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EMPLOYEE RETIREMENT PLANS | 12 Months Ended
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Dec. 31, 2017
Compensation and Retirement Disclosure [Abstract] |
EMPLOYEE RETIREMENT PLANS | EMPLOYEE RETIREMENT PLANS We sponsor qualified defined-benefit and defined-contribution retirement plans for most of our employees. In addition to our qualified defined-benefit pension plans, we have unfunded non-qualified defined-benefit pension plans covering certain employees, which provide for benefits in addition to those provided by the qualified pension plans. Substantially all salaried employees participate in non-contributory defined-contribution retirement plans, to which payments are determined annually by the Compensation Committee. Pre-tax expense related to our retirement plans was as follows, in millions:
| 2017 |  | 2016 |  | 2015
Defined-contribution plans | $ | 55 |  |  | $ | 58 |  |  | $ | 52 |
Defined-benefit pension plans | 29 |  |  | 34 |  |  | 32 |
| $ | 84 |  |  | $ | 92 |  |  | $ | 84 |
In addition to the pre-tax expense related to our defined-benefit pension plans, we recognized $58 million of actuarial losses, net of tax, that were previously included within accumulated other comprehensive loss due to the disposition of a pension plan in connection with the divestiture of Moores, which was recorded within other income (expense), net. As of January 1, 2010, substantially all our domestic and foreign qualified and domestic non-qualified defined-benefit pension plans were frozen to future benefit accruals. L. EMPLOYEE RETIREMENT PLANS (Continued) Changes in the projected benefit obligation and fair value of plan assets, and the funded status of our defined-benefit pension plans were as follows, in millions:
| 2017 |  | 2016
| Qualified |  | Non-Qualified |  | Qualified |  | Non-Qualified
Changes in projected benefit obligation: |  |  |  |  |  |  |  |  |  |  |
Projected benefit obligation at January 1 | $ | 1,055 |  |  | $ | 170 |  |  | $ | 1,059 |  |  | $ | 174 |
Service cost | 3 |  |  | — |  |  | 3 |  |  | — |
Interest cost | 36 |  |  | 6 |  |  | 41 |  |  | 7 |
Actuarial loss, net | 34 |  |  | 7 |  |  | 50 |  |  | 1 |
Foreign currency exchange | 20 |  |  | — |  |  | (29 | ) |  | — |
Benefit payments | (43 | ) |  | (13 | ) |  | (69 | ) |  | (12 | )
Divestitures | (144 | ) |  | — |  |  | — |  |  | — |
Projected benefit obligation at December 31 | $ | 961 |  |  | $ | 170 |  |  | $ | 1,055 |  |  | $ | 170 |
Changes in fair value of plan assets: |  |  |  |  |  |  |  |  |  |  |
Fair value of plan assets at January 1 | $ | 717 |  |  | $ | — |  |  | $ | 658 |  |  | $ | — |
Actual return on plan assets | 77 |  |  | — |  |  | 58 |  |  | — |
Foreign currency exchange | 8 |  |  | — |  |  | (20 | ) |  | — |
Company contributions | 52 |  |  | 13 |  |  | 100 |  |  | 12 |
Expenses, other | (7 | ) |  | — |  |  | (10 | ) |  | — |
Benefit payments | (43 | ) |  | (13 | ) |  | (69 | ) |  | (12 | )
Divestitures | (109 | ) |  | — |  |  | — |  |  | — |
Fair value of plan assets at December 31 | $ | 695 |  |  | $ | — |  |  | $ | 717 |  |  | $ | — |
Funded status at December 31 | $ | (266 | ) |  | $ | (170 | ) |  | $ | (338 | ) |  | $ | (170 | )
Amounts in our consolidated balance sheets were as follows, in millions:
| At December 31, 2017 |  | At December 31, 2016
| Qualified |  | Non-Qualified |  | Qualified |  | Non-Qualified
Other assets | $ | 1 |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |
Accrued liabilities | (1 | ) |  | (13 | ) |  | (1 | ) |  | (12 | )
Other liabilities | (266 | ) |  | (157 | ) |  | (339 | ) |  | (158 | )
Total net liability | $ | (266 | ) |  | $ | (170 | ) |  | $ | (338 | ) |  | $ | (170 | )
Unrealized loss included in accumulated other comprehensive loss before income taxes was as follows, in millions:
| At December 31, 2017 |  | At December 31, 2016
