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Pension and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2019

Pension and Other Postretirement Benefits

Pensions. The Company sponsors various pension plans covering certain U.S. and non-U.S. employees, and participates in certain multi-employer pension plans. The benefits under the Company plans are based primarily on years of service and either the employees’ remuneration near retirement or a fixed dollar multiple.

A measurement date of December 31 was used for all plans presented below.

The components of pension expense were as follows:



U.S. Plans	2019			2018			2017
Service cost	$	15		$	17		$	14
Interest cost	50			47			50
Expected return on plan assets	(70		)	(85		)	(83		)
Amortization of actuarial loss	55			51			52
Amortization of prior service cost	1			1			1
Net periodic cost	$	51		$	31		$	34



Non-U.S. Plans	2019			2018			2017
Service cost	$	15		$	26		$	22
Interest cost	71			75			75
Expected return on plan assets	(138		)	(159		)	(146		)
Settlements	44			38			—
Curtailments	(14		)	—			(3		)
Amortization of actuarial loss	38			45			42
Amortization of prior service credit	(1		)	(11		)	(11		)
Net periodic cost / (benefit)	$	15		$	14		$	(21	)

The settlement charges in 2019 and 2018 arose from the payment of lump sum buy-outs to settle certain pension obligations using plan assets. The Company may incur additional settlement charges in 2020. The curtailment gain in 2019 was to recognize prior

service credits that were previously recorded in accumulated other comprehensive income in connection with the closure

of a non-U.S. defined benefit pension plan.

Additional pension expense of $5 was recognized in each of 2019, 2018 and 2017 for multi-employer plans.

The projected benefit obligations, accumulated benefit obligations, plan assets and funded status of the Company's U.S. and non-U.S. plans were as follows:



	U.S. Plans						Non-U.S. Plans
	2019			2018			2019			2018
Projected Benefit Obligations
Benefit obligations at January 1	$	1,371		$	1,499		$	3,102		$	3,507
Service cost	15			17			15			26
Interest cost	50			47			71			75
Plan participants’ contributions	—			—			2			4
Amendments	(1		)	—			—			—
Settlements	—			—			(152		)	(121		)
Curtailments	—			—			(18		)	—
Actuarial loss	133			(83		)	242			(199		)
Acquisitions	—			—			—			148
Benefits paid	(128		)	(109		)	(152		)	(150		)
Foreign currency translation	—			—			110			(188		)
Benefit obligations at December 31	$	1,440		$	1,371		$	3,220		$	3,102
Plan Assets
Fair value of plan assets at January 1	$	1,012		$	1,220		$	3,264		$	3,665
Actual return on plan assets	244			(102		)	373			(39		)
Employer contributions	3			3			19			16
Plan participants’ contributions	—			—			2			4
Settlements	—			—			(152		)	(121		)
Acquisitions	—			—			—			90
Benefits paid	(128		)	(109		)	(152		)	(150		)
Foreign currency translation	—			—			126			(201		)
Fair value of plan assets at December 31	$	1,131		$	1,012		$	3,480		$	3,264

Funded status	$	(309	)	$	(359	)	$	260		$	162

Accumulated benefit obligations at December 31	$	1,397		$	1,327		$	3,182		$	3,009

Information for pension plans with accumulated benefit obligations in excess of plan assets was as follows:



U.S. Plans	2019		2018
Projected benefit obligations	$	1,440	$	1,371
Accumulated benefit obligations	1,397		1,327
Fair value of plan assets	1,131		1,012



Non-U.S. Plans	2019		2018
Projected benefit obligations	$	399	$	363
Accumulated benefit obligations	383		329
Fair value of plan assets	187		167

The Company’s investment strategy in its U.S. plan is designed to generate returns that are consistent with providing benefits to plan participants within the risk tolerance of the plan. Asset allocation is the primary determinant of return levels and investment risk exposure. The assets of the plan are broadly diversified in terms of securities and security types in order to limit the potential of large losses from any one security.

