15. Retirement Plans

Defined Benefit Pension Plans

We have a number of contributory and noncontributory defined benefit retirement plans covering certain of our U.S. and non-U.S. employees, designed in accordance with local customs and practice.

The net periodic pension benefit cost for all U.S. and non-U.S. defined benefit pension plans was as follows:

	U.S. Plans									Non-U.S. Plans
	Fiscal									Fiscal
	2015			2014			2013			2015			2014			2013
	($ in millions)
Service cost	$	9		$	7		$	6		$	45		$	46		$	50
Interest cost		48			50			46			58			71			68
Expected return on plan assets		(67	)		(63	)		(60	)		(72	)		(67	)		(65	)
Amortization of net actuarial loss		25			25			36			33			23			32
Other		—			—			—			(5	)		(3	)		(18	)

Net periodic pension benefit cost	$	15		$	19		$	28		$	59		$	70		$	67


Weighted-average assumptions used to determine net pension benefit cost during the fiscal year:
Discount rate		4.34	%		4.84	%		3.98	%		2.77	%		3.38	%		3.27	%
Expected return on plan assets		7.20	%		7.16	%		6.65	%		6.46	%		5.96	%		6.29	%
Rate of compensation increase		—	%		—	%		—	%		2.86	%		2.84	%		2.86	%

The following table represents the changes in benefit obligation and plan assets and the net amount recognized on the Consolidated Balance Sheets for all U.S. and non-U.S. defined benefit pension plans:

	U.S. Plans						Non-U.S. Plans
	Fiscal						Fiscal
	2015			2014			2015			2014
	($ in millions)
Change in benefit obligation:
Benefit obligation at beginning of fiscal year	$	1,143		$	1,074		$	2,276		$	2,106
Service cost		9			7			45			46
Interest cost		48			50			58			71
Actuarial loss		42			90			87			256
Benefits and administrative expenses paid		(74	)		(77	)		(71	)		(75	)
Currency translation		—			—			(213	)		(94	)
Other		2			(1	)		6			(34	)

Benefit obligation at end of fiscal year		1,170			1,143			2,188			2,276

Change in plan assets:
Fair value of plan assets at beginning of fiscal year		978			931			1,177			1,113
Actual return on plan assets		(26	)		123			72			97
Employer contributions		1			2			65			85
Benefits and administrative expenses paid		(74	)		(77	)		(71	)		(75	)
Currency translation		—			—			(90	)		(32	)
Other		—			(1	)		14			(11	)

Fair value of plan assets at end of fiscal year		879			978			1,167			1,177

Funded status	$	(291	)	$	(165	)	$	(1,021	)	$	(1,099	)


Amounts recognized on the Consolidated Balance Sheets:
Accrued and other current liabilities	$	(5	)	$	(4	)	$	(19	)	$	(21	)
Long-term pension and postretirement liabilities		(286	)		(161	)		(1,002	)		(1,078	)

Net amount recognized	$	(291	)	$	(165	)	$	(1,021	)	$	(1,099	)


Weighted-average assumptions used to determine pension benefit obligation at fiscal year end:
Discount rate		4.38	%		4.34	%		2.50	%		2.77	%
Rate of compensation increase		—	%		—	%		2.81	%		2.86	%

The pre-tax amounts recognized in accumulated other comprehensive income (loss) for all U.S. and non-U.S. defined benefit pension plans were as follows:

	U.S. Plans						Non-U.S. Plans
	Fiscal						Fiscal
	2015			2014			2015			2014
	(in millions)
Change in net loss:
Unrecognized net loss at beginning of fiscal year	$	325		$	320		$	748		$	592
Current year change recorded in accumulated other comprehensive income (loss)		136			30			18			180
Amortization reclassified to earnings		(25	)		(25	)		(55	)		(24	)

Unrecognized net loss at end of fiscal year	$	436		$	325		$	711		$	748


Change in prior service credit:
Unrecognized prior service credit at beginning of fiscal year	$	—		$	—		$	(67	)	$	(68	)
Current year change recorded in accumulated other comprehensive income (loss)		—			—			(4	)		(4	)
Amortization reclassified to earnings		—			—			5			5

Unrecognized prior service credit at end of fiscal year	$	—		$	—		$	(66	)	$	(67	)

In fiscal 2015, unrecognized actuarial losses recorded in accumulated other comprehensive income (loss) for U.S. defined benefit pension plans are due primarily to a change in the mortality assumption and lower than expected asset performance. Unrecognized actuarial losses recorded in accumulated other comprehensive income (loss) for non-U.S. defined benefit pension plans in fiscal 2015 are principally the result of lower discount rates as compared to fiscal 2014. In fiscal 2014, unrecognized actuarial losses recorded in accumulated other comprehensive income (loss) are primarily the result of changes in mortality assumptions and decreasing discount rates for U.S. defined benefit pension plans and attributable primarily to lower discount rates for non-U.S. defined benefit pension plans as compared to fiscal 2013. Amortization of prior service credit is included in other in the above table summarizing the components of net periodic pension benefit cost.

