EMPLOYEE BENEFITS

12 Months Ended

Dec. 31, 2020

EMPLOYEE BENEFITS

EMPLOYEE BENEFITS

21. Employee Benefits

Pension Plans

We offer various defined benefit plans to eligible employees. Effective January 1, 2016, the U.S. defined benefit pension plans were frozen. Consequently, these plans are closed to new participants and current participants no longer earn benefits.

The U.S. AIG Retirement Plan (the qualified plan) is a noncontributory defined benefit plan subject to the provisions of ERISA. In 2012, the qualified plan was converted to a cash balance formula comprised of pay credits based on six percent of a plan participant’s annual compensation (subject to IRS limitations) and annual interest credits. Although benefits are frozen, these interest credits continue to accrue on the cash balance accounts of active participants, who also accrue years of service for purposes of early retirement eligibility and subsidies. Employees can take their vested benefits when they leave AIG as a lump sum or an annuity option.

Employees satisfying certain age and service requirements (i.e., grandfathered employees) remain covered under the average pay formula that was in effect prior to the conversion. The final average pay formula is based upon a percentage of final average compensation multiplied by years of credited service, up to 44 years. Grandfathered employees will receive the higher of the benefit under the cash balance formula or the final average pay formula at retirement.

In the U.S. we also sponsor non-qualified unfunded defined benefit plans, such as the AIG Non-Qualified Retirement Income Plan (AIG NQRIP) for certain employees, including key executives, designed to supplement pension benefits provided by the qualified plan. The AIG NQRIP provides a benefit equal to the reduction in benefits under the qualified plan as a result of federal tax limitations on compensation and benefits payable.

Non-U.S. defined benefit plans generally are either based on the employee’s years of credited service and compensation in the years preceding retirement or on points accumulated based on the employee’s job grade and other factors during each year of service.

Postretirement Plans

U.S. postretirement medical and life insurance benefits are based upon the employee attaining the age of 55 and having a minimum of ten years of service, which was reduced to 5 years in 2019 for medical coverage only. Eligible employees who have medical coverage can enroll in retiree medical upon termination of employment. Medical benefits are contributory, while the life insurance benefits, which are closed to new employees, are generally non-contributory. Retiree medical contributions vary from none for pre-1989 retirees to actual premium payments reduced by certain subsidies for post-1992 retirees. These retiree contributions are subject to annual adjustments. Other cost sharing features of the medical plan include deductibles, coinsurance, Medicare coordination, and an employer subsidy for grandfathered employees only.

Postretirement benefits are offered in certain non-U.S. countries and vary by geographic location.

The following table presents the funded status of the plans reconciled to the amount reported in the Consolidated Balance Sheets. The measurement date for most of the non-U.S. defined benefit pension and postretirement plans is November 30, consistent with the fiscal year end of the sponsoring companies. For all other plans, measurement occurs as of December 31.

