Annual report pursuant to Section 13 and 15(d)

PENSION AND OTHER POSTRETIREMENT BENEFITS

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PENSION AND OTHER POSTRETIREMENT BENEFITS
 12 Months Ended
Dec. 31, 2023
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefits Disclosure
NOTE 11. PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Pension Plans
We sponsor several pension plans covering substantially all employees. Generally, pension benefits for salaried employees are determined as a function of employee’s compensation. Pension benefits for most hourly employees are determined similarly and as a function of employee’s compensation, with the exception of a small group of hourly employees whose pension benefits were grandfathered in accordance with agreements with their union representation and are based on their years of service and compensation during active employment. The level of benefits and terms of vesting may vary among plans and are offered in accordance with applicable laws. Pension plan assets are administered by trustees and are principally invested in fixed income securities and equity securities. It is our policy to make contributions to our various qualified plans in accordance with statutory and contractual funding requirements, and any additional contributions we determine are appropriate.
Obligations, Assets and Funded Status
Benefit obligation balances presented below reflect the projected benefit obligation (PBO) for our pension plans. The changes in the benefit obligations, the various plan assets, the funded status of the plans and the amounts recognized in our Consolidated Balance Sheets for our significant pension plans at December 31 were as follows:
  Qualified and Non-Qualified Pension Plans
  U.S. Plans U.K. Plans
In millions 2023 2022 2023 2022
Change in benefit obligation        
Benefit obligation at the beginning of the year $ 3,171  $ 3,012  $ 1,398  $ 1,887 
Service cost 117  137  17  30 
Interest cost 168  101  70  39 
Actuarial loss (gain) 172  (643) 47  (702)
Benefits paid from fund (223) (200) (87) (70)
Benefits paid directly by employer (25) (25) —  — 
Plan amendment 1  3  —  — 
Assumption of Meritor's benefit obligation —  786  —  418 
Foreign currency translation adjustments —  —  80  (204)
Benefit obligation at end of year $ 3,381  $ 3,171  $ 1,525  $ 1,398 
Change in plan assets        
Fair value of plan assets at beginning of year $ 3,828  $ 3,548  $ 1,670  $ 2,390 
Actual return on plan assets 221  (244) (51) (960)
Employer contributions —  25  90  3 
Benefits paid from fund (223) (200) (87) (70)
Assumption of Meritor's plan assets —  699  —  565 
Foreign currency translation adjustments —  —  98  (258)
Fair value of plan assets at end of year $ 3,826  $ 3,828  $ 1,720  $ 1,670 
Funded status (including unfunded plans) at end of year $ 445  $ 657  $ 195  $ 272 
Amounts recognized in consolidated balance sheets        
Pension assets $ 1,002  $ 1,126  $ 195  $ 272 
Accrued compensation, benefits and retirement costs (27) (24) —  — 
Other liabilities (530) (445) —  — 
Net amount recognized $ 445  $ 657  $ 195  $ 272 
Amounts recognized in accumulated other comprehensive loss        
Net actuarial loss $ 493  $ 273  $ 606  $ 402 
Prior service cost 8  8  8  10 
Net amount recognized $ 501  $ 281  $ 614  $ 412 
In addition to the pension plans in the above table, we also maintain less significant defined benefit pension plans in 15 other countries outside of the U.S. and the U.K. that comprise approximately 5 percent and 6 percent of our pension plan assets and benefit obligations, respectively, at December 31, 2023. These plans are reflected in other liabilities on our Consolidated Balance Sheets. In 2023 and 2022, we made $16 million and $12 million of contributions to these plans, respectively.
