Retirement Plans (Note)

12 Months Ended

Dec. 31, 2021

Retirement Benefits [Abstract]

Retirement Plans

International Paper sponsors and maintains the Retirement Plan of International Paper Company (the "Pension Plan"), a tax-qualified defined benefit pension plan that provides retirement benefits to certain employees.

The Pension Plan provides defined pension benefits based on years of credited service and either final average earnings (salaried employees and hourly employees receiving salaried benefits), hourly job rates or specified benefit rates (hourly and union employees).

The Company also has two unfunded nonqualified defined benefit pension plans: a Pension Restoration Plan that provides retirement benefits based on eligible compensation in excess of limits set by the

Internal Revenue Service, and a supplemental retirement plan for senior managers ("SERP"), which

is an alternative retirement plan for salaried employees who are senior vice presidents and above or who are designated by the chief executive officer as participants. These nonqualified plans are only funded to the extent of benefits paid, which totaled $21 million, $31 million and $26 million in 2021, 2020 and 2019, respectively, and which are expected to be $21 million in 2022.

Effective January 1, 2019, the Company froze participation, including credited service and compensation, for salaried employees under the Pension Plan, the Pension Restoration Plan and the SERP plan. This change does not affect benefits accrued through December 31, 2018. For service after December 31, 2018, employees affected by the freeze receive a company contribution to their individual Retirement Savings Account as described later in this Note 19.

Many non-U.S. employees are covered by various retirement benefit arrangements, some of which are considered to be defined benefit pension plans for accounting purposes.

In advance of the spin-off of the Printing Papers segment into a standalone, publicly-traded company, Sylvamo, a legally separate Sylvamo Pension Plan was established to transfer both pension liabilities and qualified pension assets for the approximately 900 active pension participants who transitioned to Sylvamo. Effective September 1, 2021, the Retirement Plan of International Paper (“IP Pension Plan”) and the Sylvamo Pension Plan were legally separated and remeasured as of that date. The remeasurement resulted in a net asset balance of $520 million for the IP Pension Plan, which has been classified as part of the Pension Assets balance on the Consolidated Balance Sheet. Based on the September 1, 2021 remeasurement, the IP Pension Plan completed the transfer of approximately $287 million in projected benefit obligation and approximately $255 million in pension assets, net of post-spin true-up adjustments, to the Sylvamo Pension Plan.

OBLIGATIONS AND FUNDED STATUS

The following table shows the changes in the benefit obligation and plan assets for 2021 and 2020, and the plans’ funded status.

	2021				2020
In millions	U.S. Plans		Non- U.S. Plans		U.S. Plans		Non- U.S. Plans
Change in projected benefit obligation:
Benefit obligation, January 1	$	13,020	$	264	$	11,699	$	253
Service cost	100		5		85		5
Interest cost	333		4		393		6
Curtailment	—		—		—		(1)
Settlements	—		—		—		(5)
Actuarial loss (gain)	(760)		(11)		1,357		10
Divestitures	(287)		(187)		—		(1)
Plan amendments	—		—		42		—
Benefits paid	(573)		(5)		(556)		(7)
Effect of foreign currency exchange rate movements	—		(5)		—		4
Benefit obligation, December 31	$	11,833	$	65	$	13,020	$	264
Change in plan assets:
Fair value of plan assets, January 1	$	12,018	$	190	$	10,165	$	183
Actual return on plan assets	864		4		2,377		11
Company contributions	21		6		32		9
Benefits paid	(573)		(5)		(556)		(7)
Settlements	—		—		—		(5)
Divestiture	(255)		(175)		—		—
Effect of foreign currency exchange rate movements	—		(1)		—		(1)
Fair value of plan assets, December 31	$	12,075	$	19	$	12,018	$	190
Funded status, December 31	$	242	$	(46)	$	(1,002)	$	(74)
Amounts recognized in the consolidated balance sheet:
Overfunded pension plan assets	$	595	$	—	$	—	$	5
Underfunded pension benefit obligation - current	(21)		(1)		(20)		(3)
Underfunded pension benefit obligation - non-current	(332)		(45)		(982)		(76)
	$	242	$	(46)	$	(1,002)	$	(74)

