Benefit Plans

12 Months Ended

Dec. 31, 2019

Retirement Benefits [Abstract]

Benefit Plans

Note 11. Benefit Plans

Pension Plans

Obligations and Funded Status:

The projected benefit obligations, plan assets and funded status of our pension plans were:

	U.S. Plans						Non-U.S. Plans
	2019			2018			2019			2018
	(in millions)
Projected benefit obligation at January 1	$	1,511		$	1,762		$	9,578		$	10,852
Service cost	38			43			122			146
Interest cost	60			61			202			199
Benefits paid	(40		)	(29		)	(424		)	(462		)
Settlements paid	(73		)	(118		)	(1		)	(2		)
Actuarial (gains)/losses	251			(208		)	761			(640		)
Currency	—			—			207			(528		)
Other	1			—			13			13
Projected benefit obligation at December 31	1,748			1,511			10,458			9,578
Fair value of plan assets at January 1	1,510			1,717			8,465			9,327
Actual return on plan assets	334			(99		)	1,211			(243		)
Contributions	8			39			261			323
Benefits paid	(40		)	(29		)	(424		)	(462		)
Settlements paid	(73		)	(118		)	(1		)	(2		)
Currency	—			—			246			(478		)
Fair value of plan assets at December 31	1,739			1,510			9,758			8,465
Net pension (liabilities)/assets at December 31	$	(9	)	$	(1	)	$	(700	)	$	(1,113	)

The accumulated benefit obligation, which represents benefits earned to the measurement date, for U.S. pension plans was $1,741 million at December 31, 2019 and $1,488 million at December 31, 2018. The accumulated benefit obligation for non-U.S. pension plans was $10,236 million at December 31, 2019 and $9,374 million at December 31, 2018.

Salaried and non-union hourly employees hired after January 1, 2009 in the U.S. and after January 1, 2011 in Canada (or earlier for certain legacy Cadbury employees) are no longer eligible to participate in the defined benefit pension plans. Benefit accruals for salaried and non-union hourly employee participants in the U.S. and Canada defined benefit pension plans ceased on December 31, 2019. These employees instead receive Company contributions to the employee defined contribution plans.

The combined U.S. and non-U.S. pension plans resulted in a net pension liability of $709 million at December 31, 2019 and $1,114 million at December 31, 2018. We recognized these amounts in our consolidated balance sheets as follows:

	As of December 31,
	2019			2018
	(in millions)
Prepaid pension assets	$	516		$	132
Other current liabilities	(35		)	(25		)
Accrued pension costs	(1,190		)	(1,221		)
	$	(709	)	$	(1,114	)

Certain of our U.S. and non-U.S. plans are underfunded with accumulated benefit obligations in excess of plan assets. For these plans, the projected benefit obligations, accumulated benefit obligations and the fair value of plan assets were:

	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
	2019		2018		2019		2018
	(in millions)
Projected benefit obligation	$	55	$	52	$	3,613	$	3,343
Accumulated benefit obligation	55		50		3,447		3,194
Fair value of plan assets	2		2		2,443		2,169

We used the following weighted-average assumptions to determine our benefit obligations under the pension plans:

	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
	2019		2018		2019		2018
Discount rate	3.44	%	4.40	%	1.74	%	2.45	%
Expected rate of return on plan assets	5.00	%	5.75	%	4.20	%	4.80	%
Rate of compensation increase	4.00	%	4.00	%	3.17	%	3.31	%

Year-end discount rates for our U.S., Canadian, Eurozone and U.K. plans were developed from a model portfolio of high quality, fixed-income debt instruments with durations that match the expected future cash flows of the benefit obligations. Year-end discount rates for our remaining non-U.S. plans were developed from local bond indices that match local benefit obligations as closely as possible. Changes in our discount rates were primarily the result of changes in bond yields year-over-year. We determine our expected rate of return on plan assets from the plan assets’ historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class.

For the periods presented, we measure service and interest costs by applying the specific spot rates along a yield curve used to measure plan obligations to the plans’ liability cash flows. We believe this approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve.

