XML 44 R27.htm IDEA: XBRL DOCUMENT v3.20.4
Pension
 12 Months Ended
Dec. 31, 2020
Compensation And Retirement Disclosure [Abstract]  
Pension

 

Note 20. Pension

Prior to the Spin-Off, certain of Resideo’s employees participated in multiple U.S. and non-U.S. defined benefit pension plans (the “Shared Plans”) sponsored by Honeywell, which includes participants from other Honeywell subsidiaries and operations. The Company accounted for participation in the Shared Plans as if the Shared Plans were a multiemployer benefit plan. Accordingly, it did not record an asset or liability to recognize the funded status of the Shared Plans.

The related pension expense was allocated based on annual service cost of active participants and reported within Costs of goods sold and Selling, general and administrative expenses in the Consolidated and Combined Statements of Operations. The pension expense related to participation in the Shared Plans for the period from January 1, 2018 until October 29, 2018 and the year ended December 31, 2018 was $11 million and $16 million, respectively.

As of the date of separation from Honeywell, these employees’ and certain former Honeywell employees’ entitlement to benefits in Honeywell’s plans were transferred to Resideo sponsored plans.

The Resideo defined benefit pension plans have substantially similar benefit formulas as the Honeywell defined benefit pension plans. Moreover, vesting service, benefit accrual service and compensation credited under the Honeywell defined benefit pension plans apply to the determination of pension benefits under the Resideo defined benefit pension plan.

The Company sponsors multiple funded and unfunded U.S. and non-U.S. defined benefit pension plans. Pension benefits for many of its U.S. employees are provided through non-contributory, qualified and non-qualified defined benefit plans. It also sponsors defined benefit pension plans which cover non-U.S. employees who are not U.S. citizens, in certain jurisdictions, principally Germany, Austria, Belgium, France, India, Switzerland, and the Netherlands.

The following tables summarize the balance sheet impact, including the benefit obligations, assets and funded status associated with the pension plans.

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

Change in benefit obligation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit obligation at beginning of year (1)

 

$

344

 

 

$

286

 

 

$

279

 

 

$

137

 

 

$

93

 

 

$

95

 

Service cost

 

 

7

 

 

 

5

 

 

 

1

 

 

 

7

 

 

 

5

 

 

 

1

 

Interest cost

 

 

11

 

 

 

13

 

 

 

2

 

 

 

1

 

 

 

2

 

 

 

-

 

Actuarial losses (gains)

 

 

38

 

 

 

51

 

 

 

5

 

 

 

6

 

 

 

27

 

 

 

(3

)

Net benefits paid

 

 

(4

)

 

 

(13

)

 

 

(1

)

 

 

-

 

 

 

-

 

 

-

 

Settlements

 

 

(22

)

 

 

-

 

 

 

-

 

 

 

(6

)

 

 

(3

)

 

 

-

 

Other

 

 

-

 

 

 

2

 

 

 

-

 

 

 

2

 

 

 

13

 

 

-

 

Exchange rate adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

14

 

 

 

-

 

 

 

-

 

Benefit obligation at end of year

 

 

374

 

 

 

344

 

 

 

286

 

 

 

161

 

 

 

137

 

 

 

93

 

Change in plan assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of plan assets at beginning of year (1)

 

 

331

 

 

274

 

 

279

 

 

 

27

 

 

20

 

 

20

 

Actual return (loss) on plan assets

 

 

35

 

 

 

70

 

 

 

(4

)

 

 

-

 

 

 

2

 

 

 

-

 

Contributions

 

 

1

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

2

 

 

 

-

 

Net benefits paid

 

 

(4

)

 

 

(13

)

 

 

(1

)

 

 

-

 

 

 

1

 

 

 

-

 

Settlements

 

 

(22

)

 

 

-

 

 

 

-

 

 

 

(6

)

 

 

(3

)

 

 

-

 

Other

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

3

 

 

 

5

 

 

 

-

 

Exchange rate adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

-

 

Fair value of plan assets at end of year

 

 

340

 

 

331

 

 

274

 

 

 

28

 

 

27

 

 

20

 

Funded status of plans (non-current)

 

$

(34

)

 

$

(13

)

 

$

(12

)

 

$

(133

)

 

$

(110

)

 

$

(73

)

 

(1)

2018 "Beginning of year" is the Spin-Off date, October 29, 2018.

