Annual report pursuant to Section 13 and 15(d)

PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

v3.22.4
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
 12 Months Ended
Dec. 31, 2022
Retirement Benefits [Abstract]  
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Our Company sponsors a qualified pension plan covering substantially all U.S. employees as well as unfunded nonqualified pension plans covering certain U.S. employees. Our Company also sponsors postretirement health care and life insurance benefit plans covering certain U.S. employees. In addition, our Company and its subsidiaries have various pension plans and other forms of postretirement benefit arrangements outside the United States.
As of December 31, 2022, the U.S. qualified pension plan represented 64 percent and 61 percent of the Company’s consolidated projected benefit obligation and pension plan assets, respectively.
Obligations and Funded Status
The following table sets forth the changes in the benefit obligations and the fair value of plan assets for our pension and other postretirement benefit plans (in millions):
Pension Plans Other Postretirement Benefit Plans
Year Ended December 31, 2022 2021 2022 2021
Benefit obligation at beginning of year1
$ 8,580  $ 9,414  $ 696  $ 769 
Service cost 93  97  7  9 
Interest cost 232  183  17  15 
Participant contributions 5  5  11  13 
Foreign currency exchange rate changes (152) (33) (4) (1)
Amendments 9  —  —  (13)
Net actuarial gain2
(1,891) (226) (175) (28)
Benefits paid (500) (375) (57) (67)
Divestitures (2) —  —  — 
Settlements (26) (491)
3
 —  — 
Curtailments (1) —  —  (1)
Special termination benefits 1  3  —  — 
Other 28  3  —  — 
Benefit obligation at end of year1
$ 6,376  $ 8,580  $ 495  $ 696 
Fair value of plan assets at beginning of year $ 8,905  $ 8,639  $ 419  $ 396 
Actual return on plan assets (1,101) 1,003  (55) 15 
Employer contributions 33  33  —  — 
Participant contributions 5  6  9  8 
Foreign currency exchange rate changes (258) (42) —  — 
Benefits paid (427) (315) —  — 
Settlements (26) (421)
3
 —  — 
Other 27  2  —  — 
Fair value of plan assets at end of year $ 7,158  $ 8,905  $ 373  $ 419 
Net asset (liability) recognized $ 782  $ 325  $ (122) $ (277)
1 For pension plans, the benefit obligation is the projected benefit obligation. For other postretirement benefit plans, the benefit obligation is the accumulated postretirement benefit obligation. The accumulated benefit obligation for our pension plans was $6,307 million and $8,431 million as of December 31, 2022 and 2021, respectively.
2 An increase in the weighted-average discount rate assumption was the primary driver of net actuarial gain during 2022 and 2021. For our U.S. qualified pension plan, an increase in the discount rate resulted in an actuarial gain of $1,231 million during 2022, and an increase in the discount rate resulted in an actuarial gain of $197 million during 2021. Additional drivers of net actuarial gain included other assumption updates and plan experience.
3 Settlements were primarily related to our strategic realignment initiatives. Refer to Note 18.
Pension and other postretirement benefit plan amounts recognized in our consolidated balance sheets were as follows (in millions):
Pension Plans Other Postretirement Benefit Plans
December 31, 2022 2021 2022 2021
Other noncurrent assets $ 1,558  $ 1,545  $ 44  $ — 
Accounts payable and accrued expenses (70) (70) (17) (18)
Other noncurrent liabilities (706) (1,150) (149) (259)
Net asset (liability) recognized $ 782  $ 325  $ (122) $ (277)
Certain of our pension plans have a projected benefit obligation in excess of the fair value of plan assets. For these plans, the projected benefit obligation and the fair value of plan assets were as follows (in millions):
December 31, 2022 2021
Projected benefit obligation $ 972  $ 6,862 
Fair value of plan assets 197  5,641 
Certain of our pension plans have an accumulated benefit obligation in excess of the fair value of plan assets. For these plans, the accumulated benefit obligation and the fair value of plan assets were as follows (in millions):
December 31, 2022 2021
Accumulated benefit obligation $ 880  $ 6,689 
Fair value of plan assets 138  5,584 
Certain of our other postretirement benefit plans have an accumulated postretirement benefit obligation in excess of the fair value of plan assets. For these plans, the accumulated postretirement benefit obligation and the fair value of plan assets were as follows (in millions):
December 31, 2022 2021
Accumulated postretirement benefit obligation $ 166  $ 696 
Fair value of plan assets —  419 
Pension Plan Assets
The following table presents total assets by asset class for our U.S. and non-U.S. pension plans (in millions):
U.S. Pension Plans Non-U.S. Pension Plans
December 31, 2022 2021 2022 2021
Cash and cash equivalents $ 473  $ 272  $ 162  $ 233 
Equity securities:
U.S.-based companies 509  1,463  679  968 
International-based companies 285  876  654  830 
Fixed-income securities:
Government bonds 793  182  445  495 
Corporate bonds and debt securities 384  899  115  124 
Mutual, pooled and commingled funds1
304  290  463  560 
Hedge funds/limited partnerships 915  682  21  38 
Real estate 417  381  7  8 
Derivative financial instruments —  (1) (14) (8)
Other 256  339  290  274 
Total pension plan assets2
$ 4,336  $ 5,383  $ 2,822  $ 3,522 
1 Mutual, pooled and commingled funds include investments in equity securities, fixed-income securities and combinations of both. There are a significant number of mutual, pooled and commingled funds from which investors can choose. The selection of the type of fund is dictated by the specific investment objectives and needs of a given plan. These objectives and needs vary greatly between plans.
