Page 176 - Martin Marietta - 2024 Proxy Statement

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Pension Benefit Obligation and Pension Expense – Selection of Assumptions

The Company sponsors noncontributory defined benefit pension plans that cover substantially all employees and a Supplemental
Excess Retirement Plan (SERP) for certain retirees (see Note J to the consolidated financial statements). Annually, as of December
31, management remeasures the defined benefit pension plans’ projected benefit obligation based on the present value of the
projected future benefit payments to all participants for services rendered to date, reflecting expected future pay increases
through the participants’ expected retirement dates. A discount rate assumption is selected annually based on corporate bond
rates as of the measurement date to calculate the present value of the projected benefit obligation.
Annual pension expense, referred to as net periodic benefit cost within the consolidated financial statements, (inclusive of SERP
expense) consists of several components:
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 Service Cost, which represents the present value of benefits attributed to services rendered in the current year,
measured by expected future salary levels to assumed retirement dates;
 Interest Cost, which represents one year’s additional interest on the projected benefit obligation;
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 Expected Return on Assets, which represents the expected investment return on pension plan assets; and
s
x
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 Amortization of Prior Service Cost and Actuarial Gains and Losses, which represents components that are recognized
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over time rather than immediately. Prior service cost represents credit given to employees for years of service already
accrued. At December 31, 2023, unrecognized prior service cost was $42.4 million. Management currently expects to
amortize $5.9 million of the unrecognized prior service cost in 2024. Actuarial gains and losses arise from changes in
assumptions regarding future events, a change in the benefit obligation resulting from experience different from
assumed or when actual returns on pension assets differfrom expected returns. At December 31, 2023, the
unrecognized actuarial loss was $63.4 million. Pension accounting rules currently allow companies to amortize the
portion of the unrecognized actuarial loss that represents more than 10% of the greater of the projected benefit
obligation or pension plan assets, using the average remaining service life for the amortization period. The calculation
is performed on a plan‐by‐plan basis. Management currently expects to amortize $1.5 million of the unrecognized
actuarial loss in 2024.
The aforementioned components are calculated annually to determine the annual pension expense.
Management believes the selection of assumptions related to the annual pension expense and related projected benefit obligation
is a critical accounting estimate due to the high degree ofvolatility in the expense and obligation dependent on selected
assumptions. The key assumptions are as follows:
 The discount rate is used to present value the projected benefit obligation and represents the current rate at which
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the projected benefit obligations could be effectively settled.
 The expected long‐term rate of return on pension plan assets is used to estimate future asset returns and should reflect
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the average rate of long‐term earnings on assets invested to provide for the benefits included in the projected benefit
obligation.
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 The mortality table and mortality improvement scale represent published statistics on the expected lives of people.
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 The rate of increase in future compensation levels is used to project the pay‐related pension benefit formula and should
estimate actual future compensation levels.
Management’s selection of the discount rate is based on an analysis that estimates the current rate of return for high‐quality,
fixed‐income investments with maturities matching the payment of pension benefits that could be purchased to settle the
obligations. The Company selected a hypothetical portfolio of Moody’s Aa bonds, with maturities that match the benefit
obligations, to determine the discount rate. At December 31, 2023, the Company selected a discount rate assumption of 5.58%, a
30‐basis‐point decrease compared with the December 31, 2022 assumption. Of the four key assumptions, the discount rate is
generally the most volatile and sensitive estimate. Accordingly, a change in this assumption can have a significant impact on the
annual pension expense and the projected benefit obligation.
Management’s selection of the rate of increase in future compensation levels, which reflects cost of living adjustments and merit
and promotion increases, is generally based on the Company’s historical increases in pensionable earnings, while giving
consideration to anyfuture expectations. A higher rate of increase results in higher pension expense and a higher projected benefit
obligation. The assumed long‐term rate of increase is 4.50%.

Page 74 ♦ 2023 Annual Report