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RETIREMENT PLANS AND POST RETIREMENT PENSION PLANS

12 Months Ended

Oct. 31, 2019

RETIREMENT PLANS AND POST-RETIREMENT PENSION PLANS

RETIREMENT PLANS AND POST-RETIREMENT BENEFIT PLANS

General. The majority of our employees are covered under various defined benefit and/or defined contribution retirement plans. Additionally, we sponsor post-retirement health care benefits for our eligible U.S. employees. We provide U.S. employees, who meet eligibility criteria under the Keysight Technologies, Inc. Retirement Plan ("RP"), defined benefits which are based on an employee's base or target pay during the years of employment and on length of service. For eligible employees' service through October 31, 1993, the benefit payable under the RP is reduced by any amounts due to the eligible employees' service under our defined contribution Deferred Profit-Sharing Plan ("DPSP"), which was closed to new participants as of November 1993. Employees hired on or after August 1, 2015 are not eligible to participate in the RP or the Keysight Technologies, Inc. Health Plan for Retirees ("U.S. Post-Retirement Benefit Plan").

In addition, in the U.S. we maintain the Supplemental Benefits Retirement Plan ("SBRP"), a supplemental unfunded non-qualified defined benefit plan to provide benefits that would be provided under the RP but for limitations imposed by the Internal Revenue Code. The RP and the SBRP comprise the "U.S. Plans."

As of October 31, 2019, the fair value of plan assets of the DPSP for U.S. employees was $266 million. The obligation for the DPSP eligible employees equals the fair value of the DPSP assets due to the benefit payable under the RP being the greater of the RP and DPSP.

Eligible employees outside the U.S. generally receive retirement benefits under various retirement plans ("Non-U.S. Plans") based on factors such as years of service and/or employee compensation levels. Eligibility is generally determined in accordance with local statutory requirements.

401(k) defined contribution plan. Eligible U.S. employees may participate in the Keysight Technologies, Inc. 401(k) Plan (the "401(k) Plan"). Enrollment in the 401(k) Plan is automatic for employees who meet eligibility requirements unless they decline participation. We provide matching contributions to these employees, and the 401(k) Plan employer expense included in income from operations was $25 million in 2019, $23 million in 2018 and $16 million in 2017.

Post-retirement medical benefit plans. In addition to receiving retirement benefits, U.S. employees who meet eligibility requirements as of their termination date may participate in the U.S. Post-Retirement Benefit Plan.

Components of net periodic benefit cost. The company uses alternate methods of amortization, as allowed by the authoritative guidance, which amortizes the actuarial gains and losses on a consistent basis for the years presented. For the U.S. Plans, gains and losses are amortized over the average future working lifetime. For most Non-U.S. Plans and the U.S. Post-Retirement Benefit Plan, gains and losses are amortized using a separate layer for each year's gains and losses.

On January 1, 2019, we transferred a portion of the assets and liabilities of our Switzerland defined benefit plan to an insurance company, resulting in the recognition of a settlement loss of $2 million, which is included in other income (expense) in the consolidated statement of operations.

On December 15, 2016, we transferred a portion of the assets and obligations of our Japanese Employees’ Pension Fund ("EPF") to the Japanese government. The remaining portion of the EPF was transferred to a new Keysight Japan corporate defined benefit pension plan. The difference between the obligations settled with the government of $142 million and the assets transferred to the government of $51 million resulted in an increase in the funded status of the new defined benefit pension plan of $91 million. The settlement resulted in a gain of $68 million which is included in other operating expense (income) in the consolidated statement of operations for 2017.

For the years ended October 31, 2019, 2018 and 2017, components of net periodic benefit cost (benefit) and other amounts recognized in other comprehensive income were comprised of:



