Annual report pursuant to Section 13 and 15(d)

Employee Benefit Plans

v3.22.0.1
Employee Benefit Plans
 12 Months Ended
Dec. 31, 2021
Retirement Benefits [Abstract]  
Employee Benefit Plans Employee Benefit Plans
Pension and Postretirement Plans
The Corporation sponsors a qualified noncontributory trusteed pension plan (Qualified Pension Plan), a number of noncontributory nonqualified pension plans and postretirement health and life plans that cover eligible employees. Non-U.S. pension plans sponsored by the Corporation vary based on the country and local practices.
The Qualified Pension Plan has a balance guarantee feature for account balances with participant-selected investments, applied at the time a benefit payment is made from the plan that effectively provides principal protection for participant balances transferred and certain compensation credits. The Corporation is responsible for funding any shortfall on the guarantee feature.
Benefits earned under the Qualified Pension Plan have been frozen. Thereafter, the cash balance accounts continue to earn investment credits or interest credits in accordance with the terms of the plan document.
The Corporation has an annuity contract that guarantees the payment of benefits vested under a terminated U.S. pension plan (Other Pension Plan). The Corporation, under a supplemental agreement, may be responsible for or benefit from actual experience and investment performance of the annuity assets. The Corporation made no contribution under this agreement in 2021 or 2020. Contributions may be required in the future under this agreement.
The Corporation’s noncontributory, nonqualified pension plans are unfunded and provide supplemental defined pension benefits to certain eligible employees.
In addition to retirement pension benefits, certain benefits-eligible employees may become eligible to continue participation as retirees in health care and/or life insurance plans sponsored by the Corporation. These plans are referred to as the Postretirement Health and Life Plans.
The Pension and Postretirement Plans table summarizes the changes in the fair value of plan assets, changes in the projected benefit obligation (PBO), the funded status of both the accumulated benefit obligation (ABO) and the PBO, and the weighted-average assumptions used to determine benefit obligations for the pension plans and postretirement plans at December 31, 2021 and 2020. The estimate of the Corporation’s PBO associated with these plans considers various actuarial assumptions, including assumptions for mortality rates and discount rates. The discount rate assumptions are derived from a cash flow matching technique that utilizes rates that are based on Aa-rated corporate bonds with cash flows that match estimated benefit payments of each of the plans. The increases in the weighted-average discount rates in 2021 resulted in a decrease to the PBO of $895 million at December 31, 2021. The decreases in the weighted-average discount rates in 2020 resulted in an increase to the PBO of approximately $1.9 billion at December 31, 2020. Significant gains and losses related to changes in the PBO for 2021 and 2020 primarily resulted from changes in the discount rate.
Pension and Postretirement Plans (1)
Qualified
Pension Plan		 Non-U.S.
Pension Plans		 Nonqualified and Other
Pension Plans		 Postretirement
Health and Life Plans
(Dollars in millions) 2021 2020 2021 2020 2021 2020 2021 2020
Fair value, January 1 $ 21,776  $ 20,275  $ 3,078  $ 2,696  $ 2,789  $ 2,666  $ 143  $ 199 
Actual return on plan assets 1,215  2,468  62  379  (55) 285  —  1 
Company contributions —  —  24  23  87  86  38  6 
Plan participant contributions —  —  1  1  —  —  107  110 
Settlements and curtailments —  —  (11) (61) —  —  —  — 
Benefits paid (913) (967) (84) (57) (236) (248) (171) (174)
Federal subsidy on benefits paid  n/a n/a  n/a n/a  n/a n/a —  1 
Foreign currency exchange rate changes  n/a n/a (39) 97   n/a n/a  n/a n/a
Fair value, December 31 $ 22,078  $ 21,776  $ 3,031  $ 3,078  $ 2,585  $ 2,789  $ 117  $ 143 
Change in projected benefit obligation                
Projected benefit obligation, January 1 $ 16,427  $ 15,361  $ 3,340  $ 2,887  $ 3,005  $ 2,919  $ 1,007  $ 989 
Service cost —  —  28  20  —  1  5  5 
Interest cost 414  500  45  49  67  90  24  32 
Plan participant contributions —  —  1  1  —  —  107  110 
Plan amendments —  —  —  3  —  —  —  — 
Settlements and curtailments —  —  (11) (61) —  —  —  — 
Actuarial loss (gain) (252) 1,533  (152) 396  (83) 243  (44) 43 
Benefits paid (913) (967) (84) (57) (236) (248) (171) (173)
