Pension and Other Benefit Programs

Defined Benefit Pension Plan

We have a pension plan covering certain of our U.S. operations. The benefit accrual for the pension plan is frozen. Retirement benefits are derived from a formula, which is based on length of service and compensation. Based on this calculation, we may contribute to our pension plan to the extent such contributions may be deducted for income tax purposes. During the years ended December 31, 2016, 2015 and 2014, we contributed $10 million, $10 million and $51 million, respectively, to our pension plan. Our practice is to fund our frozen defined benefit pension plan each year at the level above the minimum required contribution but within tax deductible limits. Based on actuarial projections, we estimate that a contribution of $10 million during the year ended December 31, 2017 will allow us to meet our funding goal. However, the actual contribution is contingent on the actual plan performance relative to assumptions.

During the year ended December 31, 2014, as part of certain plan amendments, lump sum payments were offered to certain terminated vested participants as part of a de-risking strategy in the pension plan. The offer was made to 2,725 participants, of whom 935, or 34%, elected to receive a lump sum. The total amount paid to this group was $55 million and when combined with other lump sum payments made during the year, it exceeded the total interest cost and service cost for the year. We recognized a loss of $4 million for the year ended December 31, 2014 in connection with these plan settlements, which is included in acquisition-related transaction and integration cost in our consolidated statement of income.

We base our investment policy and objectives on a review of the actuarial and funding characteristics of the retirement plan, the demographic profile of plan participants, and our business and financial characteristics. Capital market risk/return opportunities and tradeoffs also are considered as part of the determination. The primary investment objective of our plan is to achieve a long-term rate of return that meets the actuarial funding requirements of the plan and maintain an asset level sufficient to meet all benefit obligations of the plan. The target allocations for the U.S. plan assets are 65 percent equity securities and 35 percent U.S. fixed income securities. Equity securities primarily include investments in large-cap and small-cap companies primarily located in the U.S., which include corporate bonds of companies from diversified industries and U.S. treasuries. Based on the valuation techniques described in Note 15, the fair values of our pension plan assets as of December 31, 2016, by asset category, are as follows (in millions):



	Fair Value Measurements
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash	$	21	$	—	$	—	$	21
Equity securities:
U.S. large-cap	—		247		—		247
U.S. small-cap	—		68		—		68
International	—		134		—		134
Fixed income securities	106		102		3		211
Total	$	127	$	551	$	3	$	681

The fair values of our pension plan assets as of December 31, 2015, by asset category, are as follows (in millions):



	Fair Value Measurements
Asset Category	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash	$	11	$	—	$	—	$	11
Equity securities:
U.S. large-cap	—		244		—		244
U.S. small-cap	—		69		—		69
International	—		128		—		128
Fixed income securities	128		83		3		214
Total	$	139	$	524	$	3	$	666

The measurement dates for the pension plan are December 31, 2016 and 2015. The following table provides a summary of the changes in the pension plan's benefit obligations and the fair value of assets as of December 31, 2016 and 2015 and a statement of funded status of the pension plan as of December 31, 2016 and 2015 (in millions):



	As of December 31,
	2016			2015
Asset Category
Change in benefit obligation:
Benefit obligation at beginning of year	$	861		$	916
Interest cost	27			34
Actuarial (gain) loss	14			(38		)
Benefits paid	(49		)	(51		)
Benefit obligation at year end	$	853		$	861
Change in plan assets:
Fair value of plan assets at beginning of year	$	666		$	718
Actual return (loss) on plan assets	54			(11		)
Contributions	10			10
Benefits paid	(49		)	(51		)
Fair value of plan assets at end of year	$	681		$	666
Funded status	$	(172	)	$	(195	)
Accumulated benefit obligation	$	853		$	861
Amounts recognized in the accompanying consolidated balance sheets:
Accrued employee benefits	$	(172	)	$	(195	)

The components of the pension plan expense (benefit) in the accompanying consolidated statements of income are set forth below for the years ended December 31, 2016, 2015 and 2014 (in millions):



	Year Ended December 31,
	2016			2015			2014
Interest cost	$	27		$	34		$	37
Estimated return on plan assets	(44		)	(46		)	(47		)
Amortization of loss	1			2			—
Settlement loss	—			—			4
Aggregate pension benefit	$	(16	)	$	(10	)	$	(6	)

We use a market-related value of plan assets when determining the estimated return on plan assets. Gains/losses on plan assets are amortized over a four year period and accumulate in other comprehensive income. We recognize deferred gains and losses in future net income based on a “corridor” approach, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year.

The following table shows the projected payments for the pension plan based on actuarial assumptions (in millions):



2017	$	50
2018	50
2019	49
2020	49
2021	49
Next 5 years	248

Supplemental Executive Retirement Plan

We have a U.S. nonqualified supplemental executive retirement plan, or SERP, which provides supplemental retirement benefits for certain employees. The future benefit accrual of the SERP plan is frozen. To provide for the future payments of these benefits, we have purchased insurance on the lives of certain of the participants through company-owned policies. As of December 31, 2016 and 2015, the cash surrender value of such policies was $53 million and $51 million, respectively, and is included in other non-current assets in the accompanying consolidated balance sheets. The following table provides a summary of the changes in the SERP benefit obligations (in millions):



