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Retirement and Other Postretirement Benefit Plans | 12 Months Ended
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Dec. 31, 2023
Retirement Benefits [Abstract] |
Retirement and Other Postretirement Benefit Plans | Note 8 — Retirement and Other Postretirement Benefit Plans We maintain qualified defined benefit retirement plans covering certain current and former European employees, as well as nonqualified defined benefit retirement plans, and retirement savings plans covering certain eligible U.S. and European employees and participate in a union sponsored multi-employer pension plan covering certain U.S. employees with union affiliations. In addition, we provide certain postretirement health care and life insurance benefits to eligible U.S. retirees. Accounting standards require the use of certain assumptions, such as the expected long-term rate of return, discount rate, rate of compensation increase, healthcare cost trend rates, and retirement and mortality rates, to determine the net periodic costs of such plans. These assumptions are reviewed and set annually at the beginning of each year. In addition, these models use an “attribution approach” that generally spreads individual events, such as plan amendments and changes in actuarial assumptions, over the service lives of the employees in the plan. That is, employees render service over their service lives on a relatively smooth basis and therefore, the income statement effects of retirement and postretirement benefit plans are earned in, and should follow, the same pattern. We use our actual return experience, future expectations of long-term investment returns, and our actual and targeted asset allocations to develop our expected rate of return assumption used in the net periodic cost calculations of our funded European defined benefit retirement plans. Due to the difficulty involved in predicting the market performance of certain assets, there will be a difference in any given year between our expected return on plan assets and the actual return. Following the attribution approach, each year’s difference is amortized over a number of future years. Over time, the expected long-term returns are designed to approximate the actual long-term returns and therefore result in a pattern of income and expense recognition that more closely matches the pattern of the services provided by the employees. We annually set our discount rate assumption for retirement-related benefits accounting to reflect the rates available on high-quality, fixed-income debt instruments. The rate of compensation increases for nonqualified pension plans, which is another significant assumption used in the actuarial model for pension accounting, is determined by us based upon our long-term plans for such increases and assumed inflation. For the postretirement health care and life insurance benefits plan, we review external data and its historical trends for health care costs to determine the health care cost trend rates. Retirement and termination rates are based primarily on actual plan experience. The mortality table used for the U.S. plans is based on the Pri-2012 White Collar Healthy Annuitant Mortality Table with Improvement Scale MP-2021 and for the U.K. Plan the S2PXA base table with future improvements in line with the CMI 2022 projection model with a long-term trend rate of 1.25% per annum. Actual results that differ from our assumptions are accumulated and amortized over future periods and therefore, generally affect the net periodic costs and recorded obligations in such future periods. While we believe that the assumptions used are appropriate, significant changes in economic or other conditions, employee demographics, retirement and mortality rates, and investment performance may materially impact such costs and obligations. U.S. Defined Benefit Retirement Plans We have nonqualified defined benefit retirement plans covering certain current and former U.S. employees that are funded as benefits are incurred. Under the provisions of these plans, we expect to contribute approximately $0.7 million in 2023 to cover unfunded benefits. Multi-Employer Plan The Company is party to a multi-employer pension plan covering certain U.S. employees with union affiliations. The plan is the Western Metal Industry Pension Fund, (“the Plan”). The Plan’s employer identification number is 91-6033499; the Plan number is 001. In 2023, 2022 and 2021 the Plan reported Hexcel Corporation as being an employer that contributed greater than 5% of the Plan’s total contributions. The collective bargaining agreement was renewed on November 20, 2020 retroactively to October 1, 2020 for a five-year term. The Plan has been listed in “critical status” and has been operating in accordance with a Rehabilitation Plan since 2010. The Plan, as amended under the Rehabilitation Plan, reduced the adjustable benefits of the participants, and levied a surcharge on employer contributions. The Company contributed $1.6 million in 2023, $1.5 million in 2022 and $2.1 million in 2021. We expect the Company’s contribution to be approxi mately $1.6 m illion in 2024 and remain at that level over the remaining