Financial Information

PART II

Item 8. Financial Statements and Supplementary Data.

MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. PENSION AND OTHER POSTRETIREMENT BENEFITS

We assumed numerous funded and unfunded domestic and international defined benefit pension plans in the Starwood Combination. All defined benefit plans covering U.S. employees are frozen, meaning that employees do not accrue additional benefits. Certain plans covering non-U.S. employees remain active. The majority of participants in the non-U.S. pension plans are employees of managed hotels, for which we are reimbursed for costs related to their benefits.

We also assumed the Starwood Retiree Welfare Program, which provides health care and life insurance benefits for certain eligible retired employees. We fund this plan on a pay-as-you-go basis.

During 2016, we recorded net actuarial gains of $5 million, net of tax, in other comprehensive income, primarily due to changes in assumed discount rates.

The following tables show the fair value of plan assets, accumulated benefit obligation, and the funded status of our defined benefit pension and postretirement benefit plans at December 31, 2016:

We show over- and under-funded amounts in our Balance Sheets as $40 million of “Other noncurrent liabilities,” $3 million of “Accrued expenses and other,” and $40 million of “Other noncurrent assets” at December 31, 2016.

The following table shows the benefit obligations for pension plans with accumulated benefit obligations that exceed the fair value of plan assets:

The weighted average assumptions used to determine benefit obligations at year-end 2016 were as follows:

For measurement purposes at year-end 2016, we assumed a 7% annual rate of increase in the per capita cost of covered health care benefits for 2017, gradually decreasing to 5% in 2020. A one-percentage point change in our assumed health care cost trend rates would have less than a $1 million effect on the postretirement obligation and a nominal impact on the total of service and interest cost components of the net periodic benefit cost.

Our investment objectives for these pension plans are to minimize asset value volatility and to ensure the assets are sufficient to pay plan benefits. The target asset allocation is 31% debt securities, 30% equity securities, and 39% other. We consider a number of factors in assessing the expected return on plan assets, including current and expected allocation of plan assets, the investment strategy, historical rates of return and our expectations, as well as investment expert expectations, for investment performance over approximately a ten-year period.

The following table presents our fair value hierarchy of the plan assets at year-end 2016:

The collective trusts assets include investments in insurance contracts, which we valued using significant unobservable inputs, including plan specific data and bond interest rates. We value all other assets using quoted market prices in active markets or other observable inputs.

The following table shows our expected future pension and postretirement benefit plan payments for the next ten years:

We expect to contribute $9 million to the plans during 2017. A significant portion of the contributions relate to the non-U.S. pension plans, for which we are reimbursed by our managed hotels.