Pension plans and other postretirement benefits

12 Months Ended

Dec. 31, 2023

Retirement Benefits [Abstract]

Pension plans and other postretirement benefits

13. Pension plans and other postretirement benefits

The Company provides defined pension and other postretirement benefits (including health care and life insurance benefits) to qualified retired employees. The Company uses a December 31 measurement date for all of its plans.

Net periodic pension expense for defined benefit plans consisted of the following:

	Year Ended December 31,
(Dollars in millions)	2023			2022			2021
Service cost	$	11		$	18		$	20
Interest cost on benefit obligation		115			82			62
Expected return on plan assets		(201	)		(188	)		(143	)
Amortization of prior service cost		—			1			1
Recognized net actuarial (gain) loss		(2	)		20			89
Net periodic pension (benefit) cost	$	(77	)	$	(67	)	$	29

Net other postretirement benefits expense for defined benefit plans consisted of the following:

	Year Ended December 31,
(Dollars in millions)	2023			2022			2021
Service cost	$	2		$	3		$	1
Interest cost on benefit obligation		3			2			1
Amortization of prior service credit		(2	)		(3	)		(5	)
Recognized net actuarial gain		(3	)		(1	)		(1	)
Net other postretirement (benefit) cost	$	—		$	1		$	(4	)

Service cost is reflected in salaries and employee benefits expense. The other components of net periodic benefit costs are reflected in other costs of operations.

Prior to 2022, net actuarial losses were generally amortized over the average remaining service periods of active participants in the Company’s qualified defined benefit pension plan. If all or substantially all of the plan’s participants are inactive, GAAP provides for the average remaining life expectancy of the participants to be used instead of average remaining service period in determining such amortization. Substantially all of the participants in the Company’s qualified defined benefit pension plan were inactive and beginning in 2022 the average remaining life expectancy is now utilized prospectively to amortize the net unrecognized losses. The change increased the amortization period by approximately sixteen years and reduced the amount of amortization of unrecognized losses recorded for the year ended December 31, 2022 from what would have been recorded without such change in amortization period by $36 million.

Data relating to the funding position of the defined benefit plans were as follows:

	Pension Benefits						Other Postretirement Benefits
(Dollars in millions)	2023			2022			2023			2022
Change in benefit obligation:
Benefit obligation at beginning of year	$	2,379		$	2,420		$	60		$	52
Service cost		11			18			2			3
Interest cost		115			82			3			2
Plan participants’ contributions		—			—			1			2
Actuarial (gain) loss		13			(636	)		(5	)		(22	)
Plan amendment		—			—			—			13
Business combinations		—			633			—			15
Medicare Part D reimbursement		—			—			—			1
Benefits paid		(149	)		(138	)		(4	)		(6	)
Benefit obligation at end of year		2,369			2,379			57			60
Change in plan assets:
Fair value of plan assets at    beginning of year		2,942			2,596			—			—
Actual return on plan assets		334			(386	)		—			—
Employer contributions		18			14			3			3
Business combinations		—			856			—			—
Plan participants’ contributions		—			—			1			2
Medicare Part D reimbursement		—			—			—			1
Benefits paid		(149	)		(138	)		(4	)		(6	)
Fair value of plan assets at end of year		3,145			2,942			—			—
Funded status	$	776		$	563		$	(57	)	$	(60	)
Prepaid asset recognized in the    Consolidated Balance Sheet	$	922		$	715		$	—		$	—
Accrued liability recognized in the    Consolidated Balance Sheet		(146	)		(152	)		(57	)		(60	)
Net accrued asset (liability)    recognized in the Consolidated    Balance Sheet	$	776		$	563		$	(57	)	$	(60	)
Amounts recognized in accumulated other    comprehensive income were:
Net loss (gain)	$	191		$	309		$	(37	)	$	(35	)
Net prior service cost (credit)		—			—			1			(1	)
Pre-tax adjustment to accumulated other    comprehensive income		191			309			(36	)		(36	)
Taxes		(49	)		(80	)		9			9
Net adjustment to accumulated other    comprehensive income	$	142		$	229		$	(27	)	$	(27	)

The Company has an unfunded supplemental pension plan for certain key executives and others. The projected benefit obligation and accumulated benefit obligation included in the preceding data related to such plan were $146 million as of December 31, 2023 and $152 million as of December 31, 2022. The accumulated benefit obligation for all defined benefit pension plans was $2.4 billion at each of December 31, 2023 and 2022.

