THOMSON REUTERS CORP /CAN/ - 40-F filing on 2022-03-10

Employee Benefit Plans

12 Months Ended

Dec. 31, 2021

Note 26: Employee Benefit Plans

Retirement Benefits

The Company sponsors both defined benefit and defined contribution employee future benefit plans covering substantially all employees. Costs for future employee benefits are accrued over the periods in which employees earn the benefits. Defined benefit plans provide pension and other post-employment benefits (“OPEB”) to covered employees. Significant plans are valued under IAS 19,

Employee Benefits

, using the projected unit credit method.

The most significant funded defined benefit plans are the Thomson Reuters Group Pension Plan (“TRGP”), covering U.S. employees, and The Thomson Corporation PLC Pension Scheme (“TTC”), covering U.K. employees. The Company also has unfunded obligations consisting of supplemental executive retirement plans (“SERPs”) and OPEB consisting largely of retiree medical benefits, both primarily in the U.S. Defined benefit obligations in the rest of the world are less significant.

Defined benefit plan design and governance

Benefits are generally based on salary and years of service, although each plan has a unique benefits formula. The normal retirement age is typically in the range of 60 to 65 years and benefits are generally payable in annuity or lump sum upon retirement. Most plans include provisions for early retirement, death, survivor and disability benefits. Under the TTC plan, vested benefits of former employees who are not yet of retirement age are held in deferment. Under the TRGP, former and future terminating employees with vested benefits have the option to receive benefits as a lump sum or to defer benefits until retirement. In addition, future TRGP retirees may receive benefits in lump sum or annuity. Eligible benefits under the TTC plan increase based on inflation, whereas TRGP benefits are not indexed to inflation. In some countries, the Company operates cash balance plans (accounted for as defined benefit obligations) where the accumulated balance on the pension account is based on employee and employer allocations and a promised annual crediting rate.

Except where required by law, virtually all defined benefit plans are closed to new employees.

The TRGP is a qualified pension plan in the U.S. and is governed by the Employee Retirement Income Security Act of 1974 (“ERISA”). In its role as plan fiduciary, the Company has a policy to contribute at least the minimum required amount under ERISA.

Similar to the TRGP, the Company bears the cost of the TTC plan (less employee contributions). However, the responsibility for the management and governance of the TTC plan lies with an independent trustee board (the “Trustees”). The Trustees are responsible for carrying out triennial valuations (unless circumstances require an earlier review) and securing funding for benefit payments. To develop funding valuations and investment policies, the Trustees consult with the plan’s actuary (who is independent of the Company’s actuary), the plan’s investment advisors (also independent of the Company’s investment advisors) and the Company. The Trustees and the Company are required to agree on a schedule of contributions in support of funding objectives. These arrangements are updated in conjunction with the triennial valuations.

Other international locations operate various pension plans in accordance with local regulations and practices.

Plan amendments

In March 2021, the TTC plan was amended to freeze the plan from future service accruals effective July 1, 2021. This change was made after consultation with the plan’s Trustees and active members. In December 2020, the TRGP was amended to freeze the plan from future service accruals effective January 1, 2023. These amendments resulted in gains of $4 million and $119 million in 2021 and 2020, respectively, reflecting a reduction of defined benefit obligations. The gains were recognized in “Other operating gains, net” within the consolidated income statement.

Net defined benefit plan obligations

The movement on net defined benefit plan obligations was as follows:



	Pension Plans (1)				OPEB (1)				Total (1)

	2021		2020		2021		2020		2021		2020
As of January 1		(372)		(510)		(98)		(119)		(470)		(629)
Plan (expense) income recognized in income statement:		(60)		43		(6)		(3)		(66)		40
Actuarial gains (losses)		230		60		(2)		18		228		78
Exchange differences		(1)		5		1		2		-		7
Contributions paid		32		28		9		6		41		34
Other		-		2		-		(2)		-		-
Net plan obligations as of December 31		(171)		(372)		(96)		(98)		(267)		(470)
Net plan surpluses recognized in non-current assets										239		128
Net plan obligations recognized in non-current liabilities										(506)		(598)

(1) Includes amounts for immaterial defined benefit and OPEB plans that are not included in the detailed analysis below.

