Employee Benefit Plans

12 Months Ended

Dec. 31, 2020

Employee Benefit and Share-based Payment Arrangement, Noncash Expense [Abstract]

Employee Benefit Plans

EMPLOYEE BENEFIT PLANS

We sponsor various domestic and foreign employee benefit plans, which are discussed below.

Employee Savings Plans. We sponsor various employee savings plans. Our contributions to employer sponsored defined contribution plans were $875 million, $485 million and $332 million for 2020, 2019 and 2018, respectively.

Our non-union domestic employee savings plan for legacy UTC employees uses an Employee Stock Ownership Plan (ESOP) for employer matching contributions. External borrowings were used by the ESOP to fund a portion of its purchase of ESOP stock from us. The external borrowings have been extinguished and only re-amortized loans remain between RTC and the ESOP Trust. As ESOP debt service payments are made, common stock is released from an unreleased shares account. ESOP debt may be prepaid or re-amortized to either increase or decrease the number of shares released so that the value of released shares equals the value of plan benefit. We may also, at our option, contribute additional common stock or cash to the ESOP.

Shares of common stock are allocated to employees’ ESOP accounts at fair value on the date earned. Cash dividends on common stock held by the ESOP are used for debt service payments. Participants may choose to have their ESOP dividends reinvested or distributed in cash. Common stock allocated to ESOP participants is included in the average number of common shares outstanding for both basic and diluted EPS. At December 31, 2020, 23.4 million common shares had been allocated to employees, leaving 9.4 million unallocated common shares in the ESOP Trust, with a fair value of $672 million.

Pension and Postretirement Plans. We sponsor both funded and unfunded domestic and foreign defined benefit pension plans that cover a large number of our employees. Our largest plans are generally closed to new participants. We also sponsor both funded and unfunded PRB plans that provide health care and life insurance benefits to eligible retirees. Our plans use a December 31 measurement date consistent with our fiscal year.

The Separation Transactions included the transfer of certain defined benefit plans from UTC to Carrier and Otis. The plans transferred were primarily international plans with the majority of the UTC defined benefit liability remaining with Raytheon Technologies. Upon separation, the employees within Carrier and Otis were effectively terminated from Raytheon Technologies. The terminations of approximately 3,400 domestic pension plan participants triggered a mid-year remeasurement of the UTC domestic plans. The remeasurement, which was calculated using discount rates and asset values as of April 3, 2020 (using March 31, 2020 as a practical expedient), resulted in a $2.4 billion increase to our pension liability, primarily due to a decrease in the fair market value of the plans’ assets since December 31, 2019. All service cost previously associated with Carrier and Otis is included in discontinued operations. For non-service pension (income) expense and the pension liability, generally only the portion related to the defined benefit plans transferred to Carrier and Otis as part of the Separation Transactions has been reclassified to discontinued operations.

Raytheon Company has both funded and unfunded domestic and foreign defined benefit pension and PRB plans. As of the merger date, the Raytheon Company plans were remeasured at fair value using accounting policies consistent with the UTC plans. Refer to “Note 2: Business Acquisitions, Dispositions, Goodwill and Intangible Assets” for additional information. The deferred pension and PRB plan losses included in Raytheon Company’s accumulated other comprehensive income (loss) as of the merger date were eliminated and are no longer subject to amortization in net periodic benefit (income) expense. Amounts prior to the merger date of April 3, 2020, do not include the Raytheon Company pension plan results.

In September 2019, we amended the UTC domestic defined benefit pension plans to cease accrual of additional benefits for future service and compensation for non-union participants effective December 31, 2019. Beginning January 1, 2020, these participants began receiving additional contributions under the UTC domestic defined contribution plan. The plan change did not impact participants’ historical benefit accruals. We utilized the practical expedient and remeasured plan assets and pension benefit obligations for the affected pension plans as of the nearest month-end, August 31, 2019, resulting in a net actuarial loss of $425 million. This reflects remeasurement losses of $605 million, partially offset by a benefit obligation gain of $180 million resulting from the benefit plan change. The remeasurement losses are driven by a reduction of 124 basis points in the PBO discount rate as of the remeasurement date compared to December 31, 2018, partially offset by actual asset returns of approximately 17% as of the remeasurement date. We recorded a curtailment gain of $98 million in the Consolidated Statement of Operations, due to the recognition of previously unrecognized prior service credits for the affected pension plans.

