v3.20.4
Pension and Postretirement Benefit Plans and Defined Contribution Plans
 12 Months Ended
Dec. 31, 2020
Retirement Benefits [Abstract]  
Pension and Postretirement Benefit Plans and Defined Contribution Plans Pension and Postretirement Benefit Plans and Defined Contribution Plans
The majority of our employees worldwide are eligible for retirement benefits provided through defined benefit pension plans, defined contribution plans or both. In the U.S., we sponsor both IRC-qualified and supplemental (non-qualified) defined benefit plans and defined contribution plans. A qualified plan meets the requirements of certain sections of the IRC, and, generally, contributions to qualified plans are tax deductible. A qualified plan typically provides benefits to a broad group of employees with restrictions on discriminating in favor of highly compensated employees with regard to coverage, benefits and contributions. A supplemental (non-qualified) plan provides additional benefits to certain employees. In addition, we provide medical insurance benefits to certain retirees and their eligible dependents through our postretirement plans.

A. Components of Net Periodic Benefit Costs and Changes in Other Comprehensive Income/(Loss)

The following provides the annual (credit)/cost (including costs reported as part of discontinued operations) and changes in Other comprehensive income/(loss) for our benefit plans:
Pension Plans 
U.S.
Qualified		U.S.
Supplemental
(Non-Qualified)		InternationalPostretirement
Plans
Year Ended December 31,
(MILLIONS OF DOLLARS)202020192018202020192018202020192018202020192018
Service cost$— $— $— $— $— $— $146 $125 $136 $38 $37 $39 
Interest cost499 629 598 34 47 55 164 215 212 49 75 72 
Expected return on plan assets
(1,015)(890)(1,040)— — — (306)(317)(360)(36)(33)(37)
Amortization of:
Actuarial losses136 147 120 15 11 13 125 80 101 — 3 7 
Prior service cost/(credit)
(3)(3)2 (1)(1)(1)(3)(4)(4)(170)(173)(178)
Curtailments
— — 12 — — 1 — (1)(4)— (47)(17)
Settlements
223 230 113 49 27 26 6 16 4 — (10)— 
Special termination benefits
(1)4 6 2 17 10 — — — — 2 2 
Net periodic benefit cost/(credit) reported in income(161)116 (189)99 100 103 132 115 84 (118)(146)(111)
(Credit)/cost reported in Other comprehensive income/(loss)
640 (246)361 95 115 (189)202 570 84 (50)38 105 
(Credit)/cost recognized in Comprehensive income
$479 $(129)$171 $194 $215 $(86)$333 $685 $168 $(168)$(107)$(6)
B. Actuarial Assumptions

The following provides the weighted-average actuarial assumptions of our benefit plans:
Year Ended December 31,
(PERCENTAGES)202020192018
Weighted-average assumptions used to determine benefit obligations
Discount rate:
U.S. qualified pension plans2.6 %3.3 %4.4 %
U.S. non-qualified pension plans2.4 %3.2 %4.3 %
International pension plans1.5 %1.7 %2.5 %
Postretirement plans2.5 %3.2 %4.3 %
Rate of compensation increase(a):
International pension plans2.9 %1.4 %1.4 %
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate:
U.S. qualified pension plans3.3 %4.4 %3.8 %
U.S. non-qualified pension plans3.2 %4.3 %3.7 %
International pension plans interest cost1.5 %2.2 %2.0 %
International pension plans service cost1.6 %2.4 %2.3 %
Postretirement plans3.2 %4.3 %3.7 %
Expected return on plan assets:
U.S. qualified pension plans7.0 %7.2 %7.5 %
International pension plans3.6 %3.9 %4.4 %
Postretirement plans7.0 %7.3 %7.5 %
Rate of compensation increase:
U.S. qualified pension plans(a)
— — 2.8 %
U.S. non-qualified pension plans(a)
— — 2.8 %
International pension plans2.9 %1.4 %2.5 %
(a)Effective January 1, 2018, we froze the defined benefit plans to future benefit accruals in the U.S. and members’ accrued benefits to that date no longer increase in line with future compensation increases. The rate of compensation increase is therefore no longer an assumption used to determine the benefit obligation and net periodic benefit cost for the U.S. qualified and non-qualified pension plans.

