Retirement benefits

12 Months Ended

Aug. 31, 2021

The Company sponsors several retirement plans, including defined benefit plans, defined contribution plans and a postretirement health plan.

Defined benefit pension plans (non-U.S. plans)

The Company has various defined benefit pension plans outside the U.S. The principal defined benefit pension plan is the Boots Pension Plan (the “Boots Plan”), which covers certain employees in the UK. The Boots Plan is a funded final salary defined benefit plan providing pensions and death benefits to members. The Boots Plan was closed to future accrual effective July 1, 2010, with pensions calculated based on salaries up until that date. The Boots Plan is governed by a trustee board, which is independent of the Company. The plan is subject to a full funding actuarial valuation on a triennial basis. The investment strategy of the principal defined benefit pension plan is to hold the majority of its assets in a diverse portfolio ("Matching Portfolio") which aims to broadly match the characteristics of the plan’s liabilities by investing in bonds, derivatives and other fixed income assets, with the remainder invested in predominantly return-seeking assets. Interest rate and inflation rate swaps are also employed to complement the role of fixed and index-linked bond holdings in liability risk management.

The following tables present classes of defined benefit pension plan assets by fair value hierarchy (in millions):


	August 31, 2021		Level 1		Level 2		Level 3
Equity securities:
Equity securities 1	$	1,316	$	—	$	1,316	$	—

Debt securities:
Fixed interest government bonds 2	514		101		412		—
Index linked government bonds 2	3,521		3,486		35		—
Corporate bonds 3	2,851		1		2,850		—

Real estate:
Real estate 4	513		—		—		513

Other:
Other investments, net 5	1,761		107		1,024		629

Total	$	10,475	$	3,696	$	5,637	$	1,142


	August 31, 2020		Level 1		Level 2		Level 3
Equity securities:
Equity securities 1	$	1,505	$	—	$	1,505	$	—

Debt securities:
Fixed interest government bonds 2	515		111		404		—
Index linked government bonds 2	4,168		2,936		1,232		—
Corporate bonds3	2,730		1		2,729		—

Real estate:
Real estate 4	492		—		—		492

Other:
Other investments, net 5	204		152		(347)		399

Total	$	9,614	$	3,200	$	5,523	$	891

1Equity securities, which mainly comprise of investments in commingled funds, are valued based on quoted prices and are primarily exchange-traded. Securities for which official close or last trade pricing on an active exchange is available are classified as Level 1 investments. If closing prices are not available, or the investments are in a commingled fund, securities are valued at the last quoted bid price and typically are categorized as Level 2 investments.

2Debt securities: government bonds comprise of fixed interest and index linked bonds issued by central governments and are valued based on quotes received from independent pricing services or from dealers who make markets in such securities. Pricing services utilize pricing which considers readily available inputs such as the yield or price of bonds of comparable quality, coupon, maturity and type, as well as dealer-supplied prices.

3Debt securities: corporate bonds comprise bonds issued by corporations in both segregated and commingled funds

and are valued using recently executed transactions, or quoted market prices for similar assets and liabilities in active markets, or for identical assets and liabilities in markets that are not active. If there have been no market transactions in a particular fixed income security, its fair value is calculated by pricing models that benchmark the security against other securities with actual market prices.

4Real estate comprise of investments in certain property funds which are valued based on the underlying properties. These properties are valued using a number of standard industry techniques such as cost, discounted cash flows, independent appraisals and market based comparable data. Real estate investments are categorized as Level 3 investments. Changes in Level 3 investments during fiscal 2021 were driven by actual return on plan assets still held at August 31, 2021 and purchases during the year.

5Other investments mainly comprise of net receivable (payable) amounts for unsettled transactions, cash and cash equivalents, derivatives, insurance linked securities and direct private placements. Cash is categorized as a Level 1 investment and cash in commingled funds is categorized as Level 2 investments. Amounts receivable (payable) are categorized as level 2 investments. Cash equivalents are valued using observable yield curves, discounting and interest rates and are categorized as Level 2 investments. Derivatives which are exchange-traded and for which market quotations are readily available are valued at the last reported sale price or official closing price as reported by an independent pricing service on the primary market, or exchange on which they are traded, and are categorized as Level 1 investments. Over-the-counter derivatives typically are valued by independent pricing services and are categorized as Level 2 investments. Insurance lined securities are categorized as Level 2. Direct private placements are typically bonds valued by reference to comparable bonds and are categorized as Level 3 investments. Changes in Level 3 investments during fiscal 2021 were primarily driven by purchases during the year.

