Note 1 5. Benefit Plans

Pension Plans – The Company and its subsidiaries have several non-contributory defined benefit plans for eligible employees. Benefits for certain plans are determined annually based on a specified percentage of annual earnings (based on the participant’s age or years of service) and a specified interest rate (which is established annually for all participants) applied to accrued balances. The benefits for another plan which covers salaried employees are based on formulas which include, among others, years of service and average pay. The Company and its subsidiaries’ funding policy is to make contributions in accordance with applicable governmental regulatory requirements.

Other Postretirement Benefit Plans – The Company and its subsidiaries have several postretirement benefit plans covering eligible employees and retirees. Participants generally become eligible after reaching age 55 with required years of service. Actual requirements for coverage vary by plan. Benefits for retirees who were covered by bargaining agreements vary by each unit and contract. Benefits for certain retirees are in the form of a Company health care account.

Benefits for retirees reaching age 65 are generally integrated with Medicare. Other retirees, based on plan provisions, must use Medicare as their primary coverage, with the Company and its subsidiaries reimbursing a portion of the unpaid amount; or are reimbursed for the Medicare Part B premium or have no Company coverage. The benefits provided by the Company and its subsidiaries are basically health and, for certain retirees, life insurance type benefits.

The Company and its subsidiaries fund certain of these benefit plans, and accrue postretirement benefits during the active service of those employees who would become eligible for such benefits when they retire. The Company and its subsidiaries use December 31 as the measurement date for their plans.

Weighted average assumptions used to determine benefit obligations:


	Pension Benefits						Other Postretirement Benefits

December 31	2018		2017		2016		2018		2017		2016


Discount rate		4.1%		3.5%		3.9%		4.1%		3.4%		3.7%
Expected long term rate of return on plan assets		7.5%		7.5%		7.5%		5.3%		5.3%		5.3%
Interest crediting rate		3.8%		3.7%		3.7%
Rate of compensation increase		3.9% to 5.5%		3.9% to 5.5%		3.9% to 5.5%

Weighted average assumptions used to determine net periodic benefit cost:


	Pension Benefits						Other Postretirement Benefits

Year Ended December 31	2018		2017		2016		2018		2017		2016


Discount rate		3.6%		3.8%		4.0%		3.4%		3.7%		3.7%
Expected long term rate of return on plan assets		7.5%		7.5%		7.5%		5.3%		5.3%		5.3%
Interest crediting rate		3.7%		3.7%		3.7%
Rate of compensation increase		3.9% to 5.5%		3.9% to 5.5%		3.5% to 5.5%

In determining the discount rate assumption, we utilize current market and liability information, including a discounted cash flow analysis of our pension and postretirement obligations. In particular, the basis for our discount rate selection was the yield on indices of highly rated fixed income debt securities with durations comparable to that of our plan liabilities. The yield curve was applied to expected future retirement plan payments to adjust the discount rate to reflect the cash flow characteristics of the plans. The yield curves and indices evaluated in the selection of the discount rate are comprised of high quality corporate bonds that are rated AA by an accepted rating agency.

The expected long term rate of return for plan assets is determined based on widely-accepted capital market principles, long term return analysis for global fixed income and equity markets as well as the active total return oriented portfolio management style. Long term trends are evaluated relative to market factors such as inflation, interest rates and fiscal and monetary policies, in order to assess the capital market assumptions as applied to the plan. Consideration of diversification needs and rebalancing is maintained.

Assumed health care cost trend rates:

December 31

2018

2017

2016

Health care cost trend rate assumed for next year

4.0% to 6.5%

4.0% to 7.0%

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)

4.0% to 5.0%

4.0% to 5.0%

Year that the rate reaches the ultimate trend rate

2019-2022

2018-2022

2017-2021

Net periodic benefit cost components:


	Pension Benefits									Other Postretirement Benefits
Year Ended December 31	2018			2017			2016			2018			2017			2016
(In millions)

Service cost	$	8		$	8		$	8			$ 1		$	1			$ 1
Interest cost		110			119			128			2			2			3
Expected return on plan assets		(179	)		(173	)		(177	)		(5	)		(5	)		(5)
Amortization of unrecognized net loss		42			43			46			(1	)
Amortization of unrecognized prior service benefit								(1	)		(2	)		(2	)		(3)
Settlement		9			11			3
Net periodic benefit cost	$	(10)		$	8		$	7			$ (5	)	$	(4	)		$ (4)

The following provides a reconciliation of benefit obligations and plan assets:


