Annual report pursuant to Section 13 and 15(d)

COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS

v3.20.4
COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS
 12 Months Ended
Dec. 31, 2020
Retirement Benefits [Abstract]  
COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS
We sponsor various retirement and pension plans, including defined benefit and defined contribution plans which cover our employees worldwide.
U.S. Pension Benefits
In the U.S. we maintain the following single-employer defined benefit pension plans: the UPS Retirement Plan, the UPS Pension Plan, the UPS/IBT Full-Time Employee Pension Plan and the UPS Excess Coordinating Benefit Plan, a non-qualified plan.
The UPS Retirement Plan is noncontributory and includes substantially all eligible employees of participating domestic subsidiaries hired prior to July 1, 2016 who are not members of a collective bargaining unit, as well as certain employees covered by a collective bargaining agreement. This plan generally provides for retirement benefits based on average compensation earned by employees prior to retirement. Benefits payable under this plan are subject to maximum compensation limits and the annual benefit limits for a tax-qualified defined benefit plan as prescribed by the Internal Revenue Service (“IRS”).
The UPS Pension Plan is noncontributory and includes certain eligible employees of participating domestic subsidiaries and members of collective bargaining units that elect to participate in the plan. This plan generally provides for retirement benefits based on service credits earned by employees prior to retirement.
The UPS/IBT Full-Time Employee Pension Plan is noncontributory and includes employees that were previously members of the Central States Pension Fund ("CSPF"), a multiemployer pension plan, in addition to other eligible employees who are covered under certain collective bargaining agreements. This plan generally provides for retirement benefits based on service credits earned by employees prior to retirement.
The UPS Excess Coordinating Benefit Plan is a non-qualified plan that provides benefits to certain participants in the UPS Retirement Plan, hired prior to July 1, 2016, for amounts that exceed the benefit limits described above.
In the year ended December 31, 2017, we amended the UPS Retirement Plan and the UPS Excess Coordinating Benefit Plan to cease accruals of additional benefits for future service and compensation for non-union participants effective January 1, 2023.
During the fourth quarter of 2019, certain former U.S. employees were offered the option to receive a one-time payment of their vested pension benefit. Approximately 18,800 former employees accepted this option, accelerating $820 million in benefit payments during 2019 while reducing the number of participants who are due future payments from U.S. pension plans. As the cost of these settlements did not exceed the plans' service cost and interest cost for the year, the impact of the settlement was not recognized in earnings.
On January 24, 2021, we entered into a definitive agreement to divest our UPS Freight business as discussed in note 4. Upon closing, our U.S. pension and postretirement plans may be subject to remeasurement of plan assets and pension benefit obligations.
International Pension Benefits
We also sponsor various defined benefit plans covering certain of our international employees. The majority of our international obligations are for defined benefit plans in Canada and the United Kingdom. In addition, many of our international employees are covered by government-sponsored retirement and pension plans. We are not directly responsible for providing benefits to participants of government-sponsored plans.
U.S. Postretirement Medical Benefits
We also sponsor postretirement medical plans in the U.S. that provide healthcare benefits to our non-union retirees, as well as select union retirees who meet certain eligibility requirements and who are not otherwise covered by multiemployer plans. Generally, this includes employees with at least 10 years of service who have reached age 55 and employees who are eligible for postretirement medical benefits from a Company-sponsored plan pursuant to collective bargaining agreements. We have the right to modify or terminate certain of these plans. These benefits have been provided to certain retirees on a noncontributory basis; however, in many cases, retirees are required to contribute all or a portion of the total cost of the coverage.
Defined Contribution Plans
We sponsor a defined contribution plan for employees not covered under collective bargaining agreements, and several smaller defined contribution plans for certain employees covered under collective bargaining agreements. We match, in shares of UPS common stock or cash, a portion of the participating employees’ contributions. Matching contributions charged to expense were $139, $130 and $127 million for 2020, 2019 and 2018, respectively.
In addition to current benefits under the UPS 401(k) Savings Plan, non-union employees hired after July 1, 2016, receive a retirement contribution. UPS contributes 3% to 8% of eligible pay to the UPS 401(k) Savings Plan based on years of vesting service and business unit. Contributions under this plan are subject to maximum compensation and contribution limits for a tax-qualified defined contribution plan as prescribed by the IRS. Contributions charged to expense were $84, $67 and $28 million for 2020, 2019 and 2018 respectively.