term. U.S. Retirement Savings Plan Under the retirement savings plan, eligible U.S. employees can contribute up to 75% of their annual compensation to an individual 401(k) retirement savings account. The Company makes matching contributions equal to 50% of employee contributions, not to exceed 3% of employee compensation each year. We also contribute an additional 2% to 4% of each eligible U.S. employee’s salary to an individual 401(k) retirement savings account. This increases the maximum contribution to individual U.S. employee savings accounts to between 5% and 7% per year before any profit-sharing contributions that are made when we meet or exceed certain performance targets that are set annually. These profit-sharing contributions are made at the Company’s discretion and are targeted at 3% of an eligible U.S. employee’s pay, with a maximum of 4.5%. U.S. Postretirement Plans In addition to defined benefit and retirement savings plan benefits, we also provide certain postretirement health care and life insurance benefits to eligible U.S. retirees. Depending upon the plan, benefits are available to eligible employees who retire after meeting certain age and service requirements and were employed by Hexcel as of February 1996. Our funding policy for the postretirement health care and life insurance benefit plans is generally to pay covered expenses as they are incurred. Under the provisions of these plans, we expect to contribute approximate ly $0.2 million in 2024 to cover unfunded benefits. Non-Qualified Deferred Compensation Plan Under the deferred compensation plan, eligible U.S. employees may make tax-deferred contributions that cannot be made under the 401(k) Plan because of Internal Revenue Service limitations. We match 50% of a participant’s contributions up to 6% of the participants excess compensation pay as well as provide the same fixed and profit-sharing contributions as provided under the 401(k) plan. We have elected to fund our deferred compensation obligation through a rabbi trust. The rabbi trust is subject to creditor claims in the event of insolvency, but the assets held in the rabbi trust are not available for general corporate purposes. Amounts in the rabbi trust are invested in a number of funds based on the funds available under our 401(k) plan, other than the Hexcel stock fund. The securities are carried at fair value and are included in other assets on the Consolidated Balance Sheets. We record trading gains and losses in general and administrative expenses on the Consolidated Statements of Operations, along with the offsetting amount related to the increase or decrease in deferred compensation to reflect our exposure to liabilities for payment under the deferred compensation plan. European Defined Benefit Retirement Plans We have defined benefit retirement plans in Belgium, France, and Austria covering certain employees of our subsidiaries in those countries. The defined benefit plan in the United Kingdom (the “U.K. Plan”), the largest of the European plans, was terminated in 2011 and replaced with a defined contribution plan. The total assets in the U.K. Plan were held in a variety of investments. Equity investments and growth fund investments were made with the objective of achieving a return on plan assets consistent with the funding requirements of the plan, maximizing portfolio return and minimizing the impact of market fluctuations on the fair value of the plan assets. In 2020 and 2021, the plan bought insurance policies through the same insurer, referred to as a buy-in, which immunized the full amount of the liability. In the fourth quarter of 2023, the Company finalized a buy out, at which point the third party insurer became legally responsible to pay the retirement benefits to plan participants. The Company no longer has any obligations relative to the plan. In connection with the buy-out, the Company reported a pre-tax non-cash settlement charge of approximately $70.5 million and a gain of $1.9 million related to excess assets from the UK pension plan that reverted back to the Company, which were recorded in Other expense (income) on the Consolidated Statements of Operations. U.K. Defined Contribution Pension Plan Under the Defined Contribution Plan, eligible U.K. employees can belong to the Deferred Contribution Plan on a non-participatory basis or can elect to contribute 3%, 5% or 7% of their pensionable salary. The Company will contribute 5%, 9% and 13% respectively. The plan also provides life insurance and disability insurance benefits for members. Retirement and Other Postretirement Plans – France The employees of our French subsidiaries are entitled to receive a lump-sum payment upon retirement subject to certain service conditions under the provisions of the national chemicals and textile workers collective bargaining agreements. The amounts attributable to the French plans have been included within the total expense and obligation amounts noted for the European plans. Net Periodic Pension Expense Net periodic expense for our U.S. and European qualified and nonqualified defined benefit pension plans and our retirement savings plans for the three years ended December 31, 2023 is detailed in the table below.