	Defined Benefit Plans																		U.S. Post-Retirement Benefit Plan
	U.S. Plans									Non-U.S. Plans									U.S. Post-Retirement Benefit Plan
	2019			2018			2017			2019			2018			2017			2019			2018			2017
	(in millions)
Net periodic benefit cost (benefit)
Service cost — benefits earned during the period	$	20		$	24		$	22		$	14		$	14		$	18		$	1		$	1		$	1
Interest cost on benefit obligation	28			25			21			23			23			23			8			7			7
Expected return on plan assets	(41		)	(37		)	(33		)	(77		)	(85		)	(74		)	(13		)	(13		)	(11		)
Amortization:
Net actuarial loss	10			12			15			27			25			33			9			16			21
Prior service credit	(4		)	(7		)	(8		)	(1		)	(1		)	(1		)	(14		)	(14		)	(15		)
Net periodic benefit cost (benefit)	13			17			17			(14		)	(24		)	(1		)	(9		)	(3		)	3
Curtailments and settlements	—			—			—			2			1			(69		)	—			—			—
Net periodic benefit cost (benefit)	$	13		$	17		$	17		$	(12	)	$	(23	)	$	(70	)	$	(9	)	$	(3	)	$	3
Other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss
Net actuarial loss (gain)	$	77		$	(11	)	$	4		$	78		$	41		$	(145	)	$	11		$	(1	)	$	(16	)
Amortization:
Net actuarial loss	(10		)	(12		)	(15		)	(27		)	(25		)	(33		)	(9		)	(16		)	(21		)
Prior service credit	4			7			8			1			1			1			14			14			15
Settlement	—			—			—			(2		)	(1		)	(24		)	—			—			—
Curtailment	—			—			—			—			—			1			—			—			—
Foreign currency	—			—			—			(1		)	(5		)	1			—			—			—
Total recognized in other comprehensive (income) loss	$	71		$	(16	)	$	(3	)	$	49		$	11		$	(199	)	$	16		$	(3	)	$	(22	)
Total recognized in net periodic benefit cost (benefit) and other comprehensive (income) loss	$	84		$	1		$	14		$	37		$	(12	)	$	(269	)	$	7		$	(6	)	$	(19	)

We record the service cost component of net periodic benefit cost (benefit) in the same line item as other employee compensation costs. We record the non-service components of net periodic benefit cost (benefit), such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses, within other income (expense) in the consolidated statement of operations.

Funded status. As of October 31, 2019 and 2018, the funded status of the defined benefit and post-retirement benefit plans was as follows:



	U.S. Defined Benefit Plans						Non-U.S. Defined Benefit Plans						U.S. Post-Retirement Benefit Plan
	2019			2018			2019			2018			2019			2018
	(in millions)
Change in fair value of plan assets:
Fair value — beginning of year	$	575		$	515		$	1,392		$	1,440		$	172		$	182
Actual return on plan assets	64			6			167			2			18			3
Employer contributions	—			85			26			33			—			—
Settlements	—			—			(25		)	(6		)	—			—
Benefits paid	(24		)	(31		)	(43		)	(42		)	(14		)	(13		)
Other	—			—			(4		)	—			—			—
Currency impact	—			—			25			(35		)	—			—
Fair value — end of year	$	615		$	575		$	1,538		$	1,392		$	176		$	172
Change in benefit obligation:
Benefit obligation — beginning of year	$	650		$	675		$	1,249		$	1,338		$	190		$	207
Service cost	20			24			14			14			1			1
Interest cost	28			25			23			23			8			7
Settlements	—			—			(25		)	(6		)	—			—
Curtailments	—			—			—			—			—			—
Actuarial loss (gain)	101			(43		)	169			(43		)	17			(12		)
Benefits paid	(25		)	(31		)	(43		)	(42		)	(14		)	(13		)
Other	—			—			(8		)	—			—			—
Currency impact	—			—			14			(35		)	—			—
Benefit obligation — end of year	$	774		$	650		$	1,393		$	1,249		$	202		$	190
Overfunded (Underfunded) status of PBO	$	(159	)	$	(75	)	$	145		$	143		$	(26	)	$	(18	)
Amounts recognized in the consolidated balance sheet consist of:
Other assets	$	—		$	—		$	297		$	257		$	—		$	—
Employee compensation and benefits	(1		)	(1		)	—			—			—			—
Retirement and post-retirement benefits	(158		)	(74		)	(152		)	(114		)	(26		)	(18		)
Net asset (liability)^(a)	$	(159	)	$	(75	)	$	145		$	143		$	(26	)	$	(18	)
Amounts recognized in accumulated other comprehensive income (loss):
Actuarial losses	$	179		$	112		$	444		$	396		$	29		$	28
Prior service credits	—			(4		)	—			(1		)	(13		)	(28		)
Total	$	179		$	108		$	444		$	395		$	16		$	—

^(a) Certain of our immaterial defined benefit plans are not included in these disclosures.

