XML 39 R18.htm IDEA: XBRL DOCUMENT v3.25.2
POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK OWNERSHIP PLAN
 12 Months Ended
Jun. 30, 2025
Retirement Benefits [Abstract]  
POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK OWNERSHIP PLAN
POSTRETIREMENT BENEFITS AND EMPLOYEE STOCK OWNERSHIP PLAN
We offer various postretirement benefits to our employees.
Defined Contribution Retirement Plans
We have defined contribution plans, which cover the majority of our U.S. employees, as well as employees in certain other countries. These plans are fully funded. We generally make contributions to participants' accounts based on individual base salaries and years of service. Total global defined contribution expense was $534, $425 and $392 in 2025, 2024 and 2023, respectively.
The primary U.S. defined contribution plan (the U.S. DC plan) comprises the majority of the expense for the Company's defined contribution plans. For the U.S. DC plan, the contribution rate is predetermined and reflects years of service and plan participation. Total contributions for this plan approximated 12% of total participants' annual wages and salaries in 2025 and 13% in 2024 and 2023.
We maintain The Procter & Gamble Profit Sharing Trust (Trust) and Employee Stock Ownership Plan (ESOP) to provide a portion of the funding for the U.S. DC plan and U.S. other retiree benefits (described below). Operating details of the ESOP are provided at the end of this Note.
Defined Benefit Retirement Plans and Other Retiree Benefits
We offer defined benefit retirement pension plans to certain employees. These benefits relate primarily to plans outside the U.S. and, to a lesser extent, plans assumed in previous acquisitions covering U.S. employees.
We also provide certain other retiree benefits, primarily health care benefits for the majority of our U.S. employees who become eligible for these benefits when they meet minimum age and service requirements. The plans require cost sharing with retirees and the benefits are funded by ESOP Series B shares and certain other assets contributed by the Company.
Obligation and Funded Status. The following provides a reconciliation of benefit obligations, plan assets and funded status of these defined benefit plans:
Pension Benefits (1)
Other Retiree Benefits (2)
Fiscal years ended June 302025202420252024
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year (3)
$12,355 $12,499 $2,687 $2,933 
Service cost173 164 61 68 
Interest cost498 527 147 157 
Participants' contributions15 14 56 56 
Amendments12 21 (4)2 
Net actuarial loss/(gain)(263)(11)679 (268)
Special termination benefits3 4 2 3 
Currency translation and other980 (155)17 (22)
Benefit payments(617)(707)(250)(242)
BENEFIT OBLIGATION AT END OF YEAR (3)
$13,156 $12,355 $3,396 $2,687 
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year$10,857 $10,374 $8,043 $7,324 
Actual return on plan assets326 1,058 (168)784 
Employer contributions189 239 42 44 
Participants' contributions15 14 56 56 
Currency translation and other903 (119)— — 
ESOP debt impacts (4)
— — 64 77 
Benefit payments(617)(707)(250)(242)
FAIR VALUE OF PLAN ASSETS AT END OF YEAR$11,672 $10,857 $7,787 $8,043 
FUNDED STATUS$(1,484)$(1,498)$4,391 $5,356 
(1)Primarily non-U.S.-based defined benefit retirement plans.
(2)Primarily U.S.-based other postretirement benefit plans.
(3)For the pension benefit plans, the benefit obligation is the projected benefit obligation. For other retiree benefit plans, the benefit obligation is the accumulated postretirement benefit obligation.
(4)Represents the net impact of ESOP debt service requirements, which is netted against plan assets for other retiree benefits.
The actuarial gain for pension plans in 2025 was primarily related to increases in discount rates and updates of various assumptions in the plan. The actuarial loss for other retiree benefits in 2025 was primarily related to updates in assumptions for medical claims costs. The actuarial gain for pension benefits in 2024 was primarily related to updating of various assumptions in the plan, offset by updates in work experience and decreases in discount rates. The actuarial gain for other retiree benefits in 2024 was primarily related to updating various assumptions in the plan based work experience and an increase in discount rates.
