EMPLOYEE BENEFIT PLANS

Pensions

The Company sponsors a frozen defined benefit pension plan, which includes both a qualified and non-qualified portion, for all eligible employees (the cash balance plan) in the U.S and unfunded defined benefit plans for certain eligible employees in the Philippines, Malaysia and France (together with the cash balance plan, the defined benefit plans).The pension benefit formula for the cash balance plan is determined by a combination of compensation and age-based credits and annual guaranteed interest credits. The qualified portion of the cash balance plan has been funded through contributions made to a trust fund in accordance with the Pension Protection Act of 2006.

Based on the funded status of the cash balance plan and mandatory legislative requirements under the Pension Protection Act, beginning April 29, 2009, lump sum payments from the cash balance plan were partially restricted. In December 2012, the Company made contributions to the plan to satisfy funding requirements for 2013. Subsequently, on January 18, 2013, the Company received an Adjusted Funding Target Attainment Percentage (AFTAP) certification stating that the 2013 AFTAP for the defined benefit plan is 80 percent or higher. Accordingly, limitations on accelerated benefit distributions and benefit accruals no longer apply as of the date of the certification. The Company’s measurement date for all plans is December 31. The projected unit credit cost method is used for determining the unfunded executive pension cost for financial reporting purposes. The plan assumptions are evaluated annually and are updated as necessary.

Components of pension cost and other amounts recognized in other comprehensive income for the Company’s defined benefit plans are as follows:



	Year Ended December 31,
	2015			2014			2013
Service cost	$	7.5		$	7.1		$	5.0
Interest cost on projected benefit obligation	10.5			10.5			10.8
Expected return on plan assets	(10.2		)	(9.2		)	(10.0		)
Amortization and deferrals—net	10.4			8.1			11.6
Settlement charge	—			4.6			13.4
Total pension cost	$	18.2		$	21.1		$	30.8
Other comprehensive income (loss)	$	14.5		$	(23.4	)	$	46.9

During 2014 and 2013, the Company recognized non-cash pension settlement charges of $4.6 and $13.4, respectively, resulting from a high volume of lump sum distributions. No such charge was recognized during 2015.

The reconciliation of the defined benefit plans’ projected benefit obligation and the fair value of plan assets for the years ended December 31, 2015 and 2014 are as follows:



	At December 31,
	2015			2014
Change in benefit obligation:
Benefit obligation at beginning of year	$	259.6		$	228.1
Service cost	7.5			7.1
Interest cost	10.5			10.5
Assumed obligation from Stream	—			2.6
Actuarial loss (gain)	(16.2		)	35.2
Benefits paid	(18.5		)	(23.9		)
Benefit obligation at end of year	$	242.9		$	259.6
Change in plan assets:
Fair value of plan assets at beginning of year	$	150.5		$	162.9
Actual return on plan assets	(0.4		)	7.9
Employer contribution	25.6			3.6
Benefits paid	(18.5		)	(23.9		)
Fair value of plan assets at end of year	$	157.2		$	150.5
Funded status	$	(85.7	)	$	(109.1	)
Amounts recognized in the Consolidated Balance Sheets consisted of:
Current liability	$	(6.4	)	$	(5.6	)
Non-current liability	$	(79.3	)	$	(103.5	)
Accumulated other comprehensive loss	$	(64.4	)	$	(78.9	)

Accumulated other comprehensive loss at December 31, 2015 and 2014 includes unrecognized actuarial losses of $64.4 ($39.5 net of tax) and $78.9 ($47.2 net of tax), respectively. The actuarial loss included in accumulated other comprehensive loss that is expected to be recognized in net periodic pension cost during 2016 is $6.6. The accumulated benefit obligation for the defined benefit plans was $242.9 and $259.6 at December 31, 2015 and 2014, respectively.