Effective June 23, 2017, the Company amended the UPS 401(k) Savings Plan so that non-union employees who currently participate in the UPS Retirement Plan will, in addition to current benefits under the UPS 401(k) Savings Plan, earn a retirement contribution beginning January 1, 2023. UPS will contribute 5% to 8% of eligible compensation to the UPS 401(k) Savings Plan based on years of vesting service. The amendment also provides for transition contributions for certain participants. There was no impact to the statements of consolidated income for 2020, 2019 and 2018 as a result of this change.
The UPS Restoration Savings Plan is a non-qualified plan that provides benefits to certain participants in the UPS 401(k) Savings Plan for amounts that exceed the benefit limits described above.
Contributions are also made to defined contribution money purchase plans under certain collective bargaining agreements. Amounts charged to expense were $107, $97 and $92 million for 2020, 2019 and 2018, respectively.
Net Periodic Benefit Cost
Information about net periodic benefit cost for the company-sponsored pension and postretirement defined benefit plans is as follows (in millions):
  U.S. Pension Benefits U.S. Postretirement
Medical Benefits		 International
Pension Benefits
  2020 2019 2018 2020 2019 2018 2020 2019 2018
Net Periodic Benefit Cost:
Service cost $ 1,853  $ 1,439  $ 1,661  $ 29  $ 23  $ 29  $ 67  $ 57  $ 62 
Interest cost 1,977  2,067  1,799  91  108  104  40  47  45 
Expected return on plan assets (3,549) (3,130) (3,201) (8) (8) (8) (86) (76) (77)
Amortization of prior service cost 218  218  193  7  7  7  2  2  1 
Actuarial (gain) loss 6,211  2,296  1,603  246  37  —  27  54  24 
Curtailment and settlement loss —  —  —  —  —  —  —  —  — 
Net periodic benefit cost $ 6,710  $ 2,890  $ 2,055  $ 365  $ 167  $ 132  $ 50  $ 84  $ 55 
Actuarial Assumptions
The table below provides the weighted-average actuarial assumptions used to determine the net periodic benefit cost:
  U.S. Pension Benefits U.S. Postretirement
Medical Benefits		 International
Pension Benefits
  2020 2019 2018 2020 2019 2018 2020 2019 2018
Service cost discount rate 3.60  % 4.50  % 3.84  % 3.59  % 4.51  % 3.82  % 3.01  % 3.58  % 3.35  %
Interest cost discount rate 3.60  % 4.50  % 3.84  % 3.59  % 4.51  % 3.82  % 2.67  % 3.25  % 3.01  %
Rate of compensation increase 4.22  % 4.25  % 4.25  % N/A N/A N/A 3.00  % 3.24  % 3.22  %
Expected return on plan assets 7.77  % 7.75  % 7.75  % 7.20  % 7.20  % 7.20  % 5.55  % 5.69  % 5.76  %
Cash balance interest credit rate 2.50  % 2.98  % 2.50  % N/A N/A N/A 2.59  % 3.17  % 3.07  %
The table below provides the weighted-average actuarial assumptions used to determine the benefit obligations of our plans:
  U.S. Pension Benefits U.S. Postretirement
Medical Benefits		 International
Pension Benefits
  2020 2019 2020 2019 2020 2019
Discount rate 2.90  % 3.60  % 2.88  % 3.59  % 1.94  % 2.21  %
Rate of compensation increase 4.21  % 4.22  % N/A N/A 2.93  % 3.00  %
Cash balance interest credit rate 2.50  % 2.50  % N/A N/A 2.74  % 2.59  %
A discount rate is used to determine the present value of our future benefit obligations. To determine the discount rate for our U.S. pension and postretirement benefit plans, we use a bond matching approach to select specific bonds that would satisfy our projected benefit payments. We believe the bond matching approach reflects the process we would employ to settle our pension and postretirement benefit obligations. In 2019, we refined the bond matching approach used to determine the discount rate for our U.S. pension and postretirement plans. Following a routine, periodic review of their standard bond matching tool which we reference to support discount rates, our external consultants refined their model to reflect the increased availability of longer duration high-quality corporate bonds, changes in the content and sources of available data and improvements in computational capabilities. We believe these refinements enhance the simulation of bond portfolios that match the plans' expected cash flows and result in a better estimate of the plan discount rates. These refinements resulted in an increase of approximately 10 basis points in the discount rates used to measure our plans, decreasing the total projected benefit obligation in our consolidated balance sheet at the December 31, 2019 measurement date by approximately $900 million and the resulting pre-tax mark-to-market charge within Other income and (expense) in our statements of consolidated income by approximately $810 million, and increasing net income by $616 million, or $0.71 per share on a basic and diluted basis. For our international plans, the discount rate is determined by matching the expected cash flows of the plan, where available, or of a sample plan of similar duration, to a yield curve based on long-term, high quality fixed income debt instruments available as of the measurement date. These assumptions are updated each measurement date, which is typically annually.
