Employee Benefits

Defined Contribution Savings Plans

Aon maintains defined contribution savings plans for the benefit of its U.S., U.K., Netherlands and Canada employees. The expense recognized for these plans is included in Compensation and benefits in the Consolidated Statements of Income, as follows (in millions):



Years ended December 31	2016		2015		2014
U.S.	$	142	$	133	$	123
U.K.	43		42		42
Netherlands and Canada	27		25		30
Total	$	212	$	200	$	195

Pension and Other Post-retirement Benefits

The Company sponsors defined benefit pension and post-retirement health and welfare plans that provide retirement, medical, and life insurance benefits. The post-retirement healthcare plans are contributory, with retiree contributions adjusted annually, and the life insurance and pension plans are generally noncontributory. The significant U.S., U.K., Netherlands and Canadian pension plans are closed to new entrants.

Pension Plans

The following tables provide a reconciliation of the changes in the projected benefit obligations and fair value of assets for the years ended December 31, 2016 and 2015 and a statement of the funded status as of December 31, 2016 and 2015, for the material U.K. plans, U.S. plans and other major plans, which are located in the Netherlands and Canada. These plans represent approximately 92% of the Company’s projected benefit obligations.



	U.K.						U.S.						Other
(millions)	2016			2015			2016			2015			2016			2015
Change in projected benefit obligation
At January 1	$	4,985		$	5,529		$	3,160		$	3,350		$	1,177		$	1,399
Service cost	—			1			—			—			—			—
Interest cost	158			198			111			131			29			33
Plan amendment	(20		)	27			—			—			—			(10		)
Settlements	(159		)	—			(281		)	—			—			—
Plan transfer and acquisitions	—			(2		)	—			(18		)	—			—
Actuarial loss (gain)	32			(83		)	(43		)	(25		)	(7		)	24
Benefit payments	(242		)	(217		)	(139		)	(133		)	(39		)	(38		)
Change in discount rate	1,079			(247		)	100			(145		)	100			(66		)
Foreign currency impact	(959		)	(221		)	—			—			(33		)	(165		)
At December 31	$	4,874		$	4,985		$	2,908		$	3,160		$	1,227		$	1,177
Accumulated benefit obligation at end of year	$	4,874		$	4,985		$	2,908		$	3,160		$	1,191		$	1,135
Change in fair value of plan assets
At January 1	$	5,903		$	6,224		$	1,951		$	2,036		$	1,019		$	1,161
Actual return on plan assets	1,233			91			116			(60		)	111			8
Employer contributions	67			65			36			108			20			21
Settlements	(159		)	—			(281		)	—			—			—
Plan transfer and acquisitions	—			(3		)	—			—			—			—
Benefit payments	(242		)	(217		)	(139		)	(133		)	(39		)	(38		)
Foreign currency impact	(1,127		)	(257		)	—			—			(35		)	(133		)
At December 31	$	5,675		$	5,903		$	1,683		$	1,951		$	1,076		$	1,019
Market related value at end of year	$	5,675		$	5,903		$	1,819		$	2,064		$	1,076		$	1,019
Amount recognized in Statement of Financial Position at December 31
Funded status	$	801		$	918		$	(1,225	)	$	(1,209	)	$	(151	)	$	(158	)
Unrecognized prior-service cost	19			46			6			9			(6		)	(7		)
Unrecognized loss	1,237			1,465			1,612			1,723			400			389
Net amount recognized	$	2,057		$	2,429		$	393		$	523		$	243		$	224

In March 2016, the Company entered into an insurance contract that covers a portion of the assets within select U.K. pension schemes. The transaction resulted in a decrease in Prepaid pension assets and Accumulated other comprehensive income of $267 million.

