Retirement Plans and Postretirement Medical Benefits

We provide certain retirement benefits to our U.S. employees hired prior to January 1, 2005 and to eligible employees outside the U.S. under various defined benefit retirement plans. Benefit accruals under most of our significant defined benefit plans have been frozen.

We also provide certain employer subsidized health care and employer provided life insurance benefits in the U.S. and Canada to eligible retirees and their dependents. Employees hired before January 1, 2005 in the U.S. and April 1, 2005 in Canada become eligible for retiree medical benefits after reaching age 55 and with the completion of the required service period. The cost of these benefits is recognized over the period the employee provides credited service to the company.

Retirement Plans

The benefit obligations and funded status of defined benefit pension plans are as follows:



	United States						Foreign
	2016			2015			2016			2015
Accumulated benefit obligation	$	1,677,288		$	1,688,982		$	675,566		$	635,600

Projected benefit obligation
Benefit obligation - beginning of year	$	1,689,885		$	1,868,176		$	647,112		$	715,287
Service cost	105			134			2,148			2,229
Interest cost	73,699			74,331			21,886			24,261
Plan participants' contributions	—			—			6			8
Actuarial loss (gain)	31,764			(131,179		)	127,054			(15,375		)
Foreign currency changes	—			—			(88,138		)	(53,945		)
Plan amendments	—			(428		)	—			—
Settlement / curtailment	(5,887		)	(3,678		)	—			—
Special termination benefits	—			—			(423		)	79
Benefits paid	(111,469		)	(117,471		)	(21,473		)	(25,432		)
Benefit obligation - end of year	$	1,678,097		$	1,689,885		$	688,172		$	647,112



Fair value of plan assets available for benefits
Fair value of plan assets - beginning of year	$	1,460,790		$	1,593,463		$	530,112		$	574,992
Actual return on plan assets	110,954			(19,173		)	68,067			11,383
Company contributions	9,694			7,649			40,872			14,194
Plan participants' contributions	—			—			6			8
Settlement / curtailment	(5,887		)	(3,678		)	(423		)	—
Foreign currency changes	—			—			(69,871		)	(45,033		)
Benefits paid	(111,469		)	(117,471		)	(21,473		)	(25,432		)
Fair value of plan assets - end of year	$	1,464,082		$	1,460,790		$	547,290		$	530,112



Amounts recognized in the Consolidated Balance Sheets
Noncurrent asset	$	310		$	271		$	11,744		$	11,566
Current liability	(7,937		)	(9,088		)	(1,045		)	(1,031		)
Noncurrent liability	(206,388		)	(220,277		)	(151,581		)	(127,535		)
Funded status	$	(214,015	)	$	(229,094	)	$	(140,882	)	$	(117,000	)

Information provided in the table below is only for pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2016 and 2015:



	United States				Foreign
	2016		2015		2016		2015
Projected benefit obligation	$	1,677,675	$	1,689,476	$	578,588	$	540,984
Accumulated benefit obligation	$	1,676,866	$	1,688,573	$	565,992	$	529,593
Fair value of plan assets	$	1,463,350	$	1,460,111	$	425,962	$	412,418



Pretax amounts recognized in AOCI consist of:
	United States						Foreign
	2016			2015			2016			2015
Net actuarial loss	$	873,523		$	880,123		$	342,169		$	255,994
Prior service credit	(452		)	(512		)	(667		)	(740		)
Transition asset	—			—			(32		)	(40		)
Total	$	873,071		$	879,611		$	341,470		$	255,214

The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2017 are as follows:



	United States			Foreign
Net actuarial loss	$	29,071		$	8,279
Prior service credit	(60		)	(77		)
Transition asset	—			(8		)
Total	$	29,011		$	8,194

The components of net periodic benefit cost (income) for defined benefit pension plans were as follows:



