13. RETIREMENT PLANS AND POST RETIREMENT PENSION PLANS

General. Substantially all of our employees are covered under various defined benefit and/or defined contribution retirement plans. Additionally, we sponsor post-retirement health care benefits for our eligible U.S. employees.

Agilent provides U.S. employees, who meet eligibility criteria under the Agilent Technologies, Inc. Retirement Plan (the "RP"), defined benefits which are based on an employee's base or target pay during the years of employment and on length of service. For eligible service through October 31, 1993, the benefit payable under the Agilent Retirement Plans is reduced by any amounts due to the eligible employee under the Agilent defined contribution Deferred Profit-Sharing Plan (the "DPSP"), which was closed to new participants as of November 1993. Effective November 1, 2014, Agilent’s U.S. defined benefit retirement plan is closed to new entrants including new employees, new transfers to the U.S. payroll and rehires. As of April 30, 2016, benefits under the RP were frozen. See Plan Amendments below.

As of October 31, 2016 and 2015, the fair value of plan assets of the DPSP was $157 million and $169 million, respectively. Note that the projected benefit obligation for the DPSP equals the fair value of plan assets.

In addition to the DPSP, in the U.S., Agilent maintains a Supplemental Benefits Retirement Plan ("SBRP"), supplemental unfunded non-qualified defined benefit plan to provide benefits that would be provided under the RP but for limitations imposed by the Internal Revenue Code. The RP and the SBRP comprise the "U.S. Plans" in the tables below.

Eligible employees outside the U.S. generally receive retirement benefits under various retirement plans based upon factors such as years of service and/or employee compensation levels. Eligibility is generally determined in accordance with local statutory requirements.

401(k) defined contribution plan. Eligible Agilent U.S. employees may participate in the Agilent Technologies, Inc. 401(k) Plan. During the six months ended April 30, 2016, we provided matching contributions to employees up to a maximum of 6 percent of an employee's annual eligible compensation. Effective May 1, 2016, we provide matching contributions to employees up to a maximum of 6 percent of an employee's annual eligible compensation and an additional transitional company contribution for certain eligible employees equal to 3 percent, 4 percent or 5 percent of an employee's annual eligible compensation due to the RP benefits being frozen. The maximum contribution to the 401(k) Plan is 50 percent of an employee's annual eligible compensation, subject to regulatory limitations.

Post-retirement medical benefit plans. In addition to receiving retirement benefits, Agilent U.S. employees who meet eligibility requirements as of their termination date may participate in the Agilent Technologies, Inc. Health Plan for Retirees. Eligible retirees who were less than age 50 as of January 1, 2005 and who retire after age 55 with 15 or more years of service are eligible for a fixed amount which can be utilized to pay for either sponsored plans and/or individual medicare plans. Effective January 1, 2012, employees who were at least age 50 as of January 1, 2005 and who retire after age 55 with 15 or more years of service are eligible for fixed dollar subsidies and stipends. Grandfathered retirees receive a fixed monthly subsidy toward pre-65 premium costs (subsidy capped at 2011 levels) and a fixed monthly stipend post-65. The subsidy amounts will not increase. In addition, any new employee hired on or after November 1, 2014, will not be eligible to participate in the retiree medical plans upon retiring. Current eligible employees will continue to participate in the retiree medical program in place as of November 1, 2014. Retirees will maintain the retiree medical benefits they are eligible for as of November 1, 2014. As of April 30, 2016, benefits under this plan were changed - see Plan Amendments below.

Plan Amendments. In 2016, we made changes to our U.S. Retirement Plan and Supplemental Benefits Retirement Plan ("U.S. Plans"). Effective April 30, 2016, benefit accruals under the U.S. Plans were frozen. Any pension benefit earned in the U.S. Plans through April 30, 2016 remained fully vested, and there were no additional benefit accruals after April 30, 2016. In addition, active employees who have not met the eligibility requirement for the Retiree Medical Account (RMA) under the U.S. Post Retirement Benefit Plan - 55 years old with at least 15 years of Agilent service - as of April 30, 2016 - will only be eligible for 50 percent of the current RMA reimbursement amount upon retirement.

