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Employee Benefit Plans

12 Months Ended

Dec. 31, 2019

We sponsor numerous defined benefit and defined contribution pension and other post-retirement benefit plans, primarily retiree health care, in our domestic and international operations. December 31 is the measurement date for all of our post-retirement benefit plans.

Over the past several years, where legally possible, we have amended our major defined benefit pension plans to freeze current benefits and eliminate benefits accruals for future service, including our primary U.S. defined benefit plan for salaried employees, the Canadian Salary Pension Plan and the U.K. Final Salary Pension Plan. The freeze of current benefits is the primary driver of the reduction in pension service costs since 2012. In certain Non-U.S. plans, we are required to continue to consider salary increases and inflation in determining the benefit obligation related to prior service. The Netherlands defined benefit pension plan has also been amended to reflect the Company's ability to reduce the indexation of future pension benefits within the plan in scenarios when the returns on plan assets are insufficient to cover that indexation.

Prior to the freeze of current benefits, most of our defined benefit pension plans generally provided employees a benefit, depending on eligibility, calculated under a highest average pay and years of service formula. Our primary domestic defined benefit pension plans provided a benefit at the greater of (i) the highest average pay and years of service formula, (ii) the benefit calculated under a formula that provides for the accumulation of salary and interest credits during an employee's work life or (iii) the individual account balance from the Company's prior defined contribution plan (Transitional Retirement Account or TRA). Pension plan assets consist of both defined benefit plan assets and assets legally restricted to the TRA accounts.

The combined investment results for our primary domestic plans, along with the results for our other defined benefit plans, are shown below in the “actual return on plan assets” caption. To the extent that investment results relate to TRA assets, such results are charged directly to these accounts as a component of interest cost.



	Pension Benefits
	U.S. Plans						Non-U.S. Plans						Retiree Health
	2019			2018			2019			2018			2019			2018
Change in Benefit Obligation:
Benefit obligation, January 1	$	3,234		$	4,180		$	6,007		$	6,703		$	385		$	723
Service cost	2			2			22			27			2			4
Interest cost	218			63			153			149			15			23
Plan participants' contributions	—			—			3			4			10			3
Actuarial loss (gain)	564			(288		)	472			(293		)	8			(63		)
Currency exchange rate changes	—			—			114			(339		)	5			(11		)
Plan Amendments/Curtailments	—			—			(2		)	41			—			(234		)
Benefits paid/settlements	(420		)	(723		)	(270		)	(281		)	(40		)	(60		)
Other	—			—			(7		)	(4		)	—			—
Benefit Obligation, December 31	$	3,598		$	3,234		$	6,492		$	6,007		$	385		$	385

Change in Plan Assets:
Fair value of plan assets, January 1	$	2,358		$	3,224		$	5,729		$	6,308		$	—		$	—
Actual return on plan assets	529			(170		)	680			(85		)	—			—
Employer contributions	26			27			115			117			30			57
Plan participants' contributions	—			—			3			4			10			3
Currency exchange rate changes	—			—			135			(329		)	—			—
Benefits paid/settlements	(420		)	(723		)	(270		)	(281		)	(40		)	(60		)
Other	—			—			(7		)	(5		)	—			—
Fair Value of Plan Assets, December 31	$	2,493		$	2,358		$	6,385		$	5,729		$	—		$	—

Net Funded Status at December 31⁽¹⁾	$	(1,105	)	$	(876	)	$	(107	)	$	(278	)	$	(385	)	$	(385	)

Amounts Recognized in the Consolidated Balance Sheets:
Other long-term assets	$	—		$	—		$	451		$	281		$	—		$	—
Accrued compensation and benefit costs	(25		)	(25		)	(22		)	(24		)	(33		)	(35		)
Pension and other benefit liabilities	(1,080		)	(851		)	(536		)	(535		)	—			—
Post-retirement medical benefits	—			—			—			—			(352		)	(350		)
Net Amounts Recognized	$	(1,105	)	$	(876	)	$	(107	)	$	(278	)	$	(385	)	$	(385	)

Accumulated Benefit Obligation	$	3,598		$	3,234		$	6,326		$	5,847

_____________


(1)	Includes under-funded and unfunded plans.

