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Benefit Plans

12 Months Ended

Dec. 31, 2019

Subsidiaries of Altria sponsor noncontributory defined benefit pension plans covering certain employees of Altria and its subsidiaries. Employees hired on or after a date specific to their employee group are not eligible to participate in these noncontributory defined benefit pension plans but are instead eligible to participate in a defined contribution plan with enhanced benefits. This transition for new hires occurred from October 1, 2006 to January 1, 2008. In addition, effective January 1, 2010, certain employees of UST’s subsidiaries and

Middleton who were participants in noncontributory defined benefit pension plans ceased to earn additional benefit service under those plans and became eligible to participate in a defined contribution plan with enhanced benefits. Altria and its subsidiaries also provide postretirement health care and other benefits to certain retired employees.

The plan assets and benefit obligations of Altria’s pension plans and postretirement plans are measured at December 31 of each year.

The discount rates for Altria’s plans were based on a yield curve developed from a model portfolio of high-quality corporate bonds with durations that match the expected future cash flows of the pension and postretirement benefit obligations.

On December 31, 2019, Altria adopted ASU No. 2018-14, which amends certain defined benefit plan disclosures. Altria elected early adoption of this update, which is permitted for all entities and applied on a retrospective basis to all periods presented. The adoption of ASU No. 2018-14 had no impact on the amount of defined benefit plan assets, obligations or expenses recognized by Altria’s businesses.

▪Obligations and Funded Status: The benefit obligations, plan assets and funded status of Altria’s pension and postretirement plans at December 31, 2019 and 2018 were as follows:



	Pension						Postretirement
(in millions)	2019			2018			2019			2018
Change in benefit obligation:
Benefit obligation at beginning of year	$	7,726		$	8,510		$	2,040		$	2,335
Service cost	70			81			16			18
Interest cost	306			276			76			70
Benefits paid	(493		)	(488		)	(126		)	(130		)
Actuarial (gains) losses	1,025			(660		)	78			(298		)
Settlement and curtailment	25			(18		)	7			—
Other	—			25			—			45
Benefit obligation at end of year	8,659			7,726			2,091			2,040
Change in plan assets:
Fair value of plan assets at beginning of year	7,138			8,015			211			270
Actual return on plan assets	1,466			(430		)	45			(14		)
Employer contributions	56			41			—			—
Benefits paid	(493		)	(488		)	(43		)	(45		)
Fair value of plan assets at end of year	8,167			7,138			213			211
Funded status at December 31	$	(492	)	$	(588	)	$	(1,878	)	$	(1,829	)
Amounts recognized on Altria’s consolidated balance sheets were as follows:
Other accrued liabilities	$	(26	)	$	(44	)	$	(81	)	$	(80	)
Accrued pension costs	(473		)	(544		)	—			—
Other assets	7			—			—			—
Accrued postretirement health care costs	—			—			(1,797		)	(1,749		)
	$	(492	)	$	(588	)	$	(1,878	)	$	(1,829	)

The table above presents the projected benefit obligation for Altria’s pension plans. The accumulated benefit obligation, which represents benefits earned to date, for the pension plans was $8.4 billion and $7.4 billion at December 31, 2019 and 2018, respectively.

Actuarial (gains) losses for the years ended December 31, 2019 and 2018 for the pension and postretirement plans were due primarily to changes in the discount rate assumptions.

For pension plans with accumulated benefit obligations in excess of plan assets at December 31, 2019, the accumulated benefit obligation and fair value of plan assets were $357 million and $134 million, respectively. For pension plans with accumulated benefit obligations in excess of plan assets at December 31, 2018, the accumulated benefit obligation and fair value of plan assets were $7,239 million and $7,012 million, respectively.

For pension plans with projected benefit obligations in excess of plan assets at December 31, 2019, the projected benefit obligation and fair value of plan assets were $8,522 million and $8,023 million, respectively. At December 31, 2018, the projected benefit obligations were in excess of plan assets for all pension plans.

At December 31, 2019 and 2018, the accumulated postretirement benefit obligations were in excess of plan assets for all postretirement plans.

The Patient Protection and Affordable Care Act (“PPACA”), as amended by the Health Care and Education Reconciliation Act of 2010, mandated health care reforms, including the imposition of an excise tax on high cost health care plans. The excise tax provision was

repealed on December 20, 2019; therefore, the additional accumulated postretirement liability resulting from the PPACA, which was not material to Altria, has been excluded from Altria’s accumulated postretirement benefit obligation at December 31, 2019.