The following table summarizes the total accumulated benefit obligation (ABO), the ABO for defined benefit pension plans with ABO in excess of plan assets and the PBO for defined benefit pension plans with PBO in excess of plan assets:
  Qualified and Non-Qualified Pension Plans
  U.S. Plans U.K. Plans
In millions 2023 2022 2023 2022
Total ABO $ 3,334  $ 3,138  $ 1,504  $ 1,376 
Plans with ABO in excess of plan assets
ABO 1,067  1,044  —  — 
Plans with PBO in excess of plan assets
PBO 1,116  1,078  —  — 
Components of Net Periodic Pension Cost (Income)
The following table presents the net periodic pension cost (income) under our plans for the years ended December 31:
  Qualified and Non-Qualified Pension Plans
  U.S. Plans U.K. Plans
In millions 2023 2022 2021 2023 2022 2021
Service cost $ 117  $ 137  $ 139  $ 17  $ 30  $ 33 
Interest cost 168  101  79  70  39  30 
Expected return on plan assets (277) (229) (199) (105) (87) (85)
Amortization of prior service cost 2  1  1  1  1  2 
Recognized net actuarial loss 8  23  47  —  3  31 
Net periodic pension cost (income) $ 18  $ 33  $ 67  $ (17) $ (14) $ 11 
Other changes in benefit obligations and plan assets recognized in other comprehensive loss (income) for the years ended December 31 were as follows:
In millions 2023 2022 2021
Amortization of prior service cost $ (3) $ (2) $ (3)
Recognized net actuarial loss (8) (26) (78)
Incurred prior service cost 1  3  — 
Incurred actuarial loss (gain) 432  173  (368)
Foreign currency translation adjustments —  —  5 
Total recognized in other comprehensive loss (income) $ 422  $ 148  $ (444)
Total recognized in net periodic pension cost and other comprehensive loss (income) $ 423  $ 167  $ (366)
Assumptions
The table below presents various assumptions used in determining the PBO for each year and reflects weighted-average percentages for the various plans as follows:
  Qualified and Non-Qualified Pension Plans
  U.S. Plans U.K. Plans
  2023 2022 2023 2022
Discount rate 5.15  % 5.55  % 4.72  % 4.99  %
Cash balance crediting rate 4.55  % 4.56  % —  — 
Compensation increase rate 5.34  % 5.35  % 3.75  % 3.75  %
The table below presents various assumptions used in determining the net periodic pension cost and reflects weighted-average percentages for the various plans as follows:
  Qualified and Non-Qualified Pension Plans
  U.S. Plans U.K. Plans
  2023 2022 2021 2023 2022 2021
Discount rate 5.55  % 3.31  % 2.62  % 4.99  % 2.26  % 1.50  %
Expected return on plan assets 7.00  % 6.50  % 6.25  % 5.00  % 4.01  % 4.00  %
Compensation increase rate 5.35  % 2.71  % 2.72  % 3.75  % 3.75  % 3.75  %
Plan Assets
Our investment policies in the U.S. and U.K. provide for the rebalancing of assets to maintain our long-term strategic asset allocation. We are committed to this long-term strategy and do not attempt to time the market. Given empirical evidence that asset allocation is critical, rebalancing of the assets has and continues to occur, maintaining the proper weighting of assets to achieve the expected total portfolio returns. We believe that our portfolio is highly diversified and does not have any significant exposure to concentration risk. The plan assets for our defined benefit pension plans do not include any of our common stock or corporate bonds.
U.S. Plan Assets
For the U.S. qualified pension plans, our assumption for the expected return is greatly influenced by our objective to match assets and liabilities and the increase in bond yields. Projected returns are based primarily on broad, publicly traded equity and fixed income indices and forward-looking estimates of active portfolio and investment management. We expect additional positive returns from this active investment management. Based on the historical returns and forward-looking return expectations, we elected an assumption of 7.25 percent in 2024.
To achieve these objectives, we established the following targets:
Asset Class Plan Target
U.S. equities 8  %
Non-U.S. equities 3  %
Global equities 5  %
Total equities 16  %
Real assets 5  %
Private equity/venture capital 5  %
Opportunistic credit 3  %
Fixed income 71  %
Total 100  %
The fixed income component of the plans is structured to represent a custom bond benchmark that will closely hedge the change in the value of our liabilities. This component is structured in such a way that its benchmark covers approximately 100 percent of the plans' exposure to changes in its discount rate (AA corporate bond yields). In order to achieve a hedge on more than the targeted 71 percent of plan assets invested in fixed income securities, our Benefits Policy Committee (BPC) permits the fixed income managers, other managers or the custodian/trustee to utilize derivative securities, as part of a liability driven investment strategy to further reduce the plans' risk of changes in interest rates. However, all managers hired to manage assets for the trust are prohibited from using leverage unless approved by the BPC.
U.K. Plan Assets
The methodology used to determine the rate of return on the pension plan assets in the U.K. was based on establishing an equity-risk premium over current long-term bond yields adjusted based on target asset allocations. Our strategy with respect to our investments in these assets is to be invested in a suitable mixture of return-seeking assets such as equities, real estate and liability matching assets such as group annuity insurance contracts and duration matched bonds. Therefore, the risk and return balance of our U.K. asset portfolio should reflect a long-term horizon. To achieve these objectives, we established the following targets:
Asset Class Plan Target
Equities 1  %
Property/secure income assets 8  %
Credit/bank loans 5  %
Diversified strategies 1  %
Private equity 5  %
Fixed income/insurance annuity 78  %
Cash 2  %
Total 100  %
As part of our strategy in the U.K. we have not prohibited the use of any financial instrument, including derivatives. As in the U.S. plans, derivatives may be used to better match liability duration and are not used in a speculative way. The fixed income component of our portfolio hedges approximately 79 percent of the plans' exposure to interest rates and 79 percent of the plans' exposure to inflation. Based on the above discussion, we elected an assumption of 5.00 percent in 2024.
