,149
Other countries			6,593		4,339		2,254			6,791		4,464		2,327

	Ps		48,256		29,319		18,937	Ps		56,346		32,693		23,653

Applicable regulation in the United Kingdom requires to maintain plan assets at a level similar to that of the obligations. Beginning in 2012, the pension fund receives annual dividends of approximately US$20, increasing at a 5% rate per year, from a limited partnership (the “Partnership”), whose assets transferred by CEMEX UK of an approximate value of US$553, are leased back to CEMEX UK. The Partnership is owned, controlled and consolidated by CEMEX UK. In 2037, on expiry of the arrangement, the Partnership will be terminated and under the terms of the agreement, the remaining assets will be distributed to CEMEX UK. Distributions from the Partnership to the pension fund are considered as employer contributions to plan assets in the period in which they occur.

In some countries, CEMEX has established health care benefits for retired personnel limited to a certain number of years after retirement. As of December 31, 2018 and 2017, the projected benefits obligation related to these benefits was Ps1,133 and Ps1,080, respectively. The medical inflation rates used to determine the projected benefits obligation of these benefits in 2018 and 2017 for Mexico were 7.0%in both years, for Puerto Rico 6.2% and 6.9%, respectively, and for the United Kingdom were 6.8% and 6.7%, respectively. In connection with the acquisition of TCL (note 4.1), CEMEX integrated TCL’s consolidated health care benefits into its operations. For 2018 and 2017, the medical inflation rate used to determine the projected benefits obligation was 5.0% in both years.

Significant events related to employees’ pension benefits and other post-employment benefits during the reported periods

During 2017, CEMEX in Spain removed certain increases in pension benefits which resulted in an adjustment to past service cost generating gains of Ps99 (US$5) in 2017, recognized in the income statement for the year. In addition, due to the acquisition of TCL (note 4.1), CEMEX integrated its consolidated pensions plans, which were fully funded, as well as TCL’s consolidated health care benefits which represented an increase in the net projected liability of Ps271 (US$14) in 2017 and Ps111 (US$6) in 2018 upon conclusion of the purchase price allocation.

Sensitivity analysis of pension and other post-employment benefits

For the year ended December 31, 2018, CEMEX performed sensitivity analyses on the most significant assumptions that affect the PBO, considering reasonable independent changes of plus or minus 50 basis points in each of these assumptions. The increase (decrease) that would have resulted in the PBO of pensions and other post-employment benefits as of December 31, 2018 are shown below:


		Pensions						Other benefits						Total
		+50 bps			-50 bps			+50 bps			-50 bps			+50 bps			-50 bps
Assumptions:
Discount Rate Sensitivity	Ps		(3,074	)		3,303			(71	)		83			(3,145	)		3,386
Salary Increase Rate Sensitivity			205			(177	)		46			(37	)		251			(214	)
Pension Increase Rate Sensitivity			1,902			(1,698	)		—			—			1,902			(1,698	)