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Pension and Other Postretirement Benefits
 12 Months Ended
Dec. 31, 2021
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefits Pension and Other Postretirement Benefits
Defined Benefit Plans
Arconic sponsors several defined benefit pension and other postretirement plans covering eligible employees and retirees in U.S. and foreign locations, as well as certain legacy plans previously sponsored by ParentCo. Prior to January 1, 2020 for U.S. plans and prior to April 1, 2020 for certain non-U.S. plans, eligible employees and retirees related to the Arconic Businesses participated in ParentCo-sponsored defined benefit pension and other postretirement plans (the “Shared Plans”), which included participants related to the Howmet Aerospace Businesses and ParentCo corporate participants, as well as eligible retirees from previously closed or sold operations. Also, prior to the Separation Date, other eligible employees and retirees related to the Arconic Businesses participated in certain non-U.S. defined benefit pension and other postretirement plans (the “Direct Plans”).
The Company accounted for the portion of the Shared Plans related to its employees as multiemployer benefit plans. Accordingly, Arconic did not record an asset or liability to recognize the funded status of the Shared Plans. However, the related pension and other postretirement benefit expenses attributable to Arconic were based primarily on pensionable compensation of active Arconic participants and estimated interest costs, respectively. The Company also recorded an allocation of pension and other postretirement benefit expenses for the Shared Plans attributable to ParentCo corporate participants, as well as to participants related to closed and sold operations (see Cost Allocations in Note A).
The Direct Plans were accounted for as defined benefit pension and other postretirement plans. Accordingly, the funded status of each Direct Plan was recorded in the Company’s Consolidated Balance Sheet. Actuarial gains and losses that had not yet been recognized in earnings were recorded in Accumulated other comprehensive loss until they were amortized as a component of net periodic benefit cost. The determination of benefit obligations and recognition of expenses related to Direct Plans were dependent on various assumptions, including discount rates, long-term expected rates of return on plan assets, and future compensation increases. Management developed each assumption using relevant company experience in conjunction with market-related data for each of the plans.
In preparation for the Separation, effective January 1, 2020, certain U.S. pension and other postretirement benefit plans previously sponsored by ParentCo (the “U.S. Shared Plans” – see above) were separated into standalone plans for both Arconic (the “New Direct Plans”) and Howmet Aerospace. Accordingly, on January 1, 2020, Arconic recognized an aggregate liability of $1,920, of which $60 was current, reflecting the combined net unfunded status of the New Direct Plans, comprised of a benefit obligation of $4,255 and plan assets of $2,335, as well as $1,752 (net of tax impact) in Accumulated other comprehensive loss representing a net actuarial loss.
Additionally, effective on the Separation Date, certain other Shared Plans (the “Additional New Direct Plans,” and, collectively with the Direct Plans and New Direct Plans, the “Cumulative Direct Plans”) were assumed by Arconic. Accordingly, on April 1, 2020, Arconic recognized a noncurrent asset of $65 and a noncurrent liability of $15, reflecting the
combined net funded status of the Additional New Direct Plans, as well as $50 (net of tax impact) in Accumulated other comprehensive loss representing a net actuarial loss.
U.S. Pension Plan Annuitizations—In April 2021, Arconic purchased a group annuity contract to transfer the obligation to pay the remaining retirement benefits of approximately 8,400 participants in two U.S. defined benefit pension plans to an insurance company. In connection with this transaction, the Company contributed a total of $250 to the two plans to maintain the funding level of the remaining plan obligations not transferred. This contribution was funded with the net proceeds from a March 2021 debt offering (see 2021 Activity in Note Q). Prior to this action, these two plans had an aggregate of approximately 23,000 participants.
This transaction represents a significant settlement event, and, as a result, the Company was required to complete a remeasurement of these two plans (generally completed on an annual basis as of December 31, 2020), including an interim actuarial valuation of the plan obligations. Accordingly, the weighted-average discount rate used in calculating the plan obligations increased to 3.10% as of April 30, 2021 from 2.54% as of December 31, 2020. The remeasurement resulted in a combined projected benefit obligation and fair value of plan assets of $3,337 and $2,790, respectively, as of April 30, 2021. From these amounts, the group annuity transaction resulted in the settlement of $995 in plan obligations and the transfer of $1,007 in plan assets. The remeasurement of these two plans, together with the annuitization, resulted in a $152 net decrease to Accrued pension benefits and a $117 (after-tax) net decrease to Accumulated other comprehensive loss (see Note L). Additionally, the annuitization resulted in the accelerated amortization of a portion of the existing net actuarial loss associated with these two plans in the amount of $549 ($423 after-tax). This amount was reclassified to earnings through Restructuring and other charges (see Note E) from Accumulated other comprehensive loss (see Note L).
