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

PENSIONS AND OTHER POSTRETIREMENT BENEFITS

12 Months Ended

Dec. 31, 2023

Pension and Other Post Retirement Benefits

NOTE 9 - PENSIONS AND OTHER POSTRETIREMENT BENEFITS

We offer benefits through defined benefit pension plans, defined contribution pension plans and OPEB plans to a significant portion of our employees and retirees. Benefits are also provided through multiemployer plans for certain union members.

DEFINED BENEFIT PENSION PLANS

The defined benefit pension plans are largely noncontributory and limited in participation. Most plans are closed to new participants with only the legacy iron ore hourly and salaried plans still open. The pension benefit calculations vary by plan but are generally based on employees' years of service and compensation or a fixed rate and years of service. Certain salaried plans calculate benefits using a cash balance formula, which earns interest credits and allocations based on a percent of pay.

OPEB PLANS

We offer postretirement health care and life insurance benefits to retirees through various funded and unfunded plans. The vast majority of our plans are closed to new participants. In lieu of retiree medical coverage, many union-represented employees receive a 401(k) contribution per hour worked to a restricted Retiree Health Care Account. Cost sharing features between the employer and retiree vary by plan and several plans include employer caps. Retiree healthcare coverage is provided through programs administered by insurance companies whose charges are based on benefits paid. Certain labor agreements require the funding of VEBAs, which, depending on funding levels, may be used to reimburse the employer for paid benefits.

OBLIGATIONS AND FUNDED STATUS

The following tables and information provide additional disclosures:


(In millions)	Pension Benefits				OPEB
Change in benefit obligations:	2023		2022		2023		2022
Benefit obligations — beginning of year	$	4,646	$	6,036	$	1,233	$	3,254
Service cost	31		45		10		35
Interest cost	235		144		64		72
Plan amendments	3		122		8		(163)
Actuarial loss (gain)	116		(1,236)		(158)		(1,781)
Benefits paid	(436)		(431)		(163)		(232)
Participant contributions	—		—		42		47
Effect of settlement	(24)		(34)		—		—
Other	—		—		—		1
Benefit obligations — end of year	$	4,571	$	4,646	$	1,036	$	1,233

Change in plan assets:
Fair value of plan assets — beginning of year	$	4,338	$	5,606	$	728	$	812
Actual return on plan assets	375		(809)		67		(97)
Participant contributions	—		—		42		47
Employer contributions	29		6		65		198
Benefits paid	(436)		(431)		(163)		(232)

Effect of settlement	(24)		(34)		—		—

Fair value of plan assets — end of year	$	4,282	$	4,338	$	739	$	728
Funded status	$	(289)	$	(308)	$	(297)	$	(505)

Amounts recognized in Statements of Financial Position:
Non-current assets	$	137	$	195	$	192	$	161
Current liabilities1	(18)		(30)		(76)		(81)
Non-current liabilities	(408)		(473)		(413)		(585)
Total amount recognized	$	(289)	$	(308)	$	(297)	$	(505)

Amounts recognized in accumulated other comprehensive loss (income):
Net actuarial gain	$	(304)	$	(361)	$	(2,033)	$	(1,996)
Prior service cost (credit)	106		121		(131)		(156)
Net amount recognized	$	(198)	$	(240)	$	(2,164)	$	(2,152)

1 Current liabilities are classified within Other current liabilities on the Statements of Consolidated Financial Position.

The accumulated benefit obligation for all defined benefit pension plans was $4,557 million and $4,628 million at December 31, 2023 and 2022, respectively.

COMPONENTS OF NET PERIODIC BENEFIT COST (CREDIT)


	Pension Benefits						OPEB
(In millions)	2023		2022		2021		2023		2022		2021
Service cost	$	31	$	45	$	56	$	10	$	35	$	51
Interest cost	235		144		103		64		72		74
Expected return on plan assets	(315)		(355)		(359)		(43)		(37)		(40)
Amortization:
Net actuarial loss (gain)	3		13		32		(145)		(43)		3
Prior service costs (credits)	18		5		1		(17)		(3)		(2)
Settlements	(4)		(8)		(22)		—		—		—
Net periodic benefit cost (credit)	$	(32)	$	(156)	$	(189)	$	(131)	$	24	$	86

For 2024, we estimate net periodic benefit cost (credit) as follows:


(In millions)
Defined benefit pension plans	$	(58)
OPEB plans	(154)
Total	$	(212)

COMPONENTS OF OTHER COMPREHENSIVE LOSS (INCOME)

The following includes details on the significant actuarial losses (gains) impacting the benefit obligation and other components of other comprehensive loss (income):