For non-union employees in the UTC domestic pension plans, benefits for service up to December 31, 2014 are generally based on the employee’s years of service and compensation. Benefits for service after December 31, 2014 and through December 31, 2019 are based on the existing cash balance formula that was adopted in 2003 for newly hired non-union employees and for non-union employees who made a one-time voluntary election to have future benefit accruals determined under this formula. Benefits for union employees in the UTC domestic pension plans are generally based on a stated amount for each year of service.

In December 2020, we approved a change to the Raytheon domestic benefit pension plans for non-union participants to cease future benefit accruals based on an employee’s years of service and compensation effective December 31, 2022. The plan change does not impact participants’ historical benefit accruals. Benefits for service after December 31, 2022 will be based on a cash balance formula. We utilized a practical expedient and measured the plan assets and pension benefit obligations for the effected pension plans as of the nearest month end, December 31, 2020, resulting in a current year prior service credit of $2.1 billion.

We made the following contributions to our pension and PRB plans’ trusts during the years ended December 31:

(dollars in millions)	2020		2019		2018
U.S. qualified defined benefit plans	$	885	$	25	$	—
International defined benefit plans	125		30		79
PRB plans	15		—		—

The contributions to our U.S. qualified defined benefit plans for the year ended December 31, 2020 include a $750 million discretionary contribution to the Raytheon Company U.S. qualified pension plans’ trust. As a result of this discretionary contribution, we do not expect to make any required contributions to our U.S. qualified plans’ trust until 2022.

The contributions to our International defined benefit plans for the year ended December 31, 2020 include a $51 million discretionary contribution. We expect to make total contributions of approximately $50 million to our international defined benefit plans’ trusts in 2021, which are expected to meet or exceed the current funding requirements.

	Pension				PRB
(dollars in millions)	2020		2019		2020		2019
Change in Benefit Obligation:
Beginning balance	$	38,027	$	34,344	$	765	$	810
Service cost attributable to continuing operations	483		261		6		2
Service cost attributable to discontinued operations	1		34		—		—
Interest cost	1,650		1,245		37		31
Actuarial loss (gain)	7,029		4,247		114		(11)
Total benefits paid(1)	(3,623)		(2,016)		(144)		(69)
Net settlement, curtailment and special termination benefits	(4)		(206)		(8)		—
Plan amendments	(2,088)		—		(7)		—
Business combinations and divestitures(2)	29,385		(6)		724		—
Other (3)	397		124		48		2
Ending balance	$	71,257	$	38,027	$	1,535	$	765
Change in Plan Assets:
Beginning balance	$	36,225	$	32,150	$	20	$	20
Actual return on plan assets	9,885		5,873		80		—
Employer contributions(1)	1,201		137		102		69
Total benefits paid(1)	(3,623)		(2,016)		(144)		(69)
Settlements	(32)		(17)		(8)		—
Business combinations and divestitures(2)	18,310		(10)		286		—
Other (3)	352		108		45		—
Ending balance	$	62,318	$	36,225	$	381	$	20
Funded Status:
Fair value of plan assets	$	62,318	$	36,225	$	381	$	20
Benefit obligations	(71,257)		(38,027)		(1,535)		(765)
Funded status of plan	$	(8,939)	$	(1,802)	$	(1,154)	$	(745)
Amounts Recognized in the Consolidated Balance Sheet Consist of:
Noncurrent assets	$	424	$	19	$	—	$	—
Current liability	(232)		(51)		(82)		(47)
Noncurrent liability	(9,131)		(1,770)		(1,072)		(698)
Net amount recognized	$	(8,939)	$	(1,802)	$	(1,154)	$	(745)
Amounts Recognized in Accumulated Other Comprehensive Loss Consist of:
Net actuarial (gain) loss	$	8,023	$	8,160	$	(117)	$	(181)
Prior service (credit) cost	(1,947)		190		(9)		(4)
Net actuarial loss and prior service cost related to discontinued operations	—		763		—		—
Net amount recognized	$	6,076	$	9,113	$	(126)	$	(185)

(1)    Includes benefit payments paid directly by the company.

