14. 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
	2016			2015			2014			2016			2015			2014
	($ in millions)
Service cost	$	9		$	9		$	7		$	48		$	45		$	46
Interest cost		50			48			50			52			58			71
Expected return on plan assets		(59	)		(67	)		(63	)		(68	)		(72	)		(67	)
Amortization of net actuarial loss		40			25			25			36			33			23
Other		—			—			—			(6	)		(5	)		(3	)

Net periodic pension benefit cost	$	40		$	15		$	19		$	62		$	59		$	70


Weighted-average assumptions used to determine net pension benefit cost during the fiscal year:
Discount rate		4.38	%		4.34	%		4.84	%		2.50	%		2.77	%		3.38	%
Expected return on plan assets		6.97	%		7.20	%		7.16	%		5.98	%		6.46	%		5.96	%
Rate of compensation increase		—	%		—	%		—	%		2.81	%		2.86	%		2.84	%

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
	2016			2015			2016			2015
	($ in millions)
Change in benefit obligation:
Benefit obligation at beginning of fiscal year	$	1,170		$	1,143		$	2,188		$	2,276
Service cost		9			9			48			45
Interest cost		50			48			52			58
Actuarial loss		102			42			368			87
Benefits and administrative expenses paid		(81	)		(74	)		(85	)		(71	)
Currency translation		—			—			(63	)		(213	)
Other		—			2			27			6

Benefit obligation at end of fiscal year		1,250			1,170			2,535			2,188

Change in plan assets:
Fair value of plan assets at beginning of fiscal year		879			978			1,167			1,177
Actual return on plan assets		130			(26	)		261			72
Employer contributions		1			1			66			65
Benefits and administrative expenses paid		(81	)		(74	)		(85	)		(71	)
Currency translation		—			—			(59	)		(90	)
Other		—			—			21			14

Fair value of plan assets at end of fiscal year		929			879			1,371			1,167

Funded status	$	(321	)	$	(291	)	$	(1,164	)	$	(1,021	)


Amounts recognized on the Consolidated Balance Sheets:
Accrued and other current liabilities	$	(5	)	$	(5	)	$	(20	)	$	(19	)
Long-term pension and postretirement liabilities		(316	)		(286	)		(1,144	)		(1,002	)

Net amount recognized	$	(321	)	$	(291	)	$	(1,164	)	$	(1,021	)


Weighted-average assumptions used to determine pension benefit obligation at fiscal year end:
Discount rate		3.58	%		4.38	%		1.44	%		2.50	%
Rate of compensation increase		—	%		—	%		2.52	%		2.81	%

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
	2016			2015			2016			2015
	(in millions)
Change in net loss:
Unrecognized net loss at beginning of fiscal year	$	436		$	325		$	711		$	748
Current year change recorded in accumulated other comprehensive income (loss)		32			136			164			18
Amortization reclassified to earnings		(40	)		(25	)		(36	)		(55	)

Unrecognized net loss at end of fiscal year	$	428		$	436		$	839		$	711


Change in prior service credit:
Unrecognized prior service credit at beginning of fiscal year	$	—		$	—		$	(66	)	$	(67	)
Current year change recorded in accumulated other comprehensive income (loss)		—			—			(10	)		(4	)
Amortization reclassified to earnings(1)		—			—			6			5

Unrecognized prior service credit at end of fiscal year	$	—		$	—		$	(70	)	$	(66	)


(1)	Amortization of prior service credit is included in other in the above table summarizing the components of net periodic pension benefit cost.

In fiscal 2016, unrecognized actuarial losses recorded in accumulated other comprehensive income (loss) were primarily the result of lower discount rates partially offset by favorable asset performance for both U.S. and non-U.S. defined benefit pension plans as compared to fiscal 2015. In fiscal 2015, unrecognized actuarial losses recorded in accumulated other comprehensive income (loss) for U.S. defined benefit pension plans were 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 were principally the result of lower discount rates as compared to fiscal 2014.

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 2017 is expected to be $40 million and $43 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 2017 is expected to be $7 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 strategies for U.S. and 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 fiscal year end 2016, 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 2016			Fiscal Year End 2015			Target			Fiscal Year End 2016			Fiscal Year End 2015
Asset category:
Equity securities		45	%		45	%		45	%		41	%		41	%		45	%
Debt securities		55			55			55			38			33			29
Insurance contracts and other investments		—			—			—			19			24			24
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 $6 million and $48 million to our U.S. and non-U.S. pension plans, respectively, in fiscal 2017. 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 2017	$	73	$	72
Fiscal 2018		70		73
Fiscal 2019		71		76
Fiscal 2020		72		77
Fiscal 2021		74		80
Fiscal 2022-2026		373		458

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
	2016		2015		2016		2015
	(in millions)
Accumulated benefit obligation	$	1,250	$	1,170	$	2,389	$	2,041
Pension plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation		1,250		1,170		2,380		1,994
Fair value of plan assets		929		879		1,361		1,119
Pension plans with projected benefit obligations in excess of plan assets:
Projected benefit obligation		1,250		1,170		2,534		2,188
Fair value of plan assets		929		879		1,371		1,167

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 2016
	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)	$	248	$	—	$	—	$	248	$	64	$	—	$	—	$	64
Non-U.S. equity securities(1)		190		—		—		190		62		—		—		62
Commingled equity funds(2)		—		—		—		—		—		456		—		456
Fixed income:
Government bonds(3)		—		67		—		67		—		226		—		226
Corporate bonds(4)		—		397		—		397		—		13		—		13
Commingled bond funds(5)		—		—		—		—		—		262		—		262
Other(6)		—		11		—		11		—		177		91		268

Subtotal	$	438	$	475	$	—		913	$	126	$	1,134	$	91		1,351


Items to reconcile to fair value of plan assets(7)								16								20

Fair value of plan assets							$	929							$	1,371

	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


(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 2016 and 2015.

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 $59 million, $60 million, and $61 million for fiscal 2016, 2015, and 2014, 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 $132 million and $118 million at fiscal year end 2016 and 2015, respectively. See Note 13 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 $45 million and $40 million at fiscal year end 2016 and 2015, 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 2016, 2015, and 2014 was not significant.