Alcoa sponsors several defined benefit pension plans covering certain employees in the U.S. and foreign locations. Pension benefits generally depend on length of service, job grade, and remuneration. Substantially all benefits are paid through pension trusts that are sufficiently funded to ensure that all plans can pay benefits to retirees as they become due. Most salaried and non-bargaining hourly U.S. employees hired after March 1, 2006 participate in a defined contribution plan instead of a defined benefit plan.

The Company also maintains health care and life insurance postretirement benefit plans covering certain eligible U.S. retired employees and certain retirees from foreign locations. Generally, the medical plans are unfunded and pay a percentage of medical expenses, reduced by deductibles and other coverage. Life benefits are generally provided by insurance contracts. The Company retains the right, subject to existing agreements, to change or eliminate these benefits. All salaried and certain non-bargaining hourly U.S. employees hired after January 1, 2002 and certain bargaining hourly U.S. employees hired after July 1, 2010 are not eligible for postretirement health care benefits. All salaried and certain hourly U.S. employees that retire on or after April 1, 2008 are not eligible for postretirement life insurance benefits.

As of January 1, 2019, the pension benefit plans and the other postretirement benefit plans cover an aggregate of approximately 40,000 and approximately 39,000 participants, respectively.

2019 Plan Actions. In 2019, management initiated the following actions to certain pension and other postretirement benefit plans:

Action #1 – In June 2019, the Company entered into a new, six-year collective bargaining agreement with the National Union of Aluminum Employees of Baie-Comeau in Canada. Under the agreement, all Canadian union employees that are participants in one of the Company’s defined benefit pension plans will cease accruing retirement benefits for future service effective January 1, 2021. This change will affect approximately 700 employees, who are targeted to be transitioned to a

target benefit plan, where the funding risk is assumed by the employees. The Company will contribute approximately 12% of these participants’ eligible earnings to the new plan on an annual basis. The Company will also contribute additional contributions of approximately $2 spread over a three-year period to improve the financial position of the newly established target benefit plan. Participants already collecting benefits or who terminated with a vested benefit under the defined benefit pension plan are not affected by these changes.

Action #2 – In July 2019, the Company entered into a new, six-year collective bargaining agreement with the United Steelworkers representing the employees of Aluminerie de Bécancour Inc. in Canada. Under the agreement, all Canadian union employees that are participants in one of the Company’s defined benefit pension plans ceased accruing retirement benefits for future service effective July 21, 2019. This change affected approximately 900 employees, who were transitioned to a member-funded pension plan, where the funding risk is assumed by the employees. The Company will contribute approximately 12% of these participants’ eligible earnings to the new plan on an annual basis. To improve the financial positions of both the existing defined benefit pension plan and newly established member-funded pension plan, the Company will contribute approximately $5 in 2020 to the existing defined benefit pension plan and approximately $2 spread over a five-year period to the newly established member-funded pension plan. Participants already collecting benefits or who terminated with a vested benefit under the defined benefit pension plan are not affected by these changes.

Action #3 – In October 2019, the Company offered lump sum buyouts to specific participants in its U.S. defined benefit pension plans. As a result, the Company paid approximately $112 from plan assets on November 30, 2019 to about 1,700 participants and was relieved of the corresponding pension obligation of $138.

Action #4 – In December 2019, the Company notified certain U.S. retirees that they will be transitioned to a Medicare Exchange plan with a Company-provided contribution, effective January 1, 2021. This change affects approximately 6,000 participants. The change will improve cost predictability and allow participants to elect coverage from a choice of available options.

Action #5 – In December 2019, the Company notified certain U.S. retirees that life insurance will no longer be provided, effective December 31, 2019. This change affects approximately 8,900 participants. As part of this change, Alcoa made a one-time transition payment to the affected retirees totaling $14 in December 2019.

