Benefit Plans

12 Months Ended

Dec. 31, 2023

Retirement Benefits [Abstract]

Benefit Plans

Our employees ceased to participate in the Pfizer U.S. qualified defined benefit and U.S. retiree medical plans effective December 31, 2012 and liabilities associated with our employees under these plans were retained by Pfizer. Pfizer continued to credit certain employees' service with Zoetis generally through December 31, 2017 (or termination of employment from Zoetis, if earlier) for certain early retirement benefits with respect to Pfizer's U.S. defined benefit pension and retiree medical plans. In connection with an employee matters agreement between Pfizer and Zoetis, Zoetis is responsible for payment of three-fifths of the total cost of the service credit continuation ($38 million) for these plans and Pfizer is responsible for the remaining two-fifths of the total cost ($25 million). The $25 million capital contribution from Pfizer and corresponding contra-equity account (which is being reduced as the service credit continuation is incurred) is included in Employee benefit plan contribution from Pfizer Inc. in the Consolidated Statements of Equity. The balance in the contra-equity account was $0 million as of December 31, 2023 and 2022. The amount of the service cost continuation payment to be paid by Zoetis to Pfizer was determined and fixed based on an actuarial assessment of the value of the grow-in benefits and was being paid in equal installments over a period of 10 years. As of December 31, 2023, there are no remaining payments due to Pfizer. Pension and postretirement benefit expense associated with the extended service for certain employees in the U.S. plans totaled $0 million in 2023 and $6 million in 2022.

Pension expense associated with the U.S. and certain significant international locations (inclusive of service cost grow-in benefits discussed above) totaled $6 million in 2023, $12 million in 2022 and $14 million in 2021.

A.    International Pension Plans

Information about the dedicated pension plans, including the plans transferred to us as part of the separation from Pfizer, is provided in the tables below.

Obligations and Funded Status––Dedicated Plans

The following table provides an analysis of the changes in the benefit obligations, plan assets and funded status of our dedicated pension plans (including those transferred to us):

	As of and for the
	Year Ended December 31,
(MILLIONS OF DOLLARS)	2023		2022
Change in benefit obligation:
Projected benefit obligation, beginning	$	122	$	159
Service cost	5		6
Interest cost	5		2
Changes in actuarial assumptions and other	(4)		(27)
Settlements and curtailments	—		(3)
Benefits paid	(3)		(1)
Adjustments for foreign currency translation	5		(13)
Other––net	(1)		(1)
Benefit obligation, ending	129		122
Change in plan assets:
Fair value of plan assets, beginning	78		92
Actual return on plan assets	3		(4)
Company contributions	6		4
Settlements and curtailments	—		(3)
Benefits paid	(3)		(1)
Adjustments for foreign currency translation	2		(9)
Other––net	—		(1)
Fair value of plan assets, ending	86		78
Funded status—Projected benefit obligation in excess of plan assets at end of year(a)	$	(43)	$	(44)

(a)    Included in Other noncurrent liabilities.

Changes in the benefit obligation resulted in a net gain of $4 million in 2023 and $27 million in 2022.

Actuarial gains were $4 million ($4 million, net of tax) at December 31, 2023 and $6 million ($3 million, net of tax) at December 31, 2022. The actuarial gains and losses primarily represent the cumulative difference between the actuarial assumptions and actual return on plan assets, changes in discount rates and changes in other assumptions used in measuring the benefit obligations. These actuarial gains and losses are recognized in Accumulated other comprehensive loss. The actuarial losses will be amortized into net periodic benefit costs over an average period of 10.1 years.

Information related to the funded status of selected plans follows:

	As of December 31,
(MILLIONS OF DOLLARS)	2023		2022
Pension plans with an accumulated benefit obligation in excess of plan assets:
Fair value of plan assets	$	8	$	7
Accumulated benefit obligation	45		40
Pension plans with a projected benefit obligation in excess of plan assets:
Fair value of plan assets	64		58
Projected benefit obligation	109		103

Net Periodic Benefit Costs––Dedicated Plans

The following table provides the net periodic benefit cost associated with dedicated pension plans (including those transferred to us):

	Year Ended December 31,
(MILLIONS OF DOLLARS)	2023		2022		2021
Service cost	$	5	$	6	$	8
Interest cost	5		2		2
Expected return on plan assets	(4)		(3)		(3)
Amortization of net losses	—		1		1
Net periodic benefit cost	$	6	$	6	$	8

Actuarial Assumptions––Dedicated Plans

The following table provides the weighted average actuarial assumptions for the dedicated pension plans (including those transferred to us):

	As of December 31,
(PERCENTAGES)	2023		2022		2021
Weighted average assumptions used to determine benefit obligations:
Discount rate	4.2	%	3.7	%	1.4	%
Rate of compensation increase	3.6	%	3.5	%	3.4	%
Cash balance credit interest rate	1.6	%	1.7	%	1.5	%
Weighted average assumptions used to determine net benefit cost for the year ended December 31:
Discount rate	3.7	%	1.4	%	1.2	%
Expected return on plan assets	4.7	%	3.3	%	3.8	%
Rate of compensation increase	3.5	%	3.4	%	3.1	%
Cash balance credit interest rate	1.7	%	1.5	%	1.5	%

The assumptions above are used to develop the benefit obligations at the end of the year and to develop the net periodic benefit cost for the following year. Therefore, the assumptions used to determine the net periodic benefit cost for each year are established at the end of each previous year, while the assumptions used to determine the benefit obligations are established at each year-end. The net periodic benefit cost and the benefit obligations are based on actuarial assumptions that are reviewed on an annual basis. The assumptions are revised based on an annual evaluation of long-term trends, as well as market conditions that may have an impact on the cost of providing retirement benefits.