Amounts recognized in the Consolidated Statements of Financial Position consist of (in millions):



	U.K.						U.S.						Other
	2016			2015			2016			2015			2016			2015
Prepaid benefit cost (1)	$	836		$	1,012		$	—		$	—		$	—		$	—
Accrued benefit liability (2)	(35		)	(94		)	(1,225		)	(1,209		)	(151		)	(158		)
Accumulated other comprehensive loss	1,256			1,511			1,618			1,732			394			382
Net amount recognized	$	2,057		$	2,429		$	393		$	523		$	243		$	224


(1)	Included in Prepaid pension


(2)	Included in Other current liabilities and Pension, other post retirement, and post employment liabilities

Amounts recognized in Accumulated other comprehensive loss (income) that have not yet been recognized as components of net periodic benefit cost at December 31, 2016 and 2015 consist of (in millions):



	U.K.				U.S.				Other
	2016		2015		2016		2015		2016			2015
Net loss	$	1,237	$	1,465	$	1,612	$	1,723	$	400		$	389
Prior service cost (income)	19		46		6		9		(6		)	(7		)
Total	$	1,256	$	1,511	$	1,618	$	1,732	$	394		$	382

In 2016, U.S. plans with a projected benefit obligation (“PBO”) and an accumulated benefit obligation (“ABO”) in excess of the fair value of plan assets had a PBO of $2.9 billion, an ABO of $2.9 billion, and plan assets with a fair value of $1.7 billion. U.K. plans with a PBO in excess of the fair value of plan assets had a PBO of $1.2 billion and plan assets with a fair value of $1.1 billion, and plans with an ABO in excess of the fair value of plan assets had an ABO of $1.2 billion and plan assets with a fair value of $1.1 billion. Other plans with a PBO in excess of the fair value of plan assets had a PBO of $1.2 billion and plan assets with a fair value of $1.0 billion, and plans with an ABO in excess of the fair value of plan assets had an ABO of $1.1 billion and plan assets with a fair value of $1.0 billion.

In 2015, U.S. plans with a PBO and an ABO in excess of the fair value of plan assets had a PBO of $3.2 billion, an ABO of $3.2 billion, and plan assets of $2.0 billion. U.K. plans with a PBO in excess of the fair value of plan assets had a PBO of $1.2 billion and plan assets with a fair value of $1.1 billion, and plans with an ABO in excess of the fair value of plan assets had an ABO of $1.2 billion and plan assets with a fair value of $1.1 billion. Other plans with a PBO in excess of the fair value of plan assets had a PBO of $1.2 billion and plan assets with a fair value of $1.0 billion, and plans with an ABO in excess of the fair value of plan assets had an ABO of $1.1 billion and plan assets with a fair value of $1.0 billion.

The following table provides the components of net periodic benefit (income) cost for the plans (in millions):



	U.K.									U.S.									Other
	2016			2015			2014			2016			2015			2014			2016			2015			2014
Service cost	$	—		$	1		$	1		$	—		$	—		$	2		$	—		$	—		$	—
Interest cost	158			198			230			111			131			129			29			33			47
Expected return on plan assets, net of administration expenses	(243		)	(307		)	(326		)	(156		)	(154		)	(157		)	(48		)	(50		)	(59		)
Amortization of prior-service cost	2			1			1			2			2			2			—			—			—
Amortization of net actuarial loss	31			41			52			50			54			42			10			11			10
Net periodic benefit (income) cost	(52		)	(66		)	(42		)	7			33			18			(9		)	(6		)	(2		)
Settlement expense	61			—			—			158			—			—			—			—			—
Curtailment gain and other	—			—			—			—			—			—			—			—			(2		)
Total net periodic benefit cost (income)	$	9		$	(66	)	$	(42	)	$	165		$	33		$	18		$	(9	)	$	(6	)	$	(4	)

Beginning in 2016, the Company has elected to utilize a full yield curve approach in the estimation of the service and interest cost components of net periodic pension and post-retirement benefit cost for its major pension and other post-retirement benefit plans by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. In 2015 and prior years, the Company estimated these components of net periodic pension and post-retirement benefit cost by applying a single weighted-average discount rate, derived from the yield curve used to measure the benefit obligation at the beginning of the period.