Federal subsidy on benefits paid  n/a n/a  n/a n/a  n/a n/a —  1 
Foreign currency exchange rate changes  n/a n/a (51) 102   n/a n/a —  — 
Projected benefit obligation, December 31 $ 15,676  $ 16,427  $ 3,116  $ 3,340  $ 2,753  $ 3,005  $ 928  $ 1,007 
Amounts recognized on Consolidated Balance Sheet
Other assets $ 6,402  $ 5,349  $ 550  $ 428  $ 777  $ 812  $ —  $ — 
Accrued expenses and other liabilities —  —  (635) (690) (945) (1,028) (811) (864)
Net amount recognized, December 31 $ 6,402  $ 5,349  $ (85) $ (262) $ (168) $ (216) $ (811) $ (864)
Funded status, December 31                
Accumulated benefit obligation $ 15,676  $ 16,427  $ 3,031  $ 3,253  $ 2,753  $ 3,005   n/a n/a
Overfunded (unfunded) status of ABO 6,402  5,349  —  (175) (168) (216)  n/a n/a
Provision for future salaries —  —  85  87  —  —   n/a n/a
Projected benefit obligation 15,676  16,427  3,116  3,340  2,753  3,005  $ 928  $ 1,007 
Weighted-average assumptions, December 31                
Discount rate 2.86  % 2.57 % 1.85  % 1.37 % 2.80  % 2.33 % 2.85  % 2.48 %
Rate of compensation increase n/a n/a 4.46  4.11  4.00  4.00  n/a n/a
Interest-crediting rate 4.83  % 5.02  % 1.90  1.58  4.22  4.49   n/a n/a
(1)The measurement date for all of the above plans was December 31 of each year reported.
n/a = not applicable
The Corporation’s estimate of its contributions to be made to the Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans in 2022 is $30 million, $91 million and $42 million, respectively. The Corporation does not expect to make a contribution to the Qualified Pension Plan in 2022. It is the policy of the Corporation to fund no less than the minimum funding amount
required by the Employee Retirement Income Security Act of 1974 (ERISA).
Pension Plans with ABO and PBO in excess of plan assets as of December 31, 2021 and 2020 are presented in the table below. For these plans, funding strategies vary due to legal requirements and local practices.
Plans with ABO and PBO in Excess of Plan Assets
Non-U.S.
Pension Plans		 Nonqualified
and Other
Pension Plans
(Dollars in millions) 2021 2020 2021 2020
PBO $ 841  $ 900  $ 945  $ 1,028 
ABO 780  841  945  1,028 
Fair value of plan assets 207  211  1  1 
Components of Net Periodic Benefit Cost
  Qualified Pension Plan Non-U.S. Pension Plans
(Dollars in millions) 2021 2020 2019 2021 2020 2019
Components of net periodic benefit cost (income)
Service cost $ —  $ —  $ —  $ 28  $ 20  $ 17 
Interest cost 414  500  593  45  49  65 
Expected return on plan assets (1,173) (1,154) (1,088) (70) (66) (99)
Amortization of net actuarial loss 193  173  135  19  9  6 
Other —  —  —  5  8  4 
Net periodic benefit cost (income) $ (566) $ (481) $ (360) $ 27  $ 20  $ (7)
Weighted-average assumptions used to determine net cost for years ended December 31
            
Discount rate 2.57  % 3.32 % 4.32  % 1.35  % 1.81 % 2.60  %
Expected return on plan assets 5.75  6.00  6.00  2.30  2.57  4.13 
Rate of compensation increase  n/a n/a n/a 4.11  4.10  4.49 
Nonqualified and
Other Pension Plans		 Postretirement Health
and Life Plans
(Dollars in millions) 2021 2020 2019 2021 2020 2019
Components of net periodic benefit cost (income)
Service cost $ —  $ 1  $ 1  $ 5  $ 5  $ 5 
Interest cost 67  90  113  24  32  38 
Expected return on plan assets (49) (71) (95) (3) (4) (5)
Amortization of net actuarial loss (gain) 63  50  34  20  29  (24)
Other —  —  —  —  (2) (2)
Net periodic benefit cost (income) $ 81  $ 70  $ 53  $ 46  $ 60  $ 12 
Weighted-average assumptions used to determine net cost for years ended December 31
            
Discount rate 2.33  % 3.20 % 4.26  % 2.48  % 3.27 % 4.25  %
Expected return on plan assets 1.88  2.77  3.73  2.00  2.00  2.00 
Rate of compensation increase 4.00  4.00  4.00    n/a n/a n/a
n/a = not applicable
The asset valuation method used to calculate the expected return on plan assets component of net periodic benefit cost for the Qualified Pension Plan recognizes 60 percent of the prior year’s market gains or losses at the next measurement date with the remaining 40 percent spread equally over the subsequent four years.
Gains and losses for all benefit plans except postretirement health care are recognized in accordance with the standard amortization provisions of the applicable accounting guidance. Net periodic postretirement health and life expense was determined using the “projected unit credit” actuarial method. For the Postretirement Health and Life Plans, 50 percent of the unrecognized gain or loss at the beginning of the year (or at subsequent remeasurement) is recognized on a level basis during the year.