| Qualified |  | Non-Qualified |  | Qualified |  | Non-Qualified
Net loss | $ | 442 |  |  | $ | 59 |  |  | $ | 519 |  |  | $ | 54 |
Net transition obligation | — |  |  | — |  |  | 1 |  |  | — |
Net prior service cost | 3 |  |  | — |  |  | 3 |  |  | — |
Total | $ | 445 |  |  | $ | 59 |  |  | $ | 523 |  |  | $ | 54 |
L. EMPLOYEE RETIREMENT PLANS (Continued) Information for defined-benefit pension plans with an accumulated benefit obligation in excess of plan assets was as follows, in millions:
| At December 31
| 2017 |  | 2016
| Qualified |  | Non-Qualified |  | Qualified |  | Non-Qualified
Projected benefit obligation | $ | 945 |  |  | $ | 170 |  |  | $ | 1,044 |  |  | $ | 170 |
Accumulated benefit obligation | $ | 945 |  |  | $ | 170 |  |  | $ | 1,044 |  |  | $ | 170 |
Fair value of plan assets | $ | 679 |  |  | $ | — |  |  | $ | 704 |  |  | $ | — |
The projected benefit obligation was in excess of plan assets for all of our qualified defined-benefit pension plans at December 31, 2017 and 2016 which had an accumulated benefit obligation in excess of plan assets. Net periodic pension cost for our defined-benefit pension plans was as follows, in millions:
| 2017 |  | 2016 |  | 2015
| Qualified |  | Non-Qualified |  | Qualified |  | Non-Qualified |  | Qualified |  | Non-Qualified
Service cost | $ | 3 |  |  | $ | — |  |  | $ | 3 |  |  | $ | — |  |  | $ | 3 |  |  | $ | — |
Interest cost | 44 |  |  | 6 |  |  | 49 |  |  | 7 |  |  | 47 |  |  | 7 |
Expected return on plan assets | (46 | ) |  | — |  |  | (44 | ) |  | — |  |  | (46 | ) |  | — |
Recognized net loss | 19 |  |  | 3 |  |  | 17 |  |  | 2 |  |  | 18 |  |  | 3 |
Net periodic pension cost | $ | 20 |  |  | $ | 9 |  |  | $ | 25 |  |  | $ | 9 |  |  | $ | 22 |  |  | $ | 10 |
We expect to recognize $20 million of pre-tax net loss from accumulated other comprehensive loss into net periodic pension cost in 2018 related to our defined-benefit pension plans. For plans in which almost all of the plan's participants are inactive, pre-tax net loss within accumulated other comprehensive loss is amortized using the straight-line method over the remaining life expectancy of the inactive plan participants. For plans which do not have almost all inactive participants, pre-tax net loss within accumulated other comprehensive loss is amortized using the straight-line method over the average remaining service period of the active employees expected to receive benefits from the plan. Plan Assets. Our qualified defined-benefit pension plan weighted average asset allocation, which is based upon fair value, was as follows:
| 2017 |  | 2016
Equity securities | 55 | % |  | 49 | %
Debt securities | 28 | % |  | 32 | %
Other | 17 | % |  | 19 | %
Total | 100 | % |  | 100 | %
For our qualified defined-benefit pension plans, we have adopted accounting guidance that defines fair value, establishes a framework for measuring fair value and prescribes disclosures about fair value measurements. Accounting guidance defines fair value as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." L. EMPLOYEE RETIREMENT PLANS (Continued) Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2017 compared to December 31, 2016. Common and Preferred Stocks and Short-Term and Other Investments: Valued at the closing price reported on the active market on which the individual securities are traded or based on the active market for similar securities. Certain investments are valued based on NAV, which approximates fair value. Such basis is determined by referencing the respective fund's underlying assets. There are no unfunded commitments or other restrictions associated with these investments. Private Equity and Hedge Funds: Valued based on an estimated fair value using either a market approach or an income approach, both of which require a significant degree of judgment. There is no active trading market for these investments and they are generally illiquid. Due to the