PENSION AND OTHER POSTRETIREMENT BENEFITS

12 Months Ended

Dec. 30, 2023

Retirement Benefits [Abstract]

PENSION AND OTHER POSTRETIREMENT BENEFITS

PENSION AND OTHER POSTRETIREMENT BENEFITS

Defined Benefit Plans

We sponsor a number of defined benefit plans, the accrual of benefits under some of which has been frozen, covering eligible employees in the U.S. and certain other countries. Benefits payable to an employee are based primarily on years of service and the employee’s compensation during the course of his or her employment with our company.

We are also obligated to pay unfunded termination indemnity benefits to certain employees outside the U.S., which are subject to applicable agreements, laws and regulations. We have not incurred significant costs related to these benefits, and, therefore, no related costs have been included in the disclosures below.

Plan Assets

Assets in our non-U.S. plans are invested in accordance with locally accepted practices and primarily include equity securities, fixed income securities, insurance contracts and cash. Asset allocations and investments vary by country and plan. Our target plan asset investment allocation for our non-U.S. plans in the aggregate is approximately 26% in equity securities, 59% in fixed income securities and cash, and 15% in insurance contracts and other investments, subject to periodic fluctuations among these asset classes.

Fair Value Measurements

The valuation methodologies we use for assets measured at fair value are described below.

Cash is valued at nominal value. Cash equivalents and mutual funds are valued at fair value as determined by quoted market prices, based upon the net asset value (“NAV”) of shares held at year-end. Pooled funds are structured as collective trusts, not publicly traded and valued by calculating NAV per unit based on the NAV of the underlying funds/trusts as a practical expedient for the fair value of the pooled funds. The pooled funds are categorized by the primary investment strategy which is primarily investments in equity and fixed income securities. The pooled funds categorized as other investments are primarily investments in real estate funds. Insurance contracts are valued at book value, which approximates fair value and is calculated using the prior-year balance plus or minus investment returns and changes in cash flows.

These methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While we believe these 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 following table sets forth, by level within the fair value hierarchy (as applicable), non-U.S. plan assets at fair value:

			Fair Value Measurements Using
(In millions)	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
2023
Cash	$	1.3	$	1.3	$	—	$	—
Insurance contracts	42.6		—		—		42.6
Pooled funds – real estate investment trusts	6.4		—		—		6.4
Pooled funds – fixed income securities(1)	389.8
Pooled funds – equity securities(1)	169.4
Pooled funds – other investments(1)	53.7
Total non-U.S. plan assets at fair value	$	663.2
2022
Cash	$	6.4	$	6.4	$	—	$	—
Insurance contracts	37.1		—		—		37.1
Pooled funds – real estate investment trusts	8.3		—		—		8.3
Pooled funds – fixed income securities(1)	335.7
Pooled funds – equity securities(1)	151.9
Pooled funds – other investments(1)	45.9
Total non-U.S. plan assets at fair value	$	585.3

(1)Pooled funds that are measured at fair value using the NAV per unit (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to reconcile to total non-U.S. plan assets.

The following table presents a reconciliation of Level 3 non-U.S. plan asset activity during the year ended December 30, 2023:

	Level 3 Assets
(In millions)	Insurance Contracts		Pooled Funds – Real Estate Investment Trusts		Total
Balance at December 31, 2022	$	37.1	$	8.3	$	45.4
Net realized and unrealized gain (loss)	1.3		(2.3)		(1.0)
Purchases	3.5		—		3.5
Settlements	(2.8)		—		(2.8)
Acquisition	1.1		—		1.1
Impact of changes in foreign currency exchange rates	2.4		.4		2.8
Balance at December 30, 2023	$	42.6	$	6.4	$	49.0

Plan Assumptions

Discount Rate

In consultation with our actuaries, we annually review and determine the discount rates used to value our pension and other postretirement obligations. The assumed discount rate for each pension plan reflects market rates for high quality corporate bonds currently available. Our discount rate is determined by evaluating yield curves consisting of large populations of high quality corporate bonds. The projected pension benefit payment streams are then matched with bond portfolios to determine a rate that reflects the liability duration unique to our plans.

We use the full yield curve approach to estimate the service and interest cost components of net periodic benefit cost for our pension and other postretirement benefit plans. Under this approach, we apply multiple discount rates from a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date. We believe that this approach provides a more precise measurement of service and interest cost by aligning the timing of a plan’s liability cash flows to its corresponding rates on the yield curve.

Long-term Return on Assets

We determine the long-term rate of return assumption for plan assets by reviewing the historical and expected returns of both the equity and fixed income markets, taking into account our asset allocation, the correlation between returns in our asset classes, and our mix of active and passive investments. Additionally, we evaluate current market conditions, including interest rates, and review market data for reasonableness and appropriateness.