In March 2016, the Company announced a plan to offer a voluntary one-time lump sum payment option to certain eligible former employees under one of the Company’s U.K. pension plans, that if accepted, would settle the Company’s pension obligations to them. The lump sum cash payment offer closed during the second quarter of 2016. In total, lump sum payments from plan assets of £116 million ($159 million using June 30, 2016 exchange rates) were paid. As a result of this settlement, the Company remeasured the assets and liabilities of the U.K. pension plan during the second quarter of 2016, which in aggregate resulted in a reduction to the projected benefit obligation of £103 million ($141 million using June 30, 2016 Exchange rates) as well as a non-cash settlement charge of £42 million ($61 million using average June 2016 exchange rate) in the second quarter of 2016.

In August 2016, the Company announced a plan to offer a voluntary one-time lump sum payment option to certain eligible former employees under one of the Company’s U.S. pension plans, that if accepted, would settle the Company’s pension obligations to them. The lump sum cash payment offer closed during the fourth quarter of 2016. In total, lump sum payments from plan assets of $281 million were paid. As a result of this settlement, the Company remeasured the assets and liabilities of the U.S. pension plan during the fourth quarter of 2016, which in aggregate resulted in a reduction to the projected benefit obligation of $325 million as well as a non-cash settlement charge of $158 million in the fourth quarter of 2016.

The weighted-average assumptions used to determine benefit obligations are as follows:



	U.K.		U.S.		Other
	2016	2015	2016	2015	2016	2015
Discount rate	2.77%	3.96%	3.53-4.11%	3.69-4.43%	1.85-3.81%	2.43-3.96%
Rate of compensation increase	3.70 - 4.20%	3.63-4.13%	N/A	N/A	1.00-3.50%	2.00-3.50%
Underlying price inflation	1.83%	1.88%	N/A	N/A	2.00-2.50%	2.00-2.50%

The weighted-average assumptions used to determine the net periodic benefit cost are as follows:



	U.K.			U.S.			Other
	2016	2015	2014	2016	2015	2014	2016	2015	2014
Discount rate	3.96%	3.70%	4.55%	3.69 - 4.43%	3.37 - 4.08%	3.97 - 4.87%	2.43 - 3.96%	2.03 - 3.91%	3.60 - 4.71%
Expected return on plan assets, net of administration expenses	4.55%	5.09%	6.00%	7.81%	7.96%	8.80%	3.47 - 4.95%	3.99 - 5.21%	4.70 - 6.50%
Rate of compensation increase	3.63 - 4.13%	3.55 - 4.05%	3.70 - 4.40%	N/A	N/A	N/A	2.00 - 3.50%	2.25 - 3.50%	2.25 - 3.50%

The amounts in Accumulated other comprehensive loss expected to be recognized as components of net periodic benefit cost during 2017 are $52 million in the U.S. and $41 million outside the U.S.

Expected Return on Plan Assets

To determine the expected long-term rate of return on plan assets, the historical performance, investment community forecasts and current market conditions are analyzed to develop expected returns for each asset class used by the plans. The expected returns for each asset class are weighted by the target allocations of the plans. The expected return on plan assets in the U.S. of 7.81% reflects a portfolio that is seeking asset growth through a higher equity allocation while maintaining prudent risk levels. The portfolio contains certain assets that have historically resulted in higher returns and other financial instruments to minimize downside risk.

No plan assets are expected to be returned to the Company during 2017.

Fair value of plan assets

The Company determined the fair value of plan assets through numerous procedures based on the asset class and available information. Refer to Note 13 “Fair Value Measurements and Financial Instruments” for a description of the procedures performed to determine the fair value of the plan assets.

