Pension and Other Postretirement Benefits

9 Months Ended

Sep. 30, 2021

Retirement Benefits [Abstract]

Pension and Other Postretirement Benefits

Pension and Other Postretirement Benefits

The components of net periodic benefit cost for defined benefit plans were as follows:

	Third quarter ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Pension benefits
Service cost	$	5	$	6	$	16	$	16
Interest cost	15		27		48		81
Expected return on plan assets	(24)		(42)		(84)		(127)
Recognized net actuarial loss	19		31		75		92
Amortization of prior service cost (benefit)	—		—		—		(1)
Settlements(1)	5		3		573		58
Net periodic benefit cost(2)	$	20	$	25	$	628	$	119
Other postretirement benefits
Service cost	$	2	$	1	$	5	$	3
Interest cost	3		2		8		10
Recognized net actuarial loss	2		3		7		6
Amortization of prior service benefit	(2)		(1)		(5)		(2)
Net periodic benefit cost(2)	$	5	$	5	$	15	$	17

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(1)    In 2021, Settlements were due to the purchase of a group annuity contract ($549 in the 2021 nine-month period – see U.S. Pension Plan Annuitization below) and the payment of lump-sum benefits ($5 and $24 in the 2021 third quarter and nine-month period, respectively).

(2)    Service cost was included within Cost of goods sold, Settlements were included within Restructuring and other charges, and all other components were included in Other expenses, net on the accompanying Statement of Consolidated Operations.

Pension Funding—The minimum required contributions to Arconic’s funded defined benefit pension plans in 2021 is estimated to be $192, of which $183 is for U.S. plans. In January 2021, the Company contributed a total of $200 to its two funded U.S. defined benefit pension plans, comprised of the estimated minimum required funding for 2021 of $183 and an additional $17. In April 2021, the Company contributed a total of $250 to its two funded U.S. defined benefit pension plans to maintain the funding level of the remaining plan obligations not transferred under a group annuity contract (see U.S. Pension Plan Annuitization below).

U.S. Pension Plan Annuitization—In April 2021, Arconic purchased a group annuity contract to transfer the obligation to pay the remaining retirement benefits of approximately 8,400 participants in two U.S. defined benefit pension plans to an insurance company. In connection with this transaction, the Company contributed a total of $250 to the two plans to maintain the funding level of the remaining plan obligations not transferred. This contribution was funded with the net proceeds from a March 2021 debt offering (see 2021 Activity in Note N). Prior to this action, these two plans had an aggregate of approximately 23,000 participants.

This transaction represents a significant settlement event, and, as a result, the Company was required to complete a remeasurement of these two plans (generally completed on an annual basis as of December 31, 2020), including an interim actuarial valuation of the plan obligations. Accordingly, the weighted-average discount rate used in calculating the plan obligations increased to 3.10% as of April 30, 2021 from 2.54% as of December 31, 2020. The remeasurement resulted in a combined projected benefit obligation and fair value of plan assets of $3,337 and $2,790, respectively, as of April 30, 2021. From these amounts, the group annuity transaction resulted in the settlement of $995 in plan obligations and the transfer of $1,007 in plan assets. The remeasurement of these two plans, together with the annuitization, resulted in a $152 net decrease to Accrued pension benefits and a $117 (after-tax) net decrease to Accumulated other comprehensive loss (see Note K). Additionally, the annuitization resulted in the accelerated amortization of a portion of the existing net actuarial loss associated

with these two plans in the amount of $549 ($423 after-tax). This amount was reclassified to earnings through Restructuring and other charges (see Note E) from Accumulated other comprehensive loss (see Note K).

U.S. OPEB Plan Amendment—In August 2021, Arconic modified the medical benefit coverage offered to certain Medicare-eligible participants under the Company's U.S. other postretirement benefit plan. Effective January 1, 2022, this modification results in lower premiums and increased benefits to the participants. This change qualifies as a significant plan amendment to the Company's U.S. other postretirement benefit plan. Accordingly, this plan was required to be remeasured, and through this process, the discount rate was updated to 2.78% at August 31, 2021 from 2.61% at December 31, 2020. The amendment, together with the remeasurement of this plan, resulted in a $34 net decrease to the Company's other postretirement benefits liability and a $26 (after-tax) net decrease to Accumulated other comprehensive loss (see Note K) on the accompanying Consolidated Balance Sheet. The impact of this change on the Company's annual net periodic benefit cost is not material. The Company's estimated annual benefit payments will decrease by approximately $4 beginning in 2022.