12. RETIREMENT PLANS AND POST RETIREMENT PENSION PLANS

General. Substantially all of our employees are covered under various defined benefit and/or defined contribution retirement plans. Additionally, we sponsor post-retirement health care benefits for our eligible U.S. employees.

Agilent provides U.S. employees, who meet eligibility criteria under the Agilent Technologies, Inc. Retirement Plan (the "RP"), defined benefits which are based on an employee's base or target pay during the years of employment and on length of service. For eligible service through October 31, 1993, the benefit payable under the Agilent Retirement Plans is reduced by any amounts due to the eligible employee under the Agilent defined contribution Deferred Profit-Sharing Plan (the "DPSP"), which was closed to new participants as of November 1993. Effective November 1, 2014, Agilent’s U.S. defined benefit retirement plan is closed to new entrants including new employees, new transfers to the U.S. payroll and rehires. As of April 30, 2016, benefits under the RP were frozen. See Plan Amendments below.

As of October 31, 2018 and 2017, the fair value of plan assets of the DPSP was $141 million and $156 million, respectively. Note that the projected benefit obligation for the DPSP equals the fair value of plan assets.

In addition to the DPSP, in the U.S., Agilent maintains a Supplemental Benefits Retirement Plan ("SBRP"), supplemental unfunded non-qualified defined benefit plan to provide benefits that would be provided under the RP but for limitations imposed by the Internal Revenue Code. The RP and the SBRP comprise the "U.S. Plans" in the tables below.

Eligible employees outside the U.S. generally receive retirement benefits under various retirement plans based upon factors such as years of service and/or employee compensation levels. Eligibility is generally determined in accordance with local statutory requirements.

401(k) Defined Contribution Plan. Eligible Agilent U.S. employees may participate in the Agilent Technologies, Inc. 401(k) Plan. Effective April 30, 2016, we began matching contributions to employees up to a maximum of 6 percent of an employee's annual eligible compensation. Effective May 1, 2016 until April 30, 2022, we will provide an additional transitional company contribution for certain eligible employees equal to 3 percent, 4 percent or 5 percent of an employee's annual eligible compensation due to the RP benefits being frozen. The maximum contribution to the 401(k) Plan is 50 percent of an employee's annual eligible compensation, subject to regulatory limitations. The 401(k) Plan employer expense included in income from operations was $37 million in 2018, $33 million in 2017 and $24 million in 2016.

Post-Retirement Medical Benefit Plans. In addition to receiving retirement benefits, Agilent U.S. employees who meet eligibility requirements as of their termination date may participate in the Agilent Technologies, Inc. Health Plan for Retirees. Eligible retirees who were less than age 50 as of January 1, 2005 and who retire after age 55 with 15 or more years of service are eligible for a fixed amount which can be utilized to pay for either sponsored plans and/or individual medicare plans. Effective January 1, 2012, employees who were at least age 50 as of January 1, 2005 and who retire after age 55 with 15 or more years of service are eligible for fixed dollar subsidies and stipends. Grandfathered retirees receive a fixed monthly subsidy toward pre-65 premium costs (subsidy capped at 2011 levels) and a fixed monthly stipend post-65. The subsidy amounts will not increase. In addition, any new employee hired on or after November 1, 2014, will not be eligible to participate in the retiree medical plans upon retiring. As of April 30, 2016, benefits under this plan were changed - see Plan Amendments below.

Plan Amendments. In 2016, we made changes to our U.S. Retirement Plan and Supplemental Benefits Retirement Plan ("U.S. Plans"). Effective April 30, 2016, benefit accruals under the U.S. Plans were frozen. Any pension benefit earned in the U.S. Plans through April 30, 2016 remained fully vested, and there were no additional benefit accruals after April 30, 2016. In addition, active employees who have not met the eligibility requirement for the Retiree Medical Account (RMA) under the U.S. Post Retirement Benefit Plan - 55 years old with at least 15 years of Agilent service - as of April 30, 2016 - will only be eligible for 50 percent of the current RMA reimbursement amount upon retirement.

Due to these plan amendments, we recorded a curtailment gain of $15 million in the U.S. Plans during the year ended October 31, 2016. In addition, we recognized a settlement gain of $1 million related to the U.S. Supplemental Benefits Retirement Plan during the year ended October 31, 2016.

Japanese Welfare Pension Insurance Law. In Japan, Agilent has employees' pension fund plans, which are defined benefit pension plans established under the Japanese Welfare Pension Insurance Law (JWPIL). The plans are composed of (a) a substitutional portion based on the pay-related part of the old-age pension benefits prescribed by JWPIL (similar to social security benefits in the United States) and (b) a corporate portion based on a contributory defined benefit pension arrangement established at the discretion of the company. During the year ended October 31, 2017, Agilent received government approval and returned the substitutional portion of Japan's pension plan to the Japanese government, as allowed by the JWPIL. The initial transfer resulted in a net gain of $32 million recorded within cost of sales and operating expenses in the consolidated statement of operations. The net gain consisted of two parts - a gain of $41 million, representing the difference between the fair values of the Accumulated Benefit Obligation (ABO) settled of $65 million and the assets transferred from the pension trust to the government of Japan of $24 million, offset by a settlement loss of $9 million related to the recognition of previously unrecognized actuarial losses included in accumulated other comprehensive income. In the first quarter of fiscal year 2018, after the Japanese government’s final review of our initial payment, we received a refund of $5 million which was recorded as a settlement gain.

