Postemployment benefit plans

12 Months Ended

Dec. 31, 2021

Retirement Benefits [Abstract]

Postemployment benefit plans

Postemployment benefit plans

We provide defined benefit pension plans, defined contribution plans and/or other postretirement benefit plans (retirement health care and life insurance) to employees in many of our locations throughout the world. Our defined benefit pension plans provide a benefit based on years of service and/or the employee’s average earnings near retirement. Our defined contribution plans allow employees to contribute a portion of their salary to help save for retirement, and in most cases, we provide a matching contribution. The benefit obligation related to our non-U.S. defined benefit pension plans are for employees located primarily in Europe, Japan and Brazil. For other postretirement benefits (OPEB), substantially all of our benefit obligation is for employees located in the United States.

Our U.S. defined benefit pension plans for support and management employees were frozen for certain employees on December 31, 2010 and were frozen for the remaining employees on December 31, 2019. On the respective transition dates employees moved to a retirement benefit that provided a frozen pension benefit and a 401(k) plan that will include a matching contribution and an annual employer contribution.

A. Obligations, assets and funded status

	U.S. Pension Benefits				Non-U.S.  Pension Benefits				Other Postretirement  Benefits
	2021		2020		2021		2020		2021		2020
Weighted-average assumptions used to determine benefit obligation, end of year:
Discount rate	2.8	%	2.4	%	1.8	%	1.4	%	2.7	%	2.3	%
Rate of compensation increase 1	—	%	—	%	2.0	%	2.0	%	4.0	%	4.0	%
1 Effective December 31, 2019, all U.S. pension benefits were frozen, and accordingly this assumption is no longer applicable.

We use the assumed discount rate to discount future benefit obligations back to today’s dollars.  The U.S. discount rate is based on a benefit cash flow-matching approach and represents the rate at which our benefit obligations could effectively be settled as of our measurement date, December 31.  The benefit cash flow-matching approach involves analyzing Caterpillar’s projected cash flows against a high quality bond yield curve, calculated using a wide population of corporate Aa bonds available on the measurement date.  We use a similar process to determine the assumed discount rate for our most significant non-U.S. plans. This rate is sensitive to changes in interest rates. A decrease in the discount rate would increase our obligation and future expense.

	U.S. Pension Benefits				Non-U.S.  Pension Benefits				Other Postretirement  Benefits
(Millions of dollars)	2021		2020		2021		2020		2021		2020
Accumulated benefit obligation, end of year	$	17,895	$	19,177	$	4,311	$	4,680
Change in benefit obligation:
Benefit obligation, beginning of year	$	19,177	$	17,773	$	4,847	$	4,666	$	4,051	$	3,960
Service cost 1	—		—		57		55		100		94
Interest cost	330		483		53		68		64		103
Plan amendments	—		—		—		6		—		(8)
Actuarial losses (gains) 2	(610)		1,922		(142)		258		(211)		192
Foreign currency exchange rates	—		—		(154)		213		(15)		(25)
Participant contributions	—		—		4		4		48		44
Benefits paid - gross	(996)		(997)		(184)		(159)		(310)		(317)
Less: federal subsidy on benefits paid	—		—		—		—		9		8
Curtailments, settlements and termination benefits	(6)		(4)		(45)		(264)		—		—
Benefit obligation, end of year	$	17,895	$	19,177	$	4,436	$	4,847	$	3,736	$	4,051
Change in plan assets:
Fair value of plan assets, beginning of year	$	17,589	$	15,994	$	4,731	$	4,525	$	147	$	255
Actual return on plan assets	595		2,552		99		385		34		23
Foreign currency exchange rates	—		—		(139)		164		—		—
Company contributions	45		44		84		76		211		142
Participant contributions	—		—		4		4		48		44
Benefits paid	(996)		(997)		(184)		(159)		(310)		(317)
Settlements and termination benefits	(6)		(4)		(43)		(264)		—		—
Fair value of plan assets, end of year	$	17,227	$	17,589	$	4,552	$	4,731	$	130	$	147
Over (under) funded status	$	(668)	$	(1,588)	$	116	$	(116)	$	(3,606)	$	(3,904)
Components of net amount recognized in financial position:
Other assets (non-current asset)	$	592	$	409	$	538	$	556	$	—	$	—
Accrued wages, salaries and employee benefits (current liability)	(45)		(44)		(16)		(25)		(240)		(186)
Liability for postemployment benefits (non-current liability) 3	(1,215)		(1,953)		(406)		(647)		(3,366)		(3,718)
Net (liability) asset recognized	$	(668)	$	(1,588)	$	116	$	(116)	$	(3,606)	$	(3,904)

