NOTE 10 – Benefit Plans

The Company and its subsidiaries sponsor noncontributory defined benefit pension plans (qualified and non-qualified) covering a substantial portion of employees in the U.S. and Canada, and certain employees in other foreign countries. Plans for most salaried employees provide pay-related benefits based on years of service. Plans for hourly employees generally provide benefits based on flat dollar amounts and years of service. The Company’s general funding policy is to make contributions to the plans in amounts that comply with minimum funding requirements and are within the limits of deductibility under current tax regulations. Certain foreign countries allow income tax deductions without regard to contribution levels, and the Company’s policy in those countries is to make contributions required by the terms of the applicable plan.

Included in the Company’s pension obligation are nonqualified supplemental retirement plans for certain key employees. Benefits provided under these plans are unfunded and payments to plan participants are made directly by the Company.

The Company also provides healthcare and/or life insurance benefits for retired employees in the U.S., Canada, and Brazil. Healthcare benefits for retirees outside of the U.S., Canada, and Brazil are generally covered through local government plans.

Pension Obligation and Funded Status: The changes in pension benefit obligations and plan assets during 2018 and 2017, as well as the funded status and the amounts recognized in the Company’s Consolidated Balance Sheets related to the Company’s pension plans at December 31, 2018 and 2017, were as follows:


	U.S. Plans				Non-U.S. Plans
(in millions)	2018		2017		2018		2017
Benefit obligation
At January 1	$	393	$	367	$	248	$	223
Service cost		6		6		3		3
Interest cost		13		13		10		11
Benefits paid		(26)		(23)		(12)		(12)
Actuarial (gain) loss		(27)		30		(8)		7
Curtailment/settlement/amendments		(2)		—		—		—
Foreign currency translation		—		—		(18)		16
Benefit obligation at December 31	$	357	$	393	$	223	$	248

Fair value of plan assets
At January 1	$	404	$	368	$	235	$	211
Actual return on plan assets		(25)		59		—		17
Employer contributions		2		—		4		5
Benefits paid		(26)		(23)		(12)		(12)
Plan settlements		(2)		—		—		—
Foreign currency translation		—		—		(20)		14
Fair value of plan assets at December 31	$	353	$	404	$	207	$	235

Funded status	$	(4)	$	11	$	(16)	$	(13)

Amounts recognized in the Consolidated Balance Sheets as of December 31, 2018 and 2017 were as follows:


	U.S. Plans				Non-U.S. Plans
(in millions)	2018		2017		2018		2017
Non-current asset	$	7	$	23	$	32	$	37
Current liabilities		(1)		(2)		(1)		(1)
Non-current liabilities		(10)		(10)		(47)		(49)
Net asset (liability) recognized	$	(4)	$	11	$	(16)	$	(13)

Amounts recognized in accumulated other comprehensive loss, excluding tax effects, that have not yet been recognized as components of net periodic benefit cost at December 31, 2018 and 2017 were as follows:


	U.S. Plans				Non-U.S. Plans
(in millions)	2018		2017		2018		2017
Net actuarial loss	$	40	$	21	$	57	$	55
Transition obligation		—		—		1		1
Prior service credit		(6)		(6)		(1)		(1)
Net amount recognized	$	34	$	15	$	57	$	55

The increase in the net amount recognized in accumulated comprehensive loss at December 31, 2018, for the U.S. plans as compared to December 31, 2017, is mainly due to the actual return on assets being lower than the expected return on assets. This is partially offset by the effect of the increase in discount rates used to measure the Company’s obligations under its U.S. pension plans.

The increase in the net amount recognized in accumulated comprehensive loss at December 31, 2018, for the Non-U.S. plans, as compared to December 31, 2017, is mainly due to the actual return on assets being lower than the expected return on assets. This is partially offset by the effect of the increase in discount rates used to measure the Company’s obligations under its Non-U.S. pension plans.

The accumulated benefit obligation for all defined benefit pension plans was $543 million and $603 million at December 31, 2018 and 2017, respectively.

Information about plan obligations and assets for plans with an accumulated benefit obligation in excess of plan assets is as follows:


	U.S. Plans				Non-U.S. Plans
(in millions)	2018		2017		2018		2017
Projected benefit obligation	$	11	$	12	$	49	$	51
Accumulated benefit obligation		9		11		41		41
Fair value of plan assets		—		—		2		2

All U.S. plans and most non-U.S. plans value the vested benefit obligation based on the actuarial present value of the vested benefits to which employees are currently entitled based on employees’ expected date of separation or retirement.