(In millions) |  | 2023 |  |  | 2022 |  |  | 2021 |
Defined benefit retirement plans |  | $ | 5.7 |  |  | $ | 5.7 |  |  | $ | 2.6 |
Union sponsored multi-employer pension plan |  |  | 1.5 |  |  |  | 1.3 |  |  |  | 1.8 |
Retirement savings plans-matching contributions |  |  | 10.5 |  |  |  | 9.6 |  |  |  | 8.0 |
Retirement savings plans-profit sharing contributions |  |  | 9.6 |  |  |  | 5.3 |  |  |  | 5.4 |
Net periodic expense |  | $ | 27.3 |  |  | $ | 21.9 |  |  | $ | 17.8 |
Defined Benefit Retirement and Postretirement Plans Net periodic cost of our defined benefit retirement and postretirement plans for the three years ended December 31, 2023, were:
(In millions) |  | U.S. Plans |  |  | European Plans |
Defined Benefit Retirement Plans |  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2023 |  |  | 2022 |  |  | 2021 |
Service cost |  | $ | 1.3 |  |  | $ | 1.2 |  |  | $ | 1.1 |  |  | $ | 0.5 |  |  | $ | 0.7 |  |  | $ | 0.9 |
Interest cost |  |  | 0.9 |  |  |  | 0.4 |  |  |  | 0.2 |  |  |  | 4.9 |  |  |  | 2.1 |  |  |  | 2.2 |
Expected return on plan assets |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4.7 | ) |  |  | (2.1 | ) |  |  | (3.6 | )
Net amortization |  |  | 0.1 |  |  |  | 1.0 |  |  |  | 0.8 |  |  |  | 2.5 |  |  |  | 2.1 |  |  |  | 1.1 |
Net periodic pension cost (income) |  | $ | 2.3 |  |  | $ | 2.6 |  |  | $ | 2.1 |  |  | $ | 3.2 |  |  | $ | 2.8 |  |  | $ | 0.6 |
The above amounts for the year ended December 31, 2023 do not include a non-cash charge of $70.5 million related to the completion of the buy-out of the UK pension plan and a gain of $1.9 million related to excess assets from the UK pension plan that reverted back to the Company. Completion of the buy-out of the UK pension plan and a gain of $1.9 million related to excess assets from the UK pension plan that reverted back to the Company which were recorded in Other expense (income) on the Consolidated Statements of Operations.
(In millions) |  |  |  |  |  |  |  |  |
U.S. Postretirement Plans |  | 2023 |  |  | 2022 |  |  | 2021 |
Interest cost |  | $ | - |  |  | $ | - |  |  | $ | - |
Net amortization and deferral |  |  | (0.8 | ) |  |  | (1.1 | ) |  |  | (0.8 | )
Net periodic postretirement benefit income |  | $ | (0.8 | ) |  | $ | (1.1 | ) |  | $ | (0.8 | )
|  | Defined Benefit Retirement Plans |  |  |  |
(In millions) |  | U.S. Plans |  |  | European Plans |  |  | Postretirement Plans |
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Net loss (gain) |  | $ | (3.3 | ) |  | $ | (2.3 | ) |  | $ | 4.9 |  |  | $ | (4.3 | ) |  | $ | (0.1 | ) |  | $ | (0.5 | )
Amortization of actuarial (losses) gains |  |  | — |  |  |  | (0.8 | ) |  |  | (70.5 | ) |  |  | (2.1 | ) |  |  | 0.8 |  |  |  | 1.1 |
Prior service cost |  |  | (0.1 | ) |  |  | 0.1 |  |  |  | (1.1 | ) |  |  | — |  |  |  | — |  |  |  | — |
Effect of foreign exchange |  |  | — |  |  |  | — |  |  |  | 1.8 |  |  |  | (8.3 | ) |  |  | — |  |  |  | — |
Total recognized in other comprehensive income (loss), (pre-tax) |  | $ | (3.4 | ) |  | $ | (3.0 | ) |  | $ | (64.9 | ) |  | $ | (14.7 | ) |  | $ | 0.7 |  |  | $ | 0.6 |
The benefit obligation, fair value of plan assets, funded status, and amounts recognized in the consolidated financial statements for our defined benefit retirement plans and postretirement plans, as of and for the years ended December 31, 2023 and 2022, were:
|  | Defined Benefit Retirement Plans |  |  |  |
|  | U.S. Plans |  |  | European Plans |  |  | Postretirement Plans |
(In millions) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Change in benefit obligation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Benefit obligation - beginning of year |  | $ | 19.9 |  |  | $ | 24.0 |  |  | $ | 128.8 |  |  | $ | 240.6 |  |  | $ | 1.2 |  |  | $ | 1.8 |
Service cost |  |  | 1.3 |  |  |  | 1.2 |  |  |  | 0.5 |  |  |  | 0.7 |  |  |  | — |  |  |  | — |
Interest cost |  |  | 0.9 |  |  |  | 0.4 |  |  |  | 4.9 |  |  |  | 2.1 |  |  |  | — |  |  |  | — |
Plan participants’ contributions |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Actuarial loss (gain) |  |  | (3.3 | ) |  |  | (2.3 | ) |  |  | (14.8 | ) |  |  | (85.8 | ) |  |  | (0.1 | ) |  |  | (0.5 | )
Plan amendments and acquisitions |  |  | — |  |  |  | 0.2 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Curtailments and settlements |  |  | — |  |  |  | (2.9 | ) |  |  | (99.8 | ) |  |  | (0.1 | ) |  |  | — |  |  |  | — |
Benefits and expenses paid |  |  | (0.7 | ) |  |  | (0.7 | ) |  |  | (4.7 | ) |  |  | (5.9 | ) |  |  | (0.1 | ) |  |  | (0.1 | )
Currency translation adjustments |  |  | — |  |  |  | — |  |  |  | 2.8 |  |  |  | (22.8 | ) |  |  | — |  |  |  | — |
Benefit obligation - end of year |  | $ | 18.1 |  |  | $ | 19.9 |  |  | $ | 17.7 |  |  | $ | 128.8 |  |  | $ | 1.0 |  |  | $ | 1.2 |
Change in plan assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value of plan assets - beginning of year |  | $ | — |  |  | $ | — |  |  | $ | 122.1 |  |  | $ | 231.4 |  |  | $ | — |  |  | $ | — |
Actual return on plan assets |  |  | — |  |  |  | — |  |  |  | (15.6 | ) |  |  | (81.5 | ) |  |  | — |  |  |  | — |
Employer contributions |  |  | 0.7 |  |  |  | 3.6 |  |  |  | (0.9 | ) |  |  | 0.7 |  |  |  | 0.1 |  |  |  | 0.1 |
Plan participants’ contributions |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Benefits and expenses paid |  |  | (0.7 | ) |  |  | (0.6 | ) |  |  | (4.7 | ) |  |  | (5.9 | ) |  |  | (0.1 | ) |  |  | (0.1 | )
Curtailments and settlements |  |  | — |  |  |  | (3.0 | ) |  |  | (99.8 | ) |  |  | (0.1 | ) |  |  | — |  |  |  | — |
Currency translation adjustments |  |  | — |  |  |  | — |  |  |  | 3.5 |  |  |  | (22.5 | ) |  |  | — |  |  |  | — |
Fair value of plan assets - end of year |  | $ | — |  |  | $ | — |  |  | $ | 4.6 |  |  | $ | 122.1 |  |  | $ | — |  |  | $ | — |
Amounts recognized in Consolidated Balance Sheets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-current assets |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 5.6 |  |  | $ | — |  |  | $ | — |
Current liabilities |  | $ | 1.3 |  |  | $ | 1.4 |  |  | $ | 0.8 |  |  | $ | 0.1 |  |  | $ | 0.2 |  |  | $ | 0.2 |
Non-current liabilities |  |  | 16.8 |  |  |  | 18.5 |  |  |  | 12.3 |  |  |  | 12.1 |  |  |  | 0.9 |  |  |  | 1.0 |
Total liabilities (a) |  | $ | 18.1 |  |  | $ | 19.9 |  |  | $ | 13.1 |  |  | $ | 12.2 |  |  | $ | 1.1 |  |  | $ | 1.2 |
Amounts recognized in Accumulated Other Comprehensive Loss: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Actuarial net (loss) gain |  | $ | — |  |  | $ | (0.7 | ) |  | $ | 0.8 |  |  | $ | 64.6 |  |  | $ | 0.3 |  |  | $ | 0.9 |