As of or for the Years Ended		Pension								Postretirement
December 31,		U.S. Plans(a)			Non-U.S. Plans(a)					U.S. Plans			Non-U.S. Plans
(in millions)		2020		2019		2020		2019		2020		2019		2020		2019
Change in projected benefit obligation:
Benefit obligation, beginning of year	$	4,972	$	4,553	$	1,174	$	1,138	$	181	$	172	$	61	$	50
Service cost		5		5		21		21		1		1		1		1
Interest cost		134		176		10		15		5		6		2		2
Actuarial loss		612		536		1		91		17		15		8		8
Benefits paid:
AIG assets		(17)		(18)		(9)		(8)		(13)		(13)		(1)		(1)
Plan assets		(294)		(279)		(21)		(33)		-		-		-		-
Plan amendment		-		-		18		-		-		-		-		-
Curtailments		-		-		-		(2)		-		-		-		-
Settlements		-		-		(24)		(67)		-		-		-		-
Foreign exchange effect		-		-		60		18		-		-		-		1
Other		(2)		(1)		1		1		-		-		-		-
Projected benefit obligation, end of year	$	5,410	$	4,972	$	1,231	$	1,174	$	191	$	181	$	71	$	61
Change in plan assets:
Fair value of plan assets, beginning
of year	$	4,465	$	3,840	$	899	$	861	$	-	$	-	$	-	$	-
Actual return on plan assets, net of expenses		760		744		37		64		-		-		-		-
AIG contributions		17		178		49		63		13		13		1		1
Benefits paid:
AIG assets		(17)		(18)		(9)		(8)		(13)		(13)		(1)		(1)
Plan assets		(294)		(279)		(21)		(33)		-		-		-		-
Settlements		-		-		(24)		(67)		-		-		-		-
Foreign exchange effect		-		-		46		19		-		-		-		-
Fair value of plan assets, end of year	$	4,931	$	4,465	$	977	$	899	$	-	$	-	$	-	$	-
Funded status, end of year	$	(479)	$	(507)	$	(254)	$	(275)	$	(191)	$	(181)	$	(71)	$	(61)
Amounts recognized in the balance
sheet:
Assets	$	-	$	-	$	73	$	65	$	-	$	-	$	-	$	-
Liabilities		(479)		(507)		(327)		(340)		(191)		(181)		(71)		(61)
Total amounts recognized	$	(479)	$	(507)	$	(254)	$	(275)	$	(191)	$	(181)	$	(71)	$	(61)
Pre-tax amounts recognized in Accumulated
other comprehensive income (loss):
Net gain (loss)	$	(1,493)	$	(1,436)	$	(178)	$	(195)	$	(7)	$	10	$	(14)	$	(6)
Prior service (cost) credit		-		-		(40)		(22)		-		-		-		1
Total amounts recognized	$	(1,493)	$	(1,436)	$	(218)	$	(217)	$	(7)	$	10	$	(14)	$	(5)

(a)Includes non-qualified unfunded plans of which the aggregate projected benefit obligation was $282 million and $261 million for the U.S. at December 31, 2020 and 2019, respectively, and $243 million and $225 million for the non-U.S. at December 31, 2020 and 2019, respectively. The following table presents the accumulated benefit obligations for U.S. and non-U.S. pension benefit plans:

At December 31,
(in millions)		2020		2019
U.S. pension benefit plans	$	5,410	$	4,972
Non-U.S. pension benefit plans	$	1,213	$	1,159

Defined benefit plan obligations in which the projected benefit obligation (PBO) was in excess of the related plan assets and the accumulated benefit obligation (ABO) was in excess of the related plan assets were as follows:

At December 31,	PBO Exceeds Fair Value of Plan Assets								ABO Exceeds Fair Value of Plan Assets
		U.S. Plans				Non-U.S. Plans				U.S. Plans				Non-U.S. Plans
(in millions)		2020		2019		2020		2019		2020		2019		2020		2019
Projected benefit obligation	$	5,410	$	4,972	$	1,019	$	1,005	$	-	$	-	$	-	$	-
Accumulated benefit obligation		-		-		-		-		5,410		4,972		931		931
Fair value of plan assets		4,931		4,465		620		605		4,931		4,465		620		605

The following table presents the components of net periodic benefit cost with respect to pensions and other postretirement benefits:

Years Ended December 31,	Pension												Postretirement
	U.S. Plans						Non-U.S. Plans						U.S. Plans						Non-U.S. Plans
(in millions)		2020		2019		2018		2020		2019		2018		2020		2019		2018		2020		2019		2018
Components of net periodic benefit
cost:
Service cost*	$	5	$	5	$	5	$	21	$	21	$	22	$	1	$	1	$	1	$	1	$	1	$	1
Interest cost		134		176		162		10		15		16		5		6		6		2		2		2
Expected return on assets		(239)		(229)		(283)		(21)		(21)		(25)		-		-		-		-		-		-
Amortization of prior service cost (credit)		-		-		-		2		2		2		-		-		(1)		(1)		(2)		(2)
Amortization of net (gain) loss		33		35		28		8		5		7		-		(1)		-		-		-		1
Net periodic benefit cost (credit)		(67)		(13)		(88)		20		22	-	22		6		6		6		2		1		2
Settlement (credit) charges		-		-		-		3		(2)		-		-		-		-		-		-		-
Net benefit cost (credit)	$	(67)	$	(13)	$	(88)	$	23	$	20	$	22	$	6	$	6	$	6	$	2	$	1	$	2
Total recognized in Accumulated other
comprehensive income (loss)	$	(57)	$	14	$	(77)	$	(1)	$	(45)	$	20	$	(17)	$	(17)	$	9	$	(9)	$	(10)	$	12
Total recognized in net periodic benefit
cost and other comprehensive
income (loss)	$	10	$	27	$	11	$	(24)	$	(65)	$	(2)	$	(23)	$	(23)	$	3	$	(11)	$	(11)	$	10

*Reflects administrative fees for the U.S. pension plans.