significant unobservable inputs, the fair value measurements used to estimate fair value are a Level 3 input. Certain investments are valued based on NAV, which approximates fair value. Such basis is determined by referencing the respective fund's underlying assets. There are no unfunded commitments or other restrictions associated with these investments. Corporate, Government and Other Debt Securities: Valued based on either the closing price reported on the active market on which the individual securities are traded or using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings. Certain investments are valued based on NAV, which approximates fair value. Such basis is determined by referencing the respective fund's underlying assets. There are unfunded commitments of $2 million and no other restrictions associated with these investments. Common Collective Trust Fund: Valued based on an amortized cost basis, which approximates fair value. Such basis is determined by reference to the respective fund's underlying assets, which are primarily cash equivalents. There are no unfunded commitments or other restrictions associated with this fund. Buy-in Annuity: Valued based on the associated benefit obligation for which the buy-in annuity covers the benefits, which approximates fair value. Such basis is determined based on various assumptions, including the discount rate, long-term rate of return on plan assets and mortality rate. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following tables set forth, by level within the fair value hierarchy, the qualified defined-benefit pension plan assets at fair value as of December 31, 2017 and 2016, as well as those valued at NAV using the practical expedient, which approximates fair value, in millions. L. EMPLOYEE RETIREMENT PLANS (Continued)
| At December 31, 2017
| Level 1 |  | Level 2 |  | Level 3 |  | Valued at NAV |  | Total
Plan Assets |  |  |  |  |  |  |  |  |
Common and Preferred Stocks: |  |  |  |  |  |  |  |  |
United States | $ | 144 |  |  | $ | — |  |  | $ | — |  |  | $ | 47 |  |  | $ | 191 |
International | 66 |  |  | — |  |  | — |  |  | 125 |  |  | 191 |
Private Equity and Hedge Funds: |  |  |  |  |  |  |  |  |
United States | — |  |  | — |  |  | 36 |  |  | — |  |  | 36 |
International | — |  |  | — |  |  | 24 |  |  | 35 |  |  | 59 |
Corporate Debt Securities: |  |  |  |  |  |  |  |  |
United States | 31 |  |  | 26 |  |  | — |  |  | — |  |  | 57 |
International | — |  |  | 7 |  |  | — |  |  | 21 |  |  | 28 |
Government and Other Debt Securities: |  |  |  |  |  |  |  |  |
United States | 15 |  |  | 7 |  |  | — |  |  | 31 |  |  | 53 |
International | 31 |  |  | 28 |  |  | — |  |  | — |  |  | 59 |
Common Collective Trust Fund – United States | — |  |  | 6 |  |  | — |  |  | — |  |  | 6 |
Buy-in Annuity - International | — |  |  | 12 |  |  | — |  |  | — |  |  | 12 |
Short-Term and Other Investments: |  |  |  |  |  |  |  |  |
United States | 2 |  |  | — |  |  | — |  |  | — |  |  | 2 |
International | — |  |  | 1 |  |  | — |  |  | — |  |  | 1 |
Total Plan Assets | $ | 289 |  |  | $ | 87 |  |  | $ | 60 |  |  | $ | 259 |  |  | $ | 695 |
| At December 31, 2016
| Level 1 |  | Level 2 |  | Level 3 |  | Valued at NAV |  | Total
Plan Assets |  |  |  |  |  |  |  |  |
Common and Preferred Stocks: |  |  |  |  |  |  |  |  |
United States | $ | 142 |  |  | $ | — |  |  | $ | — |  |  | $ | 118 |  |  | $ | 260 |
International | 74 |  |  | — |  |  | — |  |  | 16 |  |  | 90 |
Private Equity and Hedge Funds: |  |  |  |  |  |  |  |  |
United States | — |  |  | — |  |  | 37 |  |  | — |  |  | 37 |
International | — |  |  | — |  |  | 24 |  |  | 32 |  |  | 56 |
Corporate Debt Securities: |  |  |  |  |  |  |  |  |
United States | 27 |  |  | 28 |  |  | — |  |  | 2 |  |  | 57 |
International | — |  |  | 26 |  |  | — |  |  | 17 |  |  | 43 |
Government and Other Debt Securities: |  |  |  |  |  |  |  |  |
