Pension and Other Postretirement Plans

12 Months Ended

Dec. 31, 2019

PENSION AND OTHER POSTRETIREMENT PLANS

The following summarizes the significant pension and other postretirement plans of United:

Pension Plans. United maintains two primary defined benefit pension plans, one covering certain pilot employees and another covering certain U.S. non-pilot employees. Each of these plans provide benefits based on a combination of years of benefit accruals service and an employee's final average compensation. Additional benefit accruals are frozen under the plan covering certain pilot employees and for management and administrative employees covered under the non-pilot plan. Benefit accruals for certain non-pilot employees continue. United maintains additional defined benefit pension plans, which cover certain international employees.

Other Postretirement Plans. United maintains postretirement medical programs which provide medical benefits to certain retirees and eligible dependents, as well as life insurance benefits to certain retirees participating in the plan. Benefits provided are subject to applicable contributions, co-payments, deductibles and other limits as described in the specific plan documentation. During 2019, United notified participants of a refresh to the plan options offered under its retiree medical benefit program. Non-HMO (health maintenance organization) medical plan options for post-Medicare retirees were converted to fully-insured Medicare Advantage plans. The plan design changes impacted all current and future eligible post-Medicare retirees, through updates in plan design and/or premium rate/contribution setting refinements. Benefit levels were not reduced as a result of this change, and in many cases the refresh resulted in reduced retiree contributions. As a result of this modification to its retiree medical plan options, the Company remeasured retiree medical benefit program liabilities using a discount rate of 3.39%. The projected benefit obligation of the retiree medical benefit program decreased by $421 million with an offset to Accumulated other comprehensive loss ($597 million in prior service credits related to the plan changes, partially offset by $176 million in actuarial losses related to the remeasurement), which will be amortized over the average years of future service to full eligibility for the participants in the retiree medical benefit program (approximately seven years).

Actuarial assumption changes are reflected as a component of the net actuarial (gain)/loss during 2019 and 2018. The 2019 actuarial losses were mainly related to a decrease in the discount rate applied at December 31, 2019 compared to December 31, 2018. Actuarial gains/losses will be amortized over the average remaining service life of the covered active employees or the average life expectancy of inactive participants.

The following tables set forth the reconciliation of the beginning and ending balances of the benefit obligation and plan assets, the funded status and the amounts recognized in these financial statements for the defined benefit and other postretirement plans (in millions):



	Pension Benefits
	Year Ended December 31, 2019			Year Ended December 31, 2018
Accumulated benefit obligation:	$	5,333		$	4,448

Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	5,396		$	5,852
Service cost	184			228
Interest cost	226			217
Actuarial (gain) loss	784			(601		)
Gross benefits paid and settlements	(200		)	(292		)
Other	8			(8		)
Projected benefit obligation at end of year	$	6,398		$	5,396

Change in plan assets:
Fair value of plan assets at beginning of year	$	3,827		$	3,932
Actual (loss) return on plan assets	684			(215		)
Employer contributions	649			413
Gross benefits paid and settlements	(200		)	(292		)
Other	4			(11		)
Fair value of plan assets at end of year	$	4,964		$	3,827
Funded status—Net amount recognized	$	(1,434	)	$	(1,569	)



	Pension Benefits
	December 31, 2019			December 31, 2018
Amounts recognized in the consolidated balance sheets consist of:
Noncurrent asset	$	14		$	13
Current liability	(2		)	(6		)
Noncurrent liability	(1,446		)	(1,576		)
Total liability	$	(1,434	)	$	(1,569	)

Amounts recognized in accumulated other comprehensive loss consist of:
Net actuarial loss	$	(1,652	)	$	(1,382	)
Prior service cost	(4		)	(5		)
Total accumulated other comprehensive loss	$	(1,656	)	$	(1,387	)

	Other Postretirement Benefits
	Year Ended December 31, 2019			Year Ended December 31, 2018
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,391		$	1,710
Service cost	10			12
Interest cost	47			61
Plan participants' contributions	67			68
Benefits paid	(180		)	(181		)
Actuarial loss (gain)	99			(285		)
Plan amendments	(597		)	—
Other	5			6
Benefit obligation at end of year	$	842		$	1,391

Change in plan assets:
Fair value of plan assets at beginning of year	$	53		$	54
Actual return on plan assets	1			1
Employer contributions	111			111
Plan participants' contributions	67			68
Benefits paid	(180		)	(181		)
Fair value of plan assets at end of year	52			53
Funded status—Net amount recognized	$	(790	)	$	(1,338	)



	Other Postretirement Benefits
	December 31, 2019			December 31, 2018
Amounts recognized in the consolidated balance sheets consist of:
Current liability	$	(1	)	$	(43	)
Noncurrent liability	(789		)	(1,295		)
Total liability	$	(790	)	$	(1,338	)
Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial gain	$	403		$	554
Prior service credit	693			170
Total accumulated other comprehensive income	$	1,096		$	724

