Pension and Other Postretirement Benefits

12 Months Ended

Jun. 30, 2021

Compensation And Retirement Disclosure [Abstract]

Pension and Other Postretirement Benefits

NOTE 15. PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company participates in and/or sponsors various pension, savings and postretirement benefit plans. Pension plans and postretirement benefit plans are closed to new participants with the exception of a small group covered by collective bargaining agreements. The Company has a legally enforceable obligation to contribute to some plans and is not required to contribute to others. The plans include both defined benefit pension plans and employee non-contributory and employee contributory accumulation plans covering all eligible employees. The Company makes contributions in accordance with applicable laws or contract terms.

Pension and postretirement plans that are sponsored by the Company (“Direct Plans”) are accounted for as defined benefit pension plans. Accordingly, the funded and unfunded position of each Direct Plan is recorded in the Balance Sheets. Actuarial gains and losses that have not yet been recognized through income are recorded in Accumulated other comprehensive loss net of taxes, and they are systematically amortized as a component of net periodic benefit cost in accordance with ASC 715. The Company’s benefit obligation for Direct Plans is calculated using assumptions which the Company reviews on a regular basis. The funded status of the Direct Plans can change from year to year, but the assets of the funded plans have been sufficient to pay all benefits that came due in each of fiscal 2021, 2020 and 2019.

Prior to the Distribution, certain of the Company’s employees participated in defined benefit pension and postretirement plans sponsored by 21CF (“Shared Plans”), which include participants of other 21CF subsidiaries. Shared Plans were accounted for as multiemployer benefit plans. Therefore, no asset or liability was recorded to recognize the funded status. The related pension expenses allocated to the Company were based primarily on benefits earned by active employees and accounted for in a manner similar to a defined contribution plan. In contemplation of the Separation, the pension and postretirement benefit assets and liabilities of the Shared Plans allocable to the Company’s employees were transferred to the Company in fiscal 2019. Assets of $630 million, projected benefit obligations of $765 million and $188 million of accumulated other comprehensive loss ($143 million, net of tax) were recorded for pension benefits transferred from 21CF. Projected benefit obligations of $98 million and $18 million of accumulated other comprehensive loss ($14 million, net of tax) were recorded for postretirement benefits transferred from 21CF.

The Company uses a June 30 measurement date for all Direct Plans. The following table sets forth the change in the projected benefit obligation, change in the fair value of plan assets and funded status for the Company’s Direct Plans:

	Pension benefits						Postretirement benefits
	As of June 30,
	2021			2020			2021			2020
	(in millions)
Projected benefit obligation, beginning of the year	$	1,409		$	1,255		$	104		$	103
Service cost		38			35			2			2
Interest cost		30			39			2			3
Benefits paid		(23	)		(21	)		(4	)		(3	)
Settlements(a)		(51	)		(45	)		-			-
Actuarial losses (gains)(b)		65			145			(6	)		(1	)
Other		-			1			-			-
Projected benefit obligation, end of the year		1,468			1,409			98			104
Change in the fair value of plan assets for the Company's benefit plans:
Fair value of plan assets, beginning of the year		788			800			-			-
Actual return on plan assets		195			24			-			-
Employer contributions		63			30			4			3
Benefits paid		(23	)		(21	)		(4	)		(3	)
Settlements(a)		(51	)		(45	)		-			-
Fair value of plan assets, end of the year		972			788			-			-
Funded status(c)	$	(496	)	$	(621	)	$	(98	)	$	(104	)
Grantor Trust assets(c)	$	304		$	247		$	-		$	-

^(a) Represents the full settlement of former employees deferred pension benefit obligations through lump sum payments.

^(b) Actuarial losses (gains) for June 30, 2021 were mainly due to a change in the discount rate assumption utilized in measuring plan obligations and changes to other economic assumptions and demographic experience. Actuarial losses for June 30, 2020 were mainly due to a change in the discount rate assumption utilized in measuring plan obligations.

^(c) The Company has established an irrevocable grantor trust (the “Grantor Trust”), administered by an independent trustee, with the intention of making cash contributions to the Trust to fund certain future pension benefit obligations of the Company. The assets in the Grantor Trust are unsecured funds of the Company and can be used to satisfy the Company’s obligations in the event of bankruptcy or insolvency.

