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Pensions and Other Postretirement Benefits | 12 Months Ended
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Dec. 31, 2023
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 Benefits |  | Other Postretirement Benefits
| 2023 |  | 2022 |  | 2023 |  | 2022
| ($ in millions)
Change in benefit obligations: |  |  |  |  |  |  |
Benefit obligation at beginning of year | $ | 2,051 |  |  | $ | 2,777 |  |  | $ | 326 |  |  | $ | 417 |
Service cost | 25 |  |  | 40 |  |  | 4 |  |  | 6 |
Interest cost | 108 |  |  | 67 |  |  | 17 |  |  | 9 |
Actuarial losses (gains) | 122 |  |  | (677) |  |  | 1 |  |  | (70) |
Plan amendments | — |  |  | (4) |  |  | (5) |  |  | — |
Benefits paid | (155) |  |  | (152) |  |  | (33) |  |  | (36) |
Benefit obligation at end of year | 2,151 |  |  | 2,051 |  |  | 310 |  |  | 326 |
Change in plan assets: |  |  |  |  |  |  |
Fair value of plan assets at beginning of year | 2,260 |  |  | 2,861 |  |  | 122 |  |  | 173 |
Actual return on plan assets | 375 |  |  | (470) |  |  | 21 |  |  | (28) |
Employer contributions | 23 |  |  | 21 |  |  | 28 |  |  | 13 |
Benefits paid | (155) |  |  | (152) |  |  | (33) |  |  | (36) |
Fair value of plan assets at end of year | 2,503 |  |  | 2,260 |  |  | 138 |  |  | 122 |
Funded status at end of year | $ | 352 |  |  | $ | 209 |  |  | $ | (172) |  |  | $ | (204) |
Amounts recognized in the Consolidated Balance Sheets: |  |  |  |  |  |  |
Other assets | $ | 652 |  |  | $ | 484 |  |  | $ | — |  |  | $ | — |
Other current liabilities | (21) |  |  | (20) |  |  | — |  |  | — |
Other liabilities | (279) |  |  | (255) |  |  | (172) |  |  | (204) |
Net amount recognized | $ | 352 |  |  | $ | 209 |  |  | $ | (172) |  |  | $ | (204) |
Amounts included in accumulated other comprehensive |  |  |  |  |  |  |
loss (before tax): |  |  |  |  |  |  |
Net (gain) loss | $ | 574 |  |  | $ | 623 |  |  | $ | (28) |  |  | $ | (19) |
Prior service benefit | (5) |  |  | (6) |  |  | (156) |  |  | (177) |
Our accumulated benefit obligation for our defined benefit pension plans is $2.0 billion and $1.9 billion at December 31, 2023 and 2022, respectively. Our unfunded pension plans, included above, which in all cases have no assets, had projected benefit obligations of $300 million and $275 million at December 31, 2023 and 2022, respectively, and had accumulated benefit obligations of $273 million and $249 million at December 31, 2023 and 2022, respectively. Pension and Other Postretirement Benefit Cost Components
| 2023 |  | 2022 |  | 2021
| ($ in millions)
Pension benefits: |  |  |  |  |
Service cost | $ | 25 |  |  | $ | 40 |  |  | $ | 43 |
Interest cost | 108 |  |  | 67 |  |  | 55 |
Expected return on plan assets | (208) |  |  | (213) |  |  | (193) |
Amortization of net losses | 4 |  |  | 49 |  |  | 66 |
Amortization of prior service benefit | (1) |  |  | — |  |  | — |
Net benefit | $ | (72) |  |  | $ | (57) |  |  | $ | (29) |
Other postretirement benefits: |  |  |  |  |
Service cost | $ | 4 |  |  | $ | 6 |  |  | $ | 6 |
Interest cost | 17 |  |  | 9 |  |  | 7 |
Expected return on plan assets | (11) |  |  | (13) |  |  | (12) |
Amortization of net losses | — |  |  | — |  |  | 1 |
Amortization of prior service benefit | (26) |  |  | (25) |  |  | (26) |
Net benefit | $ | (16) |  |  | $ | (23) |  |  | $ | (24) |
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
| 2023
| Pension Benefits |  | Other Postretirement Benefits
| ($ in millions)
Net gains arising during the year | $ | (45) |  |  | $ | (9) |
Prior service effect of plan amendment | — |  |  | (5) |
Amortization of net losses | (4) |  |  | — |
Amortization of prior service benefit | 1 |  |  | 26 |
Total recognized in other comprehensive income | $ | (48) |  |  | $ | 12 |
Total recognized in net periodic cost and other comprehensive income | $ | (120) |  |  | $ | (4) |
Net gains arising during the year for both pension benefits and other postretirement benefits were due primarily to higher actual returns on plan assets offset by a decrease in discount rates. The estimated net losses and prior service credits for the pension plans that will be amortized from accumulated other comprehensive loss into net periodic cost over the next year are $16 million. The estimated net gains 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 $26 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:
| 2023 |  | 2022 |  | 2021
Pension funded status: |  |  |  |  |
Discount rate | 5.23 | % |  | 5.56 | % |  | 2.97 | %