	Pension Benefits				OPEB
(In millions)	2023		2022		2023		2022
Discount rates	$	124	$	(1,143)	$	28	$	(441)
Demographic updates1	(5)		(102)		(208)		(7)
Mortality	(2)		17		(11)		—
Per capita healthcare costs and healthcare trend2	—		—		33		(1,333)
Other	(1)		(8)		—		—
Actuarial loss (gain) on benefit obligation	116		(1,236)		(158)		(1,781)
Actual returns on assets under (over) expected	(60)		1,165		(24)		134
Amortization of net actuarial gain (loss)	(3)		(13)		145		43
Amortization of prior service credits (costs)	(18)		(5)		17		3
Settlements	4		8		—		—
Plan amendments3	3		122		8		(163)
Total recognized in other comprehensive loss (income)	$	42	$	41	$	(12)	$	(1,764)

1 In 2023, the OPEB plans generated an actuarial gain relating to updates for demographic experience. We had adjustments relating to retirements, participation, persistency and census data updates.
2 The gain in per capita healthcare costs in 2022 relating to our OPEB plans is primarily due to the negotiation of favorable Medicare Advantage Prescription Drug healthcare rates, which went into effect on January 1, 2023. Additionally, we expanded the Medicare Advantage program to retirees on some of our other plans during the 2022 USW labor negotiations which added additional savings. The negotiated rates extend through 2025.
3 In 2022, the plan amendment gains and losses were generated from the ratification of the 2022 USW labor agreements. The plan amendment loss related to our pension plans is attributable to the increase to the pre-2023 service multiplier to $115 and the service multiplier applicable to service beginning in 2023 to $126 for retirements after January 1, 2023. The plan amendment gain related to our OPEB plans is attributable to the implementation of a cap on healthcare costs for employees retiring after January 1, 2026 on one of our Cleveland-Cliffs Steel LLC plans as well as the extension of the Medicare Advantage program to plans that previously did not have the offering.

CONTRIBUTIONS

We make both required and discretionary pension contributions. Required contributions are based on minimum funding requirements pursuant to ERISA regulations. Funded OPEB plans are not subject to minimum regulatory funding requirements, but rather amounts are contributed pursuant to bargaining agreements. Contributions toward unfunded OPEB plans are payments made directly from corporate assets and are displayed net of participant contributions and other reimbursements. Company contributions and payments we expect to make in 2024, and made in 2023 and 2022 are as follows:


	Pension Benefits		OPEB
(In millions)			VEBA1		Direct Payments		Total
2022	$	6	$	85	$	113	$	198
2023	29		—		65		65
2024 (Expected)	122		—		66		66

1 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, 2023). 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. There will be no further contributions to the Cleveland-Cliffs Steel LLC VEBA based on earnings for the remainder of the labor agreement with the USW, which expires in September of 2026.

ESTIMATED FUTURE BENEFIT PAYMENTS


(In millions)	Pension Benefits		OPEB1
2024	$	503	$	107
2025	442		98
2026	433		95
2027	415		89
2028	400		86
2029-2033	1,728		380

1 OPEB benefit payments are displayed net of participant contributions.

ASSUMPTIONS

The discount rates used to measure plan liabilities as of the December 31 measurement date are determined individually for each plan. The discount rates are determined by matching the projected cash flows used to determine the plan liabilities to a projected yield curve of high-quality corporate bonds available at the measurement date. Discount rates for expense are calculated using the granular approach for each plan.

We use company-specific base mortality tables for healthy annuitants in qualified pension plans. We use tables issued by the Society of Actuaries for non-annuitants in qualified pension plans, all nonqualified pension participants and OPEB participants. For tables issued by the Society of Actuaries, we use Pri-2012 mortality tables with adjustments for blue collar, white collar or no collar depending on the plan. Mortality is projected for all plans using Scale MP-2021 with generational projection for both years. In 2023, we switched two OPEB plans from company-specific base mortality tables to the Pri-2012 mortality tables to align with our other OPEB plans. In 2022, we switched one pension plan from the Pri-2012 mortality tables to company-specific base mortality tables.

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


	Pension Benefits				OPEB
	December 31,				December 31,
	2023		2022		2023		2022
Discount rate	5.12	%	5.47	%	5.15	%	5.52	%
Interest crediting rate	5.46		5.39		N/A		N/A
Compensation rate increase	3.00		3.00		3.00		3.00

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


	Pension Benefits						OPEB
	December 31,						December 31,
	2023		2022		2021		2023		2022		2021
Obligation discount rate	5.47	%	3.21	%	2.32	%	5.52	%	3.33	%	2.46	%
Service cost discount rate	5.61		3.49		2.78		5.65		3.91		3.28
Interest cost discount rate	5.34		2.75		1.64		5.38		3.01		2.04

Interest crediting rate	5.46		5.39		5.35		N/A		N/A		N/A
Expected return on plan assets	7.66		6.87		6.84		5.87		4.86		5.20
Compensation rate increase	3.00		2.74		2.54		3.00		3.00		3.00

