PENSIONS AND OTHER POSTRETIREMENT BENEFITS

At October 1, 2016, we had nine defined benefit pension plans consisting of six funded qualified plans and three unfunded non-qualified plans. In regards to our qualified plans, five are frozen and noncontributory. The benefits provided under these plans are based on a formula using years of service and either a specified benefit rate or compensation level. The non-qualified defined benefit plans are for certain contracted officers and use a formula based on years of service and final average salary. We also have other postretirement benefit plans for which substantially all of our employees may receive benefits if they satisfy applicable eligibility criteria. The postretirement healthcare plans are contributory with participants’ contributions adjusted when deemed necessary.

We have defined contribution retirement programs for various groups of employees. We recognized expenses of $67 million, $62 million and $53 million in fiscal 2016, 2015 and 2014, respectively.

We use a fiscal year end measurement date for our defined benefit plans and other postretirement plans. We recognize the effect of actuarial gains and losses into earnings immediately for other postretirement plans rather than amortizing the effect over future periods.

Other postretirement benefits include postretirement medical costs and life insurance.

Benefit Obligations and Funded Status

The following table provides a reconciliation of the changes in the plans’ benefit obligations, assets and funded status at October 1, 2016, and October 3, 2015:



													in millions
	Pension Benefits												Other Postretirement
	Qualified						Non-Qualified						Benefits
	2016			2015			2016			2015			2016			2015
Change in benefit obligation
Benefit obligation at beginning of year	$	1,785		$	1,849		$	201		$	182		$	114		$	163
Service cost	8			10			6			8			1			5
Interest cost	65			78			9			8			3			7
Plan amendments	—			—			—			—			(58		)	(60		)
Plan participants’ contributions	—			—			—			—			1			2
Actuarial (gain)/loss	21			(50		)	16			11			(15		)	9
Benefits paid	(339		)	(102		)	(10		)	(8		)	(10		)	(12		)
Other	14			—			—			—			—			—
Benefit obligation at end of year	1,554			1,785			222			201			36			114
Change in plan assets
Fair value of plan assets at beginning of year	1,576			1,647			—			3			—			—
Actual return on plan assets	135			25			—			—			—			—
Employer contributions	54			6			10			8			9			10
Plan participants’ contributions	—			—			—			—			1			2
Benefits paid	(339		)	(102		)	(10		)	(8		)	(10		)	(12		)
Other	14			—			—			(3		)	—			—
Fair value of plan assets at end of year	1,440			1,576			—			—			—			—
Funded status	$	(114	)	$	(209	)	$	(222	)	$	(201	)	$	(36	)	$	(114	)

Amounts recognized in the Consolidated Balance Sheets consist of:



													in millions
	Pension Benefits												Other Postretirement
	Qualified						Non-Qualified						Benefits
	2016			2015			2016			2015			2016			2015
Other current liabilities	$	—		$	—		$	(9	)	$	(9	)	$	(4	)	$	(20	)
Other liabilities	(114		)	(209		)	(213		)	(192		)	(32		)	(94		)
Total liabilities	$	(114	)	$	(209	)	$	(222	)	$	(201	)	$	(36	)	$	(114	)

Amounts recognized in Accumulated Other Comprehensive Income consist of:



									in millions
	Pension Benefits								Other Postretirement
	Qualified				Non-Qualified				Benefits
	2016		2015		2016		2015		2016			2015
Accumulated other comprehensive (income)/loss:
Actuarial loss	$	17	$	57	$	55	$	43	$	—		$	—
Prior service (credit) (a)	—		—		—		—		(98		)	(59		)
Total accumulated other comprehensive (income)/loss:	$	17	$	57	$	55	$	43	$	(98	)	$	(59	)


(a)	The change in prior service credit is primarily attributed to the plan amendments to the other postretirement benefits as noted within the change in benefit obligation with remainder of the change being immaterial.

At October 1, 2016, and October 3, 2015, eight pension plans had an accumulated benefit obligation in excess of plan assets. Plans with accumulated benefit obligations in excess of plan assets are as follows:



					in millions
	Pension Benefits
	Qualified				Non-Qualified
	2016		2015		2016		2015
Projected benefit obligation	$	1,550	$	1,781	$	222	$	201
Accumulated benefit obligation	1,550		1,781		207		193
Fair value of plan assets	1,436		1,572		—		—

The accumulated benefit obligation for all qualified pension plans was $1,554 million and $1,785 million at October 1, 2016, and October 3, 2015, respectively.