Due to these plan amendments, we recorded a curtailment gain of $15 million in the U.S. Plans during the year ended October 31, 2016. In addition, we recognized a settlement gain of $1 million related to the U.S. Supplemental Benefits Retirement Plan during the year ended October 31, 2016.

Components of net periodic cost. The company uses alternate methods of amortization as allowed by the authoritative guidance which amortizes the actuarial gains and losses on a consistent basis for the years presented. For U.S. Plans, gains and losses are amortized over the average future lifetime of participants using the corridor method. For most Non-U.S. Plans and U.S. Post-Retirement Benefit Plans, gains and losses are amortized using a separate layer for each year's gains and losses. For the years ended October 31, 2016, 2015 and 2014, components of net periodic benefit cost and other amounts recognized in other comprehensive income were comprised of:



	Pensions																		U.S. Post-Retirement Benefit Plans
	U.S. Plans									Non-U.S. Plans									U.S. Post-Retirement Benefit Plans

	2016			2015			2014			2016			2015			2014			2016			2015			2014
	(in millions)
Net periodic benefit cost (benefit)
Service cost — benefits earned during the period	$	12		$	25		$	46		$	19		$	18		$	36		$	1		$	2		$	3
Interest cost on benefit obligation	16			14			34			16			23			74			4			4			12
Expected return on plan assets	(25		)	(27		)	(64		)	(44		)	(42		)	(118		)	(7		)	(8		)	(22		)
Amortization of net actuarial loss	3			3			1			27			25			48			10			6			14
Amortization of prior service benefit	(3		)	(5		)	(12		)	—			—			(1		)	(10		)	(12		)	(35		)
Total periodic benefit cost (benefit)	$	3		$	10		$	5		$	18		$	24		$	39		$	(2	)	$	(8	)	$	(28	)

Summary of total periodic benefit cost (benefit):
Continuing operations	$	3		$	10		$	2		$	18		$	24		$	27		$	(2	)	$	(8	)	$	(14	)
Discontinued operations	—			—			3			—			—			12			—			—			(14		)
Total periodic benefit cost (benefit)	$	3		$	10		$	5		$	18		$	24		$	39		$	(2	)	$	(8	)	$	(28	)
Curtailments and settlements	$	(16	)	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss
Net actuarial (gain) loss	$	22		$	44		$	86		$	149		$	32		$	173		$	3		$	16		$	12
Amortization of net actuarial loss	(3		)	(3		)	(1		)	(27		)	(25		)	(48		)	(10		)	(6		)	(14		)
Prior service cost (benefit)	15			—			—			—			—			(2		)	(7		)	—			—
Amortization of prior service benefit	3			5			12			—			—			1			10			12			35
Foreign currency	—			—			—			(3		)	10			(28		)	—			—			—
Total recognized in other comprehensive (income) loss	$	37		$	46		$	97		$	119		$	17		$	96		$	(4	)	$	22		$	33
Total recognized in net periodic benefit cost (benefit) and other comprehensive (income) loss	$	24		$	56		$	102		$	137		$	41		$	135		$	(6	)	$	14		$	5

Funded status. As of October 31, 2016 and 2015, the funded status of the defined benefit and post-retirement benefit plans was:



