PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

We have funded and unfunded defined benefit pension plans that cover certain employees in North America, Europe, Asia and Brazil. For the United States plan, which comprises the majority of our obligation, the plans are frozen for the majority of participants. The formula for United States salaried employees covered under the qualified defined benefit plan was based on years of service and final average salary, while the formula for United States hourly employees covered under the defined benefit plans was based on specific dollar amounts for each year of service. There were multiple formulas for employees covered under the qualified and nonqualified defined benefit plans that were sponsored by Maytag, including a cash balance formula. In addition, we sponsor an unfunded Supplemental Executive Retirement Plan. This plan is nonqualified and provides certain key employees additional defined pension benefits that supplement those provided by the Company's other retirement plans.

A defined contribution plan is being provided to all United States employees and is not classified within the net periodic benefit cost. The Company provides annual match and automatic company contributions, in cash or company stock, of up to 7% of employees' eligible pay. Our contributions during 2018, 2017 and 2016 were $81 million, $82 million and $77 million, respectively.

We provide postretirement health care benefits for eligible retired employees in the United States, Canada and Brazil. For our United States plan, which comprises the majority of our obligation, eligible retirees include those who were full-time employees with 10 years of service who attained age 55 while in service with us and those union retirees who met the eligibility requirements of their collective bargaining agreements. In general, the postretirement health and welfare benefit plans include cost-sharing provisions that limit our exposure for recent and future retirees and are contributory, with participants' contributions adjusted annually. The plans are unfunded. We reserve the right to modify these benefits in the future.

During the second quarter 2011, we modified retiree medical benefits for certain retirees to be consistent with those benefits provided by the Whirlpool Corporation Group Benefit Plan. We accounted for these changes as a plan amendment in 2011, resulting in a reduction in the postretirement benefit obligation of $138 million of which approximately $83 million of benefit has been recognized in net earnings since 2011, with an offset to accumulated other comprehensive loss, net of tax. In response, a group of retirees initiated legal proceedings against Whirlpool asserting the above benefits are vested and changes to the plan are not permitted. In October 2018, we reached preliminary agreement on a settlement to resolve plaintiffs’ claims. However, we were unable to reach final agreement and have terminated the preliminary settlement agreement.

We will continue to vigorously defend our position, including through any necessary appeal process. However, an unfavorable final result could require us to immediately reverse the benefit we have recognized to that point, and remeasure the associated postretirement benefit obligation, the impact of which will depend on timing and the actuarial assumptions then in effect.

Defined Benefit - Pensions and Postretirement Benefit Plans

Obligations and Funded Status at End of Year



	United States Pension Benefits						Foreign Pension Benefits						Other Postretirement Benefits
Millions of dollars	2018			2017			2018			2017			2018			2017
Funded status
Fair value of plan assets	$	2,676		$	2,746		$	518		$	571		$	—		$	—
Benefit obligations	3,033			3,415			834			952			356			394
Funded status	$	(357	)	$	(669	)	$	(316	)	$	(381	)	$	(356	)	$	(394	)
Amounts recognized in the consolidated balance sheets
Noncurrent asset	$	—		$	—		$	12		$	11		$	—		$	—
Current liability	(38		)	(16		)	(10		)	(16		)	(38		)	(42		)
Noncurrent liability	(319		)	(653		)	(318		)	(376		)	(318		)	(352		)
Amount recognized	$	(357	)	$	(669	)	$	(316	)	$	(381	)	$	(356	)	$	(394	)
Amounts recognized in accumulated other comprehensive loss (pre-tax)
Net actuarial loss	$	1,445		$	1,380		$	192		$	201		$	1		$	17
Prior service (credit) cost	(1		)	(4		)	(2		)	(4		)	(16		)	(20		)
Amount recognized	$	1,444		$	1,376		$	190		$	197		$	(15	)	$	(3	)

