PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS

The Company sponsors a qualified non-contributory defined benefit pension plan (the qualified domestic pension plan), which covers substantially all U.S. domestic employees and provides benefits under a cash balance formula, except that certain limited groups of legacy participants are covered by a prior traditional final average pay formula. In addition, the Company sponsors a nonqualified defined benefit pension plan which covers certain highly-compensated employees, pension plans for employees of its foreign subsidiaries, and a postretirement health and life insurance benefit plan for employees satisfying certain age and service requirements and for certain retirees.

Obligations and Funded Status

The following tables summarize the funded status, obligations and amounts recognized in the consolidated balance sheet for the Company’s benefit plans. The Company uses a December 31 measurement date for its pension and postretirement benefit plans.



(at and for the year ended December 31, in millions)	Qualified Domestic Pension Plan						Nonqualified and Foreign Pension Plans						Total
(at and for the year ended December 31, in millions)	2018			2017			2018			2017			2018			2017
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	3,679		$	3,367		$	230		$	225		$	3,909		$	3,592
Benefits earned	126			112			7			7			133			119
Interest cost on benefit obligation	119			120			7			7			126			127
Actuarial (gain) loss	(273		)	258			(11		)	1			(284		)	259
Benefits paid	(207		)	(178		)	(12		)	(9		)	(219		)	(187		)
Settlement	—			—			—			(11		)	—			(11		)
Foreign currency exchange rate change	—			—			(6		)	10			(6		)	10
Benefit obligation at end of year	$	3,444		$	3,679		$	215		$	230		$	3,659		$	3,909
Change in plan assets:
Fair value of plan assets at beginning of year	$	3,957		$	3,387		$	113		$	106		$	4,070		$	3,493
Actual return on plan assets	(179		)	448			(1		)	11			(180		)	459
Company contributions	200			300			10			7			210			307
Benefits paid	(207		)	(178		)	(12		)	(9		)	(219		)	(187		)
Settlement	—			—			—			(12		)	—			(12		)
Foreign currency exchange rate change	—			—			(7		)	10			(7		)	10
Fair value of plan assets at end of year	3,771			3,957			103			113			3,874			4,070
Funded status of plan at end of year	$	327		$	278		$	(112	)	$	(117	)	$	215		$	161
Amounts recognized in the consolidated balance sheet consist of:
Accrued over-funded benefit plan assets	$	327		$	278		$	4		$	6		$	331		$	284
Accrued under-funded benefit plan liabilities	—			—			(116		)	(123		)	(116		)	(123		)
Total	$	327		$	278		$	(112	)	$	(117	)	$	215		$	161
Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial loss	$	1,113		$	1,035		$	36		$	47		$	1,149		$	1,082
Prior service benefit	(5		)	(6		)	1			—			(4		)	(6		)
Total	$	1,108		$	1,029		$	37		$	47		$	1,145		$	1,076



	Postretirement Benefit Plans
(at and for the year ended December 31, in millions)	2018			2017
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	225		$	214
Benefits earned	—			—
Interest cost on benefit obligation	7			7
Actuarial (gain) loss	(18		)	13
Benefits paid	(10		)	(10		)
Foreign currency exchange rate change	(1		)	1
Benefit obligation at end of year	$	203		$	225
Change in plan assets:
Fair value of plan assets at beginning of year	$	13		$	14
Actual return on plan assets	—			—
Company contributions	9			9
Benefits paid	(10		)	(10		)
Fair value of plan assets at end of year	12			13
Funded status of plan at end of year	$	(191	)	$	(212	)
Amounts recognized in the consolidated balance sheet consist of:
Accrued under-funded benefit plan liability	$	(191	)	$	(212	)
Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial gain	$	(17	)	$	—
Prior service benefit	(25		)	(28		)
Total	$	(42	)	$	(28	)

The total accumulated benefit obligation for the Company’s defined benefit pension plans was $3.53 billion and $3.77 billion at December 31, 2018 and 2017, respectively. The qualified domestic pension plan accounted for $3.32 billion and $3.55 billion of the total accumulated benefit obligation at December 31, 2018 and 2017, respectively, whereas the nonqualified and foreign plans accounted for $0.21 billion and $0.22 billion of the total accumulated benefit obligation at December 31, 2018 and 2017, respectively.

For pension plans with a projected benefit obligation in excess of plan assets, the aggregate projected benefit obligation was $203 million and $183 million at December 31, 2018 and 2017, respectively, and the aggregate plan assets were $87 million and $60 million at December 31, 2018 and 2017, respectively. For pension plans with an accumulated benefit obligation in excess of plan assets, the aggregate accumulated benefit obligation was $195 million and $174 million at December 31, 2018 and 2017, respectively, and the aggregate plan assets were $87 million and $60 million at December 31, 2018 and 2017, respectively. For postretirement benefit plans with an accumulated benefit obligation in excess of plan assets, the aggregate accumulated benefit obligation was $203 million and $225 million at December 31, 2018 and 2017, respectively, and the aggregate plan assets were $12 million and $13 million at December 31, 2018 and 2017, respectively.