(2)    Consists primarily of liabilities and assets acquired as a part of the Raytheon Merger.

(3)    The amount included in Other primarily reflects the impact of foreign exchange translation, primarily for plans in the U.K. and Canada, and participant contributions.

The majority of our pension obligations relate to our U.S. Internal Revenue Service (IRS) qualified pension plans, which comprise 85% and 82% of our pension PBO as of December 31, 2020 and 2019, respectively. 3% and 1% of our pension PBO as of December 31, 2020 and 2019, respectively, is attributable to our nonqualified domestic pension plans, which provide supplementary retirement benefits to certain employees in excess of the IRS qualified plan limits. International plans comprise 12% and 17% of the pension PBO as of December 31, 2020 and 2019, respectively, and are considered defined benefit pension plans for accounting purposes.

In addition to the pension and PRB noncurrent liabilities shown above, Future pension and postretirement benefit obligations on the Consolidated Balance Sheet includes $139 million and $21 million of other pension and PRB related liabilities as of December 31, 2020 and 2019, respectively.

Information for pension plans with accumulated benefit obligations in excess of plan assets: 

(dollars in millions)	2020		2019
Projected benefit obligation	$	37,215	$	37,941
Accumulated benefit obligation	36,150		37,559
Fair value of plan assets	27,854		36,120

The accumulated benefit obligation for all defined benefit pension plans was $70.2 billion and $37.7 billion at December 31, 2020 and 2019, respectively.

Information for pension plans with projected benefit obligations in excess of plan assets: 

(dollars in millions)	2020		2019
Projected benefit obligation	$	37,217	$	37,943
Accumulated benefit obligation	36,151		37,600
Fair value of plan assets	27,855		36,122

The components of the net periodic pension (income) expense are as follows: 

(dollars in millions)	2020		2019		2018
Operating expense
Service cost	$	483	$	261	$	265
Non-operating expense
Interest cost	1,650		1,245		1,058
Expected return on plan assets	(2,995)		(2,252)		(2,061)
Amortization of prior service cost (credit)	51		16		(42)
Recognized actuarial net loss	337		245		373
Net settlement, curtailment and special termination benefits (gain) loss	45		(59)		3
Non-service pension income	(912)		(805)		(669)
Net periodic pension income	$	(429)	$	(544)	$	(404)

The components of the net periodic PRB (income) expense are as follows:

(dollars in millions)	2020		2019		2018
Operating expense
Service cost	$	6	$	2	$	2
Non-operating expense
Interest cost	37		31		26
Expected return on plan assets	(13)		(1)		—
Amortization of prior service credit	(3)		(42)		(6)
Recognized actuarial net gain	(12)		(12)		(10)
Net settlement, curtailment and special termination benefits loss	1		—		—
Non-service pension (income) expense	10		(24)		10
Net periodic PRB (income) expense	$	16	$	(22)	$	12

Other changes in pension plan assets and benefit obligations recognized in other comprehensive loss in 2020 and 2019 are as follows: 

	2020		2019
(dollars in millions)	Total		Continuing Operations		Discontinued Operations		Total
Actuarial loss arising during the period	$	155	$	434	$	119	$	553
Amortization of actuarial loss	(337)		(245)		(20)		(265)
Current year prior service cost (credit)	(2,088)		—		6		6
Amortization of prior service cost	(51)		(16)		(1)		(17)
Net settlement and curtailment	(34)		62		(5)		57
Separation of Carrier and Otis	(763)		—		—		—
Other (1)	81		36		(2)		34
Total recognized in other comprehensive (income) loss	(3,037)		271		97		368
Net recognized in net periodic benefit (income) cost and other comprehensive (income) loss	$	(3,466)	$	(232)	$	97	$	(135)

(1)    The amount included in Other primarily reflects the impact of foreign exchange translation, primarily for plans in the U.K. and Canada.