Fair Value of U.S. Plan Assets
The fair values of U.S. pension plan assets by asset category were as follows:
  Fair Value Measurements at December 31, 2023
In millions Quoted prices in active
markets for identical assets
(Level 1)		 Significant other
observable inputs
(Level 2)		 Significant
unobservable inputs
(Level 3)		 Total
Equities        
U.S. $ 73  $ —  $ —  $ 73 
Non-U.S. 36  —  —  36 
Fixed income
Government debt 157  —  157 
Corporate debt
U.S. —  603  —  603 
Non-U.S. —  49  —  49 
Asset/mortgaged backed securities —  8  —  8 
Net cash equivalents (1)
467  —  —  467 
Private markets and real assets (2)
—  —  604  604 
Net plan assets subject to leveling $ 576  $ 817  $ 604  $ 1,997 
Pending trade/purchases/sales       (16)
Accruals (3)
      10 
Investments measured at net asset value 1,835 
Net plan assets       $ 3,826 
  Fair Value Measurements at December 31, 2022
In millions Quoted prices in active
markets for identical assets
(Level 1)		 Significant other
observable inputs
(Level 2)		 Significant
unobservable inputs
(Level 3)		 Total
Equities        
U.S. $ 118  $ —  $ —  $ 118 
Non-U.S. 31  —  —  31 
Fixed income
Government debt —  188  —  188 
Corporate debt
U.S. —  423  —  423 
Non-U.S. 12  41  —  53 
Asset/mortgaged backed securities 7  —  —  7 
Net cash equivalents (1)
499  9  —  508 
Diversified strategies 14  —  —  14 
Private markets and real assets (2)
—  —  641  641 
Net plan assets subject to leveling $ 681  $ 661  $ 641  $ 1,983 
Accruals (3)
      7 
Investments measured at net asset value 1,838 
Net plan assets       $ 3,828 
(1) Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments.
(2) The instruments in private markets and real assets, for which quoted market prices are not available, are valued at their estimated fair value as determined by applicable investment managers or by audited financial statements of the funds. Private markets include equity, venture capital and private credit instruments and funds. Real assets include real estate and infrastructure.
(3) Accruals include interest or dividends that were not settled at December 31.
Certain of our assets are valued based on their respective net asset value (NAV) (or its equivalent), as an alternative to estimated fair value due to the absence of readily available market prices. The fair value of each such investment category was as follows:
•U.S. and Non-U.S. Corporate Debt ($915 million and $938 million at December 31, 2023 and 2022, respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days.
•U.S. and Non-U.S. Equities ($222 million and $224 million at December 31, 2023 and 2022, respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days.
•Government Debt ($257 million and $227 million at December 31, 2023 and 2022, respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days.
•Real Estate ($134 million and $154 million at December 31, 2023 and 2022, respectively) - This asset type represents different types of real estate including development property, industrial property, individual mortgages, office property, property investment companies and retail property. These funds are valued using NAVs and allow quarterly or more frequent redemptions.
•Asset/Mortgage Backed Securities ($307 million and $277 million at December 31, 2023 and 2022, respectively) - This asset type represents investments in fixed- and floating-rate loans. These funds are valued using NAVs and allow quarterly or more frequent redemptions.
•Diversified Strategies ($0 million and $18 million at December 31, 2023 and 2022, respectively) - These commingled funds invest in commodities, fixed income and equity securities. They have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days.
