

13. Retirement Plans

Participation in Parent Pension and Other Postemployment Benefit Plans

Adient provides defined benefit pension, postretirement health care and defined contribution benefits to its eligible employees and retirees. Effective October 31, 2016, in connection with the separation of Adient from the former Parent, Adient recorded the net benefit plan obligations transferred from the former Parent. Adient's consolidated statements of earnings included expense allocations for these benefits. These expenses were funded through intercompany transactions with the former Parent which are reflected within net parent company investment in Adient.

Total former Parent benefit plan net expense allocated to Adient amounted to $21 million and $32 million for fiscal years 2016 and 2015, respectively. These costs are reflected in cost of sales and selling, general and administrative expenses and were funded through intercompany transactions with the former Parent which are now reflected within the net parent investment equity balance. There was no benefit plan net expense allocated to Adient for fiscal year 2017.

Pension Benefits

Adient has non-contributory defined benefit pension plans covering primarily non-U.S. employees and a limited number of U.S. employees. The benefits provided are primarily based on years of service and average compensation or a monthly retirement benefit amount. Funding for non-U.S. plans observes the local legal and regulatory limits. Funding for U.S. pension plans equals or exceeds the minimum requirements of the Employee Retirement Income Security Act of 1974.

For pension plans with accumulated benefit obligations (ABO) that exceed plan assets, the projected benefit obligation (PBO), ABO and fair value of plan assets of those plans were $472 million, $450 million and $342 million, respectively, as of September 30, 2017 and $519 million, $495 million and $331 million, respectively, as of September 30, 2016.

In fiscal 2017, total Adient contributions to the defined benefit pension plans were $37 million, of which $2 million were voluntary contributions. Contributions of at least $13 million in cash to its defined benefit pension plans are expected in fiscal 2018. Projected benefit payments from the plans as of September 30, 2017 are estimated as follows (in millions):



2018	$	26
2019	27
2020	28
2021	27
2022	33
2023-2027	176

Postretirement Benefits

Adient provides certain health care and life insurance benefits for eligible retirees and their dependents primarily in the U.S. and Canada. Most non-U.S. employees are covered by government sponsored programs, and the cost to Adient is not significant.

Eligibility for coverage is based on meeting certain years of service and retirement age qualifications. These benefits may be subject to deductibles, co-payment provisions and other limitations, and Adient has reserved the right to modify these benefits.

The health care cost trend assumption does not have a significant effect on the amounts reported.

In fiscal 2017, total employer and employee contributions to the postretirement plans were $2 million. Adient does not expect to make any significant contributions to its postretirement plans in fiscal year 2018. Projected benefit payments from the plans as of September 30, 2017 are estimated as follows (in millions):



2018	$	1
2019	1
2020	1
2021	1
2022	1
2023-2027	7

In December 2003, the U.S. Congress enacted the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act) for employers sponsoring postretirement care plans that provide prescription drug benefits. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans providing a benefit that is at least actuarially equivalent to Medicare Part D.1. Under the Act, the Medicare subsidy amount is received directly by the plan sponsor and not the related plan. Further, the plan sponsor is not required to use the subsidy amount to fund postretirement benefits and may use the subsidy for any valid business purpose. Projected subsidy receipts for each of the next ten years are not expected to be significant.

Savings and Investment Plans

Adient sponsors various defined contribution savings plans that allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with plan specified guidelines. Under specified conditions, Adient will contribute to certain savings plans based on the employees' eligible pay and/or will match a percentage of the employee contributions up to certain limits. Matching contributions expense in connection with these plans amounted to $58 million for fiscal year 2017.

Plan Assets

Adient's investment policies employ an approach whereby a mix of equities, fixed income and alternative investments are used to maximize the long-term return of plan assets for a prudent level of risk. The investment portfolio primarily contains a diversified blend of equity and fixed income investments. Equity investments are diversified across domestic and non-domestic stocks, as well as growth, value and small to large capitalizations. Fixed income investments include corporate and government issues, with short-, mid- and long-term maturities, with a focus on investment grade when purchased and a target duration close to that of the plan liability. Investment and market risks are measured and monitored on an ongoing basis through regular investment portfolio reviews, annual liability measurements and periodic asset/liability studies. The majority of the real estate component of the portfolio is invested in a diversified portfolio of high-quality, operating properties with cash yields greater than the targeted appreciation. Investments in other alternative asset classes, including hedge funds and commodities, diversify the expected investment returns relative to the equity and fixed income investments. As a result of Adient's diversification strategies, there are no significant concentrations of risk within the portfolio of investments.