The Actuarial loss arising during the period in 2020 is primarily due to a decrease in discount rates during 2020, partially offset by asset returns exceeding our expected return on assets. Current year prior service credit in 2020 was primarily due to the RTC plan change for non-union participants as discussed above.

The Actuarial loss arising during the period in 2019 was primarily due to a decrease in discount rates during 2019, partially offset by our asset returns exceeding our expected return on assets.

Other changes in PRB assets and benefit obligations recognized in other comprehensive loss in 2020 and 2019 are as follows: 

(dollars in millions)	2020		2019
Actuarial (gain) loss arising during the period	$	47	$	(10)
Amortization of actuarial gain	12		12
Current year prior service cost (credit)	(7)		—
Amortization of prior service credit	3		42
Net settlement and curtailment	(1)		—
Other	5		2
Total recognized in other comprehensive loss	59		46
Net recognized in net periodic benefit (income) cost and other comprehensive loss	$	75	$	24

The Actuarial loss arising during the period in 2020 is primarily due to a decrease in discount rates during 2020, partially offset by asset returns exceeding our expected return on assets on our funded plans.

The Actuarial gain arising during the period in 2019 was primarily due to demographic gains, partially offset by a decrease in discount rates in 2019.

The table below reflects the total benefit payments expected to be paid from the plans or from corporate assets.

(dollars in millions)	Pension		PRB
2021	$	4,374	$	128
2022	4,197		120
2023	3,831		112
2024	3,795		106
2025	3,785		100
2026-2030	18,311		419

Major assumptions used in determining the pension benefit obligation and net periodic pension benefit (income) expense are presented in the following table as weighted-averages: 

	Benefit Obligation				Net Periodic Benefit (Income) Expense
	2020		2019		2020		2019		2018
Discount rate
PBO	2.5	%	3.1	%	3.2	%	4.0	%	3.5	%
Interest cost (1)	N/A		N/A		2.8	%	3.7	%	3.1	%
Service cost (1)	N/A		N/A		3.5	%	3.7	%	3.4	%
Salary scale	4.3	%	4.3	%	4.3	%	4.3	%	4.3	%
Expected return on plan assets	N/A		N/A		6.5	%	6.8	%	6.9	%
Interest crediting rate	3.8	%	3.8	%	3.8	%	3.8	%	3.8	%

(1)    The discount rates used to measure the service cost and interest cost applies to our significant plans. The PBO discount rate is used for the service cost and interest cost measurements for non-significant plans.

Major assumptions used in determining the PRB benefit obligation and net periodic PRB (income) expense are presented in the following table as weighted-averages: 

	Benefit Obligation				Net Periodic Benefit (Income) Expense
	2020		2019		2020		2019		2018
Discount rate	2.4	%	3.0	%	3.1	%	4.0	%	3.4	%
Expected return on assets	N/A		N/A		5.7	%	7.0	%	7.0	%

Assumed health care cost trend rates used in determining the PRB benefit obligation and net periodic PRB (income) expense are as follows:

	2020		2019
Health care cost trend rate assumed for next year	5.0	%	6.5	%
Rate that the cost trend rate gradually declines to	4.3	%	5.0	%
Year that the rate reaches the rate it is assumed to remain at	2026		2026

The weighted-average discount rates used to measure pension and PRB liabilities are based on yield curves developed using high-quality corporate bonds as well as plan specific cash flows. For our significant plans, we utilize a full yield curve approach in the estimation of the service cost and interest cost components of net periodic benefit costs by applying the specific spot rates along the yield curve used in determination of the benefit obligation to the relevant discounted projected cash flows.

In determining the EROA assumption, we consider the target asset allocation of plan assets, as well as economic and other indicators of future performance. We may consult with and consider the opinions of financial and other professionals in determining the appropriate capital market assumptions. Return projections are validated using a simulation model that incorporates yield curves, credit spreads and risk premiums to project long-term prospective returns. As a result of this analysis at year end 2020, our weighted average pension EROA assumption for 2021 is 6.5%.