Change in Benefit Obligation



	United States Pension Benefits						Foreign Pension Benefits						Other Postretirement Benefits
Millions of dollars	2018			2017			2018			2017			2018			2017
Benefit obligation, beginning of year	$	3,415		$	3,415		$	952		$	855		$	394		$	376
Service cost	2			2			5			5			7			7
Interest cost	118			134			23			23			15			16
Plan participants' contributions	—			—			1			1			—			—
Actuarial loss (gain)	(197		)	188			(33		)	30			(16		)	15
Benefits paid	(305		)	(260		)	(31		)	(32		)	(36		)	(40		)
Plan amendments	—			—			1			—			4			16
Transfer of liabilities	—			(64		)	—			—			—			—
Special termination benefit	—			—			(5		)	—			—			4
Settlements / curtailment (gain)	—			—			(22		)	(12		)	—			—
Foreign currency exchange rates	—			—			(53		)	82			(5		)	—
Reclassification of obligation to held for sale	—			—			(4		)	—			(7		)	—
Benefit obligation, end of year	$	3,033		$	3,415		$	834		$	952		$	356		$	394
Accumulated benefit obligation, end of year	$	3,022		$	3,403		$	804		$	914		N/A			N/A

Change in Plan Assets



	United States Pension Benefits						Foreign Pension Benefits						Other Postretirement Benefits
Millions of dollars	2018			2017			2018			2017			2018			2017
Fair value of plan assets, beginning of year	$	2,746		$	2,664		$	571		$	510		$	—		$	—
Actual return on plan assets	(145		)	359			(7		)	28			—			—
Employer contribution	380			47			39			30			36			40
Plan participants' contributions	—			—			1			1			—			—
Benefits paid	(305		)	(260		)	(31		)	(32		)	(36		)	(40		)
Transfer of plan assets	—			(64		)	—			—			—			—
Settlements	—			—			(22		)	(12		)	—			—
Foreign currency exchange rates	—			—			(31		)	46			—			—
Reclassification of plan assets to held for sale	—			—			(2		)	—			—			—
Fair value of plan assets, end of year	$	2,676		$	2,746		$	518		$	571		$	—		$	—

Components of Net Periodic Benefit Cost



	United States Pension Benefits									Foreign Pension Benefits									Other Postretirement Benefits
Millions of dollars	2018			2017			2016			2018			2017			2016			2018		2017			2016
Service cost	$	2		$	2		$	3		$	5		$	5		$	5		$	7	$	7		$	7
Interest cost	118			134			147			23			23			27			15		16			18
Expected return on plan assets	(170		)	(175		)	(186		)	(32		)	(30		)	(30		)	—		—			—
Amortization:
Actuarial loss	53			50			46			9			6			4			—		—			—
Prior service cost (credit)	(3		)	(3		)	(3		)	—			—			—			—		(4		)	(15		)
Special termination benefit	—			—			—			—			—			—			—		4			—
Curtailment gain	—			—			4			(4		)	—			(1		)	—		—			—
Settlement loss	—			—			—			3			2			3			—		—			—
Net periodic benefit cost	$	—		$	8		$	11		$	4		$	6		$	8		$	22	$	23		$	10

The following table summarizes the net periodic cost recognized in operating profit and interest and sundry (income) expense for the years ending December 31, 2018, 2017 and 2016:



	United States Pension Benefits							Foreign Pension Benefits							Other Postretirement Benefits
Millions of dollars	2018			2017		2016		2018			2017		2016		2018		2017		2016
Operating profit (loss)	$	2		$	2	$	3	$	5		$	5	$	5	$	7	$	7	$	7
Interest and sundry (income) expense	(2		)	6		8		(1		)	1		3		15		16		3
Net periodic benefit cost	$	—		$	8	$	11	$	4		$	6	$	8	$	22	$	23	$	10

During the fourth quarter of 2017, we transferred a portion of small-benefit retirees under the pension plans to an insurance company. The liability and asset transfer was $64 million and did not have an impact on the Consolidated Balance Sheets as of December 31, 2017.

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income (Loss) (Pre-Tax) in 2018



Millions of dollars	United States Pension Benefits			Foreign Pension Benefits			Other Postretirement Benefits
Current year actuarial loss	$	118		$	—		$	(16	)
Actuarial (loss) recognized during the year	(53		)	(9		)	—
Current year prior service cost (credit)	—			1			4
Prior service credit (cost) recognized during the year	3			—			—
Total recognized in other comprehensive income (loss) (pre-tax)	$	68		$	(8	)	$	(12	)
Total recognized in net periodic benefit costs and other comprehensive income (loss) (pre-tax)	$	68		$	(4	)	$	10

Estimated Pre-Tax Amounts that will be amortized from Accumulated Other Comprehensive Loss into Net Periodic Pension Cost in 2019



Millions of dollars	United States Pension Benefits			Foreign Pension Benefits		Other Postretirement Benefits
Actuarial loss	$	47		$	8	$	1
Prior service (credit)	(2		)	—		(9		)
Total	$	45		$	8	$	(8	)

We amortize prior service costs (credits) over a period of up to 21 years.