Components of net periodic benefit cost consist of the following for the years ended December 31, 2018, 2017, and 2016:


	Year Ended December 31,
	U.S. Plans						Non-U.S. Plans
(in millions)	2018		2017		2016		2018		2017		2016
Service cost	$	6	$	6	$	6	$	3	$	3	$	3
Interest cost		13		13		14		10		11		10
Expected return on plan assets		(21)		(21)		(20)		(9)		(10)		(10)
Amortization of actuarial loss		—		—		1		2		2		2
Amortization of prior service credit		—		(1)		—		—		—		—
Settlement loss		—		—		—		—		—		1
Net periodic benefit cost	$	(2)	$	(3)	$	1	$	6	$	6	$	6

The service cost component of net periodic benefit cost is presented within either cost of sales or operating expenses on the Consolidated Statements of Income. The interest cost, expected return on plan assets, amortization of actuarial loss, amortization of prior service credit and settlement loss components of net periodic benefit cost are presented as other, non-operating income on the Consolidated Statements of Income.

For the U.S. plans, the Company estimates that net periodic benefit cost for 2019 will include approximately $1 million relating to the amortization of the prior service credit included in accumulated other comprehensive loss as of December 31, 2018.

For the non-U.S. plans, the Company estimates that net periodic benefit cost for 2019 will include approximately $2 million relating to the amortization of its accumulated actuarial loss.

Actuarial gains and losses in excess of 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets are recognized as a component of net periodic benefit cost over the average remaining service period of a plan’s active employees for active defined benefit pension plans and over the average remaining life of a plan’s active employees for frozen defined benefit pension plans.

Total amounts recorded in other comprehensive income and net periodic benefit cost was as follows:


(in millions, pre-tax)	U.S. Plans						Non-U.S. Plans
	2018		2017		2016		2018		2017		2016
Net actuarial loss (gain)	$	19	$	(7)	$	10	$	4	$	(3)	$	6
Prior service credit		—		—		(6)		—		—		(1)
Amortization of actuarial loss		—		—		(1)		(2)		(2)		(2)
Amortization of prior service credit		—		1		—		—		—		—
Total recorded in other comprehensive income		19		(6)		3		2		(5)		3
Net periodic benefit cost		(2)		(3)		1		6		6		6
Total recorded in other comprehensive income and net periodic benefit cost	$	17	$	(9)	$	4	$	8	$	1	$	9

The following weighted average assumptions were used to determine the Company’s obligations under the pension plans:


	U.S. Plans				Non-U.S. Plans
	2018		2017		2018		2017
Discount rate	4.38	%	3.70	%	4.33	%	4.02	%
Rate of compensation increase	4.31		4.42		3.63		3.58

The following weighted average assumptions were used to determine the Company’s net periodic benefit cost for the pension plans:


	U.S. Plans						Non-U.S. Plans
	2018		2017		2016		2018		2017		2016
Discount rate	3.70	%	4.30	%	4.30	%	4.02	%	4.34	%	4.57	%
Expected long-term return on plan assets	5.30		5.75		5.75		4.31		5.29		5.41
Rate of compensation increase	4.42		4.54		4.71		3.58		3.62		3.73

For 2018, the Company assumed an expected long-term rate of return on assets of 5.30 percent for U.S. plans and approximately 3.86 percent for Canadian plans. In developing the expected long-term rate of return assumption on plan assets, which consist mainly of U.S. and Canadian debt and equity securities, management evaluated historical rates of return achieved on plan assets and the asset allocation of the plans, input from the Company’s independent actuaries and investment consultants, and historical trends in long-term inflation rates. Projected return estimates made by such consultants are based upon broad equity and bond indices.

The discount rate reflects a rate of return on high-quality fixed income investments that match the duration of the expected benefit payments. The Company has typically used returns on long-term, high-quality corporate AA bonds as a benchmark in establishing this assumption. In 2016, the Company changed the method used to estimate the service and interest cost components of net periodic benefit cost for certain of its defined benefit pension and postretirement benefit plans. Historically, the Company estimated the service and interest cost components using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Beginning in 2016, the Company has elected to use a full yield curve approach in the estimation of these components of benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.

Plan Assets: The Company’s investment policy for its pension plans is to balance risk and return through diversified portfolios of fixed income securities, equity instruments, and short-term investments. Maturities for fixed income securities are managed such that sufficient liquidity exists to meet near-term benefit payment obligations. For U.S. pension plans, the weighted average target range allocation of assets was 15-25 percent in equities and 75-85 percent in fixed income inclusive of other short-term investments. The asset allocation is reviewed regularly, and portfolio investments are rebalanced to the targeted allocation when considered appropriate.

