11. Retirement and Postemployment Benefits

(All Registrants)

Defined Benefits

The majority of the employees of PPL's domestic subsidiaries are eligible for pension benefits under non-contributory defined benefit pension plans with benefits based on length of service and final average pay, as defined by the plans. Effective January 1, 2012, PPL's primary defined benefit pension plan was closed to all newly hired salaried employees. Effective July 1, 2014, PPL's primary defined benefit pension plan was closed to all newly hired bargaining unit employees. Newly hired employees are eligible to participate in the PPL Retirement Savings Plan, a 401(k) savings plan with enhanced employer contributions.

The defined benefit pension plans of LKE and its subsidiaries were closed to new salaried and bargaining unit employees hired after December 31, 2005. Employees hired after December 31, 2005 receive additional company contributions above the standard matching contributions to their savings plans.

Effective April 1, 2010, the principal defined benefit pension plan applicable to WPD (South West) and WPD (South Wales) was closed to most new employees, except for those meeting specific grandfathered participation rights. WPD Midlands' defined benefit plan had been closed to new members, except for those meeting specific grandfathered participation rights, prior to acquisition. New employees not eligible to participate in the plans are offered benefits under a defined contribution plan.

PPL and certain of its subsidiaries also provide supplemental retirement benefits to executives and other key management employees through unfunded nonqualified retirement plans.

The majority of employees of PPL's domestic subsidiaries are eligible for certain health care and life insurance benefits upon retirement through contributory plans. Effective January 1, 2014, the PPL Postretirement Medical Plan was closed to all newly hired salaried employees. Effective July 1, 2014, the PPL Postretirement Medical Plan was closed to all newly hired bargaining unit employees. Postretirement health benefits may be paid from 401(h) accounts established as part of the PPL Retirement Plan and the LG&E and KU Retirement Plan within the PPL Services Corporation Master Trust, funded VEBA trusts and company funds. WPD does not sponsor any postretirement benefit plans other than pensions.

(PPL)

The following table provides the components of net periodic defined benefit costs for PPL's domestic (U.S.) and WPD's (U.K.) pension and other postretirement benefit plans for the years ended December 31.



	Pension Benefits
	U.S.									U.K.									Other Postretirement Benefits
	2017			2016			2015			2017			2016			2015			2017			2016			2015
Net periodic defined benefit costs (credits):
Service cost	$	65		$	66		$	96		$	76		$	69		$	79		$	7		$	7		$	11
Interest cost	168			174			194			178			235			314			23			26			26
Expected return on plan assets	(231		)	(228		)	(258		)	(514		)	(504		)	(523		)	(22		)	(22		)	(26		)
Amortization of:
Prior service cost (credit)	10			8			7			—			—			—			(1		)	—			1
Actuarial (gain) loss	69			50			84			144			138			158			1			1			—
Net periodic defined benefit costs (credits) prior to settlements and termination benefits	81			70			123			(116		)	(62		)	28			8			12			12
Settlements	1			3			—			—			—			—			—			—			—
Termination benefits	1			—			—			—			—			—			—			—			—
Net periodic defined benefit costs (credits)	$	83		$	73		$	123		$	(116	)	$	(62	)	$	28		$	8		$	12		$	12



	Pension Benefits
	U.S.									U.K.									Other Postretirement Benefits
	2017			2016			2015			2017			2016			2015			2017			2016			2015

Other Changes in Plan Assets and Benefit Obligations Recognized in OCI and Regulatory Assets/Liabilities - Gross:
Divestiture (a)	$	—		$	—		$	(353	)	$	—		$	—		$	—		$	—		$	—		$	(6	)
Settlement	(1		)	(3		)	—			—			—			—			—			—			—
Net (gain) loss	27			253			63			346			7			508			(28		)	9			(9		)
Prior service cost (credit)	(1		)	15			18			—			—			—			8			—			—
Amortization of:
Prior service (cost) credit	(10		)	(8		)	(7		)	—			—			—			1			(1		)	(1		)
Actuarial gain (loss)	(69		)	(50		)	(85		)	(144		)	(138		)	(158		)	(1		)	(1		)	—
Total recognized in OCI and regulatory assets/liabilities (b)	(54		)	207			(364		)	202			(131		)	350			(20		)	7			(16		)

Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities (b)	$	29		$	280		$	(241	)	$	86		$	(193	)	$	378		$	(12	)	$	19		$	(4	)


(a)	As a result of the spinoff of PPL Energy Supply, amounts in AOCI were allocated to certain former active and inactive employees of PPL Energy Supply and included in the distribution. See Note 8 for additional details.


(b)	WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP. As a result, WPD does not record regulatory assets/liabilities.

For PPL's U.S. pension benefits and for other postretirement benefits, the amounts recognized in OCI and regulatory assets/liabilities for the years ended December 31 were as follows:



	U.S. Pension Benefits									Other Postretirement Benefits
	2017			2016			2015			2017			2016		2015
OCI	$	(53	)	$	236		$	(269	)	$	(25	)	$	7	$	12
Regulatory assets/liabilities	(1		)	(29		)	(95		)	5			—		(28		)
Total recognized in OCI and regulatory assets/liabilities	$	(54	)	$	207		$	(364	)	$	(20	)	$	7	$	(16	)

The estimated amounts to be amortized from AOCI and regulatory assets/liabilities into net periodic defined benefit costs in 2018 are as follows:



	Pension Benefits
	U.S.		U.K.
Prior service cost (credit)	$	10	$	—
Actuarial (gain) loss	86		152
Total	$	96	$	152

Amortization from Balance Sheet:
AOCI	$	28	$	152
Regulatory assets/liabilities	68		—
Total	$	96	$	152

(LKE)

The following table provides the components of net periodic defined benefit costs for LKE's pension and other postretirement benefit plans for the years ended December 31.



