Retirement Benefits

We sponsor funded and unfunded pension plans and other postretirement benefit plans for our employees. The pension plans cover most of our employees and provide for monthly pension payments to eligible employees after retirement. Pension benefits for salaried employees generally are based on years of credited service and average earnings. Pension benefits for hourly employees are primarily based on specified benefit amounts and years of service. Effective July 1, 2010 we closed participation in our U.S. and Canada pension plans to employees hired after June 30, 2010. Employees hired after June 30, 2010 are instead eligible to participate in employee savings plans. The Company contributions are based on age and years of service and range from 3% to 7% of eligible compensation. Effective October 1, 2010, we also closed participation in our U.K. pension plan to employees hired after September 30, 2010 and these employees are now eligible for a defined contribution plan. Benefits to be provided to plan participants hired before July 1, 2010 or October 1, 2010, respectively, are not affected by these changes. Our policy with respect to funding our pension obligations is to fund the minimum amount required by applicable laws and governmental regulations. We were not required to make contributions to satisfy minimum funding requirements in our U.S. pension plans. However, we made a voluntary contribution of $200.0 million to our U.S. qualified pension plan in 2017. We did not make voluntary contributions to our U.S. qualified pension plan in 2016 or 2015. Other postretirement benefits are primarily in the form of retirement medical plans that cover most of our employees in the U.S. and Canada and provide for the payment of certain medical costs of eligible employees and dependents after retirement.

The components of net periodic benefit cost (income) are (in millions):



										Other Postretirement
	Pension Benefits									Benefits
	2017			2016			2015			2017			2016			2015
Service cost	$	97.0		$	88.0		$	85.7		$	1.4		$	1.3		$	1.5
Interest cost	151.6			169.5			167.2			2.5			3.3			4.1
Expected return on plan assets	(225.2		)	(218.3		)	(223.2		)	—			—			—
Amortization:
Prior service credit	(3.7		)	(2.9		)	(2.7		)	(6.1		)	(11.1		)	(14.5		)
Net actuarial loss	152.9			124.5			118.7			2.3			2.3			4.5
Special termination benefit	0.5			0.5			—			—			—			—
Settlements	2.8			—			—			—			—			—
Net periodic benefit cost (income)	$	175.9		$	161.3		$	145.7		$	0.1		$	(4.2	)	$	(4.4	)

Benefit obligation, plan assets, funded status and net liability information is summarized as follows (in millions):



	Pension Benefits						Other Postretirement Benefits
	2017			2016			2017			2016
Benefit obligation at beginning of year	$	4,785.9		$	4,282.2		$	86.9		$	93.3
Service cost	97.0			88.0			1.4			1.3
Interest cost	151.6			169.5			2.5			3.3
Actuarial (gains) losses	(221.9		)	515.4			(3.8		)	(0.2		)
Plan amendments	(6.9		)	(10.0		)	—			—
Plan participant contributions	3.9			4.3			3.4			4.0
Benefits paid	(251.9		)	(232.0		)	(13.4		)	(14.9		)
Special termination benefit	0.5			0.5			—			—
Settlements	(13.8		)	—			—			—
Curtailments	(1.0		)	—			—			—
Currency translation and other	41.6			(32.0		)	0.8			0.1
Benefit obligation at end of year	4,585.0			4,785.9			77.8			86.9
Plan assets at beginning of year	3,447.9			3,262.5			—			—
Actual return on plan assets	315.5			394.3			—			—
Company contributions	254.9			44.3			10.0			10.9
Plan participant contributions	3.9			4.3			3.4			4.0
Benefits paid	(251.9		)	(232.0		)	(13.4		)	(14.9		)
Settlements	(13.8		)	—			—			—
Currency translation and other	31.8			(25.5		)	—			—
Plan assets at end of year	3,788.3			3,447.9			—			—
Funded status of plans	$	(796.7	)	$	(1,338.0	)	$	(77.8	)	$	(86.9	)



