Postretirement Plans (Tables)

12 Months Ended

Dec. 31, 2016

The net periodic benefit cost recognized each year included the following (in millions):


	Qualified Defined Benefit Pension Plans ^(a)						Retiree Medical and Life Insurance Plans
	2016		2015		2014		2016		2015		2014
Service cost	$	827	$	836	$	841	$	24	$	21	$	22
Interest cost		1,861		1,791		1,912		119		110		123
Expected return on plan assets		(2,666)		(2,734)		(2,693)		(138)		(147)		(146)
Recognized net actuarial losses		1,359		1,599		1,173		34		43		23
Amortization of net prior service (credit) cost ^(b)		(362)		(365)		(134)		22		4		4
Total net periodic benefit cost	$	1,019	$	1,127	$	1,099	$	61	$	31	$	26

^(a)

Total net periodic benefit cost associated with our qualified defined benefit plans represents pension expense calculated in accordance with GAAP (FAS pension expense). We are required to calculate pension expense in accordance with both GAAP and CAS rules, each of which results in a different calculated amount of pension expense. The CAS pension cost is recovered through the pricing of our products and services on U.S. Government contracts and, therefore, is recognized in net sales and cost of sales for products and services. We include the difference between FAS pension expense and CAS pension cost, referred to as the FAS/CAS pension adjustment, as a component of other unallocated, net on our consolidated statements of earnings. The FAS/CAS pension adjustment, which was $902 million in 2016, $400 million in 2015, and $317 million in 2014, effectively adjusts the amount of CAS pension cost in the business segment operating profit so that pension expense recorded on our consolidated statements of earnings is equal to FAS pension expense. FAS pension expense and CAS pension costs reflect the reclassification for discontinued operations presentation of benefits related to former IS&GS salaried employees.

^(b)	Net of the reclassification for discontinued operations presentation of pension benefits related to former IS&GS salaried employees ($14 million in 2016, $24 million in 2015 and $17 million in 2014).

Reconciliation of Benefit Obligations, Plan Assets, and Unfunded or Funded Status

The following table provides a reconciliation of benefit obligations, plan assets and unfunded status related to our qualified defined benefit pension plans and our retiree medical and life insurance plans (in millions):


	Qualified Defined Benefit Pension Plans				Retiree Medical and Life Insurance Plans
	2016		2015		2016		2015
Change in benefit obligation
Beginning balance	$	43,702	$	45,882	$	2,883	$	3,034
Service cost		827		836		24		21
Interest cost		1,861		1,791		119		110
Benefits paid		(2,172)		(2,055)		(222)		(307)
Actuarial losses (gains)		1,402		(1,988)		(135)		(170)
New longevity assumptions ^(a)		(687)		(834)		(53)		(77)
Plan amendments and acquisitions ^(b)		110		31		(32)		157
Service cost related to discontinued operations		21		39		—		—
Medicare Part D subsidy		—		—		4		14
Participants’ contributions		—		—		61		101
Ending balance	$	45,064	$	43,702	$	2,649	$	2,883

Change in plan assets
Beginning balance at fair value	$	32,096	$	34,673	$	1,813	$	1,932
Actual return on plan assets		1,470		(527)		95		(27)
Benefits paid		(2,172)		(2,055)		(222)		(307)
Company contributions		23		5		36		100
Medicare Part D subsidy		—		—		4		14
Participants’ contributions		—		—		61		101
Ending balance at fair value	$	31,417	$	32,096	$	1,787	$	1,813
Unfunded status of the plans	$	(13,647)	$	(11,606)	$	(862)	$	(1,070)

^(a)	We adopted new longevity assumptions originally published by the Society of Actuaries in October 2014. The Society of Actuaries refined their original publication in October 2015 and again in October 2016.

^(b)	Includes special termination benefits of $27 million for qualified pension and $9 million for retiree medical recognized in 2016 related to former IS&GS salaried employees. The November 2015 acquisition of Sikorsky increased our qualified defined benefit pension obligations by about $30 million.