The following table presents certain information and the financial impacts of these actions on the accompanying Consolidated Financial Statements:

Action #	Number of affected plan participants	Weighted average discount rate as of December 31, 2018	Plan remeasurement date	Weighted average discount rate as of plan remeasurement date	Increase (decrease) to accrued pension benefits liability⁽¹⁾			Decrease to accrued other postretirement benefits liability			Curtailment charge⁽²⁾		Settlement charge⁽²⁾
1	~700	3.85%	May 31, 2019	3.15%	$	52		$	—		$	38	$	—
2	~900	3.80%	June 30, 2019	3.00%		23			—			—		—
3	~1,700	N/A	December 31, 2019	N/A		(26	)		—			—		66
4	~6,000	N/A	December 31, 2019	N/A		—			(108	)		—		—
5	~8,900	N/A	December 31, 2019	N/A		—			(56	)		—		8
	~18,200				$	49		$	(164	)	$	38	$	74

2018 Plan Actions. In 2018, management initiated the following actions to certain pension and other postretirement benefit plans:

Action #1—In January 2018, Alcoa notified all U.S. and Canadian salaried employees, who are participants in three of the Company’s defined benefit pension plans, that they will cease accruing retirement benefits for future service, effective January 1, 2021. This change will affect approximately 800 employees, who will be transitioned to country-specific defined contribution plans, in which Alcoa will contribute 3% of these participants’ eligible earnings on an annual basis. Such contributions will be incremental to any employer savings match the employees may receive under existing defined contribution plans. Participants already collecting benefits under these defined benefit pension plans are not affected by these changes.

Action #2—In January 2018, the Company notified U.S. salaried employees and retirees that it will no longer contribute to pre-Medicare retiree medical coverage, effective January 1, 2021. This change affects approximately 700 participants in one plan.

Action #3—In April 2018, the Company signed group annuity contracts to transfer the obligation to pay the remaining retirement benefits of approximately 2,100 retirees from two Canadian defined benefit pension plans to three insurance companies. The transfer of $560 in both plan obligations and plan assets, as well as a transaction fee of $23, was completed on April 13, 2018. The Company contributed $89 between the two plans to facilitate the transaction and maintain the funding level of the remaining plan obligations. Prior to these transactions, these two Canadian pension plans combined had approximately 3,500 participants.

Action #4—In August 2018, the Company signed a group annuity contract to transfer the obligation to pay the remaining retirement benefits of approximately 10,500 retirees from three U.S. defined benefit pension plans to one insurance company. The transfer of $287 in both plan obligations and plan assets, as well as a transaction fee of $10, was completed on August 7, 2018. Additionally, approximately 1,000 plan participants elected to receive lump sum settlements, representing $75 in plan obligations and $85 in plan assets. Prior to these two transactions, these three U.S. pension plans combined had approximately 43,400 participants.

Action #5—In August 2018, the Company notified certain U.S. salaried retirees that life insurance will no longer be provided, effective September 1, 2018. This change affects approximately 5,500 participants in one plan. As part of this change, Alcoa made a one-time transition payment to the affected retirees totaling $23 in September 2018.

The above actions caused the respective plans to be remeasured, including an update to the discount rates used to determine the benefit obligations of the affected plans. The following table presents certain information and the financial impacts of these actions on the accompanying Consolidated Financial Statements:

Action #	Number of affected plan participants	Weighted average discount rate as of December 31, 2017	Plan remeasurement date	Weighted average discount rate as of plan remeasurement date	(Decrease) increase to accrued pension benefits liability			Decrease to accrued other postretirement benefits liability			Curtailment charge (gain)⁽¹⁾			Settlement charge⁽¹⁾
1	~800	3.65%	January 31, 2018	3.80%	$	(57	)	$	—		$	5		$	—
2	~700	3.29%	January 31, 2018	3.43%		—			(7	)		(28	)		—
3	~2,100	3.43%	March 31, 2018	3.60%		24			—			—			167
4	~11,500	3.70%	July 31, 2018	4.39%		(110	)		—			—			230
5	~5,500	3.61%	July 31, 2018	4.35%		—			(86	)		—			(56	)
	~20,600				$	(143	)	$	(93	)	$	(23	)	$	341