	Pension Benefits									Other Postretirement Benefits
	2017			2016			2015			2017			2016			2015
Net periodic defined benefit costs (credits):
Service cost	$	24		$	23		$	26		$	4		$	5		$	5
Interest cost	68			71			68			9			9			9
Expected return on plan assets	(92		)	(91		)	(88		)	(7		)	(6		)	(6		)
Amortization of:
Prior service cost	8			8			7			1			3			3
Actuarial (gain) loss (a)	31			21			37			—			(1		)	—
Net periodic defined benefit costs (b)	$	39		$	32		$	50		$	7		$	10		$	11

Other Changes in Plan Assets and Benefit Obligations Recognized in OCI and Regulatory Assets/Liabilities - Gross:
Net (gain) loss	$	30		$	119		$	20		$	(14	)	$	6		$	(15	)
Prior service cost	7			—			19			8			—			—
Amortization of:
Prior service credit	(8		)	(8		)	(7		)	(1		)	(3		)	(3		)
Actuarial gain (loss)	(32		)	(21		)	(37		)	—			1			—
Total recognized in OCI and regulatory assets/liabilities	(3		)	90			(5		)	(7		)	4			(18		)

Total recognized in net periodic defined benefit costs, OCI and regulatory assets/liabilities	$	36		$	122		$	45		$	—		$	14		$	(7	)


(a)	As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between actuarial (gain)/loss calculated in accordance with LKE's pension accounting policy and actuarial (gain)/loss calculated using a 15 year amortization period was $11 million in 2017, $6 million in 2016 and $9 million in 2015.


(b)	Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, a settlement charge of $5 million was incurred. In accordance with existing regulatory accounting treatment, LG&E has maintained the settlement charge in regulatory assets. The amount will be amortized in accordance with existing regulatory practice.

For LKE's pension and other postretirement benefits, the amounts recognized in OCI and regulatory assets/liabilities for the years ended December 31 were as follows:



	Pension Benefits								Other Postretirement Benefits
	2017			2016		2015			2017			2016		2015
OCI	$	33		$	42	$	4		$	(2	)	$	2	$	(2	)
Regulatory assets/liabilities	(36		)	48		(9		)	(5		)	2		(16		)
Total recognized in OCI and regulatory assets/liabilities	$	(3	)	$	90	$	(5	)	$	(7	)	$	4	$	(18	)

The estimated amounts to be amortized from AOCI and regulatory assets/liabilities into net periodic defined benefit costs for LKE in 2018 are as follows.



	Pension Benefits		Other Postretirement Benefits
Prior service cost	$	9	$	1
Actuarial Loss	39		—
Total	$	48	$	1

Amortization from Balance Sheet:
AOCI	$	11	$	—
Regulatory assets/liabilities	37		1
Total	$	48	$	1

(LG&E)

The following table provides the components of net periodic defined benefit costs for LG&E's pension benefit plan for the years ended December 31.



	Pension Benefits
	2017			2016			2015
Net periodic defined benefit costs (credits):
Service cost	$	1		$	1		$	1
Interest cost	13			15			14
Expected return on plan assets	(22		)	(21		)	(20		)
Amortization of:
Prior service cost	5			4			3
Actuarial loss (a)	9			7			11
Net periodic defined benefit costs (b)	$	6		$	6		$	9

Other Changes in Plan Assets and Benefit Obligations Recognized in Regulatory Assets - Gross:
Net (gain) loss	$	(9	)	$	22		$	8
Prior service cost	7			—			10
Amortization of:
Prior service credit	(5		)	(4		)	(3		)
Actuarial gain	(9		)	(7		)	(11		)
Total recognized in regulatory assets/liabilities	(16		)	11			4

Total recognized in net periodic defined benefit costs and regulatory assets	$	(10	)	$	17		$	13


(a)	As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between actuarial (gain)/loss calculated in accordance with LG&E's pension accounting policy and actuarial (gain)/loss calculated using a 15 year amortization period was $7 million in 2017, $5 million in 2016 and $3 million in 2015.


(b)	Due to the amount of lump sum payment distributions from the LG&E qualified pension plan, a settlement charge of $5 million was incurred. In accordance with existing regulatory accounting treatment, LG&E has maintained the settlement charge in regulatory assets. The amount will be amortized in accordance with existing regulatory practice.

The estimated amounts to be amortized from regulatory assets into net periodic defined benefit costs for LG&E in 2018 are as follows.



	Pension Benefits
Prior service cost	$	5
Actuarial loss	9
Total	$	14

(All Registrants)

The following net periodic defined benefit costs (credits) were charged to operating expense or regulatory assets, excluding amounts charged to construction and other non-expense accounts. The U.K. pension benefits apply to PPL only.



	Pension Benefits
	U.S.						U.K.									Other Postretirement Benefits
	2017		2016		2015		2017			2016			2015			2017		2016		2015
PPL	$	59	$	53	$	71	$	(151	)	$	(95	)	$	(21	)	$	5	$	7	$	8
PPL Electric (a)	12		10		15											—		1		—
LKE (b)	28		24		37											5		6		8
LG&E (b)	8		8		12											3		3		4
KU (a) (b)	4		5		9											1		2		2

(a)

PPL Electric and KU do not directly sponsor any defined benefit plans. PPL Electric and KU were allocated these costs of defined benefit plans sponsored by PPL Services (for PPL Electric) and by LKE (for KU), based on their participation in those plans, which management believes are reasonable. KU is also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 14 for additional information on costs allocated to KU from LKS.

(b)

As a result of the 2014 Kentucky rate case settlement that became effective July 1, 2015, the difference between net periodic defined benefit costs calculated in accordance with LKE's, LG&E's and KU's pension accounting policy and the net periodic defined benefit costs calculated using a 15 year amortization period for gains and losses is recorded as a regulatory asset. Of the costs charged to operating expense or regulatory assets, excluding amounts charged to construction and other non-expense accounts, $4 million for LG&E and $2 million for KU were recorded as regulatory assets in 2017, $3 million for LG&E and $2 million for KU were recorded as regulatory assets in 2016 and $4 million for LG&E and $1 million for KU were recorded as regulatory assets in 2015.

