Postretirement Plans

The majority of our employees have earned benefits under defined benefit pension plans. Nonunion and the majority of union employees that had participated in defined benefit pension plans transitioned to a company-funded defined contribution retirement savings plan in 2016.

We fund our major pension plans through trusts. Pension assets are placed in trust solely for the benefit of the plans’ participants, and are structured to maintain liquidity that is sufficient to pay benefit obligations as well as to keep pace over the long-term with the growth of obligations for future benefit payments.

We also have other postretirement benefits (OPB) other than pensions which consist principally of health care coverage for eligible retirees and qualifying dependents, and to a lesser extent, life insurance to certain groups of retirees. Retiree health care is provided principally until age 65 for approximately half those retirees who are eligible for health care coverage. Certain employee groups, including employees covered by most United Auto Workers bargaining agreements, are provided lifetime health care coverage. The funded status of the plans is measured as the difference between the plan assets at fair value and the projected benefit obligation (PBO). We have recognized the aggregate of all overfunded plans in Other assets, and the aggregate of all underfunded plans in either Accrued retiree health care or Accrued pension plan liability, net. The portion of the amount by which the actuarial present value of benefits included in the PBO exceeds the fair value of plan assets, payable in the next 12 months, is reflected in Accrued liabilities.

The components of net periodic benefit cost were as follows:



	Pension									Other Postretirement Benefits
Years ended December 31,	2016			2015			2014			2016			2015			2014
Service cost		$604			$1,764			$1,661			$128			$140			$129
Interest cost	3,050			2,990			3,058			262			248			289
Expected return on plan assets	(3,999		)	(4,031		)	(4,169		)	(8		)	(8		)	(8		)
Amortization of prior service costs/(credits)	38			196			177			(126		)	(136		)	(144		)
Recognized net actuarial loss	790			1,577			1,020			22			31			8
Settlement/curtailment/other losses	40			290			461						10			1
Net periodic benefit cost		$523			$2,786			$2,208			$278			$285			$275

Net periodic benefit cost included in Earnings from operations		$1,979			$2,366			$3,215			$274			$288			$287

In 2016, we recorded charges of $40 related to curtailments and other benefit changes associated with certain of our defined benefit plans.

The following tables show changes in the benefit obligation, plan assets and funded status of both pensions and OPB for the years ended December 31, 2016 and 2015. Benefit obligation balances presented below reflect the PBO for our pension plans, and accumulated postretirement benefit obligations (APBO) for our OPB plans.



	Pension						Other Postretirement Benefits
	2016			2015			2016			2015
Change in benefit obligation
Beginning balance		$74,388			$78,391			$7,138			$7,306
Service cost	604			1,764			128			140
Interest cost	3,050			2,990			262			248
Plan participants’ contributions	1			5
Amendments	6			(1,379		)	(57		)	(19		)
Actuarial (gain)/loss	2,669			(3,505		)	(612		)	(89		)
Settlement/curtailment/other	(63		)	(457		)				10
Gross benefits paid	(3,903		)	(3,382		)	(469		)	(486		)
Subsidies							37			43
Exchange rate adjustment	(7		)	(39		)	4			(15		)
Ending balance		$76,745			$74,388			$6,431			$7,138
Change in plan assets
Beginning balance at fair value		$56,514			$61,119			$132			$141
Actual return/(loss) on plan assets	3,885			(701		)	7			1
Company contribution	113			59			6			5
Plan participants’ contributions	1			5			7			5
Settlement payments	(24		)	(649		)
Benefits paid	(3,791		)	(3,284		)	(18		)	(20		)
Exchange rate adjustment	(6		)	(35		)
Ending balance at fair value		$56,692			$56,514			$134			$132
Amounts recognized in statement of financial position at December 31 consist of:
Other assets		$3			$10
Other accrued liabilities	(113		)	(101		)		($381	)		($390	)
Accrued retiree health care							(5,916		)	(6,616		)
Accrued pension plan liability, net	(19,943		)	(17,783		)
Net amount recognized		($20,053	)		($17,874	)		($6,297	)		($7,006	)