In December 2020, Arconic purchased a group annuity contract to transfer the obligation to pay the remaining retirement benefits of approximately 7,000 participants from two U.S. defined benefit pension plans to an insurance company. On a combined basis, this transaction resulted in the settlement of approximately $240 in plan obligations and the transfer of approximately $245 in plan assets. Prior to this action, these two plans had approximately 30,000 participants combined. The Company recognized a $140 ($108 after-tax) settlement charge, which represents the accelerated amortization of a portion of the existing net actuarial loss associated with these plans. This amount was reclassified to earnings through Restructuring and other charges (see Note E) from Accumulated other comprehensive loss (see Note L).
U.S. OPEB Plan Amendments—In August 2021, Arconic modified the medical benefit coverage offered to certain Medicare-eligible participants under the Company's U.S. other postretirement benefit plan. Effective January 1, 2022, this modification results in lower premiums and increased benefits to the participants. This change qualifies as a significant plan amendment to the Company's U.S. other postretirement benefit plan. Accordingly, this plan was required to be remeasured, and through this process, the discount rate was updated to 2.78% at August 31, 2021 from 2.61% at December 31, 2020. The amendment, together with the remeasurement of this plan, resulted in a $34 net decrease to the Company's other postretirement benefits liability and a $26 (after-tax) net decrease to Accumulated other comprehensive loss (see Note L) on the accompanying Consolidated Balance Sheet. The impact of this change on the Company's annual net periodic benefit cost is not material. The Company's estimated annual benefit payments will decrease by approximately $4 beginning in 2022.
In July 2020, Arconic and the United Steelworkers agreed to modify the medical benefit coverage offered to certain Medicare-eligible participants under the Company's U.S. other postretirement benefit plan, as provided for in the current master collective bargaining agreement between the parties. Effective January 1, 2021, this modification results in lower premiums and increased benefits to the participants. This change qualifies as a significant plan amendment to the Company's U.S. other postretirement benefit plan. Accordingly, this plan was required to be remeasured, and through this process, the discount rate was updated to 2.54% at July 31, 2020 from 3.17% at December 31, 2019. The amendment, together with the remeasurement of this plan, resulted in a net decrease to both the Company's other postretirement benefits liability of $7 and Accumulated other comprehensive loss of $5 (after-tax). The impact of this change on the Company's annual net periodic benefit cost is not material. The Company's estimated annual benefit payments decreased by approximately $20 beginning in 2021.
U.K. Pension Plan Annuitization—In June 2020, Arconic and Howmet Aerospace, together, executed several liability management actions related to approximately 1,800 participants in a U.K. defined benefit pension plan. The primary action was the purchase of a group annuity contract to transfer the obligation to pay the remaining retirement benefits of certain plan participants to an insurance company. On a combined basis, these actions resulted in the settlement of approximately $400 in plan obligations and the transfer of approximately $460 in plan assets. In the 2020 second quarter, the Company contributed $10 to the plan to facilitate these actions and maintain the funding level of the remaining plan obligations. Prior to these actions, this plan had approximately 3,350 participants combined.
Accordingly, this plan was required to be remeasured, and through this process, the discount rate was updated to 1.55% at June 30, 2020 from 2.05% at December 31, 2019. The settlement events, together with the remeasurement of the plan, resulted
in an approximately $250 net reduction to the Company’s remaining plan obligation and both a decrease to the Company’s pension benefit asset and a settlement charge of $58 ($48 after-tax) in 2020. The settlement charge represents the accelerated amortization of a portion of the existing net actuarial loss associated with this plan. This amount was reclassified to earnings through Restructuring and other charges (see Note E) from Accumulated other comprehensive loss. Subsequent to this remeasurement, the remaining respective plan obligations and plan assets attributable to Arconic and Howmet Aerospace were transferred into separate plans and the existing U.K. plan was terminated. Immediately following the completion of the transfer, the Company’s remaining plan obligation was approximately $240 and the plan assets were approximately $260 related to 1,050 plan participants.