Interest cost for pension and postretirement benefits for our U.S. plans and largest non-U.S. plans is measured using the spot rate approach, which applies specific spot rates along the yield curve to a plan’s corresponding discounted cash flows that comprise the obligation. This method provides a more precise measurement of interest cost by aligning the timing of the plans’ discounted cash flows to the corresponding spot rates on the yield curve. For certain non-U.S. plans, interest cost is measured utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligations.

A 100 basis point increase in the expected long-term rate of return would decrease the 2021 pension expense by approximately $57 million with all other items remaining the same. A 100 basis point increase in the discount rate would increase the 2021 pension expense by approximately $1 million. This is because the increase in the interest cost due to the higher discount rate is larger than the decrease in the amortization of the net loss, offset by the decrease in the projected settlement charge of the U.S. qualified plan. Conversely, a 100 basis point decrease in the discount rate would decrease the 2021 pension expense by approximately $4 million, while a 100 basis point decrease in the expected long-term rate of return would increase the 2021 pension expense by approximately $57 million, with all other items remaining the same.

Assumptions

The following table summarizes the weighted average assumptions used to determine the benefit obligations:

	Pension					Postretirement
	U.S. Plans		Non-U.S. Plans		(a)	U.S. Plans		Non-U.S. Plans(a)
December 31, 2020
Discount rate	2.28	%		1.00	%	2.25	%		2.33	%
Interest crediting rate	1.57	%		0.72	%(b)	N/A			N/A
Rate of compensation increase	N/A	(c)		2.28	%	N/A			N/A	%
December 31, 2019
Discount rate	3.16	%		1.09	%	3.14	%		3.18	%
Interest crediting rate	2.19	%		0.44	%(b)	N/A			N/A
Rate of compensation increase	N/A	(c)		2.22	%	N/A			3.00	%

(a) The non-U.S. plans reflect those assumptions that were most appropriate for the local economic environments of each of the subsidiaries providing such benefits.

(b) Represents the weighted average interest crediting rate of non-U.S. cash balance plans primarily in Japan and Switzerland.

(c) Compensation increases are no longer applicable as the plan is frozen effective January 1, 2016.

The following table summarizes assumed health care cost trend rates for the U.S. plans:

At December 31,	2020	2019
Following year:
Medical (before age 65)	5.55%	5.74%
Medical (age 65 and older)	5.00%	5.00%
Ultimate rate to which cost increase is assumed to decline	4.50%	4.50%
Year in which the ultimate trend rate is reached:
Medical (before age 65)	2038	2038
Medical (age 65 and older)	2038	2038

The following table presents the weighted average assumptions used to determine the net periodic benefit costs:

	Pension					Postretirement
	U.S. Plans		Non-U.S. Plans(a)			U.S. Plans		Non-U.S. Plans(a)
For the Year Ended December 31, 2020
Discount rate	3.16	%		1.09	%	3.14	%		3.18	%
Interest crediting rate	2.19	%		0.44	%(b)	N/A			N/A
Rate of compensation increase	N/A			2.22	%	N/A			3.00	%
Expected return on assets	5.55	%		2.32	%	N/A			N/A
For the Year Ended December 31, 2019
Discount rate	4.22	%		1.71	%	4.17	%		4.12	%
Interest crediting rate	3.34	%		0.74	%(b)	N/A			N/A
Rate of compensation increase	N/A			2.27	%	N/A			3.00	%
Expected return on assets	6.20	%		2.51	%	N/A			N/A
For the Year Ended December 31, 2018
Discount rate	3.61	%		1.60	%	3.53	%		3.59	%
Interest crediting rate	2.88	%		0.70	%(b)	N/A			N/A
Rate of compensation increase	N/A			2.27	%	N/A			3.00	%
Expected return on assets	6.75	%		2.78	%	N/A			N/A

(a) The non-U.S. plans reflect those assumptions that were most appropriate for the local economic environments of each of the subsidiaries providing such benefits.

