Pension Plans and Other Post-Retirement Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2023

The following table represents the change in the projected benefit obligation as of December 31, 2023 and December 31, 2022, the measurement date for each year:


	Successor
	December 31, 2023						December 31, 2022

	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Projected benefit obligation at beginning of year		924			77			1,622			108
Service cost for the year		22			2			22			1
Interest expense		198			7			35			3
Plan participants' contributions		11			1			6			—
Actuarial loss (gain)		171			4			(277	)		(22	)
Plan amendments		(2	)		—			—			—
Benefits paid		(543	)		(2	)		(68	)		(1	)
Direct benefit payments		(10	)		(13	)		(3	)		(5	)
Net transfer in (including effect of any business combination/divestiture)		3,574			92			—			—
Special termination benefits paid		13			2			—			—
Curtailment		(5	)		(1	)		(1	)		—
Settlement (1)		—			—			(356	)		(5	)
Effect of foreign currency exchange rate change		98			4			(56	)		(2	)
Projected benefit obligation at end of year		4,451			173			924			77

Change in Fair Value of Assets

The following table represents the change in the fair value of assets, as of December 31, 2023 and December 31, 2022, reflecting the actual return on plan assets, the contributions and the benefits paid for each year:


	Successor
	December 31, 2023			December 31, 2022
	Pension plans			Pension plans
	$			$
Fair value of assets at beginning of year		1,077			1,781
Actual return on plan assets		287			(230	)
Employer contributions		56			11
Plan participants' contributions		11			6
Benefits paid		(553	)		(71	)
Acquisition		3,029			—
Settlement (1)		—			(354	)
Effect of foreign currency exchange rate change		91			(66	)
Fair value of assets at end of year		3,998			1,077

(1)

Settlement accounting was triggered throughout 2022, as the Company entered into agreements with insurance companies to purchase group annuity buy-out contracts and transfer approximately $109 million (CDN $140 million) of its Canadian defined benefit plans’ projected benefit obligation and $82 million of its U.S. defined benefit plans’ projected benefit obligation. The transactions closed in April 2022 for Canada and in June 2022 for the U.S. and were funded with pension plan assets. Additionally, the Company entered into agreements with existing insurers to convert $140 million (CDN $180 million) of existing buy-in annuity contracts to buy-out annuity contracts to complete the full transfer of these obligations. These annuity buy-out transactions transferred responsibility for pension benefits for approximately 3,260 retirees and their beneficiaries. Settlement accounting rules required a remeasurement of the plans as of April 30, 2022 for Canada and June 30, 2022 for the U.S. and the Company recognized a non-cash pension settlement gain of $7 million before tax in the second quarter of 2022. Additionally, settlement accounting was triggered throughout 2022, as lump sums paid exceeded the sum of service cost and interest cost.

Allocation of Plan Assets, Based on Fair Value of Assets Held and Target Allocation

The following table shows the allocation of the plan assets, based on the fair value of the assets held and the target allocation for 2023:


		Successor
		Percentage of			Percentage of
		plan assets at			plan assets at
		December 31,			December 31,
	Target allocation	2023			2022
Fixed income
Cash and cash equivalents	2%		3	%		3	%
Bonds	43%		43	%		44	%
Insurance contracts	8%		8	%		—
Equity
Canadian equity	4%		5	%		4	%
U.S. equity	13%		16	%		14	%
International equity	15%		13	%		11	%
Alternate Investments
Real estate	6%		6	%		12	%
Multi-asset credit	4%		2	%		6	%
Infrastructure	5%		4	%		6	%
Total (1)			100	%		100	%

(1)

Approximately 80% of the pension plans' assets relate to Canadian plans, 20% relate to U.S. plans.

Funded Status of Plans

The following table presents the difference between the fair value of assets and the actuarially determined projected benefit obligation. This difference is also referred to as either the deficit or surplus, as the case may be, or the funded status of the plans. The table further reconciles the amount of the surplus or deficit (funded status) to the net amount recognized in the Consolidated Balance Sheets.


	Successor
	December 31, 2023						December 31, 2022

	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Projected benefit obligation at end of year		(4,451	)		(173	)		(924	)		(77	)
Fair value of assets at end of year		3,998			—			1,077			—
Funded status		(453	)		(173	)		153			(77	)

Amount Recognized in Consolidated Balance Sheets


	Successor
	December 31, 2023						December 31, 2022

	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Trade and other payables		(6	)		(17	)		(4	)		(7	)
Pension and other post-retirement benefit obligations (1)		(672	)		(156	)		(62	)		(70	)
Other assets		225			—			219			—
Net amount recognized in the Consolidated Balance Sheets		(453	)		(173	)		153			(77	)

Pre-Tax Amounts Included in Other Comprehensive (Loss) Income

The following table presents the pre-tax amounts included in Other comprehensive (loss) income:


	Successor																	Predecessor
	Year ended December 31,						Year ended December 31,						Period from December 1, through December 31,					Period from January 1, through November 30,
	2023						2022						2021					2021
				Other post-						Other post-					Other post-						Other post-
	Pension			retirement			Pension			retirement			Pension		retirement			Pension			retirement
	plans			benefit plans			plans			benefit plans			plans		benefit plans			plans			benefit plans
	$			$			$			$			$		$			$			$
Prior service credit (cost)		1			—			—			—			—		—			(6	)		1
Effect of settlement		—			—			2			—			—		—			—			—
Amortization of prior year service cost (credit)		—			—			—			—			—		—			1			(1	)
Net (loss) gain		(92	)		(4	)		(23	)		22			23		(1	)		121			7
Amortization of net actuarial (gain) loss		—			(3	)		(9	)		(1	)		—		—			7			(1	)
Net amount recognized in other comprehensive (loss) income (pre-tax)		(91	)		(7	)		(30	)		21			23		(1	)		123			6

Components of Net Periodic Benefit Cost for Pension Plans and Other Post-Retirement Benefit Plans

At December 31, 2023, the projected benefit obligation and the fair value of plan assets with a projected benefit obligation in excess of fair value of plan assets were $3,383 million and $2,705 million, respectively (2022 – $186 million and $120 million, respectively).

