Retirement Plans

Pension Plans

We have various non-contributory defined benefit pension plans covering United States employees employed prior to January 1, 2010 and certain employees outside the United States, primarily in Germany and Japan. Total pension expense was $0.2 million, $2.6 million and $2.0 million in 2014, 2013 and 2012, respectively. The measurement date of our pension plans is December 31st. During the twelve months ended December 31, 2014 we contributed $2.1 million to our worldwide pension plans. We presently anticipate contributing between $1 million and $2 million to fund our worldwide pension plans in 2015. It is our general practice, at a minimum, to fund amounts sufficient to meet the requirements set forth in applicable benefits laws and local tax laws. From time to time, we contribute additional amounts, as we deem appropriate.

Effective January 1, 2010, the U.S. plan was amended to exclude new hires and rehires from participating in the plan. In addition, we eliminated benefit accruals under the U.S. plan as of January 1, 2011, thus “freezing” the defined benefit pension plan. Under the plan freeze, no pay credits were made to a participant’s account balance after December 31, 2010. However, interest credits will continue in accordance with the annual update process.

For the U.S. plan, employees who have completed three years or more of service, including service with 3M Company before July 1, 1996, or who have reached age 65, are entitled to pension benefits beginning at normal retirement age (65) based primarily on employees’ pay credits and interest credits. Through December 31, 2009, pay credits were made to each eligible participant's account equal to six percent of that participant's eligible earnings for the year. Beginning on January 1, 2010 and through December 31, 2010, pay credit contributions were reduced to three percent of each participant’s eligible earnings. In conjunction with the plan freeze, no additional pay credits were made to a participant’s account balance after December 31, 2010. A monthly interest credit is made to each eligible participant’s account based on the participant’s account balance as of the last day of the preceding year. The interest credit rate is established annually and is based on the interest rate of certain low-risk debt instruments. The interest credit rate was 3.80 percent for 2014. In accordance with the annual update process, the interest credit rate will be 3.04 percent for 2015.

In connection with actions taken under our announced restructuring programs, the number of employees accumulating benefits under our pension plan in the United States continues to decline. Participants in our U.S. plan have the option of receiving cash lump sum payments when exiting the plan, which a number of participants exiting the plan have elected to receive. Lump sum payments in 2014, 2013 and 2012 exceeded the service and interest costs associated with those years. As a result, a partial settlement event occurred in those years and, accordingly, we recognized a settlement loss of $1.1 million, $2.1 million and $2.4 million during 2014, 2013 and 2012, respectively. These settlement losses are included in restructuring and other in our Consolidated Statements of Operations.

The U.S. pension plan permits four payment options: a lump-sum option, a life income option, a survivor option or a period certain option.

We maintained a defined benefit pension plan located in the United Kingdom (UK Plan) for former employees with no current employees in the plan. During the third quarter of 2013 we settled our UK Plan by way of a transaction with Pension Insurance Corporation (PIC) whereby PIC fully assumed the projected benefit obligation and underlying plan assets. The net balance assumed by PIC represented an asset balance of $6.4 million and no cash consideration took place between Imation and PIC associated with this transaction for the initial settlement. As a result of this transaction, we removed this net asset and related unrecognized net actuarial loss in other comprehensive loss and recorded a loss of $10.6 million in restructuring and other in our Consolidated Statements of Operations during the year ended December 31, 2013. Additionally, the settlement of the UK Plan resulted in the removal of a deferred tax liability related to the plan resulting in a $2.3 million credit to income tax expense for the year ended December 31, 2013. See Note 10 - Income Taxes for further discussion of the impact on the income tax rate. It is a standard practice in the United Kingdom (UK) for a review process by the UK government, entailing a review of the plan obligations and participant data, to occur upon a transaction such as this one involving a transfer of a pension plan. The regulatory review was finalized in 2014 and as result of the findings, we recorded a true-up of $0.5 million of additional loss in restructuring and other in our Consolidated Statements of Operations for the year ended December 31, 2014.

