Pension and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2022

Retirement Benefits [Abstract]

Pension and Other Postretirement Benefits

Pension and Other Postretirement Benefits

Howmet maintains pension plans covering U.S. employees and certain employees in foreign locations. Defined 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. Effective May 1, 2019, salaried and non-bargaining hourly U.S. employees and retirees are not eligible for postretirement life insurance benefits. Salaried and non-bargaining hourly U.S. employees that retire on or after January 1, 2022 are not eligible for any postretirement medical benefits. Certain previously retired salary and non-bargaining hourly U.S. employees remain eligible for Medicare Part B reimbursement.

In 2022, a certain U.S. pension plan attained funding levels that allowed full lump sum payments. These payments resulted in settlement charges of $41 that were recorded in Restructuring and other charges in the Statement of Consolidated Operations. Additionally, in 2022, 2021, and 2020, the Company applied settlement accounting to other U.S. and U.K. pension plans due to lump sum payments to participants, which resulted in settlement charges of $17, $12, and $8, respectively, that were recorded in Restructuring and other charges.

In December 2022, the Canadian pension plan was amended to provide for termination of the plan. As a result, the Company recognized a reduction of $2 in the pension benefit obligation through curtailment, which was offset in Accumulated other comprehensive loss in the Consolidated Balance Sheet. The wind-up efforts and satisfaction of all plan liabilities are expected to be completed in 2023.

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 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.

Obligations and Funded Status

	Pension benefits				Other postretirement benefits
December 31,	2022		2021		2022		2021
Change in benefit obligation
Benefit obligation at beginning of year	$	2,296	$	2,713	$	165	$	215
Service cost	4		4		2		2
Interest cost	51		47		4		5
Amendments	—		3		—		(31)
Actuarial gains(1)	(553)		(55)		(38)		(10)
Settlements	(72)		(275)		—		—
Curtailments	(2)		—		—		—
Benefits paid	(102)		(140)		(13)		(17)
Medicare Part D subsidy receipts	—		—		—		1
Foreign currency translation impact	(23)		(1)		—		—
Benefit obligation at end of year(2)	$	1,599	$	2,296	$	120	$	165
Change in plan assets(2)
Fair value of plan assets at beginning of year	$	1,531	$	1,724	$	—	$	—
Actual (loss) return on plan assets	(383)		124		—		—
Employer contributions	43		96		—		—
Benefits paid	(87)		(123)		—		—
Administrative expenses	(12)		(12)		—		—
Settlement payments	(98)		(277)		—		—
Foreign currency translation impact	(24)		(1)		—		—
Fair value of plan assets at end of year(2)	$	970	$	1,531	$	—	$	—
Funded status	$	(629)	$	(765)	$	(120)	$	(165)
Amounts recognized in the Consolidated Balance Sheet consist of:
Noncurrent assets	$	20	$	22	$	—	$	—
Current liabilities	(16)		(16)		(11)		(12)
Noncurrent liabilities	(633)		(771)		(109)		(153)
Net amount recognized	$	(629)	$	(765)	$	(120)	$	(165)
Amounts recognized in Accumulated Other Comprehensive Loss consist of:
Net actuarial loss (gain)	$	907	$	1,067	$	(28)	$	11
Prior service cost (benefit)	2		3		(40)		(49)
Net amount recognized, before tax effect	$	909	$	1,070	$	(68)	$	(38)
Other changes in plan assets and benefit obligations recognized in Other Comprehensive Loss consist of:
Net actuarial benefit	$	(53)	$	(81)	$	(38)	$	(10)
Amortization of accumulated net actuarial loss	(107)		(125)		(1)		—
Prior service (benefit) cost	(1)		3		—		(31)
Amortization of prior service (cost) benefit	—		(7)		9		9
Net amount recognized, before tax effect	$	(161)	$	(210)	$	(30)	$	(32)

(1)At December 31, 2022, the actuarial gains impacting the benefit obligation were primarily due to changes in the discount rate as well as the alternative interest cost method, and other changes including census data.

(2)At December 31, 2022, the benefit obligation, fair value of plan assets, and funded status for U.S. pension plans were $1,459, $833, and $(626), respectively. 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.