Amounts recognized in Accumulated other comprehensive loss at December 31 were as follows:



	Pension						Other Postretirement Benefits
	2016			2015			2016			2015
Net actuarial loss		$22,802			$20,871			$152			$781
Prior service (credits)	(1,243		)	(1,195		)	(328		)	(397		)
Total recognized in Accumulated other comprehensive loss		$21,559			$19,676			($176	)		$384

The estimated amount that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost during the year ending December 31, 2017 is as follows:



	Pension			Other Postretirement Benefits
Recognized net actuarial loss		$801			$10
Amortization of prior service (credits)	(41		)	(137		)
Total		$760			($127	)

The accumulated benefit obligation (ABO) for all pension plans was $74,240 and $72,330 at December 31, 2016 and 2015. Key information for our plans with ABO in excess of plan assets as of December 31 was as follows:



	2016		2015
Projected benefit obligation		$76,586		$74,188
Accumulated benefit obligation	74,081		72,121
Fair value of plan assets	56,530		56,306

Assumptions

The following assumptions, which are the weighted average for all plans, are used to calculate the benefit obligation at December 31 of each year and the net periodic benefit cost for the subsequent year.



December 31,	2016		2015		2014
Discount rate:
Pension	4.00	%	4.20	%	3.90	%
Other postretirement benefits	3.70	%	3.80	%	3.50	%
Expected return on plan assets	6.80	%	7.00	%	7.00	%
Rate of compensation increase	4.40	%	4.00	%	3.80	%

The discount rate for each plan is determined based on the plans’ expected future benefit payments using a yield curve developed from high quality bonds that are rated as Aa or better by at least half of the four rating agencies utilized as of the measurement date. The yield curve is fitted to yields developed from bonds at various maturity points. Bonds with the ten percent highest and the ten percent lowest yields are omitted. A portfolio of about 400 bonds is used to construct the yield curve. Since corporate bond yields are generally not available at maturities beyond 30 years, it is assumed that spot rates will remain level beyond that 30-year point. The present value of each plan’s benefits is calculated by applying the discount rates to projected benefit cash flows. All bonds are U.S. issues, with a minimum outstanding of $50.

The pension fund’s expected return on plan assets assumption is derived from a review of actual historical returns achieved by the pension trust and anticipated future long-term performance of individual asset classes. While consideration is given to recent trust performance and historical returns, the assumption represents a long-term, prospective return. The expected return on plan assets component of the net periodic benefit cost for the upcoming plan year is determined based on the expected return on plan assets assumption and the market-related value of plan assets (MRVA). Since our adoption of the accounting standard for pensions in 1987, we have determined the MRVA based on a five-year moving average of plan assets. As of December 31, 2016, the MRVA was approximately $2,352 greater than the fair market value of assets.

Assumed health care cost trend rates were as follows:



December 31,	2016		2015		2014
Health care cost trend rate assumed next year	6.50	%	6.50	%	7.00	%
Ultimate trend rate	5.00	%	5.00	%	5.00	%
Year that trend reached ultimate rate	2021		2021		2018

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. To determine the health care cost trend rates we look at a combination of information including ongoing claims cost monitoring, annual statistical analyses of claims data, reconciliation of forecast claims against actual claims, review of trend assumptions of other plan sponsors and national health trends, and adjustments for plan design changes, workforce changes, and changes in plan participant behavior. A one-percentage-point change in assumed health care cost trend rates would have the following effect:



	Increase		Decrease
Effect on total of service and interest cost		$48		($40	)
Effect on postretirement benefit obligation	586		(496		)

Plan Assets

Investment Strategy The overall objective of our pension assets is to earn a rate of return over time to satisfy the benefit obligations of the pension plans and to maintain sufficient liquidity to pay benefits and address other cash requirements of the pension fund. Specific investment objectives for our long-term investment strategy include reducing the volatility of pension assets relative to pension liabilities, achieving a competitive total investment return, achieving diversification between and within asset classes and managing other risks. Investment objectives for each asset class are determined based on specific risks and investment opportunities identified.

