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Pension
Retiree Medical
U.S.
International
2019
2018
2017
2019
2018
2017
2019
2018
2017
Service cost
$ 381 $ 431 $ 401 $ 73 $ 92 $ 91 $ 23 $ 32 $ 28
Other pension and retiree medical benefits expense/(income):
Interest cost
$ 543 $ 482 $ 468 $ 97 $ 93 $ 89 $ 36 $ 34 $ 36
Expected return on plan assets
(892)
(943)
(849)
(188)
(197)
(176)
(18)
(19)
(22)
Amortization of prior service cost/(credits)
10
3
1
—
—
—
(19)
(20)
(25)
Amortization of net losses/(gains)
161
179
123
32
45
53
(27)
(8)
(12)
Settlement/curtailment losses
(a)
296
8
8
12
6
11
—
—
—
Special termination benefits
1
36
60
—
2
—
—
1
2
Total other pension and retiree medical benefits
expense/(income)
$ 119 $ (235) $ (189) $ (47) $ (51) $ (23) $ (28) $ (12) $ (21)
Total
$ 500 $ 196 $ 212 $ 26 $ 41 $ 68 $ (5) $ 20 $
7
(a) In 2019, U.S. includes settlement charges related to the purchase of a group annuity contract of $220 million and a pension lump sum
settlement charge of $53 million.
104
The following table provides the weighted-average assumptions used to determine projected benefit liability
and net periodic benefit cost for our pension and retiree medical plans:
Pension_Retiree_Medical_U.S._International_2019_2018_2017_2019_2018_2017_2019'>Pension
Retiree Medical
U.S.
International
2019
2018
2017
2019
2018
2017
2019
2018
2017
Liability discount rate
3.3%
4.4%
3.7%
2.5%
3.4%
3.0%
3.1%
4.2%
3.5%
Service cost discount rate
4.4%
3.8%
4.5%
4.2%
3.5%
3.6%
4.3%
3.6%
4.0%
Interest cost discount rate
4.1%
3.4%
3.7%
3.2%
2.8%
2.8%
3.8%
3.0%
3.2%
Expected return on plan assets
7.1%
7.2%
7.5%
5.8%
6.0%
6.0%
6.6%
6.5%
7.5%
Liability rate of salary increases
3.1%
3.1%
3.1%
3.3%
3.7%
3.7%
Expense rate of salary increases
3.1%
3.1%
3.1%
3.7%
3.7%
3.6%
The following table provides selected information about plans with accumulated benefit obligation and total
projected benefit liability in excess of plan assets:
Pension
Retiree Medical
U.S.
International
2019
2018
2019
2018
2019
2018
Selected information for plans with accumulated benefit obligation in excess of plan assets
Liability for service to date
$
(9,194) $
(8,040)
$
(192) $
(155)
Fair value of plan assets
$
8,497 $
7,223
$
151 $
121
Selected information for plans with projected benefit liability in excess of plan assets
Benefit liability
$ (10,169) $
(8,957)
$
(632) $
(514)
$
(988) $
(996)
Fair value of plan assets
$
8,497 $
7,223
$
512 $
426
$
302 $
285
Of the total projected pension benefit liability as of December 28, 2019, approximately $847 million relates
to plans that we do not fund because the funding of such plans does not receive favorable tax treatment.
Future Benefit Payments
Our estimated future benefit payments are as follows:
2020
2021
2022
2023
2024 2025 - 2029
Pension
$
945 $
915 $
900 $
930 $
970 $
5,275
Retiree medical
(a)
$
100 $
95 $
95 $
90 $
85 $
355
(a) Expected future benefit payments for our retiree medical plans do not reflect any estimated subsidies expected to be received under the
2003 Medicare Act. Subsidies are expected to be approximately $2 million for each of the years from 2020 through 2024 and approximately
$4 million in total for 2025 through 2029.
These future benefit payments to beneficiaries include payments from both funded and unfunded plans.
Funding
Contributions to our pension and retiree medical plans were as follows:
Pension
Retiree Medical
2019
2018
2017
2019
2018
2017
Discretionary
(a)
$
417 $
1,417 $
6 $
— $
37 $
—
Non-discretionary
255
198
158
44
56
56
Total
$
672 $
1,615 $
164 $
44 $
93 $
56
(a) Includes $400 million contribution in 2019 and $1.4 billion contribution in 2018 to fund Plan A in the United States.
105
In January 2020, we made discretionary contributions of $150 million to Plan A in the United States. In
addition, in 2020, we expect to make non-discretionary contributions of approximately $150 million to our
U.S. and international pension benefit plans and approximately $60 million for retiree medical benefits.
We regularly evaluate opportunities to reduce risk and volatility associated with our pension and retiree
medical plans.
Plan Assets
Our pension plan investment strategy includes the use of actively managed accounts and is reviewed
periodically in conjunction with plan liabilities, an evaluation of market conditions, tolerance for risk and
cash requirements for benefit payments. This strategy is also applicable to funds held for the retiree medical
plans. Our investment objective includes ensuring that funds are available to meet the plans’ benefit
obligations when they become due. Assets contributed to our pension plans are no longer controlled by us,
but become the property of our individual pension plans. However, we are indirectly impacted by changes
in these plan assets as compared to changes in our projected liabilities. Our overall investment policy is to
prudently invest plan assets in a well-diversified portfolio of equity and high-quality debt securities and real
estate to achieve our long-term return expectations. Our investment policy also permits the use of derivative
instruments, such as futures and forward contracts, to reduce interest rate and foreign currency risks. Futures
contracts represent commitments to purchase or sell securities at a future date and at a specified price. Forward
contracts consist of currency forwards.
For 2020 and 2019, our expected long-term rate of return on U.S. plan assets is 6.8% and 7.1%, respectively.
Our target investment allocations for U.S. plan assets are as follows:
2020
2019
Fixed income
50%
47%
U.S. equity
25%
29%
International equity
21%
20%
Real estate
4%
4%
Actual investment allocations may vary from our target investment allocations due to prevailing market
conditions. We regularly review our actual investment allocations and periodically rebalance our investments.
The expected return on plan assets is based on our investment strategy and our expectations for long-term
rates of return by asset class, taking into account volatility and correlation among asset classes and our
historical experience. We also review current levels of interest rates and inflation to assess the reasonableness
of the long-term rates. We evaluate our expected return assumptions annually to ensure that they are
reasonable. To calculate the expected return on plan assets, our market-related value of assets for fixed income
is the actual fair value. For all other asset categories, such as equity securities, we use a method that recognizes
investment gains or losses (the difference between the expected and actual return based on the market-related
value of assets) over a five-year period. This has the effect of reducing year-to-year volatility.
106
Plan assets measured at fair value as of year-end 2019 and 2018 are categorized consistently by level, and
are as follows:
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