The underfunding of pension benefits is primarily a function of the different funding incentives that exist outside of the U.S. In certain countries, there are no legal requirements or financial incentives provided to companies to pre-fund pension obligations prior to their due date. In these instances, benefit payments are typically paid directly from the Company's cash as they become due.
Pension BenefitsOther Retiree Benefits
As of June 302025202420252024
CLASSIFICATION OF NET AMOUNT RECOGNIZED
Noncurrent assets$1,621 $1,458 $5,123 $6,047 
Current liabilities(78)(73)(41)(38)
Noncurrent liabilities(3,026)(2,884)(691)(653)
NET AMOUNT RECOGNIZED$(1,484)$(1,498)$4,391 $5,356 
AMOUNTS RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE (INCOME)/LOSS (AOCI)
Net actuarial loss/(gain)$1,322 $1,258 $166 $(1,493)
Prior service cost/(credit)122 140 (553)(655)
NET AMOUNTS RECOGNIZED IN AOCI$1,444 $1,398 $(387)$(2,148)
The accumulated benefit obligation for all defined benefit pension plans, which differs from the projected obligation in that it excludes the assumption of future salary increases, was $12.5 billion and $11.6 billion as of June 30, 2025 and 2024, respectively. Information related to the funded status of selected pension and other retiree benefits at June 30 is as follows:
As of June 3020252024
PENSION PLANS WITH A PROJECTED BENEFIT OBLIGATION IN EXCESS OF PLAN ASSETS
Projected benefit obligation$8,175 $7,613 
Fair value of plan assets5,070 4,656 
PENSION PLANS WITH AN ACCUMULATED BENEFIT OBLIGATION IN EXCESS OF PLAN ASSETS
Accumulated benefit obligation$7,653 $7,103 
Fair value of plan assets5,018 4,624 
OTHER RETIREE BENEFIT PLANS WITH AN ACCUMULATED BENEFIT OBLIGATION IN EXCESS OF PLAN ASSETS
Accumulated benefit obligation$802 $770 
Fair value of plan assets70 79 
Net Periodic Benefit Cost. Components of the net periodic benefit cost were as follows:
Pension BenefitsOther Retiree Benefits
Fiscal years ended June 30202520242023202520242023
AMOUNTS RECOGNIZED IN NET PERIODIC BENEFIT COST/(CREDIT)
Service cost$173 $164 $173 $61 $68 $71 
Interest cost498 527 430 147 157 142 
Expected return on plan assets(657)(610)(591)(745)(687)(611)
Amortization of net actuarial loss/(gain)63 95 133 (59)(38)(7)
Amortization of prior service cost/(credit) 40 37 26 (128)(127)(125)
Amortization of net actuarial loss/(gain) due to settlements5 (13)— — — — 
Special termination benefits3 4 5 2 3 4 
NET PERIODIC BENEFIT COST/(CREDIT)$126 $203 $176 $(721)$(623)$(526)
CHANGE IN PLAN ASSETS AND BENEFIT OBLIGATIONS RECOGNIZED IN AOCI
Net actuarial loss/(gain) - current year$68 $(458)$1,592 $(366)
Prior service cost/(credit) - current year12 21 (4)2 
Amortization of net actuarial (loss)/gain(63)(95)59 38 
Amortization of prior service (cost)/credit(40)(37)128 127 
Amortization of net actuarial (loss)/gain due to settlements(5)13 — — 
Currency translation and other74 (21)(14)(2)
TOTAL CHANGE IN AOCI46 (576)1,761 (201)
NET AMOUNTS RECOGNIZED IN PERIODIC BENEFIT COST/(CREDIT) AND AOCI$171 $(373)$1,040 $(824)
The service cost component of the net periodic benefit cost is included in the Consolidated Statements of Earnings in Cost of products sold and SG&A. All other components are included in the Consolidated Statements of Earnings in Other non-operating income, net, unless otherwise noted.