The benefit obligations and plan assets, changes to the benefit obligations and plan assets, and the funded status of the defined benefit pension plans were as follows:



	United States						International
	As of December 31,						As of December 31,
	2014			2013			2014			2013
	(In millions)
Change in benefit obligation
Benefit obligation, beginning of year	$	78.5		$	88.3		$	31.4		$	63.4
Service cost	—			—			0.3			0.5
Interest cost	3.3			3.3			0.9			2.0
Actuarial (gain) loss	4.4			(1.7		)	6.5			(4.7		)
Benefits paid	(1.8		)	(2.0		)	(1.6		)	(3.5		)
Settlements	(5.6		)	(9.4		)	—			(24.8		)
Foreign exchange rate changes	—			—			(4.3		)	(1.5		)
Projected benefit obligation, end of year	$	78.8		$	78.5		$	33.2		$	31.4
Change in plan assets
Fair value of plan assets, beginning of year	$	71.0		$	71.7		$	26.1		$	58.0
Actual return on plan assets	2.5			10.7			1.6			(3.3		)
Foreign exchange rate changes	—			—			(3.2		)	(1.8		)
Company contributions	1.4			—			0.7			1.5
Benefits paid	(1.8		)	(2.0		)	(1.6		)	(3.5		)
Settlement payments	(5.6		)	(9.4		)	—			(24.8		)
Fair value of plan assets, end of year	67.5			71.0			23.6			26.1
Funded status of the plan, end of year	$	(11.3	)	$	(7.5	)	$	(9.6	)	$	(5.3	)

Amounts recognized in our Consolidated Balance Sheets consisted of the following:



	United States						International
	As of December 31,						As of December 31,
	2014			2013			2014			2013
	(In millions)
Noncurrent assets	$	—		$	—		$	1.6		$	—
Noncurrent liabilities	(11.3		)	(7.5		)	(11.2		)	(5.3		)
Accumulated other comprehensive loss — pre-tax	19.0			14.3			10.4			4.6

Pre-tax amounts recognized in accumulated other comprehensive loss consisted of the following:



	United States				International
	As of December 31,				As of December 31,
	2014		2013		2014			2013
	(In millions)
Net actuarial loss	$	19.0	$	14.3	$	12.1		$	7.6
Prior service credit	—		—		(2.2		)	(4.0		)
Transition asset obligation	—		—		0.5			1.0
Total	$	19.0	$	14.3	$	10.4		$	4.6

The following table includes information for pension plans with an accumulated benefit obligation in excess of plan assets. The balances presented as of December 31, 2014 and 2013 exclude our Japan plan which had plan assets in excess of accumulated benefit obligation for both years.



	United States				International
	As of December 31,				As of December 31,
	2014		2013		2014		2013
	(In millions)
Projected benefit obligation, end of year	$	78.8	$	78.5	$	28.7	$	25.7
Accumulated benefit obligation, end of year	78.8		78.5		28.7		25.7
Plan assets at fair value, end of year	67.5		71.0		17.6		19.7

Components of net periodic pension cost included the following:



	United States									International
	Years Ended December 31,									Years Ended December 31,
	2014			2013			2012			2014			2013			2012
	(In millions)
Service cost	$	—		$	—		$	—		$	0.3		$	0.5		$	0.6
Interest cost	3.3			3.3			3.2			0.9			2.0			2.2
Expected return on plan assets	(4.8		)	(5.1		)	(5.7		)	(0.8		)	(2.5		)	(2.3		)
Amortization of net actuarial loss	1.1			1.9			1.5			0.2			0.5			0.3
Amortization of prior service credit	—			—			—			(0.3		)	(0.4		)	(0.5		)
Amortization of transition obligation	—			—			—			0.1			0.3			0.3
Net periodic pension cost (credit)	(0.4		)	0.1			(1.0		)	0.4			0.4			0.6
Settlements and curtailments	1.1			2.1			2.4			(0.9		)	—			—
Total pension cost	$	0.7		$	2.2		$	1.4		$	(0.5	)	$	0.4		$	0.6

Total pension cost for each of our international plans individually ranged from less than $0.1 million to $0.4 million in 2014, $0.1 million to $0.5 million in 2013 and $0.1 million to $0.6 million in 2012. Total pension credit ranged from less than $0.1 million to $0.8 million during 2014, 2013 and 2012.

The estimated net actuarial loss, prior service credit and net obligations at transition for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit costs in 2015 are $1.5 million loss, $0.4 million credit and $0.3 million obligation, respectively.