We periodically update our long-term, strategic asset allocations. We use various analytics to determine the optimal asset mix and consider plan liability characteristics, liquidity characteristics, funding requirements, expected rates of return and the distribution of returns. We identify investment benchmarks for the asset classes in the strategic asset allocation that are market-based and investable where possible.

Actual allocations to each asset class vary from target allocations due to periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions, and the timing of benefit payments and contributions. Short-term investments and exchange-traded derivatives are used to rebalance the actual asset allocation to the target asset allocation. The asset allocation is monitored and rebalanced on a monthly basis.

The actual and target allocations by asset class for the pension assets at December 31 were as follows:



	Actual Allocations				Target Allocations
Asset Class	2016		2015		2016		2015
Fixed income	48	%	48	%	47	%	47	%
Global equity	28		28		29		29
Private equity	5		5		5		5
Real estate and real assets	9		9		9		9
Hedge funds	10		10		10		10
Total	100	%	100	%	100	%	100	%

Fixed income securities are invested primarily in a diversified portfolio of long duration instruments. Global equity securities are invested in a diversified portfolio of U.S. and non-U.S. companies, across various industries and market capitalizations.

Real estate and real assets include global private investments that may be held through an investment in a limited partnership (LP) or other fund structures and publicly traded investments (such as Real Estate Investment Trusts (REITs) in the case of real estate). Real estate includes, but is not limited to, investments in office, retail, apartment and industrial properties. Real assets include, but are not limited to, investments in natural resources (such as energy, farmland and timber), commodities and infrastructure. Private equity investment vehicles are primarily limited partnerships (LPs) and fund-of-funds that mainly invest in U.S. and non-U.S. leveraged buyout, venture capital and special situation strategies.

Hedge fund investments seek to capitalize on inefficiencies identified across and within different asset classes or markets. Hedge fund strategy types include, but are not limited to directional, event driven, relative value, long-short and multi-strategy.

Investment managers are retained for explicit investment roles specified by contractual investment guidelines. Certain investment managers are authorized to use derivatives, such as equity or bond futures, swaps, options and currency futures or forwards. Derivatives are used to achieve the desired market exposure of a security or an index, transfer value-added performance between asset classes, achieve the desired currency exposure, adjust portfolio duration or rebalance the total portfolio to the target asset allocation.

As a percentage of total pension plan assets, derivative net notional amounts were 6.0% and 13.1% for fixed income, including to-be-announced mortgage-backed securities and treasury forwards, and 1.2% and 4.0% for global equity and commodities at December 31, 2016 and 2015.

Risk Management In managing the plan assets, we review and manage risk associated with funded status risk, interest rate risk, market risk, counterparty risk, liquidity risk and operational risk. Liability matching and asset class diversification are central to our risk management approach and are integral to the overall investment strategy. Further, asset classes are constructed to achieve diversification by investment strategy, by investment manager, by industry or sector and by holding. Investment manager guidelines for publicly traded assets are specified and are monitored regularly through the custodian. Credit parameters for counterparties have been established for managers permitted to trade over-the-counter derivatives. Valuation is governed through several types of procedures, including reviews of manager valuation policies, custodian valuation processes, pricing vendor practices, pricing reconciliation, and periodic, security-specific valuation testing.

Fair Value Measurements The following table presents our plan assets using the fair value hierarchy as of December 31, 2016 and 2015. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant unobservable inputs.



