PENSIONS AND OTHER POSTRETIREMENT BENEFITS

At September 29, 2018, we had nine defined benefit pension plans consisting of six funded qualified plans, which are all frozen and noncontributory, and three unfunded non-qualified plans. 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 $84 million, $78 million and $67 million in fiscal 2018, 2017 and 2016, 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.

In the second quarter of fiscal 2017, we issued a notice of intent to terminate two of our qualified pension plans with a termination date of April 30, 2017. The settlements of the terminated plans will occur in the first quarter of fiscal 2019, through purchased annuities. We made minimal additional contributions in preparation for the estimated $21 million one-time settlement charge at final liquidation.

Additionally, subsequent to our fiscal year ended September 29, 2018, we issued a notice of intent to terminate three of our qualified pension plans with termination dates in the first quarter of fiscal 2019. The settlements of these plans are expected to occur in fiscal 2020, through purchased annuities. Since the amount of the settlement depends on a number of factors determined as of the liquidation date, including the annuity pricing, interest rate environment and asset experience, we are currently unable to determine the ultimate cost of the settlement. However, based on current market rates the one-time settlement gain at final liquidation is estimated to be in the range of approximately $35 million to $55 million. Contributions to purchase annuities at the time of settlement are expected to be in the range of approximately $5 million to $25 million based on current market conditions of each plan at September 29, 2018.

Benefit Obligations and Funded Status

The following table provides a reconciliation of the changes in the plans’ benefit obligations, assets and funded status at September 29, 2018, and September 30, 2017:



													in millions
	Pension Benefits												Other Postretirement
	Qualified						Non-Qualified						Benefits
	2018			2017			2018			2017			2018			2017
Change in benefit obligation
Benefit obligation at beginning of year	$	1,477		$	1,554		$	230		$	222		$	33		$	36
Service cost	—			2			7			11			1			1
Interest cost	55			57			8			8			1			1
Curtailment	—			—			(5		)	—			—			—
Plan amendments	—			—			5			—			—			—
Actuarial (gain)/loss	(60		)	(52		)	(10		)	1			(5		)	(1		)
Benefits paid	(80		)	(84		)	(15		)	(12		)	(2		)	(4		)
Benefit obligation at end of year	1,392			1,477			220			230			28			33
Change in plan assets
Fair value of plan assets at beginning of year	1,512			1,440			—			—			—			—
Actual return on plan assets	4			115			—			—			—			—
Employer contributions	14			41			15			12			2			4
Benefits paid	(80		)	(84		)	(15		)	(12		)	(2		)	(4		)
Fair value of plan assets at end of year	1,450			1,512			—			—			—			—
Funded status	$	58		$	35		$	(220	)	$	(230	)	$	(28	)	$	(33	)

Amounts recognized in the Consolidated Balance Sheets consist of:



													in millions
	Pension Benefits												Other Postretirement
	Qualified						Non-Qualified						Benefits
	2018			2017			2018			2017			2018			2017
Other assets	$	61		$	44		$	—		$	—		$	—		$	—
Other current liabilities	(3		)	—			(12		)	(11		)	(3		)	(3		)
Other liabilities	—			(9		)	(208		)	(219		)	(25		)	(30		)
Total assets (liabilities)	$	58		$	35		$	(220	)	$	(230	)	$	(28	)	$	(33	)

Amounts recognized in Accumulated Other Comprehensive Income consist of:



											in millions
	Pension Benefits										Other Postretirement
	Qualified						Non-Qualified				Benefits
	2018			2017			2018		2017		2018			2017
Accumulated other comprehensive (income)/loss:
Actuarial (gain) loss	$	(96	)	$	(94	)	$	31	$	50	$	—		$	—
Prior service (credit) cost (a)	—			—			5		—		(49		)	(73		)
Total accumulated other comprehensive (income)/loss:	$	(96	)	$	(94	)	$	36	$	50	$	(49	)	$	(73	)


(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.

We had five pension plans at September 29, 2018, and September 30, 2017, that 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
	2018		2017		2018		2017
Projected benefit obligation	$	49	$	361	$	220	$	230
Accumulated benefit obligation	49		361		219		220
Fair value of plan assets	45		352		—		—

The accumulated benefit obligation for all qualified pension plans was $1,392 million and $1,477 million at September 29, 2018, and September 30, 2017, 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
	2018			2017			2016			2018		2017		2016		2018			2017			2016
Service cost	$	—		$	2		$	8		$	7	$	11	$	6	$	1		$	1		$	1
Interest cost	55			57			65			8		8		9		1			1			3
Expected return on plan assets	(62		)	(59		)	(65		)	—		—		—		—			—			—
Amortization of prior service cost	1			—			—			1		—		—		(25		)	(25		)	(20		)
Recognized actuarial loss (gain), net	—			1			2			3		6		5		(5		)	(1		)	(15		)
Recognized settlement loss (gain)	—			2			(12		)	—		—		—		—			—			—
Net periodic benefit cost (credit)	$	(6	)	$	3		$	(2	)	$	19	$	25	$	20	$	(28	)	$	(24	)	$	(31	)

As of September 29, 2018, the amounts expected to be reclassified into earnings within the next 12 months related to net periodic benefit cost (credit) for the qualified and non-qualified pension plans, excluding pending settlements, are ($1) million and $3 million, respectively. As of September 29, 2018, 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 $11 million.