Net Periodic Benefit Cost (Credit)

Components of net periodic benefit cost (credit) for pension and postretirement benefit plans recognized in the Consolidated Statements of Income are as follows:



																			in millions
	Pension Benefits															Other Postretirement
	Qualified									Non-Qualified						Benefits
	2016			2015			2014			2016		2015		2014		2016			2015			2014
Service cost	$	8		$	10		$	1		$	6	$	8	$	7	$	1		$	5		$	2
Interest cost	65			78			10			9		8		5		3			7			3
Expected return on plan assets	(65		)	(102		)	(13		)	—		—		—		—			—			—
Amortization of prior service cost	—			—			—			—		—		—		(20		)	(1		)	—
Recognized actuarial loss (gain), net	2			2			2			5		4		2		(15		)	9			(8		)
Recognized settlement loss (gain)	(12		)	8			—			—		—		—		—			(2		)	—
Net periodic benefit cost (credit)	$	(2	)	$	(4	)	$	—		$	20	$	20	$	14	$	(31	)	$	18		$	(3	)

As of October 1, 2016, the amounts expected to be reclassified into earnings within the next 12 months related to net periodic benefit cost for the qualified and non-qualified pensions are $1 million and $6 million, respectively. As of October 1, 2016, the amount expected to be reclassified into earnings within the next 12 months related to net periodic benefit credit for the other postretirement benefits is $25 million.

Assumptions

Weighted average assumptions are as follows:



	Pension Benefits												Other Postretirement
	Qualified						Non-Qualified						Benefits
	2016		2015		2014		2016		2015		2014		2016		2015		2014
Discount rate to determine net periodic benefit cost	4.47	%	4.32	%	4.37	%	4.41	%	4.36	%	5.01	%	3.54	%	3.97	%	4.41	%
Discount rate to determine benefit obligations	3.72	%	4.47	%	4.32	%	3.77	%	4.41	%	4.36	%	3.09	%	3.54	%	3.97	%
Rate of compensation increase	n/a		0.01	%	0.01	%	2.46	%	2.31	%	2.11	%	n/a		n/a		n/a
Expected return on plan assets	4.15	%	4.61	%	6.37	%	n/a		n/a		n/a		n/a		n/a		n/a

To determine the expected return on plan assets assumption, we first examined historical rates of return for the various asset classes within the plans. We then determined a long-term projected rate-of-return based on expected returns.

Our discount rate assumptions used to account for pension and other postretirement benefit plans reflect the rates at which the benefit obligations could be effectively settled. These were determined using a cash flow matching technique whereby the rates of a yield curve, developed from high-quality debt securities, were applied to the benefit obligations to determine the appropriate discount rate. As of October 1, 2016 and October 3, 2015, all pension and other postretirement benefit plans used the RP-2014 mortality tables.

We have five other postretirement benefit plans which are healthcare and life insurance related. Two of these plans, which benefit obligations totaled $22 million at October 1, 2016, were not impacted by healthcare cost trend rates as one consists of fixed annual payments and one is life insurance related. Two of the healthcare plans, which benefit obligations totaled $2 million at October 1, 2016, were not impacted by healthcare cost trend rates due to plan amendments. The remaining plan, which the benefit obligation totaled $12 million at October 1, 2016, utilized assumed healthcare cost trend rates of 9.0% and 7.6% for retirees who qualify and do not qualify for Medicare, respectively. The healthcare cost trend rate will be grading down to an ultimate rate of 4.5% in 2024/2025.

A one-percentage-point change in assumed health-care cost trend rates would have the following effects:



			in millions
	One Percentage Point Increase		One Percentage Point Decrease
Effect on postretirement benefit obligation	$	1	$	1

Plan Assets

The following table sets forth the actual and target asset allocation for pension plan assets:



	2016		2015		Target Asset Allocation
Cash	0.9	%	0.3	%	—	%
Fixed Income Securities	85.4		85.4		86.0
United States Stock Funds	3.7		3.9		4.0
International Stock Funds	6.2		6.8		6.5
Real Estate	3.8		3.6		3.5
Total	100.0	%	100.0	%	100.0	%

Additionally, one of our foreign subsidiary pension plans had $28 million and $14 million in plan assets held in an insurance trust at October 1, 2016, and October 3, 2015, respectively.

The plan trustees have established a set of investment objectives related to the assets of the domestic pension plans and regularly monitor the performance of the funds and portfolio managers. Objectives for the pension assets are (i) to provide growth of capital and income, (ii) to achieve a target weighted average annual rate of return competitive with funds with similar investment objectives and (iii) to diversify to reduce risk. The target asset allocations are based upon the funded status of the plans. As pension obligations become better funded, we will lower risk by increasing the allocation to fixed income.

Our domestic plan assets consist mainly of common collective trusts which are primarily comprised of fixed income funds, equity securities and other investments. Fixed income securities can include, but are not limited to, direct bond investments, and pooled or indirect bond investments. Other investments may include, but are not limited to, international and domestic equities, real estate, commodities and private equity. Derivative instruments may also be used in concert with either fixed income or equity investments to achieve desired exposure or to hedge certain risks. Derivative instruments can include, but are not limited to, futures, options, swaps or swaptions. Our domestic plan assets also include mutual funds. We believe there are no significant concentrations of risk within our plan assets as of October 1, 2016.