	United States									Foreign
	2016			2015			2014			2016			2015			2014
Service cost	$	105		$	134		$	6,908		$	2,148		$	2,229		$	3,565
Interest cost	73,699			74,331			77,655			21,886			24,261			28,518
Expected return on plan assets	(101,918		)	(104,004		)	(103,822		)	(32,615		)	(35,421		)	(39,137		)
Amortization of net transition asset	—			—			—			(8		)	(9		)	(10		)
Amortization of prior service (credit) cost	(60		)	(60		)	9			(73		)	(66		)	(57		)
Amortization of net actuarial loss	27,220			29,272			25,369			5,264			5,926			8,268
Special termination benefits	—			—			—			52			79			1,238
Settlement / curtailment	2,109			1,243			4,528			110			—			—
Net periodic benefit cost (income)	$	1,155		$	916		$	10,647		$	(3,236	)	$	(3,001	)	$	2,385

Other changes in plan assets and benefit obligations for defined benefit pension plans recognized in other comprehensive income were as follows:



	United States						Foreign
	2016			2015			2016			2015
Net actuarial loss (gain)	$	22,728		$	(8,003	)	$	91,549		$	8,663
Prior service credit	—			(428		)	—			—
Amortization of net actuarial loss	(27,220		)	(29,272		)	(5,264		)	(5,926		)
Amortization of prior service credit (cost)	60			60			73			66
Net transition asset	—			—			8			9
Settlement / curtailment	(2,109		)	(1,243		)	(110		)	—
Total recognized in other comprehensive income	$	(6,541	)	$	(38,886	)	$	86,256		$	2,812

Weighted-average actuarial assumptions used to determine end of year benefit obligations and net periodic benefit cost for defined benefit pension plans include:



	2016				2015				2014
United States
Used to determine benefit obligations
Discount rate	4.2%				4.55%				4.15%
Rate of compensation increase	N/A				N/A				N/A

Used to determine net periodic benefit cost
Discount rate	4.55%				4.15%				4.95%
Expected return on plan assets	7.0%				7.0%				7.0%
Rate of compensation increase	N/A				N/A				3.5%

Foreign
Used to determine benefit obligations
Discount rate	0.70	%	-	3.65%	1.15	%	-	3.95%	1.10	%	-	3.80%
Rate of compensation increase	1.50	%	-	2.50%	1.50	%	-	3.50%	1.50	%	-	3.50%

Used to determine net periodic benefit cost
Discount rate	1.15	%	-	3.95%	1.10	%	-	3.80%	1.45	%	-	4.60%
Expected return on plan assets	3.75	%	-	6.51%	4.00	%	-	7.00%	3.75	%	-	7.50%
Rate of compensation increase	1.50	%	-	3.50%	1.50	%	-	3.50%	1.50	%	-	3.50%

A discount rate is used to determine the present value of our future benefit obligations. The discount rate for our U.S. pension and postretirement medical benefit plans is determined by matching the expected cash flows associated with our benefit obligations to a pool of corporate long-term, high-quality fixed income debt instruments available as of the measurement date. The discount rate for our largest foreign plan, the U.K. Qualified Pension Plan (the U.K. Plan), is determined by using a model that discounts each year's estimated benefit payments by an applicable spot rate derived from a yield curve created from a large number of high quality corporate bonds. For our other smaller foreign pension plans, the discount rate is selected based on high-quality fixed income indices available in the country in which the plan is domiciled.

The expected return on plan assets is based on historical and expected rates of return for current and planned asset classes in the plans' investment portfolio after analyzing historical experience and future expectations of the returns and volatility of the various asset classes. The overall expected rate of return for the portfolio is based on the target asset allocation of our global pension plans, adjusted for historical and expected experience of active portfolio management results, when compared to the benchmark returns.

During 2017, we anticipate making total contributions of $8 million to our U.S. pension plans and $14 million to our foreign pension plans. We will reassess our funding alternatives as the year progresses.