As of December 31, 2020, the impact of each basis point change in the discount rate on the projected benefit obligation of our pension and postretirement medical benefit plans is as follows (in millions):
  Increase (Decrease) in the Projected Benefit Obligation
  Pension Benefits Postretirement Medical Benefits
One basis point increase in discount rate $ (110) $ (2)
One basis point decrease in discount rate 118  3 
The Society of Actuaries ("SOA") published mortality tables and improvement scales are used in developing the best estimate of mortality for our U.S. plans. In October 2020, the SOA published an updated improvement scale which reduced expected mortality improvements from previously published improvement scales. Based on our perspective of future longevity, we updated the mortality assumptions to incorporate the improvement scale for purposes of measuring pension and other postretirement benefit obligations.
Assumptions for the expected return on plan assets are used to determine a component of net periodic benefit cost for the year. The assumption for our U.S. plans is developed using a long-term projection of returns for each asset class. Our asset allocation targets are reviewed and, if necessary, updated taking into consideration plan changes, funded status and actual performance. The expected return for each asset class is a function of passive, long-term capital market assumptions and excess returns generated from active management. The capital market assumptions used are provided by independent investment advisors, while excess return assumptions are supported by historical performance, fund mandates and investment expectations.
For plans outside the U.S., consideration is given to local market expectations of long-term returns. Strategic asset allocations are determined by plan, based on the nature of liabilities and considering the demographic composition of the plan participants.
Actuarial Assumptions - Central States Pension Fund
UPS was a contributing employer to the CSPF until 2007 when we withdrew from the CSPF and fully funded our allocable share of unfunded vested benefits by paying a $6.1 billion withdrawal liability. Under a collective bargaining agreement with the International Brotherhood of Teamsters (“IBT”), UPS agreed to provide coordinating benefits in the UPS/IBT Full Time Employee Pension Plan (“UPS/IBT Plan”) for UPS participants whose last employer was UPS and who had not retired as of January 1, 2008 (“the UPS Transfer Group”) in the event that benefits are lawfully reduced by the CSPF in the future consistent with the terms of our withdrawal agreement with the CSPF.
Under our withdrawal agreement with the CSPF, benefits to the UPS Transfer Group cannot be reduced without our consent and can only be reduced in accordance with applicable law.
In 2014, Congress passed the Multiemployer Pension Reform Act (“MPRA”). This change in law for the first time permitted multiemployer pension plans to reduce benefit payments to retirees, subject to specific guidelines in the statute and government approval. In 2015, the CSPF submitted a proposed pension benefit reduction plan to the U.S. Department of the Treasury (“Treasury”). In 2016, Treasury rejected the proposed plan submitted by the CSPF. In 2018, Congress established a Joint Select Committee to develop a recommendation to improve the solvency of multiemployer plans and the Pension Benefit Guaranty Corporation (“PBGC”) before a November 30, 2018 deadline. While the Committee’s efforts failed to meet its deadline, the Committee made significant progress towards finding solutions that would address the long term solvency of multiemployer pension plans. In 2019, the U.S. House of Representatives passed the Rehabilitation for Multiemployer Pensions Act of 2019 to provide assistance to critical and declining multiemployer pension plans. Additionally, in 2020, the U.S. House of Representatives passed two versions of the Health and Economic Recovery Omnibus Emergency Solutions Act ("HEROES Act"), which would provide financial support to those same plans. These bills remain with the U.S. Senate for consideration. UPS continues to work with all stakeholders, including legislators and regulators, to implement an acceptable solution.
