Pension and Postretirement Benefit Plans

We sponsor various defined benefit, qualified and nonqualified, pension plans covering eligible employees. Other postretirement benefits (OPEB), including medical and life insurance, are provided for certain employees upon retirement.

We also sponsor various defined contribution plans that cover the majority of our employees. Under the terms of the qualified defined contribution retirement plans, employee and employer contributions may be directed into a number of diverse investments. None of these qualified defined contribution plans allow direct investment in our stock.

Components of net periodic benefit cost (credit) and other amounts recognized in OCI —



	Pension Benefits
	2016						2015						2014
	U.S.			Non-U.S.			U.S.			Non-U.S.			U.S.			Non-U.S.
Interest cost	$	53		$	7		$	66		$	8		$	80		$	11
Expected return on plan assets	(92		)	(2		)	(108		)	(2		)	(111		)	(1		)
Service cost				5						5						6
Amortization of net actuarial loss	21			6			18			7			16			3
Settlement loss													36			6
Other				1									(5		)	(1		)
Net periodic benefit cost (credit)	(18		)	17			(24		)	18			16			24

Recognized in OCI:
Amount due to net actuarial (gains) losses	68			16			40			(6		)	93			53
Reclassification adjustment for net actuarial losses in net periodic benefit cost	(21		)	(6		)	(18		)	(7		)	(52		)	(9		)
Venezuelan bolivar devaluation																(4		)
Other				(1		)				(11		)	(2		)	(1		)
Total recognized in OCI	47			9			22			(24		)	39			39
Net recognized in benefit cost (credit) and OCI	$	29		$	26		$	(2	)	$	(6	)	$	55		$	63



	OPEB - Non-U.S.
	2016			2015			2014
Interest cost	$	3		$	3		$	5
Service cost	1			1			1
Amortization of net actuarial gain	(1		)				(1		)
Net periodic benefit cost	3			4			5

Recognized in OCI:
Amount due to net actuarial (gains) losses	4			(6		)	10
Reclassification adjustment for net actuarial gain in net periodic benefit cost	1						1
Total recognized in OCI	5			(6		)	11
Net recognized in benefit cost and OCI	$	8		$	(2	)	$	16

Our U.S. defined benefit pension plans are frozen and no additional service cost is being accrued. The estimated net actuarial loss for the defined benefit pension plans that will be amortized from AOCI into benefit cost in 2017 is $24 for our U.S. plans and $6 for our non-U.S. plans. We use the corridor approach for purposes of systematically amortizing deferred gains or losses as a component of net periodic benefit cost into the income statement in future reporting periods. The amortization period used is generally the average remaining service period of active participants in the plan unless almost all of the plan’s participants are inactive, in which case we use the average remaining life expectancy of the inactive participants. No portion of the estimated net actuarial gain related to OPEB plans will be amortized from AOCI into benefit cost in 2017.

As discussed in Note 3, upon the divestiture of our operations in Venezuela, we eliminated unrecognized pension expense of $11, of which $1 was attributable to noncontrolling interests.

Funded status — The following tables provide reconciliations of the changes in benefit obligations, plan assets and funded status.



	Pension Benefits
	2016						2015						OPEB - Non-U.S.
	U.S.			Non-U.S.			U.S.			Non-U.S.			2016			2015
Reconciliation of benefit obligation:
Obligation at beginning of period	$	1,692		$	288		$	1,823		$	325		$	86		$	110
Interest cost	53			7			66			8			3			3
Service cost				5						5			1			1
Actuarial (gain) loss	59			18			(70		)	(5		)	4			(6		)
Benefit payments	(122		)	(12		)	(127		)	(11		)	(5		)	(5		)
New plans				14						4
Settlements				(2		)				(2		)
Other				(5		)
Translation adjustments				(4		)				(36		)	2			(17		)
Obligation at end of period	$	1,682		$	309		$	1,692		$	288		$	91		$	86

The amount included on the New plans line in the preceding table includes obligations under a pension plan in Switzerland, gratuity plans in India and a termination benefit plan covering certain employees in Italy. We determined in 2016 that these obligations should be included within our defined benefit pension plan obligation and the related disclosures. The adjustments were primarily reclassifications from Other noncurrent liabilities to Pension and postretirement obligations and did not have a material impact on pension expense.