Pension Plan Benefit Obligations

	Pension benefits
	2022		2021
The projected benefit obligation and accumulated benefit obligation for all defined benefit pension plans were as follows:
Projected benefit obligation	$	1,599	$	2,296
Accumulated benefit obligation	1,598		2,293
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 obligation	1,482		1,982
Fair value of plan assets	833		1,193
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 obligation	1,481		1,981
Fair value of plan assets	833		1,193

Components of Net Periodic Benefit Cost

	Pension benefits(1)						Other postretirement benefits(2)
For the year ended December 31,	2022		2021		2020		2022		2021		2020
Service cost	$	4	$	4	$	12	$	2	$	2	$	3
Interest cost	51		47		97		4		5		10
Expected return on plan assets	(80)		(90)		(136)		—		—		—
Recognized net actuarial loss	49		56		78		1		—		3
Amortization of prior service cost (benefit)	—		1		—		(9)		(9)		(6)
Settlements(3)	58		69		76		—		—		—
Curtailments(4)	—		6		—		—		—		(2)
Net periodic benefit cost(5)	$	82	$	93	$	127	$	(2)	$	(2)	$	8
Discontinued operations	—		—		20		—		—		6
Net amount recognized in Statement of Consolidated Operations	$	82	$	93	$	107	$	(2)	$	(2)	$	2

(1)In 2022, 2021, and 2020, net periodic benefit cost for U.S. pension plans was $79, $61, and $58, respectively.

(2)In 2021 and 2020, net periodic benefit cost for other postretirement benefits reflects a reduction of less than $1 and $1, respectively, related to the recognition of the federal subsidy awarded under Medicare Part D.

(3)In 2022, settlements were related to U.S. and U.K. lump sum benefit payments. 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. See Note E for further details.

(4)In 2021, the curtailment was due to plan termination. In 2020, the curtailment was due to workforce reductions.

(5)Service cost was included within Cost of goods sold, Selling, general administrative, and other 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,	2022		2021
Discount rate	5.40	%	2.70	%
Cash balance plan interest crediting rate	3.00	%	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 10 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:

	2022		2021		2020
Discount rate to calculate service cost(1)	2.80	%	2.80	%	3.30	%
Discount rate to calculate interest cost(1)	2.50	%	2.10	%	2.70	%
Expected long-term rate of return on plan assets	6.70	%	6.20	%	6.00	%
Cash balance plan interest crediting rate	3.00	%	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. The discount rates for certain plans were updated during 2022, 2021, and 2020 to reflect the remeasurement of these plans due to settlements and/or curtailments. The weighted-average rates reflecting these remeasurements does not significantly differ from the rates presented.

The expected long-term rate of return on plan assets (“EROA”) is generally applied to a five-year market-related value of plan assets. 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 2023, management anticipates that approximately 7% will continue to be the expected long-term rate of return for global plan assets. EROA assumptions are developed by country. Annual changes in the weighted average EROA are impacted by the relative size of the assets by country.

For 2022, 2021, and 2020, 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.

Assumed health care cost trend rates for U.S. other postretirement benefit plans were as follows:

	2022		2021		2020
Health care cost trend rate assumed for next year	5.50	%	5.50	%	5.50	%
Rate to which the cost trend rate gradually declines	4.50	%	4.50	%	4.50	%
Year that the rate reaches the rate at which it is assumed to remain	2025		2024		2023

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 2023, 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 1.80% to 11.30%. 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, 2022 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 the Employee Retirement Income Security Act (“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 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) real estate investment trusts that are valued based on the quoted prices and other observable market data (included in Level 2) 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, 2022	Level 1		Level 2		Net Asset Value		Total
Equities:
Equity securities	$	—	$	133	$	283	$	416
Long/short equity hedge funds	—		—		18		18
Private equity	—		—		107		107
	$	—	$	133	$	408	$	541
Fixed income:
Intermediate and long duration government/credit	$	107	$	148	$	—	$	255
Other	6		59		—		65
	$	113	$	207	$	—	$	320
Other investments:
Real estate	$	—	$	3	$	62	$	65
Discretionary and systematic macro hedge funds	—		—		29		29
Other	—		—		7		7
	$	—	$	3	$	98	$	101
Net plan assets(1)	$	113	$	343	$	506	$	962

December 31, 2021	Level 1		Level 2		Net Asset Value		Total
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
Other	15		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(2)	$	141	$	644	$	729	$	1,514

(1)As of December 31, 2022, the total fair value of pension plans’ assets excludes a net receivable of $8, which represents securities purchased and sold but not yet settled plus interest and dividends earned on various investments.

(2)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.

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 2022 and 2021, cash contributions to Howmet’s pension plans were $43 and $96, respectively. The 2021 cash contributions include $12 that was contributed to the Company’s U.S. plans in excess of the minimum required under ERISA.

The contributions to the Company’s pension plans in 2023 are estimated to be $45 (of which $35 is for U.S. plans).

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 in 2021, 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
2023	$	144	$	11
2024	129		11
2025	128		11
2026	126		11
2027	125		10
2028 - 2032	581		48
	$	1,233	$	102

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 $76, $66, and $73 in 2022, 2021, and 2020, 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. Additionally, for certain U.S. employees, Howmet makes a contribution of either a percentage of applicable eligible compensation or per hour worked.