Assumptions

Weighted average assumptions are as follows:



	Pension Benefits												Other Postretirement
	Qualified						Non-Qualified						Benefits
	2018		2017		2016		2018		2017		2016		2018		2017		2016
Discount rate to determine net periodic benefit cost	3.85	%	3.72	%	4.47	%	3.88	%	3.77	%	4.41	%	3.39	%	3.09	%	3.54	%
Discount rate to determine benefit obligations	4.26	%	3.85	%	3.72	%	4.31	%	3.88	%	3.77	%	4.11	%	3.39	%	3.09	%
Rate of compensation increase	n/a		n/a		n/a		2.53	%	2.44	%	2.46	%	n/a		n/a		n/a
Expected return on plan assets	4.20	%	4.21	%	4.15	%	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. For all periods presented, 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, with benefit obligations totaling $17 million at September 29, 2018, 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, with benefit obligations less than $1 million at September 29, 2018, were not impacted by healthcare cost trend rates due to previous plan amendments. The remaining plan, with benefit obligation totaling $10 million at September 29, 2018, utilized an assumed healthcare cost trend rate of 7.6%. The healthcare cost trend rate will be grading down to an ultimate rate of 4.5% in 2027.

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:



	2018		2017		Target Asset Allocation
Cash	0.9	%	1.1	%	—	%
Fixed income securities	99.1		87.4		100.0
United States stock funds	—		3.5		—
International stock funds	—		5.6		—
Real estate	—		2.4		—
Total	100.0	%	100.0	%	100.0	%

Additionally, one of our foreign subsidiary pension plans had $30 million and $28 million in plan assets held in an insurance trust at September 29, 2018, and September 30, 2017, 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. The 100% target asset allocation to fixed income securities is based upon the intent to terminate these plans.

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 September 29, 2018.

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 13: Fair Value Measurements.



	in millions
September 29, 2018	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	12	$	—	$	—	$	12
Insurance contract at contract value (a)	—		—		30		30
Total assets in fair value hierarchy	$	12	$	—	$	30	$	42
Investments measured at net asset value:
Common collective trusts (b)							1,408
Total plan assets							$	1,450



	in millions
September 30, 2017	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	15	$	—	$	—	$	15
Insurance contract at contract value (a)	—		—		28		28
Total assets in fair value hierarchy	$	15	$	—	$	28	$	43
Investments measured at net asset value:
Common collective trusts (b)							1,469
Total plan assets							$	1,512

(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 Assets and 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
September 30, 2017	$	28	$	28
Actual return on plan assets:
Assets still held at reporting date	2		2
Assets sold during the period	—		—
Purchases, sales and settlements, net	—		—
Transfers in and/or out of Level 3	—		—
September 29, 2018	$	30	$	30

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 2019 are approximately $15 million. For fiscal 2018, 2017 and 2016, we funded $29 million, $53 million and $64 million, 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
2019	$	122	$	12	$	3
2020	79		12		3
2021	80		13		3
2022	81		13		3
2023	82		14		2
2024-2028	417		69		11

The above benefit payments for other postretirement benefit plans are not expected to be offset by Medicare Part D subsidies in fiscal 2019.

The above 2019 benefit payments include anticipated payments for a plan termination within two of our qualified pension plans. The plan termination process for these plans began on April, 30, 2017, and full settlement is expected to occur in the first quarter of fiscal 2019.

The above 2020 benefit payments do not include anticipated accelerated payments for a plan termination within three of our qualified pension plans. The plan termination process for one of these plans began on October 1, 2018 and for the remaining two plans is expected to begin December 31, 2018, and full settlement is expected to occur in fiscal 2020.

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 multi-employer plans are different from single-employer plans. Assets contributed to the multi-employer 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 multi-employer pension funds were in excess of 5% of the total plan contributions for plan year 2018 but were not in excess of 5% of the total plan contributions for plan years 2017 and 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 $2 million in fiscal 2018 and 2017. 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 multi-employer plan for fiscal 2018 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 2018 and fiscal 2017 is for the plan's year beginning January 1, 2018, and 2017, 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 2018. 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	2018	2017	Implemented	2018	2017	2016	2018	Expiration Date of Collective Bargaining Agreement^(a)
Bakery and Confectionery Union and Industry International Pension Fund	52-6118572/001	Red	Red	Nov 2012	$2	$2	$1	10%	October 2015

(a) Renewal negotiations are in progress.