 

The benefit obligation generated a global net actuarial loss of $44 million for the year ended December 31, 2020. A global decrease in discount rates over the course of the year was the main driver, generating a total loss of $50 million across all plans, partially offset by gains on inflation related assumptions of approximately $5 million (driven primarily by inflation/pension increase assumption in the Germany, which resulted in a gain of $5 million), and by gains on demographic assumptions of approximately $2 million (driven primarily by change in mortality assumption in the U.S., which resulted in a gain of $2 million). Experience losses added $1 million of net actuarial loss globally, while losses from other assumption changes were not significant.

 

Actual return on plan assets for the year ended December 31, 2020 was higher than expected due to equity and bonds performance being above expectations leading to an additional asset gain of $17 million globally, for a total asset return of $35 million globally.

 

Amounts recognized in Accumulated other comprehensive (loss) associated with pension plans at December 31, 2020 and 2019 are as follows:

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

Prior service credit

 

$

(2

)

 

$

(3

)

 

$

-

 

 

$

-

 

Net actuarial loss

 

 

30

 

 

 

12

 

 

 

14

 

 

 

13

 

Net amount recognized

 

$

28

 

 

$

9

 

 

$

14

 

 

$

13

 

 

 

The components of net periodic benefit cost and other amounts recognized in Comprehensive income for pension plans include the following components:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

2020

 

 

 

2019

 

 

2018 (1)

 

 

2020

 

 

 

2019

 

 

2018 (1)

 

Net Periodic Benefit Cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

7

 

 

$

5

 

 

$

1

 

 

$

7

 

 

$

5

 

 

$

1

 

Interest cost

 

 

11

 

 

 

13

 

 

 

2

 

 

 

1

 

 

 

2

 

 

 

-

 

Expected return on plan assets

 

 

(17

)

 

 

(16

)

 

 

(3

)

 

 

(1

)

 

 

(1

)

 

 

-

 

Amortization of prior service credit

 

 

(1

)

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Mark to market adjustment

 

 

-

 

 

 

1

 

 

 

-

 

 

 

6

 

 

 

16

 

 

 

-

 

Other

 

 

3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2

 

 

 

-

 

Net periodic benefit cost

 

$

3

 

 

$

2

 

 

$

-

 

 

$

13

 

 

$

24

 

 

$

1

 

 

(1)

2018 begins at the Spin-Off date, October 29, 2018. Activity before the Spin-Off date was recognized under the Shared Plans.

 

The components of net periodic benefit cost other than the service cost are included in Other expense, net in the Consolidated and Combined Statements of Operations for the years ended December 31, 2020, 2019 and 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

2020

 

 

 

2019

 

 

2018 (1)

 

 

2020

 

 

 

2019

 

 

2018 (1)

 

Other Changes in Plan Assets and Benefits Obligations Recognized in Other Comprehensive Loss (Income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actuarial losses (gains)

 

$

38

 

 

$

51

 

 

$

12

 

 

$

6

 

 

$

26

 

 

$

(3

)

Excess return on plan assets(2)

 

 

(17

)

 

 

(54

)

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

-

 

Actuarial gains recognized during the year

 

 

(2

)

 

 

-

 

 

 

-

 

 

 

(6

)

 

 

(17

)

 

 

-

 

Other

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

-

 

Total recognized in other comprehensive loss (income)

 

$

19

 

 

$

(3

)

 

$

12

 

 

$

1

 

 

$

8

 

 

$

(3

)

Total recognized in net periodic benefit cost and other comprehensive loss (income)

 

$

22

 

 

$

(1

)

 

$

12

 

 

$

14

 

 

$

32

 

 

$

(2

)

 

 

(1)

2018 begins at the Spin-Off date, October 29, 2018. Activity before the Spin-Off date was recognized under the Shared Plans.

 

(2)

Represents actual return on plan assets in excess of the expected return.

 

  

 

Significant actuarial assumptions used in determining the benefit obligations and net periodic benefit (income) cost for benefit plans are presented in the following table as weighted averages.