Components of Net Periodic Pension Cost:

Net periodic pension cost consisted of the following:

	U.S. Plans									Non-U.S. Plans
	For the Years Ended December 31,									For the Years Ended December 31,
	2019			2018			2017			2019			2018			2017
	(in millions)
Service cost	$	38		$	43		$	46		$	122		$	146		$	156
Interest cost	60			61			62			202			199			199
Expected return on plan assets	(88		)	(88		)	(101		)	(404		)	(448		)	(434		)
Amortization:
Net loss from experience differences	30			32			37			148			163			167
Prior service cost/(benefit)	1			2			2			(6		)	(2		)	(3		)
Settlement losses and other expenses (1)	16			35			35			(3		)	5			6
Net periodic pension cost	$	57		$	85		$	81		$	59		$	63		$	91

(1) Settlement losses of $5 million in 2019, $5 million in 2018 and $11 million in 2017 were incurred in connection with our Simplify to Grow Program. See Note 8, Restructuring Program, for more information. Net settlement losses of $12 million for our U.S. plans and settlement gains of $4 million for our non-U.S. plans in 2019, and settlement losses of $31 million for our U.S. plans and $4 million for our non-U.S. plans in 2018 and $21 million for our U.S. plans and $6 million for our non-U.S. plans in 2017 related to lump-sum payment elections made by retired employees.

For the U.S. plans, we determine the expected return on plan assets component of net periodic benefit cost using a calculated market return value that recognizes the cost over a four year period. For our non-U.S. plans, we utilize a similar approach with varying cost recognition periods for some plans, and with others, we determine the expected return on plan assets based on asset fair values as of the measurement date.

As of December 31, 2019, for the combined U.S. and non-U.S. pension plans, we expected to amortize from accumulated other comprehensive earnings/(losses) into net periodic pension cost during 2020:

• an estimated $133 million of net loss from experience differences; and

• an estimated $6 million of prior service credit.

We used the following weighted-average assumptions to determine our net periodic pension cost:

	U.S. Plans						Non-U.S. Plans
	For the Years Ended December 31,						For the Years Ended December 31,
	2019		2018		2017		2019		2018		2017
Discount rate	4.40	%	3.68	%	4.19	%	2.45	%	2.20	%	2.31	%
Expected rate of return on plan assets	5.75	%	5.50	%	6.25	%	4.80	%	4.90	%	5.14	%
Rate of compensation increase	4.00	%	4.00	%	4.00	%	3.31	%	3.31	%	3.29	%

Plan Assets:

The fair value of pension plan assets was determined using the following fair value measurements:

	As of December 31, 2019
Asset Category	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
U.S. equity securities	$	2	$	2	$	—	$	—
Non-U.S. equity securities	2		2		—		—
Pooled funds - equity securities	2,186		890		1,296		—
Total equity securities	2,190		894		1,296		—
Government bonds	3,328		53		3,275		—
Pooled funds - fixed-income securities	575		417		158		—
Corporate bonds and other    fixed-income securities	2,727		66		825		1,836
Total fixed-income securities	6,630		536		4,258		1,836
Real estate	186		124		—		62
Private equity	3		—		—		3
Cash	122		117		5		—
Other	2		1		—		1
Total assets in the fair value hierarchy	$	9,133	$	1,672	$	5,559	$	1,902
Investments measured at net asset value	2,297
Total investments at fair value	$	11,430

	As of December 31, 2018
Asset Category	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
U.S. equity securities	$	2	$	2	$	—	$	—
Non-U.S. equity securities	5		5		—		—
Pooled funds - equity securities	1,951		743		1,208		—
Total equity securities	1,958		750		1,208		—
Government bonds	3,156		62		3,094		—
Pooled funds - fixed-income securities	573		429		144		—
Corporate bonds and other    fixed-income securities	2,050		87		931		1,032
Total fixed-income securities	5,779		578		4,169		1,032
Real estate	130		108		—		22
Private equity	2		—		—		2
Cash	44		32		12		—
Other	2		1		—		1
Total assets in the fair value hierarchy	$	7,915	$	1,469	$	5,389	$	1,057
Investments measured at net asset value	1,993
Total investments at fair value	$	9,908

We excluded plan assets of $67 million at December 31, 2019 and December 31, 2018 from the above tables related to certain insurance contracts as they are reported at contract value, in accordance with authoritative guidance.

