Employee Benefit Plans

12 Months Ended

Sep. 30, 2021

Retirement Benefits [Abstract]

Employee Benefit Plans

EMPLOYEE BENEFIT PLANS

Pension and other postretirement plans

The components of pension and other postretirement plans net periodic benefit (income) costs and the assumptions used in this determination are summarized below for the years ended September 30:

(In millions)	Pension benefits									Other postretirement benefits
	2021			2020			2019			2021			2020			2019
Net periodic benefit (income) costs
Service cost	$	2		$	3		$	2		$	—		$	—		$	—
Interest cost	43			61			81			1			1			2
Expected return on plan assets	(86)			(87)			(80)			—			—			—
Amortization of prior service credit (a)	—			—			—			(12)			(12)			(12)
Actuarial (gain) loss	(72)			(24)			61			—			2			8
Net periodic benefit (income) costs	$	(113)		$	(47)		$	64		$	(11)		$	(9)		$	(2)
Weighted-average plan assumptions (b)
Discount rate for service cost	1.55		%	1.49		%	2.92		%	3.03		%	3.12		%	3.98		%
Discount rate for interest cost	1.91		%	2.79		%	4.00		%	1.83		%	2.69		%	3.83		%
Rate of compensation increase	3.00		%	3.04		%	3.06		%	—			—			—
Expected long-term rate of return on plan assets	4.34		%	4.64		%	4.66		%	—			—			—

(a)Other postretirement plan amendments are amortized within this caption during all periods presented.

(b)The plan assumptions are a blended weighted-average rate for Valvoline’s U.S. and non-U.S. plans. The U.S. pension plans represented approximately 97% of the total pension projected benefit obligation as of September 30, 2021. Other postretirement benefit plans are in the U.S. and Canada, with the U.S. plan representing approximately 79% of the total other postretirement projected benefit obligation as of September 30, 2021. Non-U.S. plans use assumptions generally consistent with those of U.S. plans.

Valvoline recognizes the change in the fair value of plan assets and net actuarial gains and losses annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for remeasurement. These gains and losses are reported within Net pension and other postretirement plan income in the Consolidated Statements of Comprehensive Income and included a gain of $72 million and $22 million for the years ended September 30, 2021 and 2020, respectively, and a loss of $69 million for the year ended September 30, 2019.

The fiscal 2021 gain was primarily attributed to higher than expected returns on plan assets and an increase in discount rates. The fiscal 2020 gain was primarily attributed to higher than expected returns on plan assets and favorable changes in mortality assumptions, which more than offset the impacts of lower discount rates.

The following table summarizes the net periodic benefit income and the amortization of prior service credits recognized during the years ended September 30:

(In millions)	Pension benefits						Other postretirement benefits
	2021		2020		2019		2021		2020		2019
Amortization of prior service credits recognized in Accumulated other comprehensive income	$	—	$	—	$	—	$	12	$	12	$	12
Net periodic benefit income	(113)		(47)		64		(11)		(9)		(2)
Total pre-tax amount recognized in comprehensive income	$	(113)	$	(47)	$	64	$	1	$	3	$	10

Obligations and funded status

Changes in benefit obligations and the fair value of plan assets, as well as key assumptions used to determine the benefit obligations, and the amounts in the Consolidated Balance Sheets for the Company’s pension and other postretirement benefit plans are summarized below as of September 30:

(In millions)	Pension benefits						Other postretirement benefits
	2021			2020			2021			2020
Change in benefit obligations
Benefit obligations as of October 1	$	2,321		$	2,287		$	52		$	55
Service cost	2			3			—			—
Interest cost	43			61			1			1
Benefits paid	(133)			(132)			(5)			(6)
Actuarial (gain) loss	(31)			107			—			2
Currency exchange rate changes	2			1			1			—
Transfers in	3			3			—			—
Settlements	(4)			(9)			—			—
Benefit obligations as of September 30	$	2,203		$	2,321		$	49		$	52
Change in plan assets
Fair value of plan assets as of October 1	$	2,045		$	1,943		$	—		$	—
Actual return on plan assets	128			218			—			—
Employer contributions	14			22			5			6
Benefits paid	(133)			(133)			(5)			(6)
Currency exchange rate changes	2			1			—			—
Settlements	(4)			(9)			—			—
Transfers in	3			3			—			—
Fair value of plan assets as of September 30	$	2,055		$	2,045		$	—		$	—
Unfunded status of the plans as of September 30	$	148		$	276		$	49		$	52
Amounts in the Consolidated Balance Sheets
Noncurrent benefit assets (a)	$	72		$	1		$	—		$	—
Current benefit liabilities (b)	9			10			5			5
Noncurrent benefit liabilities (c)	211			267			44			47
Total benefit liabilities	220			277			49			52
Net liabilities recognized	$	148		$	276		$	49		$	52
Balance in Accumulated other comprehensive loss
Prior service cost (credit)	$	1		$	1		$	(21)		$	(33)
Weighted-average plan assumptions
Discount rate	2.70		%	2.59		%	2.67		%	2.39		%
Rate of compensation increase	3.00		%	3.00		%	—			—
Healthcare cost trend rate (d)	—			—			6.4		%	6.7		%

