RETIREMENT PLANS

Pension Benefits

The Company has non-contributory defined benefit pension plans covering certain U.S. and non-U.S. employees. The benefits provided are primarily based on years of service and average compensation or a monthly retirement benefit amount. Effective January 1, 2006, certain of the Company’s U.S. pension plans were amended to prohibit new participants from entering the plans. Effective September 30, 2009, active participants continued to accrue benefits under the amended plans until December 31, 2014. Funding for U.S. pension plans equals or exceeds the minimum requirements of the Employee Retirement Income Security Act of 1974. Funding for non-U.S. plans observes the local legal and regulatory limits. Also, the Company makes contributions to union-trusteed pension funds for construction and service personnel.

For pension plans with accumulated benefit obligations (ABO) that exceed plan assets, the projected benefit obligation (PBO), ABO and fair value of plan assets of those plans were $4,622 million, $4,480 million and $3,416 million, respectively, as of September 30, 2016 and $3,636 million, $3,581 million and $2,939 million, respectively, as of September 30, 2015.

In fiscal 2016, total employer contributions to the defined benefit pension plans were $136 million, of which $34 million were voluntary contributions made by the Company. The Company expects to contribute approximately $311 million in cash to its defined benefit pension plans in fiscal 2017, including $247 million due to change in control provisions triggered by the Tyco Merger. Projected benefit payments from the plans as of September 30, 2016 are estimated as follows (in millions):



2017	$	485
2018	233
2019	240
2020	242
2021	246
2022-2026	1,348

Postretirement Benefits

The Company provides certain health care and life insurance benefits for eligible retirees and their dependents primarily in the U.S., Canada and Brazil. Most non-U.S. employees are covered by government sponsored programs, and the cost to the Company is not significant.

Eligibility for coverage is based on meeting certain years of service and retirement age qualifications. These benefits may be subject to deductibles, co-payment provisions and other limitations, and the Company has reserved the right to modify these benefits. Effective January 31, 1994, the Company modified certain salaried plans to place a limit on the Company’s cost of future annual retiree medical benefits at no more than 150% of the 1993 cost.

The health care cost trend assumption does not have a significant effect on the amounts reported.

In fiscal 2016, total employer and employee contributions to the postretirement plans were $7 million. The Company does not expect to make any significant contributions to its postretirement plans in fiscal year 2017. Projected benefit payments from the plans as of September 30, 2016 are estimated as follows (in millions):



2017	$	18
2018	18
2019	18
2020	18
2021	17
2022-2026	76

In December 2003, the U.S. Congress enacted the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act) for employers sponsoring postretirement care plans that provide prescription drug benefits. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans providing a benefit that is at least actuarially equivalent to Medicare Part D.1. Under the Act, the Medicare subsidy amount is received directly by the plan sponsor and not the related plan. Further, the plan sponsor is not required to use the subsidy amount to fund postretirement benefits and may use the subsidy for any valid business purpose. Projected subsidy receipts are estimated to be approximately $2 million per year over the next ten years.

Savings and Investment Plans

The Company sponsors various defined contribution savings plans that allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with plan specified guidelines. Under specified conditions, the Company will contribute to certain savings plans based on the employees’ eligible pay and/or will match a percentage of the employee contributions up to certain limits. Matching contributions charged to expense amounted to $124 million, $123 million and $132 million for the fiscal years ended 2016, 2015 and 2014, respectively.

Multiemployer Benefit Plans

The Company contributes to multiemployer benefit plans based on obligations arising from collective bargaining agreements related to certain of its hourly employees in the U.S. These plans provide retirement benefits to participants based on their service to contributing employers. The benefits are paid from assets held in trust for that purpose. The trustees typically are responsible for determining the level of benefits to be provided to participants as well as for such matters as the investment of the assets and the administration of the plans.

The risks of participating in these multiemployer benefit plans are different from single-employer benefit plans in the following aspects:


•	Assets contributed to the multiemployer benefit plan by one employer may be used to provide benefits to employees of other participating employers.


•	If a participating employer stops contributing to the multiemployer benefit plan, the unfunded obligations of the plan may be borne by the remaining participating employers.


•	If the Company stops participating in some of its multiemployer benefit plans, the Company may be required to pay those plans an amount based on its allocable share of the underfunded status of the plan, referred to as a withdrawal liability.

The Company participates in approximately 275 multiemployer benefit plans, primarily related to its Building Efficiency business in the U.S., none of which are individually significant to the Company. The number of employees covered by the Company’s multiemployer benefit plans has remained consistent over the past three years, and there have been no significant changes that affect the comparability of fiscal 2016, 2015 and 2014 contributions. The Company recognizes expense for the contractually-required contribution for each period. The Company contributed $45 million, $45 million and $44 million to multiemployer benefit plans in fiscal 2016, 2015 and 2014, respectively.