Analysis of material defined benefit plans

The following analysis relates to the Company’s most significant defined benefit plans, the largest of which are in the U.S. and the U.K.

The net surpluses (obligations) of the material defined benefit plans recognized in the consolidated statement of financial position were as follows:



	Funded				Unfunded (1)				OPEB				Total
As of December 31,	2021		2020		2021		2020		2021		2020		2021		2020
Present value of plan obligations		(3,658)		(3,915)		(295)		(317)		(72)		(75)		(4,025)		(4,307)
Fair value of plan assets		3,790		3,867		-		-		-		-		3,790		3,867
Net plan assets (obligations)		132		(48)		(295)		(317)		(72)		(75)		(235)		(440)
Net plan surpluses		235		125		-		-		-		-		235		125
Net plan obligations		(103)		(173)		(295)		(317)		(72)		(75)		(470)		(565)

(1) Unfunded pension plans consist of SERPs for eligible employees.

Defined benefit obligation

The following summarizes activity in the defined benefit obligation:



Present Value of Defined Benefit Obligations	Funded				Unfunded				OPEB				Total

As of December 31,	2021		2020		2021		2020		2021		2020		2021		2020
Opening defined benefit obligation		(3,915)		(3,628)		(317)		(299)		(75)		(102)		(4,307)		(4,029)
Current service cost		(42)		(44)		(1)		(1)		(1)		-		(44)		(45)
Administration fees		(7)		(7)		(1)		(1)		-		-		(8)		(8)
Interest cost		(90)		(103)		(8)		(9)		(1)		(3)		(99)		(115)
Actuarial gains (losses) from changes in financial assumptions (1)		186		(406)		9		(20)		3		(10)		198		(436)
Actuarial (losses) gains from changes in demographic assumptions		(5)		23		-		2		-		1		(5)		26
Experience (losses) gains (2)		-		(20)		(4)		(3)		(5)		28		(9)		5
Contributions by employees		(2)		(1)		-		-		(2)		(2)		(4)		(3)
Benefits paid		198		190		27		20		9		8		234		218
Administration fees disbursements		6		7		-		-		-		-		6		7
Plan amendments (3)		4		119		-		(4)		-		-		4		115
Exchange differences		9		(43)		-		(2)		-		-		9		(45)
Other		-		(2)		-		-		-		5		-		3
Closing defined benefit obligation		(3,658)		(3,915)		(295)		(317)		(72)		(75)		(4,025)		(4,307)

(1) Gains in 2021 were primarily associated with an increase in discount rates used to measure the obligation. Losses in 2020 were primarily associated with a decrease in discount rates used to measure the obligation.

(2) In 2020, OPEB experience gains reflect

lower costs due to transition of the U.S. retiree medical plan from self-insured to an insurance company.

(3) In 2021, gains in funded plans primarily relate

to a plan amendment to freeze the TTC plan from future service accruals effective July 1, 2021. In 2020, gains in funded plans primarily relate

to a plan amendment to freeze the TRGP from future service accruals effective January 1, 2023.

The total closing defined benefit obligation can be further analyzed by participant group and by geography.



As of December 31,	2021		2020		As of December 31,	2021		2020
Active employees		27%		27 %	U.S.		69%		69 %
Deferred		34%		35 %	U.K.		27%		27 %
Retirees		39%		38 %	Rest of world		4%		4 %
Closing defined benefit obligation		100%		100 %			100%		100 %

The weighted-average duration of plan obligations for the TRGP and TTC in 2021 were 16 years (2020 – 17 years) and 17 years (2020 – 18 years), respectively.