2 Fair value disclosures related to our pension plan assets are included in Note 16. Fair value disclosures include, but are not limited to, the levels within the fair value hierarchy in which the fair value measurements in their entirety fall; a reconciliation of the beginning and ending balances of Level 3 assets; and information about the valuation techniques and inputs used to measure the fair value of our pension plan assets.
Investment Strategy for U.S. Pension Plan
The Company utilizes the services of investment managers to actively manage the assets of our U.S. qualified pension plan. We have established asset allocation targets and investment guidelines with each investment manager. Our asset allocation targets promote optimal expected return and volatility characteristics given the long-term time horizon for fulfilling the obligations of the plan. Selection of the targeted asset allocation for U.S. pension plan assets is based upon a review of the expected return and risk characteristics of each asset class, as well as the correlation of returns among asset classes. Our target allocation is a mix of 18 percent equity securities, 47 percent fixed-income securities and 35 percent alternative investments. We believe this target allocation will enable us to achieve the following long-term investment objectives:
(1)optimize the long-term return on plan assets at an acceptable level of risk;
(2)maintain a broad diversification across asset classes and among investment managers; and
(3)maintain careful control of the risk level within each asset class.
The investment guidelines that have been established with each investment manager provide parameters within which the investment managers agree to operate, including criteria that determine eligible and ineligible securities, diversification requirements and credit quality standards, where applicable. Investment managers agree to obtain written approval for deviations from stated investment style or guidelines. As of December 31, 2022, no investment manager was responsible for more than 24 percent of total U.S. pension plan assets.
Our target allocation of 18 percent equity securities is composed of 81 percent global equities, 11 percent emerging market equities and 8 percent domestic small-cap and mid-cap equities. Optimal returns through our investments in global equities are achieved through security selection as well as country and sector diversification. As of December 31, 2022, investments in our common stock accounted for 9 percent of total global equities and 5 percent of total U.S. pension plan assets. Our investments in global equities are intended to provide diversified exposure to both U.S. and non-U.S. equity markets. Our investments in both emerging market equities and domestic small-cap and mid-cap equities may experience large swings in their market value. Our investments in these asset classes are selected based on capital appreciation potential.
Our target allocation of 47 percent fixed-income securities is composed of 62 percent long-duration bonds and 38 percent with multi-strategy alternative credit managers. Long-duration bonds are intended to provide a stable rate of return through investments in high-quality publicly traded debt securities. Our investments in long-duration bonds are diversified in order to
mitigate duration and credit exposure. Multi-strategy alternative credit managers invest in a combination of high-yield bonds, bank loans, structured credit and emerging market debt. These investments are in lower-rated and non-rated debt securities, which generally produce higher returns compared to long-duration bonds and also help diversify our overall fixed-income portfolio.
Our target allocation for alternative investments is 35 percent. These alternative investments include hedge funds, reinsurance, private equity limited partnerships, leveraged buyout funds, international venture capital partnerships and real estate. The objective of investing in alternative investments is to provide a higher rate of return than that which is typically available from publicly traded equity securities. Alternative investments are inherently illiquid and require a long-term perspective in evaluating investment performance.
Investment Strategy for Non-U.S. Pension Plans
The long-term target allocation for 66 percent of our international subsidiaries’ pension plan assets, primarily certain of our European and Canadian plans, is 66 percent equity securities, 16 percent fixed-income securities and 18 percent other investments. The actual allocation for the remaining 34 percent of the Company’s international subsidiaries’ pension plan assets consisted of 39 percent mutual, pooled and commingled funds; 23 percent fixed-income securities; 2 percent equity securities; and 36 percent other investments as of December 31, 2022. The investment strategies for our international subsidiaries’ pension plans vary greatly, and in some instances are influenced by local law. None of our pension plans outside the United States is individually significant for separate disclosure.
