The Company sponsors and co-sponsors defined benefit pension plans that cover certain non-U.S. employees and retirees. The defined benefit pension plan benefits are based principally on employees’ years of service and/or compensation levels at or near retirement. These plans are accounted for as defined benefit pension plans for purposes of the consolidated financial statements. Accordingly, the net benefit plan obligations and the related benefit plan expenses of those plans have been recorded in the Company’s consolidated financial statements.

The following tables present the components of net periodic pension cost for the defined benefit pension plans recognized in the Consolidated Income Statement.

*These components of net periodic pension cost are included in other expense in the Consolidated Income Statement.

The following table presents the changes in net benefit obligation and plan assets for the defined benefit pension plans.


	Year		Three Months		Year
	Ended		Ended		Ended
	March 31,		March 31,		December 31,
(Dollars in millions)	2023		2022		2021
Change in benefit obligation
Benefit obligation at beginning of period	$	2,024	$	2,302	$	1,202
Service cost*		44		14		10
Interest cost		32		6		4
Plan participants’ contributions		4		1		1
Benefit obligation assumed from former Parent**		—		—		1,178
Actuarial losses (gains)		(299)		(224)		(43)
Benefits paid from trust		(15)		(4)		(2)
Direct benefit payments		(37)		(11)		(3)
Foreign exchange impact		(66)		(50)		(34)
Amendments, curtailments, settlements and other		(29)		(11)		(11)
Benefit obligation at end of period	$	1,659	$	2,024	$	2,302
Change in plan assets
Fair value of plan assets at beginning of period	$	1,383	$	1,496	$	654
Actual return on plan assets		(88)		(71)		39
Employer contributions		27		2		23
Fair value of plan assets assumed from former Parent**		—		—		810
Plan participants’ contributions		4		1		1
Benefits paid from trust		(15)		(4)		(2)
Foreign exchange impact		(40)		(34)		(22)
Settlements		(44)		(7)		(8)
Fair value of plan assets at end of period	$	1,226	$	1,383	$	1,496
Funded Status at end of period	$	(433)	$	(641)	$	(807)
Accumulated benefit obligation***	$	1,574	$	1,907	$	2,181

*	Represents service costs attributable to Company-sponsored and co-sponsored plans.

**	Represents the impact to benefit obligation and fair value of plan assets resulting from pension assets and liabilities assumed in connection with establishment of certain Kyndryl legal entities.

***	Represents the benefit obligation assuming no future participant compensation increases.

The following table presents the amounts recorded in the Consolidated Balance Sheet for the defined benefit pension plans.


	At March 31,		At March 31,		At December 31,
(Dollars in millions)	2023		2022		2021
Noncurrent assets – pension assets	$	94	$	61	$	58
Current liabilities – accrued compensation and benefits		(38)		(28)		(28)
Noncurrent liabilities – retirement and nonpension postretirement benefit obligations		(489)		(674)		(836)
Funded status, net	$	(433)	$	(641)	$	(807)

The following table presents information for defined benefit pension plans with accumulated benefit obligations (ABO) or projected benefit obligations (PBO) in excess of plan assets.


	At March 31, 2023				At March 31, 2022				At December 31, 2021
	Benefit		Plan		Benefit		Plan		Benefit		Plan
(Dollars in millions)	Obligation		Assets		Obligation		Assets		Obligation		Assets
PBO in excess of plan assets	$	953	$	426	$	1,743	$	1,040	$	1,990	$	1,125
ABO in excess of plan assets		630		171		1,553		962		1,790		1,039
Plan assets in excess of PBO		706		800		281		343		312		371

The following table presents the pretax net loss and prior service costs (credits) recognized in OCI and the changes in pretax net loss and prior service costs (credits) as well as Separation-related transfers from Parent recognized in AOCI for the defined benefit pension plans.


