Retirement Benefits

12 Months Ended

Dec. 31, 2022

Retirement Benefits [Abstract]

Retirement Benefits

13. RETIREMENT BENEFITS

Plan Descriptions

U.S. Defined Benefit Pension Plans – The company sponsors several defined benefit pension plans in the U.S. Pension benefits for most participants are based on years of service, age and compensation. It is our policy to fund at least the minimum amount required for qualified plans, using actuarial cost methods and assumptions acceptable under U.S. government regulations, by making payments into benefit trusts separate from the company.

U.S. Defined Contribution Plans – The company also sponsors defined contribution plans covering the majority of its employees, including certain employees covered under collective bargaining agreements. Company contributions vary depending on date of hire, with a majority of employees being eligible for employer matching of employee contributions. Based on date of hire, certain employees are eligible to receive a company non-elective contribution or an enhanced matching contribution in lieu of a defined benefit pension plan benefit. The company’s contributions to these defined contribution plans for the years ended December 31, 2022, 2021 and 2020, were $558 million, $588 million and $590 million, respectively.

Non-U.S. Benefit Plans – The company sponsors several benefit plans for non-U.S. employees. These plans are designed to provide benefits appropriate to local practice and in accordance with local regulations. Some of these plans are funded using benefit trusts separate from the company.

Medical and Life Benefits – The company funds a portion of the costs for certain health care and life insurance benefits for a substantial number of its active and retired employees. In addition to a company and employee cost-sharing feature, the health plans also have provisions for deductibles, co-payments, coinsurance percentages, out-of-pocket limits, conformance to a schedule of reasonable fees, the use of managed care providers and coordination of benefits with other plans. The plans also provide for a Medicare carve-out. The company reserves the right to amend or terminate the plans at any time.

Certain covered employees and dependents are eligible to participate in plans upon retirement if they meet specified age and years of service requirements. The company provides subsidies to reimburse certain retirees for a portion of the cost of individual Medicare-supplemental coverage purchased directly by the retiree through a private insurance exchange. The company has capped the amount of its contributions for substantially all of its remaining postretirement medical and life benefit plans. In addition, after January 1, 2005 (or earlier at some businesses), newly hired employees are not eligible for subsidized postretirement medical and life benefits.

Summary Plan Results

The cost to the company of its retirement benefit plans is shown in the following table:

	Year Ended December 31
	Pension Benefits						Medical and Life Benefits
$ in millions	2022		2021		2020		2022		2021		2020
Components of net periodic benefit cost (benefit)
Service cost	$	367	$	414	$	409	$	9	$	16	$	17
Interest cost	1,136		1,054		1,226		47		53		67
Expected return on plan assets	(2,641)		(2,512)		(2,376)		(110)		(105)		(102)
Amortization of prior service (credit) cost	—		(9)		(59)		(1)		(1)		4
Mark-to-market (benefit) expense	(1,262)		(1,921)		1,034		30		(434)		—
Other	—		(1)		10		—		—		2
Net periodic benefit cost (benefit)	$	(2,400)	$	(2,975)	$	244	$	(25)	$	(471)	$	(12)

The table below summarizes the components of changes in unamortized prior service credit (cost) for the years ended December 31, 2020, 2021 and 2022:

$ in millions	Pension Benefits		Medical and Life Benefits		Total
Changes in unamortized prior service credit (cost)
Amortization of prior service credit (cost)	$	59	$	(4)	$	55
Tax expense	(15)		1		(14)
Change in unamortized prior service credit (cost) – 2020	44		(3)		41
Amortization of prior service credit (cost)	9		1		10
Tax expense	(2)		—		(2)
Change in unamortized prior service credit (cost) – 2021	7		1		8
Amortization of prior service credit (cost)	—		1		1
Tax expense	—		—		—
Change in unamortized prior service credit (cost) – 2022	$	—	$	1	$	1

The following table sets forth the funded status and amounts recognized in the consolidated statements of financial position for the company’s defined benefit retirement plans. Pension benefits data includes the qualified plans, foreign plans and U.S. unfunded non-qualified plans for benefits provided to directors, officers and certain employees. The company uses a December 31 measurement date for its plans.