In the table above, LG&E amounts include costs for the specific plans it sponsors and the following allocated costs of defined benefit plans sponsored by LKE. LG&E is also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 14 for additional information on costs allocated to LG&E from LKS. These allocations are based on LG&E's participation in those plans, which management believes are reasonable:



	Pension Benefits						Other Postretirement Benefits
	2017		2016		2015		2017		2016		2015
LG&E Non-Union Only	$	5	$	4	$	5	$	3	$	3	$	4

(PPL, LKE and LG&E)

PPL, LKE and LG&E adopted the new mortality tables issued by the Society of Actuaries in October 2014 (RP-2014 base tables with collar and factor adjustments, where applicable) for all U.S. defined benefit pension and other postretirement benefit plans. In addition, in 2014, PPL, LKE and LG&E updated the basis for estimating projected mortality improvements and selected the IRS BB-2D two-dimensional improvement scale on a generational basis for all U.S. defined benefit pension and other postretirement benefit plans. In 2017, PPL, LKE and LG&E updated to the MP-2017 mortality improvement scale from 2006 on a generational basis. This new mortality assumption reflects the expectation of lower ongoing improvements in life expectancies.

The following weighted-average assumptions were used in the valuation of the benefit obligations at December 31. The U.K. pension benefits apply to PPL only.



	Pension Benefits
	U.S.				U.K.				Other Postretirement Benefits
	2017		2016		2017		2016		2017		2016
PPL
Discount rate	3.70	%	4.21	%	2.65	%	2.87	%	3.64	%	4.11	%
Rate of compensation increase	3.78	%	3.95	%	3.50	%	3.50	%	3.75	%	3.92	%

LKE
Discount rate	3.69	%	4.19	%					3.65	%	4.12	%
Rate of compensation increase	3.50	%	3.50	%					3.50	%	3.50	%

LG&E
Discount rate	3.65	%	4.13	%

The following weighted-average assumptions were used to determine the net periodic defined benefit costs for the years ended December 31. The U.K. pension benefits apply to PPL only.



	Pension Benefits
	U.S.						U.K.						Other Postretirement Benefits
	2017		2016		2015		2017		2016		2015		2017		2016		2015
PPL
Discount rate service cost (b)	4.21	%	4.59	%	4.25	%	2.99	%	3.90	%	3.85	%	4.11	%	4.48	%	4.09	%
Discount rate interest cost (b)	4.21	%	4.59	%	4.25	%	2.41	%	3.14	%	3.85	%	4.11	%	4.48	%	4.09	%
Rate of compensation increase	3.95	%	3.93	%	3.91	%	3.50	%	4.00	%	4.00	%	3.92	%	3.91	%	3.86	%
Expected return on plan assets (a)	7.00	%	7.00	%	7.00	%	7.22	%	7.20	%	7.19	%	6.21	%	6.11	%	6.06	%

LKE
Discount rate	4.19	%	4.56	%	4.25	%							4.12	%	4.49	%	4.06	%
Rate of compensation increase	3.50	%	3.50	%	3.50	%							3.50	%	3.50	%	3.50	%
Expected return on plan assets (a)	7.00	%	7.00	%	7.00	%							6.82	%	6.82	%	6.82	%



	Pension Benefits
	U.S.						U.K.			Other Postretirement Benefits
	2017		2016		2015		2017	2016	2015	2017	2016	2015

LG&E
Discount rate	4.13	%	4.49	%	4.20	%
Expected return on plan assets (a)	7.00	%	7.00	%	7.00	%


(a)	The expected long-term rates of return for pension and other postretirement benefits are based on management's projections using a best-estimate of expected returns, volatilities and correlations for each asset class. Each plan's specific current and expected asset allocations are also considered in developing a reasonable return assumption.


(b)	As of January 1, 2016, WPD began using individual spot rates from the yield curve used to discount the benefit obligation to measure service cost and interest cost. PPL's U.S. plans use a single discount rate derived from an individual bond matching model to measure the benefit obligation, service cost and interest cost. See Note 1 for additional details.

(PPL and LKE)

The following table provides the assumed health care cost trend rates for the years ended December 31:



	2017		2016		2015
PPL and LKE
Health care cost trend rate assumed for next year
– obligations	6.6	%	7.0	%	6.8	%
– cost	7.0	%	6.8	%	7.2	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
– obligations	5.0	%	5.0	%	5.0	%
– cost	5.0	%	5.0	%	5.0	%
Year that the rate reaches the ultimate trend rate
– obligations	2022		2022		2020
– cost	2022		2020		2020

A one percentage point change in the assumed health care costs trend rate assumption would have had the following effects on the other postretirement benefit plans in 2017:



	One Percentage Point
	Increase		Decrease
Effect on accumulated postretirement benefit obligation
PPL	$	4	$	(4	)
LKE	3		(3		)

(PPL)

The funded status of PPL's plans at December 31 was as follows:



	Pension Benefits
	U.S.						U.K.						Other Postretirement Benefits
	2017			2016			2017			2016			2017			2016
Change in Benefit Obligation
Benefit Obligation, beginning of period	$	4,079		$	3,863		$	7,383		$	8,404		$	591		$	596
Service cost	65			66			76			69			7			7
Interest cost	168			174			178			235			23			26
Participant contributions	—			—			13			14			14			14
Plan amendments	(1		)	14			—			—			8			—
Actuarial (gain) loss	233			214			293			484			4			11
Settlements	(6		)	(9		)	(1		)	—			—			—
Termination benefits	1			—			—			—			—			—
Gross benefits paid	(251		)	(243		)	(345		)	(357		)	(59		)	(64		)
Federal subsidy	—			—			—			—			1			1
Currency conversion	—			—			622			(1,466		)	—			—
Benefit Obligation, end of period	4,288			4,079			8,219			7,383			589			591