	Year		Three Months		Year
	Ended		Ended		Ended
	March 31,		March 31,		December 31,
(Dollars in millions)	2023		2022		2021
Net loss (gain) at beginning of period	$	474	$	629	$	314
Current period loss (gain)		(172)		(135)		(75)
Curtailments and settlements		(10)		(4)		(3)
Amortization of net loss included in net periodic benefit cost		(39)		(15)		(51)
Separation-related transfers from Parent **		—		—		444
Net loss (gain) at end of period	$	253	$	474	$	629
Prior service costs (credits) at beginning of period		9		9		(2)
Current period prior service costs (credits)		—		—		3
Amortization for prior service costs (credits) included in net periodic benefit cost		(1)		—		—
Separation-related transfers from Parent **		—		—		9
Prior service costs (credits) at end of period	$	8	$	9	$	9
Total amounts recognized in accumulated other comprehensive loss (income) *	$	261	$	484	$	638

See Note 14 – Equity for the total change in AOCI and the Consolidated Statement of Comprehensive Income for the components of net periodic benefit cost, which includes components related to nonpension postretirement benefit plans as well as the related tax effects, recognized in OCI for the retirement-related benefit plans.

Separation-related transfers from Parent represent the pretax impact resulting from the assumption of pension assets and liabilities, along with the associated deferred costs, in connection with establishment of certain Kyndryl legal entities. These transfers are not recognized in OCI; rather they are recognized as transfers into AOCI. See Note 14 – Equity.

The following table presents the weighted-average assumptions used to measure the net periodic pension cost and the year-end benefit obligations for the defined benefit pension plans.


			Three
	Year Ended		Months Ended		Year Ended		Year Ended
	March 31,		March 31,		December 31,		December 31,
Weighted-average assumptions used to measure	2023		2022		2021		2020
Net periodic pension cost
Discount rate	1.88	%	1.19	%	0.62	%	0.86	%
Expected long-term returns on plan assets	3.33	%	3.00	%	3.00	%	4.03	%
Rate of compensation increase	2.54	%	2.30	%	2.22	%	2.25	%
Benefit obligations
Discount rate	3.57	%	1.88	%	1.19	%	0.62	%
Rate of compensation increase	2.85	%	2.54	%	2.30	%	2.22	%
Interest crediting rate - cash balance plans	1.52	%	1.52	%	1.43	%

In certain countries, a hypothetical portfolio of high-quality corporate bonds is used to construct a yield curve. Projected cash flows from the Company’s expected benefit obligation payments are matched to the yield curve to derive discounts. In other countries where the markets for high-quality long-term bonds are not as well developed, a portfolio of long-term government bonds is used as a base and a credit spread is added to simulate corporate bond yields at these maturities in the jurisdiction of each plan. This is the benchmark for developing the respective discount rates.

In developing the expected long-term rate of return on assets, the Company considers the long-term expectations for future returns. The use of expected returns may result in pension income that is greater or less than the actual return of those plan assets in a given year. Over time, however, the expected rate of return is expected to approximate the actual long-term results, leading to a pattern of income or loss recognition that more closely matches the pattern of services provided by the employees.

The investment objective of the defined benefit plans is to generate returns that will enable the plan to meet its future obligations. The weighted-average target allocation for the defined benefit plans is 28 percent equity securities, 43 percent fixed-income securities, 5 percent real estate, 15 percent insurance contracts and 8 percent other investments. Typically the responsibility for determining the target allocation and managing the investments lies with a plan governing board that may include up to 50 percent of members elected by employees and retirees. Generally, these defined benefit plans do not invest in illiquid assets, and their use of derivatives is mainly for currency hedging, interest rate risk management, credit exposure and alternative investment strategies.

The following table presents the Company’s defined benefit pension plans’ asset classes and their associated fair value at March 31, 2023, March 31, 2022 and December 31, 2021.


