Pension Plans, Postretirement and Other Employee Benefits

12 Months Ended

Dec. 31, 2018

Pension Plans, Postretirement and Other Employee Benefits

Pension Plans, Postretirement and Other Employee Benefits

Defined Contribution Plans

Effective January 1, 2012, the Tenneco Employee Stock Ownership Plan for Hourly Employees and the Tenneco Employee Stock Ownership Plan for Salaried Employees were merged into one plan called the Tenneco 401(k) Retirement Savings Plan (the “Retirement Savings Plan”). The Retirement Savings Plan allows for an enhanced company match and contributions for all eligible salaried and hourly employees. As a result of the Acquisition, the Company acquired Federal-Mogul's 401(k) Retirement Savings Plan. The Company recorded expense for contributions to its plans of approximately $43 million, $29 million and $28 million in 2018, 2017 and 2016, respectively.

Defined Benefit Plans

The Company sponsors defined benefit pension plans, and health care and life insurance benefits for certain employees and retirees around the world. There is also an unfunded nonqualified pension plan primarily covering U.S. executives.

The funding policy for defined benefit pension plans is to contribute the minimum required by applicable laws and regulations or to directly pay benefit payments where appropriate. At December 31, 2018, all legal funding requirements had been met. The Company expects to contribute $26 million to its U.S. pension plans, $42 million to its non-U.S. pension plans, and $28 million to its other postretirement plans in 2019.

Other Benefits

The Company also provides benefits to former or inactive employees paid after employment but before retirement. The liabilities for such U.S. and European postemployment benefits were $75 million and $9 million as of December 31, 2018 and 2017.

Significant Events

As a result of the Acquisition, the Company assumed $848 million in underfunded defined benefit pension and other postretirement benefit obligations.

In December 2018, the Company approved an amendment for one of its U.S. postretirement medical benefit plans. Beginning June 1, 2019, eligible retirees that opt to receive benefits will receive a fixed subsidiary payment to purchase health care benefits on a marketplace exchange in lieu of the original plan’s medical benefits. The amendments to the plan resulted in a plan remeasurement and recognition of a negative plan amendment, which reduced the Company's obligation by $66 million with a corresponding increase of $51 million in AOCI (net of taxes of $16 million) as of December 31, 2018. The $66 million is being amortized on a straight-line basis as a reduction to net periodic postretirement benefit cost over participants' average remaining service periods.

In February 2016, the Company launched a voluntary program to buy out active employees and retirees who had earned benefits in the U.S. pension plans. As of December 31, 2016, this program had been substantially completed with cash payments to those who elected to take the buyout made from pension plan assets in the fourth quarter of 2016. In connection with this program the Company contributed $18 million into the pension trust and recognized a non-cash charge of $72 million. The program was completed in the first quarter of 2017, at which time we contributed another $10 million and recognize a non-cash charge of $6 million during the year ended December 31, 2017.

The measurement date for all defined benefit plans is December 31. The following provides a reconciliation of the plans’ benefit obligations, plan assets, and funded status as of December 31, 2018 and 2017:

	Pension Plans												Other Postretirement Benefits Plans
	U.S.						Non-U.S.
	2018			2017			2018			2017			2018			2017
	(Millions)
Change in benefit obligation:
Benefit obligation, beginning of year	$	263		$	272		$	471		$	438		$	151		$	143
Federal-Mogul acquisition	1,064			—			545			—			263			—
Service cost	1			1			13			9			—			—
Interest cost	21			10			15			13			8			5
Settlement	(1		)	(7		)	(13		)	(3		)	—			—
Curtailment	—			—			—			—			(1		)	—
Administrative expenses/taxes paid	—			—			(3		)	(2		)	—			—
Plan amendments	—			—			2			—			(66		)	—
Actuarial (gain)/loss	(12		)	10			(16		)	(9		)	(24		)	12
Benefits paid	(34		)	(23		)	(22		)	(18		)	(15		)	(10		)
Medicare subsidies received	—			—			—			—			1			—
Participants’ contributions	—			—			1			1			1			—
Held for sale	—			—			(16		)	—			—			—
Currency rate conversion and other	—			—			(31		)	42			4			1
Benefit obligation, end of year	1,302			263			946			471			322			151
Change in plan assets:
Fair value of plan assets, beginning of year	202			192			438			369			—			—
Federal-Mogul acquisition	943			—			81			—			—			—
Settlement	(1		)	(7		)	(14		)	(3		)	—			—
Actual return on plan assets	(122		)	22			(1		)	42			—			—
Administrative expenses/taxes paid	—			—			—			(2		)	—			—
Employer contributions	6			18			21			14			13			10
Medicare subsidies received	—			—			—			—			1			—
Participants’ contributions	—			—			1			1			1			—
Benefits paid	(33		)	(23		)	(25		)	(18		)	(15		)	(10		)
Held for sale	—			—			(10		)	—			—			—
Currency rate conversion and other	—			—			(25		)	35			—			—
Fair value of plan assets, end of year	995			202			466			438			—			—
Funded status of the plans	$	(307	)	$	(61	)	$	(480	)	$	(33	)	$	(322	)	$	(151	)

