Retirement benefits

12 Months Ended

Aug. 31, 2022

The Company sponsors several retirement plans, including defined benefit plans, defined contribution plans and a post-retirement 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, 2022		Level 1		Level 2		Level 3
Equity securities:
Equity securities 1	$	967	$	—	$	967	$	—

Debt securities:
Fixed interest government bonds 2	688		402		285		—
Index linked government bonds 2	1,785		1,785		—		—
Corporate bonds 3	1,980		—		1,980		—

Real estate:
Real estate 4	548		—		—		548

Other:
Other investments, net 5	636		10		(87)		713

Total	$	6,603	$	2,197	$	3,145	$	1,261


	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 bonds3	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

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 2022 were driven by actual return on plan assets still held at August 31, 2022 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 linked 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 2022 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
	2022		2021		2020
Service costs (Selling, general and administrative expenses)	$	5	$	6	$	2
Interest costs (Other income, net)	149		139		141
Expected returns on plan assets/other (Other income, net)	(280)		(332)		(285)
Total net periodic pension (income) cost	$	(126)	$	(188)	$	(142)

Net actuarial (gain) loss	$	(251)	$	(506)	$	856
Prior service cost	(1)		(1)		(1)
Total pre-tax comprehensive (income) loss	$	(252)	$	(507)	$	855

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


	2022		2021
Benefit obligation at beginning of year	$	10,206	$	9,905
Service costs	5		6
Interest costs	149		139
Settlements	—		(2)
Net actuarial (gain) loss	(3,042)		75
Benefits paid	(304)		(320)
Acquisitions	—		182
Currency translation adjustments	(1,047)		223
Benefit obligation at end of year	$	5,967	$	10,206

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


	2022		2021
Plan assets at fair value at beginning of year	$	10,475	$	9,614
Employer contributions	45		53
Benefits paid	(304)		(320)
Return on assets/other	(2,477)		906
Settlements	—		(2)
Currency translation adjustments	(1,136)		223
Plan assets at fair value at end of year	$	6,603	$	10,475

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


	August 31, 2022		August 31, 2021
Other non-current assets	$	863	$	602
Accrued expenses and other liabilities	(9)		(9)
Other non-current liabilities	(217)		(324)
Net asset recognized at end of year	$	637	$	269

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, were as follows (in millions):


	August 31, 2022		August 31, 2021
Projected benefit obligation	$	5,967	$	10,206
Accumulated benefit obligation	5,961		10,200
Fair value of plan assets 1	6,603		10,475

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
2023	$	285
2024	269
2025	279
2026	291
2027	302
2028-2032	1,645

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


	2022		2021
Weighted-average assumptions used to determine benefit obligations
Discount rate	4.20	%	1.71	%
Rate of compensation increase	3.04	%	2.80	%

Weighted-average assumptions used to determine net periodic benefit cost
Discount rate	1.57	%	1.39	%
Expected long-term return on plan assets	2.90	%	3.50	%
Rate of compensation increase	2.80	%	2.77	%

Based on current actuarial estimates, the Company plans to make contributions of $36 million to its defined benefit pension plans in fiscal 2023 and expects to make contributions beyond 2023, 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 is an expense of $234 million, $221 million and $227 million in fiscal 2022, 2021 and 2020, respectively. The Company’s contributions were $236 million, $222 million and $226 million in fiscal 2022, 2021 and 2020, respectively.

The Company also has certain contract based defined contribution arrangements. The principal one is UK based to which both the Company and participating employees contribute. The cost recognized in the Consolidated Statement of Earnings was $90 million, $101 million and $91 million in fiscal 2022, 2021 and 2020, respectively.

Post-retirement 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 post-retirement health benefit plan obligation was $122 million and $154 million in fiscal 2022 and 2021, respectively and is not funded. The expected benefit to be paid is $9 million.