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Postretirement Plans | 12 Months Ended
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Dec. 31, 2022
Retirement Benefits [Abstract] |
Postretirement Plans | Postretirement Plans Snap-on provides health care benefits for certain retired U.S. employees. For comprehensive major medical plans since 1989, benefits are paid based on deductibles and percentages of covered expenses. Plan provisions allow for benefit and coverage changes. Most retirees are required to pay the entire cost of the coverage, but Snap-on may elect to subsidize the cost of coverage under certain circumstances. Additionally, certain eligible retirees have been provided with an account for the reimbursement of qualifying medical expenses during retirement. Upon achieving specific age and service requirements, certain active associates are eligible for this account upon retirement from the company. Employees retiring prior to 1989 were eligible for retiree medical coverage upon reaching early retirement age, with no retiree contributions required. Benefits are paid based on deductibles and percentages of covered expenses and take into consideration payments made by Medicare and other insurance coverage. Snap-on has a Voluntary Employees Beneficiary Association (“VEBA”) trust for the funding of existing postretirement health care benefits for certain union retirees in the United States; all other retiree health care plans are unfunded. The status of Snap-on’s U.S. postretirement health care plans as of 2022 and 2021 year end is as follows:
(Amounts in millions) |  | 2022 |  | 2021
Change in accumulated postretirement benefit obligation: |  |  |  |
Benefit obligation at beginning of year |  | $ | 47.5 |  |  | $ | 50.6 |
Interest cost |  | 1.2 |  |  | 1.1 |
Plan participant contributions |  | 0.2 |  |  | 0.2 |
Benefits paid |  | (3.8) |  |  | (3.6) |
Actuarial gain |  | (7.8) |  |  | (0.8) |
Benefit obligation at end of year |  | $ | 37.3 |  |  | $ | 47.5 |
Change in plan assets: |  |  |  |
Fair value of plan assets at beginning of year |  | $ | 13.7 |  |  | $ | 13.3 |
Actual gain (loss) on plan assets |  | (1.7) |  |  | 1.1 |
Employer contributions |  | 2.8 |  |  | 2.7 |
Plan participant contributions |  | 0.2 |  |  | 0.2 |
Benefits paid |  | (3.8) |  |  | (3.6) |
Fair value of plan assets at end of year |  | $ | 11.2 |  |  | $ | 13.7 |
Unfunded status at end of year |  | $ | (26.1) |  |  | $ | (33.8) |
Amounts recognized in the Consolidated Balance Sheets as of 2022 and 2021 year end are as follows:
(Amounts in millions) |  | 2022 |  | 2021
Accrued benefits |  | $ | (2.7) |  |  | $ | (2.7) |
Retiree health care benefits |  | (23.4) |  |  | (31.1) |
Net liability |  | $ | (26.1) |  |  | $ | (33.8) |
Amounts included in Accumulated OCI on the accompanying Consolidated Balance Sheets as of 2022 and 2021 year end are as follows:
(Amounts in millions) |  | 2022 |  | 2021
Net gain, net of tax of $2.2 million and $0.8 million, respectively |  | $ | 6.4 |  |  | $ | 2.3 |
The components of net periodic benefit cost and changes recognized in OCI are as follows:
(Amounts in millions) |  | 2022 |  | 2021 |  | 2020
Net periodic benefit cost: |  |  |  |  |  |
Interest cost |  | $ | 1.2 |  |  | $ | 1.1 |  |  | $ | 1.5 |
Expected return on plan assets |  | (0.6) |  |  | (0.6) |  |  | (0.6) |
Net periodic benefit cost |  | $ | 0.6 |  |  | $ | 0.5 |  |  | $ | 0.9 |
Changes in benefit obligations recognized in OCI, net of tax: |  |  |  |  |  |
Net (gain) loss |  | $ | (4.1) |  |  | $ | (1.0) |  |  | $ | 1.9 |
The components of net periodic postretirement health care cost, other than the service cost component, are included in “Other income (expense) - net” on the accompanying Consolidated Statements of Earnings. See Note 18 for additional information on Other income (expense) - net. The weighted-average discount rate used to determine Snap-on’s postretirement health care expense is as follows:
|  | 2022 |  | 2021 |  | 2020
Discount rate |  | 2.7% |  | 2.3% |  | 3.1%
The weighted-average discount rate used to determine Snap-on’s accumulated benefit obligation is as follows:
|  | 2022 |  | 2021
Discount rate |  | 5.3% |  | 2.7%
The methodology for selecting the year-end 2022 and 2021 weighted-average discount rate for the company’s domestic postretirement plans was to match the plans’ yearly projected cash flows for benefits and service costs to those of hypothetical bond portfolios using high-quality, AA rated or better, corporate bonds from either Moody’s Investors Service or Standard & Poor’s credit rating agencies available at the measurement date. As a practical expedient, Snap-on uses the calendar year end as the measurement date for its plans. For 2023, the actuarial calculations assume a pre-65 health care cost trend rate of 6.1% and a post-65 health care cost trend rate of 6.0%, both decreasing gradually to 4.0% in 2046 and thereafter. The following benefit payments, which reflect expected future service, are expected to be paid as follows:
(Amounts in millions) |  | Amount
Year: |  |
2023 |  | $ | 3.4 |
2024 |  | 3.4 |
2025 |  | 3.5 |
2026 |  | 3.5 |
2027 |  | 3.5 |
2028-2032 |  | 17.3 |