Plan Assets. The plans’ investment management objectives include providing the liquidity and asset levels needed to meet current and future benefit payments, while maintaining a prudent degree of portfolio diversification considering interest rate risk and market volatility. Globally, investment strategies generally target a mix of 50% to 55% of growth seeking assets and 45% to 50% of income generating and hedging assets using a wide set of diversified asset types, fund strategies and investment managers. The growth seeking allocation consists of global public equities in developed and emerging countries, private equity, real estate and multi-asset class strategies. Growth assets include an enhanced alpha strategy that invests in publicly traded equity and fixed income securities, derivatives and foreign currency. Investments in private equity are primarily via limited partnership interests in buy-out strategies with smaller allocations to distressed debt funds. The real estate strategy is principally concentrated in directly held U.S. core investments with some smaller investments in international, value-added and opportunistic strategies. Within the income generating assets, the fixed income portfolio consists of mainly government and broadly diversified high quality corporate bonds.

The plans have continued their pension risk management techniques designed to reduce their interest rate risk. Specifically, the plans have incorporated liability hedging programs that include the adoption of a risk reduction objective as part of the long-term investment strategy. Under this objective the interest rate hedge is intended to increase as funded status improves. The hedging programs incorporate a range of assets and investment tools, each with varying interest rate sensitivities. The

investment portfolios are currently hedging approximately 30% to 70% of the interest rate sensitivity of the pension plan liabilities, depending on the funded status of the plan.

The fair values of pension plan assets at December 31, 2020 and 2019 by asset category are as follows:

(dollars in millions)	Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable  Inputs (Level 2)		Significant Unobservable  Inputs (Level 3)		Not Subject to Leveling(8)		Total
Asset Category:
Public Equities
Global Equities	$	8,437	$	5	$	—	$	—	$	8,442
Global Equity Commingled Funds (1)	1		2,686		—		—		2,687
Enhanced Global Equities (2)	56		185		—		—		241
Other Public Equities	—		—		—		9,008		9,008
Private Equities (3)	—		—		—		3,646		3,646
Fixed Income Securities
Governments	1,740		1,480		—		—		3,220
Corporate Bonds	3		18,489		2		305		18,799
Structured Products	—		24		—		—		24
Other Fixed Income	—		—		—		6,631		6,631
Real Estate (4)	—		—		1,647		1,737		3,384
Other (5)	—		99		—		5,088		5,187
Cash & Cash Equivalents (6)	9		97		—		154		260
Subtotal	$	10,246	$	23,065	$	1,649	$	26,569	61,529
Other Assets & Liabilities (7)									789
Total at December 31, 2020									$	62,318
Public Equities
Global Equities	$	3,588	$	5	$	—	$	—	$	3,593
Global Equity Commingled Funds (1)	—		1,496		—		—		1,496
Enhanced Global Equities (2)	322		393		—		—		715
Other Public Equities	—		—		—		5,332		5,332
Private Equities (3)	—		—		202		1,230		1,432
Fixed Income Securities
Governments	969		116		—		—		1,085
Corporate Bonds	1		13,059		5		—		13,065
Structured Products	—		17		—		—		17
Other Fixed Income	—		—		—		4,755		4,755
Real Estate (4)	—		13		1,464		366		1,843
Other (5)	—		343		—		2,834		3,177
Cash & Cash Equivalents (6)	—		47		—		36		83
Subtotal	$	4,880	$	15,489	$	1,671	$	14,553	$	36,593
Other Assets & Liabilities (7)									(368)
Total at December 31, 2019									$	36,225

(1)    Represents commingled funds that invest primarily in common stocks.

(2)    Represents enhanced equity separate account and commingled fund portfolios. A portion of the portfolio may include long-short market neutral and relative value strategies that invest in publicly traded, equity and fixed income securities, as well as derivatives of equity and fixed income securities and foreign currency.

