PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Pension Plans

The Corporation has a defined benefit pension plan that covers substantially all employees in the United States. Benefits are based on length of service and the employee's three highest consecutive years of compensation. Employees hired on or after January 1, 2008, earn benefits that are based on a set percentage of annual pay, plus interest. The Corporation also has a non-qualified supplemental pension plan.

The Corporation's funding policy is to contribute to the plan when pension laws or economics either require or encourage funding. In 2018, UCC contributed $42 million to its pension plans including contributions to fund benefit payments for its non-qualified supplemental plan. UCC expects to contribute approximately $2 million to its pension plans in 2019.

The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs are provided below:



Pension Plan Assumptions	Benefit Obligations at Dec 31				Net Periodic Costs for the Year Ended
	2018		2017		2018		2017		2016
Discount rate	4.32	%	3.59	%	3.59	%	4.00	%	4.26	%
Interest crediting rate for applicable benefits	4.50	%	4.50	%	4.50	%	4.50	%	4.50	%
Rate of compensation increase	4.25	%	4.25	%	4.25	%	4.25	%	4.50	%
Expected return on plan assets	—		—		6.80	%	6.80	%	6.80	%

Other Postretirement Benefits

The Corporation provides certain health care and life insurance benefits to retired U.S. employees and survivors. The plan provides health care benefits, including hospital, physicians' services, drug and major medical expense coverage and life insurance benefits. The Corporation and the retiree share the cost of these benefits, with the Corporation portion increasing as the retiree has increased years of credited service, although there is a cap on the Corporation portion. The Corporation has the ability to change these benefits at any time. Employees hired after January 1, 2008, are not covered under this plan.

The Corporation funds most of the cost of these health care and life insurance benefits as incurred. In 2018, UCC did not make any contributions to its other postretirement benefit plan trust. Likewise, UCC does not expect to contribute assets to its other postretirement benefit plan trust in 2019.

The weighted-average assumptions used to determine other postretirement benefit obligations and net periodic benefit costs for the plan are provided in the following table:



Plan Assumptions for Other Postretirement Benefits	Benefit Obligations at Dec 31				Net Periodic Costs for the Year Ended
	2018		2017		2018		2017		2016
Discount rate	4.23	%	3.51	%	3.51	%	3.88	%	4.08	%
Health care cost trend rate assumed for next year	6.50	%	6.75	%	6.75	%	7.00	%	7.25	%
Rate to which the cost trend rate is assumed to decline (the ultimate health care cost trend rate)	5.00	%	5.00	%	5.00	%	5.00	%	5.00	%
Year that the rate reaches the ultimate health care cost trend rate	2025		2025		2025		2025		2025

Assumptions

The Corporation determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads, and other valuation measures and market metrics. The expected long-term rate of return for each asset class is then weighted based on the strategic asset allocation approved by the governing body for each plan. The Corporation's historical experience with the pension fund asset performance is also considered.

The Corporation uses the spot rate approach to determine the discount rate utilized to measure the service cost and interest cost components of net periodic pension and other postretirement benefit costs. Under the spot rate approach, the Corporation calculates service cost and interest cost by applying individual spot rates from the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to the separate expected cash flow components of service cost and interest cost.

The discount rates utilized to measure the pension and other postretirement obligations of the U.S. qualified plans were based on the yield on high-quality corporate fixed income investments at the measurement date. Future expected actuarially determined cash flows for the plans are individually discounted at the spot rates under the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to arrive at the plan’s obligations as of the measurement date.

The Corporation utilizes a modified version of the Society of Actuaries’ mortality tables released in 2014 and a modified version of the generational mortality improvement scale released in 2018 for purposes of measuring the U.S. pension and other postretirement obligations, based on an evaluation of the mortality experience of its pension plans.

