Masco corporation

	At December 31, 2015
	Level 1				Level 2				Level 3				Measured at NAV				Total
Plan Assets
Common and Preferred Stocks:
United States	$	127			$	33			$	—			$	93			$	253
International	55				7				—				7				69
Private Equity and Hedge Funds:
United States	—				—				49				3				52
International	—				—				20				4				24
Corporate Debt Securities:
United States	18				26				—				—				44
International	—				32				—				16				48
Government and Other Debt Securities:
United States	64				3				—				—				67
International	23				30				—				—				53
Common Collective Trust Fund – United States	—				4				—				—				4
Short-Term and Other Investments:
United States	2				—				—				—				2
International	2				21				19				—				42
Total Plan Assets	$	291			$	156			$	88			$	123			$	658

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MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

M. EMPLOYEE RETIREMENT PLANS (Continued)

Changes in the fair value of the qualified defined-benefit pension plan Level 3 assets, were as follows, in millions:

	2016				2015
Fair Value, January 1	$	88			$	97
Purchases	6				4
Sales	(19		)		(11		)
Transfers, net	—				—
Unrealized gains (losses)	4				(2		)
Fair Value, December 31	$	79			$	88

Assumptions.     Weighted-average major assumptions used in accounting for our defined-benefit pension plans were as follows:

	2016			2015			2014
Discount rate for obligations	3.50	%		4.00	%		3.80	%
Expected return on plan assets	7.25	%		7.25	%		7.25	%
Rate of compensation increase	—			—			—
Discount rate for net periodic pension cost	4.00	%		3.80	%		4.40	%

The discount rate for obligations for 2016 , 2015 and 2014 was based upon the expected duration of each defined-benefit pension plan's liabilities matched to the December 31, 2016 , 2015 and 2014 Towers Watson Rate Link Curve. 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 decrease in the weighted average discount rate from 2015 to 2016 is principally the result of lower long-term interest rates in the bond markets. At December 31, 2014, such rates for our defined benefit pension plans ranged from 2.0 percent to 4.0 percent , with the most significant portion of the liabilities having a discount rate for obligations of 3.7 percent or higher. The increase in the weighted average discount rate from 2014 to 2015 was principally the result of higher long-term interest rates in the bond market.

For 2016 , 2015 and 2014 , 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, 2016 , 2015 and 2014 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 8.3 percent , negative 1.8 percent and positive 3.6 percent in 2016 , 2015 and 2014 , respectively. For the 10-year period ended December 31, 2016 , the actual annual rate of return on our pension plan assets was 3.7 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, 2016 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 2016 , 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 .

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