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Pension and Other Postretirement Benefits
 12 Months Ended
Dec. 31, 2021
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefits Pension and Other Postretirement Benefits
Howmet maintains pension plans covering most U.S. employees and certain employees in foreign locations. Pension benefits generally depend on length of service and job grade. Substantially all benefits are paid through pension trusts that are sufficiently funded to ensure that all plans can pay benefits to retirees as they become due. Most salaried and non-bargaining hourly U.S. employees hired after March 1, 2006, participate in a defined contribution plan instead of a defined benefit plan.
Howmet also maintains health care and life insurance postretirement benefit plans covering eligible U.S. retired employees. Generally, the medical plans are unfunded and pay a percentage of medical expenses, reduced by deductibles and other coverage. Life benefits are generally provided by insurance contracts. Howmet retains the right, subject to existing agreements, to change or eliminate these benefits. All salaried and certain non-bargaining hourly U.S. employees hired after January 1, 2002 and certain bargaining hourly U.S. employees hired after July 1, 2010, are not eligible for postretirement health care benefits. All salaried and certain hourly U.S. employees that retire on or after April 1, 2008 are not eligible for postretirement life insurance benefits. Effective May 1, 2019, salaried employees and retirees are not eligible for postretirement life insurance benefits.
Effective January 1, 2015, Howmet no longer offers postretirement health care benefits to Medicare-eligible, primarily non-bargaining, U.S. retirees through Company-sponsored plans. Qualifying retirees may access these benefits in the marketplace by purchasing coverage directly from insurance carriers. Subsidies to these retirees ceased effective December 31, 2021. Some of these retirees remain eligible for Medicare Part B reimbursement.
In 2019, the Company communicated to plan participants that for its U.S. salaried and non-bargained hourly retirees of the Company and its subsidiaries, it would eliminate the life insurance benefit effective May 1, 2019, and certain health care subsidies effective December 31, 2019. As a result of these changes in 2019, the Company recorded a decrease to the Accrued other postretirement benefits liability of $75, which was offset by a curtailment benefit of $58 (of which $16 was recorded in Restructuring and other charges and $42 related to Arconic Corporation in Discontinued Operations) and $17 in Accumulated other comprehensive loss.
In June 2019, the Company and the United Steelworkers (“USW”) reached a tentative three-year labor agreement that was ratified on July 11, 2019 covering approximately 3,400 employees at four U.S. locations of Arconic Corporation; the previous labor agreement expired on May 15, 2019. In 2019, the Company recognized $9 in Discontinued operations in the Statement of Consolidated Operations primarily for a one-time signing bonus for employees. Additionally, on July 25, 2019, the USW ratified a new four-year labor agreement covering approximately 560 employees at the Company’s Niles, Ohio facility. The prior labor agreement expired on June 30, 2018.
In 2021, 2020, and 2019, the Company applied settlement accounting to U.S. pension plans due to lump sum payments to participants, which resulted in settlement charges of $12, $8, and $9, respectively, that were recorded in Restructuring and other charges.
In 2021 and 2020, the Company undertook a number of actions to reduce pension obligations in the U.K. by offering lump sum payments to certain plan participants and entering into group annuity contracts with a third-party carrier to pay and administer future annuity payments. The Company applied settlement accounting to these U.K. pension plans, which resulted in settlement charges of $23 and $66, respectively, that were recorded in Restructuring and other charges in the Statement of Consolidated Operations. These actions reduced the number of pension plan participants in the U.K. by approximately 70%.
In 2020, the Company communicated to plan participants that for its U.S. salaried and non-bargained hourly retirees of the Company and its subsidiaries, it would eliminate certain health care subsidies effective December 31, 2021, and that for certain bargained retirees of the Company, it would eliminate certain health care subsidies effective December 31, 2021 and the life insurance benefit effective August 1, 2020. As a result of these amendments, the Company recorded a decrease to the Accrued other postretirement benefits liability of $6 in 2020, which was offset in Accumulated other comprehensive loss.
In the first quarter of 2021, the Company announced a plan administration change of certain of its Medicare-eligible prescription drug benefits to an Employer Group Waiver Plan with a wrap-around secondary plan effective July 1, 2021. The administration change is expected to reduce costs to the Company through the usage of Medicare Part D and drug manufacturer subsidies. Due to this amendment, along with the associated plan remeasurements, the Company recorded a decrease to its Accrued other postretirement benefits liability of $39, which was offset in Accumulated other comprehensive loss in the Consolidated Balance Sheet.
