The Company's U.S. pension plans are closed to new participants and the accrual of pension benefits has been frozen since September 30, 2016. In addition, most international pension plans are closed to new participants while those that remain open relate to areas where local laws require plans to operate within the applicable country.

Valvoline also sponsors healthcare and life insurance plans for certain qualifying retired or disabled employees. These other benefit plans were amended to reduce retiree life and medical benefits effective October 1, 2016 and January 1, 2017, respectively. These plans have limited the annual per capita costs to an amount equivalent to base year per capita costs, plus annual increases of up to 1.5% per year for costs incurred. As a result, health care cost trend rates do not have a significant impact on the Company’s future obligations for these plans. The assumed pre-65 health care cost trend rate as of September 30, 2019 was 6.9% and continues to be reduced to 4.2% in 2037 and thereafter.


(In millions)	Pension benefits																				Other postretirement benefits
				2019				2018				2017				2019				2018				2017
Net periodic benefit costs (income)
Service cost	$	2			$	2			$	2			$	—			$	—			$	—
Interest cost	81				75				86				2				2				1
Expected return on plan assets	(80)				(103)				(145)				—				—				—
Amortization of prior service credit ^(a)	—				—				—				(12)				(12)				(12)
Actuarial loss (gain)	61				38				(63)				8				—				(5)
Net periodic benefit costs (income)	$	64			$	12			$	(120)			$	(2)			$	(10)			$	(16)
Weighted-average plan assumptions ^(b)
Discount rate for service cost	2.92		%		2.94		%		2.15		%		3.98		%		4.05		%		2.95		%
Discount rate for interest cost	4.00		%		3.23		%		2.84		%		3.83		%		3.11		%		2.64		%
Rate of compensation increase	3.06		%		3.05		%		2.99		%		—				—				—
Expected long-term rate of return on plan assets	4.66		%		5.17		%		6.56		%		—				—				—

(b)The plan assumptions are a blended weighted-average rate for Valvoline’s U.S. and non-U.S. plans. The U.S. pension plans represented approximately 97% of the total pension projected benefit obligation as of September 30, 2019. Other postretirement benefit plans consist of U.S. and Canada, with the U.S. plan representing approximately 77% of the total other postretirement projected benefit obligation as of September 30, 2019. Non-U.S. plans use assumptions generally consistent with those of U.S. plans.


	Pension benefits						Other postretirement benefits
(In millions)	2019		2018		2019		2018

Amortization of prior service credit recognized in accumulated other comprehensive income	$	—	$	—	$	12	$	12

Net periodic benefit costs (income)	64		12		(2)		(10)
Total amount recognized in net periodic benefit costs and accumulated other comprehensive income	$	64	$	12	$	10	$	2

The following table summarizes the changes in benefit obligations and the fair value of plan assets, as well as key assumptions used to determine the benefit obligations, and the amounts recognized in the Consolidated Balance Sheets as of September 30, 2019 and 2018 for the Company’s pension and other postretirement benefit plans:


(In millions)	Pension benefits												Other postretirement benefits
				2019				2018				2019				2018
Change in benefit obligations
Benefit obligations as of October 1	$	2,087			$	2,381			$	51			$	57

Service cost	2				2				—				—
Interest cost	81				75				2				2

Benefits paid	(140)				(146)				(6)				(7)
Actuarial loss (gain)	253				(95)				8				—
Currency exchange rate changes	(2)				(3)				—				(1)
Transfers in	6				9				—				—
Settlements	—				(136)				—				—
Benefit obligations as of September 30	$	2,287			$	2,087			$	55			$	51
Change in plan assets
Fair value of plan assets as of October 1	$	1,792			$	2,081			$	—			$	—

Actual return on plan assets	273				(30)				—				—
Employer contributions	14				16				6				7

Benefits paid	(140)				(146)				(6)				(7)
Currency exchange rate changes	(2)				(3)				—				—
Settlements	—				(136)				—				—
Transfers in	6				10				—				—
Fair value of plan assets as of September 30	$	1,943			$	1,792			$	—			$	—

Unfunded status of the plans as of September 30	$	344			$	295			$	55			$	51

Amounts recognized in the Consolidated Balance Sheets
Current benefit liabilities	$	9			$	10			$	6			$	6
Noncurrent benefit liabilities	335				285				49				45
Net amount recognized	$	344			$	295			$	55			$	51

