Employee Benefit Plans

12 Months Ended

Dec. 31, 2019

Retirement Benefits [Abstract]

EMPLOYEE BENEFIT PLANS

13.

EMPLOYEE BENEFIT PLANS

Defined Benefit Plans

We have defined benefit pension plans, some of which are subject to collective bargaining agreements, that cover most of our employees. These plans provide eligible employees with retirement income based primarily on years of service and compensation during specific periods under final average pay and cash balance formulas. We fund our pension plans as required by local regulations. In the U.S., all qualified pension plans are subject to the Employee Retirement Income Security Act’s minimum funding standard. We typically do not fund or fully fund U.S. nonqualified and certain international pension plans that are not subject to funding requirements because contributions to these pension plans may be less economic and investment returns may be less attractive than our other investment alternatives.

We also provide health care and life insurance benefits for certain retired employees through our postretirement benefit plans. Most of our employees become eligible for these benefits if, while still working for us, they reach normal retirement age or take early retirement. These plans are unfunded, and retired employees share the cost with us. Individuals who became our employees as a result of an acquisition became eligible for postretirement benefits under our plans as determined by the terms of the relevant acquisition agreement.

The changes in benefit obligation related to all of our defined benefit plans, the changes in fair value of plan assets^(a), and the funded status of our defined benefit plans as of and for the years ended were as follows (in millions):

	Pension Plans						Other Postretirement Benefit Plans
	December 31,						December 31,
	2019			2018			2019			2018
Changes in benefit obligation
Benefit obligation as of beginning of year	$	2,639		$	2,926		$	292		$	306
Service cost	119			133			5			6
Interest cost	98			91			11			10
Participant contributions	—			—			11			10
Benefits paid	(154		)	(207		)	(29		)	(28		)
Actuarial (gain) loss	528			(285		)	41			(9		)
Other	9			(19		)	5			(3		)
Benefit obligation as of end of year	$	3,239		$	2,639		$	336		$	292
Changes in plan assets (a)
Fair value of plan assets as of beginning of year	$	2,236		$	2,428		$	—		$	—
Actual return on plan assets	490			(130		)	—			—
Valero contributions	128			156			18			18
Participant contributions	—			—			11			10
Benefits paid	(154		)	(207		)	(29		)	(28		)
Other	9			(11		)	—			—
Fair value of plan assets as of end of year	$	2,709		$	2,236		$	—		$	—
Reconciliation of funded status (a)
Fair value of plan assets as of end of year	$	2,709		$	2,236		$	—		$	—
Less: Benefit obligation as of end of year	3,239			2,639			336			292
Funded status as of end of year	$	(530	)	$	(403	)	$	(336	)	$	(292	)
Accumulated benefit obligation	$	3,039		$	2,492		n/a			n/a

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(a) Plan assets include only the assets associated with pension plans subject to legal minimum funding standards. Plan assets associated with U.S. nonqualified pension plans are not included here because they are not protected from our creditors and therefore cannot be reflected as a reduction from our obligations under the pension plans. As a result, the reconciliation of funded status does not reflect the effect of plan assets that exist for all of our defined benefit plans. See Note 19 for the assets associated with certain U.S. nonqualified pension plans.

The actuarial loss for the year ended December 31, 2019 primarily resulted from a decrease in the discount rates used to determine our benefit obligations for our pension plans from 4.25 percent in 2018 to 3.14 percent in 2019. The actuarial gain for the year ended December 31, 2018 primarily resulted from an increase in the discount rates used to determine our benefit obligations for our pension plans from 3.58 percent in 2017 to 4.25 percent in 2018.

The fair value of our plan assets as of December 31, 2019 was favorably impacted by the return on plan assets resulting primarily from an improvement in equity market prices for the year. The fair value of our plan assets as of December 31, 2018 was unfavorably impacted by the negative return on plan assets resulting primarily from a significant decline in equity market prices for the year.

Amounts recognized in our balance sheet for our pension and other postretirement benefits plans include (in millions):

	Pension Plans						Other Postretirement Benefit Plans
	December 31,						December 31,
	2019			2018			2019			2018
Deferred charges and other assets, net	$	5		$	2		$	—		$	—
Accrued expenses	(17		)	(22		)	(20		)	(21		)
Other long-term liabilities	(518		)	(383		)	(316		)	(271		)
	$	(530	)	$	(403	)	$	(336	)	$	(292	)

The following table presents information for our pension plans with projected benefit obligations in excess of plan assets (in millions).

	December 31,
	2019		2018
Projected benefit obligation	$	3,182	$	2,564
Fair value of plan assets	2,647		2,160

The following table presents information for our pension plans with accumulated benefit obligations in excess of plan assets (in millions).

