Employee Benefit Plans

The Company provides substantially all U.S. employees and employees at certain foreign subsidiaries with retirement benefits including defined benefit pension plans and defined contribution plans. The Company provides certain eligible U.S. employees who retire under qualifying conditions with subsidized postretirement health care coverage or Health Care Reimbursement Accounts.

In October 2018, the Company amended the ADM Retirement Plan (the “Plan”) and entered into a binding agreement to purchase a group annuity contract from The Prudential Insurance Company of America (“Prudential”), irrevocably transferring the future benefit obligations and annuity administration for approximately 3,800 retirees from the Plan to Prudential. The purchase of the group annuity contract, which was funded directed by the Plan’s assets, was completed on November 2, 2018 and reduced the Company's pension obligations by approximately $528 million. As a result of the transaction, the Company recognized a non-cash pension settlement charge of approximately $117 million in the fourth quarter of 2018.

In July 2017, the Company announced that all participants in the Company’s U.S. salaried pension plan and the Supplemental Executive Retirement Plan (SERP) will begin accruing benefits under the cash balance formula effective January 1, 2022. Benefits for participants who were accruing under the final average pay formula will be frozen as of December 31, 2021, including pay and service through that date. This change, along with other changes in participation associated with divestitures and restructuring, triggered a remeasurement of the salaried pension plan and the SERP resulting in decreases in the fiscal 2017 pension expense, accumulated other comprehensive loss, and underfunded status by $18 million, $164 million, and $182 million, respectively.

In 2017, the Company also changed the method used to estimate the service and interest cost components of the net periodic pension and postretirement benefit costs for its U.S., Canadian, and U.K. plans. The new method uses the spot rate yield curve approach to estimate the service and interest costs. Previously, those costs were determined using a single weighted-average discount rate applied to all future cash outflows. The change does not affect the measurement of the Company’s benefit obligations and was accounted for as a change in accounting estimate in accordance with the guidance of ASC Topic 250, Accounting Estimates and Error Corrections, thereby impacting the current and future periods. The impact of this change on after-tax earnings and diluted earnings per share for the year ended December 31, 2017 was immaterial.

In December 2016, the Company announced a change to the U.S. retiree medical program which affected employees with less than 30 years of service at January 1, 2017. The change resulted in a curtailment gain of $38 million for the year ended December 31, 2016.

The Company maintains 401(k) plans covering substantially all U.S. employees. The Company contributes cash to the plans to match qualifying employee contributions, and also provides a non-matching employer contribution of 1% of pay to eligible participants. Under an employee stock ownership component of the 401(k) plans, employees may choose to invest in the Company's stock as part of their own investment elections. The employer contributions are expensed when paid. Assets of the Company’s 401(k) plans consist primarily of listed common stocks and pooled funds. The Company’s 401(k) plans held 9 million shares of Company common stock at December 31, 2018, with a market value of $388 million. Cash dividends received on shares of Company common stock by these plans during the year ended December 31, 2018 were $13 million.

The following table sets forth the components of retirement plan expense for the years ended December 31, 2018, 2017, and 2016:



	Pension Benefits									Postretirement Benefits
(In millions)	Year Ended December 31									Year Ended December 31
	2018			2017			2016			2018			2017			2016
Retirement plan expense
Defined benefit plans:
Service cost (benefits earned during the period)	$	66		$	78		$	82		$	2		$	2		$	3
Interest cost	93			106			113			5			6			8
Expected return on plan assets	(146		)	(145		)	(137		)	—			—			—
Settlement charges	117			—			(5		)	—			—			—
Curtailments	(1		)	—			—			—			—			(38		)
Amortization of actuarial loss	55			65			56			3			4			3
Amortization of prior service cost (credit)	(19		)	(7		)	2			(15		)	(13		)	(17		)
Net periodic defined benefit plan expense	165			97			111			(5		)	(1		)	(41		)
Defined contribution plans	50			57			57			—			—			—
Total retirement plan expense	$	215		$	154		$	168		$	(5	)	$	(1	)	$	(41	)

The following tables set forth changes in the defined benefit obligation and the fair value of defined benefit plan assets for the years ended December 31, 2018 and 2017:



	Pension Benefits						Postretirement Benefits
	December 31 2018			December 31 2017			December 31 2018			December 31 2017
	(In millions)						(In millions)
Benefit obligation, beginning	$	3,109		$	2,992		$	154		$	171
Service cost	66			78			2			2
Interest cost	93			106			5			6
Actuarial loss (gain)	(278		)	129			(4		)	(4		)
Employee contributions	2			2			—			—
Curtailments	(1		)	—			—			—
Acquisitions	—			3			—			—
Settlements	(528		)	(6		)	—			—
Benefits paid	(99		)	(86		)	(13		)	(11		)
Plan amendments	2			(180		)	—			(10		)
Actual expenses	—			(2		)	—			—
Foreign currency effects	(43		)	73			—			—
Benefit obligation, ending	$	2,323		$	3,109		$	144		$	154

