The non-current asset for the qualified plan is included in the accompanying consolidated balance sheet under Overfunded Pension Plan Assets. The non-current portion of the liability is included with the pension liability under Underfunded Pension Benefit Obligation.

The largest contributor to the actuarial gain affecting the benefit obligation was the increase in the discount rate from 2.90% at December 31, 2021 to 5.40% at December 31, 2022.

The components of the $357 million and $(12) million related to U.S. plans and non-U.S. plans, respectively, in the amounts recognized in OCI during 2022 consisted of:


In millions	U.S. Plans		Non- U.S. Plans
Current year actuarial (gain) loss	$	451	$	(10)
Amortization of actuarial loss	(87)		(1)
Current year prior service cost	16		—
Amortization of prior service cost	(23)		—
Effect of foreign currency exchange rate movements	—		(1)
	$	357	$	(12)

The portion of the change in the funded status that was recognized in net periodic benefit cost and OCI for the U.S. plans was $474 million, $(1.0) billion and $(500) million in 2022, 2021 and 2020, respectively. The portion of the change in funded status for the non-U.S. plans was $(6) million, $(73) million, and $13 million in 2022, 2021 and 2020, respectively.

The accumulated benefit obligation at December 31, 2022 and 2021 was $8.8 billion and $11.8 billion, respectively, for our U.S. defined benefit plans and $46 million and $56 million, respectively, at December 31, 2022 and 2021 for our non-U.S. defined benefit plans.

The following table summarizes information for pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2022 and 2021:


	2022				2021
In millions	U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans
Projected benefit obligation	$	268	$	54	$	353	$	65
Accumulated benefit obligation	268		45		353		56
Fair value of plan assets	—		18		—		19

ASC 715, “Compensation – Retirement Benefits” provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the estimated projected plan benefit obligation due to changes in the assumed discount rate, differences between the actual and expected return on plan assets and other assumption changes. These net gains and losses are recognized prospectively over a period that approximates the average remaining service period of active employees expected to receive benefits under the plans to the extent that they are not offset by gains in subsequent years.

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 for qualified and nonqualified U.S. and non-U.S. defined benefit plans comprised the following:


	2022				2021				2020
In millions	U.S. Plans		Non- U.S. Plans		U.S. Plans		Non- U.S. Plans		U.S. Plans		Non- U.S. Plans
Service cost	$	85	$	3	$	100	$	5	$	85	$	5
Interest cost	338		2		333		4		393		6
Expected return on plan assets	(649)		(1)		(705)		(7)		(668)		(8)
Actuarial loss (gain)	87		1		138		2		202		2
Amortization of prior service cost	23		—		22		—		20		—
Curtailment loss (gain)	—		—		—		—		—		(1)
Settlement loss	—		—		—		—		—		1
Net periodic pension (income) expense	$	(116)	$	5	$	(112)	$	4	$	32	$	5

The components of net periodic pension expense other than the Service cost component are included in Non-operating pension (income) expense in the Consolidated Statement of Operations with the exception of $(3) million related to Sylvamo participants in 2021 recorded in Discontinued Operations.

The decrease in 2022 pension expense primarily reflects lower asset returns, higher interest cost due to a higher discount rate and lower actuarial loss due to a longer amortization period and lower service cost.

ASSUMPTIONS

International Paper 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
	U.S. Plans		Non- U.S. Plans		U.S. Plans		Non- U.S. Plans		U.S. Plans		Non- U.S. Plans
Actuarial assumptions used to determine benefit obligations as of December 31:
Discount rate	5.40	%	5.31	%	2.90	%	2.59	%	2.60	%	2.32	%
Rate of compensation increase	3.00	%	3.36	%	3.00	%	2.92	%	2.25	%	3.66	%
Actuarial assumptions used to determine net periodic pension cost for years ended December 31:
Discount rate (a)	2.90	%	2.59	%	2.67	%	2.32	%	3.40	%	2.70	%
Expected long-term rate of return on plan assets (a)	6.00	%	3.66	%	6.40	%	4.99	%	7.00	%	4.92	%
Rate of compensation increase	3.00	%	2.92	%	2.25	%	3.66	%	2.25	%	3.62	%

(a) Represents the weighted average rate for the U.S. qualified plans in 2021 due to the spin-off remeasurement..

The expected long-term rate of return on plan assets is based on projected rates of return for current asset classes in the plan’s investment portfolio. Projected rates of return are developed through an asset/liability study in which projected returns for each of the plan’s asset classes are determined after analyzing historical experience and future expectations of returns and volatility of the various asset classes.

