Retirement Plans

Our company and subsidiaries have various plans that cover a significant number of our employees. These plans include defined contribution plans, defined benefit plans and other postretirement plans:

our defined contribution plans provide retirement benefits in return for services rendered. These plans provide an individual account for each participant and have terms that specify how contributions to the participant’s account are to be determined rather than the amount of pension benefits the participant is to receive. Contributions to these plans are based on pretax income and/or discretionary amounts determined on an annual basis. Our expense for the defined contribution plans for continuing operations totaled $173 million in 2017, $111 million in 2016 and $288 million in 2015. The increase in 2017 resulted from an increase in the domestic workforce and the reinstatement of discretionary contributions in 2017.


-	our defined benefit plans, which include both funded and unfunded pension plans, define an amount of pension benefit to be provided, usually as a function of age, years of service and/or compensation. The unfunded obligations and net periodic benefit cost of our United States defined benefit plans were not material for the periods presented; and


-	our postretirement plans other than pensions are offered to specific eligible employees. The accumulated benefit obligations and net periodic benefit cost for these plans were not material for the periods presented.

Funded status

For our international pension plans, at December 31, 2017, the projected benefit obligation was $1.2 billion and the fair value of plan assets was $940 million, which resulted in an unfunded obligation of $280 million. At December 31, 2016, the projected benefit obligation was $1.1 billion and the fair value of plan assets was $865 million, which resulted in an unfunded obligation of $241 million. The accumulated benefit obligation was approximately the same as the projected benefit obligation for our international plans in both years presented.

The following table presents additional information about our international pension plans.



	December 31
Millions of dollars	2017		2016
Amounts recognized on the Consolidated Balance Sheets
Accrued employee compensation and benefits	$	15	$	16
Employee compensation and benefits	267		227
Pension plans in which projected benefit obligation exceeded plan assets
Projected benefit obligation	$	1,202	$	1,083
Fair value of plan assets	920		840
Pension plans in which accumulated benefit obligation exceeded plan assets
Accumulated benefit obligation	$	1,139	$	1,037
Fair value of plan assets	920		840

Fair value measurements of plan assets

The fair value of our plan assets categorized within level 1 on the fair value hierarchy is based on quoted prices in active markets for identical assets. The fair value of our plan assets categorized within level 2 on the fair value hierarchy is based on significant observable inputs for similar assets. The fair value of our plan assets categorized within level 3 on the fair value hierarchy is based on significant unobservable inputs.

The following table sets forth the fair values of assets held by our international pension plans by level within the fair value hierarchy.



Millions of dollars	Level 1		Level 2		Level 3		Total
Cash and equivalents	$	—	$	11	$	—	$	11
Common/collective trust funds (a)
Equity funds (b)	—		204		—		204
Bond funds (c)	—		323		46		369
Alternatives funds (d)	—		184		—		184
Real estate funds (e)	—		98		28		126
Other assets	7		22		17		46
Fair value of plan assets at December 31, 2017	$	7	$	842	$	91	$	940

Cash and equivalents	$	—	$	49	$	—	$	49
Common/collective trust funds (a)
Equity funds (b)	—		197		—		197
Bond funds (c)	—		232		44		276
Alternatives fund (d)	—		221		—		221
Real estate funds (e)	—		36		35		71
Other assets	5		20		26		51
Fair value of plan assets at December 31, 2016	$	5	$	755	$	105	$	865

(a) Common/collective trust funds are valued at the net asset value of units held by the plans at year-end.

(b) Strategy is to invest in diversified funds of global common stocks.

(c) Strategy is to invest in diversified funds of fixed income securities of varying geographies and credit quality and whose cash flows approximate the maturities of the benefit obligation.

(d) Strategy is to invest in a fund of diversifying investments, including but not limited to reinsurance, commodities and currencies.

(e) Strategy is to invest in diversified funds of real estate investment trusts and private real estate.

Our investment strategy varies by country depending on the circumstances of the underlying plan. Risk management practices include diversification by issuer, industry and geography, as well as the use of multiple asset classes and investment managers within each asset class. Our investment strategy for our United Kingdom pension plan, which constituted 84% of our international pension plans’ projected benefit obligation at December 31, 2017 and is no longer accruing service benefits, aims to achieve full funding of the benefit obligation, with the plan's assets increasingly composed of investments whose cash flows match the maturities of the obligation.

Net periodic benefit cost

Net periodic benefit cost for our international pension plans was $30 million in 2017, $30 million in 2016 and $42 million in 2015. Included in net periodic benefit cost were $13 million in 2017 and $8 million in 2016 of net curtailment and settlement cost arising from reductions in workforce during these years.

Actuarial assumptions

Certain weighted-average actuarial assumptions used to determine benefit obligations of our international pension plans at December 31 were as follows:



	2017	2016
Discount rate	2.8%	2.9%
Rate of compensation increase	5.5%	4.8%

Certain weighted-average actuarial assumptions used to determine net periodic benefit cost of our international pension plans for the years ended December 31 were as follows:



	2017	2016	2015
Discount rate	2.9%	4.2%	4.1%
Expected long-term return on plan assets	4.2%	5.3%	5.9%
Rate of compensation increase	4.8%	5.4%	5.3%

Assumed long-term rates of return on plan assets, discount rates for estimating benefit obligations and rates of compensation increases vary by plan according to local economic conditions. Where possible, discount rates were determined based on the prevailing market rates of a portfolio of high-quality debt instruments with maturities matching the expected timing of the payment of the benefit obligations. Expected long-term rates of return on plan assets were determined based upon an evaluation of our plan assets and historical trends and experience, taking into account current and expected market conditions.

Other information

Contributions. Funding requirements for each plan are determined based on the local laws of the country where such plan resides. In certain countries the funding requirements are mandatory, while in other countries they are discretionary. We currently expect to contribute $17 million to our international pension plans in 2018.

Benefit payments. Expected benefit payments over the next 10 years for our international pension plans are as follows: $68 million in 2018, $61 million in 2019, $63 million in 2020, $67 million in 2021, $72 million in 2022 and $424 million in years 2023 through 2027.