Retirement and Post-Retirement Benefit Plan

Separation Related Activities

In advance of the Separation, HP underwent a plan-by-plan analysis and determined which plans would be assigned to either HP or Hewlett Packard Enterprise. While some pension plans transitioned in their entirety to Hewlett Packard Enterprise or remain in their entirety with HP, other plans were split into two identical plans resulting in both companies splitting the plan’s assets and liabilities. In the fourth quarter of fiscal year 2015, the plans were legally separated and the amounts attributable to Hewlett Packard Enterprise were transferred and reported as discontinued operations in fiscal year 2015.

The Hewlett-Packard Company 401(k) Plan, now known as the HP Inc. 401(k) Plan, remained with HP. A new 401(k) Plan was created for the employees of Hewlett Packard Enterprise. Balances for Hewlett Packard Enterprise employees were transferred to the new plan post-Separation.

Defined Benefit Plans

HP sponsors a number of defined benefit pension plans worldwide. The most significant defined benefit plan, the HP Inc. Pension Plan (“Pension Plan”) is in the United States.

HP reduces the benefit payable to certain U.S. employees under the Pension Plan for service before 1993, if any, by any amounts due to the employee under HP’s frozen defined contribution Deferred Profit-Sharing Plan (“DPSP”). At October 31, 2017 and 2016, the fair value of plan assets of the DPSP was $580 million and $606 million, respectively. The DPSP obligations are equal to the plan assets and are recognized as an offset to the Pension Plan when HP calculates its defined benefit pension cost and obligations. The Pension Plan and the DPSP both remain entirely with HP post-Separation.

Post-Retirement Benefit Plans

HP sponsors retiree health and welfare benefit plans, of which the most significant are in the United States. Under the HP Inc. Retiree Welfare Benefits Plan, certain pre-2003 retirees and grandfathered participants with continuous service to HP since 2002 are eligible to receive partially-subsidized medical coverage based on years of service at retirement. HP’s share of the premium cost is capped for all subsidized medical coverage provided under the HP Inc. Retiree Welfare Benefits Plan. HP currently leverages the employer group waiver plan process to provide HP Inc. Retiree Welfare Benefits Plan post-65 prescription drug coverage under Medicare Part D, thereby giving HP access to federal subsidies to help pay for retiree benefits.

Certain employees not grandfathered for partially subsidized medical coverage under the above programs, and employees hired after 2002 but before August 2008, are eligible for credits under the HP Inc. Retiree Welfare Benefits Plan. Credits offered after September 2008 are provided in the form of matching credits on employee contributions made to a voluntary employee beneficiary association upon attaining age 45 or as part of early retirement programs. On retirement, former employees may use these credits for the reimbursement of certain eligible medical expenses, including premiums required for coverage.

Defined Contribution Plans

HP offers various defined contribution plans for U.S. and non-U.S. employees. Total defined contribution expense was $103 million in fiscal year 2017, $100 million in fiscal year 2016 and $92 million in fiscal year 2015.

U.S. employees are automatically enrolled in the HP Inc. 401(k) Plan when they meet eligibility requirements, unless they decline participation. The employer matching contributions in the HP Inc. 401(k) Plan is 100% of an employee’s contributions, up to a maximum of 4% of eligible compensation. Starting January 2017, the funding of employer matching contributions are made annually in the month following the end of the calendar year. Prior to January 2017, the funding of employer matching contributions were made quarterly, sometime after the end of the calendar quarter.

