Employee Benefit Plans

9 Months Ended

Sep. 30, 2019

Defined Contribution Plans

The Company and its subsidiaries maintain defined contribution savings plans covering substantially all employees. Under the plans, eligible participants may elect to contribute a specified percentage of their salaries and the Company makes matching contributions, each subject to certain limitations. In connection with the acquisition of First Data (see Note 4), the Company assumed defined contribution savings plans and defined contribution pension plans covering substantially all employees of the former First Data. The Plans provide tax-deferred amounts for each participant, consisting of employee elective contributions, company matching and discretionary company contributions. Contributions to the plans are expected to be approximately $66 million in 2019.

Defined Benefit Plans

In connection with the acquisition of First Data, the Company assumed noncontributory defined benefit pension plans covering a portion of the employees in the United Kingdom (U.K.), United States (U.S.), Germany and Austria. These frozen plans provide benefits to eligible employees based on an employee’s average final compensation and years of service.

Upon acquisition, the Company recognized the funded status of the assumed defined benefit pension plans, measured as the difference between the fair value of the plan assets and the projected benefit obligation, in the consolidated balance sheet as follows:



(In millions)	July 29, 2019
U.K. plan
Plan benefit obligations	$	(674	)
Fair value of plan assets	850
Net pension assets ⁽¹⁾	$	176
U.S. and other plans
Plan benefit obligations	$	(217	)
Fair value of plan assets	161
Net pension liabilities ⁽²⁾	$	(56	)
Funded status of the plans	$	120


⁽¹⁾	Pension assets are included in other long-term assets in the consolidated balance sheet


⁽²⁾	Pension liabilities are included in other long-term liabilities in the consolidated balance sheet

Plan Assets

The Company’s investment strategy for the U.S. plan employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. The investment portfolio contains a diversified blend of equity and fixed-income investments. The Company sets an allocation mix necessary to support the underlying plan liabilities as influenced significantly by the demographics of the participants and the frozen nature of the plan. The Company’s target allocation for the U.S. plan based on the investment policy as of September 30, 2019 was 50% equity securities and 50% debt securities. The Company’s investment strategy for the U.K. plan is to allocate the assets into two pools: (i) off-risk assets whereby the focus is risk management, protection, and insurance relative to the liability target invested in, but not limited to, debt, U.K. government bonds, and U.K. government index-linked bonds; and (ii) on-risk assets whereby the focus is on return generation and taking risk in a controlled manner. Such assets could include equities, government bonds, high-yield bonds, property, commodities, or hedge funds. The Company’s target allocation for the U.K. plan is 60% off-risk assets and 40% on-risk assets. As of July 29, 2019, total plan assets were comprised of approximately 15% of Level 1 securities, 85% of Level 2 securities, and a nominal amount of Level 3 securities. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and periodic asset and liability studies.

Projected Benefit Obligations

The Company records amounts relating to its defined benefit pension plan obligations and their associated expenses based on calculations which include actuarial assumptions, including the discount rate and the expected rate of return on plan assets. Changes in any of the assumptions and the amortization of differences between the assumptions and actual experience will affect the amount of pension expense in future periods. The Company reviews its actuarial assumptions at least annually and modifies the assumptions based on current rates and trends, as appropriate. The effects of modifications are recognized immediately on the consolidated balance sheet, and are generally amortized to operating income over future periods, with the deferred amount recorded in accumulated other comprehensive loss on the consolidated balance sheet. The Company’s funding policy is to contribute quarterly an amount as recommended by the plans’ independent actuaries. Contributions to the plans are expected to be approximately $1 million in 2019. The Company employs a building block approach in determining the expected long-term rate of return for plan assets with proper consideration of diversification and re-balancing. Historical markets are studied and long-term historical relationships between equities and fixed-income securities are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. Peer data and historical returns are reviewed to check for reasonableness and appropriateness.

The weighted-average rate assumptions used in the measurement of the Company’s projected benefit obligations as of July 29, 2019 and net periodic benefit expense during the three and nine months ended September 30, 2019 were as follows:



	Projected Benefit Obligation		Net Periodic Benefit Expense
Discount rate	2.35	%	2.74	%
Expected long-term return on plan assets	n/a		2.79	%

The estimated future benefit payments are expected to be as follows:



(In millions)
Year ended December 31,
2019	$	28
2020	30
2021	32
2022	34
2023	36
Thereafter	194
Total	$	354

The components of net periodic benefit expense were as follows:



(In millions)	Three and Nine Months Ended September 30, 2019
Service costs	$	1
Interest costs	3
Expected return on plan assets	(5		)
Net periodic benefit expense	$	(1	)