Annual report pursuant to Section 13 and 15(d)

Employee Benefit Plans

v3.19.3.a.u2
Employee Benefit Plans
 12 Months Ended
Dec. 31, 2019
Retirement Benefits [Abstract]  
Employee Benefit Plans Employee Benefit Plans
Pension and Postretirement Plans
The Corporation sponsors a qualified noncontributory trusteed pension plan (Qualified Pension Plan), a number of noncontributory nonqualified pension plans, and postretirement health and life plans that cover eligible employees. Non-U.S. pension plans sponsored by the Corporation vary based on the country and local practices.
The Qualified Pension Plan has a balance guarantee feature for account balances with participant-selected investments, applied at the time a benefit payment is made from the plan that effectively provides principal protection for participant balances transferred and certain compensation credits. The Corporation is responsible for funding any shortfall on the guarantee feature.
Benefits earned under the Qualified Pension Plan have been frozen. Thereafter, the cash balance accounts continue to earn investment credits or interest credits in accordance with the terms of the plan document.
The Corporation has an annuity contract that guarantees the payment of benefits vested under a terminated U.S. pension plan (Other Pension Plan). The Corporation, under a supplemental agreement, may be responsible for, or benefit from actual experience and investment performance of the annuity assets. The Corporation made no contribution under this agreement in 2019 or 2018. Contributions may be required in the future under this agreement.
The Corporation’s noncontributory, nonqualified pension plans are unfunded and provide supplemental defined pension benefits to certain eligible employees.
In addition to retirement pension benefits, certain benefits-eligible employees may become eligible to continue participation as retirees in health care and/or life insurance plans sponsored by the Corporation. These plans are referred to as the Postretirement Health and Life Plans.
The Pension and Postretirement Plans table summarizes the changes in the fair value of plan assets, changes in the projected benefit obligation (PBO), the funded status of both the accumulated benefit obligation (ABO) and the PBO, and the weighted-average assumptions used to determine benefit obligations for the pension plans and postretirement plans at December 31, 2019 and 2018. The estimate of the Corporation’s PBO associated with these plans considers various actuarial assumptions, including assumptions for mortality rates and discount rates. The discount rate assumptions are derived from a cash flow matching technique that utilizes rates that are based on Aa-rated corporate bonds with cash flows that match estimated benefit payments of each of the plans. The decreases in the weighted-average discount rates in 2019 resulted in increases to the PBO of approximately $2.2 billion at December 31, 2019. The increases in the weighted-average discount rates in 2018 resulted in decreases to the PBO of approximately $1.3 billion at December 31, 2018. Significant gains and losses related to changes in the PBO for 2019 and 2018 primarily resulted from changes in the discount rate.
 
 
 
 
 
 
 
 
Pension and Postretirement Plans (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Qualified
Pension Plan
 
Non-U.S.
Pension Plans
 
Nonqualified and Other
Pension Plans
 
Postretirement
Health and Life Plans
(Dollars in millions)
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Fair value, January 1
$
18,178

 
$
19,708

 
$
2,461

 
$
2,943

 
$
2,584

 
$
2,724

 
$
252

 
$
300

Actual return on plan assets
3,187

 
(550
)
 
273

 
(181
)
 
228

 
8

 
5

 
5

Company contributions
—

 
—

 
20

 
22

 
91

 
91

 
24

 
43

Plan participant contributions
—

 
—

 
1

 
1

 
—

 
—

 
103

 
115

Settlements and curtailments
—

 
—

 
(42
)
 
(107
)
 
—

 
—

 
—

 
—

Benefits paid
(1,090
)
 
(980
)
 
(108
)
 
(52
)
 
(237
)
 
(239
)
 
(185
)
 
(214
)
Federal subsidy on benefits paid
 n/a

 
 n/a

 
 n/a

 
 n/a

 
 n/a

 
 n/a

 
—

 
3

Foreign currency exchange rate changes
 n/a

 
 n/a

 
91

 
(165
)
 
 n/a

 
 n/a

 
 n/a

 
 n/a

Fair value, December 31
$
20,275

 
$
18,178

 
$
2,696

 
$
2,461

 
$
2,666

 
$
2,584

 
$
199

 
$
252

Change in projected benefit obligation
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Projected benefit obligation, January 1
$
14,144

 
$
15,706

 
$
2,589

 
$
2,814

 
$
2,779

 
$
3,047

 
$
928

 
$
1,056

Service cost
—

 
—

 
17

 
19

 
1

 
1

 
5

 
6

Interest cost
593

 
563

 
65

 
65

 
113

 
105

 
38

 
36

Plan participant contributions
—

 
—

 
1

 
1

 
—

 
—

 
103

 
115

Plan amendments
—

 
—

 
2

 
13

 
—

 
—

 
—

 
—

Settlements and curtailments
—

 
—

 
(42
)
 
