Note 13 - Employee Retirement Plans

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Retirement Benefits [Text Block]

Defined Benefit Plans

Corning has defined benefit pension plans covering certain domestic and international employees. The Company’s funding policy has been to contribute, as necessary, an amount exceeding the minimum requirements to achieve the Company’s long-term funding targets. In 2021, no voluntary cash contributions were made to domestic defined benefit pension plans.  Voluntary cash contributions of $24 million were made to international pension plans. In 2020, voluntary cash contributions were made to domestic defined benefit pension plans and international pension plans in the amount of $180 million and $41 million, respectively.  During 2022, the Company plans to make cash contributions of $29 million to international pension plans.

Corning offers postretirement plans that provide health care and life insurance benefits for retirees and eligible dependents. Certain employees may become eligible for such postretirement benefits upon reaching retirement age and service requirements. In 2021, no voluntary cash contributions were made to domestic postretirement plans. Voluntary cash contributions of $30 million were made to domestic postretirement plans in 2020. For current retirees (including surviving spouses) and active employees eligible for the salaried retiree medical program, Corning has placed a “cap” on the amount to be contributed toward retiree medical coverage in the future. The cap is equal to 120% of the 2005 contributions toward retiree medical benefits. Once contributions toward salaried retiree medical costs reach this cap, impacted retirees will have to pay the excess amount in addition to their regular contributions for coverage. This cap was attained for post-65 retirees in 2008 and attained for pre-65 retirees in 2010. Furthermore, employees hired or rehired on or after January 1, 2007 will be eligible for Corning retiree medical benefits upon retirement; however, these employees will pay 100% of the cost.

Obligations and Funded Status

The change in benefit obligation and funded status of our defined benefit pension and post-retirement benefit plans are as follows (in millions):

	Domestic pension benefits						International pension benefits						Postretirement benefits
December 31,	2021			2020			2021			2020			2021			2020
Change in benefit obligation
Benefit obligation at beginning of year	$	4,203		$	3,856		$	778		$	725		$	764		$	705
Service cost		102			92			25			26			10			9
Interest cost		78			110			10			12			15			20
Plan participants’ contributions					1									7			8
Plan amendments					1
Actuarial (gain) loss		(107	)		329			(17	)		29			(105	)		58
Other					8			(2	)		(37	)					2
Benefits paid		(201	)		(194	)		(26	)		(19	)		(37	)		(38	)
Foreign currency translation								(32	)		42
Benefit obligation at end of year	$	4,075		$	4,203		$	736		$	778		$	654		$	764
Change in plan assets
Fair value of plan assets at beginning of year	$	3,575		$	3,153		$	598		$	518		$	30
Actual gain (loss) on plan assets		208			420			(2	)		49
Employer contributions		16			195			31			50			9		$	60
Plan participants’ contributions					1									7			8
Benefits paid		(201	)		(194	)		(26	)		(44	)		(37	)		(38	)
Foreign currency translation								(17	)		25
Fair value of plan assets at end of year	$	3,598		$	3,575		$	584		$	598		$	9		$	30
Funded status at end of year
Fair value of plan assets	$	3,598		$	3,575		$	584		$	598		$	9		$	30
Benefit obligations		(4,075	)		(4,203	)		(736	)		(778	)		(654	)		(764	)
Funded status of plans	$	(477	)	$	(628	)	$	(152	)	$	(180	)	$	(645	)	$	(734	)
Amounts recognized in the consolidated balance sheets consist of:
Noncurrent asset							$	100		$	99
Current liability	$	(15	)	$	(13	)		(7	)		(7	)	$	(23	)	$	(7	)
Noncurrent liability		(462	)		(615	)		(245	)		(272	)		(622	)		(727	)
Recognized liability	$	(477	)	$	(628	)	$	(152	)	$	(180	)	$	(645	)	$	(734	)
Amounts recognized in accumulated other comprehensive loss consist of:
Net actuarial loss (gain)	$	272		$	387		$	(3	)	$	7		$	(22	)	$	86
Prior service cost (credit)		22			26			1			1			(20	)		(26	)
Amounts recognized at end of year	$	294		$	413		$	(2	)	$	8		$	(42	)	$	60

Across total pension benefits, an actuarial gain of $124 million was recognized in 2021 primarily due to increases in bond yields during the year, leading to domestic and international plan weighted-average discount rates that were 37 and 18 basis points higher, respectively, than the prior year. In 2020, an actuarial loss of $358 million was recognized primarily due to decreases in bond yields during the year, leading to a domestic plan weighted-average discount rate that was 78 basis points lower than the prior year. The accumulated benefit obligation for defined benefit pension plans was $4.5 billion and $4.7 billion at December 31, 2021 and 2020, respectively.

For postretirement benefits, an actuarial gain of $105 million was recognized in 2021 due to current year increases in bond yields, leading to a weighted-average discount rate that was 30 basis points higher than the prior year. In 2020, an actuarial loss of $58 million was recognized due to current year decreases in bond yields, leading to a weighted-average discount rate that was 72 basis points lower than the prior year.