	At March 31, 2023								At March 31, 2022
(Dollars in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Equity
Equity securities	$	—	$	—	$	—	$	—	$	9	$	—	$	—	$	9
Fixed income
Government and related ⁽¹⁾		—		107		—		107		—		147		—		147
Corporate bonds		—		20		—		20		—		29		—		29
Insurance contracts		—		191		—		191		—		224		—		224
Cash and short-term investments ⁽²⁾		3		—		—		3		9		1		—		10
Derivative assets ⁽³⁾		—		5		—		5		3		9		—		12
Subtotal	$	3	$	322	$	—	$	326	$	21	$	410	$	—	$	431
Investments measured at net asset value using NAV as a practical expedient ⁽⁴⁾		—		—		—		901		—		—		—		953
Fair value of plan assets	$	3	$	322	$	—	$	1,226	$	21	$	410	$	—	$	1,383

									At December 31, 2021
(Dollars in millions)									Level 1		Level 2		Level 3		Total
Equity
Equity securities									$	9	$	—	$	—	$	9
Fixed income
Government and related ⁽¹⁾										—		158		—		158
Corporate bonds										—		32		—		32
Insurance contracts										—		255		—		255
Cash and short-term investments ⁽²⁾										14		—		—		14
Derivative assets ⁽³⁾										3		12		—		15
Subtotal									$	26	$	457	$	—	$	483
Investments measured at net asset value using NAV as a practical expedient ⁽⁴⁾										—		—		—		1,013
Fair value of plan assets									$	26	$	457	$	—	$	1,496

(1)	Includes debt issued by national, state and local governments and agencies.

(2)	Includes cash, cash equivalents and short-term marketable securities.

(3)	Includes forward contracts, interest rate swaps, exchange traded and other over-the-counter derivatives.

(4)	Investments measured at fair value using the net asset value (NAV) per share (or its equivalent), as a practical expedient. These investments include commingled funds, hedge funds, common collective trusts, private equity partnerships and real estate partnerships.

Approximately 79 percent of plan assets are held in plans which are co-sponsored by the Company and the former Parent. The allocation of the fair value of co-sponsored plan assets is based on the initial pension assets assumed in connection with establishment of certain Kyndryl legal entities, Company contributions, distributions and market returns.

Defined benefit pension plan assets are recognized and measured at fair value. Because of the inherent uncertainty of valuations, these fair value measurements may not necessarily reflect the amounts the Company could realize in current market transactions. The following is a description of the valuation techniques used to measure plan assets at fair value. There were no changes in valuation techniques during the periods presented.

Equity securities and mutual funds: Equity securities are valued at the closing price reported on the stock exchange on which the individual securities are traded. Mutual funds are typically valued based on quoted market prices. These assets are generally classified as Level 1.

Fixed income: Fixed-income securities, other than insurance contracts, are typically valued using the closing price reported on the major market on which the individual securities are traded, if available. Assets fair valued using this methodology are generally classified as Level 2. If market prices are unavailable, the fair value is estimated using pricing models or quoted prices of securities with similar characteristics.

Insurance contracts: Fair value is based on the expected value of the insurance benefits of the insurance contracts. The insurance benefits are assessed using the same interest rate and mortality table used to determine the liability. These assets are generally classified as Level 2.

Cash and short-term investments: Cash includes money market accounts that are valued at their cost plus interest on a daily basis, which approximates fair value. Short-term investments represent securities with original maturities of one year or less. These assets are generally classified as Level 1.

Derivatives assets: Exchange-traded derivatives are valued at the closing price reported on the exchange on which the individual securities are traded. Forward contracts are valued using a mid-close price. Over-the-counter derivatives are valued using pricing models. These models require a variety of inputs, yield curves, credit curves, measures of volatility and foreign exchange rates. Derivative assets are classified as Level 1 or Level 2 depending on availability of quoted market prices.

