RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

12 Months Ended

Dec. 31, 2022

Retirement Benefits [Abstract]

RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

DEFINED BENEFIT PENSION PLANS

The Company sponsors and maintains pension plans for the benefit of certain of the Company’s employees. The service and non-service cost components of net periodic pension expense for these employees is recorded within cost of products sold and selling and administrative expenses. The assets and liabilities related to plans sponsored by the Company are reflected in deferred charges and other assets and other liabilities, respectively.

OBLIGATIONS AND FUNDED STATUS

The following table shows the changes in the benefit obligation and plan assets and the plans’ funded status. For the current year, all plans are considered single-employer plans, and changes to the projected benefit obligation and plan assets reflect full year activity. Prior to the spin-off on October 1, 2021, all pension plans, with the exception of the U.K. and Brazil plans, were accounted for as multi-employer plans. The transfer of the projected benefit obligation (“PBO”) and assets for those plans is reflected within the Pension plan transfer from Parent line below, and the activity after the spin-off date is reflected within the

table for 2021. The changes in the benefit obligation and plan assets for the U.K. and Brazil plans are reflected for the full 2021 period as they were single-employer plans prior to the spin-off.

In millions	2022		2021
Change in projected benefit obligation:
Benefit obligation, January 1	$	462	$	171
Pension plan transfer from Parent	—		287
Service cost	6		2
Interest cost	13		6
Actuarial loss (gain)	(151)		—
Benefits paid	(7)		(5)
Expenses paid from assets	(1)		(1)
Effect of foreign currency exchange rate movements	(15)		2
Benefit obligation, December 31	$	307	$	462
Change in plan assets:
Fair value of plan assets, January 1	$	431	$	171
Pension plan transfer from Parent	—		252
Actual return on plan assets	(126)		2
Company contributions	3		10
Benefits paid	(7)		(5)
Expenses paid from assets	(1)		(1)
Effect of foreign currency exchange rate movements	(14)		2
Fair value of plan assets, December 31	$	286	$	431
Funded status, December 31	$	(21)	$	(31)
Amounts recognized in the consolidated balance sheets:
Non-current asset	$	8	$	8
Non-current liability	(29)		(39)
	$	(21)	$	(31)
Amounts recognized in accumulated other comprehensive income under ASC 715 (pre-tax):
Net prior service cost	$	2	$	2
Net actuarial loss	91		106
	$	93	$	108

The accumulated benefit obligation (“ABO”) for all plans was $299 million as of December 31, 2022 and $446 million as of December 31, 2021. The following table reflects the pension plans for which the accumulated benefit obligation or projected benefit obligation exceed the fair value of their respective plan assets at December 31:

In millions as of December 31	2022		2021
Pension plans with ABO in excess of plan assets
Accumulated benefit obligation	$	201	$	279
Fair value of plan assets	180		254
Pension plans with PBO in excess of plan assets
Projected benefit obligation	$	209	$	293
Fair value of plan assets	180		254

NET PERIODIC PENSION EXPENSE

Service cost is the actuarial present value of benefits attributed by the plans’ benefit formula to services rendered by employees during the year. Interest cost represents the increase in the projected benefit obligation, which is a discounted amount, due to the passage of time. The expected return on plan assets reflects the computed amount of current-year earnings from the investment of plan assets using an estimated long-term rate of return.

Net periodic pension expense comprised the following:

In millions	2022		2021		2020
Service cost	$	6	$	2	$	1
Interest cost	13		6		4
Expected return on plan assets	(21)		(11)		(8)
Actuarial loss (gain)	4		2		1
Net periodic pension expense (benefit)	$	2	$	(1)	$	(2)

ASSUMPTIONS

The Company evaluates its actuarial assumptions annually as of December 31 (the measurement date) and considers changes in these long-term factors based upon market conditions and the requirements for employers’ accounting for pensions. These assumptions are used to calculate benefit obligations as of December 31 of the current year and pension expense to be recorded in the following year (i.e., the discount rate used to determine the benefit obligation as of December 31, 2022 is also the discount rate used to determine net pension expense for the 2023 year).

