The Company has defined benefit pension plans covering certain employees in the United States and certain international locations. Postretirement healthcare and life insurance benefits provided to qualifying domestic retirees as well as other postretirement benefit plans in international countries are not material. The measurement date used for the Company’s employee benefit plans is September 30.



	Pension Plans
(Millions of dollars)	2019			2018			2017
Service cost	$	134		$	136		$	110
Interest cost	107			90			61
Expected return on plan assets	(180		)	(154		)	(112		)
Amortization of prior service credit	(13		)	(13		)	(14		)
Amortization of loss	78			78			92
Settlements	10			2			—
Net pension cost	$	135		$	137		$	138

Net pension cost included in the preceding table that is attributable to international plans	$	32		$	34		$	43

The amounts provided above for amortization of prior service credit and amortization of loss represent the reclassifications of prior service credits and net actuarial losses that were recognized in Accumulated other comprehensive income (loss) in prior periods. The settlement losses recorded in 2019 and 2018 primarily included lump sum benefit payments associated with the Company’s U.S. supplemental pension plan. The Company recognizes pension settlements when payments from the supplemental plan exceed the sum of service and interest cost components of net periodic pension cost associated with this plan for the fiscal year.

As further discussed in Note 2, upon adopting an accounting standard update on October 1, 2018, all components of the Company’s net periodic pension and postretirement benefit costs, aside from service cost, are recorded to Other income (expense), net on its consolidated statements of income, for all periods presented.



	Pension Plans
(Millions of dollars)	2019			2018
Change in benefit obligation:
Beginning obligation	$	3,246		$	2,647
Service cost	134			136
Interest cost	107			90
Plan amendments	3			—
Benefits paid	(153		)	(162		)
Impact of (divestitures) acquisitions	(9		)	758
Actuarial loss (gain)	514			(82		)
Settlements	(63		)	(122		)
Other, includes translation	(49		)	(19		)
Benefit obligation at September 30	$	3,731		$	3,246
Change in fair value of plan assets:
Beginning fair value	$	2,642		$	1,932
Actual return on plan assets	279			70
Employer contribution	258			400
Benefits paid	(153		)	(162		)
Impact of (divestitures) acquisitions	(7		)	539
Settlements	(63		)	(122		)
Other, includes translation	(30		)	(15		)
Plan assets at September 30	$	2,926		$	2,642
Funded Status at September 30:
Unfunded benefit obligation	$	(804	)	$	(604	)
Amounts recognized in the Consolidated Balance Sheets at September 30:
Other	$	11		$	15
Salaries, wages and related items	(22		)	(15		)
Long-term Employee Benefit Obligations	(793		)	(604		)
Net amount recognized	$	(804	)	$	(604	)
Amounts recognized in Accumulated other comprehensive income (loss) before income taxes at September 30:
Prior service credit	$	44		$	60
Net actuarial loss	(1,289		)	(982		)
Net amount recognized	$	(1,246	)	$	(921	)

International pension plan assets at fair value included in the preceding table were $859 million and $821 million at September 30, 2019 and 2018, respectively. The international pension plan projected benefit obligations were $1.244 billion and $1.064 billion at September 30, 2019 and 2018, respectively.

The benefit obligation associated with postretirement healthcare and life insurance plans provided to qualifying domestic retirees, which was largely recorded to Long-Term Employee Benefit Obligations, was $153 million and $148 million at September 30, 2019 and 2018, respectively.



	Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets				Projected Benefit Obligation Exceeds the Fair Value of Plan Assets
(Millions of dollars)	2019		2018		2019		2018
Projected benefit obligation	$	3,623	$	2,618	$	3,698	$	3,121
Accumulated benefit obligation	$	3,476	$	2,533
Fair value of plan assets	$	2,821	$	2,012	$	2,882	$	2,502



	2019		2018		2017
Net Cost
Discount rate:
U.S. plans (a)	4.26	%	3.71	%	3.42	%
International plans	2.30		2.30		1.70
Expected return on plan assets:
U.S. plans	7.25		7.20		7.25
International plans	4.98		4.95		4.65
Rate of compensation increase:
U.S. plans	4.29		4.51		4.25
International plans	2.36		2.31		2.33
Benefit Obligation
Discount rate:
U.S. plans	3.21		4.26		3.72
International plans	1.39		2.30		2.25
Rate of compensation increase:
U.S. plans	4.29		4.29		4.51
International plans	2.35		2.36		2.30

The expected rate of return on plan assets is based upon expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, the Company considers many factors, including historical assumptions compared with actual results; benchmark data; expected returns on various plan asset classes, as well as current and expected asset allocations.

The Company’s funding policy for its defined benefit pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that may be appropriate considering the funded status of the plans, tax consequences, the cash flow generated by the Company and other factors. The Company made a discretionary contribution of $200 million to its BD U.S. pension in October 2018. The Company does not anticipate any significant required contributions to its pension plans in 2020.

The Company’s primary objective is to achieve returns sufficient to meet future benefit obligations. It seeks to generate above market returns by investing in more volatile asset classes such as equities while at the same time controlling risk through diversification in non-correlated asset classes and through allocations to more stable asset classes like fixed income.

The Company’s U.S. pension plans comprise 71% of total benefit plan investments, based on September 30, 2019 market values and have a target asset mix of 40% fixed income, 25% diversifying investments and 35% equities. This mix was established based on an analysis of projected benefit payments and estimates of long-term returns, volatilities and correlations for various asset classes. The asset allocations to diversifying investments include high-yield bonds, hedge funds, real estate, infrastructure, commodities, leveraged loans and emerging markets bonds.

