Retirement Plans and Postretirement Medical Benefits

We provide certain retirement benefits to our U.S. employees hired prior to January 1, 2005 and to eligible employees outside the U.S. under various defined benefit retirement plans. Benefit accruals under most of our significant defined benefit plans have been frozen.

We also provide certain employer subsidized health care and employer provided life insurance benefits in the U.S. and Canada to eligible retirees and their dependents. Employees hired before January 1, 2005 in the U.S. and April 1, 2005 in Canada become eligible for retiree medical benefits after reaching age 55 and with the completion of the required service period. The cost of these benefits is recognized over the period the employee provides credited service to the company.

Retirement Plans

The benefit obligations and funded status of defined benefit pension plans are as follows:



	United States						Foreign
	2018			2017			2018			2017
Accumulated benefit obligation	$	1,500,691		$	1,726,824		$	659,628		$	737,580

Projected benefit obligation
Benefit obligation - beginning of year	$	1,727,737		$	1,678,097		$	751,373		$	688,172
Service cost	92			132			2,159			2,274
Interest cost	61,490			68,611			18,089			18,836
Plan participants' contributions	—			—			7			6
Actuarial (gain) loss	(124,298		)	92,789			(41,995		)	2,098
Foreign currency changes	—			—			(40,559		)	64,236
Plan amendments	—			—			9,009			—
Settlement / curtailment	(82,273		)	—			(6,703		)	—
Benefits paid	(81,608		)	(111,892		)	(28,736		)	(24,249		)
Benefit obligation - end of year	$	1,501,140		$	1,727,737		$	662,644		$	751,373



Fair value of plan assets
Fair value of plan assets - beginning of year	$	1,557,907		$	1,464,082		$	632,710		$	547,290
Actual return on plan assets	(73,745		)	199,749			(17,043		)	46,542
Company contributions	6,753			5,968			10,939			13,081
Plan participants' contributions	—			—			7			6
Settlement	(82,273		)	—			—			—
Foreign currency changes	—			—			(35,360		)	50,040
Benefits paid	(81,608		)	(111,892		)	(28,736		)	(24,249		)
Fair value of plan assets - end of year	$	1,327,034		$	1,557,907		$	562,517		$	632,710



Amounts recognized in the Consolidated Balance Sheets
Noncurrent asset	$	277		$	392		$	14,225		$	19,139
Current liability	(10,975		)	(8,362		)	(1,197		)	(1,188		)
Noncurrent liability	(163,408		)	(161,860		)	(113,155		)	(136,614		)
Funded status	$	(174,106	)	$	(169,830	)	$	(100,127	)	$	(118,663	)

Information provided in the table below is only for pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2018 and 2017:



	United States				Foreign
	2018		2017		2018		2017
Projected benefit obligation	$	1,500,680	$	1,727,292	$	540,798	$	614,371
Accumulated benefit obligation	$	1,500,231	$	1,726,378	$	538,666	$	601,412
Fair value of plan assets	$	1,326,296	$	1,557,069	$	426,446	$	476,825



Pretax amounts recognized in AOCI consist of:
	United States						Foreign
	2018			2017			2018			2017
Net actuarial loss	$	809,836		$	835,265		$	318,474		$	321,914
Prior service credit	(330		)	(391		)	8,496			(597		)
Transition asset	—			—			(17		)	(24		)
Total	$	809,506		$	834,874		$	326,953		$	321,293

The components of net periodic benefit cost (income) for defined benefit pension plans were as follows:



	United States									Foreign
	2018			2017			2016			2018			2017			2016
Service cost	$	92		$	132		$	105		$	2,159		$	2,274		$	2,148
Interest cost	61,490			68,611			73,699			18,089			18,836			21,886
Expected return on plan assets	(101,087		)	(97,656		)	(101,918		)	(35,687		)	(32,242		)	(32,615		)
Amortization of net transition asset	—			—			—			(7		)	(8		)	(8		)
Amortization of prior service credit	(60		)	(60		)	(60		)	(71		)	(71		)	(73		)
Amortization of net actuarial loss	31,298			28,954			27,220			7,264			8,052			5,264
Special termination benefits	—			—			—			208			—			52
Settlement/Curtailment	44,665			—			2,109			(13		)	—			110
Net periodic benefit cost (income)	$	36,398		$	(19	)	$	1,155		$	(8,058	)	$	(3,159	)	$	(3,236	)

In connection with the disposition of the Production Mail Business and certain other actions, a pre-tax, non-cash pension settlement charge of $45 million for the U.S. pension plans was incurred in 2018. We recognized $32 million of this charge in other components of net pension and postretirement cost and the remaining $13 million in income from discontinued operations, net of tax.

