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Pension plans

Several of our subsidiaries sponsor defined benefit pension plans covering certain employees. Benefits under the plans are generally based on years of service and compensation, although benefits under certain plans are based on years of service and fixed benefit rates. Our subsidiaries may make contributions to the plans to meet regulatory requirements and may also make discretionary contributions.

The components of net periodic pension expense for each of the three years ending December 31, 2016 are as follows (in millions).


	2016			2015			2014
Service cost	$	282		$	266		$	230
Interest cost		691			591			629
Expected return on plan assets		(908	)		(782	)		(772	)
Amortization of actuarial losses and other		148			179			102

Net periodic pension expense	$	213		$	254		$	189

The accumulated benefit obligation is the actuarial present value of benefits earned based on service and compensation prior to the valuation date. The projected benefit obligation (“PBO”) is the actuarial present value of benefits earned based upon service and compensation prior to the valuation date and, if applicable, includes assumptions regarding future compensation levels. Benefit obligations under qualified U.S. defined benefit pension plans are funded through assets held in trusts. Pension obligations under certain non-U.S. plans and non-qualified U.S. plans are unfunded and the aggregate PBO of such plans was approximately $1.2 billion as of December 31, 2016 and 2015.

Reconciliations of the changes in plan assets and PBOs related to BHE’s pension plans and all other pension plans for each of the two years ending December 31, 2016 are in the following tables (in millions). The costs of pension plans covering employees of certain regulated subsidiaries of BHE are generally recoverable through the regulated rate making process.


	2016									2015
	BHE			All other			Consolidated			BHE			All other			Consolidated
Benefit obligations
Accumulated benefit obligation end of year	$	4,787		$	11,912		$	16,699		$	4,797		$	9,264		$	14,061

PBO beginning of year	$	5,076		$	10,183		$	15,259		$	5,398		$	10,489		$	15,887
Service cost		49			233			282			57			209			266
Interest cost		198			493			691			200			391			591
Benefits paid		(309	)		(705	)		(1,014	)		(316	)		(518	)		(834	)
Business acquisitions		—			2,684			2,684			—			165			165
Actuarial (gains) or losses and other		63			(215	)		(152	)		(263	)		(553	)		(816	)

PBO end of year	$	5,077		$	12,673		$	17,750		$	5,076		$	10,183		$	15,259

Plan assets
Plan assets beginning of year	$	4,765		$	8,066		$	12,831		$	5,086		$	8,280		$	13,366
Employer contributions		133			214			347			90			116			206
Benefits paid		(309	)		(705	)		(1,014	)		(316	)		(518	)		(834	)
Actual return on plan assets		512			1,083			1,595			31			80			111
Business acquisitions		—			2,314			2,314			—			167			167
Other		(407	)		(269	)		(676	)		(126	)		(59	)		(185	)

Plan assets end of year	$	4,694		$	10,703		$	15,397		$	4,765		$	8,066		$	12,831

Funded status—net liability	$	383		$	1,970		$	2,353		$	311		$	2,117		$	2,428

The funded status of our defined benefit pension plans at December 31, 2016 was reflected in other assets ($644 million) and liabilities ($2,997 million). At December 31, 2015, the funded status was included in other assets ($456 million) and liabilities ($2,884 million).

Weighted average interest rate assumptions used in determining PBOs and net periodic pension expense were as follows.


	2016			2015			2014
Applicable to pension benefit obligations:
Discount rate		3.8	%		4.1	%		3.8	%
Expected long-term rate of return on plan assets		6.1			6.5			6.7
Rate of compensation increase		3.0			3.4			3.4
Discount rate applicable to net periodic pension expense		4.2			3.8			4.6

Benefits payments expected over the next ten years are as follows (in millions): 2017—$992; 2018—$1,007; 2019—$987; 2020—$1,003; 2021—$994; and 2022 to 2026—$5,043. Sponsoring subsidiaries expect to contribute $224 million to defined benefit pension plans in 2017.

Fair value measurements of plan assets as of December 31, 2016 and 2015 follow (in millions).


	Fair Value								Investment funds and partnerships at net asset value
	Total		Level 1		Level 2		Level 3		Investment funds and partnerships at net asset value
December 31, 2016
Cash and equivalents	$	847	$	637	$	210	$	—	$	—
Equity securities		8,645		8,476		27		142		—
Government obligations		1,291		1,076		215		—		—
Other fixed maturity securities		770		144		595		31		—
Investment funds and other		3,844		233		1,434		153		2,024

	$	15,397	$	10,566	$	2,481	$	326	$	2,024

December 31, 2015
Cash and equivalents	$	839	$	544	$	295	$	—	$	—
Equity securities		7,319		7,305		14		—		—
Government obligations		786		726		60		—		—
Other fixed maturity securities		990		87		903		—		—
Investment funds and other		2,897		272		1,446		228		951

	$	12,831	$	8,934	$	2,718	$	228	$	951

Refer to Note 18 for a discussion of the three levels in the hierarchy of fair values. Plan assets are generally invested with the long-term objective of producing earnings to adequately cover expected benefit obligations, while assuming a prudent level of risk. Allocations may change as a result of changing market conditions and investment opportunities. The expected rates of return on plan assets reflect subjective assessments of expected invested asset returns over a period of several years. Generally, past investment returns are not given significant consideration when establishing assumptions for expected long-term rates of return on plan assets. Actual experience will differ from the assumed rates.

A reconciliation of the pre-tax accumulated other comprehensive income (loss) related to defined benefit pension plans for each of the two years ending December 31, 2016 follows (in millions).


	2016			2015
Balance beginning of year	$	(1,193	)	$	(1,617	)
Amount included in net periodic pension expense		101			129
Actuarial gains and other		253			295

Balance end of year	$	(839	)	$	(1,193	)

Several of our subsidiaries also sponsor defined contribution retirement plans, such as 401(k) or profit sharing plans. Employee contributions are subject to regulatory limitations and the specific plan provisions. Several plans provide for employer matching contributions up to levels specified in the plans and provide for additional discretionary contributions as determined by management. Employer contributions expensed with respect to our defined contribution plans were $944 million in 2016, $739 million in 2015 and $737 million in 2014.