The actual portfolio investment mix may, from time to time, deviate from the established target mix due to various factors such as normal market fluctuations, the reliance on estimates in connection with the determination of allocations and normal portfolio activity such as additions and withdrawals. Rebalancing of the asset portfolio on a quarterly basis is required to address any allocations that deviate from the established target allocations in excess of defined allowable ranges. The target allocations are subject to periodic review, including a review of the asset portfolio’s performance, by the named fiduciary of the plans. Any tactical deviations from the established asset mix require the approval of the named fiduciary.

The U.S. plans may enter into both exchange traded and non-exchange traded derivative transactions in order to manage interest rate exposure, volatility, term structure of interest rates, and sector and currency exposures within the fixed income portfolios. The Company has established minimum credit quality standards for counterparties in such transactions.

The following table provides the fair value measurements of U.S. plan assets, as well as the measurement techniques and inputs utilized to measure fair value of these assets, at September 30, 2019 and 2018. The categorization of fund investments is based upon the categorization of these funds’ underlying assets.



(Millions of dollars)	Total U.S. Plan Asset Balances				Investments Measured at Net Asset Value (a)				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
	2019		2018		2019		2018		2019		2018		2019		2018		2019		2018
Fixed Income:
Mortgage and asset-backed securities	$	—	$	28	$	—	$	—	$	—	$	—	$	—	$	28	$	—	$	—
Corporate bonds	401		484		—		—		48		101		353		383		—		—
Government and agency-U.S.	108		257		—		—		85		199		23		57		—		—
Government and agency-Foreign	85		122		—		8		69		85		16		28		—		—
Other fixed income	37		—		—		—		—		—		37		—		—		—
Equity securities	922		536		782		360		140		176		—		—		—		—
Cash and cash equivalents	254		39		—		—		254		39		—		—		—		—
Other	261		356		124		356		138		—		—		—		—		—
Fair value of plan assets	$	2,068	$	1,821	$	906	$	724	$	733	$	600	$	429	$	497	$	—	$	—

U.S. pension plan assets categorized above as fixed income securities include fund investments comprised of mortgage-backed, corporate, government and agency and asset-backed instruments. Mortgage-backed securities consist of residential mortgage pass-through certificates. Investments in corporate bonds are diversified across industry and sector and consist of investment-grade, as well as high-yield debt instruments. U.S. government investments consist of obligations of the U.S. Treasury, other U.S. government agencies, state governments and local municipalities. Assets categorized as foreign government and agency debt securities included investments in developed and emerging markets.

The values of fixed income investments classified within Level 1 are based on the closing price reported on the major market on which the investments are traded. A portion of the fixed income instruments classified within Level 2 are valued based upon estimated prices from independent vendors’ pricing models and these prices are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and other market-related data.

U.S. pension plan assets categorized as equity securities consist of fund investments in publicly-traded U.S. and non-U.S. equity securities. In order to achieve appropriate diversification, these portfolios are invested across market sectors, investment styles, capitalization weights and geographic regions. The values of equity

A portion of the U.S. plans’ assets consists of investments in cash and cash equivalents, primarily to accommodate liquidity requirements relating to trade settlement and benefit payment activity, and the values of these assets are based upon quoted market prices.

Other U.S. pension plan assets include fund investments comprised of underlying assets of real estate, infrastructure, commodities and hedge funds. The values of such instruments classified within Level 1 are based on the closing price reported on the major market on which the investments are traded.

International plan assets comprise 29% of the Company’s total benefit plan assets, based on market value at September 30, 2019. Such plans have local independent fiduciary committees, with responsibility for development and oversight of investment policy, including asset allocation decisions. In making such decisions, consideration is given to local regulations, investment practices and funding rules.



(Millions of dollars)	Total International Plan Asset Balances				Investments Measured at Net Asset Value (a)				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3) (b)
	2019		2018		2019		2018		2019		2018		2019		2018		2019		2018
Fixed Income:
Corporate bonds	$	33	$	28	$	—	$	—	$	15	$	14	$	18	$	14	$	—	$	—
Government and agency-U.S.	3		6		—		—		—		3		3		3		—		—
Government and agency-Foreign	199		150		—		—		105		104		94		46		—		—
Other fixed income	100		96		—		—		63		63		37		33		—		—
Equity securities	319		314		14		15		305		299		—		—		—		—
Cash and cash equivalents	8		9		—		—		8		9		—		—		—		—
Real estate	30		30		—		—		—		—		30		30		—		—
Insurance contracts	113		114		—		—		—		—		—		—		113		114
Other	53		74		—		—		52		55		1		20		—		—
Fair value of plan assets	$	859	$	821	$	14	$	15	$	549	$	546	$	182	$	146	$	113	$	114

Fixed income investments held by international pension plans include corporate, U.S. government and non-U.S. government securities. The values of fixed income securities classified within Level 1 are based on the closing price reported on the major market on which the investments are traded. Values of investments classified within Level 2 are based upon estimated prices from independent vendors’ pricing models and these prices are derived from market observable sources.

Equity securities included in the international plan assets consist of publicly-traded U.S. and non-U.S. equity securities. The values of equity securities classified within Level 1 are based on the closing price reported on the major market on which the investments are traded.

The international plans hold a portion of assets in cash and cash equivalents, in order to accommodate liquidity requirements and the values are based upon quoted market prices. Real estate investments consist of investments in funds holding an interest in real properties and the corresponding values represent the estimated fair value based on the fair value of the underlying investment value or cost, adjusted for any accumulated earnings or losses. The values of insurance contracts approximately represent cash surrender value. Other investments include fund investments for which values are based upon either quoted market prices or market observable sources.