Note 12 - Pension and Postretirement Benefit Plans

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Retirement Benefits [Text Block]

Note 12.  Pension and Postretirement Benefit Plans

We sponsor various defined benefit, qualified and nonqualified, pension plans covering eligible employees. Other postretirement benefits (OPEB), including medical and life insurance, are provided for certain employees upon retirement.

We also sponsor various defined contribution plans that cover the majority of our employees. Under the terms of the qualified defined contribution retirement plans, employee and employer contributions may be directed into a number of diverse investments. None of these qualified defined contribution plans allow direct investment in our stock.

Components of net periodic benefit cost (credit) and other amounts recognized in OCI —

	Pension Benefits
	2023						2022						2021
	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.
Interest cost	$	28		$	14		$	16		$	8		$	13		$	5
Expected return on plan assets		(31	)		(3	)		(28	)		(2	)		(26	)		(2	)
Service cost					6						7						9
Amortization of net actuarial loss		7						8			5			9			9
Curtailment					(1	)
Net periodic benefit cost (credit)		4			16			(4	)		18			(4	)		21
Recognized in OCI:
Amount due to net actuarial (gains) losses		2			15			20			(66	)		(4	)		(23	)
Reclassification adjustment for net actuarial losses in net periodic benefit cost		(7	)					(8	)		(5	)		(9	)		(9	)
Total recognized in OCI		(5	)		15			12			(71	)		(13	)		(32	)
Net recognized in benefit cost (credit) and OCI	$	(1	)	$	31		$	8		$	(53	)	$	(17	)	$	(11	)

	OPEB
	2023					2022						2021
	U.S.		Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.
Interest cost	$	1	$	2		$	—		$	2		$	—		$	2
Service cost																1
Amortization of net actuarial gain				(4	)					(2	)
Net periodic benefit cost (credit)		1		(2	)		—			—			—			3
Recognized in OCI:
Amount due to net actuarial (gains) losses				8			(1	)		(15	)		(1	)		(24	)
Reclassification adjustment for net actuarial gain in net periodic benefit cost				4						2
Total recognized in OCI		—		12			(1	)		(13	)		(1	)		(24	)
Net recognized in benefit cost (credit) and OCI	$	1	$	10		$	(1	)	$	(13	)	$	(1	)	$	(21	)

Our U.S. defined benefit pension plans are frozen and no additional service cost is being accrued. The service cost component for international plans is included in cost of sales and selling, general and administrative expenses. Other components of net periodic benefit cost (credit) are included in other income (expense), net in our consolidated income statement. Actuarial gains and losses resulting from plan remeasurement are recognized in AOCI in the period of remeasurement. We use the corridor approach for purposes of systematically amortizing deferred gains or losses as a component of net periodic benefit cost into the income statement in future reporting periods. The amortization period used is generally the average remaining service period of active participants in the plan unless almost all of the plan’s participants are inactive, in which case we use the average remaining life expectancy of the inactive participants.

Funded status — The following tables provide reconciliations of the changes in benefit obligations, plan assets and funded status.

	Pension Benefits												OPEB
	2023						2022						2023					2022
	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.		Non-U.S.			U.S.			Non-U.S.
Reconciliation of benefit obligation:
Obligation at beginning of period	$	557		$	296		$	745		$	384		$	2	$	48		$	3		$	69
Interest cost		28			14			16			8			1		2						2
Service cost					6						7
Actuarial (gain) loss		12			17			(155	)		(73	)				8			(1	)		(15	)
Benefit payments		(48	)		(16	)		(49	)		(14	)				(4	)					(4	)
Settlements					(1	)
Translation adjustments					14						(16	)				1						(4	)
Obligation at end of period	$	549		$	330		$	557		$	296		$	3	$	55		$	2		$	48

	Pension Benefits												OPEB
	2023						2022						2023						2022
	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.
Reconciliation of fair value of plan assets:
Fair value at beginning of period	$	537		$	59		$	733		$	65		$	—		$	1		$	—		$	1
Actual return on plan assets		41			5			(147	)		(5	)
Employer contributions					18						16						4						4
Benefit payments		(48	)		(16	)		(49	)		(14	)					(4	)					(4	)
Settlements					(1	)
Translation adjustments					4						(3	)					(1	)
Fair value at end of period	$	530		$	69		$	537		$	59		$	—		$	—		$	—		$	1
Funded status at end of period	$	(19	)	$	(261	)	$	(20	)	$	(237	)	$	(3	)	$	(55	)	$	(2	)	$	(47	)

