Annual report pursuant to Section 13 and 15(d)

Employee Benefit Plans

v3.20.4
Employee Benefit Plans
 12 Months Ended
Dec. 31, 2020
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 2020 or 2019. 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, 2020 and 2019. 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 2020 and 2019 resulted in increases to the PBO of approximately $1.9 billion and $2.2 billion at December 31, 2020 and 2019. Significant gains and losses related to changes in the PBO for 2020 and 2019 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) 2020 2019 2020 2019 2020 2019 2020 2019
Fair value, January 1 $ 20,275  $ 18,178  $ 2,696  $ 2,461  $ 2,666  $ 2,584  $ 199  $ 252 
Actual return on plan assets 2,468  3,187  379  273  285  228  1  5 
Company contributions —  —  23  20  86  91  6  24 
Plan participant contributions —  —  1  1  —  —  110  103 
Settlements and curtailments —  —  (61) (42) —  —  —  — 
Benefits paid (967) (1,090) (57) (108) (248) (237) (174) (185)
Federal subsidy on benefits paid  n/a n/a  n/a n/a  n/a n/a 1  — 
Foreign currency exchange rate changes  n/a n/a 97  91   n/a n/a  n/a n/a
Fair value, December 31 $ 21,776  $ 20,275  $ 3,078  $ 2,696  $ 2,789  $ 2,666  $ 143  $ 199 
Change in projected benefit obligation                
Projected benefit obligation, January 1 $ 15,361  $ 14,144  $ 2,887  $ 2,589  $ 2,919  $ 2,779  $ 989  $ 928 
Service cost —  —  20  17  1  1  5  5 
Interest cost 500  593  49  65  90  113  32  38 
Plan participant contributions —  —  1  1  —  —  110  103 
Plan amendments —  —  3  2  —  —  —  — 
Settlements and curtailments —  —  (61) (42) —  —  —  — 
Actuarial loss 1,533  1,714  396  288  243  263  43  99 
Benefits paid (967) (1,090) (57) (108) (248) (237) (173) (185)
Federal subsidy on benefits paid  n/a n/a  n/a n/a  n/a n/a 1  — 
Foreign currency exchange rate changes  n/a n/a 102  75   n/a n/a —  1 
Projected benefit obligation, December 31 $ 16,427  $ 15,361  $ 3,340  $ 2,887  $ 3,005  $ 2,919  $ 1,007  $ 989 
Amounts recognized on Consolidated Balance Sheet
Other assets $ 5,349  $ 4,914  $ 428  $ 364  $ 812  $ 733  $ —  $ — 
Accrued expenses and other liabilities —  —  (690) (555) (1,028) (986) (864) (790)
Net amount recognized, December 31 $ 5,349  $ 4,914  $ (262) $ (191) $ (216) $ (253) $ (864) $ (790)
Funded status, December 31                
Accumulated benefit obligation $ 16,427  $ 15,361  $ 3,253  $ 2,841  $ 3,005  $ 2,919   n/a n/a
Overfunded (unfunded) status of ABO 5,349  4,914  (175) (145) (216) (253)  n/a n/a
Provision for future salaries —  —  87  46  —  —   n/a n/a
Projected benefit obligation 16,427  15,361  3,340  2,887  3,005  2,919  $ 1,007  $ 989 
Weighted-average assumptions, December 31                
Discount rate 2.57 % 3.32  % 1.37 % 1.81  % 2.33 % 3.20  % 2.48 % 3.27  %
Rate of compensation increase n/a n/a 4.11  4.10  4.00  4.00   n/a n/a
Interest-crediting rate 5.02  % 5.06  % 1.58  1.53  4.49  4.52   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 2021 is $29 million, $93 million and $14 million, respectively. The Corporation does not expect to make a contribution to the Qualified Pension Plan in 2021. 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, 2020 and 2019 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) 2020 2019 2020 2019
PBO $ 900  $ 744  $ 1,028  $ 988 
ABO 841  720  1,028  988 
Fair value of plan assets 211  191  1  1 
Components of Net Periodic Benefit Cost
  Qualified Pension Plan Non-U.S. Pension Plans
(Dollars in millions) 2020 2019 2018 2020 2019 2018
Components of net periodic benefit cost (income)
Service cost $ —  $ —  $ —  $ 20  $ 17  $ 19 
Interest cost 500  593  563  49  65  65 
Expected return on plan assets (1,154) (1,088) (1,136) (66) (99) (126)
Amortization of net actuarial loss 173  135  147  9  6  10 
Other —  —  —  8  4  12 
Net periodic benefit cost (income) $ (481) $ (360) $ (426) $ 20  $ (7) $ (20)
Weighted-average assumptions used to determine net cost for years ended December 31
            