Assumptions

Weighted-Average Assumptions used to Determine Benefit Obligation at End of Year



	United States Pension Benefits				Foreign Pension Benefits				Other Postretirement Benefits
	2018		2017		2018		2017		2018		2017
Discount rate	4.30	%	3.65	%	2.90	%	2.57	%	4.64	%	4.00	%
Rate of compensation increase	4.50	%	4.50	%	3.29	%	3.20	%	N/A		N/A

Weighted-Average Assumptions used to Determine Net Periodic Cost



	United States Pension Benefits						Foreign Pension Benefits						Other Postretirement Benefits
	2018		2017		2016		2018		2017		2016		2018		2017		2016
Discount rate	3.65	%	4.15	%	4.45	%	2.57	%	2.64	%	3.40	%	4.35	%	4.73	%	4.88	%
Expected long-term rate of return on plan assets	6.75	%	6.75	%	7.00	%	5.81	%	5.78	%	5.81	%	N/A		N/A		N/A
Rate of compensation increase	4.50	%	4.50	%	4.50	%	3.20	%	3.08	%	3.06	%	N/A		N/A		N/A
Health care cost trend rate
Initial rate	N/A		N/A		N/A		N/A		N/A		N/A		6.50	%	6.75	%	7.00	%
Ultimate rate	N/A		N/A		N/A		N/A		N/A		N/A		5.00	%	5.00	%	5.00	%
Year that ultimate rate will be reached	N/A		N/A		N/A		N/A		N/A		N/A		2025		2025		2019

Discount Rate

For our United States pension and postretirement benefit plans, the discount rate was selected using a hypothetical portfolio of high quality bonds outstanding at December 31 that would provide the necessary cash flows to match our projected benefit payments. For our foreign pension and postretirement benefit plans, the discount rate was primarily selected using high quality bond yields for the respective country or region covered by the plan.

Expected Return on Plan Assets

In the United States, the expected rate of return on plan assets was determined by using the historical asset returns for publicly traded equity and fixed income securities tracked since 1926 and the historical returns for private equity. The historical equity returns were adjusted downward to reflect future expectations. The expected returns are weighted by the targeted asset allocations. The resulting weighted-average return was rounded to the nearest quarter of one percent and applied to the fair value of plan assets as of December 31, 2018.

For foreign pension plans, the expected rate of return on plan assets was primarily determined by observing historical returns in the local fixed income and equity markets and computing the weighted average returns with the weights being the asset allocation of each plan.

Estimated Impact of One Percentage-Point Change in Assumed Health Care Cost Trend Rate

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



Millions of dollars	One Percentage Point Increase		One Percentage Point Decrease
Effect on total of service and interest cost	$	—	$	—
Effect on postretirement benefit obligations	4		(3		)

Cash Flows

Funding Policy

Our funding policy is to contribute to our United States pension plans amounts sufficient to meet the minimum funding requirement as defined by employee benefit and tax laws, plus additional amounts which we may determine to be appropriate. In certain countries other than the United States, the funding of pension plans is not common practice. Contributions to our United States pension plans may be made in the form of cash or company stock. We pay for retiree medical benefits as they are incurred.

On September 15, 2018, we contributed $358 million in cash contributions to the pension trust for our U.S. defined benefit pension plans, which included $350 million of discretionary contributions.

Expected Employer Contributions to Funded Plans



Millions of dollars	United States Pension Benefits		Foreign Pension Benefits
2019	$	—	$	17

Expected Benefit Payments



Millions of dollars	United States Pension Benefits		Foreign Pension Benefits		Other Postretirement Benefits
2019	$	308	$	39	$	38
2020	243		37		35
2021	245		37		34
2022	238		39		32
2023	231		40		31
2024-2028	1,055		209		129

Plan Assets

Our overall investment strategy is to achieve an appropriate mix of investments for long-term growth and for near-term benefit payments with a wide diversification of asset types, fund strategies, and investment fund managers. The target allocation for plan assets is generally 35% equity and 65% fixed income (with variance based on the plan's funded status), with exceptions for foreign pension plans. For our U.S. plans, the target allocation for equity securities is approximately 50% allocated to United States large-cap, 25% to international equity, 13% to United States mid and small-cap companies and 12% in venture capital. The target allocation for fixed income is allocated with 75% to corporate bonds and 25% to United States treasury and other government securities. The fixed income securities duration is intended to match that of our United States pension liabilities.