On March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA 2021”) was signed into law in the United States. ARPA 2021, in part, provides temporary relief for employers who sponsor defined benefit pension plans related to funding contributions under the Employee Retirement Income Security Act of 1974. Considering the impact of ARPA 2021, Howmet’s pension contributions and other postretirement benefit payments in 2021 were approximately $110.
In October 2021, the Company undertook additional actions to reduce gross pension obligations by $125 by purchasing group annuity contracts with a third-party carrier to pay and administer future annuity payments. These actions resulted in a settlement charge of $34 and were recorded in Restructuring and other charges in the fourth quarter ended December 31, 2021 in the Statement of Consolidated Operations. The funded status of the plans have not been significantly impacted.
The funded status of all of Howmet’s pension plans are measured as of December 31 each calendar year. Howmet’s funded status under the Employee Retirement Income Security Act of 1974 (“ERISA”) was approximately 76% as of January 1, 2021.
Obligations and Funded Status
 Pension benefitsOther
postretirement benefits
December 31,2021202020212020
Change in benefit obligation
Benefit obligation at beginning of year$2,713 $7,249 $215 $786 
Transfer to Arconic Corporation— (4,355)— (569)
Service cost4 6 2 2 
Interest cost47 71 5 7 
Amendments3 6 (31)(11)
Actuarial (gains) losses(1)
(55)313 (10)14 
Settlements(275)(398)— — 
Benefits paid(140)(153)(17)(17)
Medicare Part D subsidy receipts— — 1 3 
Foreign currency translation impact(1)(26)— — 
Benefit obligation at end of year(2)
$2,296 $2,713 $165 $215 
Change in plan assets(2)
Fair value of plan assets at beginning of year$1,724 $4,868 $— $— 
Transfer to Arconic Corporation— (2,982)— — 
Actual return on plan assets124 203 — — 
Employer contributions96 227 — — 
Benefits paid(123)(136)— — 
Administrative expenses(12)(12)— — 
Settlement payments(277)(413)— — 
Foreign currency translation impact(1)(31)— — 
Fair value of plan assets at end of year(2)
$1,531 $1,724 $— $— 
Funded status$(765)$(989)$(165)$(215)
Amounts recognized in the Consolidated Balance Sheet consist of:
Noncurrent assets$22 $12 $— $— 
Current liabilities(16)(16)(12)(17)
Noncurrent liabilities(771)(985)(153)(198)
Net amount recognized$(765)$(989)$(165)$(215)
Amounts recognized in Accumulated Other Comprehensive Loss consist of:
Net actuarial loss$1,067 $1,274 $11 $22 
Prior service cost (benefit)3 6 (49)(28)
Net amount recognized, before tax effect$1,070 $1,280 $(38)$(6)
Other changes in plan assets and benefit obligations recognized in Other Comprehensive Loss consist of:
Net actuarial (benefit) loss$(81)$166 $(10)$14 
Amortization of accumulated net actuarial (loss) gain(125)(123)— 1 
Loss transferred to Arconic Corporation— (2,144)— (170)
Prior service cost (benefit)3 5 (31)(11)
Amortization of prior service benefit(7)— 9 5 
Prior service credit transferred to Arconic Corporation— — — 13 
Net amount recognized, before tax effect$(210)$(2,096)$(32)$(148)
(1)At December 31, 2021, the actuarial gains impacting the benefit obligation were due to changes in discount rate, alternative interest cost method, actual asset returns in excess of expected returns and other changes including census data.
(2)At December 31, 2021, the benefit obligation, fair value of plan assets, and funded status for U.S. pension plans were $2,039, $1,278, and $(761), respectively. At December 31, 2020, the benefit obligation, fair value of plan assets, and funded status for U.S. pension plans were $2,327, $1,361, and $(966), respectively.