Major actuarial assumptions used in determining the benefit obligations and net periodic pension cost for our defined benefit plans are presented in the following table:

	2022		2021		2020
Actuarial assumptions used to determine benefit obligations as of December 31:
Discount rate	5.52	%	2.79	%	2.27	%
Rate of compensation increase	3.36	%	3.36	%	3.54	%
Actuarial assumptions used to determine net periodic pension cost for years ended December 31:
Discount rate	2.79	%	2.79	%	2.76	%
Expected long-term rate of return on plan assets	5.18	%	5.38	%	4.84	%
Rate of compensation increase	3.36	%	2.85	%	3.42	%

PLAN ASSETS

The plans maintain a strategic asset allocation policy that designates target allocations by asset class. Investments are diversified across classes and within each class to minimize the risk of large losses. Derivatives, including swaps, forward and futures contracts, may be used as asset class substitutes or for hedging or other risk management purposes. Periodic reviews are made of investment policy objectives and investment manager performance. The fair value of pension plan assets at December 31, 2022 and 2021 by asset class are shown below for the material plans. Each category of investments for the U.S. plans is diversified and comprised of the following:

•Equity investments - developed market and emerging market equity securities primarily held in mutual funds

•Debt securities - corporate bonds and government securities, both primarily held within common collective trusts and index funds

•Other investments - represents primarily mark-to-market derivatives and cash and cash equivalents

Each category of investments for the U.K. plan is diversified and comprised of the following:

•Growth assets – equities, diversified growth funds, absolute return fixed income funds, multi-asset credit funds, and other private equity type investments

•Stabilizing assets – liability driven investments consisting primarily of interest and inflation linked assets, cash flow driven investments invested primarily in credit markets, and cash and cash equivalents.

The target allocations for each asset class in the U.S. plan for the year ended December 31, 2022 and December 31, 2021 were 23% in equity securities, 75% in debt securities and 2% in other investment types. The target allocations for each asset class in the U.K. plan for the years ended December 31, 2022 and December 31, 2021 were 48% in growth assets and 52% in stabilizing assets. Pension assets for the immaterial plans totaled $26 million for the years ended December 31, 2022 and $25 million for the year ended December 31, 2021. These assets primarily relate to government securities within Level 1 of the fair value hierarchy.

Fair Value Measurement U.S. Plans
	2022						2021
Asset Class	Total		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Total		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)
In millions
Cash and cash equivalents	$	10	$	10	$	—	$	15	$	15	$	—
Equities - developed markets	41		—		41		62		—		62
Government securities	7		7		—		23		23		—
Corporate bonds	108		—		108		137		—		137
Other fixed income securities	9		—		9		12		—		12
Derivatives	1		—		1		2		1		1
Total Investments	$	176	$	17	$	159	$	251	$	39	$	212

Fair Value Measurement U.K. Plans
	2022						2021
Asset Class	Total		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Total		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)
In millions
Cash and cash equivalents	$	2	$	2	$	—	$	2	$	2	$	—
Equities - emerging	—		—		—		8		—		8
Diversified growth funds	6		—		6		33		—		33
Multi-asset credit	8		—		8		23		—		23
Absolute return fixed income	4		—		4		12		—		12
Liability driven investments	30		—		30		40		—		40
Cash flow driven investments	25		—		25		37		—		37
Other Investments:
Private equity	9		—		—		—		—		—
Total Investments	$	84	$	2	$	73	$	155	$	2	$	153

In accordance with accounting standards, certain investments that are measured at net asset value are not classified in the fair value hierarchy. During the year ended December 31, 2022 the Company increased its investments in private equity fund investment partnerships from an immaterial amount in the prior year. These investments are contractually locked up for the life

of the private equity fund by the partnership agreement. The remaining unfunded commitment of these partnership interests is $11 million as of December 31, 2022.

FUNDING AND CASH FLOWS

The Company’s funding policy for the pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plans, tax deductibility, cash flow generated by the Company, and other factors. The Company continually reassesses the amount and timing of any discretionary contributions. Generally, the non-U.S. pension plans are funded using the projected benefit as a target, except in certain countries where funding of benefit plans is not required.

At December 31, 2022, projected future pension benefit payments, excluding any termination benefits, were as follows:

In millions
2023	$	7
2024	8
2025	10
2026	13
2027	14
2028-2032	103

OTHER POSTRETIREMENT BENEFITS

Certain of the Company’s Brazilian employees are eligible for retiree health care and life insurance benefits. The accumulated benefit obligation for this plan as of December 31, 2022 and 2021 was $7 million and $8 million, respectively, which is recorded within other liabilities in the consolidated balance sheets.

DEFERRED COMPENSATION AND NON-QUALIFIED PENSION PLAN

We are responsible for certain deferred compensation and non-qualified pension plan balances related to our employees. These balances relate to employees who previously participated in plans sponsored by International Paper. As part of the spin-off, we assumed responsibility for these balances. As our employees become eligible for these benefits and these benefits are paid, we will be reimbursed by International Paper for the balances transferred upon the spin-off. As of December 31, 2022, there is a receivable of $24 million reflected within deferred charges and other assets of our consolidated balance sheets related to the plans. The deferred compensation savings plan liability of $16 million as of December 31, 2022 is recorded within accounts payable in the consolidated balance sheets. The non-qualified pension plan is included within the pension obligation and funded status presented above, and the liability is recorded in other liabilities in the consolidated balance sheets.