GAAP requires an employer to recognize in its balance sheet as an asset or liability the overfunded or underfunded status of a defined benefit postretirement plan, measured as the difference between the fair value of plan assets and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation. Gains or losses and prior service costs or credits that arise during the period, but are not included as components of net periodic benefit expense, are recognized as a component of other comprehensive income. Amortization of net gains and losses is included in annual net periodic benefit expense if, as of the beginning of the year, the net gain or loss exceeds 10% of the greater of the benefit obligation or the market-related fair value of the plan assets. As indicated in the preceding table, as of December 31, 2023 the Company recorded a minimum liability adjustment of $155 million ($191 million related to pension plans and ($36 million) related to other postretirement benefits) with a corresponding reduction of shareholders’ equity, net of applicable deferred taxes, of $115 million. In aggregate, the benefit plans realized a net gain during 2023 that resulted in a decrease to the minimum liability adjustment from that which was recorded at December 31, 2022 of $118 million. The net gain in 2023 was mainly the result of a return on plan assets that was greater than the assumed expected return. The table below reflects the changes in plan assets and benefit obligations recognized in other comprehensive income related to the Company’s postretirement benefit plans.

(Dollars in millions)	Pension Plans			Other Postretirement Benefit Plans			Total
2023
Net gain	$	(120	)	$	(5	)	$	(125	)
Amortization of prior service credit		—			2			2
Amortization of actuarial gain		2			3			5
Total recognized in other comprehensive income, pre-tax	$	(118	)	$	—		$	(118	)
2022
Net gain	$	(62	)	$	(22	)	$	(84	)
Net prior service cost		—			13			13
Amortization of prior service (cost) credit		(1	)		3			2
Amortization of actuarial (loss) gain		(20	)		2			(18	)
Total recognized in other comprehensive income, pre-tax	$	(83	)	$	(4	)	$	(87	)

Assumptions

The assumed weighted-average rates used to determine benefit obligations at December 31 were:

	Pension Benefits						Other Postretirement Benefits
	2023			2022			2023			2022
Discount rate		5.00	%		5.00	%		5.00	%		5.00	%
Rate of increase in future compensation levels		3.32			3.33			—			—

The assumed weighted-average rates used to determine net benefit expense for the years ended December 31 were:

	Pension Benefits									Other Postretirement Benefits
	2023			2022			2021			2023			2022			2021
Discount rate		5.00	%		2.75	%		2.50	%		5.00	%		2.75	%		2.50	%
Long-term rate of return on plan assets		6.25			6.25			6.25			—			—			—
Rate of increase in future compensation levels		3.33			3.35			3.37			—			—			—

The discount rate used by the Company to determine the present value of the Company’s future benefit obligations reflects specific market yields for a hypothetical portfolio of highly rated corporate bonds that would produce cash flows similar to the Company’s benefit plan obligations and the level of market interest rates in general as of the year-end.

The expected long-term rate of return assumption as of each measurement date was developed through analysis of historical market returns, current market conditions, anticipated future asset allocations, the funds’ past experience, and expectations on potential future market returns. The expected rate of return assumption represents a long-term average view of the performance of the plan assets, a return that may or may not be achieved during any one calendar year.

