Pension, Postretirement and Savings Plans

The Company and certain of its subsidiaries maintain various pension and other postretirement plans that cover substantially all employees worldwide.

Defined Contribution Plans

The Company sponsors defined contribution retirement plans. The primary plan is the Mastercard Savings Plan, a 401(k) plan for substantially all of the Company’s U.S. employees, which is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended. In addition, the Company has several defined contribution plans outside of the U.S. The Company’s total expense for its defined contribution plans was $98 million, $84 million and $73 million in 2018, 2017 and 2016, respectively.

Defined Benefit and Other Postretirement Plans

The Company sponsors pension and postretirement plans for certain non-U.S. employees (the “non-U.S. Plans”) that cover various benefits specific to their country of employment. In 2017, the Company acquired a majority interest in Vocalink. Vocalink has a defined benefit pension plan (the “Vocalink Plan”) which was permanently closed to new entrants and future accruals as of July 21, 2013, however, plan participants’ obligations are adjusted for future salary changes. The Company has agreed to make contributions of £15 million (approximately $18 million as of December 31, 2018) annually until March 2020. The term “Pension Plans” includes the non-U.S. Plans and the Vocalink Plan.

The Company maintains a postretirement plan providing health coverage and life insurance benefits for substantially all of its U.S. employees hired before July 1, 2007 (the “Postretirement Plan”).

The Company uses a December 31 measurement date for the Pension Plans and its Postretirement Plan (collectively the “Plans”). The Company recognizes the funded status of its Plans, measured as the difference between the fair value of the plan assets and the projected benefit obligation, in the consolidated balance sheet. The following table sets forth the Plans’ funded status, key assumptions and amounts recognized in the Company’s consolidated balance sheet at December 31:



	Pension Plans						Postretirement Plan
	2018			2017			2018			2017
	($ in millions)
Change in benefit obligation
Benefit obligation at beginning of year	$	468		$	46		$	61		$	59
Benefit obligation acquired during the year	—			410			—			—
Service cost	9			9			1			1
Interest cost	12			8			2			2
Actuarial (gain) loss	(7		)	(44		)	(2		)	3
Benefits paid	(22		)	(12		)	(5		)	(4		)
Transfers in	1			3			—			—
Foreign currency translation	(23		)	48			—			—
Benefit obligation at end of year	438			468			57			61

Change in plan assets
Fair value of plan assets at beginning of year	427			33			—			—
Fair value of plan assets acquired during the year	—			344			—			—
Actual (loss) gain on plan assets	(8		)	(4		)	—			—
Employer contributions	33			23			5			4
Benefits paid	(23		)	(12		)	(5		)	(4		)
Transfers in	2			3			—			—
Foreign currency translation	(21		)	40			—			—
Fair value of plan assets at end of year	410			427			—			—
Funded status at end of year	$	(28	)	$	(41	)	$	(57	)	$	(61	)

Amounts recognized on the consolidated balance sheet consist of:
Other liabilities, short-term	$	—		$	—		$	(3	)	$	(3	)
Other liabilities, long-term	(28		)	(41		)	(54		)	(58		)
	$	(28	)	$	(41	)	$	(57	)	$	(61	)

Accumulated other comprehensive income consists of:
Net actuarial (gain) loss	$	(5	)	$	(22	)	$	(7	)	$	(5	)
Prior service credit	1			—			(6		)	(8		)
Balance at end of year	$	(4	)	$	(22	)	$	(13	)	$	(13	)

Weighted-average assumptions used to determine end of year benefit obligations
Discount rate
Non-U.S. Plans	1.80		%	1.80		%	*			*
Vocalink Plan	3.10		%	2.80		%	*			*
Postretirement Plan	*			*			4.25		%	3.50		%

Rate of compensation increase
Non-U.S. Plans	2.60		%	2.60		%	*			*
Vocalink Plan	4.00		%	3.85		%	*			*
Postretirement Plan	*			*			3.00		%	3.00		%

* Not applicable

Each of the Pension Plans had benefit obligations in excess of plan assets at December 31, 2018 and 2017. Information on the Pension Plans were as follows:



	2018		2017
	(in millions)
Projected benefit obligation	$	438	$	468
Accumulated benefit obligation	430		428
Fair value of plan assets	410		427

For the year ended December 31, 2018, the Company’s projected benefit obligation related to its Pension Plans decreased $30 million attributable primarily to foreign currency translation and benefits paid. For the year ended December 31, 2017, the Company’s projected benefit obligation related to its Pension Plans increased $422 million attributable primarily to the acquisition of Vocalink.

