NOTE 15—EMPLOYEE BENEFIT PLANS

Defined Contribution Plan

We sponsor a contributory Associate Savings Plan (the “Plan”) in which all full-time and part-time associates over the age of 18 are eligible to participate. We make non-elective contributions to each eligible associates’ account and match a portion of associate contributions. We also sponsor a voluntary non-qualified deferred compensation plan in which select groups of employees are eligible to participate. We make contributions to this plan based on participants’ deferral of salary, bonuses and other eligible pay. In addition, we match participants’ excess compensation (compensation over the Internal Revenue Service compensation limit) less deferrals. We contributed a total of $282 million, $252 million and $234 million to these plans during the years ended December 31, 2017, 2016 and 2015, respectively.

Defined Benefit Pension and Other Postretirement Benefit Plans

We sponsor a frozen qualified defined benefit pension plan and several non-qualified defined benefit pension plans. We also sponsor a plan that provides other postretirement benefits, including medical and life insurance coverage.

Our pension plans and the other postretirement benefit plans are valued using December 31, 2017 and 2016 measurement dates. Our policy is to amortize prior service amounts on a straight-line basis over the average remaining years of service to full eligibility for benefits of active plan participants.

The following table sets forth, on an aggregated basis, changes in the benefit obligation and plan assets, the funded status and how the funded status is recognized on our consolidated balance sheets.

Table 15.1: Changes in Benefit Obligation and Plan Assets



	Defined Pension Benefits						Other Postretirement Benefits
(Dollars in millions)	2017			2016			2017			2016
Change in benefit obligation:
Accumulated benefit obligation as of January 1,	$	180		$	185		$	39		$	45
Service cost	2			2			0			0
Interest cost	7			7			2			2
Benefits paid	(18		)	(14		)	(3		)	(3		)
Net actuarial loss (gain)	7			0			(3		)	(5		)
Accumulated benefit obligation as of December 31,	$	178		$	180		$	35		$	39
Change in plan assets:
Fair value of plan assets as of January 1,	$	226		$	222		$	6		$	5
Actual return on plan assets	37			17			1			1
Employer contributions	1			1			2			3
Benefits paid	(18		)	(14		)	(3		)	(3		)
Fair value of plan assets as of December 31,	$	246		$	226		$	6		$	6
Over (under) funded status as of December 31,	$	68		$	46		$	(29	)	$	(33	)



	Defined Pension Benefits						Other Postretirement Benefits
(Dollars in millions)	2017			2016			2017			2016
Balance sheet presentation as of December 31,
Other assets	$	80		$	57		$	0		$	0
Other liabilities	(12		)	(11		)	(29		)	(33		)
Net amount recognized as of December 31,	$	68		$	46		$	(29	)	$	(33	)

The following table presents the components of net periodic benefit costs and other amounts recognized in other comprehensive income.

Table 15.2: Components of Net Periodic Benefit Cost



	Year Ended December 31,
	2017			2016			2015			2017			2016			2015
(Dollars in millions)	Defined Pension Benefits									Other Postretirement Benefits
Components of net periodic benefit cost:
Service cost	$	2		$	2		$	1		$	0		$	0		$	0
Interest cost	7			7			8			2			2			2
Expected return on plan assets	(14		)	(14		)	(15		)	0			0			0
Amortization of transition obligation, prior service credit and net actuarial loss (gain)	1			1			1			(6		)	(6		)	(4		)
Net periodic benefit gain	$	(4	)	$	(4	)	$	(5	)	$	(4	)	$	(4	)	$	(2	)

Changes recognized in other comprehensive income, pretax:
Net actuarial gain (loss)	$	16		$	4		$	(5	)	$	4		$	5		$	7
Reclassification adjustments for amounts recognized in net periodic benefit cost	1			1			1			(6		)	(6		)	(4		)
Total gain (loss) recognized in other comprehensive income	$	17		$	5		$	(4	)	$	(2	)	$	(1	)	$	3

Pre-tax amounts recognized in AOCI that have not yet been recognized as a component of net periodic benefit cost consist of the following:

Table 15.3: Amounts Recognized in AOCI



	December 31,
	2017			2016			2017			2016
(Dollars in millions)	Defined Pension Benefits						Other Postretirement Benefits
Prior service cost	$	0		$	0		$	(2	)	$	(2	)
Net actuarial gain (loss)	(49		)	(66		)	10			12
Accumulated other comprehensive income (loss)	$	(49	)	$	(66	)	$	8		$	10

Pre-tax amounts recorded in AOCI as of December 31, 2017 that are expected to be recognized as a component of our net periodic benefit cost in 2018 consist of net actuarial loss of $1 million related to our pension plans and net actuarial gain of $5 million related to other postretirement plan. There is no meaningful prior service cost expected to be recognized in 2018.