Investment Strategy and Asset Allocation - U.S. Pension Plans

The investment strategy of our U.S. pension plans is to maximize returns within reasonable and prudent levels of risk, to achieve and maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least 6.75%. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset classes and within each class to reduce the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage foreign currency exposure. Investments within the private equity and real estate portfolios are comprised of limited partnership units in primary and secondary fund of funds and units in open-ended commingled real estate funds, respectively. These types of investment vehicles are used in an effort to gain greater asset diversification. We do not have any significant concentrations of credit risk within the plan assets. The pension plans' liabilities, investment objectives and investment managers are reviewed periodically. The target asset allocation for 2017, and the actual asset allocations at December 31, 2016 and 2015 for the U.S. pension plans are as follows:



	Target allocation		Percent of Plan Assets at December 31,
	2017		2016		2015
Asset category
U.S. equities	15	%	17	%	12	%
Non-U.S. equities	15	%	13	%	10	%
Fixed income	60	%	60	%	68	%
Real estate	5	%	6	%	6	%
Private equity	5	%	4	%	4	%
Total	100	%	100	%	100	%

Investment Strategy and Asset Allocation - Foreign Pension Plans

Our foreign pension plan assets are managed by outside investment managers and monitored regularly by local trustees and our corporate personnel. Investment strategies vary by country and plan, with each strategy tailored to achieve the expected rate of return within an acceptable or appropriate level of risk, depending upon the liability profile of plan participants, local funding requirements, investment markets and restrictions. The U.K. plan represents 75% of the total foreign pension assets. The U.K. pension plan's investment strategy is to maximize returns within reasonable and prudent levels of risk, to achieve and maintain full funding of the accumulated benefit obligation and the actuarial liabilities and to earn a nominal rate of return of at least 6.25%. The fund has established a strategic asset allocation policy to achieve these objectives. Investments are diversified across asset classes and within each class to minimize the risk of large losses and are periodically rebalanced. Derivatives, such as swaps, options, forwards and futures contracts may be used for market exposure, to alter risk/return characteristics and to manage currency exposure. We do not have any significant concentrations of credit risk within the plan assets. The pension plans' liabilities, investment objectives and investment managers are reviewed periodically. The target asset allocation for 2017, and the actual asset allocations at December 31, 2016 and 2015 for the U.K. pension plan are as follows:



	Target Allocation		Percent of Plan Assets at December 31,
	2017		2016		2015
Asset category
U.K. equities	21	%	22	%	23	%
Non-U.K. equities	19	%	19	%	20	%
Fixed income	40	%	41	%	40	%
Real estate	10	%	8	%	10	%
Diversified growth	10	%	9	%	5	%
Cash	—	%	1	%	2	%
Total	100	%	100	%	100	%

The target asset allocation used to manage the investment portfolios is based on the broad asset categories shown above. The plan asset categories presented in the fair value hierarchy are subsets of the broad asset categories.

The fair value of the U.K. plan assets was $410 million and $399 million at December 31, 2016 and 2015, respectively, and the expected long-term weighted average rate of return on these plan assets was 6.50% in 2016 and 7.0% in 2015.

Fair Value Measurements of Plan Assets

The following tables show, by level within the fair value hierarchy, the financial assets and liabilities that are accounted for at fair value on a recurring basis at December 31, 2016 and 2015, respectively, for the U.S. and foreign pension plans. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect placement within the fair value hierarchy levels. There are no shares of our common stock included in the plan assets of our pension plans.