Change in Plan Assets
Plan assets at fair value, beginning of period	3,243			3,227			7,211			7,625			378			379
Actual return on plan assets	437			189			480			979			54			25
Employer contributions	65			79			486			330			15			19
Participant contributions	—			—			13			14			13			14
Settlements	(6		)	(9		)	(1		)	—			—			—
Gross benefits paid	(251		)	(243		)	(345		)	(357		)	(55		)	(59		)
Currency conversion	—			—			646			(1,380		)	—			—
Plan assets at fair value, end of period	3,488			3,243			8,490			7,211			405			378

Funded Status, end of period	$	(800	)	$	(836	)	$	271		$	(172	)	$	(184	)	$	(213	)

Amounts recognized in the Balance Sheets consist of:
Noncurrent asset	$	—		$	—		$	284		$	10		$	2		$	2
Current liability	(13		)	(17		)	—			—			(3		)	(3		)
Noncurrent liability	(787		)	(819		)	(13		)	(182		)	(183		)	(212		)
Net amount recognized, end of period	$	(800	)	$	(836	)	$	271		$	(172	)	$	(184	)	$	(213	)

Amounts recognized in AOCI and regulatory assets/liabilities (pre-tax) consist of:
Prior service cost (credit)	$	49		$	59		$	—		$	—		$	9		$	—
Net actuarial (gain) loss	1,134			1,178			2,755			2,553			16			45
Total (a)	$	1,183		$	1,237		$	2,755		$	2,553		$	25		$	45

Total accumulated benefit obligation for defined benefit pension plans	$	4,000		$	3,807		$	7,542		$	6,780


(a)	WPD is not subject to accounting for the effects of certain types of regulation as prescribed by GAAP and as a result, does not record regulatory assets/liabilities.

For PPL's U.S. pension and other postretirement benefit plans, the amounts recognized in AOCI and regulatory assets/liabilities at December 31 were as follows:



	U.S. Pension Benefits				Other Postretirement Benefits
	2017		2016		2017		2016
AOCI	$	374	$	357	$	15	$	20
Regulatory assets/liabilities	809		880		10		25
Total	$	1,183	$	1,237	$	25	$	45

The following tables provide information on pension plans where the projected benefit obligation (PBO) or accumulated benefit obligation (ABO) exceed the fair value of plan assets:



	U.S.				U.K.
	PBO in excess of plan assets				PBO in excess of plan assets
	2017		2016		2017		2016
Projected benefit obligation	$	4,288	$	4,079	$	3,083	$	3,403
Fair value of plan assets	3,488		3,243		3,070		3,221

	U.S.				U.K.
	ABO in excess of plan assets				ABO in excess of plan assets
	2017		2016		2017		2016
Accumulated benefit obligation	$	4,000	$	3,807	$	10	$	657
Fair value of plan assets	3,488		3,243		—		643

(LKE)

The funded status of LKE's plans at December 31 was as follows:



	Pension Benefits						Other Postretirement Benefits
	2017			2016			2017			2016
Change in Benefit Obligation
Benefit Obligation, beginning of period	$	1,669		$	1,588		$	220		$	216
Service cost	24			23			4			5
Interest cost	68			71			9			9
Participant contributions	—			—			8			7
Plan amendments (a)	6			—			8			—
Actuarial (gain) loss	113			96			(7		)	4
Gross benefits paid (a)	(109		)	(109		)	(19		)	(21		)
Benefit Obligation, end of period	1,771			1,669			223			220

Change in Plan Assets
Plan assets at fair value, beginning of period	1,315			1,289			98			88
Actual return on plan assets	175			69			14			4
Employer contributions	21			66			15			20
Participant contributions	—			—			8			7
Gross benefits paid	(109		)	(109		)	(19		)	(21		)
Plan assets at fair value, end of period	1,402			1,315			116			98

Funded Status, end of period	$	(369	)	$	(354	)	$	(107	)	$	(122	)

Amounts recognized in the Balance Sheets consist of:
Noncurrent asset	$	—		$	—		$	2		$	2
Current liability	(4		)	(4		)	(3		)	(3		)
Noncurrent liability	(365		)	(350		)	(106		)	(121		)
Net amount recognized, end of period	$	(369	)	$	(354	)	$	(107	)	$	(122	)

Amounts recognized in AOCI and regulatory assets/liabilities (pre-tax) consist of:
Prior service cost	$	44		$	45		$	13		$	6
Net actuarial (gain) loss	434			436			(26		)	(13		)
Total	$	478		$	481		$	(13	)	$	(7	)

Total accumulated benefit obligation for defined benefit pension plans	$	1,616		$	1,531

(a)

The pension plans were amended in December 2015 to allow active participants and terminated vested participants who had not previously elected a form of payment of their benefit to elect to receive their accrued pension benefit as a one-time lump-sum payment effective January 1, 2016. The projected benefit obligation at December 31, 2016 increased by $19 million as a result of the amendment. Gross benefits paid by the plans include lump-sum cash payments made to participants during 2017 and 2016 of $50 million and $53 million in connection with these offerings.

The amounts recognized in AOCI and regulatory assets/liabilities at December 31 were as follows:



	Pension Benefits				Other Postretirement Benefits
	2017		2016		2017			2016
AOCI	$	144	$	111	$	6		$	8
Regulatory assets/liabilities	334		370		(19		)	(15		)
Total	$	478	$	481	$	(13	)	$	(7	)

The following tables provide information on pension plans where the projected benefit obligation (PBO) or accumulated benefit obligations (ABO) exceed the fair value of plan assets:



	PBO in excess of plan assets
	2017		2016
Projected benefit obligation	$	1,771	$	1,669
Fair value of plan assets	1,402		1,315

	ABO in excess of plan assets
	2017		2016
Accumulated benefit obligation	$	1,616	$	1,531
Fair value of plan assets	1,402		1,315

(LG&E)

The funded status of LG&E's plan at December 31, was as follows:



	Pension Benefits
	2017			2016
Change in Benefit Obligation
Benefit Obligation, beginning of period	$	329		$	326
Service cost	1			1
Interest cost	13			15
Plan amendments (a)	6			—
Actuarial (gain) loss	11			15
Gross benefits paid (a)	(34		)	(28		)
Benefit Obligation, end of period	326			329