(107
)
 
—

 
—

 
—

 
—

Actuarial loss (gain)
1,714

 
(1,145
)
 
288

 
(29
)
 
263

 
(135
)
 
99

 
(73
)
Benefits paid
(1,090
)
 
(980
)
 
(108
)
 
(52
)
 
(237
)
 
(239
)
 
(185
)
 
(214
)
Federal subsidy on benefits paid
 n/a

 
 n/a

 
 n/a

 
 n/a

 
 n/a

 
 n/a

 
—

 
3

Foreign currency exchange rate changes
 n/a

 
 n/a

 
75

 
(135
)
 
 n/a

 
 n/a

 
1

 
(1
)
Projected benefit obligation, December 31
$
15,361

 
$
14,144

 
$
2,887

 
$
2,589

 
$
2,919

 
$
2,779

 
$
989

 
$
928

Amounts recognized on Consolidated Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other assets
$
4,914

 
$
4,034

 
$
364

 
$
316

 
$
733

 
$
754

 
$
—

 
$
—

Accrued expenses and other liabilities
—

 
—

 
(555
)
 
(444
)
 
(986
)
 
(949
)
 
(790
)
 
(676
)
Net amount recognized, December 31
$
4,914

 
$
4,034

 
$
(191
)
 
$
(128
)
 
$
(253
)
 
$
(195
)
 
$
(790
)
 
$
(676
)
Funded status, December 31
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Accumulated benefit obligation
$
15,361

 
$
14,144

 
$
2,841

 
$
2,542

 
$
2,919

 
$
2,778

 
 n/a

 
n/a

Overfunded (unfunded) status of ABO
4,914

 
4,034

 
(145
)
 
(81
)
 
(253
)
 
(194
)
 
 n/a

 
n/a

Provision for future salaries
—

 
—

 
46

 
47

 
—

 
1

 
 n/a

 
n/a

Projected benefit obligation
15,361

 
14,144

 
2,887

 
2,589

 
2,919

 
2,779

 
$
989

 
$
928

Weighted-average assumptions, December 31
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Discount rate
3.32
%
 
4.32
%
 
1.81
%
 
2.60
%
 
3.20
%
 
4.26
%
 
3.27
%
 
4.25
%
Rate of compensation increase
 n/a

 
 n/a

 
4.10

 
4.49

 
4.00

 
4.00

 
 n/a

 
n/a

Interest-crediting rate
5.06

 
5.18

 
1.53

 
1.47

 
4.52

 
4.50

 
n/a

 
n/a

(1) 
The measurement date for all of the above plans was December 31 of each year reported.
n/a = not applicable
The Corporation’s estimate of its contributions to be made to the Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans in 2020 is $21 million, $92 million and $15 million, respectively. The Corporation does not expect to make a contribution to the Qualified Pension Plan in 2020. It is the policy of the Corporation to fund no less than the
minimum funding amount required by the Employee Retirement Income Security Act of 1974 (ERISA).
Pension Plans with ABO and PBO in excess of plan assets as of December 31, 2019 and 2018 are presented in the table below. For these plans, funding strategies vary due to legal requirements and local practices.
 
 
 
 
 
 
 
 
Plans with ABO and PBO in Excess of Plan Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-U.S.
Pension Plans
 
Nonqualified
and Other
Pension Plans
(Dollars in millions)
2019
 
2018
 
2019
 
2018
PBO
$
744

 
$
615

 
$
988

 
$
950

ABO
720

 
605

 
988

 
949

Fair value of plan assets
191

 
173

 
1

 
1


 
 
 
 
 
 
 
 
 
 
 
 
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Qualified Pension Plan
 
Non-U.S. Pension Plans
(Dollars in millions)
2019
 
2018
 
2017
 
2019
 
2018
 
2017
Components of net periodic benefit cost (income)
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
—

 
$
17

 
$
19

 
$
24

Interest cost
593

 
563

 
606

 
65

 
65

 
72

Expected return on plan assets
(1,088
)
 
(1,136
)
 
(1,068
)
 
(99
)
 
(126
)
 
(136
)
Amortization of net actuarial loss
135

 
147

 
154

 
6

 
10

 
8

Other
—

 
—

 
—

 
4

 
12

 
(7
)
Net periodic benefit cost (income)
$
(360
)
 
$
(426
)
 
$
(308
)
 
$
(7
)
 
$
(20
)
 
$
(39
)
Weighted-average assumptions used to determine net cost for years ended December 31
 