	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						U.S. Post-Retirement Benefit Plans
	2016			2015			2016			2015			2016			2015
	(in millions)
Change in fair value of plan assets:
Fair value — beginning of year	$	347		$	837		$	778		$	2,108		$	91		$	284
Actual return on plan assets	13			6			25			53			3			2
Employer contributions	—			15			24			25			—			—
Participants' contributions	—			—			1			1			—			—
Benefits paid	(19		)	(21		)	(27		)	(20		)	(6		)	(8		)
Transfer due to Keysight separation	—			(490		)	—			(1,327		)	—			(187		)
Currency impact	—			—			(27		)	(62		)	—			—
Fair value — end of year	$	341		$	347		$	774		$	778		$	88		$	91
Change in benefit obligation:
Benefit obligation — beginning of year	$	415		$	889		$	900		$	2,344		$	112		$	309
Service cost	12			25			19			18			1			2
Interest cost	16			14			16			23			4			4
Participants' contributions	—			—			1			1			—			—
Plan amendment	—			—			—			—			(7		)	—
Actuarial (gain) loss	41			23			130			40			(1		)	11
Benefits paid	(20		)	(22		)	(27		)	(20		)	(6		)	(8		)
Curtailments	(30		)	—			—			—			—			—
Transfer due to Keysight separation	—			(514		)	—			(1,429		)	—			(206		)
Currency impact	—			—			(37		)	(77		)	—			—
Benefit obligation — end of year	$	434		$	415		$	1,002		$	900		$	103		$	112
Overfunded (underfunded) status of PBO	$	(93	)	$	(68	)	$	(228	)	$	(122	)	$	(15	)	$	(21	)
Amounts recognized in the consolidated balance sheet consist of:
Other assets	$	—		$	—		$	1		$	26		$	—		$	—
Employee compensation and benefits	(1		)	(2		)	—			—			—			—
Retirement and post-retirement benefits	(92		)	(66		)	(229		)	(148		)	(15		)	(21		)
Total net asset (liability)	$	(93	)	$	(68	)	$	(228	)	$	(122	)	$	(15	)	$	(21	)
Amounts Recognized in Accumulated Other Comprehensive Income (loss):
Actuarial (gains) losses	$	93		$	73		$	375		$	256		$	41		$	49
Prior service costs (benefits)	—			(18		)	—			—			(37		)	(40		)
Total	$	93		$	55		$	375		$	256		$	4		$	9

In Japan, Agilent has employees' pension fund plans, which are defined benefit pension plans established under the Japanese Welfare Pension Insurance Law (JWPIL). The plans are composed of (a) a substitutional portion based on the pay-related part of the old-age pension benefits prescribed by JWPIL (similar to social security benefits in the United States) and (b) a corporate portion based on a contributory defined benefit pension arrangement established at the discretion of the company. As required by law, Agilent will disburse the substitutional portion of Agilent’s plans to the government. In December 2016, Agilent has received approval from the Japanese government to disburse the substitutional portion of Agilent’s plans, equal to $27 million. We anticipate that Agilent will recognize a settlement gain in the first quarter of 2017 on the payment of the substitutional portion.

In connection with the separation of Keysight Technologies on November 1, 2014, Agilent transferred certain liabilities and assets of the U.S. and Non-U.S. defined benefit pension plans, and U.S. Post-Retirement Benefit Plans to similar plans created for Keysight Technologies employees. Total transfers are as follows:



	U.S. Defined Benefit Plans		Non-U.S. Defined Benefit Plans		U.S. Post-Retirement Benefit Plans
	(in millions)
Fair value of plan assets transferred to Keysight	$	490	$	1,327	$	187
Benefit obligation transferred to Keysight	$	514	$	1,429	$	206

The amounts in accumulated other comprehensive income expected to be recognized by Agilent as components of net expense during 2017 are as follows:



	U.S. Defined Benefit Plans		Non-U.S. Defined Benefit Plans		U.S. Post-Retirement Benefit Plans
	(in millions)
Amortization of net prior service cost (benefit)	$	—	$	—	$	(9	)
Amortization of actuarial net loss (gain)	$	3	$	35	$	11