Pension Plan Benefit Obligations
 Pension benefits
  20212020
The projected benefit obligation and accumulated benefit obligation for all defined benefit pension plans were as follows:
Projected benefit obligation$2,296 $2,713 
Accumulated benefit obligation2,293 2,707 
The aggregate projected benefit obligation and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets were as follows:
Projected benefit obligation1,982 2,364 
Fair value of plan assets1,193 1,364 
The aggregate accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were as follows:
Accumulated benefit obligation1,981 2,359 
Fair value of plan assets1,193 1,364 

Components of Net Periodic Benefit Cost
 
Pension benefits(1)
Other postretirement benefits(2)
For the year ended December 31,202120202019202120202019
Service cost$4 $12 $25 $2 $3 $7 
Interest cost47 97 235 5 10 28 
Expected return on plan assets(90)(136)(286)— — — 
Recognized net actuarial loss56 78 139 — 3 4 
Amortization of prior service cost (benefit)1 — 2 (9)(6)(6)
Settlements(3)
69 76 9 — — — 
Curtailments(4)
6 — — — (2)(58)
Net periodic benefit cost(5)
$93 $127 $124 $(2)$8 $(25)
Discontinued operations— 20 95 — 6 (15)
Net amount recognized in Statement of Consolidated Operations$93 $107 $29 $(2)$2 $(10)
(1)In 2021, 2020, and 2019, net periodic benefit cost for U.S. pension plans was $61, $58, and $127, respectively.
(2)In 2021, 2020, and 2019, net periodic benefit cost for other postretirement benefits reflects a reduction of less than $1, $1, and $11, respectively, related to the recognition of the federal subsidy awarded under Medicare Part D.
(3)In 2021, settlements were related to U.S. and U.K. actions including the purchase of group annuity contracts and lump sum benefit payments. In 2020, settlements were related to U.K. actions including lump sum benefit payments and the purchase of group annuity contracts as well as U.S. lump sum benefit payments. In 2019, settlements were due to workforce reductions and the payment of lump sum benefits. (See Note E)
(4)In 2021, the curtailment was due to plan termination. In 2020, the curtailment was due to workforce reductions. In 2019, curtailments were due to a reduction of future benefits, resulting in the recognition of favorable and unfavorable plan amendments.
(5)Service cost was included within Cost of goods sold, Selling, general administrative, and other expenses, and Research and development expenses; curtailments and settlements were included in Restructuring and other charges; and all other cost components were recorded in Other expense, net in the Statement of Consolidated Operations.
Assumptions
Weighted average assumptions used to determine benefit obligations for pension and other postretirement benefit plans were as follows:
December 31,20212020
Discount rate2.70 %2.40 %
Cash balance plan interest crediting rate3.00 %3.00 %
The U.S. discount rate is determined using a Company-specific yield curve model (above-median) developed with the assistance of an external actuary while both the U.K. and Canada utilize models developed internally by their respective actuary. The cash flows of the plans’ projected benefit obligations are discounted using a single equivalent rate derived from yields on high quality corporate bonds, which represent a broad diversification of issuers in various sectors, including finance and banking, industrials, transportation, and utilities, among others. The yield curve models parallel the plans’ projected cash flows, which have a global average duration of 11 years. The underlying cash flows of the bonds included in the models exceed the cash flows needed to satisfy the Company’s plans’ obligations multiple times.
Benefit accruals for future compensation under the Company’s major salaried and non-bargained hourly defined benefit pension plans have ceased. The rate of compensation increase no longer impacts the determination of the benefit obligation.
Weighted average assumptions used to determine net periodic benefit cost for pension and other postretirement benefit plans were as follows:
202120202019
Discount rate to calculate service cost(1)
2.80 %3.30 %4.30 %
Discount rate to calculate interest cost(1)
2.10 %2.70 %3.90 %
Expected long-term rate of return on plan assets6.20 %6.00 %5.60 %
Rate of compensation increase(2)
— %— %3.50 %
Cash balance plan interest crediting rate3.00 %3.00 %3.00 %
(1)In all periods presented, the respective global discount rates were used to determine net periodic benefit cost for most pension plans for the full annual period. However, the discount rates for a limited number of plans were updated during 2021, 2020, and 2019 to reflect the remeasurement of these plans due to new union labor agreements, settlements, and/or curtailments. The updated discount rates used were not significantly different from the discount rates presented.
(2)Benefit accruals for future compensation under the Company’s major salaried and non-bargained hourly defined benefit pension plans have ceased. The rate of compensation increase no longer impacts the determination of the benefit obligation.