Estimated future benefit payments from the defined benefit plans are as follows:



2016	$	17.0
2017	34.0
2018	35.1
2019	36.1
2020	36.1
2021 - 2025	106.2
Total	$	264.5

The Company also sponsors a non-qualified, unfunded executive deferred compensation plan (the EDCP), which permits eligible participants, including executive officers, to defer receipt of certain income. The EDCP was frozen as of December 31, 2011 and reinstated, effective January 1, 2014. The Company matches up to 100% of the first 3% of a participant’s deferred amounts and 50% of a participant’s next 2% of deferred amounts. The Company match under the EDCP is reduced by the Company match eligible to be received under the Company’s Retirement and Savings Plan.

Benefits for the EDCP are based on employee deferrals, matching contributions and investment earnings on participant accounts. As further described in Note 12, in December 2011, the Company made investments in certain securities which are held in a grantor trust for the benefit of participants of the executive deferred compensation plan. This investment was made in securities reflecting the hypothetical investment balances of plan participants.

Components of pension cost and other amounts recognized in other comprehensive loss for the EDCP are as follows:



	Year Ended December 31,
	2015			2014			2013
Service cost	$	1.5		$	1.3		$	—
Interest cost on projected benefit obligation	0.4			0.5			0.4
Amortization and deferrals—net	—			—			0.2
Settlement gain	—			—			(0.3		)
Total pension cost	$	1.9		$	1.8		$	0.3
Other comprehensive loss	$	(0.6	)	$	(0.8	)	$	(1.0	)

The reconciliation of the EDCP projected benefit obligation for the years ended December 31, 2015 and 2014 is as follows:



	At December 31,
	2015			2014
Change in benefit obligation:
Benefit obligation at beginning of year	$	14.4		$	14.2
Service cost	1.5			1.3
Interest cost	0.4			0.5
Actuarial loss	(0.6		)	0.8
Benefits paid	(2.0		)	(2.4		)
Benefit obligation at end of year	$	13.7		$	14.4
Funded status	$	(13.7	)	$	(14.4	)
Amounts recognized in the Consolidated Balance Sheets consisted of:
Current liability	$	(2.3	)	$	(2.3	)
Non-current liability	$	(11.4	)	$	(12.1	)
Accumulated other comprehensive income (loss)	$	1.1		$	(0.5	)

Accumulated other comprehensive loss at December 31, 2015 and 2014 includes unrecognized actuarial gains of $1.1 ($0.7 net of tax), and $0.5 ($0.3 net of tax). The accumulated benefit obligation for the EDCP was $13.7 and $14.4 at December 31, 2015 and 2014, respectively. There is no prior service cost expected to be recognized in net periodic pension cost during the year ending December 31, 2016.

Estimated future benefit payments from the EDCP are as follows:



2016	$	2.3
2017	3.3
2018	1.7
2019	1.7
2020	2.2
2021 - 2025	9.5
Total	$	20.7

The following weighted-average rates were used in determining the benefit obligations at December 31:



	2015			2014
Discount rate—projected benefit obligation	3.61%	-	5.56%	1.75%	-	4.90%
Future compensation growth rate	2.50%	-	4.50%	2.87%	-	4.00%
Expected long-term rate of return on plan assets	6.75%	-	7.00%	6.75%	-	7.00%

The following weighted-average rates were used in determining the pension cost for all years ended December 31:



	2015			2014			2013
Discount rate—projected benefit obligation	3.61%	-	5.56%	1.75%	-	4.90%	3.00%	-	4.61%
Future compensation growth rate	2.50%	-	4.50%	2.50%	-	4.00%	4.00%
Expected long-term rate of return on plan assets	6.75%	-	7.00%	6.75%	-	7.00%	6.75%	-	8.00%

The range of discount rates utilized in determining the pension cost and projected benefit obligation of the Company’s defined benefit plans reflects a lower prevalent rate applicable to the frozen cash balance plan for eligible employees in U.S. and a higher applicable rate for the unfunded defined benefit plan for certain eligible employees in the Philippines, France and Malaysia. The plans outside the U.S. represented approximately 16.3% and 15.4% of the Company’s total projected benefit obligation for all plans as of December 31, 2015 and 2014, respectively.

