BENEFIT PLANS

Defined Contribution Plan — The Company sponsors four defined contribution plans ("the Plans"). Two are for U.S. non-union employees, of which one is for employees of the Parent Company and certain U.S. SBU businesses and one is for DPL employees. One plan includes both union and non-union employees at IPL. One defined contribution plan is for union employees at DPL. The Plans are qualified under section 401 of the Internal Revenue Code. All U.S. employees of the Company are eligible to participate in the appropriate Plan except for those employees who are covered by a collective bargaining agreement, unless such agreement specifically provides that the employee is considered an eligible employee under a Plan. The Plans provide matching contributions in AES common stock or cash, other contributions at the discretion of the Compensation Committee of the Board of Directors in AES common stock or cash and discretionary tax deferred contributions from the participants. Participants are fully vested in their own contributions and the Company's matching contributions. Participants vest in other company contributions ratably over a five-year period ending on the fifth anniversary of their hire date. For the year ended December 31, 2016, the Company's contributions to the defined contribution plans were approximately $15 million, and for the years ended December 31, 2015 and 2014, contributions were $18 million and $22 million per year, respectively.

Defined Benefit Plans — Certain of the Company's subsidiaries have defined benefit pension plans covering substantially all of their respective employees. Pension benefits are based on years of credited service, age of the participant and average earnings. Of the 33 active defined benefit plans as of December 31, 2016, 5 are at U.S. subsidiaries and the remaining plans are at foreign subsidiaries .

The following table reconciles the Company's funded status, both domestic and foreign, as of the periods indicated (in millions):



December 31,	2016						2015
	U.S.			Foreign			U.S.			Foreign
CHANGE IN PROJECTED BENEFIT OBLIGATION:
Benefit obligation as of January 1	$	1,172		$	2,876		$	1,235		$	4,222
Service cost	13			13			16			15
Interest cost	42			344			48			340
Employee contributions	—			3			—			3
Plan amendments	—			(4		)	5			2
Plan curtailments	2			—			—			—
Plan settlements	—			—			(3		)	—
Benefits paid	(60		)	(303		)	(61		)	(292		)
Actuarial (gain) loss	19			558			(68		)	(158		)
Effect of foreign currency exchange rate changes	—			505			—			(1,256		)
Benefit obligation as of December 31	$	1,188		$	3,992		$	1,172		$	2,876
CHANGE IN PLAN ASSETS:
Fair value of plan assets as of January 1	$	1,021		$	2,195		$	1,061		$	3,144
Actual return on plan assets	61			451			(7		)	175
Employer contributions	22			138			31			86
Employee contributions	—			3			—			3
Plan settlements	—			—			(3		)	—
Benefits paid	(60		)	(303		)	(61		)	(292		)
Effect of foreign currency exchange rate changes	—			340			—			(921		)
Fair value of plan assets as of December 31	$	1,044		$	2,824		$	1,021		$	2,195
RECONCILIATION OF FUNDED STATUS
Funded status as of December 31	$	(144	)	$	(1,168	)	$	(151	)	$	(681	)

The following table summarizes the amounts recognized on the Consolidated Balance Sheets related to the funded status of the plans, both domestic and foreign, as of the periods indicated (in millions):



December 31,	2016						2015
Amounts Recognized on the Consolidated Balance Sheets	U.S.			Foreign			U.S.			Foreign
Noncurrent assets	$	—		$	60		$	—		$	67
Accrued benefit liability—current	—			(5		)	—			(5		)
Accrued benefit liability—noncurrent	(144		)	(1,223		)	(151		)	(743		)
Net amount recognized at end of year	$	(144	)	$	(1,168	)	$	(151	)	$	(681	)

The following table summarizes the Company's U.S. and foreign accumulated benefit obligation as of the periods indicated (in millions):



December 31,	2016					2015
	U.S.		Foreign			U.S.		Foreign
Accumulated Benefit Obligation	$	1,167	$	3,942		$	1,150	$	2,836
Information for pension plans with an accumulated benefit obligation in excess of plan assets:
Projected benefit obligation	$	1,188	$	3,671		$	1,172	$	2,585
Accumulated benefit obligation	1,167		3,638			1,150		2,561
Fair value of plan assets	1,044		2,448			1,021		1,842
Information for pension plans with a projected benefit obligation in excess of plan assets:
Projected benefit obligation	$	1,188	$	3,793	⁽¹⁾	$	1,172	$	2,600	⁽¹⁾
Fair value of plan assets	1,044		2,565		⁽¹⁾	1,021		1,853		⁽¹⁾

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⁽¹⁾	$1.2 billion and $686 million of the total net unfunded projected benefit obligation is due to Eletropaulo in Brazil as of December 31, 2016 and 2015, respectively.