Other changes in plan assets and benefit obligations for defined benefit pension plans recognized in other comprehensive income were as follows:



	United States						Foreign
	2018			2017			2018			2017
Net actuarial loss (gain)	$	50,534		$	(9,304	)	$	3,824		$	(12,202	)
Plan amendment	—			—			9,009			—
Amortization of net actuarial loss	(31,298		)	(28,954		)	(7,264		)	(8,052		)
Amortization of prior service credit	60			60			71			71
Net transition asset	—			—			7			8
Settlement/Curtailment	(44,665		)	—			13			—
Total recognized in other comprehensive income	$	(25,369	)	$	(38,198	)	$	5,660		$	(20,175	)

Weighted-average actuarial assumptions used to determine end of year benefit obligations and net periodic benefit cost for defined benefit pension plans include:



	2018				2017				2016
United States
Used to determine benefit obligations
Discount rate	4.34%				3.69%				4.20%
Rate of compensation increase	N/A				N/A				N/A

Used to determine net periodic benefit cost
Discount rate	3.69%				4.20%				4.55%
Expected return on plan assets	7.00%				6.75%				7.00%
Rate of compensation increase	N/A				N/A				N/A

Foreign
Used to determine benefit obligations
Discount rate	0.75	%	-	3.55%	0.65	%	-	3.35%	0.70	%	-	3.65%
Rate of compensation increase	1.50	%	-	2.50%	1.50	%	-	2.50%	1.50	%	-	2.50%

Used to determine net periodic benefit cost
Discount rate	0.65	%	-	3.35%	0.70	%	-	3.65%	1.15	%	-	3.95%
Expected return on plan assets	3.75	%	-	6.25%	3.75	%	-	6.25%	3.75	%	-	6.51%
Rate of compensation increase	1.50	%	-	3.25%	1.50	%	-	3.30%	1.50	%	-	3.50%

A discount rate is used to determine the present value of our future benefit obligations. The discount rate for our U.S. pension and postretirement medical benefit plans is determined by matching the expected cash flows associated with our benefit obligations to a pool of corporate long-term, high-quality fixed income debt instruments available as of the measurement date. The discount rate for our largest foreign plan, the U.K. Qualified Pension Plan (the U.K. Plan), is determined by using a model that discounts each year's estimated benefit payments by an applicable spot rate derived from a yield curve created from a large number of high quality corporate bonds. For our other smaller foreign pension plans, the discount rate is selected based on high-quality fixed income indices available in the country in which the plan is domiciled.

The expected return on plan assets is based on historical and expected rates of return for current and planned asset classes in the plans' investment portfolio after analyzing historical experience and future expectations of the returns and volatility of the various asset classes. The overall expected rate of return for the portfolio is based on the target asset allocation of our global pension plans, adjusted for historical and expected experience of active portfolio management results, when compared to the benchmark returns.

During 2019, we estimate making contributions of $11 million to our U.S. pension plans and $11 million to our foreign pension plans.

Investment Strategy and Asset Allocation - U.S. Pension Plans

The investment strategy of our U.S. pension plans is to maximize returns within reasonable and prudent levels of risk, to achieve and maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least 6.75%. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset classes and within each class to reduce the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency exposure. We do not have any significant concentrations of credit risk within the plan assets. Investment objectives and investment managers are reviewed periodically.