	Pension benefits						Other postretirement benefits
December 31,	2019			2018			2019			2018
Change in benefit obligation
Benefit obligation at beginning of year	$	5,997		$	7,639		$	973		$	1,218
Service cost		49			60			4			5
Interest cost		226			232			36			34
Amendments		26			—			(150	)		(5	)
Actuarial losses (gains)		746			(346	)		103			(88	)
Settlements		(177	)		(1,009	)		(14	)		(57	)
Curtailments		—			(22	)		—			—
Benefits paid, net of participants’ contributions		(379	)		(407	)		(111	)		(140	)
Medicare Part D subsidy receipts		—			—			7			7
Foreign currency translation impact		44			(150	)		—			(1	)
Benefit obligation at end of year	$	6,532		$	5,997		$	848		$	973
Change in plan assets
Fair value of plan assets at beginning of year	$	4,610		$	5,322		$	—		$	—
Actual return on plan assets		763			(129	)		—			—
Employer contributions		175			996			—			—
Participant contributions		11			12			—			—
Benefits paid		(379	)		(403	)		—			—
Administrative expenses		(19	)		(31	)		—			—
Settlements		(177	)		(1,030	)		—			—
Foreign currency translation impact		31			(127	)		—			—
Fair value of plan assets at end of year	$	5,015		$	4,610		$	—		$	—
Funded status	$	(1,517	)	$	(1,387	)	$	(848	)	$	(973	)
Less: Amounts attributed to joint venture partners		(34	)		(33	)		—			—
Net funded status	$	(1,483	)	$	(1,354	)	$	(848	)	$	(973	)
Amounts recognized in the Consolidated Balance Sheet consist of:
Noncurrent assets	$	33		$	63		$	—		$	—
Current liabilities		(11	)		(10	)		(99	)		(105	)
Noncurrent liabilities		(1,505	)		(1,407	)		(749	)		(868	)
Net amount recognized	$	(1,483	)	$	(1,354	)	$	(848	)	$	(973	)
Amounts recognized in Accumulated Other Comprehensive Loss consist of:
Net actuarial loss	$	3,364		$	3,261		$	261		$	176
Prior service cost (benefit)		5			21			(154	)		(4	)
Total, before tax effect		3,369			3,282			107			172
Less: Amounts attributed to joint venture partners		42			40			—			—
Net amount recognized, before tax effect	$	3,327		$	3,242		$	107		$	172
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss) consist of:
Net actuarial loss (benefit)	$	350		$	132		$	103		$	(88	)
Amortization of accumulated net actuarial loss		(247	)		(614	)		(18	)		(17	)
Prior service cost (benefit)		26			(1	)		(150	)		(62	)
Amortization of prior service (cost) benefit		(42	)		(13	)		—			88
Total, before tax effect		87			(496	)		(65	)		(79	)
Less: Amounts attributed to joint venture partners		2			(5	)		—			—
Net amount recognized, before tax effect	$	85		$	(491	)	$	(65	)	$	(79	)

At December 31, 2019, the benefit obligation, fair value of plan assets, and funded status for U.S. pension plans were $4,532, $3,429, and $(1,103), respectively. At December 31, 2018, the benefit obligation, fair value of plan assets, and funded status for U.S. pension plans were $4,246, $3,160, and $(1,086), respectively.

	Pension benefits⁽¹⁾									Other postretirement benefits⁽²⁾
	2019			2018			2017			2019		2018			2017
Service cost	$	48		$	54		$	71		$	4	$	5		$	5
Interest cost⁽³⁾		221			227			244			36		34			38
Expected return on plan assets⁽³⁾		(325	)		(341	)		(398	)		—		—			—
Recognized net actuarial loss⁽³⁾		171			198			185			10		13			13
Amortization of prior service cost (benefit)⁽³⁾		4			8			9			—		—			(6	)
Settlements⁽⁴⁾		73			410			5			8		(56	)		—
Curtailments⁽⁵⁾		38			5			—			—		(28	)		—
Special termination benefits⁽⁶⁾		—			—			3			—		—			—
Net periodic benefit cost⁽⁷⁾	$	230		$	561		$	119		$	58	$	(32	)	$	50

Assumptions. Weighted average assumptions used to determine benefit obligations for pension and other postretirement benefit plans were as follows:

The yield curve model used to develop the discount rate parallels the plans’ projected cash flows and has a weighted average duration of 11 years. The underlying cash flows of the high quality corporate bonds included in the model exceed the cash flows needed to satisfy the Company’s plan obligations multiple times. If a deep market of high quality corporate bonds does not exist in a country, then the yield on government bonds plus a corporate bond yield spread is used.

The rate of compensation increase is based upon actual experience. For 2020, the rate of compensation increase will be 3.25%, which approximates the five-year average.