Discount rate 3.32 % 4.32  % 3.68  % 1.81 % 2.60  % 2.39  %
Expected return on plan assets 6.00  6.00  6.00  2.57  4.13  4.37 
Rate of compensation increase  n/a n/a n/a 4.10  4.49  4.31 
Nonqualified and
Other Pension Plans		 Postretirement Health
and Life Plans
(Dollars in millions) 2020 2019 2018 2020 2019 2018
Components of net periodic benefit cost (income)
Service cost $ 1  $ 1  $ 1  $ 5  $ 5  $ 6 
Interest cost 90  113  105  32  38  36 
Expected return on plan assets (71) (95) (84) (4) (5) (6)
Amortization of net actuarial loss (gain) 50  34  43  29  (24) (27)
Other —  —  —  (2) (2) (3)
Net periodic benefit cost (income) $ 70  $ 53  $ 65  $ 60  $ 12  $ 6 
Weighted-average assumptions used to determine net cost for years ended December 31
            
Discount rate 3.20 % 4.26  % 3.58  % 3.27 % 4.25  % 3.58  %
Expected return on plan assets 2.77  3.73  3.19  2.00  2.00  2.00 
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 6.25 percent for 2021, 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 2020.
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) 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
Net actuarial loss (gain) $ 3,912  $ 3,865  $ 628  $ 559  $ 987  $ 1,008  $ 66  $ 48  $ 5,593  $ 5,480 
Prior service cost (credits) —  —  18  18  —  —  (4) (6) 14  12 
Amounts recognized in accumulated OCI $ 3,912  $ 3,865  $ 646  $ 577  $ 987  $ 1,008  $ 62  $ 42  $ 5,607  $ 5,492 
Current year actuarial loss (gain) $ 219  $ (385) $ 79  $ 110  $ 29  $ 130  $ 47  $ 99  $ 374  $ (46)
Amortization of actuarial gain (loss) and
prior service cost
 (173) (135) (12) (7) (50) (34) (27) 26  (262) (150)
Current year prior service cost (credit) —  —  3  2  —  —  —  —  3  2 
Amounts recognized in OCI $ 46  $ (520) $ 70  $ 105  $ (21) $ 96  $ 20  $ 125  $ 115  $ (194)
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 2021 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 $274 million (1.26 percent of total plan assets) and $315 million (1.55 percent of total plan assets) at December 31, 2020 and 2019.
2021 Target Allocation
Percentage
Asset Category Qualified
Pension Plan		 Non-U.S.
Pension Plans		 Nonqualified
and Other
Pension Plans
Equity securities
15 - 50%
0 - 25%
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 20 – Fair Value Measurements. Combined plan investment assets measured at fair value by level and in total at December 31, 2020 and 2019 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, 2020 December 31, 2019
Cash and short-term investments        
Money market and interest-bearing cash $ 1,380  $ —  $ —  $ 1,380  $ 1,426  $ —  $ —  $ 1,426 
Cash and cash equivalent commingled/mutual funds —  383  —  383  —  250  —  250 
Fixed income              
U.S. government and agency securities 4,590  1,238  7  5,835  4,403  890  8  5,301 
Corporate debt securities —  5,021  —  5,021  —  3,676  —  3,676 
Asset-backed securities —  1,967  —  1,967  —  2,684  —  2,684 
Non-U.S. debt securities 1,021  1,122  —  2,143  748  1,015  —  1,763 
Fixed income commingled/mutual funds 1,224  1,319  —  2,543  804  1,439  —  2,243 
Equity              
Common and preferred equity securities 4,438  —  —  4,438  4,655  —  —  4,655 
Equity commingled/mutual funds 134  1,542  —  1,676  147  1,355  —  1,502 
Public real estate investment trusts 73  —  —  73  91  —  —  91 
Real estate              
Real estate commingled/mutual funds —  20  943  963  —  18  927  945 
Limited partnerships —  184  83  267  —  173  90  263 
Other investments (1)
5  401  691  1,097  11  390  636  1,037 
Total plan investment assets, at fair value $ 12,865  $ 13,197  $ 1,724  $ 27,786  $ 12,285  $ 11,890  $ 1,661  $ 25,836 
(1)Other investments include commodity and balanced funds of $246 million and $233 million, insurance annuity contracts of $664 million and $614 million and other various investments of $187 million and $190 million at December 31, 2020 and 2019.
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 2020, 2019 and 2018.
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) 2020
Fixed income        
U.S. government and agency securities $ 8  $ —  $ (1) $ 7 
Real estate  
Real estate commingled/mutual funds 927  (4) 20  943 
Limited partnerships 90  2  (9) 83 
Other investments 636  6  49  691 
Total $ 1,661  $ 4  $ 59  $ 1,724 
  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 
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)
2021 $ 856  $ 127  $ 244  $ 79 
2022 943  134  245  76 
2023 939  143  229  74 
2024 943  135  224  70 
2025 934  140  221  67 
2026 - 2030 4,474  675  977  290 
(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 $1.2 billion, $1.0 billion and $1.0 billion in 2020, 2019 and 2018 related to the qualified defined contribution plans. At both December 31, 2020 and 2019, 189 million shares of the Corporation’s common stock were held by these plans. Payments to the plans for dividends on common stock were $138 million, $133 million and $115 million in 2020, 2019 and 2018, respectively.
Certain non-U.S. employees are covered under defined contribution pension plans that are separately administered in accordance with local laws.