Plan assets

The following summarizes activity in plan assets:



Fair Value of Plan Assets	Funded				Unfunded				OPEB				Total

As of December 31,	2021		2020		2021		2020		2021		2020		2021		2020
Opening fair value of plan assets		3,867		3,428		-		-		-		-		3,867		3,428
Interest income (1)		87		94		-		-		-		-		87		94
Return on plan assets excluding amounts included in interest income (2)		43		482		-		-		-		-		43		482
Contributions by employer		4		7		27		20		7		6		38		33
Contributions by employees		2		1		-		-		2		2		4		3
Benefits paid		(198)		(190)		(27)		(20)		(9)		(8)		(234)		(218)
Administration fees disbursements		(6)		(7)		-		-		-		-		(6)		(7)
Exchange differences		(9)		51		-		-		-		-		(9)		51
Other		-		1		-		-		-		-		-		1
Closing fair value of plan assets		3,790		3,867		-		-		-		-		3,790		3,867

(1) Interest income is calculated using the discount rate for the period.

(2) Return on plan assets represents the difference between the actual return on plan assets and the interest income computed using the discount rate.

Investment policy of funded plans

Plan assets are invested to adequately secure benefits and to minimize the Company’s long-term contributions to the plans. However, specific investment allocations will vary across plans. The Company funds unfunded and OPEB plans as claims are made.

Plan fiduciaries, comprised of the Company, plan trustees, or third-party investment advisors selected by the Company set investment policies and strategies for each funded plan and oversee investment allocation, which includes selecting investment managers, commissioning periodic asset-liability studies and setting long-term strategic targets. Investment allocation takes into consideration a number of factors, including the funded status of the plan, a balance between risk and return, the plan’s liquidity needs, current and expected economic and market conditions, specific asset class risk as well as the risk profile and maturity pattern of the respective plan.

Target investment allocation ranges are guidelines, not limitations. Funded plans may have broadly diversified portfolios with investments in equities, fixed income, real estate, insurance contracts, derivatives and other asset classes through direct ownership or through other instruments such as mutual funds, commingled funds and hedge funds. Derivatives may be used to achieve investment objectives or as a component of risk management such as for interest rate and currency management strategies.

In aggregate, the major categories of plan assets for funded plans were as follows:



	Quoted (1)				Unquoted				Total

As of December 31,	2021		2020		2021		2020		2021		2020
Equities (2)
U.S.		141		157		39		65		180		222
U.K.		3		3		-		-		3		3
All other		104		109		391		526		495		635
Total Equities		248		269		430		591		678		860
Bonds (3)
Corporate
U.S.		3		226		1,060		791		1,063		1,017
U.K.		-		-		15		-		15		-
All other		3		3		148		109		151		112
Government
U.S.		3		3		289		631		292		634
All other		5		4		33		13		38		17
Other fixed income		70		73		185		183		255		256
Total Bonds		84		309		1,730		1,727		1,814		2,036
Multi-asset (4)		1		1		287		134		288		135
Property		4		4		-		-		4		4
Insurance		-		-		34		36		34		36
Derivatives		6		-		625		679		631		679
Cash and cash equivalents		41		12		292		97		333		109
Other		8		1		-		7		8		8
Total		392		596		3,398		3,271		3,790		3,867

(1) Asset valuation based on Level 1 evidence under the fair value hierarchy: quoted prices (unadjusted) in active markets for identical assets or liabilities.

(2) Equities include direct shareholdings and funds focused on equity strategies.

(3) Bonds include direct credit holdings and funds focused on fixed income strategies. Within this grouping, Government includes debt issued by national, state and local government agencies and Other fixed income includes blended Corporate/Government credit strategies.

(4) Multi-asset includes funds that invest in a range of asset classes.

As of December 31, 2021 and 2020, there were no Thomson Reuters securities held in the Company’s pension plans’ assets.

Contributions

In 2021 and 2020, the Company contributed $38 million and $33 million, respectively, to its material defined benefit plans.

In 2022, the Company expects to contribute approximately $34 million to its material defined benefit plans, of which $6 million will be in accordance with the normal funding policy of funded plans and $28 million will be for claims expected to arise under unfunded and OPEB plans.