Amounts recognized in accumulated other comprehensive income under ASC 715 (pre-tax):
Prior service cost (credit)	$	95	$	—	$	120	$	—
Net actuarial loss	1,199		4		2,297		82
	$	1,294	$	4	$	2,417	$	82

The non-current asset for the qualified plan is included in the accompanying consolidated balance

sheet under Overfunded Pension Plan Assets. The non-current portion of the liability is included with the pension liability under Underfunded Pension Benefit Obligation.

The largest contributor to the actuarial gain affecting the benefit obligation was the increase in the discount rate from 2.60% at December 31, 2020 to 2.90% at December 31, 2021.

The components of the $(1.1) billion and $(78) million related to U.S. plans and non-U.S. plans, respectively, in the amounts recognized in OCI during 2021 consisted of:

In millions	U.S. Plans		Non- U.S. Plans
Current year actuarial (gain) loss	$	(961)	$	(8)
Amortization of actuarial loss	(138)		(2)
Current year prior service cost	(2)		—
Amortization of prior service cost	(22)		—
Divestiture	—		(67)
Effect of foreign currency exchange rate movements	—		(1)
	$	(1,123)	$	(78)

The portion of the change in the funded status that was recognized in net periodic benefit cost and OCI for the U.S. plans was $(1.0) billion, $(500) million and $(172) million in 2021, 2020 and 2019, respectively. The portion of the change in funded status for the non-U.S. plans was $(73) million, $13 million, and $24 million in 2021, 2020 and 2019, respectively.

The accumulated benefit obligation at December 31, 2021 and 2020 was $11.8 billion and $13.0 billion, respectively, for our U.S. defined benefit plans and

$56 million and $246 million, respectively, at December 31, 2021 and 2020 for our non-U.S. defined benefit plans.

The following table summarizes information for pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2021 and 2020: 

	2021				2020
In millions	U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans
Projected benefit obligation	$	353	$	65	$	13,020	$	245
Accumulated benefit obligation	353		56		12,997		227
Fair value of plan assets	—		19		12,018		166

ASC 715, “Compensation – Retirement Benefits” provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the estimated projected plan benefit obligation due to changes in the assumed discount rate, differences between the actual and expected return on plan assets and other assumption changes. These net gains and losses are recognized prospectively over a period that approximates the average remaining service period of active employees expected to receive benefits under the plans to the extent that they are not offset by gains in subsequent years.

NET PERIODIC PENSION EXPENSE

Service cost is the actuarial present value of benefits attributed by the plans’ benefit formula to services rendered by employees during the year. Interest cost represents the increase in the projected benefit obligation, which is a discounted amount, due to the passage of time. The expected return on plan assets reflects the computed amount of current-year earnings from the investment of plan assets using an estimated long-term rate of return.

Net periodic pension expense for qualified and nonqualified U.S. and non-U.S. defined benefit plans comprised the following:

	2021				2020				2019
In millions	U.S. Plans		Non- U.S. Plans		U.S. Plans		Non- U.S. Plans		U.S. Plans		Non- U.S. Plans
Service cost	$	100	$	5	$	85	$	5	$	68	$	5
Interest cost	333		4		393		6		440		8
Expected return on plan assets	(705)		(7)		(668)		(8)		(631)		(10)
Actuarial loss (gain)	138		2		202		2		200		2
Amortization of prior service cost	22		—		20		—		16		—
Curtailment loss (gain)	—		—		—		(1)		—		(1)
Settlement loss	—		—		—		1		—		2
Net periodic pension (income) expense	$	(112)	$	4	$	32	$	5	$	93	$	6

The components of net periodic pension expense other than the Service cost component are included in Non-operating pension (income) expense in the Consolidated Statement of Operations with the exception of $(3) million related to Sylvamo participants in 2021 recorded in Discontinued Operations.

