XML 34 R18.htm IDEA: XBRL DOCUMENT v3.20.4
Pension Benefits
 12 Months Ended
Jan. 02, 2021
Pension Benefits [Abstract]  
Pension Benefits [Text Block]
PENSION BENEFITS
The Company sponsors a number of U.S. and foreign pension plans to provide retirement benefits for its employees. The majority of these plans are funded or unfunded defined benefit plans, although the Company does participate in a limited number of multiemployer or other defined contribution plans for certain employee groups. See Note 12 for more information regarding the Company’s participation in multiemployer plans. Defined benefits for salaried employees are generally based on salary and years of service, while union employee benefits are generally a negotiated amount for each year of service. The Company uses a December 31 measurement date for these plans and, when necessary, adjusts for plan contributions and significant events between December 31 and its fiscal year-end.

In recent years, the Company has taken actions to reduce global pension benefit obligations and moderate the impact of market-related volatility. Those actions include the following:

–In December 2020, the Company purchased a group annuity contract to cover pension benefit obligations of certain participants of the United Kingdom defined benefit pension plan for $268 million. This transaction represents an annuity buy-in, under which the Company retains both the fair value of the annuity contract (within plan assets) and the pension benefit obligations related to these participants. The fair value of the annuity buy-in contract at year-end is based on the calculated pension benefit obligations covered.

–In October 2020, the Company settled pension benefit obligations associated with approximately 8,000 retired participants within our U.S. defined benefit pension plan to reduce pension benefit obligations and administrative expenses. A group annuity contract was purchased on behalf of these participants with a third-party insurance provider, resulting in a reduction of the Company's pension benefit obligations and plan assets of approximately $453 million.

–In June of 2020, the Company recognized a curtailment gain of $7 million, as certain U.S. pension plan benefits were frozen for a portion of the participant population.

–In September 2019, the Company provided a voluntary one-time lump-sum cash settlement offer to certain eligible terminated vested participants in our U.S. pension plans in order to reduce pension benefit obligations and administrative costs. In December 2019, approximately $174 million was distributed from pension plan assets in connection with this offer.
–In conjunction with the completion of the sale of selected cookies, fruit and fruit-flavored snacks, pie crusts, and ice cream cones businesses on July 28, 2019, the Company recognized a curtailment gain in its U.S. pension plans of $11 million, as certain U.S. pension plans benefits were frozen for the portion of the participant population that was impacted by the divestiture.

–In September 2018, the Company recognized a curtailment gain of $30 million as certain European pension plans were frozen as of December 29, 2018 in conjunction with Project K restructuring.

–In December 2018, as a result of the September 2017 amendment of certain U.S. and Canada defined benefit pension plans, compensation and service periods used to calculate pension benefits for active salaried employees who participate in the affected pension plans were frozen.
Obligations and funded status
The aggregate change in projected benefit obligation, plan assets, and funded status is presented in the following tables.
(millions)20202019
Change in projected benefit obligation
Beginning of year$5,654 $5,117 
Service cost37 36 
Interest cost130 172 
Plan participants’ contributions1 1 
Amendments22 3 
Actuarial (gain)loss499 766 
Benefits paid(292)(458)
Curtailment and special termination benefits(15)(13)
Settlements(453)— 
Foreign currency adjustments92 30 
End of year$5,675 $5,654 
Change in plan assets
Fair value beginning of year$5,170 $4,677 
Actual return on plan assets656 874 
Employer contributions8 10 
Plan participants’ contributions1 1 
Benefits paid(269)(426)
Settlements(453)— 
Other(8)— 
Foreign currency adjustments106 34 
Fair value end of year$5,211 $5,170 
Funded status$(464)$(484)
Amounts recognized in the Consolidated Balance Sheet consist of
Other assets$324 $241 
Other current liabilities(19)(20)
Other liabilities(769)(705)
Net amount recognized$(464)$(484)
Amounts recognized in accumulated other comprehensive income consist of
Prior service cost$51 $37 
Net amount recognized$51 $37 
The accumulated benefit obligation for all defined benefit pension plans was $5.6 billion at January 2, 2021 and December 28, 2019. Information for pension plans with accumulated benefit obligations in excess of plan assets were:
(millions)20202019
Projected benefit obligation$3,937 $4,061 
Accumulated benefit obligation$3,921 $4,033 
Fair value of plan assets$3,177 $3,362 
Information for pension plans with projected benefit obligations in excess of plan assets were:
(millions)20202019
Projected benefit obligation$4,035 $4,180 
Accumulated benefit obligation$3,988 $4,114 
Fair value of plan assets$3,246 $3,455 
Expense
The components of pension expense are presented in the following table. Service cost is recorded in COGS and SGA expense. All other components of net periodic benefit cost are included in OIE. Pension expense for defined contribution plans relates to certain foreign-based defined contribution plans and multiemployer plans in the United States in which the Company participates on behalf of certain unionized workforces.
(millions)202020192018
Service cost$37 $36 $87 
Interest cost130 172 165 
Expected return on plan assets(340)(340)(361)
Amortization of unrecognized prior service cost7 7 8 
Other expense8 — — 
Recognized net (gain) loss184 235 269 
Net periodic benefit cost26 110 168 
Curtailment and special termination benefits(15)(13)(30)
Pension (income) expense:
Defined benefit plans11 97 138 
Defined contribution plans20 20 27 
Total$31 $117 $165 
The Company and certain of its subsidiaries sponsor 401(k) or similar savings plans for active employees. Expense related to these plans was (in millions): 2020 – $42 million; 2019 – $39 million; 2018 – $38 million. These amounts are not included in the preceding expense table. Company contributions to these savings plans approximate annual expense. Company contributions to multiemployer and other defined contribution pension plans approximate the amount of annual expense presented in the preceding table.
Assumptions
The worldwide weighted-average actuarial assumptions used to determine benefit obligations were:
202020192018
Discount rate2.2 %2.9 %3.9 %
Long-term rate of compensation increase3.4 %3.4 %3.8 %