Target and actual allocations for 2019, 2018 and 2017 for the U.S. pension plans were as follows:



	Target allocation		Percent of Plan Assets at December 31,
	2019		2018		2017
Asset category
U.S. equities	14	%	13	%	15	%
Non-U.S. equities	13	%	13	%	15	%
Fixed income	63	%	64	%	62	%
Real estate	5	%	7	%	6	%
Private equity	5	%	3	%	2	%
Total	100	%	100	%	100	%

Investment Strategy and Asset Allocation - Foreign Pension Plans

Our foreign pension plan assets are managed by outside investment managers and monitored regularly by local trustees and our corporate personnel. Investment strategies vary by country and plan, with each strategy tailored to achieve the expected rate of return within an acceptable or appropriate level of risk, depending upon the liability profile of plan participants, local funding requirements, investment markets and restrictions. The U.K. Plan represents 76% of the total foreign pension assets. The U.K. pension plan's investment strategy is to maximize returns within reasonable and prudent levels of risk, to achieve and maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least 6.25%. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset classes and within each class to minimize the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage currency exposure. We do not have any significant concentrations of credit risk within the plan assets. Investment objectives and investment managers are reviewed periodically.

Target and actual asset allocations for the U.K. Plan for 2019, 2018 and 2017 were as follows:



	Target Allocation		Percent of Plan Assets at December 31,
	2019		2018		2017
Asset category
U.K. equities	10	%	9	%	10	%
Non-U.K. equities	30	%	29	%	29	%
Fixed income	40	%	41	%	41	%
Real estate	10	%	10	%	9	%
Diversified growth	10	%	10	%	9	%
Cash	—	%	1	%	2	%
Total	100	%	100	%	100	%

The target asset allocation used to manage the investment portfolios is based on the broad asset categories shown above. The plan asset categories presented in the fair value hierarchy are subsets of the broad asset categories.

The fair value of the U.K. plan assets was $426 million and $477 million at December 31, 2018 and 2017, respectively, and the expected long-term weighted average rate of return on these plan assets was 6.25% in both 2018 and 2017.

Fair Value Measurements of Plan Assets

The following tables show the U.S. and foreign pension plans' assets at December 31, 2018 and 2017:

United States Pension Plans



	December 31, 2018
	Level 1		Level 2		Level 3		Total
Money market funds	$	3,498	$	5,759	$	—	$	9,257
Equity securities	110,840		109,864		—		220,704
Commingled fixed income securities	—		281,258		—		281,258
Government and related securities	258,535		16,144		—		274,679
Corporate debt securities	—		435,285		—		435,285
Mortgage-backed securities /asset-backed securities	—		23,474		—		23,474
Private equity	—		—		32,750		32,750
Real estate	—		—		96,877		96,877
Securities lending collateral	—		117,603		—		117,603
Total plan assets at fair value	$	372,873	$	989,387	$	129,627	$	1,491,887
Securities lending payable							(117,603		)
Cash							11,341
Other							(58,591		)
Fair value of plan assets							$	1,327,034



	December 31, 2017
	Level 1		Level 2		Level 3		Total
Money market funds	$	8,810	$	9,350	$	—	$	18,160
Equity securities	152,815		150,043		—		302,858
Commingled fixed income securities	—		377,078		—		377,078
Government and related securities	295,404		20,473		—		315,877
Corporate debt securities	—		418,908		—		418,908
Mortgage-backed securities /asset-backed securities	—		19,223		—		19,223
Private equity	—		—		38,362		38,362
Real estate	—		—		91,352		91,352
Securities lending collateral	—		152,179		—		152,179
Total plan assets at fair value	$	457,029	$	1,147,254	$	129,714	$	1,733,997
Securities lending payable							(152,179		)
Cash							5,186
Other							(29,097		)
Fair value of plan assets							$	1,557,907

Foreign Plans



	December 31, 2018
	Level 1		Level 2		Level 3		Total
Money market funds	$	—	$	11,172	$	—	$	11,172
Equity securities	—		194,914		—		194,914
Commingled fixed income securities	—		198,902		—		198,902
Government and related securities	—		40,055		—		40,055
Corporate debt securities	—		29,996		—		29,996
Real estate	—		—		42,143		42,143
Diversified growth funds	—		—		40,766		40,766
Total plan assets at fair value	$	—	$	475,039	$	82,909	$	557,948
Cash							3,903
Other							666
Fair value of plan assets							$	562,517