Fair value of plan assets, beginning	$	2,448		$	2,131		$	—		$	—
Actual return on plan assets	(122		)	340			—			—
Employer contributions	66			29			13			11
Employee contributions	2			2			—			—
Settlements	(528		)	(6		)	—			—
Benefits paid	(99		)	(86		)	(13		)	(11		)
Actual expenses	—			(2		)	—			—
Foreign currency effects	(31		)	40			—			—
Fair value of plan assets, ending	$	1,736		$	2,448		$	—		$	—

Funded status	$	(587	)	$	(661	)	$	(144	)	$	(154	)

Prepaid benefit cost	$	53		$	55		$	—		$	—
Accrued benefit liability – current	(17		)	(17		)	(13		)	(12		)
Accrued benefit liability – long-term	(623		)	(699		)	(131		)	(142		)
Net amount recognized in the balance sheet	$	(587	)	$	(661	)	$	(144	)	$	(154	)

Included in AOCI for pension benefits at December 31, 2018, are the following amounts that have not yet been recognized in net periodic pension cost: unrecognized prior service credit of $150 million and unrecognized actuarial loss of $517 million. The prior service credit and actuarial loss included in AOCI expected to be recognized in net periodic pension cost during 2018 is $19 million and $20 million, respectively.

Included in AOCI for postretirement benefits at December 31, 2018, are the following amounts that have not yet been recognized in net periodic postretirement benefit cost: unrecognized prior service credit of $31 million and unrecognized actuarial loss of $27 million. Prior service credit of $15 million and actuarial loss of $2 million included in AOCI are expected to be recognized in net periodic benefit cost during 2018.

The following table sets forth the principal assumptions used in developing net periodic pension cost:



	Pension Benefits		Postretirement Benefits
	December 31 2018	December 31 2017	December 31 2018	December 31 2017
Discount rate	3.4%	3.7%	3.7%	3.9%
Expected return on plan assets	6.8%	6.8%	N/A	N/A
Rate of compensation increase	4.7%	4.6%	N/A	N/A

The following table sets forth the principal assumptions used in developing the year-end actuarial present value of the projected benefit obligations:



	Pension Benefits				Postretirement Benefits
	December 31 2018		December 31 2017		December 31 2018	December 31 2017
Discount rate	3.9	%	3.4	%	4.3%	3.7%
Rate of compensation increase	4.9	%	4.7	%	N/A	N/A

The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with projected benefit obligations in excess of plan assets were $2.0 billion, $1.9 billion, and $1.4 billion, respectively as of December 31, 2018, and $2.7 billion, $2.6 billion, and $2.0 billion, respectively, as of December 31, 2017. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $1.9 billion, $1.8 billion, and $1.3 billion, respectively, as of December 31, 2018 and $2.7 billion, $2.5 billion, and $1.9 billion, respectively, as of December 31, 2017. The accumulated benefit obligation for all pension plans as of December 31, 2018 and 2017, was $2.2 billion and $3.0 billion, respectively.

For postretirement benefit measurement purposes, a 7.30% annual rate of increase in the per capita cost of covered health care benefits was assumed for the year ended December 31, 2018. The rate was assumed to decrease gradually to 4.5% by 2026 and remain at that level thereafter.

A 1% change in assumed health care cost trend rates would have the following effects:



	1% Increase		1% Decrease
	(In millions)
Effect on accumulated postretirement benefit obligations	$	4	$	(5	)

The effect on combined service and interest cost components is immaterial.

Plan Assets

The Company’s employee benefit plan assets are principally comprised of the following types of investments:

Common stock:

Equity securities are valued based on quoted exchange prices and are classified within Level 1 of the valuation hierarchy.

Mutual funds:

Mutual funds are valued at the closing price reported on the active market on which they are traded and are classified within Level 1 of the valuation hierarchy.

Common collective trust (CCT) funds:

The fair values of the CCTs are valued using net asset value (NAV). The investments in CCTs are comprised of international equity and short-term investments. The investments are valued at NAV provided by administrators of the funds.

Corporate debt instruments:

Corporate debt instruments are valued using third-party pricing services and are classified within Level 2 of the valuation hierarchy.