Benefit plans pre-tax amounts recognized in AOCL at December 31:



	Pension Benefits
	U.S. Plans						Non-U.S. Plans				Retiree Health
	2019			2018			2019		2018		2019			2018
Net actuarial loss (gain)	$	1,059		$	933		$	1,462	$	1,457	$	(29	)	$	(42	)
Prior service (credit) cost	(3		)	(5		)	22		19		(164		)	(240		)
Total Pre-tax loss (gain)	$	1,056		$	928		$	1,484	$	1,476	$	(193	)	$	(282	)

Aggregate information for pension plans with an Accumulated benefit obligation in excess of plan assets is presented below. Information for Retiree Health plans with an accumulated post-retirement benefit obligation in excess of plan assets has been disclosed in the preceding table on Benefit obligations and Net funded status as all Retiree Health plans are unfunded.



	December 31, 2019				December 31, 2018
	Accumulated Benefit Obligation		Fair Value of Plan Assets		Accumulated Benefit Obligation		Fair Value of Plan Assets
Underfunded Plans:
U.S.	$	3,261	$	2,493	$	2,918	$	2,358
Non U.S.	767		697		713		624

Unfunded Plans:
U.S.	$	337	$	—	$	316	$	—
Non U.S.	469		—		446		—

Total Underfunded and Unfunded Plans:
U.S.	$	3,598	$	2,493	$	3,234	$	2,358
Non U.S.	1,236		697		1,159		624
Total	$	4,834	$	3,190	$	4,393	$	2,982

Aggregate information for pension plans with a benefit obligation in excess of plan assets is presented below:



	December 31, 2019				December 31, 2018
	Benefit Obligation		Fair Value of Plan Assets		Benefit Obligation		Fair Value of Plan Assets
Underfunded Plans:
U.S.	$	3,261	$	2,493	$	2,918	$	2,358
Non U.S.	780		697		888		782

Unfunded Plans:
U.S.	$	337	$	—	$	316	$	—
Non U.S.	479		—		456		—

Total Underfunded and Unfunded Plans:
U.S.	$	3,598	$	2,493	$	3,234	$	2,358
Non U.S.	1,259		697		1,344		782
Total	$	4,857	$	3,190	$	4,578	$	3,140

Our pension plan assets and benefit obligations at December 31, 2019 were as follows:



	Fair Value of Pension Plan Assets		Pension Benefit Obligations		Net Funded Status
U.S. funded	$	2,493	$	3,261	$	(768	)
U.S. unfunded	—		337		(337		)
Total U.S.	2,493		3,598		(1,105		)
U.K.	4,169		3,798		371
Netherlands	1,083		1,101		(18		)
Canada	721		738		(17		)
Germany	—		367		(367		)
Other	412		488		(76		)
Total	$	8,878	$	10,090	$	(1,212	)

The components of Net periodic benefit cost and other changes in plan assets and benefit obligations were as follows:



	Year Ended December 31,
	Pension Benefits
	U.S. Plans									Non-U.S. Plans									Retiree Health
	2019			2018			2017			2019			2018			2017			2019			2018			2017
Components of Net Periodic Benefit Costs:
Service cost	$	2		$	2		$	2		$	22		$	27		$	29		$	2		$	4		$	5
Interest cost⁽¹⁾	218			63			226			153			149			158			15			23			28
Expected return on plan assets⁽²⁾	(210		)	(67		)	(227		)	(233		)	(244		)	(221		)	—			—			—
Recognized net actuarial loss (gain)	24			22			21			43			56			79			(5		)	—			1
Amortization of prior service credit	(2		)	(2		)	(2		)	(2		)	(4		)	(4		)	(77		)	(19		)	(4		)
Recognized settlement loss	93			173			133			1			1			2			—			—			—
Recognized curtailment gain	—			—			—			—			(1		)	(2		)	—			—			—
Defined Benefit Plans	125			191			153			(16		)	(16		)	41			(65		)	8			30
Defined contribution plans	26			37			38			23			29			29			n/a			n/a			n/a
Net Periodic Benefit Cost (Credit)	151			228			191			7			13			70			(65		)	8			30
Other changes in plan assets and benefit obligations recognized in Other Comprehensive (Loss) Income:
Net actuarial loss (gain) ⁽³⁾	243			(50		)	238			24			33			(273		)	8			(63		)	(16		)
Prior service cost (credit)	—			—			—			—			41			(1		)	—			(234		)	—
Amortization of net actuarial (loss) gain	(117		)	(195		)	(154		)	(44		)	(57		)	(81		)	5			—			(1		)
Amortization of net prior service credit	2			2			2			2			4			4			77			19			4
Curtailment gain	—			—			—			—			1			—			—			—			—
Total Recognized in Other Comprehensive (Loss) Income⁽⁴⁾	128			(243		)	86			(18		)	22			(351		)	90			(278		)	(13		)
Total Recognized in Net Periodic Benefit Cost and Other Comprehensive (Loss) Income	$	279		$	(15	)	$	277		$	(11	)	$	35		$	(281	)	$	25		$	(270	)	$	17