Based on the most recent information available, the Company believes that the present value of actuarial accrued liabilities in certain of these multiemployer benefit plans may exceed the value of the assets held in trust to pay benefits. Currently, the Company is not aware of any significant multiemployer benefits plans for which it is probable or reasonably possible that the Company will be obligated to make up any shortfall in funds. Moreover, if the Company were to exit certain markets or otherwise cease making contributions to these funds, the Company could trigger a withdrawal liability. Currently, the Company is not aware of any significant multiemployer benefit plans for which it is probable or reasonably possible that the Company will withdraw from the plan. Any accrual for a shortfall or withdrawal liability will be recorded when it is probable that a liability exists and it can be reasonably estimated.

Plan Assets

The Company’s investment policies employ an approach whereby a mix of equities, fixed income and alternative investments are used to maximize the long-term return of plan assets for a prudent level of risk. The investment portfolio primarily contains a diversified blend of equity and fixed income investments. Equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value and small to large capitalizations. Fixed income investments include corporate and government issues, with short-, mid- and long-term maturities, with a focus on investment grade when purchased and a target duration close to that of the plan liability. Investment and market risks are measured and monitored on an ongoing basis through regular investment portfolio reviews, annual liability measurements and periodic asset/liability studies. The majority of the real estate component of the portfolio is invested in a diversified portfolio of high-quality, operating properties with cash yields greater than the targeted appreciation. Investments in other alternative asset classes, including hedge funds and commodities, diversify the expected investment returns relative to the equity and fixed income investments. As a result of our diversification strategies, there are no significant concentrations of risk within the portfolio of investments.

The Company’s actual asset allocations are in line with target allocations. The Company rebalances asset allocations as appropriate, in order to stay within a range of allocation for each asset category.

The expected return on plan assets is based on the Company’s expectation of the long-term average rate of return of the capital markets in which the plans invest. The average market returns are adjusted, where appropriate, for active asset management returns. The expected return reflects the investment policy target asset mix and considers the historical returns earned for each asset category.

The Company’s plan assets at September 30, 2016 and 2015, by asset category, are as follows (in millions):



	Fair Value Measurements Using:
Asset Category	Total as of September 30, 2016		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

U.S. Pension

Cash	$	28	$	28	$	—	$	—

Equity Securities
Large-Cap	445		445		—		—
Small-Cap	241		241		—		—
International - Developed	517		517		—		—

Fixed Income Securities
Government	271		249		22		—
Corporate/Other	745		633		112		—

Real Estate	346		—		—		346

Total	$	2,593	$	2,113	$	134	$	346

Non-U.S. Pension

Cash	$	70	$	70	$	—	$	—

Equity Securities
Large-Cap	83		83		—		—
International - Developed	119		119		—		—
International - Emerging	19		19		—		—

Fixed Income Securities
Government	543		412		131		—
Corporate/Other	341		314		27		—

Hedge Fund	169		—		169		—

Real Estate	63		11		—		52

Total	$	1,407	$	1,028	$	327	$	52

Postretirement

Cash	$	7	$	7	$	—	$	—

Equity Securities
Large-Cap	31		31		—		—
Small-Cap	10		10		—		—
International - Developed	23		23		—		—
International - Emerging	12		12		—		—

Fixed Income Securities
Government	23		23		—		—
Corporate/Other	65		65		—		—

Commodities	12		12		—		—

Real Estate	13		13		—		—

Total	$	196	$	196	$	—	$	—



	Fair Value Measurements Using:
Asset Category	Total as of September 30, 2015		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

U.S. Pension

Cash	$	75	$	75	$	—	$	—

Equity Securities
Large-Cap	500		500		—		—
Small-Cap	235		235		—		—
International - Developed	472		472		—		—

Fixed Income Securities
Government	248		217		31		—
Corporate/Other	753		615		138		—

Real Estate	323		—		—		323

Total	$	2,606	$	2,114	$	169	$	323

Non-U.S. Pension

Cash	$	98	$	98	$	—	$	—

Equity Securities
Large-Cap	68		68		—		—
International - Developed	104		104		—		—
International - Emerging	16		16		—		—

Fixed Income Securities
Government	441		319		122		—
Corporate/Other	220		192		28		—

Hedge Fund	172		—		172		—

Real Estate	58		7		—		51

Total	$	1,177	$	804	$	322	$	51

Postretirement

Cash	$	10	$	10	$	—	$	—

Equity Securities
Large-Cap	30		30		—		—
Small-Cap	10		10		—		—
International - Developed	22		22		—		—
International - Emerging	10		10		—		—

Fixed Income Securities
Government	22		22		—		—
Corporate/Other	67		67		—		—

Commodities	12		12		—		—

Real Estate	11		11		—		—

Total	$	194	$	194	$	—	$	—

The following is a description of the valuation methodologies used for assets measured at fair value.