(b) Represents the weighted average interest crediting rate of non-U.S. cash balance plans primarily in Japan and Switzerland.

Discount Rate Methodology

The projected benefit cash flows under the U.S. AIG Retirement Plan were discounted using the spot rates derived from the Mercer U.S. Pension Discount Yield Curve (Mercer Yield Curve) at December 31, 2020 and 2019, which resulted in a single discount rate that would produce the same liability at the respective measurement dates. The discount rates were 2.28 percent at December 31, 2020 and 3.16 percent at December 31, 2019. The methodology was consistently applied for the respective years in determining the discount rates for the other U.S. pension plans.

In general, the discount rates for the non-U.S. plans were developed using a similar methodology to the U.S. AIG Retirement plan, by using country-specific Mercer Yield Curves.

The projected benefit obligation for AIG’s Japan pension plans represents approximately 51 percent and 53 percent of the total projected benefit obligations for our non-U.S. pension plans at December 31, 2020 and 2019, respectively. The weighted average discount rate of 0.56 percent and 0.42 percent at December 31, 2020 and 2019, respectively, was selected by reference to the Mercer Yield Curve for Japan.

Plan Assets

The investment strategy with respect to assets relating to our U.S. and non-U.S. pension plans is designed to achieve investment returns that will provide for the benefit obligations of the plans over the long term, limit the risk of short-term funding shortfalls and maintain liquidity sufficient to address cash needs. Accordingly, the asset allocation strategy is designed to maximize the investment rate of return while managing various risk factors, including, but not limited to, volatility relative to the benefit obligations, liquidity, diversification and concentration, and incorporates the risk/return profile applicable to each asset class.

There were no shares of AIG Common Stock included in the U.S. and non-U.S. pension plans assets at December 31, 2020 or 2019.

U.S. Pension Plan

The assets of the qualified plan are monitored by the AIG U.S. Investment Committee and actively managed by the investment managers, which involves allocating the plan’s assets among approved asset classes within ranges as permitted by the strategic allocation. The long-term strategic asset allocation historically has been reviewed and revised approximately every three years. The investment strategy is focused on de-risking the qualified plan via regular monitoring through liability driven investing and the glide path approach, where the glide path defines the target allocation for the “Return-Seeking” portion of the portfolio (i.e., growth assets) based on the funded ratio and level of interest rates. Under this approach, the allocation to growth assets is reduced and the allocation to liability-hedging assets is increased as the Plan’s funded ratio increases in accordance with the defined glide path.

The following table presents the asset allocation percentage by major asset class for the U.S. qualified plan and the target allocation for 2021 based on the plan’s funded status at December 31, 2020:

	Target		Actual		Actual
At December 31,	2021		2020		2019
Asset class:
Equity securities	27	%	25	%	25	%
Fixed maturity securities	61	%	57	%	59	%
Other investments	12	%	18	%	16	%
Total	100	%	100	%	100	%

The expected weighted average long-term rate of return for the plan was 5.55 percent and 6.20 percent for 2020 and 2019, respectively. The expected weighted average rate of return is an aggregation of expected returns within each asset class category, weighted for the investment mix of the assets. The combination of the expected asset return and any contributions made by us are expected to maintain the plan’s ability to meet all required benefit obligations. The expected asset return for each asset class was developed based on an approach that considers key fundamental drivers of the asset class returns in addition to historical returns, current market conditions, asset volatility and the expectations for future market returns.

Non-U.S. Pension Plans

The assets of the non-U.S. pension plans are held in various trusts in multiple countries and are invested primarily in equities and fixed maturity securities to maximize the long-term return on assets for a given level of risk.