Summarized information on the Corporation's pension and other postretirement benefit plans is as follows:



Change in Projected Benefit Obligations, Plan Assets and Funded Status for all Plans	Defined Benefit Pension Plans						Other Postretirement Benefits
In millions	2018			2017			2018			2017
Change in projected benefit obligations:
Benefit obligation at beginning of year	$	4,150		$	4,025		$	224		$	264
Service cost	39			38			1			1
Interest cost	128			129			6			8
Actuarial changes in assumptions and experience	(249		)	241			(2		)	(23		)
Benefits paid	(278		)	(281		)	(14		)	(26		)
Other	(4		)	(2		)	—			—
Benefit obligation at end of year	$	3,786		$	4,150		$	215		$	224

Change in plan assets:
Fair value of plan assets at beginning of year	$	3,307		$	3,097		$	—		$	—
Actual return on plan assets	(62		)	331			—			—
Employer contributions	42			162			—			—
Asset transfers	(4		)	(2		)	—			—
Benefits paid	(278		)	(281		)	—			—
Fair value of plan assets at end of year	$	3,005		$	3,307		$	—		$	—

Funded status at end of year	$	(781	)	$	(843	)	$	(215	)	$	(224	)



Net amounts recognized in the consolidated balance sheets at Dec 31:
Accrued and other current liabilities	$	(2	)	$	(2	)	$	(19	)	$	(15	)
Pension and other postretirement benefits - noncurrent	(779		)	(841		)	(196		)	(209		)
Net amount recognized	$	(781	)	$	(843	)	$	(215	)	$	(224	)

Pretax amounts recognized in accumulated other comprehensive loss at Dec 31:
Net loss (gain)	$	2,019		$	2,083		$	(79	)	$	(86	)
Prior service credit	(11		)	(12		)	—			—
Pretax balance in accumulated other comprehensive loss at end of year	$	2,008		$	2,071		$	(79	)	$	(86	)

A significant component of the overall decrease in the Corporation's benefit obligation for the year ended December 31, 2018 was due to the weighted-average change in discount rates, which increased from 3.59 percent at December 31, 2017 to 4.32 percent at December 31, 2018. A significant component of the overall increase in the Corporation's benefit obligation for the year ended December 31, 2017 was also due to the weighted-average change in discount rates, which decreased from 4.00 percent at December 31, 2016 to 3.59 percent at December 31, 2017.

The accumulated benefit obligation for all defined benefit pension plans was $3.8 billion at December 31, 2018 and $4.1 billion at December 31, 2017.



Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at Dec 31
In millions	2018		2017
Accumulated benefit obligations	$	3,762	$	4,120
Fair value of plan assets	$	3,005	$	3,307



Pension Plans with Projected Benefit Obligations in Excess of Plan Assets at Dec 31	2018		2017
In millions	2018		2017
Projected benefit obligations	$	3,786	$	4,150
Fair value of plan assets	$	3,005	$	3,307



Net Periodic Benefit Cost for All Plans for the Year Ended Dec 31	Defined Benefit Pension Plans									Other Postretirement Benefits
	Defined Benefit Pension Plans									Other Postretirement Benefits
In millions	2018			2017			2016			2018			2017			2016
Net Periodic Benefit Cost:
Service cost	$	39		$	38		$	39		$	1		$	1		$	1
Interest cost	128			129			131			6			8			8
Expected return on plan assets	(218		)	(221		)	(217		)	—			—			—
Amortization of prior service credit	(1		)	(1		)	(1		)	—			—			—
Amortization of net (gain) loss	95			83			75			(9		)	(6		)	(7		)
Net periodic benefit cost	$	43		$	28		$	27		$	(2	)	$	3		$	2
Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss:
Net (gain) loss	$	31		$	131		$	208		$	(2	)	$	(23	)	$	4
Amortization of prior service credit	1			1			1			—			—			—
Amortization of net gain (loss)	(95		)	(83		)	(75		)	9			6			7
Total recognized in other comprehensive (income) loss	$	(63	)	$	49		$	134		$	7		$	(17	)	$	11
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	(20	)	$	77		$	161		$	5		$	(14	)	$	13

On January 1, 2018, the Corporation adopted ASU 2017-07, which impacted the presentation of the components of net periodic benefit cost in the consolidated statements of income. Net periodic benefit cost, other than the service cost component, is now included in "Sundry income (expense) - net" in the consolidated statements of income. See Notes 1, 2 and 6 for additional information.

