Note 12 - Employee Retirement Plans

12 Months Ended

Dec. 31, 2022

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 may contribute, as necessary, an amount exceeding the minimum requirements to achieve the Company’s long-term funding targets. During the year ended December 31, 2022, voluntary cash contributions were not material to domestic and international defined benefit plans. During the year ended December 31, 2021, cash contributions of $24 million were made to international pension plans. In 2023, the Company plans to make cash contributions of $49 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 2022 and 2021, no voluntary cash contributions were made to domestic postretirement plans. 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 following table presents the change in benefit obligation and the funded status of the defined benefit pension and post-retirement benefit plans (in millions):

	Domestic pension benefits						International pension benefits						Postretirement benefits
	2022			2021			2022			2021			2022			2021
Change in benefit obligation
Benefit obligation at beginning of year	$	4,075		$	4,203		$	736		$	778		$	654		$	764
Service cost		105			102			22			25			9			10
Interest cost		98			78			11			10			15			15
Plan participants’ contributions														7			7
Plan amendments		28
Actuarial gain		(925	)		(107	)		(137	)		(17	)		(209	)		(105	)
Other		3						(1	)		(2	)
Benefits paid		(202	)		(201	)		(21	)		(26	)		(42	)		(37	)
Foreign currency translation								(61	)		(32	)
Benefit obligation at end of year	$	3,182		$	4,075		$	549		$	736		$	434		$	654
Change in plan assets
Fair value of plan assets at beginning of year	$	3,598		$	3,575		$	584		$	598		$	9		$	30
Actual (loss) gain on plan assets		(728	)		208			(139	)		(2	)
Employer contributions		15			16			8			31			31			9
Plan participants’ contributions														7			7
Benefits paid		(202	)		(201	)		(21	)		(26	)		(42	)		(37	)
Foreign currency translation								(51	)		(17	)
Fair value of plan assets at end of year	$	2,683		$	3,598		$	381		$	584		$	5		$	9
Funded status at end of year
Fair value of plan assets	$	2,683		$	3,598		$	381		$	584		$	5		$	9
Benefit obligations		(3,182	)		(4,075	)		(549	)		(736	)		(434	)		(654	)
Funded status of plans	$	(499	)	$	(477	)	$	(168	)	$	(152	)	$	(429	)	$	(645	)
Amounts recognized in the consolidated balance sheets consist of:
Noncurrent asset							$	26		$	100
Current liability	$	(18	)	$	(15	)		(7	)		(7	)	$	(22	)	$	(23	)
Noncurrent liability		(481	)		(462	)		(187	)		(245	)		(407	)		(622	)
Recognized liability	$	(499	)	$	(477	)	$	(168	)	$	(152	)	$	(429	)	$	(645	)
Amounts recognized in accumulated other comprehensive loss consist of:
Net actuarial loss (gain)	$	259		$	272		$	(2	)	$	(3	)	$	(226	)	$	(22	)
Prior service cost (credit)		44			22			(1	)		1			(15	)		(20	)
Amounts recognized at end of year	$	303		$	294		$	(3	)	$	(2	)	$	(241	)	$	(42	)

Across total pension benefits, an actuarial gain of $1.1 billion was recognized in 2022 primarily due to increases in bond yields during the year, leading to a domestic and international plan weighted-average discount rates that were 263 and 126 basis points higher, respectively, than the prior year. In 2021, an actuarial gain of $124 million was recognized 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. The accumulated benefit obligation for defined benefit pension plans was $3.5 billion and $4.5 billion as of  December 31, 2022 and 2021, respectively.

For postretirement benefits, an actuarial gain of $209 million was recognized in 2022 due to current year increases in bond yields, leading to a weighted-average discount rate that was 259 basis points higher than the prior year. In 2021, an actuarial gain of $105 million was recognized 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.

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

	December 31,
	2022		2021
Projected benefit obligation	$	3,406	$	4,358
Fair value of plan assets	$	2,712	$	3,627
Accumulated benefit obligation	$	3,238	$	4,110
Fair value of plan assets	$	2,712	$	3,627

The following table presents the components of net periodic benefit expense (income) for employee retirement plans, which other than the service cost component is recorded in other income (expense), net in the consolidated statements of income (in millions):