The CSPF has said that it believes a legislative solution to its funded status is necessary or that it will become insolvent in 2025. We expect that the CSPF will continue to explore options to avoid insolvency. Numerous factors could affect the CSPF’s funded status and UPS’s potential obligation to pay coordinating benefits under the UPS/IBT Plan, including whether the CSPF submits a revised benefit reduction plan under MPRA and the terms thereof, or whether it otherwise seeks federal government assistance, as well as the terms of any applicable legislation, the extent to which benefits are paid by the PBGC and our ability to successfully defend legal positions we may take in the future under the MPRA, including the suspension ordering provisions, our withdrawal agreement and other applicable law.
We account for the potential obligation to pay coordinating benefits to the UPS Transfer Group under Accounting Standards Codification Topic 715- Compensation- Retirement Benefits (“ASC 715”), which requires us to provide a best estimate of various actuarial assumptions, including the eventual outcome of this matter, in measuring our pension benefit obligation at the December 31st measurement date. While we currently believe the most likely outcome to this matter and the broader systemic problems facing multiemployer pension plans is intervention by the federal government, ASC 715 does not permit anticipation of changes in law in making a best estimate of pension liabilities. As such, our best estimate in accordance with ASC 715 at the December 31, 2020 measurement date is that the CSPF can no longer submit and implement another benefit reduction plan under the MPRA.
We developed our best estimate using a deterministic cash flow projection that reflects updated estimated CSPF cash flows and investment earnings, the lack of legislative action, payment of guaranteed benefits by the PBGC and the absence of a benefit reduction plan under MPRA having been filed by the CSPF. As a result, at the December 31, 2020 measurement date, the best estimate of our projected benefit obligation for coordinating benefits that may be required to be directly provided by the UPS/IBT Plan to the UPS Transfer Group increased by $2.3 billion. Since 2018, we have recorded $4.9 billion for coordinating benefits that the UPS/IBT Plan may be required to pay. At the December 31, 2020 measurement date, discount rate changes increased this liability to $5.5 billion.
The future value of this estimate will be influenced by a number of factors, including the terms and timing of any benefit reduction plan under MPRA, changes in our discount rate, rate of return on assets and other actuarial assumptions, the ability of the PBGC to sustain its commitments, as well as potential solutions resulting from federal government intervention. Any such event may result in a decrease or an increase in the best estimate of our projected benefit obligation. If a future change in law occurs, it may be a significant event requiring an interim remeasurement of the UPS/IBT Plan at the date the law is enacted. We will continue to assess the impact of these uncertainties on our projected benefit obligation in accordance with ASC 715.
Other Actuarial Assumptions
Healthcare cost trends are used to project future postretirement medical benefits payable from our plans. For 2020 U.S. plan obligations, future postretirement medical benefit costs were forecasted assuming an initial annual rate of increase of 6.5%, decreasing to 4.5% by the year 2029 and with consistent annual increases at that ultimate level thereafter.
Funded Status
The following table discloses the funded status of our plans and the amounts recognized in our consolidated balance sheets as of December 31 (in millions):
  U.S. Pension Benefits U.S. Postretirement
Medical Benefits		 International
Pension Benefits
  2020 2019 2020 2019 2020 2019
Funded Status:
Fair value of plan assets $ 52,997  $ 46,172  $ 49  $ 37  $ 1,835  $ 1,558 
Benefit obligation (65,922) (54,039) (2,759) (2,616) (2,177) (1,906)
Funded status $ (12,925) $ (7,867) $ (2,710) $ (2,579) $ (342) $ (348)
Funded Status Recognized in our Balance Sheet:
Other non-current assets $ —  $ —  $ —  $ —  $ 51  $ 34 
Other current liabilities (22) (22) (184) (200) (5) (5)
Pension and postretirement benefit obligations (12,903) (7,845) (2,526) (2,379) (388) (377)
Net liability $ (12,925) $ (7,867) $ (2,710) $ (2,579) $ (342) $ (348)
Amounts Recognized in AOCI:
Unrecognized net prior service cost $ (753) $ (800) $ (9) $ (16) $ (11) $ (12)
Unrecognized net actuarial gain (loss) (6,592) (5,404) (276) (240) (151) (162)
Gross unrecognized cost (7,345) (6,204) (285) (256) (162) (174)
Deferred tax assets (liabilities) 1,770  1,497  69  62  38  40 
Net unrecognized cost $ (5,575) $ (4,707) $ (216) $ (194) $ (124) $ (134)
The accumulated benefit obligation for our pension plans as of the measurement dates in 2020 and 2019 was $66.9 and $55.0 billion, respectively. The accumulated benefit obligation for our postretirement medical benefit plans as of the measurement dates in 2020 and 2019 was $2.8 and $2.6 billion, respectively.
