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Retirement Benefits Plans
 12 Months Ended
Dec. 31, 2016
Compensation and Retirement Disclosure [Abstract]  
Retirement Benefit Plans
RETIREMENT BENEFITS PLANS
Eaton has defined benefits pension plans and other postretirement benefits plans.
Obligations and Funded Status
 
United States
pension liabilities
 
Non-United States
pension liabilities
 
Other postretirement
liabilities
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Funded status
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets
$
2,969

 
$
2,934

 
$
1,478

 
$
1,472

 
$
74

 
$
93

Benefit obligations
(3,771
)
 
(3,829
)
 
(2,314
)
 
(2,175
)
 
(473
)
 
(575
)
Funded status
$
(802
)
 
$
(895
)
 
$
(836
)
 
$
(703
)
 
$
(399
)
 
$
(482
)
 
 
 
 
 
 
 
 
 
 
 
 
Amounts recognized in the Consolidated
   Balance Sheets
 
 
 
 
 
 
 
 
 
 
 
Non-current assets
$
34

 
$
11

 
$
33

 
$
57

 
$
—

 
$
—

Current liabilities
(24
)
 
(57
)
 
(22
)
 
(23
)
 
(31
)
 
(42
)
Non-current liabilities
(812
)
 
(849
)
 
(847
)
 
(737
)
 
(368
)
 
(440
)
Total
$
(802
)
 
$
(895
)
 
$
(836
)
 
$
(703
)
 
$
(399
)
 
$
(482
)
 
 
 
 
 
 
 
 
 
 
 
 
Amounts recognized in Accumulated other
   comprehensive loss (pretax)
 
 
 
 
 
 
 
 
 
 
 
Net actuarial loss
$
1,232

 
$
1,322

 
$
771

 
$
644

 
$
21

 
$
95

Prior service cost (credit)
3

 
5

 
8

 
9

 
(60
)
 
(74
)
Total
$
1,235

 
$
1,327

 
$
779

 
$
653

 
$
(39
)
 
$
21


Change in Benefit Obligations
 
United States
pension liabilities
 
Non-United States
pension liabilities
 
Other postretirement
liabilities
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Balance at January 1
$
3,829

 
$
4,047

 
$
2,175

 
$
2,337

 
$
575

 
$
676

Service cost
111

 
123

 
63

 
71

 
4

 
6

Interest cost
125

 
156

 
62

 
72

 
17

 
24

Actuarial (gain) loss
52

 
(179
)
 
355

 
(23
)
 
(72
)
 
(66
)
Gross benefits paid
(346
)
 
(318
)
 
(94
)
 
(100
)
 
(79
)
 
(86
)
Currency translation
—

 
—

 
(245
)
 
(182
)
 
1

 
(8
)
Plan amendments
—


—


2


—


—


(1
)
Other
—

 
—

 
(4
)
 
—

 
27

 
30

Balance at December 31
$
3,771

 
$
3,829

 
$
2,314

 
$
2,175

 
$
473

 
$
575

 
 
 
 
 
 
 
 
 
 
 
 
Accumulated benefit obligation
$
3,620

 
$
3,672

 
$
2,189

 
$
2,049

 
 
 
 

Change in Plan Assets
 
United States
pension liabilities
 
Non-United States
pension liabilities
 
Other postretirement
liabilities
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Balance at January 1
$
2,934

 
$
3,086

 
$
1,472

 
$
1,535

 
$
93

 
$
116

Actual return on plan assets
221

 
(55
)
 
212

 
29

 
3

 
1

Employer contributions
160

 
221

 
102

 
109

 
30

 
31

Gross benefits paid
(346
)
 
(318
)
 
(94
)
 
(100
)
 
(79
)
 
(86
)
Currency translation
—

 
—

 
(211
)
 
(101
)
 
—

 
—

Other
—

 
—

 
(3
)
 
—

 
27

 
31

Balance at December 31
$
2,969

 
$
2,934

 
$
1,478

 
$
1,472

 
$
74

 
$
93


The components of pension plans with an accumulated benefit obligation in excess of plan assets at December 31 follow:
 
United States
pension liabilities
 
Non-United States
pension liabilities
 
2016
 
2015
 
2016
 
2015
Projected benefit obligation
$
3,342

 
$
3,376

 
$
1,902

 
$
1,387

Accumulated benefit obligation
3,190

 
3,219

 
1,824

 
1,328

Fair value of plan assets
2,505

 
2,470

 
1,066

 
650


Changes in pension and other postretirement benefit liabilities recognized in Accumulated other comprehensive loss follow:
 