Based on the target asset allocation for each asset class, the overall expected rate of return for the portfolio is developed considering the effects of active portfolio management and expenses paid from plan assets. The discount rate assumption was determined from a universe of high quality corporate bonds. A settlement portfolio is selected and matched to the present value of the plan’s projected benefit payments. To calculate pension expense for 2023, the Company will use an expected long-term rate of return on plan assets of 6.50% for the Retirement Plan of International Paper, a discount rate of 5.40% and an assumed rate of compensation increase of 3.00%. The Company estimates that it will record net pension expense of approximately $102 million for its U.S. defined benefit plans in 2023, compared to income of $116 million in 2022.

For non-U.S. pension plans, assumptions reflect economic assumptions applicable to each country.

The following illustrates the effect on pension expense for 2023 of a 25 basis point decrease in the above assumptions:


In millions	2023
Expense (Income):
Discount rate	$	15
Expected long-term rate of return on plan assets	20

PLAN ASSETS

International Paper’s Board of Directors has appointed a Fiduciary Review Committee that is responsible for fiduciary oversight of the U.S. Pension Plan, approving investment policy and reviewing the management and control of plan assets. Pension Plan assets are invested to maximize returns within prudent levels of risk.

The Pension Plan maintains 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. For non-U.S. plans, assets consist principally of common stock and fixed income securities.

International Paper’s U.S. pension allocations by type of fund at December 31, 2022 and 2021 and target allocations were as follows:


Asset Class	2022		2021		Target Allocations
Equity accounts	16	%	18	%	14% - 25%
Fixed income accounts	67	%	68	%	62% - 78%
Real estate accounts	9	%	8	%	4% - 11%
Other	8	%	6	%	2% - 8%
Total	100	%	100	%

The fair values of International Paper’s pension plan assets at December 31, 2022 and 2021 by asset class are shown below. Hedge funds disclosed in the following table are allocated to fixed income accounts for target allocation purposes.


Fair Value Measurement at December 31, 2022
Asset Class	Total		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
In millions
Equities – domestic	$	442	$	248	$	194	$	—
Equities – international	911		641		270		—
Corporate bonds	1,790		—		1,790		—
Government securities	3,796		—		3,796		—
Mortgage backed securities	103		—		103		—
Other fixed income	(1,139)		—		(1,146)		7
Derivatives	25		—		—		25
Cash and cash equivalents	82		82		—		—
Other investments:
Hedge funds	1,319
Private equity	688
Real estate funds	828
Total Investments	$	8,845	$	971	$	5,007	$	32


Fair Value Measurement at December 31, 2021
Asset Class	Total		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
In millions
Equities – domestic	$	805	$	471	$	334	$	—
Equities – international	1,381		976		405		—
Corporate bonds	2,249		—		2,249		—
Government securities	5,733		—		5,733		—
Mortgage backed securities	126		—		126		—
Other fixed income	(1,482)		—		(1,498)		16
Derivatives	(21)		—		—		(21)
Cash and cash equivalents	266		266		—		—
Other investments:
Hedge funds	1,368
Private equity	721
Real estate funds	929
Total Investments	$	12,075	$	1,713	$	7,349	$	(5)

In accordance with accounting standards, certain investments that are measured at NAV and are not classified in the fair value hierarchy.


Other Investments at December 31, 2022
Investment	Fair Value		Unfunded Commitments		Redemption Frequency	Remediation Notice Period
In millions
Hedge funds	$	1,319	$	120	Daily to annually	1 - 100 days
Private equity	688		126		(a)	None
Real estate funds	828		129		Quarterly	45 - 60 days
Total	$	2,835	$	375

(a) A private equity fund investment ("partnership interest") is contractually locked up for the life of the private equity fund by the partnership agreement. Limited partners do not have the option to redeem partnership interests.


Other Investments at December 31, 2021
Investment	Fair Value		Unfunded Commitments		Redemption Frequency	Remediation Notice Period
In millions
Hedge funds	$	1,368	$	176	Daily to annually	1 - 100 days
Private equity	721		190		(a)	None
Real estate funds	929		176		Quarterly	45 - 60 days
Total	$	3,018	$	542

Equity securities consist primarily of publicly traded U.S. companies and international companies. Publicly traded equities are valued at the closing prices reported in the active market in which the individual securities are traded.

