PENSION AND OTHER RETIREMENT BENEFITS

12 Months Ended

Dec. 31, 2015

NOTE 12 PENSION AND OTHER RETIREMENT BENEFITS

U.S. Plans

Moody’s maintains funded and unfunded noncontributory Defined Benefit Pension Plans. The U.S. plans provide defined benefits using a cash balance formula based on years of service and career average salary or final average pay for selected executives. The Company also provides certain healthcare and life insurance benefits for retired U.S. employees. The retirement healthcare plans are contributory; the life insurance plans are noncontributory. Moody’s funded and unfunded U.S. pension plans, the U.S. retirement healthcare plans and the U.S. retirement life insurance plans are collectively referred to herein as the “Retirement Plans”. The U.S. retirement healthcare plans and the U.S. retirement life insurance plans are collectively referred to herein as the “Other Retirement Plans”. Effective at the Distribution Date, Moody’s assumed responsibility for the pension and other retirement benefits relating to its active employees. New D&B has assumed responsibility for the Company’s retirees and vested terminated employees as of the Distribution Date.

Through 2007, substantially all U.S. employees were eligible to participate in the Company’s DBPPs. Effective January 1, 2008, the Company no longer offers DBPPs to U.S. employees hired or rehired on or after January 1, 2008 and new hires in the U.S. instead will receive a retirement contribution in similar benefit value under the Company’s Profit Participation Plan. Current participants of the Company’s Retirement Plans and Other Retirement Plans continue to accrue benefits based on existing plan benefit formulas.

Following is a summary of changes in benefit obligations and fair value of plan assets for the Retirement Plans for the years ended December 31:

			Pension Plans					Other Retirement Plans
			2015			2014			2015		2014
Change in benefit obligation:
	Benefit obligation, beginning of the period			$	(461.8)	$	(347.1)		$	(26.7)	$	(20.7)
		Service cost			(21.6)		(18.4)			(2.2)		(1.7)
		Interest cost			(16.9)		(16.5)			(1.0)		(0.9)
		Plan participants’ contributions			-		-			(0.4)		(0.4)
		Plan amendments			6.4		-			1.2		-
		Benefits paid			7.5		6.4			0.8		0.6
		Actuarial gain (loss)			1.9		(8.3)			(0.1)		(0.1)
		Assumption changes			25.3		(77.9)			1.4		(3.5)
	Benefit obligation, end of the period				(459.2)		(461.8)			(27.0)		(26.7)

Change in plan assets:
	Fair value of plan assets, beginning of the period				248.4		204.6			-		-
		Actual return on plan assets			(4.5)		12.9			-		-
		Benefits paid			(7.4)		(6.4)			(0.8)		(0.6)
		Employer contributions			24.4		37.3			0.4		0.2
		Plan participants' contributions			-		-			0.4		0.4
	Fair value of plan assets, end of the period			$	260.9	$	248.4		$	-	$	-
Funded Status of the plans				$	(198.3)	$	(213.4)		$	(27.0)	$	(26.7)

Amounts recorded on the consolidated balance sheets:
	Pension and retirement benefits liability - current			$	(4.4)	$	(4.3)		$	(1.0)	$	(0.8)
	Pension and retirement benefits liability - non current				(193.9)		(209.1)			(26.0)		(25.9)
Net amount recognized				$	(198.3)	$	(213.4)		$	(27.0)	$	(26.7)

Accumulated benefit obligation, end of the period				$	(405.3)	$	(396.3)

The following information is for those pension plans with an accumulated benefit obligation in excess of plan assets:

	December 31,
	2015		2014
Aggregate projected benefit obligation	$	459.2	$	461.8
Aggregate accumulated benefit obligation	$	405.3	$	396.3
Aggregate fair value of plan assets	$	260.9	$	248.4

The following table summarizes the pre-tax net actuarial losses and prior service cost recognized in AOCI for the Company’s Retirement Plans as of December 31:

	Pension Plans				Other Retirement Plans
	2015		2014		2015		2014
Net actuarial losses	$	(144.6)	$	(165.5)	$	(4.4)	$	(6.0)
Net prior service costs		4.5		(2.7)		1.2		-
Total recognized in AOCI- pretax	$	(140.1)	$	(168.2)	$	(3.2)	$	(6.0)

The following table summarizes the estimated pre-tax net actuarial losses and prior service cost for the Company’s Retirement Plans that will be amortized from AOCI and recognized as components of net periodic expense during the next fiscal year:

	Pension Plans		Other Retirement Plans
Net actuarial losses	$	10.3	$	0.2
Net prior service costs		0.1		(0.3)
Total to be recognized as components of net periodic expense	$	10.4	$	(0.1)

Net periodic benefit expenses recognized for the Retirement Plans for years ended December 31:

	Pension Plans						Other Retirement Plans
	2015		2014		2013		2015		2014		2013
Components of net periodic expense
Service cost	$	21.6	$	18.4	$	19.8	$	2.2	$	1.7	$	1.7
Interest cost		16.9		16.5		13.5		1.0		0.9		0.8
Expected return on plan assets		(14.4)		(14.3)		(12.9)		-		-		-
Amortization of net actuarial loss from earlier periods		12.5		6.6		10.8		0.3		-		0.3
Amortization of net prior service costs from earlier periods		0.7		0.7		0.6		-		-		-
Net periodic expense	$	37.3	$	27.9	$	31.8	$	3.5	$	2.6	$	2.8

The following table summarizes the pre-tax amounts recorded in OCI related to the Company’s Retirement Plans for the years ended December 31:

	Pension Plans				Other Retirement Plans
	2015		2014		2015		2014
Amortization of net actuarial losses	$	12.5	$	6.6	$	0.3	$	-
Amortization of prior service costs		0.7		0.7		-		-
Prior service costs		6.5		-		1.2		-
Net actuarial gain (loss) arising during the period		8.4		(87.5)		1.3		(3.7)
Total recognized in OCI – pre-tax	$	28.1	$	(80.2)	$	2.8	$	(3.7)

ADDITIONAL INFORMATION:

Assumptions – Retirement Plans

Weighted-average assumptions used to determine benefit obligations at December 31:

	Pension Plans		Other Retirement Plans
	2015	2014	2015	2014
Discount rate	4.04%	3.78%	4.00%	3.65%
Rate of compensation increase	3.74%	3.76%	-	-

Weighted-average assumptions used to determine net periodic benefit expense for years ended December 31:

	Pension Plans			Other Retirement Plans
	2015	2014	2013	2015	2014	2013
Discount rate	3.78%	4.71%	3.82%	3.65%	4.45%	3.55%
Expected return on plan assets	5.80%	6.80%	7.30%	-	-	-
Rate of compensation increase	3.76%	4.00%	4.00%	-	-	-

The expected rate of return on plan assets represents the Company’s best estimate of the long-term return on plan assets and is determined by using a building block approach, which generally weighs the underlying long-term expected rate of return for each major asset class based on their respective allocation target within the plan portfolio, net of plan paid expenses. As the assumption reflects a long-term time horizon, the plan performance in any one particular year does not, by itself, significantly influence the Company’s evaluation. For 2015, the expected rate of return used in calculating the net periodic benefit costs was 5.80%. For 2016, the Company’s expected rate of return assumption was 6.10% to reflect the Company’s current view of long-term capital market outlook. In addition, the Company has updated its mortality assumption by adopting the newly released RP-2014 mortality tables and accompanying mortality improvement scale MP-2015 recently issued by the Society of Actuaries. Additionally, the assumed healthcare cost trend rate assumption is not material to the valuation of the other retirement plans.

Plan Assets

Moody’s investment objective for the assets in the funded pension plan is to earn total returns that will minimize future contribution requirements over the long-term within a prudent level of risk. The Company works with its independent investment consultants to determine asset allocation targets for its pension plan investment portfolio based on its assessment of business and financial conditions, demographic and actuarial data, funding characteristics, and related risk factors. Other relevant factors, including historical and forward looking views of inflation and capital market returns, are also considered. Risk management practices include monitoring plan asset performance, diversification across asset classes and investment styles, and periodic rebalancing toward asset allocation targets. The Company’s Asset Management Committee is responsible for overseeing the investment activities of the plan, which includes selecting acceptable asset classes, defining allowable ranges of holdings by asset class and by individual investment managers, defining acceptable securities within each asset class, and establishing investment performance expectations. Ongoing monitoring of the plan includes reviews of investment performance and managers on a regular basis, annual liability measurements, and periodic asset/liability studies.