Amounts recognized in accumulated other comprehensive income (loss)
Prior service cost (credit)	$	1			$	2			$	(45)			$	(56)


Weighted-average plan assumptions
Discount rate	3.10		%		4.28		%		2.95		%		4.08		%
Rate of compensation increase	3.06		%		3.10		%		—				—

Valvoline recognizes the change in the fair value of plan assets and net actuarial gains and losses annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement. Such gains and losses are reported within Net pension and other postretirement plan expense in the Consolidated Statements of Comprehensive Income and included a loss of $69 million and $38 million for the years ended September 30, 2019 and 2018, respectively.

During 2018, Valvoline offered the option of receiving a lump sum payment to certain participants with vested qualified U.S. pension plan retirement benefits in lieu of receiving monthly annuity payments. Approximately 2,600 participants elected to receive the settlement, and lump sum payments were made from plan assets to these participants in September 2018 for approximately $134 million. The benefit obligation settled approximated payments to plan participants and did not generate a material settlement adjustment during fiscal 2018.

The accumulated benefit obligation for all pension plans was $2.3 billion as of September 30, 2019 and $2.1 billion as of September 30, 2018. Information for pension plans with a benefit obligation in excess of the fair value of plan assets follows for the Company’s plans as of September 30:


(In millions)	2019									2018
			Benefit obligation			Plan assets			Benefit obligation			Plan assets
Plans with projected benefit obligation in excess of plan assets	$	2,242		$	1,898		$	2,045		$	1,749
Plans with accumulated benefit obligation in excess of plan assets	$	2,229		$	1,889		$	2,034		$	1,741

The following table summarizes the various investment categories that the pension plan assets are invested in and the applicable fair value hierarchy as described in Note 2 that the financial instruments are classified within these investment categories as of September 30, 2019 and 2018:


	September 30, 2019
(In millions)	Total fair value		Level 1		Level 2		Level 3		Assets measured at NAV
Cash and cash equivalents	$	166	$	166	$	—	$	—	$	—
U.S. government securities and futures	162		—		162		—		—
Other government securities	41		—		41		—		—
Corporate debt instruments	1,075		—		1,075		—		—
Insurance contracts	7		—		—		7		—
Private equity and hedge funds	15		—		—		—		15
Common collective trusts	474		—		—		—		474
Other investments	3		—		3		—		—
Total assets at fair value	$	1,943	$	166	$	1,281	$	7	$	489


	September 30, 2018
(In millions)	Total fair value		Level 1		Level 2		Level 3		Assets measured at NAV
Cash and cash equivalents	$	100	$	100	$	—	$	—	$	—
U.S. government securities and futures ^(a)	74		(3)		77		—		—
Other government securities	92		1		91		—		—
Corporate debt instruments^(b)	1,056		—		1,056		—		—
Insurance contracts	4		—		—		4		—
Private equity and hedge funds	60		—		—		—		60
Common collective trusts	406		—		—		—		406
Total assets at fair value	$	1,792	$	98	$	1,224	$	4	$	466

Government securities that trade in an active market are valued using quoted market prices, which are Level 1 inputs. Other government securities are valued based on Level 2 inputs, which include yields available on comparable securities of issuers with similar credit ratings. Treasury futures are used to manage interest rate risk and are valued at the closing price reported on the exchange market for exchange-traded futures, which is a Level 1 input.

Corporate debt instruments are valued based on Level 2 inputs that are observable in the market or may be derived principally from, or corroborated by, recently executed transactions, observable market data such as pricing for similar securities, cash flow models with yield curves, counterparty credit rating, and credit spreads applied to the terms of the debt instrument (maturity and coupon interest rate).

Insurance contracts are arrangements with insurance companies that guarantee the payment of the pension entitlements and are valued based on Level 3 inputs, which are neither quoted prices nor observable inputs for pricing. Insurance contracts are valued at cash surrender value, which approximates fair value.

Private equity and hedge funds primarily represent alternative investments not traded on an active market which are valued at the NAV per share determined by the manager of the fund based on the fair value of the underlying net assets owned by the fund divided by the number of shares or units outstanding.