Components of net periodic benefit cost for pension plans and other post-retirement benefit plans:


	Successor									Predecessor
	Year ended December 31,			Year ended December 31,			Period from December 1, through December 31,			Period from January 1, through November 30,
Components of net periodic benefit cost for pension plans	2023			2022			2021			2021
	$			$			$			$
Service cost for the year		22			22			2			25
Interest expense		198			35			4			31
Expected return on plan assets		(217	)		(70	)		(6	)		(61	)
Amortization of net actuarial loss		—			—			—			7
Curtailment loss		3			—			—			—
Special termination benefits(1)		13			—			—			—
Settlement gain		—			(9	)		—			—
Amortization of prior year service cost		—			—			—			1
Net periodic benefit cost		19			(22	)		—			3


	Successor								Predecessor
Components of net periodic benefit cost for other post-retirement	Year ended December 31,			Year ended December 31,			Period from December 1, through December 31,		Period from January 1, through November 30,
benefit plans	2023			2022			2021		2021
	$			$			$		$
Service cost for the year		2			1			—		1
Interest expense		7			3			—		2
Amortization of net actuarial gain		(3	)		(1	)		—		(1	)
Special termination benefits(1)		2			—			—		—
Curtailment gain(1)		(1	)		—			—		—
Amortization of prior year service credit		—			—			—		(1	)
Net periodic benefit cost		7			3			—		1

Key Assumptions to Measure Accrued Benefit Obligation and Net Periodic Benefit Cost

The Company used the following key assumptions to measure the projected benefit obligation and the net periodic benefit cost. These assumptions are long-term, which is consistent with the nature of employee future benefits.


	Successor									Predecessor
	December 31,			December 31,			December 31,			November 30,
Pension plans	2023			2022			2021			2021
Projected benefit obligation
Discount rate		4.7	%		5.3	%		3.0	%	N/A
Rate of compensation increase		2.1	%		3.1	%		2.7	%	N/A
Net periodic benefit cost
Discount rate		5.4	%		3.8	%		2.9	%		2.5	%
Rate of compensation increase		2.6	%		2.8	%		2.8	%		2.7	%
Expected long-term rate of return on plan assets		6.3	%		4.9	%		4.2	%		4.3	%

Effect of One Percent Change in Assumed Health Care Cost

For measurement purposes, a 3.6% weighted average annual rate of increase in the per capita cost of covered health care benefits was assumed for 2023.

Schedule Of Fair Value Of Plan Asset By Asset Category

The following table presents the fair value of the plan assets at December 31, 2023, by asset category:


	Successor
	Fair Value Measurements at
	December 31, 2023
			Quoted Prices
			in Active		Significant			Significant
			Markets for		Observable			Unobservable
			Identical Assets		Inputs			Inputs
Asset Category	Total		(Level 1)		(Level 2)			(Level 3)
	$		$		$			$
Investments measured at fair value
Cash and short-term investments		63		63		—			—
Equity securities:
Canadian equities		204		204		—			—
U.S. equities		497		497		—			—
International equities		493		492		1			—
Equity funds		19		19		—			—
Debt securities:
Corporate and government securities		721		—		721			—
Asset backed securities		20		—		20			—
Bond fund		250		250		—			—
Derivative instruments		—		1		(1	)		—
Insurance contracts		309		—		—			309
Total investments measured at fair value		2,576		1,526		741			309

Investments measured at net asset value
Commingled cash and fixed income funds		790
Commingled equity funds		165
Private debt and alternative credit funds		73
Real estate funds		227
Infrastructure funds		167
Total investments measured at net asset value		1,422

Total		3,998

The following table presents the fair value of the plan assets at December 31, 2022, by asset category:


	Successor
	Fair Value Measurements at
	December 31, 2022
				Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs			Significant Unobservable Inputs
Asset Category	Total			(Level 1)		(Level 2)			(Level 3)
	$			$		$			$
Investments measured at fair value
Cash and short-term investments		19			19		—			—
Equity securities:
Canadian equities		43			43		—			—
U.S. equities		43			43		—			—
International equities		108			108		—			—
Debt securities:
Corporate and government securities		317			—		317			—
Bond fund		92			92		—			—
Derivative instruments		(1	)		—		(1	)		—
Total investments measured at fair value		621			305		316			—

Investments measured at net asset value
Commingled cash and fixed income funds		80
Commingled equity funds		114
Private debt and alternative credit funds		65
Real estate funds		132
Infrastructure funds		65
Total investments measured at net asset value		456

Total		1,077

Changes in Level 3 Fair Value Measurements of Plan Assets

The following table presents changes during the period for Level 3 fair value measurements of plan assets:


	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	$
Balance at December 31, 2021		164
Purchases		108
Settlements		(253	)
Return on plan assets		(15	)
Effect of foreign currency exchange rate change		(4	)
Balance at December 31, 2022		—
Purchases		497
Settlements		(220	)
Return on plan assets		28
Effect of foreign currency exchange rate change		4
Balance at December 31, 2023		309

Estimated Future Benefit Payments from Plans

Estimated future benefit payments from the plans for the next 10 years at December 31, 2023 are as follows:


.	Pension plans		Other post-retirement benefit plans
	$		$
2024		407		16
2025		356		15
2026		349		15
2027		344		14
2028		333		14
2029 – 2033		1,530		66

Domtar CORP 10-K