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, 2021
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefits Disclosure
NOTE 10. 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 plans 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 2021 2020 2021 2020
Change in benefit obligation        
Benefit obligation at the beginning of the year $ 3,122  $ 2,916  $ 2,050  $ 1,851 
Service cost 139  133  33  29 
Interest cost 79  95  30  36 
Actuarial (gain) loss (132) 224  (136) 136 
Benefits paid from fund (178) (224) (63) (72)
Benefits paid directly by employer (18) (22) —  — 
Foreign currency translation adjustments —  —  (27) 70 
Benefit obligation at end of year $ 3,012  $ 3,122  $ 1,887  $ 2,050 
Change in plan assets        
Fair value of plan assets at beginning of year $ 3,429  $ 3,357  $ 2,337  $ 2,010 
Actual return on plan assets 267  274  118  268 
Employer contributions 30  22  30  48 
Benefits paid from fund (178) (224) (63) (72)
Foreign currency translation adjustments —  —  (32) 83 
Fair value of plan assets at end of year $ 3,548  $ 3,429  $ 2,390  $ 2,337 
Funded status (including unfunded plans) at end of year $ 536  $ 307  $ 503  $ 287 
Amounts recognized in consolidated balance sheets        
Pension assets $ 985  $ 755  $ 503  $ 287 
Accrued compensation, benefits and retirement costs (18) (17) —  — 
Pension and OPEB (431) (431) —  — 
Net amount recognized $ 536  $ 307  $ 503  $ 287 
Amounts recognized in accumulated other comprehensive loss        
Net actuarial loss $ 467  $ 714  $ 61  $ 250 
Prior service cost 6  6  11  19 
Net amount recognized $ 473  $ 720  $ 72  $ 269 
In addition to the pension plans in the above table, we also maintain less significant defined benefit pension plans in 14 other countries outside of the U.S. and the U.K. that comprise approximately 4 percent and 5 percent of our pension plan assets and obligations, respectively, at December 31, 2021. These plans are reflected in "Other liabilities" on our Consolidated Balance Sheets. In 2021 and 2020, we made $13 million and $16 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 2021 2020 2021 2020
Total ABO $ 2,986  $ 3,091  $ 1,844  $ 1,954 
Plans with ABO in excess of plan assets
ABO 424  417  —  — 
Plans with PBO in excess of plan assets
PBO 449  448  —  — 
Components of Net Periodic Pension Cost
The following table presents the net periodic pension cost under our plans for the years ended December 31:
  Qualified and Non-Qualified Pension Plans
  U.S. Plans U.K. Plans
In millions 2021 2020 2019 2021 2020 2019
Service cost $ 139  $ 133  $ 116  $ 33  $ 29  $ 26 
Interest cost 79  95  108  30  36  43 
Expected return on plan assets (199) (195) (189) (85) (74) (70)
Amortization of prior service cost 1  1  1  2  2  2 
Recognized net actuarial loss 47  41  17  31  34  11 
Net periodic pension cost $ 67  $ 75  $ 53  $ 11  $ 27  $ 12 
Other changes in benefit obligations and plan assets recognized in other comprehensive (income) loss for the years ended December 31 were as follows:
In millions 2021 2020 2019
Amortization of prior service cost $ (3) $ (3) $ (3)
Recognized net actuarial loss (78) (75) (28)
Incurred actuarial (gain) loss (368) 85  101 
Foreign currency translation adjustments 5  19  4 
Total recognized in other comprehensive (income) loss $ (444) $ 26  $ 74 
Total recognized in net periodic pension cost and other comprehensive (income) loss $ (366) $ 128  $ 139 
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
  2021 2020 2021 2020
Discount rate 3.01  % 2.62  % 1.95  % 1.50  %
Cash balance crediting rate 3.79  % 3.74  % —  — 
Compensation increase rate 2.71  % 2.73  % 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
  2021 2020 2019 2021 2020 2019
Discount rate 2.62  % 3.36  % 4.36  % 1.50  % 2.00  % 2.80  %
Expected return on plan assets 6.25  % 6.25  % 6.25  % 4.00  % 4.00  % 4.00  %
Compensation increase rate 2.72  % 2.73  % 2.73  % 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.
U.S. Plan Assets
For the U.S. qualified pension plans, our assumption for the expected return on assets was 6.25 percent in 2021. 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 to maintain our assumption of 6.25 percent in 2022.
The primary investment objective is to exceed, on a net-of-fee basis, the rate of return of a policy portfolio comprised of the following:
Range
Asset Class Target Minimum Maximum
U.S. equities 5.0  % —  % 10  %
Non-U.S. equities 1.0  % —  % 4  %
Global equities 6.0  % 3  % 9  %
Total equities 12.0  %
Real assets 6.0  % —  % 10  %
Private equity/venture capital 6.0  % —  % 10  %
Opportunistic credit 4.0  % —  % 10  %
Fixed income 72.0  % 67  % 77  %
Total 100.0  %  
The fixed income component 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 plan's exposure to changes in its discount rate (AA corporate bond yields). In order to achieve a hedge on more than the targeted 72 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 plan's risk of declining 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
For the U.K. qualified pension plans, our assumption for the expected return on assets was 4.0 percent in 2021. The methodology used to determine the rate of return on 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 Target
Equities 10.0  %
Private markets/secure income assets 12.0  %
Credit 16.0  %
Diversifying strategies 5.0  %
Fixed income/insurance annuity 56.0  %
Cash 1.0  %
Total 100.0  %
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. plan, derivatives may be used to better match liability duration and are not used in a speculative way. The 56 percent fixed income component is structured in a way that covers approximately 90 percent of the plan's exposure to changes in its discount rate. Based on the above discussion, we elected an assumption of 3.75 percent in 2022.