	Pension Benefits
	2016						2015						OPEB - Non-U.S.
	U.S.			Non-U.S.			U.S.			Non-U.S.			2016			2015
Reconciliation of fair value of plan assets:
Fair value at beginning of period	$	1,493		$	40		$	1,622		$	44		$	—		$	—
Actual return on plan assets	83			4			(2		)	3
Employer contributions				15						12			5			5
Benefit payments	(122		)	(12		)	(127		)	(11		)	(5		)	(5		)
Settlements				(2		)				(2		)
New plans				4						3
Translation adjustments				2						(9		)
Fair value at end of period	$	1,454		$	51		$	1,493		$	40		$	—		$	—

Funded status at end of period	$	(228	)	$	(258	)	$	(199	)	$	(248	)	$	(91	)	$	(86	)

Amounts recognized in the balance sheet —



	Pension Benefits
	2016						2015						OPEB - Non-U.S.
	U.S.			Non-U.S.			U.S.			Non-U.S.			2016			2015
Amounts recognized in the consolidated balance sheet:
Noncurrent assets	$	—		$	2		$	—		$	2		$	—		$	—
Current liabilities				(9		)				(10		)	(5		)	(4		)
Noncurrent liabilities	(228		)	(251		)	(199		)	(240		)	(86		)	(82		)
Net amount recognized	$	(228	)	$	(258	)	$	(199	)	$	(248	)	$	(91	)	$	(86	)

Amounts recognized in AOCI —



	Pension Benefits
	2016						2015					OPEB - Non-U.S.
	U.S.			Non-U.S.			U.S.		Non-U.S.			2016			2015
Amounts recognized in AOCI:
Net actuarial loss (gain)	$	560		$	92		$	513	$	83		$	(10	)	$	(15	)
AOCI before tax	560			92			513		83			(10		)	(15		)
Deferred taxes	(17		)	(24		)			(21		)	3			4
Net	$	543		$	68		$	513	$	62		$	(7	)	$	(11	)

We initiated a program in September 2014 under which certain former U.S. employees with vested pension benefits were offered lump sum payments to settle their pension obligations. The same participants were also offered the option to begin receiving monthly benefits soon after the program ended – earlier than previously allowed under the related plans. This voluntary program ended in early November with 71% of the participants in the program accepting accelerated payments. The lump sum payments were made in December. Together with routine settlements occurring in the U.S. throughout 2014, these actions resulted in the distribution of plan assets of $133 to effect settlement of the related obligations. We charged earnings for $36 to write off a pro rata portion of the cumulative actuarial loss related to the settled obligations. Because of differences in valuation methods, the reduction in pension obligations exceeded the assets distributed by $38, which was credited to other comprehensive income as a component of the actuarial loss for 2014.

During the fourth quarter of 2014, a defined benefit pension plan in Canada distributed the remainder of its assets in accordance with the related agreement. We incurred a charge of $6 to write off the remaining unrecognized pension expense related to this plan.

The other elements of the 2014 actuarial loss resulted from changes in assumptions and investment returns. Reducing our discount rate at the end of 2014 caused an increase in the U.S. pension benefit obligation and an actuarial loss of $165. During the fourth quarter of 2014, the Society of Actuaries (SOA) issued new mortality tables (RP-2014) and mortality improvement scales (MP-2014). After studying our recent experience and evaluating the new tables, we adopted the RP-2014 Blue Collar table for hourly participants and the No Collar table for salaried participants in our U.S. plans. With respect to the improvement scales, the SOA had projected improvement from the beginning of 2008 after analyzing historical data through 2007. We compared actual experience for years after 2007 to the improvement projected in MP-2014 and, in concert with our actuarial advisers, considered other relevant data before concluding that a 0.75% long-term improvement rate (LTIR) for periods beginning with 2014 was appropriate and assuming that the LTIR would be attained by 2020, sooner than the period assumed in MP-2014. Adopting the new mortality assumptions in 2014 caused an increase in our pension obligations and an actuarial loss of $83. The actual return on U.S. plan assets provided a partial offset to these losses as it exceeded the assumed return by $119.

The 2016 actuarial loss is largely the result of decreases in the discount rates used to value our year-end pension obligations. Other elements of the actuarial loss include the impact of using spot rates in 2016 to determine pension service and interest expense. The spot rate approach reduces pension expense but the impact is effectively offset by an increase in the actuarial loss. In the fourth quarter of 2016, the SOA issued new mortality scales (MP-2016) based on historical data through 2013 and preliminary data for 2014. After studying the new data and consulting with our actuarial advisers, we concluded that adopting MP-2016, modified to reflect an LTIR of 0.75% being attained in 2027, was appropriate. This change in assumption did not have a significant impact on the 2016 valuation.