The $273 million actuarial gain experienced in 2018 for the qualified domestic pension plan was largely driven by the increase in the assumed discount rate from the prior year that was used to determine the projected benefit obligation at December 31, 2018. The $258 million actuarial loss experienced in 2017 for the qualified domestic pension plan was largely driven by the decrease in the assumed discount rate from the prior year that was used to determine the projected benefit obligation at December 31, 2017.

The Company has discretion regarding whether to provide additional funding and when to provide such funding to its qualified domestic pension plan. In 2018, 2017 and 2016, there were no required contributions to the qualified domestic pension plan. In 2018, 2017 and 2016, the Company voluntarily made contributions totaling $200 million, $300 million and $200 million, respectively, to the qualified domestic pension plan. There is no required contribution to the qualified domestic pension plan during 2019, and the Company has not determined whether or not additional funding will be made during 2019. With respect to the Company’s foreign pension plans, there are no significant required contributions in 2019.

The following table summarizes the components of net periodic benefit cost and other amounts recognized in other comprehensive income related to the benefit plans.



	Pension Plans									Postretirement Benefit Plans
(for the year ended December 31, in millions)	2018			2017			2016			2018			2017			2016
Net Periodic Benefit Cost:
Service cost	$	133		$	119		$	118		$	—		$	—		$	—
Non-service cost:
Interest cost on benefit obligation	126			127			122			7			7			8
Expected return on plan assets	(264		)	(240		)	(230		)	—			—			—
Settlement	—			3			1			—			—			—
Amortization of unrecognized:
Prior service benefit	(1		)	(1		)	(1		)	(4		)	(4		)	(3		)
Net actuarial loss	91			85			66			—			—			—
Total non-service cost (benefit)	(48		)	(26		)	(42		)	3			3			5
Net periodic benefit cost	85			93			76			3			3			5
Other Changes in Benefit Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Prior service benefit	—			—			—			—			—			—
Net actuarial loss (gain)	160			40			66			(18		)	13			(17		)
Foreign currency exchange rate change	(1		)	2			(2		)	—			(1		)	1
Settlement	—			(2		)	(1		)	—			—			—
Amortization of prior service benefit	1			1			1			4			4			3
Amortization of net actuarial loss	(91		)	(85		)	(66		)	—			—			—
Total other changes recognized in other comprehensive income	69			(44		)	(2		)	(14		)	16			(13		)
Total other changes recognized in net periodic benefit cost and other comprehensive income	$	154		$	49		$	74		$	(11	)	$	19		$	(8	)

The following table indicates the line items in which the respective service costs and non-service costs are presented in the consolidated statement of income for the years ended December 31, 2018, 2017 and 2016.



	Pension Plans									Postretirement Benefit Plans
(for the year ended December 31, in millions)	2018			2017			2016			2018		2017		2016
Service Cost:
Net investment income	$	1		$	—		$	—		$	—	$	—	$	—
Claims and claim adjustment expenses	54			48			48			—		$	—	—
General and administrative expenses	78			71			70			—		—		—
Total service cost	133			119			118			—		—		—

Non-Service Cost:
Claims and claim adjustment expenses	(19		)	(11		)	(18		)	1		1		2
General and administrative expenses	(29		)	(15		)	(24		)	2		2		3
Total non-service cost (benefit)	(48		)	(26		)	(42		)	3		3		5
Net periodic benefit cost	$	85		$	93		$	76		$	3	$	3	$	5

Assumptions

The following table summarizes assumptions used with regard to the Company’s qualified and nonqualified domestic pension plans and the domestic postretirement benefit plans.



(at and for the year ended December 31,)	2018		2017
Assumptions used to determine benefit obligations
Discount rate:
Qualified domestic pension plan	4.39	%	3.71	%
Nonqualified domestic pension plan	4.33	%	3.66	%
Domestic postretirement benefit plan	4.26	%	3.60	%
Cash balance interest crediting rate	4.01	%	4.01	%
Future compensation increase rate	4.00	%	4.00	%
Assumptions used to determine net periodic benefit cost
Discount rate:
Qualified domestic pension plan:
Service cost	3.87	%	4.52	%
Interest cost	3.34	%	3.55	%
Nonqualified domestic pension plan:
Service cost	3.73	%	4.24	%
Interest cost	3.26	%	3.43	%
Domestic postretirement benefit plan:
Interest cost	3.21	%	3.42	%
Expected long-term rate of return on assets:
Pension plan	7.00	%	7.00	%
Postretirement benefit plan	4.00	%	4.00	%
Assumed health care cost trend rates
Following year:
Medical (before age 65)	7.50	%	7.50	%
Medical (age 65 and older)	8.75	%	8.75	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)	4.50	%	4.50	%
Year that the rate reaches the ultimate trend rate:
Medical (before age 65)	2026		2026
Medical (age 65 and older)	2026		2026

The discount rate assumption used to determine the benefit obligation is based on a yield-curve approach. Under this approach, individual spot rates from the yield curve of a hypothetical portfolio of high quality fixed maturity corporate bonds (rated Aa) available at the year-end valuation date, for which the timing and amount of cash outflows correspond with the timing and amount of the estimated benefit payouts of the Company’s benefit plan, are applied to expected future benefits payments in measuring the projected benefit obligation. The discount rate assumption used to determine benefit obligations disclosed above represents the weighted average of the individual spot rates.