The reconciliation of Level 3 assets was as follows:
  Fair Value Measurements
Using Significant Unobservable Inputs (Level 3)
In millions Private Markets Real Assets Total
Balance at December 31, 2021 $ 471  $ 80  $ 551 
Actual return on plan assets  
Unrealized gains on assets still held at the reporting date 6  19  25 
Purchases, sales and settlements, net (12) (17) (29)
Assumption of Meritor's plan assets 94  —  94 
Balance at December 31, 2022 559  82  641 
Actual return on plan assets      
Unrealized gains on assets still held at the reporting date 6  (13) (7)
Purchases, sales and settlements, net (28) (2) (30)
Balance at December 31, 2023 $ 537  $ 67  $ 604 
Fair Value of U.K. Plan Assets
The fair values of U.K. pension plan assets by asset category were as follows:
  Fair Value Measurements at December 31, 2023
In millions Quoted prices in active
markets for identical assets
(Level 1)		 Significant other
observable inputs
(Level 2)		 Significant
unobservable inputs
(Level 3)		 Total
Equities        
U.S. $ 12  $ —  $ —  $ 12 
Non-U.S. 8  —  —  8 
Fixed income  
Government debt —  232  —  232 
Corporate debt
U.S. —  30  —  30 
Non-U.S. —  95  —  95 
Net cash equivalents (1)
17  18  —  35 
Insurance annuity —  —  436  436 
Private markets and real assets (2)
—  —  103  103 
Net plan assets subject to leveling $ 37  $ 375  $ 539  $ 951 
Pending trade/purchases/sales       1 
Accruals (3)
      2 
Investments measured at net asset value 766 
Net plan assets       $ 1,720 
  Fair Value Measurements at December 31, 2022
In millions Quoted prices in active
markets for identical assets
(Level 1)		 Significant other
observable inputs
(Level 2)		 Significant
unobservable inputs
(Level 3)		 Total
Equities        
U.S. $ 13  $ —  $ —  $ 13 
Non-U.S. 9  —  —  9 
Fixed income
Government debt —  222  —  222 
Corporate debt
U.S. —  24  —  24 
Non-U.S. —  80  —  80 
Net cash equivalents (1)
27  11  —  38 
Insurance annuity —  —  428  428 
Private markets and real assets (2)
—  —  390  390 
Net plan assets subject to leveling $ 49  $ 337  $ 818  $ 1,204 
Pending trade/purchases/sales       141 
Accruals (3)
      2 
Investments measured at net asset value 323 
Net plan assets       $ 1,670 
(1) Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments.
(2) The instruments in private markets and real assets, for which quoted market prices are not available, are valued at their estimated fair value as determined by applicable investment managers or by audited financial statements of the funds. Private markets include equity, venture capital and private credit instruments and funds. Real assets include real estate and infrastructure.
(3) Accruals include interest or dividends that were not settled at December 31.
Certain of our assets are valued based on their respective NAV (or its equivalent), as an alternative to estimated fair value due to the absence of readily available market prices. The fair value of each such investment category was as follows:
•U.S. and Non-U.S. Corporate Debt ($71 million and $77 million at December 31, 2023 and 2022, respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days.
•Government Debt ($572 million and $64 million at December 31, 2023 and 2022, respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days.
•Asset/Mortgage Backed Securities ($117 million and $128 million at December 31, 2023 and 2022, respectively) - This asset type represents investments in fixed- and floating-rate loans. These funds are valued using NAVs and allow quarterly or more frequent redemptions.
•Re-insurance ($6 million and $54 million at December 31, 2023 and 2022, respectively) - This commingled fund has a NAV that is determined on a monthly basis and the investment may be sold at that value.
The reconciliation of Level 3 assets was as follows:
  Fair Value Measurements
Using Significant Unobservable Inputs (Level 3)
In millions Insurance Annuity Real Assets Private Markets Total
Balance at December 31, 2021 $ 514  $ 33  $ 356  $ 903 
Actual return on plan assets
Unrealized (losses) gains on assets still held at the reporting date (178) (2) 39  (141)
Purchases, sales and settlements, net —  (23) (13) (36)
Assumption of Meritor's plan assets 92  —  —  92 
Balance at December 31, 2022 428  8  382  818 
Actual return on plan assets        
Unrealized (losses) gains on assets still held at the reporting date 8  —  (35) (27)
Purchases, sales and settlements, net —  (1) (251) (252)
Balance at December 31, 2023 $ 436  $ 7  $ 96  $ 539 
Level 3 Assets
The investments in an insurance annuity contract, venture capital, private equity and real estate, for which quoted market prices are not available, are valued at their estimated fair value as determined by applicable investment managers or by quarterly financial statements of the funds. These financial statements are audited at least annually. In conjunction with our investment consultant and actuary, we monitor the fair value of the insurance contract as periodically reported by our insurer and their counterparty risk. The fair value of all real estate properties, held in the partnerships, are valued at least once per year by an independent professional real estate valuation firm. Fair value generally represents the fund's proportionate share of the net assets of the investment partnerships as reported by the general partners of the underlying partnerships. Some securities with no readily available market are initially valued at cost, utilizing independent professional valuation firms as well as market comparisons with subsequent adjustments to values which reflect either the basis of meaningful third-party transactions in the private market or the fair value deemed appropriate by the general partners of the underlying investment partnerships. In such instances, consideration is also given to the financial condition and operating results of the issuer, the amount that the investment partnerships can reasonably expect to realize upon the sale of the securities and any other factors deemed relevant. The estimated fair values are subject to uncertainty and therefore may differ from the values that would have been used had a ready market for such investments existed and such differences could be material.
