Pension and Other Postretirement Benefits (Tables)

12 Months Ended

Dec. 31, 2017

Changes in Benefit Obligations, Plan Assets and Funded Status and Aggregate Balance Sheet Impact

The following table summarizes changes in the benefit obligations, the plan assets and funded status for all of the Company’s pension and postretirement benefit plans, as well as the aggregate balance sheet impact.



	Pension Plans						Postretirement Benefit Plans
	2017			2016			2017			2016
	(in millions)
Change in benefit obligation:
Benefit obligation at the beginning of the year	$	3,758		$	3,448		$	177		$	184
Service cost	97			94			2			2
Interest cost	142			135			5			6
Plan participants’ contributions	2			2			5			4
Amendments	—			15			—			(3		)
Actuarial loss (gain)	391			181			(13		)	(3		)
Foreign currency exchange rate changes	22			9			2			—
Curtailments and special termination benefits	2			2			—			—
Benefits paid	(186		)	(128		)	(13		)	(13		)
Benefit obligation at the end of the year	$	4,228		$	3,758		$	165		$	177
Change in plan assets:
Fair value of plan assets at the beginning of the year	$	2,721		$	2,552		$	60		$	57
Actual return on plan assets	391			189			8			5
Employer contributions	97			97			7			7
Plan participants’ contributions	2			2			5			4
Foreign currency exchange rate changes	22			9			—			—
Benefits paid	(186		)	(128		)	(13		)	(13		)
Fair value of plan assets at the end of the year	$	3,047		$	2,721		$	67		$	60
Unfunded status at the end of the year	$	(1,181	)	$	(1,037	)	$	(98	)	$	(117	)

Assets and (liabilities) recognized on the consolidated balance sheets consist of:
Non-current assets	$	48		$	37		$	—		$	—
Current liabilities	(6		)	(6		)	(8		)	(8		)
Non-current liabilities	(1,223		)	(1,068		)	(90		)	(109		)
	$	(1,181	)	$	(1,037	)	$	(98	)	$	(117	)

Net Loss and Prior Service Cost Balances in Accumulated Other Comprehensive Loss Account

The table below summarizes the net loss and prior service cost balances at December 31, in the accumulated other comprehensive loss account, before related tax effects, for all of the Company’s pension and postretirement benefit plans.



	Pension Plans				Postretirement Benefit Plans
	2017		2016		2017			2016
	(in millions)
Net loss (gain)	$	1,035	$	896	$	(3	)	$	(12	)
Prior service cost (credit)	10		14		(27		)	(4		)
Total amount recognized	$	1,045	$	910	$	(30	)	$	(16	)

Pension Plans with an Accumulated Benefit Obligation in Excess of Fair Value of Plan Assets

The table below presents information for the pension plans with an ABO in excess of the fair value of plan assets at December 31, 2017 and 2016.



	Pension Plans
	2017		2016
	(in millions)
Projected benefit obligation	$	3,875	$	3,528
Accumulated benefit obligation	$	3,490	$	3,192
Fair value of plan assets	$	2,651	$	2,456

Weighted Average Assumptions Used to Determine Benefit Obligations

The table below summarizes the weighted average assumptions used to determine the benefit obligations for the Company’s pension and postretirement plans disclosed at December 31, 2017 and 2016.



	Pension Plans						Postretirement Benefit Plans
	2017			2016			2017			2016
Benefit obligations:
Discount rate	3.78	%	⁽¹⁾	4.40	%	⁽¹⁾	3.59	%	⁽²⁾	4.05	%	⁽²⁾
Rate of compensation increase	3.50	%	⁽³⁾	3.50	%	⁽³⁾

__________________


⁽¹⁾	The weighted average discount rate assumptions used at December 31, 2017 and 2016 were comprised of separate assumptions determined by country of 3.81% and 4.45% for the U.S. based plans, respectively, and 3.39% and 3.79% for the Canadian based plans, respectively.


⁽²⁾	The weighted average discount rate assumptions used at December 31, 2017 and 2016 were comprised of separate assumptions determined by country of 3.63% and 4.11% for the U.S. based plans, respectively, and 3.33% and 3.64% for the Canadian based plans, respectively.


⁽³⁾	The weighted average rate of compensation increase assumptions were comprised of separate assumptions determined by country of 3.5% for both the U.S. based plans and Canadian based plans at December 31, 2017 and 2016.

Components of Net Periodic Benefit Cost

The following table summarizes the components of net periodic benefit cost for the Company’s pension and postretirement benefit plans for the years ended December 31, 2017, 2016 and 2015.



