PENSION BENEFITS

Certain of Aptiv’s non-U.S. subsidiaries sponsor defined benefit pension plans, which generally provide benefits based on negotiated amounts for each year of service. Aptiv’s primary non-U.S. plans are located in France, Germany, Mexico, Portugal and the United Kingdom (“U.K.”). The U.K. and certain Mexican plans are funded. In addition, Aptiv has defined benefit plans in South Korea, Turkey and Italy for which amounts are payable to employees immediately upon separation. The obligations for these plans are recorded over the requisite service period.

Aptiv sponsors a Supplemental Executive Retirement Program (“SERP”) for those employees who were U.S. executives of DPHH prior to September 30, 2008 and were still U.S. executives of the Company on October 7, 2009, the effective date of the program. This program is unfunded. Executives receive benefits over 5 years after an involuntary or voluntary separation from Aptiv. The SERP is closed to new members.

Amounts disclosed within this note include amounts attributable to the Company's discontinued operations, unless otherwise noted. Refer to Note 25. Discontinued Operations for further detail.

Funded Status

The amounts shown below reflect the change in the U.S. defined benefit pension obligations during 2017 and 2016.



	Year Ended December 31,
	2017			2016
	(in millions)
Benefit obligation at beginning of year	$	40		$	50
Interest cost	1			1
Benefits paid	(12		)	(11		)
Benefit obligation at end of year	29			40
Change in plan assets:
Fair value of plan assets at beginning of year	—			—
Aptiv contributions	12			11
Benefits paid	(12		)	(11		)
Fair value of plan assets at end of year	—			—
Underfunded status	(29		)	(40		)
Amounts recognized in the consolidated balance sheets consist of:
Current liabilities	(10		)	(11		)
Non-current liabilities	(19		)	(29		)
Total	(29		)	(40		)
Amounts recognized in accumulated other comprehensive income consist of (pre-tax):
Actuarial loss	9			10
Total	$	9		$	10

The amounts shown below reflect the change in the non-U.S. defined benefit pension obligations during 2017 and 2016.



	Year Ended December 31,
	2017			2016
	(in millions)
Benefit obligation at beginning of year	$	2,137		$	2,032
Service cost	48			46
Interest cost	54			63
Actuarial (gain) loss	(1		)	363
Benefits paid	(71		)	(84		)
Impact of curtailments	3			2
Spin-off of Delphi Technologies	(1,518		)	—
Exchange rate movements and other	183			(285		)
Benefit obligation at end of year	835			2,137
Change in plan assets:
Fair value of plan assets at beginning of year	1,212			1,209
Actual return on plan assets	75			204
Aptiv contributions	67			83
Benefits paid	(71		)	(84		)
Spin-off of Delphi Technologies	(997		)	—
Exchange rate movements and other	91			(200		)
Fair value of plan assets at end of year	377			1,212
Underfunded status	(458		)	(925		)
Amounts recognized in the consolidated balance sheets consist of:
Non-current assets	4			8
Current liabilities	(31		)	(10		)
Non-current liabilities	(431		)	(923		)
Total	(458		)	(925		)
Amounts recognized in accumulated other comprehensive income consist of (pre-tax):
Actuarial loss	144			505
Prior service cost	1			1
Total	$	145		$	506

The projected benefit obligation (“PBO”), accumulated benefit obligation (“ABO”), and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets and with plan assets in excess of accumulated benefit obligations are as follows:



	U.S. Plans				Non-U.S. Plans
	2017		2016		2017		2016
	(in millions) Plans with ABO in Excess of Plan Assets
PBO	$	29	$	40	$	743	$	2,030
ABO	29		40		701		1,805
Fair value of plan assets at end of year	—		—		282		1,100
	Plans with Plan Assets in Excess of ABO
PBO	$	—	$	—	$	92	$	107
ABO	—		—		64		74
Fair value of plan assets at end of year	—		—		95		112
	Total
PBO	$	29	$	40	$	835	$	2,137
ABO	29		40		765		1,879
Fair value of plan assets at end of year	—		—		377		1,212

Benefit costs presented below were determined based on actuarial methods and included the following, which include the results of discontinued operations:



	U.S. Plans
	Year Ended December 31,
	2017		2016		2015
	(in millions)
Interest cost	$	1	$	1	$	1
Amortization of actuarial losses	1		1		1
Net periodic benefit cost	$	2	$	2	$	2



	Non-U.S. Plans
	Year Ended December 31,
	2017			2016			2015
	(in millions)
Service cost	$	48		$	46		$	57
Interest cost	54			63			77
Expected return on plan assets	(63		)	(65		)	(77		)
Settlement loss (1)	1			—			11
Curtailment loss (gain)	16			3			(3		)
Amortization of actuarial losses	35			14			18
Other	—			2			—
Net periodic benefit cost	$	91		$	63		$	83


(1)	Settlement loss for the year ended December 31, 2015 primarily relates to amounts recognized related to the divestiture of the Company's Reception Systems business, as further described in Note 20. Acquisitions and Divestitures.

Other postretirement benefit obligations were approximately $4 million and $5 million at December 31, 2017 and 2016, respectively.

Effective January 1, 2016, the Company changed the method used to estimate the service and interest cost components of net periodic benefit cost for pension and other postretirement benefit plans that utilize a yield curve approach. Historically, the Company estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the projected benefit obligation at the beginning of the period. The Company elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the projected benefit obligation to the relevant projected cash flows. The Company made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of the total benefit obligations. The Company has accounted for this change as a change in accounting estimate and accordingly accounted for it on a prospective basis. The reduction in service and interest costs associated with this change in estimate for the year ended December 31, 2016 was less than $10 million.

Experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions are recognized in other comprehensive income. Cumulative gains and losses in excess of 10% of the PBO for a particular plan are amortized over the average future service period of the employees in that plan. The estimated actuarial loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2018 is $15 million.

The principal assumptions used to determine the pension expense and the actuarial value of the projected benefit obligation for the U.S. and non-U.S. pension plans were:

Assumptions used to determine benefit obligations at December 31:



	Pension Benefits
	U.S. Plans				Non-U.S. Plans
	2017		2016		2017		2016
Weighted-average discount rate	2.70	%	2.70	%	3.39	%	2.83	%
Weighted-average rate of increase in compensation levels	N/A		N/A		3.65	%	3.86	%

Assumptions used to determine net expense for years ended December 31:



	Pension Benefits
	U.S. Plans						Non-U.S. Plans
	2017		2016		2015		2017		2016		2015
Weighted-average discount rate	2.70	%	2.70	%	2.50	%	2.83	%	3.81	%	3.67	%
Weighted-average rate of increase in compensation levels	N/A		N/A		N/A		3.86	%	3.67	%	3.65	%
Weighted-average expected long-term rate of return on plan assets	N/A		N/A		N/A		5.84	%	5.84	%	6.34	%

Aptiv selects discount rates by analyzing the results of matching each plan’s projected benefit obligations with a portfolio of high-quality fixed income investments rated AA-or higher by Standard and Poor’s.

Aptiv does not have any U.S. pension assets; therefore no U.S. asset rate of return calculation was necessary. The primary funded non-U.S. plans are in the U.K. and Mexico. For the determination of 2017 expense, Aptiv assumed a long-term expected asset rate of return of approximately 5.50% and 7.50% for the U.K. and Mexico, respectively. Aptiv evaluated input from local actuaries and asset managers, including consideration of recent fund performance and historical returns, in developing the long-term rate of return assumptions. The assumptions for the U.K. and Mexico are primarily long-term, prospective rates. To determine the expected return on plan assets, the market-related value of approximately 100% of our plan assets is actual fair value. The expected return on the remainder of our plan assets is determined by applying the expected long-term rate of return on assets to a calculated market-related value of these plan assets, which recognizes changes in the fair value of the plan assets in a systematic manner over five years.

Aptiv’s pension expense for 2018 is determined at the 2017 year end measurement date. For purposes of analysis, the following table highlights the sensitivity of the Company’ pension obligations and expense attributable to continuing operations to changes in key assumptions:



Change in Assumption	Impact on Pension Expense	Impact on PBO
25 basis point (“bp”) decrease in discount rate	+ $2 million	+ $29 million
25 bp increase in discount rate	- $2 million	- $27 million
25 bp decrease in long-term expected return on assets	+ $1 million	—
25 bp increase in long-term expected return on assets	- $1 million	—

The above sensitivities reflect the effect of changing one assumption at a time. It should be noted that economic factors and conditions often affect multiple assumptions simultaneously and the effects of changes in key assumptions are not necessarily linear. The above sensitivities also assume no changes to the design of the pension plans and no major restructuring programs.