The following table summarizes the total expenses (excluding settlements and curtailments) recognized by Arconic related to the pension and other postretirement benefits described above:
Pension benefitsOther postretirement benefits
For the year ended December 31,For the year ended December 31,
Type of PlanType of Expense202120202019202120202019
Cumulative Direct PlansNet periodic benefit cost$68 $82 $5 $19 $22 $— 
Shared PlansMultiemployer contribution expense— — 61 — — 21 
Shared PlansCost allocation— (1)20 — — 4 
$68 $81 $86 $19 $22 $25 
The funded status of Arconic’s Cumulative Direct Plans is measured as of December 31 each calendar year. All the information that follows for pension and other postretirement benefit plans is only applicable to the Cumulative Direct Plans, as appropriate. As of and for the year ended December 31, 2019, the Company’s other postretirement benefit plans were not material.
Obligations and Funded Status
Pension benefitsOther postretirement benefits
December 31,2021202020212020
Change in benefit obligation
Benefit obligation at beginning of year$4,081 $142 $514 $1 
Establishment of additional defined benefit plans - New Direct Plans— 3,688 — 567 
Separation-related adjustments - Additional New Direct Plans— 550 — — 
Service cost21 21 6 5 
Interest cost63 108 11 13 
Amendments— — (30)(52)
Actuarial (gains) losses(1)
(105)382 (23)33 
Benefits paid(183)(273)(38)(55)
Settlements(1,051)(542)— — 
Foreign currency translation impact(9)10 — — 
Divestitures— (5)— — 
Medicare part D subsidy receipts — — — 2 
Benefit obligation at end of year(2)
$2,817 $4,081 $440 $514 
Change in plan assets
Fair value of plan assets at beginning of year$2,754 $79 $— $— 
Establishment of additional defined benefit plans - New Direct Plans— 2,335 — — 
Separation-related adjustments - Additional New Direct Plans— 600 — — 
Actual return on plan assets177 350 — — 
Employer contributions458 271 — — 
Benefits paid(176)(266)— — 
Settlements(1,069)(595)— — 
Foreign currency translation impact(3)3 — — 
Divestitures— (4)— — 
Administrative expenses(17)(19)— — 
Fair value of plan assets at end of year(2)
$2,124 $2,754 $— $— 
Funded status(2)
$(693)$(1,327)$(440)$(514)
Amounts recognized on the Consolidated Balance Sheet:
Noncurrent assets$32 $24 $— $— 
Current liabilities(8)(8)(29)(35)
Noncurrent liabilities(717)(1,343)(411)(479)
Net amount recognized$(693)$(1,327)$(440)$(514)
Amounts recognized in Accumulated Other Comprehensive Loss (pretax):
Net actuarial loss$1,389 $2,204 $166 $197 
Prior service benefit— — (85)(61)
Net amount recognized$1,389 $2,204 $81 $136 
Other changes in plan assets and benefit obligations recognized in
Other Comprehensive Income (pretax):
Net actuarial loss$(137)$276 $(23)$35 
Amortization of net actuarial loss(678)(322)(8)(8)
Prior service benefit— — (30)(52)
Amortization of prior service benefit— — 6 4 
Total$(815)$(46)$(55)$(21)
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(1)At December 31, 2021 and 2020, actuarial (gains) losses for pension benefits includes approximately $(130) and $370, respectively, attributable to the change in the discount rate used to determine the benefit obligation (see “Assumptions” below).
(2)At December 31, 2021, the benefit obligation, fair value of plan assets, and funded status for U.S. pension plans were $2,398, $1,744, and $654, respectively. At December 31, 2020, the benefit obligation, fair value of plan assets, and funded status for U.S. pension plans were $3,646, $2,379, and $1,267, respectively.
Pension Plan Benefit Obligations
Pension benefits
December 31,20212020
The projected benefit obligation and accumulated benefit obligation for all defined benefit
pension plans was as follows:
Projected benefit obligation$2,817 $4,081 
Accumulated benefit obligation2,807 4,068 
The aggregate projected benefit obligation and fair value of plan assets for defined benefit
pension plans with projected benefit obligations in excess of plan assets was as follows:
Projected benefit obligation2,472 3,795 
Fair value of plan assets1,747 2,444 
The aggregate accumulated benefit obligation and fair value of plan assets for defined
benefit pension plans with accumulated benefit obligations in excess of plan assets was as follows:
Accumulated benefit obligation2,464 3,784 
Fair value of plan assets1,747 2,444 
Components of Net Periodic Benefit Cost
Pension benefits(1)
Other postretirement benefits
For the year ended December 31,20212020201920212020
Service cost$21 $21 $3 $6 $5 
Interest cost63 108 4 11 13 
Expected return on plan assets(110)(170)(5)— — 
Amortization of net actuarial loss
94 123 3 8 8 
Amortization of prior service benefit— — — (6)(4)
Settlements(2)
584 199 — — — 
Net periodic benefit cost(3)
$652 $281 $5 $19 $22 
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(1)In 2021 and 2020, net periodic benefit cost for U.S pension plans was $653 and $220, respectively.