The Company’s defined benefit pension plan is sensitive to the long-term rate of return on plan assets and the discount rate. To demonstrate the sensitivity of the net periodic pension benefit for 2023 to changes in these assumptions, with all other assumptions held constant, 25 basis point increases in: the rate of return on plan assets would have resulted in an increase in pension benefit of approximately $8 million; and the discount rate would have resulted in a decrease in pension benefit of approximately $1 million. Decreases of 25 basis points in those assumptions would have resulted in similar changes in amount, but in the opposite direction from the changes presented in the preceding sentence. Additionally, an increase of 25 basis points in the discount rate would have decreased the benefit obligation by $62 million and a decrease of 25 basis points in the discount rate would have increased the benefit obligation by $65 million at December 31, 2023.

For measurement of other postretirement benefits, a 6.75% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2023. The rate was assumed to decrease to 5.00% over seven years.

Plan assets

The Company’s policy is to invest the pension plan assets in a prudent manner for the purpose of providing benefit payments to participants and mitigating reasonable expenses of administration. The Company’s investment strategy is designed to provide a total return that, over the long-term, places an emphasis on the preservation of capital. The strategy attempts to maximize investment returns on assets at a level of risk deemed appropriate by the Company while complying with applicable regulations and laws. The investment strategy utilizes asset diversification as a principal determinant for establishing an appropriate risk profile while emphasizing total return realized from capital appreciation, dividends and interest income. The target allocations for plan assets are generally 25 to 60 percent equity securities, 10 to 65 percent debt securities, and 5 to 60 percent money-market investments/cash equivalents and other investments, although holdings could be more or less than these general guidelines based on market conditions at the time and actions taken or recommended by the investment managers providing advice to the Company. Assets are managed by a combination of internal and external investment managers. Equity securities may include investments in domestic and international equities through individual securities, mutual funds and exchange-traded funds. Debt securities may include investments in corporate bonds of companies from diversified industries, mortgage-backed securities guaranteed by government agencies and U.S. Treasury securities through individual securities and mutual funds. Additionally, the Company’s defined benefit pension plan held $668 million (21% of total assets) of real estate funds, private investments, hedge funds and other investments at December 31, 2023. No investment in securities of a non-U.S. Government or government agency issuer exceeded ten percent of plan assets at December 31, 2023. Returns on invested assets are periodically compared with target market indices for each asset type to aid management in evaluating such returns. Furthermore, management regularly reviews the investment policy and may, if deemed appropriate, make changes to the target allocations noted above.

The fair values of the Company’s pension plan assets at December 31, 2023 and 2022, by asset category, were as follows:

	Fair Value Measurement of Plan Assets At December 31, 2023
(Dollars in millions)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Asset category:
Money-market investments	$	65	$	41	$	24	$	—
Equity securities:
M&T		112		112		—		—
Domestic (a)		512		512		—		—
International (b)		17		17		—		—
Mutual funds:
Domestic (a)		307		307		—		—
International (b)		501		501		—		—
		1,449		1,449		—		—
Debt securities:
Corporate (c)		227		—		227		—
Government		276		—		276		—
International		6		—		6		—
Mutual funds:
Domestic (d)		450		450		—		—
		959		450		509		—
Other:
Diversified mutual fund		110		110		—		—
Real estate partnerships		29		7		—		22
Private equity / debt		235		—		—		235
Hedge funds		285		107		—		178
Guaranteed deposit fund		9		—		—		9
		668		224		—		444
Total (e)	$	3,141	$	2,164	$	533	$	444

	Fair Value Measurement of Plan Assets At December 31, 2022
(Dollars in millions)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Asset category:
Money-market investments	$	90	$	52	$	38	$	—
Equity securities:
M&T		118		118		—		—
Domestic (a)		450		450		—		—
International (b)		19		19		—		—
Mutual funds:
Domestic (a)		279		279		—		—
International (b)		477		477		—		—
		1,343		1,343		—		—
Debt securities:
Corporate (c)		200		—		200		—
Government		236		—		236		—
International		15		—		15		—
Mutual funds:
Domestic (d)		422		422		—		—
		873		422		451		—
Other:
Diversified mutual fund		108		108		—		—
Real estate partnerships		27		7		—		20
Private equity / debt		211		—		—		211
Hedge funds		276		109		—		167
Guaranteed deposit fund		10		—		—		10
		632		224		—		408
Total (e)	$	2,938	$	2,041	$	489	$	408

(a)This category is mainly comprised of equities of companies primarily within the small-cap, mid-cap and large-cap sectors of the U.S. economy and range across diverse industries.