	Pension Benefits						Other Postretirement Benefits
	2018			2017			2018			2017
(In millions)

Change in benefit obligation:

Benefit obligation at January 1	$	3,242		$	3,131		$	62		$	66
Acquisitions					103
Service cost		8			8			1			1
Interest cost		110			119			2			2
Plan participants’ contributions								4			5
Amendments
Actuarial (gain) loss		(212	)		100			(6	)		(1)
Benefits paid from plan assets		(187	)		(192	)		(10	)		(11)
Settlements		(35	)		(37	)
Foreign exchange		(7	)		10
Benefit obligation at December 31		2,919			3,242			53			62

Change in plan assets:

Fair value of plan assets at January 1		2,577			2,423			88			86
Acquisitions					75
Actual return on plan assets		(83	)		247						5
Company contributions		39			51			3			3
Plan participants’ contributions								4			5
Benefits paid from plan assets		(187	)		(192	)		(10	)		(11)
Settlements		(35	)		(37	)
Foreign exchange		(7	)		10
Fair value of plan assets at December 31		2,304			2,577			85			88

Funded status	$	(615	)	$	(665	)	$	32		$	26

Pension Benefits

Other Postretirement Benefits

2018

2017

2018

2017

(In millions)

Amounts recognized in the Consolidated Balance Sheets consist of:

Other assets

$ 9

$ 4

$ 49

$ 47

Other liabilities

(624)

(669)

(17

)

(21)

Net amount recognized

$ (615)

$ (665)

$ 32

$ 26

Amounts recognized in Accumulated other comprehensive income (loss), not yet recognized in net periodic (benefit) cost:

Prior service credit

$ (2)

$ (3)

$ (1)

$ (3)

Net actuarial loss

1,065

1,069

(3)

(3)

Net amount recognized

$ 1,063

$ 1,066

$ (4)

$ (6)

Information for plans with projected and accumulated benefit obligations in excess of plan assets:

Projected benefit obligation

$ 2,825

$ 3,132

Accumulated benefit obligation

2,813

3,117

$ 18

$ 21

Fair value of plan assets

2,201

2,462

The accumulated benefit obligation for all defined benefit pension plans was $2.9 billion and $3.2 billion at December 31, 2018 and 2017. Changes for the years ended December 31, 2018 and 2017 include actuarial (gains) losses of $(212) million and $100 million primarily driven by changes in the discount rate used to determine the benefit obligations.

The Company and its subsidiaries employ a total return approach whereby a mix of equity and fixed maturity securities are used to maximize the long term return of plan assets for a prudent level of risk and to manage cash flows according to plan requirements. The target allocation of plan assets is 40% to 60% invested in equity securities and limited partnerships, with the remainder primarily invested in fixed maturity securities. The intent of this strategy is to minimize expenses by generating investment returns that exceed the growth of the plan liabilities over the long run. Risk tolerance is established after careful consideration of the plan liabilities, plan funded status and corporate financial conditions. The investment portfolio contains a diversified blend of fixed maturity, equity and short term securities. Alternative investments, including limited partnerships, are used to enhance risk adjusted long term returns while improving portfolio diversification. At December 31, 2018, the Company and its subsidiaries had committed $99 million to future capital calls from various third party limited partnership investments in exchange for an ownership interest in the related partnerships. Investment risk is monitored through annual liability measurements, periodic asset/liability studies and quarterly investment portfolio reviews.

The table below presents the estimated future minimum benefit payments at December 31, 2018.


Expected future benefit payments	Pension Benefits		Other Postretirement Benefits
(In millions)

2019		$ 218		$ 5
2020		223		5
2021		210		5
2022		218		4
2023		214		4
2024 – 2028		1,026		16

In 2019, it is expected that contributions of approximately $14 million will be made to pension plans and $2 million to postretirement health care and life insurance benefit plans.

Pension plan assets measured at fair value on a recurring basis are summarized below.


