| Pension And Postretirement Benefits | NOTE 14. PENSION AND POSTRETIREMENT BENEFITS We offer noncontributory pension programs covering the majority of domestic nonmanagement employees in our Communications business. Nonmanagement employees’ pension benefits are generally calculated using one of two formulas: a flat dollar amount applied to years of service according to job classification or a cash balance plan with negotiated annual pension band credits as well as interest credits. Most employees can elect to receive their pension benefits in either a lump sum payment or an annuity. Pension programs covering U.S. management employees are closed to new entrants. These programs continue to provide benefits to participants that were generally hired before January 1, 2015, who receive benefits under either cash balance pension programs that include annual or monthly credits based on salary as well as interest credits, or a traditional pension formula (i.e., a stated percentage of employees’ adjusted career income). We also provide a variety of medical, dental and life insurance benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs as active employees earn these benefits. During the third quarter of 2022, we committed to, and reflected in our results, plan changes impacting postretirement health and welfare benefits. This plan change aligns our benefit plans to market level. Obligations and Funded Status For defined benefit pension plans, the benefit obligation is the projected benefit obligation, the actuarial present value, as of our December 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefit to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees and their beneficiaries and average years of service rendered. It is measured based on assumptions concerning future interest rates and future employee compensation levels as applicable. For postretirement benefit plans, the benefit obligation is the accumulated postretirement benefit obligation, the actuarial present value as of the measurement date of all future benefits attributed under the terms of the postretirement benefit plans to employee service. The following table presents the change in the projected benefit obligation for the years ended December 31: Pension Benefits Postretirement Benefits 2022 2021 2022 2021 Benefit obligation at beginning of year $ 57,212 $ 62,158 $ 12,552 $ 13,928 Service cost - benefits earned during the period 617 957 32 45 Interest cost on projected benefit obligation 1,747 1,276 277 210 Amendments — — (2,370) — Actuarial (gain) loss (10,894) (1,237) (1,919) (275) Benefits paid, including settlements (5,854) (5,942) (1,292) (1,356) Benefit obligation at end of year $ 42,828 $ 57,212 $ 7,280 $ 12,552 The following table presents the change in the fair value of plan assets for the years ended December 31 and the plans’ funded status at December 31: Pension Benefits Postretirement Benefits 2022 2021 2022 2021 Fair value of plan assets at beginning of year $ 54,401 $ 54,606 $ 3,198 $ 3,843 Actual return on plan assets (7,673) 5,737 (370) 210 Benefits paid, including settlements 1 (5,854) (5,942) (788) (1,163) Contributions — — 120 308 Fair value of plan assets at end of year 40,874 54,401 2,160 3,198 Unfunded status at end of year 2 $ (1,954) $ (2,811) $ (5,120) $ (9,354) 1 At our discretion, certain postretirement benefits may be paid from our cash accounts, which does not reduce Voluntary Employee Benefit Association (VEBA) assets. Future benefit payments may be made from VEBA trusts and thus reduce those asset balances. 2 Funded status is not indicative of our ability to pay ongoing pension benefits or of our obligation to fund retirement trusts. Required pension funding is determined in accordance with the Employee Retirement Income Security Act of 1974, as amended (ERISA) and applicable regulations. Amounts recognized on our consolidated balance sheets at December 31 are listed below: Pension Benefits Postretirement Benefits 2022 2021 2022 2021 Current portion of employee benefit obligation 1 $ — $ — $ (1,058) $ (1,106) Employee benefit obligation 2 (1,954) (2,811) (4,062) (8,248) Net amount recognized $ (1,954) $ (2,811) $ (5,120) $ (9,354) 1 Included in “Accounts payable and accrued liabilities.” 2 Included in “Postemployment benefit obligation,” combined with international pension obligations and other postemployment obligations of $161 and $1,083 at December 31, 2022, and $364 and $1,226 at December 31, 2021, respectively. The accumulated benefit obligation for our pension plans represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does not include an assumption about future compensation levels. The accumulated benefit obligation for our pension plans was $42,137 at December 31, 2022, and $56,159 at December 31, 2021. Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income Periodic Benefit Costs The service cost component of net periodic pension cost (credit) is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in “Other income (expense) – net.” Our combined net pension and postretirement cost (credit) recognized in our consolidated statements of income was $(4,789), $(7,652) and $711 for the years ended December 31, 2022, 2021 and 2020. The following table presents the components of net periodic benefit cost (credit): Pension Benefits Postretirement Benefits 2022 2021 2020 2022 2021 2020 Service cost – benefits earned during the period $ 617 $ 957 $ 1,029 $ 32 $ 45 $ 53 Interest cost on projected benefit obligation 1,747 1,276 1,687 277 210 416 Expected return on assets (3,107) (3,513) (3,557) (112) (151) (178) Amortization of prior service credit (133) (144) (113) (2,558) (2,537) (2,329) Net periodic benefit cost (credit) before remeasurement (876) (1,424) (954) (2,361) (2,433) (2,038) Actuarial (gain) loss (115) (3,461) 2,404 (1,437) (334) 1,299 Net pension and postretirement cost (credit) $ (991) $ (4,885) $ 1,450 $ (3,798) $ (2,767) $ (739) Other Changes in Benefit Obligations Recognized in Other Comprehensive Income The following table presents the after-tax changes in benefit obligations recognized in OCI and the after-tax prior service credits that were amortized from OCI into net periodic benefit costs: Pension Benefits Postretirement Benefits 2022 2021 2020 2022 2021 2020 Balance at beginning of year $ 416 $ 525 $ 361 $ 6,496 $ 8,408 $ 8,163 Prior service (cost) credit — — 250 1,786 — 2,001 Amortization of prior service credit (100) (109) (86) (1,928) (1,912) (1,756) Total recognized in other comprehensive (income) loss (100) (109) 164 (142) (1,912) 245 Balance at end of year $ 316 $ 416 $ 525 $ 6,354 $ 6,496 $ 8,408 Assumptions In determining the projected benefit obligation and the net pension and postretirement benefit cost, we used the following significant weighted-average assumptions: Pension Benefits Postretirement Benefits 2022 2021 2020 2022 2021 2020 Weighted-average discount rate for determining benefit obligation at December 31 5.20 % 3.00 % 2.70 % 5.20 % 2.80 % 2.40 % Discount rate in effect for determining service cost 1 4.40 % 3.30 % 3.60 % 4.00 % 2.90 % 3.50 % Discount rate in effect for determining interest cost 1 3.90 % 2.30 % 2.90 % 3.20 % 1.60 % 2.70 % Weighted-average interest credit rate for cash balance pension programs 2 4.10 % 3.20 % 3.10 % — % — % — % Long-term rate of return on plan assets 6.75 % 6.75 % 7.00 % 4.50 % 4.50 % 4.75 % Composite rate of compensation increase for determining benefit obligation 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % Composite rate of compensation increase for determining net cost (credit) 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % 1 Weighted-average discount rates shown for years with interim remeasurements: 2022 and 2021 for pension benefits and 2022 for postretirement benefits. 2 Weighted-average interest crediting rates for cash balance pension programs relate only to the cash balance portion of total pension benefits. A 0.50% increase in the weighted-average interest crediting rate would increase the pension benefit obligation by $135. We recognize gains and losses on pension and postretirement plan assets and obligations immediately in “Other income (expense) – net” in our consolidated statements of income. These gains and losses are generally measured annually as of December 31 and accordingly, will normally be recorded during the fourth quarter, unless an earlier remeasurement is required. Should actual experience differ from actuarial assumptions, the projected pension benefit obligation and net pension cost and accumulated postretirement benefit obligation and postretirement benefit cost would be affected in future years. Discount Rate Our assumed weighted-average discount rates for both pension and postretirement benefits of 5.20%, at December 31, 2022, reflect the hypothetical rate at which the projected benefit obligation could be effectively settled or paid out to participants. We determined our discount rate based on a range of factors, including a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date and corresponding to the related expected durations of future cash outflows. These bonds had an average rating of at least Aa3 or AA- by the nationally recognized statistical rating organizations, denominated in U.S. dollars, and generally not callable, convertible or index linked. For the year ended December 31, 2022, when compared to the year ended December 31, 2021, we increased our pension discount rate by 2.20%, resulting in a decrease in our pension plan benefit obligation of $11,738 and increased our postretirement discount rate by 2.40%, resulting in a decrease in our postretirement benefit obligation of $2,102. For the year ended December 31, 2021, we increased our pension discount rate by 0.30%, resulting in a decrease in our pension plan benefit obligation of $1,645 and increased our postretirement discount rate by 0.40%, resulting in a decrease in our postretirement benefit obligation of $341. We utilize a full yield curve approach in the estimation of the service and interest components of net periodic benefit costs for pension and other postretirement benefits. Under this approach, we apply discounting using individual spot rates from a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date. These spot rates align to each of the projected benefit obligations and service cost cash flows. The service cost component relates to the active participants in the plan, so the relevant cash flows on which to apply the yield curve are considerably longer in duration on average than the total projected benefit obligation cash flows, which