The following table presents the asset allocation percentage by major asset class for non-U.S. pension plans and the target allocation:

	Target		Actual		Actual
At December 31,	2021		2020		2019
Asset class:
Equity securities	26	%	22	%	23	%
Fixed maturity securities	50	%	45	%	43	%
Other investments	21	%	24	%	24	%
Cash and cash equivalents	3	%	9	%	10	%
Total	100	%	100	%	100	%

The assets of AIG’s Japan pension plans represent approximately 61 percent of total non-U.S. assets at December 31, 2020 and 2019. The expected long term rate of return was 1.84 percent and 1.82 percent, for 2020 and 2019, respectively, and is evaluated by the Japanese Pension Investment Committee on a quarterly and annual basis along with various investment managers, and is revised to achieve the optimal allocation to meet targeted funding levels if necessary. In addition, the funding policy is revised in accordance with local regulation every five years.

The expected weighted average long-term rate of return for all our non-U.S. pension plans was 2.32 percent and 2.51 percent for the years ended December 31, 2020 and 2019, respectively. It is an aggregation of expected returns within each asset class that was generally developed based on the building block approach that considers historical returns, current market conditions, asset volatility and the expectations for future market returns.

Assets Measured at Fair Value

The following table presents information about our plan assets and indicates the level of the fair value measurement based on the observability of the inputs used. The inputs and methodology used in determining the fair value of these assets are consistent with those used to measure our assets as discussed in Note 5 herein.

	U.S. Plans								Non-U.S. Plans
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
At December 31, 2020
Assets:
Cash and cash equivalents	$	247	$	-	$	-	$	247	$	83	$	-	$	-	$	83
Equity securities:
U.S.(a)		459		-		-		459		-		-		-		-
International(b)		183		-		-		183		155		58		-		213
Fixed maturity securities:
U.S. investment grade(c)		-		2,217		10		2,227		-		-		-		-
International investment grade(c)		-		237		-		237		-		174		-		174
U.S. and international high yield(d)		-		282		-		282		-		269		-		269
Mortgage and other asset-backed
securities		-		49		-		49		-		-		-		-
Other investment types(e):
Futures		3		(7)		-		(4)		-		-		-		-
Direct private equity(f)		-		-		6		6		-		-		-		-
Insurance contracts		-		13		-		13		-		-		179		179
Mutual funds(g)		-		-		-		-		-		59		-		59
Total	$	892	$	2,791	$	16	$	3,699	$	238	$	560	$	179	$	977
At December 31, 2019
Assets:
Cash and cash equivalents	$	133	$	-	$	-	$	133	$	90	$	-	$	-	$	90
Equity securities:
U.S.(a)		278		-		-		278		-		-		-		-
International(b)		161		25		-		186		156		49		-		205
Fixed maturity securities:
U.S. investment grade(c)		-		2,200		9		2,209		-		-		-		-
International investment grade(c)		-		203		-		203		-		158		-		158
U.S. and international high yield(d)		-		106		-		106		-		229		-		229
Mortgage and other asset-backed

securities		-		48		-		48		-		-		-		-
Other investment types(e):
Futures		(17)		-		-		(17)		-		-		-		-
Direct private equity(f)		-		-		11		11		-		-		-		-
Insurance contracts		-		14		-		14		-		-		160		160
Mutual funds(g)		-		-		-		-		-		57		-		57
Total	$	555	$	2,596	$	20	$	3,171	$	246	$	493	$	160	$	899

(a) Includes passive and active U.S. equity strategies.

(b) Includes passive and active international equity strategies.

(c) Includes investments in U.S. and non-U.S. government issued bonds, U.S. government agency or sponsored agency bonds, and investment grade corporate bonds.

(d) Consists primarily of investments in securities or debt obligations that have a rating below investment grade.

(e) Excludes investments that are measured at fair value using the NAV per share (or its equivalent), which totaled $1,232 million and $1,294 million at December 31, 2020 and 2019, respectively.

(f) Comprised of private capital financing including private debt and private equity securities.

(g) Comprised of mutual fund investing in variety of equity, derivatives, and bonds.

The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. Based on our investment strategy, we had no significant concentrations of risks at December 31, 2020.