Components of Net periodic cost. The company uses alternate methods of amortization as allowed by the authoritative guidance which amortizes the actuarial gains and losses on a consistent basis for the years presented. For U.S. Plans, gains and losses are amortized over the average future lifetime of participants using the corridor method. For most Non-U.S. Plans and U.S. Post-Retirement Benefit Plans, gains and losses are amortized using a separate layer for each year's gains and losses. For the years ended October 31, 2018, 2017 and 2016, components of net periodic benefit cost and other amounts recognized in other comprehensive income were comprised of:



	Pensions																		U.S. Post-Retirement Benefit Plans
	U.S. Plans									Non-U.S. Plans									U.S. Post-Retirement Benefit Plans

	2018			2017			2016			2018			2017			2016			2018			2017			2016
	(in millions)
Net periodic benefit cost (benefit)
Service cost — benefits earned during the period	$	—		$	—		$	12		$	20		$	19		$	19		$	1		$	1		$	1
Interest cost on benefit obligation	16			15			16			13			12			16			3			3			4
Expected return on plan assets	(28		)	(25		)	(25		)	(46		)	(41		)	(44		)	(7		)	(7		)	(7		)
Amortization of net actuarial loss	1			3			3			29			36			27			8			11			10
Amortization of prior service benefit	—			—			(3		)	—			—			—			(8		)	(9		)	(10		)
Total periodic benefit cost (benefit)	$	(11	)	$	(7	)	$	3		$	16		$	26		$	18		$	(3	)	$	(1	)	$	(2	)
Curtailments and settlements	$	—		$	—		$	(16	)	$	(5	)	$	(32	)	$	—		$	—		$	—		$	—
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss
Net actuarial (gain) loss	$	2		$	(19	)	$	22		$	49		$	(128	)	$	149		$	(2	)	$	(9	)	$	3
Amortization of net actuarial loss	(1		)	(3		)	(3		)	(29		)	(36		)	(27		)	(8		)	(11		)	(10		)
Prior service cost (benefit)	—			—			15			—			—			—			—			—			(7		)
Amortization of prior service benefit	—			—			3			—			—			—			8			9			10
Gain due to settlement	—			—			—			—			32			—			—			—			—
Foreign currency	—			—			—			1			2			(3		)	—			—			—
Total recognized in other comprehensive (income) loss	$	1		$	(22	)	$	37		$	21		$	(130	)	$	119		$	(2	)	$	(11	)	$	(4	)
Total recognized in net periodic benefit cost (benefit) and other comprehensive (income) loss	$	(10	)	$	(29	)	$	24		$	32		$	(136	)	$	137		$	(5	)	$	(12	)	$	(6	)

Funded Status. As of October 31, 2018 and 2017, the funded status of the defined benefit and post-retirement benefit plans was:



	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						U.S. Post-Retirement Benefit Plans
	2018			2017			2018			2017			2018			2017
	(in millions)
Change in fair value of plan assets:
Fair value — beginning of year	$	414		$	341		$	855		$	774		$	95		$	88
Actual return on plan assets	8			66			(9		)	81			1			14
Employer contributions	—			25			21			21			—			—
Participants' contributions	—			—			—			—			—			—
Benefits paid	(21		)	(18		)	(26		)	(23		)	(6		)	(7		)
Settlements	—			—			5			(26		)	—			—
Currency impact	—			—			(21		)	28			—			—
Fair value — end of year	$	401		$	414		$	825		$	855		$	90		$	95
Change in benefit obligation:
Benefit obligation — beginning of year	$	445		$	434		$	935		$	1,002		$	97		$	103
Service cost	—			—			20			19			1			1
Interest cost	16			15			13			12			3			3
Participants' contributions	—			—			—			—			—			—
Plan amendment	—			—			1			(1		)	—			—
Actuarial (gain) loss	(19		)	15			(6		)	(43		)	(7		)	(3		)
Benefits paid	(22		)	(19		)	(27		)	(22		)	(7		)	(7		)
Curtailments	—			—			—			—			—			—
Settlements	—			—			—			(70		)	—			—
Currency impact	—			—			(23		)	38			—			—
Benefit obligation — end of year	$	420		$	445		$	913		$	935		$	87		$	97
Overfunded (underfunded) status of PBO	$	(19	)	$	(31	)	$	(88	)	$	(80	)	$	3		$	(2	)
Amounts recognized in the consolidated balance sheet consist of:
Other assets	$	—		$	—		$	95		$	86		$	3		$	—
Employee compensation and benefits	(1		)	(1		)	—			—			—			—
Retirement and post-retirement benefits	(18		)	(30		)	(183		)	(166		)	—			(2		)
Total net asset (liability)	$	(19	)	$	(31	)	$	(88	)	$	(80	)	$	3		$	(2	)
Amounts Recognized in Accumulated Other Comprehensive Income (loss):
Actuarial (gains) losses	$	65		$	65		$	263		$	243		$	10		$	20
Prior service costs (benefits)	—			—			—			(1		)	(20		)	(28		)
Total	$	65		$	65		$	263		$	242		$	(10	)	$	(8	)

