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Retirement Plans and Postretirement Medical Benefits

12 Months Ended

Dec. 31, 2019

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
	2019			2018			2019			2018
Accumulated benefit obligation	$	1,612,551		$	1,500,691		$	745,658		$	659,628

Projected benefit obligation
Benefit obligation - beginning of year	$	1,501,140		$	1,727,737		$	662,644		$	751,373
Service cost	83			92			1,543			2,159
Interest cost	63,171			61,490			17,853			18,089
Plan participants' contributions	—			—			6			7
Actuarial loss (gain)	160,390			(124,298		)	68,385			(41,995		)
Foreign currency changes	—			—			25,452			(40,559		)
Plan amendments	—			—			—			9,009
Settlements and curtailments	(6,684		)	(82,273		)	(2,682		)	(6,703		)
Benefits paid	(105,046		)	(81,608		)	(26,259		)	(28,736		)
Benefit obligation - end of year	$	1,613,054		$	1,501,140		$	746,942		$	662,644



Fair value of plan assets
Fair value of plan assets - beginning of year	$	1,327,034		$	1,557,907		$	562,517		$	632,710
Actual return on plan assets	261,579			(73,745		)	98,006			(17,043		)
Company contributions	10,135			6,753			10,085			10,939
Plan participants' contributions	—			—			6			7
Settlements and curtailments	(6,684		)	(82,273		)	(1,773		)	—
Foreign currency changes	—			—			25,726			(35,360		)
Benefits paid	(105,046		)	(81,608		)	(26,259		)	(28,736		)
Fair value of plan assets - end of year	$	1,487,018		$	1,327,034		$	668,308		$	562,517



Amounts recognized in the Consolidated Balance Sheets
Noncurrent asset	$	383		$	277		$	20,020		$	14,225
Current liability	(9,019		)	(10,975		)	(1,313		)	(1,197		)
Noncurrent liability	(117,401		)	(163,408		)	(97,341		)	(113,155		)
Funded status	$	(126,037	)	$	(174,106	)	$	(78,634	)	$	(100,127	)

Information provided in the table below is only for pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2019 and 2018:



	United States				Foreign
	2019		2018		2019		2018
Projected benefit obligation	$	1,612,745	$	1,500,680	$	615,288	$	540,798
Accumulated benefit obligation	$	1,612,241	$	1,500,231	$	614,293	$	538,666
Fair value of plan assets	$	1,486,325	$	1,326,296	$	516,634	$	426,446



Pretax amounts recognized in AOCI consist of:
	United States						Foreign
	2019			2018			2019			2018
Net actuarial loss	$	772,850		$	809,836		$	315,319		$	318,474
Prior service (credit) cost	(270		)	(330		)	8,317			8,496
Transition asset	—			—			(11		)	(17		)
Total	$	772,580		$	809,506		$	323,625		$	326,953

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



	United States									Foreign
	2019			2018			2017			2019			2018			2017
Service cost	$	83		$	92		$	132		$	1,543		$	2,159		$	2,274
Interest cost	63,171			61,490			68,611			17,853			18,089			18,836
Expected return on plan assets	(92,726		)	(101,087		)	(97,656		)	(34,363		)	(35,687		)	(32,242		)
Amortization of net transition asset	—			—			—			(6		)	(7		)	(8		)
Amortization of prior service (credit) cost	(60		)	(60		)	(60		)	243			(71		)	(71		)
Amortization of net actuarial loss	26,146			31,298			28,954			6,337			7,264			8,052
Special termination benefits	—			—			—			—			208			—
Settlements and curtailments	2,381			44,665			—			397			(13		)	—
Net periodic benefit (income) cost	$	(1,005	)	$	36,398		$	(19	)	$	(7,996	)	$	(8,058	)	$	(3,159	)

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
	2019			2018			2019			2018
Net actuarial (gain) loss	$	(8,459	)	$	50,534		$	3,643		$	3,824
Plan amendment	—			—			—			9,009
Amortization of net actuarial loss	(26,146		)	(31,298		)	(6,337		)	(7,264		)
Amortization of prior service credit (cost)	60			60			(243		)	71
Net transition asset	—			—			6			7
Settlements and curtailments	(2,381		)	(44,665		)	(397		)	13
Total recognized in other comprehensive income	$	(36,926	)	$	(25,369	)	$	(3,328	)	$	5,660