Pension Funding

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:



	Projected Pension Benefit Payments
	U.S. Plans		Non-U.S. Plans
	(in millions)
2018	$	10	$	52
2019	8		33
2020	4		35
2021	3		38
2022	1		39
2023 – 2027	3		242

Aptiv anticipates making pension contributions and benefit payments of approximately $62 million in 2018.

Aptiv sponsors defined contribution plans for certain hourly and salaried employees. Expense related to the contributions for these plans attributable to continued operations was $36 million, $36 million, and $41 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Plan Assets

Certain pension plans sponsored by Aptiv invest in a diversified portfolio consisting of an array of asset classes that attempts to maximize returns while minimizing volatility. These asset classes include developed market equities, emerging market equities, private equity, global high quality and high yield fixed income, real estate and absolute return strategies.

The fair values of Aptiv’s pension plan assets weighted-average asset allocations at December 31, 2017 and 2016, by asset category, are as follows:



	Fair Value Measurements at December 31, 2017
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash	$	17	$	17	$	—	$	—
Time deposits	4		—		4		—
Equity mutual funds	114		—		114		—
Bond mutual funds	94		—		94		—
Real estate trust funds	13		—		—		13
Hedge funds	27		—		—		27
Insurance contracts	6		—		—		6
Debt securities	51		51		—		—
Equity securities	51		51		—		—
Total	$	377	$	119	$	212	$	46



	Fair Value Measurements at December 31, 2016
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)
Cash	$	61	$	61	$	—	$	—
Time deposits	10		—		10		—
Equity mutual funds	423		—		423		—
Bond mutual funds	469		—		469		—
Real estate trust funds	29		—		—		29
Hedge funds	107		—		—		107
Insurance contracts	5		—		—		5
Debt securities	51		51		—		—
Equity securities	57		57		—		—
Total	$	1,212	$	169	$	902	$	141

Following is a description of the valuation methodologies used for pension assets measured at fair value.

Time deposits—The fair value of fixed-maturity certificates of deposit was estimated using the rates offered for deposits of similar remaining maturities.

Equity mutual funds—The fair value of the equity mutual funds is determined by the indirect quoted market prices on regulated financial exchanges of the underlying investments included in the fund.

Bond mutual funds—The fair value of the bond mutual funds is determined by the indirect quoted market prices on regulated financial exchanges of the underlying investments included in the fund.

Real estate—The fair value of real estate properties is estimated using an annual appraisal provided by the administrator of the property investment. Management believes this is an appropriate methodology to obtain the fair value of these assets.

Hedge funds—The fair value of the hedge funds is accounted for by a custodian. The custodian obtains valuations from the underlying hedge fund managers based on market quotes for the most liquid assets and alternative methods for assets that do not have sufficient trading activity to derive prices. Management and the custodian review the methods used by the underlying managers to value the assets. Management believes this is an appropriate methodology to obtain the fair value of these assets.

Insurance contracts—The insurance contracts are invested in a fund with guaranteed minimum returns. The fair values of these contracts are based on the net asset value underlying the contracts.

Debt securities—The fair value of debt securities is determined by direct quoted market prices on regulated financial exchanges.

Equity securities—The fair value of equity securities is determined by direct quoted market prices on regulated financial exchanges.



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Real Estate Trust Fund			Hedge Funds			Insurance Contracts
	(in millions)
Beginning balance at January 1, 2016	$	39		$	102		$	1
Actual return on plan assets:
Relating to assets still held at the reporting date	4			22			—
Purchases, sales and settlements	(10		)	—			4
Foreign currency translation and other	(4		)	(17		)	—
Ending balance at December 31, 2016	$	29		$	107		$	5
Actual return on plan assets:
Relating to assets still held at the reporting date	$	1		$	2		$	1
Purchases, sales and settlements	6			—			—
Spin-off of Delphi Technologies	(23		)	(84		)	—
Foreign currency translation and other	—			2			—
Ending balance at December 31, 2017	$	13		$	27		$	6