United States Pension Plans



	December 31, 2016
	Level 1		Level 2		Level 3		Total
Money market funds	$	2,604	$	6,609	$	—	$	9,213
Equity securities	184,254		140,691		—		324,945
Commingled fixed income securities	—		358,776		—		358,776
Debt securities - U.S. and foreign governments, agencies and municipalities	214,068		21,126		—		235,194
Debt securities - corporate	—		367,369		—		367,369
Mortgage-backed securities	—		12,636		1,236		13,872
Asset-backed securities	—		1,436		—		1,436
Private equity	—		—		49,637		49,637
Real estate	—		—		87,852		87,852
Securities lending collateral ⁽¹⁾	—		174,651		—		174,651
Total plan assets at fair value	$	400,926	$	1,083,294	$	138,725	$	1,622,945
Securities lending payable ⁽¹⁾							(174,651		)
Cash							18,164
Other							(2,376		)
Fair value of plan assets available for benefits							$	1,464,082



	December 31, 2015
	Level 1		Level 2		Level 3		Total
Money market funds	$	—	$	7,493	$	—	$	7,493
Equity securities	174,664		140,270		—		314,934
Commingled fixed income securities	—		205,246		—		205,246
Debt securities - U.S. and foreign governments, agencies and municipalities	143,449		21,424		—		164,873
Debt securities - corporate	—		592,111		—		592,111
Mortgage-backed securities	—		14,810		1,592		16,402
Asset-backed securities	—		2,535		—		2,535
Private equity	—		—		63,577		63,577
Real estate	—		—		82,569		82,569
Securities lending collateral ⁽¹⁾	—		154,690		—		154,690
Total plan assets at fair value	$	318,113	$	1,138,579	$	147,738	$	1,604,430
Securities lending payable ⁽¹⁾							(154,690		)
Cash							4,072
Other							6,978
Fair value of plan assets available for benefits							$	1,460,790

(1) Securities lending collateral is offset by a corresponding securities lending payable amount.

Foreign Plans



	December 31, 2016
	Level 1		Level 2		Level 3		Total
Money market funds	$	—	$	6,811	$	—	$	6,811
Equity securities	32,295		181,943		—		214,238
Commingled fixed income securities	—		69,022		—		69,022
Debt securities - U.S. and foreign governments, agencies and municipalities	—		29,363		—		29,363
Debt securities - corporate	—		150,767		—		150,767
Real estate	—		—		34,483		34,483
Diversified growth funds	—		—		36,779		36,779
Derivatives	—		—		—		—
Total plan assets at fair value	$	32,295	$	437,906	$	71,262	$	541,463
Cash							4,262
Other							1,565
Fair value of plan assets available for benefits							$	547,290



	December 31, 2015
	Level 1		Level 2		Level 3		Total
Money market funds	$	—	$	7,596	$	—	$	7,596
Equity securities	33,855		183,110		—		216,965
Commingled fixed income securities	—		138,220		—		138,220
Debt securities - U.S. and foreign governments, agencies and municipalities	—		73,573		—		73,573
Debt securities - corporate	—		27,279		—		27,279
Real estate	—		—		39,177		39,177
Derivatives	—		—		20,513		20,513
Total plan assets at fair value	$	33,855	$	429,778	$	59,690	$	523,323
Cash							6,376
Other							413
Fair value of plan assets available for benefits							$	530,112

The following information relates to our classification of investments into the fair value hierarchy:


•	Money Market Funds: Money market funds typically invest in government securities, certificates of deposit, commercial paper of companies and other highly liquid, low risk securities. Money market funds are principally used for overnight deposits. They are classified as Level 2 since they are not actively traded on an exchange.

•

Equity Securities: Equity securities include U.S. and foreign common stock, American Depository Receipts, preferred stock and commingled funds. Equity securities classified as Level 1 are valued using active, high volume trades for identical securities. Equity securities classified as Level 2 represent those not listed on an exchange in an active market. These securities are valued based on quoted market prices of similar securities.

•

Commingled Fixed Income Securities: Mutual funds that invest in a variety of fixed income securities including securities of the U.S. government and its agencies, corporate debt, mortgage-backed securities and asset-backed securities. Value of the funds is based on the net asset value (NAV) per unit as reported by the fund manager. NAV is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding. Commingled fixed income securities are not listed on an active exchange and are classified as Level 2.