From time to time, the Company may elect to make voluntary contributions to improve the funded status of the plans. For certain plans, the trustees have the right to call for special valuations, which could subsequently result in the Company having to make an unexpected contribution. Market-related factors may also affect the timing and amount of contributions. The amount and timing of any future required contributions to pension plans could differ significantly from the Company’s estimates at December 31, 2021.

Actuarial assumptions

The weighted-average actuarial assumptions were as follows:



	Funded		Unfunded		OPEB

As of December 31,	2021	2020	2021	2020	2021	2020
Discount rate	2.60%	2.22%	2.92%	2.59%	2.55%	2.05%
Inflation assumption	2.93%	2.78%	2.72%	2.71%	-	-
Rate of increase in salaries	3.48%	3.48%	1.64%	1.75%	3.50%	3.50%
Rate of increase in pension payments	3.13%	2.79%	2.77%	2.75%	-	-
Medical cost trend	-	-	-	-	7.10%	7.50%

Discount rate

The discount rate was based on current market interest rates of high-quality, fixed-rate debt securities adjusted to reflect the duration of expected future cash outflows for pension benefit payments. To estimate the discount rate, the Company used a hypothetical yield curve that represented yields on high quality

zero-coupon

bonds with durations that mirrored the expected payment stream of the benefit obligation. For the TRGP and the TTC plans combined, a 0.25% increase or decrease in the discount rate would have decreased or increased the defined benefit obligation by approximately $145 million as of December 31, 2021.

Rates of inflation, increase in salaries and pension payments

The rate of inflation, which impacts increases in eligible U.K. pension payments, was determined by reference to consumer and retail price indices. For the TTC plan, a 0.25% increase or decrease in the rate of increase in pension payments would have increased or decreased the defined benefit obligation by approximately $25 million. Given the freezing of the TRGP plan effective January 1, 2023, the rate of increase in salaries assumption no longer has a material impact on the defined benefit obligation sensitivity analysis.

Medical cost trend

The medical cost trend is based on the Company’s actuarial medical claims experience and future projections of medical costs. The average medical cost trend rate used was 7.1% for 2021, which is reduced gradually to 4.8% in 2032. A 1% increase or decrease in the trend rate would have resulted in an increase or decrease in the benefit obligation for post-retirement benefits of approximately $7 million at December 31, 2021.

Mortality assumptions

The mortality assumptions used to assess the defined benefit obligation as of December 31, 2021 are based on the following:

TRGP: Pri

2012/MP-2021

Generational Table; and

TTC plan: SAPS S3 Light Tables with allowances for plan demographic specifics and longevity improvements.

The following table illustrates the life expectation in years of an average plan participant retiring at age 65 as of December 31, 2021 and 2020 and a plan participant at age 40 as of December 31, 2021 and 2020 retiring 25 years later at age 65 under the mortality assumptions used.



December 31, 2021	Life Expectation in Years

	Male	Female
Employee retiring as of December 31, 2021 at age 65	22	23
Employee age 40 as of December 31, 2021 retiring at age 65	23	25



December 31, 2020	Life Expectation in Years

	Male	Female
Employee retiring as of December 31, 2020 at age 65	21	23
Employee age 40 as of December 31, 2020 retiring at age 65	23	24

For the TRGP and the TTC plans combined, an increase in life expectancy of one year across all age groups would have increased the defined benefit obligation by approximately $92 million as of December 31, 2021.

The sensitivity analyses are based on a change in one assumption while holding all other assumptions constant, so that interdependencies between assumptions are excluded. The measurement methodology (i.e. present value of the obligation calculated using the projected unit credit method) applied in the sensitivity analyses is also consistent with that used to determine the defined benefit obligation in the consolidated statement of financial position.

Risks and uncertainties

The material risks and uncertainties the Company is exposed to in relation to defined benefit pension plans are:

Investment risk:

Returns on plan assets may not be sufficient to fund plan obligations. To mitigate such risk, plan fiduciaries maintain investment policies and periodically review investment allocations to ensure adequate support of funding objectives. Additionally, plan fiduciaries review fund manager performance against benchmarks for specific investment mandates.