 
 

 
 

 
 

 
 

 
 

Discount rate
4.32
%
 
3.68
%
 
4.16
%
 
2.60
%
 
2.39
%
 
2.56
%
Expected return on plan assets
6.00

 
6.00

 
6.00

 
4.13

 
4.37

 
4.73

Rate of compensation increase
 n/a

 
n/a

 
n/a

 
4.49

 
4.31

 
4.51

 
 
 
 
 
 
 
 
 
 
 
 
 
Nonqualified and
Other Pension Plans
 
Postretirement Health
and Life Plans
(Dollars in millions)
2019
 
2018
 
2017
 
2019
 
2018
 
2017
Components of net periodic benefit cost (income)
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
1

 
$
1

 
$
1

 
$
5

 
$
6

 
$
6

Interest cost
113

 
105

 
117

 
38

 
36

 
43

Expected return on plan assets
(95
)
 
(84
)
 
(95
)
 
(5
)
 
(6
)
 
—

Amortization of net actuarial loss (gain)
34

 
43

 
34

 
(24
)
 
(27
)
 
(21
)
Other
—

 
—

 
—

 
(2
)
 
(3
)
 
4

Net periodic benefit cost (income)
$
53

 
$
65

 
$
57

 
$
12

 
$
6

 
$
32

Weighted-average assumptions used to determine net cost for years ended December 31
 

 
 

 
 

 
 

 
 

 
 

Discount rate
4.26
%
 
3.58
%
 
4.01
%
 
4.25
%
 
3.58
%
 
3.99
%
Expected return on plan assets
3.73

 
3.19

 
3.50

 
2.00

 
2.00

 
 n/a

Rate of compensation increase
4.00

 
4.00

 
4.00

 
 n/a

 
 n/a

 
 n/a


n/a = not applicable
The asset valuation method used to calculate the expected return on plan assets component of net periodic benefit cost for the Qualified Pension Plan recognizes 60 percent of the prior year’s market gains or losses at the next measurement date with the remaining 40 percent spread equally over the subsequent four years.
Gains and losses for all benefit plans except postretirement health care are recognized in accordance with the standard amortization provisions of the applicable accounting guidance. Net periodic postretirement health and life expense was determined using the “projected unit credit” actuarial method. For the Postretirement Health and Life Plans, 50 percent of the unrecognized gain or loss at the beginning of the year (or at subsequent remeasurement) is recognized on a level basis during the year.
Assumed health care cost trend rates affect the postretirement benefit obligation and benefit cost reported for the Postretirement Health and Life Plans. The assumed health care cost trend rate used to measure the expected cost of benefits covered by the Postretirement Health and Life Plans is 6.50 percent for 2020, reducing in steps to 5.00 percent in 2026 and later years.
The Corporation’s net periodic benefit cost (income) recognized for the plans is sensitive to the discount rate and expected return on plan assets. For the Qualified Pension Plan, Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans, a 25 bp decline in discount rates and expected return on assets would not have had a significant impact on the net periodic benefit cost for 2019.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pretax Amounts included in Accumulated OCI and OCI
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Qualified
Pension Plan
 
Non-U.S.
Pension Plans
 
Nonqualified
and Other
Pension Plans
 
Postretirement
Health and
Life Plans
 
Total
(Dollars in millions)
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Net actuarial loss (gain)
$
3,865

 
$
4,386

 
$
559

 
$
454

 
$
1,008

 
$
912

 
$
48

 
$
(75
)
 
$
5,480

 
$
5,677

Prior service cost (credits)
—

 
—

 
18

 
18

 
—

 
—

 
(6
)
 
(9
)
 
12

 
9

Amounts recognized in accumulated OCI
$
3,865


$
4,386


$
577


$
472


$
1,008


$
912


$
42


$
(84
)

$
5,492


$
5,686

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current year actuarial loss (gain)
$
(385
)
 
$
541

 
$
110

 
$
270

 
$
130

 
$
(59
)
 
$
99

 
$
(73
)
 
$
(46
)
 
$
679

Amortization of actuarial gain (loss) and
prior service cost
(135
)
 
(147
)
 
(7
)
 
(11
)
 
(34
)
 
(43
)
 
26

 
30

 
(150
)
 
(171
)
Current year prior service cost (credit)
—

 
—

 
2

 
13

 
—

 
—

 
—

 
—

 
2

 
13

Amounts recognized in OCI
$
(520
)

$
394


$
105


$
272


$
96


$
(102
)

$
125


$
(43
)

$
(194
)