Benefit payments under the pension plans include $26 and $27 million paid from employer assets in 2020 and 2019, respectively. Benefit payments (net of participant contributions) under the postretirement medical benefit plans include $77 and $82 million paid from employer assets in 2020 and 2019, respectively. Such benefit payments from employer assets are also categorized as employer contributions.
As of December 31, 2020 and 2019, the projected benefit obligation, the accumulated benefit obligation and the fair value of plan assets for pension plans with benefit obligations in excess of plan assets were as follows (in millions):
  Projected Benefit Obligation
Exceeds the Fair Value of Plan Assets		 Accumulated Benefit Obligation
Exceeds the Fair Value of Plan Assets
2020 2019 2020 2019
U.S. Pension Benefits:
Projected benefit obligation $ 65,922  $ 54,039  $ 65,922  $ 54,039 
Accumulated benefit obligation 64,937  53,194  64,937  53,194 
Fair value of plan assets 52,997  46,172  52,997  46,172 
International Pension Benefits:
Projected benefit obligation $ 845  $ 1,319  $ 845  $ 1,319 
Accumulated benefit obligation 728  1,210  728  1,210 
Fair value of plan assets 452  948  452  948 
The accumulated postretirement benefit obligation presented in the funded status table exceeds plan assets for all U.S. postretirement medical benefit plans.
Benefit Obligations and Fair Value of Plan Assets
The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of plan assets as of the respective measurement dates in each year (in millions):
  U.S. Pension Benefits U.S. Postretirement
Medical Benefits		 International
Pension Benefits
  2020 2019 2020 2019 2020 2019
Benefit Obligations:
Projected benefit obligation at beginning of year $ 54,039  $ 45,333  $ 2,616  $ 2,510  $ 1,906  $ 1,552 
Service cost 1,853  1,439  29  23  67  57 
Interest cost 1,977  2,067  91  108  40  47 
Gross benefits paid (1,846) (2,394) (274) (288) (38) (40)
Plan participants’ contributions —  —  32  30  3  3 
Plan amendments 171  —  —  —  1  1 
Actuarial (gain)/loss 9,728  7,594  265  233  123  213 
Foreign currency exchange rate changes —  —  —  —  80  47 
Curtailments and settlements —  —  —  —  (6) (2)
Other —  —  —  —  1  28 
Projected benefit obligation at end of year $ 65,922  $ 54,039  $ 2,759  $ 2,616  $ 2,177  $ 1,906 
  U.S. Pension Benefits U.S. Postretirement
Medical Benefits		 International
Pension Benefits
  2020 2019 2020 2019 2020 2019
Fair Value of Plan Assets:
Fair value of plan assets at beginning of year $ 46,172  $ 39,554  $ 37  $ 26  $ 1,558  $ 1,284 
Actual return on plan assets 5,878  6,991  (9) (5) 184  171 
Employer contributions 2,793  2,021  263  274  69  67 
Plan participants’ contributions —  —  32  30  3  3 
Gross benefits paid (1,846) (2,394) (274) (288) (38) (40)
Foreign currency exchange rate changes —  —  —  —  62  49 
Curtailments and settlements —  —  —  —  (3) (2)
Other —  —  —  —  —  26 
Fair value of plan assets at end of year $ 52,997  $ 46,172  $ 49  $ 37  $ 1,835  $ 1,558 
2020 - $10.1 billion pre-tax actuarial loss related to benefit obligation:
•Discount Rates ($7.3 billion pre-tax loss): The weighted-average discount rate for our pension and postretirement medical plans decreased from 3.55% as of December 31, 2019 to 2.87% as of December 31, 2020, primarily due to a decline in U.S. treasury yields that was slightly offset by an increase in credit spreads on AA-rated corporate bonds.
