Pension and Other Benefit Plans

The Company sponsors a number of defined benefit plans and defined contribution plans for the benefit of eligible employees. The defined benefit plans comprise primarily pension plans and postretirement medical benefit plans. The defined contribution plans include the Company's deferred compensation plan for executives and non-employee directors.

After the Separation, the majority of U.S. pension and other benefit plans were transferred to CSRA and amended, resulting in a remeasurement. The Company recorded reductions in noncurrent assets of $3 million, current liabilities of $9 million, noncurrent liabilities of $473 million and accumulated other comprehensive income of $51 million. The remeasurement resulted in an actuarial gain of $20 million associated with the pension plans and $1 million associated with the other postretirement benefit plans. See Note 4 for a further description of the Separation of CSRA.

Defined Benefit Pension Plans

U.S. Plans

Contributory defined benefit plans had historically been available to U.S. employees, but have largely been transferred to CSRA. The remaining U.S. plans cover a very limited number of employees under existing union contracts. The Company’s funding policy is to make contributions, as determined by an independent actuary, to the plans in amounts that meet the minimum requirements of the Internal Revenue Code (IRS) and ERISA, and that may exceed such minimum requirements if determined to be beneficial to the Company for cost recoverability, tax, or other regulatory reasons.

Non-U.S. Plans

Eligible non-U.S. employees are enrolled in defined benefit pension plans in their country of domicile. The Contributory defined benefit pension plan in the U.K. represents the largest plan. In addition, healthcare, dental and life insurance benefits are also provided to certain non-U.S. employees. A significant number of employees outside the U.S. are covered by government sponsored programs at no direct cost to the Company other than related payroll taxes.

On December 31, 2015, a defined benefit pension plan in Switzerland was subject to interim remeasurement due to the significant amount of settlement payments from the plan. The interim remeasurement of the plan assets and liabilities resulted in an aggregate credit of $7 million, comprising actuarial gains of $7 million and a settlement gain of $0 million. A discount rate of 0.81% was used to remeasure the plans; a decrease from 1.20% in the prior fiscal year. As a result of the remeasurement, the plan's Projected Benefit Obligation (PBO) decreased by $14 million and the funded status was 74%. The weighted-average expected long-term rate of return on plan assets, after remeasurement, is 4.15%, which is consistent with the rate used at the beginning of fiscal 2016.

On December 31, 2014, a defined benefit pension plan in Switzerland was subject to interim remeasurement due to the significant amount of settlement payments from the plan. The interim remeasurement of the plan assets and liabilities resulted in an aggregate charge of $29 million, comprising actuarial losses of $26 million and a settlement loss of $3 million. A discount rate of 1.20% was used to remeasure the plans; a decrease from 2.10% in the prior fiscal year. As a result of the remeasurement, the plan's PBO decreased by $38 million and the funded status was 78%. The weighted-average expected long-term rate of return on plan assets, after remeasurement, is 3.60%, which is consistent with the rate used at the beginning of fiscal 2015.

On July 31, 2014, CSC completed the sale of a German software business, which had a pension plan. The plan was remeasured as of the date of the sale, resulting in settlement gain totaling $3 million, which has been reported within income from discontinued operations, net of taxes in the Company's Consolidated Statements of Operations.

On December 20, 2013, two U.K. pension plans were remeasured due to a plan amendment arising from a change in the index used to determine the level of pension increases, from the Retail Prices Index (RPI) to the Consumer Prices Index (CPI). A weighted average discount rate of 4.65% was used to remeasure the plans; an increase from 4.31% in the prior fiscal year. As a result of the remeasurement, the pension benefit obligation decreased by $443 million and the average funded status for both plans was 108%.

As additional contractual termination benefits, for certain employees participating in a U.K. pension plan, and in connection with the restructuring plans (see Note 20), the Company accrued $6 million, $3 million, and $17 million, for fiscal years 2016, 2015 and 2014, respectively. These amounts are reflected in the projected benefit obligation and in the net periodic pension cost.

