PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (Notes)

12 Months Ended

Dec. 31, 2023

Retirement Benefits [Abstract]

PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

Pension Plans

The Corporation has both funded and unfunded defined benefit plans in the United States, which covered substantially all U.S. employees through December 31, 2023. On March 4, 2021, TDCC announced changes to the design of its U.S. tax-qualified and non-qualified pension plans, including the plans of the Corporation (the “UCC Plans”). As a result, effective December 31, 2023, the Corporation froze the pensionable compensation and credited service amounts used to calculate pension benefits for substantially all employees who participated in the UCC Plans, except for certain employees subject to collective bargaining agreements, and impacted employees will not accrue additional benefits for future service and compensation. In connection with the plan amendments, the Corporation remeasured the UCC Plans effective February 28, 2021, which resulted in a pretax actuarial gain of $87 million, reflected in other comprehensive income and inclusive of a $14 million reduction in the projected benefit obligation resulting from the plan amendments, and a pretax curtailment gain of $7 million, recognized in the first quarter of 2021.

Separately, in the fourth quarter of 2023, certain of the Corporation’s tax-qualified pension plans purchased a nonparticipating group annuity contract from an insurance company, irrevocably transferring approximately $230 million of benefit obligations and $210 million of related plan assets to the insurers. This transaction did not require any cash funding from the Corporation and did not impact the pension benefits of participants. As a result of this transaction, the Corporation recognized a non-cash pretax settlement charge of $149 million in 2023, related to the accelerated recognition of a portion of the accumulated actuarial losses of the plan, recorded in “Sundry income (expense) – net” in the consolidated statements of income.

The Corporation's funding policy is to contribute to the plan when pension laws or economics either require or encourage funding. In 2023, UCC contributed $2 million to its pension plans, including contributions to fund benefit payments for its non-qualified supplemental plan. UCC expects to contribute approximately $2 million to its pension plans in 2024.

The weighted-average assumptions used to determine pension plan obligations and net periodic benefit cost are provided below:

Pension Plan Assumptions	Benefit Obligations at Dec 31				Net Periodic Benefit Cost for the Year Ended
	2023		2022		2023		2022		2021
Discount rate	5.25	%	5.60	%	5.72	%	2.94	%	2.86	%
Interest crediting rate for applicable benefits	4.50	%	4.50	%	4.50	%	4.50	%	4.50	%
Rate of compensation increase	4.25	%	4.25	%	4.25	%	4.25	%	4.25	%
Expected return on plan assets					6.80	%	6.80	%	6.80	%

Other Postretirement Benefit Plans

The Corporation provides certain health care and life insurance benefits to retired U.S. employees and survivors. The plan provides health care benefits, including hospital, physicians' services, drug and major medical expense coverage and life insurance benefits. The Corporation and the retiree share the cost of these benefits, with the Corporation portion increasing as the retiree has increased years of credited service, although there is a cap on the Corporation portion. The Corporation has the ability to change these benefits at any time. Employees hired after January 1, 2008, are not covered under this plan.

The Corporation funds most of the cost of these health care and life insurance benefits as incurred. In 2023, UCC did not make any contributions to its other postretirement benefit plan trust. Likewise, UCC does not expect to contribute assets to its other postretirement benefit plan trust in 2024.

The weighted-average assumptions used to determine other postretirement benefit plan obligations and net periodic benefit cost for the plan are provided in the following table:

Other Postretirement Benefit Plan Assumptions	Benefit Obligations at Dec 31				Net Periodic Benefit Cost for the Year Ended
	2023		2022		2023		2022		2021
Discount rate	5.20	%	5.56	%	5.56	%	2.84	%	2.34	%
Health care cost trend rate assumed for next year	6.50	%	6.57	%	6.57	%	6.50	%	6.75	%
Rate to which the cost trend rate is assumed to decline (the ultimate health care cost trend rate)	5.00	%	5.00	%	5.00	%	5.00	%	5.00	%
Year that the rate reaches the ultimate health care cost trend rate	2033		2033		2033		2028		2028

Assumptions

The Corporation determines the expected long-term rate of return on plan assets by performing a detailed analysis of key economic and market factors driving historical returns for each asset class and formulating a projected return based on factors in the current environment. Factors considered include, but are not limited to, inflation, real economic growth, interest rate yield, interest rate spreads, and other valuation measures and market metrics. The expected long-term rate of return for each asset class is then weighted based on the strategic asset allocation approved by the governing body for each plan. The Corporation's historical experience with the pension fund asset performance is also considered.

