NONPENSION POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

Postretirement

The Company sponsors a number of plans to provide health care and other welfare benefits to retired employees in the United States and Canada, who have met certain age and service requirements. The majority of these plans are funded or unfunded defined benefit plans, although the Company does participate in a limited number of multiemployer or other defined contribution plans for certain employee groups. The Company contributes to voluntary employee benefit association (VEBA) trusts to fund certain U.S. retiree health and welfare benefit obligations. The Company uses a December 31 measurement date for these plans and, when necessary, adjusts for plan contributions and significant events between December 31 and its fiscal year-end.

Obligations and funded status

The aggregate change in accumulated postretirement benefit obligation, plan assets, and funded status is presented in the following tables.



(millions)	2017			2016
Change in accumulated benefit obligation
Beginning of year	$	1,161		$	1,163
Service cost	18			21
Interest cost	37			39
Actuarial (gain) loss	29			2
Benefits paid	(61		)	(65		)
Curtailments	3			—
Amendments	—			—
Foreign currency adjustments	3			1
End of year	$	1,190		$	1,161
Change in plan assets
Fair value beginning of year	$	1,136		$	1,084
Actual return on plan assets	217			111
Employer contributions	13			15
Benefits paid	(74		)	(74		)
Fair value end of year	$	1,292		$	1,136
Funded status	$	102		$	(25	)
Amounts recognized in the Consolidated Balance Sheet consist of
Other non-current assets	$	144		$	17
Other current liabilities	(2		)	(2		)
Other liabilities	(40		)	(40		)
Net amount recognized	$	102		$	(25	)
Amounts recognized in accumulated other comprehensive income consist of
Prior service credit	(77		)	(86		)
Net amount recognized	$	(77	)	$	(86	)

Expense

Components of postretirement benefit expense (income) were:



(millions)	2017			2016			2015
Service cost	$	18		$	21		$	29
Interest cost	37			39			48
Expected return on plan assets	(98		)	(90		)	(100		)
Amortization of unrecognized prior service credit	(9		)	(9		)	(5		)
Recognized net (gain) loss	(90		)	(19		)	112
Net periodic benefit cost	(142		)	(58		)	84
Curtailment	3			—			—
Postretirement benefit expense:
Defined benefit plans	(139		)	(58		)	84
Defined contribution plans	16			17			14
Total	$	(123	)	$	(41	)	$	98

The estimated prior service credit that will be amortized from accumulated other comprehensive income into nonpension postretirement benefit expense over the next fiscal year is expected to be approximately $9 million.

Assumptions

The weighted-average actuarial assumptions used to determine benefit obligations were:



	2017		2016		2015
Discount rate	3.6	%	4.0	%	4.2	%

The weighted-average actuarial assumptions used to determine annual net periodic benefit cost were:



	2017		2016		2015
Discount rate	4.0	%	4.2	%	4.0	%
Long-term rate of return on plan assets	8.5	%	8.5	%	8.5	%

The Company determines the overall discount rate and expected long-term rate of return on VEBA trust obligations and assets in the same manner as that described for pension trusts in Note 10.

The assumed health care cost trend rate is 5.7% for 2018, decreasing 0.25% annually to 4.5% by the year 2023 and remaining at that level thereafter. These trend rates reflect the Company’s historical experience and management’s expectations regarding future trends. A one percentage point change in assumed health care cost trend rates would have the following effects:



(millions)	One percentage point increase		One percentage point decrease
Effect on total of service and interest cost components	$	7	$	(4	)
Effect on postretirement benefit obligation	117		(79		)

Plan assets

The fair value of Plan assets as of December 30, 2017 summarized by level within fair value hierarchy described in Note 10, are as follows:



(millions)	Total Level 1		Total Level 2		Total Level 3		Total NAV (practical expedient)(a)		Total
Cash and cash equivalents	$	—	$	13	$	—	$	—	$	13
Corporate stock, common:
Domestic	141		—		—		—		141
International	8		—		—		—		8
Mutual funds:
Domestic equity	—		52		—		—		52
International equity	—		40		—		—		40
Domestic debt	—		52		—		—		52
Collective trusts:
Domestic equity	—		—		—		273		273
International equity	—		—		—		266		266
Limited partnerships	—		—		—		215		215
Bonds, corporate	—		117		—		—		117
Bonds, government	—		53		—		—		53
Bonds, other	—		9		—		—		9
Real estate	—		—		—		51		51
Other	—		2		—		—		2
Total	$	149	$	338	$	—	$	805	$	1,292

(a) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The fair value of Plan assets at December 31, 2016 are summarized as follows:



(millions)	Total Level 1		Total Level 2		Total Level 3		Total NAV (practical expedient)(a)		Total
Cash and cash equivalents	$	4	$	6	$	—	$	—	$	10
Corporate stock, common:
Domestic	143		—		—		—		143
International	6		1		—		—		7
Mutual funds:
Domestic equity	—		57		—		—		57
International equity	—		30		—		—		30
Domestic debt	—		53		—		—		53
Collective trusts:
Domestic equity	—		—		—		272		272
International equity	—		—		—		210		210
Limited partnerships	—		—		—		177		177
Bonds, corporate	—		117		—		—		117
Bonds, government	—		48		—		—		48
Bonds, other	—		10		—		—		10
Other	—		2		—		—		2
Total	$	153	$	324	$	—	$	659	$	1,136

(a) Certain assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The Company’s asset investment strategy for its VEBA trusts is consistent with that described for its pension trusts in Note 10. The current target asset allocation is 70% equity securities, 23% debt securities, and 7% real estate. The Company currently expects to contribute approximately $13 million to its VEBA trusts during 2018. Additionally, the Company anticipates adjusting targeted asset allocation to a more conservative investment mix that will likely result in a lower expected rate of return assumption for 2018.

There were no Level 3 assets during 2017 and 2016.

Postemployment

Under certain conditions, the Company provides benefits to former or inactive employees, including salary continuance, severance, and long-term disability, in the United States and several foreign locations. The Company’s postemployment benefit plans are unfunded. Actuarial assumptions used are generally consistent with those presented for pension benefits in Note 10. During 2017, the Company reduced its incidence rate assumption based on our review of historical experience, resulting in an actuarial gain of $31 million.

The aggregate change in accumulated postemployment benefit obligation and the net amount recognized were:



(millions)	2017			2016
Change in accumulated benefit obligation
Beginning of year	$	87		$	108
Service cost	6			7
Interest cost	3			3
Actuarial (gain)loss	(45		)	(25		)
Benefits paid	(8		)	(6		)
Amendments	—			—
Foreign currency adjustments	—			—
End of year	$	43		$	87
Funded status	$	(43	)	$	(87	)
Amounts recognized in the Consolidated Balance Sheet consist of
Other current liabilities	$	(4	)	$	(8	)
Other liabilities	(39		)	(79		)
Net amount recognized	$	(43	)	$	(87	)
Amounts recognized in accumulated other comprehensive income consist of
Net prior service cost	$	5		$	6
Net experience gain	(46		)	(1		)
Net amount recognized	$	(41	)	$	5

Components of postemployment benefit expense were:



(millions)	2017		2016		2015
Service cost	$	6	$	7	$	7
Interest cost	3		3		4
Amortization of unrecognized prior service cost	1		1		1
Recognized net loss	—		3		3
Postemployment benefit expense	$	10	$	14	$	15

The estimated net experience gain and net prior service cost that will be amortized from accumulated other comprehensive income into postemployment benefit expense over the next fiscal year is $5 million and $1 million, respectively.

Benefit payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:



(millions)	Postretirement		Postemployment
2018	$	81	$	4
2019	76		4
2020	73		4
2021	72		4
2022	73		3
2023-2027	367		18