The strategic ranges for asset allocation in the U.S. plans are as follows:



U.S. equities	39	%	to	49	%
International equities	12	%	to	18	%
Fixed income	16	%	to	26	%
Balanced funds	7	%	to	13	%
Real estate	7	%	to	13	%

The Company’s investment strategy in its U.K. plan, the largest non-U.S. plan, is designed to achieve a funding level of 100% within the next 7 years by targeting an expected return of 1.8% annually in excess of the expected growth in the liabilities. The Company seeks to achieve this return with a risk level commensurate with a 5% chance of the funding level falling between 4% and 7% in any one year. The strategic ranges for asset allocation in the U.K. plan are as follows:



Investment grade credit	30	%	to	90	%
Equities	0	%	to	30	%
Hedge funds	0	%	to	10	%
Real estate	0	%	to	5	%
Alternative credit	0	%	to	20	%
Other	0	%	to	20	%

Pension assets are classified into three levels. Level 1 asset values are derived from quoted prices which are available in active markets as of the report date. Level 2 asset values are derived from other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the report date. Level 3 asset values are derived from unobservable pricing inputs that are not corroborated by market data or other objective sources.

Level 1 Investments

Equity securities are valued at the latest quoted prices taken from the primary exchange on which the security trades. Mutual funds are valued at the net asset value (NAV) of shares held at year-end.

Level 2 Investments

Fixed income securities, including government issued debt, corporate debt, asset-backed and structured debt securities are valued using the latest bid prices or valuations based on a matrix system (which considers such factors as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and other reference data including market research publications). Derivatives, which consist mainly of interest rate swaps, are valued using a discounted cash flow pricing model based on observable market data.

Level 3 Investments

Hedge funds and private equity funds are valued at the NAV at year-end. The values assigned to private equity funds are based upon assessments of each underlying investment, incorporating valuations that consider the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, and performance multiples among other factors. Real estate investments are based on third party appraisals.

Investments Measured Using NAV per Share Practical Expedient

Investments measured using NAV per share as a practical expedient include investment funds that invest in global equity, emerging markets and fixed income. The global equity funds invest in equity securities of various market sectors including industrial materials, consumer discretionary goods and services, financial infrastructure, technology, and health care. The emerging markets funds invest in equity markets within financial services, consumer goods and services, energy, and technology.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair value. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in different fair value measurements at the reporting date.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and their placement within the fair value hierarchy. The levels assigned to the defined benefit plan assets as of December 31, 2019 and 2018 are summarized in the tables below:



	2019
	U.S. plan assets		Non-U.S. plan assets		Total
Level 1
Cash and cash equivalents	$	23	$	190	$	213
Global large cap equity	—		7		7
U.S. large cap equity	155		4		159
U.S. mid/small cap equity	218		27		245
Mutual funds – global equity	144		—		144
Mutual funds – U.S. equity	206		—		206
Mutual funds – fixed income	67		—		67
	813		228		1,041
Level 2
Government issued debt securities	—		260		260
Corporate debt securities	52		332		384
Asset backed securities	—		2		2
Structured debt	—		811		811
Insurance contracts	—		105		105
Derivatives	—		194		194
Investment funds – fixed income	—		373		373
Investment funds – global equity	—		297		297
Investment funds – emerging markets	—		33		33
	52		2,407		2,459
Level 3
Investment funds – real estate	96		220		316
Hedge funds	—		43		43
Private equity	5		70		75
Real estate – direct	21		9		30
	122		342		464

Total assets in fair value hierarchy	987		2,977		3,964

Investments measured at NAV Practical Expedient (a)
Investment funds – fixed income	102		91		193
Investment funds – global equity	18		78		96
Investment funds – emerging markets	23		—		23
Hedge funds	—		328		328
	143		497		640
Total investments at fair value	$	1,130	$	3,474	$	4,604



	2018
	U.S. plan assets		Non-U.S. plan assets		Total
Level 1
Cash and cash equivalents	$	34	$	225	$	259
Global large cap equity	—		27		27
U.S. large cap equity	66		3		69
U.S. mid/small cap equity	182		16		198
Mutual funds – global equity	133		—		133
Mutual funds – U.S. equity	188		—		188
Mutual funds – fixed income	104		—		104
	707		271		978
Level 2
Government issued debt securities	—		341		341
Corporate debt securities	49		212		261
Asset backed securities	—		2		2
Structured debt	—		699		699
Insurance contracts	—		105		105
Derivatives	—		103		103
Investment funds – fixed income	—		411		411
Investment funds – global equity	—		268		268
	49		2,141		2,190
Level 3
Investment funds – real estate	94		196		290
Hedge funds	—		113		113
Private equity	9		94		103
Real estate – direct	20		7		27
	123		410		533