	Domestic pension benefits									International pension benefits									Postretirement benefits
	2022			2021			2020			2022			2021			2020			2022			2021			2020
Service cost	$	105		$	102		$	92		$	22		$	25		$	26		$	9		$	10		$	9
Interest cost		98			78			110			11			10			12			15			15			20
Expected return on plan assets		(210	)		(209	)		(186	)		(9	)		(7	)		(9	)
Amortization of prior service cost (credit)		6			4			6			(1	)		(1	)		(1	)		(5	)		(6	)		(5	)
Amortization of actuarial (gain) loss																				(5	)		2			1
Recognition of actuarial loss		29			10			12			8			1			10
Total net periodic benefit expense (income)	$	28		$	(15	)	$	34		$	31		$	28		$	38		$	14		$	21		$	25
Settlement charge											2
Special termination benefit charge		2						8																		1
Total expense (income)	$	30		$	(15	)	$	42		$	33		$	28		$	38		$	14		$	21		$	26
Other changes in plan assets and benefit obligations recognized in other comprehensive (loss) income:
Curtailment effects																$	(4	)
Settlements										$	11
Current year actuarial loss (gain)	$	16		$	(105	)	$	94			(27	)	$	(7	)		(11	)	$	(209	)	$	(105	)	$	58
Amortization of actuarial gain (loss)																				5			(2	)		(1	)
Recognition of actuarial (loss) gain		(29	)		(10	)		(12	)		20			(1	)		(10	)
Current year prior service cost		28						1
Amortization of prior service (cost) credit		(6	)		(4	)		(6	)		1			1			1			5			6			5
Total recognized in other comprehensive (loss) income	$	9		$	(119	)	$	77		$	5		$	(7	)	$	(24	)	$	(199	)	$	(101	)	$	62

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, with no change in 2022. 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 or 2022.  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 following table presents the weighted-average assumptions used to determine benefit obligations:

	Pension benefits
	Domestic									International									Postretirement benefits
	2022			2021			2020			2022			2021			2020			2022			2021			2020
Discount rate		5.50	%		2.87	%		2.50	%		2.46	%		1.20	%		1.02	%		5.58	%		2.99	%		2.69	%
Rate of compensation increase		3.48	%		3.50	%		4.16	%		3.73	%		3.63	%		3.55	%
Cash balance crediting rate		4.14	%		3.86	%		3.84	%		0.82	%		0.91	%		0.94	%
Employee contributions crediting rate		4.62	%		1.57	%		0.62	%

The following table presents the weighted-average assumptions used to determine net periodic benefit expense (income):

	Pension benefits
	Domestic									International									Postretirement benefits
	2022			2021			2020			2022			2021			2020			2022			2021			2020
Discount rate		2.88	%		2.50	%		3.28	%		1.20	%		1.02	%		1.34	%		2.99	%		2.69	%		3.41	%
Expected return on plan assets		6.00	%		6.00	%		6.00	%		1.64	%		1.26	%		1.71	%
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 following table presents the assumed health care trend rates:

Assumed health care trend rates as of December 31	2022		2021
Health care cost trend rate assumed for next year (pre-65 / post-65 retirees)	7.00% / 4.25%		6.25% / 6.25%
Ultimate health care trend rate	5	%	5	%
Year that the rate reaches the ultimate trend rate	2031		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 table presents the fair values of domestic defined benefit and post-retirement benefit plan assets, by asset category (in millions):

	December 31, 2022								December 31, 2021
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Equity securities:
U.S. companies	$	1,168	$	63	$	1,105			$	977	$	20	$	957
International companies										234				234
Fixed income:
U.S. treasury bonds		400		400						256		256
U.S. corporate bonds		1,060				1,060				1,770				1,770
Preferred securities		1				1				11				11
Private equity (1)		24					$	24		41					$	41
Real estate (2)		7						7		10						10
Cash equivalents		28		28						308		308
Total	$	2,688	$	491	$	2,166	$	31	$	3,607	$	584	$	2,972	$	51

(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 table presents the fair values of international defined benefit plan assets, by asset category (in millions):

	December 31, 2022								December 31, 2021
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Fixed income:
International fixed income	$	87	$	87					$	500	$	416	$	84
Insurance contracts		192					$	192		2					$	2
Mortgages		42						42		22						22
Cash equivalents		48		48						60		60
Other		12		1				11
Total	$	381	$	136	$	-	$	245	$	584	$	476	$	84	$	24

The following table presents the changes in the fair value of the defined benefit plans’ Level 3 assets (in millions):

	Domestic						International
	Private equity			Real estate			Mortgages		Insurance contracts			Other
Balance as of 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) purchases		(31	)		(135	)				(1	)
Balance as of December 31, 2021	$	41		$	10		$	22	$	2
Actual return on plan assets relating to assets still held at the reporting date		(8	)					1
Actual return on plan assets relating to assets sold during the reporting period								1
Asset (sales) purchases		(9	)		(3	)		18		190		$	11
Balance as of December 31, 2022	$	24		$	7		$	42	$	192		$	11

Credit Risk

54% of domestic plan assets are invested in bonds with an average credit rating of AA-. 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. 

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.

As of  December 31, 2022 and 2021, the amount of Corning common stock included in equity securities was not significant.

Cash Flow Data

The following table presents the gross benefit payments 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
2023	$	242	$	27	$	29
2024	$	243	$	34	$	29
2025	$	254	$	34	$	30
2026	$	260	$	38	$	30
2027	$	265	$	38	$	31
2028-2032	$	1,393	$	213	$	156

Other Benefit Plans

Corning offers defined contribution plans covering employees meeting certain eligibility requirements. Total consolidated defined contribution plan expense was $117 million, $98 million and $76 million for the years ended December 31, 2022, 2021 and 2020, respectively.