The amounts in accumulated other comprehensive income expected to be amortized into net periodic benefit cost (benefit) during 2020 are as follows:



	U.S. Defined Benefit Plans		Non-U.S. Defined Benefit Plans		U.S. Post-Retirement Benefit Plan
	(in millions)
Amortization of net prior service credit	$	—	$	—	$	(11	)
Amortization of actuarial net loss	$	19	$	34	$	10

Investment policies and strategies as of October 31, 2019. In the U.S., our RP and U.S. Post-Retirement Benefit Plan target asset allocations are approximately 70 percent to equities and approximately 30 percent to fixed income investments. Our DPSP target asset allocation is approximately 60 percent to equities and approximately 40 percent to fixed income investments. The general investment objective for all our plan assets is to obtain the optimum rate of investment return on the total investment portfolio consistent with the assumption of a reasonable level of risk. Specific investment objectives for the plans' portfolios are to: maintain and enhance the purchasing power of the plans' assets; achieve investment returns consistent with the level of risk being taken; and earn performance rates of return in accordance with the benchmarks adopted for each asset class. Outside of the

U.S., our target asset allocation is from 10 to 60 percent to equities, from 40 to 90 percent to fixed income investments, and from zero to 11 percent to cash and other, depending on the plan. All plans' assets are broadly diversified. Due to fluctuations in capital markets, our actual allocations of plan assets as of October 31, 2019, differ from the target allocation. Our policy is to periodically bring the actual allocation in line with the target allocation.

Equity securities include exchange-traded common stock and preferred stock of companies from broadly diversified industries. Fixed income securities include a portfolio of corporate bonds of companies from diversified industries, government securities, mortgage-backed securities, asset-backed securities, derivative instruments and other. Portions of the cash and cash equivalent, equity, and fixed income investments are held in commingled funds. Investments in commingled funds are valued using the net asset value (“NAV”) method as a practical expedient. Investments valued using the NAV method are allocated across a broad array of funds and diversify the portfolio. The value of the plan assets directly affects the funded status of our pension and post-retirement benefit plans recorded in the financial statements.

Fair Value. The measurement of the fair value of pension and post-retirement plan assets uses the valuation methodologies and the inputs as described in Note 13, "Fair Value Measurements."

Cash and Cash Equivalents - Cash and cash equivalents consist of short-term investment funds that are invested in short-term domestic fixed income securities and other securities with debt-like characteristics, emphasizing short-term maturities and quality. Cash and cash equivalents are generally classified as Level 2 investments except when the cash and cash equivalents are held in commingled funds, which have a daily NAV derived from quoted prices for the underlying securities in active markets; these are classified as assets measured at NAV.

Equity - Some equity securities consisting of common and preferred stock are held in commingled funds, which have daily NAVs derived from quoted prices for the underlying securities in active markets; these are classified as assets measure at NAV. Commingled funds which have quoted prices in active markets are classified as Level 1 investments.

Fixed Income - Some of the fixed income securities are held in commingled funds, which have daily NAVs derived from the underlying securities; these are classified as assets measured at NAV. Commingled funds which have quoted prices in active markets are classified as Level 1 investments.

Other Investments - Other investments include property-based pooled vehicles which invest in real estate. Market NAVs are regularly published in the financial press or on corporate websites; therefore, these investments are classified as Level 3 investments or assets measured at NAV.

The following tables present the fair value of U.S. Defined Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of October 31, 2019 and 2018:



			Fair Value Measurement as of October 31, 2019 Using
	October 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Assets Measured at NAV^(b)
	(in millions)
Cash and cash equivalents	$	14	$	—	$	14	$	—	$	—
Equity	428		130		1		—		297
Fixed income	173		14		101		—		58
Other investments	—		—		—		—		—
Total assets measured at fair value	$	615	$	144	$	116	$	—	$	355

^(b) Certain instruments that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets.