•

Debt Securities - U.S. and Foreign Governments, Agencies and Municipalities: Government securities include treasury notes and bonds, foreign government issues, U.S. government sponsored agency debt and commingled funds. Municipal debt securities include general obligation securities and revenue-backed securities. Debt securities classified as Level 1 are valued using active, high volume trades for identical securities. Debt securities classified as Level 2 are valued through benchmarking model derived prices to quoted market prices and trade data for identical or comparable securities.


•	Debt Securities – Corporate: Investments are comprised of both investment grade debt (≥BBB-) and high-yield debt (≤BBB-). The fair value of corporate debt securities is valued using recently executed transactions, market price quotations where observable, or bond spreads. The spread data used are for the same maturity as the security. These securities are classified as Level 2.

•

Mortgage-Backed Securities (MBS): Investments are comprised of agency-backed MBS, non-agency MBS, collateralized mortgage obligations, commercial MBS, and commingled funds. These securities are valued based on external pricing indices. When external index pricing is not observable, MBS are valued based on external price/spread data. If neither pricing method is available, broker quotes are utilized. When inputs are observable and supported by an active market, MBS are classified as Level 2 and when inputs are unobservable, MBS are classified as Level 3.


•	Asset-Backed Securities (ABS): Investments are primarily comprised of credit card receivables, auto loan receivables, student loan receivables, and Small Business Administration loans. These securities are valued based on external pricing indices or external price/spread data and are classified as Level 2.


•	Private Equity: Investments are comprised of units in fund-of-funds investment vehicles. Fund-of-funds consist of various private equity investments and are used in an effort to gain greater diversification. The investments are valued in accordance with the most appropriate valuation techniques, and are classified as Level 3 due to the unobservable inputs used to determine a fair value.


•	Real Estate: Investments include units in open-ended commingled real estate funds. Properties that comprise these funds are valued in accordance with the most appropriate valuation techniques, and are classified as Level 3 due to the unobservable inputs used to determine a fair value.


•	Diversified Growth Funds: Investments are comprised of units in commingled diversified growth funds. These investments are valued based on the net asset value (NAV) per unit as reported by the fund manager, and are classified as Level 3 due to the unobservable inputs used to determine a fair value.

•

Securities Lending Fund: Investment represents a commingled fund through our custodian's securities lending program. The U.S. pension plan lends securities that are held within the plan to other banks and/or brokers, and receives collateral, typically cash. This collateral is invested in a short-term fixed income securities commingled fund. The commingled fund is not listed or traded on an exchange and is classified as Level 2. This amount invested in the fund is offset by a corresponding liability reflected in the U.S. pension plan's net assets available for benefits.

Level 3 Gains and Losses

The following table summarizes the changes in the fair value of Level 3 assets for the years ended December 31, 2016 and 2015:

United States Pension Plans



	Mortgage-backed securities			Private equity			Real estate			Total
Balance at December 31, 2014	$	2,102		$	81,246		$	74,747		$	158,095
Realized gains	10			14,288			1,027			15,325
Unrealized gains	28			(6,844		)	7,043			227
Net purchases, sales and settlements	(548		)	(25,113		)	(248		)	(25,909		)
Balance at December 31, 2015	1,592			63,577			82,569			147,738
Realized gains	8			10,200			1,280			11,488
Unrealized gains (losses)	38			(7,540		)	4,815			(2,687		)
Net purchases, sales and settlements	(402		)	(16,600		)	(812		)	(17,814		)
Balance at December 31, 2016	$	1,236		$	49,637		$	87,852		$	138,725

Foreign Pension Plans



	Diversified growth funds			Real estate			Total
Balance at December 31, 2014	$	—		$	—		$	—
Unrealized gains	(119		)	(1,685		)	(1,804		)
Net purchases, sales and settlements	20,632			40,862			61,494
Balance at December 31, 2015	20,513			39,177			59,690
Unrealized gains	2,561			459			3,020
Net purchases, sales and settlements	19,028			1,436			20,464
Foreign currency gain/(loss)	(5,323		)	(6,589		)	(11,912		)
Balance at December 31, 2016	$	36,779		$	34,483		$	71,262