Total assets in fair value hierarchy	879		2,822		3,701

Investments measured at NAV Practical Expedient (a)
Investment funds – fixed income	98		112		210
Investment funds – global equity	14		43		57
Investment funds – emerging markets	20		—		20
Hedge funds	—		282		282
	132		437		569
Total investments at fair value	$	1,011	$	3,259	$	4,270

(a) In accordance with ASU No. 2015-07, certain investments that are measured at fair value using the NAV per share practical expedient have not been classified in the fair value hierarchy.

Accrued income excluded from the tables above was as follows:



	2019		2018
U.S. plan assets	$	1	$	1
Non-U.S. plan assets	6		5

Plan assets include $244 and $140 of the Company’s common stock at December 31, 2019 and 2018.

The following tables reconcile the beginning and ending balances of plan assets measured using significant unobservable inputs (Level 3).



	Hedge funds			Private equity			Real estate			Total
Balance at January 1, 2018	$	189		$	147		$	182		$	518
Foreign currency translation	(11		)	(8		)	(5		)	(24		)
Asset returns – assets held at reporting date	(18		)	(11		)	(9		)	(38		)
Asset returns – assets sold during the period	20			28			15			63
Purchases, sales and settlements, net	(67		)	(53		)	70			(50		)
Asset transfers during the period	—			—			64			64
Balance at December 31, 2018	113			103			317			533
Foreign currency translation	4			4			8			16
Asset returns – assets held at reporting date	(6		)	(22		)	25			(3		)
Asset returns – assets sold during the period	7			17			6			30
Purchases, sales and settlements, net	(75		)	(27		)	(10		)	(112		)
Balance at December 31, 2019	$	43		$	75		$	346		$	464

The following table presents additional information about the pension plan assets valued using net asset value as a practical expedient:



	Fair Value		Redemption Frequency	Redemption Notice Period
Balance at December 31, 2019
Investment funds – fixed income	$	193	Semi-monthly	1 - 5 days
Investment funds – global equity	96		Monthly	1 - 15 days
Investment funds – emerging markets	23		Daily	30 days
Hedge funds	328		Monthly	1 - 30 days

Balance at December 31, 2018
Investment funds – fixed income	$	210	Semi-monthly	1 day
Investment funds – global equity	57		Monthly	1 - 15 days
Investment funds – emerging markets	20		Daily	30 days
Hedge funds	282		Monthly	1 - 45 days

The pension plan assets valued using net asset value as a practical expedient do not have any unfunded commitments.

Pension assets and liabilities included in the Consolidated Balance Sheets were:



	2019		2018
Non-current assets	$	491	$	360
Current liabilities	13		14
Non-current liabilities	533		549

The Company’s current liability at December 31, 2019, represents the expected required payments to be made for unfunded plans over the next twelve months. Total estimated 2020 employer contributions are $21 for the Company’s pension plans.

Changes in the net loss and prior service cost (credit) for the Company’s pension plans were:



	2019						2018						2017
	Net loss			Prior service			Net loss			Prior service			Net loss			Prior service
Balance at January 1	$	1,962		$	(6	)	$	2,057		$	(16	)	$	2,032		$	(32	)
Reclassification to net periodic benefit cost	(137		)	14			(134		)	10			(95		)	14
Current year gain (loss)	(53		)	—			103			—			21			—
Amendments	—			—			—			—			—			4
Foreign currency translation	36			—			(64		)	—			99			(2		)
Balance at December 31	$	1,808		$	8		$	1,962		$	(6	)	$	2,057		$	(16	)

The estimated portions of the net losses and net prior service that are expected to be recognized as components of net periodic benefit cost / (credit) in 2020 are $94 and $(1).