The Company’s weighted average asset allocation as of December 31, 2018 and 2017 for U.S. and non-U.S. pension plan assets is as follows:


	U.S. Plans				Non-U.S. Plans
Asset Category	2018		2017		2018		2017
Equity securities	19	%	26	%	16	%	39	%
Debt securities	80		73		64		46
Cash and other	1		1		20		15
Total	100	%	100	%	100	%	100	%

The fair values of the Company’s plan assets by asset category and level in the fair value hierarchy are as follows:


	Fair Value Measurements at December 31, 2018
(in millions)	Level 1		Level 2		Level 3		Total
U.S. Plans:
Equity index:
U.S. (a)	$	—	$	33	$	—	$	33
International (b)		—		35		—		35
Fixed income index:
Long bond (c)		—		258		—		258
Long government bond (d)		—		24		—		24
Cash (e)		—		3		—		3
Total U.S. Plans	$	—	$	353	$	—	$	353
Non-U.S. Plans:
Equity index:
U.S. (a)	$	—	$	3	$	—	$	3
Canada (f)		—		13		—		13
International (b)		—		15		—		15
Real estate (g)		—		2		—		2
Fixed income index:
Intermediate bond (h)		—		34		—		34
Long bond (i)		—		99		—		99
Other (j)		—		24		—		24
Cash (e)		2		15		—		17
Total Non-U.S. Plans	$	2	$	205	$	—	$	207


	Fair Value Measurements at December 31, 2017
(in millions)	Level 1		Level 2		Level 3		Total
U.S. Plans:
Equity index:
U.S. (a)	$	—	$	51	$	—	$	51
International (b)		—		55		—		55
Fixed income index:
Long bond (c)		—		273		—		273
Long govt bond (d)		—		21				21
Cash (e)		—		4		—		4
Total U.S. Plans	$	—	$	404	$	—	$	404
Non-U.S. Plans:
Equity index:
U.S. (a)	$	—	$	12	$	—	$	12
Canada (f)		—		22		—		22
International (b)		—		52		—		52
Real estate (g)		—		5		—		5
Fixed income index:
Intermediate bond (h)		—		25		—		25
Long bond (i)		—		84		—		84
Other (j)		—		24		—		24
Cash (e)		2		9		—		11
Total Non-U.S. Plans	$	2	$	233	$	—	$	235

(a)

This category consists of both passively and actively managed equity index funds that track the return of large capitalization U.S. equities.

(b)

This category consists of both passively and actively managed equity index funds that track an index of returns on international developed market equities as well as infrastructure assets.

(c)

This category consists of an actively managed fixed income index fund that invests in a diversified portfolio of fixed-income corporate securities with maturities generally exceeding 10 years.

(d)

This category consists of an actively managed fixed income index fund that invests in a diversified portfolio of fixed-income U.S. treasury securities with maturities generally exceeding 10 years.

(e)

This category represents cash or cash equivalents.

(f)

This category consists of an actively managed equity index fund that tracks against an index of large capitalization Canadian equities.

(g)

This category consists of an actively managed equity index fund that tracks against real estate investment trusts and real estate operating companies.

(h)

This category consists of both passively and actively managed fixed income index funds that track the return of intermediate duration government and investment grade corporate bonds.

(i)

This category consists of both passively and actively managed fixed income index funds that track the return of Canada government bonds, investment grade corporate bonds and hedge funds.

(j)

This category mainly consists of investment products provided by an insurance company that offers returns that are subject to a minimum guarantee and mutual funds.

All significant pension plan assets are held in collective trusts by the Company’s U.S. and non-U.S. plans. The fair values of shares of collective trusts are based upon the net asset values of the funds reported by the fund managers based on quoted market prices of the underlying securities as of the balance sheet date and are considered to be Level 2 fair value measurements. This may produce a fair value measurement that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies could result in different fair value measurements at the reporting date.

In 2018, the Company made cash contributions of $2 million and $4 million to its U.S. and non-U.S. pension plans, respectively. The Company anticipates that in 2019 it will make cash contributions of $1 million and $3 million to its U.S. and non-U.S. pension plans, respectively. Cash contributions in subsequent years will depend on a number of factors including the performance of plan assets.

The following benefit payments, which reflect anticipated future service, as appropriate, are expected to be made:


(in millions)	U.S. Plans		Non-U.S. Plans
2019	$	19	$	11
2020		20		11
2021		22		11
2022		22		12
2023		24		13
Years 2024 - 2028		123		66

The Company and certain subsidiaries also maintain defined contribution plans. The Company makes matching contributions to these plans that are subject to certain vesting requirements and are based on a percentage of employee contributions. Amounts charged to expense for defined contribution plans totaled $21 million, $22 million, and $20 million in 2018, 2017, and 2016, respectively.

