Employee Benefit Plans

Defined Benefit Plans

Domestic Operations

The Utilities sponsor defined benefit pension plans that cover a majority of all employees of BHE and its domestic energy subsidiaries. These pension plans include noncontributory defined benefit pension plans, supplemental executive retirement plans ("SERP") and a restoration plan for certain executives of NV Energy. The Utilities also provide certain postretirement healthcare and life insurance benefits through various plans to eligible retirees.

Net Periodic Benefit Cost

For purposes of calculating the expected return on plan assets, a market-related value is used. The market-related value of plan assets is calculated by spreading the difference between expected and actual investment returns over a five-year period beginning after the first year in which they occur.

Net periodic benefit cost for the plans included the following components for the years ended December 31 (in millions):



	Pension									Other Postretirement
	2016			2015			2014			2016			2015			2014

Service cost	$	29		$	33		$	36		$	9		$	11		$	14
Interest cost	126			121			131			31			31			46
Expected return on plan assets	(160		)	(169		)	(164		)	(41		)	(45		)	(53		)
Net amortization	46			53			44			(12		)	(11		)	(3		)
Net periodic benefit cost (credit)	$	41		$	38		$	47		$	(13	)	$	(14	)	$	4

Funded Status

The following table is a reconciliation of the fair value of plan assets for the years ended December 31 (in millions):



	Pension						Other Postretirement
	2016			2015			2016			2015

Plan assets at fair value, beginning of year	$	2,489		$	2,718		$	662		$	858
Employer contributions	78			13			2			2
Participant contributions	—			—			10			9
Actual return on plan assets	163			(17		)	41			—
Settlement	(11		)	(23		)	—			(150		)
Benefits paid	(194		)	(202		)	(49		)	(57		)
Plan assets at fair value, end of year	$	2,525		$	2,489		$	666		$	662

The following table is a reconciliation of the benefit obligations for the years ended December 31 (in millions):



	Pension						Other Postretirement
	2016			2015			2016			2015

Benefit obligation, beginning of year	$	2,934		$	3,119		$	740		$	936
Service cost	29			33			9			11
Interest cost	126			121			31			31
Participant contributions	—			—			10			9
Actuarial loss (gain)	67			(110		)	(7		)	(43		)
Amendment	1			(4		)	—			3
Settlement	(11		)	(23		)	—			(150		)
Benefits paid	(194		)	(202		)	(49		)	(57		)
Benefit obligation, end of year	$	2,952		$	2,934		$	734		$	740
Accumulated benefit obligation, end of year	$	2,929		$	2,906

In December 2014, PacifiCorp's subsidiary, Energy West Mining Company, reached a labor settlement with the UMWA covering union employees at PacifiCorp's Deer Creek mining operations. As a result of the labor settlement, the UMWA agreed to assume PacifiCorp's other postretirement benefit obligation associated with UMWA plan participants in exchange for PacifiCorp transferring $150 million to a fund managed by the UMWA. Transfer of the assets and settlement of this obligation occurred in May 2015 and resulted in a remeasurement of the other postretirement plan assets and benefit obligation. As a result of the remeasurement, PacifiCorp recognized a $9 million settlement loss, with the portion that is probable of recovery deferred as a regulatory asset. No curtailment accounting was triggered as a result of the settlement due to an insignificant impact to the average remaining service lives in the plan.

The funded status of the plans and the amounts recognized on the Consolidated Balance Sheets as of December 31 are as follows (in millions):



	Pension						Other Postretirement
	2016			2015			2016			2015

Plan assets at fair value, end of year	$	2,525		$	2,489		$	666		$	662
Benefit obligation, end of year	2,952			2,934			734			740
Funded status	$	(427	)	$	(445	)	$	(68	)	$	(78	)

Amounts recognized on the Consolidated Balance Sheets:
Other assets	$	26		$	7		$	19		$	15
Other current liabilities	(15		)	(15		)	—			—
Other long-term liabilities	(438		)	(437		)	(87		)	(93		)
Amounts recognized	$	(427	)	$	(445	)	$	(68	)	$	(78	)