Investment policies and strategies as of October 31, 2016 and 2015. In the U.S., target asset allocations for our retirement and post-retirement benefit plans are approximately 80 percent to equities and approximately 20 percent to fixed income investments. Our DPSP target asset allocation is approximately 60 percent to equities and approximately 40 percent to fixed income investments. Approximately, 5 percent of our U.S. equity portfolio consists of limited partnerships. The general investment objective for all our plan assets is to obtain the optimum rate of investment return on the total investment portfolio consistent with the assumption of a reasonable level of risk. Specific investment objectives for the plans' portfolios are to: maintain and enhance the purchasing power of the plans' assets; achieve investment returns consistent with the level of risk being taken; and earn performance rates of return in accordance with the benchmarks adopted for each asset class. Outside the U.S., our target asset allocation is from 37 to 60 percent to equities, from 40 to 60 percent to fixed income investments, and from zero to 6 percent to real estate investments and from zero to 7 percent to cash, depending on the plan. All plans' assets are broadly diversified. Due to fluctuations in equity markets, our actual allocations of plan assets at October 31, 2016 and 2015 differ from the target allocation. Our policy is to bring the actual allocation in line with the target allocation.

Equity securities include exchange-traded common stock and preferred stock of companies from broadly diversified industries. Fixed income securities include a global portfolio of corporate bonds of companies from diversified industries, government securities, mortgage-backed securities, asset-backed securities, derivative instruments and other. Other investments include a group trust consisting primarily of private equity partnerships. Portions of the cash and cash equivalent, equity, and fixed income investments are held in commingled funds.

Fair Value. The measurement of the fair value of pension and post-retirement plan assets uses the valuation methodologies and the inputs as described in Note 11, "Fair Value Measurements".

Cash and Cash Equivalents - Cash and cash equivalents consist of short-term investment funds. The funds also invest in short-term domestic fixed income securities and other securities with debt-like characteristics emphasizing short-term maturities and quality. Cash and cash equivalents are classified as Level 1 investments except when the cash and cash equivalents are held in commingled funds, which have a daily net value derived from quoted prices for the underlying securities in active markets; these are classified as Level 2 investments.

Equity - Some equity securities consisting of common and preferred stock are held in commingled funds, which have daily net asset values derived from quoted prices for the underlying securities in active markets; these are classified as Level 2 investments. Commingled funds which have quoted prices in active markets are classified as Level 1 investments.

Fixed Income - Some of the fixed income securities are held in commingled funds, which have daily net asset values derived from the underlying securities; these are classified as Level 2 investments. Commingled funds which have quoted prices in active markets are classified as Level 1 investments.

Other Investments - Other investments includes property based pooled vehicles which invest in real estate. Market net asset values are regularly published in the financial press or on corporate websites and so these investments are classified as Level 2. Other investments also includes partnership investments where, due to their private nature, pricing inputs are not readily observable. Asset valuations are developed by the general partners that manage the partnerships. These valuations are based on proprietary appraisals, application of public market multiples to private company cash flows, utilization of market transactions that provide valuation information for comparable companies and other methods. Holdings of limited partnerships are classified as Level 3.

The following tables present the fair value of U.S. Defined Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of October 31, 2016 and 2015.



			Fair Value Measurement at October 31, 2016 Using
	October 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash and Cash Equivalents	$	4	$	1	$	3	$	—
Equity	248		62		186		—
Fixed Income	80		24		56		—
Other Investments	9		—		—		9
Total assets measured at fair value	$	341	$	87	$	245	$	9



			Fair Value Measurement at October 31, 2015 Using
	October 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash and Cash Equivalents	$	3	$	1	$	2	$	—
Equity	258		61		197		—
Fixed Income	76		22		54		—
Other Investments	10		—		1		9
Total assets measured at fair value	$	347	$	84	$	254	$	9

For U.S. Defined Benefit Plans assets measured at fair value using significant unobservable inputs (level 3), the following table summarizes the change in balances during 2016 and 2015 for continuing operations:



	Years Ended October 31.
	2016			2015
Balance, beginning of year	$	9		$	14
Realized gains/(losses)	—			(1		)
Unrealized gains/(losses)	3			(2		)
Purchases, sales, issuances, and settlements	(3		)	(2		)
Transfers in (out)	—			—
Balance, end of year	$	9		$	9

The following tables present the fair value of U.S. Post-Retirement Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of October 31, 2016 and 2015.