Prior service cost |  |  | (0.1 | ) |  |  | (0.1 | ) |  |  | — |  |  |  | 1.1 |  |  |  | — |  |  |  | — |
Total amounts recognized in accumulated other comprehensive loss |  | $ | (0.1 | ) |  | $ | (0.8 | ) |  | $ | 0.8 |  |  | $ | 65.7 |  |  | $ | 0.3 |  |  | $ | 0.9 |
(a) The current and non-current portions of the accrued benefit costs for the defined benefit retirement plans and postretirement benefit plans are included within “accrued compensation and benefits” and “retirement obligations”, respectively, in the accompanying consolidated balance sheets. |
The measurement date used to determine the benefit obligations and plan assets of the defined benefit retirement and postretirement plans was December 31, 2023. All costs related to our pensions are included as a component of operating income in our Consolidated Statements of Operations. For the years ended December 31, 2023, 2022 and 2021 amounts unrelated to service costs were a benefit of $2.9 million, $2.4 million and ($0.1) million, respectively. The total accumulated benefit obligation (“ABO”) for the U.S. defined benefit retirement plans was $17.8 million and $19.8 million as of December 31, 2023 and 2022, respectively. Excluding the U.K. Plan, the European plans’ ABO exceeded plan assets as of December 31, 2023 by $8.8 million and excluding the U.K. Plan in 2022 by $12.2 million. The ABO for these plans was $13.4 million and $16.3 million as of December 31, 2023 and 2022, respectively. Benefit payments for the plans are expected to be as follows:
|  |  |  |  | European |  |  | Postretirement |
(In millions) |  | U.S. Plans |  |  | Plans |  |  | Plans |
2024 |  | $ | 0.7 |  |  | $ | 1.6 |  |  | $ | 0.2 |
2025 |  |  | 8.1 |  |  |  | 1.0 |  |  |  | 0.2 |
2026 |  |  | 7.4 |  |  |  | 2.1 |  |  |  | 0.2 |
2027 |  |  | 0.6 |  |  |  | 1.8 |  |  |  | 0.2 |
2028 |  |  | 0.5 |  |  |  | 2.1 |  |  |  | 0.1 |
2029-2033 |  |  | 1.8 |  |  |  | 7.1 |  |  |  | 0.3 |
|  | $ | 19.0 |  |  | $ | 15.7 |  |  | $ | 1.2 |
Fair Values of Pension Assets The following table presents pension assets measured at fair value at December 31, 2023 and 2022 utilizing the fair value hierarchy discussed in Note 19:
|  |  |  |  | Fair Value Measurements at |
(In millions) |  | December 31, |  |  | December 31, 2023 |
Description |  | 2023 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Insurance contracts |  | $ | 2.4 |  |  | $ | — |  |  | $ | — |  |  | $ | 2.4 |
Diversified investment funds |  |  | 2.2 |  |  |  | — |  |  |  | — |  |  |  | 2.2 |
Total assets |  | $ | 4.6 |  |  | $ | — |  |  | $ | — |  |  | $ | 4.6 |
|  |  |  |  | Fair Value Measurements at |  |
|  | December 31, |  |  | December 31, 2022
Description |  | 2022 |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |
Insurance contracts |  | $ | 112.9 |  |  | $ | — |  |  | $ | — |  |  | $ | 112.9 |  |
Index linked gilts |  |  | 0.8 |  |  |  | — |  |  |  | 0.8 |  |  |  | — |  |
Diversified investment funds |  |  | 8.1 |  |  |  | — |  |  |  | 6.3 |  |  |  | 1.8 |  |
Cash and cash equivalents |  |  | 0.3 |  |  |  | 0.3 |  |  |  | — |  |  |  | — |  |
Total assets |  | $ | 122.1 |  |  | $ | 0.3 |  |  | $ | 7.1 |  |  | $ | 114.7 |  |
Prior to the buy-out, the U.K. Plan invested funds which were not exchange-listed and were, therefore, classified as Level 3.