Actuarial and other assumptions for pension plans can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions. For a description of the risks associated with estimates and assumptions, see Note 3. Significant Accounting Policies—Estimates and Assumptions.

Plan Assets—Dedicated Plans

The components of plan assets follow:

	As of December 31,
(MILLIONS OF DOLLARS)	2023		2022
Cash and cash equivalents	$	1	$	2
Equity securities: Equity commingled funds	34		29
Debt securities: Government bonds	40		38
Other investments	11		9
Total(a)	$	86	$	78

(a)    Fair values are determined based on valuation inputs categorized as Level 1, 2 or 3 (see Note 3. Significant Accounting Policies—Fair Value). Investment plan assets are valued using Level 1 or Level 2 inputs.

A single estimate of fair value can result from a complex series of judgments about future events and uncertainties and can rely on estimates and assumptions. For information about the risks associated with estimates and assumptions, see Note 3. Significant Accounting Policies—Estimates and Assumptions.

Specifically, the following methods and assumptions were used to estimate the fair value of our pension assets:

•    Equity commingled funds––observable market prices (Level 1).

•    Government bonds and other investments––principally observable market prices (Level 2).

The long-term target asset allocations and the percentage of the fair value of plans assets for dedicated benefit plans follow:

	As of December 31,
	Target allocation
	percentage	Percentage of Plan Assets
(PERCENTAGES)	2023	2023		2022
Cash and cash equivalents	0-10%	1.7	%	2.3	%
Equity securities	0-60%	39.4	%	37.7	%
Debt securities	15-100%	46.9	%	48.0	%
Other investments	0-100%	12.0	%	12.0	%
Total	100%	100	%	100	%

Zoetis utilizes long-term asset allocation ranges in the management of our plans’ invested assets. Long-term return expectations are developed with input from outside investment consultants based on the company’s investment strategy, which takes into account historical experience, as well as the impact of portfolio diversification, active portfolio management, and the investment consultant’s view of current and future economic and financial market conditions. As market conditions and other factors change, the targets may be adjusted accordingly and actual asset allocations may vary from the target allocations.

The long-term asset allocation ranges reflect the asset class return expectations and tolerance for investment risk within the context of the respective plans’ long-term benefit obligations. These ranges are supported by an analysis that incorporates historical and expected returns by asset class, as well as volatilities and correlations across asset classes and our liability profile. This analysis, referred to as an asset-liability analysis, also provides an estimate of expected returns on plan assets, as well as a forecast of potential future asset and liability balances.

The investment consultants review investment performance with Zoetis on a quarterly basis in total, as well as by asset class, relative to one or more benchmarks.

Cash Flows—Dedicated Plans

Our plans are generally funded in amounts that are at least sufficient to meet the minimum requirements set forth in applicable employee benefit laws and local tax and other laws.

We expect to contribute approximately $7 million to our dedicated pension plans in 2024. Benefit payments are expected to be approximately $7 million for 2024, $6 million for 2025, $11 million for 2026, $7 million for 2027 and $7 million for 2028. Benefit payments are expected to be approximately $53 million in the aggregate for the five years thereafter. These expected benefit payments reflect the future plan benefits subsequent to 2024 projected to be paid from the plans or from the general assets of Zoetis entities under the current actuarial assumptions used for the calculation of the projected benefit obligation and, therefore, actual benefit payments may differ from projected benefit payments.

B.    Postretirement Plans

Postretirement benefit expense associated with these U.S. retiree medical plans totaled $0 million in 2023, and $4 million per year in 2022 and 2021 (inclusive of service cost grow-in benefits discussed above).

C.    Defined Contribution Plans

Zoetis has a voluntary defined contribution plan, the Zoetis Savings Plan (ZSP) that allows participation by substantially all U.S. employees. Zoetis matches 100% of employee contributions, up to a maximum of 5% of each employee’s eligible compensation. The ZSP also includes a profit-sharing feature that provides for an additional contribution ranging between 0 and 8 percent of each employee’s eligible compensation. All eligible employees receive the profit-sharing contribution regardless of the amount they choose to contribute to the ZSP. The profit-sharing contribution is a discretionary amount provided by Zoetis and is determined on an annual basis. Employees can direct their contributions and the company's matching and profit-sharing contributions into any of the funds offered. These funds provide participants with a cross section of investing options, including the Zoetis stock fund. The matching and profit-sharing contributions are cash funded.

Employees are permitted to diversify all or any portion of their company matching or profit-sharing contribution. Once the contributions have been paid, Zoetis has no further payment obligations. Contribution expense, associated with the ZSP, totaled $69 million in 2023, $57 million in 2022 and $54 million in 2021.

Employees in the U.S. who meet certain eligibility requirements participate in a supplemental (non-qualified) savings plan sponsored by Zoetis. The cost/(benefit) of the supplemental savings plan was $11 million in 2023, $(9) million in 2022 and $12 million in 2021. Benefit payments for this plan are expected to be approximately $5 million in 2024 and $46 million thereafter.