Change in Plan Assets
Plan assets at fair value, beginning of period	318			297
Actual return on plan assets	41			14
Employer contributions	—			35
Gross benefits paid	(34		)	(28		)
Plan assets at fair value, end of period	325			318

Funded Status, end of period	$	(1	)	$	(11	)

Amounts recognized in the Balance Sheets consist of:
Noncurrent liability	$	(1	)	$	(11	)
Net amount recognized, end of period	$	(1	)	$	(11	)

Amounts recognized in regulatory assets (pre-tax) consist of:
Prior service cost	$	27		$	25
Net actuarial loss	92			110
Total	$	119		$	135

Total accumulated benefit obligation for defined benefit pension plan	$	326		$	329

(a)

The pension plan was amended in December 2015 to allow active participants and terminated vested participants who had not previously elected a form of payment of their benefit to elect to receive their accrued pension benefit as a one-time lump-sum payment effective January 1, 2016. The projected benefit obligation at December 31, 2015 increased by $10 million as a result of the amendment. Gross benefits paid by the plan include lump-sum cash payments made to participants during 2017 and 2016 of $19 million and $14 million in connection with this offering.

LG&E's pension plan had projected and accumulated benefit obligations in excess of plan assets at December 31, 2017 and 2016.

In addition to the plan it sponsors, LG&E is allocated a portion of the funded status and costs of certain defined benefit plans sponsored by LKE. LG&E is also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 14 for additional information on costs allocated to LG&E from LKS. These allocations are based on LG&E's participation in those plans, which management believes are reasonable. The actuarially determined obligations of current active employees and retired employees are used as a basis to allocate total plan activity, including active and retiree costs and obligations. Allocations to LG&E resulted in liabilities at December 31 as follows:



	2017		2016
Pension	$	44	$	42
Other postretirement benefits	74		76

(PPL Electric)

Although PPL Electric does not directly sponsor any defined benefit plans, it is allocated a portion of the funded status and costs of plans sponsored by PPL Services based on its participation in those plans, which management believes are reasonable. As a result of the spinoff of PPL Energy Supply in 2015, pension and other postretirement plans were remeasured resulting in adjustments to PPL Electric's allocated balances of $56 million, reflected as a non-cash contribution on the Statement of Equity. The actuarially determined obligations of current active employees and retirees are used as a basis to allocate total plan activity, including active and retiree costs and obligations. Allocations to PPL Electric resulted in liabilities at December 31 as follows:



	2017		2016
Pension	$	246	$	281
Other postretirement benefits	62		72

(KU)

Although KU does not directly sponsor any defined benefit plans, it is allocated a portion of the funded status and costs of plans sponsored by LKE. KU is also allocated costs of defined benefit plans from LKS for defined benefit plans sponsored by LKE. See Note 14 for additional information on costs allocated to KU from LKS. These allocations are based on KU's participation in those plans, which management believes are reasonable. The actuarially determined obligations of current active employees and retired employees of KU are used as a basis to allocate total plan activity, including active and retiree costs and obligations. Allocations to KU resulted in liabilities at December 31 as follows.



	2017		2016
Pension	$	36	$	62
Other postretirement benefits	32		40

Plan Assets - U.S. Pension Plans

(PPL, LKE and LG&E)

PPL's primary legacy pension plan and the pension plans sponsored by LKE are invested in the PPL Services Corporation Master Trust (the Master Trust) that also includes 401(h) accounts that are restricted for certain other postretirement benefit obligations of PPL and LKE. The investment strategy for the Master Trust is to achieve a risk-adjusted return on a mix of assets that, in combination with PPL's funding policy, will ensure that sufficient assets are available to provide long-term growth and liquidity for benefit payments, while also managing the duration of the assets to complement the duration of the liabilities. The Master Trust benefits from a wide diversification of asset types, investment fund strategies and external investment fund managers, and therefore has no significant concentration of risk.

The investment policy of the Master Trust outlines investment objectives and defines the responsibilities of the EBPB, external investment managers, investment advisor and trustee and custodian. The investment policy is reviewed annually by PPL's Board of Directors.

The EBPB created a risk management framework around the trust assets and pension liabilities. This framework considers the trust assets as being composed of three sub-portfolios: growth, immunizing and liquidity portfolios. The growth portfolio is comprised of investments that generate a return at a reasonable risk, including equity securities, certain debt securities and alternative investments. The immunizing portfolio consists of debt securities, generally with long durations, and derivative positions. The immunizing portfolio is designed to offset a portion of the change in the pension liabilities due to changes in interest rates. The liquidity portfolio consists primarily of cash and cash equivalents.

Target allocation ranges have been developed for each portfolio based on input from external consultants with a goal of limiting funded status volatility. The EBPB monitors the investments in each portfolio, and seeks to obtain a target portfolio that emphasizes reduction of risk of loss from market volatility. In pursuing that goal, the EBPB establishes revised guidelines from time to time. EBPB investment guidelines as of the end of 2017 are presented below.

The asset allocation for the trust and the target allocation by portfolio at December 31 are as follows:



	Percentage of trust assets				2017
	2017 (a)		2016		Target Asset Allocation (a)
Growth Portfolio	56	%	52	%	55	%
Equity securities	32	%	30	%
Debt securities (b)	14	%	12	%
Alternative investments	10	%	10	%
Immunizing Portfolio	43	%	46	%	43	%
Debt securities (b)	39	%	43	%
Derivatives	4	%	3	%
Liquidity Portfolio	1	%	2	%	2	%
Total	100	%	100	%	100	%


(a)	Allocations exclude consideration of a group annuity contract held by the LG&E and KU Retirement Plan.


(b)	Includes commingled debt funds, which PPL treats as debt securities for asset allocation purposes.

(LKE)

LKE has pension plans, including LG&E's plan, whose assets are invested solely in the Master Trust, which is fully disclosed below. The fair value of these plans' assets of $1.4 billion and $1.3 billion at December 31, 2017 and 2016 represents an interest of approximately 40% and 41% in the Master Trust.

