RETIREMENT PLANS

Retirement plans expense includes the following components:



	U.S. Plans							Non-U.S. Plans
	2016			2017		2018		2016		2017		2018
Defined benefit plans:
Service cost (benefits earned during the period)	$	59		60		52		26		19		24
Interest cost	148			134		141		39		30		39
Expected return on plan assets	(296		)	(290	)	(283	)	(52	)	(56	)	(67	)
Net amortization and other	166			211		129		17		22		14
Net periodic pension expense	77			115		39		30		15		10
Defined contribution plans	104			96		132		56		47		52
Total retirement plans expense	$	181		211		171		86		62		62

The decrease in net periodic pension expense in 2018 is primarily attributable to lower amortization expense compared to the prior year. Net periodic pension expense includes $3 and $12 and defined contribution expense includes $6 and $34, for 2017 and 2016, 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
	2017			2018		2017		2018
Projected benefit obligation, beginning	$	4,696		4,369		1,320		1,489
Service cost	60			52		19		24
Interest cost	134			141		30		39
Actuarial (gain) loss	(144		)	(262	)	(83	)	(51	)
Benefits paid	(201		)	(205	)	(29	)	(36	)
Settlements	(125		)	(152	)	(25	)	(49	)
Acquisitions (Divestitures), net	(55		)	13		163		54
Foreign currency translation and other	4			1		94		(28	)
Projected benefit obligation, ending	$	4,369		3,957		1,489		1,442

Fair value of plan assets, beginning	$	4,110		4,292		909		1,236
Actual return on plan assets	516			265		61		69
Employer contributions	20			20		25		41
Benefits paid	(201		)	(205	)	(29	)	(36	)
Settlements	(125		)	(152	)	(25	)	(49	)
Acquisitions (Divestitures), net	(30		)	12		232		10
Foreign currency translation and other	2			1		63		(28	)
Fair value of plan assets, ending	$	4,292		4,233		1,236		1,243

Net amount recognized in the balance sheet	$	(77	)	276		(253	)	(199	)

Location of net amount recognized in the balance sheet:
Noncurrent asset	$	154		465		43		126
Current liability	(11		)	(10	)	(11	)	(13	)
Noncurrent liability	(220		)	(179	)	(285	)	(312	)
Net amount recognized in the balance sheet	$	(77	)	276		(253	)	(199	)

Pretax accumulated other comprehensive loss	$	(923	)	(548	)	(238	)	(164	)

Approximately $85 of the $712 of pretax losses deferred in accumulated other comprehensive income (loss) at September 30, 2018 will be amortized to expense in 2019. As of September 30, 2018, U.S. pension plans were overfunded by $276 in total, including unfunded plans totaling $182. The non-U.S. plans were underfunded by $199, including unfunded plans totaling $270.

As of the September 30, 2018 and 2017 measurement dates, the plans' total accumulated benefit obligation was $5,154 and $5,607, respectively. 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 $585, $508 and $87, respectively, for 2018, and $1,182, $1,088 and $663, respectively, for 2017.

Future benefit payments by U.S. plans are estimated to be $214 in 2019, $221 in 2020, $228 in 2021, $234 in 2022, $239 in 2023 and $1,252 in total over the five years 2024 through 2028. Based on foreign currency exchange rates as of September 30, 2018, future benefit payments by non-U.S. plans are estimated to be $83 in both 2019 and 2020, $88 in 2021, $95 in 2022, $99 in 2023 and $569 in total over the five years 2024 through 2028. The Company expects to contribute approximately $60 to its retirement plans in 2019.

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



	U.S. Plans						Non-U.S. Plans
	2016		2017		2018		2016		2017		2018
Net pension expense
Discount rate used to determine service cost	4.60	%	3.75	%	3.95	%	3.3	%	2.3	%	2.6	%
Discount rate used to determine interest cost	3.50	%	2.90	%	3.25	%	3.3	%	2.3	%	2.6	%
Expected return on plan assets	7.50	%	7.25	%	7.00	%	6.4	%	6.2	%	5.7	%
Rate of compensation increase	3.25	%	3.25	%	3.25	%	3.4	%	3.2	%	3.4	%

Benefit obligations
Discount rate	3.50	%	3.76	%	4.26	%	2.3	%	2.6	%	2.7	%
Rate of compensation increase	3.25	%	3.25	%	3.25	%	3.2	%	3.4	%	3.5	%

The discount rate for the U.S. retirement plans was 4.26 percent as of September 30, 2018. An actuarially developed, company-specific yield curve is used to determine the discount rate. To determine the service and interest cost components of pension expense for its U.S. retirement plans, the Company applies the specific spot rates along the yield curve, rather than the single weighted-average rate, to the projected cash flows to provide more precise measurement of these costs. 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, 2018 and 2017, and weighted-average target allocations follow:



	U.S. Plans					Non-U.S. Plans
	2017		2018		Target	2017		2018		Target
Equity securities	67	%	62	%	60-70%	52	%	52	%	45-55%
Debt securities	28		34		25-35	38		38		35-45
Other	5		4		3-10	10		10		5-15
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	%
2018
U.S. equities	$	968	5	350	320	1,643	30	%
International equities	595		21	—	745	1,361	25	%
Emerging market equities	—		—	—	243	243	5	%
Corporate bonds	—		696	—	423	1,119	20	%
Government bonds	0		350	—	438	788	14	%
High-yield bonds	—		—	—	10	10	—	%
Other	107		6	121	78	312	6	%
Total	$	1,670	1,078	471	2,257	5,476	100	%

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	%

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:



	2017			2018
Level 3, beginning	$	405		451
Gains (Losses) on assets held	49			1
Gains (Losses) on assets sold	(28		)	37
Purchases, sales and settlements, net	25			(18	)
Level 3, ending	$	451		471