The objective of the VEBA trust is to achieve net of expense returns that meet or exceed the 5.8% long-term return on plan assets assumption used for reporting purposes. Investments are diversified to attempt to minimize the risk of large losses. Since asset allocation is a key determinant of expected investment returns, assets are periodically rebalanced to the targeted allocation to correct significant deviations from the asset allocation policy that are caused by market fluctuations and cash flow. The basis for determining the overall expected long-term return on plan assets assumption is a nominal returns forecasting method. For each asset class, future returns are estimated by identifying the premium of riskier asset classes over lower risk alternatives. The methodology constructs expected returns using a “building block” approach to the individual components of total return. These forecasts are stated in both nominal and real (after inflation) terms. This process first considers the long-term historical return premium based on the longest set of data available for each asset class. These premiums, which are calculated using the geometric mean, are then adjusted based on current relative valuation levels and macro-economic conditions. The asset return assumption is also adjusted by an implicit expense load for estimated administrative and investment-related expenses. Snap-on’s VEBA plan target allocation and actual weighted-average asset allocation by asset category and fair value of plan assets as of 2022 and 2021 year end are as follows:
|  | Target |  | 2022 |  | 2021
Asset category: |  |  |  |  |  |
Debt securities and cash and cash equivalents |  | 46% |  | 48% |  | 44%
Equity securities |  | 29% |  | 29% |  | 34%
Hedge funds |  | 25% |  | 23% |  | 22%
Total |  | 100% |  | 100% |  | 100%
Fair value of plan assets (Amounts in millions) |  |  |  | $11.2 |  | $13.7
The fair value measurement hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority (Level 1) to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority (Level 3) to unobservable inputs. Fair value measurements primarily based on observable market information are given a Level 2 priority. Debt securities are valued at quoted per share or unit market prices for which an official close or last trade pricing on an active exchange is available and are categorized as Level 1 in the fair value hierarchy. Equity securities are valued at the NAV per share or unit multiplied by the number of shares or units held as of the measurement date, as reported by the fund managers. The share or unit price is quoted on a private market and is based on the value of the underlying investments, which are primarily based on observable inputs; such investments 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. Hedge funds are stated at the NAV per share or unit (based on the estimated fair market value of the underlying investments) multiplied by the number of shares or units held as of the measurement date, as reported by the fund managers. These investments are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy. The company regularly reviews fund performance directly with its investment advisor and the fund managers, and performs qualitative analysis to corroborate the reasonableness of the reported NAVs. For funds for which the company did not receive a year-end NAV, the company recorded an estimate of the change in fair value for the latest period based on return estimates and other fund activity obtained from the fund managers. The columns labeled “Investments Measured at NAV” in the following tables are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit a reconciliation of the fair value hierarchy to the VEBA plan assets. The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of the VEBA plan assets as of 2022 year end:
(Amounts in millions) |  | Quoted Prices for Identical Assets (Level 1) |  | Investments Measured at NAV |  | Total
Asset category: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 0.4 |  |  | $ | — |  |  | $ | 0.4 |
Debt securities |  | 4.9 |  |  | — |  |  | 4.9 |
Equity securities |  | — |  |  | 3.3 |  |  | 3.3 |
Hedge fund |  | — |  |  | 2.6 |  |  | 2.6 |
Total |  | $ | 5.3 |  |  | $ | 5.9 |  |  | $ | 11.2 |
The following is a summary, by asset category, of the fair value and the level within the fair value hierarchy of the VEBA plan assets as of 2021 year end:
(Amounts in millions) |  | Quoted Prices for Identical Assets (Level 1) |  | Investments Measured at NAV |  | Total
Asset category: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 0.3 |  |  | $ | — |  |  | $ | 0.3 |
Debt securities |  | 5.8 |  |  | — |  |  | 5.8 |
Equity securities |  | — |  |  | 4.6 |  |  | 4.6 |
Hedge fund |  | — |  |  | 3.0 |  |  | 3.0 |
Total |  | $ | 6.1 |  |  | $ | 7.6 |  |  | $ | 13.7 |

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- Definition The entire disclosure for postemployment benefits, which may include supplemental unemployment benefits, obligations recognized for all types of benefits provided to former or inactive employees, their beneficiaries, and covered dependents after employment but before retirement. Disclosure may also include discussion that an obligation for postemployment benefits is not accrued in accordance with regulation only because the amount cannot be reasonably estimated. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 712 -SubTopic 10 -Section 50 -Paragraph 2 -URI https://asc.fasb.org/extlink&oid=6410195&loc=d3e80090-111668 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 712 -URI https://asc.fasb.org/topic&trid=2197446 + Details
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