United Parcel Service, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS (Tables)

COMPANY-SPONSORED EMPLOYEE BENEFIT PLANS (Tables)

12 Months Ended

Dec. 31, 2019

Net Periodic Benefit Cost for Pension and Postretirement Benefit Plans

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
	2019			2018			2017			2019			2018			2017			2019			2018			2017
Net Periodic Benefit Cost:
Service cost	$	1,439		$	1,661		$	1,543		$	23		$	29		$	29		$	57		$	62		$	60
Interest cost	2,067			1,799			1,813			108			104			112			47			45			40
Expected return on assets	(3,130		)	(3,201		)	(2,883		)	(8		)	(8		)	(7		)	(76		)	(77		)	(66		)
Amortization of prior service cost	218			193			192			7			7			7			2			1			1
Actuarial (gain) loss	2,296			1,603			729			37			—			53			54			24			18
Curtailment and settlement loss	—			—			—			—			—			—			—			—			2
Net periodic benefit cost	$	2,890		$	2,055		$	1,394		$	167		$	132		$	194		$	84		$	55		$	55

Weighted Average Actuarial Assumptions Used Disclosure

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
	2019		2018		2017		2019		2018		2017		2019		2018		2017
Discount rate	4.50	%	3.84	%	4.41	%	4.51	%	3.82	%	4.23	%	2.94	%	2.78	%	2.75	%
Rate of compensation increase	4.25	%	4.25	%	4.27	%	N/A		N/A		N/A		3.24	%	3.22	%	3.17	%
Expected return on assets	7.75	%	7.75	%	8.75	%	7.20	%	7.20	%	8.75	%	5.69	%	5.76	%	5.65	%
Cash balance interest credit rate	2.98	%	2.50	%	2.91	%	N/A		N/A		N/A		3.17	%	3.07	%	2.65	%

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
	2019		2018		2019		2018		2019		2018
Discount rate	3.60	%	4.50	%	3.59	%	4.51	%	2.21	%	2.94	%
Rate of compensation increase	4.22	%	4.25	%	N/A		N/A		3.00	%	3.24	%
Cash balance interest credit rate	2.50	%	2.98	%	N/A		N/A		2.59	%	3.17	%

Reconciliation of the Changes in the 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
	2019			2018			2019			2018			2019			2018
Benefit Obligations:
Projected benefit obligation at beginning of year	$	45,333		$	45,847		$	2,510		$	2,792		$	1,552		$	1,651
Service cost	1,439			1,661			23			29			57			62
Interest cost	2,067			1,799			108			104			47			45
Gross benefits paid	(2,394		)	(1,390		)	(288		)	(263		)	(40		)	(33		)
Plan participants’ contributions	—			—			30			26			3			3
Plan amendments	—			331			—			—			1			13
Actuarial (gain)/loss	7,594			(2,915		)	233			(178		)	213			(81		)
Foreign currency exchange rate changes	—			—						—			47			(110		)
Curtailments and settlements	—			—						—			(2		)	(1		)
Other	—			—						—			28			3
Projected benefit obligation at end of year	$	54,039		$	45,333		$	2,616		$	2,510		$	1,906		$	1,552

	U.S. Pension Benefits						U.S. Postretirement Medical Benefits						International Pension Benefits
	2019			2018			2019			2018			2019			2018
Fair Value of Plan Assets:
Fair value of plan assets at beginning of year	$	39,554		$	41,932		$	26		$	183		$	1,284		$	1,333
Actual return on plan assets	6,991			(1,007		)	(5		)	(7		)	171			(6		)
Employer contributions	2,021			19			274			87			67			80
Plan participants’ contributions	—			—			30			26			3			3
Gross benefits paid	(2,394		)	(1,390		)	(288		)	(263		)	(40		)	(33		)
Foreign currency exchange rate changes	—			—			—			—			49			(92		)
Curtailments and settlements	—			—			—			—			(2		)	(1		)
Other	—			—			—			—			26			—
Fair value of plan assets at end of year	$	46,172		$	39,554		$	37		$	26		$	1,558		$	1,284

Funded Status as of the Respective Measurement Dates in Each Year and the Amounts Recognized in Balance Sheet

The following table discloses the funded status of our plans and the amounts recognized in our consolidated balance sheets as of December 31st (in millions):



	U.S. Pension Benefits						U.S. Postretirement Medical Benefits						International Pension Benefits
	2019			2018			2019			2018			2019			2018
Funded Status:
Fair value of plan assets	$	46,172		$	39,554		$	37		$	26		$	1,558		$	1,284
Benefit obligation	(54,039		)	(45,333		)	(2,616		)	(2,510		)	(1,906		)	(1,552		)
Funded status recognized at December 31	$	(7,867	)	$	(5,779	)	$	(2,579	)	$	(2,484	)	$	(348	)	$	(268	)
Funded Status Recognized in our Balance Sheet:
Other non-current assets	$	—		$	—		$	—		$	—		$	34		$	35
Other current liabilities	(22		)	(20		)	(200		)	(195		)	(5		)	(4		)
Pension and postretirement benefit obligations	(7,845		)	(5,759		)	(2,379		)	(2,289		)	(377		)	(299		)
Net liability at December 31	$	(7,867	)	$	(5,779	)	$	(2,579	)	$	(2,484	)	$	(348	)	$	(268	)
Amounts Recognized in AOCI:
Unrecognized net prior service cost	$	(800	)	$	(1,018	)	$	(16	)	$	(21	)	$	(12	)	$	(14	)
Unrecognized net actuarial gain (loss)	(5,404		)	(3,967		)	(240		)	(32		)	(162		)	(100		)
Gross unrecognized cost at December 31	(6,204		)	(4,985		)	(256		)	(53		)	(174		)	(114		)
Deferred tax assets (liabilities) at December 31	1,497			1,205			62			13			40			28
Net unrecognized cost at December 31	$	(4,707	)	$	(3,780	)	$	(194	)	$	(40	)	$	(134	)	$	(86	)