Aggregate funding levels — The following table presents information regarding the aggregate funding levels of our defined benefit pension plans at December 31:



	2016				2015
	U.S.		Non-U.S.		U.S.		Non-U.S.
Plans with fair value of plan assets in excess of obligations:
Accumulated benefit obligation	$	—	$	15	$	—	$	10
Projected benefit obligation			15				10
Fair value of plan assets			17				12
Plans with obligations in excess of fair value of plan assets:
Accumulated benefit obligation	1,682		272		1,692		254
Projected benefit obligation	1,682		294		1,692		278
Fair value of plan assets	1,454		34		1,493		28

Fair value of pension plan assets —



			Fair Value Measurements at December 31, 2016
			U.S.						Non-U.S.
Asset Category	Total		Level 1		Level 2		NAV (a)		Level 1		Level 2		Level 3
Equity securities:
U.S. all cap (b)	$	76	$	76	$	—	$	—	$	—	$	—	$	—
U.S. large cap	102						102
U.S. small cap	26		26
EAFE composite	119						119
Emerging markets	66						66
Fixed income securities:
U.S. core bonds (c)	137				67		70
Corporate bonds	419				198		221
U.S. Treasury strips	269				269
Non-U.S. government securities	25										25
Emerging market debt	65						65
Alternative investments:
Hedge fund of funds (d)	66						66
Insurance contracts (e)	16												16
Real estate	36						36
Other (f)	10				1						9
Cash and cash equivalents	73				72						1
Total	$	1,505	$	102	$	607	$	745	$	—	$	35	$	16



			Fair Value Measurements at December 31, 2015
			U.S.						Non-U.S.
Asset Category	Total		Level 1		Level 2		NAV (a)		Level 1		Level 2		Level 3
Equity securities:
U.S. all cap (b)	$	64	$	64	$	—	$	—	$	—	$	—	$	—
U.S. large cap	72						72
U.S. small cap	20		20
EAFE composite	132						132
Emerging markets	60						59		1
Fixed income securities:
U.S. core bonds (c)	136				65		71
Corporate bonds	471				248		223
U.S. Treasury strips	264				264
Non-U.S. government securities	21										21
Emerging market debt	64						64
Alternative investments:
Hedge fund of funds (d)	75						75
Insurance contracts (e)	12												12
Real estate	41						41
Other (f)	16				11						5
Cash and cash equivalents	85				84						1
Total	$	1,533	$	84	$	672	$	737	$	1	$	27	$	12

________________________________

Notes:


(a)	Certain assets that are measured at fair value using the net asset value (NAV) per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.


(b)	This category comprises a combination of small-, mid- and large-cap equity stocks that are allocated at the investment manager's discretion. Investments include common and preferred securities as well as equity funds that invest in these instruments.


(c)	This category represents a combination of investment grade corporate bonds, sovereign bonds, Yankee bonds, asset-backed securities and U.S. government bonds. Investments include fixed income funds that invest in these instruments.


(d)	This category includes fund managers that invest in a well-diversified group of hedge funds where strategies include, but are not limited to, event driven, relative value, long/short market neutral, multistrategy and global macro. Investments may be made directly or through pooled funds.


(e)	This category comprises contracts placed with insurance companies where the underlying assets are invested in fixed interest securities.


(f)	Other assets in the U.S. represent interest rate derivatives which had a market value of $1 at December 31, 2016 and $11 at December 31, 2015.



	2016		2015
	Non-U.S.		Non-U.S.
Reconciliation of Level 3 Assets	Insurance Contracts		Insurance Contracts
Fair value at beginning of period	$	12	$	10
Currency impact			(1		)
Transfers into (out of) Level 3	4		3
Fair value at end of period	$	16	$	12

Our pension assets in the U.S. include certain investments in commingled funds, hedge fund of funds and real estate that are valued using the net asset value (NAV) per share practical expedient. In the past, those investments were classified under the fair value hierarchy. New accounting guidance that became effective at the beginning of 2016 eliminated, on a retrospective basis, the requirement to classify such assets under the fair value hierarchy. We have determined that no Level 3 assets were held by our U.S. pension plans during the period covered by the preceding table and have modified the table accordingly.

Valuation Methods

Equity securities — The fair value of equity securities held directly by the trust is based on quoted market prices. When the equity securities are held in commingled funds that are not publicly traded, the fair value of our interest in the fund is its NAV as determined by quoted market prices for the underlying holdings.

Fixed income securities — The fair value of fixed income securities held directly by the trust is based on a bid evaluation process with input from independent pricing sources. When the fixed income securities are held in commingled funds that are not publicly traded, the fair value of our interest in the fund is its NAV as determined by a similar valuation of the underlying holdings.