(2)In 2021, Settlements were due to the purchase of a group annuity contract ($549 - see U.S. Pension Plan Annuitizations above) and the payment of lump-sum benefits ($35). In 2020, Settlements were due to two separate purchases of a group annuity contract (see U.S. Pension Plan Annuitizations and U.K. Pension Plan Annuitization above).
(3)Service cost was included within Cost of goods sold, Settlements were included within Restructuring and other charges, and all other components were included in Other expenses (income), net on the accompanying Statement of Consolidated Operations.
Assumptions
Weighted average assumptions used to determine benefit obligations and net periodic benefit cost for pension and other postretirement benefit plans were as follows:
Benefit obligationsNet periodic benefit cost
December 31,For the year ended December 31,
20212020202120202019
Discount rate—pension plans2.76 %2.45 %2.27 %2.86 %3.12 %
Discount rate—other postretirement benefit plans2.90 2.61 2.19 2.49 *
Rate of compensation increase—pension plans2.66 2.55 2.54 3.20 3.42 
Expected long-term rate of return on plan assets—pension plans— — 4.91 6.09 6.73 
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*In 2019 the Company's other postretirement benefit plans were not material.
The discount rate is determined using a Company-specific yield curve model (above-median) developed with the assistance of an external actuary. The cash flows of the projected benefit obligations are discounted using a single equivalent rate derived from yields on high quality corporate bonds, which represent a broad diversification of issuers in various sectors. The yield curve model parallels the projected plan cash flows, which have a weighted average duration of 13 years, and the underlying cash flows of the bonds included in the model exceed the cash flows needed to satisfy the plan obligations multiple times. If a deep market of high quality corporate bonds does not exist in a country, then the yield on government bonds is used.
The expected long-term rate of return on plan assets is generally applied to a five-year market-related value of plan assets (the fair value at the plan measurement date is used for certain non-U.S. plans). The process used by management to develop this assumption is one that relies on forward-looking investment returns by asset class. Management incorporates expected future investment returns on current and planned asset allocations using information from various external investment managers and consultants, as well as management’s own judgment. For 2021 and 2020, the expected long-term rate of return used by management was based on the prevailing and planned strategic asset allocations, as well as estimates of future returns by asset class. For 2022, management anticipates that the weighted-average expected long-term rate of return will be in the range of 5.00% to 6.00%.
Weighted-average assumed health care cost trend rates for U.S. other postretirement benefit plans were as follows (non-U.S. plans are not material):
20212020
Health care cost trend rate assumed for next year4.5 %7.7 %
Rate to which the cost trend rate gradually declines4.7 %4.6 %
Year that the rate reaches the rate at which it is assumed to remain20272026
The assumed health care cost trend rate is used to measure the expected cost of gross eligible charges covered by the Company’s other postretirement benefit plans. For 2022, a 4.5% trend rate will be used, reflecting management’s best estimate of the change in future health care costs covered by the plans.
Plan Assets
Arconic’s pension plan investment policy and weighted average asset allocations at December 31, 2021 and 2020, by asset class, were as follows:
Plan assets at December 31,
Asset class
Policy maximum
20212020
Equities40%31 %20 %
Fixed income100%56 51 
Other investments30%13 29 
Total100 %100 %
The principal objectives underlying the investment of the pension plan assets are to ensure that Arconic can properly fund benefit obligations as they become due under a broad range of potential economic and financial scenarios, maximize the long-term investment return with an acceptable level of risk based on such obligations, and broadly diversify investments across and within various asset classes to protect asset values against adverse movements. The use of derivative instruments is permitted where appropriate and necessary for achieving diversification across the balance of the asset portfolio. Investment practices comply with the requirements of applicable country laws and regulations.
The following section describes the valuation methodologies used by the trustees to measure the fair value of pension plan assets. For plan assets measured at net asset value, this refers to the net asset value of the investment on a per share basis (or its equivalent) as a practical expedient. Otherwise, an indication of the level in the fair value hierarchy in which each type of asset is generally classified is provided (see Note U for the definition of fair value and a description of the fair value hierarchy).