Pension and Post-Retirement Benefit Expense

The components of HP’s pension and post-retirement benefit (credit) cost recognized in the Consolidated Statements of Earnings were as follows:



	For the fiscal years ended October 31
	2017			2016			2015			2017			2016			2015			2017			2016			2015
	U.S. Defined Benefit Plans									Non-U.S. Defined Benefit Plans									Post-Retirement Benefit Plans
	In millions
Service cost	$	—		$	—		$	1		$	48		$	47		$	208		$	1		$	1		$	5
Interest cost	469			543			556			18			20			289			18			20			28
Expected return on plan assets	(677		)	(732		)	(849		)	(31		)	(36		)	(601		)	(26		)	(33		)	(39		)
Amortization and deferrals:
Actuarial loss (gain)	73			55			52			40			28			213			(17		)	(12		)	(11		)
Prior service credit	—			—			—			(3		)	(3		)	(15		)	(19		)	(17		)	(19		)
Net periodic benefit (credit) cost	(135		)	(134		)	(240		)	72			56			94			(43		)	(41		)	(36		)
Curtailment gain	—			—			—			—			(1		)	—			—			—			—
Settlement loss (gain)	3			180			(79		)	2			3			—			—			—			—
Special termination benefits	—			—			—			—			—			7			—			4			1
Plan expense allocation⁽¹⁾	—			—			—			—			—			25			—			—			28
Total benefit (credit) cost from continuing operations	$	(132	)	$	46		$	(319	)	$	74		$	58		$	126		$	(43	)	$	(37	)	$	(7	)
Summary of total benefit (credit) cost:
Continuing operations	$	(132	)	$	46		$	(319	)	$	74		$	58		$	126		$	(43	)	$	(37	)	$	(7	)
Discontinued operations	—			—			236			—			—			105			—			—			(28		)
Total benefit (credit) cost	$	(132	)	$	46		$	(83	)	$	74		$	58		$	231		$	(43	)	$	(37	)	$	(35	)


⁽¹⁾	Plan expense allocation relates to the employees of HP covered under Hewlett Packard Enterprise plans or employees of Hewlett Packard Enterprise covered under HP plans.

Lump sum program

During fiscal year 2016, HP offered certain terminated vested participants of the Pension Plan the option of receiving their pension benefit in a one-time voluntary lump sum during a specific window. Approximately 16,000 plan participants elected to receive their benefits and as a result the pension plan trust paid $977 million in lump sum payments to these participants in fiscal year 2016. As a result of the lump sum program, HP recognized a settlement expense of approximately $177 million in October 2016. The resulting re-measurement coincided with annual year end plan re-measurement and no additional net periodic pension cost was incurred in fiscal year 2016.

In January 2015, HP offered certain terminated vested participants of the Pension Plan the option of receiving their pension benefit in a one-time voluntary lump sum during a specified window. Approximately 50% of the eligible participants elected to receive their benefits and as a result the pension plan trust paid $826 million in lump sum payments to these participants in fiscal year 2015. As a result of the lump sum program, HP recognized a settlement credit of approximately $79 million in fiscal year 2015. As a result of the settlement, additional net periodic benefit cost of $20 million was recorded in fiscal year 2015, which offset the actuarial gain from the settlement and was recognized in the Consolidated Statements of Earnings as Defined benefit plan settlement credits.

The weighted-average assumptions used to calculate the total periodic benefit (credit) cost were as follows:



	For the fiscal years ended October 31
	2017		2016		2015		2017		2016		2015		2017		2016		2015
	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						Post-Retirement Benefit Plans
Discount rate	4.0	%	4.4	%	4.4	%	1.6	%	2.3	%	3.0	%	3.4	%	3.6	%	3.6	%
Expected increase in compensation levels	2.0	%	2.0	%	2.0	%	2.7	%	2.5	%	2.4	%	—		—		—
Expected long-term return on plan assets	6.9	%	6.9	%	7.2	%	4.4	%	5.6	%	6.9	%	7.3	%	8.0	%	9.0	%

Funded Status

The funded status of the defined benefit and post-retirement benefit plans was as follows:



	As of October 31
	2017			2016			2017			2016			2017			2016
	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						Post-Retirement Benefit Plans
	In millions
Change in fair value of plan assets:
Fair value of assets — beginning of year	$	10,176		$	11,077		$	692		$	853		$	390		$	434
Actual return on plan assets	1,223			736			86			(14		)	26			11
Employer contributions	33			32			27			20			9			18
Participant contributions	—			—			10			10			53			48
Benefits paid	(583		)	(339		)	(14		)	(15		)	(127		)	(121		)
Settlement	(11		)	(1,330		)	(6		)	(9		)	—			—
Currency impact	—			—			20			4			—			—
Transfers to Hewlett Packard Enterprise	—			—			—			(157		)	—			—
Fair value of assets — end of year	$	10,838		$	10,176		$	815		$	692		$	351		$	390
Change in benefits obligation
Projected benefit obligation — beginning of year	$	12,144		$	12,709		$	1,120		$	1,082		$	535		$	597
Acquisition/addition of plans	—			—			—			(2		)	—			—
Service cost	—			—			48			47			1			1
Interest cost	469			543			18			20			18			20
Participant contributions	—			—			10			10			53			48
Actuarial loss (gain)	247			561			(77		)	120			(17		)	16
Benefits paid	(583		)	(339		)	(14		)	(15		)	(127		)	(121		)
Plan amendments	—			—			(3		)	—			—			(30		)
Curtailment	—			—			—			(1		)	—			—
Settlement	(11		)	(1,330		)	(6		)	(9		)	—			—
Special termination benefits	—			—			—			—			—			4
Currency impact	—			—			36			(4		)	—			—
Transfers to Hewlett Packard Enterprise	—			—			—			(128		)	—			—
Projected benefit obligation — end of year	$	12,266		$	12,144		$	1,132		$	1,120		$	463		$	535
Funded status at end of year	$	(1,428	)	$	(1,968	)	$	(317	)	$	(428	)	$	(112	)	$	(145	)
Accumulated benefit obligation	$	12,266		$	12,144		$	1,014		$	1,013		—			—

The weighted-average assumptions used to calculate the projected benefit obligations for the fiscal years ended October 31, 2017 and 2016 were as follows:



	For the fiscal years ended October 31
	2017		2016		2017		2016		2017		2016
	U.S. Defined Benefit Plans				Non-U.S. Defined Benefit Plans				Post-Retirement Benefit Plans
Discount rate	3.8	%	4.0	%	2.0	%	1.6	%	3.5	%	3.4	%
Expected increase in compensation levels	2.0	%	2.0	%	2.4	%	2.7	%	—		—

The net amounts of non-current assets and current and non-current liabilities for HP’s defined benefit and post-retirement benefit plans recognized on HP’s Consolidated Balance Sheet were as follows:



	As of October 31
	2017			2016			2017			2016			2017			2016
	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						Post-Retirement Benefit Plans
							In millions
Non-current assets	$	—		$	—		$	18		$	17		$	7		$	—
Current liabilities	(33		)	(33		)	(5		)	(5		)	(7		)	(9		)
Non-current liabilities	(1,395		)	(1,935		)	(330		)	(440		)	(112		)	(136		)
Funded status at end of year	$	(1,428	)	$	(1,968	)	$	(317	)	$	(428	)	$	(112	)	$	(145	)

The following table summarizes the pre-tax net actuarial loss (gain) and prior service benefit recognized in Accumulated other comprehensive loss for the defined benefit and post-retirement benefit plans.



	As of October 31, 2017
	U.S. Defined Benefit Plans		Non-U.S. Defined Benefit Plans			Post-Retirement Benefit Plans
			In millions
Net actuarial loss (gain)	$	1,327	$	279		$	(106	)
Prior service benefit	—		(20		)	(93		)
Total recognized in Accumulated other comprehensive loss	$	1,327	$	259		$	(199	)

The following table summarizes HP’s pre-tax net actuarial loss (gain) and prior service benefit that are expected to be amortized from Accumulated other comprehensive loss and recognized as components of net periodic benefit cost (credit) during the next fiscal year.