The fair values of the Company’s U.S. pension plan assets at December 31, 2016 and December 31, 2015, by asset category, are as follows (in millions):



			Fair Value Measurements Using
Asset Category	Balance at December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents (1)	$	100	$	100	$	—	$	—
Equity investments:
Large cap domestic	268		268		—		—
Small cap domestic	15		15		—		—
International	64		64		—		—
Equity derivatives	81		78		3		—
Pooled funds:
International (2)	196		—		—		—
Small cap domestic (2)	52		—		—		—
Fixed income investments: (3)
Corporate bonds	105		—		105		—
Government and agency bonds	132		76		56		—
Asset-backed securities	—		—		—		—
Fixed income derivatives	65		65		—		—
Pooled funds:
Corporate bonds (2)	255		—		—		—
Other investments:
Commodity derivatives (4)	22		—		22		—
Real estate and REITS (5)	61		61		—		—
Alternative investments (2) (6)	267		—		—		—
Total	$	1,683	$	727	$	186	$	—


(1)	Consists of cash and institutional short-term investment funds.


(2)	Certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the above table are intended to permit reconciliation of the fair values to the amounts presented in the plan assets contained in this Note.


(3)	Consists of corporate and government bonds, asset-backed securities, and fixed income derivatives.


(4)	Consists of long-dated options and swaps on a commodity index.


(5)	Consists of exchange traded real estate investment trusts (“REITS”).


(6)	Consists of limited partnerships, private equity and hedge funds.



			Fair Value Measurements Using
Asset Category	Balance at December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents (1)	$	33	$	33	$	—	$	—
Equity investments:
Large cap domestic	299		299		—		—
Small cap domestic	30		30		—		—
International	52		52		—		—
Equity derivatives	203		170		33		—
Pooled funds:
International (2)	210		—		—		—
Small cap domestic (2)	58		—		—		—
Fixed income investments: (3)
Corporate bonds	148		—		148		—
Government and agency bonds	128		52		76		—
Asset-backed securities	—		—		—		—
Fixed income derivatives	69		47		22		—
Pooled funds:
Corporate bonds (2)	336		—		—		—
Other investments:
Commodity derivatives (4)	13		—		13		—
Real estate and REITS (5)	67		67		—		—
Alternative investments (2) (6)	305		—		—		—
Total	$	1,951	$	750	$	292	$	—


(1)	Consists of cash and institutional short-term investment funds.


(2)	Certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the above table are intended to permit reconciliation of the fair values to the amounts presented in the plan assets contained in this Note.


(3)	Consists of corporate and government bonds, asset-backed securities, and fixed income derivatives.


(4)	Consists of long-dated options on a commodity index.


(5)	Consists of exchange traded REITS.


(6)	Consists of limited partnerships, private equity and hedge funds.

The fair values of the Company’s major U.K. pension plan assets at December 31, 2016 and December 31, 2015, by asset category, are as follows (in millions):



			Fair Value Measurements Using
	Balance at December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents (1)	$	86	$	86	$	—	$	—
Equity investments:
Global	135		135		—		—
Pooled funds:
Global (2)	365		—		—		—
Europe (2)	18		—		—		—
Fixed income investments: (3)
Derivatives (4)	10		—		10		—
Fixed income securities (5)	2,129		1,726		403		—
Annuities	1,773		—		—		1,773
Pooled funds:
Derivatives (2)	62		—		—		—
Fixed income securities (2)	223		—		—		—
Other investments:
Real estate (2) (6)	101		—		—		—
Alternative investments (2) (7)	773		—		—		—
Total	$	5,675	$	1,947	$	413	$	1,773


(1)	Consists of cash and institutional short-term investment funds.


(2)	Certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the above table are intended to permit reconciliation of the fair values to the amounts presented in the plan assets contained in this Note.


(3)	Consists of various equity, fixed income, commodity, and real estate mutual fund type investment vehicles.


(4)	Consists of equity securities and equity derivatives.


(5)	Consists of corporate and government bonds and fixed income derivatives.