Fair value measurements:

• Level 1 – includes primarily U.S and non-U.S. equity securities and government bonds valued using quoted prices in active markets.

• Level 2 – includes primarily pooled funds, including assets in real estate pooled funds, valued using net asset values of participation units held in common collective trusts, as reported by the managers of the trusts and as supported by the unit prices of actual purchase and sale transactions. Level 2 plan assets also include corporate bonds and other fixed-income securities, valued using independent observable market inputs, such as matrix pricing, yield curves and indices.

• Level 3 – includes investments valued using unobservable inputs that reflect the plans’ assumptions that market participants would use in pricing the assets, based on the best information available.

• Fair value estimates for pooled funds are calculated by the investment advisor when reliable quotations or pricing services are not readily available for certain underlying securities. The estimated value is based on either cost or last sale price for most of the securities valued in this fashion.

• Fair value estimates for private equity investments are calculated by the general partners using the market approach to estimate the fair value of private investments. The market approach utilizes prices and other relevant information generated by market transactions, type of security, degree of liquidity, restrictions on the disposition, latest round of financing data, company financial statements, relevant valuation multiples and discounted cash flow analyses.

• Fair value estimates for private debt placements are calculated using standardized valuation methods, including but not limited to income-based techniques such as discounted cash flow projections or market-based techniques utilizing public and private transaction multiples as comparables.

• Fair value estimates for real estate investments are calculated by investment managers using the present value of future cash flows expected to be received from the investments, based on valuation methodologies such as appraisals, local market conditions, and current and projected operating performance.

• Fair value estimates for fixed-income securities that are buy-in annuity policies are calculated on a replacement policy value basis by discounting the projected cash flows of the plan members using a discount rate based on risk-free rates and adjustments for estimated levels of insurer pricing.

• Net asset value – primarily includes equity funds, fixed income funds, real estate funds, hedge funds and private equity investments for which net asset values are normally used.

Changes in our Level 3 plan assets, which are recorded in other comprehensive earnings/(losses), included:

Asset Category	January 1, 2019 Balance		Net Realized and Unrealized Gains/ (Losses)		Net Purchases, Issuances and Settlements			Net Transfers Into/(Out of) Level 3		Currency Impact			December 31, 2019 Balance
	(in millions)
Corporate bond and other    fixed-income securities	$	1,032	$	8	$	727		$	—	$	69		$	1,836
Real estate	22		36		3			—		1			62
Private equity and other	3		1		—			—		—			4
Total Level 3 investments	$	1,057	$	45	$	730		$	—	$	70		$	1,902
Asset Category	January 1, 2018 Balance		Net Realized and Unrealized Gains/ (Losses)		Net Purchases, Issuances and Settlements			Net Transfers Into/(Out of) Level 3		Currency Impact			December 31, 2018 Balance
	(in millions)
Corporate bond and other    fixed-income securities	$	790	$	62	$	236		$	—	$	(56	)	$	1,032
Real estate	23		1		(1		)	—		(1		)	22
Private equity and other	3		—		—			—		—			3
Total Level 3 investments	$	816	$	63	$	235		$	—	$	(57	)	$	1,057

The increase in Level 3 pension plan investments during 2019 was primarily due to additional purchases of a buy-in annuity and other fixed income securities, and the increase in 2018 was primarily due to additional purchases of corporate bond and other fixed income securities, which includes private debt placements.

The percentage of fair value of pension plan assets was:

	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
Asset Category	2019		2018		2019		2018
Equity securities	15	%	15	%	26	%	26	%
Fixed-income securities	85	%	85	%	54	%	59	%
Real estate	—		—		6	%	6	%
Hedge funds	—		—		1	%	2	%
Buy-in annuity policies	—		—		12	%	6	%
Cash	—		—		1	%	1	%
Total	100	%	100	%	100	%	100	%

For our U.S. plans, our investment strategy is to reduce the risk of underfunded plans in part through appropriate asset allocation within our plan assets. We attempt to maintain our target asset allocation by rebalancing between asset classes as we make contributions and monthly benefit payments. The strategy involves using indexed U.S. equity and international equity securities and actively managed U.S. investment grade fixed-income securities (which constitute 95% or more of fixed-income securities) with smaller allocations to high yield fixed-income securities.