Amounts recognized in Accumulated other comprehensive income (pre-tax) consist of:
Prior service cost (credit)	$	—	$	—	$	23	$	24	$	(5)	$	(46)

1 Effective December 31, 2019, all U.S. pension benefits were frozen, and accordingly there is no longer any service cost.

2 For 2021, Actuarial loss (gain) impacting the benefit obligation was primarily due to higher discount rates at the end of 2021 compared to the end of 2020. For 2020, Actuarial loss (gain) impacting the benefit obligation was primarily due to lower discount rates at the end of 2020 compared to the end of 2019.

3 The Liability for postemployment benefits reported in Statement 3 includes our liability for other postemployment benefits and our liability for non-qualified deferred compensation plans. For 2021, these liabilities were $67 million and $538 million, respectively. For 2020, these liabilities were $63 million and $491 million, respectively.

	U.S. Pension Benefits				Non-U.S.  Pension Benefits
(Millions of dollars)	2021		2020		2021		2020
Pension plans with projected benefit obligation in excess of plan assets:
Projected benefit obligation	$	14,403	$	15,300	$	743	$	2,171
Fair value of plan assets	$	13,143	$	13,302	$	319	$	1,499
Pension plans with accumulated benefit obligation in excess of plan assets:
Accumulated benefit obligation	$	14,403	$	15,300	$	603	$	1,988
Fair value of plan assets	$	13,143	$	13,302	$	234	$	1,425

The accumulated postretirement benefit obligation exceeds plan assets for all of our other postretirement benefit plans for all years presented.

B. Net periodic benefit cost

	U.S. Pension Benefits									Non-U.S. Pension Benefits									Other Postretirement Benefits
(Millions of dollars)	2021			2020			2019			2021			2020			2019			2021			2020			2019
Components of net periodic benefit cost:
Service cost 1	$	—		$	—		$	115		$	57		$	55		$	80		$	100		$	94		$	80
Interest cost	330			483			600			53			68			94			64			103			136
Expected return on plan assets	(718)			(791)			(721)			(128)			(135)			(148)			(6)			(12)			(18)
Curtailments, settlements and termination benefits	—			(1)			(1)			(1)			30			(7)			—			—			—
Amortization of prior service cost (credit)	—			—			—			—			—			—			(40)			(38)			(40)
Actuarial loss (gain) 2	(487)			162			72			(115)			32			90			(231)			189			306
Net Periodic benefit cost (benefit) 3	$	(875)		$	(147)		$	65		$	(134)		$	50		$	109		$	(113)		$	336		$	464
Other changes in plan assets and benefit obligations recognized in other comprehensive income (pre-tax):
Current year prior service cost (credit)	$	—		$	—		$	—		$	—		$	8		$	(4)		$	—		$	(7)		$	8
Amortization of prior service (cost) credit	—			—			—			—			—			—			40			38			40
Total recognized in other comprehensive income	—			—			—			—			8			(4)			40			31			48
Total recognized in net periodic cost and other comprehensive income	$	(875)		$	(147)		$	65		$	(134)		$	58		$	105		$	(73)		$	367		$	512
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate used to measure service cost 1	—		%	—		%	4.3		%	1.4		%	1.5		%	2.5		%	2.5		%	3.2		%	4.1		%
Discount rate used to measure interest cost	1.8		%	2.8		%	3.9		%	1.2		%	1.7		%	2.3		%	1.6		%	2.8		%	3.9		%
Expected rate of return on plan assets 4	4.2		%	5.1		%	5.9		%	2.9		%	3.3		%	3.8		%	6.5		%	7.0		%	7.2		%
Rate of compensation increase 1	—		%	—		%	4.0		%	2.0		%	2.0		%	3.0		%	4.0		%	4.0		%	4.1		%