Weighted average assumptions used to determine net periodic benefit cost for pension and other postretirement benefit plans were as follows:

For 2019, 2018, and 2017, the expected long-term rate of return used by management was based on the prevailing and planned strategic asset allocations, as well as estimates of future returns by asset class. For 2020, management anticipates that 6.28% will be the weighted-average expected long-term rate of return.

In October 2019, the Society of Actuaries (SOA) issued updated base mortality tables (Pri-2012) and their annual update to the mortality improvement scale (MP-2019). These were both considered in developing the Company’s updated mortality assumptions for U.S. pension and postretirement benefit obligations recorded at December 31, 2019, in connection with an experience study performed approximately every five years. The study resulted in the use of Pri-2012 base tables with an adjustment to reflect Alcoa’s experience and a modified version of the MP-2019 improvement scales.

Assumed health care cost trend rates for U.S. other postretirement benefit plans were as follows (non-U.S. plans are not material):

The assumed health care cost trend rate is used to measure the expected cost of gross eligible charges covered by the Company’s other postretirement benefit plans. For 2020, a 5.5% trend rate will be used, reflecting management’s best estimate of the change in future health care costs covered by the plans.

The Company’s postretirement benefit plan costs are largely not subject to medical inflation due to the implementation of pre- and post-65 fixed Company-provided contributions for a large portion of the eligible population. In 2015, Medicare eligible U.S. retirees, who were primarily non-bargained, were moved to a Medicare Marketplace with a fixed Company-provided contribution. Similarly, effective January 1, 2021, Alcoa will no longer offer a Company-sponsored postretirement health care plan to certain U.S. bargained Medicare-eligible retirees. Qualifying retirees, both current and future, will be transitioned to a Medicare Marketplace with a fixed Company-provided contribution. As a result of these actions, the effect of a one percentage point change in the assumed health care cost trend rate would not be significant to the Company.

Plan Assets. Alcoa’s pension plan investment policy and weighted average asset allocations at December 31, 2019 and 2018, by asset class, were as follows:

The principal objectives underlying the investment of the pension plan assets are to ensure that the Company can properly fund benefit obligations as they become due under a broad range of potential economic and financial scenarios, maximize the long-term investment return with an acceptable level of risk based on such obligations, and broadly diversify investments across and within various asset classes to protect asset values against adverse movements. Investment risk is controlled by rebalancing to target allocations on a periodic basis and ongoing monitoring of investment manager performance.

The portfolio includes an allocation to investments in long-duration government debt, long-duration corporate credit, real estate, high yield bonds, emerging market debt, global-listed infrastructure and public and private market equities. The target asset allocation is approximately 30% in equities, approximately 50% in fixed income, and approximately 20% in other investments.

Investment practices comply with the requirements of applicable laws and regulations in the respective jurisdictions, including the Employee Retirement Income Security Act of 1974 (ERISA) in the United States.

The following section describes the valuation methodologies used by the trustees to measure the fair value of pension plan assets. For plan assets measured at net asset value, this refers to the net asset value of the investment on a per share basis (or its equivalent) as a practical expedient. Otherwise, an indication of the level in the fair value hierarchy in which each type of asset is generally classified is provided (see Note O for the definition of fair value and a description of the fair value hierarchy).

Equities—These securities consist of: (i) direct investments in the stock of publicly traded U.S. and non-U.S. companies and are valued based on the closing price reported in an active market on which the individual securities are traded (generally classified in Level 1); (ii) the plans’ share of commingled funds that are invested in the stock of publicly traded companies and are valued at net asset value; and (iii) direct investments in long/short equity hedge funds and private equity (limited partnerships and venture capital partnerships) and are valued at net asset value.

Fixed income—These securities consist of: (i) U.S. government debt and are generally valued using quoted prices (included in Level 1); (ii) cash and cash equivalents invested in publicly-traded funds and are valued based on the closing price reported in an active market on which the individual securities are traded (generally classified in Level 1); (iii) publicly traded U.S. and non-U.S. fixed interest obligations (principally corporate bonds and debentures) and are valued through consultation and evaluation with brokers in the institutional market using quoted prices and other observable market data (included in Level 2); and (iv) cash and cash equivalents invested in institutional funds and are valued at net asset value.

Other investments—These investments include, among others: (i) real estate investment trusts valued based on the closing price reported in an active market on which the investments are traded (included in Level 1); (ii) the plans’ share of commingled funds that are invested in real estate partnerships and are valued at net asset value; (iii) direct investments in private real estate (includes limited partnerships) and are valued at net asset value; and (iv) absolute return strategy funds and are valued at net asset value.