Change in Applying Discount Rate to Measure Benefit Costs

As of December 31, 2015, Convergys changed the method used to estimate the service and interest cost components of net periodic benefit cost for pension and other postretirement benefits. This change in methodology is expected to result in a decrease in the service and interest cost components for pension and other postretirement benefit costs beginning in the first quarter of 2016. Convergys historically estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Beginning in 2016, the Company has elected to utilize a full yield curve approach in the determination of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. Convergys elected to make this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of Convergys’ total benefit obligations at December 31, 2015 or net periodic pension cost recognized in 2015. Convergys has accounted for this change as a change in accounting estimate and accordingly has accounted for it prospectively.

The impact of this discount rate change compared to the previous method is expected to decrease estimated pension and other postretirement benefits service and interest cost by approximately $2.4 for 2016, or approximately $0.6 quarterly, with substantially all of the decrease attributable to interest cost. These reductions in service and interest cost will be completely offset within the actuarial gain or loss caption when the plans are remeasured, which typically occurs during the fourth quarter.

As of December 31, 2015 and 2014, plan assets for the cash balance plan consisted of common/collective trusts (of which approximately 65% are invested in equity backed funds and approximately 35% are invested in funds invested in fixed income instruments, including cash) and a private equity fund. At December 31, 2015, the Company’s targeted allocation was 65% equity and 35% fixed income. As of December 31, 2015, plan assets for the cash balance plan did not include any of the Company’s common shares, compared to $3.7 of the Company’s common shares included in plan assets at December 31, 2014. The investment objectives for the plan assets are to generate returns that will enable the plan to meet its future obligations. The Company’s expected long-term rate of return was determined based on the asset mix of the plan, projected returns, past performance and other factors. The Company contributed $20.0 and $10.0 in 2015 and 2014, respectively, to fund its cash balance plan, which satisfies its ERISA funding requirements through 2016. No plan assets are expected to be returned to the Company during 2016.

The following table sets forth by level, within the fair value hierarchy, the cash balance plan’s assets at fair value as of December 31, 2015 and 2014:



Investments	December 31, 2015		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Common/collective trusts:
Fixed income	$	54.0	$	—	$	54.0	$	—
U.S. large cap	61.8		—		61.8		—
U.S. small cap	10.6		—		10.6		—
International equity	28.0		—		28.0		—
Limited partnership	2.8		—		—		2.8
Total investments	$	157.2	$	—	$	154.4	$	2.8



Investments	December 31, 2014		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Common/collective trusts:
Fixed income	$	52.6	$	—	$	52.6	$	—
U.S. large cap	55.1		—		55.1		—
U.S. small cap	10.1		—		10.1		—
International equity	25.6		—		25.6		—
Convergys common shares	3.7		3.7		—		—
Limited partnership	3.4		—		—		3.4
Total investments	$	150.5	$	3.7	$	143.4	$	3.4

There were no transfers between the three levels of the fair value hierarchy during the years ended December 31, 2015 and 2014. For additional information on the fair value hierarchy, see Note 13.

The Company’s cash balance plan holds level 2 investments in common/collective trust funds that are public investment vehicles valued using a net asset value (NAV) provided by the manager of each fund. The NAV is based on the underlying net assets owned by the fund, divided by the number of shares outstanding. The NAV’s unit price is quoted on a private market that may not be active. However, the NAV is based on the fair value of the underlying securities within the fund, which are traded on an active market, and valued at the closing price reported on the active market on which those individual securities are traded. The significant investment strategies of the funds are as described in the financial statements provided by each fund. There are no restrictions on redemptions from these funds.

The Company’s cash balance plan holds Level 3 investments within equity funds that primarily invest in domestic early stage capital funds. The fair value of these investments is based on the net asset value per share of the fund. The cash balance plan has approximately $0.2 in future funding requirements associated with this investment. 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 the Company believes its valuation methodologies 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. The following table provides a reconciliation of the beginning and ending balances for the Level 3 assets:



	Year Ended December 31
	2015			2014
Balance, beginning of year	$	3.4		$	3.5
Unrealized losses relating to instruments still held at the reporting date	(0.6		)	(0.1		)
Balance, end of year	$	2.8		$	3.4

Savings Plans

The Company sponsors a defined contribution plan covering substantially all U.S. employees. The Company matches a portion of employee contributions to the plan. In 2014, the Company’s matching contribution changed from 100% of the first 3% to 100% of the first 3% and 50% of the next 2% of eligible compensation contributed by the participant. As a result, total Company contributions to the defined contribution plan were $7.4 in 2015 compared to $6.5 and $5.5 for 2014 and 2013, respectively. Plan assets for this plan included 0.9 ($23.6) and 1.1 ($21.8) of the Company’s common shares at December 31, 2015 and 2014, respectively.