(a)Noncurrent benefit assets are recorded in Other noncurrent assets within the Consolidated Balance Sheets,

(b)Current benefit liabilities are recorded in Accrued expenses and other liabilities within the Consolidated Balance Sheets.

(c)Noncurrent benefit liabilities are recorded in Employee benefit obligations within the Consolidated Balance Sheets.

(d)The assumed pre-65 health care cost trend rate continues to be reduced to 4.0% in 2040 and thereafter.

Accumulated benefit obligation

The accumulated benefit obligation for all pension plans was $2.2 billion and $2.3 billion as of September 30, 2021 and 2020, respectively. Information for pension plans with a benefit obligation in excess of the fair value of plan assets follows for the Company’s plans as of September 30:

(In millions)	2021				2020
	Benefit obligation		Plan assets		Benefit obligation		Plan assets
Plans with projected benefit obligation in excess of plan assets	$	1,607	$	1,386	$	2,275	$	1,998
Plans with accumulated benefit obligation in excess of plan assets	$	1,593	$	1,374	$	2,253	$	1,978

Plan assets

Pension plan asset investments and their level within the fair value hierarchy is summarized below as of:

(In millions)	September 30, 2021
	Total fair value		Level 1		Level 2		Level 3		Assets measured at NAV
Cash and cash equivalents	$	136	$	136	$	—	$	—	$	—
U.S. government securities and futures	96		—		96		—		—
Other government securities	58		—		58		—		—
Corporate debt instruments	1,371		—		1,371		—		—
Insurance contracts	58		—		—		58		—
Private equity and hedge funds	11		—		—		—		11
Collective trust funds	316		—		—		—		316
Other investments	9		$	—	9		$	—	—
Total assets at fair value	$	2,055	$	136	$	1,534	$	58	$	327

(In millions)	September 30, 2020
	Total fair value		Level 1		Level 2		Level 3		Assets measured at NAV
Cash and cash equivalents	$	102	$	102	$	—	$	—	$	—
U.S. government securities and futures	172		—		172		—		—
Other government securities	47		—		47		—		—
Corporate debt instruments	1,201		—		1,201		—		—
Insurance contracts	12		—		—		12		—
Private equity and hedge funds	13		—		—		—		13
Collective trust funds	497		—		—		—		497
Other investments	1		—		1		—		—
Total assets at fair value	$	2,045	$	102	$	1,421	$	12	$	510

Cash and cash equivalents

The carrying value of cash and cash equivalents approximates fair value.

Government securities

Government securities are valued based on Level 2 inputs, which include yields available for comparable securities of issuers with similar credit ratings.

Corporate debt instruments

Corporate debt instruments are valued based on Level 2 inputs that are observable in the market or may be derived principally from, or corroborated by, recently executed transactions, observable market data such as pricing for similar securities, cash flow models with yield curves, counterparty credit ratings, and credit spreads applied using the maturity and coupon interest rate terms of the debt instrument.

Insurance contracts

Insurance contracts are arrangements with insurance companies that guarantee the payment of the pension entitlements and are valued based on Level 3 inputs, which are neither quoted prices nor observable inputs for pricing. Insurance contracts are valued at cash surrender value, which approximates fair value.

Private equity and hedge funds

Private equity and hedge funds primarily represent alternative investments not traded on an active market which are valued at the NAV per share determined by the manager of the fund based on the fair value of the underlying net assets owned by the fund divided by the number of shares or units outstanding. 

Collective trust funds

Collective trust funds are comprised of a diversified portfolio of investments across various asset classes, including U.S. and international equities, fixed-income securities, commodities and currencies. The collective trust funds are valued using a NAV provided by the manager of each fund, which is based on the underlying net assets owned by the fund, divided by the number of shares outstanding. 