The following information is presented for pension plans where the projected benefit obligation or the accumulated benefit obligation exceeded the fair value of plan assets (in millions):

	December 31,
	2021		2020
Projected benefit obligation	$	4,358	$	4,665
Fair value of plan assets	$	3,627	$	3,758
Accumulated benefit obligation	$	4,110	$	4,247
Fair value of plan assets	$	3,627	$	3,603

The components of net periodic benefit (income) expense for employee retirement plans are presented in the following tables (in millions):

	Domestic pension benefits									International pension benefits									Postretirement benefits
December 31,	2021			2020			2019			2021			2020			2019			2021			2020			2019
Service cost	$	102		$	92		$	76		$	25		$	26		$	25		$	10		$	9		$	9
Interest cost		78			110			133			10			12			15			15			20			27
Expected return on plan assets		(209	)		(186	)		(161	)		(7	)		(9	)		(10	)
Amortization of prior service cost (credit)		4			6			7			(1	)		(1	)		(1	)		(6	)		(5	)		(7	)
Amortization of actuarial loss (gain)																				2			1			(1	)
Recognition of actuarial loss		10			12			66			1			10			24
Total net periodic benefit (income) expense	$	(15	)	$	34		$	121		$	28		$	38		$	53		$	21		$	25		$	28
Special termination benefit charge					8			6															1			1
Total (income) expense	$	(15	)	$	42		$	127		$	28		$	38		$	53		$	21		$	26		$	29
Other changes in plan assets and benefit obligations recognized in other comprehensive (loss) income:
Curtailment effects													$	(4	)
Current year actuarial (gain) loss	$	(105	)	$	94		$	47		$	(7	)		(11	)	$	41		$	(105	)	$	58		$	6
Amortization of actuarial (loss) gain																				(2	)		(1	)		1
Recognition of actuarial loss		(10	)		(12	)		(66	)		(1	)		(10	)		(24	)
Current year prior service cost					1																					5
Amortization of prior service (cost) credit		(4	)		(6	)		(7	)		1			1			1			6		$	5			7
Total recognized in other comprehensive (loss) income	$	(119	)	$	77		$	(26	)	$	(7	)	$	(24	)	$	18		$	(101	)	$	62		$	19

The components of net periodic benefit (income) expense, other than the service cost component, are included in the line item other income (expense), net, in the consolidated statements of income.

Corning uses a hypothetical yield curve and associated spot rate curve to discount the plan’s projected benefit payments. Once the present value of projected benefit payments is calculated, the suggested discount rate is equal to the level rate that results in the same present value. The yield curve is based on actual high-quality corporate bonds across the full maturity spectrum, which also includes private placements and eurobonds that are denominated in U.S. currency. The curve is developed from yields on hundreds of bonds from four grading sources, Moody’s, S&P, Fitch and the Dominion Bond Rating Service. A bond will be included if at least half of the grades from these sources are Aa, non-callable bonds. The very highest 10% yields and the lowest 40% yields are excluded from the curve to eliminate outliers in the bond population.

Mortality is one of the key assumptions used in valuing liabilities of retirement plans. It is used to assign a probability of payment for benefits that are contingent upon participants’ survival. To make this assumption, benefit plan sponsors typically use a base mortality table and an improvement scale to mortality rates for future anticipated changes to historical death rates.

As of December 31, 2021, Corning updated the adjustment factors applied to its base mortality assumption (PRI-2012 white collar table and PRI-2012 blue collar table for non-union and union participants, respectively) to value its U.S. benefit plan obligation. In addition, Corning also updated to the MP-2020 projection scale and the mortality assumption applied to disabled participants (PRI-2012 disabled mortality base table with future improvements using MP-2020) for the year ended December 31, 2020, with no change in 2021.  As the Society of Actuaries publishes additional mortality improvement scales and base mortality tables, Corning considers these revised schedules in setting its mortality assumptions. 

Measurement of postretirement benefit expense is based on assumptions used to value the postretirement benefit obligation at the beginning of the year.

The weighted-average assumptions used to determine benefit obligations were as follows:

	Pension benefits
	Domestic									International									Postretirement benefits
	2021			2020			2019			2021			2020			2019			2021			2020			2019
Discount rate		2.87	%		2.50	%		3.28	%		1.20	%		1.02	%		1.34	%		2.99	%		2.69	%		3.41	%
Rate of compensation increase		3.50	%		4.16	%		3.50	%		3.63	%		3.55	%		2.96	%
Cash balance crediting rate		3.86	%		3.84	%		3.94	%		0.91	%		0.94	%		0.97	%
Employee contributions crediting rate		1.57	%		0.62	%		2.03	%

The weighted-average assumptions used to determine net periodic benefit (income) expense were as follows:

	Pension benefits
	Domestic									International									Postretirement benefits
	2021			2020			2019			2021			2020			2019			2021			2020			2019
Discount rate		2.50	%		3.28	%		4.28	%		1.02	%		1.34	%		1.96	%		2.69	%		3.41	%		4.33	%
Expected return on plan assets		6.00	%		6.00	%		6.00	%		1.26	%		1.71	%		2.01	%
Rate of compensation increase		4.16	%		3.50	%		3.50	%		3.55	%		2.96	%		2.96	%
Cash balance crediting rate		3.84	%		3.94	%		3.94	%		0.94	%		0.97	%		0.97	%
Employee contributions crediting rate		0.62	%		2.03	%		3.47	%