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

Actuarial assumptions used to determine benefit obligations as of December 31:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

 

2.7

%

 

 

3.3

%

 

 

4.5

%

 

 

0.7

%

 

 

1.1

%

 

 

1.9

%

Interest crediting rate

 

 

6.0

%

 

 

6.0

%

 

 

6.0

%

 

 

1.5

%

 

 

1.5

%

 

 

1.5

%

Expected annual rate of compensation increase

 

 

3.5

%

 

 

3.4

%

 

 

3.4

%

 

 

2.4

%

 

 

2.4

%

 

 

2.3

%

Actuarial assumptions used to determine net periodic benefit cost for the twelve months ended December 31:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate - benefit obligation

 

 

3.3

%

 

 

4.5

%

 

 

4.5

%

 

 

1.1

%

 

 

2.0

%

 

 

1.9

%

Interest crediting rate

 

 

6.0

%

 

 

6.0

%

 

 

6.0

%

 

 

1.5

%

 

 

1.5

%

 

 

1.5

%

Expected rate of return on plan assets

 

 

5.4

%

 

 

5.7

%

 

 

5.7

%

 

 

2.7

%

 

 

2.8

%

 

 

3.3

%

Expected annual rate of compensation increase

 

 

3.4

%

 

 

3.4

%

 

 

3.4

%

 

 

2.4

%

 

 

2.4

%

 

 

2.3

%

 

 

The discount rate for the U.S. pension plans reflects the current rate at which the associated liabilities could be settled at the measurement date of December 31. To determine discount rates for the U.S. pension plans, the Company uses a modeling process that involves matching the expected cash outflows of its benefit plans to a yield curve constructed from a portfolio of high-quality, fixed income debt instruments. The Company uses the single weighted-average yield of this hypothetical portfolio as a discount rate benchmark.

The expected rate of return on U.S. plan assets of 5.4% is a long-term rate based on historical plan asset returns over varying long-term periods combined with current market conditions and broad asset mix considerations. The Company reviews the expected rate of return on an annual basis and revises it as appropriate.

For non-U.S. benefit plans, actuarial assumptions reflect economic and market factors relevant to each country.

The following amounts relate to pension plans with accumulated benefit obligations exceeding the fair value of plan assets.

 

 

 

December 31,

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

 

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

Projected benefit obligation

 

$

374

 

 

$

344

 

 

$

161

 

 

$

137

 

Accumulated benefit obligation

 

$

358

 

 

$

332

 

 

$

139

 

 

$

116

 

Fair value of plan assets

 

$

340

 

 

$

331

 

 

$

28

 

 

$

27

 

 

The Company utilized a third-party investment management firm to serve as its Outsourced Chief Investment Officer; however, the Company has appointed an internal fiduciary committee that monitors adherence to the investment guidelines the firm will follow.

The Company employs an investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities and plan funded status. The investment portfolio contains a diversified blend of equity and fixed income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value and small and large capitalizations. Other assets such as real estate and hedge funds may be used to improve portfolio diversification.

 

The non-U.S. investment policies are different for each country as local regulations, funding requirements, and financial and tax considerations are part of the funding and investment allocation process in each country.

A majority of the U.S. pension plan assets as of December 31, 2020 do not have published pricing and are valued using Net Asset Value (“NAV”) which approximates fair value. NAV by asset category and fair value by asset category are as follows for December 31, 2020 and 2019:

 

 

 

U.S. Plans

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

Total

 

 

NAV

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

NAV

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash

 

$

6

 

 

$

1

 

 

$

5

 

 

$

-

 

 

$

-

 

 

$

4

 

 

$

-

 

 

$

4

 

 

$

-

 

 

$

-

 

Equity

 

 

105

 

 

 

105

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

100

 

 

 

100

 

 

 

-

 

 

 

-

 

 

 

-

 

Investment funds

 

 

14

 

 

 

14

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15

 

 

 

15

 

 

 

-

 

 

 

-

 

 

 

-

 

U.S. treasury obligations

 

 

16

 

 

 

16

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

132

 

 

 

132

 

 

 

-

 

 

 

-

 

 

 

-

 

Government bonds

 

 

41

 

 

 

41

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32

 

 

 

32

 

 

 

-

 

 

 

-

 

 

 

-

 

Corporate bonds

 

 

