RETIREMENT BENEFITS

BMS sponsors defined benefit pension plans, defined contribution plans and termination indemnity plans for regular full-time employees. The principal defined benefit pension plan is the Bristol-Myers Squibb Retirement Income Plan (the “Plan”), covering most U.S. employees and representing approximately 66% of the consolidated pension plan assets and 60% of the obligations. Future benefits related to service for this plan were eliminated in 2009. BMS contributes at least the minimum amount required by the ERISA. Plan benefits are based primarily on the participant’s years of credited service and final average compensation. As of December 2018, Plan assets consist primarily of fixed-income securities.

In December 2018, BMS announced plans to fully terminate the Bristol-Myers Squibb Retirement Income Plan (the “Plan”). Pension obligations related to the Plan of $3.6 billion will be distributed through a combination of lump sum payments to eligible Plan participants who elect such payments and through the purchase of a group annuity contract from Athene Annuity and Life Company ("Athene"), a wholly-owned insurance subsidiary of Athene Holding Ltd. The benefit obligation for the Plan as of December 31, 2018 was therefore determined on a plan termination basis for which it is assumed that a portion of eligible active and deferred vested participants will elect lump sum payments. The remaining obligation expected to be transferred to Athene includes an annuity purchase price premium. The Plan has sufficient assets to satisfy all transaction obligations. The transaction is expected to close in the third quarter of 2019 at which time the Company expects to record a total non-cash pre-tax pension settlement charge of approximately $1.5 billion to $2.0 billion.

The net periodic benefit cost/(credit) of defined benefit pension plans includes:



Dollars in Millions	2018			2017			2016
Service cost — benefits earned during the year	$	26		$	25		$	24
Interest cost on projected benefit obligation	193			188			192
Expected return on plan assets	(386		)	(411		)	(418		)
Amortization of prior service credits	(4		)	(4		)	(3		)
Amortization of net actuarial loss	74			82			84
Settlements and curtailments	121			159			91
Special termination benefits	—			3			1
Net periodic benefit cost/(credit)	$	24		$	42		$	(29	)

Pension settlement charges were recognized after determining the annual lump sum payments will exceed the annual interest and service costs for certain pension plans, including the primary U.S. pension plan in 2018, 2017 and 2016.

Changes in defined benefit pension plan obligations, assets, funded status and amounts recognized in the consolidated balance sheets were as follows:



Dollars in Millions	2018			2017
Benefit obligations at beginning of year	$	6,749		$	6,440
Service cost—benefits earned during the year	26			25
Interest cost	193			188
Settlements and Curtailments	(278		)	(330		)
Actuarial (gains)/losses	(523		)	368
Benefits paid	(123		)	(121		)
Foreign currency and other	(78		)	179
Benefit obligations at end of year	$	5,966		$	6,749

Fair value of plan assets at beginning of year	$	6,749		$	5,831
Actual return on plan assets	(203		)	804
Employer contributions	71			396
Settlements	(276		)	(330		)
Benefits paid	(123		)	(121		)
Foreign currency and other	(89		)	169
Fair value of plan assets at end of year	$	6,129		$	6,749

Funded status	$	163		$	—

Assets/(Liabilities) recognized:
Other assets	$	622		$	487
Accrued liabilities	(32		)	(31		)
Pension and other liabilities	(427		)	(456		)
Funded status	$	163		$	—

Recognized in Accumulated other comprehensive loss:
Net actuarial losses	$	2,717		$	2,849
Prior service credit	(30		)	(36		)
Total	$	2,687		$	2,813

The accumulated benefit obligation for defined benefit pension plans was $6.0 billion and $6.7 billion at December 31, 2018 and 2017, respectively.

Additional information related to pension plans was as follows:



Dollars in Millions	2018		2017
Pension plans with projected benefit obligations in excess of plan assets:
Projected benefit obligation	$	1,275	$	1,166
Fair value of plan assets	817		678
Pension plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation	$	1,181	$	1,008
Fair value of plan assets	757		550

Actuarial Assumptions

Weighted-average assumptions used to determine defined benefit pension plan obligations at December 31 were as follows:



	2018		2017
Discount rate	3.5	%	3.1	%
Rate of compensation increase	0.5	%	0.5	%

Weighted-average actuarial assumptions used to determine defined benefit pension plan net periodic benefit cost/(credit) for the years ended December 31 were as follows:



	2018		2017		2016
Discount rate	3.1	%	3.5	%	3.8	%
Expected long-term return on plan assets	6.2	%	7.0	%	7.2	%
Rate of compensation increase	0.5	%	0.5	%	0.5	%

The yield on high quality corporate bonds matching the duration of the benefit obligations is used in determining the discount rate. The Citi Pension Discount curve is used in developing the discount rate for the U.S. plans.

The expected return on plan assets was determined using the expected rate of return and a calculated value of assets, referred to as the “market-related value” which approximated the fair value of plan assets at December 31, 2018. Differences between assumed and actual returns are amortized to the market-related value on a straight-line basis over a three-year period. Several factors are considered in developing the expected return on plan assets, including long-term historical returns and input from external advisors. Individual asset class return forecasts were developed based upon market conditions, for example, price-earnings levels and yields and long-term growth expectations. The expected long-term rate of return is the weighted-average of the target asset allocation of each individual asset class.