•Coordinating benefits attributable to the Central States Pension Fund ($2.3 billion pre-tax loss): This represents our current best estimate of additional potential coordinating benefits that may be required to be paid related to the Central States Pension Fund before taking into account the impact of the change in discount rates.
•Demographic and Assumption Changes ($513 million pre-tax loss): This represents the difference between actual and estimated participant data and demographic factors, including items such as healthcare cost trends, compensation changes, rates of termination, retirement, mortality and other changes.
2019 - $8.0 billion pre-tax actuarial loss related to benefit obligation:
•Discount Rates ($7.5 billion pre-tax loss): The weighted-average discount rate for our pension and postretirement medical plans decreased from 4.45% as of December 31, 2018 to 3.55% as of December 31, 2019, primarily due to both a decline in U.S. treasury yields and a decrease in credit spreads on AA-rated corporate bonds. This was partially offset by a refinement to the bond matching approach used to determine the discount rate for our U.S. pension and postretirement plans discussed above.
•Coordinating benefits attributable to the Central States Pension Fund ($603 million pre-tax loss): This represents our current best estimate of additional potential coordinating benefits that may be required to be paid related to the Central States Pension Fund before taking into account the impact of the change in discount rates.
•Demographic and Assumption Changes ($40 million pre-tax gain): This represents the difference between actual and estimated participant data and demographic factors, including items such as healthcare cost trends, compensation changes, rates of termination, retirement, mortality and other changes.
Pension and Postretirement Plan Assets
Under the governance of plan trustees, the Investment Committee establishes investment guidelines and strategies and regularly monitors the performance of investments and investment managers. The investment guidelines address items such as establishing appropriate governance provisions; defining investment objectives; determining strategic asset allocation; monitoring and reporting the investments on a regular basis; appointing/dismissing investment managers, custodians, consultants and advisors; risk management; determining/defining the mandates for investment managers; rebalancing of assets and determining investment restrictions/prohibited investments.
Plan assets are invested in accordance with applicable laws and regulations. The primary long-term investment objective for pension assets is to provide for a reasonable amount of long-term growth of capital given prudent levels of risk exposure while minimizing permanent loss of capital. To meet this objective, investment managers are engaged to actively manage assets within the guidelines and strategies set forth by the Investment Committee. Active managers are monitored regularly and their performance is compared to applicable benchmarks.
Fair Value Measurements
Plan assets valued utilizing Level 1 inputs include equity investments, corporate debt instruments and U.S. government securities. Fair values were determined by closing prices for those securities traded on national stock exchanges, while securities traded in the over-the-counter market and listed securities for which no sale was reported on the valuation date are valued at the mean between the last reported bid and ask prices.
Level 2 assets include certain bonds that are valued based on yields currently available on comparable securities of other issues with similar credit ratings; mortgage-backed securities that are valued based on cash flow and yield models using acceptable modeling and pricing conventions; and certain investments that are pooled with other investments in a commingled fund. We value our investments in commingled funds by taking the percentage ownership of the underlying assets, each of which has a readily determinable fair value.
Fair value estimates for certain investments are based on unobservable inputs that are not corroborated by observable market data and are thus classified as Level 3.
Investments that do not have a readily determinable fair value, and which provide a net asset value ("NAV") or its equivalent developed consistent with FASB measurement principles, are valued using NAV as a practical expedient. These investments are not classified in Levels 1, 2, or 3 of the fair value hierarchy but instead included within the subtotals by asset category. Such investments include hedge funds, risk parity funds, real estate investments, private debt and private equity funds. Investments in hedge funds and risk parity funds are valued using the reported NAV as of December 31st. Real estate investments, private debt and private equity funds are valued at NAV per the most recent partnership audited financial reports, and adjusted, as appropriate, for investment activity between the date of the financial reports and December 31st. Due to the inherent limitations in obtaining a readily determinable fair value measurement for alternative investments, the fair values reported may differ from the values that would have been used had readily available market information for the alternative investments existed. These investments are described further below:
•Hedge Funds: Plan assets are invested in hedge funds that pursue multiple strategies to diversify risk and reduce volatility. Most of these hedge funds allow redemptions either quarterly or semi-annually after a two to three month notice period, while others allow for redemption after only a brief notification period with no restriction on redemption frequency. No unfunded commitments existed with respect to hedge funds as of December 31, 2020.