The decrease in 2021 pension expense primarily reflects higher asset returns, lower interest cost due to a lower discount rate and lower actuarial loss due to a higher amortization period slightly offset by higher service cost.

ASSUMPTIONS

International Paper evaluates its actuarial assumptions annually as of December 31 (the measurement date) and considers changes in these long-term factors based upon market conditions and the requirements for employers’ accounting for pensions. These assumptions are used to calculate

benefit obligations as of December 31 of the current year and pension expense to be recorded in the following year (i.e., the discount rate used to determine the benefit obligation as of December 31, 2021 is also the discount rate used to determine net pension expense for the 2022 year).

Major actuarial assumptions used in determining the benefit obligations and net periodic pension cost for our defined benefit plans are presented in the following table:

	2021				2020				2019
	U.S. Plans		Non- U.S. Plans		U.S. Plans		Non- U.S. Plans		U.S. Plans		Non- U.S. Plans
Actuarial assumptions used to determine benefit obligations as of December 31:
Discount rate	2.90	%	2.59	%	2.60	%	2.32	%	3.40	%	2.70	%
Rate of compensation increase	3.00	%	2.92	%	2.25	%	3.66	%	2.25	%	3.62	%
Actuarial assumptions used to determine net periodic pension cost for years ended December 31:
Discount rate (a)	2.67	%	2.32	%	3.40	%	2.70	%	4.30	%	3.97	%
Expected long-term rate of return on plan assets (a)	6.40	%	4.99	%	7.00	%	4.92	%	7.25	%	6.20	%
Rate of compensation increase	2.25	%	3.66	%	2.25	%	3.62	%	2.25	%	4.05	%

(a) Represents the weighted average rate for the U.S. qualified plans in 2021 due to the spin-off remeasurement..

The expected long-term rate of return on plan assets is based on projected rates of return for current asset classes in the plan’s investment portfolio. Projected rates of return are developed through an asset/liability study in which projected returns for each of the plan’s asset classes are determined after analyzing historical experience and future expectations of returns and volatility of the various asset classes.

Based on the target asset allocation for each asset class, the overall expected rate of return for the portfolio is developed considering the effects of active portfolio management and expenses paid from plan assets. The discount rate assumption was determined from a universe of high quality corporate bonds. A settlement portfolio is selected and matched to the present value of the plan’s projected benefit payments. To calculate pension expense for 2022, the Company will use an expected long-term rate of return on plan assets of 6.00% for the Retirement Plan of International Paper, a discount rate of 2.90% and an assumed rate of compensation increase of 2.25%. The Company estimates that it will record net pension income of approximately $114 million for its U.S. defined benefit plans in 2022, compared to income of $112 million in 2021.

For non-U.S. pension plans, assumptions reflect economic assumptions applicable to each country.

The following illustrates the effect on pension expense for 2022 of a 25 basis point decrease in the above assumptions: 

In millions	2022
Expense (Income):
Discount rate	$	19
Expected long-term rate of return on plan assets	27

PLAN ASSETS

International Paper’s Board of Directors has appointed a Fiduciary Review Committee that is responsible for fiduciary oversight of the U.S. Pension Plan, approving investment policy and reviewing the management and control of plan assets. Pension Plan assets are invested to maximize returns within prudent levels of risk.

The Pension Plan maintains a strategic asset allocation policy that designates target allocations by asset class. Investments are diversified across classes and within each class to minimize the risk of large losses. Derivatives, including swaps, forward and futures contracts, may be used as asset class substitutes or for hedging or other risk management purposes. Periodic reviews are made of investment

policy objectives and investment manager performance. For non-U.S. plans, assets consist principally of common stock and fixed income securities.