The amounts in accumulated other comprehensive income expected to be recognized by Agilent as components of net expense during 2019 are as follows:



	U.S. Defined Benefit Plans		Non-U.S. Defined Benefit Plans		U.S. Post-Retirement Benefit Plans
	(in millions)
Amortization of net prior service cost (benefit)	$	—	$	—	$	(8	)
Amortization of actuarial net loss (gain)	$	1	$	35	$	4

Investment Policies and Strategies as of October 31, 2018 and 2017. In the U.S., target asset allocations for our retirement and post-retirement benefit plans are approximately 80 percent to equities and approximately 20 percent to fixed income investments. Our DPSP target asset allocation is approximately 60 percent to equities and approximately 40 percent to fixed income investments. Approximately 3 percent of our U.S. equity portfolio consists of limited partnerships. The general investment objective for all our plan assets is to obtain the optimum rate of investment return on the total investment portfolio consistent with the assumption of a reasonable level of risk. Specific investment objectives for the plans' portfolios are to: maintain and enhance the purchasing power of the plans' assets; achieve investment returns consistent with the level of risk being taken; and earn performance rates of return in accordance with the benchmarks adopted for each asset class. Outside the U.S., our target asset allocation is from 31 to 60 percent to equities, from 38 to 61 percent to fixed income investments, and from zero to 25 percent to real estate investments and from zero to 12 percent to cash, depending on the plan. All plans' assets are broadly diversified. Due to fluctuations in equity markets, our actual allocations of plan assets at October 31, 2018 and 2017 differ from the target allocation. Our policy is to bring the actual allocation in line with the target allocation.

Equity securities include exchange-traded common stock and preferred stock of companies from broadly diversified industries. Fixed income securities include a global portfolio of corporate bonds of companies from diversified industries, government securities, mortgage-backed securities, asset-backed securities, derivative instruments and other. Other investments include a group trust consisting primarily of private equity partnerships. Portions of the cash and cash equivalent, equity, and fixed income investments are held in commingled funds that are valued using Net Asset Value (“NAV”) as the practical expedient. In addition, some of the investments valued using NAV as the practical expedient may have limits on their redemption to weekly or monthly and/or may require prior written notice specified by each fund.

Fair Value. The measurement of the fair value of pension and post-retirement plan assets uses the valuation methodologies and the inputs as described in Note 10, "Fair Value Measurements".

Cash and Cash Equivalents - Cash and cash equivalents consist of short-term investment funds. The funds also invest in short-term domestic fixed income securities and other securities with debt-like characteristics emphasizing short-term maturities and quality. Some of our cash and cash equivalents are held in commingled funds. Other cash and cash equivalents are classified as Level 1 investments.

Equity - Some equity securities consisting of common and preferred stock that are not traded on an active market are valued at quoted prices reported by investment dealers based on the underlying terms of the security and comparison to similar securities traded on an active market; these are classified as Level 2 investments. Securities which have quoted prices in active markets are classified as Level 1 investments.

Fixed Income - Some of the fixed income securities are not actively traded and are valued at quoted prices based on the terms of the security and comparison to similar securities traded on an active market; these are classified as Level 2 investments. Securities which have quoted prices in active markets are classified as Level 1 investments.

Other Investments - Other investments also includes partnership investments where, due to their private nature, pricing inputs are not readily observable. Asset valuations are developed by the general partners that manage the partnerships. These valuations are based on proprietary appraisals, application of public market multiples to private company cash flows, utilization of market transactions that provide valuation information for comparable companies and other methods. Holdings of limited partnerships are classified as Level 3.

Agilent has adopted the accounting guidance related to the presentation of certain investments using the NAV practical expedient. The accounting guidance exempts investments using this practical expedient from categorization within the fair value hierarchy.

The following tables present the fair value of U.S. Defined Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of October 31, 2018 and 2017.



			Fair Value Measurement at October 31, 2018 Using
	October 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Not Subject to Leveling⁽¹⁾
	(in millions)
Cash and Cash Equivalents	$	4	$	—	$	—	$	—	$	4
Equity	308		69		—		—		239
Fixed Income	83		36		5		—		42
Other Investments	6		—		—		6		—
Total assets measured at fair value	$	401	$	105	$	5	$	6	$	285