The SERPs and restoration plan have no plan assets; however, the Company has Rabbi trusts that hold corporate-owned life insurance and other investments to provide funding for the future cash requirements of the SERPs and restoration plan. The cash surrender value of all of the policies included in the Rabbi trusts, net of amounts borrowed against the cash surrender value, plus the fair market value of other Rabbi trust investments, was $242 million and $228 million as of December 31, 2016 and 2015, respectively. These assets are not included in the plan assets in the above table, but are reflected in noncurrent investments and restricted cash and investments on the Consolidated Balance Sheets.

The fair value of plan assets, projected benefit obligation and accumulated benefit obligation for (1) pension and other postretirement benefit plans with a projected benefit obligation in excess of the fair value of plan assets and (2) pension plans with an accumulated benefit obligation in excess of the fair value of plan assets as of December 31 are as follows (in millions):



	Pension				Other Postretirement
	2016		2015		2016		2015

Fair value of plan assets	$	1,841	$	1,811	$	413	$	413

Projected benefit obligation	$	2,294	$	2,263	$	500	$	505

Accumulated benefit obligation	$	2,278	$	2,244

Unrecognized Amounts

The portion of the funded status of the plans not yet recognized in net periodic benefit cost as of December 31 is as follows (in millions):



	Pension						Other Postretirement
	2016			2015			2016			2015

Net loss	$	775		$	768		$	88		$	97
Prior service credit	(7		)	(25		)	(52		)	(68		)
Regulatory deferrals	(7		)	(2		)	7			8
Total	$	761		$	741		$	43		$	37

A reconciliation of the amounts not yet recognized as components of net periodic benefit cost for the years ended December 31, 2016 and 2015 is as follows (in millions):



							Accumulated
							Other
	Regulatory			Regulatory			Comprehensive
	Asset			Liability			Loss			Total
Pension
Balance, December 31, 2014	$	710		$	(6	)	$	19		$	723
Net loss (gain) arising during the year	76			5			(6		)	75
Net prior service credit arising during the year	(4		)	—			—			(4		)
Net amortization	(53		)	—			—			(53		)
Total	19			5			(6		)	18
Balance, December 31, 2015	729			(1		)	13			741
Net loss arising during the year	76			(11		)	—			65
Net prior service cost arising during the year	1			—			—			1
Net amortization	(45		)	(1		)	—			(46		)
Total	32			(12		)	—			20
Balance, December 31, 2016	$	761		$	(13	)	$	13		$	761



	Regulatory			Regulatory
	Asset			Liability			Total
Other Postretirement
Balance, December 31, 2014	$	37		$	(14	)	$	23
Net (gain) loss arising during the year	(1		)	1			—
Net prior service cost arising during the year	3			—			3
Net amortization	10			1			11
Total	12			2			14
Balance, December 31, 2015	49			(12		)	37
Net gain arising during the year	(5		)	(1		)	(6		)
Net amortization	11			1			12
Total	6			—			6
Balance, December 31, 2016	$	55		$	(12	)	$	43

The net loss, prior service credit and regulatory deferrals that will be amortized in 2017 into net periodic benefit cost are estimated to be as follows (in millions):



	Net		Prior Service			Regulatory
	Loss		Credit			Deferrals			Total

Pension	$	33	$	(3	)	$	(2	)	$	28
Other postretirement	2		(16		)	1			(13		)
Total	$	35	$	(19	)	$	(1	)	$	15

Plan Assumptions

Weighted-average assumptions used to determine benefit obligations and net periodic benefit cost were as follows:



	Pension						Other Postretirement
	2016		2015		2014		2016		2015		2014

Benefit obligations as of December 31:
Discount rate	4.06	%	4.43	%	4.00	%	4.01	%	4.33	%	3.88	%
Rate of compensation increase	2.75	%	2.75	%	2.75	%	N/A		N/A		N/A

Net periodic benefit cost for the years ended December 31:
Discount rate	4.43	%	4.00	%	4.81	%	4.33	%	3.93	%	4.82	%
Expected return on plan assets	6.78	%	6.88	%	6.86	%	7.03	%	7.00	%	7.34	%
Rate of compensation increase	2.75	%	2.75	%	3.00	%	N/A		N/A		N/A

In establishing its assumption as to the expected return on plan assets, the Company utilizes the asset allocation and return assumptions for each asset class based on historical performance and forward-looking views of the financial markets.