United States
pension liabilities
 
Non-United States
pension liabilities
 
Other postretirement
liabilities
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Balance at January 1
$
1,327

 
$
1,382

 
$
653

 
$
706

 
$
21

 
$
90

Prior service cost arising during the year
—

 
—

 
2

 
—

 
—

 
(1
)
Net loss (gain) arising during the year
81

 
138

 
235

 
47

 
(69
)
 
(62
)
Currency translation
—

 
—

 
(75
)
 
(58
)
 
1

 
(4
)
Less amounts included in expense during the year
(173
)
 
(193
)
 
(36
)
 
(42
)
 
8

 
(2
)
Net change for the year
(92
)
 
(55
)
 
126

 
(53
)
 
(60
)
 
(69
)
Balance at December 31
$
1,235

 
$
1,327

 
$
779

 
$
653

 
$
(39
)
 
$
21


Benefits Expense
 
United States
pension benefit expense
 
Non-United States
pension benefit expense
 
Other postretirement
benefits expense
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Service cost
$
111

 
$
123

 
$
117

 
$
63

 
$
71

 
$
66

 
$
4

 
$
6

 
$
13

Interest cost
125

 
156

 
162

 
62

 
72

 
85

 
17

 
24

 
32

Expected return on plan assets
(250
)
 
(262
)
 
(246
)
 
(92
)
 
(99
)
 
(98
)
 
(6
)
 
(5
)
 
(6
)
Amortization
92

 
119

 
93

 
33

 
40

 
27

 
(9
)
 
2

 
6

 
78

 
136

 
126

 
66

 
84

 
80

 
6

 
27

 
45

Settlements, curtailments
   and other
81

 
74

 
71

 
3

 
2

 
2

 
1

 
—

 
(31
)
Total expense
$
159

 
$
210

 
$
197

 
$
69

 
$
86

 
$
82

 
$
7

 
$
27

 
$
14


The estimated pretax net amounts that will be recognized from Accumulated other comprehensive loss into net periodic benefit cost in 2017 follow:
 
United States
pension liabilities
 
Non-United States
pension liabilities
 
Other postretirement
liabilities
Actuarial loss
$
142

 
$
54

 
$
2

Prior service cost (credit)
1

 
1

 
(14
)
Total
$
143

 
$
55

 
$
(12
)

Retirement Benefits Plans Assumptions

For purposes of determining liabilities related to pension plans and other postretirement benefits plans in the United States, the Company updated its mortality assumption in 2014 to use the RP-2014 tables with a generational improvement scale based on MP-2014. In 2015, the Company updated its mortality assumption to use 2014 tables and a generational improvement scale that are based on MP-2015. In 2016, the Company updated its mortality assumption to use 2014 tables and a generational improvement scale that are based on MP-2016.
In 2016, the Company adopted a change in the method it uses to estimate the service and interest cost components of net periodic benefit cost for its defined benefit pension and other postretirement benefit plans. Prior to 2016, for the vast majority of its plans, the service and interest cost components were estimated using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Beginning in 2016, the Company used a spot rate approach by applying the specific spot rates along the yield curve to the relevant projected cash flows in the estimation of the service and interest components of benefit cost, resulting in a more precise measurement. This change does not affect the measurement of total benefit obligations. The change was accounted for as a change in estimate and, accordingly, was accounted for prospectively starting in 2016. The reductions in service cost and interest cost for 2016 associated with this change in estimate were $3 and $42, respectively.
Pension Plans
 
United States
pension plans
 
Non-United States
pension plans
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Assumptions used to determine benefit obligation at year-end
 
 
 
 
 
 
 
 
 
 
 
Discount rate
4.12
%
 
4.22
%
 
3.97
%
 
2.63
%
 
3.46
%
 
3.33
%
Rate of compensation increase
3.15
%
 
3.18
%
 
3.16
%
 
3.13
%
 
3.12
%
 
3.13
%
 
 
 
 
 
 
 
 
 
 
 
 
Assumptions used to determine expense
 
 
 
 
 
 
 
 
 
 
 