Amounts recognized on the consolidated balance sheets consist of the following as of December 31, 2018 and 2017:

	Pension Plans												Other Postretirement Benefits Plans
	U.S.						Non-U.S.
	2018			2017			2018			2017			2018			2017
	(Millions)
Noncurrent assets	$	—		$	—		$	33		$	28		$	—		$	—
Current liabilities	(5		)	(2		)	(17		)	(3		)	(28		)	(9		)
Noncurrent liabilities (a)	(302		)	(59		)	(496		)	(58		)	(294		)	(142		)
	$	(307	)	$	(61	)	$	(480	)	$	(33	)	$	(322	)	$	(151	)

^(a)The "pension and postretirement benefits" line in the consolidated balance sheets includes $75 million and $9 million as of December 31, 2018 and 2017 of postemployment benefits which are not included in the table above.

Amounts recognized in accumulated other comprehensive loss for pension and postretirement benefits, inclusive of tax effects, consist of the following components as of December 31, 2018 and 2017:

	Pension Plans								Other Postretirement Benefits Plans
	U.S.				Non-U.S.
	2018		2017		2018		2017		2018			2017
	(Millions)
Actuarial loss	$	255	$	130	$	80	$	91	$	31		$	51
Prior service cost/(credit)	—		—		4		3		(73		)	—
Total	$	255	$	130	$	84	$	94	$	(42	)	$	51

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

	Pension Plans								Other Postretirement Benefits Plans
	2018				2017
	U.S.		Non-U.S.		U.S.		Non-U.S.		2018		2017
	(Millions)
Projected benefit obligation	$	1,302	$	652	$	263	$	130	$	322	$	151
Fair value of plan assets	$	995	$	138	$	202	$	69	$	—	$	—

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

	December 31, 2018				December 31, 2017
	U.S.		Non-U.S.		U.S.		Non-U.S.
	(Millions)
Projected benefit obligation	$	1,302	$	620	$	263	$	117
Accumulated benefit obligation	$	1,302	$	606	$	263	$	112
Fair value of plan assets	$	995	$	111	$	202	$	56

The accumulated benefit obligation for all pension plans is $2,225 million and $728 million as of December 31, 2018 and 2017.

Net periodic pension and postretirement benefits costs for the years 2018, 2017 and 2016, consist of the following components:

	Pension Plans																		Other Postretirement Benefits Plans
	U.S.									Non-U.S.
	2018			2017			2016			2018			2017			2016			2018		2017			2016
	(Millions)
Service cost	$	1		$	1		$	1		$	14		$	9		$	8		$	—	$	—		$	—
Interest cost	21			10			15			15			13			14			8		5			6
Expected return on plan assets	(28		)	(14		)	(23		)	(18		)	(25		)	(20		)	—		—			—
Curtailment loss	—			—			—			—			—			—			1		—			—
Settlement loss	1			8			72			3			1			—			—		—			—
Net amortization:
Actuarial loss	5			5			8			6			9			7			5		4			5
Prior service cost (credit)	—			—			—			1			1			1			—		(1		)	(1		)
Net periodic costs	$	—		$	10		$	73		$	21		$	8		$	10		$	14	$	8		$	10

The following assumptions were used in the accounting for the pension and other postretirement benefits plans for the years of 2018, 2017, and 2016:

