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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 our net periodic pension expense for each of the three years ending December 31, 2017 were as follows (in millions).


	2017			2016			2015
Service cost	$	273		$	282		$	266
Interest cost		635			691			591
Expected return on plan assets		(939	)		(908	)		(782	)
Amortization of actuarial losses and other		157			148			179

Net periodic pension expense	$	126		$	213		$	254

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 PBOs of such plans were approximately $1.3 billion and $1.2 billion as of December 31, 2017 and 2016, respectively.

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, 2017 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.


	2017									2016
	BHE			All other			Consolidated			BHE			All other			Consolidated
Benefit obligations
Accumulated benefit obligation end of year	$	4,920		$	12,604		$	17,524		$	4,787		$	11,912		$	16,699

PBO beginning of year	$	5,077		$	12,673		$	17,750		$	5,076		$	10,183		$	15,259
Service cost		47			226			273			49			233			282
Interest cost		174			461			635			198			493			691
Benefits paid		(271	)		(626	)		(897	)		(309	)		(705	)		(1,014	)
Business acquisitions		—			—			—			—			2,684			2,684
Actuarial (gains) or losses and other		180			883			1,063			63			(215	)		(152	)

PBO end of year	$	5,207		$	13,617		$	18,824		$	5,077		$	12,673		$	17,750


Plan assets
Plan assets beginning of year	$	4,694		$	10,703		$	15,397		$	4,765		$	8,066		$	12,831
Employer contributions		122			159			281			133			214			347
Benefits paid		(271	)		(626	)		(897	)		(309	)		(705	)		(1,014	)
Actual return on plan assets		535			1,601			2,136			512			1,083			1,595
Business acquisitions		—			—			—			—			2,314			2,314
Other		49			48			97			(407	)		(269	)		(676	)

Plan assets end of year	$	5,129		$	11,885		$	17,014		$	4,694		$	10,703		$	15,397

Funded status – net liability	$	78		$	1,732		$	1,810		$	383		$	1,970		$	2,353

The funded status of our defined benefit pension plans at December 31, 2017 reflected in assets was $1,176 million and in liabilities was $2,986 million. At December 31, 2016, the funded status included in assets was $644 million and in liabilities was $2,997 million.

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


	2017		2016		2015
Applicable to pension benefit obligations:
Discount rate		3.3%		3.8%		4.1%
Expected long-term rate of return on plan assets		6.4		6.1		6.5
Rate of compensation increase		2.8		3.0		3.4
Discount rate applicable to net periodic pension expense		3.9		4.2		3.8

Benefits payments expected over the next ten years are as follows (in millions): 2018 – $1,058; 2019 – $1,004; 2020 – $1,024; 2021 – $1,019; 2022 – $1,019; and 2023 to 2027 – $5,095. Sponsoring subsidiaries expect to contribute $251 million to defined benefit pension plans in 2018.

Fair value measurements of plan assets as of December 31, 2017 and 2016 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, 2017
Cash and equivalents	$	738	$	594	$	144	$	—		$ —
Equity securities		9,824		9,641		23		160		—
Government obligations		1,536		1,497		39		—		—
Other fixed maturity securities		799		148		619		32		—
Investment funds and other		4,117		150		1,501		274		2,192

	$	17,014	$	12,030	$	2,326	$	466		$2,192

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

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, 2017 follows (in millions).


	2017			2016
Balance beginning of year	$	(839	)	$	(1,193	)
Amount included in net periodic pension expense		155			104
Actuarial gains and other		70			250

Balance end of year	$	(614	)	$	(839	)

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 $1,001 million in 2017, $912 million in 2016 and $739 million in 2015.