also include benefit payments to retirees. Interest cost is computed by multiplying each spot rate by the corresponding discounted projected benefit obligation cash flows. The full yield curve approach reduces any actuarial gains and losses based upon interest rate expectations (e.g., built-in gains in interest cost in an upward sloping yield curve scenario), or gains and losses merely resulting from the timing and magnitude of cash outflows associated with our benefit obligations. Neither the annual measurement of our total benefit obligations nor annual net benefit cost is affected by the full yield curve approach. Expected Long-Term Rate of Return In 2023, our expected long-term rate of return is 7.50% on pension plan assets and 6.50% on postretirement plan assets, an increase of 0.75% for pension plan assets and 2.00% for postretirement plan assets. This update to our asset return assumptions was due to economic forecasts and changes in the asset mix. Our long-term rates of return reflect the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the projected benefit obligations. In setting the long-term assumed rate of return, management considers capital markets’ future expectations, the asset mix of the plans’ investment and average historical asset return. Actual long-term returns can, in relatively stable markets, also serve as a factor in determining future expectations. We consider many factors that include, but are not limited to, historical returns on plan assets, current market information on long-term returns (e.g., long-term bond rates) and current and target asset allocations between asset categories. The target asset allocation is determined based on consultations with external investment advisers. If all other factors were to remain unchanged, we expect that a 0.50% decrease in the expected long-term rate of return would cause 2023 combined pension and postretirement cost to increase $201. However, any differences in the rate and actual returns will be included with the actuarial gain or loss recorded in the fourth quarter when our plans are remeasured. Composite Rate of Compensation Increase Our expected composite rate of compensation increase cost of 3.00% in 2022 and 2021 reflects the long-term average rate of salary increases. Healthcare Cost Trend Our healthcare cost trend assumptions are developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends. Based on our assessment of expectations of healthcare industry inflation, our 2023 assumed annual healthcare prescription drug cost trend and medical cost trend for eligible participants will increase from an annual and ultimate trend rate of 4.25% to an annual and ultimate trend rate of 4.50%. This change in assumption increased our obligation by $19. For 2022, our assumed annual healthcare prescription drug cost trend and medical cost trend for eligible participants increased from an annual and ultimate trend rate of 4.00% to an annual and ultimate trend rate of 4.25%. This change in assumption increased our obligation by $31. Plan Assets Plan assets consist primarily of private and public equity, government and corporate bonds, and real assets (real estate and natural resources). The asset allocations of the pension plans are maintained to meet ERISA requirements. Any plan contributions, as determined by ERISA regulations, are made to a pension trust for the benefit of plan participants. We do not have significant ERISA required contributions to our pension plans for 2023. We maintain VEBA trusts to partially fund postretirement benefits; however, there are no ERISA or regulatory requirements that these postretirement benefit plans be funded annually. We made discretionary contributions of $120 in December 2022 and $308 in December 2021 to our postretirement plan. The principal investment objectives are to ensure the availability of funds to pay pension and postretirement benefits as they become due under a broad range of future economic scenarios, maximize long-term investment return with an acceptable level of risk based on our pension and postretirement obligations, and diversify broadly across and within the capital markets to insulate asset values against adverse experience in any one market. Each asset class has broadly diversified characteristics. Substantial biases toward any particular investing style or type of security are sought to be avoided by managing the aggregation of all accounts with portfolio benchmarks. Asset and benefit obligation forecasting studies are conducted periodically, generally every two to three years, or when significant changes have occurred in market conditions, benefits, participant demographics or funded status. Decisions regarding investment policy are made with an understanding of the effect of asset allocation on funded status, future contributions and projected expenses. The plans’ weighted-average asset targets and actual allocations as a percentage of plan assets, including the notional exposure of future contracts by asset categories at December 31 are as follows: Pension Assets Postretirement (VEBA) Assets Target 2022 2021 Target 2022 2021 Equity securities: Domestic 5 % - 25 % 7 % 16 % 16 % - 26 % 21 % 19 % International 1 % - 21 % 4 13 16 % - 26 % 21 19 Fixed income securities 40 % - 50 % 45 38 42 % - 52 % 47 39 Real assets — % - 20 % 16 10 — % - 6 % 1 1 Private equity — % - 16 % 14 12 — % - 6 % 1 1 Preferred interests 8 % - 18 % 13 10 — % - — % — — Other — % - 5 % 1 1 5 % - 15 % 9 21 Total 100 % 100 % 100 % 100 % The pension trust holds preferred equity interests valued at $5,427 in AT&T Mobility II LLC (Mobility II), the primary holding company for our wireless business. The preferred equity interests were valued at $5,562 as of December 31, 2021. On December 27, 2022, the pension trust provided written notice of its right to require AT&T to purchase Mobility preferred interests outstanding. (See Note 16) At December 31, 2022, AT&T securities represented 14% of assets held by our pension trust, including the preferred interests in Mobility II. The VEBA trusts included in these financial statements no longer hold AT&T securities. Investment Valuation Investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability at the measurement date. Investments in securities traded on a national securities exchange are valued at the last reported sales price on the final business day of the year. If no sale was reported on that date, they are valued at the last reported bid price. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Shares of registered investment companies are valued based on quoted market prices, which represent the net asset value of shares held at year-end. Other commingled investment entities are valued at quoted redemption values that represent the net asset values of units held at year-end which management has determined approximates fair value. Real estate and natural resource direct investments are valued at amounts based upon appraisal reports. Fixed income securities valuation is based upon observable prices for comparable assets, broker/dealer quotes (spreads or prices), or a pricing matrix that derives spreads for each bond based on external market data, including the current credit rating for the bonds, credit spreads to Treasuries for each credit rating, sector add-ons or credits, issue-specific add-ons or credits as well as call or other options. The preferred interests in Mobility II are valued by an independent fiduciary using an income approach. Purchases and sales of securities are recorded as of the trade date. Realized gains and losses on sales of securities are determined on the basis of average cost. Interest income is recognized on the accrual basis. Dividend income is recognized on the ex-dividend date. Non-interest bearing cash and overdrafts are valued at cost, which approximates fair value. Fair Value Measurements See Note 12 for a discussion of the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The following tables set forth by level, within the fair value hierarchy, the pension and postretirement assets and liabilities at fair value as of December 31, 2022: Pension Assets and Liabilities at Fair Value as of December 31, 2022 Level 1 Level 2 Level 3 Total Non-interest bearing cash $ 158 $ — $ — $ 158 Interest bearing cash 5 — — 5 Foreign currency contracts — 4 — 4 Equity securities: Domestic equities 2,312 — 2 2,314 International equities 1,251 — — 1,251 Preferred interests — — 5,427 5,427 Fixed income securities: Corporate bonds and other investments — 9,366 1 9,367 Government and municipal bonds — 5,450 — 5,450 Mortgage-backed securities — 220 — 220 Real estate and real assets — — 4,343 4,343 Securities lending collateral 1,137 1,407 — 2,544 Receivable for variation margin 5 — — 5 Assets at fair value 4,868 16,447 9,773 31,088 Investments sold short and other liabilities at fair value (261) (5) — (266) Total plan net assets at fair value $ 4,607 $ 16,442 $ 9,773 $ 30,822 Assets held at net asset value practical expedient Private equity funds 5,866 Real estate funds 1,907 Commingled funds 5,045 Total assets held at net asset value practical expedient 12,818 Other assets (liabilities) 1 (2,766) Total Plan Net Assets $ 40,874 1 Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable. Postretirement Assets and Liabilities at Fair Value as of December 31, 2022 Level 1 Level 2 Level 3 Total Interest bearing cash $ 191 $ 4 $ — $ 195 Equity securities: Domestic equities 258 — — 258 International equities 233 — 1 234 Securities lending collateral — 12 — 12 Assets at fair value 682 16 1 699 Securities lending payable and other liabilities — (12) — (12) Total plan net assets at fair value $ 682 $ 4 $ 1 $ 687 Assets held at net asset value practical expedient Private equity funds 13 Real estate funds 13 Commingled funds 1,445 Total assets held at net asset value practical expedient 1,471 Other assets (liabilities) 1 2 Total Plan Net Assets $ 2,160 1 Other assets (liabilities) include amounts receivable and accounts payable. The following tables set forth by level, within the fair value hierarchy, the pension and postretirement assets and liabilities at fair value as of December 31, 2021: Pension Assets and Liabilities at Fair Value as of December 31, 2021 Level 1 Level 2 Level 3 Total Non-interest bearing cash $ 167 $ — $ — $ 167 Interest bearing cash 11 — — 11 Foreign currency contracts — 5 — 5 Equity securities: Domestic equities 7,693 — 1 7,694 International equities 4,117 — 7 4,124 Preferred interests — — 5,562 5,562 Fixed income securities: Corporate bonds and other investments — 11,168 