1 Effective December 31, 2019, all U.S. pension benefits were frozen, and accordingly there is no longer any service cost and certain assumptions are no longer applicable.

2 Actuarial loss (gain) represents the effects of actual results differing from our assumptions and the effects of changing assumptions. We recognize actuarial loss (gain) immediately through earnings upon the annual remeasurement in the fourth quarter, or on an interim basis as triggering events warrant remeasurement.

3 The service cost component is included in Operating costs and all other components are included in Other income (expense) in Statement 1.

4 The weighted-average rates for 2022 are 4.0 percent and 3.1 percent for U.S. and non-U.S. pension plans, respectively.

The discount rates used in the determination of our service and interest cost components utilize a full yield curve approach which applies specific spot rates along the yield curve used in the calculation of the benefit obligation to the relevant projected cash flows.

Our U.S. expected long-term rate of return on plan assets is based on our estimate of long-term passive returns for equities and fixed income securities weighted by the allocation of our pension assets. Based on historical performance, we increase the passive returns due to our active management of the plan assets. To arrive at our expected long-term return, the amount added for active management was 0.35 percent for 2021, and 0.40 percent for 2020 and 2019.  We use a similar process to determine this rate for our non-U.S. plans.

The assumed health care trend rate represents the rate at which health care costs are assumed to increase. We assumed a weighted-average increase of 5.8 percent in our calculation of 2021 benefit expense.  We expect a weighted-average increase of 5.6 percent during 2022.  The 2022 rates are assumed to decrease gradually to the ultimate health care trend rate of 5 percent in 2025. This rate represents 3 percent general inflation plus 2 percent additional health care inflation.

 C. Expected contributions and Benefit payments

The following table presents information about expected contributions and benefit payments for pension and other postretirement benefit plans:

(Millions of dollars)	2022
Expected employer contributions:
U.S. Pension Benefits	$	46
Non-U.S. Pension Benefits	$	55
Other Postretirement Benefits	$	256
Expected benefit payments:	2022		2023		2024		2025		2026		2027- 2031		Total
U.S. Pension Benefits	$	1,035	$	1,020	$	1,020	$	1,020	$	1,020	$	4,960	$	10,075
Non-U.S. Pension Benefits	$	210	$	175	$	180	$	185	$	195	$	1,045	$	1,990
Other Postretirement Benefits	$	275	$	270	$	265	$	260	$	260	$	1,250	$	2,580
Expected Medicare Part D subsidy:	$	7	$	7	$	7	$	7	$	6	$	26	$	60

The above table reflects the total expected employer contributions and expected benefits to be paid from the plan or from company assets and does not include the participants’ share of the cost. The expected benefit payments for our other postretirement benefits include payments for prescription drug benefits. The above table also includes Medicare Part D subsidy amounts expected to be received by the company which will offset other postretirement benefit payments.

D. Plan assets

In general, our strategy for both the U.S. and non-U.S. pensions includes ongoing alignment of our investments to our liabilities, while reducing risk in our portfolio. The current U.S. pension target asset allocation is 85 percent fixed income and 15 percent equities. We will revise this target allocation periodically to ensure it reflects our overall objectives. The non-U.S. pension weighted-average target allocations are 82 percent fixed income, 10 percent equities, 5 percent real estate and 3 percent other.  The target allocations for each plan vary based upon local statutory requirements, demographics of plan participants and funded status.  We primarily invest the non-U.S. plan assets in non-U.S. securities.