	U.S. Defined Benefit Plans		Non-U.S. Defined Benefit Plans			Post-Retirement Benefit Plans
			In millions
Net actuarial loss (gain)	$	59	$	27		$	(17	)
Prior service benefit	—		(5		)	(18		)
Total expected to be recognized in net periodic benefit cost (credit)	$	59	$	22		$	(35	)

Defined benefit plans with projected benefit obligations exceeding the fair value of plan assets were as follows:



	As of October 31
	2017		2016		2017		2016
	U.S. Defined Benefit Plans				Non-U.S. Defined Benefit Plans
	In millions
Aggregate fair value of plan assets	$	10,838	$	10,176	$	750	$	626
Aggregate projected benefit obligation	$	12,266	$	12,144	$	1,085	$	1,070

Defined benefit plans with accumulated benefit obligations exceeding the fair value of plan assets were as follows:



	As of October 31
	2017		2016		2017		2016
	U.S. Defined Benefit Plans				Non-U.S. Defined Benefit Plans
	In millions
Aggregate fair value of plan assets	$	10,838	$	10,176	$	554	$	619
Aggregate accumulated benefit obligation	$	12,266	$	12,144	$	777	$	960

Fair Value of Plan Assets

Effective November 1, 2016, HP retrospectively adopted ASU 2015-07 "Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)," which removed the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share as a practical expedient.

The table below sets forth the fair value of plan assets by asset category within the fair value hierarchy as of October 31, 2017. Refer to Note 9, “Fair Value” for details on fair value hierarchy.



	As of October 31, 2017
	U.S. Defined Benefit Plans											Non-U.S. Defined Benefit Plans								Post-Retirement Benefit Plans
	Level 1			Level 2			Level 3		Total			Level 1		Level 2		Level 3		Total		Level 1			Level 2		Level 3		Total
	In millions
Asset Category:
Equity securities⁽¹⁾	$	3,174		$	40		$	—	$	3,214		$	124	$	6	$	—	$	130	$	—		$	—	$	—	$	—
Debt securities⁽²⁾
Corporate	—			3,379			—		3,379			—		152		—		152		—			25		—		25
Government	—			2,513			—		2,513			—		84		—		84		—			41		—		41
Real Estate Funds	—			—			—		—			2		51		—		53		—			—		—		—
Insurance Group Annuity Contracts	—			—			—		—			—		7		—		7		—			—		—		—
Common Collective Trusts + 103-12s	—			—			—		—			—		7		—		7		—			—		—		—
Registered Investment Companies⁽³⁾	89			—			—		89			—		—		—		—		54			—		—		54
Cash and Cash Equivalents⁽⁴⁾	8			64			—		72			33		—		—		33		—			2		—		2
Other⁽⁵⁾	(172		)	(561		)	—		(733		)	5		9		1		15		(12		)	—		—		(12		)
Net plan assets subject to leveling	$	3,099		$	5,435		$	—	$	8,534		$	164	$	316	$	1	$	481	$	42		$	68	$	—	$	110

Investments using NAV as a Practical Expedient:
Alternative Investments⁽⁶⁾									1,444									13									198
Common Contractual Funds⁽⁷⁾									13									286									—
Common Collective Trusts and 103-12 Investment Entities⁽⁸⁾									732									—									39
Registered Investment Companies⁽³⁾									115									35									4
Investments at Fair Value									$	10,838								$	815								$	351

The table below sets forth the fair value of plan assets by asset category within the fair value hierarchy as of October 31, 2016.