The following table provides a reconciliation of the projected benefit obligations:



	U.S. Pension Plans						Non-U.S. Pension Plans
(Amounts in millions)	April 1, 2016			April 3, 2015			April 1, 2016			April 3, 2015
Projected benefit obligation at beginning of year	$	30		$	29		$	3,006		$	2,873
Service cost	—			—			25			23
Interest cost	1			1			90			117
Plan participants’ contributions	—			—			4			4
Amendments	—			—			(3		)	1
Business/contract acquisitions/divestitures	—			—			1			(6		)
Contractual termination benefits	—			—			6			3
Settlement/curtailment	—			(3		)	(14		)	(25		)
Actuarial loss (gain)	(1		)	4			(91		)	491
Benefits paid	(2		)	(2		)	(101		)	(95		)
Foreign currency exchange rate changes	—			—			(95		)	(384		)
Other	(1		)	1			(1		)	4
Projected benefit obligation at end of year	$	27		$	30		$	2,827		$	3,006

The following table provides a reconciliation of the fair value of plan assets and funded status:



	U.S. Pension Plans						Non-U.S. Pension Plans
(Amounts in millions)	April 1, 2016			April 3, 2015			April 1, 2016			April 3, 2015
Fair value of plan assets at beginning of year	$	26		$	29		$	2,802		$	2,824
Actual return on plan assets	(1		)	2			(48		)	367
Employer contribution	—			—			20			45
Plan participants’ contributions	—			—			4			4
Benefits paid	(2		)	(2		)	(101		)	(95		)
Contractual termination benefits	—			—			11			23
Plan settlement	—			(3		)	(14		)	(25		)
Foreign currency exchange rate changes	—			—			(100		)	(340		)
Other	—			—			(1		)	(1		)
Fair value of plan assets at end of year	$	23		$	26		$	2,573		$	2,802

Funded status at end of year	$	(4	)	$	(4	)	$	(254	)	$	(204	)

The following table provides the amounts recorded in the Company’s Consolidated Balance Sheets:



	U.S. Pension Plans						Non-U.S. Pension Plans
(Amounts in millions)	April 1, 2016			April 3, 2015			April 1, 2016			April 3, 2015
Other assets	$	—		$	—		$	44		$	83
Accrued expenses and other current liabilities	—			—			(4		)	(4		)
Other long-term liabilities	(4		)	(4		)	(294		)	(283		)
Net amount recorded	$	(4	)	$	(4	)	$	(254	)	$	(204	)

A summary of amounts included within Other comprehensive (loss) income, net of taxes in the Company's Consolidated Statements of Comprehensive Income (Loss), as of April 1, 2016 and April 3, 2015 that were not recognized in the Company's Consolidated Statements of Operations is shown below:



	Non-U.S. Pension Plans
(Amounts in millions)	April 1, 2016			April 3, 2015
Net transition obligation	$	1		$	2
Prior service cost	(265		)	(273		)
Accumulated other comprehensive (loss) income	$	(264	)	$	(271	)

The U.S. pension plans did not have accumulated other comprehensive (loss) income for the fiscal years ended April 1, 2016 or April 3, 2015.

Estimated net transitional obligations of $1 million and prior service credit of $(9) million will be amortized from accumulated other comprehensive income into net periodic pension cost over the next fiscal year.

The following table summarizes the weighted average rates used in the determination of the Company’s pension plans’ benefit obligations:



	U.S. Pension Plans				Non-U.S. Pension Plans
	April 1, 2016		April 3, 2015		April 1, 2016		April 3, 2015
Discount rate	3.9	%	3.8	%	3.1	%	3.0	%
Rates of increase in compensation levels	—	%	—	%	2.6	%	2.8	%

The following tables provide selected information for the pension plans:



	U.S. Pension Plans				Non-U.S. Pension Plans
(Amounts in millions)	April 1, 2016		April 3, 2015		April 1, 2016		April 3, 2015
Projected benefit obligation	$	27	$	30	$	2,827	$	3,006
Accumulated benefit obligation	28		30		2,782		2,948
Fair value of plan assets	23		26		2,573		2,802