United States | 46 |  |  | 4 |  |  | — |  |  | — |  |  | 50 |
International | 27 |  |  | 53 |  |  | — |  |  | — |  |  | 80 |
Common Collective Trust Fund – United States | — |  |  | 4 |  |  | — |  |  | — |  |  | 4 |
Short-Term and Other Investments: |  |  |  |  |  |  |  |  |  |
United States | 2 |  |  | — |  |  | — |  |  | — |  |  | 2 |
International | 5 |  |  | 15 |  |  | 18 |  |  | — |  |  | 38 |
Total Plan Assets | $ | 323 |  |  | $ | 130 |  |  | $ | 79 |  |  | $ | 185 |  |  | $ | 717 |
L. EMPLOYEE RETIREMENT PLANS (Continued) Changes in the fair value of the qualified defined-benefit pension plan Level 3 assets, were as follows, in millions:
| 2017 |  | 2016
Fair Value, January 1 | $ | 79 |  |  | $ | 88 |
Purchases | 6 |  |  | 6 |
Sales | (31 | ) |  | (19 | )
Unrealized gains | 6 |  |  | 4 |
Fair Value, December 31 | $ | 60 |  |  | $ | 79 |
Assumptions. Weighted average major assumptions used in accounting for our defined-benefit pension plans were as follows:
| 2017 |  | 2016 |  | 2015
Discount rate for obligations | 3.30 | % |  | 3.50 | % |  | 4.00 | %
Expected return on plan assets | 7.25 | % |  | 7.25 | % |  | 7.25 | %
Rate of compensation increase | — | % |  | — | % |  | — | %
Discount rate for net periodic pension cost | 3.50 | % |  | 4.00 | % |  | 3.80 | %
The discount rate for obligations for 2017, 2016 and 2015 was based upon the expected duration of each defined-benefit pension plan's liabilities matched to the December 31, 2017, 2016 and 2015 Willis Towers Watson Rate Link Curve. At December 31, 2017, such rates for our defined-benefit pension plans ranged from 1.5 percent to 3.6 percent, with the most significant portion of the liabilities having a discount rate for obligations of 3.4 percent or higher. At December 31, 2016, such rates for our defined-benefit pension plans ranged from 1.5 percent to 4.0 percent, with the most significant portion of the liabilities having a discount rate for obligations of 3.8 percent or higher. At December 31, 2015, such rates for our defined‑benefit pension plans ranged from 2.0 percent to 4.3 percent, with the most significant portion of the liabilities having a discount rate for obligations of 4.0 percent or higher. The decreases in the weighted average discount rates from 2015 to 2016, and from 2016 to 2017, are principally the result of lower long-term interest rates in the bond markets. For 2017, 2016 and 2015, we determined the expected long-term rate of return on plan assets of 7.25 percent based upon an analysis of expected and historical rates of return of various asset classes utilizing the current and long-term target asset allocation of the plan assets. The projected asset return at December 31, 2017, 2016 and 2015 also considered near term returns, including current market conditions as well as that pension assets are long-term in nature. The actual annual rate of return on our pension plan assets was positive 13.9 percent, positive 8.3 percent and negative 1.8 percent in 2017, 2016 and 2015, respectively. For the 10-year period ended December 31, 2017, the actual annual rate of return on our pension plan assets was 4.3 percent. Although this rate of return is less than our current expected long-term rate of return on plan assets, we note that the 10-year period ended December 31, 2017 includes one significant decline in the equity markets in 2008 (of negative 32.1 percent). Accordingly, and based on our target allocation, we believe a 7.25 percent expected long-term rate of return is reasonable. The investment objectives seek to minimize the volatility of the value of our plan assets relative to pension liabilities and to ensure plan assets are sufficient to pay plan benefits. In 2017, we substantially achieved targeted asset allocation: 50 percent equities, 30 percent fixed-income, and 20 percent alternative investments (such as private equity, commodities and hedge funds). The asset allocation of