Hedge funds — The fair value of hedge funds is provided by the managers of the underlying investments. Those managers develop a NAV based on market quotes for the most liquid assets and alternative methods for assets that do not have sufficient trading activity to derive prices.

Insurance contracts — The values shown for insurance contracts are the amounts reported by the insurance company and approximate the fair values of the underlying investments.

Real estate — The investments in real estate represent ownership interests in commingled funds and partnerships that invest in real estate. The investment managers determine the NAV of these ownership interests using the fair value of the underlying real estate which is obtained via independent third party appraisals prepared on a periodic basis. Assumptions used to value the properties are updated quarterly. For the component of the real estate portfolio under development, the investments are carried at cost until they are completed and valued by a third party appraiser.

Cash and cash equivalents — The fair value of cash and cash equivalents is set equal to its amortized cost.

The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Investment policy — Target asset allocations of U.S. pension plans are established through an investment policy, which is updated periodically and reviewed by an Investment Committee, comprised of certain company officers and directors. The investment policy allows for a flexible asset allocation mix which is intended to provide appropriate diversification to lessen market volatility while assuming a reasonable level of economic risk.

Our policy recognizes that properly managing the relationship between pension assets and pension liabilities serves to mitigate the impact of market volatility on our funding levels. The investment policy permits plan assets to be invested in a number of diverse categories, including a Growth Portfolio, an Immunizing Portfolio and a Liquidity Portfolio. These sub-portfolios are intended to balance the generation of incremental returns with the management of overall risk.

The Growth Portfolio is invested in a diversified pool of assets in order to generate an incremental return with an acceptable level of risk. The Immunizing Portfolio is a hedging portfolio that may be comprised of fixed income securities and overlay positions. This portfolio is designed to offset changes in the value of the pension liability due to changes in interest rates. The Liquidity Portfolio is a cash portfolio designed to meet short-term liquidity needs and reduce the plans’ overall risk. As a result of our diversification strategies, there are no significant concentrations of risk within the portfolio of investments.

The allocations among portfolios may be adjusted to meet changing objectives and constraints. We expect that as the funded status of the plans changes, we will increase or decrease the size of the Growth Portfolio in order to manage the risk of losses in the plan. At December 31, 2016, the Growth Portfolio (U.S. and non-U.S. equities, core and high-yield fixed income, hedge fund of funds, real estate, emerging market debt and cash) comprises 47% of total assets, the Immunizing Portfolio (long duration U.S. Treasury strips, corporate bonds and cash) comprises 51% and the Liquidity Portfolio (cash and short-term securities) comprises 2%. During 2016, the mid-points of the target ranges were 50.5% for the Growth Portfolio, 48.5% for the Immunizing Portfolio and 5% for the Liquidity Portfolio.

Significant assumptions — The significant weighted-average assumptions used in the measurement of pension benefit obligations at December 31 of each year and the net periodic benefit cost for each year are as follows:



	2016				2015				2014
	U.S.		Non-U.S.		U.S.		Non-U.S.		U.S.		Non-U.S.
Pension benefit obligations:
Discount rate	3.92	%	2.48	%	4.13	%	2.83	%	3.81	%	3.75	%
Net periodic benefit cost:
Discount rate	3.29	%	2.56	%	3.81	%	3.75	%	4.63	%	4.15	%
Rate of compensation increase	N/A		3.12	%	N/A		4.83	%	N/A		3.77	%
Expected return on plan assets	6.50	%	5.42	%	7.00	%	5.87	%	7.00	%	3.41	%

The pension plan discount rate assumptions are evaluated annually in consultation with our outside actuarial advisers. Long-term interest rates on high quality corporate debt instruments are used to determine the discount rate. For our largest plans, discount rates are developed using a discounted bond portfolio analysis, with appropriate consideration given to defined benefit payment terms and duration of the liabilities.

We have historically estimated the interest and service cost components of net periodic benefit cost for pension and other postretirement benefits using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation of the plan at the most recent remeasurement date. At December 31, 2015, we changed the method used to estimate those interest and service components for pension and other postretirement benefit plans that utilize a yield curve approach. The new method uses a full yield curve approach to estimate the interest and service components by applying the specific spot rates along the yield curve used in the most recent remeasurement of the benefit obligation to the relevant projected cash flows. We believe this method improves the correlation between the projected cash flows and the corresponding interest rates and provides a more precise measurement of interest and service costs. This change in accounting estimate affected the calculation of the interest and service components of net periodic benefit cost, reducing the total for 2016 by $16. Since the remeasurement of total benefit obligations is not affected, the 2016 reduction in periodic benefit cost was offset by an increase in the actuarial loss.