_____________


(1)	Interest cost for Pension Benefits includes interest expense on non-TRA obligations of $243, $258 and $257 and interest expense (income) directly allocated to TRA participant accounts of $128, $(46) and $127 for the years ended December 31, 2019, 2018 and 2017, respectively.


(2)	Expected return on plan assets includes expected investment income on non-TRA assets of $315, $357 and $321 and actual investment (loss) income on TRA assets of $128, $(46) and $127 for the years ended December 31, 2019, 2018 and 2017, respectively.


(3)	The non-U.S. plans Net actuarial (gain) loss for 2018 reflects an out-of-period adjustment in third quarter 2018 of $(53) to correct an overstated benefit obligation for our U.K. Final Salary Pension Plan at December 31, 2017. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies for additional information regarding this adjustment.


(4)	Amounts represent the pre-tax effect included in Other comprehensive (loss) income. Refer to Note 25 - Other Comprehensive (Loss) Income for the related tax effects and the net of tax amounts.

Plan Amendments

Pension:

On October 26, 2018, the High Court of Justice in the United Kingdom (the High Court) ruled that Lloyds Bank PLC was required to equalize benefits payable to men and women under its U.K. defined benefit pension plans by amending those plans to increase the pension benefits payable to participants that accrued such benefits during the period from 1990 to 1997. The inequalities arose from statutory differences in the retirement ages and rates of accrual of benefits for men and women related to Guaranteed Minimum Pension (GMP) benefits that are included in U.K. defined benefit pension plans.

Based on the above ruling, we currently estimate the cost of equalization under the minimum cost approach permitted by the High Court’s ruling to be approximately 1.2% of our U.K. defined benefit plan obligation at December 31, 2018 or approximately GBP 33 million (approximately USD $42). This increase in the benefit obligation was recorded as a plan amendment in 2018 and will be amortized as prior service cost over 24 years (approximately USD $2 per year) through 2019 and future years’ Net periodic benefit costs. The amount recorded continues to reflect our best estimate of the impact from this ruling. However, several significant uncertainties remain and therefore our estimate is subject to future change and adjustment. In particular, the cost is very sensitive to i) the method of GMP equalization; ii) actuarial assumptions and market conditions; iii) the benefit structure of our plan and operational practices; and iv) the demographic profile of our plan. In addition, we are continuing to evaluate the acceptable methodologies that the High Court has determined, and we still need to agree upon the appropriate methodology with our plan trustees.

Retiree Health Plans:

In December 2018, we amended our Canadian Retiree Health Plan to eliminate coverage for certain future and existing retirees. This negative plan amendment resulted in a reduction in the postretirement benefit obligation of $19, which is expected to be amortized to future net periodic benefit costs as a prior service credit.

In October 2018, we amended our U.S. Retiree Health Plan effective January 1, 2019, to reduce certain benefits for existing non-union retirees through the reduction or elimination of coverage or cost-sharing subsidies for retiree health care and life insurance costs. This negative plan amendment resulted in a reduction in the postretirement benefit obligation of $283, which consisted of $216 for the plan amendment and an actuarial gain of $67 related to the required plan remeasurement upon amendment. The amount for the plan amendment is expected to be amortized to future net periodic benefit costs as a prior service credit.

Plan Assets

Current Allocation

As of the 2019 and 2018 measurement dates, the global pension plan assets were $8,878 and $8,087, respectively. These assets were invested among several asset classes.

The following tables present the defined benefit plans assets measured at fair value and the basis for that measurement.