(LG&E)

LG&E has a pension plan whose assets are invested solely in the Master Trust, which is fully disclosed below. The fair value of this plan's assets of $325 million and $318 million at December 31, 2017 and 2016 represents an interest of approximately 9% and 10% in the Master Trust.

(PPL, LKE and LG&E)

The fair value of net assets in the Master Trust by asset class and level within the fair value hierarchy was:



	December 31, 2017								December 31, 2016
			Fair Value Measurements Using								Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
PPL Services Corporation Master Trust
Cash and cash equivalents	$	301	$	301	$	—	$	—	$	181	$	181	$	—	$	—
Equity securities:
U.S. Equity	229		229		—		—		152		152		—		—
U.S. Equity fund measured at NAV (a)	364		—		—		—		272		—		—		—
International equity fund at NAV (a)	538		—		—		—		551		—		—		—
Commingled debt measured at NAV (a)	611		—		—		—		546		—		—		—



	December 31, 2017									December 31, 2016
				Fair Value Measurements Using									Fair Value Measurements Using
	Total			Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3
Debt securities:
U.S. Treasury and U.S. government sponsored agency	186			186		—		—		381			381		—		—
Corporate	883			—		870		13		850			—		837		13
Other	10			—		10		—		8			—		8		—
Alternative investments:
Real estate measured at NAV (a)	109			—		—		—		102			—		—		—
Private equity measured at NAV (a)	80			—		—		—		80			—		—		—
Hedge funds measured at NAV (a)	175			—		—		—		167			—		—		—
Derivatives:
Interest rate swaps and swaptions	50			—		50		—		61			—		61		—
Other	1			—		1		—		3			—		3		—
Insurance contracts	24			—		—		24		27			—		—		27
PPL Services Corporation Master Trust assets, at fair value	3,561			$	716	$	931	$	37	3,381			$	714	$	909	$	40
Receivables and payables, net (b)	72									(15		)
401(h) accounts restricted for other postretirement benefit obligations	(145		)							(123		)
Total PPL Services Corporation Master Trust pension assets	$	3,488								$	3,243

(a)

In accordance with accounting guidance certain investments that are measured at fair value using the net asset value per share (NAV), or its equivalent, practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.


(b)	Receivables and payables represent amounts for investments sold/purchased but not yet settled along with interest and dividends earned but not yet received.

A reconciliation of the Master Trust assets classified as Level 3 at December 31, 2017 is as follows:



	Corporate debt		Insurance contracts			Total
Balance at beginning of period	$	13	$	27		$	40
Actual return on plan assets
Relating to assets still held at the reporting date	—		1			1
Purchases, sales and settlements	—		(4		)	(4		)
Balance at end of period	$	13	$	24		$	37

A reconciliation of the Master Trust assets classified as Level 3 at December 31, 2016 is as follows:



	Corporate debt		Insurance contracts			Total
Balance at beginning of period	$	10	$	32		$	42
Actual return on plan assets
Relating to assets still held at the reporting date	—		1			1
Purchases, sales and settlements	3		(6		)	(3		)
Balance at end of period	$	13	$	27		$	40

The fair value measurements of cash and cash equivalents are based on the amounts on deposit.

The market approach is used to measure fair value of equity securities. The fair value measurements of equity securities (excluding commingled funds), which are generally classified as Level 1, are based on quoted prices in active markets. These securities represent actively and passively managed investments that are managed against various equity indices.

Investments in commingled equity and debt funds are categorized as equity securities. Investments in commingled equity funds include funds that invest in U.S. and international equity securities. Investments in commingled debt funds include funds that invest in a diversified portfolio of emerging market debt obligations, as well as funds that invest in investment grade long-duration fixed-income securities.

The fair value measurements of debt securities are generally based on evaluations that reflect observable market information, such as actual trade information for identical securities or for similar securities, adjusted for observable differences. The fair value of debt securities is generally measured using a market approach, including the use of pricing models, which incorporate observable inputs. Common inputs include benchmark yields, relevant trade data, broker/dealer bid/ask prices, benchmark securities and credit valuation adjustments. When necessary, the fair value of debt securities is measured using the income approach, which incorporates similar observable inputs as well as payment data, future predicted cash flows, collateral performance and new issue data. For the Master Trust, these securities represent investments in securities issued by U.S. Treasury and U.S. government sponsored agencies; investments securitized by residential mortgages, auto loans, credit cards and other pooled loans; investments in investment grade and non-investment grade bonds issued by U.S. companies across several industries; investments in debt securities issued by foreign governments and corporations.

Investments in real estate represent an investment in a partnership whose purpose is to manage investments in core U.S. real estate properties diversified geographically and across major property types (e.g., office, industrial, retail, etc.). The manager is focused on properties with high occupancy rates with quality tenants. This results in a focus on high income and stable cash flows with appreciation being a secondary factor. Core real estate generally has a lower degree of leverage when compared with more speculative real estate investing strategies. The partnership has limitations on the amounts that may be redeemed based on available cash to fund redemptions. Additionally, the general partner may decline to accept redemptions when necessary to avoid adverse consequences for the partnership, including legal and tax implications, among others. The fair value of the investment is based upon a partnership unit value.

Investments in private equity represent interests in partnerships in multiple early-stage venture capital funds and private equity fund of funds that use a number of diverse investment strategies. The partnerships have limited lives of at least 10 years, after which liquidating distributions will be received. Prior to the end of each partnership's life, the investment cannot be redeemed with the partnership; however, the interest may be sold to other parties, subject to the general partner's approval. The Master Trust has unfunded commitments of $28 million that may be required during the lives of the partnerships. Fair value is based on an ownership interest in partners' capital to which a proportionate share of net assets is attributed.

Investments in hedge funds represent investments in a fund of hedge funds. Hedge funds seek a return utilizing a number of diverse investment strategies. The strategies, when combined aim to reduce volatility and risk while attempting to deliver positive returns under most market conditions. Major investment strategies for the fund of hedge funds include long/short equity, tactical trading, event driven, and relative value. Shares may be redeemed within 45 days prior written notice. The fund is subject to short term lockups and other restrictions. The fair value for the fund has been estimated using the net asset value per share.