	As of October 31, 2016
	U.S. Defined Benefit Plans											Non-U.S. Defined Benefit Plans								Post-Retirement Benefit Plans
	Level 1			Level 2			Level 3		Total			Level 1		Level 2		Level 3		Total		Level 1			Level 2		Level 3		Total
	In millions
Asset Category:
Equity securities⁽¹⁾	$	1,716		$	59		$	—	$	1,775		$	106	$	15	$	—	$	121	$	—		$	1	$	—	$	1
Debt securities⁽²⁾
Corporate	—			3,132			—		3,132			—		125		—		125		—			26		—		26
Government	—			1,782			—		1,782			—		63		—		63		—			42		—		42
Real Estate Funds	—			—			—		—			1		43		—		44		—			—		—		—
Insurance Group Annuity Contracts	—			—			—		—			—		6		1		7		—			—		—		—
Common Collective Trusts and 103-12 Investments Entities	—			—			—		—			—		7		—		7		—			—		—		—
Registered Investment Companies⁽³⁾	20			—			—		20			—		—		—		—		54			—		—		54
Cash and Cash Equivalents⁽⁴⁾	4			52			—		56			18		—		—		18		—			5		—		5
Other⁽⁵⁾	(169		)	(23		)	—		(192		)	7		16		—		23		(12		)	—		—		(12		)
Net plan assets subject to leveling	$	1,571		$	5,002		$	—	$	6,573		$	132	$	275	$	1	$	408	$	42		$	74	$	—	$	116

Investments using NAV as a Practical Expedient:
Alternative Investments⁽⁶⁾									1,027									13									219
Common Contractual Funds⁽⁷⁾									1,834									241									—
Common Collective Trusts and 103-12 Investment Entities⁽⁸⁾									639									—									51
Registered Investment Companies⁽³⁾									103									30									4
Investments at Fair Value									$	10,176								$	692								$	390


⁽¹⁾	Investments in publicly-traded equity securities are valued using the closing price on the measurement date as reported on the stock exchange on which the individual securities are traded.


⁽²⁾	The fair value of corporate, government and asset-backed debt securities is based on observable inputs of comparable market transactions. For corporate and government debt securities traded on active exchanges, fair value is based on observable quoted prices. Also included in this category is debt issued by national, state and local governments and agencies.


⁽³⁾	Includes publicly and privately traded Registered Investment Entities.


⁽⁴⁾	Includes cash and cash equivalents such as short-term marketable securities. Cash and cash equivalents include money market funds, which are valued based on NAV. Other assets were classified in the fair value hierarchy based on the lowest level input (e.g., quoted prices and observable inputs) that is significant to the fair value measure in its entirety.


⁽⁵⁾	Includes reverse repurchase agreements, unsettled transactions, international insured contracts, and derivative instruments. Such unsettled transactions relate primarily to fixed income securities are settled in the first quarter of the next fiscal year. 2017 is the only year we have reverse repurchase agreements.

⁽⁶⁾

Alternative Investments primarily include private equities and hedge funds. The valuation of alternative investments, such as limited partnerships and joint ventures, may require significant management judgment. For alternative investments, valuation is based on NAV as reported by the Asset Manager and adjusted for cash flows, if necessary. In making such an assessment, a variety of factors are reviewed by management, including but not limited to the timeliness of NAV as reported by the asset manager and changes in general economic and market conditions subsequent to the last NAV reported by the asset manager.


•	Private equities include limited partnerships such as equity, buyout, venture capital, real estate and other similar funds that invest in the United States and internationally where foreign currencies are hedged.


•	Hedge funds include limited partnerships that invest both long and short primarily in common stocks and credit, relative value, event-driven equity, distressed debt and macro strategies. Management of the hedge funds has the ability to shift investments from value to growth strategies, from small to large capitalization stocks and bonds, and from a net long position to a net short position.

⁽⁷⁾

The Common Contractual Fund is an investment arrangement in which institutional investors pool their assets. Units may be acquired in different sub-funds focused on equities, fixed income, alternative investments and emerging markets. Each sub-fund is invested in accordance with the fund’s investment objective and units are issued in relation to each sub-fund. While the sub-funds are not publicly traded, the custodian strikes a net asset value either once or twice a month, depending on the sub-fund. These assets are valued using NAV as a practical expedient.