The Corporation uses the spot rate approach to determine the discount rate utilized to measure the service cost and interest cost components of net periodic pension and other postretirement benefit costs. Under the spot rate approach, the Corporation calculates service cost and interest cost by applying individual spot rates from the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to the separate expected cash flow components of service cost and interest cost.

The discount rates utilized to measure the pension and other postretirement obligations of the plans were based on the yield on high-quality corporate fixed income investments at the measurement date. Future expected actuarially determined cash flows for the plans are individually discounted at the spot rates under the Willis Towers Watson U.S. RATE:Link 60-90 corporate yield curve (based on 60th to 90th percentile high-quality corporate bond yields) to arrive at the plan’s obligations as of the measurement date.

The Corporation's mortality assumption used for the U.S. plans is a benefit-weighted version of the Society of Actuaries' RP-2014 base table with future rates of mortality improvement based on a modified version of the assumptions used in the Social Security Administration's 2021 trustees report.

Summarized information on the Corporation's pension and other postretirement benefit plans is as follows:

Change in Projected Benefit Obligations, Plan Assets and Funded Status for All Plans	Defined Benefit Pension Plans				Other Postretirement Benefit Plan
In millions	2023		2022		2023		2022
Change in projected benefit obligations:
Benefit obligations at beginning of year	$	2,860	$	3,940	$	128	$	174
Service cost	32		37		—		1
Interest cost	147		91		7		3
Actuarial changes in assumptions and experience	55		(826)		6		(48)
Benefits paid	(246)		(265)		(8)		(2)
Termination of benefits/settlement 1	(211)		—		—		—
Acquisition/divestiture/other 2	(4)		(117)		—		—
Benefit obligations at end of year	$	2,633	$	2,860	$	133	$	128
Change in plan assets:
Fair value of plan assets at beginning of year	$	2,679	$	3,611	$	—	$	—
Actual return on plan assets	146		(556)		—		—
Employer contributions	2		3		—		—
Asset transfers	(5)		(8)		—		—
Benefits paid	(246)		(265)		—		—
Settlement 3	(211)		—		—		—
Other 4	5		(106)		—		—
Fair value of plan assets at end of year	$	2,370	$	2,679	$	—	$	—
Funded status at end of year	$	(263)	$	(181)	$	(133)	$	(128)

Net amounts recognized in the consolidated balance sheets at Dec 31:
Deferred charges and other assets	$	10	$	—	$	—	$	—
Accrued and other current liabilities	(2)		(2)		(12)		(12)
Pension and other postretirement benefits - noncurrent	(271)		(179)		(121)		(116)
Net amount recognized	$	(263)	$	(181)	$	(133)	$	(128)
Pretax amounts recognized in accumulated other comprehensive loss at Dec 31:
Net loss (gain)	$	1,752	$	1,852	$	(102)	$	(124)

1.The 2023 impact primarily relates to the transfer of certain pension benefit obligations through the purchase of annuity contracts from an insurance company, triggering settlement accounting.

2.The 2022 impact primarily relates to the transfer of certain pension benefit obligations through the purchase of annuity contracts from an insurance company.

3.The 2023 impact primarily relates to the purchase of an annuity contract associated with the transfer of certain pension benefit obligations to an insurance company, triggering settlement accounting.

4.The 2022 impact primarily relates to the purchase of an annuity contract associated with the transfer of benefit obligations to an insurance company.

A significant component of the overall decrease in the Corporation's benefit obligation for the year ended December 31, 2023, was due to the irrevocable transfer of certain benefit obligations to a third-party insurance company, partially offset by the change in weighted-average discount rates, which decreased from 5.60 percent at December 31, 2022, to 5.25 percent at December 31, 2023. A significant component of the overall decrease in the Corporation's benefit obligation for the year ended December 31, 2022 was due to the change in weighted-average discount rates, which increased from 2.94 percent at December 31, 2021, to 5.60 percent at December 31, 2022.

The accumulated benefit obligation for all defined benefit pension plans was $2.6 billion at December 31, 2023, and $2.9 billion at December 31, 2022.