Components of net periodic pension costs for the defined benefit pension plans and cumulative pre-tax amounts recognized in accumulated other comprehensive (income) loss are as follows (in millions):


	Boots and other pension plans
	2021		2020		2019
Service costs (Selling, general and administrative expenses)	$	6	$	2	$	2
Interest costs (Other income)	139		141		195
Expected returns on plan assets/other (Other income)	(332)		(285)		(245)
Total net periodic pension (income) cost	$	(188)	$	(142)	$	(48)

Net actuarial (gain) loss	$	(506)	$	856	$	90
Prior service cost	(1)		(1)		24
Total pre-tax comprehensive (income) expense	$	(507)	$	855	$	114

Change in benefit obligations for the defined benefit pension plans (in millions):


	2021		2020
Benefit obligation at beginning of year	$	9,905	$	8,795
Service costs	6		2
Interest costs	139		141
Settlements	(2)		—
Net actuarial loss	75		491
Benefits paid	(320)		(330)
Acquisitions	182		—
Currency translation adjustments	223		806
Benefit obligation at end of year	$	10,206	$	9,905

Change in plan assets for the defined benefit pension plans (in millions):


	2021		2020
Plan assets at fair value at beginning of year	$	9,614	$	9,131
Employer contributions	53		35
Benefits paid	(320)		(330)
Return on assets/other	906		(31)
Settlements	(2)		—
Currency translation adjustments	223		810
Plan assets at fair value at end of year	$	10,475	$	9,614

Amounts recognized in the Consolidated Balance Sheets (in millions):


	2021		2020
Other non-current assets	$	602	$	—
Accrued expenses and other liabilities	(9)		(6)
Other non-current liabilities	(324)		(285)
Net asset (liability) recognized at end of year	$	269	$	(291)

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for all pension plans, including accumulated benefit obligations in excess of plan assets, at August 31 were as follows (in millions):


	2021		2020
Projected benefit obligation	$	10,206	$	9,905
Accumulated benefit obligation	10,200		9,901
Fair value of plan assets 1	10,475		9,614

1 Represents plan assets of The Boots plan, the Company's only funded defined benefit pension plan.

Estimated future benefit payments for the next 10 years from defined benefit pension plans to participants are as follows (in millions):


	Estimated future benefit payments
2022	$	291
2023	302
2024	311
2025	326
2026	344
2027-2031	1,868

The assumptions used in accounting for the defined benefit pension plans were as follows:


	2021		2020
Weighted-average assumptions used to determine benefit obligations
Discount rate	1.71	%	1.63	%
Rate of compensation increase	2.80	%	3.10	%

Weighted-average assumptions used to determine net periodic benefit cost
Discount rate	1.39	%	1.58	%
Expected long-term return on plan assets	3.50	%	3.10	%
Rate of compensation increase	2.77	%	2.91	%

Based on current actuarial estimates, the Company plans to make contributions of $41 million to its defined benefit pension plans in fiscal 2022 and expects to make contributions beyond 2022, which will vary based upon many factors, including the performance of the defined benefit pension plan assets.

Defined contribution plans

The principal retirement plan for U.S. employees is the Walgreen Profit-Sharing Retirement Trust, to which both the Company and participating employees contribute. The Company’s contribution is in the form of a guaranteed match which is made pursuant to the applicable plan document approved by the Walgreen Co. Board of Directors. Plan activity is reviewed periodically by certain Committees of the Walgreens Boots Alliance Board of Directors. The profit-sharing provision was an expense of $221 million, $227 million and $239 million in fiscal 2021, 2020 and 2019, respectively. The Company’s contributions were $222 million, $226 million and $234 million in fiscal 2021, 2020 and 2019, respectively.

The Company also has certain contract based defined contribution arrangements. The principal one is the UK based to which both the Company and participating employees contribute. The cost recognized in the Consolidated Statement of Earnings was $101 million, $91 million and $101 million in fiscal 2021, fiscal 2020 and fiscal 2019, respectively.

Postretirement healthcare plan

The Company provides certain health insurance benefits to retired U.S. employees who meet eligibility requirements, including age, years of service and date of hire. The costs of these benefits are accrued over the service life of the employee. The Company’s postretirement health benefit plan obligation was $154 million and $182 million in fiscal 2021 and 2020, respectively and is not funded. The expected benefit to be paid net of the estimated federal subsidy during fiscal 2022 is $9.5 million.