PENSION AND OTHER POSTRETIREMENT BENEFITS

12 Months Ended

Dec. 31, 2021

Retirement Benefits [Abstract]

PENSION AND OTHER POSTRETIREMENT BENEFITS

NOTE 14: PENSION AND OTHER POSTRETIREMENT BENEFITS

Defined Contribution Plans

As of December 31, 2021, we sponsor numerous defined contribution savings plans, which allow our eligible employees to contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. The plans include several match contribution formulas which requires us to match a percentage of the employee contributions up to certain limits, generally totaling 6.0% of employee eligible pay. Matching contributions, net of forfeitures, charged to expense were $230 million, $225 million, $105 million and $85 million in fiscal 2021 and 2020, the two quarters ended January 3, 2020 and fiscal 2019, respectively.

Deferred Compensation Plans

We also sponsor certain non-qualified deferred compensation plans. The following table provides the fair value of our deferred compensation plan investments and liabilities by category and by fair value hierarchy level:

	December 31, 2021				January 1, 2021
(In millions)	Total		Level 1		Total		Level 1
Assets
Deferred compensation plan assets:(1)
Equity and fixed income securities	$	77	$	77	$	67	$	67
Investments measured at NAV:
Corporate-owned life insurance	35				31
Total fair value of deferred compensation plan assets	$	112			$	98
Liabilities
Deferred compensation plan liabilities:(2)
Equity securities and mutual funds	$	6	$	6	$	4	$	4
Investments measured at NAV:
Common/collective trusts and guaranteed investment contracts	177				116
Total fair value of deferred compensation plan liabilities	$	183			$	120

_______________

(1)Represents diversified assets held in a “rabbi trust” associated with our non-qualified deferred compensation plans, which we include in the “Other current

assets” and “Other non-current assets” line items in our Consolidated Balance Sheet, and which are measured at fair value.

(2)Primarily represents obligations to pay benefits under certain non-qualified deferred compensation plans, which we include in the “Compensation and

benefits” and “Other long-term liabilities” line items in our Consolidated Balance Sheet. Under these plans, participants designate

investment options (including stock and fixed-income funds), which serve as the basis for measurement of the notional value of their accounts.

Defined Benefit Plans

We sponsor numerous defined benefit pension plans for eligible employees. Benefits for most participants under the terms of these plans are based on the employee’s years of service and compensation. We fund these plans as required by statutory regulations and through voluntary contributions. Some of our employees also participate in other postretirement defined benefit plans such as health care and life insurance plans.

Our Salaried Pension Plan (“SPP”) is our largest defined benefit pension plan, with assets valued at $8.2 billion and a projected benefit obligation of $8.6 billion as of December 31, 2021.

Balance Sheet Information

Amounts recognized in our Consolidated Balance Sheet for defined benefit pension plans and other postretirement defined benefit plans (collectively, “defined benefit plans”) reflect the funded status of our plans. The following table provides a summary of the funded status of our defined benefit plans and the presentation of such balances within our Consolidated Balance Sheet:

	December 31, 2021						January 1, 2021
(In millions)	Pension		Other Benefits		Total		Pension		Other Benefits		Total
Fair value of plan assets	$	9,604	$	320	$	9,924	$	9,301	$	299	$	9,600
Projected benefit obligation	(10,007)		(348)		(10,355)		(11,045)		(387)		(11,432)
Funded status	$	(403)	$	(28)	$	(431)	$	(1,744)	$	(88)	$	(1,832)
Consolidated Balance Sheet line item amounts:
Other non-current assets	$	150	$	51	$	201	$	88	$	8	$	96
Compensation and benefits	(11)		(7)		(18)		(10)		(8)		(18)
Liabilities of disposal group held for sale	—		—		—		(4)		—		(4)
Defined benefit plans	(542)		(72)		(614)		(1,818)		(88)		(1,906)

A portion of our projected benefit obligation includes amounts that have not yet been recognized as expense (or reductions of expense) in our results of operations. Such amounts are recorded within accumulated other comprehensive loss until they are amortized as a component of net periodic benefit cost. The following table provides a summary of pre-tax amounts recorded within accumulated other comprehensive loss:

	December 31, 2021						January 1, 2021
(In millions)	Pension		Other Benefits		Total		Pension		Other Benefits		Total
Net actuarial loss (gain)	$	209	$	(73)	$	136	$	1,215	$	(28)	$	1,187
Net prior service (credit) cost	(218)		6		(212)		(253)		7		(246)
	$	(9)	$	(67)	$	(76)	$	962	$	(21)	$	941

The following table provides a roll-forward of the projected benefit obligations for our defined benefit plans:

	December 31, 2021						January 1, 2021
(In millions)	Pension		Other Benefits		Total		Pension		Other Benefits		Total
Change in benefit obligation
Benefit obligation at beginning of fiscal year	$	11,045	$	387	$	11,432	$	10,268	$	369	$	10,637
Service cost	66		2		68		65		2		67
Interest cost	188		5		193		273		10		283
Actuarial (gain) loss	(381)		(22)		(403)		1,035		24		1,059
Benefits paid	(555)		(24)		(579)		(569)		(26)		(595)
Settlements	(268)		—		(268)		—		—		—
Expenses paid	(31)		—		(31)		(42)		—		(42)
Divestiture	(65)		—		(65)		—		—		—
Other	8		—		8		15		8		23
Benefit obligation at end of fiscal year	$	10,007	$	348	$	10,355	$	11,045	$	387	$	11,432

Actuarial gains in the projected benefit obligation as of December 31, 2021 were primarily the result of the increase in the discount rate. Other sources of gains and losses such as plan experience, updated census data, mortality updates and minor adjustments to actuarial assumptions generated combined gains and losses of less than 1% of expected year end obligations.

The following table provides a roll-forward of the assets and the ending funded status of our defined benefit plans:

	December 31, 2021						January 1, 2021
(In millions)	Pension		Other Benefits		Total		Pension		Other Benefits		Total
Change in plan assets
Plan assets at beginning of fiscal year	$	9,301	$	299	$	9,600	$	8,618	$	274	$	8,892
Actual return on plan assets	1,215		43		1,258		1,263		40		1,303
Employer contributions	17		2		19		20		11		31
Benefits paid	(555)		(24)		(579)		(569)		(26)		(595)
Settlements	(268)		—		(268)		—		—		—
Expenses paid	(31)		—		(31)		(42)		—		(42)
Divestiture	(78)		—		(78)		—		—		—
Other	3		—		3		11		—		11
Plan assets at end of fiscal year	$	9,604	$	320	$	9,924	$	9,301	$	299	$	9,600
Funded status at end of fiscal year	$	(403)	$	(28)	$	(431)	$	(1,744)	$	(88)	$	(1,832)

The accumulated benefit obligation for all defined benefit pension plans was $10.0 billion at December 31, 2021. The following tables provide information for benefit plans with accumulated benefit obligations in excess of plan assets and benefit plans with projected benefit obligations in excess of plan assets:

	December 31, 2021			January 1, 2021
(In millions)	Pension		Other Benefits	Pension		Other Benefits
Accumulated benefit obligation	$	9,216	N/A	$	10,469	N/A
Fair value of plan assets	8,672		N/A	8,658		N/A

	December 31, 2021				January 3, 2020
(In millions)	Pension		Other Benefits		Pension		Other Benefits
Projected benefit obligation	$	9,340	$	109	$	10,522	$	181
Fair value of plan assets	8,786		30		8,689		85

Income Statement Information

The following table provides the components of net periodic benefit income and other amounts recognized in other comprehensive income in fiscal 2021 and 2020, the two quarters ended January 3, 2020 and in fiscal 2019 as they pertain to our defined benefit plans:

	Pension
	Fiscal Years Ended				Two Quarters Ended		Fiscal Year Ended
(In millions)	December 31, 2021		January 1, 2021		January 3, 2020		June 28, 2019
Net periodic benefit income
Service cost	$	66	$	65	$	42	$	36
Interest cost	188		273		149		209
Expected return on plan assets	(621)		(630)		(314)		(382)
Amortization of net actuarial loss	30		10		1		—
Amortization of prior service credit	(28)		(28)		(5)		—
Cost for special termination benefits	—		1		—		—
Effect of curtailments or settlements	1		—		(18)		1
Net periodic benefit income	$	(364)	$	(309)	$	(145)	$	(136)
Other changes in plan assets and benefit obligations recognized in other comprehensive loss
Net actuarial (gain) loss	$	(972)	$	403	$	55	$	625
Prior service cost (credit)	2		1		(292)		3
Amortization of net actuarial loss	(30)		(10)		(5)		—
Amortization of prior service credit (cost)	28		28		5		(1)
Currency translation adjustment	1		2		—		—
Recognized prior service credit	4		—		—		—
Recognized net actuarial loss	(4)		—		—		—
Recognized net loss due to divestiture	—		—		(13)		—
Total change recognized in other comprehensive loss	(971)		424		(250)		627
Total impact from net periodic benefit cost and changes in other comprehensive loss	$	(1,335)	$	115	$	(395)	$	491

Effective January 1, 2020, for certain acquired L3 U.S. defined benefit pension plans, benefit accruals were frozen and replaced with a 1% cash balance benefit formula for certain employees who were not considered highly compensated on December 31, 2018. During the two quarters ended January 3, 2020, we recognized a $23 million curtailment gain as a result of this change, and a $5 million settlement loss resulting from the payout of the liabilities of a non-qualified benefit plan due to the change in control provisions.