Assumptions. We determine our actuarial assumptions on an annual basis. These assumptions are weighted to reflect each country that may have an impact on the cost of providing retirement benefits. The weighted average assumptions used to determine benefit obligations recorded on the Consolidated Balance Sheets as of June 30, 2025 and 2024, were as follows: (1)
Pension BenefitsOther Retiree Benefits
As of June 302025202420252024
Discount rate4.2 % 4.2 % 5.9 % 5.8 %
Rate of compensation increase2.7 %2.8 %N/AN/A
Interest crediting rate for cash balance plans4.6 %4.7 %N/AN/A
Health care cost trend rates assumed for next yearN/AN/A6.9 %6.3 %
Rate to which the health care cost trend rate is assumed to decline (ultimate trend rate)N/AN/A5.4 %4.9 %
Year that the rate reaches the ultimate trend rateN/AN/A20302029
(1)Determined as of end of fiscal year.
The weighted average assumptions used to determine net benefit cost recorded on the Consolidated Statements of Earnings for the fiscal years ended June 30 were as follows: (1)
Pension BenefitsOther Retiree Benefits
Fiscal years ended June 30202520242023202520242023
Discount rate4.2 %4.2 %3.7 %5.8 %5.6 %5.0 %
Expected return on plan assets6.0 %6.0 %5.9 %8.5 %8.5 %8.4 %
Rate of compensation increase2.8 %2.9 %2.8 %N/AN/AN/A
Interest crediting rate for cash balance plans4.7 %4.3 %4.3 %N/AN/AN/A
(1)Determined as of beginning of fiscal year.
For plans that make up the majority of our obligation, the Company calculates the benefit obligation and the related impacts on service and interest costs using specific spot rates along the corporate bond yield curve. For the remaining plans, the Company determines these amounts utilizing a single weighted average discount rate derived from the corporate bond yield curve used to measure the plan obligations.
Several factors are considered in developing the estimate for the long-term expected rate of return on plan assets. For the defined benefit retirement plans, these factors include historical rates of return of broad equity and bond indices and projected long-term rates of return obtained from pension investment consultants. The expected long-term rates of return for plan assets are 8 - 9% for equities and 3 - 5% for bonds. For other retiree benefit plans, the expected long-term rate of return reflects that the assets are comprised primarily of Company stock. The expected rate of return on Company stock is based on the long-term projected return of 8.5% and reflects the historical pattern of returns.
Plan Assets. Our investment objective for defined benefit retirement plan assets is to meet the plans' benefit obligations and to improve plan self-sufficiency for future benefit obligations. The investment strategies focus on asset class diversification, liquidity to meet benefit payments and an appropriate balance of long-term investment return and risk. Target ranges for asset allocations are determined by assessing different investment risks and matching the actuarial projections of the plans' future liabilities and benefit payments with current as well as expected long-term rates of return on the assets, taking into account investment return volatility and correlations across asset classes. Plan assets are diversified across several investment managers and are generally invested in liquid funds that are selected to track broad market equity and bond indices. Investment risk is carefully controlled with plan assets rebalanced to target allocations on a periodic basis and with continual monitoring of investment managers' performance relative to the investment guidelines established with each investment manager.
Our target asset allocation for the fiscal year ended June 30, 2025, was as follows:
Target Asset Allocation (1)
Pension BenefitsOther Retiree
Benefits
Asset Category
Cash1 %2 %
Debt securities64 %1 %
Equity securities35 %97 %
TOTAL100 %100 %
(1)Actual allocations approximated the targets.
The following table sets forth the fair value of the Company's plan assets as of June 30, 2025 and 2024, segregated by level within the fair value hierarchy (see Note 9 for further discussion on the fair value hierarchy and fair value principles). Investments valued using net asset value as a practical expedient are not valued using the fair value hierarchy, but rather valued using the net asset value reported by the managers of the funds and as supported by the unit prices of actual purchase and sale transactions.