Discount rate used to determine benefit obligation
4.22
%
 
3.97
%
 
4.67
%
 
3.46
%
 
3.33
%
 
4.20
%
Discount rate used to determine service cost
4.35
%
 
3.97
%
 
4.67
%
 
4.13
%
 
3.33
%
 
4.20
%
Discount rate used to determine interest cost
3.42
%
 
3.97
%
 
4.67
%
 
3.07
%
 
3.33
%
 
4.20
%
Expected long-term return on plan assets
8.50
%
 
8.50
%
 
8.40
%
 
6.62
%
 
6.92
%
 
7.00
%
Rate of compensation increase
3.18
%
 
3.16
%
 
3.16
%
 
3.12
%
 
3.13
%
 
3.12
%

The expected long-term rate of return on pension assets was determined for each country and reflects long-term historical data taking into account each plan's target asset allocation. The expected long-term rates of return on pension assets for United States pension plans and Non-United States pension plans for 2017 are 7.90% and 6.30%, respectively. The discount rates were determined using appropriate bond data for each country.







Other Postretirement Benefits Plans
Substantially all of the obligation for other postretirement benefits plans relates to United States plans. Assumptions used to determine other postretirement benefits obligations and expense follow:
 
Other postretirement
benefits plans
 
2016
 
2015
 
2014
Assumptions used to determine benefit obligation at year-end
 
 
 
 
 
Discount rate
3.96
%
 
4.04
%
 
3.79
%
Health care cost trend rate assumed for next year
7.35
%
 
7.10
%
 
6.31
%
Ultimate health care cost trend rate
4.75
%
 
4.75
%
 
4.77
%
Year ultimate health care cost trend rate is achieved
2026

 
2025

 
2024

 
 
 
 
 
 
Assumptions used to determine expense
 
 
 
 
 
Discount rate used to determine benefit obligation
4.04
%
 
3.79
%
 
4.48
%
Discount rate used to determine service cost
4.26
%
 
3.79
%
 
4.48
%
Discount rate used to determine interest cost
3.12
%
 
3.79
%
 
4.48
%
Initial health care cost trend rate
7.10
%
 
6.31
%
 
6.64
%
Ultimate health care cost trend rate
4.75
%
 
4.77
%
 
4.77
%
Year ultimate health care cost trend rate is achieved
2025

 
2024

 
2023


Assumed health care cost trend rates may have a significant effect on the amounts reported for the health care plans. A 1-percentage point change in the assumed health care cost trend rates would have the following effects:
 
1% increase
 
1% decrease
Effect on total service and interest cost
$
1

 
$
(1
)
Effect on other postretirement liabilities
17

 
(15
)

Employer Contributions to Retirement Benefits Plans
Contributions to pension plans that Eaton expects to make in 2017, and made in 2016, 2015 and 2014, follow:
 
2017
 
2016
 
2015
 
2014
United States plans
$
125

 
$
160

 
$
221

 
$
248

Non-United States plans
90

 
102

 
109

 
114

Total contributions
$
215

 
$
262

 
$
330

 
$
362


The following table provides the estimated pension and other postretirement benefit payments for each of the next five years, and the five years thereafter in the aggregate. For other postretirement benefits liabilities, the expected subsidy receipts related to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 would reduce the gross payments listed below.
 
Estimated
United States
pension payments
 
Estimated
non-United States
pension payments
 
Estimated other postretirement
benefit payments
 
 
 
Gross
 
Medicare prescription
drug subsidy
2017
$
309

 
$
77

 
$
53

 
$
(5
)
2018
279

 
80

 
50

 
(5
)
2019
278

 
83

 
46

 
(4
)
2020
281

 
86

 
42

 
(4
)
2021
289

 
88

 
36

 
(3
)
2022 - 2026
1,460

 
495

 
156

 
(9
)