Cash: The fair value of cash is valued at cost.

Equity Securities: The fair value of equity securities is determined by direct quoted market prices. The underlying holdings are direct quoted market prices on regulated financial exchanges.

Fixed Income Securities: The fair value of fixed income securities is determined by direct or indirect quoted market prices. If indirect quoted market prices are utilized, the value of assets held in separate accounts is not published, but the investment managers report daily the underlying holdings. The underlying holdings are direct quoted market prices on regulated financial exchanges.

Commodities: The fair value of the commodities is determined by quoted market prices of the underlying holdings on regulated financial exchanges.

Hedge Funds: The fair value of hedge funds is accounted for by the custodian. The custodian obtains valuations from underlying managers based on market quotes for the most liquid assets and alternative methods for assets that do not have sufficient trading activity to derive prices. The Company and custodian review the methods used by the underlying managers to value the assets. The Company believes this is an appropriate methodology to obtain the fair value of these assets.

Real Estate: The fair value of Real Estate Investment Trusts (REITs) is recorded as Level 1 as these securities are traded on an open exchange. The fair value of other investments in real estate is deemed Level 3 since these investments do not have a readily determinable fair value and requires the fund managers independently to arrive at fair value by calculating net asset value (NAV) per share. In order to calculate NAV per share, the fund managers value the real estate investments using any one, or a combination of, the following methods: independent third party appraisals, discounted cash flow analysis of net cash flows projected to be generated by the investment and recent sales of comparable investments. Assumptions used to revalue the properties are updated every quarter. Due to the fact that the fund managers calculate NAV per share, the Company utilizes a practical expedient for measuring the fair value of its Level 3 real-estate investments, as provided for under ASC 820, "Fair Value Measurement." In applying the practical expedient, the Company is not required to further adjust the NAV provided by the fund manager in order to determine the fair value of its investment as the NAV per share is calculated in a manner consistent with the measurement principles of ASC 946, "Financial Services - Investment Companies," and as of the Company's measurement date. The Company believes this is an appropriate methodology to obtain the fair value of these assets. For the component of the real estate portfolio under development, the investments are carried at cost until they are completed and valued by a third party appraiser.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following sets forth a summary of changes in the fair value of assets measured using significant unobservable inputs (Level 3) (in millions):



	Total			Hedge Funds			Real Estate
U.S. Pension

Asset value as of September 30, 2014	$	335		$	4		$	331

Additions net of redemptions	(59		)	(3		)	(56		)
Realized gain (loss)	28			(1		)	29
Unrealized gain	19			—			19

Asset value as of September 30, 2015	$	323		$	—		$	323

Additions net of redemptions	(6		)	—			(6		)
Realized gain	13			—			13
Unrealized gain	16			—			16

Asset value as of September 30, 2016	$	346		$	—		$	346

Non-U.S. Pension

Asset value as of September 30, 2014	$	20		$	—		$	20

Additions net of redemptions	34			—			34
Unrealized loss	(3		)	—			(3		)

Asset value as of September 30, 2015	$	51		$	—		$	51

Unrealized gain	1			—			1

Asset value as of September 30, 2016	$	52		$	—		$	52

Funded Status

The table that follows contains the ABO and reconciliations of the changes in the PBO, the changes in plan assets and the funded status (in millions):



	Pension Benefits												Postretirement Benefits
	U.S. Plans						Non-U.S. Plans						Postretirement Benefits
September 30,	2016			2015			2016			2015			2016			2015

Accumulated Benefit Obligation	$	3,158		$	2,985		$	1,821		$	1,388		$	—		$	—

Change in Projected Benefit Obligation
Projected benefit obligation at beginning of year	3,022			2,875			1,447			1,572			211			224
Service cost	16			31			29			25			2			3
Interest cost	101			122			42			46			6			9
Plan participant contributions	—			—			1			1			6			6
Acquisitions	—			—			279			—			2			—
Divestitures	—			—			—			(18		)	—			—
Actuarial loss	369			203			329			7			6			—
Benefits and settlements paid	(299		)	(209		)	(111		)	(65		)	(22		)	(24		)
Estimated subsidy received	—			—			—			—			1			1
Curtailment	—			—			—			(5		)	—			—
Other	—			—			(1		)	43			—			(4		)
Currency translation adjustment	—			—			(58		)	(159		)	—			(4		)

Projected benefit obligation at end of year	$	3,209		$	3,022		$	1,957		$	1,447		$	212		$	211

Change in Plan Assets
Fair value of plan assets at beginning of year	$	2,606		$	2,504		$	1,177		$	1,201		$	194		$	219
Actual return on plan assets	270			(4		)	102			48			17			(9		)
Acquisitions	—			—			180			—			—			—
Divestitures	—			—			—			(10		)	—			—
Employer and employee contributions	16			315			121			81			7			8
Benefits paid	(122		)	(201		)	(54		)	(55		)	(22		)	(24		)
Settlement payments	(177		)	(8		)	(57		)	(10		)	—			—
Other	—			—			(1		)	39			—			—
Currency translation adjustment	—			—			(61		)	(117		)	—			—