	December 31, 2019
	U.S. Plans											Non-U.S. Plans
Asset Class	Level 1			Level 2		Level 3		Assets measured at NAV⁽¹⁾		Total		Level 1		Level 2		Level 3		Assets measured at NAV⁽¹⁾		Total
Cash and cash equivalents	$	9		$	—	$	—	$	—	$	9	$	421	$	—	$	—	$	—	$	421
Equity Securities:
U.S.	182			—		—		39		221		132		52		—		—		184
International	193			—		—		191		384		462		302		—		118		882
Fixed Income Securities:
U.S. treasury securities	—			316		—		—		316		—		47		—		—		47
Debt security issued by government agency	—			67		—		—		67		—		1,825		—		—		1,825
Corporate bonds	—			1,119		—		—		1,119		—		841		—		—		841
Derivatives	—			45		—		—		45		—		186		—		—		186
Real estate	—			—		5		10		15		—		—		219		116		335
Private equity/venture capital	—			—		—		199		199		—		—		5		1,527		1,532
Guaranteed insurance contracts	—			—		—		—		—		—		—		90		—		90
Other⁽²⁾⁽³⁾	(36		)	—		—		154		118		11		31		—		—		42
Total Fair Value of Plan Assets	$	348		$	1,547	$	5	$	593	$	2,493	$	1,026	$	3,284	$	314	$	1,761	$	6,385

_____________


(1)	Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.


(2)	Other NAV includes mutual funds of $76 (measured at NAV) which are invested approximately 75% in fixed income securities and approximately 25% in equity securities.


(3)	Other Level 1 includes net non-financial (liabilities) assets of $(36) U.S. and $11 Non-U.S., respectively, such as due to/from broker, interest receivables and accrued expenses.



	December 31, 2018
	U.S. Plans												Non-U.S. Plans
Asset Class	Level 1		Level 2			Level 3		Assets measured at NAV⁽¹⁾		Total			Level 1		Level 2		Level 3		Assets measured at NAV⁽¹⁾		Total
Cash and cash equivalents	$	1	$	—		$	—	$	—	$	1		$	370	$	—	$	—	$	—	$	370
Equity Securities:
U.S.	82		—			—		35		117			103		42		—		—		145
International	97		—			—		52		149			359		111		—		112		582
Fixed Income Securities:
U.S. treasury securities	—		248			—		—		248			—		57		—		—		57
Debt security issued by government agency	—		81			—		—		81			—		1,861		—		—		1,861
Corporate bonds	—		1,363			—		—		1,363			—		736		—		—		736
Derivatives	—		(26		)	—		—		(26		)	—		99		—		—		99
Real estate	19		—			—		9		28			—		—		210		157		367
Private equity/venture capital	—		—			—		353		353			—		—		6		1,386		1,392
Guaranteed insurance contracts	—		—			—		—		—			—		—		92		—		92
Other⁽²⁾	12		—			—		32		44			5		23		—		—		28
Total Fair Value of Plan Assets	$	211	$	1,666		$	—	$	481	$	2,358		$	837	$	2,929	$	308	$	1,655	$	5,729

_____________


(1)	Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.


(2)	Other Level 1 includes net non-financial (liabilities) assets of $12 U.S. and $5 Non-U.S., respectively, such as due to/from broker, interest receivables and accrued expenses.

The following tables represents a roll-forward of the defined benefit plans assets measured at fair value using significant unobservable inputs (Level 3 assets):



	U.S.			Non-U.S.
	Real Estate			Real Estate			Private Equity/Venture Capital			Guaranteed Insurance Contracts			Total
Balance at December 31, 2017	$	—		$	137		$	7		$	100		$	244
Purchases	—			22			—			1			23
Sales	—			(1		)	—			(6		)	(7		)
Realized losses	(4		)	—			—			—			—
Unrealized gains (losses)	4			62			(4		)	—			58
Currency translation	—			(10		)	3			(3		)	(10		)
Balance at December 31, 2018	$	—		$	210		$	6		$	92		$	308
Purchases	5			—			—			2			2
Sales	—			—			(5		)	(4		)	(9		)
Unrealized gains	—			9			4			2			15
Currency translation	—			—			—			(2		)	(2		)
Balance at December 31, 2019	$	5		$	219		$	5		$	90		$	314

Level 3 Valuation Method

Our primary Level 3 assets are Real Estate and Private Equity/Venture Capital investments. The fair value of our real estate investment funds are based on the Net Asset Value (NAV) of our ownership interest in the funds. NAV information is received from the investment advisers and is primarily derived from third-party real estate appraisals for the properties owned. The fair value for our private equity/venture capital partnership investments are based on our share of the estimated fair values of the underlying investments held by these partnerships as reported (or expected to be reported) in their audited financial statements. The valuation techniques and inputs for our Level 3 assets have been consistently applied for all periods presented.