	Pension Plans with Projected Benefit Obligation in Excess of Plan Assets (U.S. and Non-U.S.)				Pension Plans with Accumulated Benefit Obligation in Excess of Plan Assets (U.S. and Non-U.S.)
(Amounts in millions)	April 1, 2016		April 3, 2015		April 1, 2016		April 3, 2015
Projected benefit obligation	$	668	$	680	$	643	$	652
Accumulated benefit obligation	633		634		615		616
Fair value of plan assets	366		389		346		369

The net periodic pension cost included the following components for the fiscal years noted:



	Non-U.S. Pension Plans
(Amounts in millions)	April 1, 2016			April 3, 2015			March 28, 2014
Service cost	$	25		$	23		$	25
Interest cost	90			117			124
Expected return on assets	(177		)	(181		)	(166		)
Amortization of transition obligation	1			1			1
Amortization of prior service costs	(9		)	(10		)	(5		)
Contractual termination benefit	6			3			17
Settlement (gain) loss	(2		)	1			—
Recognition of actuarial loss (gain)	126			274			(101		)
Net periodic pension expense (income)	$	60		$	228		$	(105	)

The U.S. pension plans had no net periodic pension expense (income) for the fiscal year ended April 1, 2016 and was $3 million and $(2) million for the fiscal years ended April 3, 2015 and March 28, 2014, respectively.

The weighted-average rates used to determine net periodic pension cost were:



	U.S. Pension Plans						Non-U.S. Pension Plans
	April 1, 2016		April 3, 2015		March 28, 2014		April 1, 2016		April 3, 2015		March 28, 2014
Discount or settlement rates	3.8	%	4.3	%	4.2	%	3.0	%	4.2	%	4.1	%
Expected long-term rates of return on assets	7.9	%	7.6	%	7.2	%	6.3	%	6.5	%	6.2	%
Rates of increase in compensation levels	—	%	—	%	—	%	2.8	%	3.4	%	3.5	%

Information about the expected cash flows for pension plans as of April 1, 2016, was as follows:



(Amounts in millions)	U.S. Plans		Non-U.S. Plans
Employer contributions:
2017	$	—	$	52

Benefit Payments:
2017	2		91
2018	2		96
2019	2		103
2020	2		110
2021	2		116
2022 and thereafter	9		662

Other Defined Benefit Postretirement Plans

The Company provides subsidized healthcare and life insurance retirement benefits for certain U.S. employees and retirees, generally for those employed prior to August 1992. The Company amended its retiree healthcare plans effective February 1, 2015, such that Medicare eligible and Medicare ineligible retirees receive healthcare benefits through different processes.

On October 6, 2014, the Company amended its U.S. retiree medical health plans to provide coverage to eligible Medicare retirees through a private insurance marketplace that allows retirees to choose the health insurance terms, cost and coverage that best fit their needs. CSC will continue to provide financial support to these participants in the form of a tax free contribution to a health reimbursement account. This amendment resulted in interim remeasurement of the retiree medical plans, which resulted in an actuarial loss of $1 million in fiscal 2015. A weighted average discount rate of 4.01% was used to remeasure the plans; a decrease from 4.32% in the prior fiscal year. As a result of the remeasurement, the benefit obligations decreased and the prior service credit each increased by $99 million. Subsequent to the remeasurement, the average funded status was 74%. After remeasurement, as of October 6, 2014, the weighted-average expected long-term rate of return on plan assets was 7.50%, which is consistent with the rate at March 29, 2014.

As a result of the Separation, nearly all of the plan assets associated with postretirement benefit plans were transferred to CSRA. Therefore, the accumulated postretirement benefit obligations of $25 million and $26 million, as of April 1, 2016 and April 3, 2015, respectively, represent plans with accumulated postretirement benefit obligations in excess of the fair value of plan assets. The postretirement benefit obligation will be paid from the Company's continuing operations.