International Paper’s U.S. pension allocations by type of fund at December 31, 2021 and 2020 and target allocations were as follows:

Asset Class	2021		2020		Target Allocations
Equity accounts	18	%	40	%	14% - 25%
Fixed income accounts	68	%	48	%	62% - 78%
Real estate accounts	8	%	7	%	4% - 10%
Other	6	%	5	%	2% - 7%
Total	100	%	100	%

The fair values of International Paper’s pension plan assets at December 31, 2021 and 2020 by asset class are shown below. Hedge funds disclosed in the following table are allocated to fixed income accounts for target allocation purposes.

Fair Value Measurement at December 31, 2021
Asset Class	Total		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
In millions
Equities – domestic	$	805	$	471	$	334	$	—
Equities – international	1,381		976		405		—
Corporate bonds	2,249		—		2,249		—
Government securities	5,733		—		5,733		—
Mortgage backed securities	126		—		126		—
Other fixed income	(1,482)		—		(1,498)		16
Derivatives	(21)		—		—		(21)
Cash and cash equivalents	266		266		—		—
Other investments:
Hedge funds	1,368
Private equity	721
Real estate funds	929
Total Investments	$	12,075	$	1,713	$	7,349	$	(5)

Fair Value Measurement at December 31, 2020
Asset Class	Total		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
In millions
Equities – domestic	$	1,806	$	1,037	$	769	$	—
Equities – international	2,921		2,181		740		—
Corporate bonds	2,345		—		2,345		—
Government securities	3,377		—		3,377		—
Mortgage backed securities	133		—		133		—
Other fixed income	(1,585)		—		(1,599)		14
Derivatives	336		342		—		(6)
Cash and cash equivalents	210		210		—		—
Other investments:
Hedge funds	1,112
Private equity	563
Real estate funds	800
Total Investments	$	12,018	$	3,770	$	5,765	$	8

In accordance with accounting standards, certain investments that are measured at NAV and are not classified in the fair value hierarchy.

Other Investments at December 31, 2021
Investment	Fair Value		Unfunded Commitments		Redemption Frequency	Remediation Notice Period
In millions
Hedge funds	1,368		176		Daily to annually	1 - 100 days
Private equity	721		190		(a)	None
Real estate funds	929		176		Quarterly	45 - 60 days
Total	$	3,018	$	542

(a) A private equity fund investment ("partnership interest") is contractually locked up for the life of the private equity fund by the partnership agreement. Limited partners do not have the option to redeem partnership interests.

Other Investments at December 31, 2020
Investment	Fair Value		Unfunded Commitments		Redemption Frequency	Remediation Notice Period
In millions
Hedge funds	1,112		—		Daily to annually	1 - 100 days
Private equity	563		290		(a)	None
Real estate funds	800		210		Quarterly	45 - 60 days
Total	$	2,475	$	500

(a) A private equity fund investment ("partnership interest") is contractually locked up for the life of the private equity fund by the partnership agreement. Limited partners do not have the option to redeem partnership interests.

Equity securities consist primarily of publicly traded U.S. companies and international companies. Publicly traded equities are valued at the closing prices reported in the active market in which the individual securities are traded.

Fixed income consists of government securities, mortgage-backed securities, corporate bonds, common collective funds and other fixed income investments. Government securities are valued by third-party pricing sources. Mortgage-backed security holdings consist primarily of agency-rated holdings. The fair value estimates for mortgage securities are calculated by third-party pricing sources chosen by the custodian’s price matrix. Corporate bonds are valued using either the yields currently available on comparable securities of issuers with similar credit ratings or using a discounted cash flows approach that utilizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks. Common collective funds are valued at the net asset value per share multiplied by the number of shares held as of the measurement date. Other fixed income investments of $(1.5) billion and $(1.6) billion at December 31, 2021 and 2020, respectively, primarily include reverse repurchase agreement obligations in which we have sold a security and have an agreement to repurchase the same or substantially the same security at a later date for a price specified in the agreement.

Derivative investments such as futures, forward contracts, options and swaps are used to help manage risks. Derivatives are generally employed as asset class substitutes (such as when employed in a portable alpha strategy), for managing asset/liability mismatches, or bona fide hedging or other appropriate risk management purposes. Derivative instruments are generally valued by the investment managers or in certain instances by third-party pricing sources.

