Cleveland-Cliffs Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

PENSIONS AND OTHER POSTRETIREMENT BENEFITS (Tables)

PENSIONS AND OTHER POSTRETIREMENT BENEFITS (Tables)

12 Months Ended

Dec. 31, 2021

Schedule of Defined Benefit Plans Disclosures

The following tables and information provide additional disclosures:


	(In Millions)
	Pension Benefits				OPEB
Change in benefit obligations:	2021		2020		2021		2020
Benefit obligations — beginning of year	$	6,565	$	1,021	$	3,757	$	255
Service cost	56		23		51		8
Interest cost	103		64		74		19
Plan amendments	—		—		8		—
Actuarial loss (gain)	(131)		162		(456)		14
Benefits paid	(456)		(146)		(227)		(89)
Participant contributions	—		—		47		22
Acquired through business combinations	—		5,535		—		3,528
Effect of settlement	(101)		(94)		—		—

Benefit obligations — end of year	$	6,036	$	6,565	$	3,254	$	3,757

Change in plan assets:
Fair value of plan assets — beginning of year	$	5,332	$	749	$	783	$	260
Actual return on plan assets	668		472		29		45
Participant contributions	—		—		26		17
Employer contributions	155		50		139		30
Benefits paid	(454)		(146)		(165)		(88)
Acquired through business combinations	—		4,301		—		519
Effect of settlement	(95)		(94)		—		—

Fair value of plan assets — end of year	$	5,606	$	5,332	$	812	$	783
Funded status	$	(430)	$	(1,233)	$	(2,442)	$	(2,974)

Amounts recognized in Statements of Financial Position:
Non-current assets	$	153	$	3	$	71	$	54
Current liabilities	(5)		(12)		(130)		(139)
Non-current liabilities	(578)		(1,224)		(2,383)		(2,889)
Total amount recognized	$	(430)	$	(1,233)	$	(2,442)	$	(2,974)

Amounts recognized in accumulated other comprehensive loss (income):
Net actuarial loss (gain)	$	(286)	$	164	$	(392)	$	56
Prior service cost (credit)	5		6		4		(6)
Net amount recognized	$	(281)	$	170	$	(388)	$	50

Annual contributions to the pension plans are made within income tax deductibility restrictions in accordance with statutory regulations. OPEB plans are not subject to minimum regulatory funding requirements, but rather amounts are contributed pursuant to bargaining agreements.


	(In Millions)
	Pension Benefits1		Other Benefits2
Company Contributions & Payments			VEBA		Direct Payments		Total
2020	$	50	$	—	$	25	$	25
2021	163		67		113		180
2022 (Expected)	4		28		110		138

1 The 2021 pension contributions include $118 million in deferred 2020 pension contributions in connection with the CARES Act that were paid on January 4, 2021.
2 Pursuant to the applicable bargaining agreements, benefits can be paid from certain VEBAs that are at least 70% funded (all VEBAs were over 70% funded at December 31, 2021). Certain agreements with plans holding VEBA assets have capped healthcare costs. For the Cleveland-Cliffs Steel LLC VEBA, we are required to make contributions based on earnings, and we may withdraw money from the VEBA plan to the extent funds are available for costs in excess of the cap. VEBA withdrawals are represented net of direct payments. The amount expected for 2022 in the VEBA column reflects the contribution to be made in February 2022 for earnings in the quarter ended December 31, 2021. We do not include an estimate for contributions beyond that due to the variability of the calculation.

Components Of Net Periodic Benefit Cost

Components of Net Periodic Benefit Cost (Credit)


	(In Millions)
	Pension Benefits						OPEB
	2021		2020		2019		2021		2020		2019
Service cost	$	56	$	23	$	17	$	51	$	8	$	2
Interest cost	103		64		35		74		19		10
Expected return on plan assets	(359)		(140)		(55)		(40)		(20)		(17)
Amortization:
Net actuarial loss	32		27		24		3		3		5
Prior service costs (credits)	1		1		1		(2)		(2)		(2)
Settlements	(22)		(6)		—		—		—		—
Net periodic benefit cost (credit)	$	(189)	$	(31)	$	22	$	86	$	8	$	(2)

For 2022, we estimate net periodic benefit cost (credit) as follows:


	(In Millions)
Defined benefit pension plans	$	(179)
OPEB plans	72
Total	$	(107)

