XML 45 R21.htm IDEA: XBRL DOCUMENT v3.22.0.1
Pensions and Other Postretirement Benefits
 12 Months Ended
Dec. 31, 2021
Retirement Benefits [Abstract]  
Pensions And Other Postretirement Benefits Pensions and Other Postretirement Benefits
 
We have both funded and unfunded defined benefit pension plans covering eligible employees. We also provide specified health care benefits to eligible retired employees; these plans can be amended or terminated at our option.  Under our self-insured retiree health care plan, for those participants who are not Medicare-eligible, certain health care expenses are covered for retired employees and their dependents, reduced by any deductibles, coinsurance, and, in some cases, coverage provided under other group insurance policies.  Eligible retired participants and their spouses who are Medicare-eligible are not covered under the self-insured retiree health care plan, but instead are provided with an employer-funded health reimbursement account which can be used for reimbursement of health insurance premiums or eligible out-of-pocket medical expenses.

Pension and Other Postretirement Benefit Obligations and Plan Assets

Pension BenefitsOther Postretirement
Benefits
 2021202020212020
 ($ in millions)
Change in benefit obligations:    
Benefit obligation at beginning of year$2,845 $2,588 $471 $457 
Service cost43 40 6 6 
Interest cost55 74 7 12 
Actuarial (gains) losses (13)294 (29)35 
Plan amendment(2)— — — 
Benefits paid(151)(151)(38)(39)
Benefit obligation at end of year2,777 2,845 417 471 
Change in plan assets:    
Fair value of plan assets at beginning of year2,675 2,462 165 170 
Actual return on plan assets317 345 29 21 
Employer contributions20 19 17 13 
Benefits paid(151)(151)(38)(39)
Fair value of plan assets at end of year2,861 2,675 173 165 
Funded status at end of year$84 $(170)$(244)$(306)
Amounts recognized in the Consolidated Balance Sheets:     
Other assets$442 $189 $— $— 
Other current liabilities(20)(19)— — 
Other liabilities(338)(340)(244)(306)
Net amount recognized$84 $(170)$(244)$(306)
Amounts included in accumulated other comprehensive    
loss (before tax):    
Net loss$666 $869 $10 $57 
Prior service benefit(2)— (202)(228)
Our accumulated benefit obligation for our defined benefit pension plans is $2.6 billion at both December 31, 2021 and 2020, respectively.  Our unfunded pension plans, included above, which in all cases have no assets, had projected benefit obligations of $358 million and $359 million at December 31, 2021 and 2020, respectively, and had accumulated benefit obligations of $332 million and $330 million at December 31, 2021 and 2020, respectively.
 
Pension and Other Postretirement Benefit Cost Components

 202120202019
 ($ in millions)
Pension benefits:   
Service cost$43 $40 $35 
Interest cost55 74 93 
Expected return on plan assets(193)(190)(179)
Amortization of net losses66 51 43 
Amortization of prior service cost— 1 1 
Net benefit$(29)$(24)$(7)
Other postretirement benefits:   
Service cost$6 $6 $6 
Interest cost7 12 17 
Expected return on plan assets(12)(14)(14)
Amortization of net losses1— — 
Amortization of prior service benefit(26)(25)(24)
Net benefit$(24)$(21)$(15)

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income

 2021
Pension
Benefits		Other
Postretirement 
Benefits
 ($ in millions)
Net gains arising during the year$(137)$(46)
Prior service effect of plan amendment(2)— 
Amortization of net losses(66)(1)
Amortization of prior service benefit— 26 
Total recognized in other comprehensive income$(205)$(21)
  
Total recognized in net periodic cost and other comprehensive income$(234)$(45)
 
Net gains arising during the year for both pension benefits and other postretirement benefits were due primarily to higher actual returns on plan assets and increases in discount rates.
The estimated net losses for the pension plans that will be amortized from accumulated other comprehensive loss into net periodic cost over the next year are $48 million.  The estimated net losses and prior service benefit for the other postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit over the next year is $25 million.

Pension and Other Postretirement Benefits Assumptions
 
Costs for pension and other postretirement benefits are determined based on actuarial valuations that reflect appropriate assumptions as of the measurement date, ordinarily the beginning of each year.  The funded status of the plans is determined using appropriate assumptions as of each year end.  A summary of the major assumptions follows:

 202120202019
Pension funded status:   
Discount rate2.97 %2.67 %3.38 %
Future salary increases4.44 %4.21 %4.21 %
Other postretirement benefits funded status:   
Discount rate2.72 %2.27 %3.13 %
Pension cost:   
Discount rate - service cost3.14 %3.71 %4.55 %
Discount rate - interest cost1.95 %2.92 %3.99 %
Return on assets in plans8.00 %8.25 %8.25 %
Future salary increases4.44 %4.21 %4.21 %
Other postretirement benefits cost:   
Discount rate - service cost
2.71 %3.41 %4.39 %
Discount rate - interest cost1.57 %2.69 %3.83 %
Return on assets in plans7.75 %8.00 %8.00 %
Health care trend rate6.00 %6.25 %6.50 %

To determine the discount rates used to measure our benefit obligations, we utilize analyses in which the projected annual cash flows from the pension and other postretirement benefit plans were matched with yield curves based on an appropriate universe of high-quality corporate bonds.  We use the results of the yield curve analyses to select the discount rates that match the payment streams of the benefits in these plans.

We use a spot rate approach to estimate the service cost and interest cost components of net periodic benefit cost for our pension and other postretirement benefit plans.
 
Health Care Cost Trend Assumptions
 
For measurement purposes at December 31, 2021, increases in the per capita cost of pre-Medicare covered health care benefits were assumed to be 6.50% for 2022.  We assume the rate will ratably decrease to an ultimate rate of 5.0% for 2028 and remain at that level thereafter.
 