Net amount on balance sheet consists of:
Other assets	$	10.6		$	0.1		$	—		$	—
Compensation and benefits	(11.7		)	(11.6		)	(9.5		)	(10.5		)
Retirement benefits	(795.6		)	(1,326.5		)	(68.3		)	(76.4		)
Net amount on balance sheet	$	(796.7	)	$	(1,338.0	)	$	(77.8	)	$	(86.9	)

Amounts included in accumulated other comprehensive loss, net of tax, at September 30, 2017 and 2016 which have not yet been recognized in net periodic benefit cost are as follows (in millions):



	Pension Benefits				Other Postretirement Benefits
	2017		2016		2017			2016
Prior service cost (credit)	$	5.3	$	4.9	$	(12.2	)	$	(15.9	)
Net actuarial loss	921.9		1,235.1		12.0			15.7
Total	$	927.2	$	1,240.0	$	(0.2	)	$	(0.2	)

During 2017, we recognized prior service credits of $9.8 million ($6.4 million net of tax) and net actuarial losses of $155.2 million ($101.8 million net of tax) in pension and other postretirement net periodic benefit cost, which were included in accumulated other comprehensive loss at September 30, 2016. In 2018, we expect to recognize prior service credits of $4.9 million ($3.5 million net of tax), and net actuarial losses of $115.4 million ($75.2 million net of tax) in pension and other postretirement net periodic benefit cost, which are included in accumulated other comprehensive loss at September 30, 2017.

The accumulated benefit obligation for our pension plans was $4,252.2 million and $4,429.1 million at September 30, 2017 and 2016, respectively.

Net Periodic Benefit Cost Assumptions

Significant assumptions used in determining net periodic benefit cost included in the Consolidated Statement of Operations for the period ended September 30 are (in weighted averages):



	Pension Benefits September 30,						Other Postretirement Benefits September 30,
	2017		2016		2015		2017		2016		2015
U.S. Plans
Discount rate	3.75	%	4.55	%	4.50	%	3.10	%	3.85	%	3.65	%
Expected return on plan assets	7.50	%	7.50	%	7.50	%	—		—		—
Compensation increase rate	3.50	%	3.75	%	3.75	%	—		—		—
Non-U.S. Plans
Discount rate	1.77	%	2.67	%	3.01	%	2.80	%	3.60	%	3.50	%
Expected return on plan assets	5.12	%	5.21	%	5.31	%	—		—		—
Compensation increase rate	2.86	%	3.11	%	3.16	%	—		—		—

Net Benefit Obligation Assumptions

Significant assumptions used in determining the benefit obligations included in the Consolidated Balance Sheet are (in weighted averages):



	Pension Benefits September 30,				Other Postretirement Benefits September 30,
	2017		2016		2017		2016
U.S. Plans
Discount rate	3.90	%	3.75	%	3.40	%	3.10	%
Compensation increase rate	3.50	%	3.50	%	—		—
Health care cost trend rate⁽¹⁾	—		—		6.50	%	6.50	%
Non-U.S. Plans
Discount rate	2.30	%	1.77	%	3.20	%	2.80	%
Compensation increase rate	2.99	%	2.86	%	—		—
Health care cost trend rate⁽¹⁾	—		—		4.50	%	4.95	%

(1)

The health care cost trend rate reflects the estimated increase in gross medical claims costs. As a result of the plan amendment adopted effective October 1, 2002, our effective per person retiree medical cost increase is zero percent beginning in 2005 for the majority of our postretirement benefit plans. For our other plans, we assume the gross health care cost trend rate will decrease to 5.50% in 2019 for U.S. Plans and will not change in 2018 for Non-U.S. Plans.

