Intel Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Retirement Benefit Plans

Retirement Benefit Plans

12 Months Ended

Dec. 29, 2018

DEFINED CONTRIBUTION PLANS

We provide tax-qualified defined contribution plans for the benefit of eligible employees, former employees, and retirees in the U.S. and certain other countries. The plans are designed to provide employees with an accumulation of funds for retirement on a tax-deferred basis. For the benefit of eligible U.S. employees, we also provide an unfunded non-tax-qualified supplemental deferred compensation plan for certain highly compensated employees.

We expensed $372 million for discretionary contributions to the U.S. qualified defined contribution and non-qualified deferred compensation plans in 2018 ($346 million in 2017 and $326 million in 2016).

U.S. POSTRETIREMENT MEDICAL BENEFITS PLAN

Upon retirement, we provide benefits to eligible U.S. employees who were hired prior to 2014 under the U.S. Postretirement Medical Benefits Plan. The benefits can be used to pay all or a portion of the cost to purchase eligible coverage in a medical plan.

As of December 29, 2018 and December 30, 2017, the projected benefit obligation was $547 million and $567 million, respectively, which used the discount rate of 4.4% and 3.8%, respectively. The December 29, 2018 and December 30, 2017 corresponding fair value of plan assets was $476 million and $563 million, respectively.

The investment strategy for U.S. Postretirement Medical Benefits Plan assets is to invest primarily in liquid assets, due to the level of expected future benefit payments. The assets are invested solely in a tax-aware global equity portfolio, which is actively managed by an external investment manager. The tax-aware global equity portfolio is composed of a diversified mix of equities in developed countries. As of December 29, 2018, substantially all of the U.S. Postretirement Medical Benefits Plan assets were invested in exchange-traded equity securities and were measured at fair value using Level 1 inputs.

The estimated benefit payments for this plan over the next 10 years are as follows:



(In Millions)	2019		2020		2021		2022		2023		2024-2028
Postretirement Medical Benefits	$	28	$	30	$	31	$	32	$	33	$	181

PENSION BENEFIT PLANS

We provide defined-benefit pension plans in certain countries, most significantly the U.S., Ireland, Germany, and Israel. The substantial majority of the plans' benefits have been frozen and beginning on January 1, 2020, future benefit accruals for the U.S. plan will be frozen to remaining eligible employees, reducing our projected benefit obligation by $150 million at December 29, 2018.

BENEFIT OBLIGATION AND PLAN ASSETS FOR PENSION BENEFIT PLANS

The vested benefit obligation for a defined-benefit pension plan is the actuarial present value of the vested benefits to which the employee is currently entitled based on the employee's expected date of separation or retirement.



(In Millions)	Dec 29, 2018			Dec 30, 2017
Changes in projected benefit obligation:
Beginning projected benefit obligation	$	3,842		$	3,640
Service cost	65			84
Interest cost	113			117
Actuarial (gain) loss	(204		)	24
Currency exchange rate changes	(121		)	281
Plan curtailments	(150		)	(162		)
Plan settlements	(74		)	(101		)
Other	(38		)	(41		)
Ending projected benefit obligation¹	3,433			3,842

Changes in fair value of plan assets:
Beginning fair value of plan assets	2,287			1,696
Actual return on plan assets	(38		)	136
Employer contributions	480			471
Currency exchange rate changes	(62		)	124
Plan settlements	(74		)	(101		)
Other	(42		)	(39		)
Ending fair value of plan assets²	2,551			2,287

Net funded status	$	882		$	1,555

Amounts recognized in the consolidated balance sheets
Other long-term assets	$	244		$	—
Other long-term liabilities	$	1,126		$	1,555
Accumulated other comprehensive loss (income), before tax³	$	1,038		$	1,257


¹	The split between U.S. and non-U.S. in the projected benefit obligation was approximately 35% and 65%, respectively, as of December 29, 2018 and 40% and 60%, respectively, as of December 30, 2017.


²	The split between the U.S. and non-U.S. in the fair value of plan assets was approximately 55% and 45%, respectively, as of December 29, 2018 and 50% and 50%, respectively, as of December 30, 2017.


³	The split between U.S. and non-U.S. in the accumulated other comprehensive loss (income), before tax, was approximately 35% and 65%, respectively, as of December 29, 2018 and 40% and 60%, respectively, as of December 30, 2017.

Changes in actuarial gains and losses in the projected benefit obligation are generally driven by discount rate movement. We use the corridor approach to amortize actuarial gains and losses. Under this approach, net actuarial gains or losses in excess of 10% of the larger of the projected benefit obligation or the fair value of plan assets are amortized on a straight-line basis.

As of December 29, 2018, the accumulated benefit obligations were $1.2 billion and $2.0 billion for the U.S. plan and non-U.S. plans, respectively. In 2018, the U.S. plan was in the net asset position and all non-U.S. plans had accumulated benefit obligations and projected benefit obligations in excess of plan assets. As of December 30, 2017, the accumulated benefit obligations were $1.3 billion and $2.1 billion for the U.S. plan and non-U.S. plans, respectively, and all plans had accumulated benefit obligations and projected benefit obligations in excess of plan assets.