The worldwide weighted-average actuarial assumptions used to determine annual net periodic benefit cost were:
202020192018
Discount rate2.8 %3.7 %3.3 %
Long-term rate of compensation increase3.4 %4.0 %3.9 %
Long-term rate of return on plan assets6.8 %7.3 %7.4 %
To determine the overall expected long-term rate of return on plan assets, the Company models expected returns over a 20-year investment horizon with respect to the specific investment mix of its major plans. The return assumptions used reflect a combination of rigorous historical performance analysis and forward-looking views of the financial markets including consideration of current yields on long-term bonds, price-earnings ratios of the major stock market indices, and long-term inflation. The U.S. model, which corresponds to approximately 70% of consolidated pension and other postretirement benefit plan assets, incorporates a long-term inflation assumption of 2.5% and an active management premium of 0.8% (net of fees) validated by historical analysis. Similar methods are used for various foreign plans with invested assets, reflecting local economic conditions. The expected rate of return for 2020 of 7.0% for the U.S. plans equated to approximately the 64th percentile expectation. Refer to Note 1.

In 2019, the Society of Actuaries (SOA) published updated mortality tables and an updated improvement scale. In 2020, the SOA released an updated improvement scale that incorporates an additional year of data. In determining the appropriate mortality assumptions as of 2020 fiscal year-end, the Company used the 2019 SOA tables with collar adjustments based on Kellogg’s current population, consistent with the prior year.  In addition, based on
mortality information available from the Social Security Administration and other sources, the Company developed assumptions for future mortality improvement in line with our expectations for future experience. The change to the mortality assumption decreased the year-end pension obligations by approximately $1 million.
To conduct the annual review of discount rates, the Company selected the discount rate based on a cash-flow matching analysis using Towers Watson’s proprietary RATE:Link tool and projections of the future benefit payments that constitute the projected benefit obligation for the plans. RATE:Link establishes the uniform discount rate that produces the same present value of the estimated future benefit payments, as is generated by discounting each year’s benefit payments by a spot rate applicable to that year. The measurement dates for the defined benefit plans are consistent with the Company’s fiscal year end. Accordingly, the Company selects yield curves to measure benefit obligations consistent with market indices during December of each year.
The Company may experience material actuarial gains or losses due to differences between assumed and actual experience and due to changing economic conditions. During 2020, the Company recognized a net actuarial loss of approximately $184 million driven by a loss related to plan experience and assumption changes, including a loss due to decreases in the discount rate, partially offset by a gain from better than expected asset returns.
Plan assets
The Company categorized Plan assets within a three level fair value hierarchy described as follows:
Investments stated at fair value as determined by quoted market prices (Level 1) include:
Cash and cash equivalents:  Value based on cost, which approximates fair value.
Corporate stock, common:  Value based on the last sales price on the primary exchange.
Investments stated at estimated fair value using significant observable inputs (Level 2) include:
Cash and cash equivalents:  Institutional short-term investment vehicles valued daily.
Mutual funds:  Valued at exit prices quoted in active or non-active markets or based on observable inputs.
Collective trusts:  Valued at exit prices quoted in active or non-active markets or based on observable inputs.
Bonds:  Value based on matrices or models from pricing vendors.
Limited partnerships:  Value based on the ending net capital account balance at year end.
Investments stated at estimated fair value using significant unobservable inputs (Level 3) include:
Buy-in annuity contract:  Value based on the calculated pension benefit obligation covered by the non-participating annuity contracts at year-end.
The preceding methods described may produce a fair value calculation that 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.