Fixed income consists of government securities, mortgage-backed securities, corporate bonds, common collective funds and other fixed income investments. Government securities are valued by third-party pricing sources. Mortgage-backed security holdings consist primarily of agency-rated holdings. The fair value estimates for mortgage securities are calculated by third-party pricing sources chosen by the custodian’s price matrix. Corporate bonds are valued using either the yields currently available on comparable securities of issuers with similar credit ratings or using a discounted cash flows approach that utilizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks. Common collective funds are valued at the net asset value per share multiplied by the number of shares held as of the measurement date. Other fixed income investments of $(1.1) billion and $(1.5) billion at December 31, 2022 and 2021, respectively, primarily include reverse repurchase agreement obligations in which we have sold a security and have an agreement to repurchase the same or substantially the same security at a later date for a price specified in the agreement.

Derivative investments such as futures, forward contracts, options and swaps are used to help manage risks. Derivatives are generally employed as asset class substitutes (such as when employed in a portable alpha strategy), for managing asset/liability mismatches, or bona fide hedging or other appropriate risk management purposes. Derivative instruments are generally valued by the investment managers or in certain instances by third-party pricing sources.

Hedge funds are investment structures for managing private, loosely-regulated investment pools that can pursue a diverse array of investment strategies with a

wide range of different securities and derivative instruments. These investments are made through funds-of-funds (commingled, multi-manager fund structures) and through direct investments in individual hedge funds. Hedge funds are primarily valued by each fund’s third-party administrator based upon the valuation of the underlying securities and instruments and primarily by applying a market or income valuation methodology as appropriate depending on the specific type of security or instrument held. Funds-of-funds are valued based upon the net asset values of the underlying investments in hedge funds.

Private equity consists of interests in partnerships

that invest in U.S. and non-U.S. debt and equity securities. Partnership interests are valued using the most recent general partner statement of fair value, updated for any subsequent partnership interest cash flows.

Real estate funds include commercial properties, land and timberland, and generally include, but are not limited to, retail, office, industrial, multifamily and hotel properties. Real estate fund values are primarily reported by the fund manager and are based on

valuation of the underlying investments which include inputs such as cost, discounted cash flows, independent appraisals and market based comparable data.

The following is a reconciliation of the assets that are classified using significant unobservable inputs (Level 3) at December 31, 2022:

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)


In millions	Other fixed income		Derivatives		Total
Beginning balance at December 31, 2020	$	14	$	(6)	$	8
Actual return on plan assets:
Relating to assets still held at the reporting date	2		(20)		(18)
Relating to assets sold during the period	—		(101)		(101)
Purchases, sales and settlements	—		106		106
Transfers in and/or out of Level 3	—		—		—
Ending balance at December 31, 2021	$	16	$	(21)	$	(5)
Actual return on plan assets:
Relating to assets still held at the reporting date	(9)		38		29
Relating to assets sold during the period	10		(189)		(179)
Purchases, sales and settlements	(10)		197		187
Transfers in and/or out of Level 3	—		—		—
Ending balance at December 31, 2022	$	7	$	25	$	32

FUNDING AND CASH FLOWS

The Company’s funding policy for the Pension Plan 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. No voluntary contributions were made in 2020, 2021 or 2022. Generally, International Paper’s 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	$	610
2024	622
2025	628
2026	637
2027	640
2028-2032	3,199

OTHER U.S. PLANS

International Paper sponsors the International Paper Company Salaried Savings Plan and the International Paper Company Hourly Savings Plan, both of which are tax-qualified defined contribution 401(k) savings

plans. Substantially all U.S. salaried and certain hourly employees are eligible to participate and may make elective deferrals to such plans to save for retirement. International Paper makes matching contributions to participant accounts on a specified percentage of employee deferrals as determined by the provisions of each plan. The Company makes Retirement Savings Account contributions equal to a percentage of an eligible employee’s pay. Beginning in 2019, as a result of the freeze for salaried employees under the Pension Plan, all salaried employees are eligible for the contribution to the Retirement Savings Account.

The Company also sponsors the International Paper Company Deferred Compensation Savings Plan, which is an unfunded nonqualified defined contribution plan. This plan permits eligible employees to continue to make deferrals and receive company matching contributions (and Retirement

Savings Account contributions) when their contributions to the International Paper Salaried Savings Plan are stopped due to limitations under U.S. tax law. Participant deferrals and company contributions are not invested in a separate trust, but are paid directly from International Paper’s general assets at the time benefits become due and payable.

Company contributions to the plans totaled approximately $159 million, $172 million and $154 million for the plan years ending in 2022, 2021 and 2020, respectively.