PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (Notes)

12 Months Ended

Dec. 31, 2022

Retirement Benefits [Abstract]

PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Defined Benefit Pension Plans

The Company has both funded and unfunded defined benefit pension plans that cover employees in the United States and a number of other countries. The U.S. tax-qualified plan covering the parent company is the largest plan. Benefits for employees hired before January 1, 2008, are based on length of service and the employee’s three highest consecutive years of compensation. Employees hired after January 1, 2008, earn benefits that are based on a set percentage of annual pay, plus interest.

On March 4, 2021, the Company announced changes to its U.S. tax-qualified and non-qualified pension plans. Effective December 31, 2023 ("Effective Date"), the Company will freeze the pensionable compensation and credited service amounts used to calculate pension benefits for employees who participate in its U.S. tax-qualified and non-qualified retirement programs (collectively, the "U.S. Plans"). As a result, at the Effective Date and subject to any bargaining obligations required by law, active participants of the U.S. Plans will not accrue additional benefits for future service and compensation. In connection with these plan amendments, the Company remeasured its U.S. Plans effective February 28, 2021, which resulted in a pretax actuarial gain of $1,268 million, included in other comprehensive income and inclusive of a $345 million reduction in the projected benefit obligation resulting from the plan amendments, and a pretax curtailment gain of $19 million, recognized in the first quarter of 2021.

The Company's funding policy is to contribute to the plans when pension laws and/or economics either require or encourage funding. Total global pension contributions were $235 million in 2022, which includes contributions necessary to fund benefit payments for the Company's unfunded pension plans. The Company expects to contribute approximately $150 million to its pension plans in 2023.

The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs for all plans are summarized in the table below:

Weighted-Average Assumptions for All Pension Plans	Benefit Obligations  at Dec 31				Net Periodic Benefit Costs for the Year Ended
	2022		2021		2022		2021		2020
Discount rate	5.18	%	2.57	%	2.57	%	2.40	%	2.81	%
Interest crediting rate for applicable benefits	4.19	%	3.57	%	3.57	%	3.55	%	3.51	%
Rate of compensation increase	4.05	%	3.94	%	3.94	%	3.91	%	3.92	%
Expected return on plan assets					6.68	%	6.86	%	7.00	%

The weighted-average assumptions used to determine pension plan obligations and net periodic benefit costs for U.S. plans are summarized in the table below:

Weighted-Average Assumptions for U.S. Pension Plans	Benefit Obligations  at Dec 31				Net Periodic Benefit Costs for the Year Ended
	2022		2021		2022		2021		2020
Discount rate	5.64	%	3.04	%	3.04	%	3.03	%	3.41	%
Interest crediting rate for applicable benefits	4.50	%	4.50	%	4.50	%	4.50	%	4.50	%
Rate of compensation increase	4.25	%	4.25	%	4.25	%	4.25	%	4.25	%
Expected return on plan assets					7.95	%	7.96	%	7.95	%

Other Postretirement Benefit Plans

The Company provides certain health care and life insurance benefits to retired employees and survivors. The Company’s plans outside of the United States are not significant; therefore, this discussion relates to the U.S. plans only. The plans provide health care benefits, including hospital, physicians’ services, drug and major medical expense coverage, and life insurance benefits. In general, for employees hired before January 1, 1993, the plans provide benefits supplemental to Medicare when retirees are eligible for these benefits. The Company and the retiree share the cost of these benefits, with the Company portion increasing as the retiree has increased years of credited service, although there is a cap on the Company portion. The Company has the ability to change these benefits at any time. Employees hired after January 1, 2008, are not covered under the plans.

The Company funds most of the cost of these health care and life insurance benefits as incurred. In 2022, the Company did not make any contributions to its other postretirement benefit plan trusts. The trusts did not hold assets at December 31, 2022. The Company does not expect to contribute assets to its other postretirement benefit plan trusts in 2023.

The weighted-average assumptions used to determine other postretirement benefit plan obligations and net periodic benefit costs for the U.S. plans are provided below:

Weighted-Average Assumptions for U.S. Other Postretirement Benefits Plans	Benefit Obligations  at Dec 31				Net Periodic Benefit Costs for the Year Ended
	2022		2021		2022		2021		2020
Discount rate	5.57	%	2.85	%	2.85	%	2.38	%	3.19	%
Health care cost trend rate assumed for next year	6.79	%	6.50	%	6.50	%	6.75	%	6.25	%
Rate to which the cost trend rate is assumed to decline (the ultimate health care cost trend rate)	5.00	%	5.00	%	5.00	%	5.00	%	5.00	%
Year that the rate reaches the ultimate health care cost trend rate	2033		2028		2028		2028		2025

Assumptions

The Company determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads and other valuation measures and market metrics. The expected long-term rate of return for each asset class is then weighted based on the strategic asset allocation approved by the governing body for each plan. The Company’s historical experience with the pension fund asset performance is also considered.