The expected long-term rate of return on plan assets (“EROA”) is generally applied to a five-year market-related value of plan assets (a fair value at the plan measurement date is used for certain non-U.S. plans). The process used by management to develop this assumption is one that relies on a combination of historical asset return information and forward-looking returns by asset class. As it relates to historical asset return information, management focuses on various historical moving averages when developing this assumption. While consideration is given to recent performance and historical returns, the assumption represents a long-term, prospective return. Management also incorporates expected future returns on current and planned asset allocations using information from various external investment managers and consultants, as well as management’s own judgment.
For 2021, 2020, and 2019, the U.S. expected long-term rate of return used by management was based on the prevailing and planned strategic asset allocations, as well as estimates of future returns by asset class. These rates were within the respective range of the 20-year moving average of actual performance and the expected future return developed by asset class. For 2022, management anticipates that 7.00% will continue to be the expected long-term rate of return for the U.S. Pension plans. EROA assumptions are developed by country. Annual changes in the weighted average EROA are impacted by the relative size of the assets by country.
Assumed health care cost trend rates for U.S. other postretirement benefit plans were as follows:
202120202019
Health care cost trend rate assumed for next year5.50 %5.50 %5.50 %
Rate to which the cost trend rate gradually declines4.50 %4.50 %4.50 %
Year that the rate reaches the rate at which it is assumed to remain202420232023
The assumed health care cost trend rate is used to measure the expected cost of gross eligible charges covered by Howmet’s other postretirement benefit plans. For 2022, a 5.50% trend rate will be used, reflecting management’s best estimate of the change in future health care costs covered by the plans. The plans’ actual annual health care cost trend experience over the past three years has ranged from 2.20% to 5.70%. Management does not believe this three-year range is indicative of expected increases for future health care costs over the long-term.
Plan Assets
Howmet’s pension plans’ investment policy at December 31, 2021 by asset class, were as follows:
  
Asset class
Policy range(1)
Equities
20–55%
Fixed income
25–55%
Other investments
15–35%
(1)Policy range is for U.S. plan assets only, as both the U.K. and Canadian asset investment allocations are controlled by a third-party trustee with input from Howmet.
The principal objectives underlying the investment of the pension plans’ assets are to ensure that Howmet can properly fund benefit obligations as they become due under a broad range of potential economic and financial scenarios, maximize the long-term investment return with an acceptable level of risk based on such obligations, and broadly diversify investments across and within various asset classes to protect asset values against adverse movements. Specific objectives for long-term investment strategy include reducing the volatility of pension assets relative to pension liabilities, and attaining and maintaining a sufficiently funded status. The use of derivative instruments is permitted where appropriate and necessary for achieving overall investment policy objectives. The investment strategy uses long duration cash bonds and derivative instruments to offset a portion of the interest rate sensitivity of U.S. pension liabilities. Exposure to broad equity risk is decreased and diversified through investments in hedge funds, private equity, private credit, private real estate, high-yield bonds, global and emerging market debt, and global and emerging market equities. Investments are further diversified by strategy, asset class, geography, and sector to enhance returns and mitigate downside risk. A large number of external investment managers are used to gain broad exposure to the financial markets and to mitigate manager-concentration risk.
Investment practices comply with the requirements of ERISA and other applicable laws and regulations.
The following section describes the valuation methodologies used to measure the fair value of pension plan assets, including an indication of the level in the fair value hierarchy in which each type of asset is generally classified (see Note S for the definition of fair value and a description of the fair value hierarchy).
Equities. These securities consist of: (i) direct investments in the stock of publicly traded U.S. and non-U.S. companies, and equity derivatives, that are valued based on the closing price reported in an active market on which the individual securities are traded (generally classified in Level 1); (ii) the plans’ share of commingled funds that are invested in the stock of publicly traded companies and are valued at the net asset value of shares held at December 31 (included in Level 1 and Level 2); and (iii) direct investments in long/short equity hedge funds and private equity (limited partnerships and venture capital partnerships) that are valued at net asset value.
Fixed income. These securities consist of: (i) U.S. government debt that are generally valued using quoted prices (included in Level 1); (ii) cash and cash equivalents invested in publicly-traded funds and are valued based on the closing price reported in an active market on which the individual securities are traded (generally classified in Level 1); (iii) publicly traded U.S. and non-U.S. fixed interest obligations (principally corporate bonds and debentures) and are valued through consultation and evaluation with brokers in the institutional market using quoted prices and other observable market data (included in Level 2); (iv) fixed income derivatives that are generally valued using industry standard models with market-based observable inputs (included in Level 2); and (v) cash and cash equivalents invested in institutional funds and are valued at net asset value.
