Retirement benefits

12 Months Ended

Aug. 31, 2023

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, 2023		Level 1		Level 2		Level 3
Equity securities:
Equity securities 1	$	264	$	—	$	264	$	—

Debt securities:
Fixed interest government bonds 2	1,044		848		196		—
Index linked government bonds 2	1,364		1,364		—		—
Corporate bonds 3	1,214		—		1,214		—

Real estate:
Real estate 4	466		—		—		466

Other:
Other investments, net 5	1,242		142		338		761

Total	$	5,594	$	2,354	$	2,012	$	1,228


	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

1Includes 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.

2Includes government bonds comprising 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.

3Includes 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.

4Includes 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 2023 were driven by actual return on plan assets still held at August 31, 2023 and purchases during the year.

5Includes 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 a Level 2 investment. 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 2023 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 loss are as follows (in millions):


	Boots and other pension plans
	2023		2022		2021
Service costs (Selling, general and administrative expenses)	$	4	$	5	$	6
Interest costs (Other income, net)	264		149		139
Expected returns on plan assets/other (Other income, net)	(340)		(280)		(332)
Total net periodic pension income	$	(72)	$	(126)	$	(188)

Net actuarial loss (gain)	$	730	$	(251)	$	(506)
Prior service cost	(1)		(1)		(1)
Total pre-tax comprehensive loss (income)	$	729	$	(252)	$	(507)

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


	2023		2022
Benefit obligation at beginning of year	$	5,967	$	10,206
Service costs	4		5
Interest costs	264		149

Net actuarial gain	(897)		(3,042)
Benefits paid	(286)		(304)
Currency translation adjustments	463		(1,047)
Benefit obligation at end of year	$	5,515	$	5,967

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


	2023		2022
Plan assets at fair value at beginning of year	$	6,603	$	10,475
Employer contributions	40		45
Benefits paid	(286)		(304)
Return on assets	(1,275)		(2,477)
Currency translation adjustments	511		(1,136)
Plan assets at fair value at end of year	$	5,594	$	6,603

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


	August 31, 2023		August 31, 2022
Other non-current assets	$	306	$	863
Accrued expenses and other liabilities	(10)		(9)
Other non-current liabilities	(216)		(217)
Net asset recognized at end of year	$	80	$	637

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, 2023		August 31, 2022
Projected benefit obligation	$	5,515	$	5,967
Accumulated benefit obligation	5,503		5,961
Fair value of plan assets 1	5,594		6,603

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
2024	$	324
2025	305
2026	317
2027	326
2028	337
2029-2033	1,798

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


	2023		2022
Weighted-average assumptions used to determine benefit obligations
Discount rate	5.22	%	4.20	%
Rate of compensation increase	3.73	%	3.04	%

Weighted-average assumptions used to determine net periodic benefit cost
Discount rate	4.20	%	1.57	%
Expected long-term return on plan assets	4.90	%	2.90	%
Rate of compensation increase	3.04	%	2.80	%

In determining long-term rate of return on plan assets assumption, the Company considers both the historical performance of the investment portfolio as well as the long-term market return expectations based on the investment mix of the portfolio. A change in any of these assumptions would have an effect on its pension expense. A 25 basis point increase in the discount rate would result in a decline of $159 million to the Company’s pension benefit obligation. A 25 basis point decrease on the expected return on plan assets assumption would decrease the Company’s pension income by $14 million.

Based on current actuarial estimates, the Company plans to make contributions of $18 million to its defined benefit pension plans in fiscal 2024 and expects to make contributions beyond 2024, 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 $239 million, $234 million and $221 million in fiscal 2023, 2022 and 2021, respectively. The Company’s contributions were $241 million, $236 million and $222 million in fiscal 2023, 2022 and 2021, 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 $83 million, $90 million and $101 million in fiscal 2023, 2022 and 2021, 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 $113 million and $122 million in fiscal 2023 and 2022, respectively and is not funded. The Company expects to make contributions of $8 million in fiscal 2024.