	Pension Plans									Postretirement Benefit Plans
	2017			2016			2015			2017			2016			2015
	(in millions)
Components of net periodic benefit cost:
Service cost ⁽¹⁾	$	97		$	94		$	112		$	2		$	2		$	3
Interest cost	142			135			149			5			6			7
Expected return on plan assets ⁽¹⁾	(197		)	(186		)	(194		)	(4		)	(4		)	(5		)
Amortization of prior service cost (credits)	1			—			1			(1		)	(2		)	(2		)
Amortization of net loss (gains)	61			52			68			(2		)	(2		)	—
Curtailment loss and special termination benefits ⁽²⁾	6			2			3			—			—			—
Net periodic benefit cost	$	110		$	97		$	139		$	—		$	—		$	3

__________________

⁽¹⁾

In connection with the adoption of ASU 2017-07, the Company reclassified pension plan administrative expenses amounting to $15 million, $14 million and $11 million for the years ended December 31, 2017, 2016 and 2015, respectively, from the service cost component to the expected return on plan assets component of net periodic benefit cost. Taking into account the aforementioned policy change in connection with the adoption of this standard, operating income included in the Company’s Statements of Operations increased by $11 million, $1 million, and $27 million for the years ended December 31, 2017, 2016, and 2015, respectively, with a corresponding decrease of Interest and other income, net. The Company’s percentage assumptions for expected long-term return on plan assets, which are disclosed further below, exclude expected plan administrative expenses.


⁽²⁾	During the year ended December 31, 2017, the curtailment loss and special termination benefits charge is primarily due to a pension curtailment charge in connection with the decision to discontinue future service accruals for substantially all salaried employee defined benefit plans effective January 1, 2019.

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss)

The following table summarizes the other changes in plan assets and benefit obligations recognized in other comprehensive income for the Company’s pension and postretirement benefit plans for the years ended December 31, 2017, 2016 and 2015.



	Pension Plans									Postretirement Benefit Plans
	2017			2016			2015			2017			2016			2015
	(in millions)
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
Net loss (gain)	$	200		$	179		$	(132	)	$	(17	)	$	(4	)	$	(7	)
Prior service (cost) credit	(4		)	15			—			—			(2		)	—
Amortization of net (loss) gain	(61		)	(52		)	(68		)	2			2			—
Amortization of prior service (cost) credit	(1		)	—			(1		)	1			2			2
Total recognized in other comprehensive income (loss)	134			142			(201		)	(14		)	(2		)	(5		)
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	244		$	239		$	(62	)	$	(14	)	$	(2	)	$	(2	)

Amounts Expected to be Amortized from Accumulated OCI and Recognized as Components of Net Periodic Benefit Costs

The following table summarizes the amounts expected to be amortized from accumulated OCI and recognized as components of net periodic benefit costs during 2018.



	Pension Plans		Postretirement Benefit Plans			Total
	(in millions)
Net loss (gain)	$	74	$	(3	)	$	71
Prior service credit	—		(1		)	(1		)
	$	74	$	(4	)	$	70

Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost

The table below summarizes the weighted average assumptions used to determine the net periodic benefit cost for the years ended December 31, 2017, 2016 and 2015.



	Pension Plans									Postretirement Benefit Plans
	2017			2016			2015			2017			2016			2015
Discount rates:
Benefit obligation	4.40	%	⁽¹⁾	4.67	%	⁽¹⁾	4.14	%	⁽¹⁾	4.05	%	⁽⁴⁾	4.22	%	⁽⁴⁾	3.70	%	⁽⁴⁾
Service cost	4.55	%		4.83	%		—	%	⁽⁵⁾	4.21	%		4.37	%		—	%	⁽⁵⁾
Interest cost	3.84	%		3.95	%		—	%	⁽⁵⁾	3.26	%		3.26	%		—	%	⁽⁵⁾
Expected long-term return on plan assets	7.92	%	⁽²⁾	7.92	%	⁽²⁾	8.14	%	⁽²⁾	7.43	%		7.42	%		7.65	%
Rate of compensation increase	3.50	%	⁽³⁾	3.50	%	⁽³⁾	3.50	%	⁽³⁾

__________________


⁽¹⁾	The weighted average discount rate assumptions used for the years ended December 31, 2017, 2016, and 2015 were comprised of separate assumptions determined by country of 4.45%, 4.73% and 4.20% for the U.S. based plans and 3.79%, 3.93% and 3.90% for the Canadian based plans, respectively.