(6)	Consists of property funds and trusts holding direct real estate investments.


(7)	Consists of limited partnerships, private equity and hedge funds.



			Fair Value Measurements Using
	Balance at December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents (1)	$	159	$	159	$	—	$	—
Equity investments:
Derivatives	66		—		66		—
Global	133		133		—		—
Pooled funds:
Global (2)	360		—		—		—
Europe (2)	17		—		—		—
Fixed income investments: (3)
Derivatives (4)	111		—		111		—
Fixed income securities (5)	3,145		2,268		877		—
Annuities	827		—		—		827
Pooled funds:
Fixed income securities (2)	283		—		—		—
Other investments:
Real estate (2) (6)	85		—		—		—
Alternative investments (2) (7)	717		—		—		—
Total	$	5,903	$	2,560	$	1,054	$	827


(1)	Consists of cash and institutional short-term investment funds.


(2)	Certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the above table are intended to permit reconciliation of the fair values to the amounts presented in the plan assets contained in this Note.


(3)	Consists of various equity, fixed income, commodity, and real estate mutual fund type investment vehicles.


(4)	Consists of equity securities and equity derivatives.


(5)	Consists of corporate and government bonds and fixed income derivatives.


(6)	Consists of property funds and trusts holding direct real estate investments.


(7)	Consists of limited partnerships, private equity and hedge funds.

The following table presents the changes in the Level 3 fair-value category in the Company’s U.K. pension plans for the years ended December 31, 2016 and December 31, 2015 (in millions):



Fair Value Measurements Using Level 3 Inputs	Annuities
Balance at January 1, 2015	$	836
Actual return on plan assets:
Relating to assets still held at December 31, 2015	(32		)
Purchases, sales and settlements—net	58
Foreign exchange	(35		)
Balance at December 31, 2015	827
Actual return on plan assets:
Relating to assets still held at December 31, 2016	7
Purchases, sales and settlements—net	1,248
Foreign exchange	(309		)
Balance at December 31, 2016	$	1,773

The fair values of the Company’s other major pension plan assets at December 31, 2016 and December 31, 2015, by asset category, are as follows (in millions):



			Fair Value Measurements Using
	Balance at December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	11	$	11	$	—	$	—
Equity investments:
Pooled funds:
Global (1)	322		—		—		—
North America (1)	36		—		—		—
Derivatives (1)	20		—		—		—
Fixed income investments:
Fixed income securities (2)	166		—		166		—
Derivatives (2)	37		—		37		—
Pooled funds:
Fixed income securities (1)	469		—		—		—
Other investments:
Alternative investments (1) (3)	9		—		—		—
Pooled funds:
REITS (1) (4)	6		—		—		—
Total	$	1,076	$	11	$	203	$	—


(1)	Certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the above table are intended to permit reconciliation of the fair values to the amounts presented in the plan assets contained in this Note.


(2)	Consists of corporate and government bonds and fixed income derivatives.


(3)	Consists of limited partnerships, private equity and hedge funds.


(4)	Consists of property funds and trusts holding direct real estate investments.



			Fair Value Measurements Using
	Balance at December 31, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	11	$	11	$	—	$	—
Equity investments:
Pooled funds:
Global (1)	270		—		—		—
North America (1)	37		—		—		—
Derivatives (1)	21		—		—		—
Fixed income investments:
Fixed income securities (2)	30		—		30		—
Derivatives (2)	48		—		48		—
Pooled funds:
Fixed income securities (1)	576		—		—		—
Derivatives (1)	12		—		—		—
Other investments:
Alternative investments (1) (3)	9		—		—		—
Pooled funds:
Commodities (1)	2		—		—		—
REITS (1) (4)	3		—		—		—
Total	$	1,019	$	11	$	78	$	—


(1)	Certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the above table are intended to permit reconciliation of the fair values to the amounts presented in the plan assets contained in this Note.