			Fair Value Measurement at October 31, 2016 Using
	October 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash and Cash Equivalents	$	3	$	2	$	1	$	—
Equity	59		15		44		—
Fixed Income	21		6		15		—
Other Investments	5		—		—		5
Total assets measured at fair value	$	88	$	23	$	60	$	5



			Fair Value Measurement at October 31, 2015 Using
	October 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash and Cash Equivalents	$	3	$	2	$	1	$	—
Equity	62		15		47		—
Fixed Income	20		6		14		—
Other Investments	6		—		—		6
Total assets measured at fair value	$	91	$	23	$	62	$	6

For U.S. Post-Retirement Benefit Plans assets measured at fair value using significant unobservable inputs (level 3), the following table summarizes the change in balances during 2016 and 2015 for continuing operations:



	Years Ended October 31,
	2016			2015
Balance, beginning of year	$	6		$	8
Realized gains/(losses)	—			(1		)
Unrealized gains/(losses)	1			—
Purchases, sales, issuances, and settlements	(2		)	(1		)
Transfers in (out)	—			—
Balance, end of year	$	5		$	6

The following tables present the fair value of non-U.S. Defined Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of October 31, 2016 and 2015:



			Fair Value Measurement at October 31, 2016 Using
	October 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash and Cash Equivalents	$	26	$	18	$	8	$	—
Equity	422		156		266		—
Fixed Income	325		9		316		—
Other Investments	1		—		1		—
Total assets measured at fair value	$	774	$	183	$	591	$	—



			Fair Value Measurement at October 31, 2015 Using
	October 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash and Cash Equivalents	$	3	$	1	$	2	$	—
Equity	396		172		224		—
Fixed Income	379		13		366		—
Other Investments	—		—		—		—
Total assets measured at fair value	$	778	$	186	$	592	$	—

For non-U.S. Defined Benefit Plans, assets measured at fair value using significant unobservable inputs (level 3), the following table summarizes the changes in balances during 2015 for continuing operations:



	Year Ended
	October 31, 2015
Balance, beginning of year	$	4
Realized gains/(losses)	1
Unrealized gains/(losses)	—
Purchases, sales, issuances, and settlements	(5		)
Transfers in (out)	—
Balance, end of year	$	—

The table below presents the combined projected benefit obligation ("PBO"), accumulated benefit obligation ("ABO") and fair value of plan assets, grouping plans using comparisons of the PBO and ABO relative to the plan assets for continuing operations as of October 31, 2016 or 2015.



	2016				2015
	Benefit Obligation				Benefit Obligation
	Benefit Obligation		Fair Value of Plan Assets		Benefit Obligation		Fair Value of Plan Assets
	PBO		Fair Value of Plan Assets		PBO		Fair Value of Plan Assets
	(in millions)
U.S. defined benefit plans where PBO exceeds the fair value of plan assets	$	434	$	341	$	415	$	347
U.S. defined benefit plans where fair value of plan assets exceeds PBO	—		—		—		—
Total	$	434	$	341	$	415	$	347

Non-U.S. defined benefit plans where PBO exceeds or is equal to the fair value of plan assets	$	970	$	741	$	771	$	623
Non-U.S. defined benefit plans where fair value of plan assets exceeds PBO	32		33		129		155
Total	$	1,002	$	774	$	900	$	778

	ABO				ABO
U.S. defined benefit plans where ABO exceeds the fair value of plan assets	$	434	$	341	$	389	$	347
U.S. defined benefit plans where the fair value of plan assets exceeds ABO	—		—		—		—
Total	$	434	$	341	$	389	$	347