The estimated amortization of actuarial losses from accumulated other comprehensive income (loss) into net periodic pension benefit cost for U.S. and non-U.S. defined benefit pension plans in fiscal 2016 is expected to be $40 million and $36 million, respectively. The estimated amortization of prior service credit from accumulated other comprehensive income (loss) into net periodic pension benefit cost for non-U.S. defined benefit pension plans in fiscal 2016 is expected to be $6 million.

In determining the expected return on plan assets, we consider the relative weighting of plan assets by class and individual asset class performance expectations.

The investment strategy for the U.S. pension plans is governed by our investment committee; investment strategies for non-U.S. pension plans are governed locally. Our investment strategy for our pension plans is to manage the plans on a going concern basis. Current investment policy is to achieve a reasonable return on assets, subject to a prudent level of portfolio risk, for the purpose of enhancing the security of benefits for participants. Projected returns are based primarily on pro forma asset allocation, expected long-term returns, and forward-looking estimates of active portfolio and investment management.

The long-term target asset allocation in our U.S. plans' master trust is 10% equity and 90% fixed income. Asset re-allocation to meet that target is occurring over a multi-year period based on the funded status, as defined by the Pension Protection Act of 2006 (the "Pension Act Funded Status"), of the U.S. plans' master trust and market conditions. We expect to reach our target allocation when the Pension Act Funded Status exceeds 105%. Based on the Pension Act Funded Status as of September 25, 2015, our target asset allocation is 45% equity and 55% fixed income.

Target weighted-average asset allocation and weighted-average asset allocation for U.S. and non-U.S. pension plans were as follows:

	U.S. Plans									Non-U.S. Plans
	Target			Fiscal Year End 2015			Fiscal Year End 2014			Target			Fiscal Year End 2015			Fiscal Year End 2014
Asset category:
Equity securities		45	%		45	%		45	%		45	%		45	%		45	%
Debt securities		55			55			55			29			29			30
Insurance contracts and other investments		—			—			—			24			24			23
Real estate investments		—			—			—			2			2			2

Total		100	%		100	%		100	%		100	%		100	%		100	%

Our common shares are not a direct investment of our pension funds; however, the pension funds may indirectly include our shares. The aggregate amount of our common shares would not be considered material relative to the total pension fund assets.

Our funding policy is to make contributions in accordance with the laws and customs of the various countries in which we operate as well as to make discretionary voluntary contributions from time to time. We expect to make the minimum required contributions of $5 million and $68 million to our U.S. and non-U.S. pension plans, respectively, in fiscal 2016. We may also make voluntary contributions at our discretion.

Benefit payments, which reflect future expected service, as appropriate, are expected to be paid as follows:

	U.S. Plans		Non-U.S. Plans
	(in millions)
Fiscal 2016	$	71	$	67
Fiscal 2017		69		70
Fiscal 2018		70		72
Fiscal 2019		71		77
Fiscal 2020		72		80
Fiscal 2021-2025		375		464

Set forth below is the accumulated benefit obligation for all U.S. and non-U.S. pension plans as well as additional information related to plans with an accumulated benefit obligation in excess of plan assets and plans with a projected benefit obligation in excess of plan assets.

	U.S. Plans				Non-U.S. Plans
	Fiscal Year End				Fiscal Year End
	2015		2014		2015		2014
	(in millions)
Accumulated benefit obligation	$	1,170	$	1,143	$	2,041	$	2,121
Pension plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation		1,170		1,143		1,994		2,120
Fair value of plan assets		879		978		1,119		1,177
Pension plans with projected benefit obligations in excess of plan assets:
Projected benefit obligation		1,170		1,143		2,188		2,276
Fair value of plan assets		879		978		1,167		1,177

We value our pension assets based on the fair value hierarchy of ASC 820, Fair Value Measurements and Disclosures. Details of the fair value hierarchy are described in Note 2. The following table presents our defined benefit pension plans' asset categories and their associated fair value within the fair value hierarchy:

	Fiscal Year End 2015
	U.S. Plans								Non-U.S. Plans
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
Equity:
U.S. equity securities(1)	$	245	$	—	$	—	$	245	$	60	$	—	$	—	$	60
Non-U.S. equity securities(1)		149		—		—		149		54		—		—		54
Commingled equity funds(2)		—		—		—		—		—		421		—		421
Fixed income:
Government bonds(3)		—		64		—		64		—		202		—		202
Corporate bonds(4)		—		404		—		404		—		13		—		13
Commingled bond funds(5)		—		—		—		—		—		171		—		171
Other(6)		—		3		—		3		—		142		84		226

Subtotal	$	394	$	471	$	—		865	$	114	$	949	$	84		1,147


Items to reconcile to fair value of plan assets(7)								14								20

Fair value of plan assets							$	879							$	1,167

	Fiscal Year End 2014
	U.S. Plans								Non-U.S. Plans
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
Equity:
U.S. equity securities(1)	$	210	$	—	$	—	$	210	$	54	$	—	$	—	$	54
Non-U.S. equity securities(1)		209		—		—		209		65		—		—		65
Commingled equity funds(2)		—		—		—		—		—		434		—		434
Fixed income:
Government bonds(3)		—		87		—		87		—		211		—		211
Corporate bonds(4)		—		445		—		445		—		19		—		19
Commingled bond funds(5)		—		—		—		—		—		203		—		203
Other(6)		—		13		—		13		—		85		78		163

Subtotal	$	419	$	545	$	—		964	$	119	$	952	$	78		1,149


Items to reconcile to fair value of plan assets(7)								14								28

Fair value of plan assets							$	978							$	1,177


(1)	U.S. and non-U.S. equity securities are valued at the closing price reported on the stock exchange on which the individual securities are traded.
(2)	Commingled equity funds are pooled investments in multiple equity-type securities. Fair value is calculated as the closing price of the underlying investments, an observable market condition, divided by the number of shares of the fund outstanding.
(3)	Government bonds are marked to fair value based on quoted market prices or market approach valuation models using observable market data such as quotes, spreads, and data points for yield curves.
(4)	Corporate bonds are marked to fair value based on quoted market prices or market approach valuation models using observable market data such as quotes, spreads, and data points for yield curves.
(5)	Commingled bond funds are pooled investments in multiple debt-type securities. Fair value is calculated as the closing price of the underlying investments, an observable market condition, divided by the number of shares of the fund outstanding.
(6)	Other investments are composed of insurance contracts, derivatives, short-term investments, structured products such as collateralized obligations and mortgage- and asset-backed securities, real estate investments, and hedge funds. Insurance contracts are valued using cash surrender value, or face value of the contract if a cash surrender value is unavailable (level 2), as these values represent the amount that the plan would receive on termination of the underlying contract. Derivatives, short-term investments, and structured products are marked to fair value using models that are supported by observable market based data (level 2). Real estate investments include investments in commingled real estate funds and are valued at net asset value which is calculated using unobservable inputs that are supported by little or no market activity (level 3). Hedge funds are valued at their net asset value which is calculated using unobservable inputs that are supported by little or no market activity (level 3).
(7)	Items to reconcile to fair value of plan assets include amounts receivable for securities sold, amounts payable for securities purchased, and any cash balances, considered to be carried at book value, that are held in the plans.

Changes in Level 3 assets in non-U.S. plans were primarily the result of purchases in fiscal 2015 and positive returns in fiscal 2014.

Defined Contribution Retirement Plans

We maintain several defined contribution retirement plans, the most significant of which is located in the U.S. These plans include 401(k) matching programs, as well as qualified and nonqualified profit sharing and share bonus retirement plans. Expense for the defined contribution plans is computed as a percentage of participants' compensation and was $60 million, $61 million, and $61 million for fiscal 2015, 2014, and 2013, respectively.

Deferred Compensation Plans

We maintain nonqualified deferred compensation plans, which permit eligible employees to defer a portion of their compensation. A record keeping account is set up for each participant and the participant chooses from a variety of measurement funds for the deemed investment of their accounts. The measurement funds correspond to a number of funds in our 401(k) plans and the account balance fluctuates with the investment returns on those funds. Total deferred compensation liabilities were $118 million and $108 million at fiscal year end 2015 and 2014, respectively. See Note 14 for additional information regarding our risk management strategy related to deferred compensation liabilities.

Postretirement Benefit Plans

In addition to providing pension and 401(k) benefits, we also provide certain health care coverage continuation for qualifying retirees from the date of retirement to age 65. The accumulated postretirement benefit obligation was $40 million and $44 million at fiscal year end 2015 and 2014, respectively, and the underfunded status of the postretirement benefit plans was included primarily in long-term pension and postretirement liabilities on the Consolidated Balance Sheets. Activity during fiscal 2015, 2014, and 2013 was not significant.