During fiscal 2021, we reduced our pension benefit obligations by purchasing group annuity policies and transferring approximately $250 million of pension plan assets to an insurance company thereby reducing our defined benefit obligations by approximately $250 million. As a result of the annuity purchases, we recognized a pre-tax loss of $4 million in fiscal 2021 which is included as a component of the “Non-operating income” line item in our Consolidated Statement of Income. We also recognized a pre-tax curtailment gain of $3 million in fiscal 2021 as a result of employee terminations, which is included as a component of the “Non-operating income” line item in our Consolidated Statement of Income.

	Other Benefits
	Fiscal Years Ended				Two Quarters Ended		Fiscal Year Ended
(In millions)	December 31, 2021		January 1, 2021		January 3, 2020		June 28, 2019
Net periodic benefit income
Service cost	$	2	$	2	$	1	$	—
Interest cost	5		10		5		8
Expected return on plan assets	(20)		(21)		(10)		(16)
Amortization of net actuarial loss	—		(3)		(3)		(6)
Amortization of prior service credit	1		—		—		—
Net periodic benefit income	$	(12)	$	(12)	$	(7)	$	(14)
Other changes in plan assets and benefit obligations recognized in other comprehensive loss
Net actuarial loss (gain)	$	(46)	$	4	$	(1)	$	4
Prior service cost	—		8		—		—
Amortization of net actuarial gain	—		3		3		6
Amortization of prior service cost	(1)		—		—		—
Total change recognized in other comprehensive loss	(47)		15		2		10
Total impact from net periodic benefit cost and changes in other comprehensive loss	$	(59)	$	3	$	(5)	$	(4)

Defined Benefit Plan Assumptions

The determination of the assumptions related to defined benefit plans are based on the provisions of the applicable accounting pronouncements, review of various market data and discussions with our actuaries. We develop each assumption using relevant Company experience in conjunction with market-related data. Assumptions are reviewed annually and adjusted as appropriate.

The following tables provide the weighted-average assumptions used to determine projected benefit obligations and net periodic benefit cost, as they pertain to our defined benefit pension plans:

Obligation assumptions as of:	December 31, 2021		January 1, 2021
Discount rate	2.75	%	2.31	%
Rate of future compensation increase	3.01	%	3.01	%
Cash balance interest crediting rate	3.50	%	3.50	%
Cost assumptions for fiscal periods ended:	December 31, 2021		January 1, 2021		January 3, 2020		June 28, 2019
Discount rate to determine service cost	2.26	%	2.87	%	3.11	%	3.89	%
Discount rate to determine interest cost	1.80	%	2.74	%	2.94	%	3.75	%
Expected return on plan assets	7.43	%	7.68	%	7.68	%	7.66	%
Rate of future compensation increase	3.01	%	2.80	%	2.97	%	2.76	%
Cash balance interest crediting rate	3.50	%	3.50	%	3.50	%	3.50	%

Key assumptions for the SPP (our largest defined benefit pension plan with 86% of the total projected benefit obligation) included a discount rate for obligation assumptions of 2.75%, a cash balance interest crediting rate of 3.50% and expected return on plan assets of 7.50% for fiscal 2021, which is being maintained at 7.50% for fiscal 2022. There is also a frozen pension equity benefit that assumes a 3.25% interest crediting rate.

The following table provides the weighted-average assumptions used to determine projected benefit obligations and net periodic benefit cost, as they pertain to our other postretirement defined benefit plans:

Obligation assumptions as of:	December 31, 2021		January 1, 2021
Discount rate	2.60	%	2.10	%
Rate of future compensation increase	N/A		N/A
Cost assumptions for fiscal periods ended:	December 31, 2021		January 1, 2021		January 3, 2020		June 28, 2019
Discount rate to determine service cost	2.49	%	3.25	%	3.47	%	4.14	%
Discount rate to determine interest cost	1.42	%	2.55	%	2.74	%	3.62	%
Rate of future compensation increase	N/A		N/A		N/A		N/A