	December 31, 2017
	Level 1		Level 2		Level 3		Total
Money market funds	$	—	$	13,375	$	—	$	13,375
Equity securities	—		226,032		—		226,032
Commingled fixed income securities	—		213,844		—		213,844
Government and related securities	—		66,115		—		66,115
Corporate debt securities	—		24,889		—		24,889
Real estate	—		—		41,601		41,601
Diversified growth funds	—		—		44,024		44,024
Total plan assets at fair value	$	—	$	544,255	$	85,625	$	629,880
Cash							2,203
Other							627
Fair value of plan assets							$	632,710

The following information relates to our classification of investments into the fair value hierarchy:


•	Money Market Funds: Money market funds typically invest in government securities, certificates of deposit, commercial paper of companies and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits.


•	Equity Securities: Equity securities include U.S. and foreign stocks, American Depository Receipts, preferred stock and commingled funds. There are no shares of our common stock included in the plan assets of our pension plans.


•	Commingled Fixed Income Securities: Mutual funds that invest in fixed income securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Fair value is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding as reported by the fund manager.

•

Government and Related Securities: Government and related securities include treasury notes and bonds, foreign government issues, U.S. government sponsored agency debt and commingled funds. Municipal debt securities include general obligation securities and revenue-backed securities. Fair value is based on benchmarking model derived prices to quotes market prices and trade data for identical comparable securities.


•	Corporate Debt Securities: Investments are comprised of both investment grade debt and high-yield debt. The fair value of corporate debt securities is determined using recently executed transactions, market price quotations where observable, or bond spreads.

•

Mortgage-Backed Securities / Asset-Backed Securities: Mortgage-backed securities (MBS) are comprised of agency-backed MBS, non-agency MBS, collateralized mortgage obligations, commercial MBS and commingled funds. These securities are valued based on external pricing indices- external price/spread data or broker quotes. Asset-backed securities (ABS) are primarily comprised of credit card receivables, auto loan receivables, student loan receivables and Small Business Administration loans.


•	Private Equity: Investments are comprised of units in fund-of-funds investment vehicles. Fund-of-funds consist of various private equity investments and are used in an effort to gain greater diversification. The investments are valued in accordance with the most appropriate valuation techniques.


•	Real Estate: Investments include units in open-ended commingled real estate funds. Properties that comprise these funds are valued in accordance with the most appropriate valuation techniques.


•	Diversified Growth Funds: Investments are comprised of units in commingled diversified growth funds. These investments are valued based on the net asset value (NAV) per unit as reported by the fund manager.

•

Securities Lending Fund: Investment represents a commingled fund through our custodian's securities lending program. The U.S. pension plan lends securities that are held within the plan to other banks and/or brokers, and receives collateral, typically cash. This collateral is invested in a short-term fixed income securities commingled fund. This amount invested in the fund is offset by a corresponding liability reflected in the U.S. pension plan's net assets available for benefits.

Level 3 Gains and Losses

The following table summarizes the changes in the fair value of Level 3 assets for the years ended December 31, 2018 and 2017:

United States Pension Plans



	MBS & ABS			Private equity			Real estate		Total
Balance at December 31, 2016	$	1,236		$	49,637		$	87,852	$	138,725
Realized gains	25			9,226			980		10,231
Unrealized gains (losses)	49			(2,334		)	2,397		112
Net purchases, sales and settlements	(1,310		)	(18,167		)	123		(19,354		)
Balance at December 31, 2017	—			38,362			91,352		129,714
Realized gains	—			8,264			1,001		9,265
Unrealized (losses) gains	—			(1,409		)	4,462		3,053
Net purchases, sales and settlements	—			(12,467		)	62		(12,405		)
Balance at December 31, 2018	$	—		$	32,750		$	96,877	$	129,627