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



	2019				2018				2017
United States
Used to determine benefit obligations
Discount rate	3.34%				4.34%				3.69%
Rate of compensation increase	N/A				N/A				N/A

Used to determine net periodic benefit cost
Discount rate	4.34%				3.69%				4.20%
Expected return on plan assets	6.75%				7.00%				6.75%
Rate of compensation increase	N/A				N/A				N/A

Foreign
Used to determine benefit obligations
Discount rate	0.65	%	-	2.95%	0.75	%	-	3.55%	0.65	%	-	3.35%
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	0.75	%	-	3.55%	0.65	%	-	3.35%	0.70	%	-	3.65%
Expected return on plan assets	4.25	%	-	6.25%	3.75	%	-	6.25%	3.75	%	-	6.25%
Rate of compensation increase	1.50	%	-	2.50%	1.50	%	-	3.25%	1.50	%	-	3.30%

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 2020, we estimate making contributions of $9 million to our U.S. pension plans and $10 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 an expected rate of return. Pension plan assets are invested in accordance with our strategic asset allocation policy to achieve these objectives. Pension plan assets are exposed to various risks, such as interest rate, market and credit risks. 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 asset allocations for the U.S. pension plans were as follows:



	Target allocation		Percent of Plan Assets at December 31,
	2020		2019		2018
Asset category
Equities	30	%	30	%	26	%
Fixed income	63	%	63	%	64	%
Real estate	5	%	5	%	7	%
Private equity	2	%	2	%	3	%
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 appropriate risk level, depending upon the liability profile of plan participants, local funding requirements, investment markets and restrictions. The U.K. Plan comprises 77% of the total foreign pension plan 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 an expected rate of return. Plan assets are invested in accordance with our strategic asset allocation policy to achieve these objectives. Pension plan assets are exposed to various risks, such as interest rate, market and credit risks. 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 were as follows:



	Target Allocation		Percent of Plan Assets at December 31,
	2020		2019		2018
Asset category
Equities	30	%	35	%	38	%
Fixed income	50	%	46	%	41	%
Real estate	10	%	9	%	10	%
Diversified growth	10	%	9	%	10	%
Cash	—	%	1	%	1	%
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 $516 million and $426 million at December 31, 2019 and 2018, respectively, and the expected long-term weighted average rate of return on these plan assets was 6.25% in both 2019 and 2018.

Fair Value Measurements of Plan Assets

The following tables show the U.S. and foreign pension plans' assets:

United States Pension Plans



	December 31, 2019
	Level 1		Level 2		Level 3		Total
Money market funds	$	—	$	4,917	$	—	$	4,917
Equity securities	—		265,832		—		265,832
Commingled fixed income securities	—		275,335		—		275,335
Government and related securities	292,506		15,764		—		308,270
Corporate debt securities	—		528,425		—		528,425
Mortgage-backed securities /asset-backed securities	—		51,770		—		51,770
Private equity	—		—		23,608		23,608
Real estate	—		—		71,337		71,337
Securities lending collateral	—		106,886		—		106,886
Total plan assets at fair value	$	292,506	$	1,248,929	$	94,945	$	1,636,380
Securities lending payable							(106,886		)
Cash							9,409
Other							(51,885		)
Fair value of plan assets							$	1,487,018



	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

Foreign Plans



	December 31, 2019
	Level 1		Level 2		Level 3		Total
Money market funds	$	—	$	8,734	$	—	$	8,734
Equity securities	—		222,554		—		222,554
Commingled fixed income securities	—		264,131		—		264,131
Government and related securities	—		43,405		—		43,405
Corporate debt securities	—		34,528		—		34,528
Real estate	—		—		45,335		45,335
Diversified growth funds	—		—		47,621		47,621
Total plan assets at fair value	$	—	$	573,352	$	92,956	$	666,308
Cash							1,516
Other							484
Fair value of plan assets							$	668,308



	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

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


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


•	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: 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 quoted market prices and trade data for identical comparable securities.