U.S. Treasury instruments:

U.S. Treasury instruments are valued at the closing price reported on the active market on which they are traded and are classified within Level 1 of the valuation hierarchy.

U.S. government agency, state, and local government bonds:

U.S. government agency obligations and state and municipal debt securities are valued using third-party pricing services and are classified within Level 2 of the valuation hierarchy.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants’ methods, 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 tables set forth, by level within the fair value hierarchy, the fair value of plan assets as of December 31, 2018 and 2017.



	Fair Value Measurements at December 31, 2018
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In millions)
Common stock	$	152	$	—	$	—	$	152
Mutual funds	540		—		—		540
Corporate bonds	—		406		—		406
U.S. Treasury instruments	112		—		—		112
U.S. government agency, state and local government bonds	—		31		—		31
Other	—		7		—		7
Total assets	$	804	$	444	$	—	$	1,248

Common collective trust funds at NAV
U.S. equity							351
International equity							137
Total assets at fair value							$	1,736



	Fair Value Measurements at December 31, 2017
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In millions)
Common stock	$	261	$	—	$	—	$	261
Mutual funds	750		—		—		750
Corporate bonds	—		601		—		601
U.S. Treasury instruments	98		—		—		98
U.S. government agency, state and local government bonds	—		29		—		29
Other	—		19		—		19
Total assets	$	1,109	$	649	$	—	$	1,758

Common collective trust funds at NAV
U.S. equity							327
International equity							363
Total assets at fair value							$	2,448

Level 3 Gains and Losses:

There are no Plan assets classified as Level 3 in the fair value hierarchy; therefore there are no gains or losses associated with Level 3 assets.

The following table sets forth the actual asset allocation for the Company’s global pension plan assets as of the measurement date:



	December 31 2018⁽¹⁾⁽²⁾	December 31 2017⁽²⁾
Equity securities	48%	58%
Debt securities	40%	40%
Other	12%	2%
Total	100%	100%

⁽¹⁾

The Company’s U.S. pension plans contain approximately 73% of the Company’s global pension plan assets. The actual asset allocation for the Company’s U.S. pension plans as of the measurement date consists of 55% equity securities and 45% debt . The target asset allocation for the Company’s U.S. pension plans is approximately the same as the actual asset allocation. The Company’s U.S. pensions plans’ assets and asset allocation reflect the impact of the $528 million purchase of the group annuity contract, which was funded directed by the Plan’s assets, transferring the future benefit obligations and annuity administration for approximately 3,800 retirees from the Plan to Prudential on November 2, 2018. The actual asset allocation for the Company’s foreign pension plans as of the measurement date consists of 32% equity securities, 26% debt securities, and 42% in other investments. The target asset allocation for the Company’s foreign pension plans is approximately the same as the actual asset allocation.


⁽²⁾	The Company’s pension plans did not directly hold any shares of Company common stock as of the December 31, 2018 and 2017 measurement dates.

Investment objectives for the Company’s plan assets are to:


•	Optimize the long-term return on plan assets at an acceptable level of risk.


•	Maintain a broad diversification across asset classes and among investment managers.


•	Maintain careful control of the risk level within each asset class.

Asset allocation targets promote optimal expected return and volatility characteristics given the long-term time horizon for fulfilling the obligations of the pension plans. Selection of the targeted asset allocation for plan assets was based upon a review of the expected return and risk characteristics of each asset class, as well as the correlation of returns among asset classes. The U.S. pension plans target asset allocation is also based on an asset and liability study that is updated periodically.

Investment guidelines are established with each investment manager. These guidelines provide the parameters within which the investment managers agree to operate, including criteria that determine eligible and ineligible securities, diversification requirements, and credit quality standards, where applicable. In some countries, derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of underlying investments.

The Company uses external consultants to assist in monitoring the investment strategy and asset mix for the Company’s plan assets. To develop the Company’s expected long-term rate of return assumption on plan assets, the Company generally uses long-term historical return information for the targeted asset mix identified in asset and liability studies. Adjustments are made to the expected long-term rate of return assumption when deemed necessary based upon revised expectations of future investment performance of the overall investment markets.

Contributions and Expected Future Benefit Payments

Based on actuarial calculations, the Company expects to contribute $27 million to the pension plans and $13 million to the postretirement benefit plan during 2019. The Company may elect to make additional discretionary contributions during this period.

The following benefit payments, which reflect expected future service, are expected to be paid by the benefit plans:



	Pension Benefits		Postretirement Benefits
	(In millions)
2019	$	65	$	13
2020	72		13
2021	80		12
2022	88		12
2023	96		11
2024-2028	585		53