Our target allocation for the other postretirement benefit plans is 70 percent equities and 30 percent fixed income. 

We rebalance the U.S. plans to within the appropriate target asset allocation ranges on a monthly basis.  The frequency of rebalancing for the non-U.S. plans varies depending on the plan. As a result of our diversification strategies, there are no significant concentrations of risk within the portfolio of investments.

We permit the use of certain derivative instruments where appropriate and necessary for achieving overall investment policy objectives.  The plans do not use derivative contracts for speculative purposes.

The accounting guidance on fair value measurements specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques (Level 1, 2 and 3). Certain assets that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. See Note 18 for a discussion of the fair value hierarchy.

We determine fair values as follows:

•Equity securities are primarily based on valuations for identical instruments in active markets.

•Fixed income securities are primarily based upon models that take into consideration such market-based factors as recent sales, risk-free yield curves and prices of similarly rated bonds.

•Real estate is stated at the fund’s net asset value or at appraised value.

•Cash, short-term instruments and other are based on the carrying amount, which approximates fair value, or the fund’s net asset value.

The fair value of the pension and other postretirement benefit plan assets by category is summarized below:

	December 31, 2021
(Millions of dollars)	Level 1		Level 2		Level 3		Measured at NAV		Total Assets at Fair Value
U.S. Pension
Equity securities:
U.S. equities	$	1,644	$	25	$	23	$	149	$	1,841
Non-U.S. equities	1,398		—		2		—		1,400
Fixed income securities:
U.S. corporate bonds	—		7,289		40		37		7,366
Non-U.S. corporate bonds	—		1,569		—		—		1,569
U.S. government bonds	—		4,341		—		—		4,341
U.S. governmental agency mortgage-backed securities	—		24		—		—		24
Non-U.S. government bonds	—		172		—		—		172
Real estate	—		—		7		—		7
Cash, short-term instruments and other	228		60		—		219		507
Total U.S. pension assets	$	3,270	$	13,480	$	72	$	405	$	17,227

	December 31, 2020
(Millions of dollars)	Level 1		Level 2		Level 3		Measured at NAV		Total Assets at Fair Value
U.S. Pension
Equity securities:
U.S. equities	$	2,292	$	5	$	28	$	133	$	2,458
Non-U.S. equities	1,838		—		1		—		1,839
Fixed income securities:
U.S. corporate bonds	—		7,395		53		119		7,567
Non-U.S. corporate bonds	—		1,372		—		—		1,372
U.S. government bonds	—		3,618		—		—		3,618
U.S. governmental agency mortgage-backed securities	—		27		—		—		27
Non-U.S. government bonds	—		133		—		—		133
Real estate	—		—		9		—		9
Cash, short-term instruments and other	363		22		—		181		566
Total U.S. pension assets	$	4,493	$	12,572	$	91	$	433	$	17,589

	December 31, 2021
(Millions of dollars)	Level 1		Level 2		Level 3		Measured at NAV		Total Assets at Fair Value
Non-U.S. Pension
Equity securities:
U.S. equities	$	72	$	—	$	—	$	—	$	72
Non-U.S. equities	266		32		—		37		335
Global equities 1	31		15		—		46		92
Fixed income securities:
U.S. corporate bonds	—		327		—		—		327
Non-U.S. corporate bonds	—		889		—		—		889
U.S. government bonds	—		152		—		—		152
Non-U.S. government bonds	—		1,752		—		—		1,752
Global fixed income 1	—		88		—		297		385
Real estate	—		225		—		—		225
Cash, short-term instruments and other 2	56		267		—		—		323
Total non-U.S. pension assets	$	425	$	3,747	$	—	$	380	$	4,552

