United states securities and exchange commission

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The following table summarizes the changes in the fair value of Level 3 pension plan assets for the years ended December 31, 2017 and 2016 :

Fair Value Measurement of Level 3 Pension Plan Assets 1		Equity Securities			Fixed Income Securities			Alternative Investments			Other Investments			Total
In millions
Balance at Jan 1, 2016		$	28		$	17		$	3,797		$	38		$	3,880
Actual return on assets:
Relating to assets sold during 2016		—			2			163			(7		)	158
Relating to assets held at Dec 31, 2016		7			(1		)	(15		)	11			2
Purchases, sales and settlements, net		—			(4		)	172			53			221
Transfers out of Level 3, net		(2		)	3			—			—			1
Balance at Dec 31, 2016		$	33		$	17		$	4,117		$	95		$	4,262
Assumed in Merger		18			48			115			—			181
Actual return on assets:
Relating to assets sold during 2017		(1		)	(3		)	163			6			165
Relating to assets held at Dec 31, 2017		5			6			78			(5		)	84
Purchases, sales and settlements, net		5			(23		)	159			(94		)	47
Balance at Dec 31, 2017		$	60		$	45		$	4,632		$	2		$	4,739
1.	As a result of the Merger, certain classifications of prior period amounts have been revised to improve comparability with the current period presentation, including the reclassification of $1 million at December 31, 2016 of assets from equity securities to alternative investments and $481 million at December 31, 2016 ( $276 million at January 1, 2016) of assets from fixed income securities to alternative investments.

The following table presents additional information about the pension plan assets for DuPont using net asset value as a practical expedient:

Net Asset Value as a Practical Expedient		2017
In millions		Fair Value			Unfunded Commitments			Redemption Frequency	Redemption Notice Period Range
Hedge funds 1		$	747		$	—		Monthly, Quarterly	Ranges from 15-45 days monthly, 10-185 days quarterly
Private market securities 2		1,383			797			Not applicable	Not applicable
Real Estate 2		437			371			Not applicable	Not applicable
Total		$	2,567		$	1,168
1.	Less than 5 percent of hedge funds have gates in place at the investor level for year-end redemptions. Hedge funds also contain either no lock up or a lock up period of less than one year.

2. The remaining life of private market securities and real estate funds is an average of 15 years per investment.
Trust Assets

DuPont entered into a trust agreement in 2013 (as amended and restated in 2017) that established and requires DuPont to fund a trust (the "Trust") for cash obligations under certain non-qualified benefit and deferred compensation plans upon a change in control event as defined in the Trust agreement. Under the Trust agreement, the consummation of the Merger was a change in control event. As a result, in November 2017, DuPont contributed $571 million to the Trust. In the fourth quarter of 2017, $13 million was distributed to DuPont according to the Trust agreement and at December 31, 2017, the balance in the Trust was $558 million .

Defined Contribution Plans

Dow

U.S. employees may participate in defined contribution plans (Employee Savings Plans or 401(k) plans) by contributing a portion of their compensation, which is partially matched by Dow. Defined contribution plans also cover employees in some subsidiaries in other countries, including Australia, Brazil, Canada, Italy, Spain and the United Kingdom. Expense recognized for all defined contribution plans was $367 million in 2017 , $283 million in 2016 and $235 million in 2015 .

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DuPont

DuPont provides defined contribution benefits to its employees. The most significant is the U.S. Retirement Savings Plan ("the Plan"), which covers all U.S. full-service employees. This Plan includes a non-leveraged Employee Stock Ownership Plan ("ESOP"). Employees are not required to participate in the ESOP and those who do are free to diversify out of the ESOP. The purpose of the Plan is to provide retirement savings benefits for employees and to provide employees an opportunity to become stockholders of the Company. The Plan is a tax qualified contributory profit sharing plan, with cash or deferred arrangement and any eligible employee of DuPont may participate. Currently, DuPont contributes 100 percent of the first 6 percent of the employee's contribution election and also contributes 3 percent of each eligible employee's eligible compensation regardless of the employee's contribution.