(In Millions)	Dec 29, 2018		Dec 30, 2017
Plans with accumulated benefit obligation in excess of plan assets
Accumulated benefit obligation	$	1,965	$	3,423
Plan assets	$	1,106	$	2,287

Plans with projected benefit obligation in excess of plan assets
Projected benefit obligation	$	2,232	$	3,842
Plan assets	$	1,106	$	2,287

ASSUMPTIONS FOR PENSION BENEFIT PLANS



	Dec 29, 2018		Dec 30, 2017
Weighted average actuarial assumptions used to determine benefit obligations
Discount rate	3.3	%	3.0	%
Rate of compensation increase	3.5	%	3.3	%



	2018		2017		2016
Weighted average actuarial assumptions used to determine costs
Discount rate	3.0	%	3.2	%	3.3	%
Expected long-term rate of return on plan assets	4.7	%	4.6	%	5.5	%
Rate of compensation increase	3.3	%	3.6	%	3.8	%

We establish the discount rate for each pension plan by analyzing current market long-term bond rates and matching the bond maturity with the average duration of the pension liabilities.

We establish the long-term expected rate of return by developing a forward-looking, long-term return assumption for each pension fund asset class, taking into account factors such as the expected real return for the specific asset class and inflation. A single, long-term rate of return is then calculated as the weighted average of the target asset allocation percentages and the long-term return assumption for each asset class.

FUNDING

Policy. Our practice is to fund the various pension plans in amounts sufficient to meet the minimum requirements of applicable local laws and regulations. Additional funding may be provided as deemed appropriate. Funding for the U.S. Postretirement Medical Benefits Plan is discretionary under applicable laws and regulations; additional funding may be provided as deemed appropriate.

Funding Status. On a worldwide basis, our pension and postretirement benefit plans were 76% funded as of December 29, 2018. The U.S. Intel Minimum Pension Plan, which accounts for 30% of the worldwide pension and postretirement benefit obligations, was 120% funded. Funded status is not indicative of our ability to pay ongoing pension benefits or of our obligation to fund retirement trusts. Required pension funding for U.S. retirement plans is determined in accordance with the Employee Retirement Income Security Act (ERISA), which sets required minimum contributions. Cumulative company funding to the U.S. Intel Minimum Pension Plan currently exceeds the minimum ERISA funding requirements.

NET PERIODIC BENEFIT COST

The net periodic benefit cost for pension benefits and U.S. postretirement medical benefits was $197 million in 2018 ($243 million in 2017 and $415 million in 2016). The decrease in the net periodic pension benefit cost in 2017 compared to 2016 was primarily attributed to plan settlements and remeasurement in conjunction with our 2016 Restructuring Program. See "Note 8: Restructuring and Other Charges."

PENSION PLAN ASSETS



	December 29, 2018								Dec 30, 2017
	Fair Value Measured at Reporting Date Using
(In Millions)	Level 1		Level 2		Level 3		Total		Total
Equity securities	$	—	$	261	$	—	$	261	$	473
Fixed income	—		93		18		111		465
Other investments	—		—		—		—		19
Assets measured by fair value hierarchy	$	—	$	354	$	18	$	372	$	957
Assets measured at net asset value							2,138		1,208
Cash and cash equivalents							41		122
Total pension plan assets at fair value							$	2,551	$	2,287

U.S. Plan Assets

The investment strategy for U.S. Intel Minimum Pension Plan assets is to maximize risk-adjusted returns, taking into consideration the investment horizon and expected volatility to help ensure that sufficient assets are available to pay pension benefits as they come due. The allocation to each asset class will fluctuate with market conditions, such as volatility and liquidity concerns, and will typically be rebalanced when outside the target ranges, which were 45% fixed income, 30% hedge funds, and 25% equity investments in 2018. During 2018, the U.S. Intel Minimum Pension Plan assets were invested in collective investment trust funds, which are measured at net asset value.

Non-U.S. Plan Assets

The investments of the non-U.S. plans are managed by insurance companies, pension funds, or third-party trustees, consistent with regulations or market practice of the country where the assets are invested. The investment manager makes investment decisions within the guidelines set by Intel or local regulations. Investments managed by qualified insurance companies or pension funds under standard contracts follow local regulations, and we are not actively involved in their investment strategies. For the assets that we have discretion to set investment guidelines, the assets are invested in developed country equity investments and fixed-income investments, either through index funds or direct investment. In general, the investment strategy is designed to accumulate a diversified portfolio among markets, asset classes, or individual securities to reduce market risk and to help ensure that the pension assets are available to pay benefits as they come due. The target allocation of the non-U.S. plan assets that we have control over was approximately 45% fixed income, 35% equity, and 20% hedge fund investments in 2018.

The equity investments in the non-U.S. plan assets are invested in a diversified mix of equities of developed countries, including the U.S., and emerging markets throughout the world.

We have control over the investment strategy related to the majority of the assets measured at net asset value, which are invested in hedge funds, bond index, and equity index funds.

ESTIMATED FUTURE BENEFIT PAYMENTS FOR PENSION BENEFIT PLANS

Estimated benefit payments over the next 10 years are as follows:



(In Millions)	2019		2020		2021		2022		2023		2024-2028
Pension benefits	$	117	$	111	$	113	$	115	$	115	$	603