Amounts recognized in the Balance Sheets consist of:

	Pension benefits						Postretirement benefits
	As of June 30,
	2021			2020			2021			2020
	(in millions)
Pension assets	$	4		$	-		$	-		$	-
Accrued pension liabilities		(500	)		(621	)		(98	)		(104	)
Net amount recognized	$	(496	)	$	(621	)	$	(98	)	$	(104	)

Amounts recognized in Accumulated other comprehensive loss, before tax, consist of:

	Pension benefits				Postretirement benefits
	As of June 30,
	2021		2020		2021		2020
	(in millions)
Actuarial losses	$	409	$	533	$	13	$	20
Prior service cost		2		3		-		-
Net amounts recognized	$	411	$	536	$	13	$	20

Accumulated pension benefit obligations as of June 30, 2021 and 2020 were $1,319 million and $1,273 million, respectively. For the funded plans, as of June 30, 2021, the projected benefit obligation exceeds the fair value of the plan assets except for one plan that has assets of $100 million, a projected benefit obligation of $96 million and an accumulated benefit obligation of $96 million. Information about funded and unfunded pension plans is presented below:

	Funded plans				Unfunded plans
	As of June 30,
	2021		2020		2021			2020
	(in millions)
Projected benefit obligation	$	1,150	$	1,096	$	318		$	313
Accumulated benefit obligation		1,010		971		309			302
Fair value of plan assets		972		788		-	(a)		-	(a)

^(a) The fair value of the assets in the Grantor Trust as of June 30, 2021 and 2020 was $304 million and $247 million, respectively.

Information about funded and unfunded pension plans in which the accumulated benefit obligation exceeds fair value of the plan assets is presented below.

	Funded plans				Unfunded plans
	As of June 30,
	2021		2020		2021			2020
	(in millions)
Projected benefit obligation	$	990	$	1,096	$	318		$	313
Accumulated benefit obligation		854		971		309			302
Fair value of plan assets		811		788		-	(a)		-	(a)

^(a) The fair value of the assets in the Grantor Trust as of June 30, 2021 and 2020 was $304 million and $247 million, respectively.

The components of periodic benefit costs were as follows:

	Pension benefits									Postretirement benefits
	For the years ended June 30,
	2021			2020			2019			2021		2020		2019
	(in millions)
Service cost	$	38		$	35		$	19		$	2	$	2	$	1
Interest cost		30			39			30			2		3		2
Expected return on plan assets		(50	)		(55	)		(30	)		-		-		-
Amortization of deferred losses		44			28			11			1		1		1
Other		2			1			7			-		-		(1	)
Net periodic benefit costs-Direct plans		64			48			37			5		6		3
Net periodic benefit costs- Shared Plans		-			-			14			-		-		4
Total periodic benefit costs	$	64		$	48		$	51		$	5	$	6	$	7

The components of net periodic benefit costs other than the service cost component are included in Other, net in the Statements of Operations.

	Pension benefits									Postretirement benefits
	For the years ended June 30,
	2021			2020			2019			2021			2020			2019
Additional information
Weighted-average assumptions used to determine benefit obligations
Discount rate		2.7	%		2.8	%		3.6	%		2.7	%		2.8	%		3.6	%
Weighted-average assumptions used to determine net periodic benefit costs
Discount rate for service cost		2.9	%		3.7	%		4.6	%		3.0	%		3.8	%		4.4	%
Discount rate for interest cost		2.2	%		3.2	%		4.1	%		2.2	%		3.2	%		3.9	%
Expected return on plan assets		6.5	%		7.0	%		7.0	%	N/A			N/A			N/A

N/A – not applicable.

The Company utilizes a full yield curve approach in the estimation of the service and interest components of net periodic benefit costs for pension and postretirement benefits by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to their underlying projected cash flows. The Company utilizes the latest mortality table released by the Society of Actuaries.

The following assumed health care cost trend rates as of June 30 were also used in accounting for postretirement benefits:

	Postretirement benefits
	Fiscal 2021			Fiscal 2020
Health care cost trend rate		6.0	%		7.3	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		4.0	%		4.5	%
Year that the rate reaches the ultimate trend rate	2047			2039

The following table sets forth the estimated benefit payments and estimated settlements for the next five fiscal years and in aggregate for the five fiscal years thereafter. These payments are estimated based on the same assumptions used to measure the Company’s benefit obligation at the end of the fiscal year and include benefits attributable to estimated future employee service:

	Expected benefit payments
	Pension benefits		Postretirement benefits
	(in millions)
Fiscal year
2022	$	66	$	4
2023		63		5
2024		63		5
2025		65		5
2026		65		5
2027-2031		370		25

The above table presents expected benefit payments for the postretirement benefits net of a nominal amount of U.S. Medicare subsidy receipts per year.