Estimated Future Benefit Payments

The estimated future benefit payments, reflecting expected future service, as appropriate, are presented in the following table:



Estimated Future Benefit Payments at Dec 31, 2018	Defined Benefit Pension Plans		Other Postretirement Benefits
In millions	Defined Benefit Pension Plans		Other Postretirement Benefits
2019	$	277	$	19
2020	276		19
2021	275		20
2022	274		20
2023	271		19
2024 through 2028	1,293		76
Total	$	2,666	$	173

Plan Assets

Plan assets consist primarily of equity and fixed income securities of U.S. and foreign issuers, and include alternative investments such as real estate, private equity and other absolute return strategies. Plan assets totaled $3.0 billion at December 31, 2018 and $3.3 billion at December 31, 2017, and included no directly held common stock of DowDuPont.

The Corporation's investment strategy for the plan assets is to manage the assets in relation to the liability in order to pay retirement benefits to plan participants over the life of the plans. This is accomplished by identifying and managing the exposure to various market risks, diversifying investments across various asset classes and earning an acceptable long-term rate of return consistent with an acceptable amount of risk, while considering the liquidity needs of the plan.

The plan is permitted to use derivative instruments for investment purposes, as well as for hedging the underlying asset and liability exposures and rebalancing the asset allocation. The plan uses value-at-risk, stress testing, scenario analysis and Monte Carlo simulation to monitor and manage both the risk within the portfolios and the surplus risk of the plan.

Equity securities primarily include investments in large- and small-cap companies located in both developed and emerging markets around the world. Fixed income securities are primarily U.S. dollar based and include U.S. treasuries and investment grade corporate bonds of companies diversified across industries. Alternative investments primarily include investments in real estate, private equity limited partnerships and absolute return strategies. Other significant investment types include various insurance contracts, and interest rate, equity and foreign exchange derivative investments and hedges.

The Corporation mitigates the credit risk of investments by establishing guidelines with the investment managers that limit investment in any single issue or issuer to an amount that is not material to the portfolio being managed. These guidelines are monitored for compliance both by the Corporation and the external managers. Credit risk for hedging activity is mitigated by utilizing multiple counterparties, collateral support agreements, and centralized clearing where appropriate.

The Northern Trust Collective Government Short Term Investment money market fund is utilized as the sweep vehicle for the pension plan, which from time to time can represent a significant investment. Approximately 35 percent of the liability of the pension plan is covered by a participating group annuity issued by Prudential Insurance Company.

The weighted-average target allocation for plan assets of the Corporation's pension plans is summarized as follows:



Target Allocation for Plan Assets at Dec 31, 2018	Target Allocation
Asset Category	Target Allocation
Equity securities	23	%
Fixed income securities	45
Alternative investments	27
Other	5
Total	100	%

Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Corporation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

For assets classified as Level 1 measurements (measured using quoted prices in active markets), the total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.

For assets classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs such as foreign exchange rates, commodity prices, swap rates, interest rates, and implied volatilities obtained from various market sources. For other assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.

For pension plan assets classified as Level 3 measurements, total fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment.

Certain pension plan assets are held in funds where fair value is based on an estimated net asset value per share (or its equivalent) as of the most recently available fund financial statements which are received on a monthly or quarterly basis. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Adjustments to valuations are made where appropriate to arrive at an estimated net asset value per share at the measurement date. These funds are not classified within the fair value hierarchy.