|  | Balance at |  |  | Actual |  |  | Purchases, |  |  | Changes due |  |  | Balance at |
(In millions) |  | January 1, |  |  | return on |  |  | sales and |  |  | to exchange |  |  | December 31, |
Reconciliation of Level 3 Assets |  | 2023 |  |  | plan assets |  |  | settlements |  |  | rates |  |  | 2023 |
Diversified investment funds |  | $ | 1.8 |  |  | $ | 0.1 |  |  | $ | 0.2 |  |  | $ | 0.1 |  |  | $ | 2.2 |
Insurance contracts |  |  | 112.9 |  |  |  | (16.5 | ) |  |  | (97.2 | ) |  |  | 3.2 |  |  | $ | 2.4 |
Total level 3 assets |  | $ | 114.7 |  |  | $ | (16.4 | ) |  | $ | (97.0 | ) |  | $ | 3.3 |  |  | $ | 4.6 |
|  | Balance at |  |  | Actual |  |  | Purchases, |  |  | Changes due |  |  | Balance at |
|  | January 1, |  |  | return on |  |  | sales and |  |  | to exchange |  |  | December 31, |
Reconciliation of Level 3 Assets |  | 2022 |  |  | plan assets |  |  | settlements |  |  | rates |  |  | 2022 |
Diversified investment funds |  | $ | 2.3 |  |  | $ | (0.2 | ) |  | $ | (0.2 | ) |  | $ | (0.1 | ) |  | $ | 1.8 |
Insurance contracts |  |  | 218.0 |  |  |  | (78.6 | ) |  |  | (5.3 | ) |  |  | (21.2 | ) |  |  | 112.9 |
Total level 3 assets |  | $ | 220.3 |  |  | $ | (78.8 | ) |  | $ | (5.5 | ) |  | $ | (21.3 | ) |  | $ | 114.7 |
The insurance contracts are Level 3 investments and are valued using unobservable inputs that are based on the best information available. The fair value of the assets is equal to the total amount of all individual technical reserves plus the non-allocated employer’s financing fund reserves at the valuation date. The individual technical and financing fund reserves are equal to the accumulated paid contributions taking into account the insurance tariffication and any allocated profit-sharing return. The index-linked gilt allocation provided a partial interest rate and inflation rate hedge against the valuation of the liabilities. The diversified investment funds represent plan assets invested in a Pensionskasse (an Austrian multi-employer pension fund). The main holdings consist of equity, bonds, real estate and bank deposits. The actual allocations for the pension assets at December 31, 2023 and 2022, and target allocations by asset class, are as follows:
|  | Percentage |  |  | Target |  |  | Percentage |  |  | Target |
|  | of Plan Assets |  |  | Allocations |  |  | of Plan Assets |  |  | Allocations |
Asset Class |  | 2023 |  |  | 2023 |  |  | 2022 |  |  | 2022 |
Diversified growth funds |  |  | 47.0 | % |  |  | 5.2 | % |  |  | 5.2 | % |  |  | 5.2 | %
Index linked gilts |  |  | — |  |  |  | 0.6 |  |  |  | 0.6 |  |  |  | 0.6 |
Diversified investment funds |  |  | — |  |  |  | 1.5 |  |  |  | 1.5 |  |  |  | 1.5 |
Insurance contracts |  |  | 53.0 |  |  |  | 92.5 |  |  |  | 92.5 |  |  |  | 92.5 |
Cash and cash equivalents |  |  | — |  |  |  | 0.2 |  |  |  | 0.2 |  |  |  | 0.2 |
Total |  |  | 100 | % |  |  | 100 | % |  |  | 100 | % |  |  | 100 | %