2 11,170 Government and municipal bonds — 6,977 — 6,977 Mortgage-backed securities — 268 — 268 Real estate and real assets — — 3,318 3,318 Securities lending collateral 1,645 1,285 — 2,930 Receivable for variation margin 8 — — 8 Assets at fair value 13,641 19,703 8,890 42,234 Investments sold short and other liabilities at fair value (529) (3) (1) (533) Total plan net assets at fair value $ 13,112 $ 19,700 $ 8,889 $ 41,701 Assets held at net asset value practical expedient Private equity funds 6,454 Real estate funds 2,329 Commingled funds 6,780 Total assets held at net asset value practical expedient 15,563 Other assets (liabilities) 1 (2,863) Total Plan Net Assets $ 54,401 1 Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable. Postretirement Assets and Liabilities at Fair Value as of December 31, 2021 Level 1 Level 2 Level 3 Total Interest bearing cash $ 371 $ 295 $ — $ 666 Equity securities: Domestic equities 323 — — 323 International equities 287 — 1 288 Fixed income securities: Corporate bonds and other investments 1 — — 1 Securities lending collateral — 9 — 9 Assets at fair value 982 304 1 1,287 Securities lending payable and other liabilities — (9) — (9) Total plan net assets at fair value $ 982 $ 295 $ 1 $ 1,278 Assets held at net asset value practical expedient Commingled funds 1,883 Private equity funds 19 Real estate funds 16 Total assets held at net asset value practical expedient 1,918 Other assets (liabilities) 1 2 Total Plan Net Assets $ 3,198 1 Other assets (liabilities) include amounts receivable and accounts payable. For the years ended December 31, 2022 and 2021, our postretirement assets did not include significant investments in Level 3 assets, nor were there significant changes in fair value of those assets during the period. The tables below set forth a summary of changes in the fair value of the Level 3 pension assets for the years ended: Equities Fixed Income Funds Real Estate and Real Assets Total Balance as of December 31, 2021 $ 5,569 $ 2 $ 3,318 $ 8,889 Realized gains (losses) 1 — 22 23 Unrealized gains (losses) (139) — 802 663 Transfers in 1 1 20 22 Transfers out — (2) (29) (31) Purchases — — 716 716 Sales (3) — (506) (509) Balance as of December 31, 2022 $ 5,429 $ 1 $ 4,343 $ 9,773 Equities Fixed Income Funds Real Estate and Real Assets Total Balance as of December 31, 2020 $ 5,793 $ 53 $ 2,544 $ 8,390 Realized gains (losses) 2 — (31) (29) Unrealized gains (losses) (203) — 558 355 Transfers in — 1 — 1 Transfers out (7) (8) — (15) Purchases 7 1 425 433 Sales (23) (45) (178) (246) Balance as of December 31, 2021 $ 5,569 $ 2 $ 3,318 $ 8,889 Estimated Future Benefit Payments Expected benefit payments are estimated using the same assumptions used in determining our benefit obligation at December 31, 2022. Because benefit payments will depend on future employment and compensation levels; average years employed; average life spans; and payment elections, among other factors, changes in any of these assumptions could significantly affect these expected amounts. The following table provides expected benefit payments under our pension and postretirement plans: Pension Benefits Postretirement Benefits 2023 $ 5,612 $ 1,211 2024 3,734 801 2025 3,747 640 2026 3,632 598 2027 3,561 568 Years 2028 - 2032 16,688 2,322 Supplemental Retirement Plans We also provide certain senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. While these plans are unfunded, we have assets in a designated non-bankruptcy remote trust that are independently managed and used to provide for certain of these benefits. These plans include supplemental pension benefits as well as compensation-deferral plans, some of which include a corresponding match by us based on a percentage of the compensation deferral. For our supplemental retirement plans, the projected benefit obligation was $1,544 and the net supplemental retirement pension credit was $234 at and for the year ended December 31, 2022. The projected benefit obligation was $2,326 and the net supplemental retirement pension credit was $41 at and for the year ended December 31, 2021. We use the same significant assumptions for the composite rate of compensation increase in determining our projected benefit obligation and the net pension and postemployment benefit cost. Our discount rates of 5.10% at December 31, 2022 and 2.70% at December 31, 2021 were calculated using the same methodologies used in calculating the discount rates for our qualified pension and postretirement benefit plans. Deferred compensation expense was $94 in 2022, $171 in 2021 and $183 in 2020. Contributory Savings Plans We maintain contributory savings plans that cover substantially all employees. Under the savings plans, we match in cash or company stock a stated percentage of eligible employee contributions, subject to a specified ceiling. There are no debt-financed shares held by the Employee Stock Ownership Plans, allocated or unallocated. Our match of employee contributions to the savings plans is fulfilled with purchases of our stock on the open market or company cash. Benefit cost, which is based on the cost of shares or units allocated to participating employees’ accounts or the cash contributed to participant accounts, was $611, $614 and $646 for the years ended December 31, 2022, 2021 and 2020. |