(3)    Represents limited partnership investments with general partners that primarily invest in equity and debt.

(4)    Represents investments in real estate including commingled funds and directly held properties.

(5)    Represents global balanced risk commingled funds that invest in multiple asset classes including equity, fixed income and some commodities. “Other” also includes insurance contracts.

(6)    Represents short-term commercial paper, bonds and other cash or cash-like instruments.

(7)    Represents receivables, payables and certain individually immaterial international plan assets that are not leveled.

(8)    In accordance with ASU 2015-07, Fair Value Measurement (Topic 820), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total pension benefits plan assets.

Derivatives in the plan are primarily used to manage risk and gain asset class exposure while still maintaining liquidity. Derivative instruments mainly consist of equity futures, interest rate futures, interest rate swaps and currency forward contracts. The fair market value of the plans’ derivatives through direct or separate account investments was approximately $176 million and $75 million as of December 31, 2020 and 2019, respectively.

We review our assets at least quarterly to ensure we are within the targeted asset allocation ranges and, if necessary, asset balances are adjusted back within target allocations. We employ a broadly diversified investment manager structure that includes diversification by active and passive management, style, capitalization, country, sector, industry and number of investment managers. No individual investment represented more than 5% of the plan assets as of December 31, 2020.

The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed due to the following:

(dollars in millions)	Private Equities		Corporate Bonds		Real Estate		Total
Balance, December 31, 2018	$	133	$	18	$	1,387	$	1,538
Realized losses	—		—		(2)		(2)
Unrealized gains relating to instruments still held in the reporting period	32		—		27		59
Purchases, sales, and settlements, net	37		(13)		52		76
Balance, December 31, 2019	202		5		1,464		1,671
Realized gains	—		—		7		7
Unrealized gains relating to instruments still held in the reporting period	16		—		(129)		(113)
Purchases, sales, and settlements, net	10		(3)		77		84
Transfers in/out, net	(228)		—		228		—
Balance, December 31, 2020	$	—	$	2	$	1,647	$	1,649

Quoted market prices are used to value investments when available. Investments in securities traded on exchanges, including listed futures and options, are valued at the last reported sale prices on the last business day of the year or, if not available, the last reported bid prices. Fixed income securities are primarily measured using a market approach pricing methodology, where observable prices are obtained by market transactions involving identical or comparable securities of issuers with similar credit ratings. Mortgages have been valued on the basis of their future principal and interest payments discounted at prevailing interest rates for similar investments. Investment contracts are valued at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations. Real estate investments are valued on a quarterly basis using discounted cash flow models which consider long-term lease estimates, future rental receipts and estimated residual values. Valuation estimates are supplemented by third-party appraisals on an annual basis.

Private equity limited partnerships are valued quarterly using discounted cash flows, earnings multiples and market multiples. Valuation adjustments reflect changes in operating results, financial condition, or prospects of the applicable portfolio company. Over-the-counter securities and government obligations are valued at the bid prices or the average of the bid and ask prices on the last business day of the year from published sources or, if not available, from other sources considered reliable, generally broker quotes. Temporary cash investments are stated at cost, which approximates fair value.

The fair market value of assets related to our PRB benefits was $381 million and $20 million as of December 31, 2020 and 2019. These assets include $149 million of which are invested in our domestic qualified pension plan trust at December 31, 2020. There were no PRB assets invested in our domestic qualified pension plan trust at December 31, 2019. The remaining PRB investments are held within Voluntary Employees’ Beneficiary Association (VEBA) trusts. The VEBA assets are generally invested in mutual funds and are valued primarily using quoted prices in active markets (Level 1). There were no Level 3 investments in the VEBA trusts as of December 31, 2020 or 2019.

We have set aside assets in separate trusts, which we expect to be used to pay for certain nonqualified defined benefit and defined contribution plan obligations in excess of qualified plan limits. These assets are included in Other assets, current in our Consolidated Balance Sheet. The fair value of marketable securities held in trusts consisted of the following:

(dollars in millions)	2020		2019
Marketable securities held in trusts	$	881	$	—