Annual report pursuant to Section 13 and 15(d)

PENSION AND OTHER POSTRETIREMENT BENEFITS (Tables)

v3.22.4
PENSION AND OTHER POSTRETIREMENT BENEFITS (Tables)
 12 Months Ended
Dec. 31, 2022
Pension and other postretirement benefits  
Schedule of Benefit Obligations in Excess of Fair Value of Plan Assets
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 2022 2021 2022 2021
Total ABO $ 3,138  $ 2,986  $ 1,376  $ 1,844 
Plans with ABO in excess of plan assets
ABO 1,044  424  —  — 
Plans with PBO in excess of plan assets
PBO 1,078  449  —  — 
Pension Plan  
Pension and other postretirement benefits  
Schedule of Net Funded Status 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 2022 2021 2022 2021
Change in benefit obligation        
Benefit obligation at the beginning of the year $ 3,012  $ 3,122  $ 1,887  $ 2,050 
Service cost 137  139  30  33 
Interest cost 101  79  39  30 
Actuarial gain (643) (132) (702) (136)
Benefits paid from fund (200) (178) (70) (63)
Benefits paid directly by employer (25) (18) —  — 
Plan amendment 3  —  —  — 
Assumption of Meritor's benefit obligation 786  —  418  — 
Foreign currency translation adjustments —  —  (204) (27)
Benefit obligation at end of year $ 3,171  $ 3,012  $ 1,398  $ 1,887 
Change in plan assets        
Fair value of plan assets at beginning of year $ 3,548  $ 3,429  $ 2,390  $ 2,337 
Actual return on plan assets (244) 267  (960) 118 
Employer contributions 25  30  3  30 
Benefits paid from fund (200) (178) (70) (63)
Assumption of Meritor's plan assets 699  —  565  — 
Foreign currency translation adjustments —  —  (258) (32)
Fair value of plan assets at end of year $ 3,828  $ 3,548  $ 1,670  $ 2,390 
Funded status (including unfunded plans) at end of year $ 657  $ 536  $ 272  $ 503 
Amounts recognized in consolidated balance sheets        
Pension assets $ 1,126  $ 985  $ 272  $ 503 
Accrued compensation, benefits and retirement costs (24) (18) —  — 
Other liabilities (445) (431) —  — 
Net amount recognized $ 657  $ 536  $ 272  $ 503 
Amounts recognized in accumulated other comprehensive loss        
Net actuarial loss $ 273  $ 467  $ 402  $ 61 
Prior service cost 8  6  10  11 
Net amount recognized $ 281  $ 473  $ 412  $ 72 
Schedule of Net Benefit Costs
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 2022 2021 2020 2022 2021 2020
Service cost $ 137  $ 139  $ 133  $ 30  $ 33  $ 29 
Interest cost 101  79  95  39  30  36 
Expected return on plan assets (229) (199) (195) (87) (85) (74)
Amortization of prior service cost 1  1  1  1  2  2 
Recognized net actuarial loss 23  47  41  3  31  34 
Net periodic pension cost (income) $ 33  $ 67  $ 75  $ (14) $ 11  $ 27 
Schedule of Amounts Recognized in Other Comprehensive Income (Loss)
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 2022 2021 2020
Amortization of prior service cost $ (2) $ (3) $ (3)
Recognized net actuarial loss (26) (78) (75)
Incurred prior service cost 3  —  — 
Incurred actuarial loss (gain) 173  (368) 85 
Foreign currency translation adjustments —  5  19 
Total recognized in other comprehensive loss (income) $ 148  $ (444) $ 26 
Total recognized in net periodic pension cost and other comprehensive loss (income) $ 167  $ (366) $ 128 
Schedule of Assumptions Used
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
  2022 2021 2022 2021
Discount rate 5.55  % 3.01  % 4.99  % 1.95  %
Cash balance crediting rate 4.56  % 3.79  % —  — 
Compensation increase rate 5.35  % 2.71  % 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
  2022 2021 2020 2022 2021 2020
Discount rate 3.31  % 2.62  % 3.36  % 2.26  % 1.50  % 2.00  %
Expected return on plan assets 6.50  % 6.25  % 6.25  % 4.01  % 4.00  % 4.00  %
Compensation increase rate 2.71  % 2.72  % 2.73  % 3.75  % 3.75  % 3.75  %
Schedule of Expected Benefit Payments The table below presents expected future benefit payments under our pension plans:
  Qualified and Non-Qualified Pension Plans
In millions 2023 2024 2025 2026 2027 2028 - 2032
Expected benefit payments $ 367  $ 351  $ 357  $ 361  $ 363  $ 1,841 
Other Postretirement Benefit Plan  
Pension and other postretirement benefits  
Schedule of Net Funded Status 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 2022 2021
Change in benefit obligation    
Benefit obligation at the beginning of the year $ 192  $ 219 
Interest cost 5  5 
Plan participants' contributions 4  14 
Actuarial gain (25) (8)
Benefits paid directly by employer (36) (38)
Assumption of Meritor's benefit obligation 22  — 
Benefit obligation at end of year $ 162  $ 192 
Funded status at end of year $ (162) $ (192)
Amounts recognized in consolidated balance sheets    
Accrued compensation, benefits and retirement costs $ (21) $ (19)
Other liabilities (141) (173)