The assumptions above are used to develop the benefit obligations at each fiscal year-end. All of the assumptions are reviewed on at least an annual basis. We revise these assumptions based on an annual evaluation of long-term trends as well as market conditions that may have an impact on the cost of providing retirement benefits.

The weighted-average discount rate for our U.S. defined benefit plans is determined annually and evaluated and modified to reflect at year-end the prevailing market rate of a portfolio of high-quality fixed income investments, rated AA/Aa or better that reflect the rates at which the pension benefits could be effectively settled. For our international plans, the discount rates are set by benchmarking against investment grade corporate bonds rated AA/Aa or better, including, when there is sufficient data, a yield curve approach. These rate determinations are made consistent with local requirements. Overall, the yield curves used to measure the benefit obligations at year-end 2020 resulted in lower discount rates as compared to the prior year.
The following provides the healthcare cost trend rate assumptions for our U.S. postretirement benefit plans:
As of December 31,
20202019
Healthcare cost trend rate assumed for next year (up to age 65)5.4 %5.6 %
Healthcare cost trend rate assumed for next year (age 65 and older)5.6 %6.0 %
Rate to which the cost trend rate is assumed to decline4.5 %4.5 %
Year that the rate reaches the ultimate trend rate2037 2037 
C. Obligations and Funded Status

The following provides an analysis of the changes in our benefit obligations, plan assets and funded status of our benefit plans (including those reported as part of discontinued operations):
 U.S. QualifiedU.S. Supplemental
(Non-Qualified)		InternationalPostretirement
Plans
Year Ended December 31,
(MILLIONS OF DOLLARS)20202019202020192020201920202019
Change in benefit obligation(a)
Benefit obligation, beginning$16,535 $15,141 $1,351 $1,280 $11,059 $9,952 $1,667 $1,870 
Service cost— — — — 146 125 38 37 
Interest cost499 629 34 47 164 215 49 75 
Employee contributions— — — — 8 7 88 84 
Plan amendments2 — — — 2 18 (56)(56)
Changes in actuarial assumptions and other(b)
1,953 2,001 159 152 702 1,224 (132)(87)
Foreign exchange impact— — — — 646 (33)2 (1)
Upjohn spin-off(c)
(1,016)— — — (320)— (218)— 
Acquisitions/divestitures/other, net— (4)— (1)— (55)— (36)
Curtailments— — — — — (2)— — 
Settlements(650)(692)(117)(70)(34)(34)— — 
Special termination benefits(1)4 2 17 — — — 2 
Benefits paid(383)(544)(62)(74)(372)(360)(201)(221)
Benefit obligation, ending(a)
16,940 16,535 1,366 1,351 12,001 11,059 1,238 1,667 
Change in plan assets
Fair value of plan assets, beginning
14,586 13,051 — — 8,956 8,215 519 469 
Actual gain/(loss) on plan assets1,974 2,760 — — 868 873 69 50 
Company contributions1,253 11 179 144 197 230 113 137 
Employee contributions— — — — 8 7 88 84 
Foreign exchange impact— — — — 462 42 — — 
Upjohn spin-off(c)
(687)— — — (270)— — — 
Acquisitions/divestitures, net— — — — (6)(16)— — 
Settlements(650)(692)(117)(70)(34)(34)— — 
Benefits paid(383)(544)(62)(74)(372)(360)(201)(221)
Fair value of plan assets, ending16,094 14,586 — — 9,811 8,956 588 519 
Funded status—Plan assets less than benefit obligation
$(845)$(1,949)$(1,366)$(1,351)$(2,191)$(2,103)$(651)$(1,148)
(a)The PBO represents the present value of the benefit obligation earned through the end of the year and factors in future compensation increases. The ABO is similar to the PBO but does not factor in future compensation increases. For the U.S. qualified and supplemental (non-qualified) pension plans, the benefit obligation is the PBO, which is also equal to the ABO. For the international pension plans, the benefit obligation is the PBO. The ABO for our international pension plans was $11.5 billion in 2020 and $10.6 billion in 2019. For the postretirement plans, the benefit obligation is the ABO.
(b)Primarily includes actuarial losses resulting from decreases in discount rates in 2020 and 2019.
(c)For more information, see Note 2B.
The following provides information as to how the funded status is recognized in our consolidated balance sheets:
 Pension Plans  
 U.S. QualifiedU.S. Supplemental
(Non-Qualified)		InternationalPostretirement
Plans
As of December 31,
(MILLIONS OF DOLLARS)20202019202020192020201920202019
Noncurrent assets(a)
$— $— $— $— $522 $453 $— $— 
Current liabilities(b)
— — (127)(189)(31)(30)(6)(24)
Noncurrent liabilities(c)
(845)(1,949)(1,239)(1,162)(2,681)(2,526)(645)(1,124)
Funded status$(845)$(1,949)$(1,366)$(1,351)$(2,191)$(2,103)$(651)$(1,148)
(a)Included in Other noncurrent assets.
(b)Included in Accrued compensation and related items.
(c)Included in Pension benefit obligations, Postretirement benefit obligations, and Other noncurrent liabilities, as appropriate.
The following provides the pre-tax components of cumulative amounts recognized in Accumulated other comprehensive loss:
Pension Plans  
U.S. QualifiedU.S. Supplemental
(Non-Qualified)		InternationalPostretirement
Plans
As of December 31,
(MILLIONS OF DOLLARS)20202019202020192020201920202019
Actuarial losses(a)
$(5,062)$(4,812)$(579)$(484)$(3,056)$(2,921)$58 $(76)
Prior service (costs)/credits(3)(2)(1)— (31)(21)688 830 
Total(b)
$(5,065)$(4,814)$(580)$(485)$(3,087)$(2,942)$746 $754 
(a)Primarily represent the impact of changes in discount rates and other assumptions that result in cumulative changes in our PBO, as well as the cumulative difference between the expected return and actual return on plan assets. These accumulated actuarial losses are recognized in Accumulated other comprehensive loss and are amortized into net periodic benefit costs primarily over the average remaining service period for active participants for plans that are not frozen or the average life expectancy of plan participants for frozen plans, primarily using the corridor approach.
(b)The change from December 31, 2019 includes the derecognition of $388 million of pre-tax actuarial losses, net of prior service credits associated with benefit plans distributed as a result of the spin-off and the combination of the Upjohn Business with Mylan on November 16, 2020.