Amounts recognized in the balance sheet —

	Pension Benefits												OPEB
	2023						2022						2023						2022
	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.
Amounts recognized in the consolidated balance sheet:
Noncurrent assets	$	11		$	1		$	7		$	2		$	—		$	—		$	—		$	—
Current liabilities					(12	)					(13	)					(4	)					(4	)
Noncurrent liabilities		(30	)		(250	)		(27	)		(226	)		(3	)		(51	)		(2	)		(43	)
Net amount recognized	$	(19	)	$	(261	)	$	(20	)	$	(237	)	$	(3	)	$	(55	)	$	(2	)	$	(47	)

Amounts recognized in AOCI —

	Pension Benefits										OPEB
	2023					2022					2023					2022
	U.S.		Non-U.S.			U.S.		Non-U.S.			U.S.		Non-U.S.			U.S.		Non-U.S.
Amounts recognized in AOCI:
Net actuarial loss (gain)	$	136	$	20		$	141	$	5		$	—	$	(33	)	$	—	$	(45	)
AOCI before tax		136		20			141		5			—		(33	)		—		(45	)
Deferred taxes		18		(7	)		17		(2	)				8					11
Net	$	154	$	13		$	158	$	3		$	—	$	(25	)	$	—	$	(34	)

The net actuarial loss for pension for 2023 was primarily due to a decrease in discount rates, partially offset due to the actual return on assets exceeding the expected asset return. The actuarial loss for OPEB for 2023 was primarily due to a decrease in the discount rates. 

The net actuarial loss for U.S. pension plans for 2022 was primarily due to the actual return on assets underperforming the expected asset return, partially offset by an increase in discount rates. The actuarial gain for non-U.S. plans was due to an increase in discount rates. The actuarial gain for OPEB for 2022 was primarily due to an increase in the discount rates.

Aggregate funding levels — The following table presents information regarding the aggregate funding levels of our defined benefit pension plans at December 31:

	2023				2022
	U.S.		Non-U.S.		U.S.		Non-U.S.
Plans with fair value of plan assets in excess of obligations:
Accumulated benefit obligation	$	416	$	31	$	425	$	14
Projected benefit obligation		416		32		425		14
Fair value of plan assets		427		33		431		16
Plans with obligations in excess of fair value of plan assets:
Accumulated benefit obligation	$	133	$	270	$	132	$	259
Projected benefit obligation		133		298		132		282
Fair value of plan assets		103		36		106		43

Fair value of pension plan assets —

			Fair Value Measurements at December 31, 2023
			U.S.								Non-U.S.
Asset Category	Total		Level 1		Level 2		Level 3		NAV (a)		Level 1		Level 2		Level 3
Equity securities:
U.S. all cap (b)	$	25	$	25	$	—	$	—	$	—	$	—	$	—	$	—
U.S. large cap		26								26
EAFE composite		14								14
Emerging markets		10								10
Fixed income securities:
Corporate bonds		379				190				189
U.S. Treasury strips		7				7
Non-U.S. government securities		19				2								17
Emerging market debt		8								8
Alternative investments:
Insurance contracts (c)		54						6								48
Real estate		11								11
Other		4												4
Cash and cash equivalents		42				42
Total	$	599	$	25	$	241	$	6	$	258	$	—	$	21	$	48

			Fair Value Measurements at December 31, 2022
			U.S.								Non-U.S.
Asset Category	Total		Level 1		Level 2		Level 3		NAV (a)		Level 1		Level 2		Level 3
Equity securities:
U.S. all cap (b)	$	20	$	20	$	—	$	—	$	—	$	—	$	—	$	—
U.S. large cap		19								19
EAFE composite		11								11
Emerging markets		9								9
Fixed income securities:
Corporate bonds		414				165				249
U.S. Treasury strips		8				8
Non-U.S. government securities		16				2								14
Emerging market debt		7								7
Alternative investments:
Insurance contracts (c)		49						6								43
Real estate		14								14
Other		2												2
Cash and cash equivalents		27				27
Total	$	596	$	20	$	202	$	6	$	309	$	—	$	16	$	43

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Notes:

(a)	Certain assets are measured at fair value using the net asset value (NAV) per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy.
(b)	This category comprises a combination of small-, mid- and large-cap equity stocks that are allocated at the investment manager's discretion. Investments include common and preferred securities as well as equity funds that invest in these instruments.
(c)	This category comprises contracts placed with insurance companies where the underlying assets are invested in fixed interest securities.