The weighted average rates used in the determination of the Company’s postretirement benefit obligations were 4.1% and 3.7% as of April 1, 2016 and April 3, 2015, respectively.

Following are the expected cash flows for U.S. and non-U.S. based other postretirement benefit plans:



(Amounts in millions)	U.S. and Non-U.S. Plans
(Amounts in millions)	U.S. and Non-U.S. Plans
Employer Contributions:
2017	$	1

Benefit Payments:
2017	1
2018	1
2019	2
2020	2
2021	1
2022 and thereafter	7

Pension and Other Postretirement Benefit Plan Assets

U.S. pension plan and other postemployment benefits (OPEB) plan assets are held in a trust that includes commingled funds. Non-U.S. assets are subject to country specific regulations and invest primarily in commingled funds.

The Company’s investment goals and risk management strategy for plan assets evaluates a number of factors, including the time horizon of the pension plans’ obligations. Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification in order to minimize risk, yet produces a reasonable amount of return on investment over the long term. Sufficient liquidity is maintained to meet benefit obligations as they become due. Third party investment managers are employed to invest assets in both passively-indexed and actively-managed strategies. Equities are primarily invested broadly in domestic and foreign companies across market capitalizations and industries. Fixed income securities are invested broadly, primarily in government treasury, corporate credit, mortgage backed and asset backed investments. Alternative investment allocations are included in selected pension plans to achieve greater portfolio diversity intended to reduce the overall risk of the plans.

Plan asset risks include longevity, inflation, and other changes in market conditions that could reduce the value of plan assets. Also, a decline in the yield of high quality corporate bonds may adversely affect discount rates resulting in an increase in CSC's pension and other post retirement obligations. These risks, among others, could cause the plans’ funded status to deteriorate, resulting in an increased reliance on Company contributions. Derivatives are permitted although their current use is limited within traditional funds and broadly allowed within alternative funds. They are used in the U.S. pension trust traditional fixed income portfolios for duration and interest rate risk management and traditional equity portfolios to gain market exposure. Derivatives are also used in the U.K. pension plans for inflation risk management and within the liability driven investing strategy. The Company also has investments in insurance contracts to pay plan benefits in certain countries.

For the U.S. pension trust, an allocation range by asset class was developed, which has a significant weighting to equity investments in part due to the relatively long duration of the plans’ obligations. As of March 2016, the plan fiduciaries adopted investment allocation targets for the U.S. pension trust of 55% equities, 35% fixed income securities, and 10% alternative investments. An allocation range is established for each asset class and cash equivalents may represent between 0%-10% of the fund. Asset allocations are monitored closely and investment reviews are conducted regularly. The Company consults with internal and external advisors regarding asset strategy.

For the U.K. pension plans, the Company's largest pension plans by assets and projected liabilities, a target allocation by asset class was developed to achieve their long term objectives. As of April 1, 2016, the largest plan held investment allocation targets of 35% equities, 33% fixed income (including 23% corporate bonds and 10% in liability-driven investment products), and 32% alternatives. Alternatives include risk parity, hedge fund, multi-asset credit, and property fund allocations. Asset allocations are monitored closely by the plan trustees and investment reviews are conducted regularly. The plan trustees consult with internal and external advisors regarding asset strategy.

Fair Value Measurement Techniques of Plan Assets

CSC early adopted the provisions of ASU 2015-04 and used March 31, 2015 as the date closest to its fiscal year end, to value plan assets of all its defined benefit plans. There was no material impact of adoption of this ASU on the fair value of plan assets. Note 1 under the heading of Fair Value provides definitions of the three hierarchy levels of inputs used for measuring plan assets.

Cash equivalents that have quoted prices in active markets are classified as Level 1. Short-term money market commingled funds are categorized as Level 2 and valued at cost plus accrued interest which approximates fair value.

Fixed income accounts are categorized as Level 2. Investments in corporate bonds are primarily investment grade bonds, generally priced using model-based pricing methods that use observable market data as inputs. Broker dealer bids or quotes of securities with similar characteristics may also be used.