The expected long-term rate of return on plan assets reflects the expected returns for each major asset class in which the plans invest, the weight of each asset class in the strategic allocation, the correlations among asset classes and their expected volatilities. Our expected rate of return on plan assets is estimated by evaluating both historical returns and estimates of future returns. Specifically, the determination of the expected long-term rate of return takes into consideration: (1) the plan’s actual historical annual return on assets over the past 15-, 20- and 25-year time periods, (2) historical broad market returns over long-term timeframes weighted by the plan’s strategic allocation and (3) independent estimates of future long-term asset class returns, weighted by the plan’s strategic allocation. Based on this approach, the long-term expected annual rate of return on assets is estimated at 7.50% for fiscal 2022 for the U.S. defined benefit pension plans. The weighted average long-term expected annual rate of return on assets for all defined benefit pension plans is estimated to be 7.43% for fiscal 2022. In fiscal 2021, we adopted updated mortality tables, which resulted in an increase in the defined benefit plans’ projected benefit obligation as of December 31, 2021 and estimated net periodic benefit cost beginning with fiscal 2022.

The assumed composite rate of future increases in the per capita healthcare costs (the healthcare trend rate) is 6.70% for fiscal 2022, decreasing ratably to 4.70% by fiscal 2032. To the extent that actual experience differs from these assumptions, the effect will be accumulated and generally amortized for each plan to the extent required over the estimated future life expectancy or, if applicable, the future working lifetime of the plan’s active participants.

Investment Policy

The investment strategy for managing defined benefit plan assets is to seek an optimal rate of return relative to an appropriate level of risk. We manage substantially all defined benefit plan assets on a commingled basis in a master investment trust. In making these asset allocation decisions, we take into account recent and expected returns and volatility of returns for each asset class, the expected correlation of returns among the different investments, as well as anticipated funding and cash flows. To enhance returns and mitigate risk, we diversify our investments by strategy, asset class, geography and sector and engage a large number of managers to gain broad exposure to the markets.

The following table provides the current strategic target asset allocation ranges by asset category:

	Target Asset Allocation
Equity investments	40	%	—	60%
Fixed income investments	25	%	—	35%
Alternative investments	10	%	—	25%
Cash and cash equivalents	0	%	—	10%

Fair Value of Plan Assets

The following is a description of the valuation techniques and inputs used to measure fair value for major categories of investments as reflected in the table that follows such description:

•Domestic and international equities, which include common and preferred shares, domestic listed and foreign listed equity securities, open-ended and closed-ended mutual funds, real estate investment trusts and exchange traded funds, are generally valued at the closing price reported on the major market exchanges on which the individual securities are traded at the measurement date. Because these assets are traded predominantly on liquid, widely traded public exchanges, equity securities are categorized as Level 1 assets.

•Private equity funds, which include buy-out, mezzanine, venture capital, distressed asset and secondary funds, are typically limited partnership investment structures. Private equity funds are valued using a market approach based on NAV calculated by the funds and are not publicly available. Private equity funds generally have liquidity restrictions that extend for ten or more years. At December 31, 2021 and January 1, 2021, our defined benefit plans had future

unfunded commitments totaling $504 million and $518 million, respectively, related to private equity fund investments.

•Real estate funds, which include core, core plus, value-add and opportunistic funds, are typically limited partnership investment structures. Real estate funds are valued using a market approach based on NAV calculated by the funds and are not publicly available. Real estate funds generally permit redemption on a quarterly basis with 90 or fewer days-notice. At December 31, 2021, our defined benefit plans had future unfunded commitments totaling $100 million related to real estate fund investments. At January 1, 2021, we had no future unfunded commitments related to real estate fund investments.

•Hedge funds, which include equity long/short, event-driven, fixed-income arbitrage and global macro strategies, are typically limited partnership investment structures. Limited partnership interests in hedge funds are valued using a market approach based on NAV calculated by the funds and are not publicly available. Hedge funds generally permit redemption on a quarterly or more frequent basis with 90 or fewer days-notice. At each of December 31, 2021 and January 1, 2021, our defined benefit plans had no future unfunded commitments related to hedge fund investments.

•Fixed income investments, which include U.S. Government securities, investment and non-investment grade corporate bonds and securitized bonds are generally valued using pricing models that use verifiable, observable market data such as interest rates, benchmark yield curves and credit spreads, bids provided by brokers or dealers, or quoted prices of securities with similar characteristics. Fixed income investments are generally categorized as Level 2 assets. Fixed income funds valued at the closing price reported on the major market exchanges on which the individual fund is traded are categorized as Level 1 assets.

•Other is comprised of guaranteed insurance contracts valued at book value, which approximates fair value, calculated using the prior-year balance adjusted for investment returns and changes in cash flows and corporate owned life insurance policies valued at the accumulated benefit.