The following provides information related to the funded status of selected benefit plans (including those reported as part of liabilities of discontinued operations):
U.S. QualifiedU.S. Supplemental (Non-Qualified)International
As of December 31,
(MILLIONS OF DOLLARS)202020192020201920202019
Pension plans with an ABO in excess of plan assets:
Fair value of plan assets
$16,094 $14,586 $— $— $6,674 $5,843 
ABO
16,940 16,535 1,366 1,351 8,961 7,960 
Pension plans with a PBO in excess of plan assets:
Fair value of plan assets
16,094 14,586 — — 6,735 5,947 
PBO
16,940 16,535 1,366 1,351 9,447 8,503 

All of our U.S. plans and many of our international plans were underfunded as of December 31, 2020.
D. Plan Assets
The following provides the components of plan assets (including those reported as part of discontinued operations):
    Fair Value  Fair Value
(MILLIONS OF DOLLARS)As of December 31, 2020Level 1Level 2Level 3
Assets Measured at NAV(a)
As of December 31, 2019Level 1Level 2Level 3
Assets Measured at NAV(a)
U.S. qualified pension plans
Cash and cash equivalents$781 $70 $711 $— $— $363 $80 $284 $— $— 
Equity securities:
Global equity securities3,241 3,213 27 1 — 3,464 3,406 57 — — 
Equity commingled funds1,325 — 1,110 — 215 1,179 — 819 — 360 
Fixed income securities:
Corporate debt securities6,499 23 6,476 — — 5,292 10 5,281 1 — 
Government and agency obligations(b)
1,555 — 1,555 — — 1,799 — 1,799 — — 
Fixed income commingled funds23 — 23 — — 6 — 6 — — 
Other investments:
Partnership investments(c)
1,431 — — — 1,431 1,212 — — — 1,212 
Insurance contracts190 — 190 — — 196 — 196 — — 
Other commingled funds(d)
1,049 — 11 — 1,038 1,075 — 9 — 1,066 
Total$16,094 $3,306 $10,103 $1 $2,684 $14,586 $3,496 $8,451 $1 $2,638 
International pension plans
Cash and cash equivalents$407 $61 $346 $— $— $221 $33 $187 $— $— 
Equity securities:
Equity commingled funds2,051 — 1,681 — 370 1,922 — 1,548 — 374 
Fixed income securities:
Corporate debt securities925 — 925 — — 796 — 796 — — 
Government and agency obligations(b)
1,334 — 1,334 — — 1,200 — 1,200 — — 
Fixed income commingled funds2,484 — 1,217 — 1,267 2,201 — 1,031 — 1,171 
Other investments:
Partnership investments(c)
69 — 3 — 66 66 — 3 — 63 
Insurance contracts1,027 — 57 969 1 1,027 — 82 944 1 
Other(d)
1,514 — 117 393 1,003 1,524 — 82 398 1,043 
Total$9,811 $61 $5,681 $1,362 $2,707 $8,956 $33 $4,929 $1,342 $2,652 
U.S. postretirement plans(e)
Insurance contracts$588 $— $588 $— $— $519 $— $519 $— $— 
(a)Certain investments that are measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. The NAV amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total pension benefits plan assets.
(b)Government and agency obligations are inclusive of repurchase agreements.
(c)Mainly includes investments in private equity, private debt, public equity limited partnerships, and, to a lesser extent, real estate and venture capital.
(d)Mostly includes investments in hedge funds and real estate.
(e)Reflects postretirement plan assets, which support a portion of our U.S. retiree medical plans.
The following provides an analysis of the changes in our more significant investments valued using significant unobservable inputs (including those reported as part of discontinued operations):
International Pension Plans
Insurance contractsOther
Year Ended December 31,
(MILLIONS OF DOLLARS)2020201920202019
Fair value, beginning$944 $684 $398 $382 
Actual return on plan assets:
Assets held, ending32 50 (10)6 
Purchases, sales, and settlements, net
(38)(40)(10)6 
Transfer into/(out of) Level 3(11)247 (2)— 
Exchange rate changes42 2 16 4 
Fair value, ending$969 $944 $393 $398 
Equity securities, Fixed income securities and Other investments may each be combined into commingled funds. Most commingled funds are valued to reflect the interest in the fund based on the reported year-end NAV. Partnership and Other investments are valued based on year-end reported NAV (or its equivalent), with adjustments as appropriate for lagged reporting of up to three months.