Historical long-term actual annualized returns for U.S. pension plans were as follows:



	2018		2017		2016
10 years	10.4	%	6.8	%	6.1	%
15 years	7.8	%	9.3	%	7.1	%
20 years	7.1	%	7.5	%	7.7	%

Actuarial gains and losses resulted from changes in actuarial assumptions (such as changes in the discount rate and revised mortality rates) and from differences between assumed and actual experience (such as differences between actual and expected return on plan assets). Actuarial gains in 2018 related to plan benefit obligations were primarily the result of increases in discount rates. Actuarial losses in 2017 related to plan benefit obligations were primarily the result of decreases in discount rates. Gains and losses are amortized over the life expectancy of the plan participants for U.S. plans (33 years in 2019) and expected remaining service periods for most other plans to the extent they exceed 10% of the higher of the market-related value or the projected benefit obligation for each respective plan. As the result of adopting ASU 2017-07, refer to “—Note 1. Accounting Policies and Recently Issued Accounting Standards” for further details, the periodic benefit cost or credit is included in Other income (net) except for the service cost component which is included in Cost of products sold, Research and development, and Marketing, selling and administrative expenses.

Postretirement Benefit Plans

Comprehensive medical and group life benefits are provided for substantially all U.S. retirees electing to participate in comprehensive medical and group life plans and to a lesser extent certain benefits for non-U.S. employees. The medical plan is contributory. Contributions are adjusted periodically and vary by date of retirement. The life insurance plan is noncontributory. Plan assets consist principally of equity and fixed-income securities. Postretirement benefit plan obligations were $253 million and $298 million at December 31, 2018 and 2017, respectively, and the fair value of plan assets were $331 million and $364 million at December 31, 2018 and 2017, respectively. The weighted-average discount rate used to determine benefit obligations was 3.9% and 3.3% at December 31, 2018 and 2017, respectively. The net periodic benefit credits were not material.

Plan Assets

The fair value of pension and postretirement plan assets by asset category at December 31, 2018 and 2017 was as follows:



	December 31, 2018								December 31, 2017
Dollars in Millions	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Plan Assets
Equity securities	$	124	$	—	$	—	$	124	$	799	$	—	$	—	$	799
Equity funds	2		475		—		477		160		1,358		—		1,518
Fixed income funds	—		606		—		606		—		724		—		724
Corporate debt securities	—		3,865		—		3,865		—		1,919		—		1,919
U.S. Treasury and agency securities	—		553		—		553		—		729		—		729
Short-term investment funds	—		55		—		55		—		135		—		135
Insurance contracts	—		—		134		134		—		—		138		138
Cash and cash equivalents	311		—		—		311		214		—		—		214
Other	—		105		19		124		—		92		13		105
Plan assets subject to leveling	$	437	$	5,659	$	153	$	6,249	$	1,173	$	4,957	$	151	$	6,281

Plan assets measured at NAV as a practical expedient
Equity funds							$	—							$	488
Venture capital and limited partnerships							121								154
Other							91								191
Total plan assets measured at NAV as a practical expedient							212								833
Net plan assets							$	6,461							$	7,114

The investment valuation policies per investment class are as follows:

Level 1 inputs utilize unadjusted quoted prices in active markets accessible at the measurement date for identical assets or liabilities. The fair value hierarchy provides the highest priority to Level 1 inputs. These instruments include equity securities, equity funds and fixed income funds publicly traded on a national securities exchange, and cash and cash equivalents. Cash and cash equivalents are highly liquid investments with original maturities of three months or less at the time of purchase and are recognized at cost, which approximates fair value. Pending trade sales and purchases are included in cash and cash equivalents until final settlement.

Level 2 inputs utilize observable prices for similar instruments, quoted prices for identical or similar instruments in non-active markets, and other observable inputs that can be corroborated by market data for substantially the full term of the assets or liabilities. Equity funds, fixed income funds, and short-term investment funds classified as Level 2 within the fair value hierarchy are valued at the NAV of their shares held at year end, which represents fair value. Corporate debt securities and U.S. Treasury and agency securities classified as Level 2 within the fair value hierarchy are valued utilizing observable prices for similar instruments and quoted prices for identical or similar instruments in markets that are not active.

Level 3 unobservable inputs are used when little or no market data is available. Insurance contracts are held by certain foreign pension plans and are carried at contract value, which approximates the estimated fair value and is based on the fair value of the underlying investment of the insurance company.

Venture capital and limited partnership investments are typically only redeemable through distributions upon liquidation of the underlying assets. There were no significant unfunded commitments for these investments and essentially all liquidations are expected to occur by the end of 2019. Most of the remaining investments using the practical expedient are redeemable on a weekly or monthly basis.

The investment strategy is to maximize return while maintaining an appropriate level of risk to provide sufficient liquidity for benefit obligations and plan expenses. During 2018, a target allocation of 97% long-duration fixed income and 3% private equity was adopted and is now maintained for the principal defined benefit pension plan, the Bristol-Myers Squibb Retirement Income Plan. BMS common stock represents less than 1% of the plan assets at December 31, 2018 and 2017.

Contributions and Estimated Future Benefit Payments

Contributions to pension plans were $71 million in 2018, $396 million in 2017 and $81 million in 2016 and are not expected to be material in 2019. Estimated annual future benefit payments for non-terminating plans (including lump sum payments) will be approximately $100 million in each of the next five years and in the subsequent five year period.

Savings Plans

The principal defined contribution plan is the Bristol-Myers Squibb Savings and Investment Program. The contribution is based on employee contributions and the level of Company match. The expense attributed to defined contribution plans in the U.S. was approximately $200 million in 2018, 2017 and 2016.