The fair value measurements of derivative instruments utilize various inputs that include quoted prices for similar contracts or market-corroborated inputs. In certain instances, these instruments may be valued using models, including standard option valuation models and standard industry models. These securities primarily represent investments in interest rate swaps and swaptions (the option to enter into an interest rate swap), which are valued based on the swap details, such as swap curves, notional amount, index and term of index, reset frequency, volatility and payer/receiver credit ratings.

Insurance contracts, classified as Level 3, represent an investment in an immediate participation guaranteed group annuity contract. The fair value is based on contract value, which represents cost plus interest income less distributions for benefit payments and administrative expenses.

Plan Assets - U.S. Other Postretirement Benefit Plans

The investment strategy with respect to other postretirement benefit obligations is to fund VEBA trusts and/or 401(h) accounts with voluntary contributions and to invest in a tax efficient manner. Excluding the 401(h) accounts included in the Master Trust, other postretirement benefit plans are invested in a mix of assets for long-term growth with an objective of earning returns that provide liquidity as required for benefit payments. These plans benefit from diversification of asset types, investment fund strategies and investment fund managers, and therefore, have no significant concentration of risk. Equity securities include investments in domestic large-cap commingled funds. Ownership interests in commingled funds that invest entirely in debt securities are classified as equity securities, but treated as debt securities for asset allocation and target allocation purposes. Ownership interests in money market funds are treated as cash and cash equivalents for asset allocation and target allocation purposes. The asset allocation for the PPL VEBA trusts, excluding LKE, and the target allocation, by asset class, at December 31 are detailed below.



	Percentage of plan assets				Target Asset Allocation
	2017		2016		2017
Asset Class
U.S. Equity securities	47	%	48	%	45	%
Debt securities (a)	49	%	50	%	50	%
Cash and cash equivalents (b)	4	%	2	%	5	%
Total	100	%	100	%	100	%


(a)	Includes commingled debt funds and debt securities.


(b)	Includes money market funds.

LKE's other postretirement benefit plan is invested primarily in a 401(h) account, as disclosed in the PPL Services Corporation Master Trust, with insignificant amounts invested in money market funds within VEBA trusts for liquidity.

The fair value of assets in the U.S. other postretirement benefit plans by asset class and level within the fair value hierarchy was:



	December 31, 2017								December 31, 2016
			Fair Value Measurement Using								Fair Value Measurement Using
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Money market funds	$	10	$	10	$	—	$	—	$	5	$	5	$	—	$	—
U.S. Equity securities:
Large-cap equity fund measure at NAV (a)	123		—		—		—		123		—		—		—
Commingled debt fund measured at NAV (a)	96		—		—		—		114		—		—		—
Debt securities:
Corporate bonds	30		—		30		—		—		—		—		—
Municipalities	—		—		—		—		12		—		12		—
Total VEBA trust assets, at fair value	259		$	10	$	30	$	—	254		$	5	$	12	$	—
Receivables and payables, net (b)	1								1
401(h) account assets	145								123
Total other postretirement benefit plan assets	$	405							$	378

(a)


(b)	Receivables and payables represent amounts for investments sold/purchased but not yet settled along with interest and dividends earned but not yet received.

Investments in money market funds represent investments in funds that invest primarily in a diversified portfolio of investment grade money market instruments, including, but not limited to, commercial paper, notes, repurchase agreements and other evidences of indebtedness with a maturity not exceeding 13 months from the date of purchase. The primary objective of the fund is a level of current income consistent with stability of principal and liquidity. Redemptions can be made daily on this fund.

Investments in large-cap equity securities represent investments in a passively managed equity index fund that invests in securities and a combination of other collective funds. Fair value measurements are not obtained from a quoted price in an active market but are based on firm quotes of net asset values per share as provided by the trustee of the fund. Redemptions can be made daily on this fund.

Investments in commingled debt securities represent investments in a fund that invests in a diversified portfolio of investment grade long-duration fixed income securities. Redemptions can be made daily on these funds.

Investments in corporate bonds represent investment in a diversified portfolio of investment grade long-duration fixed income securities. The fair value of debt securities are generally based on evaluations that reflect observable market information, such as actual trade information for identical securities or for similar securities, adjusted for observable differences.

Investments in municipalities represent investments in a diverse mix of tax-exempt municipal securities. The fair value measurements for these securities are based on recently executed transactions for identical securities or for similar securities.

Plan Assets - U.K. Pension Plans (PPL)

The overall investment strategy of WPD's pension plans is developed by each plan's independent trustees in its Statement of Investment Principles in compliance with the U.K. Pensions Act of 1995 and other U.K. legislation. The trustees' primary focus is to ensure that assets are sufficient to meet members' benefits as they fall due with a longer term objective to reduce investment risk. The investment strategy is intended to maximize investment returns while not incurring excessive volatility in the funding position. WPD's plans are invested in a wide diversification of asset types, fund strategies and fund managers; and therefore, have no significant concentration of risk. Commingled funds that consist entirely of debt securities are traded as equity units, but treated by WPD as debt securities for asset allocation and target allocation purposes. These include investments in U.K. corporate bonds and U.K. gilts.

The asset allocation and target allocation at December 31 of WPD's pension plans are detailed below.



					Target Asset
	Percentage of plan assets				Allocation
	2017		2016		2017
Asset Class
Cash and cash equivalents	2	%	1	%	—	%
Equity securities
U.K.	2	%	3	%	2	%
European (excluding the U.K.)	1	%	2	%	1	%
Asian-Pacific	1	%	2	%	1	%
North American	1	%	3	%	1	%
Emerging markets	1	%	3	%	1	%
Global equities	16	%	6	%	10	%
Global Tactical Asset Allocation	33	%	33	%	41	%
Debt securities (a)	37	%	41	%	38	%
Alternative investments	6	%	6	%	5	%
Total	100	%	100	%	100	%


(a)	Includes commingled debt funds.

