v3.20.4
Postretirement Benefit Plans
 12 Months Ended
Dec. 31, 2020
Retirement Benefits [Abstract]  
Postretirement Benefit Plans Postretirement Benefit Plans
Pensions
Our employees participate in employee pension plans in accordance with the legal requirements, customs and the local situation in the respective countries. These are defined-benefit pension plans, defined-contribution plans and multi-employer plans.

The Company’s employees in The Netherlands participate in a multi-employer plan, implemented for the employees of the Metal and Electrical Engineering Industry ("Bedrijfstakpensioenfonds Metalektro" or "PME") in accordance with the mandatory affiliation to PME effective for the industry in which NXP operates. As this affiliation is a legal requirement for the Metal and Electrical Engineering Industry it has no expiration date. This PME multi-employer plan (a career average plan) covers 1,390 companies and 626,000 participants. The plan monitors its risk on an aggregate basis, not by company or participant and can therefore not be accounted for as a defined benefit plan. The pension fund rules state that the only obligation for affiliated companies will be to pay the annual plan contributions. There is no obligation for affiliated companies to fund plan deficits. Affiliated companies are also not entitled to any possible surpluses in the pension fund.
Every participating company contributes the same fixed percentage of its total pension base, being pensionable salary minus an individual offset. The Company’s pension cost for any period is the amount of contributions due for that period.

The contribution rate for the mandatory scheme will increase from 26.41% (2020) to 27.59% (2021).
PME multi-employer plan202020192018
NXP’s contributions to the plan33 31 34 
(including employees’ contributions)4 4 4 
Average number of NXP’s active employees participating in the plan2,048 2,129 2,183 
NXP’s contribution to the plan exceeded more than 5 percent of the total contribution (as of December 31 of the plan’s year end)NoNoNo

The amount for pension costs included in the statement of operations for the year 2020 was $103 million (2019: $98 million; 2018: $105 million) of which $47 million (2019: $47 million; 2018: $49 million) represents defined-contribution plans and $29 million (2019: $27 million; 2018: $30 million) represents the PME multi-employer plans.

Defined-benefit plans
The benefits provided by defined-benefit plans are based on employees’ years of service and compensation levels. Contributions are made by the Company, as necessary, to provide assets sufficient to meet the benefits payable to defined-benefit pension plan participants.

These contributions are determined based upon various factors, including funded status, legal and tax considerations as well as local customs. The Company funds certain defined-benefit pension plans as claims are incurred.

The total ongoing cost of defined-benefit plans amounted to $27 million in 2020 (2019: a cost of $24 million; 2018: a cost of $26 million).
The table below provides a summary of the changes in the pension benefit obligations and defined-benefit pension plan assets for 2020 and 2019, associated with the Company’s dedicated plans, and a reconciliation of the funded status of these plans to the amounts recognized in the Consolidated Balance Sheets.
20202019
Projected benefit obligation
Projected benefit obligation at beginning of year665 617 
Service cost17 14 
Interest cost7 12 
Actuarial (gains) and losses65 50 
Curtailments and settlements— — 
Benefits paid(22)(23)
Exchange rate differences58 (5)
Projected benefit obligation at end of year790 665 
Plan assets
Fair value of plan assets at beginning of year203 201 
Actual return on plan assets5 5 
Employer contributions22 22 
Curtailments and settlements— — 
Benefits paid(22)(23)
Exchange rate differences16 (2)
Fair value of plan assets at end of year224 203 
Funded status(566)(462)
Classification of the funded status is as follows
–   Accrued pension cost within other non-current liabilities(554)(452)
–   Accrued pension cost within accrued liabilities(12)(10)
Total(566)(462)
Accumulated benefit obligation
Accumulated benefit obligation for all Company-dedicated benefit pension plans755 621 
Plans with assets less than accumulated benefit obligation (including unfunded plans)
–   Fair value of plan assets220 198 
–   Accumulated benefit obligations750 617 
Amounts recognized in accumulated other comprehensive income (before tax)
Total AOCI at beginning of year140 94 
–   Net actuarial loss (gain)58 47 
–   Exchange rate differences16 (1)
Total AOCI at end of year214 140 

The net amount of projected benefit obligation and plan assets for all underfunded (including unfunded) pension plans was $566 million and $462 million at December 31, 2020 and 2019, respectively, and was classified as liabilities in the Consolidated Balance Sheets.

