Pension Benefits

We maintain a number of qualified and nonqualified defined benefit pension plans and defined contribution plans for eligible employees.

Defined Benefit Pension Plans

Eligible U.S. employees who were employed by the Company as of December 31, 1995 are covered under the Company-sponsored defined benefit retirement plan. In 1997, the plan was amended to freeze all plan benefits as of December 31, 1996. Benefits for the defined benefit retirement plan are based primarily on age of employees at date of retirement, years of creditable service and the average of the highest 60 months of pay during the 15 years prior to the plan freeze date. We also have defined benefit pension plans for eligible employees outside of the U.S., as well as an unfunded nonqualified supplemental defined benefit plan for certain U.S. executives.

On May 23, 2018, the Company’s Board of Directors approved the termination of our frozen U.S. defined benefit pension plan (“Plan”). The distribution of plan assets pursuant to the termination will not be made until the plan termination satisfies all regulatory requirements, which is expected to be completed by the second half of 2020. Plan participants will receive their full accrued benefits from plan assets by electing either lump sum distributions or annuity contracts with a qualifying third-party annuity provider. The plan termination is expected to result in pension settlement expense in 2020, which will be determined based on prevailing market conditions, the actual lump sum distributions and annuity purchase rates at the date of distribution. As a result, we are currently unable to reasonably estimate timing nor the final amount of such settlement charges. However, as of March 31, 2019 and 2018, this defined benefit pension plan had an accumulated comprehensive loss of approximately $121 million and $120 million.

Our non-U.S. defined benefit pension plans cover eligible employees located predominantly in Norway, United Kingdom, Germany, and Canada. Benefits for these plans are based primarily on each employee’s final salary, with annual adjustments for inflation. The obligations in Norway are largely related to the state-regulated pension plan which is managed by the Norwegian Public Service Pension Fund (“SPK”). According to the terms of the SPK, the plan assets of state regulated plans in Norway must correspond very closely to the pension obligation calculated using the principles codified in Norwegian law. In the United Kingdom, we have subsidiaries that participate in a joint pension plan. The pension obligation in Germany is unfunded with the exception of the contractual trust arrangement used to fund pensions of McKesson Europe’s Management Board.

Defined benefit plan assets and obligations are measured as of the Company’s fiscal year-end.

The net periodic expense for our pension plans is as follows:



	U.S. Plans									Non-U.S. Plans
	Years Ended March 31,									Years Ended March 31,
(In millions)	2019			2018			2017			2019			2018			2017
Service cost - benefits earned during the year	$	—		$	3		$	5		$	15		$	15		$	15
Interest cost on projected benefit obligation	14			14			13			21			22			23
Expected return on assets	(16		)	(19		)	(15		)	(23		)	(26		)	(26		)
Amortization of unrecognized actuarial loss and prior service costs	5			6			11			4			5			4
Curtailment/settlement loss (gain)	4			2			—			1			1			(2		)
Net periodic pension expense	$	7		$	6		$	14		$	18		$	17		$	14

The projected unit credit method is utilized in measuring net periodic pension expense over the employees’ service life for the pension plans. Unrecognized actuarial losses exceeding 10% of the greater of the projected benefit obligation or the market value of assets are amortized straight-line over the average remaining future service period of active employees.

Information regarding the changes in benefit obligations and plan assets for our pension plans is as follows:



	U.S. Plans						Non-U.S. Plans
	Years Ended March 31,						Years Ended March 31,
(In millions)	2019			2018			2019			2018
Change in benefit obligations
Benefit obligation at beginning of period ⁽¹⁾	$	485		$	513		$	1,035		$	943
Service cost	—			3			15			15
Interest cost	14			14			21			22
Actuarial loss (gain)	4			1			35			(15		)
Benefits paid	(64		)	(44		)	(36		)	(42		)
Expenses paid	—			(2		)	(1		)	(1		)
Amendments	—			—			—			(2		)
Acquisitions	—			—			1			—
Foreign exchange impact and other	—			—			(80		)	115
Benefit obligation at end of period ⁽¹⁾	$	439		$	485		$	990		$	1,035

Change in plan assets
Fair value of plan assets at beginning of period	$	335		$	293		$	687		$	623
Actual return on plan assets	12			35			18			21
Employer and participant contributions	39			53			23			17
Benefits paid	(64		)	(44		)	(36		)	(42		)
Expenses paid	—			(2		)	(1		)	(1		)
Acquisitions	—			—			—			—
Foreign exchange impact and other	—			—			(49		)	69
Fair value of plan assets at end of period	$	322		$	335		$	642		$	687

Funded status at end of period	$	(117	)	$	(150	)	$	(348	)	$	(348	)

Amounts recognized on the balance sheet
Assets	$	7		$	10		$	20		$	19
Current liabilities	(115		)	(39		)	(13		)	(7		)
Long-term liabilities	(9		)	(121		)	(355		)	(360		)
Total	$	(117	)	$	(150	)	$	(348	)	$	(348	)


(1)	The benefit obligation is the projected benefit obligation.