	Pension Benefits				Medical and Life Benefits
$ in millions	2022		2021		2022		2021
Plan Assets
Fair value of plan assets at beginning of year	$	36,236	$	34,452	$	1,588	$	1,515
Net (loss) gain on plan assets	(5,422)		3,637		(257)		170
Employer contributions	101		104		35		37
Participant contributions	7		8		24		23
Benefits paid	(1,973)		(1,964)		(164)		(157)
Other	(29)		(1)		—		—
Fair value of plan assets at end of year	28,920		36,236		1,226		1,588
Projected Benefit Obligation
Projected benefit obligation at beginning of year	38,888		40,182		1,685		2,119
Service cost	367		414		9		16
Interest cost	1,136		1,054		47		53
Participant contributions	7		8		24		23
Actuarial loss	(9,325)		(794)		(337)		(369)
Benefits paid	(1,973)		(1,964)		(164)		(157)
Other	(33)		(12)		—		—
Projected benefit obligation at end of year	29,067		38,888		1,264		1,685
Funded status	$	(147)	$	(2,652)	$	(38)	$	(97)

The decrease in the fair value of our plan assets for the year ended December 31, 2022 was principally driven by losses of 15.4 percent on plan assets and $2.1 billion of benefit payments. The decrease in our projected benefit obligation for the year ended December 31, 2022, was primarily driven by a 256 basis point increase in the discount rate from year end 2021 and $2.1 billion of benefit payments, partially offset by $1.2 billion of interest cost.

	Pension Benefits				Medical and Life Benefits
$ in millions	2022		2021		2022		2021
Classification of amounts recognized in the consolidated statements of financial position
Non-current assets	$	982	$	462	$	240	$	285
Current liability	(177)		(182)		(42)		(45)
Non-current liability	(952)		(2,932)		(236)		(337)

The accumulated benefit obligation for all defined benefit pension plans was $28.8 billion and $38.3 billion at December 31, 2022 and 2021, respectively.

Amounts for pension plans with accumulated benefit obligations in excess of fair value of plan assets are as follows:

	December 31
$ in millions	2022		2021
Projected benefit obligation	$	1,126	$	36,524
Accumulated benefit obligation	1,117		35,994
Fair value of plan assets	2		33,410

Plan Assumptions

On a weighted-average basis, the following assumptions were used to determine benefit obligations at December 31 of each year and net periodic benefit cost for the following year:

	Pension Benefits						Medical and Life Benefits
	2022		2021		2020		2022		2021		2020
Discount rate	5.54	%	2.98	%	2.68	%	5.57	%	2.93	%	2.58	%
Expected long-term return on plan assets	7.50	%	7.50	%	7.50	%	7.23	%	7.19	%	7.22	%
Initial cash balance crediting rate assumed for the next year	3.96	%	2.25	%	2.25	%
Rate to which the cash balance crediting rate is assumed to increase/decrease (the ultimate rate)	3.88	%	2.25	%	2.25	%
Year that the cash balance crediting rate reaches the ultimate rate	2028		2027		2026
Rate of compensation increase	3.00	%	3.00	%	3.00	%
Initial health care cost trend rate assumed for the next year							6.50	%	5.30	%	5.60	%
Rate to which the health care cost trend rate is assumed to decline (the ultimate trend rate)							5.00	%	5.00	%	5.00	%
Year that the health care cost trend rate reaches the ultimate trend rate							2028		2023		2023

Plan Assets and Investment Policy

Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. Through consultation with our investment management team and outside investment advisers, management develops expected long-term returns for each of the plans’ strategic asset classes. In doing so, we consider a number of factors, including our historical investment performance, current market data such as yields/price-earnings ratios, historical market returns over long periods and periodic surveys of investment managers’ expectations. Liability studies are conducted on a regular basis to provide guidance in setting investment goals with an objective to balance risk. Risk targets are established and monitored against acceptable ranges.

Our investment policies and procedures are designed to ensure the plans’ investments are in compliance with ERISA. Guidelines are established defining permitted investments within each asset class. Derivatives are used for transitioning assets, asset class rebalancing, managing currency risk and for management of fixed-income and alternative investments.

For the majority of the plans’ assets, the investment policies require that the asset allocation be maintained within the following ranges as of December 31, 2022:

	Asset Allocation Ranges
Cash and cash equivalents	—% - 12%
Global public equities	24% - 44%
Fixed-income securities	31% - 51%
Alternative investments	14% - 34%

The table below provides the fair values of the company’s pension and Voluntary Employees’ Beneficiary Association (VEBA) trust plan assets at December 31, 2022 and 2021, by asset category. The table also identifies the level of inputs used to determine the fair value of assets in each category. See Note 1 for the definitions of these levels. Certain investments that are measured at fair value using NAV per share (or its equivalent) as a practical expedient are not required to be categorized in the fair value hierarchy table. The total fair value of these investments is included in the table below to permit reconciliation of the fair value hierarchy to amounts presented in the funded status table. As of December 31, 2022 and 2021, there were no investments expected to be sold at a value materially different than NAV.