Amounts Recognized on Balance Sheets Related to Qualified Defined Benefit Pension Plans and Retiree Medical and Life Insurance Plans

The following table provides amounts recognized on our consolidated balance sheets related to our qualified defined benefit pension plans and our retiree medical and life insurance plans (in millions):


	Qualified Defined Benefit Pension Plans				Retiree Medical and Life Insurance Plans
	2016		2015		2016		2015
Prepaid pension asset	$	208	$	201	$	—	$	—
Accrued postretirement benefit liabilities		(13,855)		(11,807)		(862)		(1,070)

Accumulated other comprehensive loss (pre-tax) related to:
Net actuarial losses		20,184		19,632		447		627
Prior service (credit) cost ^(a)		(2,896)		(3,565)		96		167
Total ^(b)	$	17,288	$	16,067	$	543	$	794

^(a)	Pre-tax amounts of $210 million for qualified pension prior service credits and $9 million for retiree medical prior service costs were recognized from the divestiture of our IS&GS business (combined $134 million, net of tax).

^(b)

Accumulated other comprehensive loss related to postretirement benefit plans, after tax, of $12.0 billion and $11.3 billion at December 31, 2016 and 2015 (see “Note 12 – Stockholders’ Equity”) includes $17.3 billion ($11.2 billion after tax) and $16.1 billion ($10.4 billion after tax) for qualified defined benefit pension plans, $543 million ($351 million after tax) and $794 million ($514 million after tax) for retiree medical and life insurance plans and $677 million ($448 million after tax) and $620 million ($408 million after tax) for other plans.

Accumulated Benefit Obligations In Excess Of Fair Value Of Plan Assets

Certain key information related to our qualified defined benefit pension plans as of December 31, 2016 and 2015 is as follows (in millions):


	2016		2015
Plans where ABO was in excess of plan assets
Projected benefit obligation	$	44,946	$	43,575
Less: fair value of plan assets		31,091		31,768
Unfunded status of plans ^(a)		(13,855)		(11,807)

Plans where ABO was less than plan assets
Projected benefit obligation		118		127
Less: fair value of plan assets		326		328
Funded status of plans ^(b)	$	208	$	201

^(a)	Represents accrued pension liabilities, which are included on our consolidated balance sheets.

^(b)	Represents prepaid pension assets, which are included on our consolidated balance sheets in other noncurrent assets.

Amounts Recognized in Other Comprehensive Income (Loss) Related to Postretirement Benefit Plans, Net of Tax

The following table provides the amounts recognized in other comprehensive income (loss) related to postretirement benefit plans, net of tax, for the years ended December 31, 2016, 2015 and 2014 (in millions):


	Incurred but Not Yet Recognized in Net Periodic Benefit Cost						Recognition of Previously Deferred Amounts
	2016		2015		2014		2016		2015		2014
	Gains (losses)						(Gains) losses
Actuarial gains and losses
Qualified defined benefit pension plans	$	(1,236)	$	(291)	$	(5,505)	$	879	$	1,034	$	758
Retiree medical and life insurance plans		94		46		(160)		22		28		15
Other plans		(62)		21		(245)		37		47		33
		(1,204)		(224)		(5,910)		938		1,109		806

	Credit (cost)						(Credit) cost ^(a)
Net prior service credit and cost
Qualified defined benefit pension plans		(54)		(18)		2,959		(235)		(235)		(87)
Retiree medical and life insurance plans		27		(102)		(3)		14		2		3
Other plans		(1)		(7)		84		(9)		(10)		(5)
		(28)		(127)		3,040		(230)		(243)		(89)
	$	(1,232)	$	(351)	$	(2,870)	$	708	$	866	$	717

^(a)

Reflects the reclassification for discontinued operations presentation of benefits related to former IS&GS salaried employees ($9 million in 2016, $16 million in 2015 and $11 million in 2014). In addition, we recognized $134 million of prior service credits from the divestiture of our IS&GS business, which were reclassified as discontinued operations.

Actuarial Assumptions Used to Determine Net Periodic Benefit Cost

The actuarial assumptions used to determine the benefit obligations at December 31 of each year and to determine the net periodic benefit cost for each subsequent year, were as follows:


	Qualified Defined Benefit Pension Plans						Retiree Medical and Life Insurance Plans
	2016		2015		2014		2016		2015		2014
Weighted average discount rate		4.125%		4.375%		4.00%		4.00%		4.25%		3.75%
Expected long-term rate of return on assets		7.50%		8.00%		8.00%		7.50%		8.00%		8.00%
Rate of increase in future compensation levels (for applicable bargained pension plans)		4.50%		4.50%		4.30%
Health care trend rate assumed for next year								8.75%		9.00%		8.50%
Ultimate health care trend rate								5.00%		5.00%		5.00%
Year that the ultimate health care trend rate is reached								2032		2032		2029

Schedule of Allocation of Plan Assets

Fair value measurements – The rules related to accounting for postretirement benefit plans under GAAP require certain fair value disclosures related to postretirement benefit plan assets, even though those assets are not included on our consolidated balance sheets. The following table presents the fair value of the assets (in millions) of our qualified defined benefit pension plans and retiree medical and life insurance plans by asset category and their level within the fair value hierarchy, which has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets, Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs. Certain other investments are measured at fair value using their Net Asset Value (NAV) per share and do not have readily determined values and are thus not subject to leveling in the fair value hierarchy. The NAV is the total value of the fund divided by the number of shares outstanding.