⁽²⁾	The weighted average expected long-term return on plan assets assumptions used were comprised of separate assumptions determined by country of 8.00% for each of the years ended December 31, 2017 and 2016 and 8.25% for the year ended December 31, 2015 for the U.S. based plans and 7.25% for the Canadian based plans for the years ended December 31, 2017, 2016 and 2015.


⁽³⁾	The weighted average rate of compensation increase assumptions used for the years ended December 31, 2017, 2016 and 2015 were comprised of separate assumptions determined by country of 3.50% for both the U.S and Canadian based plans.


⁽⁴⁾	The weighted average discount rate assumptions used for the years ended December 31, 2017, 2016 and 2015 were comprised of separate assumptions determined by country of 4.11%, 4.28% and 3.70% for the U.S. based plans and 3.64%, 3.74% and 3.70% for the Canadian based plans, respectively.


⁽⁵⁾	Not applicable as the Company changed to the spot rate approach beginning in 2016 as described above.

Effect of One Percentage Point Change in Assumed Health Care Cost Trend Rates

A one percentage point change in the assumed health care cost trend rates would have the following effects:



	1 percentage point
	Increase		Decrease
	(in millions)
Effect on total service and interest cost	$	—	$	—
Effect on postretirement benefit obligations	$	5	$	(4	)

Allowable Range for Each Major Category of the Plans' Assets and Weighted-Average Asset Allocations by Asset Category

The table below presents the allowable range for each major category of the plans’ assets at December 31, 2017 as well as the Company’s pension plan and postretirement benefit plan weighted-average asset allocations at December 31, 2017 and 2016, by asset category.



	U.S.					Canada
Asset Category	Range	2017		2016		Range	2017		2016
Domestic equity⁽¹⁾	30%-60%	47	%	55	%	—	15	%	15	%
International equity⁽²⁾	10%-20%	11		10		—	47		62
Total equities	45%-75%	58		65		40%-80%	62		77
Fixed income securities	20%-40%	28		22		—	25		13
Other, primarily cash and cash equivalents	0%-15%	7		5		—	13		10
Total fixed income securities and cash and cash equivalents	NA	NA		NA		20%-60%	38		23
Real estate securities	0%-15%	7		8		—	—		—
Total		100	%	100	%		100	%	100	%

__________________


⁽¹⁾	Domestic equities for Canadian plans refers to equities of Canadian companies.


⁽²⁾	International equities for Canadian plans includes equities of U.S. companies.

NA - Not applicable. The Company’s Master Pension Trust Investment Policy does not provide an allocation percentage range to fixed income securities and cash and cash equivalents.

Fair Value of the Company's Pension Plans' and Postretirement Benefit Plans' Assets

The table below presents the fair value of the Company’s postretirement benefit plans’ assets by asset category segregated by level within the fair value hierarchy, as described below.



	Postretirement Benefit Plans’ Assets
	Fair Value Measured At December 31, 2017								Fair Value Measured At December 31, 2016
Asset Category	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in millions)
Equity securities⁽¹⁾:
U.S. Equity	$	38	$	—	$	—	$	38	$	37	$	—	$	—	$	37
International Equity	2		—		—		2		1		—		—		1
Fixed Income — Investment Grade⁽²⁾	10		3		—		13		8		3		—		11
Fixed Income — High Yield⁽³⁾	—		3		—		3		—		2		—		2
Real Estate Investment Trusts⁽⁴⁾	3		—		—		3		3		—		—		3
Other⁽⁵⁾	—		5		—		5		—		3		—		3
Total assets at fair value	$	53	$	11	$	—	$	64	$	49	$	8	$	—	$	57
Other investments measured at net asset value⁽⁶⁾⁽⁷⁾							3								3
Total							$	67							$	60

__________________


⁽¹⁾	Equity securities consist of investments in common stock of U.S. and international companies. The fair value of equity securities is based on quoted market prices available in active markets at the close of a trading day, primarily the NYSE, NASDAQ, and various international exchanges.

⁽²⁾

Approximately 77% and 73% at December 31, 2017 and 2016, respectively, of the postretirement benefit plan assets that are invested in the Fixed Income — Investment Grade asset category consist of the Fund and fixed income securities. The Fund invests in investment grade fixed income securities, mortgaged-backed securities, U.S. treasury and agency bonds and corporate bonds. These investments are classified by the Company as a Level 1 measurement within the fair value hierarchy as the mutual fund trades on an active market and daily, quoted prices are available. The remaining 23% and 27% at December 31, 2017 and 2016, respectively, of the postretirement benefit plan assets are fixed income securities, primarily investment grade corporate bonds from various industries held directly by the plan. The fair values of these investments are based on yields currently available on comparable bonds of issuers with similar credit ratings, quoted prices of similar bonds in an active market, or cash flows based on observable inputs and are classified as Level 2.