The following table provides the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for all our pension plans, including accumulated benefit obligation in excess of plan assets.



	U.S. Plans				Non-U.S. Plans
	March 31,				March 31,
(In millions)	2019		2018		2019		2018
Projected benefit obligation	$	439	$	485	$	990	$	1,035
Accumulated benefit obligation	439		485		949		990
Fair value of plan assets	322		335		642		687

Amounts recognized in accumulated other comprehensive income (pre-tax) consist of:



	U.S. Plans				Non-U.S. Plans
	March 31,				March 31,
(In millions)	2019		2018		2019			2018
Net actuarial loss	$	133	$	134	$	186		$	162
Prior service credit	—		—		(4		)	(5		)
Total	$	133	$	134	$	182		$	157

Other changes in accumulated other comprehensive income (pre-tax) were as follows:



	U.S. Plans									Non-U.S. Plans
	Years Ended March 31,									Years Ended March 31,
(In millions)	2019			2018			2017			2019			2018			2017
Net actuarial loss (gain)	$	8		$	(15	)	$	(17	)	$	42		$	(11	)	$	47
Prior service credit	—			—			—			—			(2		)	—
Amortization of:
Net actuarial loss	(9		)	(8		)	(11		)	(5		)	(6		)	(4		)
Prior service credit (cost)	—			—			—			—			—			2
Foreign exchange impact and other	—			—			—			(12		)	19			(10		)
Total recognized in other comprehensive loss (income)	$	(1	)	$	(23	)	$	(28	)	$	25		$	—		$	35

We expect to amortize $11 million of actuarial loss for the pension plans from stockholders’ equity to pension expense in 2020. The comparable 2019 amount was $14 million of actuarial loss. In addition, we expect to recognize $132 million in actuarial losses for the pension plans to stockholders’ equity in 2020 as a result of $121 million from the termination of the U.S. defined benefit pension plan and $11 million from the settlement from the executive benefit retirement plan for a recently retired executive.

Projected benefit obligations related to our unfunded U.S. plans were $124 million and $160 million at March 31, 2019 and 2018. Pension obligations for our unfunded plans are based on the recommendations of independent actuaries. Projected benefit obligations relating to our unfunded non-U.S. plans were $293 million and $297 million at March 31, 2019 and 2018. Funding obligations for our non-U.S. plans vary based on the laws of each non-U.S. jurisdiction.

Expected benefit payments, including assumed executive lump sum payments, for our pension plans are as follows: $180 million, $64 million, $64 million, $62 million and $62 million for 2020 to 2024 and $327 million for 2025 through 2029. Expected benefit payments are based on the same assumptions used to measure the benefit obligations and include estimated future employee service. Expected contributions to be made for our pension plans are $146 million for 2020.

Weighted-average assumptions used to estimate the net periodic pension expense and the actuarial present value of benefit obligations were as follows:



	U.S. Plans						Non-U.S. Plans
	Years Ended March 31,						Years Ended March 31,
	2019		2018		2017		2019		2018		2017
Net periodic pension expense
Discount rates	3.83	%	3.55	%	3.40	%	2.35	%	2.34	%	2.72	%
Rate of increase in compensation	N/A ⁽¹⁾		4.00		4.00		3.13		2.72		2.76
Expected long-term rate of return on plan assets	5.25		6.25		6.25		3.71		4.03		4.51
Benefit obligation
Discount rates	3.65	%	3.69	%	3.39	%	2.13	%	2.35	%	2.35	%
Rate of increase in compensation	N/A ⁽¹⁾		N/A ⁽¹⁾		4.00		3.18		2.59		3.18


(1)	This assumption is no longer needed in actuarial valuations as U.S. plans are frozen or have fixed benefits for the remaining active participants.