Assumed health care trend rates are as follows:

Assumed health care trend rates at December 31	2021			2020
Health care cost trend rate assumed for next year		6.25	%		6.50	%
Rate that the cost trend rate gradually declines to		5	%		5	%
Year that the rate reaches the ultimate trend rate	2027			2027

Plan Assets

The Company’s primary objective is to ensure the plan has sufficient return on assets to fund the plan’s current and future obligations as they become due. Investments are primarily made in public securities to ensure adequate liquidity to support benefit payments. Domestic and international stocks provide diversification to the portfolio. The target allocation range equity investment is 40% which includes large, mid and small-cap companies and investments in both developed and emerging markets. The target allocation for bond investments is 60%, which predominately includes corporate bonds. Long-duration fixed income assets are utilized to mitigate the sensitivity of funding ratios to changes in interest rates.

The following tables provide fair value measurement information for the Company’s major categories; Level 1 (quoted market prices in active markets for identical assets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) of domestic defined benefit plan assets:

	December 31, 2021								December 31, 2020
(in millions)	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Equity securities:
U.S. companies	$	977	$	20	$	957			$	781	$	1	$	780
International companies		234				234				441				441
Fixed income:
U.S. treasury bonds		256		256						147		147
U.S. corporate bonds		1,770				1,770				1,951				1,951
Preferred securities		11				11				11				11
Private equity (1)		41					$	41		51					$	51
Real estate (2)		10						10		140						140
Cash equivalents		308		308						83		83
Total	$	3,607	$	584	$	2,972	$	51	$	3,605	$	231	$	3,183	$	191

(1) This category includes venture capital, leverage buyouts and distressed debt limited partnerships invested primarily in U.S. companies. The inputs are valued by discounted cash flow analysis and comparable sale analysis.

(2) This category includes industrial, office, apartments, hotels, infrastructure and retail investments which are limited partnerships predominately in the U.S. The inputs are valued by discounted cash flow analysis; comparable sale analysis and periodic external appraisals.

The following tables provide fair value measurement information for the Company’s major categories; Level 1 (quoted market prices in active markets for identical assets), Level 2 (significant other observable inputs) and Level 3 (significant unobservable inputs) of international defined benefit plan assets:

	December 31, 2021								December 31, 2020
(in millions)	Total		(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)
Fixed income:
International fixed income	$	500	$	416	$	84			$	519	$	426	$	93
Insurance contracts		2					$	2		3					$	3
Mortgages		22						22		20						20
Cash equivalents		60		60						56		56
Total	$	584	$	476	$	84	$	24	$	598	$	482	$	93	$	23

The following table sets forth a summary of changes in the fair value of the defined benefit plans Level 3 assets:

	Level 3 assets – domestic						Level 3 assets – international
(in millions)	Private equity			Real estate			Mortgages			Insurance contracts
Balance at December 31, 2019	$	64		$	145		$	21		$	2
Actual return on plan assets relating to assets still held at the reporting date		4
Asset (sales) purchases		(17	)		(5	)		(1	)		1
Balance at December 31, 2020	$	51		$	140		$	20		$	3
Actual return on plan assets relating to assets still held at the reporting date		21			1			2
Actual return on plan assets relating to assets sold during the reporting period					4
Asset sales		(31	)		(135	)					(1	)
Balance at December 31, 2021	$	41		$	10		$	22		$	2

Credit Risk

56% of domestic plan assets are invested in long duration bonds. The average rating for these bonds is A. These bonds are subject to both credit and default risk and changes in the risk could lead to a decline in the value of these bonds. 

Currency Risk

6% of domestic assets are valued in non-U.S. dollar denominated investments that are subject to currency fluctuations. The value of these securities will decline if the U.S. dollar increases in value relative to the value of the currencies in which these investments are denominated.

Liquidity Risk

1% of the domestic securities are invested in Level 3 securities. These are long-term investments in private equity and private real estate investments that may not mature or be sellable in the near-term without significant loss.

At December 31, 2021 and 2020, the amount of Corning common stock included in equity securities was not significant.

Cash Flow Data

The following reflects the gross benefit payments that are expected to be paid for domestic and international defined benefit pension plans and the postretirement medical and life plans (in millions):

	Expected benefit payments
	Domestic pension benefits		International pension benefits		Postretirement benefits
2022	$	232	$	28	$	33
2023	$	233	$	34	$	33
2024	$	242	$	33	$	33
2025	$	251	$	36	$	33
2026	$	254	$	40	$	33
2027-2031	$	1,333	$	221	$	166

Other Benefit Plans

Corning offers defined contribution plans covering employees meeting certain eligibility requirements. Total consolidated defined contribution plan expense was $98 million, $76 million and $108 million for the years ended December 31, 2021, 2020 and 2019, respectively.