We sponsor qualified and supplemental (non-qualified) noncontributory defined benefit plans covering certain full-time salaried and hourly U.S. employees. The qualified plan meets the requirements of certain sections of the Internal Revenue Code and provides benefits to a broad group of employees with restrictions on discriminating in favor of highly compensated employees with regard to coverage, benefits and contributions. The supplemental plans provide additional benefits to certain employees. We fund our supplemental plans as benefits are paid.

The most significant of our U.S. plans is the YUM Retirement Plan (the “Plan”), which is a qualified plan. Our funding policy with respect to the Plan is to contribute amounts necessary to satisfy minimum pension funding requirements, including requirements of the Pension Protection Act of 2006, plus additional amounts from time-to-time as are determined to be necessary to improve the Plan’s funded status. We do not expect to make any significant contributions to the Plan in 2017. Our two significant U.S. plans were previously amended such that any salaried employee hired or rehired by YUM after September 30, 2001 is not eligible to participate in those plans.

During the fourth quarter of 2016, the Company allowed certain former employees with deferred vested balances in the Plan an opportunity to voluntarily elect an early payout of their benefits. See Note 5 for details.

The following chart summarizes the balance sheet impact, as well as benefit obligations, assets, and funded status associated with our two significant U.S. pension plans. The actuarial valuations for all plans reflect measurement dates coinciding with our fiscal year end.



	2016			2015
Change in benefit obligation
Benefit obligation at beginning of year	$	1,134		$	1,301
Service cost	17			18
Interest cost	54			55
Plan amendments	4			28
Curtailments	(4		)	(2		)
Special termination benefits	3			1
Benefits paid	(26		)	(50		)
Settlement payments^(a)	(260		)	(16		)
Actuarial (gain) loss	77			(196		)
Administrative expense	(6		)	(5		)
Benefit obligation at end of year	$	993		$	1,134

Change in plan assets
Fair value of plan assets at beginning of year	$	1,004		$	991
Actual return on plan assets	87			(10		)
Employer contributions	38			94
Settlement payments^(a)	(260		)	(16		)
Benefits paid	(26		)	(50		)
Administrative expenses	(6		)	(5		)
Fair value of plan assets at end of year	$	837		$	1,004
Funded status at end of year	$	(156	)	$	(130	)



Amounts recognized in the Consolidated Balance Sheet:
	2016			2015
Accrued benefit liability - current	$	(16	)	$	(13	)
Accrued benefit liability - non-current	(140		)	(117		)
	$	(156	)	$	(130	)



Information for pension plans with an accumulated benefit obligation in excess of plan assets:
	2016		2015
Projected benefit obligation	$	993	$	101
Accumulated benefit obligation	960		88
Fair value of plan assets	837		—



Information for pension plans with a projected benefit obligation in excess of plan assets:
	2016		2015
Projected benefit obligation	$	993	$	1,134
Accumulated benefit obligation	960		1,088
Fair value of plan assets	837		1,004



Net periodic benefit cost	2016			2015			2014
Service cost	$	17		$	18		$	17
Interest cost	54			55			54
Amortization of prior service cost^(a)	6			1			1
Expected return on plan assets	(65		)	(62		)	(56		)
Amortization of net loss	6			45			17
Net periodic benefit cost	$	18		$	57		$	33
Additional (gain) loss recognized due to: Settlements^(b)	$	32		$	5		$	6
Special termination benefits	$	3		$	1		$	3



Pension gains (losses) in AOCI:
	2016			2015
Beginning of year	$	(170	)	$	(319	)
Net actuarial gain (loss)	(54		)	124
Curtailments	4			2
Amortization of net loss	6			45
Amortization of prior service cost	6			1
Prior service cost	(4		)	(28		)
Settlement charges	32			5
End of year	$	(180	)	$	(170	)

The estimated net loss that will be amortized from AOCI into net periodic pension cost in 2017 is $7 million. The estimated prior service cost that will be amortized from AOCI into net periodic pension cost in 2017 is $5 million.



Weighted-average assumptions used to determine benefit obligations at the measurement dates:
	2016		2015
Discount rate	4.60	%	4.90	%
Rate of compensation increase	3.75	%	3.75	%



Weighted-average assumptions used to determine the net periodic benefit cost for fiscal years:
	2016		2015		2014
Discount rate	4.90	%	4.30	%	5.40	%
Long-term rate of return on plan assets	6.75	%	6.75	%	6.90	%
Rate of compensation increase	3.75	%	3.75	%	3.75	%

Our estimated long-term rate of return on plan assets represents the weighted-average of expected future returns on the asset categories included in our target investment allocation based primarily on the historical returns for each asset category.