126

 

 

 

126

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16

 

 

 

16

 

 

 

-

 

 

 

-

 

 

 

-

 

Real estate / property

 

 

32

 

 

 

32

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32

 

 

 

32

 

 

 

-

 

 

 

-

 

 

 

-

 

Total assets at fair value

 

$

340

 

 

$

335

 

 

$

5

 

 

$

-

 

 

$

-

 

 

$

331

 

 

$

327

 

 

$

4

 

 

$

-

 

 

$

-

 

 

The fair values of the non-U.S. pension plan assets as by asset category are as follows:

 

 

 

Non-U.S. Plans

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Equity

 

$

1

 

 

$

1

 

 

$

-

 

 

$

-

 

 

$

1

 

 

$

1

 

 

$

-

 

 

$

-

 

Government bonds

 

 

1

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

 

 

-

 

Corporate bonds

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1

 

 

 

-

 

 

 

1

 

 

 

-

 

Insurance contracts

 

 

10

 

 

 

-

 

 

 

-

 

 

 

10

 

 

 

8

 

 

 

-

 

 

 

-

 

 

 

8

 

Other

 

 

16

 

 

 

-

 

 

 

-

 

 

 

16

 

 

 

16

 

 

 

-

 

 

 

-

 

 

 

16

 

Total assets at fair value

 

$

28

 

 

$

1

 

 

$

1

 

 

$

26

 

 

$

27

 

 

$

1

 

 

$

2

 

 

$

24

 

5

 

 

The following table summarizes changes in the fair value of Level 3 assets for Non-U.S. plans:

 

 

 

Non-U.S. Plans

 

Balance at October 29, 2018

 

$

5

 

Return on plan assets

 

 

1

 

Purchases, sales and settlements, net

 

 

-

 

Balance at December 31, 2018

 

 

6

 

Return on plan assets

 

 

2

 

Purchases, sales and settlements, net

 

 

15

 

Other

 

 

1

 

Balance at December 31, 2019

 

 

24

 

Return on plan assets

 

 

-

 

Purchases, sales and settlements, net

 

 

(1

)

Other

 

 

3

 

Balance at December 31, 2020

 

$

26

 

 

 

Corporate Bonds and Government Bonds held as of December 31, 2020 and 2019 are valued either by using pricing models, bids provided by brokers or dealers, quoted prices of securities with similar characteristics or discounted cash flows and as such include adjustments for certain risks that may not be observable such as credit and liquidity risks. Other investments as of December 31, 2020 and 2019 and Insurance Contracts are classified as Level 3 as there are neither quoted prices nor other observable inputs for pricing. Insurance Contracts are issued by insurance companies and are valued at cash surrender value, which approximates the contract fair value. Other investments consist of a collective pension foundation that is valued and allocated by the plan administrator.

 

The Company utilizes the services of retirement and investment consultants to actively manage the assets of the Company’s pension plans. The Company has established asset allocation targets and investment guidelines based on the guidance of the consultants. The Company’s target allocations are 51% fixed income investments, 29% global equity investments, 10% global real estate investments and 10% cash and other investments.

The Company’s general funding policy for qualified defined benefit pension plans is to contribute amounts at least sufficient to satisfy regulatory funding standards. In 2020, it was not required to make contributions to the U.S. pension plans, however $1 million of contributions were made. There is no requirement to make any contributions to the U.S. pension plans in 2021. In 2020, contributions of $2 million were made to the non-U.S. pension plans to satisfy regulatory funding requirements. In 2021, the Company expects to make contributions of cash and/or marketable securities of approximately $2 million to the non-U.S. pension plans to satisfy regulatory funding standards. Contributions for both the U.S. and non-U.S. pension plans do not reflect benefits paid directly from Company assets.

Benefit payments, including amounts to be paid from Company assets, and reflecting expected future service, as appropriate, are expected to be paid as follows:

 

 

 

U.S. Plans

 

 

Non-U.S. Plans

 

2021

 

$

19

 

 

$

2

 

2022

 

$

20

 

 

$

2

 

2023

 

$

21

 

 

$

2

 

2024

 

$

23

 

 

$

3

 

2025

 

$

23

 

 

$

3

 

2026-2030

 

$

114

 

 

$

21