	Level 1				Level 2				Level 3				Total
$ in millions	2022		2021		2022		2021		2022		2021		2022		2021
Asset category
Cash and cash equivalents	$	115	$	119	$	1,076	$	2,268					$	1,191	$	2,387
U.S. equities	2,138		3,085		1		2						2,139		3,087
International equities	1,784		3,105						$	—	$	3	1,784		3,108
Fixed-income securities
U.S. Treasuries	22		21		2,977		2,815						2,999		2,836
U.S. Government Agency					145		180						145		180
Non-U.S. Government					172		277						172		277
Corporate debt	28		30		4,717		5,501						4,745		5,531
Asset backed					353		987						353		987
High yield debt	12		19		19		31						31		50
Bank loans					13		21						13		21
Other assets			33		2		57		2		2		4		92
Investments valued using NAV as a practical expedient
U.S. equities													1,043		1,652
International equities													3,904		6,849
Fixed-income funds													2,569		1,461
Hedge funds													44		63
Opportunistic investments													2,983		3,039
Private equity funds													3,299		3,535
Real estate funds													2,753		2,742
Payables, net													(25)		(73)
Fair value of plan assets at the end of the year	$	4,099	$	6,412	$	9,475	$	12,139	$	2	$	5	$	30,146	$	37,824

There were no transfers of plan assets into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2022 and 2021.

Generally, investments are valued based on information in financial publications of general circulation, statistical and valuation services, records of security exchanges, appraisal by qualified persons, transactions and bona fide offers. Cash and cash equivalents are predominantly held in money market or short-term investment funds. U.S. and international equities consist primarily of common stocks and institutional common trust funds. Investments in certain equity securities, which include domestic and international securities and registered investment companies, and exchange-traded funds with fixed income strategies are valued at the last reported sales or quoted price on the last business day of the reporting period. Fair values for certain fixed-income securities, which are not exchange-traded, are valued using third-party pricing services.

Other assets include derivative assets with a fair value of $71 million and $78 million, derivative liabilities with a fair value of $117 million and $38 million, and net notional amounts of $3.2 billion and $3.7 billion, as of December 31, 2022 and 2021, respectively. Derivative instruments may include exchange traded futures contracts, interest rate swaps, options on futures and swaps, currency contracts, total return swaps and credit default swaps. Notional amounts do not quantify risk or represent assets or liabilities of the pension and VEBA trusts, but are used in the

calculation of cash settlement under the contracts. The volume of derivative activity is commensurate with the amounts disclosed at year-end. Certain derivative financial instruments within the pension trust are subject to master netting agreements with certain counterparties.

Investments in certain equity and fixed-income funds, which include common/collective trust funds, and alternative investments, including hedge funds, opportunistic investments, private equity funds and real estate funds, are valued based on the NAV derived by the investment managers, as a practical expedient, and are described further below.

U.S. and International equities: Generally, redemption periods are daily, monthly or quarterly with a notice requirement less than 90 days. As of December 31, 2022, there were no unfunded commitments. As of December 31, 2021, unfunded commitments were $100 million.

Fixed-income funds: Generally, redemption periods are daily, monthly or quarterly with a notice requirement of two days. There were no unfunded commitments as of December 31, 2022 and 2021.

Hedge funds: Consist of closed-end funds with a 5-10 year life as well as funds that allow redemption requests subject to the liquidity limitations of the underlying investments. As of December 31, 2022 and 2021, unfunded commitments were $6 million.

Opportunistic investments: Primarily held in partnerships with a 5-10 year life. As of December 31, 2022 and 2021, unfunded commitments were $1.5 billion and $1.7 billion, respectively.

Private equity funds: The term of each fund is typically 10 or more years and the fund’s investors do not have an option to redeem their interest in the fund. As of December 31, 2022 and 2021, unfunded commitments were $2.0 billion and $2.1 billion, respectively.

Real estate funds: Consist primarily of open-end funds that generally allow investors to redeem their interests in the funds. Certain closed-end real estate funds have terms of 10 or more years. As of December 31, 2022 and 2021, unfunded commitments were $44 million and $350 million, respectively.

For the years ended December 31, 2022 and 2021, the defined benefit pension and VEBA trusts did not hold any Northrop Grumman common stock.

Benefit Payments

The following table reflects estimated future benefit payments for the next ten years, based upon the same assumptions used to measure the benefit obligation, and includes expected future employee service, as of December 31, 2022:

$ in millions	Pension Plans		Medical and Life Plans		Total
Year Ending December 31
2023	$	1,949	$	139	$	2,088
2024	2,001		141		2,142
2025	2,041		135		2,176
2026	2,077		112		2,189
2027	2,108		107		2,215
2028 through 2032	10,717		474		11,191

In 2023, the company expects to contribute the required minimum funding of approximately $100 million to its pension plans and approximately $36 million to its medical and life benefit plans. During the year ended December 31, 2022, the company made no discretionary pension contributions.