The expected rate of return on plan assets was selected on the basis of our long-term view of return and risk assumptions for major asset classes. We define long-term as forecasts that span at least the next ten years. Our long-term outlook is influenced by a combination of return expectations by individual asset class, actual historical experience and our diversified investment strategy. We consult with and consider the opinions of financial professionals in developing appropriate capital market assumptions. Return projections are also validated using a simulation model that incorporates yield curves, credit spreads and risk premiums to project long-term prospective returns. The appropriateness of the expected rate of return is assessed on an annual basis and revised if necessary. We have a high percentage of total assets in fixed income securities since the benefit accruals are frozen for all of our U.S. pension plans. Based on this assessment, we have selected a 6.00% expected return on asset assumption for 2017 for our U.S. plans.

The significant weighted-average assumptions used in the measurement of OPEB obligations at December 31 of each year and the net periodic benefit cost for each year are as follows:



	2016		2015		2014
	Non-U.S.		Non-U.S.		Non-U.S.
OPEB benefit obligations:
Discount rate	3.69	%	3.96	%	3.84	%
Net periodic benefit cost:
Discount rate	3.45	%	3.84	%	4.65	%
Initial health care cost trend rate	5.32	%	5.62	%	5.91	%
Ultimate health care cost trend rate	5.02	%	5.03	%	5.02	%
Year ultimate reached	2018		2018		2018

The discount rate selection process was similar to the process used for the pension plans. Assumed health care cost trend rates have a significant effect on the health care obligation. To determine the trend rates, consideration is given to the plan design, recent experience and health care economics.

A one-percentage-point change in assumed health care cost trend rates would have the following effects for 2016:



	1% Point Increase		1% Point Decrease
Effect on total of service and interest cost components	$	1	$	(1	)
Effect on OPEB obligations	10		(9		)

Estimated future benefit payments and contributions — Expected benefit payments by our pension and OPEB plans for each of the next five years and for the following five-year period are as follows:



	Pension Benefits				OPEB
Year	U.S.		Non-U.S.		Non-U.S.
2017	$	126	$	12	$	4
2018	120		14		5
2019	118		14		5
2020	114		15		5
2021	113		15		5
2022 to 2026	537		89		26
Total	$	1,128	$	159	$	50

Pension benefits are funded through deposits with trustees that satisfy, at a minimum, the applicable funding regulations. OPEB benefits are funded as they become due. Projected contributions to be made during 2017 to the defined benefit pension plans are $12 for our non-U.S. plans. Based on the current funded status of our U.S. plans, there are no minimum contributions required for 2017.

Multi-employer pension plans — We participate in the Steelworkers Pension Trust (SPT) multi-employer pension plan which provides pension benefits to substantially all of our U.S. union-represented employees. We also have a small participation in the IAM National Pension Fund. Benefit levels are set by trustees who manage the plans. Contributions are made in accordance with our collective bargaining agreements and rates are generally based on hours worked. The collective bargaining agreement expires May 31, 2017. The trustees of the SPT have provided us with the latest data available for the plan year ended December 31, 2016. As of that date, the plan is not fully funded. We could be held liable to the plan for our obligations as well as those of other employers as a result of our participation in the plan. Contribution rates could increase if the plan is required to adopt a funding improvement plan or a rehabilitation plan, if the performance of plan assets does not meet expectations or as a result of future collectively bargained wage and benefit agreements. If we choose to stop participating in the plan, we may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Pension Protection Act (PPA) defines a zone status for each plan. Plans in the green zone are at least 80% funded, plans in the yellow zone are at least 65% funded and plans in the red zone are generally less than 65% funded. The SPT plan has utilized extended amortization provisions to amortize its losses from 2008. The plan recertified its zone status after using the extended amortization provisions as allowed by law. The SPT plan has not implemented a funding improvement or rehabilitation plan, nor are such plans pending. Our contributions to the SPT have not exceeded 5% of the total contributions to the plan.



	Employer Identification Number/ Plan Number	PPA Zone Status		Funding Plan Pending/ Implemented	Contributions by Dana						Surcharge Imposed
Pension Fund	Employer Identification Number/ Plan Number	2016	2015	Funding Plan Pending/ Implemented	2016		2015		2014		Surcharge Imposed
SPT	23-6648508 / 499	Green	Green	No	$	10	$	10	$	9	No