DuPont's post-Merger contributions to the Plan were $53 million in 2017. DuPont's matching contributions vest immediately upon contribution. The 3 percent nonmatching employer contribution vests after employees complete three years of service. In addition, DuPont made post-Merger contributions to other defined contribution plans of $17 million for the year ended December 31, 2017 . Included in DuPont's contributions are amounts related to discontinued operations of $1 million for the year ended December 31, 2017 .

NOTE 20 - STOCK-BASED COMPENSATION

Through the Dow and DuPont equity incentive plans, the Company grants stock-based compensation to employees and non employee directors. Effective with the Merger, on August 31, 2017, DowDuPont assumed all Dow and DuPont equity incentive compensation awards outstanding immediately prior to the Merger. The previous DuPont equity awards were converted into the right to receive 1.2820  shares of DowDuPont Common Stock and had a fair value of approximately $629 million at the Merger closing date. The converted DuPont equity awards were measured at their fair value and included $485 million as consideration exchanged and $144 million which is being amortized to stock compensation expense over the remaining vesting period of the awards. The fair values of the converted awards were based on valuation assumptions developed by management and other information including, but not limited to, historical volatility and exercise trends of Dow and DuPont. All outstanding Dow stock options and deferred stock awards were converted into stock options and deferred stock awards with respect to DowDuPont Common Stock. All outstanding and nonvested Dow performance deferred stock awards were converted into deferred stock awards with respect to DowDuPont Common Stock at the greater of the applicable performance target or the actual performance as of the effective time of the Merger.

In addition, the Company also assumed sponsorship of each equity incentive compensation plan of Dow and DuPont. Dow and DuPont did not merge their equity incentive plans as a result of the Merger. The plans continue in place with the ability to grant and issue DowDuPont common stock. A description of Dow and DuPont stock-based compensation is discussed below.
The total stock-based compensation expense included in continuing operations in the consolidated statements of income was $392 million , $261 million and $352 million in 2017 , 2016 and 2015 , respectively. The income tax benefits related to stock-based compensation arrangements were $144 million , $97 million and $129 million in 2017 , 2016 and 2015 , respectively.
Accounting for Stock-Based Compensation

The Company grants stock-based compensation awards that vest over a specified period or upon employees meeting certain performance and/or retirement eligibility criteria. The fair value of equity instruments issued to employees is measured on the grant date. The fair value of liability instruments issued to employees is measured at the end of each quarter. The fair value of equity and liability instruments is expensed over the vesting period or, in the case of retirement, from the grant date to the date on which retirement eligibility provisions have been met and additional service is no longer required. The Company estimates expected forfeitures.

Dow Plans

Dow grants stock-based compensation to employees and non-employee directors in the form of stock incentive plans, which include stock options, deferred stock and restricted stock. Dow also provides stock-based compensation in the form of performance deferred stock and the Employee Stock Purchase Plan ("ESPP"), which grants eligible employees the right to purchase shares of Dow Common Stock at a discounted price.

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Dow Valuation Methods and Assumptions

Dow historically used a lattice-based option valuation model to estimate the fair value of stock options and used a Monte Carlo simulation for the market portion of performance deferred stock awards. Dow used the Black-Scholes option valuation model for subscriptions to purchase shares under the ESPP. The weighted-average assumptions used to calculate total stock-based compensation are included in the following table:

Dow Weighted-Average Assumptions	2017		2016		2015
Dividend yield	3.01	%	4.13	%	3.54	%
Expected volatility	23.71	%	31.60	%	27.84	%
Risk-free interest rate	1.28	%	1.12	%	1.02	%
Expected life of stock options granted during period (years)	7.5		7.8		7.7
Life of Employee Stock Purchase Plan (months)	3		4		6