The following methods and assumptions were used to estimate the fair value of our pension and postretirement plans’ assets:
•Cash and cash equivalents: Level 1 investments may include cash, cash equivalents and foreign currency valued using exchange rates. Level 2 investments may include short-term investment funds which are commingled funds priced at a stable NAV by the administrator of the funds.
•Equity securities: Level 1 investments may include individual securities that are valued at the closing price or last trade reported on the major market on which they are traded. Level 1 and Level 2 investments may include commingled funds that have a readily determinable fair value based on quoted prices on an exchange or a published NAV derived from the quoted prices in active markets of the underlying securities. Level 3 investments may include individual securities that are unlisted, delisted, suspended, or illiquid and are typically valued using their last available price.
•Fixed income securities: Level 1 investments may include individual securities that are valued at the closing price or last trade reported on the major market on which they are traded. Level 2 investments may include commingled funds that have a readily determinable fair value based on observable prices of the underlying securities. Level 2 investments may include corporate bonds, government and government agency obligations and other fixed income securities valued using bid evaluation pricing models or quoted prices of securities with similar characteristics. Level 3 investments may include securities that are valued using alternative pricing sources, such as investment managers or brokers, which use proprietary pricing models that incorporate unobservable inputs.
•Other investments: Level 1 investments may include individual securities that are valued at the closing price or last trade reported on the major market on which they are traded. Level 2 investments may include Insurance contracts which invest in interest bearing cash, U.S. government securities and corporate debt instruments.
Certain investments are authorized to include derivatives, such as equity or bond futures, swaps, options and currency futures or forwards for managing risks and exposures.
The following provides the long-term target asset allocations ranges and the percentage of the fair value of plan assets for benefit plans:
  Target
Allocation Percentage		Percentage of Plan Assets
As of December 31,
(PERCENTAGES)202020202019
U.S. qualified pension plans
Cash and cash equivalents
0-10%
4.9 %2.5 %
Equity securities
35-55%
28.4 %31.8 %
Fixed income securities
28-53%
50.2 %48.7 %
Other investments
5-20%
16.6 %17.0 %
Total100 %100 %100 %
International pension plans
Cash and cash equivalents
0-10%
4.2 %2.5 %
Equity securities
20-40%
20.9 %21.5 %
Fixed income securities
35-60%
48.4 %46.9 %
Other investments
10-35%
26.6 %29.2 %
Total100 %100 %100 %
U.S. postretirement plans
Cash and cash equivalents
0-5%
— — 
Other investments
95-100%
100 %100 %
Total100 %100 %100 %
Global plan assets are managed with the objective of generating returns that will enable the plans to meet their future obligations, while seeking to manage net periodic benefit costs and cash contributions over the long-term. We utilize long-term asset allocation ranges in the management of our plans’ invested assets. Our long-term return expectations are developed based on a diversified, global investment strategy that takes into account historical experience, as well as the impact of portfolio diversification, active portfolio management, and our view of current and future economic and financial market conditions. As market conditions and other factors change, we may adjust our targets accordingly and our asset allocations may vary from the target allocations.