Investment Strategy

The target asset allocations for our worldwide defined benefit pension plans were:



	2019		2018
	U.S.	Non-U.S.	U.S.	Non-U.S.
Equity investments	23%	14%	12%	13%
Fixed income investments	61%	46%	73%	46%
Real estate	6%	5%	3%	6%
Private equity/venture capital	8%	24%	6%	24%
Other	2%	11%	6%	11%
Total Investment Strategy	100%	100%	100%	100%

We employ a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. The intent of this strategy is to minimize plan expenses by exceeding the interest growth in long-term plan liabilities. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and corporate financial condition. This consideration involves the use of long-term measures that address both return and risk. The investment portfolio contains a diversified blend of equity and fixed income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value and small and large capitalizations. Other assets such as real estate, private equity, and hedge funds are used to improve portfolio diversification. Derivatives may be used to hedge market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of the underlying investments. Investment risks and returns are measured and monitored on an ongoing basis through annual liability measurements and quarterly investment portfolio reviews.

Expected Long-term Rate of Return

We employ a “building block” approach in determining the long-term rate of return for plan assets. Historical markets are studied and long-term relationships between equities and fixed income are assessed. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. The long-term portfolio return is established giving consideration to investment diversification and rebalancing. Peer data and historical returns are reviewed periodically to assess reasonableness and appropriateness.

Contributions

The following table summarizes cash contributions to our defined benefit pension plans and retiree health benefit plans.



	Year Ended December 31,
	2019		Estimated 2020
U.S. Plans	$	26	$	25
Non-U.S. Plans	115		110
Total	$	141	$	135

Retiree Health	$	30	$	35

The 2019 U.S. pension plan contributions did not include any contributions for our domestic tax-qualified defined benefit plans because none were required to meet the minimum funding requirements. There are no contributions required in 2020 for our U.S. tax-qualified defined benefit plans to meet the minimum funding requirements.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid during the following years:



	Pension Benefits
	U.S.		Non-U.S.		Total		Retiree Health
2020	$	480	$	266	$	746	$	35
2021	262		272		534		32
2022	269		277		546		31
2023	272		283		555		29
2024	264		289		553		28
Years 2025-2029	1,198		1,526		2,724		118

Assumptions

Weighted-average assumptions used to determine benefit obligations at the plan measurement dates:



	Pension Benefits
	2019				2018				2017
	U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.
Discount rate	3.1	%	1.8	%	4.2	%	2.6	%	3.6	%	2.3	%
Rate of compensation increase	0.2	%	2.6	%	0.2	%	2.6	%	0.2	%	2.6	%
Interest crediting rate	2.8	%	1.5	%	2.8	%	1.5	%	2.8	%	1.5	%



	Retiree Health
	2019		2018		2017
Discount rate	3.0	%	4.1	%	3.5	%

Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31:



	Pension Benefits
	2020				2019				2018				2017
	U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.
Discount rate	3.1	%	1.8	%	4.2	%	2.6	%	3.6	%	2.3	%	4.0	%	2.5	%
Expected return on plan assets	6.0	%	3.3	%	6.0	%	4.0	%	5.8	%	3.8	%	7.0	%	4.1	%
Rate of compensation increase	0.2	%	2.6	%	0.2	%	2.6	%	0.2	%	2.6	%	0.2	%	2.6	%
Interest crediting rate	2.8	%	1.5	%	2.8	%	1.5	%	2.8	%	1.5	%	2.8	%	1.5	%



	Retiree Health
	2020		2019		2018		2017
Discount rate	3.0	%	4.1	%	3.5	%	3.9	%

_____________

Note: Expected return on plan assets is not applicable to retiree health benefits as these plans are not funded. Rate of compensation increase is not applicable to retiree health benefits as compensation levels do not impact earned benefits.

Assumed health care cost trend rates were as follows:



	December 31,
	2019		2018
Health care cost trend rate assumed for next year	6.0	%	6.3	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.3	%	4.7	%
Year that the rate reaches the ultimate trend rate	2026		2025

Defined Contribution Plans

We have post-retirement savings and investment plans in several countries, including the U.S., the U.K. and Canada. In many instances, employees who participated in the defined benefit pension plans that have been amended to freeze future service accruals were transitioned to an enhanced defined contribution plan. In these plans employees are allowed to contribute a portion of their salaries and bonuses to the plans, and we match a portion of the employee contributions. We recorded charges related to our defined contribution plans of $49 in 2019, $66 in 2018 and $67 in 2017.