	2016		2015
Assumed healthcare cost trend rates as of December 31:
Healthcare cost trend rate assumed for next year	7.40	%	7.70	%
Rate that the cost trend rate gradually declines to	5.00	%	5.00	%
Year that the rate reaches the rate it is assumed to remain at	2025		2025

A one percentage-point change in assumed healthcare cost trend rates would have the following effects (in millions):



	One Percentage-Point
	Increase		Decrease
Increase (decrease) in:
Total service and interest cost for the year ended December 31, 2016	$	1	$	—
Other postretirement benefit obligation as of December 31, 2016	4		(4		)

Contributions and Benefit Payments

Employer contributions to the pension and other postretirement benefit plans are expected to be $14 million and $4 million, respectively, during 2017. Funding to the established pension trusts is based upon the actuarially determined costs of the plans and the requirements of the Internal Revenue Code, the Employee Retirement Income Security Act of 1974 and the Pension Protection Act of 2006, as amended. The Company considers contributing additional amounts from time to time in order to achieve certain funding levels specified under the Pension Protection Act of 2006, as amended. The Company's funding policy for its other postretirement benefit plans is to generally contribute an amount equal to the net periodic benefit cost.

The expected benefit payments to participants in the Company's pension and other postretirement benefit plans for 2017 through 2021 and for the five years thereafter are summarized below (in millions):



	Projected Benefit
	Payments
			Other
	Pension		Postretirement

2017	$	219	$	56
2018	226		57
2019	224		57
2020	221		60
2021	214		57
2022-2026	1,002		259

Plan Assets

Investment Policy and Asset Allocations

The Company's investment policy for its pension and other postretirement benefit plans is to balance risk and return through a diversified portfolio of debt securities, equity securities and other alternative investments. Maturities for debt securities are managed to targets consistent with prudent risk tolerances. The plans retain outside investment advisors to manage plan investments within the parameters outlined by each plan's Pension and Employee Benefits Plans Administrative Committee. The investment portfolio is managed in line with the investment policy with sufficient liquidity to meet near-term benefit payments.

The target allocations (percentage of plan assets) for the Company's pension and other postretirement benefit plan assets are as follows as of December 31, 2016:



		Other
	Pension	Postretirement
	%	%
PacifiCorp:
Debt securities⁽¹⁾	33-37	33-37
Equity securities⁽¹⁾	53-57	61-65
Limited partnership interests	8-12	1-3
Other	0-1	0-1

MidAmerican Energy:
Debt securities⁽¹⁾	20-40	25-45
Equity securities⁽¹⁾	60-80	50-80
Real estate funds	2-8	—
Other	0-5	0-5

NV Energy:
Debt securities⁽¹⁾	53-77	40
Equity securities⁽¹⁾	23-47	60


(1)	For purposes of target allocation percentages and consistent with the plans' investment policy, investment funds are allocated based on the underlying investments in debt and equity securities.

Fair Value Measurements

The Company adopted ASU No. 2015-07, "Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its Equivalent)" effective January 1, 2016 under a retrospective method.