December 31, 2018	Level 1		Level 2		Level 3		Total
(In millions)

Plan assets at fair value:
Fixed maturity securities:
Corporate and other bonds			$	472	$	10	$	482
States, municipalities and political subdivisions				58				58
Asset-backed				165				165
Total fixed maturities	$	-		695		10		705
Equity securities		406		110				516
Short term investments		36		54				90
Fixed income mutual funds		120						120
Other assets				9				9
Total plan assets at fair value	$	562	$	868	$	10	$	1,440
Plan assets at net asset value: (a)
Limited partnerships								864
Total plan assets	$	562	$	868	$	10	$	2,304


December 31, 2017	Level 1		Level 2		Level 3		Total
(In millions)

Plan assets at fair value:
Fixed maturity securities:
Corporate and other bonds			$	522	$	10	$	532
States, municipalities and political subdivisions				62				62
Asset-backed				182				182
Total fixed maturities	$	-		766		10		776
Equity securities		449		122				571
Short term investments		29		11				40
Fixed income mutual funds		96						96
Other assets		13		9				22
Total plan assets at fair value	$	587	$	908	$	10	$	1,505
Plan assets at net asset value: (a)
Limited partnerships								990
Collective investment trust funds								82
Total plan assets	$	587	$	908	$	10	$	2,577

(a)

Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table for these investments are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

The limited partnership investments held within the plans are recorded at fair value, which represents the plans’ shares of the net asset value of each partnership, as determined by the general partner. Limited partnerships comprising 82% and 86% of the carrying value as of December 31, 2018 and 2017 employ hedge fund strategies that generate returns through investing in marketable securities in the public fixed income and equity markets and the remainder were primarily invested in private debt and equity. Within hedge fund strategies, approximately 66% were equity related, 28% pursued a multi-strategy approach and 6% were focused on distressed investments at December 31, 2018.

For a discussion of the valuation methodologies used to measure fixed maturity securities, equities and short term investments, see Note 4.

Other postretirement benefits plan assets measured at fair value on a recurring basis are summarized below.


December 31, 2018	Level 1		Level 2		Level 3		Total
(In millions)

Fixed maturity securities:
Corporate and other bonds			$	24			$	24
States, municipalities and political subdivisions				11				11
Asset-backed				30				30
Total fixed maturities	$	-		65	$	-		65
Short term investments		4						4
Fixed income mutual funds		16						16

Total	$	20	$	65	$	-	$	85


December 31, 2017

Fixed maturity securities:
Corporate and other bonds			$	18			$	18
States, municipalities and political subdivisions				42				42
Asset-backed				12				12
Total fixed maturities	$	-		72	$	-		72
Short term investments		2						2
Fixed income mutual funds		14						14
Total	$	16	$	72	$	-	$	88

There were no Level 3 assets at December 31, 2018 and 2017.

Savings Plans – The Company and its subsidiaries have several contributory savings plans which allow employees to make regular contributions based upon a percentage of their salaries. Matching contributions are made up to specified percentages of employees’ contributions. The contributions by the Company and its subsidiaries to these plans amounted to $100 million, $105 million and $107 million for the years ended December 31, 2018, 2017 and 2016.

Stock-based Compensation – In 2016, shareholders approved the Loews Corporation 2016 Incentive Compensation Plan (the “2016 Loews Plan”) which replaced a previously existing plan. The aggregate number of shares of Loews common stock authorized under the 2016 Loews Plan is 6,000,000 shares, plus up to 3,000,000 shares that may be forfeited under the prior plan. The maximum number of shares of Loews common stock with respect to which awards may be granted to any individual in any calendar year is 500,000 shares. In accordance with the 2016 Loews Plan and the prior plan, the Company’s stock-based compensation consists of the following:

SARs: SARs were granted under the prior plan. The exercise price per share may not be less than the fair market value of the common stock on the date of grant. Generally, SARs vest ratably over a four-year period and expire in ten years.

Time-based Restricted Stock Units: Time-based restricted stock units (“RSUs”) are granted under the 2016 Loews Plan and represent the right to receive one share of the Company’s common stock for each vested RSU. Generally, RSUs vest 50% on the second anniversary of the grant date and 50% on the third anniversary of the grant date.

Performance-based Restricted Stock Units: Performance-based RSUs (“PSUs”) are granted under the 2016 Loews Plan and represent the right to receive one share of the Company’s common stock for each vested PSU, subject to the achievement of specified performance goals by the Company. Generally, performance-based RSUs vest, if performance goals are satisfied, 50% on the second anniversary of the grant date and 50% on the third anniversary of the grant date.

In 2018, the Company granted an aggregate of 235,231 RSUs and PSUs at a weighted average grant-date fair value of $47.71 per unit. 33,923 RSUs were forfeited during the year. 3,470,953 SARs were outstanding at December 31, 2018 with a weighted average exercise price of $39.90.

The Company recognized compensation expense that decreased net income by $35 million, $33 million and $32 million for the years ended December 31, 2018, 2017 and 2016. Several of the Company’s subsidiaries also maintain their own stock-based compensation plans. Such amounts include the Company’s share of expense related to its subsidiaries’ plans.