Fair value of plan assets at end of year	$	2,593		$	2,606		$	1,407		$	1,177		$	196		$	194

Funded status	$	(616	)	$	(416	)	$	(550	)	$	(270	)	$	(16	)	$	(17	)

Amounts recognized in the statement of financial position consist of:
Prepaid benefit cost	$	22		$	17		$	31		$	30		$	53		$	37
Accrued benefit liability	(638		)	(433		)	(581		)	(300		)	(69		)	(54		)

Net amount recognized	$	(616	)	$	(416	)	$	(550	)	$	(270	)	$	(16	)	$	(17	)

Weighted Average Assumptions (1)
Discount rate (2)	3.70		%	4.40		%	1.80		%	3.15		%	3.35		%	3.75		%
Rate of compensation increase	3.20		%	3.25		%	2.75		%	3.00		%	NA			NA


(1)	Plan assets and obligations are determined based on a September 30 measurement date at September 30, 2016 and 2015.

(2)

The Company considers the expected benefit payments on a plan-by-plan basis when setting assumed discount rates. As a result, the Company uses different discount rates for each plan depending on the plan jurisdiction, the demographics of participants and the expected timing of benefit payments. For the U.S. pension and postretirement plans, the Company uses a discount rate provided by an independent third party calculated based on an appropriate mix of high quality bonds. For the non-U.S. pension and postretirement plans, the Company consistently uses the relevant country specific benchmark indices for determining the various discount rates.

At September 30, 2015, the Company changed the method used to estimate the service and interest components of net periodic benefit cost for pension and other postretirement benefits for plans that utilize a yield curve approach. This change compared to the previous method results in different service and interest components of net periodic benefit cost (credit). Historically, the Company estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. The Company elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The Company made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of the total benefit obligations or annual net periodic benefit cost (credit) as the change in the service and interest costs is completely offset in the net actuarial (gain) loss reported. The change in the service and interest costs was not significant. The Company accounted for this change as a change in accounting estimate.

Accumulated Other Comprehensive Income

The amounts in AOCI on the consolidated statements of financial position, exclusive of tax impacts, that have not yet been recognized as components of net periodic benefit cost at September 30, 2016 are as follows (in millions):



	Pension Benefits		Postretirement Benefits
Accumulated other comprehensive loss
Net transition asset	$	1	$	—
Net prior service cost	4		—
Total	$	5	$	—

The amounts in AOCI expected to be recognized as components of net periodic benefit cost over the next fiscal year are shown below (in millions):



	Pension Benefits		Postretirement Benefits
Amortization of:
Net transition obligation	$	—	$	—
Net prior service cost	1		—
Total	$	1	$	—

Net Periodic Benefit Cost

The table that follows contains the components of net periodic benefit cost (in millions):



	Pension Benefits																		Postretirement Benefits
	U.S. Plans									Non-U.S. Plans
Year ended September 30,	2016			2015			2014			2016			2015			2014			2016			2015			2014
Components of Net Periodic Benefit Cost (Credit):
Service cost	$	16		$	31		$	70		$	29		$	32		$	38		$	2		$	3		$	5
Interest cost	101			122			138			42			57			71			6			9			12
Expected return on plan assets	(187		)	(181		)	(207		)	(56		)	(71		)	(75		)	(10		)	(12		)	(12		)
Net actuarial (gain) loss	275			387			126			277			14			172			(1		)	21			(24		)
Amortization of prior service cost (credit)	—			—			1			1			(1		)	(1		)	(1		)	(1		)	(7		)
Curtailment gain	—			—			—			—			(15		)	(2		)	—			—			—
Settlement loss	11			1			15			6			—			1			—			—			—
Net periodic benefit cost (credit)	216			360			143			299			16			204			(4		)	20			(26		)

Net periodic benefit (cost) credit related to discontinued operations	—			—			—			—			14			(38		)	—			—			—

Net periodic benefit cost (credit) included in continuing operations	$	216		$	360		$	143		$	299		$	30		$	166		$	(4	)	$	20		$	(26	)

Expense Assumptions:
Discount rate	4.40		%	4.35		%	4.90		%	3.15		%	3.00		%	3.60		%	3.75		%	4.35		%	4.90		%
Expected return on plan assets	7.50		%	7.50		%	8.00		%	4.45		%	4.50		%	4.75		%	5.45		%	5.75		%	5.80		%
Rate of compensation increase	3.25		%	3.25		%	3.30		%	3.30		%	2.60		%	2.60		%	NA			NA			NA