The following table presents the fair value of plan assets, by major category, for the Company's defined benefit pension plans (in millions):



	Input Levels for Fair Value Measurements⁽¹⁾
	Level 1		Level 2		Level 3		Total
As of December 31, 2016:
Cash equivalents	$	4	$	54	$	—	$	58
Debt securities:
United States government obligations	161		—		—		161
International government obligations	—		2		—		2
Corporate obligations	—		295		—		295
Municipal obligations	—		20		—		20
Agency, asset and mortgage-backed obligations	—		112		—		112
Equity securities:
United States companies	583		—		—		583
International companies	117		—		—		117
Investment funds⁽²⁾	146		—		—		146
Total assets in the fair value hierarchy	$	1,011	$	483	$	—	1,494
Investment funds⁽²⁾ measured at net asset value							920
Limited partnership interests⁽³⁾ measured at net asset value							61
Real estate funds measured at net asset value							50
Total assets measured at fair value							$	2,525

As of December 31, 2015:
Cash equivalents	$	—	$	26	$	—	$	26
Debt securities:
United States government obligations	155		—		—		155
International government obligations	—		4		—		4
Corporate obligations	—		335		—		335
Municipal obligations	—		25		—		25
Agency, asset and mortgage-backed obligations	—		154		—		154
Equity securities:
United States companies	586		—		—		586
International companies	122		—		—		122
Investment funds⁽²⁾	144		—		—		144
Total assets in the fair value hierarchy	$	1,007	$	544	$	—	1,551
Investment funds⁽²⁾ measured at net asset value							823
Limited partnership interests⁽³⁾ measured at net asset value							65
Real estate funds measured at net asset value							50
Total assets measured at fair value							$	2,489


(1)	Refer to Note 15 for additional discussion regarding the three levels of the fair value hierarchy.


(2)	Investment funds are comprised of mutual funds and collective trust funds. These funds consist of equity and debt securities of approximately 62% and 38%, respectively, for 2016 and 66% and 34%, respectively, for 2015. Additionally, these funds are invested in United States and international securities of approximately 60% and 40%, respectively, for 2016 and 58% and 42%, respectively, for 2015.


(3)	Limited partnership interests include several funds that invest primarily in real estate, buyout, growth equity and venture capital.

The following table presents the fair value of plan assets, by major category, for the Company's defined benefit other postretirement plans (in millions):



	Input Levels for Fair Value Measurements⁽¹⁾
	Level 1		Level 2		Level 3		Total
As of December 31, 2016:
Cash equivalents	$	18	$	2	$	—	$	20
Debt securities:
United States government obligations	19		—		—		19
Corporate obligations	—		29		—		29
Municipal obligations	—		39		—		39
Agency, asset and mortgage-backed obligations	—		25		—		25
Equity securities:
United States companies	217		—		—		217
International companies	5		—		—		5
Investment funds⁽²⁾	152		—		—		152
Total assets in the fair value hierarchy	$	411	$	95	$	—	506
Investment funds⁽²⁾ measured at net asset value							156
Limited partnership interests⁽³⁾ measured at net asset value							4
Total assets measured at fair value							$	666

As of December 31, 2015:
Cash equivalents	$	12	$	1	$	—	$	13
Debt securities:
United States government obligations	18		—		—		18
Corporate obligations	—		33		—		33
Municipal obligations	—		41		—		41
Agency, asset and mortgage-backed obligations	—		28		—		28
Equity securities:
United States companies	216		—		—		216
International companies	6		—		—		6
Investment funds⁽²⁾	149		—		—		149
Total assets in the fair value hierarchy	$	401	$	103	$	—	504
Investment funds⁽²⁾ measured at net asset value							154
Limited partnership interests⁽³⁾ measured at net asset value							4
Total assets measured at fair value							$	662


(1)	Refer to Note 15 for additional discussion regarding the three levels of the fair value hierarchy.


(2)	Investment funds are comprised of mutual funds and collective trust funds. These funds consist of equity and debt securities of approximately 63% and 37%, respectively, for both 2016 and 2015. Additionally, these funds are invested in United States and international securities of approximately 72% and 28%, respectively, for 2016 and 70% and 30%, respectively, for 2015.


(3)	Limited partnership interests include several funds that invest primarily in real estate, buyout, growth equity and venture capital.