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


	December 31,
	2023		2022
Health care cost trend rate assumed for next year1	5.49	%	5.44	%
Ultimate health care cost trend rate	4.50	%	4.50	%
Year that the ultimate rate is reached	2032		2030

1 The health care trend rate for the next year is weighted for all of our OPEB plans and factors in our Medicare Advantage Prescription Drug pricing arrangements. In 2023, we increased our assumed health care cost trend rate for self insured plans to 6.50% from 6.00% for 2024, which grades down on a linear basis to 4.50% by 2032. The health care trend rate for the Medicare Advantage Prescription Drug plans is set to match the negotiated rates through 2025 and then converts to the same trend rate as our self insured plan. In 2023, we layered in a one time increase to the healthcare trend rate for the Medicare Advantage Prescription Drug plans for 2026. These increases align with our expectation of higher health care costs due to increased popularity of specialty medication, current carrier and provider negotiations and impacts from third party funding associated with the Inflation Reduction Act.

PLAN ASSETS

Our investment objectives with respect to our pension and OPEB assets are to maximize investment returns within reasonable and prudent levels of risk and maintain sufficient liquidity to meet benefit obligations over the life of each plan. The asset allocations are tailored to each individual plan and are determined by analyzing each plan's duration of benefit obligations, funded status and risk profile. Our investment strategy utilizes a broad mix of equity, fixed income and alternative investments to generate returns and manage risk. Equity investments are diversified across large-cap, mid-cap and small-cap companies located in the U.S. and worldwide, with a bias towards U.S. companies. Fixed income investments primarily include corporate bonds and government debt securities, which are generally customized based on a plan's obligation duration. To enhance our diversification, we also invest in hedge funds, private equity, structured credit and real estate.

We review investment performance, asset allocations and policy compliance on a quarterly basis. In the fourth quarter of 2022, we increased our fixed income allocation for one of our more mature pension plans, which totaled $1.2 billion on December 31, 2022. In the fourth quarter of 2022, we also transitioned $2.9 billion of pension and OPEB assets to be managed by an external investment advisor in a delegated manner, which resulted in a shift to treasury based hedging, a higher alternative investment allocation and reduction to equity risk exposure. These changes resulted in a shift in underlying investments and increased our weighted-average expected return on plan assets in 2023 compared to 2022.

The expected return on plan assets are calculated on a plan-by-plan basis and take into account each plan's strategic asset allocation. The calculation of rates by asset class are based primarily on our future expected returns and take into consideration the duration of the cash flows, active management and fees.

Assets for OPEB plans include VEBA trusts pursuant to bargaining agreements that are available to fund retired employees’ life insurance obligations and medical benefits. The following table reflects the actual asset allocations for pension and VEBA assets as of December 31, 2023 and 2022, as well as the 2024 weighted average target asset allocations:


	Pension Assets						VEBA Assets
Asset Category	2024 Target Allocation		Actual Asset Allocation at December 31,				2024 Target Allocation		Actual Asset Allocation at December 31,
			2023		2022				2023		2022
Equity securities	33.8	%	32.1	%	36.1	%	16.6	%	18.4	%	22.0	%
Fixed income	41.1		38.8		40.9		78.5		74.5		67.4
Hedge funds	9.4		9.4		2.7		1.4		1.5		1.9
Private equity	3.3		3.4		3.3		—		—		—
Structured credit	2.4		5.1		6.9		0.2		0.9		1.2
Real estate	10.0		11.2		8.2		3.3		4.7		1.7
Absolute return fixed income	—		—		1.9		—		—		5.8
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

FAIR VALUE MEASUREMENTS

Investments classified as Level 1 primarily include equity investments and fixed income mutual funds that are based on observable quoted market prices on an active exchange. Fixed income investments classified as Level 2 include U.S. Treasury STRIPS which are priced daily through a bond pricing vendor as well as corporate bonds, mortgage-backed securities and non-US bonds which have valuations based on their bid-ask spreads or quoted prices of securities with similar characteristics.

Certain investments in hedge funds, private equity, structured credit and real estate are classified as Level 3 due to the absence of quoted market prices and inherent lack of liquidity. These investments are generally valued at estimated fair value based on financial inputs from our investment advisors, investment managers or third party appraisers. Certain Level 3 investments may be lagged up to three months if there are no financial inputs available.

Investment commitments are made in private equity funds and capital calls are made over the life of the funds to fund the commitments. As of December 31, 2023, remaining commitments for our private equity investments total $70 million for our pension and OPEB plans. Committed amounts are funded from plan assets when capital calls are made.

As a practical expedient, in accordance with ASC 820-10, certain investments that are measured at fair value using the NAV per share have not been classified in the fair value hierarchy below. NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by its number of shares outstanding.