⁽³⁾	Fixed Income — High Yield consists of investments in corporate high-yield bonds from various industries. The fair values of these investments are based on yields currently available on comparable bonds of issuers with similar credit ratings, quoted prices of similar bonds in an active market, or cash flows based on observable inputs.


⁽⁴⁾	REITs consist of securities that trade on the major exchanges and invest directly, either through properties or mortgages.


⁽⁵⁾	Other consists primarily of money market accounts, which invest primarily in short-term, high quality money market securities such as government obligations, commercial paper, time deposits and certificates of deposit.


⁽⁶⁾	In accordance with ASU 2015-07, certain investments 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 amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statements of financial position.

⁽⁷⁾

All of the postretirement benefit plans other investments measured using NAV at December 31, 2017 and 2016 consist of a regulated commingled equity trust fund, which fair value is based on NAV at the end of each month. The NAV is calculated by the fund manager based on the fair value of the fund’s holdings, primarily equity securities traded in active markets, determined as of the end of each month as a practical expedient to estimating fair value. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV. Withdrawals are permitted, with notice by the 20th day of each month, based on NAV.

The table below presents the fair value of the Company’s pension plans’ assets by asset category segregated by level within the fair value hierarchy, as described below.



	U.S. Pension Plans’ Assets									Canadian Pension Plans’ Assets
	Fair Value Measured At December 31, 2017									Fair Value Measured At December 31, 2017
Asset Category	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
	(in millions)
Equity securities⁽¹⁾:
U.S. Equity	$	1,297	$	—	$	—	$	1,297		$	71	$	—	$	—	$	71
International Equity	87		—		—		87			105		—		—		105
Fixed Income — Investment Grade⁽²⁾	329		205		—		534			—		—		—		—
Fixed Income — High Yield⁽³⁾	—		219		—		219			—		—		—		—
Real Estate Investment Trusts⁽⁴⁾	196		—		—		196			—		—		—		—
Other⁽⁵⁾	—		198		—		198			8		37		—		45
Total assets at fair value	$	1,909	$	622	$	—	$	2,531		$	184	$	37	$	—	$	221
Liabilities for unsettled trades, net							(30		)							—
Other investments measured at net asset value⁽⁶⁾⁽⁷⁾							203									122
Total							$	2,704								$	343



	U.S. Pension Plans’ Assets									Canadian Pension Plans’ Assets
	Fair Value Measured At December 31, 2016									Fair Value Measured At December 31, 2016
Asset Category	Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
	(in millions)
Equity securities⁽¹⁾:
U.S. Equity	$	1,331	$	—	$	—	$	1,331		$	79	$	—	$	—	$	79
International Equity	85		—		—		85			104		—		—		104
Fixed Income — Investment Grade⁽²⁾	255		159		—		414			—		—		—		—
Fixed Income — High Yield⁽³⁾	—		136		—		136			—		—		—		—
Real Estate Investment Trusts⁽⁴⁾	193		—		—		193			—		—		—		—
Other⁽⁵⁾	—		114		—		114			5		27		—		32
Total assets at fair value	$	1,864	$	409	$	—	$	2,273		$	188	$	27	$	—	$	215
Liabilities for unsettled trades, net							(23		)							—
Other investments measured at net asset value⁽⁶⁾⁽⁷⁾							171									85
Total							$	2,421								$	300

__________________


⁽¹⁾	Equity securities consist of investments in common stock of U.S. and international companies. The fair value of equity securities is based on quoted market prices available in active markets at the close of a trading day, primarily the New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotations (NASDAQ), and various international exchanges.

⁽²⁾

Approximately 62% at December 31, 2017 and 2016 of U.S. plan assets that are invested in the Fixed Income — Investment Grade asset category consist of a mutual fund offered by a registered investment company (the Fund) and fixed income securities. The Fund invests in investment grade fixed income securities, mortgaged-backed securities, U.S. treasury and agency bonds and corporate bonds. These investments are classified by the Company as a Level 1 measurement within the fair value hierarchy, as the mutual fund trades on an active market and daily, quoted prices are available. The remaining 38% at December 31, 2017 and 2016 of U.S. plan assets are fixed income securities, primarily investment grade corporate bonds from various industries held directly by the plan. The fair values of these investments are based on yields currently available on comparable bonds of issuers with similar credit ratings, quoted prices of similar bonds in an active market, or cash flows based on observable inputs and are classified as Level 2.