Adient's actual asset allocations are in line with target allocations. Adient rebalances asset allocations as appropriate, in order to stay within a range of allocation for each asset category.

The expected return on plan assets is based on Adient's expectation of the long-term average rate of return of the capital markets in which the plans invest. The average market returns are adjusted, where appropriate, for active asset management returns. The expected return reflects the investment policy target asset mix and considers the historical returns earned for each asset category.

During fiscal 2017, Adient retrospectively adopted ASU No. 2015-07 "Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)," which removed the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value (NAV) per share as a practical expedient.

Adient's plan assets by asset category, are as follows:



	Fair Value Measurements Using:
(in millions)	Total as of September 30, 2017		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value (NAV)
Pension
Cash	$	10	$	10	$	—	$	—	$	—
Equity Securities
Domestic	23		4		—		—		19
International - Developed	74		52		—		—		22
International - Emerging	10		6		—		—		4
Fixed Income Securities
Government	195		76		87		—		32
Corporate/Other	80		52		13		—		15
Hedge Fund	73		—		73		—		—
Real Estate	26		—		—		11		15
Total	$	491	$	200	$	173	$	11	$	107
Postretirement:
Equity Securities
Domestic	$	4	$	4	$	—	$	—	$	—
International - Developed	5		5		—		—		—
Fixed Income Securities
Government	3		3		—		—		—
Corporate/Other	3		3		—		—		—
Total	$	15	$	15	$	—	$	—	$	—



	Fair Value Measurements Using:
(in millions)	Total as of September 30, 2016		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Net Asset Value (NAV)
Pension
Cash	$	13	$	13	$	—	$	—	$	—
Equity Securities
Domestic	39		20		—		—		19
International - Developed	45		26		—		—		19
International - Emerging	7		3		—		—		4
Fixed Income Securities
Government	172		98		51		—		23
Corporate/Other	90		70		5		—		15
Hedge Fund	65		—		65		—		—
Real Estate	26		—		—		9		17
Total	$	457	$	230	$	121	$	9	$	97
Postretirement:
Equity Securities
Domestic	$	3	$	3	$	—	$	—	$	—
International - Developed	1		1		—		—		—
International - Emerging	1		1		—		—		—
Fixed Income Securities
Government	1		1		—		—		—
Corporate/Other	4		4		—		—		—
Commodities	1		1		—		—		—
Real Estate	1		1		—		—		—
Total	$	12	$	12	$	—	$	—	$	—

The following is a description of the valuation methodologies used for assets measured at fair value.

Cash: The fair value of cash is valued at cost.

Equity Securities: The fair value of equity securities is determined by direct quoted market prices. The underlying holdings are direct quoted market prices on regulated financial exchanges.

Fixed Income Securities: The fair value of fixed income securities is determined by direct or indirect quoted market prices. If indirect quoted market prices are utilized, the value of assets held in separate accounts is not published, but the investment managers report daily the underlying holdings. The underlying holdings are direct quoted market prices on regulated financial exchanges.

Commodities: The fair value of the commodities is determined by quoted market prices of the underlying holdings on regulated financial exchanges.

Hedge Funds: The fair value of hedge funds is accounted for by the custodian. The custodian obtains valuations from underlying managers based on market quotes for the most liquid assets and alternative methods for assets that do not have sufficient trading activity to derive prices. Adient and custodian review the methods used by the underlying managers to value the assets. Adient believes this is an appropriate methodology to obtain the fair value of these assets.

Real Estate: The fair value of Real Estate Investment Trusts (REITs) is recorded as Level 1 for securities that are traded on an open exchange. The fair value of certain investments in real estate is deemed Level 3 since these investments do not have a readily determinable fair value and requires the fund managers independently to arrive at fair value by calculating NAV per share. In order to calculate NAV per share, the fund managers value the real estate investments using any one, or a combination of, the following methods: independent third party appraisals, discounted cash flow analysis of net cash flows projected to be generated by the investment and recent sales of comparable investments. Assumptions used to revalue the properties are updated every quarter. Adient believes this is an appropriate methodology to obtain the fair value of these assets.

Investments at NAV: For mutual or collective funds where a NAV is not publicly quoted, the NAV per share is used as a practical expedient and is based on the quoted market prices of the underlying net assets of the fund as reported daily by the fund managers. In accordance with ASU 2015-07, funds valued based on NAV per share as a practical expedient are not categorized within the fair value hierarchy.