			Fair Value Measurement as of October 31, 2018 Using
	October 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Assets Measured at NAV^(b)
	(in millions)
Cash and cash equivalents	$	4	$	—	$	4	$	—	$	—
Equity	392		120		1		—		271
Fixed income	179		14		94		—		71
Other investments	—		—		—		—		—
Total assets measured at fair value	$	575	$	134	$	99	$	—	$	342

For U.S. Defined Benefit Plans, there was no activity relating to assets measured at fair value using significant unobservable inputs (Level 3) during 2019 and 2018.

The following tables present the fair value of U.S. Post-Retirement Benefit Plan assets classified under the appropriate level of the fair value hierarchy as of October 31, 2019 and 2018:



			Fair Value Measurement as of October 31, 2019 Using
	October 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Assets Measured at NAV^(b)
	(in millions)
Cash and cash equivalents	$	5	$	—	$	5	$	—	$	—
Equity	121		37		—		—		84
Fixed income	50		4		29		—		17
Other investments	—		—		—		—		—
Total assets measured at fair value	$	176	$	41	$	34	$	—	$	101



			Fair Value Measurement as of October 31, 2018 Using
	October 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Assets Measured at NAV^(b)
	(in millions)
Cash and cash equivalents	$	1	$	—	$	1	$	—	$	—
Equity	120		37		—		—		83
Fixed income	51		4		27		—		20
Other investments	—		—		—		—		—
Total assets measured at fair value	$	172	$	41	$	28	$	—	$	103

For U.S. Post-Retirement Benefit Plan, there was no activity relating to assets measured at fair value using significant unobservable inputs (Level 3) during 2019 and 2018.

The following tables present the fair value of Non-U.S. Defined Benefit Plans assets classified under the appropriate level of the fair value hierarchy as of October 31, 2019 and 2018:



			Fair Value Measurement as of October 31, 2019 Using
	October 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Assets Measured at NAV^(b)
	(in millions)
Cash and cash equivalents	$	—	$	—	$	—	$	—	$	—
Equity	659		153		—		—		506
Fixed income	879		—		202		—		677
Other investments	—		—		—		—		—
Total assets measured at fair value	$	1,538	$	153	$	202	$	—	$	1,183



			Fair Value Measurement as of October 31, 2018 Using
	October 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Assets Measured at NAV^(b)
	(in millions)
Cash and cash equivalents	$	—	$	—	$	—	$	—	$	—
Equity	791		135		—		—		656
Fixed income	595		—		208		—		387
Other investments	6		—		—		3		3
Total assets measured at fair value	$	1,392	$	135	$	208	$	3	$	1,046

For Non-U.S. Defined Benefit Plans assets measured at fair value using significant unobservable inputs (Level 3), the following table summarizes the change in balances during 2019 and 2018:



	Year Ended
	October 31,
	2019			2018
	(in millions)
Balance, beginning of year	$	3		$	3
Realized gains	—			—
Unrealized gains/(losses)	—			—
Purchases, sales, issuances, and settlements	(3		)	—
Transfers in (out)	—			—
Balance, end of year	$	—		$	3

The table below presents the combined projected benefit obligation ("PBO"), accumulated benefit obligation ("ABO") and fair value of plan assets, grouping plans using comparisons of the PBO and ABO relative to the plan assets as of October 31, 2019 and 2018:



	2019				2018
	Benefit Obligation		Fair Value of Plan Assets		Benefit Obligation		Fair Value of Plan Assets
	Benefit Obligation				Benefit Obligation
	PBO				PBO
	(in millions)				(in millions)
U.S. defined benefit plans where PBO exceeds the fair value of plan assets	$	774	$	615	$	650	$	575
U.S. defined benefit plans where fair value of plan assets exceeds PBO	—		—		—		—
Total	$	774	$	615	$	650	$	575
Non-U.S. defined benefit plans where PBO exceeds the fair value of plan assets	$	396	$	244	$	363	$	249
Non-U.S. defined benefit plans where fair value of plan assets exceeds PBO	997		1,294		886		1,143
Total	$	1,393	$	1,538	$	1,249	$	1,392

