Note 10—Pension, Postretirement and Other Benefits

The Company sponsors various qualified and non-qualified defined benefit pension and other postretirement benefit plans that provide for retirement and medical benefits for substantially all employees residing in the United States. The Company also sponsors other pension benefit plans that provide benefits for internationally-based employees at certain non-U.S. locations, which are not presented below as they are not material. The Company uses a September 30 measurement date for its pension and other postretirement benefit plans.

Defined benefit pension plans. The benefits under the current defined benefit pension plan are earned based on a cash balance formula. An employee’s cash balance account is credited with an amount equal to 6% of eligible compensation plus interest based on 30-year Treasury securities. The funding policy is to contribute annually no less than the minimum required contribution under ERISA.

Postretirement benefits plan. The postretirement benefits plan provides medical benefits for retirees and dependents who meet minimum age and service requirements. Benefits are provided from retirement date until age 65. Retirees must contribute on a monthly basis for the same coverage that is generally available to active employees and their dependents. The Company’s contributions are funded on a current basis.

Summary of Plan Activities

Change in Benefit Obligation:



	Pension Benefits						Other Postretirement Benefits
	September 30,						September 30,
	2015			2014			2015			2014
	(in millions)
Benefit obligation—beginning of fiscal year	$	983		$	897		$	20		$	25
Service cost	47			46			—			—
Interest cost	40			42			1			1
Actuarial loss (gain)	40			84			—			(2		)
Benefit payments	(105		)	(83		)	(3		)	(4		)
Plan amendment	—			(3		)	—			—
Benefit obligation—end of fiscal year	$	1,005		$	983		$	18		$	20
Accumulated benefit obligation	$	994		$	977		NA			NA
Change in Plan Assets:
Fair value of plan assets—beginning of fiscal year	$	1,117		$	1,055		$	—		$	—
Actual return on plan assets	(6		)	135			—			—
Company contribution	16			10			3			4
Benefit payments	(105		)	(83		)	(3		)	(4		)
Fair value of plan assets—end of fiscal year	$	1,022		$	1,117		$	—		$	—
Funded status at end of fiscal year	$	17		$	134		$	(18	)	$	(20	)
Recognized in Consolidated Balance Sheets:
Non-current asset	$	36		$	164		$	—		$	—
Current liability	(9		)	(7		)	(3		)	(3		)
Non-current liability	(10		)	(23		)	(15		)	(17		)
Funded status at end of fiscal year	$	17		$	134		$	(18	)	$	(20	)

Amounts recognized in accumulated other comprehensive income before tax:



	Pension Benefits						Other Postretirement Benefits
	September 30,						September 30,
	2015			2014			2015			2014
	(in millions)
Net actuarial loss (gain)	$	232		$	121		$	(5	)	$	(7	)
Prior service credit	(9		)	(16		)	(5		)	(8		)
Total	$	223		$	105		$	(10	)	$	(15	)

Amounts from accumulated other comprehensive income to be amortized into net periodic benefit cost in fiscal 2016:



	Pension Benefits			Other Postretirement Benefits
	(in millions)
Actuarial loss (gain)	$	14		$	(1	)
Prior service credit	(7		)	(3		)
Total	$	7		$	(4	)

Benefit obligations in excess of plan assets related to the Company's non-qualified plan:



	Pension Benefits
	September 30,
	2015			2014
	(in millions)
Accumulated benefit obligation in excess of plan assets
Accumulated benefit obligation—end of year	$	(19	)	$	(30	)
Fair value of plan assets—end of year	$	—		$	—
Projected benefit obligation in excess of plan assets
Benefit obligation—end of year	$	(19	)	$	(30	)
Fair value of plan assets—end of year	$	—		$	—

Net periodic pension and other postretirement plan cost:



	Pension Benefits									Other Postretirement Benefits
	Fiscal
	2015			2014			2013			2015			2014			2013
	(in millions)
Service cost	$	47		$	46		$	43		$	—		$	—		$	—
Interest cost	40			42			35			1			1			1
Expected return on assets	(72		)	(68		)	(61		)	—			—			—
Amortization of:
Prior service credit	(7		)	(8		)	(9		)	(3		)	(3		)	(3		)
Actuarial loss (gain)	1			1			28			(2		)	(1		)	(1		)
Net benefit cost	$	9		$	13		$	36		$	(4	)	$	(3	)	$	(3	)
Curtailment gain	—			(3		)	—			—			—			—
Settlement loss	7			3			—			—			—			—
Total net periodic benefit cost	$	16		$	13		$	36		$	(4	)	$	(3	)	$	(3	)

Other changes in plan assets and benefit obligations recognized in other comprehensive income:



	Pension Benefits						Other Postretirement Benefits
	2015			2014			2015		2014
	(in millions)
Current year actuarial loss (gain)	$	119		$	18		$	—	$	(2	)
Amortization of actuarial (loss) gain	(8		)	(4		)	2		1
Current year prior service credit	—			(3		)	—		—
Amortization of prior service credit	7			11			3		3
Total recognized in other comprehensive income	$	118		$	22		$	5	$	2
Total recognized in net periodic benefit cost and other comprehensive income	$	134		$	35		$	1	$	(1	)

Weighted Average Actuarial Assumptions:



	Fiscal
	2015		2014		2013
Discount rate for benefit obligation:⁽¹⁾
Pension	4.33	%	4.27	%	4.81	%
Postretirement	2.43	%	2.59	%	2.76	%
Discount rate for net periodic benefit cost:
Pension	4.27	%	4.81	%	3.85	%
Postretirement	2.59	%	2.76	%	2.21	%
Expected long-term rate of return on plan assets⁽²⁾	7.00	%	7.00	%	7.00	%
Rate of increase in compensation levels for:
Benefit obligation	4.00	%	4.00	%	4.50	%
Net periodic benefit cost	4.00	%	4.50	%	4.50	%


⁽¹⁾	Based on a “bond duration matching” methodology, which reflects the matching of projected plan liability cash flows to an average of high-quality corporate bond yield curves whose duration matches the projected cash flows.


⁽²⁾	Primarily based on the targeted allocation, and evaluated for reasonableness by considering such factors as: (i) actual return on plan assets; (ii) historical rates of return on various asset classes in the portfolio; (iii) projections of returns on various asset classes; and (iv) current and prospective capital market conditions and economic forecasts.

The assumed annual rate of future increases in health benefits for the other postretirement benefits plan is 8% for fiscal 2016. The rate is assumed to decrease to 5% by 2021 and remain at that level thereafter. These trend rates reflect management’s expectations of future rates. Increasing or decreasing the healthcare cost trend by 1% would change the postretirement plan benefit obligation by less than $1 million.

Pension Plan Assets

Pension plan assets are managed with a long-term perspective to ensure that there is an adequate level of assets to support benefit payments to participants over the life of the pension plan. Pension plan assets are managed by external investment managers. Investment manager performance is measured against benchmarks for each asset class on a quarterly basis. An independent consultant assists management with investment manager selections and performance evaluations.

Pension plan assets are broadly diversified to maintain a prudent level of risk and to provide adequate liquidity for benefit payments. The Company generally evaluates and rebalances the pension plan assets, as appropriate, to ensure that allocations are consistent with target allocation ranges. The current target allocation for pension plan assets is as follows: equity securities of 50% to 80%, fixed income securities of 25% to 35% and other, primarily consisting of cash equivalents to meet near term expected benefit payments and expenses, of up to 7%. At September 30, 2015, pension plan asset allocations for the above categories were 66%, 33% and 1%, respectively, which were within target allocation ranges.

The following table sets forth by level, within the fair value hierarchy, the pension plan’s investments at fair value as of September 30, 2015 and 2014, including the impact of unsettled transactions:



	Fair Value Measurements at September 30,
	Level 1				Level 2				Level 3				Total
	2015		2014		2015		2014		2015		2014		2015		2014
	(in millions)
Cash equivalents	$	11	$	22									$	11	$	22
Corporate debt securities					$	169	$	144					169		144
U.S. government-sponsored debt securities⁽¹⁾					66		106						66		106
U.S. Treasury securities⁽¹⁾	74		53										74		53
Asset-backed securities									$	31	$	25	31		25
Equity securities	671		767										671		767
Total	$	756	$	842	$	235	$	250	$	31	$	25	$	1,022	$	1,117


⁽¹⁾	U.S. Treasury securities are Level 1 assets, but were previously presented in aggregate with U.S. government-sponsored debt securities as Level 2. The Company now presents U.S. Treasury securities separately for disclosure purposes. There were no changes to the valuation techniques or related inputs used to measure fair value. Prior period amounts reflect the change in presentation.

Level 1 assets. Cash equivalents (money market funds), U.S. Treasury securities and equity securities are classified as Level 1 within the fair value hierarchy, as fair value is based on quoted prices in active markets.

Level 2 assets. The fair values of U.S. government-sponsored and corporate debt securities are based on quoted prices in active markets for similar assets as provided by third-party pricing vendors. This pricing data is reviewed internally for reasonableness through comparisons with benchmark quotes from independent third-party sources. Based on this review, the valuation is confirmed or revised accordingly.

Level 3 assets. Asset-backed securities are bonds that are backed by various types of assets and primarily consist of mortgage-backed securities. Asset-backed securities are classified as Level 3 due to a lack of observable inputs in measuring fair value.

There were no transfers between Level 1 and Level 2 assets during fiscal 2015 or 2014, except for the change in presentation noted above. A separate roll-forward of Level 3 plan assets measured at fair value is not presented because activities during fiscal 2015 and 2014 were immaterial.

Cash Flows



	Pension Benefits		Other Postretirement Benefits
Actual employer contributions	(in millions)
2015	$	16	$	3
2014	$	10	$	4
Expected employer contributions
2016	$	9	$	3
Expected benefit payments
2016	$	146	$	3
2017	$	92	$	3
2018	$	94	$	3
2019	$	93	$	3
2020	$	93	$	2
2021-2025	$	462	$	5

Other Benefits

The Company sponsors a defined contribution plan, or 401(k) plan, that covers substantially all of its employees residing in the United States. Personnel costs included $49 million, $46 million and $44 million in fiscal 2015, 2014 and 2013, respectively, for expenses attributable to the Company’s employees under the 401(k) plan. The Company’s contributions to this 401(k) plan are funded on a current basis, and the related expenses are recognized in the period that the payroll expenses are incurred.