The following tables show the categories of pension plan assets and the level under which fair values were determined in the fair value hierarchy, which is described in Note 12: Fair Value Measurements.



	in millions
October 1, 2016	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	13	$	—	$	—	$	13
Insurance contract at contract value (a)	—		—		28		28
Total assets in fair value hierarchy	$	13	$	—	$	28	$	41
Investments measured at net asset value:
Common collective trusts (b)							$	1,399
Total plan assets							$	1,440



	in millions
October 3, 2015	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	5	$	—	$	—	$	5
Insurance contract at contract value (a)	—		—		14		14
Total assets in fair value hierarchy	$	5	$	—	$	14	$	19
Investments measured at net asset value:
Common collective trusts (b)							$	1,557
Total plan assets							$	1,576

(a)

We classify insurance contracts as Level 3 as there is limited activity or less observable inputs into valuation models, including current interest rates and estimated prepayment, default and recovery rates on the underlying portfolio or structured investment vehicle. The insurance contracts are valued using the plan’s own assumptions about the assumptions market participants would use in pricing the assets based on the best information available, such as investment manager pricing. Significant changes to assumptions or unobservable inputs in the valuation of our Level 3 instruments would not have a significant impact to our consolidated financial statements.


(b)	Funds that are measured at fair value using the net asset value (NAV) per share practical expedient have not been categorized in the fair value hierarchy. The amounts presented above are intended to permit reconciliation of the fair value hierarchy to the fair value of total plan assets in order to determine the amounts included in Other Liabilities in the Consolidated Balance Sheets.

A reconciliation of the change in the fair value measurement of the defined benefit plans’ consolidated assets using significant unobservable inputs (Level 3) is as follows:



			in millions
	Insurance contract		Total
Balance at October 3, 2015	$	14	14
Actual return on plan assets:
Assets still held at reporting date	—		—
Assets sold during the period	—		—
Purchases, sales and settlements, net	14		14
Transfers in and/or out of Level 3	—		—
Balance at October 1, 2016	$	28	$	28

Contributions

Our policy is to fund at least the minimum contribution required to meet applicable federal employee benefit and local tax laws. In our sole discretion, we may from time to time fund additional amounts. Expected contributions to pension plans for fiscal 2017 are approximately $40 million. For fiscal 2016, 2015 and 2014, we funded $64 million, $14 million and $9 million plans, respectively, to pension plans.

Estimated Future Benefit Payments

The following benefit payments are expected to be paid:



					in millions
	Pension Benefits				Other Postretirement
	Qualified		Non-Qualified		Benefits
2017	$	86	$	9	$	5
2018	82		9		3
2019	83		9		3
2020	84		10		3
2021	85		11		3
2022-2026	434		62		13

The above benefit payments for other postretirement benefit plans are not expected to be offset by Medicare Part D subsidies in fiscal 2017 or thereafter.

The above benefit payments include anticipated payments for a partial settlement for deferred vested participants within two of our qualified pension plans. Assuming an election rate of 50% and changes to the benefit obligation and accumulated other comprehensive income due to remeasurement, the partial settlement will result in $2 million of expense to be reclassified into earnings. Actual results may differ from estimated amounts.

Multi-Employer Plans

Additionally, we participate in a multi-employer plan that provides defined benefits to certain employees covered by collective bargaining agreements. Such plans are usually administered by a board of trustees composed of the management of the participating companies and labor representatives.

The risks of participating in multiemployer plans are different from single-employer plans. Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligation of the plan may be borne by the remaining participating employers. If we stop participating in a plan, we may be required to pay that plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability. Contributions to the pension funds were not in excess of 5% of the total plan contributions for plan year 2016.

The net pension cost of the plan is equal to the annual contribution determined in accordance with the provisions of negotiated labor contracts. Contributions to the plan were $1 million in fiscal 2016 and 2015. Assets contributed to such plans are not segregated or otherwise restricted to provide benefits only to our employees. The future cost of the plan is dependent on a number of factors including the funded status of the plan and the ability of the other participating companies to meet ongoing funding obligations.

Our participation in this multiemployer plan for fiscal 2016 is outlined below. The EIN/Pension Plan Number column provides the Employer Identification Number (EIN) and the three digit plan number. Unless otherwise noted, the most recent Pension Protection Act ("PPA") zone status available in fiscal 2016 and fiscal 2015 is for the plan's year beginning January 1, 2016, and 2015, respectively. The zone status is based on information that we have received from the plan and is certified by the plan's actuaries. The zone status is a secondary classification, critical and declining, within the red zone for fiscal 2016. Among other factors, plans in the red zone are generally less than 65 percent funded. Plans that are critical and declining status are projected to have an accumulated funding deficiency. The FIP/RP Status column indicates plans for which a financial improvement plan (FIP) or rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreements to which the plan is subject. There have been no significant changes that affect the comparability of contributions from year to year.

In addition to regular contributions, we could be obligated to pay additional contributions (known as complete or partial withdrawal liabilities) if it has unfunded vested benefits.

PPA Zone Status

FIP/RP Status

Contributions (in millions)

Surcharge Imposed

Pension Fund Plan Name

EIN/Pension Plan Number

2016

2015

Implemented

2016

2015

2016

Expiration Date of Collective Bargaining Agreement^(a)

Bakery and Confectionery Union and Industry International Pension Fund

52-6118572/001

Red

Nov 2012

10%

October 2015

(a) Renewal negotiations are in progress.