Pension Plan Assets
Investment policies and strategies are developed on a country specific basis. The United States plans, representing 67% of worldwide pension assets, and the United Kingdom plans representing 27% of worldwide pension assets, are invested primarily for growth, as the majority of the assets are in plans with active participants and ongoing accruals. In general, the plans have their primary allocation to diversified global equities, primarily through index funds in the form of common collective and other trusts. The United States plans' target allocation is 33% United States equities, 32% non-United States equities, 8% real estate (primarily equity of real estate investment trusts), 22% debt securities and 5% other, including hedge funds, private equity and cash equivalents. The United Kingdom plans' target asset allocations are 57% equities and the remainder in debt securities, cash equivalents and real estate investments. The equity risk for the plans is managed through broad geographic diversification and diversification across industries and levels of market capitalization. The majority of debt allocations for these plans are longer duration government and corporate debt. The United States, United Kingdom and Canada pension plans are authorized to use derivatives to achieve more economically desired market exposures and to use futures, swaps and options to gain or hedge exposures.
Other Postretirement Benefits Plan Assets
The Voluntary Employee Benefit Association trust which holds U.S. other postretirement benefits plan assets has investment guidelines that include allocations to global equities and fixed income investments. The trust's 2016 target investment allocation is 53% diversified global equities and 47% fixed income securities held in a trust that invests primarily in exchange traded funds. The fixed income allocation is primarily comprised of intermediate term, high quality, dollar denominated, fixed income instruments. The equity allocation is invested in diversified global equity index funds.
Fair Value Measurements
Financial instruments included in pension and other postretirement benefits plan assets are categorized into a fair value hierarchy of three levels, based on the degree of subjectivity inherent in the valuation methodology as follows:
Level 1 -
Quoted prices (unadjusted) for identical assets in active markets.
Level 2 -
Quoted prices for similar assets in active markets, and inputs that are observable for the asset, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 -
Unobservable prices or inputs.
Certain investments that are measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are being presented in the tables to permit a reconciliation to total plan assets.

Pension Plans
A summary of the fair value of pension plan assets at December 31, 2016 and 2015, follows:
 
Total
 
Quoted prices
in active
markets for
identical assets
(Level 1)
 
Other
observable
inputs
(Level 2)
 
Unobservable
inputs
(Level 3)
2016

 
 
 
 
 
 
Common collective trusts
 
 
 
 
 
 
 
Non-United States equity and global equities
$
413

 
$
—

 
$
413

 
$
—

United States equity
94

 
—

 
94

 
—

Fixed income
422

 
—

 
422

 
—

Fixed income securities
359

 
—

 
359

 
—

United States treasuries
123

 
123

 
—

 
—

Bank loans
150


—


150


—

Real estate securities
201

 
195

 
—

 
6

Equity securities
104

 
104

 
—

 
—

Cash equivalents
276

 
21

 
255

 
—

Exchange traded funds
55

 
55

 
—

 
—

Other
109

 
—

 
14

 
95

Common collective and other trusts measured at net asset value
2,038

 
 
 
 
 
 
Hedge funds measured at net asset value
85

 
 
 
 
 
 
Money market funds measured at net asset value
18

 
 
 
 
 
 
Total pension plan assets
$
4,447

 
$
498

 
$
1,707

 
$
101




 
Total
 
Quoted prices
in active
markets for
identical assets
(Level 1)
 
Other
observable
inputs
(Level 2)
 
Unobservable
inputs
(Level 3)
2015
 
 
 
 
 
 
 
Common collective trusts
 
 
 
 
 
 
 
Non-United States equity and global equities
$
415

 
$
—

 
$
415

 
$
—

United States equity
96

 
—

 
96

 
—

Fixed income
418

 
—

 
418

 
—

Fixed income securities
357

 
—

 
357

 
—

United States treasuries
105

 
105

 
—

 
—

Bank loans
136

 
—

 
136

 
—

Real estate securities
251

 
244

 
—

 
7

Equity securities
98

 
98

 
—

 
—

Cash equivalents
227

 
17

 
210

 
—

Exchange traded funds
49

 
49

 
—

 
—

Other
100

 
—

 
14

 
86

Common collective and other trusts measured at net asset value
2,043

 
 
 
 
 
 
Hedge funds measured at net asset value
92

 
 
 
 
 
 
Money market funds measured at net asset value
19

 
 
 
 
 
 
Total pension plan assets
$
4,406

 
$
513

 
$
1,646

 
$
93



The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed during 2015 and 2016 due to the following:
 
Real estate securities
 
Other
 
Total
Balance at December 31, 2014
$
6

 
$
60

 
$
66

Actual return on plan assets:
 
 
 
 
 
Gains (losses) relating to assets still held at year-end
1

 
(2
)
 
(1
)
Purchases, sales, settlements - net
—

 
37

 
37

Transfers into or out of Level 3
—

 
(9
)
 
(9
)
Balance at December 31, 2015
7

 
86

 
93

Actual return on plan assets:
 