	December 31, 2016										December 31, 2015
	Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3
Fixed income securities:
Corporate		$16,730					$16,723			$7		$16,339					$16,336			$3
U.S. government and agencies	4,876					4,875			1		4,801					4,800			1
Mortgage backed and asset backed	706					370			336		830					382			448
Municipal	1,398					1,398					1,475					1,475
Sovereign	782					782					907					907
Other	74				$9	65					83				$9	74
Derivatives:
Assets	40					40					25					25
Liabilities	(38		)			(38		)			(67		)			(67		)
Cash equivalents and other short-term investments	1,037					1,037					1,015					1,015
Equity securities:
U.S. common and preferred stock	5,374			5,373					1		5,165			5,164					1
Non-U.S. common and preferred stock	5,746			5,746							5,712			5,710					2
Derivatives:
Assets	6					6					11					11
Liabilities	(8		)			(8		)			(3		)			(3		)
Private equity	—										3								3
Real estate and real assets:
Real estate	468			468							447			447
Real assets	672			372		295			5		632			351		275			6
Derivatives:
Assets	4					4					3					3
Liabilities	(1		)			(1		)			(2		)			(2		)
Total		$37,866			$11,968		$25,548			$350		$37,376			$11,681		$25,231			$464

Fixed income common/collective/pooled funds		$1,625										$1,753
Fixed income other	227										247
Equity common/collective pooled funds	4,962										4,948
Private equity	2,639										2,611
Real estate and real assets	3,625										3,637
Hedge funds	5,441										5,478
Total investments measured at NAV as a practical expedient		$18,519										$18,674

Cash		$160										$162
Receivables	374										435
Payables	(227		)								(133		)
Total		$56,692										$56,514

Fixed income securities are primarily valued upon a market approach, using matrix pricing and considering a security’s relationship to other securities for which quoted prices in an active market may be available, or an income approach, converting future cash flows to a single present value amount. Inputs used in developing fair value estimates include reported trades, broker quotes, benchmark yields, and base spreads.

Common/collective/pooled funds are typically common or collective trusts valued at their NAVs that are calculated by the investment manager or sponsor of the fund and have daily or monthly liquidity. Derivatives included in the table above are over-the-counter and are primarily valued using an income approach with inputs that include benchmark yields, swap curves, cash flow analysis, rating agency data and interdealer broker rates. Exchange-traded derivative positions are reported in accordance with changes in daily variation margin which is settled daily and therefore reflected in the payables and receivables portion of the table.

Cash equivalents and other short-term investments (which are used to pay benefits) are held in a separate account which consists of a commingled fund (with daily liquidity) and separately held short-term securities and cash equivalents. All of the investments in this cash vehicle are valued daily using a market approach with inputs that include quoted market prices for similar instruments. In the event a market price is not available for instruments with an original maturity of one year or less, amortized cost is used as a proxy for fair value. Common and preferred stock equity securities are primarily valued using a market approach based on the quoted market prices of identical instruments.

Private equity and private debt NAV valuations are based on the valuation of the underlying investments, which include inputs such as cost, operating results, discounted future cash flows and market based comparable data. For those investments reported on a one-quarter lagged basis (primarily LPs) we use NAVs, adjusted for subsequent cash flows and significant events.

Real estate and real asset NAV valuations are based on valuation of the underlying investments, which include inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data. For those investments reported on a one-quarter lagged basis (primarily LPs) NAVs are adjusted for subsequent cash flows and significant events. Publicly traded REITs and infrastructure stocks are valued using a market approach based on quoted market prices of identical instruments. Exchange-traded commodities futures positions are reported in accordance with changes in daily variation margin which is settled daily and therefore reflected in the payables and receivables portion of the table.

Hedge funds consist of direct hedge funds and fund-of-fund limited liability company (LLC) structures. For direct hedge funds the NAVs are generally based on valuation of the underlying investments. This is primarily done by applying a market or income valuation methodology depending on the specific type of security or instrument held. The NAVs of the fund-of-funds are based on the NAVs of the underlying hedge funds as well as any cash and accruals held at the fund-of-fund level. Redemptions in hedge funds are based on specific terms and conditions of the individual funds.

Investments in private equity, private debt, real estate, real assets, and hedge funds are primarily calculated and reported by the General Partner (GP), fund manager or third party administrator. Additionally, some investments in fixed income and equity are made via commingled vehicles and are valued in a similar fashion. Pension assets invested in commingled and limited partnership structures rely on the NAV of these investments as the practical expedient for the valuations.