	2023					2022
	U.S.		Non-U.S.			U.S.		Non-U.S.
	Insurance		Insurance			Insurance		Insurance
Reconciliation of Level 3 Assets	Contracts		Contracts			Contracts		Contracts
Fair value at beginning of period	$	6	$	43		$	6	$	51
Actual gains (losses) relating to assets still held at the reporting date				5					(5	)
Purchases, sales and settlements				(1	)
Currency impact				1					(3	)
Fair value at end of period	$	6	$	48		$	6	$	43

Valuation Methods

Equity securities — The fair value of equity securities held directly by the trust is based on quoted market prices. When the equity securities are held in commingled funds that are not publicly traded, the fair value of our interest in the fund is its NAV as determined by quoted market prices for the underlying holdings.

Fixed income securities — The fair value of fixed income securities held directly by the trust is based on a bid evaluation process with input from independent pricing sources. When the fixed income securities are held in commingled funds that are not publicly traded, the fair value of our interest in the fund is its NAV as determined by a similar valuation of the underlying holdings.

Insurance contracts — The values shown for insurance contracts are the amounts reported by the insurance company and approximate the fair values of the underlying investments.

Real estate — The investments in real estate represent ownership interests in commingled funds and partnerships that invest in real estate. The investment managers determine the NAV of these ownership interests using the fair value of the underlying real estate which is obtained via independent third party appraisals prepared on a periodic basis. Assumptions used to value the properties are updated quarterly. For the component of the real estate portfolio under development, the investments are carried at cost until they are completed and valued by a third party appraiser.

Cash and cash equivalents — The fair value of cash and cash equivalents is set equal to its amortized cost.

The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Investment policy — Target asset allocations of U.S. pension plans are established through an investment policy, which is updated periodically and reviewed by an Investment Committee, comprised of certain company officers. The investment policy allows for a flexible asset allocation mix which is intended to provide appropriate diversification to lessen market volatility while assuming a reasonable level of economic risk.

Our policy recognizes that properly managing the relationship between pension assets and pension liabilities serves to mitigate the impact of market volatility on our funding levels. The investment policy permits plan assets to be invested in a number of diverse categories, including a Growth Portfolio, an Immunizing Portfolio and a Liquidity Portfolio. These sub-portfolios are intended to balance the generation of incremental returns with the management of overall risk.

The Growth Portfolio is invested in a diversified pool of assets in order to generate an incremental return with an acceptable level of risk. The Immunizing Portfolio is a hedging portfolio that may be comprised of fixed income securities and overlay positions. This portfolio is designed to offset changes in the value of the pension liability due to changes in interest rates. The Liquidity Portfolio is a cash portfolio designed to meet short-term liquidity needs and reduce the plans’ overall risk. As a result of our diversification strategies, there are no significant concentrations of risk within the portfolio of investments.

The allocations among portfolios are adjusted as needed to meet changing objectives and constraints and to manage the risk of adverse changes in the unfunded positions of our plans. At  December 31, 2023, the U.S. plans had targets of 21% for the Growth Portfolio (U.S. and non-U.S. equities, high-yield fixed income, real estate, emerging market debt and cash), 77% for the Immunizing Portfolio (long duration U.S. Treasury strips, corporate bonds and cash) and 2% for the Liquidity Portfolio (cash and short-term securities). The assets held at December 31, 2023 by the U.S. plans were invested 20% in the Growth Portfolio, 78% in the Immunizing Portfolio and 2% in the Liquidity Portfolio.

Significant assumptions — The significant weighted-average assumptions used in the measurement of pension benefit obligations at December 31 of each year and the net periodic benefit cost for each year are as follows:

	2023						2022						2021
	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.
Pension benefit obligations:
Discount rate		5.12	%		4.33	%		5.47	%		4.74	%		2.83	%		1.97	%
Net periodic benefit cost:
Discount rate		5.36	%		4.98	%		2.29	%		2.20	%		1.72	%		1.79	%
Rate of compensation increase		N/A			3.68	%		N/A			3.11	%		N/A			2.97	%
Expected return on plan assets		6.00	%		5.13	%		4.00	%		3.64	%		3.50	%		3.57	%

The pension plan discount rate assumptions are evaluated annually in consultation with our outside actuarial advisers. Long-term interest rates on high quality corporate debt instruments are used to determine the discount rate. For our largest plans, discount rates are developed using a discounted bond portfolio analysis, with appropriate consideration given to defined benefit payment terms and duration of the liabilities. 