Assumed health care cost trend rates affect the amounts reported in the financial statements.  To illustrate, a one-percentage point change in the assumed health care cost trend would have the following effects:

 One-percentage Point
 IncreaseDecrease
 ($ in millions)
Increase (decrease) in:  
Total service and interest cost components$1 $(1)
Postretirement benefit obligation7 (7)

Asset Management
 
Eleven investment firms manage our defined benefit pension plan’s assets under investment guidelines approved by our Benefits Investment Committee that is composed of members of our management.  Investments are restricted to domestic and international equity securities, domestic and international fixed income securities, and unleveraged exchange-traded options and financial futures.  Limitations restrict investment concentration and use of certain derivative investments.  The target asset allocation for equity is 75% of the pension plan’s assets.  Fixed income investments must consist predominantly of securities rated investment grade or higher. Equity investments must be in liquid securities listed on national exchanges.  No investment is permitted in our securities (except through commingled pension trust funds).
 
Our pension plan’s weighted-average asset allocations, by asset category, were as follows:

Percentage of Plan
Assets at December 31,
 20212020
Domestic equity securities52 %52 %
Debt securities24 %22 %
International equity securities23 %24 %
Cash and cash equivalents1 %2 %
Total100 %100 %

The other postretirement benefit plan assets consist primarily of trust-owned variable life insurance policies with an asset allocation at December 31, 2021 of 65% in equity securities and 35% in debt securities compared with 68% in equity securities and 32% in debt securities at December 31, 2020.  The target asset allocation for equity is between 50% and 75% of the plan’s assets.
 
The plans’ assumed future returns are based principally on the asset allocations and historical returns for the plans’ asset classes determined from both actual plan returns and, over longer time periods, expected market returns for those asset classes.  For 2022, we assume an 8.00% return on pension plan assets.
Fair Value of Plan Assets
 
The following is a description of the valuation methodologies used for pension plan assets measured at fair value.
 
Common stock:  Shares held by the plan at year end are valued at the official closing price as defined by the exchange or at the most recent trade price of the security at the close of the active market.
 
Common collective trusts:  The readily determinable fair value is based on the published fair value per unit of the trusts.  The common collective trusts hold equity securities, fixed income securities and cash and cash equivalents.
 
Fixed income securities:  Valued based on quotes received from independent pricing services or at an estimated price at which a dealer would pay for the security at year end using observable market-based inputs.

Commingled funds:  The readily determinable fair value is based on the published fair value per unit of the funds.  The commingled funds hold equity securities.
 
Cash and cash equivalents:  Short-term Treasury bills or notes are valued at an estimated price at which a dealer would pay for the security at year end using observable market-based inputs; money market funds are valued at the closing price reported on the active market on which the funds are traded.
 
The following table sets forth the pension plan’s assets by valuation technique level, within the fair value hierarchy. There were no level 3 valued assets at December 31, 2021 or 2020.

 December 31, 2021
 Level 1Level 2Total
 ($ in millions)
Common stock$1,383 $— $1,383 
Common collective trusts:   
International equity securities— 397 397 
Debt securities— 367 367 
Domestic equity securities— 189 189 
Fixed income securities:
Government and agencies securities— 170 170 
Corporate bonds— 120 120 
Mortgage and other asset-backed securities— 33 33 
Commingled funds— 160 160 
Cash and cash equivalents42 — 42 
Total investments$1,425 $1,436 $2,861 
 December 31, 2020
 Level 1Level 2Total
 ($ in millions)
Common stock$1,483 $— $1,483 
Common collective trusts:   
International equity securities— 399 399 
Debt securities— 297 297 
Fixed income securities:
Government and agencies securities— 146 146 
Corporate bonds— 117 117 
Mortgage and other asset-backed securities— 24 24 
Commingled funds— 149 149 
Cash and cash equivalents60 — 60 
Total investments$1,543 $1,132 $2,675 
 
The following is a description of the valuation methodologies used for other postretirement benefit plan assets measured at fair value.
 
Trust-owned life insurance:  Valued at our share of the net assets of trust-owned life insurance issued by a major insurance company.  The underlying investments of that trust consist of a U.S. stock account and a U.S. bond account but may retain cash at times as well. The U.S. stock account and U.S. bond account are valued based on readily determinable fair values.

The other postretirement benefit plan assets consisted of trust-owned life insurance with fair values of $173 million and $165 million at December 31, 2021 and 2020, respectively, and are valued under level 2 of the fair value hierarchy. There were no level 1 or level 3 valued assets.
 
Contributions and Estimated Future Benefit Payments
 
In 2022, we expect to contribute approximately $20 million to our unfunded pension plans for payments to pensioners and approximately $34 million to our other postretirement benefit plans for retiree health and death benefits.  We do not expect to contribute to our funded pension plan in 2022. 

Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

Pension
Benefits
Other
Postretirement 
Benefits
 ($ in millions)
2022$148 $34 
2023148 32 
2024148 31 
2025147 30 
2026147 29 
Years 2027 – 2031738 134 
 
Other Postretirement Coverage
 
Under collective bargaining agreements, Norfolk Southern and certain subsidiaries participate in a multi-employer benefit plan, which provides certain postretirement health care and life insurance benefits to eligible craft employees.  Premiums under this plan are expensed as incurred and totaled $21 million in 2021, $22 million in 2020, and $31 million in 2019.
 
Section 401(k) Plans
 
Norfolk Southern and certain subsidiaries provide Section 401(k) savings plans for employees.  Under the plans, we match a portion of employee contributions, subject to applicable limitations.  Our matching contributions, recorded as an expense, totaled $23 million in 2021, $21 million in 2020, and $22 million in 2019.