In determining the expected long-term rate of return on assets assumption, we consider actual returns on plan assets over the long term, adjusted for forward-looking considerations, such as inflation, interest rates, equity performance and the active management of the plan’s invested assets. We also considered our current and expected mix of plan assets in setting this assumption. This resulted in the selection of the weighted average long-term rate of return on assets assumption. Our global weighted-average targeted and actual asset allocations at September 30, by asset category, are:



	Allocation			Target	September 30,
Asset Category	Range			Allocations	2017	2016
Equity securities	40%	–	65%	52%	50%	50%
Debt securities	30%	–	50%	40%	42%	41%
Other	0%	–	15%	8%	8%	9%

The investment objective for pension funds related to our defined benefit plans is to meet the plan’s benefit obligations, while maximizing the long-term growth of assets without undue risk. We strive to achieve this objective by investing plan assets within target allocation ranges and diversification within asset categories. Target allocation ranges are guidelines that are adjusted periodically based on ongoing monitoring by plan fiduciaries. Investment risk is controlled by rebalancing to target allocations on a periodic basis and ongoing monitoring of investment manager performance relative to the investment guidelines established for each manager.

As of September 30, 2017 and 2016, our pension plans do not directly own our common stock.

In certain countries where we operate, there are no legal requirements or financial incentives provided to companies to pre-fund pension obligations. In these instances, we typically make benefit payments directly from cash as they become due, rather than by creating a separate pension fund.

The valuation methodologies used for our pension plans’ investments measured at fair value are described as follows. There have been no changes in the methodologies used at September 30, 2017 and 2016.

Common stock — Valued at the closing price reported on the active market on which the individual securities are traded.

Mutual funds — Valued at the net asset value (NAV) reported by the fund.

Corporate debt — Valued at either the yields currently available on comparable securities of issuers with similar credit ratings or valued under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable such as credit and liquidity risks.

Government securities — Valued at the most recent closing price on the active market on which the individual securities are traded or, absent an active market, utilizing observable inputs such as closing prices in less frequently traded markets.

Common collective trusts — Valued at the NAV as determined by the custodian of the fund. The NAV is based on the fair value of the underlying assets owned by the fund, minus its liabilities then divided by the number of units outstanding.

Private equity and alternative equity — Valued at the estimated fair value, as determined by the respective fund manager, based on the NAV of the investment units held at year end, which is subject to judgment.

Real estate funds — Consists of the real estate funds, which provide an indirect investment into a diversified and multi-sector portfolio of property assets. Publicly-traded real estate funds are valued at the most recent closing price reported on the SIX Swiss Exchange. The remainder is valued at the estimated fair value, as determined by the respective fund manager, based on the NAV of the investment units held at year end, which is subject to judgment.

Insurance contracts — Valued at the aggregate amount of accumulated contribution and investment income less amounts used to make benefit payments and administrative expenses which approximates fair value.

Other — Consists of other fixed income investments and common collective trusts with a mix of equity and fixed income underlying assets. Other fixed income investments are valued at the most recent closing price reported in the markets in which the individual securities are traded, which may be infrequently.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our 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 fair value measurement at the reporting date. Refer to Note 9 for further information regarding levels in the fair value hierarchy.

In accordance with ASC Subtopic 820-10, certain investments that are measured at fair value using the NAV (or its equivalent) 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 line items presented in the consolidated financial statements. The guidance under this subtopic was effective for us starting in fiscal 2017 and is required to be adopted on a retrospective basis. Accordingly, certain investments which were classified in the fair value hierarchy in the prior year are now presented as a single fair value outside of the hierarchy.

The following table presents our pension plans’ investments measured at fair value as of September 30, 2017:



	Level 1		Level 2		Level 3		Total
U.S. Plans
Cash and cash equivalents	$	1.1	$	—	$	—	$	1.1
Equity securities:
Mutual funds	230.1		—		—		230.1
Common stock	911.7		—		—		911.7
Common collective trusts	—		411.2		—		411.2
Fixed income securities:
Corporate debt	—		663.7		—		663.7
Government securities	247.0		109.4		—		356.4
Common collective trusts	—		204.1		—		204.1
Other types of investments:
Insurance contracts	—		—		0.9		0.9
Total U.S. Plans investments in fair value hierarchy	$	1,389.9	$	1,388.4	$	0.9	2,779.2
U.S. Plans investments measured at NAV:
Private equity							49.9
Alternative equity							61.0
Total U.S. Plans investments							2,890.1
Non-U.S. Plans
Cash and cash equivalents	$	3.3	$	—	$	—	3.3
Equity securities:
Common stock	57.3		—		—		57.3
Common collective trusts	—		311.1		—		311.1
Fixed income securities:
Corporate debt	—		37.0		—		37.0
Government securities	1.2		14.8		—		16.0
Common collective trusts	—		301.1		—		301.1
Other types of investments:
Real estate funds	—		86.6		—		86.6
Insurance contracts	—		—		71.5		71.5
Other	—		—		4.8		4.8
Total Non-U.S. Plans investments in fair value hierarchy	$	61.8	$	750.6	$	76.3	888.7
Non-U.S. Plans investments measured at NAV:
Real estate funds							9.5
Total Non-U.S. Plans investments							898.2
Total investments measured at fair value							$	3,788.3