⁽³⁾	Fixed Income — High Yield consists of investments in corporate high-yield bonds from various industries. The fair values of these investments are based on yields currently available on comparable bonds of issuers with similar credit ratings, quoted prices of similar bonds in an active market, or cash flows based on observable inputs.


⁽⁴⁾	Real Estate Investment Trusts (REITs) consist of securities that trade on the major exchanges and invest directly in real estate, either through properties or mortgages.


⁽⁵⁾	Other consists primarily of: (1) money market accounts, which invest primarily in short-term, high quality money market securities such as government obligations, commercial paper, time deposits and certificates of deposit, and are classified as Level 2, and (2) cash, which is classified as Level 1.


⁽⁶⁾	In accordance with ASU 2015-07, certain investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statements of financial position.

⁽⁷⁾

All of the U.S. plans other investments measured using NAV at December 31, 2017 and 2016 and approximately 31% and 55% at December 31, 2017 and 2016, respectively, of the Canadian plans other investments measured using NAV consist of a regulated commingled equity trust fund, for which fair value is based on the NAV at the end of each month. The NAV is calculated by the fund manager based on the fair value of the fund’s holdings, primarily equity securities traded in active markets, determined as of the end of each month as a practical expedient to estimating fair value. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV. Withdrawals are permitted, with notice by the 20th day of each month, based on NAV. Approximately 69% and 45% at December 31, 2017 and 2016, respectively, of the Canadian plans other investments measured using NAV are invested in regulated commingled bond funds (the “Bond Funds”). As these Bond Funds do not trade in an active market, the fair value is based on NAVs calculated by fund managers based on yields currently available on comparable bonds of issuers with similar credit ratings, quoted prices of similar bonds in an active market, or cash flows based on observable inputs as a practical expedient to estimating fair value and classified as Level 2. Withdrawals are permitted monthly, with notice between 0 and 3 days of the transaction date, based on NAV.

Estimated Future Benefit Payments

The following table presents expected pension and postretirement benefit payments and expected postretirement subsidies due to the Medicare Prescription Drug Improvement and Modernization Act of 2003, which reflect expected future service, as appropriate.



			Postretirement Benefits
	Pension Benefits		Benefit Payments		Subsidy Receipts
	(in millions)
2018	$	158	$	12	$	—
2019	165		12		—
2020	175		13		—
2021	185		13		—
2022	194		12		—
Years 2023 - 2027	1,128		55		1

Cash Contributions and Expenses under Multi-Employer Benefit Plans

Under these plans, the Company contributed cash and recorded expenses for each of its individually significant plans and all of its other plans in aggregate as noted in the table below.



	EIN/Pension Plan Number	Pension Protection Act Zone Status⁽¹⁾		FIP/RP⁽²⁾ Status Pending/ Implemented	Contributions by L3⁽⁷⁾									Surcharge Imposed	Expiration Date of Collective- Bargaining Agreement
Pension Fund	EIN/Pension Plan Number	2017	2016	FIP/RP⁽²⁾ Status Pending/ Implemented	2017			2016			2015			Surcharge Imposed	Expiration Date of Collective- Bargaining Agreement
IAM National Pension Fund	51-6031295/002	Green	Green	No	$	27	⁽³⁾	$	26	⁽⁴⁾	$	23	⁽⁴⁾	No	4/29/2018 to 9/30/2020⁽⁵⁾
Other Pension Funds⁽⁶⁾					—			—			—
Total contributions					$	27		$	26		$	23

__________________


⁽¹⁾	A zone status rating of green indicates the plan is at least 80% funded.


⁽²⁾	Funding improvement plan or rehabilitation plan.


⁽³⁾	At the date the audited financial statements for the Company were issued, the Form 5500 for the plan year ended December 31, 2017 was not available.


⁽⁴⁾	Represents 5% of total plan contributions for the years ended December 31, 2016 and 2015 based on Form 5500.


⁽⁵⁾	The Company is a party to multiple bargaining agreements for multiple projects that require contributions into the IAM National Pension Fund. The most significant of these agreements, expiring April 28, 2019, covers multiple programs in the Company’s ISRS reportable segment and represents 61% of 2017 contributions.


⁽⁶⁾	Consists of three pension funds in which the Company’s contributions are individually, and in the aggregate, insignificant.


⁽⁷⁾	These contributions include amounts attributable to discontinued operations of approximately $26 million for the years ended December 31, 2017 and 2016 and $22 million for the year ended December 31, 2015.