The following assumptions were used to determine Altria’s pension and postretirement benefit obligations at December 31:



	Pension				Postretirement
	2019		2018		2019		2018
Discount rate	3.4	%	4.4	%	3.4	%	4.4	%
Rate of compensation increase	4.0		4.0		—		—
Health care cost trend rate assumed for next year	—		—		6.5		6.5
Ultimate trend rate	—		—		5.0		5.0
Year that the rate reaches the ultimate trend rate	—		—		2025		2025

▪Components of Net Periodic Benefit Cost (Income): Net periodic benefit cost (income) consisted of the following for the years ended December 31, 2019, 2018 and 2017:



	Pension									Postretirement
(in millions)	2019			2018			2017			2019			2018			2017
Service cost	$	70		$	81		$	75		$	16		$	18		$	16
Interest cost	306			276			288			76			70			76
Expected return on plan assets	(576		)	(585		)	(601		)	(15		)	(19		)	—
Amortization:
Net loss	159			225			197			5			21			25
Prior service cost (credit)	6			4			4			(30		)	(42		)	(38		)
Settlement and curtailment	27			16			86			5			—			—
Net periodic benefit cost (income)	$	(8	)	$	17		$	49		$	57		$	48		$	79

Settlement and curtailment shown in the table above primarily relate to the settlement charge discussed below, and the cost reduction program discussed in Note 5. Asset Impairment, Exit and Implementation Costs.

In the third quarter of 2017, Altria made a voluntary, limited-time offer to former employees with vested benefits in the Altria Retirement Plan who had not commenced receiving benefit payments and who met certain other conditions. Eligible participants were offered the opportunity to make a one-time election to receive their pension benefit as a single lump sum payment or as a monthly annuity. Distributions to former employees who elected to receive lump sum payments totaled approximately $277 million, substantially all of which were made in December 2017 from the Altria Retirement Plan’s assets. Payments began on January 1, 2018 to former employees who elected a monthly annuity. As a result of the lump sum distributions, Altria recorded a one-time settlement charge of $81 million in 2017.

The amounts included in settlement and curtailment in the table above were comprised of the following changes:



	Pension						Postretirement
(in millions)	2019		2018		2017		2019
Benefit obligation	$	6	$	—	$	—	$	10
Other comprehensive earnings/losses:
Net loss	20		13		86		—
Prior service cost (credit)	1		3		—		(5		)
	$	27	$	16	$	86	$	5

The following assumptions were used to determine Altria’s net periodic benefit cost for the years ended December 31:



	Pension						Postretirement
	2019		2018		2017		2019		2018		2017
Discount rates:
Service cost	4.6	%	3.8	%	4.3	%	4.5	%	3.8	%	4.3	%
Interest cost	4.0		3.3		3.5		4.0		3.3		3.5
Expected rate of return on plan assets	7.8		7.8		8.0		7.8		7.8		—
Rate of compensation increase	4.0		4.0		4.0		—		—		—
Health care cost trend rate	—		—		—		6.5		7.0		7.0

▪Defined Contribution Plans: Altria sponsors deferred profit-sharing plans covering certain salaried, non-union and union employees. Contributions and costs are determined generally as a percentage of earnings, as defined by the plans. Amounts charged to expense for these defined contribution plans totaled $78 million, $85 million and $83 million in 2019, 2018 and 2017, respectively.

▪Pension and Postretirement Plan Assets: Altria’s investment strategy for its pension and postretirement plan assets is based on an expectation that equity securities will outperform debt securities over the long term and reflects the maturity structure of the benefit obligation. Altria believes that it implements the investment strategy in a prudent and risk-controlled manner, consistent with the fiduciary requirements of the Employee Retirement Income Security Act of 1974, by investing retirement plan assets in a well-diversified mix of equities, fixed income and other securities. In the fourth quarter of 2019, Altria changed its target asset allocation for the majority of its pension plan assets from an equity/fixed income mix of 55%/45% to a 30%/70% mix. The objective of this change is to reduce the overall exposure to equity volatility and more closely align the values of plan assets with the liabilities. The equity/fixed income target allocation for postretirement plan assets remains at 55%/45%.

The actual composition of Altria’s plan assets at December 31, 2019 was broadly characterized with the following allocation:



	Pension		Postretirement
Equity securities	35	%	56	%
Corporate bonds	52	%	34	%
U.S. Treasury and foreign government securities	13	%	10	%

Altria’s pension and postretirement plan asset performance is monitored on an ongoing basis to adjust the mix as necessary.

Substantially all pension and all postretirement assets can be used to make monthly benefit payments.