The fair value of assets in the U.K. pension plans by asset class and level within the fair value hierarchy was:



	December 31, 2017								December 31, 2016
			Fair Value Measurement Using								Fair Value Measurement Using
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	216	$	216	$	—	$	—	$	42	$	42	$	—	$	—
Equity securities measured at NAV (a) :
U.K. companies	157		—		—		—		210		—		—		—
European companies (excluding the U.K.)	98		—		—		—		177		—		—		—
Asian-Pacific companies	60		—		—		—		140		—		—		—
North American companies	123		—		—		—		227		—		—		—
Emerging markets companies	62		—		—		—		209		—		—		—
Global Equities	1,335		—		—		—		466		—		—		—
Other	2,807		—		—		—		2,363		—		—		—
Debt Securities:
U.K. corporate bonds	3		—		3		—		2		—		2		—
U.K. gilts	3,137		—		3,137		—		2,940		—		2,940		—
Alternative investments:
Real estate measured at NAV (a)	492		—		—		—		435		—		—		—
Fair value - U.K. pension plans	$	8,490	$	216	$	3,140	$	—	$	7,211	$	42	$	2,942	$	—

(a)

Except for investments in real estate, the fair value measurements of WPD's pension plan assets are based on the same inputs and measurement techniques used to measure the U.S. pension plan assets described above.

Investments in equity securities represent actively and passively managed funds that are measured against various equity indices.

Other comprises a range of investment strategies, which invest in a variety of assets including equities, bonds, currencies, real estate and forestry held in unitized funds, which are considered in the Global Tactical Asset Allocation target.

U.K. corporate bonds include investment grade corporate bonds of companies from diversified U.K. industries.

U.K. gilts include gilts, index-linked gilts and swaps intended to track a portion of the plans' liabilities.

Investments in real estate represent holdings in a U.K. unitized fund that owns and manages U.K. industrial and commercial real estate with a strategy of earning current rental income and achieving capital growth. The fair value measurement of the fund is based upon a net asset value per share, which is based on the value of underlying properties that are independently appraised in accordance with Royal Institution of Chartered Surveyors valuation standards at least annually with quarterly valuation updates based on recent sales of similar properties, leasing levels, property operations and/or market conditions. The fund may be subject to redemption restrictions in the unlikely event of a large forced sale in order to ensure other unit holders are not disadvantaged.

Expected Cash Flows - U.S. Defined Benefit Plans (PPL)

While PPL's U.S. defined benefit pension plans have the option to utilize available prior year credit balances to meet current and future contribution requirements, PPL contributed $145 million to its U.S. pension plans in January 2018. No additional contributions are expected in 2018.

PPL sponsors various non-qualified supplemental pension plans for which no assets are segregated from corporate assets. PPL expects to make approximately $13 million of benefit payments under these plans in 2018.

PPL is not required to make contributions to its other postretirement benefit plans but has historically funded these plans in amounts equal to the postretirement benefit costs recognized. Continuation of this past practice would cause PPL to contribute $14 million to its other postretirement benefit plans in 2018.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans and the following federal subsidy payments are expected to be received by PPL.



			Other Postretirement
	Pension		Benefit Payment		Expected Federal Subsidy
2018	$	260	$	51	$	1
2019	269		51		—
2020	268		50		1
2021	270		49		—
2022	272		48		—
2023-2027	1,328		218		2

(LKE)

While LKE's defined benefit pension plans have the option to utilize available prior year credit balances to meet current and future contribution requirements, LKE contributed $105 million to its pension plans in January 2018. No additional contributions are expected in 2018.

LKE sponsors various non-qualified supplemental pension plans for which no assets are segregated from corporate assets. LKE expects to make $4 million of benefit payments under these plans in 2018.

LKE is not required to make contributions to its other postretirement benefit plan but has historically funded this plan in amounts equal to the postretirement benefit costs recognized. Continuation of this past practice would cause LKE to contribute a projected $14 million to its other postretirement benefit plan in 2018.



			Other Postretirement
	Pension		Benefit Payment		Expected Federal Subsidy
2018	$	109	$	14	$	—
2019	113		15		—
2020	114		16		1
2021	115		16		—
2022	116		16		—
2023-2027	573		79		2

(LG&E)

While LG&E's defined benefit pension plan has the option to utilize available prior year credit balances to meet current and future contribution requirements, LG&E contributed $54 million to its pension plan in January 2018. No additional contributions are expected in 2018.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plan.



	Pension
2018	$	26
2019	26
2020	26
2021	25
2022	24
2023-2027	104

Expected Cash Flows - U.K. Pension Plans (PPL)

The pension plans of WPD are subject to formal actuarial valuations every three years, which are used to determine funding requirements. Contribution requirements were evaluated in accordance with the valuation performed as of March 31, 2016. WPD expects to make contributions of approximately $191 million in 2018. WPD is currently permitted to recover in current revenues approximately 78% of its pension funding requirements for its primary pension plans.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans.



	Pension
2018	$	343
2019	349
2020	353
2021	356
2022	362
2023-2027	1,843

Savings Plans (All Registrants)

Substantially all employees of PPL's subsidiaries are eligible to participate in deferred savings plans (401(k)s). Employer contributions to the plans were:



	2017		2016		2015
PPL	$	36	$	35	$	34
PPL Electric	6		6		6
LKE	18		17		16
LG&E	5		5		5
KU	4		4		4

Separation Benefits

Certain PPL subsidiaries provide separation benefits to eligible employees. These benefits may be provided in the case of separations due to performance issues, loss of job-related qualifications or organizational changes. These benefits include cash severance payments and a single sum payment approximating the dollar amount of premium payments that would be incurred for continuation of group health and welfare coverage based on an employee's years of service along with outplacement services. Separation benefits are recorded when such amounts are probable and estimable.

See Note 8 for a discussion of separation benefits recognized in 2015 related to the spinoff of PPL Energy Supply. Separation benefits were not significant in 2017 and 2016.