The fair value methods described above may not be indicative of net realizable value or reflective of future fair values. Additionally, while Alcoa believes the valuation methods used by the plans’ trustees are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following table presents the fair value of pension plan assets classified under either the appropriate level of the fair value hierarchy or net asset value:

December 31, 2019	Level 1		Level 2		Net Asset Value		Total
Equities:
Equity securities	$	612	$	—	$	1,213	$	1,825
Long/short equity hedge funds		—		—		8		8
Private equity		—		—		177		177
	$	612	$	—	$	1,398	$	2,010
Fixed income:
Intermediate and long duration government/credit	$	889	$	700	$	560	$	2,149
Cash and cash equivalent funds		23		—		293		316
Other		—		5		—		5
	$	912	$	705	$	853	$	2,470
Other investments:
Real estate	$	208	$	—	$	287	$	495
Other		—		—		32		32
	$	208	$	—	$	319	$	527
Total⁽¹⁾	$	1,732	$	705	$	2,570	$	5,007
December 31, 2018	Level 1		Level 2		Net Asset Value		Total
Equities:
Equity securities	$	662	$	—	$	813	$	1,475
Long/short equity hedge funds		—		—		6		6
Private equity		—		—		186		186
	$	662	$	—	$	1,005	$	1,667
Fixed income:
Intermediate and long duration government/credit	$	925	$	697	$	327	$	1,949
Cash and cash equivalent funds		56		—		325		381
Other		—		14		—		14
	$	981	$	711	$	652	$	2,344
Other investments:
Real estate	$	230	$	—	$	318	$	548
Other		—		—		32		32
	$	230	$	—	$	350	$	580
Total⁽²⁾	$	1,873	$	711	$	2,007	$	4,591

Funding and Cash Flows. It is Alcoa’s policy to fund amounts for defined benefit pension plans sufficient to meet the minimum requirements set forth in applicable country benefits laws and tax laws, including ERISA for U.S. plans. From time to time, the Company contributes additional amounts as deemed appropriate. In 2019, 2018, and 2017, cash contributions to Alcoa’s defined benefit pension plans were $173, $992, and $106.

Contributions made in 2018 include a combined $725 of unscheduled contributions to several defined benefit pension plans, including a combined $620 to three of the Company’s U.S. defined benefit pension plans and a combined $105 to two of the Company’s Canadian defined benefit pension plans (inclusive of $89 for Action# 3 in Plan Actions above). The additional payments to the U.S. plans were discretionary in nature and were funded with $492 in net proceeds from a May 2018 debt issuance (see Note L) and $128 of available cash on hand. The primary purpose for issuing debt to fund a portion of the discretionary contributions to the U.S. plans was to reduce near-term pension funding risk with a fixed rate, 10-year maturity instrument.

Alcoa’s minimum required contribution to defined benefit pension plans in 2020 is estimated to be $295, of which $250 is for U.S. plans. Under ERISA regulations, a plan sponsor that establishes a pre-funding balance by making discretionary contributions to a U.S. defined benefit pension plan may elect to apply all or a portion of this balance toward its minimum

required contribution obligations to the related plan in future years. In 2020, management will consider making such election related to the Company’s U.S. plans.

Benefit payments expected to be paid to pension and other postretirement benefit plan participants and expected Medicare Part D subsidy receipts are as follows:

The Company sponsors savings and investment plans in several countries, primarily in Australia and the United States. In the United States, employees may contribute a portion of their compensation to the plans, and Alcoa matches a specified percentage of these contributions in equivalent form of the investments elected by the employee. Also, the Company makes contributions to a retirement savings account based on a percentage of eligible compensation for certain U.S. employees hired after March 1, 2006 that are not able to participate in Alcoa’s defined benefit pension plans. The Company’s expenses related to all defined contribution plans were $68 in 2019, $69 in 2018, and $65 in 2017.

Effective July 22, 2019, the Company contributes to a member-funded pension plan sponsored by the United Steelworkers for the employees of Aluminerie de Bécancour Inc. in Canada (see Plan Actions above). Alcoa makes contributions to the plan based on a percentage of the employees’ eligible compensation. The Company’s expenses related to the member-funded pension plan were $4 in 2019.