Foreign Pension Plans



	Real estate			Diversified growth funds			Total
Balance at December 31, 2016	$	34,483		$	36,779		$	71,262
Unrealized gains	2,159			3,551			5,710
Net purchases, sales and settlements	1,481			—			1,481
Foreign currency	3,478			3,694			7,172
Balance at December 31, 2017	41,601			44,024			85,625
Unrealized gains (losses)	1,317			(4,948		)	(3,631		)
Net purchases, sales and settlements	1,653			4,090			5,743
Foreign currency	(2,428		)	(2,400		)	(4,828		)
Balance at December 31, 2018	$	42,143		$	40,766		$	82,909

Nonpension Postretirement Benefits

The benefit obligation and funded status for nonpension postretirement benefit plans are as follows:



	2018			2017
Benefit obligation
Benefit obligation - beginning of year	$	188,841		$	189,772
Service cost	1,405			1,727
Interest cost	6,640			7,100
Plan participants' contributions	3,200			3,820
Actuarial (gain) loss	(11,304		)	5,134
Foreign currency changes	(1,178		)	1,066
Curtailment	(533		)	—
Benefits paid	(20,596		)	(19,778		)
Benefit obligation - end of year ⁽¹⁾	$	166,475		$	188,841



Fair value of plan assets
Fair value of plan assets - beginning of year	$	—		$	—
Company contribution	17,396			15,958
Plan participants' contributions	3,200			3,820
Benefits paid	(20,596		)	(19,778		)
Fair value of plan assets - end of year	$	—		$	—



Amounts recognized in the Consolidated Balance Sheets
Current liability	$	(17,013	)	$	(17,712	)
Non-current liability	(149,463		)	(171,129		)
Funded status	$	(166,476	)	$	(188,841	)


(1)	The benefit obligation for U.S. nonpension postretirement plans was $154 million and $172 million at December 31, 2018 and 2017, respectively.

Pretax amounts recognized in AOCI consist of:



	2018		2017
Net actuarial loss	$	28,368	$	43,160
Prior service cost	823		1,466
Total	$	29,191	$	44,626

The components of net periodic benefit cost for nonpension postretirement benefit plans were as follows:



	2018		2017		2016
Service cost	$	1,405	$	1,727	$	2,046
Interest cost	6,640		7,100		7,969
Amortization of prior service cost	304		297		297
Amortization of net actuarial loss	3,048		3,600		3,615
Curtailment	246		—		—
Net periodic benefit cost	$	11,643	$	12,724	$	13,927

Other changes in plan assets and benefit obligation for nonpension postretirement benefit plans recognized in other comprehensive income were as follows:



	2018			2017
Net actuarial (gain) loss	$	(11,837	)	$	5,134
Curtailment	(246		)	—
Amortization of net actuarial loss	(3,048		)	(3,600		)
Amortization of prior service cost	(304		)	(297		)
Total recognized in other comprehensive income	$	(15,435	)	$	1,237

The weighted-average discount rates used to determine end of year benefit obligation and net periodic pension cost include:



	2018		2017		2016
Discount rate used to determine benefit obligation
U.S.	4.20	%	3.55	%	3.90	%
Canada	3.60	%	3.35	%	3.65	%

Discount rate used to determine net period benefit cost
U.S.	3.55	%	3.90	%	4.20	%
Canada	3.35	%	3.65	%	3.95	%

The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the U.S. plan was 7.0% for 2018 and 7.0% for 2017. The assumed health care trend rate is 6.5% for 2019 and will gradually decline to 5.0% by the year 2025 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, are expected to be paid.



	Pension Benefits		Nonpension Benefits
Years ending December 31,
2019	$	137,312	$	17,040
2020	131,672		16,376
2021	129,641		15,783
2022	128,972		14,737
2023	128,774		13,706
Thereafter	627,369		59,518
	$	1,283,740	$	137,160

Savings Plans

We offer voluntary defined contribution plans to our U.S. employees designed to help them accumulate additional savings for retirement. We provide a core contribution to all employees, regardless if they participate in the plan, and match a portion of each participating employees' contribution, based on eligible pay. Total contributions to our defined contribution plans were $31 million in both 2018 and 2017.