The Company’s practice regarding the timing of transfers between levels is to measure transfers in at the beginning of the month and transfers out at the end of the month. For the year ended January 2, 2021, the Company had no transfers between Levels 1 and 2.
The fair value of Plan assets as of January 2, 2021 summarized by level within the fair value hierarchy are as follows:
(millions)Total
Level 1		Total
Level 2		Total
Level 3		Total
NAV (practical expedient)(a)		Total
Cash and cash equivalents$35 $4 $— $3 $42 
Corporate stock, common325 — — — 325 
Mutual funds:
Equity— — — 2 2 
Debt— 5 — — 5 
Collective trusts:
Equity— — — 1,508 1,508 
Debt— 548 — 415 963 
Limited partnerships— — — 292 292 
Bonds, corporate— 220 — 141 361 
Bonds, government— 861 — — 861 
Bonds, other— 64 — — 64 
Real estate— — — 421 421 
Buy-in annuity contract— — 280 — 280 
Other— 78 — 9 87 
Total$360 $1,780 $280 $2,791 $5,211 
(a) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.
The fair value of Plan assets at December 28, 2019 are summarized as follows:
(millions)Total
Level 1		Total
Level 2		Total
Level 3		Total
NAV (practical expedient)(a)		Total
Cash and cash equivalents$14 $— $— $— $14 
Corporate stock, common354 — — — 354 
Mutual funds:
Equity— — — 36 36 
Debt— 4 — — 4 
Collective trusts:
Equity— 117 — 1,314 1,431 
Debt— 718 — 378 1,096 
Limited partnerships— — — 228 228 
Bonds, corporate— 443 — 211 654 
Bonds, government— 774 — — 774 
Bonds, other— 70 — — 70 
Real estate— — — 412 412 
Other— 61 — 36 97 
Total$368 $2,187 $— $2,615 $5,170 
(a) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

There were no unfunded commitments to purchase investments at January 2, 2021 or December 28, 2019.
The Company’s investment strategy for its major defined benefit plans is to maintain a diversified portfolio of asset classes with the primary goal of meeting long-term cash requirements as they become due. Assets are invested in a prudent manner to maintain the security of funds while maximizing returns within the Plan’s investment policy. The investment policy specifies the type of investment vehicles appropriate for the Plan, asset allocation guidelines, criteria for the selection of investment managers, procedures to monitor overall investment performance as well as investment manager performance. Derivatives, including swaps, forward and futures contracts, may be used as asset class substitutes or for hedging or other risk management purposes. It also provides guidelines enabling Plan fiduciaries to fulfill their responsibilities.
The current weighted-average target asset allocation reflected by this strategy is: equity securities–34%; debt securities–29%; real estate and other–37%. Investment in Company common stock represented 1.1% and 1.2% of consolidated plan assets at January 2, 2021 and December 28, 2019, respectively. Plan funding strategies are influenced by tax regulations and funding requirements. The Company currently expects to contribute, before
consideration of incremental discretionary contributions, approximately $6 million to its defined benefit pension plans during 2021.
Level 3 gains and losses
Changes in fair value of the Plan's Level 3 assets are summarized as follows:
(millions)Annuity Contract
December 28, 2019$— 
Purchases268 
Realized and unrealized gain4 
Currency translation8 
January 2, 2021$280 
Benefit payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in millions): 2021–$315; 2022–$322; 2023–$322; 2024–$326; 2025–$321; 2026 to 2030–$1,575.