Postretirement Benefit Plans: The Company’s postretirement benefit plans currently are not funded. The information presented below includes plans in the U.S., Brazil, and Canada. The changes in the benefit obligations of the plans during 2018 and 2017, and the amounts recognized in the Company’s Consolidated Balance Sheets at December 31, 2018 and 2017, are as follows:


(in millions)	2018		2017
Accumulated postretirement benefit obligation
At January 1	$	70	$	67
Service cost		1		1
Interest cost		3		3
Employee contributions		—		1
Plan curtailments		(1)		—
Actuarial (gain) loss		(2)		2
Benefits paid		(4)		(4)
Foreign currency translation		(3)		—
At December 31		64		70
Fair value of plan assets		—		—
Funded status	$	(64)	$	(70)

Amounts recognized in the Consolidated Balance Sheets consist of:


(in millions)	2018		2017
Current liabilities	$	(4)	$	(4)
Non-current liabilities		(60)		(66)
Net liability recognized	$	(64)	$	(70)

Amounts recognized in accumulated other comprehensive loss (income), excluding tax effects, that have not yet been recognized as components of net periodic benefit cost at December 31, 2018 and 2017 were as follows:


(in millions)	2018		2017
Net actuarial loss	$	8	$	11
Prior service credit		(4)		(6)
Net amount recognized	$	4	$	5

Components of net periodic benefit cost consisted of the following for the years ended December 31, 2018, 2017, and 2016:


	Year Ended December 31,
(in millions)	2018		2017		2016
Service cost	$	1	$	1	$	1
Interest cost		3		3		2
Amortization of prior service credit		(2)		(3)		(2)
Net periodic benefit cost	$	2	$	1	$	1

The service cost component of net periodic benefit cost is presented within either cost of sales or operating expenses on the Consolidated Statements of Income. The interest cost and amortization of prior service credit components of net periodic benefit cost are presented as other, non-operating income on the Consolidated Statements of Income.

The Company estimates that postretirement benefit expense for these plans for 2019 will include approximately $2 million relating to the amortization of the prior service credit included in accumulated other comprehensive income as of December 31, 2018.

Total amounts recorded in other comprehensive income and net periodic benefit cost was as follows:


(in millions, pre-tax)	2018		2017		2016
Net actuarial loss (gain)	$	(3)	$	2	$	2
Amortization of prior service credit		2		3		2
New prior service credit		—		—		—
Total recorded in other comprehensive income		(1)		5		4
Net periodic benefit cost		2		1		1
Total recorded in other comprehensive income and net periodic benefit cost	$	1	$	6	$	5

The following weighted average assumptions were used to determine the Company’s obligations under the postretirement plans:


	2018		2017
Discount rate	5.24	%	4.92	%

The following weighted average assumptions were used to determine the Company’s net postretirement benefit cost:


	2018		2017		2016
Discount rate	4.93	%	5.46	%	5.30	%

The discount rate reflects a rate of return on high-quality fixed-income investments that match the duration of expected benefit payments. The Company has typically used returns on long-term, high-quality corporate AA bonds as a benchmark in establishing this assumption.

The healthcare cost trend rates used in valuing the Company’s postretirement benefit obligations are established based upon actual healthcare trends and consultation with actuaries and benefit providers. The following assumptions were used as of December 31, 2018:


	U.S.		Canada		Brazil
2018 increase in per capita cost	6.30	%	5.92	%	7.90	%
Ultimate trend	4.50	%	4.00	%	7.90	%
Year ultimate trend reached	2037		2040		2018

The sensitivities of service cost and interest cost and year-end benefit obligations to changes in healthcare cost trend rates for the postretirement benefit plans as of December 31, 2018, are as follows:


(in millions)	2018
One-percentage point increase in trend rates:
- Increase in service cost and interest cost components	$	1
- Increase in year-end benefit obligations		5

One-percentage point decrease in trend rates:
- Decrease in service cost and interest cost components		1
- Decrease in year-end benefit obligations		7

The following benefit payments, which reflect anticipated future service, as appropriate, are expected to be made under the Company’s postretirement benefit plans:


(in millions)
2019	$	4
2020		4
2021		4
2022		5
2023		5
Years 2024 - 2028		23

Multi-employer Plans: The Company participates in and contributes to one multi-employer benefit plan under the terms of collective bargaining agreements that cover certain union-represented employees and retirees in the U.S. The plan covers medical and dental benefits for active hourly employees and retirees represented by the U.S. Steel Workers Union for certain U.S. locations.

The risks of participating in this multi-employer plan are different from single-employer plans. This plan receives contributions from two or more unrelated employers pursuant to one or more collective bargaining agreements and the assets contributed by one employer may be used to fund the benefits of all employees covered within the plan.

The Company is required to make contributions to this plan as determined by the terms and conditions of the collective bargaining agreements and plan terms. For the years ended December 31, 2018, 2017, and 2016, the Company made regular contributions of $12 million, $13 million, and $14 million, respectively, to this multi-employer plan. The Company cannot currently estimate the amount of multi-employer plan contributions that will be required in 2019 and future years, but these contributions could increase due to healthcare cost trends. The collective bargaining agreements associated with this plan expire during 2019 - 2023.