The following table summarizes the bases used to measure the Corporation’s pension plan assets at fair value for the years ended December 31, 2018 and 2017:



Basis of Fair Value Measurements	Dec 31, 2018								Dec 31, 2017
In millions	Total		Level 1		Level 2		Level 3		Total			Level 1		Level 2			Level 3
Cash and cash equivalents	$	189	$	189	$	—	$	—	$	193		$	153	$	40		$	—
Equity securities:
U.S. equity securities	$	277	$	275	$	2	$	—	$	374		$	357	$	17		$	—
Non - U.S. equity securities	321		269		46		6		472			404		61			7
Total equity securities	$	598	$	544	$	48	$	6	$	846		$	761	$	78		$	7
Fixed income securities:
Debt - government-issued	$	812	$	8	$	804	$	—	$	873		$	—	$	873		$	—
Debt - corporate-issued	413		11		402		—		515			—		515			—
Debt - asset-backed	30		—		30		—		24			—		24			—
Total fixed income securities	$	1,255	$	19	$	1,236	$	—	$	1,412		$	—	$	1,412		$	—
Alternative investments: ¹
Derivatives - asset position	$	12	$	—	$	12	$	—	$	6		$	—	$	6		$	—
Derivatives - liability position	—		—		—		—		(32		)	—		(32		)	—
Total alternative investments	$	12	$	—	$	12	$	—	$	(26	)	$	—	$	(26	)	$	—
Other investments	$	—	$	—	$	—	$	—	$	(6	)	$	—	$	(6	)	$	—
Subtotal	$	2,054	$	752	$	1,296	$	6	$	2,419		$	914	$	1,498		$	7
Investments measured at net asset value: ¹
Hedge funds	$	287							$	292
Private market securities	335								237
Real estate	327								360
Total investments measured at net asset value	$	949							$	889
Items to reconcile to fair value of plan assets:
Pension trust receivables ²	$	2							$	2
Pension trust payables ³	—								(3		)
Total	$	3,005							$	3,307


1.	The Corporation reviewed its fair value techniques and elected to present assets valued at net asset value per share as a practical expedient outside of the fair value hierarchy. The assets are presented as "Investments measured at net asset value." Prior period amounts were updated to conform with the current year presentation.


2.	Primarily receivables for investment securities sold.


3.	Primarily payables for investment securities purchased.

The following table summarizes the changes in fair value of Level 3 pension plan assets for the years ended December 31, 2018 and 2017:



Fair Value Measurement of Level 3 Pension Plan Assets	Equity Securities			Alternative Investments			Other Investments			Total
In millions	Equity Securities			Alternative Investments			Other Investments			Total
Balance at Jan 1, 2017, as previously reported	$	6		$	724		$	19		$	749
Reclassification of investments measured at net asset value ¹	—			(713		)	(19		)	(732		)
Balance at Jan 1, 2017, as restated	$	6		$	11		$	—		$	17
Actual return on plan assets:
Relating to assets held at Dec 31, 2017	—			(2		)	—			(2		)
Purchases, sales and settlements	1			(9		)	—			(8		)
Balance at Dec 31, 2017	$	7		$	—		$	—		$	7
Actual return on plan assets:
Relating to assets held at Dec 31, 2018	(1		)	—			—			(1		)
Balance at Dec 31, 2018	$	6		$	—		$	—		$	6


1.	The Corporation reviewed its fair value technique and elected to present assets valued at at net asset value per share as a practical expedient outside of the fair value hierarchy, including those classified as Level 3 pension plan assets. The assets are presented as "Investments measured at net asset value."

Defined Contribution Plans

In addition to the qualified defined benefit pension plan, U.S. employees may participate in defined contribution plans (Employee Savings Plans or 401(k) plans) by contributing a portion of their compensation, which is partially matched by the Corporation. Expense recognized for all defined contribution plans was $15 million in 2018, $21 million in 2017 and $17 million in 2016.