For level 1 investments, a readily observable quoted market price or net asset value of an identical security in an active market is used to record the fair value. For level 2 investments, the fair value is determined using pricing models based on observable market inputs. Shares of mutual funds not registered under the Securities Act of 1933, private equity limited partnership interests, common and commingled trust funds and investment entities are reported at fair value based on the net asset value per unit, which is used for expedience purposes. A fund’s net asset value is based on the fair value of the underlying assets held by the fund less its liabilities.

Foreign Operations

Certain wholly-owned subsidiaries of Northern Powergrid participate in the Northern Powergrid group of the United Kingdom industry-wide Electricity Supply Pension Scheme (the "UK Plan"), which provides pension and other related defined benefits, based on final pensionable pay, to the majority of the employees of Northern Powergrid. The UK Plan is closed to employees hired after July 23, 1997. Employees hired after that date are covered by a defined contribution plan sponsored by a wholly-owned subsidiary of Northern Powergrid.

Net Periodic Benefit Cost

For purposes of calculating the expected return on pension plan assets, a market-related value is used. The market-related value of plan assets is calculated by spreading the difference between expected and actual investment returns over a five-year period beginning after the first year in which they occur.

Net periodic benefit cost for the UK Plan included the following components for the years ended December 31 (in millions):



	2016			2015			2014

Service cost	$	20		$	24		$	24
Interest cost	72			79			95
Expected return on plan assets	(110		)	(116		)	(124		)
Net amortization	44			62			51
Net periodic benefit cost	$	26		$	49		$	46

Funded Status

The following table is a reconciliation of the fair value of plan assets for the years ended December 31 (in millions):



	2016			2015

Plan assets at fair value, beginning of year	$	2,276		$	2,368
Employer contributions	55			77
Participant contributions	1			2
Actual return on plan assets	349			48
Benefits paid	(115		)	(91		)
Foreign currency exchange rate changes	(397		)	(128		)
Plan assets at fair value, end of year	$	2,169		$	2,276

The following table is a reconciliation of the benefit obligation for the years ended December 31 (in millions):



	2016			2015

Benefit obligation, beginning of year	$	2,142		$	2,279
Service cost	20			24
Interest cost	72			79
Participant contributions	1			2
Actuarial loss (gain)	387			(30		)
Benefits paid	(115		)	(91		)
Foreign currency exchange rate changes	(382		)	(121		)
Benefit obligation, end of year	$	2,125		$	2,142
Accumulated benefit obligation, end of year	$	1,858		$	1,891

The funded status of the UK Plan and the amounts recognized on the Consolidated Balance Sheets as of December 31 are as follows (in millions):



	2016		2015

Plan assets at fair value, end of year	$	2,169	$	2,276
Benefit obligation, end of year	2,125		2,142
Funded status	$	44	$	134

Amounts recognized on the Consolidated Balance Sheets:
Other assets	$	44	$	134

Unrecognized Amounts

The portion of the funded status of the UK Plan not yet recognized in net periodic benefit cost as of December 31 is as follows (in millions):



	2016		2015

Net loss	$	590	$	592

A reconciliation of the amounts not yet recognized as components of net periodic benefit cost, which are included in accumulated other comprehensive loss on the Consolidated Balance Sheets, for the years ended December 31 is as follows (in millions):



	2016			2015

Balance, beginning of year	$	592		$	655
Net loss arising during the year	148			38
Net amortization	(44		)	(62		)
Foreign currency exchange rate changes	(106		)	(39		)
Total	(2		)	(63		)
Balance, end of year	$	590		$	592

The net loss that will be amortized from accumulated other comprehensive loss in 2017 into net periodic benefit cost is estimated to be $65 million.