Pension Plans with Accumulated Benefit Obligations in Excess of Plan Assets at Dec 31
In millions	2023		2022
Accumulated benefit obligations	$	2,593	$	2,859
Fair value of plan assets	$	2,320	$	2,679

Pension Plans with Projected Benefit Obligations in Excess of Plan Assets at Dec 31	2023		2022
In millions
Projected benefit obligations	$	2,593	$	2,860
Fair value of plan assets	$	2,320	$	2,679

Net Periodic Benefit Cost (Credit) for All Plans for the Year Ended Dec 31	Defined Benefit Pension Plans						Other Postretirement Benefit Plan
In millions	2023		2022		2021		2023		2022		2021
Net Periodic Benefit Cost (Credit):
Service cost	$	32	$	37	$	26	$	—	$	1	$	1
Interest cost	147		91		80		7		3		3
Expected return on plan assets	(204)		(226)		(219)		—		—		—
Amortization of prior service credit	—		(1)		(1)		—		—		—
Amortization of net (gain) loss	60		108		116		(15)		(9)		(4)
Curtailment and settlement (gain) loss 1	149		—		(7)		—		—		—
Net periodic benefit cost (credit)	$	184	$	9	$	(5)	$	(8)	$	(5)	$	—
Changes in plan assets and benefit obligations recognized in other comprehensive (income) loss:
Net (gain) loss	$	109	$	(47)	$	(144)	$	7	$	(49)	$	(36)
Amortization of prior service credit	—		1		1		—		—		—
Amortization of net gain (loss)	(60)		(108)		(116)		15		9		4
Curtailment and settlement gain (loss) 1	(149)		—		7		—		—		—
Total recognized in other comprehensive (income) loss	$	(100)	$	(154)	$	(252)	$	22	$	(40)	$	(32)
Total recognized in net periodic benefit cost and other comprehensive (income) loss	$	84	$	(145)	$	(257)	$	14	$	(45)	$	(32)

1.The 2023 impact relates to the settlement of certain pension benefit obligations through the purchase of a nonparticipating group annuity contract from an insurer. The 2021 impact relates to the freeze of pensionable compensation and credited service amounts for employees that participate in the UCC Plans.

Net periodic benefit cost (credit), other than the service cost component, is included in "Sundry income (expense) - net" in the consolidated statements of income. See Note 5 for additional information.

Estimated Future Benefit Payments

The estimated future benefit payments, reflecting expected future service, as appropriate, are presented in the following table:

Estimated Future Benefit Payments at Dec 31, 2023	Defined Benefit Pension Plans		Other Postretirement Benefit Plan
In millions
2024	$	238	$	13
2025	213		13
2026	210		13
2027	207		12
2028	203		12
2029 through 2033	945		51
Total	$	2,016	$	114

Plan Assets

Plan assets consist primarily of equity and fixed income securities of U.S. and foreign issuers, and include alternative investments, such as real estate, private equity and other absolute return strategies. Plan assets totaled $2.4 billion at December 31, 2023 and $2.7 billion at December 31, 2022 and included no directly held common stock of Dow Inc.

The Corporation's investment strategy for plan assets is to manage the assets in relation to the liability in order to pay retirement benefits to plan participants over the life of the plans. This is accomplished by identifying and managing the exposure to various market risks, diversifying investments across various asset classes and earning an acceptable long-term rate of return consistent with an acceptable amount of risk, while considering the liquidity needs of the plan.

The plan is permitted to use derivative instruments for investment purposes, as well as for hedging the underlying asset and liability exposures and rebalancing the asset allocation. The plan uses value-at-risk, stress testing, scenario analysis and Monte Carlo simulation to monitor and manage both the risk within the portfolios and the surplus risk of the plan.

Equity securities primarily include investments in large- and small-cap companies located in both developed and emerging markets around the world. Fixed income securities are primarily U.S. dollar based and include U.S. treasuries and investment grade corporate bonds of companies diversified across industries. Alternative investments primarily include investments in real estate, private equity and absolute return strategies. Other significant investment types include various insurance contracts and interest rate, equity, commodity and foreign exchange derivative investments and hedges.

The Corporation mitigates the credit risk of investments by establishing guidelines with investment managers that limit investment in any single issue or issuer to an amount that is not material to the portfolio being managed. These guidelines are monitored for compliance both by the Corporation and the external managers. Credit risk related to derivative activity is mitigated by utilizing multiple counterparties, collateral support agreements, and centralized clearing where appropriate. A short-term investment money market fund is utilized as the sweep vehicle for the pension plan, which from time to time can represent a significant investment.

The weighted-average target allocation for plan assets of the Corporation's pension plan is summarized as follows:

Target Allocation for Plan Assets at Dec 31, 2023	Target Allocation
Asset Category
Equity securities	23	%
Fixed income securities	45
Alternative investments	27
Other	5
Total	100	%

Fair value calculations may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Corporation believes its valuation methods 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.

For pension plan assets classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.