Measurement Date

We measure the actuarial value of our benefit obligations and plan assets using the calendar month-end closest to our fiscal year-end and adjust for any contributions or other significant events between the measurement date and our fiscal year-end.

Plan Balance Sheet Reconciliations

The following table provides a reconciliation of benefit obligations, plan assets, funded status of the plans and accumulated other comprehensive loss for our defined benefit plans:

Plan Benefit Obligations

	Pension Benefits
	2023				2022
(In millions)	U.S.		Non-U.S.		U.S.		Non-U.S.
Change in projected benefit obligations
Projected benefit obligations at beginning of year	$	51.8	$	586.9	$	66.8	$	882.4
Service cost	—		10.5		—		16.5
Interest cost	2.4		24.7		1.2		10.8
Participant contributions	—		4.5		—		4.6
Amendments	—		(.1)		—		—
Actuarial (gain) loss	1.4		51.3		(9.1)		(244.9)
Acquisition	—		1.2		—		—
Benefits paid	(6.3)		(25.3)		(7.1)		(21.3)
Settlements	—		(.6)		—		(1.0)
Foreign currency translation	—		26.8		—		(60.2)
Projected benefit obligations at end of year	$	49.3	$	679.9	$	51.8	$	586.9
Accumulated benefit obligations at end of year	$	49.3	$	628.7	$	51.8	$	540.2

Plan Assets

	Pension Benefits
	2023				2022
(In millions)	U.S.		Non-U.S.		U.S.		Non-U.S.
Change in plan assets
Plan assets at beginning of year	$	—	$	585.3	$	—	$	874.6
Actual return on plan assets	—		54.6		—		(226.5)
Acquisition	—		1.1		—		—
Employer contributions	6.3		17.2		7.1		15.2
Participant contributions	—		4.5		—		4.6
Benefits paid	(6.3)		(25.3)		(7.1)		(21.3)
Settlements	—		(.6)		—		(1.0)
Foreign currency translation	—		26.4		—		(60.3)
Plan assets at end of year	$	—	$	663.2	$	—	$	585.3

Funded Status

	Pension Benefits
	2023				2022
(In millions)	U.S.		Non-U.S.		U.S.		Non-U.S.
Funded status of the plans
Other assets	$	—	$	67.8	$	—	$	70.0
Other accrued liabilities	(6.1)		(.2)		(6.2)		(.4)
Long-term retirement benefits and other liabilities(1)	(43.2)		(84.3)		(45.6)		(71.2)
Plan assets less than benefit obligations	$	(49.3)	$	(16.7)	$	(51.8)	$	(1.6)

(1)In accordance with our funding strategy, we have the option to fund certain of our U.S. liabilities with proceeds from our company-owned life insurance policies.

	Pension Benefits
	2023				2022
	U.S.		Non-U.S.		U.S.		Non-U.S.
Weighted average assumptions used to determine year-end benefit obligations
Discount rate	4.86	%	3.78	%	5.06	%	4.36	%
Compensation rate increase	—		2.73		—		2.75

For U.S. and non-U.S. plans combined, the projected benefit obligations and fair values of plan assets for pension plans with projected benefit obligations in excess of plan assets were $210 million and $76 million, respectively, at year-end 2023 and $165 million and $42 million, respectively, at year-end 2022.

For U.S. and non-U.S. plans combined, the accumulated benefit obligations and fair values of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $162 million and $43 million, respectively, at year-end 2023 and $132 million and $23 million, respectively, at year-end 2022.

Accumulated Other Comprehensive Loss

The following table shows the pre-tax amounts recognized in “Accumulated other comprehensive loss” in the Consolidated Balance Sheets:

	Pension Benefits
	2023				2022
(In millions)	U.S.		Non-U.S.		U.S.		Non-U.S.
Net actuarial loss	$	9.6	$	73.2	$	9.1	$	38.2
Prior service (credit) cost	—		(3.4)		—		(3.5)
Net amount recognized in accumulated other comprehensive loss	$	9.6	$	69.8	$	9.1	$	34.7

The following table shows the pre-tax amounts recognized in “Other comprehensive loss (income)”:

	Pension Benefits
	2023				2022				2021
(In millions)	U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.
Net actuarial (gain) loss	$	.9	$	32.6	$	(5.6)	$	(.8)	$	(.7)	$	(34.8)
Prior service credit	—		(.1)		—		—		—		(.9)
Amortization of unrecognized:
Net actuarial gain	(.4)		2.1		(.8)		(2.5)		(.8)		(6.1)
Prior service credit (cost)	—		.4		—		.4		—		.4
Settlements	—		.1		(.1)		.1		(1.1)		(.5)
Net amount recognized in other comprehensive loss (income)	$	.5	$	35.1	$	(6.5)	$	(2.8)	$	(2.6)	$	(41.9)