$
521


Plan Assets
The Qualified Pension Plan has been established as a retirement vehicle for participants, and trusts have been established to secure benefits promised under the Qualified Pension Plan. The Corporation’s policy is to invest the trust assets in a prudent manner for the exclusive purpose of providing benefits to participants and defraying reasonable expenses of administration. The Corporation’s investment strategy is designed to provide a total return that, over the long term, increases the ratio of assets to liabilities. The strategy attempts to maximize the investment return on assets at a level of risk deemed appropriate by the Corporation while complying with ERISA and any applicable regulations and laws. The investment strategy utilizes asset allocation as a principal determinant for establishing the risk/return profile of the assets. Asset allocation ranges are established, periodically reviewed and adjusted as funding levels and liability characteristics change. Active and passive investment managers are employed to help enhance the risk/return profile of the assets. An additional aspect of the investment strategy used to minimize risk (part of the asset allocation plan) includes matching the exposure of participant-selected investment measures.
The assets of the Non-U.S. Pension Plans are primarily attributable to a U.K. pension plan. This U.K. pension plan’s assets are invested prudently so that the benefits promised to members are provided with consideration given to the nature and the duration
of the plans' liabilities. The selected asset allocation strategy is designed to achieve a higher return than the lowest risk strategy.
The expected rate of return on plan assets assumption was developed through analysis of historical market returns, historical asset class volatility and correlations, current market conditions, anticipated future asset allocations, the funds’ past experience, and expectations on potential future market returns. The expected return on plan assets assumption is determined using the calculated market-related value for the Qualified Pension Plan and the Other Pension Plan and the fair value for the Non-U.S. Pension Plans and Postretirement Health and Life Plans. The expected return on plan assets assumption represents a long-term average view of the performance of the assets in the Qualified Pension Plan, the Non-U.S. Pension Plans, the Other Pension Plan, and Postretirement Health and Life Plans, a return that may or may not be achieved during any one calendar year. The Other Pension Plan is invested solely in an annuity contract which is primarily invested in fixed-income securities structured such that asset maturities match the duration of the plan’s obligations.
The target allocations for 2020 by asset category for the Qualified Pension Plan, Non-U.S. Pension Plans, and Nonqualified and Other Pension Plans are presented in the following table. Equity securities for the Qualified Pension Plan include common stock of the Corporation in the amounts of $315 million (1.55 percent of total plan assets) and $221 million (1.22 percent of total plan assets) at December 31, 2019 and 2018.
 
 
 
 
2020 Target Allocation
 
 
 
 
 
Percentage
Asset Category
Qualified
Pension Plan
Non-U.S.
Pension Plans
Nonqualified
and Other
Pension Plans
Equity securities
15 - 50%
5 - 30%
0 - 5%
Debt securities
45 - 80%
40 - 70%
95 - 100%
Real estate
0 - 10%
0 - 15%
0 - 5%
Other
0 - 5%
10 - 40%
0 - 5%

Fair Value Measurements
For more information on fair value measurements, including descriptions of Level 1, 2 and 3 of the fair value hierarchy and the valuation methods employed by the Corporation, see Note 1 – Summary of Significant Accounting Principles and Note 21 – Fair Value Measurements. Combined plan investment assets measured at fair value by level and in total at December 31, 2019 and 2018 are summarized in the Fair Value Measurements table.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair Value Measurements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
(Dollars in millions)
December 31, 2019
 
December 31, 2018
Cash and short-term investments
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
Money market and interest-bearing cash
$
1,426

 
$
—

 
$
—

 
$
1,426

 
$
1,530

 
$
—

 
$
—

 
$
1,530

Cash and cash equivalent commingled/mutual funds
—

 
250

 
—

 
250

 
—

 
644

 
—

 
644

Fixed income
 

 
 

 
 

 


 
 

 
 

 
 

 
 

U.S. government and agency securities
4,403

 
890

 
8

 
5,301

 
3,637

 
805

 
9

 
4,451

Corporate debt securities
—

 
3,676

 
—

 
3,676

 
—

 
2,852

 
—

 
2,852

Asset-backed securities
—

 
2,684

 
—

 
2,684

 
—

 
2,119

 
—

 
2,119

Non-U.S. debt securities
748

 
1,015

 
—

 
1,763

 
539

 
961

 
—

 
1,500

Fixed income commingled/mutual funds
804

 
1,439

 
—

 
2,243

 
933

 
1,177

 
—

 
2,110

Equity
 

 
 

 
 

 


 
 

 
 

 
 

 
 

Common and preferred equity securities
4,655

 
—

 
—

 
4,655

 
4,414

 
—

 
—

 
4,414

Equity commingled/mutual funds
147

 
1,355

 
—

 
1,502

 
288

 
1,275

 
—

 
1,563

Public real estate investment trusts
91

 
—

 
—

 
91

 
104

 
—

 
—

 
104

Real estate
 

 
 