Domestic and global equity accounts are categorized as Level 1 if the securities trade on national or international exchanges and are valued at their last reported closing price. Equity assets in commingled funds reporting a net asset value are categorized as Level 2.

Insurance contracts purchased to cover benefits payable to retirees are valued using the assumptions used to value the projected benefit obligation. Most of the plans' insurance contracts are categorized as level 2 while one plan has a level 3 insurance contract.

Derivatives are categorized as Level 1 if the securities trade actively on a recognized exchange, as Level 2 if the securities can be valued using observable inputs, or as Level 3 if the securities are valued using significant unobservable inputs.

Alternative investment fund securities are categorized as Level 1 if held in a mutual fund or in a separate account structure and actively traded through a recognized exchange, or as Level 2 if they are held in commingled or collective account structures and are actively traded. Alternative investment fund securities are classified as Level 3 if they are held in Limited Company or Limited Partnership structures or cannot otherwise be classified as Level 1 or Level 2.

The fair value of U.S. pension plan assets as of April 1, 2016 and April 3, 2015 was $23 million and $26 million, respectively. There were no OPEB plan assets as of April 1, 2016 or April 3, 2015.

The fair value of non-U.S. pension plans as of April 1, 2016 is shown below. There were no OPEB plan assets as of April 1, 2016.



Non-U.S. Pension Plan Assets
(Amounts in millions)		Level 1		Level 2		Level 3		Total
Equity:
	Global/International Equity commingled funds	$	—	$	415	$	—	$	415
	Global equity mutual funds	—		230		—		230
	U.S./North American Equity commingled funds	—		257		—		257
Fixed Income:
	Fixed income commingled funds	—		839		—		839
Alternatives:
Other Alternatives ⁽¹⁾		3		371		165		539
	Hedge Funds⁽²⁾	—		—		146		146
Insurance contracts		—		135		4		139
Cash and cash equivalents		5		4		—		9
Fair value of non-U.S. pension assets as of April 1, 2016		$	8	$	2,251	$	315	$	2,574

⁽¹⁾ Represents real estate, and other commingled funds consisting mainly of equities, bonds, or commodities.

⁽²⁾ Represents investments in diversified fund of hedge funds.

Below is a roll-forward of the assets valued using significant unobservable inputs (Level 3):



(Amounts in millions)	Non-U.S. Plans
Beginning balance as of April 3, 2015	$	289
Actual return on plan assets held at the reporting date	6
Purchases, sales, and settlements	34
Changes due to exchange rates	(14		)
Ending balance as of April 1, 2016	$	315

The fair value of non-U.S. pension plans as of April 3, 2015 is shown below. There were no OPEB plan assets as of April 3, 2015.



(Amounts in millions)		Level 1		Level 2		Level 3		Total
Equity:
	Global/International Equity commingled funds	$	—	$	817	$	—	$	817
	Global equity mutual funds	—		122		—		122
	U.S./North American Equity commingled funds	—		64		—		64
Fixed Income:
	Fixed income commingled funds	—		944		—		944
Alternatives:
Other Alternatives ⁽¹⁾		3		392		116		511
Hedge Funds⁽²⁾		—		—		169		169
Insurance contracts		—		137		4		141
Cash equivalents		30		4		—		34
Fair value of non-U.S. pension assets as of April 3, 2015		$	33	$	2,480	$	289	$	2,802

⁽¹⁾ Represents real estate, and other commingled funds consisting mainly of equities, bonds, or commodities.

⁽²⁾ Represents investments in diversified fund of hedge funds.