Plan Income Statement Reconciliations

The following table shows the components of net periodic benefit cost, which are recorded in net income for our defined benefit plans:

	Pension Benefits
	2023				2022				2021
(In millions)	U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.
Service cost	$	—	$	10.5	$	—	$	16.5	$	—	$	19.0
Interest cost	2.4		24.7		1.2		10.8		1.0		8.9
Actuarial (gain) loss	.5		—		(3.5)		—		(1.1)		—
Expected return on plan assets	—		(33.2)		—		(21.9)		—		(19.8)
Amortization of actuarial loss	.4		(2.1)		.8		2.5		.8		6.1
Amortization of prior service (credit) cost	—		(.4)		—		(.4)		—		(.4)
Recognized loss (gain) on settlements	—		(.1)		.1		(.1)		1.1		.5
Net periodic benefit cost (credit)	$	3.3	$	(.6)	$	(1.4)	$	7.4	$	1.8	$	14.3

Service cost and components of net periodic benefit cost other than service cost were included in “Marketing, general and administrative expense” and “Other non-operating expense (income), net” in the Consolidated Statements of Income, respectively.

The following table shows the weighted average assumptions used to determine net periodic cost:

	Pension Benefits
	2023				2022				2021
	U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.
Discount rate	5.06	%	4.36	%	2.19	%	1.57	%	2.20	%	1.26	%
Expected return on assets	—		4.71		—		3.00		—		2.61
Compensation rate increase	—		2.75		—		2.33		—		2.15

Plan Contributions

We make contributions to our defined benefit plans sufficient to meet the minimum funding requirements of applicable laws and regulations, plus additional amounts, if any, we determine to be appropriate. The following table sets forth our expected contributions in 2024:

(In millions)
U.S. pension plans	$	6.3
Non-U.S. pension plans	13.8

Future Benefit Payments

The future benefit payments shown below reflect the expected service periods for eligible participants.

	Pension Benefits
(In millions)	U.S.		Non-U.S.
2024	$	6.3	$	25.7
2025	6.1		24.8
2026	5.9		28.7
2027	5.4		29.0
2028	4.9		27.7
2029-2033	18.4		157.4

Postretirement Health Benefits

We provide postretirement health benefits to certain of our retired U.S. employees up to the age of 65 under a cost-sharing arrangement and provide supplemental Medicare benefits to certain of our U.S. retirees over the age of 65. Our postretirement health benefit plan was closed to new participants retiring after December 31, 2021. Our policy is to fund the cost of these postretirement benefits from operating cash flows. While we do not intend to terminate these postretirement health benefits, we may do so at any time, subject to applicable laws and regulations. At year-end 2023, our postretirement health benefits obligation and related loss recorded in “Accumulated other comprehensive loss” were approximately $2 million and $10 million, respectively. At year-end 2022, our postretirement health benefits obligation and related loss recorded in “Accumulated other comprehensive loss” were approximately $2 million and $11 million, respectively. Net periodic benefit cost was not material in 2023, 2022 or 2021.

Defined Contribution Plans

We sponsor various defined contribution plans worldwide, the largest of which is the Avery Dennison Corporation Employee Savings Plan (“Savings Plan”), a 401(k) plan for our U.S. employees.

We recognized expense of $30.3 million, $27.3 million and $24.6 million in 2023, 2022 and 2021, respectively, related to our employer contributions and employer match of participant contributions to the Savings Plan.

Other Retirement Plans

We have deferred compensation plans and programs that permit eligible employees to defer a portion of their compensation. The compensation voluntarily deferred by the participant, together with certain employer contributions, earns specified and variable rates of return. As of year-end 2023 and 2022, we had accrued $88.2 million and $87.3 million, respectively, for our obligations under these plans. A portion of the interest on certain of our contributions may be forfeited by participants if their employment terminates before age 55 other than by reason of death or disability.

Our Directors Deferred Equity Compensation Program allows our non-employee directors to elect to receive their cash compensation in deferred stock units (“DSUs”) issued under our equity plan. Additionally, two legacy deferred compensation plans had DSUs that were issued under our then-active equity plans. Dividend equivalents, representing the value of dividends per share paid on shares of our common stock and calculated with reference to the number of DSUs held as of a quarterly dividend record date, are credited in the form of additional DSUs on the applicable dividend payable date. DSUs are converted into shares of our common stock, less fractional shares, and issued to the director upon his or her separation from our Board. Approximately 0.1 million DSUs were outstanding for both year-end 2023 and 2022, with an aggregate value of $19 million and $20 million, respectively.

We hold company-owned life insurance policies, the proceeds from which are payable to us upon the death of covered participants. The cash surrender values of these policies, net of outstanding loans, which are included in “Other assets” in the Consolidated Balance Sheets, were $228.4 million and $265.0 million at year-end 2023 and 2022, respectively.