For the year ended December 31, 2020, actuarial losses were primarily related to decreases in discount rates of approximately 40 basis points on a weighted basis and updates to mortality table benchmarks in various countries. For the year ended December 31, 2019, actuarial losses were primarily related to decreases in discount rates of approximately 80 basis points.
The weighted average assumptions used to calculate the projected benefit obligations were as follows:
20202019
Discount rate0.8 %1.2 %
Rate of compensation increase1.6 %1.5 %
The weighted average assumptions used to calculate the net periodic pension cost were as follows:
202020192018
Discount rate1.2 %2.0 %1.9 %
Expected returns on plan assets2.6 %2.7 %3.0 %
Rate of compensation increase1.5 %1.8 %1.8 %

For the Company’s major plans, the discount rate used is based on high quality corporate bonds (iBoxx Corporate Euro AA 10+).

Plans in certain Asian countries without a deep corporate bond market use a discount rate based on the local sovereign rate and the plans maturity (Bloomberg Government Bond Yields).

Expected returns per asset class are based on the assumption that asset valuations tend to return to their respective long-term equilibria. The Expected Return on Assets for any funded plan equals the average of the expected returns per asset class weighted by their portfolio weights in accordance with the fund’s strategic asset allocation.

The components of net periodic pension costs were as follows:
202020192018
Service cost17 14 16 
Interest cost on the projected benefit obligation7 12 12 
Expected return on plan assets(5)(6)(6)
Amortization of net (gain) loss8 4 4 
Curtailments & settlements— — — 
Net periodic cost27 24 26 

The components of net periodic pension cost other than the service cost component are included in Other financial income (expense) in the Consolidated Statements of Operations.

Plan assets
The actual pension plan asset allocation at December 31, 2020 and 2019 is as follows:
20202019
Asset category:
Equity securities34 %31 %
Debt securities39 %43 %
Insurance contracts7 %7 %
Other20 %19 %
100 %100 %

We met our target plan asset allocation. The investment objectives for the pension plan assets are designed to generate returns that, along with the future contributions, will enable the pension plans to meet their future obligations. The investments in our major defined benefit plans largely consist of government bonds, “Level 2” Corporate Bonds and cash to mitigate the risk of interest fluctuations. The asset mix of equity, bonds, cash and other categories is evaluated by an asset-liability modeling study for our largest plan. The assets of funded plans in other countries mostly have a large proportion of fixed income securities with return characteristics that are aligned with changes in the liabilities caused by discount rate volatility. Total pension plan assets of $224 million include $195 million related to the German and Japanese pension funds.
The following table summarizes the classification of these assets.
20202019
Level ILevel IILevel IIILevel ILevel IILevel III
Equity securities— 71 — — 59 — 
Debt securities8 62 — 11 62 — 
Insurance contracts— 15 — — 14 — 
Other— 21 18 2 18 14 
8 169 18 13 153 14 

The Company currently expects to make $9 million of employer contributions to defined-benefit pension plans and $10 million of expected cash payments in relation to unfunded pension plans in 2021.

Estimated future pension benefit payments
The following benefit payments are expected to be made (including those for funded plans):
202124 
202224 
202326 
202428 
202528 
Years 2026-2030170 

Postretirement health care benefits
In addition to providing pension benefits, NXP provides retiree healthcare benefits in the US which are accounted for as defined-benefit plans.

The accumulated postretirement benefit obligation at the end of 2020 equals $6 million (2019: $9 million).