	December 31,
	2019		2018
Accumulated benefit obligation	$	2,760	$	2,253
Fair value of plan assets	2,402		1,974

Benefit payments that we expect to pay, including amounts related to expected future services that we expect to receive, are as follows for the years ending December 31 (in millions):

	Pension Benefits		Other Postretirement Benefits
2020	$	179	$	21
2021	219		20
2022	190		20
2023	204		19
2024	205		19
2025-2029	1,105		88

We plan to contribute approximately $140 million to our pension plans and $21 million to our other postretirement benefit plans during 2020.

The components of net periodic benefit cost (credit) related to our defined benefit plans were as follows (in millions):

	Pension Plans									Other Postretirement Benefit Plans
	Year Ended December 31,									Year Ended December 31,
	2019			2018			2017			2019			2018			2017
Service cost	$	119		$	133		$	123		$	5		$	6		$	6
Interest cost	98			91			86			11			10			10
Expected return on plan assets	(166		)	(163		)	(150		)	—			—			—
Amortization of:
Net actuarial (gain) loss	41			65			53			(3		)	(2		)	(3		)
Prior service credit	(19		)	(18		)	(20		)	(9		)	(11		)	(16		)
Special charges	4			7			4			1			—			—
Net periodic benefit cost (credit)	$	77		$	115		$	96		$	5		$	3		$	(3	)

The components of net periodic benefit cost (credit) other than the service cost component (i.e., the non-service cost components) are included in “other income, net” in the statements of income.

Amortization of prior service credit shown in the preceding table was based on a straight-line amortization of the cost over the average remaining service period of employees expected to receive benefits under each respective plan. Amortization of the net actuarial (gain) loss shown in the preceding table was based on the straight-line amortization of the excess of the unrecognized (gain) loss over 10 percent of the greater of the projected benefit obligation or market-related value of plan assets (smoothed asset value) over the average remaining service period of active employees expected to receive benefits under each respective plan.

Pre-tax amounts recognized in other comprehensive income (loss) were as follows (in millions):

	Pension Plans									Other Postretirement Benefit Plans
	Year Ended December 31,									Year Ended December 31,
	2019			2018			2017			2019			2018			2017
Net gain (loss) arising during the year:
Net actuarial gain (loss)	$	(204	)	$	(8	)	$	(73	)	$	(41	)	$	9		$	(6	)
Prior service (cost) credit	—			7			(4		)	(3		)	—			—
Net (gain) loss reclassified into income:
Net actuarial (gain) loss	41			65			53			(3		)	(2		)	(3		)
Prior service credit	(19		)	(18		)	(20		)	(9		)	(11		)	(16		)
Curtailment and settlement loss	4			7			4			—			—			—
Total changes in other comprehensive income (loss)	$	(178	)	$	53		$	(40	)	$	(56	)	$	(4	)	$	(25	)

The pre-tax amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost (credit) were as follows (in millions):

	Pension Plans						Other Postretirement Benefit Plans
	December 31,						December 31,
	2019			2018			2019			2018
Net actuarial (gain) loss	$	988		$	828		$	(20	)	$	(64	)
Prior service credit	(90		)	(108		)	(19		)	(31		)
Total	$	898		$	720		$	(39	)	$	(95	)

The weighted-average assumptions used to determine the benefit obligations were as follows:

	Pension Plans				Other Postretirement Benefit Plans
	December 31,				December 31,
	2019		2018		2019		2018
Discount rate	3.14	%	4.25	%	3.32	%	4.40	%
Rate of compensation increase	3.75	%	3.78	%	n/a		n/a
Interest crediting rate for cash balance plans	3.03	%	3.04	%	n/a		n/a

The discount rate assumption used to determine the benefit obligations as of December 31, 2019 and 2018 for the majority of our pension plans and other postretirement benefit plans was based on the Aon AA Only Above Median yield curve and considered the timing of the projected cash outflows under our plans. This curve was designed by Aon to provide a means for plan sponsors to value the liabilities of their pension plans

or postretirement benefit plans. It is a hypothetical double-A yield curve represented by a series of annualized individual discount rates with maturities from one-half year to 99 years. Each bond issue underlying the curve is required to have an average rating of double-A when averaging all available ratings by Moody’s Investors Service, Standard & Poor’s Ratings Services, and Fitch Ratings. Only the bonds representing the 50 percent highest yielding issuances among those with average ratings of double-A are included in this yield curve.

We based our discount rate assumption on the Aon AA Only Above Median yield curve because we believe it is representative of the types of bonds we would use to settle our pension and other postretirement benefit plan liabilities as of those dates. We believe that the yields associated with the bonds used to develop this yield curve reflect the current level of interest rates.