Plan Assets and Grantor Trust

The following tables present Plan assets for the Company’s Direct Plans and Grantor Trust assets to fund certain future unfunded pension benefit obligations of the Company. The assets are classified by level within the fair value hierarchy, as described in Note 6—Fair Value, as of June 30, 2021 and 2020:

	As of June 30, 2021
			Fair value measurements at reporting date using				Assets measured
	Total		Level 1		Level 2		at NAV(a)
	(in millions)
PENSION PLAN ASSETS
Pooled funds(b)
Money market funds	$	22	$	22	$	-	$	-
Domestic equity funds		67		67		-		-
Domestic fixed income funds(c)		355		355		-		-
International equity funds		193		193		-		-
International fixed income funds(c)		28		28		-		-
Balanced funds		93		93		-		-
U.S. common stocks(d)		136		136		-		-
Partnership interests		10		-		-		10
Exchange traded equity funds(d)		67		67		-		-
Other(f)		1		-		1		-
Total fair value of plan assets	$	972	$	961	$	1	$	10
GRANTOR TRUST ASSETS
Balanced funds(b)	$	267	$	267	$	-	$	-
Partnership interests		17		-		-		17
Other(f)		20		20		-		-
Total fair value of Grantor Trust assets	$	304	$	287	$	-	$	17

	As of June 30, 2020
			Fair value measurements at reporting date using					Assets measured
	Total		Level 1			Level 2		at NAV(a)
	(in millions)
PENSION PLAN ASSETS
Pooled funds(b)
Money market funds	$	33	$	-		$	33	$	-
Domestic equity funds		73		73			-		-
Domestic fixed income funds(c)		3		3			-		-
International equity funds		119		119			-		-
International fixed income funds(c)		29		1			-		28
Balanced funds		181		114			-		67
U.S. common stocks(d)		144		144			-		-
Government and Agency obligations(e)
Domestic government obligations		19		-			19		-
Domestic agency obligations		24		-			24		-
Corporate obligations(e)		50		-			50		-
Partnership interests		13		-			-		13
Exchange traded funds(d)		70		70			-		-
Other(f)		30		(10	)		40		-
Total fair value of plan assets	$	788	$	514		$	166	$	108
GRANTOR TRUST ASSETS
Balanced funds(b)	$	214	$	214		$	-	$	-
Partnership interests		13		-			-		13
Other(f)		20		20			-		-
Total fair value of Grantor Trust assets	$	247	$	234		$	-	$	13

^(a) Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are excluded from the fair value hierarchy disclosure. These investments have monthly liquidity.

^(b) Pooled funds that have a readily determinable fair value are valued at the regularly published NAV.

^(c) Domestic fixed income funds and international fixed income funds consist primarily of investment grade securities.

^(d) Exchange traded funds and common stock investments that are publicly traded are valued at the closing price reported on active markets in which the securities are traded.

^(e) The fair value of corporate, government and agency obligations are valued based on a compilation of primary observable market information or a broker quote in a non-active market.

^(f) Includes cash and cash equivalents, plan receivables and payables and certain other fixed income investments.

The investment objective for the funded pension plans is to grow assets to decrease the deficit and protect improvements in funded status. The asset allocation strategy will change over time by shifting assets from return seeking assets to liability hedging assets upon the achievement of certain funding milestones. The target asset allocation on June 30, 2021 is 57% return seeking assets and 43% liability hedging assets. The actual asset allocation on June 30, 2021 is 62% return seeking assets and 38% liability hedging assets. Return seeking assets are diversified across multiple asset classes and liability hedging assets are managed to correlate highly with the pension liabilities to reduce interest rate risk. Assets are generally managed by external investment managers. The expected long-term rate of return on asset assumption is determined using the current target asset allocation and applying expected future returns for the various asset classes and correlations amongst the asset classes.

The funded plans weighted-average asset allocation, by asset category, are as follows:

	Pension benefits
	As of June 30,
	2021			2020
Asset Category
Equity investments		48	%		51	%
Fixed income investments		42			21
Other, including cash		10			28
Total		100	%		100	%

Required pension plan contributions for the next fiscal year are not expected to be material; however, actual contributions may be affected by pension asset and liability valuation changes during the year. The Company will continue to make voluntary contributions as necessary to improve funded status.

Defined Contribution Plans

The Company has defined contribution plans for the benefit of substantially all employees meeting certain eligibility requirements. Employer contributions to such plans were $49 million, $44 million and $39 million for fiscal 2021, 2020 and 2019, respectively.