 
 
 
 
Gains (losses) relating to assets still held at year-end
—

 
(6
)
 
(6
)
Purchases, sales, settlements - net
(1
)
 
15

 
14

Transfers into or out of Level 3
—

 
—

 
—

Balance at December 31, 2016
$
6

 
$
95

 
$
101



Other Postretirement Benefits Plans
A summary of the fair value of other postretirement benefits plan assets at December 31, 2016 and 2015, follows:
 
Total
 
Quoted prices
in active
markets for
identical assets
(Level 1)
 
Other
observable
inputs
(Level 2)
 
Unobservable
inputs
(Level 3)
2016
 
 
 
 
 
 
 
Cash equivalents
$
8

 
$
8

 
$
—

 
$
—

Common collective and other trusts measured at net asset value
66

 
 
 
 
 
 
Total other postretirement benefits plan assets
$
74

 
$
8

 
$
—

 
$
—




 
Total
 
Quoted prices
in active
markets for
identical assets
(Level 1)
 
Other
observable
inputs
(Level 2)
 
Unobservable
inputs
(Level 3)
2015
 
 
 
 
 
 
 
Fixed income securities
18

 
—

 
18

 
—

United States treasuries
20

 
20

 
—

 
—

Cash equivalents
11

 
11

 
—

 
—

Common collective and other trusts measured at net asset value
44

 
 
 
 
 
 
Total other postretirement benefits plan assets
$
93

 
$
31

 
$
18

 
$
—



Valuation Methodologies
Following is a description of the valuation methodologies used for pension and other postretirement benefits plan assets measured at fair value. There have been no changes in the methodologies used at December 31, 2016 and 2015.
Common collective and other trusts - Valued at the net unit value of units held by the trust at year end. The unit value is determined by the total value of fund assets divided by the total number of units of the fund owned. The equity investments in collective trusts are predominantly in index funds for which the underlying securities are actively traded in public markets based upon readily measurable prices. The investments in other trusts are predominantly in exchange traded funds for which the underlying securities are actively traded in public markets based upon readily measurable prices. Common collective and other trusts measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are being presented in the tables above to permit a reconciliation of the fair value hierarchy to the total plan assets.
Fixed income securities - These securities consist of publicly traded United States and non-United States fixed interest obligations (principally corporate and government bonds and debentures). The fair value of corporate and government debt securities is determined through third-party pricing models that consider various assumptions, including time value, yield curves, credit ratings, and current market prices. The Company verifies the results of trustees or custodians and evaluates the pricing classification of these securities by performing analyses using other third-party sources.
United States treasuries - Valued at the closing price of each security.
Bank loans - These securities consist of senior secured term loans of publicly traded and privately held United States and non-United States floating rate obligations (principally corporations of non-investment grade rating). The fair value is determined through third-party pricing models that primarily utilize dealer quoted current market prices. The Company verifies the results of trustees or custodians and evaluates the pricing classification of these securities by performing analyses using other third-party sources.
Real estate and equity securities - These securities consist of direct investments in the stock of publicly traded companies. Such investments are valued based on the closing price reported in an active market on which the individual securities are traded. As such, the direct investments are classified as Level 1.
Cash equivalents - Primarily certificates of deposit, commercial paper, and repurchase agreements.
Exchange traded funds - Valued at the closing price of the exchange traded fund's shares.
Hedge funds - Consists of direct investments in hedge funds through limited partnership interests. Net asset values are based on the estimated fair value of the ownership interest in the investment as determined by the General Partner. The majority of the holdings of the hedge funds are in equity securities traded on public exchanges. The investment terms of the hedge funds allow capital to be redeemed quarterly given prior notice with certain limitations. Hedge funds measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are being presented in the tables above to permit a reconciliation of the fair value hierarchy to the total plan assets.
Money market funds - Money market funds measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are being presented in the tables above to permit a reconciliation of the fair value hierarchy to the total plan assets.
Other - Primarily insurance contracts for international plans and also futures contracts and over-the-counter options. These investments are valued based on the closing prices of future contracts or indices as available on Bloomberg or similar service, and private equity investments.
For additional information regarding fair value measurements, see Note 12.
Defined Contribution Plans
The Company has various defined contribution benefit plans, primarily consisting of the plans in the United States. The total contributions related to these plans are charged to expense and were as follows:
2016
$
72

2015
137

2014
141