The weighted-average assumptions used to determine the net periodic benefit cost were as follows:

	Pension Plans						Other Postretirement Benefit Plans
	Year Ended December 31,						Year Ended December 31,
	2019		2018		2017		2019		2018		2017
Discount rate	4.24	%	3.59	%	4.08	%	4.40	%	3.72	%	4.26	%
Expected long-term rate of return on plan assets	7.22	%	7.24	%	7.29	%	n/a		n/a		n/a
Rate of compensation increase	3.78	%	3.86	%	3.81	%	n/a		n/a		n/a
Interest crediting rate for cash balance plans	3.04	%	3.04	%	3.04	%	n/a		n/a		n/a

The assumed health care cost trend rates were as follows:

	December 31,
	2019		2018
Health care cost trend rate assumed for the next year	7.32	%	7.29	%
Rate to which the cost trend rate was assumed to decline (the ultimate trend rate)	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2026		2026

The following tables present the fair values of the assets of our pension plans (in millions) as of December 31, 2019 and 2018 by level of the fair value hierarchy. Assets categorized in Level 1 of the hierarchy are measured at fair value using a market approach based on unadjusted quoted prices from national securities exchanges. Assets categorized in Level 2 of the hierarchy are measured at net asset value in a market that is not active. As previously noted, we do not fund or fully fund U.S. nonqualified and certain international pension plans that are not subject to funding requirements, and we do not fund our other postretirement benefit plans.

	Fair Value Hierarchy							Total as of December 31, 2019
	Level 1			Level 2		Level 3
Equity securities:
U.S. companies (a)	$	622		$	—	$	—	$	622
International companies	205			1		—		206
Preferred stock	4			—		—		4
Mutual funds:
International growth	123			—		—		123
Index funds	90			—		—		90
Corporate debt instruments (a)	—			293		—		293
Government securities:
U.S. Treasury securities	53			—		—		53
Other government securities	—			148		—		148
Common collective trusts (b)	—			751		—		751
Pooled separate accounts	—			250		—		250
Private funds	—			104		—		104
Insurance contract	—			17		—		17
Interest and dividends receivable	5			—		—		5
Cash and cash equivalents	59			—		—		59
Securities transactions payable, net	(16		)	—		—		(16		)
Total pension plan assets	$	1,145		$	1,564	$	—	$	2,709

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See notes on page 108.

	Fair Value Hierarchy							Total as of December 31, 2018
	Level 1			Level 2		Level 3
Equity securities:
U.S. companies (a)	$	497		$	—	$	—	$	497
International companies	159			1		—		160
Preferred stock	4			—		—		4
Mutual funds:
International growth	97			—		—		97
Index funds	76			—		—		76
Corporate debt instruments (a)	—			284		—		284
Government securities:
U.S. Treasury securities	45			—		—		45
Other government securities	—			138		—		138
Common collective trusts (b)	—			609		—		609
Pooled separate accounts	—			190		—		190
Private funds	—			87		—		87
Insurance contract	—			18		—		18
Interest and dividends receivable	5			—		—		5
Cash and cash equivalents	40			—		—		40
Securities transactions payable, net	(14		)	—		—		(14		)
Total pension plan assets	$	909		$	1,327	$	—	$	2,236

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(a) This class of securities is held in a wide range of industrial sectors.

(b) This class includes primarily investments in approximately 75 percent equities and 25 percent bonds as of December 31, 2019. As of December 31, 2018, this class included primarily investments in approximately 70 percent equities and 30 percent bonds.

The investment policies and strategies for the assets of our pension plans incorporate a well-diversified approach that is expected to earn long-term returns from capital appreciation and a growing stream of current income. This approach recognizes that assets are exposed to risk and the market value of the pension plans’ assets may fluctuate from year to year. Risk tolerance is determined based on our financial ability to withstand risk within the investment program and the willingness to accept return volatility. In line with the investment return objective and risk parameters, the pension plans’ mix of assets includes a diversified portfolio of equity and fixed-income investments. Equity securities include international stocks and a blend of U.S. growth and value stocks of various sizes of capitalization. Fixed income securities include bonds and notes issued by the U.S. government and its agencies, corporate bonds, and mortgage-backed securities. The aggregate asset allocation is reviewed on an annual basis. As of December 31, 2019, the target allocations for plan assets under our primary pension plan are 70 percent equity securities and 30 percent fixed income investments.

The expected long-term rate of return on plan assets is based on a forward-looking expected asset return model. This model derives an expected rate of return based on the target asset allocation of a plan’s assets.

The underlying assumptions regarding expected rates of return for each asset class reflect Aon’s best expectations for these asset classes. The model reflects the positive effect of periodic rebalancing among diversified asset classes. We select an expected asset return that is supported by this model.

Defined Contribution Plans

We have defined contribution plans that cover most of our employees. Our contributions to these plans are based on employees’ compensation and/or a partial match of employee contributions to the plans. Our contributions to these defined contribution plans were $77 million, $74 million, and $70 million for the years ended December 31, 2019, 2018, and 2017, respectively.