The fair values of our pension plan assets at December 31, 2016 and December 26, 2015 by asset category and level within the fair value hierarchy are as follows:



	2016		2015
Level 1:
Cash	$	2	$	3
Cash Equivalents^(a)	12		9
Fixed Income Securities - U.S. Corporate^(b)	172		221
Equity Securities – U.S. Large cap^(b)	244		310
Equity Securities – U.S. Mid cap^(b)	41		50
Equity Securities – U.S. Small cap^(b)	43		51
Equity Securities – Non-U.S.^(b)	83		100
Level 2:

Fixed Income Securities – U.S. Corporate^(c)	76		68
Fixed Income Securities – U.S. Government and Government Agencies^(d)	152		195
Fixed Income Securities – Other^(d)	31		17
Total fair value of plan assets^(e)	$	856	$	1,024

Our primary objectives regarding the investment strategy for the Plan’s assets are to reduce interest rate and market risk and to provide adequate liquidity to meet immediate and future payment requirements. To achieve these objectives, we are using a combination of active and passive investment strategies. The Plan's equity securities, currently targeted to be 50% of our investment mix, consist primarily of low-cost index funds focused on achieving long-term capital appreciation. The Plan diversifies its equity risk by investing in several different U.S. and foreign market index funds. Investing in these index funds provides the Plan with the adequate liquidity required to fund benefit payments and plan expenses. The fixed income asset allocation, currently targeted

to be 50% of our mix, is actively managed and consists of long-duration fixed income securities that help to reduce exposure to interest rate variation and to better correlate asset maturities with obligations. The fair values of all pension plan assets are determined based on closing market prices or net asset values.

A mutual fund held as an investment by the Plan includes shares of YUM Common Stock valued at $0.3 million and $0.5 million at December 31, 2016 and December 26, 2015, respectively, (less than 1% of total plan assets in each instance).

Expected benefits are estimated based on the same assumptions used to measure our benefit obligation on the measurement date and include benefits attributable to estimated future employee service.

We also sponsor various defined benefit plans covering certain of our non-U.S. employees, the most significant of which are in the UK. Both of our UK plans have previously been frozen such that existing participants can no longer earn future service credits.

At the end of 2016 and 2015, the projected benefit obligations of these UK plans totaled $261 million and $233 million, respectively and plan assets totaled $305 million and $291 million, respectively. These plans were both in a net overfunded position at the end of 2016 and 2015 and related expense amounts recorded in each of 2016, 2015 and 2014 were not significant.

The funding rules for our pension plans outside of the U.S. vary from country to country and depend on many factors including discount rates, performance of plan assets, local laws and regulations. We do not plan to make significant contributions to either of our UK plans in 2017.

Our post-retirement plan provides health care benefits, principally to U.S. salaried retirees and their dependents, and includes retiree cost-sharing provisions. This plan was previously amended such that any salaried employee hired or rehired by YUM after September 30, 2001 is not eligible to participate in this plan. Employees hired prior to September 30, 2001 are eligible for benefits if they meet age and service requirements and qualify for retirement benefits. We fund our post-retirement plan as benefits are paid.

At the end of 2016 and 2015, the accumulated post-retirement benefit obligation was $55 million and $59 million, respectively. Actuarial gains of $10 million and $8 million were recognized in AOCI at the end of 2016 and 2015, respectively. The net periodic benefit cost recorded was $3 million in both 2016 and 2015 and $5 million in 2014, the majority of which is interest cost on the accumulated post-retirement benefit obligation. The weighted-average assumptions used to determine benefit obligations and net periodic benefit cost for the post-retirement medical plan are identical to those as shown for the U.S. pension plans. Our assumed heath care cost trend rates for the following year as of 2016 and 2015 are 6.6% and 6.8%, respectively, with expected ultimate trend rates of 4.5% reached in 2038.

There is a cap on our medical liability for certain retirees. The cap for Medicare-eligible retirees was reached in 2000 and the cap for non-Medicare eligible retirees was reached in 2014; with the cap, our annual cost per retiree will not increase. A one-percentage-point increase or decrease in assumed health care cost trend rates would have less than a $4 million impact on total service and

interest cost and on the post-retirement benefit obligation. The benefits expected to be paid in each of the next five years are approximately $5 million and in aggregate for the five years thereafter are $19 million.