The Company uses the spot rate approach to determine the discount rate utilized to measure the service cost and interest cost components of net periodic pension and other postretirement benefit costs for the U.S. and other selected countries. Under the spot rate approach, the Company calculates service cost and interest cost by applying individual spot rates from the Willis Towers Watson RATE:Link yield curve (based on high-quality corporate bond yields) for each selected country to the separate expected cash flow components of service cost and interest cost. Service cost and interest cost for all other plans are determined on the basis of the single equivalent discount rates derived in determining those plan obligations.

The discount rates utilized to measure the pension and other postretirement obligations of the U.S. plans are based on the yield on high-quality corporate fixed income investments at the measurement date. Future expected actuarially determined cash flows for the Company’s U.S. plans are individually discounted at the spot rates under the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to arrive at the plan’s obligations as of the measurement date.

The Company’s mortality assumption used for the US plans is a benefit-weighted version of the Society of Actuaries’ RP-2014 base table with future rates of mortality improvement based on a modified version of the assumptions used in the Social Security Administration’s 2021 trustees report. 

Summarized information on the Company's pension and other postretirement benefit plans is as follows:

Change in Projected Benefit Obligations, Plan Assets and Funded Status of All Significant Plans	Defined Benefit Pension Plans				Other Postretirement Benefit Plans
In millions	2022		2021		2022		2021
Change in projected benefit obligations:
Benefit obligations at beginning of year	$	32,977	$	35,309	$	1,251	$	1,464
Service cost	392		387		6		7
Interest cost	680		594		26		23
Plan participants' contributions	12		10		—		—
Actuarial changes in assumptions and experience	(8,433)		(820)		(318)		(98)
Benefits paid	(1,539)		(1,582)		(67)		(141)
Plan amendments	(25)		2		—		—
Acquisitions/divestitures/other 1	(602)		8		—		—
Effect of foreign exchange rates	(600)		(545)		(5)		(4)
Termination benefits/curtailments/settlements 2	(1)		(386)		—		—
Benefit obligations at end of year	$	22,861	$	32,977	$	893	$	1,251
Change in plan assets:
Fair value of plan assets at beginning of year	$	28,167	$	26,406	$	—	$	—
Actual return on plan assets	(4,556)		2,501		—		—
Employer contributions	235		1,219		—		—
Plan participants' contributions	12		10		—		—
Benefits paid	(1,539)		(1,582)		—		—
Other 3	(592)		10		—		—
Effect of foreign exchange rates	(496)		(397)		—		—
Fair value of plan assets at end of year	$	21,231	$	28,167	$	—	$	—
Funded status:
U.S. plans with plan assets	$	(545)	$	(2,585)	$	—	$	—
Non-U.S. plans with plan assets	(473)		(1,467)		—		—
All other plans	(612)		(758)		(893)		(1,251)
Funded status at end of year	$	(1,630)	$	(4,810)	$	(893)	$	(1,251)
Amounts recognized in the consolidated balance sheets at Dec 31:
Deferred charges and other assets	$	1,035	$	1,173	$	—	$	—
Accrued and other current liabilities	(66)		(58)		(88)		(99)
Pension and other postretirement benefits - noncurrent	(2,599)		(5,925)		(805)		(1,152)
Net amount recognized	$	(1,630)	$	(4,810)	$	(893)	$	(1,251)
Pretax amounts recognized in accumulated other comprehensive loss at Dec 31:
Net loss (gain)	$	7,045	$	9,934	$	(523)	$	(221)
Prior service credit	(116)		(112)		—		—
Pretax balance in accumulated other comprehensive loss at end of year	$	6,929	$	9,822	$	(523)	$	(221)

1.The 2022 impact primarily relates to the transfer of benefit obligations in the U.S. through the purchase of annuity contracts from an insurance company.

2.The 2021 impact primarily relates to the freeze of pensionable compensation and credited service amounts for employees that participate in the U.S. Plans.

3.The 2022 impact relates to the purchase of an annuity contract associated with the transfer of benefit obligations to an insurance company.

A significant component of the overall decrease in the Company's benefit obligation for the year ended December 31, 2022 was due to the change in weighted-average discount rates, which increased from 2.57 percent at December 31, 2021 to 5.18 percent at December 31, 2022. A significant component of the overall decrease in the Company's benefit obligation for the year ended December 31, 2021 was due to the change in weighted-average discount rates, which increased from 2.20 percent at December 31, 2020 to 2.57 percent at December 31, 2021.

The accumulated benefit obligation for all significant pension plans was $22.6 billion and $32.5 billion at December 31, 2022 and 2021, respectively.

Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at Dec 31	2022		2021
In millions
Accumulated benefit obligations	$	18,300	$	27,052
Fair value of plan assets	$	15,723	$	21,385

Pension Plans with Projected Benefit Obligations in Excess of Plan Assets at Dec 31	2022		2021
In millions
Projected benefit obligations	$	18,388	$	27,367
Fair value of plan assets	$	15,723	$	21,385

Net Periodic Benefit Costs for All Significant Plans for the Year Ended Dec 31	Defined Benefit Pension Plans						Other Postretirement Benefit Plans
In millions	2022		2021		2020		2022		2021		2020
Net Periodic Benefit Costs:
Service cost	$	392	$	387	$	399	$	6	$	7	$	7
Interest cost	680		594		767		26		23		40
Expected return on plan assets	(1,686)		(1,724)		(1,658)		—		—		—
Amortization of prior service credit	(21)		(22)		(19)		—		—		—
Amortization of unrecognized (gain) loss	658		822		773		(15)		(6)		(10)
Curtailment/settlement/other 1	—		(18)		9		—		—		—
Net periodic benefit costs	$	23	$	39	$	271	$	17	$	24	$	37
Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss:
Net (gain) loss	$	(2,231)	$	(1,980)	$	1,753	$	(317)	$	(98)	$	8
Prior service cost (credit)	(25)		2		8		—		—		—
Amortization of prior service credit	21		22		19		—		—		—
Amortization of unrecognized gain (loss)	(658)		(822)		(773)		15		6		10
Curtailment and settlement gain (loss) 1	—		18		(9)		—		—		—
Total recognized in other comprehensive (income) loss	$	(2,893)	$	(2,760)	$	998	$	(302)	$	(92)	$	18
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	(2,870)	$	(2,721)	$	1,269	$	(285)	$	(68)	$	55

1.The 2021 impact primarily relates to the freeze of pensionable compensation and credited service amounts for employees that participate in the U.S. Plans. The 2020 impact relates to pension plan curtailments of a European plan resulting from the 2020 Restructuring Program and the settlement of certain plan obligations of a U.S. non-qualified pension plan resulting from lump-sum payments.

Except for plan curtailment costs related to the 2020 Restructuring Program, which are included in "Restructuring and asset related charges - net" in the consolidated statements of income, non-service cost components of net periodic benefit cost are included in "Sundry income (expense) - net" in the consolidated statements of income. See Notes 5 and 6 for additional information.

Estimated Future Benefit Payments

The estimated future benefit payments, reflecting expected future service, as appropriate, are presented in the following table:

Estimated Future Benefit Payments at Dec 31, 2022	Defined Benefit Pension Plans		Other Postretirement Benefit Plans
In millions
2023	$	1,597	$	90
2024	1,474		85
2025	1,496		82
2026	1,515		82
2027	1,531		80
2028-2032	7,783		350
Total	$	15,396	$	769

Plan Assets

Plan assets consist primarily of equity and fixed income securities of U.S. and foreign issuers, and include alternative investments, such as real estate, private equity and absolute return strategies. Plan assets totaled $21.2 billion at December 31, 2022 and $28.2 billion at December 31, 2021 and included no directly held common stock of Dow Inc.

The Company's investment strategy for plan assets is to manage the assets in relation to the liability in order to pay retirement benefits to plan participants over the life of the plans. This is accomplished by identifying and managing the exposure to various market risks, diversifying investments across various asset classes and earning an acceptable long-term rate of return consistent with an acceptable amount of risk, while considering the liquidity needs of the plans.

The plans are permitted to use derivative instruments for investment purposes, as well as for hedging the underlying asset and liability exposure and rebalancing the asset allocation. The plans use value-at-risk, stress testing, scenario analysis and Monte Carlo simulations to monitor and manage both the risk within the portfolios and the surplus risk of the plans.

Equity securities primarily include investments in large- and small-cap companies located in both developed and emerging markets around the world. Fixed income securities include investment and non-investment grade corporate bonds of companies diversified across industries, U.S. treasuries, non-U.S. developed market securities, U.S. agency mortgage-backed securities, emerging market securities and fixed income related funds. Alternative investments primarily include investments in real estate, private equity and absolute return strategies. Other significant investment types include various insurance contracts and interest rate, equity, commodity and foreign exchange derivative investments and hedges.

The Company mitigates the credit risk of investments by establishing guidelines with investment managers that limit investment in any single issue or issuer to an amount that is not material to the portfolio being managed. These guidelines are monitored for compliance both by the Company and external managers. Credit risk related to derivative activity is mitigated by utilizing multiple counterparties, collateral support agreements and centralized clearing, where appropriate. A short-term investment money market fund is utilized as the sweep vehicle for the U.S. plans, which from time to time can represent a significant investment.