Altria’s investment objective for its pension and postretirement plan assets is accomplished by investing in long-duration fixed income securities that primarily include U.S. corporate bonds of companies from diversified industries and U.S. Treasury securities that mirror Altria’s pension obligation benchmark, the Bloomberg Barclays Capital U.S. Long Credit Index, as well as U.S. and international equity index strategies that are intended to mirror indices, including, the Standard & Poor’s 500 Index and Morgan Stanley Capital International (“MSCI”) Europe, Australasia, and the Far East (“EAFE”) Index. Altria’s pension plans also invest in actively managed international equity securities of large, mid and small cap companies located in developed and emerging markets. For pension plan assets, the allocation to below investment grade securities represented 8% of the fixed income holdings or 5% of the total plan assets at December 31, 2019. The allocation to emerging markets represented 1% of equity holdings or less than 1% of total plan assets at December 31, 2019. For postretirement plan assets, the allocation to below investment grade securities represented 8% of the fixed income holdings or 4% of the total plan assets at December 31, 2019. There were no postretirement plan assets invested in emerging markets at December 31, 2019.

Altria’s risk management practices for its pension and postretirement plans include ongoing monitoring of asset allocation, investment performance and investment managers’ compliance with their investment guidelines, periodic rebalancing between equity and debt asset classes and annual actuarial re-measurement of plan liabilities.

Altria’s expected rate of return on pension and postretirement plan assets is determined by the plan assets’ historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class. The forward-looking estimates are consistent with the long-term historical averages exhibited by returns on equity and fixed income securities. As a result of the pension plan asset re-allocation described above, Altria has reduced its expected rate of return assumption from 7.8% in 2019 to 6.6% in 2020 for determining its pension net periodic benefit cost. For determining its postretirement net periodic benefit cost, Altria has reduced the expected rate of return assumption from 7.8% in 2019 to 7.7% in 2020.

The fair values of the pension plan assets by asset category at December 31, 2019 and 2018 were as follows:



	2019								2018
(in millions)	Level 1			Level 2		Total			Level 1		Level 2		Total
U.S. and foreign government securities or their agencies:
U.S. government and agencies	$	—		$	811	$	811		$	—	$	868	$	868
U.S. municipal bonds	—			57		57			—		73		73
Foreign government and agencies	—			98		98			—		115		115
Corporate debt instruments:
Above investment grade	—			3,523		3,523			—		1,726		1,726
Below investment grade and no rating	—			521		521			—		478		478
Common stock:
International equities	296			—		296			237		—		237
U.S. equities	1,263			—		1,263			1,082		—		1,082
Other, net	(4		)	479		475			36		339		375
	$	1,555		$	5,489	$	7,044		$	1,355	$	3,599	$	4,954
Investments measured at NAV as a practical expedient for fair value:
Collective investment funds
U.S. large cap						$	825						$	1,722
U.S. small cap						386							328
International developed markets						106							86
Total investments measured at NAV						$	1,317						$	2,136

Other						(194		)					48
Fair value of plan assets, net						$	8,167						$	7,138

Level 3 holdings and transactions were immaterial to total plan assets at December 31, 2019 and 2018.

The fair value of the postretirement plan assets at December 31, 2019 and 2018 were as follows:



	2019							2018
(in millions)	Level 1		Level 2		Total			Level 1		Level 2		Total
U.S. and foreign government securities or their agencies:
U.S. government and agencies	$	—	$	11	$	11		$	—	$	13	$	13
Foreign government and agencies	—		5		5			—		3		3
Corporate debt instruments:
Above investment grade	—		63		63			—		71		71
Below investment grade and no rating	—		9		9			—		8		8
Other, net	—		7		7			2		2		4
	$	—	$	95	$	95		$	2	$	97	$	99
Investments measured at NAV as a practical expedient for fair value:
Collective investment funds:
U.S. large cap					$	97						$	77
International developed markets					24							26
Total investments measured at NAV					$	121						$	103

Other					(3		)					9
Fair value of plan assets, net					$	213						$	211

There were no Level 3 postretirement plan holdings or transactions during 2019 and 2018.

For a description of the fair value hierarchy and the three levels of inputs used to measure fair value, see Note 2. Summary of Significant Accounting Policies.

Following is a description of the valuation methodologies used for investments measured at fair value.

▪

U.S. and Foreign Government Securities: U.S. and foreign government securities consist of investments in Treasury Nominal Bonds and Inflation Protected Securities and municipal securities. Government securities are valued at a price that is based on a compilation of primarily observable market information, such as broker quotes. Matrix pricing, yield curves and indices are used when broker quotes are not available.


▪	Corporate Debt Instruments: Corporate debt instruments are valued at a price that is based on a compilation of primarily observable market information, such as broker quotes. Matrix pricing, yield curves and indices are used when broker quotes are not available.


▪	Common Stock: Common stocks are valued based on the price of the security as listed on an open active exchange on last trade date.

▪

Collective Investment Funds: Collective investment funds consist of funds that are intended to mirror indices such as Standard & Poor’s 500 Index and MSCI EAFE Index. They are valued on the basis of the relative interest of each participating investor in the fair value of the underlying assets of each of the respective collective investment funds. The underlying assets are valued based on the net asset value (“NAV”), which is provided by the investment account manager as a practical expedient to estimate fair value. These investments are not classified by level but are disclosed to permit reconciliation to the fair value of plan assets.