The following reconciles the beginning and ending balances for Level 3 plan assets:

(In millions)	Total Level 3 assets
Balance at September 30, 2019	$	7
Purchases	4
Actual return on assets held at end of year	1
Balance at September 30, 2020	12
Purchases	48
Actual return on assets held at end of year	(2)
Balance at September 30, 2021	$	58

The following summarizes investments for which fair value is measured using the NAV per share practical expedient as of September 30, 2021:

(In millions)	Fair value at NAV		Unfunded commitments		Redemption frequency (if currently eligible)	Redemption notice period
Long/short hedge funds	$	2	$	—	None (a)	None (a)
Relative value hedge funds	3		—		None (b)	None (b)
Event driven hedge funds	1		—		None (b)	None (b)
Collective trust funds	299		—		Daily	Up to 3 days
	9		—		Monthly	5 days
	8		—		N/A (c)	N/A (c)
Private equity	5		2		None (d)	None (d)
	$	327	$	2

(a)These hedge funds are in the process of liquidation over the next year.

(b)These hedge funds are in the process of liquidation and the timing is unknown.

(c)These assets are held in fund investments that include a diversified portfolio across various asset classes. The time period for redemption of these assets is not determinable.

(d)These private equity instruments are estimated to be liquidated over the next 1 to 5 years.

Investments and strategy

In developing an investment strategy for its defined benefit plans, Valvoline considered the following factors: the nature of the liabilities of the plans; the allocation of liabilities between active, deferred and retired plan participants; the funded status of the plans; the applicable investment horizon; the respective size of the plans; and historical and expected investment returns. Valvoline’s U.S. pension plan assets are managed by outside investment managers,

which are monitored against investment benchmark returns and Valvoline's established investment strategy. Investment managers are selected based on an analysis of, among other things, their investment process, historical investment results, frequency of management turnover, cost structure, and assets under management. Assets are periodically reallocated between investment managers to optimize returns and maintain an appropriate asset mix and diversification of investments.

The current target asset allocation for the U.S. plans is 83% fixed income securities and 17% equity-based securities. Fixed income securities are liability matching assets that primarily include long duration, high grade corporate debt obligations. Equity-based securities are return-seeking assets that include both traditional equities as well as a mix of non-traditional assets such as hedge and commingled funds and private equity. Investment managers may employ a limited use of futures or other derivatives to manage risk within the portfolio through efficient exposure to markets. Valvoline’s pension plans hold a variety of investments designed to diversify risk and achieve an adequate net investment return to provide for future benefit payments to its participants.

Valvoline’s investment strategy and management practices relative to non-U.S. plan assets are generally consistent with those for U.S. plans, except in those countries where the investment of plan assets is dictated by applicable regulations. The weighted-average asset allocations for Valvoline’s plans by asset category follow as of September 30:

	Target	2021		2020
Plan assets allocation
Equity securities	15-25%	11	%	18	%
Debt securities	65-85%	85	%	80	%
Other	0-20%	4	%	2	%
Total		100	%	100	%

The basis for determining the expected long-term rate of return is a combination of future return assumptions for the various asset classes in Valvoline’s investment portfolio based on active management, historical analysis of previous returns, market indices, and a projection of inflation, net of plan expenses.

Funding and benefit payments

Valvoline contributed $14 million and $22 million to its pension plans during fiscal 2021 and 2020, respectively. Valvoline does not plan to contribute to its U.S. qualified pension plans in fiscal 2022 and expects to contribute approximately $12 million to its U.S. non-qualified and non-U.S. pension plans.

The following benefit payments, which reflect future service expectations, are projected to be paid in each of the next five fiscal years ended September 30 and the five fiscal years thereafter in aggregate:

(In millions)	Pension benefits		Other postretirement benefits
2022	$	145	$	5
2023	145		4
2024	141		4
2025	139		3
2026	138		3
2027 - 2031	651		14
Total	$	1,359	$	33

Other plans

Defined contribution and other defined benefit plans

Valvoline sponsors certain defined contribution savings plans that provide matching contributions. Expense associated with these plans was $19 million in fiscal 2021, $15 million in fiscal 2020 and $14 million in fiscal 2019.

Valvoline also sponsors various other benefit plans, some of which are required by local laws within certain countries. Total liabilities associated with these plans were $3 million as of September 30, 2021 and 2020.

Multiemployer pension plans

Valvoline participates in two multiemployer pension plans that provide pension benefits to certain union-represented employees under the terms of collective bargaining agreements. Valvoline assumed responsibility for contributions to these plans in connection with the separation from its former parent company. Contributions to these plans were not material for any period presented herein.