Components of net periodic benefit cost recorded in earnings were as follows for the Plans for each of the years ended December 31:



	Pension Plans									Postretirement Plan
	2018			2017			2016			2018			2017			2016
	(in millions)
Service cost	$	9		$	9		$	10		$	1		$	1		$	1
Interest cost	12			8			1			2			2			2
Expected return on plan assets	(20		)	(13		)	(1		)	—			—			—
Curtailment gain	—			—			—			—			—			—
Amortization of actuarial loss	—			—			—			—			—			—
Amortization of prior service credit	—			—			—			(2		)	(2		)	(1		)
Pension settlement charge	—			—			—			—			—			—
Net periodic benefit cost	$	1		$	4		$	10		$	1		$	1		$	2

Net periodic benefit cost, excluding the service cost component, is recognized in other income (expense) on the consolidated statement of operations. The service cost component is recognized in general and administrative expenses on the consolidated statement of operations.

Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31 were as follows:



	Pension Plans							Postretirement Plan
	2018		2017			2016		2018			2017		2016
	(in millions)
Curtailment gain	$	—	$	—		$	—	$	—		$	—	$	—
Current year actuarial loss (gain)	17		(22		)	1		(2		)	5		—
Current year prior service credit	1		—			—		—			—		—
Amortization of prior service credit	—		—			—		2			2		1
Pension settlement charge	—		—			—		—			—		—
Total other comprehensive loss (income)	$	18	$	(22	)	$	1	$	—		$	7	$	1
Total net periodic benefit cost and other comprehensive loss (income)	$	19	$	(18	)	$	11	$	1		$	8	$	3

Assumptions

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



	Pension Plans						Postretirement Plan
	2018		2017		2016		2018		2017		2016
Discount rate
Non-U.S. Plans	1.80	%	1.60	%	1.85	%	*		*		*
Vocalink Plan	2.80	%	2.50	%	*		*		*		*
Postretirement Plan	*		*		*		3.50	%	4.00	%	4.25	%
Expected return on plan assets
Non-U.S. Plans	3.00	%	3.25	%	3.25	%	*		*		*
Vocalink Plan	4.75	%	4.75	%	*		*		*		*
Rate of compensation increase
Non-U.S. Plans	2.60	%	2.59	%	2.64	%	*		*		*
Vocalink Plan	3.85	%	3.95	%	*		*		*		*
Postretirement Plan	*		*		*		3.00	%	3.00	%	3.00	%

* Not applicable

The Company’s discount rate assumptions are based on yield curves derived from high quality corporate bonds, which are matched to the expected cash flows of each respective plan. The expected return on plan assets assumptions are derived using the current and expected asset allocations of the Pension Plans’ assets and considering historical as well as expected returns on various classes of plan assets. The rates of compensation increases are determined by the Company, based upon its long-term plans for such increases.

The following additional assumptions were used at December 31 in accounting for the Postretirement Plan:



	2018		2017
Health care cost trend rate assumed for next year	6.00	%	6.50	%
Ultimate trend rate	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2		3

Assets

Plan assets are managed taking into account the timing and amount of future benefit payments. The Vocalink Plan assets are managed within the following target asset allocations: non-government fixed income 39%, government securities (including U.K. governmental bonds) 28%, investment funds 25% and other 8%. The investment funds are currently comprised of approximately 44% derivatives, 28% equity, 16% fixed income and 12% other. For the non-U.S. Plans, the assets are concentrated primarily in insurance contracts.

The Valuation Hierarchy of the Pension Plans’ assets is determined using a consistent application of the categorization measurements for the Company’s financial instruments. See Note 1 (Summary of Significant Accounting Policies) for additional information.

Cash and cash equivalents and other public investment vehicles (including certain mutual funds and government and agency securities) are valued at quoted market prices, which represent the net asset value of the shares held by the Vocalink Plan, and are therefore included in Level 1 of the Valuation Hierarchy. Certain other mutual funds (including commingled funds), governmental and agency securities and insurance contracts are valued at unit values provided by investment managers, which are based on the fair value of the underlying investments utilizing public information, independent external valuation from third-party services or third-party advisors, and are therefore included in Level 2 of the Valuation Hierarchy. Asset-backed securities are classified as Level 3 due to a lack of observable inputs in measuring fair value.

The following tables set forth by level, within the Valuation Hierarchy, the Pension Plans’ assets at fair value as of December 31, 2018 and 2017:



	December 31, 2018								December 31, 2017
	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
	(in millions)
Cash and cash equivalents	$	22	$	—	$	—	$	22	$	21	$	—	$	—	$	21
Government and agency securities	—		88		—		88		21		95		—		116
Mutual funds	154		30		—		184		146		28		—		174
Insurance contracts	—		57		—		57		—		45		—		45
Asset-backed securities	—		—		34		34		—		—		31		31
Other	—		25		—		25		2		16		22		40
Total	$	176	$	200	$	34	$	410	$	190	$	184	$	53	$	427

The following table summarizes expected benefit payments through 2028 for the Pension Plans and the Postretirement Plan, including those payments expected to be paid from the Company’s general assets. Actual benefit payments may differ from expected benefit payments.



	Pension Plans		Postretirement Plan
	(in millions)
2019	$	14	$	3
2020	10		4
2021	11		4
2022	14		4
2023	13		4
2024 - 2028	64		20