Assumed health care cost trend rates affect the postretirement benefit obligation and benefit cost reported for the Postretirement Health and Life Plans. The assumed health care cost trend rate used to measure the expected cost of benefits covered by the Postretirement Health and Life Plans is 6.25 percent for 2022, reducing in steps to 5.00 percent in 2027 and later years.
The Corporation’s net periodic benefit cost (income) recognized for the plans is sensitive to the discount rate and expected return on plan assets. For the Qualified Pension Plan, Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans, a 25 bp decline in discount rates and expected return on assets would not have had a significant impact on the net periodic benefit cost for 2021.
Pretax Amounts included in Accumulated OCI and OCI
  Qualified
Pension Plan		 Non-U.S.
Pension Plans		 Nonqualified
and Other
Pension Plans		 Postretirement
Health and
Life Plans		 Total
(Dollars in millions) 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
Net actuarial loss (gain) $ 3,425  $ 3,912  $ 456  $ 628  $ 945  $ 987  $ 4  $ 66  $ 4,830  $ 5,593 
Prior service cost (credits) —  —  17  18  —  —  (3) (4) 14  14 
Amounts recognized in accumulated OCI $ 3,425  $ 3,912  $ 473  $ 646  $ 945  $ 987  $ 1  $ 62  $ 4,844  $ 5,607 
Current year actuarial loss (gain) $ (294) $ 219  $ (154) $ 79  $ 21  $ 29  $ (41) $ 47  $ (468) $ 374 
Amortization of actuarial gain (loss) and
prior service cost
 (193) (173) (19) (12) (63) (50) (20) (27) (295) (262)
Current year prior service cost (credit) —  —  —  3  —  —  —  —  —  3 
Amounts recognized in OCI $ (487) $ 46  $ (173) $ 70  $ (42) $ (21) $ (61) $ 20  $ (763) $ 115 
Plan Assets
The Qualified Pension Plan has been established as a retirement vehicle for participants, and trusts have been established to secure benefits promised under the Qualified Pension Plan. The Corporation’s policy is to invest the trust assets in a prudent manner for the exclusive purpose of providing benefits to participants and defraying reasonable expenses of administration. The Corporation’s investment strategy is designed to provide a total return that, over the long term, increases the ratio of assets to liabilities. The strategy attempts to maximize the investment return on assets at a level of risk deemed appropriate by the Corporation while complying with ERISA and any applicable regulations and laws. The investment strategy utilizes asset allocation as a principal determinant for establishing the risk/return profile of the assets. Asset allocation ranges are established, periodically reviewed and adjusted as funding levels and liability characteristics change. Active and passive investment managers are employed to help enhance the risk/return profile of the assets. An additional aspect of the investment strategy used to minimize risk (part of the asset allocation plan) includes matching the exposure of participant-selected investment measures.
The assets of the Non-U.S. Pension Plans are primarily attributable to a U.K. pension plan. This U.K. pension plan’s assets are invested prudently so that the benefits promised to members are provided with consideration given to the nature and the duration of the plans' liabilities. The selected asset
allocation strategy is designed to achieve a higher return than the lowest risk strategy.
The expected rate of return on plan assets assumption was developed through analysis of historical market returns, historical asset class volatility and correlations, current market conditions, anticipated future asset allocations, the funds’ past experience and expectations on potential future market returns. The expected return on plan assets assumption is determined using the calculated market-related value for the Qualified Pension Plan and the Other Pension Plan and the fair value for the Non-U.S. Pension Plans and Postretirement Health and Life Plans. The expected return on plan assets assumption represents a long-term average view of the performance of the assets in the Qualified Pension Plan, the Non-U.S. Pension Plans, the Other Pension Plan, and Postretirement Health and Life Plans, a return that may or may not be achieved during any one calendar year. The Other Pension Plan is invested solely in an annuity contract, which is primarily invested in fixed-income securities structured such that asset maturities match the duration of the plan’s obligations.
The target allocations for 2022 by asset category for the Qualified Pension Plan, Non-U.S. Pension Plans, and Nonqualified and Other Pension Plans are presented in the table below. Equity securities for the Qualified Pension Plan include common stock of the Corporation in the amounts of $398 million (1.80 percent of total plan assets) and $274 million (1.26 percent of total plan assets) at December 31, 2021 and 2020.
2022 Target Allocation
Percentage
Asset Category Qualified
Pension Plan		 Non-U.S.