The following table summarizes the significant weighted average assumptions used in the calculation of benefit obligation and net periodic benefit cost, both domestic and foreign, as of the periods indicated:



December 31,		2016					2015
		U.S.		Foreign			U.S.		Foreign
Benefit Obligation —	Discount rate	4.28	%	10.08	%	⁽¹⁾	4.44	%	11.35	%	⁽¹⁾
	Rate of compensation increase	3.34	%	6.41	%		3.34	%	6.31	%
Periodic Benefit Cost —	Discount rate	4.44	%	11.37	%		4.04	%	10.47	%
	Expected long-term rate of return on plan assets	6.67	%	9.54	%		6.67	%	9.77	%
	Rate of compensation increase	3.34	%	6.40	%		3.94	%	6.33	%

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⁽¹⁾	Includes an inflation factor that is used to calculate future periodic benefit cost, but is not used to calculate the benefit obligation.

The Company establishes its estimated long-term return on plan assets considering various factors, which include the targeted asset allocation percentages, historic returns and expected future returns.

The measurement of pension obligations, costs and liabilities is dependent on a variety of assumptions. These assumptions include estimates of the present value of projected future pension payments to all plan participants, taking into consideration the likelihood of potential future events such as salary increases and demographic experience. These assumptions may have an effect on the amount and timing of future contributions.

The assumptions used in developing the required estimates include the following key factors: discount rates; salary growth; retirement rates; inflation; expected return on plan assets; and mortality rates.

The effects of actual results differing from the Company's assumptions are accumulated and amortized over future periods and, therefore, generally affect the Company's recognized expense in such future periods.

Effective January 1, 2016, the Company applied a disaggregated discount rate approach for determining service cost and interest cost for its defined benefit pension plans and postretirement plans in the U.S. and U.K. Refer to Note 1—General and Summary of Significant Accounting Policies for further information relating to this change in estimate.

Sensitivity of the Company's pension funded status to the indicated increase or decrease in the discount rate and long-term rate of return on plan assets assumptions is shown below. Note that these sensitivities may be asymmetric and are specific to the base conditions at year-end 2016. They also may not be additive, so the impact of changing multiple factors simultaneously cannot be calculated by combining the individual sensitivities shown. The funded status as of December 31, 2016 is affected by the assumptions as of that date. Pension expense for 2016 is affected by the December 31, 2015 assumptions. The impact on pension expense from a one percentage point change in these assumptions is shown in the following table (in millions):



Increase of 1% in the discount rate	$	(37	)
Decrease of 1% in the discount rate	32
Increase of 1% in the long-term rate of return on plan assets	(35		)
Decrease of 1% in the long-term rate of return on plan assets	35

The following table summarizes the components of the net periodic benefit cost, both domestic and foreign, for the years indicated (in millions):



December 31,	2016						2015						2014
Components of Net Periodic Benefit Cost:	U.S.			Foreign			U.S.			Foreign			U.S.			Foreign
Service cost	$	13		$	13		$	16		$	15		$	14		$	16
Interest cost	42			344			48			340			50			473
Expected return on plan assets	(68		)	(221		)	(70		)	(236		)	(67		)	(348		)
Amortization of prior service cost	7			(1		)	7			—			6			(1		)
Amortization of net loss	18			19			20			25			13			35
Curtailment loss recognized	4			—			—			—			—			—
Settlement gain recognized	—			—			—			—			—			1
Total pension cost	$	16		$	154		$	21		$	144		$	16		$	176

The following table summarizes in millions the amounts reflected in AOCL, including AOCL attributable to noncontrolling interests, on the Consolidated Balance Sheet as of December 31, 2016, that have not yet been recognized as components of net periodic benefit cost and amounts expected to be reclassified to earnings in the next fiscal year (in millions):



December 31, 2016	Accumulated Other Comprehensive Income (Loss)						Amounts expected to be reclassified to earnings in next fiscal year
	U.S.			Foreign			U.S.		Foreign
Prior service cost	$	—		$	(1	)	$	—	$	—
Unrecognized net actuarial gain (loss)	(16		)	(1,370		)	—		(41		)
Total	$	(16	)	$	(1,371	)	$	—	$	(41	)