Other investments. These investments include, among others: (i) exchange traded funds, such as gold, and real estate investment trusts and are valued based on the closing price reported in an active market on which the investments are traded (included in Level 1) and (ii) direct investments of discretionary and systematic macro hedge funds and private real estate (includes limited partnerships) and are valued at net asset value.
The fair value methods described above may not be indicative of net realizable value or reflective of future fair values. Additionally, while Howmet believes the valuation methods used by the plans’ trustees 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.
The following table presents the fair value of pension plan assets classified under the appropriate level of the fair value hierarchy or net asset value:
December 31, 2021
Level 1Level 2Net Asset ValueTotal
Equities:
Equity securities$2 $197 $409 $608 
Long/short equity hedge funds— — 60 60 
Private equity— — 126 126 
$2 $197 $595 $794 
Fixed income:
Intermediate and long duration government/credit$124 $328 $— $452 
Other15 119 — 134 
 $139 $447 $— $586 
Other investments:
Real estate$— $— $64 $64 
Discretionary and systematic macro hedge funds— — 47 47 
Other— — 23 23 
 $— $— $134 $134 
Net plan assets(1)
$141 $644 $729 $1,514 
December 31, 2020
Level 1Level 2Net Asset ValueTotal
Equities:
Equity securities$274 $89 $68 $431 
Long/short equity hedge funds— — 77 77 
Private equity— — 87 87 
$274 $89 $232 $595 
Fixed income:
Intermediate and long duration government/credit$78 $579 $31 $688 
Other63 254 — 317 
 $141 $833 $31 $1,005 
Other investments:
Real estate$31 $— $52 $83 
Discretionary and systematic macro hedge funds— — 94 94 
Other— — 23 23 
 $31 $— $169 $200 
Net plan assets(2)
$446 $922 $432 $1,800 
(1)As of December 31, 2021, the total fair value of pension plans’ assets excludes a net receivable of $17, which represents securities purchased and sold but not yet settled plus interest and dividends earned on various investments.
(2)As of December 31, 2020, the total fair value of pension plans’ assets excludes a net payable of $76, which represents securities purchased and sold but not yet settled plus interest and dividends earned on various investments.
Funding and Cash Flows
It is Howmet’s policy to fund amounts for pension plans sufficient to meet the minimum requirements set forth in the benefits laws and tax laws of the applicable country. Periodically, Howmet contributes additional amounts as deemed appropriate. In 2021 and 2020, cash contributions to Howmet’s pension plans were $96 and $227, respectively, which includes $12 and $25, respectively, contributed to the Company’s U.S. plans that was in excess of the minimum required under ERISA.
The contributions to the Company’s pension plans in 2022 are estimated to be $44 (of which $35 is for U.S. plans), all of which are minimum required contributions.
During the third quarter of 2016, the Pension Benefit Guaranty Corporation approved management’s plan to separate the Alcoa Inc. pension plans between the Company and Alcoa Corporation. The plan stipulated that the Company make cash contributions of $150 over a period of 30 months (from November 1, 2016) to its two largest pension plans. The Company satisfied the requirements of the plan by making payments of $34, $66, and $50 in April 2019, March 2018, and April 2017, respectively.
Due to the plan administration change of certain Medicare-eligible prescription drug benefits to an Employer Group Waiver Plan with a wrap-around secondary plan, there will be no direct Medicare Part D subsidy receipts going forward. Benefit payments expected to be paid to pension and other postretirement benefit plans’ participants are as follows utilizing the current assumptions outlined above:
For the year ended December 31,Pension
benefits paid		Other post-
retirement
benefits
2022$152 $12 
2023149 12 
2024145 12 
2025145 11 
2026141 11 
2027 - 2031671 53 
 $1,403 $111 
Defined Contribution Plans
Howmet sponsors savings and investment plans in various countries, primarily in the U.S. Howmet’s contributions and expenses related to these plans were $66, $73, and $87 in 2021, 2020, and 2019, respectively. U.S. employees may contribute a portion of their compensation to the plans, and Howmet matches a portion of these contributions in equivalent form of the investments elected by the employee.