Assumptions used to determine benefit obligations were as follows (international assumptions are a weighted average of all of our international plans):



	United States				International
	As of December 31,				As of December 31,
	2014		2013		2014		2013
Discount rate	4.00	%	4.50	%	1.89	%	3.20	%
Rate of compensation increase	—	%	—	%	2.92	%	2.89	%

Assumptions used to determine net periodic benefit costs were as follows (international assumptions are a weighted average of all of our international plans):



	United States						International
	As of December 31,						As of December 31,
	2014		2013		2012		2014		2013		2012
Discount rate ⁽¹⁾	4.25	%	4.00	%	3.75	%	3.27	%	2.70	%	4.09	%
Expected return on plan assets	7.75	%	7.75	%	8.00	%	3.35	%	4.53	%	4.32	%
Rate of compensation increase	—	%	—	%	—	%	2.86	%	2.00	%	2.57	%

⁽¹⁾ The discount rate of 4.25 percent used to determine the 2014 net periodic benefit cost for the U.S. plan is an average of the discount rates used during the year of 4.50 percent for the first six months of the year and 4.00 percent for the last six months of the year.

The discount rate for the U.S. plan is determined through a modeling process utilizing a customized portfolio of high-quality bonds whose annual cash flows cover the expected benefit payments of the plan, as well as comparing the results of our modeling to other corporate bond and pension liability indices. Appropriate benchmarks are used to determine the discount rate for the international plans. The expected long-term rate of return on assets assumption is derived from a study that includes a review of anticipated future long-term performance of individual asset classes and consideration of the appropriate asset allocation strategy given the anticipated requirements of the plan to determine the average rate of earnings expected on the funds invested to provide for the pension plan benefits. While the study gives appropriate consideration to recent fund performance and historical returns, the assumption is primarily a long-term, prospective rate. The expected long-term rate of return on assets assumption for the international plans reflects the investment allocation and expected total portfolio returns specific to each plan and country. Beginning in 2011, the projected salary increase assumption was not applicable for the U.S. plan due to the elimination of benefit accruals as of January 1, 2011.

The mortality table for the U.S. plan was updated to use the "RP 2014 Mortality Tables" for December 31, 2014. The impact of converting to the new table increased the projected benefit liability by $2.3 million and will increase 2015 expense by $0.3 million.

The plans' asset allocations by asset category were as follows:



	United States				International
	As of December 31,				As of December 31,
	2014		2013		2014		2013
Short-term investments	1	%	1	%	1	%	1	%
Fixed income securities	23	%	18	%	24	%	23	%
Equity securities	57	%	63	%	—	%	—	%
Absolute return strategy equity funds	19	%	18	%	—	%	—	%
Insurance contracts	—	%	—	%	75	%	76	%
Total	100	%	100	%	100	%	100	%

For the U.S. plan, we maintain target allocation percentages among various asset classes based on an investment policy established for the plan, which is designed to achieve long-term objectives of return, while mitigating against downside risk and considering expected cash flows. The current target asset allocation includes equity securities at 35 to 80 percent, fixed income securities at 20 to 40 percent and other investments at 10 to 20 percent. Other investments include short-term investments and absolute return strategy funds which are investments designed to achieve a certain return. Management reviews our U.S. investment policy for the plan at least annually. Outside the U.S., the investment objectives are similar to the U.S., subject to local regulations. In some countries, a higher percentage allocation to fixed income securities is required.

As of December 31, 2014, the following reflects future benefit payments services expected to be paid, by the plans, in each of the next five years and in the aggregate for the five years thereafter:



	United States	International
	(In millions)
2015	$15.7	$1.1
2016	5.0	1.2
2017	4.6	1.2
2018	4.6	1.2
2019	4.7	1.2
2020-2024	25.5	7.0

The assets in our defined benefit pension plans are measured at fair value on a recurring basis (at least annually). A three-level hierarchy is used for fair value measurements based upon the observability of the inputs to the valuation of an asset or liability as of the measurement date.

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

Short-term investments. The carrying value of these assets approximates fair value because maturities are generally less than three months. Accordingly, these investments are classified as Level 1 financial instruments.