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, 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 
  Fair Value Measurements at December 31, 2020
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. $ 194  $ —  $ —  $ 194 
Non-U.S. 58  —  —  58 
Fixed income
Government debt 78  5  —  83 
Corporate debt
U.S. —  512  —  512 
Non-U.S. —  26  —  26 
Asset/mortgaged backed securities —  3  —  3 
Net cash equivalents (1)
319  37  —  356 
Private markets and real assets (2)
—  —  431  431 
Net plan assets subject to leveling $ 649  $ 583  $ 431  $ 1,663 
Accruals (3)
      5 
Investments measured at net asset value 1,761 
Net plan assets       $ 3,429 
(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 ($995 million and $1,068 million at December 31, 2021 and 2020, 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 ($145 million and $245 million at December 31, 2021 and 2020, respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days.
•Government Debt ($361 million and $199 million at December 31, 2021 and 2020, respectively) - These commingled funds have observable NAVs provided to investors and provide for liquidity either immediately or within a couple of days.
•Real Estate ($171 million and $153 million at December 31, 2021 and 2020, 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 ($262 million and $96 million at December 31, 2021 and 2020, 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.
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, 2019 $ 299  $ 72  $ 371 
Actual return on plan assets  
Unrealized gains on assets still held at the reporting date 21  2  23 
Purchases, sales and settlements, net 39  (2) 37 
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 
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, 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 (2)
—  —  514  514 
Private markets and real assets (3)
—  —  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 
  Fair Value Measurements at December 31, 2020
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. $ —  $ 56  $ —  $ 56 
Non-U.S. —  69  —  69 
Fixed income
Net cash equivalents (1)
26  —  —  26 
Insurance annuity (2)
—  —  556  556 
Private markets and real assets (3)
—  —  282  282 
Net plan assets subject to leveling $ 26  $ 125  $ 838  $ 989 
Investments measured at net asset value 1,348 
Net plan assets       $ 2,337 
(1) Cash equivalents include commercial paper, short-term government/agency, mortgage and credit instruments.
(2) In July 2012, the U.K. pension plan purchased an insurance contract that will guarantee payment of specified pension liabilities. The contract defers payment for 10 years.
(3) 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.
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 ($894 million and $970 million at December 31, 2021 and 2020, 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 ($194 million and $168 million at December 31, 2021 and 2020, 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 ($99 million and $100 million at December 31, 2021 and 2020, 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 ($61 million and $60 million at December 31, 2021 and 2020, respectively) - This commingled fund has a NAV that is determined on a monthly basis and the investment may be sold at that value.
•Diversified Strategies ($51 million and $50 million at December 31, 2021 and 2020, 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 Insurance Annuity Real Assets Private Markets Total
Balance at December 31, 2019 $ 476  $ 35  $ 224  $ 735 
Actual return on plan assets
Unrealized gains (losses) on assets still held at the reporting date 80  (2) 22  100 
Purchases, sales and settlements, net —  (2) 5  3 
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 
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 $47 million to our defined benefit pension plans in 2022. The table below presents expected future benefit payments under our pension plans:
  Qualified and Non-Qualified Pension Plans
In millions 2022 2023 2024 2025 2026 2027 - 2031
Expected benefit payments $ 274  $ 261  $ 268  $ 271  $ 277  $ 1,411 
Other Pension Plans
We also sponsor defined contribution plans for certain hourly and salaried employees. Our contributions to these plans were $92 million, $85 million and $102 million for the years ended December 31, 2021, 2020 and 2019.
Other Postretirement Benefits
Our other postretirement benefit (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 2021 2020
Change in benefit obligation    
Benefit obligation at the beginning of the year $ 219  $ 227 
Interest cost 5  7 
Plan participants' contributions 14  9 
Actuarial (gain) loss (8) 14 
Benefits paid directly by employer (38) (38)
Benefit obligation at end of year $ 192  $ 219 
Funded status at end of year $ (192) $ (219)
Amounts recognized in consolidated balance sheets    
Accrued compensation, benefits and retirement costs $ (19) $ (20)
Pension and OPEB (173) (199)
Net amount recognized $ (192) $ (219)
Amounts recognized in accumulated other comprehensive loss    
Net actuarial gain $ (18) $ (10)
Prior service credit (4) (4)
Net amount recognized $ (22) $ (14)
In addition to the OPEB plans in the above table, we also maintain less significant OPEB plans in four other countries outside the U.S. that comprise approximately 8 percent and 9 percent of our OPEB obligations at December 31, 2021 and 2020, 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 2021 2020 2019
Interest cost $ 5  $ 7  $ 10 
Recognized net actuarial gain —  (1) — 
Net periodic OPEB cost $ 5  $ 6  $ 10 
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 2021 2020 2019
Recognized net actuarial gain $ —  $ 1  $ — 
Incurred actuarial (gain) loss (8) 14  (1)
Total recognized in other comprehensive (income) loss $ (8) $ 15  $ (1)
Total recognized in net periodic OPEB cost and other comprehensive (income) loss $ (3) $ 21  $ 9 
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:
2021 2020
Discount rate 2.75  % 2.30  %
The table below presents assumptions used in determining the net periodic OPEB cost and reflects weighted-average percentages for the various plans as follows:
2021 2020 2019
Discount rate 2.30  % 3.15  % 4.25  %
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 2021. The rate is assumed to decrease on a linear basis to 5.0 percent through 2029 and remain at that level thereafter.
Estimated Benefit Payments
The table below presents expected benefit payments under our OPEB plans:
In millions 2022 2023 2024 2025 2026 2027 - 2031
Expected benefit payments $ 19  $ 18  $ 18  $ 17  $ 16  $ 65