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	2023		2022		2023		2022		2023		2022		2023		2022		2023		2022
Equity securities:
U.S. equities	$	809	$	564	$	—	$	—	$	—	$	—	$	—	$	569	$	809	$	1,133
Global equities	502		328		—		—		—		—		65		106		567		434
Fixed income:
U.S. government securities1	22		87		657		380		—		—		142		63		821		530
U.S. corporate bonds	587		574		—		266		—		—		94		373		681		1,213
Non U.S. and other bonds	—		—		—		32		—		—		160		—		160		32
Hedge funds	—		—		—		—		118		115		285		—		403		115
Private equity	—		—		—		—		146		143		—		—		146		143
Structured credit	—		—		—		—		220		298		—		—		220		298
Real estate	—		—		—		—		286		356		189		—		475		356
Absolute return fixed income	—		—		—		—		—		—		—		84		—		84
Total	$	1,920	$	1,553	$	657	$	678	$	770	$	912	$	935	$	1,195	$	4,282	$	4,338

1 Includes cash equivalents.

The fair value of our VEBA 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	2023		2022		2023		2022		2023		2022		2023		2022		2023		2022
Equity securities:
U.S. equities	$	102	$	24	$	—	$	—	$	—	$	—	$	—	$	89	$	102	$	113
Global equities	3		5		—		—		—		—		30		42		33		47
Fixed income:
U.S. government securities1	119		149		27		79		—		—		47		—		193		228
U.S. corporate bonds	214		146		94		117		—		—		49		—		357		263
Non U.S. and other bonds	3		—		—		—		—		—		—		—		3		—
Hedge funds	—		—		—		—		10		14		—		—		10		14
Private equity	—		—		—		—		—		—		—		—		—		—
Structured credit	—		—		—		—		7		9		—		—		7		9
Real estate	—		—		—		—		10		12		24		—		34		12
Absolute return fixed income	—		—		—		—		—		—		—		42		—		42
Total	$	441	$	324	$	121	$	196	$	27	$	35	$	150	$	173	$	739	$	728

1 Includes cash equivalents.

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


	Pension Assets				VEBA Assets
(In millions)	2023		2022		2023		2022
Beginning balance — January 1	$	912	$	904	$	35	$	42
Actual return on plan assets:
Relating to assets still held at the reporting date	(16)		(6)		2		1
Relating to assets sold during the period	10		15		1		1
Purchases	24		28		—		—
Sales	(160)		(29)		(11)		(9)

Ending balance — December 31	$	770	$	912	$	27	$	35

DEFINED CONTRIBUTION PLANS

Most employees are eligible to participate in various defined contribution plans. Certain of these plans have features with matching contributions or other Company contributions based on our financial results. Company contributions to these plans are expensed as incurred. Total expense from these plans was $59 million, $52 million and $55 million in 2023, 2022 and 2021, respectively.

MULTlEMPLOYER PLANS

We contribute to multiemployer pension plans according to collective bargaining agreements that cover certain union-represented employees. The risks of participating in these multiemployer plans are different from the risks of participating in single-employer pension plans in the following respects:

•Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.

•If a participating employer stops contributing to a multiemployer plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

•If the multiemployer plan becomes significantly underfunded or is unable to pay its benefits, we may be required to contribute additional amounts in excess of the rate required by the collective bargaining agreements.

•If we choose to stop participating in a multiemployer plan, we may be required to pay that plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

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


Pension Fund	EIN/Pension Plan Number	Pension Protection Act Zone Status1		FIP/RP Status Pending/Implemented2	Contributions (in millions)						Surcharge Imposed3	Expiration Date of Collective Bargaining Agreement4
		2023	2022		2023		2022		2021
Steelworkers Pension Trust	23-6648508/499	Green	Green	No	$	119	$	93	$	88	No	4/1/2025 to 9/1/2026
IAM National Pension Fund’s National Pension Plan	51-6031295/002	Red	Red	Yes	23		22		16		Yes	5/31/2025 to 5/15/2027
Other Plans5					1		—		—
Total					$	143	$	115	$	104

1 The most recent Pension Protection Act zone status available in 2023 and 2022 is for each plan's year-end at December 31, 2022 and 2021. 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".
2 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.
3 The surcharge represents an additional required contribution due as a result of the critical funding status of the plan.
4 We are a party to six 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.
5 Plans that are not individually significant to our Company are presented in aggregate.

With the ratification of the 2022 USW labor agreements, we increased our contribution rate to the Steelworkers Pension Trust by $0.50 to $4.00 per eligible hour. The increase was effective November 1, 2022.

We are one of the largest contributors to the Steelworkers Pension Trust. Our contributions exceeded 5% of total combined contributions in 2023 and 2022. As of January 1, 2023 (the last date for which we have information), the Steelworkers Pension Trust had a total actuarial liability of $6,378 million and assets with a market value of $5,827 million, for a funded ratio of about 91%.