Components of Accumulated Other Comprehensive Income (Loss)

The following includes details on the significant actuarial losses (gains) impacting the benefit obligation:


	(In Millions)
	Pension Benefits				OPEB
	2021		2020		2021		2020
Discount rates	$	(224)	$	181	$	(117)	$	44
Demographic updates	76		(3)		3		(11)
Mortality	19		(16)		13		(4)
Per capita health care costs	—		—		(350)		(10)
Other	(2)		—		(5)		(5)
Actuarial loss (gain) on benefit obligation	(131)		162		(456)		14
Actual returns on assets under (over) expected	(309)		(332)		11		(26)
Amortization of net actuarial gain (loss)	(32)		(27)		2		(3)
Amortization of prior service credits (costs)	(1)		(1)		(3)		2
Settlements	22		6		—		—
Other	—		(27)		8		(2)
Total recognized in accumulated other comprehensive income	$	(451)	$	(219)	$	(438)	$	(15)

Estimated Future Benefit Payments


	(In Millions)
	Pension Benefits		OPEB
2022	$	475	$	180
2023	477		171
2024	451		167
2025	428		163
2026	424		163
2027-2031	1,879		823

Defined Benefit Plan, Assumptions

The following represents weighted-average assumptions used to determine benefit obligations:


	Pension Benefits				OPEB
	December 31,				December 31,
	2021		2020		2021		2020
Discount rate	2.75	%	2.34	%	3.01	%	2.71	%
Interest crediting rate	5.35		5.25		N/A		N/A
Compensation rate increase	2.52		2.56		3.00		3.00

The following represents weighted-average assumptions used to determine net benefit cost:


	Pension Benefits						OPEB
	December 31,						December 31,
	2021		2020		2019		2021		2020		2019
Obligation discount rate	2.32	%	3.02	%	4.27	%	2.46	%	3.28	%	4.29	%
Service cost discount rate	2.78		3.34		4.35		3.28		3.35		4.49
Interest cost discount rate	1.64		2.53		3.92		2.04		2.51		3.94

Interest crediting rate	5.35		5.50		6.00		N/A		N/A		N/A
Expected return on plan assets	6.84		7.69		8.25		5.20		6.82		7.00
Compensation rate increase	2.54		2.56		2.53		3.00		3.00		3.00

Assumed Health Care Cost Trend Rates

The following represents assumed weighted-average health care cost trend rates:


	December 31,
	2021		2020
Health care cost trend rate assumed for next year	2.36	%	6.05	%
Ultimate health care cost trend rate	4.50		4.59
Year that the ultimate rate is reached	2031		2031

Plan Assets and Asset Allocation

The following table reflects the actual asset allocations for pension and VEBA assets as of December 31, 2021 and 2020, as well as the 2022 weighted average target asset allocations. Equity investments include securities in large-cap, mid-cap and small-cap companies located in the U.S. and worldwide. Fixed income investments primarily include corporate bonds and government debt securities.


	Pension Assets						VEBA Assets
Asset Category	2022 Target Allocation		Percentage of Plan Assets at December 31,				2022 Target Allocation		Percentage of Plan Assets at December 31,
			2021		2020				2021		2020
Equity securities	46.3	%	47.6	%	51.8	%	21.2	%	22.5	%	22.2	%
Fixed income	34.6		34.6		33.8		68.5		66.4		66.4
Hedge funds	2.2		2.2		2.2		1.4		1.8		1.8
Private equity	5.0		2.7		2.1		1.1		—		0.4
Structured credit	5.2		5.6		5.0		1.0		1.2		0.9
Real estate	5.2		5.6		3.3		1.0		2.1		1.8
Absolute return fixed income	1.5		1.7		1.8		5.8		6.0		6.5
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Fair Value of Pension Assets by Asset Category

The fair value of our pension assets by asset category is as follows:


	(In Millions)
	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Investments Measured at Net Asset Value				Total
Asset Category	2021		2020		2021		2020		2021		2020		2021		2020		2021		2020
Equity securities:
U.S. equities	$	1,157	$	1,163	$	—	$	—	$	—	$	—	$	775	$	787	$	1,932	$	1,950
Global equities	617		615		—		—		—		—		117		195		734		810
Fixed income:
U.S. government securities1	140		141		310		295		—		—		50		40		500		476
U.S. corporate bonds	502		512		371		466		—		—		503		303		1,376		1,281
Non U.S. and other bonds	—		—		66		46		—		—		—		—		66		46
Hedge funds	—		—		—		—		125		118		—		—		125		118
Private equity	—		—		—		—		151		114		—		—		151		114
Structured credit	—		—		—		—		315		264		—		—		315		264
Real estate	—		—		—		—		313		174		—		—		313		174
Absolute return fixed income	—		—		—		—		—		—		94		99		94		99
Total	$	2,416	$	2,431	$	747	$	807	$	904	$	670	$	1,539	$	1,424	$	5,606	$	5,332

1 Includes cash equivalents.

The fair value of our other benefit plan assets by asset category is as follows:


	(In Millions)
	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Investments Measured at Net Asset Value				Total
Asset Category	2021		2020		2021		2020		2021		2020		2021		2020		2021		2020
Equity securities:
U.S. equities	$	26	$	26	$	—	$	—	$	—	$	—	$	103	$	93	$	129	$	119
Global equities	6		6		—		—		—		—		48		49		54		55
Fixed income:
U.S. government securities1	111		62		80		94		—		—		—		—		191		156
U.S. corporate bonds	219		237		129		127		—		—		—		—		348		364
Hedge funds	—		—		—		—		15		14		—		—		15		14
Private equity	—		—		—		—		—		3		—		—		—		3
Structured credit	—		—		—		—		10		7		—		—		10		7
Real estate	—		—		—		—		17		14		—		—		17		14
Absolute return fixed income	—		—		—		—		—		—		48		51		48		51
Total	$	362	$	331	$	209	$	221	$	42	$	38	$	199	$	193	$	812	$	783
1 Includes cash equivalents.

Effect of Fair Value Measurements Using Significant Unobservable Inputs on Changes in Plan Assets

The following represents the fair value measurements of changes in plan assets using significant unobservable inputs (Level 3):


	(In Millions)
	Pension Assets				VEBA Assets
	2021		2020		2021		2020
Beginning balance — January 1	$	670	$	212	$	38	$	34
Actual return on plan assets:
Relating to assets still held at the reporting date	124		8		6		2
Relating to assets sold during the period	8		6		—		1
Purchases	142		195		—		—
Sales	(40)		(13)		(2)		(1)
Acquired through business combinations	—		262		—		2

Ending balance — December 31	$	904	$	670	$	42	$	38

Multiemployer Plan

Information with respect to multiemployer plans in which we participate follows:


Pension Fund	EIN/Pension Plan Number	Pension Protection Act Zone Status (a)		FIP/RP Status Pending/Implemented (b)	Contributions						Surcharge Imposed (c)	Expiration Date of Collective Bargaining Agreement (d)
		2021	2020		2021		2020		2019
Steelworkers Pension Trust	23-6648508/499	Green	Green	No	$	88	$	14	$	4	No	9/1/2022 to 09/1/2025
IAM National Pension Fund’s National Pension Plan	51-6031295/002	Red	Red	Yes	16		16		—		Yes	5/31/2022 to 5/15/2023
Other Plans(e)					—		—		—
Total					$	104	$	30	$	4

(a) The most recent Pension Protection Act zone status available in 2021 and 2020 is for each plan's year-end at December 31, 2020 and 2019. The plan's actuary certifies the zone status. Generally, plans in the red zone are less than 65% funded, plans in the yellow zone are between 65% and 80% funded, and plans in the green zone are at least 80% funded. The IAM National Pension Fund's National Pension Plan voluntarily elected to place itself in the "Red Zone" in April 2019 and has implemented a rehabilitation plan to address its underfunded status. Additional contributions will be required as part of the rehabilitation plan until the plan exits the "Red Zone".
(b) The "FIP/RP Status Pending/Implemented" column indicates plans for which a financial improvement plan or a rehabilitation plan is either pending or has been implemented, as defined by ERISA.
(c) The surcharge represents an additional required contribution due as a result of the critical funding status of the plan.
(d) We are a party to five collective bargaining agreements that require contributions to the Steelworkers Pension Trust and three collective bargaining agreements that require contributions to the IAM National Pension Fund's National Pension Plan.
(e) Plans that are not individually significant to our Company are presented in aggregate.