Annual report pursuant to Section 13 and 15(d)

Retirement Benefit Plans

Retirement Benefit Plans
12 Months Ended
Dec. 26, 2020
Retirement Benefits [Abstract]  
Retirement Benefit Plans [Text Block]
Note 17 : Retirement Benefit Plans
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 $398 million for matching contributions based on the amount of employee contributions under the U.S. qualified defined contribution and non-qualified deferred compensation plans in 2020. Prior to 2020, the contributions were discretionary and we expensed $379 million in 2019 and $372 million in 2018.
U.S. Retiree Medical Plan
Upon retirement, we provide certain benefits to eligible U.S. employees who were hired prior to 2014 under the U.S. Retiree Medical 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 26, 2020 and December 28, 2019, the projected benefit obligation was $741 million and $633 million, which used the discount rate of 2.4% and 3.3%. The December 26, 2020 and December 28, 2019 corresponding fair value of plan assets was $600 million and $553 million.
The investment strategy for U.S. Retiree Medical 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 26, 2020, substantially all of the U.S. Retiree Medical 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) 2021 2022 2023 2024 2025 2026-2030
Postretirement Medical Benefits $ 37  $ 38  $ 39  $ 40  $ 41  $ 218 
Pension Benefit Plans
We provide defined-benefit pension plans in certain countries, most significantly the U.S., Ireland, Israel, and Germany. A substantial majority of the plans' benefits have been frozen.
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 26, 2020 Dec 28, 2019
Changes in projected benefit obligation:
Beginning projected benefit obligation $ 4,284  $ 3,433 
Service cost 49  54 
Interest cost 97  113 
Actuarial (gain) loss 373  829 
Currency exchange rate changes 261  (2)
Plan settlements (79) (57)
Other (56) (86)
Ending projected benefit obligation1
4,929  4,284 
Changes in fair value of plan assets:
Beginning fair value of plan assets 2,654  2,551 
Actual return on plan assets 203  193 
Currency exchange rate changes 113 3
Other (92) (93)
Ending fair value of plan assets2
2,878  2,654 
Net unfunded status $ 2,051  $ 1,630 
Amounts recognized in the Consolidated Balance Sheets
Other long-term liabilities $ 2,051  $ 1,630 
Accumulated other comprehensive loss (income), before tax3
$ 1,911  $ 1,730 
Accumulated benefit obligation4
$ 4,429  $ 3,862 
1    The projected benefit obligation was approximately 35% in the U.S. and 65% outside of the U.S. as of December 26, 2020 and December 28, 2019.
2    The fair value of plan assets was approximately 55% in the U.S. and 45% outside of the U.S. as of December 26, 2020 and December 28, 2019.
3    The accumulated other comprehensive loss (income), before tax, was approximately 35% in the U.S. and 65% outside of the U.S. as of December 26, 2020 and December 28, 2019.
4    All plans had accumulated benefit obligations and projected benefit obligations in excess of plan assets for all periods presented.
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.
Assumptions for Pension Benefit Plans
Dec 26, 2020 Dec 28, 2019
Weighted average actuarial assumptions used to determine benefit obligations
Discount rate 1.9  % 2.3  %
Rate of compensation increase 3.2  % 3.5  %
2020 2019 2018
Weighted average actuarial assumptions used to determine costs
Discount rate 2.3  % 3.4  % 3.0  %
Expected long-term rate of return on plan assets 3.3  % 4.7  % 4.7  %
Rate of compensation increase 3.2  % 3.5  % 3.3  %
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.
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. Retiree Medical Plan is discretionary under applicable laws and regulations; additional funding may be provided as deemed appropriate.
On a worldwide basis, our pension and retiree medical plans were 61% funded as of December 26, 2020. The U.S. Pension Plan, which accounts for 31% of the worldwide pension and retiree medical benefit obligations, was 89% 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 ERISA, which sets required minimum contributions. Cumulative company funding to the U.S. Pension Plan currently exceeds the minimum ERISA funding requirements.
Net Periodic Benefit Cost
The net periodic benefit cost for pension and U.S. retiree medical benefits was $164 million in 2020 ($135 million in 2019 and $197 million in 2018).
Pension Plan Assets
December 26, 2020 Dec 28, 2019
Fair Value Measured at Reporting Date Using
(In Millions)
Level 1
Level 2
Level 3
Total Total
Equity securities $ —  $ 320  $ —  $ 320  $ 278 
Fixed income —  114  21  135  119 
Assets measured by fair value hierarchy $   $ 434  $ 21  $ 455  $ 397 
Assets measured at net asset value 2,401  2,236 
Cash and cash equivalents 22  21 
Total pension plan assets at fair value $ 2,878  $ 2,654 
U.S. Plan Assets
The investment strategy for U.S. Pension Plan assets is to manage the funded status volatility, 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 are approximately 90% fixed income and 10% equity investments. During 2020, the U.S. 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 2020.
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 funds, 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)
2021 2022 2023 2024 2025 2026-2030
Pension benefits $ 158  $ 151  $ 155  $ 149  $ 154  $ 814