The following table summarizes the Company's target allocation for 2016 and pension plan asset allocation, both domestic and foreign, as of the periods indicated:



			Percentage of Plan Assets as of December 31,
	Target Allocations		2016				2015
Asset Category	U.S.	Foreign	U.S.		Foreign		U.S.		Foreign
Equity securities	53%	15% -28%	50.96	%	9.42	%	44.76	%	12.76	%
Debt securities	45%	62% - 85%	45.88	%	78.29	%	50.05	%	81.41	%
Real estate	2%	0% - 4%	3.16	%	3.15	%	2.94	%	3.33	%
Other	—%	0% - 5%	—	%	9.14	%	2.25	%	2.50	%
Total pension assets			100.00	%	100.00	%	100.00	%	100.00	%

The U.S. plans seek to achieve the following long-term investment objectives:


•	maintenance of sufficient income and liquidity to pay retirement benefits and other lump sum payments;


•	long-term rate of return in excess of the annualized inflation rate;


•	long-term rate of return, net of relevant fees, that meets or exceeds the assumed actuarial rate; and


•	long-term competitive rate of return on investments, net of expenses, that equals or exceeds various benchmark rates.

The asset allocation is reviewed periodically to determine a suitable asset allocation which seeks to manage risk through portfolio diversification and takes into account, among other possible factors, the above-stated objectives, in conjunction with current funding levels, cash flow conditions and economic and industry trends. The following table summarizes the Company's U.S. plan assets by category of investment and level within the fair value hierarchy as of the periods indicated (in millions):



		December 31, 2016								December 31, 2015
U.S. Plans		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Equity securities:	Mutual funds	532		—		—		532		457		—		—		457
Debt securities:	Government debt securities	86		—		—		86		53		—		—		53
	Mutual funds ⁽¹⁾	393		—		—		393		458		—		—		458
Real Estate:	Real Estate	—		33		—		33		—		30		—		30
Other:	Other investments	—		—		—		—		—		23		—		23
	Total plan assets	$	1,011	$	33	$	—	$	1,044	$	968	$	53	$	—	$	1,021

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⁽¹⁾	Mutual funds categorized as debt securities consist of mutual funds for which debt securities are the primary underlying investment.

The investment strategy of the foreign plans seeks to maximize return on investment while minimizing risk. The assumed asset allocation has less exposure to equities in order to closely match market conditions and near term forecasts. The following table summarizes the Company's foreign plan assets by category of investment and level within the fair value hierarchy as of the periods indicated (in millions):



		December 31, 2016								December 31, 2015
Foreign Plans		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Equity securities —	Mutual funds	$	175	$	—	$	—	$	175	$	156	$	—	$	—	$	156
	Private equity ⁽¹⁾	—		—		150		150		—		—		124		124
Debt securities —	Government debt securities	10		—		—		10		11		29		—		40
	Corporate debt securities	—		67		—		67		—		—		—		—
	Mutual funds ⁽²⁾	215		2,049		—		2,264		217		1,530		—		1,747
Real estate —	Real estate ⁽¹⁾	—		—		89		89		—		—		73		73
Other —	Participant loans ⁽³⁾	—		—		42		42		—		—		37		37
	Other assets	24		—		3		27		16		—		2		18
	Total plan assets	$	424	$	2,116	$	284	$	2,824	$	400	$	1,559	$	236	$	2,195

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⁽¹⁾	Plan assets of our Brazilian subsidiaries are invested in private equities and commercial real estate through the plan administrator in Brazil. The fair value of these assets is determined using the income approach through annual appraisals based on a discounted cash flow analysis.


⁽²⁾	Mutual funds categorized as debt securities consist of mutual funds for which debt securities are the primary underlying investment.


⁽³⁾	Loans to participants are stated at cost, which approximates fair value.

The following table presents a reconciliation of all plan assets measured at fair value using significant unobservable inputs (Level 3) for the periods indicated (in millions):



December 31,	2016		2015
Balance at January 1	$	236	$	389
Actual return on plan assets:
Returns relating to assets still held at reporting date	3		(35		)
Change due to exchange rate changes	45		(118		)
Balance at December 31	$	284	$	236

The following table summarizes the estimated cash flows for U.S. and foreign expected employer contributions and expected future benefit payments, both domestic and foreign (in millions):



	U.S.		Foreign
Expected employer contribution in 2017	$	14	$	159
Expected benefit payments for fiscal year ending:
2017	67		334
2018	69		346
2019	71		358
2020	72		370
2021	74		381
2022 - 2026	387		2,057