Plan Assumptions

Assumptions used to determine benefit obligations and net periodic benefit cost were as follows:



	2016		2015		2014

Benefit obligations as of December 31:
Discount rate	2.70	%	3.70	%	3.60	%
Rate of compensation increase	3.00	%	2.90	%	2.80	%
Rate of future price inflation	3.00	%	2.90	%	2.80	%

Net periodic benefit cost for the years ended December 31:
Discount rate	3.70	%	3.60	%	4.40	%
Expected return on plan assets	5.60	%	5.60	%	6.10	%
Rate of compensation increase	2.90	%	2.80	%	3.15	%
Rate of future price inflation	2.90	%	2.80	%	3.15	%

Contributions and Benefit Payments

Employer contributions to the UK Plan are expected to be £37 million during 2017. The expected benefit payments to participants in the UK Plan for 2017 through 2021 and for the five years thereafter, using the foreign currency exchange rate as of December 31, 2016, are summarized below (in millions):



2017	$	75
2018	77
2019	79
2020	81
2021	83
2022-2026	448

Plan Assets

Investment Policy and Asset Allocations

The investment policy for the UK Plan is to balance risk and return through a diversified portfolio of debt securities, equity securities and real estate. Maturities for debt securities are managed to targets consistent with prudent risk tolerances. The UK Plan retains outside investment advisors to manage plan investments within the parameters set by the trustees of the UK Plan in consultation with Northern Powergrid. The investment portfolio is managed in line with the investment policy with sufficient liquidity to meet near-term benefit payments. The return on assets assumption is based on a weighted-average of the expected historical performance for the types of assets in which the UK Plan invests.

The target allocations (percentage of plan assets) for the UK Plan assets are as follows as of December 31, 2016:



	%
Debt securities⁽¹⁾	50-55
Equity securities⁽¹⁾	35-40
Real estate funds and other	5-15


(1)	For purposes of target allocation percentages and consistent with the plans' investment policy, investment funds have been allocated based on the underlying investments in debt and equity securities.

Fair Value Measurements

The following table presents the fair value of the UK Plan assets, by major category, (in millions):



	Input Levels for Fair Value Measurements⁽¹⁾
	Level 1		Level 2		Level 3		Total
As of December 31, 2016:
Cash equivalents	$	4	$	83	$	—	$	87
Debt securities:
United Kingdom government obligations	718		—		—		718
Equity securities:
Investment funds⁽²⁾	—		1,095		—		1,095
Real estate funds	—		—		105		105
Total	$	722	$	1,178	$	105	2,005
Investment funds⁽²⁾ measured at net asset value							164
Total assets measured at fair value							$	2,169

As of December 31, 2015:
Cash equivalents	$	46	$	—	$	—	$	46
Debt securities:
United Kingdom government obligations	424		—		—		424
Other international government obligations	—		13		—		13
Corporate obligations	—		186		—		186
Equity securities:
Investment funds⁽²⁾	24		1,189		—		1,213
Real estate funds	—		—		204		204
Total	$	494	$	1,388	$	204	2,086
Investment funds⁽²⁾ measured at net asset value							190
Total assets measured at fair value							$	2,276


(1)	Refer to Note 15 for additional discussion regarding the three levels of the fair value hierarchy.


(2)	Investment funds are comprised of mutual funds and collective trust funds. These funds consist of equity and debt securities of approximately 44% and 56%, respectively, for both 2016 and 2015.

The fair value of the UK Plan's assets are determined similar to the plan assets of the domestic plans as previously discussed.

The following table reconciles the beginning and ending balances of the UK Plan assets measured at fair value using significant Level 3 inputs for the years ended December 31 (in millions):



	Real Estate Funds
	2016			2015			2014

Beginning balance	$	204		$	199		$	179
Actual return on plan assets still held at period end	10			18			33
Sales	(80		)	—			—
Foreign currency exchange rate changes	(29		)	(13		)	(13		)
Ending balance	$	105		$	204		$	199

Defined Contribution Plans

The Company sponsors various defined contribution plans covering substantially all employees. The Company's contributions vary depending on the plan, but matching contributions are based on each participant's level of contribution, and certain participants receive contributions based on eligible pre-tax annual compensation. Contributions cannot exceed the maximum allowable for tax purposes. The Company's contributions to these plans were $102 million, $90 million and $83 million for the years ended December 31, 2016, 2015 and 2014, respectively.