Assumptions The assumed discount rate for pension plans reflects the market rates for high-quality fixed income debt instruments currently available. A third party provided standard yield curve was used for the U.S. non-qualified and postretirement plans. We believe that the timing and amount of cash flows related to these instruments is expected to match the estimated defined benefit payment streams of our plans. The assumed discount rate for the U.S. non-qualified plans uses individual discount rates for each plan based on their associated cash flows. Salary increase assumptions are based on historical experience and anticipated future management actions. For the postretirement health care and life insurance benefit plans, we review external data and our historical trends for health care costs to determine the health care cost trend rates. Retirement rates are based primarily on actual plan experience and on rates from previously mentioned mortality tables. Actual results that differ from our assumptions are accumulated and amortized over future periods and therefore, generally affect the net periodic costs and recorded obligations in such future periods. While we believe that the assumptions used are appropriate, significant changes in economic or other conditions, employee demographics, retirement and mortality rates, and investment performance may materially impact such costs and obligations. Assumptions used to estimate the actuarial present value of benefit obligations at December 31, 2023, 2022 and 2021 are shown in the following table. These year-end values are the basis for determining net periodic costs for the following year.
|  | 2023 |  | 2022 |  | 2021
U.S. defined benefit retirement plans: |  |  |  |  |  |
Discount rates |  | 4.7% - 4.8% |  | 5.0% - 5.1% |  | 1.0% - 2.4%
Rate of increase in compensation |  | 3% |  | 3% |  | 3%
European defined benefit retirement plans: |  |  |  |  |  |
Discount rates |  | 3.6% - 5.2% |  | 3.1% - 3.95% |  | 0.3% - 0.95%
Rates of increase in compensation |  | 3.2%-3.5% |  | 3.2%-3.5% |  | 0.03
Expected long-term rates of return on plan assets |  | 2.0% – 3.0% |  | 2.0% – 3.95% |  | 0.95% – 3.0%
Postretirement benefit plans: |  |  |  |  |  |
Discount rates |  | 4.7% |  | 2.0% |  | 1.3%
The following table presents the impact that a one-percentage-point increase and a one-percentage-point decrease in the expected long-term rate of return and discount rate would have on the 2023 pension expense, and the impact on our retirement obligation as of December 31, 2023 for a one-percentage-point change in the discount rate:
|  | U.S. Non-Qualified |  |  | U.S. Retiree |  |
(In millions) |  | Pension Plans |  |  | Medical Plans |  |
Periodic pension expense |  |  |  |  |  |  |
One-percentage-point increase: |  |  |  |  |  |  |
Expected long-term rate of return |  | N/A |  |  | N/A |  |
Discount rate |  | $ | — |  |  | $ | — |  |
One-percentage-point decrease: |  |  |  |  |  |  |
Expected long-term rate of return |  | N/A |  |  | N/A |  |
Discount rate |  | $ | — |  |  | $ | — |  |
Retirement obligation |  |  |  |  |  |  |
One-percentage-point increase in discount rate |  | $ | (0.4 | ) |  | $ | (0.1 | ) |
One-percentage-point decrease in discount rate |  | $ | 0.5 |  |  | $ | 0.1 |  |
The annual rate of increase in the per capita cost of covered health care benefits is assumed to be 6.75% for medical rates and are assumed to gradually decline to 4.75% by 2031.

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