Nonpension Postretirement Benefits

The benefit obligation and funded status for nonpension postretirement benefit plans are as follows:



	2016			2015
Benefit obligation
Benefit obligation - beginning of year	$	211,878		$	253,980
Service cost	2,046			2,455
Interest cost	7,969			8,799
Plan participants' contributions	4,241			4,332
Actuarial (gain) loss	(13,934		)	(31,253		)
Foreign currency changes	409			(3,289		)
Benefits paid	(22,837		)	(23,146		)
Benefit obligation - end of year ⁽¹⁾	$	189,772		$	211,878



Fair value of plan assets
Fair value of plan assets - beginning of year	$	—		$	—
Company contribution	18,596			18,814
Plan participants' contributions	4,241			4,332
Benefits paid	(22,837		)	(23,146		)
Fair value of plan assets - end of year	$	—		$	—



Amounts recognized in the Consolidated Balance Sheets
Current liability	$	(18,127	)	$	(19,406	)
Non-current liability	(171,645		)	(192,472		)
Funded status	$	(189,772	)	$	(211,878	)


(1)	The benefit obligation for the U.S. nonpension postretirement plans was $174 million and $198 million at December 31, 2016 and 2015, respectively.

Pretax amounts recognized in AOCI consist of:



	2016		2015
Net actuarial loss	$	41,625	$	59,174
Prior service cost	1,763		2,060
Total	$	43,388	$	61,234

The components of net periodic benefit cost for nonpension postretirement benefit plans were as follows:



	2016		2015		2014
Service cost	$	2,046	$	2,455	$	2,683
Interest cost	7,969		8,799		9,951
Amortization of prior service cost	297		297		159
Amortization of net actuarial loss	3,615		7,528		5,949
Net periodic benefit cost	$	13,927	$	19,079	$	18,742

Other changes in plan assets and benefit obligation for nonpension postretirement benefit plans recognized in other comprehensive income were as follows:



	2016			2015
Net actuarial gain	$	(13,934	)	$	(31,253	)
Amortization of net actuarial loss	(3,615		)	(7,528		)
Amortization of prior service cost	(297		)	(297		)
Total recognized in other comprehensive income	$	(17,846	)	$	(39,078	)

The estimated amounts that will be amortized from AOCI into net periodic benefit cost in 2017 are as follows:



Net actuarial loss	$	297
Prior service cost	3,537
Total	$	3,834

The weighted-average discount rates used to determine end of year benefit obligation and net periodic pension cost include:



	2016		2015		2014
Discount rate used to determine benefit obligation
U.S.	3.90	%	4.20	%	3.90	%
Canada	3.65	%	3.95	%	3.80	%

Discount rate used to determine net period benefit cost
U.S.	4.20	%	3.90	%	4.40	%
Canada	3.95	%	3.80	%	4.65	%

The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for the U.S. plan was 6.0% for 2016 and 6.0% for 2015. The assumed health care trend rate is 7.0% for 2017 and will gradually decline to 5.0% by the year 2025 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in the assumed health care cost trend rates would have the following effects:



	1% Increase		1% Decrease
Effect on total of service and interest cost components	$	330	$	(276	)
Effect on postretirement benefit obligation	$	7,295	$	(6,212	)

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, are expected to be paid.



	Pension Benefits		Nonpension Benefits
Years ending December 31,
2017	$	126,344	$	18,155
2018	126,720		17,450
2019	125,486		16,884
2020	127,550		16,231
2021	125,103		15,640
Thereafter	624,809		65,887
	$	1,256,012	$	150,247

Savings Plans

We offer voluntary defined contribution plans to our U.S. employees designed to help them accumulate additional savings for retirement. We provide a core contribution to all employees, regardless if they participate in the plan, and match a portion of each participating employees' contribution, based on eligible pay. Total contributions to our defined contribution plans were $32 million in 2016 and $28 million in 2015.