The following information relates to all pension plans with an accumulated benefit obligation and a projected benefit obligation in excess of plan assets at December 31 (in millions):



	2019		2018
Projected benefit obligation	$	6,161	$	5,196
Accumulated benefit obligation	5,137		4,286
Fair value of plan assets	4,714		3,614

Net periodic benefit cost for the years ended December 31 included the following components (in millions):



	2019						2018						2017
	Pension Benefits			Other Postretirement Benefits			Pension Benefits			Other Postretirement Benefits			Pension Benefits			Other Postretirement Benefits
Service cost	$	184		$	10		$	228		$	12		$	195		$	13
Interest cost	226			47			217			61			220			66
Expected return on plan assets	(291		)	(1		)	(292		)	(2		)	(243		)	(2		)
Amortization of unrecognized actuarial (gain) loss	118			(52		)	130			(32		)	128			(33		)
Amortization of prior service credits	—			(73		)	—			(37		)	—			(37		)
Other	5			—			1			—			5			—
Net periodic benefit cost (credit)	$	242		$	(69	)	$	284		$	2		$	305		$	7

Service cost is recorded in Salaries and related costs on the statement of consolidated operations. All other components of net periodic benefit costs are recorded in Miscellaneous, net on the statement of consolidated operations.

The assumptions used for the benefit plans were as follows:



	Pension Benefits
Assumptions used to determine benefit obligations	2019		2018
Discount rate	3.52	%	4.20	%
Rate of compensation increase	3.89	%	3.89	%

Assumptions used to determine net expense
Discount rate	4.21	%	3.65	%
Expected return on plan assets	7.40	%	7.31	%
Rate of compensation increase	3.89	%	3.89	%

A 50 basis points decrease in the weighted average discount rate would have increased the Company's December 31, 2019 pension benefit liability by approximately $0.7 billion and increased the estimated 2019 pension benefit expense by approximately $69 million.



	Other Postretirement Benefits
Assumptions used to determine benefit obligations	2019		2018
Discount rate	3.35	%	4.30	%

Assumptions used to determine net expense
Discount rate	4.30	%	3.63	%
Expected return on plan assets	3.00	%	3.00	%
Health care cost trend rate assumed for next year	6.00	%	6.00	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate in 2033)	5.00	%	5.00	%

A 50 basis points decrease in the weighted average discount rate would have increased the Company's December 31, 2019 postretirement benefit liability by approximately $42 million and increased the estimated 2019 benefits expense by approximately $4 million.

The Company used the Society of Actuaries' PRI-2012 Private Retirement Plans Mortality Tables projected generationally using the Society of Actuaries' MP-2019 projection scale, modified to reflect the Social Security Administration Trustee's Report on current projections regarding expected longevity improvements.

The Company selected the 2019 discount rate for substantially all of its plans by using a hypothetical portfolio of high-quality bonds at December 31, 2019, that would provide the necessary cash flows to match projected benefit payments.

We develop our expected long-term rate of return assumption for our defined benefit plans based on historical experience and by evaluating input from the trustee managing the plans' assets. Our expected long-term rate of return on plan assets for these plans is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining risk at acceptable levels. The plans strive to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. Plan fiduciaries regularly review our actual asset allocation and the pension plans' investments are periodically rebalanced to our targeted allocation when considered appropriate. United's plan assets are allocated within the following guidelines:



	Percent of Total		Expected Long-Term Rate of Return
Equity securities	30-45	%	10	%
Fixed-income securities	35-50		5
Alternatives	15-25		7

A 50 basis points decrease in the expected long-term rate of return on plan assets would have increased estimated 2019 pension expense by approximately $20 million.

Fair Value Information. Accounting standards require us to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:



Level 1	Unadjusted quoted prices in active markets for assets or liabilities identical to those to be reported at fair value
Level 2	Other inputs that are observable directly or indirectly, such as quoted prices for similar assets or liabilities or market-corroborated inputs
Level 3	Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the assets or liabilities

Assets and liabilities measured at fair value are based on the valuation techniques identified in the tables below. The valuation techniques are as follows:

(a) Market approach. Prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities; and

(b) Income approach. Techniques to convert future amounts to a single current value based on market expectations (including present value techniques, option-pricing and excess earnings models).

The following tables present information about United's pension and other postretirement plan assets at December 31, (in millions):



	2019										2018
Pension Plan Assets:	Total		Level 1		Level 2		Level 3		Assets Measured at NAV(a)		Total		Level 1		Level 2		Level 3		Assets Measured at NAV(a)
Equity securities funds	$	1,957	$	47	$	117	$	71	$	1,722	$	1,457	$	254	$	106	$	63	$	1,034
Fixed-income securities	1,732		—		687		69		976		1,520		—		628		87		805
Alternatives	776		—		—		205		571		596		—		—		134		462
Other investments	499		466		21		12		—		254		224		17		13		—
Total	$	4,964	$	513	$	825	$	357	$	3,269	$	3,827	$	478	$	751	$	297	$	2,301
Other Postretirement Benefit Plan Assets:
Deposit administration fund	$	52	$	—	$	—	$	52	$	—	$	53	$	—	$	—	$	53	$	—

(a) In accordance with the relevant accounting standards, certain investments that are measured at fair value using the net asset value ("NAV") per share (or its equivalent) have not been classified in the fair value hierarchy. These investments are commingled funds that invest in fixed-income instruments including bonds, debt securities, and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities. Redemption periods for these investments range from daily to semiannually.

