RETIREMENT PLANS

Retirement plans expense includes the following components:



	U.S. Plans							Non-U.S. Plans
	2015			2016		2017		2015		2016		2017
Defined benefit plans:
Service cost (benefits earned during the period)	$	69		59		60		37		26		19
Interest cost	182			148		134		46		39		30
Expected return on plan assets	(303		)	(296	)	(290	)	(58	)	(52	)	(56	)
Net amortization and other	174			166		211		20		17		22
Net periodic pension expense	122			77		115		45		30		15
Defined contribution plans	111			104		96		61		56		47
Total retirement plans expense	$	233		181		211		106		86		62

The increase in net periodic pension expense in 2017 is attributable to higher amortization compared to the prior year. Beginning in 2016, the Company refined the method used to determine the service and interest cost components of pension expense for its U.S. retirement plans. The specific spot rates along the yield curve, rather than the single weighted-average rate previously used, are applied to the projected cash flows to provide more precise measurement of these costs. This is a change in estimate which has been accounted for prospectively beginning with the 2016 financial statements. The change reduced the 2016 service and interest cost by a total of $38 compared with the cost measured using the weighted-average approach. Net periodic pension expense includes $3, $12 and $14 and defined contribution expense includes $6, $34 and $33, for 2017, 2016 and 2015, respectively, related to discontinued operations. For defined contribution plans, the Company makes cash contributions based on plan requirements, which are expensed as incurred.

The Company transitioned from defined benefit to defined contribution retirement plans in 2016. The principal U.S. defined benefit pension plan is closed to employees hired after January 1, 2016, and current employees not meeting combined age and years of service criteria ceased accruing benefits effective October 1, 2016. Affected employees were enrolled in an enhanced defined contribution plan. The impact of these actions had an inconsequential impact on the Company's financial statements for all years presented. Over time, defined benefit plan expense will decline while defined contribution plan expense will increase, with an expectation of reduced earnings volatility.

All of the following tables include defined benefit plans related to continuing and discontinued operations.

Details of the changes in the actuarial present value of the projected benefit obligation and the fair value of plan assets for defined benefit pension plans follow:



	U.S. Plans					Non-U.S. Plans
	2016			2017		2016		2017
Projected benefit obligation, beginning	$	4,263		4,696		1,248		1,320
Service cost	59			60		26		19
Interest cost	148			134		39		30
Actuarial (gain) loss	565			(144	)	275		(83	)
Benefits paid	(191		)	(201	)	(31	)	(29	)
Settlements	(151		)	(125	)	(82	)	(25	)
Acquisitions (Divestitures), net	—			(55	)	(6	)	163
Foreign currency translation and other	3			4		(149	)	94
Projected benefit obligation, ending	$	4,696		4,369		1,320		1,489

Fair value of plan assets, beginning	$	3,928		4,110		935		909
Actual return on plan assets	491			516		155		61
Employer contributions	31			20		35		25
Benefits paid	(191		)	(201	)	(31	)	(29	)
Settlements	(151		)	(125	)	(82	)	(25	)
Acquisitions (Divestitures), net	—			(30	)	—		232
Foreign currency translation and other	2			2		(103	)	63
Fair value of plan assets, ending	$	4,110		4,292		909		1,236

Net amount recognized in the balance sheet	$	(586	)	(77	)	(411	)	(253	)

Location of net amount recognized in the balance sheet:
Noncurrent asset	$	—		154		1		43
Current liability	(11		)	(11	)	(7	)	(11	)
Noncurrent liability	(565		)	(220	)	(279	)	(285	)
Net liability held-for-sale	(10		)	—		(126	)	—
Net amount recognized in the balance sheet	(586		)	(77	)	(411	)	(253	)

Pretax accumulated other comprehensive loss	$	(1,527	)	(923	)	(389	)	(238	)

Approximately $142 of the $1,161 of pretax losses deferred in accumulated other comprehensive income (loss) at September 30, 2017 will be amortized to expense in 2018. As of September 30, 2017, U.S. pension plans were underfunded by $77 in total, including unfunded plans totaling $201. The non-U.S. plans were underfunded by $253, including unfunded plans totaling $215.

As of the September 30, 2017 and 2016 measurement dates, the plans' total accumulated benefit obligation was $5,607 and $5,729, respectively. Also as of the measurement dates, the total projected benefit obligation, accumulated benefit obligation and fair value of plan assets for individual plans with accumulated benefit obligations in excess of plan assets were $1,182, $1,088 and $663, respectively, for 2017, and $5,951, $5,678 and $4,958, respectively, for 2016.

Future benefit payments by U.S. plans are estimated to be $212 in 2018, $220 in 2019, $228 in 2020, $235 in 2021, $241 in 2022 and $1,272 in total over the five years 2023 through 2027. Based on foreign currency exchange rates as of September 30, 2017, future benefit payments by non-U.S. plans are estimated to be $56 in 2018, $57 in 2019, $59 in 2020, $63 in 2021, $68 in 2022 and $390 in total over the five years 2023 through 2027. The Company expects to contribute approximately $60 to its retirement plans in 2018.