Interest rate risk:

A fall in interest rates will increase the value of the plan obligations as well as the fixed income investments used to fund the obligations. Although a significant amount of plan assets are allocated to fixed income investments, the Company’s funded benefit plans do not strictly follow a liability matching investment strategy. As a result, plan liabilities may increase faster than assets in a declining interest rate environment, potentially requiring the Company to make additional contributions. Diversified asset allocations mitigate this risk by creating the potential to outperform increases in liabilities and to reinvest excess returns in liability matching assets, reducing the need for Company contributions.

Inflation risk:

Actual pension increases linked to inflation may exceed expectations, resulting in higher than anticipated plan obligations. To mitigate this risk, certain plan assets are invested in hedging assets, which may include derivatives and inflation-linked bonds.

Currency risk:

In some plans, obligations denominated in local currency may be partially funded by foreign investments. To hedge this currency mismatch, derivatives may be used.

Liquidity risk:

If a plan has insufficient cash to fund near term benefit payments, the Company may have to make additional contributions or unexpected changes in asset allocations may be required. This risk is mitigated as near-term pension payments are reasonably known and plans generally hold short-term debt securities to fund such payments.

Mortality risk:

Life expectancy may improve at a faster rate than expected, resulting in higher plan obligations. To mitigate this risk, life expectancy assumptions are reviewed in connection with periodic valuations.

For defined benefit retiree medical plans, the material risks are mortality risk, as described above, and costs being greater than assumed, either due to inflation of future medical costs or the frequency of participants’ claims.

Analysis of income and expense

Defined benefit plan (income) expense for material defined benefit plans for years ended December 31,

2021

and 2020 was as follows:



Income Statement (1)	Funded		Unfunded		OPEB		Total

Year ended December 31,	2021	2020	2021	2020	2021	2020	2021	2020
Current service cost	42	44	1	1	1	-	44	45
Net interest cost	3	9	8	9	1	3	12	21
Administration fees	7	7	1	1	-	-	8	8
Plan amendments (2)	(4)	(119)	-	4	-	-	(4)	(115)
Defined benefit plan expense (income)	48	(59)	10	15	2	3	60	(41)

(1) Current service cost and administration fees are included in the “Post-employment benefits” component of “Operating expenses” as set out in note 5. Net interest cost is reported in “Finance costs, net” as set out in note 7.

(2) In 2021, gains in funded plans related to the TTC plan amendment to freeze the plan from future service accruals effective July 1, 2021. In 2020, gains in funded plans related to the TRGP amendment to freeze the plan from future service accruals effective January 1, 2023.

Analysis of other comprehensive (income) loss

The following summarizes amounts recognized in other comprehensive (income) loss for material defined benefit plans:



Other Comprehensive (Income) Loss	Funded		Unfunded		OPEB		Total
Year ended December 31,	2021	2020	2021	2020	2021	2020	2021	2020
Remeasurement (gains) losses on defined benefit obligation:
Due to financial assumption changes	(186)	406	(9)	20	(3)	10	(198)	436
Due to demographic assumption changes	5	(23)	-	(2)	-	(1)	5	(26)
Due to experience	-	20	4	3	5	(28)	9	(5)
Return on plan assets greater than discount rate	(43)	(482)	-	-	-	-	(43)	(482)
Total recognized in other comprehensive (income) loss before taxation	(224)	(79)	(5)	21	2	(19)	(227)	(77)



Accumulated Comprehensive Loss (Income)	Funded		Unfunded		OPEB		Total
	2021	2020	2021	2020	2021	2020	2021	2020
Balance of accumulated comprehensive loss (income) at January 1	1,312	1,391	103	82	(106)	(87)	1,309	1,386
Net actuarial (gains) losses recognized in the year	(224)	(79)	(5)	21	2	(19)	(227)	(77)
Total accumulated comprehensive loss (income) at December 31,	1,088	1,312	98	103	(104)	(106)	1,082	1,309

Defined contribution plans

The Company sponsors various defined contribution savings plans that provide for Company matching contributions. Total expense related to defined contribution plans was $89 million in 2021 (2020 - $78 million), which approximates the cash outlays related to the plans.