Investments measured at net asset value: Certain investments are measured at fair value using the net asset value (“NAV”) per share (or its equivalent) as a practical expedient. These investments, which may include commingled funds, hedge funds, common collective trusts, private equity partnerships and real estate partnerships, are typically valued using the NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus liabilities multiplied by the plan’s ownership of the investment.

It is the Company’s general practice to fund amounts for pensions sufficient to meet the minimum requirements set forth in applicable employee benefits laws and local tax laws. From time to time, the Company contributes additional amounts as it deems appropriate. The company contributed $27 million, $2 million, $25 million and $4 million to the defined benefit pension plans during the year ended March 31, 2023, the three months ended March 31, 2022, and the years ended December 31, 2021 and 2020, respectively. Additionally, the Company made direct payments of $37 million, $11 million, $33 million and $19 million to participants of the defined benefit pension plans during the year ended March 31, 2023, the three months ended March 31, 2022, and the years ended December 31, 2021 and 2020, respectively.

The Company estimates contributions to its defined benefit pension plans in fiscal year 2024 to be approximately $23 million. This amount generally represents legally mandated minimum contributions. Financial market performance in fiscal year 2024 could increase the legally mandated minimum contribution in certain countries that require monthly or daily remeasurement of the funded status. The Company could also elect to contribute more than the legally mandated amount based on market conditions or other factors.

The following table presents the expected benefit payments to participants of the defined benefit pension plans.


	Expected
(Dollars in millions)	Benefit Payments
Fiscal year ending March 31,
2024	$	109
2025		115
2026		113
2027		115
2028		123
2029-2033		647

The fiscal year 2024 expected benefit payments not covered by the respective plan assets represent a component of compensation and benefits, within current liabilities, in the Consolidated Balance Sheet.

Defined Contribution Retirement Plans

The Company sponsors defined contribution retirement plans for certain eligible employees. The Company’s contribution expense associated with employer matching benefits was $142 million, $35 million, $165 million and $194 million for the year ended March 31, 2023, the three months ended March 31, 2022 and the years ended December 31, 2021 and 2020, respectively.

Nonpension Postretirement Benefit Plans and Multi-Employer Plans

Certain Company employees participate in multi-employer defined benefit pension plans and post-retirement health plans which are sponsored by third parties and include other participants as well as other nonpension postretirement benefit plans that are sponsored by the Company. Accordingly, the Company does not record an asset or liability to recognize the funded status of the multi-employer plans. However, the Company records service cost attributable to its employees who participate in the multi-employer plans, as well as expense allocated for certain corporate and shared functional employees. These amounts are included in the Consolidated Income Statement, and were not material for any of the periods presented. The nonpension postretirement benefit plans provide a fixed monthly dollar credit for retiree health care expense. The related expenses for these plans are included in the consolidated financial statements, and were not material for any period presented.

Contributions to the nonpension postretirement benefit plans and the multi-employer plans and components of net periodic benefit cost related to these plans and were not material for any period presented. Additionally, the components resulting in a change in benefit obligation and the activity recognized in AOCI related to the nonpension postretirement benefit plans were not material for the periods presented. The nonpension postretirement benefit plans had a noncurrent liability recorded in the retirement and nonpension postretirement benefit obligation Consolidated Balance Sheet of $10 million, $17 million and $19 million at March 31, 2023, March 31, 2022 and December 31, 2021, respectively. The weighted-average discount rate used to measure the nonpension postretirement benefit plan obligation was 3.02%, 1.23%, 1.04% and 8.31% for the year ended March 31, 2023, the three months ended March 31, 2022 and the years ended December 31, 2021 and 2020, respectively. There were no plan assets in the nonpension postretirement benefit plans for any period presented. As a result, the noncurrent liability related to these plans represented the accumulated postretirement benefit obligation in excess of plan assets for each period presented. Future expected benefit payments to participants of the nonpension postretirement benefit plans are not expected to be material, and the Company expects contributions to the multi-employer and nonpension postretirement benefits plans to be not material in fiscal year 2024.