The weighted-average assumptions used in the valuation of pension benefits follow:



	U.S. Plans						Non-U.S. Plans
	2015		2016		2017		2015		2016		2017
Net pension expense
Discount rate used to determine service cost	4.25	%	4.60	%	3.75	%	3.6	%	3.3	%	2.3	%
Discount rate used to determine interest cost	4.25	%	3.50	%	2.90	%	3.6	%	3.3	%	2.3	%
Expected return on plan assets	7.50	%	7.50	%	7.25	%	6.6	%	6.4	%	6.2	%
Rate of compensation increase	3.25	%	3.25	%	3.25	%	3.4	%	3.4	%	3.2	%

Benefit obligations
Discount rate	4.35	%	3.50	%	3.76	%	3.3	%	2.3	%	2.6	%
Rate of compensation increase	3.25	%	3.25	%	3.25	%	3.4	%	3.2	%	3.4	%

The discount rate for the U.S. retirement plans was 3.76 percent as of September 30, 2017. An actuarially developed, company-specific yield curve is used to determine the discount rate. The expected return on plan assets assumption is determined by reviewing the investment returns of the plans for the past 10 years plus longer-term historical returns of an asset mix approximating the Company's asset allocation targets, and periodically comparing these returns to expectations of investment advisors and actuaries to determine whether long-term future returns are expected to differ significantly from the past.

The Company's asset allocations at September 30, 2017 and 2016, and weighted-average target allocations follow:



	U.S. Plans					Non-U.S. Plans
	2016		2017		Target	2016		2017		Target
Equity securities	66	%	67	%	60-70%	51	%	52	%	50-60%
Debt securities	29		28		25-35	36		38		25-35
Other	5		5		3-10	13		10		10-20
Total	100	%	100	%	100%	100	%	100	%	100%

The primary objective for the investment of pension assets is to secure participant retirement benefits by earning a reasonable rate of return. Plan assets are invested consistent with the provisions of the prudence and diversification rules of ERISA and with a long-term investment horizon. The Company continuously monitors the value of assets by class and routinely rebalances to remain within target allocations. The equity strategy is to minimize concentrations of risk by investing primarily in a mix of companies that are diversified across geographies, market capitalization, style, sectors and industries worldwide. The approach for bonds emphasizes investment-grade corporate and government debt with maturities matching a portion of the longer duration pension liabilities. The bonds strategy also includes a high-yield element which is generally shorter in duration. For diversification, a small portion of U.S. plan assets is allocated to private equity partnerships and real asset fund investments, providing opportunities for above market returns. Leveraging techniques are not used and the use of derivatives in any fund is limited and inconsequential.

The fair values of defined benefit pension assets as of September 30, organized by asset class and by the fair value hierarchy of ASC 820, Fair Value Measurement, follow. Investments valued based on the net asset value (NAV) of fund units held, as derived from the fair value of the underlying assets, are excluded from the fair value hierarchy.



	Level 1		Level 2	Level 3	Measured at NAV	Total	%
2017
U.S. equities	$	1,059	5	338	357	1,759	32	%
International equities	724		6	—	739	1,469	27	%
Emerging market equities	—		—	—	276	276	5	%
Corporate bonds	—		514	—	283	797	14	%
Government bonds	3		369	—	399	771	14	%
High-yield bonds	—		—	—	132	132	2	%
Other	132		6	113	73	324	6	%
Total	$	1,918	900	451	2,259	5,528	100	%

2016
U.S. equities	$	1,081	4	292	301	1,678	33	%
International equities	627		8	—	599	1,234	25	%
Emerging market equities	—		—	—	257	257	5	%
Corporate bonds	—		476	—	172	648	13	%
Government bonds	3		392	—	357	752	15	%
High-yield bonds	—		—	—	122	122	2	%
Other	144		2	113	69	328	7	%
Total	$	1,855	882	405	1,877	5,019	100	%

Asset Classes

U.S. equities reflect companies domiciled in the U.S., including multinational companies. International equities are comprised of companies domiciled in developed nations outside the U.S. Emerging market equities are comprised of companies domiciled in portions of Asia, Eastern Europe and Latin America. Corporate bonds represent investment-grade debt of issuers primarily from the U.S. Government bonds include investment-grade instruments issued by federal, state and local governments, primarily in the U.S. High-yield bonds include noninvestment-grade debt from a diverse group of developed market issuers. Other includes cash, interests in mixed asset funds investing in commodities, natural resources, agriculture, real estate and infrastructure funds, life insurance contracts (U.S.), and shares in certain general investment funds of financial institutions or insurance arrangements (non-U.S.) that typically ensure no market losses or provide for a small minimum return guarantee.

Fair Value Hierarchy Categories

Valuations of Level 1 assets for all classes are based on quoted closing market prices from the principal exchanges where the individual securities are traded. Cash is valued at cost, which approximates fair value. Debt securities categorized as Level 2 assets are generally valued based on independent broker/dealer bids or by comparison to other debt securities having similar durations, yields and credit ratings. U.S. equity securities classified as Level 3 are fund investments in private companies. Valuation techniques and inputs for these assets include discounted cash flow analysis, earnings multiple approaches, recent transactions, transfer restrictions, prevailing discount rates, volatilities, credit ratings and other factors. In the Other class, interests in mixed asset funds are Level 2, and U.S. life insurance contracts and non-U.S. general fund investments and insurance arrangements are Level 3. Investments measured at net asset value are primarily nonexchange-traded commingled or collective funds where the underlying securities have observable prices available from active markets.

Details of the changes in value for Level 3 assets follow:



	2016			2017
Level 3, beginning	$	371		405
Gains (Losses) on assets held	18			49
Gains (Losses) on assets sold	(20		)	(28	)
Purchases, sales and settlements, net	36			25
Level 3, ending	$	405		451