	December 31, 2016									December 31, 2015
	Total		Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3
Investments measured at fair value
Cash and cash equivalents ^(a)	$	2,301	$	2,301	$	—		$	—	$	2,658		$	2,658	$	—			$ —
Equity ^(a):
U.S. equity securities		4,166		4,139		23			4		4,790			4,771		19			—
International equity securities		3,971		3,927		40			4		6,121			6,087		24			10
Commingled equity funds		2,332		788		1,544			—		1,794			614		1,180			—
Fixed income ^(a):
Corporate debt securities		4,333		—		4,316			17		3,929			—		3,914			15
U.S. Government securities		6,811		—		6,811			—		5,069			—		5,069			—
U.S. Government-sponsored enterprise securities		919		—		919			—		1,377			—		1,377			—
Other fixed income investments		2,215		—		2,214			1		3,252			—		3,246			6
Alternative investments:
Hedge funds		33		—		33			—		57			—		57			—
Private equity funds		—		—		—			—		200			—		—			200
Commodities^(a)		523		525		(2	)		—		(26	)		1		(27	)		—
Total	$	27,604	$	11,680	$	15,898		$	26	$	29,221		$	14,131	$	14,859			$ 231
Investments measured at NAV ^(b)
Commingled equity funds		60									141
Private equity funds		3,614									2,931
Real estate funds		1,411									1,108
Hedge funds		462									465
Total investments measured at NAV		5,547									4,645
Receivables, net		53									43
Total	$	33,204								$	33,909

^(a)

Cash and cash equivalents, equity securities, fixed income securities and commodities included derivative assets and liabilities whose fair values were not material as of December 31, 2016 and 2015. LMIMCo’s investment policies restrict the use of derivatives to either establish long exposures for purposes of expediency or capital efficiency or to hedge risks to the extent of a plan’s current exposure to such risks. Most derivative transactions are settled on a daily basis.

^(b)

Certain investments that are valued using the net asset value per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy and are included in the table to permit reconciliation of the fair value hierarchy to the aggregate postretirement benefit plan assets.

Changes In Fair Value of Level 3 Plan Assets

The following table presents the changes during 2016 and 2015 in the fair value of plan assets categorized as Level 3 in the preceding table (in millions):


	Private Equity Funds		Other		Total
Balance at January 1, 2015		$ —		$ 61		$ 61
Actual return on plan assets:
Realized losses, net		—		(12)		(12)
Unrealized gains, net		—		7		7
Purchases, sales and settlements, net		—		(22)		(22)
Transfers into (out of) Level 3, net		200		(3)		197
Balance at December 31, 2015		$200		$ 31		$231
Actual return on plan assets:
Realized losses, net		—		(6)		(6)
Unrealized gains, net		—		3		3
Purchases, sales and settlements, net		(200)		(7)		(207)
Transfers into Level 3, net		—		5		5
Balance at December 31, 2016		$ —		$ 26		$ 26

Estimated Future Benefit Payments

The following table presents estimated future benefit payments, which reflect expected future employee service, as of December 31, 2016 (in millions):


	2017		2018		2019		2020		2021		2022 – 2026
Qualified defined benefit pension plans	$	2,260	$	2,340	$	2,420	$	2,510	$	2,590		$13,920
Retiree medical and life insurance plans		180		180		190		190		190		870

Target Allocation Range

Schedule of Allocation of Plan Assets

LMIMCo’s investment policies require that asset allocations of postretirement benefit plans be maintained within the following approximate ranges:


Asset Class		Asset Allocation Ranges
Cash and cash equivalents		0-20%
Equity		15-65%
Fixed income		10-60%
Alternative investments:
Private equity funds		0-15%
Real estate funds		0-10%
Hedge funds		0-20%
Commodities		0-25%