Pension BenefitsOther Retiree Benefits
As of June 30Fair Value Hierarchy Level20252024Fair Value Hierarchy Level20252024
ASSETS AT FAIR VALUE
Cash and cash equivalents1$55 $267 1$135 $135 
Company common stock— — 1496 451 
Company preferred stock (1)
— — 27,087 7,380 
Fixed income securities (2)
21,050 1,076 — — 
Insurance contracts (3)
3207 165 — — 
TOTAL ASSETS IN THE FAIR VALUE HIERARCHY1,312 1,508 7,718 7,966 
Investments valued at net asset value (4)
10,361 9,349 68 77 
TOTAL ASSETS AT FAIR VALUE$11,672 $10,857 $7,787 $8,043 
(1)Company preferred stock is valued based on the value of Company common stock and is presented net of ESOP debt discussed below.
(2)Fixed income securities are estimated by using pricing models or quoted prices of securities with similar characteristics.
(3)Fair values of insurance contracts are valued based on either their cash equivalent value or models that project future cash flows and discount the future amounts to a present value using market-based observable inputs, including credit risk and interest rate curves. The activity for Level 3 assets is not significant for all years presented.
(4)Investments valued using net asset value as a practical expedient are primarily equity and fixed income collective funds.
Cash Flows. Management's best estimate of cash requirements and discretionary contributions for the pension benefits and other retiree benefit plans for the fiscal year ending June 30, 2026, is $218 and $54, respectively. Expected contributions are dependent on many variables, including the variability of the market value of the plan assets as compared to the benefit obligation and other market or regulatory conditions. In addition, we take into consideration our business investment opportunities and resulting cash requirements. Accordingly, actual funding may differ significantly from current estimates.
Total benefit payments expected to be paid to participants, which include payments funded from the Company's assets and payments from the plans are as follows:
Fiscal years ending June 30Pension BenefitsOther Retiree Benefits
EXPECTED BENEFIT PAYMENTS
2026$657 $201 
2027663 203 
2028720 208 
2029726 218 
2030760 225 
2031 - 20354,131 1,258 
Employee Stock Ownership Plan
We maintain the ESOP to provide funding for certain employee benefits discussed in the preceding paragraphs.
The ESOP borrowed $1.0 billion in 1989, and the proceeds were used to purchase Series A ESOP Convertible Class A Preferred Stock to fund a portion of the U.S. DC plan. Principal and interest requirements of the borrowing were paid by the Trust from dividends on the preferred shares and from advances provided by the Company. The original borrowing of $1.0 billion has been repaid in full. No advances from the Company remain outstanding at June 30, 2025. Each share is convertible at the option of the holder into one share of the Company's common stock. The dividend for the current year was equal to the common stock dividend of $4.08 per share. The liquidation value is $6.82 per share.
In 1991, the ESOP borrowed an additional $1.0 billion. The proceeds were used to purchase Series B ESOP Convertible Class A Preferred Stock to fund a portion of retiree health care benefits. These shares, net of the ESOP's debt, are considered plan assets of the other retiree benefits plan discussed above. The original borrowings of $1.0 billion were repaid in 2021. Debt service requirements were funded by preferred stock dividends, cash contributions and advances provided by the Company, of which $672 are outstanding at June 30, 2025. Each share is convertible at the option of the holder into one share of the Company's common stock. The dividend for the current year was equal to the common stock dividend of $4.08 per share. The liquidation value is $12.96 per share.
Our ESOP accounting practices are consistent with current ESOP accounting guidance, including the permissible continuation of certain provisions from prior accounting guidance. ESOP debt, which was guaranteed by the Company, was recorded as debt with an offset to the Reserve for ESOP debt retirement, which is presented within Shareholders' equity. Advances to the ESOP by the Company are recorded as an increase in the Reserve for ESOP debt retirement. Interest incurred on the ESOP debt was recorded as Interest expense. Dividends on all preferred shares are charged to Retained earnings.
The series A and B preferred shares of the ESOP are allocated to employees based on debt service requirements. The number of preferred shares outstanding at June 30 was as follows:
Shares in thousands202520242023
Allocated20,648 22,724 24,449 
Unallocated— — 535 
TOTAL SERIES A20,648 22,724 24,984 
Allocated34,965 33,723 32,172 
Unallocated14,142 15,864 17,867 
TOTAL SERIES B49,107 49,587 50,039 
For purposes of calculating diluted net earnings per common share, the preferred shares held by the ESOP are considered converted from inception.