	Pension Plans												Other Postretirement Benefits Plans
	U.S.						Non-U.S.
	2018		2017		2016		2018		2017		2016		2018		2017		2016
Weighted-average assumptions used to determine benefit obligations:
Discount rate	4.2	%	3.8	%	4.2	%	2.6	%	2.6	%	2.8	%	4.3	%	3.8	%	4.2	%
Rate of compensation increase	n/a		n/a		n/a		—	%	2.5	%	2.5	%	n/a		n/a		n/a
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate	4.1	%	4.2	%	4.3	%	2.4	%	2.8	%	3.5	%	4.2	%	4.2	%	4.3	%
Expected long-term return on plan assets	6.0	%	7.8	%	7.6	%	4.2	%	5.2	%	5.7	%	n/a		n/a		n/a
Rate of compensation increase	n/a		n/a		n/a		2.9	%	2.5	%	2.7	%	n/a		n/a		n/a

Estimated amounts to be amortized from accumulated other comprehensive loss into net periodic benefit cost in the year ending December 31, 2019 based on December 31, 2018 plan measurements:

	2019
	Pension Plans				Other Postretirement Benefits Plans
	U.S.		Non-U.S
	(Millions)
Net actuarial loss	$	5	$	5	$	4
Prior service cost	—		1		(8		)
	$	5	$	6	$	(4	)

Estimated future benefit payments are as follows:

	Pension Plans				Other Postretirement Benefits Plans
Year	U.S.		Non-U.S.
	(Millions)
2019	$	100	$	43	$	28
2020	$	99	$	44	$	28
2021	$	99	$	43	$	27
2022	$	101	$	45	$	26
2023	$	100	$	49	$	26
2024-2028	$	442	$	243	$	113

Health Care Trend

The weighted-average assumed health care cost trend rate used in determining next year's postretirement health care benefits are as follows:

	Other Postretirement Benefits Plans
	2018		2017		2016
Initial health care cost trend rate	6.9	%	6.8	%	7.0	%
Ultimate health care cost trend rate	4.9	%	4.5	%	4.5	%
Year ultimate health care cost trend rate reached	2027		2027		2026

The assumed health care cost trend rate has a significant effect on the amounts reported for other postretirement benefits plans. The following table illustrates the sensitivity to a change in the assumed health care cost trend rate:

	Total Service and Interest Cost			Postretirement Benefits Obligation
	(Millions)
100 basis point ("bp") increase in health care cost trend rate	$	1		$	23
100 bp decrease in health care cost trend rate	$	(1	)	$	(20	)

Long-term Rate of Return

The Company's expected return on assets is established annually through analysis of anticipated future long-term investment performance for the plan based upon the asset allocation strategy and is primarily a long-term prospective rate.

An analysis was performed in December 2018 resulting in changes to the expected long-term rate of return on assets. The weighted-average long-term rate of return on assets for the U.S. pension plans decreased from 7.75% at December 31, 2017 to 6.00% at December 31, 2018. The expected long-term rate of return on plan assets used in determining pension expense for non-U.S. plans is determined in a similar manner to the U.S. plans and decreased from 5.25% at December 31, 2017 to 4.2% at December 31, 2018.

Plan Assets

Certain pension plans sponsored by the Company invest in a diversified portfolio consisting of an array of asset classes that attempts to maximize returns while minimizing volatility. These asset classes include developed market equities, emerging market equities, private equity, global high quality and high yield fixed income, real estate, and absolute return strategies.

U.S. Plan

The U.S. investment strategy mitigates risk by incorporating diversification across appropriate asset classes to meet the plan’s objectives. It is intended to reduce risk, provide long-term financial stability for the plan, and maintain funded levels that meet long-term plan obligations while preserving sufficient liquidity for near-term benefit payments. Risk assumed is considered appropriate for the return anticipated and consistent with the diversification of plan assets. Approximately 49% of the U.S. plan assets were invested in actively managed investment funds. The Company’s investment strategy includes a target asset allocation of 60% equity investments, 15% fixed income investments, 15% debt securities, and 10% in other investment types including hedge funds.

Non-U.S. Plans

The Company's non-U.S. plans are individually managed to different target levels depending on the investing environment in each country and the funded status of each plan, with an increased allocation of assets to equity and fixed income securities at higher funded ratios. The insurance contracts guarantee a minimum rate of return. The Company has no input into the investment strategy of the assets underlying the contracts, but they are typically heavily invested in active bond markets and are highly regulated by local law.