For pension plan assets classified as Level 2 measurements, where the security is frequently traded in less active markets, fair value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and subjected to tolerance and quality checks. For derivative assets and liabilities, standard industry models are used to calculate the fair value of the various financial instruments based on significant observable market inputs such as foreign exchange rates, commodity prices, swap rates, interest rates, and implied volatilities obtained from various market sources. For other assets for which observable inputs are used, fair value is derived through the use of fair value models, such as a discounted cash flow model or other standard pricing models.

For pension plan assets classified as Level 3 measurements, total fair value is based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment.

Certain pension plan assets are held in funds where fair value is based on an estimated net asset value per share (or its equivalent) as of the most recently available fund financial statements which are received on a monthly or quarterly basis. These valuations are reviewed for reasonableness based on applicable sector, benchmark and company performance. Adjustments to valuations are made where appropriate to arrive at an estimated net asset value per share at the measurement date. These funds are not classified within the fair value hierarchy.

The following table summarizes the bases used to measure the Corporation’s pension plan assets at fair value for the years ended December 31, 2023 and 2022:

Basis of Fair Value Measurements	Dec 31, 2023								Dec 31, 2022
In millions	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	203	$	188	$	15	$	—	$	224	$	172	$	52	$	—
Equity securities:
U.S. equity securities	$	239	$	238	$	1	$	—	$	288	$	288	$	—	$	—
Non - U.S. equity securities	250		238		11		1		255		244		11		—
Total equity securities	$	489	$	476	$	12	$	1	$	543	$	532	$	11	$	—
Fixed income securities:
Debt - government-issued	$	720	$	—	$	720	$	—	$	665	$	1	$	664	$	—
Debt - corporate-issued	265		1		264		—		442		1		441		—
Debt - asset-backed	37		—		37		—		20		—		20		—
Total fixed income securities	$	1,022	$	1	$	1,021	$	—	$	1,127	$	2	$	1,125	$	—
Alternative investments:
Private markets	$	—	$	—	$	—	$	—	$	2	$	—	$	—	$	2
Derivatives - asset position	7		—		7		—		5		—		5		—
Derivatives - liability position	(13)		—		(13)		—		(16)		—		(16)		—
Total alternative investments	$	(6)	$	—	$	(6)	$	—	$	(9)	$	—	$	(11)	$	2
Other investments	$	1	$	1	$	—	$	—	$	3	$	2	$	1	$	—
Subtotal	$	1,709	$	666	$	1,042	$	1	$	1,888	$	708	$	1,178	$	2
Investments measured at net asset value:
Hedge funds	$	125							$	142
Private markets	344								411
Real estate	199								240
Total investments measured at net asset value	$	668							$	793
Items to reconcile to fair value of plan assets:
Pension trust receivables 1	$	7							$	4
Pension trust payables 2	(14)								(6)
Total	$	2,370							$	2,679

1.Primarily receivables for investment securities sold.

2.Primarily payables for investment securities purchased.

The following table summarizes the changes in fair value of Level 3 pension plan assets for the years ended December 31, 2023 and 2022:

Fair Value Measurement of Level 3 Pension Plan Assets	Equity Securities		Alternative Investments		Total
In millions
Balance at Jan 1, 2022	$	1	$	2	$	3
Actual return on plan assets:
Relating to assets held at Dec 31, 2022	(1)		(2)		(3)
Purchases, sales and settlements	—		2		2
Balance at Dec 31, 2022	$	—	$	2	$	2
Actual return on plan assets:
Relating to assets held at Dec 31, 2023	1		(2)		(1)
Balance at Dec 31, 2023	$	1	$	—	$	1

Defined Contribution Plans

In addition to the qualified defined benefit pension plan, U.S. employees may participate in defined contribution plans by contributing a portion of their compensation, which is partially matched by the Corporation. Expense recognized for all defined contribution plans was $12 million in 2023, $12 million in 2022 and $8 million in 2021.

On March 4, 2021, TDCC announced changes to its U.S. tax-qualified and non-qualified defined contribution plans. Effective January 1, 2022, contributions to U.S. tax-qualified and non-qualified defined contribution plans were harmonized across the U.S. eligible employee population of TDCC and its consolidated subsidiaries, including the plans of the Corporation. The new matching contribution allows all eligible U.S. employees to receive matching contributions of up to 5 percent of their eligible compensation. In addition, beginning on January 1, 2024, all eligible U.S. employees will receive an automatic non-elective contribution of 4 percent of eligible compensation to their respective defined contribution plans.