•	Corporate Debt Securities: comprised of both investment grade debt and high-yield debt. Fair value 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. Asset-backed securities (ABS) are primarily comprised of credit card receivables, auto loan receivables, student loan receivables and Small Business Administration loans. These securities are valued based on external pricing indices, external price/spread data or broker quotes.


•	Private Equity: 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. Investments are valued in accordance with the most appropriate valuation techniques.


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


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

•

Securities Lending Fund: 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:

United States Pension Plans



	Private equity			Real estate			Total
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
Realized gains	5,625			14,876			20,501
Unrealized losses	(5,288		)	(12,517		)	(17,805		)
Net purchases, sales and settlements	(9,479		)	(27,899		)	(37,378		)
Balance at December 31, 2019	$	23,608		$	71,337		$	94,945

Foreign Pension Plans



	Real estate			Diversified growth funds			Total
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
Unrealized (losses) gains	(799		)	4,954			4,155
Net purchases, sales and settlements	1,618			107			1,725
Other	687			—			687
Foreign currency	1,686			1,794			3,480
Balance at December 31, 2019	$	45,335		$	47,621		$	92,956

Nonpension Postretirement Benefits

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



	2019			2018
Benefit obligation
Benefit obligation - beginning of year	$	166,476		$	188,841
Service cost	967			1,405
Interest cost	6,584			6,640
Plan participants' contributions	3,003			3,200
Actuarial loss (gain)	6,930			(11,304		)
Foreign currency changes	674			(1,177		)
Curtailment	—			(533		)
Benefits paid	(20,530		)	(20,596		)
Benefit obligation - end of year ⁽¹⁾	$	164,104		$	166,476



Fair value of plan assets
Fair value of plan assets - beginning of year	$	—		$	—
Company contribution	17,527			17,396
Plan participants' contributions	3,003			3,200
Benefits paid	(20,530		)	(20,596		)
Fair value of plan assets - end of year	$	—		$	—



Amounts recognized in the Consolidated Balance Sheets
Current liability	$	(16,132	)	$	(17,013	)
Non-current liability	(147,972		)	(149,463		)
Funded status	$	(164,104	)	$	(166,476	)


(1)	The benefit obligation for U.S. nonpension postretirement plans was $150 million and $154 million at December 31, 2019 and 2018, respectively.

Pretax amounts recognized in AOCI consist of:



	2019		2018
Net actuarial loss	$	33,272	$	28,368
Prior service cost	502		823
Total	$	33,774	$	29,191

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



	2019		2018		2017
Service cost	$	967	$	1,405	$	1,727
Interest cost	6,584		6,640		7,100
Amortization of prior service cost	321		304		297
Amortization of net actuarial loss	2,026		3,048		3,600
Curtailment	—		246		—
Net periodic benefit cost	$	9,898	$	11,643	$	12,724

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



	2019			2018
Net actuarial loss (gain)	$	6,931		$	(11,837	)
Curtailment	—			(246		)
Amortization of net actuarial loss	(2,026		)	(3,048		)
Amortization of prior service cost	(321		)	(304		)
Total recognized in other comprehensive income	$	4,584		$	(15,435	)

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



	2019		2018		2017
Discount rate used to determine benefit obligation
U.S.	3.20	%	4.20	%	3.55	%
Canada	3.00	%	3.60	%	3.35	%

Discount rate used to determine net period benefit cost
U.S.	4.20	%	3.55	%	3.90	%
Canada	3.60	%	3.35	%	3.65	%

The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the U.S. plan was 6.5% for 2019 and 7.0% for 2018. The assumed health care trend rate is 7.0% for 2020 and will gradually decline to 5.0% by the year 2028 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
2020	$	131,577	$	16,129
2021	125,439		15,480
2022	124,142		14,756
2023	124,559		13,592
2024	121,767		12,500
Thereafter	600,327		53,101
	$	1,227,811	$	125,558

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 $28 million in 2019 and $31 million in 2018.