The weighted-average target allocation for plan assets of the Company's pension plans is summarized as follows:

Target Allocation for Plan Assets at Dec 31, 2022	Target Allocation
Asset Category
Equity securities	25	%
Fixed income securities	43
Alternative investments	29
Other investments	3
Total	100	%

Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

For pension plan assets classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.

For pension plan assets classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs, such as foreign exchange rates, commodity prices, swap rates, interest rates and implied volatilities obtained from various market sources. For other pension plan assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.

For pension plan assets classified as Level 3 measurements, total fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment.

Certain pension plan assets are held in funds where fair value is based on an estimated net asset value per share (or its equivalent) as of the most recently available fund financial statements which are received on a monthly or quarterly basis. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Adjustments to valuations are made where appropriate to arrive at an estimated net asset value per share at the measurement date. These funds are not classified within the fair value hierarchy.

The following table summarizes the bases used to measure the Company’s pension plan assets at fair value for the years ended December 31, 2022 and 2021:

Basis of Fair Value Measurements	Dec 31, 2022								Dec 31, 2021
In millions	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	1,240	$	989	$	251	$	—	$	1,463	$	1,353	$	110	$	—
Equity securities:
U.S. equity securities	$	1,855	$	1,845	$	7	$	3	$	4,117	$	4,097	$	18	$	2
Non - U.S. equity securities	2,120		1,924		193		3		4,559		3,935		620		4
Total equity securities	$	3,975	$	3,769	$	200	$	6	$	8,676	$	8,032	$	638	$	6
Fixed income securities:
Debt - government-issued	$	3,885	$	57	$	3,827	$	1	$	4,838	$	242	$	4,596	$	—
Debt - corporate-issued	4,231		441		3,790		—		4,949		1,095		3,854		—
Debt - asset-backed	128		44		84		—		117		—		116		1
Total fixed income securities	$	8,244	$	542	$	7,701	$	1	$	9,904	$	1,337	$	8,566	$	1
Alternative investments:
Private markets	$	5	$	—	$	—	$	5	$	5	$	—	$	—	$	5
Real estate	48		48		—		—		67		67		—		—
Derivatives - asset position	348		5		343		—		399		2		397		—
Derivatives - liability position	(479)		(6)		(473)		—		(324)		(2)		(322)		—
Total alternative investments	$	(78)	$	47	$	(130)	$	5	$	147	$	67	$	75	$	5
Other investments	$	1,103	$	16	$	1,087	$	—	$	1,068	$	7	$	1,061	$	—
Subtotal	$	14,484	$	5,363	$	9,109	$	12	$	21,258	$	10,796	$	10,450	$	12
Investments measured at net asset value:
Hedge funds	$	964							$	1,312
Private markets	3,873								3,857
Real estate	1,956								1,793
Total investments measured at net asset value	$	6,793							$	6,962
Items to reconcile to fair value of plan assets:
Pension trust receivables 1	$	31							$	62
Pension trust payables 2	(77)								(115)
Total	$	21,231							$	28,167

1.Primarily receivables for investment securities sold.

2.Primarily payables for investment securities purchased.

The following table summarizes the changes in the fair value of Level 3 pension plan assets for the years ended December 31, 2022 and 2021:

Fair Value Measurement of Level 3 Pension Plan Assets	Equity Securities		Fixed Income Securities		Alternative Investments		Other Investments		Total
In millions
Balance at Jan 1, 2021	$	10	$	2	$	13	$	2	$	27
Actual return on assets:
Relating to assets held at Dec 31, 2021	1		—		(11)		—		(10)
Purchases, sales and settlements, net	(5)		(1)		3		(2)		(5)
Balance at Dec 31, 2021	$	6	$	1	$	5	$	—	$	12
Actual return on assets:
Relating to assets held at Dec 31, 2022	(6)		—		(6)		—		(12)
Purchases, sales and settlements, net	—		—		6		—		6
Transfers into Level 3, net	6		—		—		—		6
Balance at Dec 31, 2022	$	6	$	1	$	5	$	—	$	12

Defined Contribution Plans

U.S. employees may participate in defined contribution plans by contributing a portion of their compensation, which is partially matched by the Company. Defined contribution plans also cover employees in some subsidiaries in other countries, including Brazil, The Netherlands, Canada, Korea, Spain and the United Kingdom. Expense recognized for all defined contribution plans was $150 million in 2022, $165 million in 2021 and $156 million in 2020.

On March 4, 2021, the Company announced changes to its U.S. tax-qualified and non-qualified defined contribution plans. Effective January 1, 2022, contributions to U.S. tax-qualified and non-qualified defined contribution plans were harmonized across the Company's U.S. eligible employee population. The new matching contribution allows all eligible U.S. employees to receive matching contributions of up to 5 percent of their eligible compensation. In addition, beginning on January 1, 2024, all eligible U.S. employees will receive an automatic non-elective contribution of 4 percent of eligible compensation to their respective defined contribution plans.