Pension plan assets were invested in the following classes of securities:

	Percentage of Fair Market Value
	December 31, 2018
	U.S.		Non-U.S.
Equity securities	62	%	32	%
Fixed income securities	17	%	5	%
Debt securities	11	%	43	%
Insurance contracts	—	%	15	%
Other	10	%	5	%

The assets of some of the Company's pension plans are invested in trusts that permit commingling of the assets of more than one employee benefit plan for investment and administrative purposes. Each of the plans participating in the trust has interests in the net assets of the underlying investment pools.

The following table presents the Company’s defined benefit plan assets measured at fair value by asset class:

	Fair Value Level as of December 31, 2018
	U.S.								Non-U.S.
Asset Category	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(Millions)
Investments with registered investment companies:
Equity securities	$	323	$	—	$	—	$	323	$	1	$	—	$	—	$	1
Fixed income securities	167		—		—		167		21		—		—		21
Real estate and other	41		—		—		41		—		—		—		—
Equity securities	194		—		—		194		14		55		—		69
Debt securities:
Corporate and other	—		18		—		18		8		—		—		8
Government	12		21		—		33		2		147		—		149
Real Estate and other	—		—		—		—		1		4		—		5
Insurance contracts	—		—		—		—		—		—		71		71
Hedge funds	—		—		28		28		—		—		—		—
Cash and equivalents	33		—		—		33		17		—		—		17
Total	$	770	$	39	$	28	$	837	$	64	$	206	$	71	$	341
Plan assets measured at net asset value
Equity securities							$	104							$	81
Government debt securities							—								30
Corporate and other debt securities							54								14
Total plan assets measured at net asset value							158								125
Net plan assets							$	995							$	466

	Fair Value Level as of December 31, 2017
	U.S.								Non-U.S.
Asset Category	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(Millions)
Equity securities	$	21	$	—	$	—	$	21	$	16	$	101	$	—	$	117
Debt securities:
Corporate and other	—		—		—		—		6		16		—		22
Government	—		—		—		—		2		112		—		114
Real Estate and other	—		—		—		—		1		6		—		7
Insurance contracts	—		—		—		—		—		16		9		25
Cash and equivalents	2		—		—		2		9		1		—		10
Total	$	23	$	—	$	—	$	23	$	34	$	252	$	9	$	295
Plan assets measured at net asset value
Equity securities							$	120							$	97
Government debt securities							—								32
Corporate and other debt securities							59								14
Total plan assets measured at net asset value							179								143
Net plan assets							$	202							$	438

The Company's level 1 assets were valued using market prices based on daily net asset value ("NAV") or prices available daily through a public stock exchange. Its level 2 assets were valued primarily using market prices, sometimes net of estimated realization expenses, and based on broker/dealer markets or in commingled funds where NAV is not available daily or publicly. For insurance contracts, the estimated surrender value of the policy was used to estimate fair market value.

The table below summarizes the changes in the fair value of the Level 3 assets:

	December 31, 2018						December 31, 2017
	Level 3 Assets						Level 3 Assets
	U.S.			Non-U.S.			U.S.		Non-U.S.
	(Millions)						(Millions)
Balance at December 31 of the previous year	$	—		$	9		$	—	$	9
Federal-Mogul acquisition	30			56			—		—
Net realized/unrealized gains (loss)	(2		)	1			—		—
Purchases and settlements, net	—			—			—		—
Sales, net	—			—			—		—
Transfers into (out) of Level 3	—			15			—		—
Held for sale	—			(10		)
Foreign currency exchange rate movements	—			—			—		—
Ending Balance at December 31	$	28		$	71		$	—	$	9

The following table contains information about significant concentrations of risk, including all individual assets that make up more than 5% of the total assets and any direct investments in Tenneco stock:

Asset Category	Fair Value Level	Value		Percentage of Total Assets
	(Millions)
2018:
Tenneco stock	1	$	10	0.7	%
2017:
Tenneco stock	1	$	21	3.3	%

The Company's approach to determining expected return on plan asset assumptions evaluates both historical returns as well as estimates of future returns, and adjusts for any expected changes in the long-term outlook for the equity and fixed income markets for both its U.S. and Non-U.S. plans.