	ABO				ABO
U.S. defined benefit plans where ABO exceeds the fair value of plan assets	$	720	$	615	$	609	$	575
U.S. defined benefit plans where the fair value of plan assets exceeds ABO	—		—		—		—
Total	$	720	$	615	$	609	$	575
Non-U.S. defined benefit plans where ABO exceeds the fair value of plan assets	$	383	$	244	$	351	$	249
Non-U.S. defined benefit plans where fair value of plan assets exceeds ABO	991		1,294		879		1,143
Total	$	1,374	$	1,538	$	1,230	$	1,392

Contributions and estimated future benefit payments. In 2018 we made an accelerated contribution of $85 million to our U.S. Defined Benefit Plans to secure tax deductibility prior to new tax legislation taking effect. During 2020, we do not expect to contribute to the U.S. Defined Benefit Plans or the U.S. Post-Retirement Benefit Plan, and we expect to contribute $11 million to the Non-U.S. Defined Benefit Plans. The following table presents expected future benefit payments for the next 10 years.



	U.S. Defined Benefit Plans		Non-U.S. Defined Benefit Plans		U.S. Post-Retirement Benefit Plan
	(in millions)
2020	$	51	$	31	$	17
2021	$	50	$	34	$	18
2022	$	54	$	36	$	17
2023	$	56	$	39	$	16
2024	$	57	$	42	$	15
2025 - 2029	$	286	$	222	$	72

Assumptions. The assumptions used to determine the benefit obligations and expense for our defined benefit and post-retirement benefit plans are presented in the tables below. The expected long-term return on assets below represents an estimate of long-term returns on investment portfolios, consisting of a mixture of equities, fixed income and other investments, in proportion to the asset allocations of each of our plans. We consider long-term rates of return, which are weighted based on the asset classes (both historical and forecasted) in which we expect our pension and post-retirement funds to be invested. Discount rates reflect the current rate at which pension and post-retirement obligations could be settled based on the measurement dates of the plans, which is October 31. The U.S. discount rates as of October 31, 2019 and 2018 were determined based on the results of matching expected plan benefit payments with cash flows from a hypothetically constructed bond portfolio. The Non-U.S. discount rates as of October 31, 2019 and 2018 were determined using spot rates along the yield curve to calculate disaggregated discount rates. In addition, we used this method to calculate two components of the periodic benefit cost: service cost and interest cost. The range of assumptions that were used for the Non-U.S. Defined Benefit Plans reflects the different economic environments within various countries.

Assumptions used to calculate the net periodic benefit cost (benefit) were as follows:



	Year ended October 31,
	2019	2018
U.S. Defined Benefit Plans:
Discount rate	4.50%	3.75%
Average increase in compensation levels	3.00%	3.00%
Expected long-term return on assets	7.50%	7.50%
Non-U.S. Defined Benefit Plans:
Discount rate	0.54-2.83%	0.59-2.52%
Average increase in compensation levels	2.50-3.00%	2.50-3.25%
Expected long-term return on assets	4.00-6.50%	4.00-6.50%
U.S. Post-Retirement Benefits Plan:
Discount rate	4.25%	3.50%
Expected long-term return on assets	7.50%	7.50%
Current medical cost trend rate	6.00%	6.00%
Ultimate medical cost trend rate	4.00%	3.50%
Medical cost trend rate decreases to ultimate rate in year	2029	2029

Assumptions used to calculate the benefit obligation as of October 31, 2019 and 2018 were as follows:



	Year ended October 31,
	2019	2018
U.S. Defined Benefit Plans:
Discount rate	3.25%	4.50	%
Average increase in compensation levels	3.00%	3.00	%
Non-U.S. Defined Benefit Plans:
Discount rate	0.79-1.89%	0.83-2.83%
Average increase in compensation levels	2.50-3.00%	2.50-3.00%
U.S. Post-Retirement Benefits Plan:
Discount rate	3.00%	4.25	%
Current medical cost trend rate	6.25%	6.00	%
Ultimate medical cost trend rate	4.50%	4.00	%
Medical cost trend rate decreases to ultimate rate in year	2027	2029

Health care trend rates did not have a significant effect on the total service and interest cost components or on the post-retirement benefit obligation amounts reported for the U.S. Post-Retirement Benefit Plan for the years ended October 31, 2019 and 2018.