In 2014, the Company implemented a revised investment policy, which uses risk-controlled investment strategies by increasing the plan’s asset allocation to fixed income securities and specifying ranges of acceptable target allocation by asset class based on different levels of the plan’s accounting funded status. In addition, the investment policy also requires the investment grade fixed income asset be rebalanced between shorter and longer duration bonds as the interest rate environment changes. This revised investment policy is designed to help protect the plan’s funded status and to limit volatility of the Company’s contributions. Based on the revised policy, the Company’s current target asset allocation is approximately 53% (range of 48% to 58%) in equity securities, 40% (range of 35% to 45%) in fixed income securities and 7% (range of 4% to 10% ) in other investments and the plan will use a combination of active and passive investment strategies and different investment styles for its investment portfolios within each asset class. The plan’s equity investments are diversified across U.S. and non-U.S. stocks of small, medium and large capitalization. The plan’s fixed income investments are diversified principally across U.S. and non-U.S. government and corporate bonds which are expected to help reduce plan exposure to interest rate variation and to better align assets with obligations. The plan also invests in other fixed income investments such debts rated below investment grade, emerging market debt, and convertible securities. The plan’s other investment, which is made through private real estate investment trust fund, is expected to provide additional diversification benefits and absolute return enhancement to the plan assets.

Fair value of the assets in the Company’s funded pension plan by asset category at December 31, 2015 and 2014 are as follows:

		Fair Value Measurement as of December 31, 2015
Asset Category		Balance		Level 1		Level 2		% of total assets
Cash and cash equivalent		$	0.5	$	-	$	0.5	-
Common/collective trust funds - equity securities
	Global large-cap		99.9		-		99.9	38%
	U.S. small and mid-cap		16.0		-		16.0	6%
	Emerging markets		16.5		-		16.5	6%
Total equity investments			132.4		-		132.4	51%

Emerging markets bond fund			10.6		10.6		-	4%

Common/collective trust funds - fixed income securities
	Intermediate-term investment grade U.S. government/ corporate bonds		69.8		-		69.8	27%
	U.S. Treasury Inflation-Protected Securities (TIPs)		12.5		-		12.5	5%
Private investment fund - convertible securities			7.3		-		7.3	3%
Private investment fund - high yield securities			7.4		-		7.4	3%
Total fixed-income investments			107.6		10.6		97.0	41%
Other investment- Common/collective trust fund — private real estate fund			20.4		-		20.4	8%
Total Assets		$	260.9	$	10.6	$	250.3	100%

		Fair Value Measurement as of December 31, 2014
Asset Category		Balance		Level 1		Level 2		% of total assets
Cash and cash equivalent		$	13.2	$	-	$	13.2	5%
Emerging markets equity fund			14.0	$	14.0	$	-	6%
Common/collective trust funds - equity securities
	U.S. large-cap		92.2		-		92.2	37%
	U.S. small and mid-cap		16.5		-		16.5	7%
Total equity investments			122.7		14.0		108.7	50%
Emerging markets bond fund			9.1		9.1		-	4%
Common/collective trust funds - fixed income securities
	Intermediate-term investment grade U.S. government/ corporate bonds		60.8		-		60.8	24%
	U.S. Treasury Inflation-Protected Securities (TIPs)		10.7		-		10.7	4%
	Convertible securities		7.5		-		7.5	3%
Private investment fund - high yield securities			6.7		-		6.7	3%
Total fixed-income investments			94.8		9.1		85.7	38%
Other investment - Common/collective trust fund - private real estate fund			17.8		-		17.8	7%
Total Assets		$	248.5	$	23.1	$	225.4	100%

Cash and cash equivalents are primarily comprised of investment in money market mutual funds. In determining fair value, Level 1 investments are valued based on quoted market prices in active markets. Investments in common/collective trust funds are valued using the net asset value (NAV) per unit in each fund. The NAV is based on the value of the underlying investments owned by each trust, minus its liabilities, and then divided by the number of shares outstanding. Common/collective trust funds are categorized in Level 2 to the extent that they are readily redeemable at their NAV as of the measurement date or in the near feature or else they are categorized in Level 3 of the fair value hierarchy.