Pension Plans		 Nonqualified
and Other
Pension Plans
Equity securities
15 - 50%
0 - 25%
0 - 5%
Debt securities
45 - 80%
40 - 70%
95 - 100%
Real estate
0 - 10%
0 - 15%
0 - 5%
Other
0 - 5%
10 - 40%
0 - 5%
Fair Value Measurements
For more information on fair value measurements, including descriptions of Level 1, 2 and 3 of the fair value hierarchy and the valuation methods employed by the Corporation, see Note 1 – Summary of Significant Accounting Principles and Note 20 – Fair Value Measurements. Combined plan investment assets measured at fair value by level and in total at December 31, 2021 and 2020 are summarized in the Fair Value Measurements table.
Fair Value Measurements
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
(Dollars in millions) December 31, 2021 December 31, 2020
Money market and interest-bearing cash $ 1,339  $ —  $ —  $ 1,339  $ 1,380  $ —  $ —  $ 1,380 
U.S. government and government agency obligations 4,948  934  6  5,888  4,590  1,238  7  5,835 
Corporate debt —  4,900  —  4,900  —  5,021  —  5,021 
Non-U.S. debt securities 925  1,165  —  2,090  1,021  1,122  —  2,143 
Asset-backed securities —  1,485  —  1,485  —  1,967  —  1,967 
Mutual and exchange traded funds 1,395  —  —  1,395  1,362  —  —  1,362 
Collective investment funds —  3,419  —  3,419  —  3,199  —  3,199 
Common and preferred stocks 4,826  —  —  4,826  4,438  —  —  4,438 
Real estate investment trusts 87  —  —  87  73  —  —  73 
Participant loans —  —  7  7  —  —  7  7 
Other investments (1)
1  29  630  660  1  29  684  714 
Total plan investment assets, at fair value (2)
$ 13,521  $ 11,932  $ 643  $ 26,096  $ 12,865  $ 12,576  $ 698  $ 26,139 
(1)Other investments includes insurance annuity contracts of $612 million and $664 million and other various investments of $48 million and $50 million at December 31, 2021 and 2020.
(2)At December 31, 2021 and 2020, excludes $1.7 billion and $1.6 billion of certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient and are not required to be classified in the fair value hierarchy. Prior period has been revised to conform to current-period presentation.
The Level 3 Fair Value Measurements table presents a reconciliation of all plan investment assets measured at fair value using significant unobservable inputs (Level 3) during 2021, 2020 and 2019.
Level 3 Fair Value Measurements
  Balance
January 1		 Actual Return on
Plan Assets Still
Held at the
Reporting Date		 Purchases, Sales and Settlements Balance
December 31
(Dollars in millions) 2021
U.S. government and government agency obligations $ 7  $ —  $ (1) $ 6 
Participant Loans 7  —  —  7 
Other investments 684  (5) (49) 630 
Total $ 698  $ (5) $ (50) $ 643 
  2020
U.S. government and government agency obligations $ 8  $ —  $ (1) $ 7 
Participant Loans 8  —  (1) 7 
Other investments 628  6  50  684 
Total $ 644  $ 6  $ 48  $ 698 
2019
U.S. government and government agency obligations $ 9  $ —  $ (1) $ 8 
Private real estate 5  —  (5) — 
Participant loans 12  —  (4) 8 
Other investments 576  6  46  628 
Total $ 602  $ 6  $ 36  $ 644 
Projected Benefit Payments
Benefit payments projected to be made from the Qualified Pension Plan, Non-U.S. Pension Plans, Nonqualified and Other Pension Plans, and Postretirement Health and Life Plans are presented in the table below.
Projected Benefit Payments
(Dollars in millions)
Qualified
Pension Plan (1)
Non-U.S.
Pension Plans (2)
Nonqualified
and Other
Pension Plans (2)
Postretirement Health and Life Plans (3)
2022 $ 948  $ 134  $ 239  $ 78 
2023 938  142  244  74 
2024 949  135  225  71 
2025 936  142  223  67 
2026 941  140  218  64 
2027 - 2031 4,395  668  940  275 
(1)Benefit payments expected to be made from the plan’s assets.
(2)Benefit payments expected to be made from a combination of the plans’ and the Corporation’s assets.
(3)Benefit payments (net of retiree contributions) expected to be made from a combination of the plans’ and the Corporation’s assets.
Defined Contribution Plans
The Corporation maintains qualified and non-qualified defined contribution retirement plans. The Corporation recorded expense of $1.2 billion in both 2021 and 2020 and $1.0 billion in 2019 related to the qualified defined contribution plans. At December 31, 2021 and 2020, 173 million and 189 million shares of the Corporation’s common stock were held by these plans. Payments to the plans for dividends on common stock were $139 million, $138 million and $133 million in 2021, 2020 and 2019, respectively.
Certain non-U.S. employees are covered under defined contribution pension plans that are separately administered in accordance with local laws.