	As of December 31,
	2016			2015
Change in benefit obligation:
Benefit obligation at beginning of year	$	61		$	73
Interest cost	1			2
Actuarial (gain) loss	1			(3		)
Benefits paid	(9		)	(11		)
Benefit obligation at year end	$	54		$	61
Funded status	$	(54	)	$	(61	)
Amounts recognized in the accompanying consolidated balance sheets:
Other current liabilities	$	(8	)	$	(9	)
Accrued employee benefits	(46		)	(52		)

SERP plan expense in the accompanying consolidated statements of income was $1 million, $2 million and $3 million for the years ended December 31, 2016, 2015 and 2014, respectively, and primarily consisted of interest cost. The following table shows the projected payments for the SERP plan based on the actuarial assumptions (in millions):



Projected SERP Plan Payments
2017	$	8
2018	7
2019	5
2020	5
2021	5
Next 5 years	17

Pension and SERP Plans Assumptions

The weighted-average assumptions used to develop the actuarial present value of the projected benefit obligation and net periodic pension/SERP costs for years ended December 31, 2016, 2015 and 2014 are set forth below:



	Year Ended December 31,
	2016	2015	2014
Weighted-average discount rate for determining benefit obligations (pension/SERP plans)	3.9%/3.4%	4.0%/3.4%	3.8%/3.2%
Weighted-average discount rate for determining interest costs (pension/SERP plans)	3.3%/2.5%	3.8%/3.2%	4.6%/3.8%
Expected long-term rate of return on plan assets (pension/SERP plans)	6.5%/N/A	6.5%/N/A	6.5%/N/A
Rate of compensation increase	N/A	N/A	N/A

The assumed discount rate reflects the market rates for high-quality corporate bonds currently available. The discount rate was determined by considering the average of pension yield curves constructed on a large population of high quality corporate bonds. The resulting discount rates reflect the matching of plan liability cash flows to yield curves. To develop the expected long-term rate of return on assets assumption, we considered the historical returns and the future expectations for returns for each asset class as well as the target asset allocation of the pension portfolio.

In the fourth quarter of 2015, we changed the method we used to estimate the interest component of net periodic benefit cost for pension and other postretirement benefits. We made this change to provide a more precise measurement of interest cost by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of our total benefit obligations. Historically, we estimated the interest cost component utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We have 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 benefit obligation to the relevant projected cash flows. We accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle and accordingly have accounted for it prospectively.

Post-retirement Benefit Plans

Our defined benefit plans provide certain health care and life insurance benefits for certain eligible retired NYSE U.S. employees. These post-retirement benefit plans, which may be modified in accordance with their terms, are fully frozen. The net periodic post-retirement benefit costs were $7 million, $8 million and $9 million for the years ended December 31, 2016, 2015 and 2014, respectively. The defined benefit plans are unfunded and we currently do not expect to fund the post-retirement benefit plans. The weighted-average discount rate for determining the benefit obligation as of December 31, 2016 and 2015 is 3.9% and 4.1%, respectively. The weighted-average discount rate for determining the interest cost as of December 31, 2016 and 2015 is 3.3% and 3.8%, respectively. The following table shows the actuarial determined benefit obligation, interest costs, employee contributions, actuarial (gain) loss, benefits paid during the periods and the accrued employee benefits (in millions):



	As of December 31,
	2016			2015
Benefit obligation at the end of year	$	200		$	224
Interest cost	7			8
Actuarial gain	(20		)	(12		)
Employee contributions	3			3
Benefits paid	(14		)	(14		)
Amounts recognized in the accompanying consolidated balance sheets:
Other current liabilities	$	(11	)	$	(12	)
Accrued employee benefits	$	(189	)	$	(212	)

The following table shows the payments projected for our post-retirement benefit plans (net of expected Medicare subsidy receipts of $11 million in aggregate over the next ten fiscal years) based on actuarial assumptions (in millions):



2017	$	12
2018	12
2019	12
2020	12
2021	12
Next 5 years	63

For measurement purposes, we assumed an 8.1% annual rate of increase in the per capita cost of covered health care benefits in 2016 which will decrease on a graduated basis to 4.5% in the year 2038 and thereafter. The following table shows the effect of a one-percentage-point increase and decrease in assumed health care cost trend rates (in millions):



Assumed Health Care Cost Trend Rate	1% Increase		1% Decrease
Effect of post-retirement benefit obligation	$	24	$	(20	)
Effect on total of service and interest cost components	1		(1		)

Accumulated Other Comprehensive Loss

The accumulated other comprehensive loss, after tax, as of December 31, 2016, consisted of the following amounts that have not yet been recognized in net periodic benefit cost (in millions):



	Pension Plans		SERP Plans		Post-retirement Benefit Plans		Total
Unrecognized net actuarial losses, after tax	$	103	$	3	$	3	$	109

The amount of prior actuarial loss included in accumulated other comprehensive income related to the pension, SERP and postretirement plans as of December 31, 2016, which are expected to be recognized in net periodic benefit cost in the coming year, is estimated to be (in millions):



	Pension Plans		SERP Plans		Post-retirement Benefit Plans		Total
Loss recognition	$	2	$	—	$	—	$	2

Other Benefit Plans and Defined Contribution Plans

Our U.S. employees are eligible to participate in 401(k) and profit sharing plans and our non-U.S employees are eligible to participate in defined contribution pension plans. Total contributions under the 401(k), profit sharing and defined contribution pension plans were $31 million, $21 million and $29 million for the years ended December 31, 2016, 2015 and 2014, respectively. No discretionary or profit sharing contributions were made during the years ended December 31, 2016, 2015 or 2014.