Future salary increases | 4.44 | % |  | 4.44 | % |  | 4.44 | %
Other postretirement benefits funded status: |  |  |  |  |
Discount rate | 5.11 | % |  | 5.45 | % |  | 2.72 | %
Pension cost: |  |  |  |  |
Discount rate - service cost | 5.75 | % |  | 3.25 | % |  | 3.14 | %
Discount rate - interest cost | 5.40 | % |  | 2.45 | % |  | 1.95 | %
Return on assets in plans | 8.00 | % |  | 8.00 | % |  | 8.00 | %
Future salary increases | 4.44 | % |  | 4.44 | % |  | 4.44 | %
Other postretirement benefits cost: |  |  |  |  |
Discount rate - service cost | 5.56 | % |  | 3.01 | % |  | 2.71 | %
Discount rate - interest cost | 5.23 | % |  | 2.13 | % |  | 1.57 | %
Return on assets in plans | 7.75 | % |  | 7.75 | % |  | 7.75 | %
Health care trend rate | 7.00 | % |  | 6.50 | % |  | 6.00 | %
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, 2023, increases in the per capita cost of pre-Medicare covered health care benefits were assumed to be 6.5% for 2024. We assume the rate will ratably decrease to an ultimate rate of 5.0% for 2030 and remain at that level thereafter. Asset Management Thirteen 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,
| 2023 |  | 2022
Domestic equity securities | 50 | % |  | 53 | %
Debt securities | 24 | % |  | 26 | %
International equity securities | 24 | % |  | 20 | %
Cash and cash equivalents | 2 | % |  | 1 | %
Total | 100 | % |  | 100 | %
The other postretirement benefit plan assets consist primarily of trust-owned variable life insurance policies with an asset allocation at December 31, 2023 of 66% in equity securities and 34% in debt securities compared with 64% in equity securities and 36% in debt securities at December 31, 2022. 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 2024, 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, 2023 or 2022.
| December 31, 2023
| Level 1 |  | Level 2 |  | Total
| ($ in millions)
Common stock | $ | 1,192 |  |  | $ | — |  |  | $ | 1,192 |
Common collective trusts: |  |  |  |  |
International equity securities | — |  |  | 371 |  |  | 371 |
Debt securities | — |  |  | 310 |  |  | 310 |
Domestic equity securities | — |  |  | 166 |  |  | 166 |
Fixed income securities: |  |  |  |  |
Government and agencies securities | — |  |  | 170 |  |  | 170 |
Corporate bonds | — |  |  | 93 |  |  | 93 |
Mortgage and other asset-backed securities | — |  |  | 32 |  |  | 32 |
Commingled funds | — |  |  | 122 |  |  | 122 |
Cash and cash equivalents | 47 |  |  | — |  |  | 47 |
Total investments | $ | 1,239 |  |  | $ | 1,264 |  |  | $ | 2,503 |
| December 31, 2022
| Level 1 |  | Level 2 |  | Total
| ($ in millions)
Common stock | $ | 1,011 |  |  | $ | — |  |  | $ | 1,011 |
Common collective trusts: |  |  |  |  |
International equity securities | — |  |  | 336 |  |  | 336 |
Debt securities | — |  |  | 291 |  |  | 291 |
Domestic equity securities | — |  |  | 160 |  |  | 160 |
Fixed income securities: |  |  |  |  |
Government and agencies securities | — |  |  | 158 |  |  | 158 |
Corporate bonds | — |  |  | 100 |  |  | 100 |
Mortgage and other asset-backed securities | — |  |  | 28 |  |  | 28 |
Commingled funds | — |  |  | 121 |  |  | 121 |
Cash and cash equivalents | 55 |  |  | — |  |  | 55 |
Total investments | $ | 1,066 |  |  | $ | 1,194 |  |  | $ | 2,260 |
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 interest in trust-owned life insurance issued by a major insurance company. The underlying investments owned by the insurance company 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 $138 million and $122 million at December 31, 2023 and 2022, 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 2024, we expect to contribute approximately $22 million to our unfunded pension plans for payments to pensioners and approximately $31 million to our other postretirement benefit plans for retiree health and death benefits. We do not expect to contribute to our funded pension plan in 2024. Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:
| Pension Benefits |  | Other Postretirement Benefits
| ($ in millions)
2024 | $ | 151 |  |  | $ | 31 |
2025 | 149 |  |  | 30 |
2026 | 148 |  |  | 29 |
2027 | 148 |  |  | 28 |
2028 | 148 |  |  | 27 |
Years 2029 – 2033 | 743 |  |  | 127 |
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 $11 million, $13 million, and $21 million in 2023, 2022, 2021, respectively. 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 $25 million, $22 million, and $23 million in 2023, 2022, 2021, respectively.

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