Hedge funds are investment structures for managing private, loosely-regulated investment pools that can pursue a diverse array of investment strategies with a

wide range of different securities and derivative instruments. These investments are made through funds-of-funds (commingled, multi-manager fund structures) and through direct investments in individual hedge funds. Hedge funds are primarily valued by each fund’s third-party administrator based upon the valuation of the underlying securities and instruments and primarily by applying a market or income valuation methodology as appropriate depending on the specific type of security or instrument held. Funds-of-funds are valued based upon the net asset values of the underlying investments in hedge funds.

Private equity consists of interests in partnerships

that invest in U.S. and non-U.S. debt and equity securities. Partnership interests are valued using the most recent general partner statement of fair value, updated for any subsequent partnership interest cash flows.

Real estate funds include commercial properties, land and timberland, and generally include, but are not limited to, retail, office, industrial, multifamily and hotel properties. Real estate fund values are primarily reported by the fund manager and are based on

valuation of the underlying investments which include inputs such as cost, discounted cash flows, independent appraisals and market based comparable data.

The following is a reconciliation of the assets that are classified using significant unobservable inputs (Level 3) at December 31, 2021.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

In millions	Other fixed income		Derivatives		Total
Beginning balance at December 31, 2019	$	14	$	(19)	$	(5)
Actual return on plan assets:
Relating to assets still held at the reporting date	1		21		22
Relating to assets sold during the period	(1)		268		267
Purchases, sales and settlements	—		(276)		(276)
Transfers in and/or out of Level 3	—		—		—
Ending balance at December 31, 2020	$	14	$	(6)	$	8
Actual return on plan assets:
Relating to assets still held at the reporting date	2		(20)		(18)
Relating to assets sold during the period	—		(101)		(101)
Purchases, sales and settlements	—		106		106
Transfers in and/or out of Level 3	—		—		—
Ending balance at December 31, 2021	$	16	$	(21)	$	(5)

FUNDING AND CASH FLOWS

The Company’s funding policy for the Pension Plan is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plans, tax deductibility, cash flow generated by the Company, and other factors. The Company continually reassesses the amount and timing of any discretionary contributions. No voluntary contributions were made in 2019, 2020 or 2021. Generally, International Paper’s non-U.S. pension plans are funded using the projected benefit as a target, except in certain countries where funding of benefit plans is not required.

At December 31, 2021, projected future pension benefit payments, excluding any termination benefits, were as follows: 

In millions
2022	$	589
2023	604
2024	613
2025	621
2026	631
2027-2031	3,193

OTHER U.S. PLANS

International Paper sponsors the International Paper Company Salaried Savings Plan and the International Paper Company Hourly Savings Plan, both of which are tax-qualified defined contribution 401(k) savings plans. Substantially all U.S. salaried and certain hourly employees are eligible to participate and may make elective deferrals to such plans to save for retirement. International Paper makes matching contributions to participant accounts on a specified percentage of employee deferrals as determined by the provisions of each plan. The Company makes Retirement Savings Account contributions equal to a percentage of an eligible employee’s pay. Beginning in 2019, as a result of the freeze for salaried employees under the Pension Plan, all salaried employees are eligible for the contribution to the Retirement Savings Account.

The Company also sponsors the International Paper Company Deferred Compensation Savings Plan, which is an unfunded nonqualified defined contribution plan. This plan permits eligible employees to continue to make deferrals and receive company matching contributions (and Retirement Savings Account contributions) when their contributions to the International Paper Salaried Savings Plan are stopped due to limitations under U.S. tax law. Participant deferrals and company contributions are not invested in a separate trust, but are paid directly from International Paper’s general assets at the time benefits become due and payable.

Company contributions to the plans totaled approximately $172 million, $154 million and $172 million for the plan years ending in 2021, 2020 and 2019, respectively.