Retirement Plans

Pension Plans

We have various non-contributory defined benefit pension plans covering employees in the United States (the “U.S. plan”) and Germany (the “German plan”) employed prior to January 1, 2010. Total pension expense was $0.8 million and $2.6 million in 2017 and 2016, respectively. The measurement date of our pension plans is December 31st. We contributed $0.5 million to our worldwide pension plans related to the plan year ending December 31, 2017. We presently anticipate contributing approximately $2.8 million to fund our worldwide pension plans in 2018. It is our general practice to fund amounts sufficient to meet the requirements set forth in applicable benefits laws and local tax laws.

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 2.86 percent for 2017. In accordance with the annual update process, the interest credit rate will be 2.80 percent for 2018.

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 2017 and 2016 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 and $2.9 million during the years ended 2017 and 2016, respectively. These settlement losses are included in restructuring and other in our Consolidated Statements of Operations.

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

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						Germany
	As of December 31,						As of December 31,
	2017			2016			2017			2016
	(In millions)
Change in benefit obligation
Benefit obligation, beginning of year	$	64.9		$	72.8		$	24.1		$	22.8
Interest cost	2.5			2.9			0.4			0.6
Actuarial (gain) loss	2.5			1.1			(0.1		)	2.5
Benefits paid	(2.5		)	(2.3		)	(1.0		)	(0.9		)
Settlement payments	(3.7		)	(9.6		)	—			—
Foreign exchange rate changes	—			—			3.4			(0.9		)
Projected benefit obligation, end of year	$	63.7		$	64.9		$	26.8		$	24.1
Change in plan assets
Fair value of plan assets, beginning of year	$	49.8		$	59.1		$	15.2		$	18.6
Actual return on plan assets	4.8			2.5			1.1			0.7
Foreign exchange rate changes	—			—			2.1			(0.5		)
Company contributions	0.4			0.1			0.1			(2.7		)
Benefits paid	(2.5		)	(2.3		)	(1.0		)	(0.9		)
Settlement payments	(3.7		)	(9.6		)	—			—
Fair value of plan assets, end of year	48.8			49.8			17.5			15.2
Funded status of the plan, end of year	$	(14.9	)	$	(15.1	)	$	(9.3	)	$	(8.9	)

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



	United States				Germany
	As of December 31,				As of December 31,
	2017		2016		2017		2016
	(In millions)
Noncurrent liabilities	(14.9	)	(15.1	)	(9.3	)	(8.9	)
Accumulated other comprehensive loss — pre-tax	18.9		19.3		9.8		9.4

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



	United States				Germany
	As of December 31,				As of December 31,
	2017		2016		2017		2016
	(In millions)
Net actuarial loss	$	18.9	$	19.3	$	9.8	$	9.4
Total	$	18.9	$	19.3	$	9.8	$	9.4

The following table includes information for pension plans with an accumulated benefit obligation in excess of plan assets.



	United States				Germany
	As of December 31,				As of December 31,
	2017		2016		2017		2016
	(In millions)
Projected benefit obligation, end of year	$	63.7	$	64.9	$	26.8	$	24.1
Accumulated benefit obligation, end of year	63.7		64.9		26.8		24.1
Plan assets at fair value, end of year	48.8		49.8		17.5		15.2

Components of net periodic pension cost included the following:



	United States						Germany
	Years Ended December 31,						Years Ended December 31,
	2017			2016			2017			2016
	(In millions)
Interest cost	2.5			2.9			0.4			0.6
Expected return on plan assets	(3.3		)	(3.8		)	(0.6		)	(0.6		)
Amortization of net actuarial loss	0.3			0.4			0.4			0.2
Net periodic pension cost (credit)	(0.5		)	(0.5		)	0.2			0.2
Settlements and curtailments	1.1			2.9						—
Total pension cost	$	0.6		$	2.4		$	0.2		$	0.2

The German plan is the only remaining international plan and incurred pension costs of $0.2 million for the years ended December 31, 2017 and 2016.

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 2018 are a $0.8 million loss, $0.0 million and $0.0 million, respectively.

Assumptions used to determine benefit obligations were as follows:



	United States				Germany
	As of December 31,				As of December 31,
	2017		2016		2017		2016
Discount rate	3.50	%	4.00	%	1.56	%	1.60	%
Rate of compensation increase	—	%	—	%	—	%	—	%

Assumptions used to determine net periodic benefit costs were as follows:



	United States				Germany
	As of December 31,				As of December 31,
	2017		2016		2017		2016
Discount rate	4.00	%	4.25	%	1.56	%	1.60	%
Expected return on plan assets	6.50	%	6.50	%	3.50	%	3.50	%
Rate of compensation increase	—	%	—	%	—	%	—	%

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 conducted by our actuaries and investment managers 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 German plan reflects the investment allocation and expected total portfolio returns specific to that 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. Beginning in 2016, it was no longer applicable for the German plan.

The mortality table for the U.S. plan used the RP 2014 Mortality Table adjusted and projected with the MP-2017 Improvement Scale for December 31, 2017.

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



	United States				International
	As of December 31,				As of December 31,
	2017		2016		2017		2016
Short-term investments	1	%	1	%	—	%	—	%
Fixed income securities	27	%	60	%	—	%	—	%
Equity securities	72	%	39	%	—	%	—	%
Insurance contracts	—	%	—	%	100	%	100	%
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 65 percent, fixed income securities at 25 percent and other investments of 10 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, 2017, the following reflects estimated future benefit payments in each of the next five years and in the aggregate for the five years thereafter:



	United States	International
	(In millions)
2018	$14.7	$1.0
2019	3.9	1.1
2020	4.1	1.1
2021	4.4	1.1
2022	4.1	1.2
2022-2026	18.6	5.9

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. 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. 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.

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



United States	December 31, 2017		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 *	19.0		—		—		—
International growth fund *	15.7		—		—		—
Common stocks	0.6		0.6		—		—
Commingled trust funds *	13.0		—		—		—
Total	$	48.8	$	1.1	$	—	$	—

* In accordance with ASC 820-10, certain investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.



International	December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Insurance contracts	17.5		—		17.5		—
Total	$	17.5	$	—	$	17.5	$	—



United States	December 31, 2016		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 *	11.5		—		—		—
International growth fund *	3.4		—		—		—
Common stocks	4.3		4.3		—		—
Commingled trust funds *	30.1		—		—		—
Total	$	49.8	$	4.8	$	—	$	—



International	December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)
Insurance contracts	15.2		—		15.2		—
Total	$	15.2	$	—	$	15.2	$	—

Employee Retirement Savings Plans

Effective January 1, 2016, the Company no longer makes matching or variable contributions to the 401(k) retirement plan.