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, 2020

Schedule of Defined Benefit Plans Disclosures

The following tables and information provide additional disclosures:


	(In Millions)
	Pension Benefits				OPEB
Change in benefit obligations:	2020		2019		2020		2019
Benefit obligations — beginning of year	$	1,021	$	906	$	255	$	242
Service cost	23		17		8		2
Interest cost	64		35		19		10

Actuarial loss	162		112		14		19
Benefits paid	(146)		(62)		(89)		(26)
Participant contributions	—		—		22		6
Acquired through business combinations	5,535		—		3,528		—
Effect of settlement	(94)		—		—		—
Other	—		13		—		2
Benefit obligations — end of year	$	6,565	$	1,021	$	3,757	$	255

Change in plan assets:
Fair value of plan assets — beginning of year	$	749	$	687	$	260	$	240
Actual return on plan assets	472		98		45		35
Participant contributions	—		—		17		1
Employer contributions	50		16		30		3
Benefits paid	(146)		(62)		(88)		(19)
Acquired through business combinations	4,301		—		519		—
Effect of settlement	(94)		—		—		—
Other	—		10		—		—
Fair value of plan assets — end of year	$	5,332	$	749	$	783	$	260
Funded status	$	(1,233)	$	(272)	$	(2,974)	$	5

Amounts recognized in Statements of Financial Position:
Non-current assets	$	3	$	—	$	54	$	49
Current liabilities	(12)		—		(139)		(4)
Non-current liabilities	(1,224)		(272)		(2,889)		(40)
Total amount recognized	$	(1,233)	$	(272)	$	(2,974)	$	5

Amounts recognized in accumulated other comprehensive loss:
Net actuarial loss	$	164	$	382	$	56	$	73
Prior service cost (credit)	6		7		(6)		(8)
Net amount recognized	$	170	$	389	$	50	$	65

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 Benefits		Other Benefits
Company Contributions (Reimbursements)			VEBA		Direct Payments		Total
2019	$	16	$	—	$	4	$	4
2020	50		—		25		25
2021 (Expected)1	202		(16)		144		128

1 Pursuant to the applicable bargaining agreements, benefits can be paid from certain VEBAs that are at least 70% funded (all VEBAs are over 70% funded at December 31, 2020). Certain agreements with plans holding VEBA assets have capped healthcare costs. For the ArcelorMittal USA VEBA, depending on funding levels and/or Company profits, we may withdraw money from the VEBA plans to the extent funds are available for costs in excess of the cap. The 2021 expected pension contributions include $118 million in deferred 2020 pension contributions in connection with the CARES Act that were paid on January 4, 2021.

Components Of Net Periodic Benefit Cost

Components of Net Periodic Benefit Cost (Credit)


	(In Millions)
	Pension Benefits						OPEB
	2020		2019		2018		2020		2019		2018
Service cost	$	23	$	17	$	19	$	8	$	2	$	2
Interest cost	64		35		30		19		10		8
Expected return on plan assets	(140)		(55)		(60)		(20)		(17)		(18)
Amortization:
Net actuarial loss	27		24		21		3		5		5
Prior service costs (credits)	1		1		2		(2)		(2)		(3)
Settlements	(6)		—		1		—		—		—
Net periodic benefit cost (credit)	$	(31)	$	22	$	13	$	8	$	(2)	$	(6)

For 2021, we estimate net periodic benefit cost (credit) as follows:


	(In Millions)
Defined benefit pension plans	$	(168)
OPEB plans	86
Total	$	(82)

Components of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

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


	(In Millions)
	Pension Benefits				OPEB
	2020		2019		2020		2019
Discount rates	$	181	$	106	$	44	$	26
Demographic (gains) losses	(3)		12		(11)		4
Mortality	(16)		(6)		(4)		(4)
Per capita claims	—		—		(10)		(9)
Other	—		—		(5)		3
Actuarial loss on benefit obligation	162		112		14		20
Actual returns on assets over expected	(332)		(44)		(26)		(18)
Amortization of net actuarial loss	(27)		(24)		(3)		(5)
Amortization of prior service credits (costs)	(1)		(1)		2		2
Settlements	6		—		—		—
Other	(27)		7		(2)		(5)
Total recognized in accumulated other comprehensive loss (income)	$	(219)	$	50	$	(15)	$	(6)

Estimated Future Benefit Payments


	(In Millions)
	Pension Benefits		OPEB
2021	$	486	$	191
2022	462		185
2023	480		180
2024	455		178
2025	433		176
2026-2030	1,983		884

Defined Benefit Plan, Assumptions

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


	Pension Benefits				OPEB
	December 31,				December 31,
	2020		2019		2020		2019
Discount rate	2.34	%	3.27	%	2.71	%	3.28	%
Interest crediting rate	5.25		6.00		N/A		N/A
Compensation rate increase	2.56		2.53		3.00		3.00