•Cash and cash equivalents are primarily comprised of short-term money market funds valued at cost, which approximates fair value, or valued at quoted market prices of identical instruments. Cash and currency are categorized as Level 1 assets; cash equivalents, such as money market funds or short-term commingled funds, are categorized as Level 2 assets.

•Certain investments that are valued using the NAV per share (or its equivalent) as a practical expedient are not categorized in the fair value hierarchy and are included in the table to permit reconciliation of the fair value hierarchy to the aggregate postretirement benefit plan assets.

The following tables provide the fair value of plan assets held by our defined benefit plans by asset category and by fair value hierarchy level:

	December 31, 2021
(In millions)	Total		Level 1		Level 2		Level 3
Asset Category
Equities:
Domestic equities	$	1,684	$	1,684	$	—	$	—
International equities	1,367		1,278		89		—
Real Estate Investment Trusts	259		259		—		—
Fixed income:
Corporate bonds	1,411		—		1,335		76
Government securities	448		—		448		—
Securitized assets	99		—		99		—
Fixed income funds	102		5		97		—
Cash and cash equivalents	337		9		328		—
Total	5,707		$	3,235	$	2,396	$	76
Investments Measured at NAV
Equity funds	2,667
Fixed income funds	444
Hedge funds	386
Private equity funds	559
Real estate funds	180
Other	3
Total Investments Measured at NAV	4,239
Payables, net	(22)
Total fair value of plan assets	$	9,924

	January 1, 2021
(In millions)	Total		Level 1		Level 2		Level 3
Asset Category
Equities:
Domestic equities	$	1,513	$	1,513	$	—	$	—
International equities	1,280		1,280		—		—
Real Estate Investment Trusts	197		197		—		—
Fixed income:
Corporate bonds	1,447		—		1,422		25
Government securities	485		—		485		—
Securitized assets	150		—		150		—
Fixed income funds	119		119		—		—
Other	2		—		—		2
Cash and cash equivalents	202		20		182		—
Total	5,395		$	3,129	$	2,239	$	27
Investments Measured at NAV
Equity funds	3,088
Fixed income funds	532
Hedge funds	321
Private equity funds	312
Other	1
Total Investments Measured at NAV	4,254
Payables, net	(49)
Total fair value of plan assets	$	9,600

Contributions

Funding requirements under Internal Revenue Service (“IRS”) rules are a major consideration in making contributions to our postretirement benefit plans. With respect to U.S. qualified pension plans, we intend to contribute annually not less than the required minimum funding thresholds.

The Employee Retirement Income Security Act of 1974, as amended by the Pension Protection Act of 2006 and further amended by the Worker, Retiree, and Employer Recovery Act of 2008, the Moving Ahead for Progress in the 21st Century Act (“MAP-21”) and applicable Internal Revenue Code regulations mandate minimum funding thresholds. The Highway and Transportation Funding Act of 2014, the Bipartisan Budget Act of 2015, the American Rescue Plan Act of 2021 and the Infrastructure Investment and Jobs Act further extended the interest rate stabilization provision of MAP-21. We made a $302 million voluntary contribution to our U.S. qualified defined benefit pension plans during the two quarters ended January 3, 2020. As a result of this and prior voluntary contributions, as well as $700 million of voluntary contributions made in fiscal 2018 and 2017, we made no material contributions to our U.S. qualified defined benefit pension plans in fiscal 2021 or 2020 and are not required to make any contributions to these plans during fiscal 2022 and beyond.

Estimated Future Benefit Payments

The following table provides the projected timing of payments for benefits earned to date and benefits expected to be earned for future service by current active employees under our defined benefit plans.

(In millions)	Pension		Other     Benefits(1)		Total
Fiscal Years:
2022	$	563	$	30	$	593
2023	569		29		598
2024	571		27		598
2025	573		26		599
2026	572		24		596
2027 — 2031	2,780		104		2,884

_______________

(1)Projected payments for Other Benefits reflect net payments from the Company, which include subsidies that reduce the gross payments by less than 10 percent.

Multi-employer Benefit Plans

Certain of our businesses acquired in connection with the L3Harris Merger participate in multi-employer defined benefit pension plans. We make cash contributions to these plans under the terms of collective-bargaining agreements that cover union employees based on a fixed rate per hour of service worked by the covered employees. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects: (1) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers, (2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers and (3) if we choose to stop participating in some of our multi-employer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. Cash contributed and expenses recorded for our multi-employer plans were not material in fiscal 2021 or 2020.

See Note 4: Business Combination in these Notes for information regarding postretirement benefit plan liabilities assumed in connection with the L3Harris Merger.