Mutual funds. Investments in mutual funds are valued using the net asset value (NAV) of shares held as of December 31st. The NAV is a quoted transactional price for participants in the fund which do not represent an active market. In relation to these investments, there are no unfunded commitments and the shares can be redeemed on a daily basis with minimal restrictions. Events that may lead to a restriction to transact with the funds are not considered probable. These investments are generally classified as Level 1 financial instruments, however for certain mutual funds, the NAV is not published, and accordingly, these investments are classified as Level 2 financial instruments. The investment objective of our mutual funds in the U.S. Plan is to provide capital appreciation through an investment strategy that allocates its assets among limited liability companies and/or separate investment accounts or to invest in large cap equity funds focusing on high quality yields through short maturity investments in spread sectors depending on the fund.

Common stocks. Investments in common stock are valued at the closing price reported on major markets on which the individual securities are traded. Accordingly, these investments are classified as Level 1 financial instruments.

Comingled trust funds. These assets are valued using the NAV of shares as of December 31st. The NAV is a quoted transactional price for participants in the fund which do not represent an active market. In relation to these investments, there are no unfunded commitments and the shares can be redeemed on a daily basis with minimal restrictions. Events that may lead to a restriction to transact with the funds are not considered probable. These investments are classified as Level 2 financial instruments. The Fund’s investment objective is to achieve long-term growth primarily by investing in a diversified portfolio of equity securities of companies located in any country other than the United States.

Insurance contracts. These assets are valued using quoted prices for similar assets. Accordingly, these investments are classified as Level 2 financial instruments.

These methods may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values. Furthermore, while we believe the 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 value measurement. Investments, in general, are subject to various risks, including credit, interest and overall market volatility risks. There were no transfers into or out of Level 1 or Level 2 during the years ended December 31, 2014 or December 31, 2013.

The fair value of the plan assets by asset category were as follows:



United States	December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Short-term investments
Money market securities	$	0.4	$	0.4	$	—	$	—
Mutual Funds
Equity securities
Large-cap growth funds	14.6		—		14.6		—
International growth fund	10.8		7.3		3.5		—
Fixed income securities	15.5		15.5		—		—
Absolute return strategy funds	13.2		—		13.2		—
Common stocks	7.3		7.3		—		—
Commingled trust funds	5.7		—		5.7		—
Total	$	67.5	$	30.5	$	37.0	$	—



International	December 31, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Short-term investments
Other	$	0.3	$	—	$	0.3	$	—
Mutual Funds
Fixed income securities	5.7		—		5.7		—
Insurance contracts	17.6		—		17.6		—
Total	$	23.6	$	—	$	23.6	$	—



United States	December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Short-term investments
Money market securities	$	0.5	$	0.5	$	—	$	—
Mutual Funds
Equity securities
Large-cap growth funds	16.1		—		16.1		—
International growth fund	11.1		7.5		3.6		—
Fixed income securities	13.0		13.0		—		—
Absolute return strategy funds	12.8		—		12.8		—
Common stocks	8.3		8.3		—		—
Commingled trust funds	9.2		—		9.2		—
Total	$	71.0	$	29.3	$	41.7	$	—



International	December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Short-term investments
Other	$	0.3	$	—	$	0.3	$	—
Mutual Funds
Equity securities - blended funds	—		—		—		—
Fixed income securities	6.1		—		6.1		—
Insurance contracts	19.7		—		19.7		—
Total	$	26.1	$	—	$	26.1	$	—

Employee Retirement Savings Plans

Effective January 1, 2011, our matching formula under our 401(k) retirement plan is 100 percent of employee contributions up to the first five percent of eligible compensation. We used shares of treasury stock to match employee 401(k) contributions for 2014, 2013 and 2012. Starting in January 1, 2015, we will be matching contributions in cash. Total expense related to the use of shares of treasury stock to match employee 401(k) contributions was $1.8 million, $1.7 million and $2.3 million in 2014, 2013 and 2012, respectively.

We also sponsor a variable compensation program in which we may, at our discretion, contribute up to three percent of eligible employee compensation to employees’ 401(k) retirement accounts, depending upon total Company performance. We use shares of treasury stock for this contribution. A contribution of $0.4 million was made under the variable compensation program during the year ended December 31, 2014 for 2013. No contribution was made under the variable compensation program during the year ended December 31, 2013 for 2012. A contribution of $0.7 million was made under the variable compensation program during the year ended December 31, 2012 for 2011.