Projected Benefit Obligation, Accumulated Benefit Obligation, and Fair Value of Plan Assets for Pension Plans With an Accumulated Benefit Obligation in Excess of Plan Assets

At December 31, 2019 and 2018, 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
	2019		2018		2019		2018
U.S. Pension Benefits:
Projected benefit obligation	$	54,039	$	45,333	$	54,039	$	45,333
Accumulated benefit obligation	53,194		44,284		53,194		44,284
Fair value of plan assets	46,172		39,554		46,172		39,554
International Pension Benefits:
Projected benefit obligation	$	1,319	$	630	$	1,319	$	630
Accumulated benefit obligation	1,210		539		1,210		539
Fair value of plan assets	948		339		948		339

Fair Values of U.S. Pension and Postretirement Benefit Plan Assets by Asset Category as Well as the Percentage That Each Category Comprises of Total Plan Assets and the Respective Target Allocations

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 fair values of U.S. and international pension and postretirement benefit plan assets by asset category as of December 31, 2018 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	$	157	$	108	$	49	$	—	0.4	%	1-5
Equity Securities:
U.S. Large Cap	5,276		2,155		3,121		—
U.S. Small Cap	542		386		156		—
Emerging Markets	1,859		1,436		423		—
Global Equity	2,320		2,056		264		—
International Equity	3,670		2,189		1,481		—
Total Equity Securities	13,667		8,222		5,445		—		34.5		25-55
Fixed Income Securities:
U.S. Government Securities	12,295		11,922		373		—
Corporate Bonds	4,303		—		4,301		2
Global Bonds	55		—		55		—
Municipal Bonds	16		—		16		—
Total Fixed Income Securities	16,669		11,922		4,745		2		42.1		35-55
Other Investments:
Hedge Funds	3,154		—		1,185		—		8.0		5-15
Private Equity	2,763		—		—		—		7.0		1-10
Private Debt	836		—		178		—		2.1		1-10
Real Estate	1,989		152		53		—		5.0		1-10
Structured Products⁽²⁾	138		—		138		—		0.4		1-5
Risk Parity Funds	207		—		—		—		0.5		1-10
Total U.S. Plan Assets	$	39,580	$	20,404	$	11,793	$	2	100.0	%
Asset Category (International Plans):
Cash and cash equivalents	$	45	$	4	$	41	—		3.5		1-10
Equity Securities:
Local Markets Equity	171		—		171		—
U.S. Equity	34		—		34		—
Emerging Markets	33		33		—		—
International / Global Equity	348		150		198		—
Total Equity Securities	586		183		403		—		45.6		30-60
Fixed Income Securities:
Local Government Bonds	102		24		78		—
Corporate Bonds	195		54		141		—
Global Bonds	27		27		—		—
Total Fixed Income Securities	324		105		219		—		25.2		25-45
Other Investments:
Real Estate	121		—		76		—		9.4		5-10
Other	208		—		191		4		16.3		1-20
Total International Plan Assets	$	1,284	$	292	$	930	$	4	100.0	%
Total Plan Assets	$	40,864	$	20,696	$	12,723	$	6

⁽²⁾ Represents mortgage and asset-backed securities.

Fair Value Measurement of Plan Assets Using Significant Unobservable Inputs (Level 3)

The following table presents the changes in the Level 3 instruments measured on a recurring basis for the years ended December 31, 2019 and 2018 (in millions).



	Corporate Bonds			Other			Total
Balance on January 1, 2018	$	8		$	—		$	8
Actual Return on Assets:
Assets Held at End of Year	—			—			—
Assets Sold During the Year	(7		)	—			(7		)
Purchases	11			9			20
Sales	(10		)	(5		)	(15		)
Transfers Into (Out of) Level 3	—			—			—
Balance on December 31, 2018	$	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

Expected Cash Flows for Pension and Postretirement Benefit Plans

Information about expected cash flows for the pension and postretirement benefit plans is as follows (in millions):



	U.S. Pension Benefits		U.S. Postretirement Medical Benefits		International Pension Benefits
Expected Employer Contributions:
2020 to plan trusts	$	1,000	$	186	$	62
2020 to plan participants	21		11		5
2020	$	1,645	$	241	$	32
2021	1,802		225		36
2022	1,942		215		41
2023	2,085		206		46
2024	2,230		196		52
2025 - 2029	13,293		857		353

schedule of one basis point change in discount rate on the projected benefit obligation [Table Text Block]

As of December 31, 2019, 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	$	(86	)	$	(2	)
One basis point decrease in discount rate	92			3