Equity and Fixed-Income. Equities include investments in both developed market and emerging market equity securities. Fixed-income includes primarily U.S. and non-U.S. government fixed-income securities and U.S. and non-U.S. corporate fixed-income securities.

Deposit Administration Fund. This investment is a stable value investment product structured to provide investment income.

Alternatives. Alternative investments consist primarily of investments in hedge funds, real estate and private equity interests.

Other investments. Other investments consist of primarily cash, as well as insurance contracts.

The reconciliation of United's benefit plan assets measured at fair value using unobservable inputs (Level 3) for the years ended December 31, 2019 and 2018 is as follows (in millions):



	2019			2018
Balance at beginning of year	$	350		$	383
Actual return (loss) on plan assets:
Sold during the year	12			10
Held at year end	(1		)	(21		)
Purchases, sales, issuances and settlements (net)	48			(22		)
Balance at end of year	$	409		$	350

Funding requirements for tax-qualified defined benefit pension plans are determined by government regulations. United's contributions reflected above have satisfied its required contributions through the 2019 calendar year. In 2020, employer anticipated contributions to all of United's pension and postretirement plans are at least $314 million and approximately $47 million, respectively.

The estimated future benefit payments, net of expected participant contributions, in United's pension plans and other postretirement benefit plans as of December 31, 2019 are as follows (in millions):



	Pension		Other Postretirement
2020	$	361	$	53
2021	386		56
2022	399		59
2023	410		62
2024	399		64
Years 2025 – 2029	2,219		328

Defined Contribution Plans. Depending upon the employee group, employer contributions consist of matching contributions and/or non-elective employer contributions. United's employer contribution percentages vary from 1% to 16% of eligible earnings depending on the terms of each plan. United recorded expenses for its defined contribution plans of $735 million, $693 million and $656 million in the years ended December 31, 2019, 2018 and 2017, respectively.

Multi-Employer Plans. United's participation in the IAM National Pension Plan ("IAM Plan") for the annual period ended December 31, 2019 is outlined in the table below. Except as described in table below, there have been no other changes that affect the comparability of 2019 and 2018 contributions. The risks of participating in these multi-employer plans are different from single-employer plans, as United may be subject to additional risks that others do not meet their obligations, which in certain circumstances could revert to United. The IAM Plan reported $467 million in employers' contributions for the year ended December 31, 2018. For 2018, the Company's contributions to the IAM Plan represented more than 5% of total contributions to the IAM Plan. The 2019 information is not available as Form 5500 is not final for the plan year.



Pension Fund	IAM National Pension Fund
EIN/ Pension Plan Number	51-6031295 - 002
Pension Protection Act Zone Status (2019 and 2018)	Red Zone (2019) and Green Zone (2018). Plans in the Green Zone are at least 80 percent funded. Plans in the Red Zone are less than 65% funded. The IAM National Pension Fund Board of Trustees voluntarily elected to place the fund in the Red Zone for 2019, although the fund was over 80% funded at the time, to protect the fund's participants' core retirement benefits and strengthen the fund's financial health over the long term.
FIP/RP Status Pending/Implemented	A 10-year Rehabilitation Plan effective, January 1, 2022, was adopted on April 17, 2019 that requires the Company to make an additional contribution of 2.5% of the hourly contribution rate, compounded annually for the length of the Rehabilitation Plan, effective June 1, 2019.
United's Contributions	$59 million, $52 million and $50 million in the years ended December 31, 2019, 2018 and 2017, respectively
Surcharge Imposed	No
Expiration Date of Collective Bargaining Agreement	N/A

Profit Sharing. Substantially all employees participate in profit sharing based on a percentage of pre-tax earnings, excluding special charges, profit sharing expense and share-based compensation. Profit sharing percentages range from 5% to 20% depending on the work group, and in some cases profit sharing percentages vary above and below certain pre-tax margin thresholds. Eligible U.S. co-workers in each participating work group receive a profit sharing payout using a formula based on the ratio of each qualified co-worker's annual eligible earnings to the eligible earnings of all qualified co-workers in all domestic work groups. Eligible non-U.S. co-workers receive profit sharing based on the calculation under the U.S. profit sharing plan for management and administrative employees. The Company recorded profit sharing and related payroll tax expense of $491 million, $334 million and $349 million in 2019, 2018 and 2017, respectively. Profit sharing expense is recorded as a component of Salaries and related costs in the Company's statements of consolidated operations.