Estimated Future Contributions and Benefit Payments
We plan to contribute approximately $67 million to our defined benefit pension plans in 2024. The table below presents expected future benefit payments under our pension plans:
  Qualified and Non-Qualified Pension Plans
In millions 2024 2025 2026 2027 2028 2029 - 2033
Expected benefit payments $ 360  $ 358  $ 361  $ 364  $ 370  $ 1,872 
Other Pension Plans
We also sponsor defined contribution plans for certain hourly and salaried employees. Our contributions to these plans were $130 million, $110 million and $92 million for the years ended December 31, 2023, 2022 and 2021.
Other Postretirement Benefits
Our OPEB plans provide various health care and life insurance benefits to eligible employees, who retire and satisfy certain age and service requirements, and their dependents. The plans are contributory and contain cost-sharing features such as caps, deductibles, coinsurance and spousal contributions. Employer contributions are limited by formulas in each plan. Retiree contributions for health care benefits are adjusted annually, and we reserve the right to change benefits covered under these plans. There were no plan assets for OPEB plans as our policy is to fund benefits and expenses for these plans as claims and premiums are incurred.
Obligations and Funded Status
Benefit obligation balances presented below reflect the accumulated postretirement benefit obligations for our OPEB plans. The changes in the benefit obligations, the funded status of the plans and the amounts recognized in our Consolidated Balance Sheets for our significant OPEB plans were as follows:
December 31,
In millions 2023 2022
Change in benefit obligation    
Benefit obligation at the beginning of the year $ 162  $ 192 
Interest cost 9  5 
Plan participants' contributions 18  4 
Actuarial gain (2) (25)
Benefits paid directly by employer (37) (36)
Assumption of Meritor's benefit obligation —  22 
Benefit obligation at end of year $ 150  $ 162 
Funded status at end of year $ (150) $ (162)
Amounts recognized in consolidated balance sheets    
Accrued compensation, benefits and retirement costs $ (19) $ (21)
Other liabilities (131) (141)
Net amount recognized $ (150) $ (162)
Amounts recognized in accumulated other comprehensive loss    
Net actuarial gain $ (44) $ (44)
Prior service credit (3) (3)
Net amount recognized $ (47) $ (47)
In addition to the OPEB plans in the above table, we also maintain less significant OPEB plans in five other countries outside the U.S. that comprise approximately 16 percent and 14 percent of our OPEB obligations at December 31, 2023 and 2022, respectively. These plans are reflected in other liabilities in our Consolidated Balance Sheets.
Components of Net Periodic OPEB Cost
The following table presents the net periodic OPEB cost under our plans:
Years ended December 31,
In millions 2023 2022 2021
Interest cost $ 9  $ 5  $ 5 
Recognized net actuarial gain (2) —  — 
Net periodic OPEB cost $ 7  $ 5  $ 5 
Other changes in benefit obligations recognized in other comprehensive loss (income) for the years ended December 31 were as follows:
Years ended December 31,
In millions 2023 2022 2021
Recognized net actuarial gain $ 2  $ —  $ — 
Incurred actuarial gain (2) (25) (8)
Total recognized in other comprehensive loss (income) $ —  $ (25) $ (8)
Total recognized in net periodic OPEB cost and other comprehensive loss (income) $ 7  $ (20) $ (3)
Assumptions
The table below presents assumptions used in determining the OPEB obligation for each year and reflects weighted-average percentages for our other OPEB plans as follows:
2023 2022
Discount rate 5.19  % 5.59  %
The table below presents assumptions used in determining the net periodic OPEB cost and reflects weighted-average percentages for the various plans as follows:
2023 2022 2021
Discount rate 5.59  % 2.93  % 2.30  %
Our consolidated OPEB obligation is determined by application of the terms of health care and life insurance plans, together with relevant actuarial assumptions and health care cost trend rates. For measurement purposes, a 6.75 percent annual rate of increase in the per capita cost of covered health care benefits was assumed in 2023. The rate is assumed to decrease on a linear basis to 5.0 percent through 2032 and remain at that level thereafter.
Estimated Benefit Payments
The table below presents expected benefit payments under our OPEB plans:
In millions 2024 2025 2026 2027 2028 2029 - 2033
Expected benefit payments $ 20  $ 18  $ 16  $ 16  $ 15  $ 58