The following tables present a reconciliation of Level 3 assets (excluding investments which are valued using NAVs as a practical expedient) held during the years ended December 31, 2016 and 2015. Transfers into and out of Level 3 are reported at the beginning-of-year values.



	January 1 2016 Balance		Net Realized and Unrealized Gains/(Losses)			Net Purchases, Issuances and Settlements			Net Transfers (Out of) Level 3			December 31 2016 Balance
Fixed income securities:
Corporate⁽¹⁾		$11					($1	)		($3	)		$7
U.S. government and agencies	1											1
Mortgage backed and asset backed ⁽¹⁾	440			$7		(93		)	(18		)	336
Equity securities:
U.S. common and preferred stock	1											1
Non-U.S. common and preferred stock	2					(2		)				—
Private equity	3		(3		)							—
Real assets	6					(1		)				5
Total		$464		$4			($97	)		($21	)		$350



	January 1 2015 Balance		Net Realized and Unrealized (Losses)			Net Purchases, Issuances and Settlements			Net Transfers Into Level 3		December 31 2015 Balance
Fixed income securities:
Corporate ⁽²⁾		$1					$1			$1		$3
U.S. government and agencies ⁽²⁾	1											$1
Mortgage backed and asset backed ⁽²⁾	611			($9	)	(157		)	3		448
Other			(3		)	3					—
Equity securities:
U.S. common and preferred stock									1		1
Non-U.S. common and preferred stock	1					(2		)	3		2
Private equity	3										3
Real assets	4					2					6
Total		$621		($12	)		($153	)		$8		$464


⁽¹⁾	Certain fixed income securities were reclassified from mortgage backed and asset backed to corporate on January 1, 2016.


⁽²⁾	Certain fixed income securities were reclassified from corporate and mortgage backed and asset backed to U.S. government and agencies on January 1, 2015.

The changes in unrealized gains/(losses) for Level 3 mortgage backed and asset backed fixed income securities still held at December 31, 2016 and 2015 were $4 and ($10).

OPB Plan Assets The majority of OPB plan assets are invested in a balanced index fund which is comprised of approximately 60% equities and 40% debt securities. The index fund is valued using a market approach based on the quoted market price of an identical instrument (Level 1). The expected rate of return on these assets does not have a material effect on the net periodic benefit cost.

Cash Flows

Contributions Required pension contributions under the Employee Retirement Income Security Act (ERISA), as well as rules governing funding of our non-U.S. pension plans, are expected to be $200 in 2017. In 2017 we expect to make contributions to our pension plans of approximately $500.

Estimated Future Benefit Payments The table below reflects the total pension benefits expected to be paid from the plans or from our assets, including both our share of the benefit cost and the participants’ share of the cost, which is funded by participant contributions. OPB payments reflect our portion only.



Year(s)	2017			2018			2019			2020			2021			2022-2026
Pensions		$4,558			$4,622			$4,611			$4,662			$4,637			$23,108
Other postretirement benefits:
Gross benefits paid	498			515			530			548			553			2,654
Subsidies	(32		)	(31		)	(31		)	(31		)	(30		)	(143		)
Net other postretirement benefits		$466			$484			$499			$517			$523			$2,511

Termination Provisions

Certain of the pension plans provide that, in the event there is a change in control of the Company which is not approved by the Board of Directors and the plans are terminated within five years thereafter, the assets in the plan first will be used to provide the level of retirement benefits required by ERISA, and then any surplus will be used to fund a trust to continue present and future payments under the postretirement medical and life insurance benefits in our group insurance benefit programs.

Should we terminate certain pension plans under conditions in which the plan’s assets exceed that plan’s obligations, the U.S. government will be entitled to a fair allocation of any of the plan’s assets based on plan contributions that were reimbursed under U.S. government contracts.

Defined Contribution Plans

We provide certain defined contribution plans to all eligible employees. The principal plans are the Company-sponsored 401(k) plans. The expense for these defined contribution plans was $1,413, $768 and $764 in 2016, 2015 and 2014, respectively.