Other Postretirement Benefit Plan Assets
Plan assets associated with other postretirement benefits primarily represent funding of one of the U.S. postretirement health care benefit plans through a Voluntary Employee Beneficiary Association (“VEBA”), a tax-qualified trust. The VEBA assets are primarily invested in liquid assets due to the level and timing of expected future benefit payments.
The following table presents total assets by asset class for our other postretirement benefit plans (in millions):
December 31, 2022 2021
Cash and cash equivalents $ 43  $ 33 
Equity securities:
U.S.-based companies 133  184 
International-based companies 4  12 
Fixed-income securities:
Government bonds 12  3 
Corporate bonds and debt securities 71  82 
Mutual, pooled and commingled funds 86  87 
Hedge funds/limited partnerships 14  9 
Real estate 6  5 
Other 4  4 
Total other postretirement benefit plan assets1
$ 373  $ 419 
1Fair value disclosures related to our other postretirement benefit plan assets are included in Note 16. Fair value disclosures include, but are not limited to, the levels within the fair value hierarchy in which the fair value measurements in their entirety fall and information about the valuation techniques and inputs used to measure the fair value of our other postretirement benefit plan assets.
Components of Net Periodic Benefit Cost (Income)
Net periodic benefit cost or income for our pension and other postretirement benefit plans consisted of the following (in millions):
Pension Plans Other Postretirement Benefit Plans
Year Ended December 31, 2022 2021 2020 2022 2021 2020
Service cost $ 93  $ 97  $ 112  $ 7  $ 9  $ 11 
Interest cost 232  183  235  17  15  21 
Expected return on plan assets1
(558) (606) (587) (16) (17) (16)
Amortization of prior service cost (credit) —  —  3  (3) (2) (3)
Amortization of net actuarial loss2
109  146  171  —  4  5 
Net periodic benefit cost (income) (124) (180) (66) 5  9  18 
Settlement charges (credits) (1) 117 
3
 23  —  —  — 
Curtailment charges (credits) (1) (1) 1  —  (1) 6 
Special termination benefits 1  3  2  —  —  — 
Other 1  —  (4) —  —  — 
Total cost (income) $ (124) $ (61) $ (44) $ 5  $ 8  $ 24 
1The Company has elected to use the actual fair value of plan assets as the market-related value of plan assets in the determination of the expected return on plan assets.
2Actuarial gains and losses are amortized using a corridor approach. The gain/loss corridor is equal to 10 percent of the greater of the benefit obligation and the market-related value of assets. Gains and losses in excess of the corridor are generally amortized over the average future working lifetime of the plan participants.
3Settlement charges were primarily related to our strategic realignment initiatives. Refer to Note 18.
All of the amounts in the table above, other than service cost, were recorded in the line item other income (loss) — net in our consolidated statements of income.
Impact on Accumulated Other Comprehensive Income
The following table sets forth the pretax changes in AOCI for our pension and other postretirement benefit plans (in millions):
Pension Plans Other Postretirement Benefit Plans
Year Ended December 31, 2022 2021 2022 2021
Balance in AOCI at beginning of year $ (2,125) $ (3,012) $ (4) $ (47)
Recognized prior service cost (credit) —  1 

(3) (2)
Recognized net actuarial loss 107  261 
1
 —  3 
Prior service credit (cost) occurring during the year (9) —  —  13 
Net actuarial gain occurring during the year 232  623  104  27 
Net foreign currency translation adjustments 40  2  (2) 2 
Balance in AOCI at end of year $ (1,755) $ (2,125) $ 95  $ (4)
1    Includes $117 million of recognized net actuarial loss due to the impact of settlements, which were primarily related to our strategic realignment initiatives. Refer to Note 18.