Except for the Company’s U.S. funded pension plan, all of Moody’s Retirement Plans are unfunded and therefore have no plan assets.

Cash Flows

The Company contributed $21.6 million and $33.7 million to its U.S. funded pension plan during the years ended December 31, 2015 and 2014, respectively. The Company made payments of $2.7 million and $3.6 million related to its U.S. unfunded pension plan obligations during the years ended December 31, 2015 and 2014, respectively. The Company made payments of $0.4 million and $0.6 million to its Other Retirement Plans during the years ended December 31, 2015 and 2014, respectively. The Company presently anticipates making contributions of $22.0 million to its funded pension plan and anticipates making payments of $4.4 million related to its unfunded U.S. pension plans and $1.0 million related to its Other Retirement Plans during the year ended December 31, 2015.

Estimated Future Benefits Payable

Estimated future benefits payments for the Retirement Plans are as follows at ended December 31, 2015:

Year Ending December 31,	Pension Plans		Other Retirement Plans
Year Ending December 31,	Pension Plans		Other Retirement Plans
2016	$	10.8	$	1.0
2017		12.6		1.1
2018		42.4		1.3
2019		16.0		1.4
2020		17.5		1.6
2021 – 2025	$	133.6	$	10.5

Defined Contribution Plans

Moody’s has a Profit Participation Plan covering substantially all U.S. employees. The Profit Participation Plan provides for an employee salary deferral and the Company matches employee contributions, equal to 50% of employee contribution up to a maximum of 3% of the employee’s pay. Moody’s also makes additional contributions to the Profit Participation Plan based on year-to-year growth in the Company’s EPS. Effective January 1, 2008, all new hires are automatically enrolled in the Profit Participation Plan when they meet eligibility requirements unless they decline participation. As the Company’s U.S. DBPPs are closed to new entrants effective January 1, 2008, all eligible new hires will instead receive a retirement contribution into the Profit Participation Plan in value similar to the pension benefits. Additionally, effective January 1, 2008, the Company implemented a deferred compensation plan in the U.S., which is unfunded and provides for employee deferral of compensation and Company matching contributions related to compensation in excess of the IRS limitations on benefits and contributions under qualified retirement plans. Total expenses associated with U.S. defined contribution plans were $21.1 million, $26.8 million and $18.8 million in 2015, 2014, and 2013, respectively.

Effective January 1, 2008, Moody’s has designated the Moody’s Stock Fund, an investment option under the Profit Participation Plan, as an Employee Stock Ownership Plan and, as a result, participants in the Moody’s Stock Fund may receive dividends in cash or may reinvest such dividends into the Moody’s Stock Fund. Moody’s paid approximately $0.7 million and $0.6 million in dividends during the years ended December 31, 2015 and 2014, respectively, for the Company’s common shares held by the Moody’s Stock Fund. The Company records the dividends as a reduction of retained earnings in the Consolidated Statements of Shareholders’ Equity (Deficit). The Moody’s Stock Fund held approximately 488,000 and 490,000 shares of Moody’s common stock at December 31, 2015 and 2014, respectively.

International Plans

Certain of the Company’s international operations provide pension benefits to their employees. The non-U.S. defined benefit pension plans are immaterial. For defined contribution plans, company contributions are primarily determined as a percentage of employees’ eligible compensation. Moody’s also makes contributions to non-U.S. employees under a profit sharing plan which is based on year-to-year growth in the Company’s diluted EPS. Expenses related to these defined contribution plans for the years ended December 31, 2015, 2014 and 2013 were $26.7 million, $30.6 million and $19.7 million, respectively.