Changes in Level 3 Fair Value Measurements

The following table presents changes in our U.S. and non-U.S. Level 3 plan assets measured at fair value:

				Net																Changes in	Changes in Unrealized
				Realized																Unrealized	Gains (Losses) Included
				and															Gains (Losses)		in Other Comprehensive
		Balance	Unrealized															Balance		on Instruments	Income (Loss) for Recurring
At December 31, 2020		Beginning		Gains										Transfers		Transfers		at End	Held at		Level 3 Instruments
(in millions)		of Year		(Losses)		Purchases		Sales	Issuances		Settlements			In		Out		of Year		End of Year	Held at End of Year
U.S. Plan Assets:
Fixed maturity securities
U.S. investment grade	$	9	$	1	$	-	$	-	$	-	$	-	$	-	$	-	$	10	$	-	$	-
Direct private equity		11		(3)		-		(2)		-		-		-		-		6		(3)		-
Total	$	20	$	(2)	$	-	$	(2)	$	-	$	-	$	-	$	-	$	16	$	(3)	$	-
Non-U.S. Plan Assets:
Insurance contracts	$	160	$	18	$	1	$	-	$	-	$	-	$	-	$	-	$	179	$	-	$	-
Total	$	160	$	18	$	1	$	-	$	-	$	-	$	-	$	-	$	179	$	-	$	-

																				Changes in
				Net																Unrealized Gains
		Balance		Realized and														Balance		(Losses) on
At December 31, 2019		Beginning		Unrealized										Transfers		Transfers		at End		Instruments Held
(in millions)		of year		Gains (Losses)		Purchases		Sales		Issuances		Settlements		In		Out		of year		at End of year
U.S. Plan Assets:
Fixed maturity securities
U.S. investment grade	$	13	$	3	$	-	$	(3)	$	-	$	-	$	-	$	(4)	$	9	$	3
Direct private equity		14		(3)		2		(2)		-		-		-		-		11		2
Total	$	27	$	-	$	2	$	(5)	$	-	$	-	$	-	$	(4)	$	20	$	5
Non-U.S. Plan Assets:
Insurance contracts	$	145	$	16	$	(1)	$	-	$	-	$	-	$	-	$	-	$	160	$	-
Total	$	145	$	16	$	(1)	$	-	$	-	$	-	$	-	$	-	$	160	$	-

Expected Cash Flows

Funding for the qualified plan ranges from the minimum amount required by ERISA to the maximum amount that would be deductible for U.S. tax purposes. Contributed amounts in excess of the minimum amounts are deemed voluntary. Amounts in excess of the maximum amount would be subject to an excise tax and may not be deductible under the Internal Revenue Code. There are no minimum required cash contributions in 2020 for the U.S. AIG Retirement Plan. The non-qualified and postretirement plans’ benefit payments are deductible when paid to participants.

Our annual pension contribution in 2021 is expected to be approximately $68 million for our U.S. and non-U.S. pension plans. This estimate is subject to change, since contribution decisions are affected by various factors including our liquidity, market performance and management’s discretion.

The expected future benefit payments, net of participants’ contributions, with respect to the defined benefit pension plans and other postretirement benefit plans, are as follows:

		Pension			Postretirement
		U.S.		Non-U.S.		U.S.		Non-U.S.
(in millions)		Plans		Plans		Plans		Plans
2021	$	338	$	44	$	13	$	1
2022		334		45		12		2
2023		332		46		12		2
2024		334		53		12		2
2025		317		54		11		2
2026-2030		1,485		298		47		11

Defined Contribution Plans

We sponsor several defined contribution plans for U.S. employees that provide for pre-tax salary reduction contributions by employees. The most significant plan is the AIG Incentive Savings Plan, for which the matching contribution is 100 percent of the first six percent of a participant’s contributions, subject to the IRS-imposed limitations. Effective January 1, 2016, participants in the AIG Incentive Savings Plan receive an additional fully vested, non-elective, non-discretionary contribution equal to three percent of the participant’s eligible compensation for the plan year, paid each pay period regardless of whether the participant currently contributes to the plan, and subject to the IRS-imposed limitations. Our pre-tax expenses associated with these plans were $188 million, $195 million and $210 million in 2020, 2019 and 2018, respectively.