Net amount recognized $ (162) $ (192)
Amounts recognized in accumulated other comprehensive loss    
Net actuarial gain $ (44) $ (18)
Prior service credit (3) (4)
Net amount recognized $ (47) $ (22)
Schedule of Net Benefit Costs
The following table presents the net periodic OPEB cost under our plans:
Years ended December 31,
In millions 2022 2021 2020
Interest cost $ 5  $ 5  $ 7 
Recognized net actuarial gain —  —  (1)
Net periodic OPEB cost $ 5  $ 5  $ 6 
Schedule of Amounts Recognized in Other Comprehensive Income (Loss)
Other changes in benefit obligations recognized in other comprehensive (income) loss for the years ended December 31 were as follows:
Years ended December 31,
In millions 2022 2021 2020
Recognized net actuarial gain $ —  $ —  $ 1 
Incurred actuarial (gain) loss (25) (8) 14 
Total recognized in other comprehensive (income) loss $ (25) $ (8) $ 15 
Total recognized in net periodic OPEB cost and other comprehensive (income) loss $ (20) $ (3) $ 21 
Schedule of Assumptions Used
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:
2022 2021
Discount rate 5.59  % 2.75  %
The table below presents assumptions used in determining the net periodic OPEB cost and reflects weighted-average percentages for the various plans as follows:
2022 2021 2020
Discount rate 2.93  % 2.30  % 3.15  %
Schedule of Expected Benefit Payments
The table below presents expected benefit payments under our OPEB plans:
In millions 2023 2024 2025 2026 2027 2028 - 2032
Expected benefit payments $ 22  $ 20  $ 19  $ 17  $ 16  $ 64 
UNITED STATES  
Pension and other postretirement benefits  
Schedule of Allocation of Plan Assets
To achieve these objectives, we established the following targets:
Cummins Meritor
Asset Class Plan Target Plan Target
U.S. equities 5  % 11  %
Non-U.S. equities 1  % 9  %
Global equities 6  % —  %
Total equities 12  % 20  %
Real assets 6  % —  %
Private equity/venture capital 6  % —  %
Opportunistic credit 4  % —  %
Alternative investments —  % 39  %
Fixed income 72  % 41  %
Total 100  % 100  %
Fair Value, Assets Measured on Recurring Basis
The fair values of U.S. pension plan assets by asset category were as follows:
  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 
  Fair Value Measurements at December 31, 2021
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. $ 115  $ —  $ —  $ 115 
Non-U.S. 38  —  —  38 
Fixed income
Government debt 37  30  —  67 
Corporate debt
U.S. —  489  —  489 
Non-U.S. —  19  —  19 
Net cash equivalents (1)
270  57  —  327 
Private markets and real assets (2)
—  —  551  551 
Net plan assets subject to leveling $ 460  $ 595  $ 551  $ 1,606 
Pending trade/purchases/sales       2 
Accruals (3)
      6 
Investments measured at net asset value 1,934 
Net plan assets       $ 3,548 
(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.
Schedule of Effect of Significant Unobservable Inputs, Changes in Plan Assets
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, 2020 $ 359  $ 72  $ 431 
Actual return on plan assets  
Unrealized gains on assets still held at the reporting date 144  11  155 
Purchases, sales and settlements, net (32) (3) (35)
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 
UNITED KINGDOM  
Pension and other postretirement benefits  
Schedule of Allocation of Plan Assets To achieve these objectives, we established the following targets:
Cummins Plan Target Meritor Plan Target Range
Asset Class Minimum Maximum
Equities 8  % 15  % 30  %
Private markets/secure income assets 19  % —  % —  %
Credit/bank loans 4  % —  % 15  %
Diversified strategies 4  % 25  % 50  %
Real estate —  % —  % 15  %
Fixed income/insurance annuity 64  % 25  % 45  %
Cash 1  % —  % —  %
Total 100  %
Fair Value, Assets Measured on Recurring Basis
The fair values of U.K. pension plan assets by asset category were as follows:
  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 
  Fair Value Measurements at December 31, 2021
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. $ —  $ 79  $ —  $ 79 
Non-U.S. —  74  —  74 
Fixed income
Net cash equivalents (1)
35  —  —  35 
Insurance annuity —  —  514  514 
Private markets and real assets (2)
—  —  389  389 
Net plan assets subject to leveling $ 35  $ 153  $ 903  $ 1,091 
Investments measured at net asset value 1,299 
Net plan assets       $ 2,390 
(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.
Schedule of Effect of Significant Unobservable Inputs, Changes in Plan Assets
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, 2020 $ 556  $ 31  $ 251  $ 838 
Actual return on plan assets
Unrealized (losses) gains on assets still held at the reporting date (42) 2  114  74 
Purchases, sales and settlements, net —  —  (9) (9)
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