Plan assets are reported at fair value based on an exit price, representing the amount that would be received to sell an asset in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset. As a basis for considering such assumptions, a three-tiered fair value hierarchy is established, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets that are observable, either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Certain investments are valued based on net asset value (NAV), which approximates fair value. Such basis is determined by referencing the respective fund's underlying assets. There are no unfunded commitments or other restrictions associated with these investments. We manage the process and approve the results of a third-party pricing service to value the majority of our securities and to determine the appropriate level in the fair value hierarchy.

The fair values of our pension plan assets at December 31, 2018 and 2017, by asset category were as follows:



	December 31,
	Quoted prices (Level 1)				Other significant observable inputs (Level 2)				Significant unobservable inputs (Level 3)				Net Asset Value				Total
Millions of dollars	2018		2017		2018		2017		2018		2017		2018		2017		2018		2017
Cash and cash equivalents	$	—	$	—	$	10	$	36	$	—	$	—	$	—	$	—	$	10	$	36
Government and government agency securities ^(a)
U.S. securities	—		—		761		439		—		—		—		—		761		439
International securities	—		—		97		117		—		—		—		—		97		117
Corporate bonds and notes ^(a)
U.S. companies	—		—		860		976		—		—		—		—		860		976
International companies	—		—		155		153		—		—		—		—		155		153
Equity securities ^(b)
U.S. companies	18		19		—		—		—		—		—		—		18		19
International companies	185		235		—		—		—		—		—		—		185		235
Mutual funds ^(c)	35		59		—		—		—		—		—		—		35		59
Investments at net asset value
U.S. equity securities ^(d)	—		—		—		—		—		—		501		689		501		689
International equity securities ^(d)	—		—		—		—		—		—		52		70		52		70
Short-term investment fund ^(d)	—		—		—		—		—		—		102		70		102		70
International debt securities ^(e)	—		—		—		—		—		—		209		229		209		229
International equity securities ^(e)	—		—		—		—		—		—		50		46		50		46
Real estate ^(f)	—		—		—		—		—		—		36		44		36		44
Limited partnerships ^(g)
U.S. private equity investments	—		—		—		—		68		86		—		—		68		86
Diversified fund of funds	—		—		—		—		6		8		—		—		6		8
Emerging growth	—		—		—		—		12		12		—		—		12		12
All other investments	—		—		18		18		—		—		19		11		37		29
	$	238	$	313	$	1,901	$	1,739	$	86	$	106	$	969	$	1,159	$	3,194	$	3,317


(a)	Valued using pricing vendors who use proprietary models to estimate the price a dealer would pay to buy a security using significant observable inputs, such as interest rates, yield curves, and credit risk.


(b)	Valued using the closing stock price on a national securities exchange, which reflects the last reported sales price on the last business day of the year.


(c)	Valued using the net asset value (NAV) of the fund, which is based on the fair value of underlying securities. The fund primarily invests in a diversified portfolio of equity securities issued by non-U.S. companies.


(d)	Common and collective trust funds valued using the NAV of the fund, which is based on the fair value of underlying securities.


(e)	Fund of funds valued using the NAV of the fund, which is based on the fair value of underlying securities. International debt securities includes corporate bonds and notes and government and government agency securities.


(f)	Valued using the NAV of the fund, which is based on the fair value of underlying assets.


(g)	Valued at estimated fair value based on the proportionate share of the limited partnership's fair value, as determined by the general partner.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)



Millions of dollars	Limited Partnerships
Balance, December 31, 2017	$	106
Realized gains (net)	16
Unrealized gains (net)	(4		)
Purchases	—
Settlements	(32		)
Balance, December 31, 2018	$	86

Additional Information

The projected benefit obligation and fair value of plan assets for pension plans with a projected benefit obligation in excess of plan assets at December 31, 2018 and 2017 were as follows:



	United States Pension Benefits				Foreign Pension Benefits
Millions of dollars	2018		2017		2018		2017
Projected benefit obligation	$	3,033	$	3,415	$	753	$	822
Fair value of plan assets	2,676		2,746		430		437

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2018 and 2017 were as follows:



	United States Pension Benefits				Foreign Pension Benefits
Millions of dollars	2018		2017		2018		2017
Projected benefit obligation	$	3,033	$	3,415	$	720	$	816
Accumulated benefit obligation	3,022		3,403		699		793
Fair value of plan assets	2,676		2,746		396		432