Our long-term asset allocation ranges reflect our asset class return expectations and tolerance for investment risk within the context of the respective plans’ long-term benefit obligations. These ranges are supported by analysis that incorporates historical and expected returns by asset class, as well as volatilities and correlations across asset classes and our liability profile.

Each pension plan is overseen by a local committee or board that is responsible for the overall investment of the pension plan assets. In determining investment policies and associated target allocations, each committee or board considers a wide variety of factors. As such, the target asset allocation for each of our international pension plans is set on a standalone basis by the relevant board or committee. The target
asset allocation ranges shown for the international pension plans seek to reflect the combined target allocations across all such plans, while also showing the range within which the target allocations for each plan typically falls.

The investment managers of certain separately managed accounts, commingled funds and private equity funds may be permitted to use repurchase agreements and derivative securities, including U.S. Treasury and equity futures contracts as described in each respective investment management, subscription, partnership or other governing agreement.

E. Cash Flows

It is our practice to fund amounts for our qualified pension plans that are at least sufficient to meet the minimum requirements set forth in applicable employee benefit laws and local tax laws.
The following provides the expected future cash flow information related to our benefit plans:
  Pension Plans
(MILLIONS OF DOLLARS)U.S. QualifiedU.S. Supplemental
(Non-Qualified)		InternationalPostretirement Plans
Expected employer contributions:
2021
$— $127 $282 $90 
Expected benefit payments:
2021$1,139 $127 $371 $97 
20221,036 121 375 94 
20231,032 116 375 92 
20241,030 106 385 89 
2025986 100 393 86 
2026–20304,625 424 2,086 430 
The above table reflects the total U.S. and international plan benefits projected to be paid from the plans or from our general assets under the current actuarial assumptions used for the calculation of the benefit obligation and, therefore, actual benefit payments may differ from projected benefit payments.
F. Defined Contribution Plans

We have defined contribution plans in the U.S. and several other countries. For the majority of the U.S. defined contribution plans, employees may contribute a portion of their salaries and bonuses to the plans, and we match, in cash, a portion of the employee contributions. Beginning on January 1, 2011, for newly hired non-union employees, rehires and transfers to the U.S. or Puerto Rico, we no longer offer a defined benefit pension plan and, instead, offer a Retirement Savings Contribution (RSC) in the defined contribution plan. The RSC is an annual non-contributory employer contribution (that is not dependent upon the participant making a contribution) determined based on each employee’s eligible compensation, age and years of service. Beginning on January 1, 2018, all non-union employees in the U.S. and Puerto Rico defined benefit plans transitioned to the RSC in the defined contribution plans. We recorded charges related to the employer contributions to global defined contribution plans of $685 million in 2020, $659 million in 2019 and $622 million in 2018.