For pension and other postretirement benefit plans that utilize a full yield curve approach to estimate the interest and service components of net periodic benefit cost, we apply the specific spot rates along the yield curve used in the most recent remeasurement of the benefit obligation to the relevant projected cash flows. We believe this method improves the correlation between the projected cash flows and the corresponding interest rates and provides a more precise measurement of interest and service costs. Since the remeasurement of total benefit obligations is not affected, the resulting reduction in periodic benefit cost is offset by an increase in the actuarial loss.

The expected rate of return on plan assets was selected on the basis of our long-term view of return and risk assumptions for major asset classes. We define long-term as forecasts that span at least the next ten years. Our long-term outlook is influenced by a combination of return expectations by individual asset class, actual historical experience and our diversified investment strategy. We consult with and consider the opinions of financial professionals in developing appropriate capital market assumptions. Return projections are also validated using a simulation model that incorporates yield curves, credit spreads and risk premiums to project long-term prospective returns. The appropriateness of the expected rate of return is assessed on an annual basis and revised if necessary. We have a high percentage of total assets in fixed income securities since the benefit accruals are frozen for all of our U.S. pension plans. Based on this assessment, we have selected a 5.75% expected return on asset assumption for 2024 for our U.S. plans.

The significant weighted-average assumptions used in the measurement of OPEB obligations at December 31 of each year and the net periodic benefit cost for each year are as follows:

	2023						2022						2021
	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.
OPEB benefit obligations:
Discount rate		5.19	%		5.01	%		5.54	%		5.44	%		2.99	%		3.08	%
Net periodic benefit cost:
Discount rate		5.48	%		5.64	%		2.84	%		3.34	%		2.57	%		2.62	%
Initial health care cost trend rate		N/A			2.76	%		N/A			2.48	%		N/A			2.27	%
Ultimate health care cost trend rate		N/A			4.19	%		N/A			4.09	%		N/A			4.20	%
Year ultimate reached		N/A			2032			N/A			2032			N/A			2032

The discount rate selection process was similar to the process used for the pension plans. Assumed health care cost trend rates have a significant effect on the health care obligation. To determine the trend rates, consideration is given to the plan design, recent experience and health care economics.

Estimated future benefit payments and contributions — Expected benefit payments by our pension and OPEB plans for each of the next five years and for the following five-year period are as follows:

	Pension Benefits				OPEB
Year	U.S.		Non-U.S.		U.S.		Non-U.S.
2024	$	49	$	17	$	—	$	4
2025		48		17				4
2026		47		20				4
2027		46		19				4
2028		45		21				4
2029 to 2033		207		124		1		19
Total	$	442	$	218	$	1	$	39

Pension benefits are funded through deposits with trustees that satisfy, at a minimum, the applicable funding regulations. OPEB benefits are funded as they become due. There are projected contributions of $7 and $17 to be made during 2024 for our U.S. plans and non-U.S. plans, respectively.

Multi-employer pension plans — We participate in the Steelworkers Pension Trust (SPT) multi-employer pension plan which provides pension benefits to certain of our U.S. employees represented by the United Steelworkers and United Automobile Workers unions. Contributions are made in accordance with our collective bargaining agreements and rates are generally based on hours worked. The collective bargaining agreements expire May 22, 2026. The trustees of the SPT have provided us with the latest data available for the plan year ended  December 31, 2023. As of that date, the plan is not fully funded. We could be held liable to the plan for our obligations as well as those of other employers as a result of our participation in the plan.

Contribution rates could increase if the plan is required to adopt a funding improvement plan or a rehabilitation plan, if the performance of plan assets does not meet expectations or as a result of future collectively bargained wage and benefit agreements. If we choose to stop participating in the plan, we may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Pension Protection Act (PPA) defines a zone status for each plan. Plans in the green zone are at least 80% funded, plans in the yellow zone are at least 65% funded and plans in the red zone are generally less than 65% funded. The SPT plan has utilized extended amortization provisions to amortize its losses from 2008. The plan recertified its zone status after using the extended amortization provisions as allowed by law. The SPT plan has not implemented a funding improvement or rehabilitation plan, nor are such plans pending. Our contributions to the SPT exceeded 5% of the total contributions to the plan.

	Employer	PPA
	Identification	Zone Status		Funding Plan	Contributions by Dana
Pension	Number/			Pending/							Surcharge
Fund	Plan Number	2023	2022	Implemented	2023		2022		2021		Imposed
SPT	23-6648508 / 499	Green	Green	No	$	17	$	18	$	16	No