Our defined benefit pension plan liabilities are valued using a discount rate based on a yield curve developed from a portfolio of high quality corporate bonds rated AA or better whose maturities are aligned with the expected benefit payments of our plans. For March 31, 2019, our U.S. defined benefit liabilities are valued using a weighted average discount rate of 3.65%, which represents a decrease of 4 basis points from our 2018 weighted-average discount rate of 3.69%. Our non-U.S. defined benefit pension plan liabilities are valued using a weighted-average discount rate of 2.13%, which represents a decrease of 22 basis points from our 2018 weighted average discount rate of 2.35%.

Plan Assets

Investment Strategy: The overall objective for U. S. pension plan assets has been to generate long-term investment returns consistent with capital preservation and prudent investment practices, with a diversification of asset types and investment strategies. Periodic adjustments were made to provide liquidity for benefit payments and to rebalance plan assets to their target allocations.

In September 2018, a new investment allocation strategy was put in place to protect the funded status of the U.S. plan assets subsequent to Board approval of U.S. pension plan termination. The target allocation for U.S. plan assets at March 31, 2019 is 100% fixed income investments including cash and cash equivalents. The target allocations for U.S. plan assets at March 31, 2018 were 26% equity investments, 70% fixed income investments including cash and cash equivalents and 4% real estate. Equity investments include common stock, preferred stock, and equity commingled funds. Fixed income investments include corporate bonds, government securities, mortgage-backed securities, asset-backed securities, other directly held fixed income investments, and fixed income commingled funds. The real estate investments are in a commingled real estate fund.

For both U.S. and non-U.S. plan assets, the investment strategies are subject to local regulations and the asset/liability profiles of the plans in each individual country. Plan assets of the non-U.S. plans are broadly invested in a manner appropriate to the nature and duration of the expected future retirement benefits payable under the plans. Plan assets are primarily invested in high-quality corporate and government bond funds and equity securities. Assets are properly diversified to avoid excessive reliance on any particular asset, issuer or group of undertakings so as to avoid accumulations of risk in the portfolio as a whole.

We develop the expected long-term rate of return assumption based on the projected performance of the asset classes in which plan assets are invested. The target asset allocation was determined based on the liability and risk tolerance characteristics of the plans and at times may be adjusted to achieve overall investment objectives.

Fair Value Measurements: The following tables represent our pension plan assets as of March 31, 2019 and 2018, using the fair value hierarchy by asset class. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on unadjusted quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.



	U.S. Plans								Non-U.S. Plans
	March 31, 2019								March 31, 2019
(In millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	11	$	—	$	—	$	11	$	6	$	—	$	—	$	6
Equity securities:
Common and preferred stock	—		—		—		—		—		—		—		—
Equity commingled funds	—		—		—		—		62		82		—		144
Fixed income securities:
Government securities	—		33		—		33		4		135		—		139
Corporate bonds	—		273		—		273		8		18		—		26
Mortgage-backed securities	—		—		—		—		—		—		—		—
Asset-backed securities and other	—		5		—		5		—		—		—		—
Fixed income commingled funds	—		—		—		—		125		110		6		241
Other:
Real estate funds	—		—		—		—		2		3		—		5
Other	—		—		—		—		21		—		3		24
Total	$	11	$	311	$	—	$	322	$	228	$	348	$	9	$	585
Assets held at NAV practical expedient ⁽¹⁾
Equity commingled funds							—								8
Fixed income commingled funds							—								—
Real estate funds							—								—
Other							—								49
Total plan assets							$	322							$	642



	U.S. Plans								Non-U.S. Plans
	March 31, 2018								March 31, 2018
(In millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	39	$	—	$	—	$	39	$	3	$	—	$	—	$	3
Equity securities:
Common and preferred stock	7		—		—		7		—		—		—		—
Equity commingled funds	—		—		—		—		41		94		—		135
Fixed income securities:
Government securities	—		85		—		85		5		113		—		118
Corporate bonds	—		58		—		58		114		136		—		250
Mortgage-backed securities	—		7		—		7		—		—		—		—
Asset-backed securities and other	—		21		—		21		—		—		—		—
Fixed income commingled funds	—		—		—		—		—		64		—		64
Other:
Real estate funds	—		—		—		—		2		—		—		2
Other	—		—		—		—		22		—		4		26
Total	$	46	$	171	$	—	$	217	$	187	$	407	$	4	$	598
Assets held at NAV practical expedient ⁽¹⁾
Equity commingled funds							54								27
Fixed income commingled funds							53								—
Real estate funds							11								—
Other							—								62
Total plan assets							$	335							$	687


(1)	Equity commingled funds, fixed income commingled funds, real estate funds and other investments for which fair value is measured using the NAV per share as a practical expedient are not leveled within the fair value hierarchy and are included as a reconciling item to total investments.