Non-U.S. defined benefit plans where ABO exceeds or is equal to the fair value of plan assets	$	737	$	542	$	732	$	623
Non-U.S. defined benefit plans where fair value of plan assets exceeds ABO	226		232		127		155
Total	$	963	$	774	$	859	$	778

Contributions and estimated future benefit payments. During fiscal year 2017, we expect to contribute $26 million to the U.S. defined benefit plans, $20 million to plans outside the U.S., and zero to the Post-Retirement Medical Plans. The following table presents expected future benefit payments for the next 10 years:



	U.S. Defined Benefit Plans		Non-U.S. Defined Benefit Plans		U.S. Post-Retirement Benefit Plans
	(in millions)
2017	$	27	$	48	$	8
2018	$	25	$	22	$	8
2019	$	26	$	24	$	8
2020	$	28	$	25	$	7
2021	$	27	$	27	$	7
2022 - 2026	$	137	$	168	$	35

Assumptions. The assumptions used to determine the benefit obligations and expense for our defined benefit and post-retirement benefit plans are presented in the tables below. The expected long-term return on assets below represents an estimate of long-term returns on investment portfolios consisting of a mixture of equities, fixed income and alternative investments in proportion to the asset allocations of each of our plans. We consider long-term rates of return, which are weighted based on the asset classes (both historical and forecasted) in which we expect our pension and post-retirement funds to be invested. Discount rates reflect the current rate at which pension and post-retirement obligations could be settled based on the measurement dates of the plans - October 31. The U.S. discount rates at October 31, 2016 and 2015, were determined based on the results of matching expected plan benefit payments with cash flows from a hypothetically constructed bond portfolio. The non-U.S. rates were generally based on published rates for high-quality corporate bonds. The range of assumptions that were used for the non-U.S. defined benefit plans reflects the different economic environments within various countries.

Assumptions used to calculate the net periodic cost in each year were as follows:



	For years ended October 31,
	2016	2015	2014
U.S. defined benefit plans:
Discount rate	4.20%	4.00%	4.00-4.50%
Average increase in compensation levels	3.50%	3.50%	3.50%
Expected long-term return on assets	7.50%	8.00%	8.00%
Non-U.S. defined benefit plans:
Discount rate	0.77-3.76%	1.50-4.00%	1.50-4.50%
Average increase in compensation levels	2.25-4.00%	2.50-3.25%	2.50-3.25%
Expected long-term return on assets	4.25-6.50%	4.00-6.50%	4.00-6.50%
U.S. post-retirement benefits plans:
Discount rate	4.00%	4.00%	4.00-4.25%
Expected long-term return on assets	7.50%	8.00%	8.00%
Current medical cost trend rate	7.00%	8.00%	8.00%
Ultimate medical cost trend rate	3.50%	3.50%	3.50%
Medical cost trend rate decreases to ultimate rate in year	2029	2028	2028

Assumptions used to calculate the benefit obligation were as follows:



	As of the Years Ending October 31,
	2016	2015
U.S. defined benefit plans:
Discount rate	3.75%	4.20%
Average increase in compensation levels	N/A	3.50%
Non-U.S. defined benefit plans:
Discount rate	0.40-2.62%	0.77-3.76%
Average increase in compensation levels	2.00-4.25%	2.25-4.00%
U.S. post-retirement benefits plans:
Discount rate	3.50%	4.00%
Current medical cost trend rate	6.00%	7.00%
Ultimate medical cost trend rate	3.50%	3.50%
Medical cost trend rate decreases to ultimate rate in year	2029	2029

Health care trend rates do not have a significant effect on the total service and interest cost components or on the post-retirement benefit obligation amounts reported for the U.S. Post-Retirement Benefit Plan for the year ended October 31, 2016.