Equities—These securities consist of: (i) direct investments in the stock of publicly traded U.S. and non-U.S. companies and are valued based on the closing price reported in an active market on which the individual securities are traded (generally classified in Level 1); (ii) the plans’ share of commingled funds that are invested in the stock of publicly traded companies and are valued at net asset value; and (iii) direct investments in long/short equity hedge funds and private equity (limited partnerships and venture capital partnerships) and are valued at net asset value.
Fixed income—These securities consist of: (i) U.S. government debt and are generally valued using quoted prices (included in Level 1); and (ii) publicly traded U.S. and non-U.S. fixed interest obligations (principally corporate bonds and debentures) and are valued through consultation and evaluation with brokers in the institutional market using quoted prices and other observable market data (included in Level 2).
Other investments—These investments include, among others: (i) real estate investment trusts valued based on the closing price reported in an active market on which the investments are traded (included in Level 1); (ii) the plans’ share of commingled funds that are invested in real estate partnerships and are valued at net asset value; (iii) direct investments in discretionary and systematic macro hedge funds and private real estate (includes limited partnerships) and are valued at net asset value; and (iv) absolute return strategy funds and are valued at net asset value.
The fair value methods described above may not be indicative of net realizable value or reflective of future fair values. Additionally, while Arconic believes the valuation methods used by the plans’ trustees are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table presents the fair value of pension plan assets classified under either the appropriate level of the fair value hierarchy or net asset value:
December 31, 2021Level 1Level 2Level 3Net Asset ValueTotal
Equities:
Equity securities$12 $— $— $392 $404 
Long/short equity hedge funds— — — 24 24 
Private equity— — — 224 224 
$12 $— $— $640 $652 
Fixed Income:
Intermediate and long duration government/credit$95 $412 $— $612 $1,119 
Other23 — — 50 73 
$118 $412 $— $662 $1,192 
Other investments:
Real estate$— $— $— $108 $108 
Discretionary and systematic macro hedge funds— — — 99 99 
Other— — — 77 77 
$— $— $— $284 $284 
Total*
$130 $412 $— $1,586 $2,128 

December 31, 2020Level 1Level 2Level 3Net Asset ValueTotal
Equities:
Equity securities$1 $— $— $276 $277 
Long/short equity hedge funds— — — 107 107 
Private equity— — — 143 143 
$1 $— $— $526 $527 
Fixed Income:
Intermediate and long duration government/credit$117 $602 $— $606 $1,325 
Other1 — — 44 45 
$118 $602 $— $650 $1,370 
Other investments:
Real estate$39 $— $— $93 $132 
Discretionary and systematic macro hedge funds— — — 531 531 
Other— — — 94 94 
$39 $— $— $718 $757 
Total*
$158 $602 $— $1,894 $2,654 
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*As of December 31, 2021 and 2020, the total fair value of pension plan assets excludes a net payable of $4 and net receivable of $100, respectively, which represents securities not yet settled plus interest and dividends earned on various investments.
Funding and Cash Flows
It is Arconic’s policy to contribute amounts to funded defined benefit pension plans sufficient to meet the minimum requirements set forth in applicable country employee benefit and tax regulations, including ERISA for U.S. plans. From time to time, Arconic may contribute additional amounts as deemed appropriate. In 2021 and 2020, cash contributions to Arconic’s funded defined benefit pension plans were $458 and $271, respectively. The 2021 cash contributions include a total of $250 made by the Company in April 2021 to its two funded U.S. defined benefit pension plans to maintain the funding level of the remaining plan obligations not transferred under a group annuity contract (see U.S. Pension Plan Annuitizations above). The minimum required contributions to Arconic’s funded defined benefit pension plans in 2022 are estimated to be $32, of which $22 is for U.S. plans. Benefit payments expected to be paid to pension (funded and unfunded) and other postretirement benefit plan participants are as follows:
For the year ended December 31,Pension benefitsOther postretirement benefits
2022$164 $29 
202316228
202416027
202515827
202615827
2027 through 2031763128
$1,565 $266 
Defined Contribution Plans
Arconic sponsors savings and investment plans in the United States and certain other countries. Prior to the Separation Date, employees attributable to the Arconic Businesses participated in ParentCo-sponsored plans. In the United States, employees may contribute a portion of their compensation to the plans, and Arconic (ParentCo prior to the Separation Date) matches a specified percentage of these contributions in equivalent form of the investments elected by the employee. Also, Arconic (ParentCo prior to the Separation Date) makes contributions to a retirement savings account based on a percentage of eligible compensation for certain U.S. employees. Arconic’s expenses (contributions) related to all defined contribution plans were $39 in 2021, $35 in 2020, and $38 in 2019.