For our non-U.S. plans, the investment strategy is subject to local regulations and the asset/liability profiles of the plans in each individual country. In aggregate, the asset allocation targets of our non-U.S. plans are broadly characterized as a mix of approximately 25% equity securities, 57% fixed-income securities, 12% buy-in annuity policies and 6% real estate.

Employer Contributions:

In 2019, we contributed $8 million to our U.S. pension plans and $248 million to our non-U.S. pension plans. In addition, employees contributed $13 million to our non-U.S. plans. We make contributions to our pension plans in accordance with local funding arrangements and statutory minimum funding requirements. Discretionary contributions are made to the extent that they are tax deductible and do not generate an excise tax liability.

In 2020, we estimate that our pension contributions will be $16 million to our U.S. plans and $230 million to our non-U.S. plans based on current tax laws. Our actual contributions may be different due to many factors, including changes in tax and other benefit laws, significant differences between expected and actual pension asset performance or interest rates.

Future Benefit Payments:

The estimated future benefit payments from our pension plans at December 31, 2019 were (in millions):

	2020		2021		2022		2023		2024		2025-2029
U.S. Plans	$	167	$	102	$	105	$	105	$	108	$	513
Non-U.S. Plans	380		376		385		395		403		2,126

Multiemployer Pension Plans:

In accordance with obligations we have under collective bargaining agreements, we made contributions to multiemployer pension plans of $5 million in 2019, $17 million in 2018 and $26 million in 2017. In 2017, the only individually significant multiemployer plan we contributed to was the Bakery and Confectionery Union and Industry International Pension Fund (the “Fund;” Employer Identification Number 52-6118572). Our obligation to contribute to the Fund arose with respect to 8 collective bargaining agreements covering most of our employees represented by the Bakery, Confectionery, Tobacco and Grain Millers Union. All of those collective bargaining agreements expired in 2016 and we continued to contribute to the Fund through December 2018. Our contributions to the Fund were $12 million in 2018 and $22 million in 2017. Our contributions to other multiemployer pension plans that were not individually significant were $5 million in 2019, $5 million in 2018 and $4 million in 2017. Our contributions are based on our contribution rates under our collective bargaining agreements, the number of our eligible employees and Fund surcharges.

In 2018, we executed a complete withdrawal from the Fund and recorded a $429 million estimated withdrawal liability. On July 11, 2019, we received an undiscounted withdrawal liability assessment from the Fund totaling $526 million requiring pro-rata monthly payments over 20 years and we recorded a $35 million final adjustment to reduce our withdrawal liability as of June 30, 2019. We began making monthly payments during the third quarter of 2019. As of December 31, 2019, the remaining discounted withdrawal liability was $391 million, with $14 million recorded in other current liabilities and $377 million recorded in long-term other liabilities.

Other Costs:

We sponsor and contribute to employee defined contribution plans. These plans cover eligible salaried, non-union and union employees. Our contributions and costs are determined by the matching of employee contributions, as defined by the plans. Amounts charged to expense in continuing operations for defined contribution plans totaled $72 million in 2019, $57 million in 2018 and $43 million in 2017.

Postretirement Benefit Plans

Obligations:

Our postretirement health care plans are not funded. The changes in and the amount of the accrued benefit obligation were:

	As of December 31,
	2019			2018
	(in millions)
Accrued benefit obligation at January 1	$	366		$	435
Service cost	5			6
Interest cost	15			15
Benefits paid	(16		)	(19		)
Currency	5			(11		)
Assumption changes	34			(39		)
Actuarial losses/(gains)	(6		)	(21		)
Accrued benefit obligation at December 31	$	403		$	366

The current portion of our accrued postretirement benefit obligation of $16 million at December 31, 2019 and $15 million at December 31, 2018 was included in other current liabilities.