the investment portfolio was developed with the objective of achieving our expected rate of return and reducing volatility of asset returns, and considered the freezing of future benefits. The equity portfolios are invested in individual securities or funds that are expected to mirror broad market returns for equity securities. The fixed-income portfolio is invested in corporate bonds, bond index funds and U.S. Treasury securities. It is expected that the alternative investments would have a higher rate of return than the targeted overall long-term return of 7.25 percent. However, these investments are subject to greater volatility, due to their nature, than a portfolio of equities and fixed-income investments, and would be less liquid than financial instruments that trade on public markets. This portfolio is expected to yield a long-term rate of return of 7.25 percent. L. EMPLOYEE RETIREMENT PLANS (Concluded) The fair value of our plan assets is subject to risk including significant concentrations of risk in our plan assets related to equity, interest rate and operating risk. In order to ensure plan assets are sufficient to pay benefits, a portion of plan assets is allocated to equity investments that are expected, over time, to earn higher returns with more volatility than fixed-income investments which more closely match pension liabilities. Within equity, risk is mitigated by targeting a portfolio that is broadly diversified by geography, market capitalization, manager mandate size, investment style and process. In order to minimize asset volatility relative to the liabilities, a portion of plan assets are allocated to fixed-income investments that are exposed to interest rate risk. Rate increases generally will result in a decline in fixed-income assets, while reducing the present value of the liabilities. Conversely, rate decreases will increase fixed income assets, partially offsetting the related increase in the liabilities. Potential events or circumstances that could have a negative effect on estimated fair value include the risks of inadequate diversification and other operating risks. To mitigate these risks, investments are diversified across and within asset classes in support of investment objectives. Policies and practices to address operating risks include ongoing manager oversight, plan and asset class investment guidelines and instructions that are communicated to managers, and periodic compliance and audit reviews to ensure adherence to these policies. In addition, we periodically seek the input of our independent advisor to ensure the investment policy is appropriate. Other. We sponsor certain post-retirement benefit plans that provide medical, dental and life insurance coverage for eligible retirees and dependents based upon age and length of service. Substantially all of these plans were frozen as of January 1, 2010. The aggregate present value of the unfunded accumulated post-retirement benefit obligation was $10 million and $9 million at December 31, 2017 and 2016, respectively. Cash Flows. At December 31, 2017, we expect to contribute approximately $45 million to our domestic qualified defined-benefit pension plans in 2018, which will exceed ERISA requirements. We also expect to contribute approximately $3 million and $13 million to our foreign and non-qualified (domestic) defined-benefit pension plans, respectively, in 2018. At December 31, 2017, the benefits expected to be paid in each of the next five years, and in aggregate for the five years thereafter, relating to our defined-benefit pension plans, were as follows, in millions:
| Qualified Plans |  | Non-Qualified Plans
2018 | $ | 47 |  |  | $ | 13 |
2019 | $ | 48 |  |  | $ | 12 |
2020 | $ | 49 |  |  | $ | 12 |
2021 | $ | 50 |  |  | $ | 12 |
2022 | $ | 50 |  |  | $ | 13 |
2023 - 2027 | $ | 262 |  |  | $ | 56 |

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