⁽⁸⁾	Department of Labor 103-12 IE (Investment Entity) designation is for plan assets held by two or more unrelated employee benefit plans which includes limited partnerships and venture capital partnerships. Common collective trusts, interests in 103-12 entities and registered investment companies are valued using NAV as a practical expedient.

Plan Asset Allocations

Refer to the fair value hierarchy table above for actual assets allocations across the benefit plans. The weighted-average target asset allocations across the benefit plans represented in the fair value tables above were as follows:



	2017 Target Allocation
Asset Category	U.S. Defined Benefit Plans		Non-U.S. Defined Benefit Plans		Post-Retirement Benefit Plans
Equity-related investments	40.2	%	40.6	%	69.2	%
Debt securities	59.8	%	39.3	%	18.8	%
Real estate	—		6.3	%	2.0	%
Cash and cash equivalents	—		3.8	%	10.0	%
Other	—		10.0	%	—
Total	100.0	%	100.0	%	100.0	%

Investment Policy

HP’s investment strategy is to seek a competitive rate of return relative to an appropriate level of risk depending on the funded status of each plan and the timing of expected benefit payments. The majority of the plans’ investment managers employ active investment management strategies with the goal of outperforming the broad markets in which they invest. Risk management practices include diversification across asset classes and investment styles and periodic rebalancing toward asset allocation targets. A number of the plans’ investment managers are authorized to utilize derivatives for investment or liability exposures, and HP may utilize derivatives to affect asset allocation changes or to hedge certain investment or liability exposures.

The target asset allocation selected for each U.S. plan reflects a risk/return profile HP believes is appropriate relative to each plan’s liability structure and return goals. HP conducts periodic asset-liability studies for U.S. plans in order to model various potential asset allocations in comparison to each plan’s forecasted liabilities and liquidity needs. HP invests a portion of the U.S. defined benefit plan assets and post-retirement benefit plan assets in private market securities such as private equity funds to provide diversification and a higher expected return on assets.

Outside the United States, asset allocation decisions are typically made by an independent board of trustees for the specific plan. As in the United States, investment objectives are designed to generate returns that will enable the plan to meet its future obligations. In some countries, local regulations may restrict asset allocations, typically leading to a higher percentage of investment in fixed income securities than would otherwise be deployed. HP reviews the investment strategy and provides a recommended list of investment managers for each country plan, with final decisions on asset allocation and investment managers made by the board of trustees for the specific plan.

Basis for Expected Long-Term Rate of Return on Plan Assets

The expected long-term rate of return on plan assets reflects the expected returns for each major asset class in which the plan invests and the weight of each asset class in the target mix. Expected asset returns reflect the current yield on government bonds, risk premiums for each asset class and expected real returns which considers each country’s specific inflation outlook. Because HP’s investment policy is to employ primarily active investment managers who seek to outperform the broader market, the expected returns are adjusted to reflect the expected additional returns net of fees.

Future Contributions and Funding Policy

In fiscal year 2018, HP expects to contribute approximately $24 million to its non-U.S. pension plans, $33 million to cover benefit payments to U.S. non-qualified plan participants and $7 million to cover benefit claims for HP’s post-retirement benefit plans. HP’s policy is to fund its pension plans so that it makes at least the minimum contribution required by local government, funding and taxing authorities.

Estimated Future Benefits Payments

As of October 31, 2017, HP estimates that the future benefits payments for the retirement and post-retirement plans are as follows:



Fiscal year	U.S. Defined Benefit Plans		Non-U.S. Defined Benefit Plans		Post-Retirement Benefit Plans
	In millions
2018	$	823	$	28	$	54
2019	664		30		45
2020	676		27		41
2021	695		30		38
2022	720		33		35
Next five fiscal years to October 31, 2027	3,690		210		162