	December 31, 2020
(Millions of dollars)	Level 1		Level 2		Level 3		Measured at NAV		Total Assets at Fair Value
Non-U.S. Pension
Equity securities:
U.S. equities	$	97	$	—	$	—	$	—	$	97
Non-U.S. equities	368		33		—		50		451
Global equities 1	29		17		—		49		95
Fixed income securities:
U.S. corporate bonds	—		314		—		—		314
Non-U.S. corporate bonds	—		987		—		—		987
U.S. government bonds	—		2		—		—		2
Non-U.S. government bonds	—		1,743		—		—		1,743
Global fixed income 1	—		131		—		325		456
Real estate	—		239		—		—		239
Cash, short-term instruments and other 2	71		276		—		—		347
Total non-U.S. pension assets	$	565	$	3,742	$	—	$	424	$	4,731
1 Includes funds that invest in both U.S. and non-U.S. securities.
2 Includes funds that invest in multiple asset classes, hedge funds and other.

	December 31, 2021
(Millions of dollars)	Level 1		Level 2		Level 3		Measured at NAV		Total Assets at Fair Value
Other Postretirement Benefits
Equity securities:
U.S. equities	$	49	$	—	$	—	$	—	$	49
Non-U.S. equities	17		—		—		—		17
Cash, short-term instruments and other	—		2		—		62		64
Total other postretirement benefit assets	$	66	$	2	$	—	$	62	$	130

	December 31, 2020
(Millions of dollars)	Level 1		Level 2		Level 3		Measured at NAV		Total Assets at Fair Value
Other Postretirement Benefits
Equity securities:
U.S. equities	$	88	$	—	$	—	$	—	$	88
Non-U.S. equities	21		—		—		—		21
Fixed income securities:
U.S. corporate bonds	—		11		—		1		12
Non-U.S. corporate bonds	—		2		—		—		2
U.S. government bonds	—		3		—		—		3
U.S. governmental agency mortgage-backed securities	—		6		—		—		6
Non-U.S. government bonds	—		3		—		—		3
Cash, short-term instruments and other	—		2		—		10		12
Total other postretirement benefit assets	$	109	$	27	$	—	$	11	$	147

The activity attributable to U.S. pension assets measured at fair value using Level 3 inputs for the years ended December 31, 2021 and 2020 was insignificant. We valued these instruments using pricing models that, in management’s judgment, reflect the assumptions a market participant would use.

E. Defined contribution plans

We have both U.S. and non-U.S. employee defined contribution plans to help employees save for retirement. Our primary U.S. 401(k) plan allows eligible employees to contribute a portion of their cash compensation to the plan on a tax-deferred basis. Employees with frozen defined benefit pension accruals are eligible for matching contributions equal to 100 percent of employee contributions to the plan up to 6 percent of cash compensation and an annual employer contribution that ranges from 3 to 5 percent of cash compensation (depending on years of service and age). Employees that were still accruing benefits under a defined benefit pension plan up to December 31, 2019 were eligible for matching contributions equal to 50 percent of employee contributions up to 6 percent of cash compensation. All our U.S. defined benefit pension plans were frozen on December 31, 2019 for remaining employees still accruing a benefit. Starting in 2020, these employees receive matching contributions equal to 100 percent of employee contributions to the plan up to 6 percent of cash compensation and an annual employer contribution that ranges from 3 to 5 percent of cash compensation (depending on years of service and age).

These 401(k) plans include various investment funds, including a non-leveraged employee stock ownership plan (ESOP). As of December 31, 2021 and 2020, the ESOP held 12.4 million and 13.2 million shares, respectively. We allocate all of the shares held by the ESOP to participant accounts. Dividends paid to participants are automatically reinvested into company shares unless the participant elects to have all or a portion of the dividend paid to the participant. Various other U.S. and non-U.S. defined contribution plans generally allow eligible employees to contribute a portion of their cash compensation to the plans, and in most cases, we provide a matching contribution to the funds.

Total company costs related to U.S. and non-U.S. defined contribution plans were as follows:

(Millions of dollars)	2021		2020		2019
U.S. plans	$	440	$	384	$	414
Non-U.S. plans	114		89		83
	$	554	$	473	$	497