The following table presents weighted-average assumptions used in the accounting for the plans:

Table 15.4: Assumptions Used in the Accounting for the Plans



	December 31,
	2017	2016	2015	2017	2016	2015
	Defined Pension Benefits			Other Postretirement Benefits
Assumptions for benefit obligations at measurement date:
Discount rate	3.5	4.0	4.2	3.5	4.0	4.2
Assumptions for periodic benefit cost for the year ended:
Discount rate	4.0	4.2	3.9	4.0	4.2	3.9
Expected long-term rate of return on plan assets	6.5	6.5	6.5	6.5	6.5	6.5
Assumptions for year-end valuations:
Health care cost trend rate assumed for next year:
Pre-age 65	N/A	N/A	N/A	6.5	6.7	7.0
Post-age 65	N/A	N/A	N/A	6.5	6.8	7.1
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	N/A	N/A	N/A	4.5	4.5	4.5
Year the rate reaches the ultimate trend rate	N/A	N/A	N/A	2037	2037	2037

To develop the expected long-term rate of return on plan assets assumption, consideration was given to the current level of expected returns on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on the plan assets assumption for the portfolio.

Assumed health care trend rates have a significant effect on the amounts reported for the other postretirement benefit plans. The following table presents the effect of a one-percent change in the assumed health care cost trend rate on our accumulated postretirement benefit obligation. There were insignificant effects on total service and interest cost for the years ended December 31, 2017, 2016 and 2015.

Table 15.5: Sensitivity Analysis



	Year Ended December 31,
	2017					2016
(Dollars in millions)	1% Increase		1% Decrease			1% Increase		1% Decrease
Effect on year-end postretirement benefit obligation	$	3	$	(3	)	$	4	$	(4	)

Plan Assets

The following table presents the plan asset allocations as of December 31, 2017 and 2016. Common collective trusts primarily consist of domestic and international equity securities.

Table 15.6: Plan Assets



	December 31,
	2017		2016
Common collective trusts	60	%	62	%
Corporate bonds (Standard & Poor’s (“S&P”) rating of A or higher)	6		6
Corporate bonds (S&P rating of lower than A)	14		12
Government securities	13		13
Mortgage-backed securities	5		5
Municipal bonds	0		1
Money market fund	2		1
Total	100	%	100	%

Plan assets are invested using a total return investment approach whereby a mix of equity securities and debt securities are used to preserve asset values, diversify risk and enhance our ability to achieve our benchmark for long-term investment return. Investment strategies and asset allocations are based on careful consideration of plan liabilities, the plan’s funded status and our financial condition. Investment performance and asset allocation are measured and monitored on a quarterly basis.

Plan assets are managed in a balanced portfolio comprised of three major components: domestic equity, international equity and domestic fixed income investments. The expected role of plan equity investments is to maximize the long-term real growth of fund assets, while the role of fixed income investments is to generate current income, provide for more stable periodic returns and provide some protection against a prolonged decline in the market value of fund equity investments.

The investment guidelines provide the following asset allocation targets and ranges: domestic equity target of 39% and allowable range of 34% to 44%, international equity target of 16% and allowable range of 11% to 21%, fixed income investments target of 45% and allowable range of 35% to 55%.

Fair Value Measurement

For information on fair value measurements, including descriptions of Level 1, 2 and 3 of the fair value hierarchy and the valuation methods we utilize, see “Note 1—Summary of Significant Accounting Policies” and “Note 17—Fair Value Measurement.” All of our plan assets measured at fair value are classified as Level 2 as of both December 31, 2017 and 2016. The common collective trusts are measured at net asset value per share, or its equivalent, as a practical expedient and therefore are not classified in the fair value hierarchy.

Table 15.7: Plan Assets Measured at Fair Value on a Recurring Basis



	December 31, 2017
(Dollars in millions)	Fair Value Measurement Using Level 2		Assets at Fair Value
Plan assets, at fair value:
Corporate bonds (S&P rating of A or higher)	$	16	$	16
Corporate bonds (S&P rating of lower than A)	35		35
Government securities	33		33
Mortgage-backed securities	12		12
Municipal bonds	1		1
Money market fund	4		4
Plan assets in fair value hierarchy	101		101
Plan assets not classified in fair value hierarchy:
Common collective trusts			151
Total plan assets, at fair value			$	252



	December 31, 2016
(Dollars in millions)	Fair Value Measurement Using Level 2		Assets at Fair Value
Plan assets, at fair value:
Corporate bonds (S&P rating of A or higher)	$	15	$	15
Corporate bonds (S&P rating of lower than A)	29		29
Government securities	31		31
Mortgage-backed securities	11		11
Municipal bonds	1		1
Money market fund	2		2
Plan assets in fair value hierarchy	89		89
Plan assets not classified in fair value hierarchy:
Common collective trusts			143
Total plan assets, at fair value			$	232

Expected Future Benefit Payments

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

Table 15.8: Expected Future Benefits Payments



(Dollars in millions)	Pension Benefits		Postretirement Benefits
2018	$	12	$	3
2019	12		3
2020	11		3
2021	12		2
2022	11		2
2023-2027	51		10

In 2018, $1 million in contributions are expected to be made to the pension plans and $2 million in contributions are expected to be made to other postretirement benefits plans.