The following table sets forth the pretax amounts in AOCI for our pension and other postretirement benefit plans (in millions):
Pension Plans Other Postretirement Benefit Plans
December 31, 2022 2021 2022 2021
Prior service credit (cost) $ (17) $ (9) $ 24  $ 28 
Net actuarial gain (loss) (1,738) (2,116) 71  (32)
Balance in AOCI at end of year $ (1,755) $ (2,125) $ 95  $ (4)
Assumptions
Certain weighted-average assumptions used in computing the benefit obligations for our pension and other postretirement benefit plans were as follows:
Pension Plans Other Postretirement Benefit Plans
December 31, 2022 2021 2022 2021
Discount rate 5.50  % 3.00  % 6.00  % 3.25  %
Interest crediting rate 4.00  % 3.00  % N/A N/A
Rate of increase in compensation levels 3.75  % 3.75  % N/A N/A
Certain weighted-average assumptions used in computing net periodic benefit cost or income were as follows:
Pension Plans Other Postretirement Benefit Plans
Year Ended December 31, 2022 2021 2020 2022 2021 2020
Discount rate 3.00  % 2.50  % 3.25  % 3.25  % 2.75  % 3.50  %
Interest crediting rate 3.00  % 3.00  % 3.50  % N/A N/A N/A
Rate of increase in compensation levels 3.75  % 3.75  % 3.75  % N/A N/A N/A
Expected long-term rate of return on plan assets 7.00  % 7.25  % 7.50  % 4.00  % 4.25  % 4.50  %
The discount rate assumption used to account for pension and other postretirement benefit plans reflects the rate at which the benefit obligations could be effectively settled. The discount rate for U.S. and certain non-U.S. plans is determined using a matching technique whereby the rates of a yield curve, developed from high-quality debt securities, are applied to projected benefit cash flows to determine the appropriate effective discount rate. For other non-U.S. plans, we base the discount rate assumption on comparable indices within each of the countries. The Company measures the service cost and interest cost components of net periodic benefit cost or income for pension and other postretirement benefit plans by applying the specific spot rates along the yield curve to the plans’ projected benefit cash flows. The rate of compensation increase assumption is determined by the Company based upon annual reviews.
The cash balance interest crediting rate for the U.S. qualified pension plan is based on the yield on six-month U.S. Treasury bills on the last day of September of the previous plan year, plus 150 basis points, with a minimum interest crediting rate of 3.80 percent for all active employees and certain former employees. The Company assumes that the ultimate interest crediting rate is 140 basis points lower than the plan’s year-end discount rate and that the current interest crediting rate will converge with the ultimate interest crediting rate after a period of 10 years.
The expected long-term rate of return assumption for U.S. pension plan assets is based upon the target asset allocation and is determined using forward-looking assumptions in the context of historical returns and volatilities for each asset class, as well as correlations among asset classes. We evaluate the expected long-term rate of return assumption on an annual basis. The expected long-term rate of return assumption used in computing 2022 net periodic benefit income for the U.S. pension plans was 6.75 percent. As of December 31, 2022, the 5-year, 10-year and 15-year annualized return for the U.S. pension plan assets was 4.8 percent, 6.8 percent and 5.2 percent, respectively. The annualized return since inception was 10.0 percent.
The weighted-average assumptions for health care cost trend rates were as follows:
December 31, 2022 2021
Health care cost trend rate assumed for next year 8.25  % 6.75  %
Rate to which the trend rate is assumed to decline (the ultimate trend rate) 5.50  % 5.25  %
Year that the trend rate reaches the ultimate trend rate 2030 2027
We review external data and our own historical trends for health care costs to determine the health care cost trend rate assumptions. The Company’s U.S. postretirement health care benefits are primarily provided through plans with either a capped Company cost or a defined-dollar benefit. This limits the effects of health care inflation on the Company.
Cash Flows
The expected benefit payments for our pension and other postretirement benefit plans for the 10 years succeeding December 31, 2022 are as follows (in millions):
Year Ended December 31, 2023 2024 2025 2026 2027 2028-2032
Benefit payments for pension plans $ 583  $ 531  $ 545  $ 520  $ 495  $ 2,457 
Benefit payments for other postretirement
   benefit plans		 53  51  48  46  43  190 
Total $ 636  $ 582  $ 593  $ 566  $ 538  $ 2,647 
The Company anticipates making contributions of approximately $42 million to our pension trusts in 2023, all of which will be allocated to our international plans. These contributions are made in accordance with local laws and tax regulations.
Defined Contribution Plans
Our Company sponsors qualified defined contribution plans covering substantially all U.S. employees. Under the largest U.S. defined contribution plan, we match participants’ contributions up to a maximum of 3.0 percent to 3.5 percent of compensation, subject to an IRS limit on compensation. The Company’s expense for the U.S. plans totaled $45 million, $32 million and $43 million in 2022, 2021 and 2020, respectively. We also sponsor defined contribution plans in certain locations outside the United States. The Company’s expense for these plans totaled $79 million in both 2022 and 2021 and $63 million in 2020.
Multi-Employer Retirement Plans
The Company participates in various multi-employer retirement plans, which are designed to provide benefits to, or on behalf of, employees of multiple employers. These plans are typically established under collective bargaining agreements. Multi-employer retirement plans are generally governed by a board of trustees composed of representatives of both management and labor and are generally funded through employer contributions.
The Company’s expense for multi-employer retirement plans totaled $1 million in both 2022 and 2021 and $2 million in 2020. The plans we currently participate in have contractual arrangements that extend into 2026. If, in the future, we choose to withdraw from any of the multi-employer retirement plans in which we currently participate, we would record the appropriate withdrawal liability, if any, at that time