 
 

 


 
 

 
 

 
 

 
 

Private real estate
—

 
—

 
—

 
—

 
—

 
—

 
5

 
5

Real estate commingled/mutual funds
—

 
18

 
927

 
945

 
—

 
13

 
885

 
898

Limited partnerships
—

 
173

 
90

 
263

 
—

 
158

 
82

 
240

Other investments (1)
11

 
390

 
636

 
1,037

 
93

 
364

 
588

 
1,045

Total plan investment assets, at fair value
$
12,285


$
11,890


$
1,661


$
25,836

 
$
11,538

 
$
10,368

 
$
1,569

 
$
23,475

(1) 
Other investments include commodity and balanced funds of $233 million and $305 million, insurance annuity contracts of $614 million and $562 million and other various investments of $190 million and $178 million at December 31, 2019 and 2018.
The Level 3 Fair Value Measurements table presents a reconciliation of all plan investment assets measured at fair value using significant unobservable inputs (Level 3) during 2019, 2018 and 2017.
 
 
 
 
 
 
 
 
Level 3 Fair Value Measurements
 
 
 
 
 
 
 
 
 
 
 
Balance
January 1
 
Actual Return on
Plan Assets Still
Held at the
Reporting Date
 
Purchases, Sales and Settlements
 
Balance
December 31
(Dollars in millions)
2019
Fixed income
 

 
 

 
 

 
 

U.S. government and agency securities
$
9

 
$
—

 
$
(1
)
 
$
8

Real estate
 
 
 

 
 
 


Private real estate
5

 
—

 
(5
)
 
—

Real estate commingled/mutual funds
885

 
33

 
9

 
927

Limited partnerships
82

 
—

 
8

 
90

Other investments
588

 
6

 
42

 
636

Total
$
1,569


$
39


$
53


$
1,661

 
 
 
 
 
 
 
 
 
2018
Fixed income
 

 
 

 
 

 
 

U.S. government and agency securities
$
9

 
$
—

 
$
—

 
$
9

Real estate
 
 
 

 
 
 


Private real estate
93

 
(7
)
 
(81
)
 
5

Real estate commingled/mutual funds
831

 
52

 
2

 
885

Limited partnerships
85

 
(12
)
 
9

 
82

Other investments
74

 
—

 
514

 
588

Total
$
1,092


$
33


$
444

 
$
1,569

 
 
 
 
 
 
 
 
 
2017
Fixed income
 
 
 
 
 
 
 
U.S. government and agency securities
$
10

 
$
—

 
$
(1
)
 
$
9

Real estate
 

 
 

 
 
 


Private real estate
150

 
8

 
(65
)
 
93

Real estate commingled/mutual funds
748

 
63

 
20

 
831

Limited partnerships
38

 
14

 
33

 
85

Other investments
83

 
5

 
(14
)
 
74

Total
$
1,029


$
90


$
(27
)

$
1,092


Projected Benefit Payments
Benefit payments projected to be made from the Qualified Pension Plan, Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans are presented in the table below.
 
 
 
 
 
 
 
 
Projected Benefit Payments
 
 
 
 
 
 
 
 
 
 
(Dollars in millions)
Qualified
Pension Plan (1)
 
Non-U.S.
Pension Plans (2)
 
Nonqualified
and Other
Pension Plans (2)
 
Postretirement Health and Life Plans (3)
2020
$
917

 
$
108

 
$
242

 
$
83

2021
926

 
107

 
245

 
80

2022
927

 
110

 
232

 
77

2023
917

 
116

 
230

 
74

2024
924

 
126

 
223

 
72

2025 - 2029
4,409

 
594

 
1,011

 
313

(1) 
Benefit payments expected to be made from the plan’s assets.
(2) 
Benefit payments expected to be made from a combination of the plans’ and the Corporation’s assets.
(3) 
Benefit payments (net of retiree contributions) expected to be made from a combination of the plans’ and the Corporation’s assets.
Defined Contribution Plans
The Corporation maintains qualified and non-qualified defined contribution retirement plans. The Corporation recorded expense of $1.0 billion in each of 2019, 2018 and 2017 related to the qualified defined contribution plans. At December 31, 2019 and 2018, 189 million and 212 million shares of the Corporation’s common stock were held by these plans. Payments to the plans for dividends on common stock were $133 million, $115 million and $86 million in 2019, 2018 and 2017, respectively.
Certain non-U.S. employees are covered under defined contribution pension plans that are separately administered in accordance with local laws.