The following table presents our pension plans’ investments measured at fair value as of September 30, 2016:



	Level 1		Level 2		Level 3		Total
U.S. Plans
Cash and cash equivalents	$	2.9	$	—	$	—	$	2.9
Equity securities:
Mutual funds	203.6		—		—		203.6
Common stock	705.9		—		—		705.9
Common collective trusts	—		483.6		—		483.6
Fixed income securities:
Corporate debt	—		591.8		—		591.8
Government securities	252.6		99.5		—		352.1
Common collective trusts	—		161.4		—		161.4
Other types of investments:
Insurance contracts	—		—		0.9		0.9
Total U.S. Plans investments in fair value hierarchy	$	1,165.0	$	1,336.3	$	0.9	2,502.2
U.S. Plans investments measured at NAV:
Private equity							57.1
Alternative equity							56.9
Total U.S. Plans investments							2,616.2
Non-U.S. Plans
Cash and cash equivalents	$	1.9	$	—	$	—	1.9
Equity securities:
Common stock	48.6		—		—		48.6
Common collective trusts	—		279.3		—		279.3
Fixed income securities:
Corporate debt	—		34.1		—		34.1
Government securities	10.0		7.6		—		17.6
Common collective trusts	—		271.1		—		271.1
Other types of investments:
Real estate funds	—		85.4		—		85.4
Insurance contracts	—		—		79.7		79.7
Other	—		—		4.8		4.8
Total Non-U.S. Plans investments in fair value hierarchy	$	60.5	$	677.5	$	84.5	822.5
Non-U.S. Plans investments measured at NAV:
Real estate funds							9.2
Total Non-U.S. Plans investments							831.7
Total investments measured at fair value							$	3,447.9

The table below sets forth a summary of changes in fair market value of our pension plans’ Level 3 assets for the year ended September 30, 2017:



	Balance October 1, 2016		Realized Gains (Losses)		Unrealized Gains (Losses)			Purchases, Sales, Issuances, and Settlements, Net		Balance September 30, 2017
U.S. Plans
Insurance contracts	$	0.9	$	—	$	—		$	—	$	0.9
Non-U.S. Plans
Insurance contracts	79.7		—		(13.4		)	5.2		71.5
Other	4.8		—		—			—		4.8
	$	85.4	$	—	$	(13.4	)	$	5.2	$	77.2

The table below sets forth a summary of changes in fair market value of our pension plans’ Level 3 assets for the year ended September 30, 2016:



	Balance October 1, 2015		Realized Gains (Losses)		Unrealized Gains (Losses)		Purchases, Sales, Issuances, and Settlements, Net		Balance September 30, 2016
U.S. Plans
Insurance contracts	$	0.9	$	—	$	—	$	—	$	0.9
Non-U.S. Plans
Insurance contracts	63.8		—		14.5		1.4		79.7
Other	4.4		—		—		0.4		4.8
	$	69.1	$	—	$	14.5	$	1.8	$	85.4

Estimated Future Payments

We expect to contribute $53.8 million related to our worldwide pension plans and $9.7 million to our postretirement benefit plans in 2018.

The following benefit payments, which include employees’ expected future service, as applicable, are expected to be paid (in millions):



	Pension Benefits		Other Postretirement Benefits
2018	$	267.1	$	9.7
2019	258.3		9.3
2020	272.7		6.0
2021	289.0		4.9
2022	305.8		4.7
2023 – 2027	1,451.6		20.2