We used the following weighted-average assumptions to determine our postretirement benefit obligations:

	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
	2019		2018		2019		2018
Discount rate	3.41	%	4.37	%	3.86	%	4.40	%
Health care cost trend rate assumed for next year	6.00	%	6.25	%	5.42	%	5.44	%
Ultimate trend rate	5.00	%	5.00	%	5.42	%	5.44	%
Year that the rate reaches the ultimate trend rate	2024		2024		2019		2018

Year-end discount rates for our U.S., Canadian and U.K. plans were developed from a model portfolio of high quality, fixed-income debt instruments with durations that match the expected future cash flows of the benefit obligations. Year-end discount rates for our remaining non-U.S. plans were developed from local bond indices that match local benefit obligations as closely as possible. Changes in our discount rates were primarily the result of changes in bond yields year-over-year. Our expected health care cost trend rate is based on historical costs.

For the periods presented, we measure service and interest costs for other postretirement benefits by applying the specific spot rates along a yield curve used to measure plan obligations to the plans’ liability cash flows. We believe this approach provides a good measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve.

Assumed health care cost trend rates have a significant impact on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	As of December 31, 2019
	One-Percentage-Point
	Increase		Decrease
	(in millions)
Effect on postretirement benefit obligation	$	39	$	(33	)
Effect on annual service and interest cost	3		(2		)

Components of Net Periodic Postretirement Health Care Costs:

Net periodic postretirement health care costs consisted of the following:

	For the Years Ended December 31,
	2019			2018			2017
	(in millions)
Service cost	$	5		$	6		$	7
Interest cost	15			14			15
Amortization:
Net loss from experience differences	6			15			14
Prior service credit	(38		)	(39		)	(40		)
Net periodic postretirement health care costs/(benefit)	$	(12	)	$	(4	)	$	(4	)

As of December 31, 2019, we expected to amortize from accumulated other comprehensive earnings/(losses) into pre-tax net periodic postretirement health care costs during 2020:

• an estimated $10 million of net loss from experience differences, and

• an estimated $30 million of prior service credit.

We used the following weighted-average assumptions to determine our net periodic postretirement health care cost:

	U.S. Plans			Non-U.S. Plans
	For the Years Ended December 31,			For the Years Ended December 31,
	2019	2018	2017	2019	2018	2017
Discount rate	4.37%	3.66%	4.14%	4.40%	4.24%	4.55%
Health care cost trend rate	6.25%	6.25%	6.50%	5.44%	5.56%	5.50%

Future Benefit Payments:

Our estimated future benefit payments for our postretirement health care plans at December 31, 2019 were (in millions):

	2020		2021		2022		2023		2024		2025-2029
U.S. Plans	$	11	$	12	$	13	$	14	$	15	$	74
Non-U.S. Plans	5		5		5		6		6		32

Other Costs:

We made contributions to multiemployer medical plans totaling $20 million in 2019, $19 million in 2018 and $18 million in 2017. These plans provide medical benefits to active employees and retirees under certain collective bargaining agreements.

Postemployment Benefit Plans

Obligations:

Our postemployment plans are not funded. The changes in and the amount of the accrued benefit obligation at December 31, 2019 and 2018 were:

	As of December 31,
	2019			2018
	(in millions)
Accrued benefit obligation at January 1	$	74		$	76
Service cost	6			6
Interest cost	5			4
Benefits paid	(9		)	(7		)
Assumption changes	3			(1		)
Actuarial losses/(gains)	(13		)	(4		)
Accrued benefit obligation at December 31	$	66		$	74

The accrued benefit obligation was determined using a weighted-average discount rate of 5.3% in 2019 and 6.7% in 2018, an assumed weighted-average ultimate annual turnover rate of 0.3% in 2019 and 2018, assumed compensation cost increases of 4.0% in 2019 and 2018 and assumed benefits as defined in the respective plans.

Postemployment costs arising from actions that offer employees benefits in excess of those specified in the respective plans are charged to expense when incurred.

Components of Net Periodic Postemployment Costs:

Net periodic postemployment costs consisted of the following:

	For the Years Ended December 31,
	2019			2018			2017
	(in millions)
Service cost	$	6		$	6		$	5
Interest cost	5			4			4
Amortization of net gains	(4		)	(3		)	(3		)
Net periodic postemployment costs	$	7		$	7		$	6

As of December 31, 2019, the estimated net gain for the postemployment benefit plans that we expect to amortize from accumulated other comprehensive earnings/(losses) into net periodic postemployment costs during 2020 is approximately $4 million.