Employee Postretirement Benefits Other Than Pensions

The Company sponsors postretirement health and life insurance plans for certain eligible employees. The plan provides eligible employees and retirees with the opportunity to direct an amount of their compensation or pension benefits to cover medical, dental and life insurance programs of their choice for their benefit and the benefit of their dependents. The plan covers both active and retired eligible employees of the Company and its subsidiaries. Employees’ eligibility to participate in the plan is based upon their date of hire.

The Company funds life insurance benefits of certain retirees through a Voluntary Employee Benefit Association (VEBA) trust. Contributions to the plan consist of (1) compensation or pension benefit deductions that the participant directs the Company, which is also the Plan Sponsor, to deposit into the plan on their behalf based on the coverage the participant has elected under the plan, and (2) amounts the Company pays to the plan that are in excess of the participant-directed deductions. Contributions to the VEBA are subject to Internal Revenue Service (IRS) limitations developed using the aggregate cost method. At December 31, 2006, the Company eliminated the postretirement life insurance plan benefits for non-retirement eligible employees. The Company’s postretirement benefit plan benefit was $0.8, $1.6, and $4.3 for 2015, 2014 and 2013, respectively. The amounts included within accumulated other comprehensive loss related to these benefits were $2.1 and $2.8 at December 31, 2015 and 2014, respectively.

Components of other post-employment benefit plan cost and other amounts recognized in other comprehensive (loss) income for the postretirement health and life insurance plans are as follows:



	2015			2014			2013
Interest cost on projected benefit obligation	$	0.2		$	0.2		$	0.2
Expected return on plan assets	(0.3		)	(0.3		)	(0.4		)
Amortization and deferrals—net	(0.7		)	(1.0		)	(3.8		)
Curtailment benefit	—			(0.5		)	(0.3		)
Total other benefit	$	(0.8	)	$	(1.6	)	$	(4.3	)
Other comprehensive loss	$	(0.7	)	$	(1.8	)	$	(2.0	)

The reconciliation of the postretirement health and life insurance plans’ projected benefit obligation and the fair value of plan assets for the years ended December 31, 2015 and 2014 are as follows:



	At December 31,
	2015			2014
Change in benefit obligation:
Benefit obligation at beginning of year	$	4.5		$	4.5
Interest cost	0.2			0.2
Actuarial (gain) loss	(0.2		)	0.1
Benefits paid	(0.3		)	(0.3		)
Benefit obligation at end of year	$	4.2		$	4.5
Change in plan assets:
Fair value of plan assets at beginning of year	$	4.2		$	4.9
Actual return on plan assets	0.1			0.1
Employer contribution	(0.6		)	(0.5		)
Benefits paid	(0.3		)	(0.3		)
Fair value of plan assets at end of year	$	3.4		$	4.2
Funded status	$	(0.8	)	$	(0.3	)
Amounts recognized in the Consolidated Balance Sheets consisted of:
Non-current assets	$	—		$	0.3
Current liability	$	(0.1	)	$	(0.1	)
Non-current liability	$	(0.7	)	$	(0.5	)
Accumulated other comprehensive income	$	2.1		$	2.8

Estimated future benefit payments from the postretirement health and life insurance plans are as follows:



2016	$	0.3
2017	0.5
2018	0.5
2019	0.5
2020	0.5
2021 - 2025	1.3
Total	$	3.6

Plan assets for the postretirement health and life insurance plans of $3.4 and $4.2 at December 31, 2015 and 2014, respectively, are comprised of money market accounts, a Level 1 measure. The Company expects to make $0.1 in contributions in 2016 to fund its post retirement health and life insurance plans. No plan assets are expected to be returned to the Company during 2016.