The discount rate assumption used to determine the net periodic benefit cost is the single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the year.

In choosing the expected long-term rate of return on plan assets, the Company selected the rate that was set as the return objective by the Company’s Benefit Plans Investment Committee, which had considered the historical returns of equity and fixed maturity markets in conjunction with prevailing economic and financial market conditions.

The assumptions made for the Company’s foreign pension and foreign postretirement benefit plans are not materially different from those of the Company’s qualified domestic pension plan and the domestic postretirement benefit plan.

Plan Assets

The qualified domestic pension plan assets are invested for the exclusive benefit of the plan participants and beneficiaries and are intended, over time, to satisfy the benefit obligations under the plan. Risk tolerance is established through consideration of plan liabilities, plan funded status and corporate financial position. The asset mix guidelines have been established and are reviewed quarterly. These guidelines are intended to serve as tools to facilitate the investment of plan assets to maximize long-term total return and the ongoing oversight of the plan’s investment performance. Investment risk is measured and monitored on an ongoing basis through daily and monthly investment portfolio reviews, annual liability measurements and periodic asset/liability studies.

The Company’s overall investment strategy for the qualified domestic pension plan is to achieve a mix of approximately 85% to 90% of investments for long-term growth and 10% to 15% for near-term benefit payments with a diversification of asset types, fund strategies and fund managers. The current target allocations for plan assets are 55% to 65% equity securities and 20% to 40% fixed income securities, with the remainder allocated to short-term securities. Equity securities primarily include investments in large, medium and small-cap companies primarily located in the United States. Fixed income securities include corporate bonds of companies from diversified industries, mortgage-backed securities, U.S. Treasury securities and debt securities issued by foreign governments.

Assets of the Company’s foreign pension plans are not significant.

Fair Value Measurement — Pension Plans and Other Postretirement Benefit Assets

For a discussion of the methods employed by the Company to measure the fair value of invested assets, see note 4. The following discussion of fair value measurements applies exclusively to the Company’s pension plans and other postretirement benefit assets.

Fair value estimates for equity and bond mutual funds held by the pension plans reflect prices received from an external pricing service that are based on observable market transactions. These estimates are primarily included in Level 1.

Short-term securities are carried at fair value which approximates cost plus accrued interest or amortized discount. The fair value or market value of these is periodically compared to this amortized cost and is based on significant observable inputs as determined by an external pricing service. Accordingly, the estimates of fair value for such short-term securities, other than U.S. Treasury securities and money market mutual funds, provided by an external pricing service are included in the amount disclosed in Level 2 of the hierarchy. The estimated fair value of U.S. Treasury securities and money market mutual funds is included in the amount disclosed in Level 1 as the estimates are based on unadjusted market prices.

Fair Value Hierarchy — Pension Plans

The following tables present the level within the fair value hierarchy at which the financial assets of the Company’s pension plans are measured on a recurring basis.



(at December 31, 2018, in millions)	Total		Level 1		Level 2		Level 3
Invested assets:
Fixed maturities
Obligations of states, municipalities and political subdivisions	$	3	$	—	$	3	$	—
Debt securities issued by foreign governments	27		—		27		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	30		—		30		—
All other corporate bonds	712		—		712		—
Total fixed maturities	772		—		772		—
Mutual funds
Equity mutual funds	1,288		1,282		6		—
Bond mutual funds	760		757		3		—
Total mutual funds	2,048		2,039		9		—
Equity securities	783		783		—		—
Other investments	1		—		—		1
Cash and short-term securities
U.S. Treasury securities	30		30		—		—
Other	240		19		221		—
Total cash and short-term securities	270		49		221		—
Total	$	3,874	$	2,871	$	1,002	$	1



(at December 31, 2017, in millions)	Total		Level 1		Level 2		Level 3
Invested assets:
Fixed maturities
Obligations of states, municipalities and political subdivisions	$	3	$	—	$	3	$	—
Debt securities issued by foreign governments	16		—		16		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	10		—		10		—
All other corporate bonds	514		—		514		—
Total fixed maturities	543		—		543		—
Mutual funds
Equity mutual funds	1,335		1,328		7		—
Bond mutual funds	822		819		3		—
Total mutual funds	2,157		2,147		10		—
Equity securities	883		882		1		—
Other investments	1		—		—		1
Cash and short-term securities
U.S. Treasury securities	241		241		—		—
Money market mutual funds	27		27		—		—
Other	218		27		191		—
Total cash and short-term securities	486		295		191		—
Total	$	4,070	$	3,324	$	745	$	1