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 Adient believes its 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 sets forth a summary of changes in the fair value of pension assets measured using significant unobservable inputs (Level 3):



(in millions)	Real Estate
Pension
Asset value as of September 30, 2015	$	8
Unrealized gain	1
Asset value as of September 30, 2016	$	9
Redemptions	(1		)
Unrealized gain	3
Asset value as of September 30, 2017	$	11

Funded Status

The table that follows contains the ABO and reconciliations of the changes in the PBO, the changes in plan assets and the funded status:



	Pension Benefits						Postretirement Benefits
(in millions)	2017			2016			2017			2016
Accumulated Benefit Obligation	$	577		$	613		$	—		$	—
Change in Projected Benefit Obligation:
Projected benefit obligation at beginning of year	$	637		$	527		$	16		$	15
Service cost	8			8			—			—
Interest cost	12			16			1			—
Plan participant contributions	—			—			1			1
Actuarial (gain) loss	(51		)	132			—			2
Benefits and settlements paid	(29		)	(30		)	(1		)	(2		)
Other	—			14			(1		)	—
Currency translation adjustment	23			(30		)	—			—
Projected benefit obligation at end of year	$	600		$	637		$	16		$	16
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	457		$	421		$	12		$	13
Actual return on plan assets	9			44			2			1
Employer and employee contributions	37			35			2			1
Benefits and settlements paid	(29		)	(30		)	(1		)	(2		)
Other	—			16			—			(1		)
Currency translation adjustment	17			(29		)	—			—
Fair value of plan assets at end of year	$	491		$	457		$	15		$	12
Funded status	$	(109	)	$	(180	)	$	(1	)	$	(4	)
Amounts recognized in the statement of financial position consist of:
Prepaid benefit cost	$	22		$	8		$	—		$	—
Accrued benefit liability	(131		)	(188		)	(1		)	(4		)
Net amount recognized	$	(109	)	$	(180	)	$	(1	)	$	(4	)



	Pension Benefits								Postretirement Benefits
	U.S. Plans				Non-U.S. Plans				Postretirement Benefits
	2017		2016		2017		2016		2017		2016
Weighted Average Assumptions ⁽¹⁾:
Discount rate ⁽²⁾	3.85	%	3.70	%	2.60	%	2.10	%	3.50	%	3.25	%
Rate of compensation increase	NA		NA		3.55	%	4.00	%	NA		NA

⁽¹⁾ Plan assets and obligations are determined based on a September 30 measurement date.

⁽²⁾ Adient considers the expected benefit payments on a plan-by-plan basis when setting assumed discount rates. As a result, Adient uses different discount rates for each plan depending on the plan jurisdiction, the demographics of participants and the expected timing of benefit payments. For the U.S. pension and postretirement plans, Adient uses a discount rate provided by an independent third party calculated based on an appropriate mix of high quality bonds. For the non-U.S. pension and postretirement plans, Adient consistently uses the relevant country specific benchmark indices for determining the various discount rates.

Accumulated Other Comprehensive Income

The amounts in AOCI on the consolidated statements of financial position, exclusive of tax impacts, that have not yet been recognized as components of net periodic benefit cost at September 30, 2017 and 2016 were $2 million and $2 million, respectively, related to pension benefits and are not significant related to postretirement benefits.

The amounts in AOCI expected to be recognized as components of net periodic benefit cost over the next fiscal year for pension and postretirement benefits are not significant.

Net Periodic Benefit Cost

The tables that follow contain the components and key assumptions of net periodic benefit cost:



	Pension Benefits									Postretirement Benefits
(in millions)	2017			2016			2015			2017			2016		2015
Components of Net Periodic Benefit Cost (Credit):
Service cost	$	8		$	8		$	10		$	—		$	—	$	1
Interest cost	12			16			19			1			—		1
Expected return on plan assets	(17		)	(22		)	(21		)	—			—		(1		)
Net actuarial (gain) loss	(43		)	109			6			(2		)	1		—
Settlement loss	—			1			—			—			—		—
Net periodic benefit cost (credit)	$	(40	)	$	112		$	14		$	(1	)	$	1	$	1



	Pension Benefits												Postretirement Benefits
	U.S. Plans						Non-U.S. Plans						Postretirement Benefits
	2017		2016		2015		2017		2016		2015		2017		2016		2015
Expense Assumptions:
Discount rate	3.70	%	4.40	%	4.35	%	2.10	%	3.40	%	3.50	%	3.25	%	3.80	%	4.35	%
Expected return on plan assets	5.50	%	7.50	%	7.50	%	3.80	%	4.45	%	5.40	%	3.35	%	3.80	%	4.00	%
Rate of compensation increase	NA		NA		NA		4.00	%	3.00	%	3.00	%	NA		NA		NA