(2)	Consists of corporate and government bonds and fixed income derivatives.


(3)	Consists of limited partnerships, private equity and hedge funds.


(4)	Consists of property funds and trusts holding direct real estate investments.

Investment Policy and Strategy

The U.S. investment policy, as established by the Aon Retirement Plan Governance and Investment Committee (“RPGIC”), seeks reasonable asset growth at prudent risk levels within target allocations, which are 41% equity investments, 30% fixed income investments, and 29% other investments. Aon believes that plan assets are well-diversified and are of appropriate quality. The investment portfolio asset allocation is reviewed quarterly and re-balanced to be within policy target allocations. The investment policy is reviewed at least annually and revised, as deemed appropriate by the RPGIC. The investment policies for international plans are generally established by the local pension plan trustees and seek to maintain the plans’ ability to meet liabilities and to comply with local minimum funding requirements. Plan assets are invested in diversified portfolios that provide adequate levels of return at an acceptable level of risk. The investment policies are reviewed at least annually and revised, as deemed appropriate to ensure that the objectives are being met. At December 31, 2016, the weighted average targeted allocation for the U.K. and non-U.S. plans was 14% for equity investments, 77% for fixed income investments, and 9% for other investments.

Cash Flows

Contributions

Based on current assumptions, in 2017, the Company expects to contribute approximately $80 million, $87 million, and $18 million to its U.K., U.S. and other significant international pension plans, respectively.

Estimated Future Benefit Payments

Estimated future benefit payments for plans are as follows at December 31, 2016 (in millions):



	U.K.		U.S.		Other
2017	$	124	$	168	$	39
2018	130		180		40
2019	140		187		40
2020	148		191		41
2021	156		185		42
2022 – 2026	892		893		228

U.S. and Canadian Other Post-Retirement Benefits

The following table provides an overview of the accumulated projected benefit obligation, fair value of plan assets, funded status and net amount recognized as of December 31, 2016 and 2015 for the Company’s other significant post-retirement benefit plans located in the U.S. and Canada (in millions):



	2016			2015
Accumulated projected benefit obligation	$	110		$	105
Fair value of plan assets	18			18
Funded status	(92		)	(87		)
Unrecognized prior-service credit	(3		)	(3		)
Unrecognized loss	10			7
Net amount recognized	$	(85	)	$	(83	)

Other information related to the Company’s other post-retirement benefit plans are as follows:



	2016	2015	2014
Net periodic benefit cost recognized (millions)	$5	$6	$3
Weighted-average discount rate used to determine future benefit obligations	3.71-4.15%	3.99-4.33%	3.83 - 4.08
Weighted-average discount rate used to determine net periodic benefit costs	3.99-4.33%	3.83-4.08%	4.44 - 4.95

Amounts recognized in Accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost at December 31, 2016 are $10 million and $3 million of net loss and prior service credit, respectively. The amount in Accumulated other comprehensive income expected to be recognized as a component of net periodic benefit cost during 2017 is $0.2 million and $0.3 million of net gain and prior service credit, respectively.

Based on current assumptions, the Company expects:


•	To contribute $4 million to fund significant other post-retirement benefit plans during 2017.


•	Estimated future benefit payments will be approximately $6 million each year for 2017 through 2021, and $30 million in aggregate for 2022-2026.

The accumulated post-retirement benefit obligation is increased by $7 million and decreased by $6 million by a respective 1% increase or decrease to the assumed healthcare trend rate. The service cost and interest cost components of net periodic benefits cost is increased by $0.6 million and decreased by $0.5 million by a respective 1% increase or decrease to the assumed healthcare trend rate.

For most of the participants in the U.S. plan, Aon’s liability for future plan cost increases for pre-65 and Medical Supplement plan coverage is limited to 5% per annum. Although the net employer trend rates range from 4% to 8.5% per year, because of this cap, these plans are effectively limited to 5% per year in the future.