Expected future benefit payments as of December 31, 2019 are:



	U.S. plans		Non-U.S. plans
2020	$	104	$	161
2021	96		164
2022	98		165
2023	100		168
2024	99		166
2025 - 2029	448		837

The weighted average actuarial assumptions used to calculate the benefit obligations at December 31 were:



U.S. Plans	2019		2018		2017
Discount rate	3.2	%	4.3	%	3.7	%
Compensation increase	4.7	%	4.5	%	4.7	%



Non-U.S. Plans	2019		2018		2017
Discount rate	2.1	%	2.9	%	2.5	%
Compensation increase	3.0	%	3.2	%	3.2	%

The weighted average actuarial assumptions used to calculate pension expense for each year were:



U.S. Plans	2019		2018		2017
Discount rate - service cost	4.7	%	3.9	%	4.7	%
Discount rate - interest cost	3.9	%	3.2	%	3.4	%
Compensation increase	4.5	%	4.7	%	4.6	%
Long-term rate of return	7.3	%	7.3	%	7.5	%



Non-U.S. Plans	2019		2018		2017
Discount rate - service cost	3.0	%	2.6	%	2.8	%
Discount rate - interest cost	2.7	%	2.2	%	2.3	%
Compensation increase	3.2	%	3.2	%	3.3	%
Long-term rate of return	4.3	%	4.4	%	4.5	%

The expected long-term rate of return on plan assets is determined by taking into consideration expected long-term returns associated with each major asset class based on long-term historical ranges, inflation assumptions and the expected net value from active management of the assets based on actual results.

Other Postretirement Benefit Plans. The Company sponsors unfunded plans to provide health care and life insurance benefits to certain pensioners and survivors. Generally, the medical plans pay a stated percentage of medical expenses reduced by deductibles and other coverages. Life insurance benefits are generally provided by insurance contracts. The Company reserves the right, subject to existing agreements, to change, modify or discontinue the plans. A measurement date of December 31 was used for the plans presented below.

The components of net postretirement benefits cost were as follows:



Other Postretirement Benefits	2019			2018			2017
Service cost	$	1		$	4		$	—
Interest cost	6			6			6
Amortization of prior service credit	(34		)	(37		)	(40		)
Amortization of actuarial loss	3			4			4
Net periodic benefit credit	$	(24	)	$	(23	)	$	(30	)

Changes in the benefit obligations were:



	2019			2018
Benefit obligations at January 1	$	147		$	168
Service cost	1			4
Interest cost	6			6
Amendments	6			—
Actuarial (gain) loss	14			(15		)
Benefits paid	(13		)	(13		)
Foreign currency translation	3			(3		)
Benefit obligations at December 31	$	164		$	147

Changes in the net loss and prior service credit for the Company’s postretirement benefit plans were:



	2019						2018						2017
	Net loss			Prior service			Net loss			Prior service			Net loss			Prior service
Balance at January 1	$	31		$	(105	)	$	49		$	(142	)	$	49		$	(182	)
Reclassification to net periodic benefit cost	(3		)	34			(4		)	37			(4		)	40
Current year gain (loss)	14			—			(14		)	—			4			—
Amendments	—			(1		)	—			—			—			—
Balance at December 31	$	42		$	(72	)	$	31		$	(105	)	$	49		$	(142	)

The estimated portions of the net losses and prior service credits that are expected to be recognized as components of net periodic benefit cost/(credit) in 2020 are $4 and $(25).

Expected future benefit payments are as follows:



	Benefit Payments
2020	$	16
2021	13
2022	13
2023	12
2024	12
2025 - 2029	49

The assumed health care cost trend rates at December 31, 2019 were as follows:



Health care cost trend rate assumed for 2019	5.3	%
Rate that the cost trend rate gradually declines to	4.0	%
Year that the rate reaches the rate it is assumed to remain	2035

A one-percentage-point change in assumed health care cost trend rates would have the following effects:



	One percentage point
	Increase		Decrease
Effect on total service and interest cost	$	1	$	1
Effect on postretirement benefit obligation	$	6	$	6

Weighted average discount rates used to calculate the benefit obligations at the end of each year and the cost for each year are presented below.



	2019		2018		2017
Benefit obligations	3.5	%	4.5	%	3.8	%
Service cost	4.8	%	4.9	%	5.0	%
Interest cost	4.2	%	4.1	%	3.5	%

Defined Contribution Benefit Plans. The Company also sponsors defined contribution benefit plans in certain jurisdictions including the U.S. and the U.K. In 2019, the Company recognized expense of $11 related to these plans.