Cash Flows: Altria makes contributions to the pension plans to the extent that the contributions are tax deductible and pays benefits that relate to plans for salaried employees that cannot be funded under IRS regulations. Currently, Altria anticipates making employer contributions to its pension plans of up to approximately $30 million in 2020 based on current tax law. However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension plan assets, or changes in interest rates. Currently, Altria anticipates making employer contributions to its postretirement plans of up to approximately $60 million in 2020. However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on postretirement plan assets.

Estimated future benefit payments at December 31, 2019 were as follows:



(in millions)	Pension		Postretirement
2020	$	472	$	126
2021	477		124
2022	479		121
2023	483		117
2024	481		115
2025-2029	2,430		555

Comprehensive Earnings/Losses

The amounts recorded in accumulated other comprehensive losses at December 31, 2019 consisted of the following:



(in millions)	Pension			Post- retirement			Post- employment			Total
Net loss	$	(2,565	)	$	(389	)	$	(45	)	$	(2,999	)
Prior service (cost) credit	(27		)	72			(5		)	40
Deferred income taxes	670			86			11			767
Amounts recorded in accumulated other comprehensive losses	$	(1,922	)	$	(231	)	$	(39	)	$	(2,192	)

The amounts recorded in accumulated other comprehensive losses at December 31, 2018 consisted of the following:



(in millions)	Pension			Post- retirement			Post- employment			Total
Net loss	$	(2,591	)	$	(327	)	$	(78	)	$	(2,996	)
Prior service (cost) credit	(34		)	108			(6		)	68
Deferred income taxes	679			61			20			760
Amounts recorded in accumulated other comprehensive losses	$	(1,946	)	$	(158	)	$	(64	)	$	(2,168	)

The movements in other comprehensive earnings/losses during the year ended December 31, 2019 were as follows:



(in millions)	Pension			Post- retirement			Post- employment			Total
Amounts reclassified to net earnings as components of net periodic benefit cost:
Amortization:
Net loss	$	159		$	5		$	20		$	184
Prior service cost/credit	6			(30		)	1			(23		)
Other expense (income):
Net loss	20			—			(4		)	16
Prior service cost/credit	1			(5		)	—			(4		)
Deferred income taxes	(47		)	7			(4		)	(44		)
	$	139		$	(23	)	$	13		$	129
Other movements during the year:
Net loss	$	(153	)	$	(67	)	$	17		$	(203	)
Prior service cost/credit	—			(1		)	—			(1		)
Deferred income taxes	38			18			(5		)	51
	$	(115	)	$	(50	)	$	12		$	(153	)
Total movements in other comprehensive earnings/losses	$	24		$	(73	)	$	25		$	(24	)

The movements in other comprehensive earnings/losses during the year ended December 31, 2018 were as follows:



(in millions)	Pension			Post-retirement			Post-employment			Total
Amounts reclassified to net earnings as components of net periodic benefit cost:
Amortization:
Net loss	$	225		$	21		$	17		$	263
Prior service cost/credit	4			(42		)	—			(38		)
Other expense (income):
Net loss	13			—			—			13
Prior service cost/credit	3			—			—			3
Deferred income taxes	(61		)	4			(4		)	(61		)
	$	184		$	(17	)	$	13		$	180
Other movements during the year:
Adoption of ASU 2018-02 ⁽¹⁾	$	(330	)	$	(55	)	$	(12	)	$	(397	)
Net loss	(336		)	264			(2		)	(74		)
Prior service cost/credit	(26		)	(45		)	(6		)	(77		)
Deferred income taxes	91			(54		)	2			39
	$	(601	)	$	110		$	(18	)	$	(509	)
Total movements in other comprehensive earnings/losses	$	(417	)	$	93		$	(5	)	$	(329	)

⁽¹⁾ Reflects the reclassification of the stranded income tax effects of the Tax Reform Act.

The movements in other comprehensive earnings/losses during the year ended December 31, 2017 were as follows:



(in millions)	Pension			Post- retirement			Post- employment			Total
Amounts reclassified to net earnings as components of net periodic benefit cost:
Amortization:
Net loss	$	197		$	25		$	17		$	239
Prior service cost/credit	4			(38		)	—			(34		)
Other expense (income):
Net loss	86			—			—			86
Deferred income taxes	(113		)	6			(6		)	(113		)
	$	174		$	(7	)	$	11		$	178
Other movements during the year:
Net loss	$	81		$	(56	)	$	(11	)	$	14
Prior service cost/credit	—			38			—			38
Deferred income taxes	(32		)	7			4			(21		)
	$	49		$	(11	)	$	(7	)	$	31
Total movements in other comprehensive earnings/losses	$	223		$	(18	)	$	4		$	209