Below is a roll-forward of the assets valued using significant unobservable inputs (Level 3):



(Amounts in millions)	Non-U.S. Plans
Beginning balance as of March 28, 2014	$	209
Actual return on plan assets held at the reporting date	18
Purchases, sales, and settlements	(13		)
Transfers in and / or out of Level 3	105
Changes due to exchange rates	(30		)
Ending balance as of April 3, 2015	$	289

The asset allocation of pension plans at April 1, 2016 and April 3, 2015, respectively, is as follows:



	U.S. Plans				Non-U.S. Plans
Asset Category	April 1, 2016		April 3, 2015		April 1, 2016		April 3, 2015
Equity securities	55	%	27	%	35	%	36	%
Debt securities	35	%	25	%	32	%	34	%
Alternatives	9	%	47	%	27	%	24	%
Cash and other	1	%	1	%	6	%	6	%
Total	100	%	100	%	100	%	100	%

Return on Assets

The Company consults with internal and external advisors regarding the expected long-term rate of return on assets. In the U.S. and U.K., the Company uses various sources in its approach to compute the expected long-term rate of return of the major asset classes expected in each of the plans. CSC utilizes long-term, typically 30 years, asset class return assumptions provided by external advisors. Consideration is also given to the extent active management is employed in each asset class and also to management expenses. A single expected long-term rate of return is calculated for each plan by assessing the plan's expected asset allocation strategy, the benefits of diversification therefrom, historical excess returns from actively managed traditional investments, expected long-term returns for alternative investments and expected investment expenses. The resulting composite rate of return is reviewed by internal and external parties for reasonableness.

Retirement Plan Discount Rate

The U.S. discount rate assumption is prepared through a two-step process; the first step generates a yield curve developed as of the measurement date using high-quality corporate bond yields. In step two, each plan's future cash flows are applied to the appropriate years on the yield curve and the weighted value of the cash flows is used to determine a single equivalent discount rate. In fiscal 2016, the discount rates were developed separately for each U.S. pension and other postretirement plan to the nearest basis point using a single yield curve, the Aon Hewitt AA Only Above Median Curve. This yield curve is a hypothetical AA or greater yield curve represented by a series of annualized individual spot discount rates going out 100 years. This curve provides a more transparent view to the underlying bonds and is available daily which provides for a discount rate to be calculated specific to the Company's fiscal year end. For years prior to fiscal 2015, the U.S. discount rates were determined using an average of the Citigroup yield curve and the AON Hewitt yield curve rounded to the nearest 10 basis points.

The U.K. discount rate is based on the yield curve approach using the U.K. Aon Hewitt GBP Single Agency AA Corporates-Only Curve. In fiscal 2016, the bond universe was modified to include corporate bonds only as compared to including non-gilt universe in fiscal 2015.

Defined Contribution Plans

The Company sponsors defined contribution plans for substantially all U.S. employees and certain foreign employees. The plans allow employees to contribute a portion of their earnings in accordance with specified guidelines. Beginning January 1, 2014, matching contributions were made annually in January following the end of the calendar year. In order to receive such contributions, a participant must be employed on December 31 of the plan year. However, if a participant retires from CSC or dies prior to December 31, the participant will be eligible to receive matching contributions approximately 30 days following separation from service. The plan was amended in fiscal 2014 to change vesting from five years to one year. During fiscal years 2016, 2015, and 2014, the Company contributed $132 million, $177 million, and $179 million, respectively. At April 1, 2016, plan assets included 5,675,165 shares of the Company’s common stock.

Deferred Compensation Plan

Effective August 14, 1995, the Company adopted the Computer Sciences Corporation Deferred Compensation Plan (the Plan). The Plan consists of two separate plans, one for the benefit of key executives and one for the benefit of non-employee directors. Pursuant to the Plan, certain management and highly compensated employees are eligible to defer all or a portion of their regular salary that exceeds the limitation set forth in Internal Revenue Section 401(a)(17) and all or a portion of their incentive compensation, and non-employee directors are eligible to defer up to 100% of their compensation. The liability, which is included in Other long-term liabilities in the Company's Consolidated Balance Sheets under the Plan, amounted to $74 million as of April 1, 2016 and $117 million as of April 3, 2015. The Company’s expense under the Plan totaled $3 million, $2 million, and $9 million, for fiscal years 2016, 2015, and 2014, respectively.