Common collective trusts are comprised of a diversified portfolio of investments across various asset classes, including U.S. and international equities, fixed-income securities, commodities and currencies. The collective trust funds are valued using a NAV provided by the manager of each fund, which is based on the underlying net assets owned by the fund, divided by the number of shares outstanding.


(In millions)	Total Level 3 assets
Balance at September 30, 2017	$	16
Purchases	3
Sales ^(a)	(8)
Actual return on assets held at end of year	1
Actual return on assets sold during year	(8)
Balance at September 30, 2018	4

Purchases	1

Actual return on assets held at end of year	2

Balance at September 30, 2019	$	7

(a) Level 3 assets that were liquidated during fiscal 2018 represented real estate investments that were valued using DCF and unobservable inputs, including future rentals, expenses and residual values from a market participant view of the highest and best use of the real estate.


(In millions)	Fair value at NAV		Unfunded commitments		Redemption frequency (if currently eligible)	Redemption notice period
Long/short hedge funds	$	3	$	—	None ^(a)	None ^(a)
Relative value hedge funds	4		—		None ^(b)	None ^(b)
Multi-strategy hedge funds	—		—		None ^(b)	None ^(b)
Event driven hedge funds	1		—		None ^(b)	None ^(b)
Common collective trusts	453		—		Daily	Up to 3 days
	13		—		Monthly	5 days
	8		—		N/A ^(c)	N/A ^(c)
Private equity	7		2		None ^(d)	None ^(d)
	$	489	$	2

In developing an investment strategy for its defined benefit plans, Valvoline considered the following factors: the nature of the plans’ liabilities, the allocation of liabilities between active, deferred and retired plan participants, the funded status of the plans, the applicable investment horizon, the respective size of the plans and historical and expected investment returns. Valvoline’s U.S. pension plan assets are managed by outside investment managers, which are monitored against investment return benchmarks and Valvoline’s established investment strategy. Investment managers are selected based on an analysis of, among other things, their investment process, historical investment results, frequency of management turnover, cost structure and assets under management. Assets are periodically reallocated between investment managers to maintain an appropriate asset mix and diversification of investments and to optimize returns.

The current target asset allocation for the U.S. plans is 75% fixed income securities and 25% equity-based securities. Fixed income securities are liability matching assets that primarily include long duration high grade corporate debt obligations. Equity-based securities are return-seeking assets that include both traditional equities as well as a mix of non-traditional assets such as hedge and commingled funds and private equity. Investment managers may employ a limited use of futures or other derivatives to manage risk within the portfolio through efficient exposure to markets. Valvoline’s

Valvoline’s investment strategy and management practices relative to plan assets of non-U.S. plans generally are consistent with those for U.S. plans, except in those countries where the investment of plan assets is dictated by applicable regulations. The weighted-average asset allocations for Valvoline’s U.S. and non-U.S. plans by asset category follow as of September 30:

The basis for determining the expected long-term rate of return is a combination of future return assumptions for the various asset classes in Valvoline’s investment portfolio based on active management, historical analysis of previous returns, market indices, and a projection of inflation, net of plan expenses.

Valvoline contributed $14 million and $16 million to its pension plans during fiscal 2019 and 2018, respectively. Contributions during fiscal 2019 included $4 million of non-cash contributions from the Company's non-qualified trust assets. Valvoline does not plan to contribute to the U.S. qualified pension plan in fiscal 2020, but expects to contribute approximately $14 million, $5 million of which is expected to be non-cash, to its U.S. non-qualified and non-U.S. pension plans.

Valvoline also sponsors various other benefit plans, some of which are required by local laws within certain countries. Total current and noncurrent liabilities associated with these plans were $1 million and $3 million, respectively, as of September 30, 2019 and 2018.

In April 2018, Valvoline received a demand for payment of a partial withdrawal liability assessment related to the sale of a business by Ashland in fiscal 2011 and the associated reduction in contributions and the number of employees covered by one of the multiemployer pension plans. The Company vigorously contested the assessment and the calculation method utilized by the plan in its determination and settled the matter consistent with its reserve at a cost that is not material to the consolidated financial statements as of and for the periods ended September 30, 2019.