(b)This category is comprised of equities in companies primarily within the mid-cap and large-cap sectors of international markets mainly in developed and emerging markets in Europe and the Pacific Rim.

(c)This category represents investment grade bonds of U.S. issuers from diverse industries.

(d)Approximately 73% of the mutual funds were invested in investment grade bonds and 27% in high-yielding bonds at each of December 31, 2023 and 2022. The holdings within the funds were spread across diverse industries.

(e)Excludes dividends and interest receivable totaling $4 million at each of December 31, 2023 and 2022.

The changes in Level 3 pension plan assets measured at estimated fair value on a recurring basis during the year ended December 31, 2023 were as follows:

(Dollars in millions)	Balance – January 1, 2023		Net Purchases (Sales)		Realized/ Unrealized Gains (Losses)			Balance – December 31, 2023
Real estate partnerships	$	20	$	2	$	—		$	22
Private equity/debt		211		12		12			235
Hedge funds		167		—		11			178
Guaranteed deposit fund		10		—		(1	)		9
Total	$	408	$	14	$	22		$	444

The Company makes contributions to its funded qualified defined benefit pension plan as required by government regulation or as deemed appropriate by management after considering factors such as the fair value of plan assets, expected returns on such assets and the present value of benefit obligations of the plan. The Company is not required to make contributions to the qualified defined benefit plan in 2024, however, subject to the impact of actual events and circumstances that may occur in 2024, the Company may make contributions, but the amount of any such contributions has not been determined. The Company regularly funds the payment of benefit obligations for the supplemental defined benefit pension and postretirement benefit plans because such plans do not hold assets for investment. Payments made by the Company for supplemental pension benefits were $18 million and $14 million in 2023 and 2022, respectively. Payments made by the Company for postretirement benefits were $3 million in each of 2023 and 2022. Payments for supplemental pension and other postretirement benefits for 2024 are not expected to differ from those made in 2023 by an amount that will be material to the Company’s consolidated financial position.

Estimated benefits expected to be paid in future years related to the Company’s defined benefit pension and other postretirement benefits plans are as follows:

(Dollars in millions)	Pension Benefits		Other Postretirement Benefits
Year ending December 31:
2024	$	150	$	4
2025		154		4
2026		157		4
2027		160		4
2028		164		4
2029 through 2033		838		19

The Company also provides a qualified defined contribution pension plan to eligible employees who were not participants in the defined benefit pension plan as of December 31, 2005 and to other employees who have elected to participate in the defined contribution plan. The Company makes contributions to the defined contribution plan each year in an amount that is based on an individual participant’s total compensation (generally defined as total wages, incentive compensation, commissions and bonuses) and years of service. Company contributions to the plan are discretionary for participants for which eligibility occurred after January 1, 2020. Participants do not contribute to the defined contribution pension plan. Pension expense recorded in 2023, 2022 and 2021 associated with the defined contribution pension plan was $56 million, $45 million and $40 million, respectively.

The Company has a retirement savings plan that is a defined contribution plan in which eligible employees of the Company may defer up to 50% of qualified compensation via contributions to the plan. The retirement savings plan provides for employer matching contributions of 100% of an employee's qualified compensation up to 5%. Employees’ accounts, including employee contributions, employer matching contributions and accumulated earnings thereon, are at all times fully vested and

nonforfeitable. Employee benefits expense resulting from the Company’s contributions to the retirement savings plan totaled $96 million, $84 million and $63 million in 2023, 2022 and 2021, respectively.