•Risk Parity Funds: Plan assets are invested in risk parity strategies in order to provide diversification and balance risk/return objectives. These strategies reflect a multi-asset class balanced risk approach generally consisting of equity, interest rates, credit and commodities. These funds allow for monthly redemptions with only a brief notification period. No unfunded commitments existed with respect to risk parity funds as of December 31, 2020.
•Real Estate, Private Debt and Private Equity Funds: Plan assets are invested in limited partnership interests in various private equity, private debt and real estate funds. Limited provision exists for the redemption of these interests by the limited partners that invest in these funds until the end of the term of the partnerships, typically ranging between 10 and 15 years from the date of inception. An active secondary market exists for similar partnership interests, although no particular value (discount or premium) can be guaranteed. As of December 31, 2020, unfunded commitments to such limited partnerships totaling approximately $3.3 billion are expected to be contributed over the remaining investment period, typically ranging between three and six years.
The fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of December 31, 2020 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations:
Total
Assets(1)
Level 1 Level 2 Level 3 Percentage of
Plan Assets 		Target
Allocation
Asset Category (U.S. Plans):
Cash and cash equivalents $ 1,593  $ 1,510  $ 83  $ —  3.0  %
1-5
Equity Securities:
U.S. Large Cap 8,294  4,272  4,022  — 
U.S. Small Cap 370  370  —  — 
Emerging Markets 2,106  1,503  603  — 
Global Equity 3,940  3,624  316  — 
International Equity 4,335  2,043  2,292  — 
Total Equity Securities 19,045  11,812  7,233  —  35.9 
25-55
Fixed Income Securities:
U.S. Government Securities 16,145  14,646  1,499  — 
Corporate Bonds 6,146  —  6,143  3 
Global Bonds 42  —  42  — 
Municipal Bonds 27  —  27  — 
Total Fixed Income Securities 22,360  14,646  7,711  3  42.2 
35-55
Other Investments:
Hedge Funds 3,518  —  1,652  —  6.6 
5-15
Private Equity 3,424  —  —  —  6.5 
1-10
Private Debt 695  —  —  —  1.3 
1-10
Real Estate 1,986  244  82  —  3.7 
1-10
Structured Products(2)
161  —  161  —  0.3 
1-5
Risk Parity Funds 264  —  —  —  0.5 
1-10
Total U.S. Plan Assets $ 53,046  $ 28,212  $ 16,922  $ 3  100.0  %
Asset Category (International Plans):
Cash and cash equivalents $ 84  $ 45  $ 39  —  4.6 
1-10
Equity Securities:
Local Markets Equity 214  —  214  — 
U.S. Equity 59  —  59  — 
Emerging Markets 55  41  14  — 
International / Global Equity 534  210  324  — 
Total Equity Securities 862  251  611  —  47.0 
25-55
Fixed Income Securities:
Local Government Bonds 102  —  102  — 
Corporate Bonds 215  22  193  — 
Global Bonds 125  125  —  — 
Total Fixed Income Securities 442  147  295  —  24.1 
20-40
Other Investments:
Real Estate 154  —  80  21  8.3 
5-10
Other 293  —  236  41  16.0 
1-20
Total International Plan Assets $ 1,835  $ 443  $ 1,261  $ 62  100.0  %
Total Plan Assets $ 54,881  $ 28,655  $ 18,183  $ 65 
(1) Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy but are included in the category totals.
(2) Represents mortgage and asset-backed securities.
The fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of December 31, 2019 are presented below (in millions), as well as the percentage that each category comprises of our total plan assets and the respective target allocations:
Total
Assets(1)
Level 1 Level 2 Level 3 Percentage of
Plan Assets 		Target
Allocation
Asset Category (U.S. Plans):
Cash and cash equivalents $ 964  $ 818  $ 146  $ —  2.1  %
1-5
Equity Securities:
U.S. Large Cap 6,607  2,889  3,718  — 
U.S. Small Cap 505  376  129  — 
Emerging Markets 2,039  1,523  516  — 
Global Equity 2,892  2,553  339  — 
International Equity 4,591  2,499  2,092  — 
Total Equity Securities 16,634  9,840  6,794  —  36.0 
25-55
Fixed Income Securities:
U.S. Government Securities 14,077  12,980  1,097  — 
Corporate Bonds 5,051  —  5,051  — 
Global Bonds 50  —  50  — 
Municipal Bonds 24  —  24  — 
Total Fixed Income Securities 19,202  12,980  6,222  —  41.5 
35-55
Other Investments:
Hedge Funds 3,273  —  1,380  —  7.1 
5-15
Private Equity 3,030  —  —  —  6.6 
1-10
Private Debt 772  —  —  —  1.7 
1-10
Real Estate 1,940  149  74  —  4.2 
1-10
Structured Products(2)
153  —  153  —  0.3 
1-5
Risk Parity Funds 241  —  —  —  0.5 
1-10
Total U.S. Plan Assets $ 46,209  $ 23,787  $ 14,769  $ —  100.0  %
Asset Category (International Plans):
Cash and cash equivalents $ 72  $ 32  $ 40  —  4.6 
1-10
Equity Securities:
Local Markets Equity 209  —  209  — 
U.S. Equity 47  —  47  — 
Emerging Markets 33  33  —  — 
International / Global Equity 441  179  262  — 
Total Equity Securities 730  212  518  —  46.8 
30-60
Fixed Income Securities:
Local Government Bonds 94  —  94  — 
Corporate Bonds 177  20  157  — 
Global Bonds 110  110  —  — 
Total Fixed Income Securities 381  130  251  —  24.5 
25-45
Other Investments:
Real Estate 128  —  80  —  8.2 
5-10
Other 247  —  218  12  15.9 
1-20
Total International Plan Assets $ 1,558  $ 374  $ 1,107  $ 12  100.0  %
Total Plan Assets $ 47,767  $ 24,161  $ 15,876  $ 12 
(1) Certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy but are included in the category totals.
(2) Represents mortgage and asset-backed securities.
The following table presents the changes in the Level 3 instruments measured on a recurring basis for the years ended December 31, 2020 and 2019 (in millions):
Corporate Bonds Other Total
Balance on January 1, 2019 $ 2  $ 4  $ 6 
Actual Return on Assets:
Assets Held at End of Year —  1  1 
Assets Sold During the Year (4) —  (4)
Purchases 4  7  11 
Sales (2) —  (2)
Transfers Into (Out of) Level 3 —  —  — 
Balance on December 31, 2019 $ —  $ 12  $ 12 
Actual Return on Assets:
Assets Held at End of Year —  3  3 
Assets Sold During the Year (5) —  (5)
Purchases 10  51  61 
Sales (2) (4) (6)
Transfers Into (Out of) Level 3 —  —  — 
Balance on December 31, 2020 $ 3  $ 62  $ 65 
There were no shares of UPS class A or B common stock directly held in plan assets as of December 31, 2020 or 2019.
Expected Cash Flows
Information about expected cash flows for the pension and postretirement medical benefit plans is as follows (in millions):
U.S.
Pension Benefits		 U.S. Postretirement
Medical Benefits		 International  Pension Benefits
Expected Employer Contributions:
2021 to plan trusts $ —  $ 186  $ 66 
2021 to plan participants 23  70  6 
Expected Benefit Payments:
2021 $ 1,758  $ 236  $ 37 
2022 1,892  227  42 
2023 2,022  216  47 
2024 2,156  205  54 
2025 2,395  195  60 
2026 - 2030 14,745  831  406 
    
Our funding policy for U.S. plans is to contribute amounts annually that are at least equal to the amounts required by applicable laws and regulations, or to directly fund payments to plan participants, as applicable. International plans will be funded in accordance with local regulations. Additional discretionary contributions may be made when deemed appropriate to meet the long-term obligations of the plans. Expected benefit payments for pensions will be primarily paid from plan trusts. Expected benefit payments for postretirement medical benefits will be paid from plan trusts and corporate assets.