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


	Pension Benefits						OPEB
	December 31,						December 31,
	2020		2019		2018		2020		2019		2018
Obligation discount rate	3.02	%	4.27	%	3.58	%	3.28	%	4.29	%	3.60	%
Service cost discount rate	3.34		4.35		3.64		3.35		4.49		3.73
Interest cost discount rate	2.53		3.92		3.16		2.51		3.94		3.11

Interest crediting rate	5.50		6.00		6.00		N/A		N/A		N/A
Expected return on plan assets	7.69		8.25		8.25		6.82		7.00		7.00
Compensation rate increase	2.56		2.53		2.49		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,
	2020		2019
Health care cost trend rate assumed for next year	6.05	%	6.50	%
Ultimate health care cost trend rate	4.59		5.00
Year that the ultimate rate is reached	2031		2026

Plan Assets and Asset Allocation

The following table reflects the actual asset allocations for pension and VEBA assets as of December 31, 2020 and 2019, as well as the 2021 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	2021 Target Allocation		Percentage of Plan Assets at December 31,				2021 Target Allocation		Percentage of Plan Assets at December 31,
			2020		2019				2020		2019
Equity securities	41.3	%	51.8	%	44.0	%	20.3	%	22.2	%	7.2	%
Fixed income	39.7		33.8		27.6		69.6		66.4		79.8
Hedge funds	5.0		2.2		5.4		1.1		1.8		4.8
Private equity	2.2		2.1		6.6		1.4		0.4		0.7
Structured credit	5.2		5.0		7.0		1.0		0.9		2.1
Real estate	5.2		3.3		9.4		1.1		1.8		5.4
Absolute return fixed income	1.4		1.8		—		5.5		6.5		—
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

Defined Benefit Plan, Plan Assets, Category [Table Text Block]

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	2020		2019		2020		2019		2020		2019		2020		2019		2020		2019
Equity securities:
U.S. equities	$	1,163	$	169	$	—	$	—	$	—	$	—	$	787	$	—	$	1,950	$	169
Global equities	615		161		—		—		—		—		195		—		810		161
Fixed income:
U.S. government securities1	141		11		295		22		—		—		40		—		476		33
U.S. corporate bonds	512		174		466		—		—		—		303		—		1,281		174
Non U.S. and other bonds	—		—		46		—		—		—		—		—		46		—
Hedge funds	—		—		—		—		118		40		—		—		118		40
Private equity	—		—		—		—		114		50		—		—		114		50
Structured credit	—		—		—		—		264		52		—		—		264		52
Real estate	—		—		—		—		174		70		—		—		174		70
Absolute return fixed income	—		—		—		—		—		—		99		—		99		—
Total	$	2,431	$	515	$	807	$	22	$	670	$	212	$	1,424	$	—	$	5,332	$	749

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	2020		2019		2020		2019		2020		2019		2020		2019		2020		2019
Equity securities:
U.S. equities	$	26	$	12	$	—	$	—	$	—	$	—	$	93	$	—	$	119	$	12
Global equities	6		7		—		—		—		—		49		—		55		7
Fixed income:
U.S. government securities1	62		—		94		—		—		—		—		—		156		—
U.S. corporate bonds	237		166		127		41		—		—		—		—		364		207
Hedge funds	—		—		—		—		14		12		—		—		14		12
Private equity	—		—		—		—		3		2		—		—		3		2
Structured credit	—		—		—		—		7		6		—		—		7		6
Real estate	—		—		—		—		14		14		—		—		14		14
Absolute return fixed income	—		—		—		—		—		—		51		—		51		—
Total	$	331	$	185	$	221	$	41	$	38	$	34	$	193	$	—	$	783	$	260
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
	2020		2019		2020		2019
Beginning balance — January 1	$	212	$	229	$	34	$	36
Actual return on plan assets:
Relating to assets still held at the reporting date	8		(1)		2		1
Relating to assets sold during the period	6		30		1		—
Purchases	195		17		—		—
Sales	(13)		(60)		(1)		(3)
Acquired through business combinations	262		—		2		—
Other	—		(3)		—		—
Ending balance — December 31	$	670	$	212	$	38	$	34

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
		2020	2019		2020		2019		2018
Steelworkers Pension Trust	23-6648508/499	Green	Green	No	$	14	$	4	$	4	No	1/22/2021 to 10/1/2022
IAM National Pension Fund’s National Pension Plan	51-6031295/002	Red	Green	Yes	16		—		—		Yes	5/31/2022 to 5/15/2023
American Maritime Officers Plan	13-1936709/001	Green	Green	No	—		—		—		No	7/31/2021
Total					$	30	$	4	$	4
(a) The most recent Pension Protection Act zone status available in 2020 and 2019 is for each plan's year-end at December 31, 2019 and 2018. 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.
(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.