Cash and cash equivalents - Cash and cash equivalents include short-term investment funds that maintain daily liquidity and aim to have constant unit values of $1.00. The funds invest in short-term fixed income securities and other securities with debt-like characteristics emphasizing short-term maturities and high credit quality. Directly held cash and cash equivalents are classified as Level 1 investments. Cash and cash equivalents include money market funds and other commingled funds, which have daily net asset values derived from the underlying securities; these are classified as Level 1 investments.

Common and preferred stock - This investment class consists of common and preferred shares issued by U.S. and non-U.S. corporations. Common shares are traded actively on exchanges and price quotes are readily available. Preferred shares may not be actively traded. Holdings of common shares are generally classified as Level 1 investments.

Equity commingled funds - Some equity investments are held in commingled funds, which have daily net asset values derived from quoted prices for the underlying securities in active markets; these are classified as Level 1 or Level 2 investments.

Fixed income securities - Government securities consist of bonds and debentures issued by central governments or federal agencies; corporate bonds consist of bonds and debentures issued by corporations; mortgage-backed securities consist of debt obligations secured by a mortgage or pool of mortgages; and asset-backed securities primarily consist of debt obligations secured by an asset or pool of assets other than mortgages. Inputs to the valuation methodology include quoted prices for similar assets in active markets, and inputs that are observable for the asset, either directly or indirectly, for substantially the full term of the asset. Multiple prices and price types are obtained from pricing vendors whenever possible, enabling cross-provider price validations. Fixed income securities are generally classified as Level 1 or Level 2 investments.

Fixed income commingled funds - Some fixed income investments are held in exchange traded or commingled funds, which have daily net asset values derived from the underlying securities; these are classified as Level 1, 2 or 3 investments.

Real estate funds - The value of the real estate funds is reported by the fund manager and is based on a valuation of the underlying properties. Inputs used in the valuation include items such as cost, discounted future cash flows, independent appraisals and market based comparable data. The real estate funds are classified as Level 1, 2, or 3 investments.

Other - At March 31, 2019 and 2018, this includes $35 million and $38 million of plan asset value relating to the SPK. In principle, the SPK is organized as a pay-as-you-go system guaranteed by the Norwegian government as it holds no Company-owned assets to back the pension liabilities. The Company pays a pension premium used to fund the plan, which is paid directly to the Norwegian government who establishes an account for each participating employer to keep track of the financial status of the plan, including managing the contributions and the payments. Further, the investment return credited to this account is determined annually by the SPK based on the performance of long-term government bonds.

The activity attributable to Level 3 plan assets was insignificant in the years ended March 31, 2019 and 2018.

Multiemployer Plans

The Company contributes to a number of multiemployer pension plans under the terms of collective-bargaining agreements that cover union-represented employees in the U.S. In 2017, we also contributed to the Pensjonsordningen for Apoteketaten (“POA”), a mandatory multiemployer pension scheme for our pharmacy employees in Norway, managed by the association of Norwegian Pharmacies.

The risks of participating in these multiemployer plans are different from single-employer pension plans in the following aspects: (i) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; (ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (iii) if the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. Actions taken by other participating employers may lead to adverse changes in the financial condition of a multiemployer benefit plan and our withdrawal liability and contributions may increase.

Contributions and amounts accrued for U.S. Plans were not material for the years ended March 31, 2019, 2018, and 2017. Contributions to the POA for non-U.S. Plans exceeding 5% of total plan contributions were $27 million, $16 million and $18 million in 2019, 2018 and 2017. Based on actuarial calculations, we estimate the funded status for our non-U.S. Plans to be approximately 75% as of March 31, 2019. No amounts were accrued for liability associated with the POA as we have no intention to withdraw from the plan.

Defined Contribution Plans

We have a contributory retirement savings plan (“RSP”) for U.S. eligible employees. Eligible employees may contribute to the RSP up to 75% of their eligible compensation on a pre-tax or post-tax basis not to exceed IRS limits. The Company makes matching contributions in an amount equal to 100% of the employee’s first 3% of pay contributed and 50% for the next 2% of pay contributed. The Company also may make an additional annual matching contribution for each plan year to enable participants to receive a full match based on their annual contribution. The Company also contributed to non-U.S. plans that are available in certain countries. Contribution expenses for the RSP and non-U.S. plans were $92 million, $82 million and $98 million for the years ended March 31, 2019, 2018, and 2017.