Employee and Agent Benefits

12 Months Ended

Dec. 31, 2017

Employee and Agent Benefits

Employee and Agent Benefits

11. Employee and Agent Benefits

We have defined benefit pension plans covering substantially all of our U.S. employees and certain agents. Some of these plans provide supplemental pension benefits to employees and agents with salaries and/or pension benefits in excess of the qualified plan limits imposed by U.S. federal tax law. The employees and agents are generally first eligible for the pension plans when they reach age 21. For plan participants employed prior to January 1, 2002, the pension benefits are based on the greater of a final average pay benefit or a cash balance benefit. The final average pay benefit is based on the years of service and generally the employee's or agent's average annual compensation during the last five years of employment. Partial benefit accrual of final average pay benefits is recognized from first eligibility until retirement based on attained service divided by potential service to age 65 with a minimum of 35 years of potential service. The cash balance portion of the plan started on January 1, 2002. An employee's account is credited with an amount based on the employee's salary, age and service. These credits accrue with interest. For plan participants hired on and after January 1, 2002, only the cash balance plan applies. Our policy is to fund the cost of providing pension benefits in the years that the employees and agents are providing service to us. Our funding policy for the qualified defined benefit plan is to contribute an amount annually at least equal to the minimum annual contribution required under the Employee Retirement Income Security Act ("ERISA"), and, generally, not greater than the maximum amount that can be deducted for U.S. federal income tax purposes. Our funding policy for the nonqualified benefit plan is to fund the plan in the years the employees are providing service, taking into account the funded status of the trust. While we designate assets to cover the computed liability of the nonqualified plan, the assets are not included as part of the asset balances presented in this footnote as they do not qualify as plan assets in accordance with U.S. GAAP.

We also provide certain health care, life insurance and long-term care benefits for retired employees. Subsidized retiree health benefits are provided for employees hired prior to January 1, 2002 and who retire prior to January 1, 2020. Employees hired on or after January 1, 2002, or hired prior to January 1, 2002, and retire on or after January 1, 2020, have access to retiree health benefits but it is intended that they pay for the full cost of the coverage. The health care plans are contributory with participants' contributions adjusted annually. The contributions are based on the number of years of service and age at retirement for those hired prior to January 1, 2002, and who retired prior to January 1, 2011. For employees hired prior to January 1, 2002, and who retire on or after January 1, 2011, but prior to January 1, 2020, the contributions are 60% of the expected cost. As part of the substantive plan, the retiree health contributions are assumed to be adjusted in the future as claim levels change. The life insurance plans are contributory for a small group of previously grandfathered participants that have elected supplemental coverage and dependent coverage. The retiree group term life coverage is not subsidized for those who retire on or after January 1, 2020.

Covered employees are first eligible for the health and life postretirement benefits when they reach age 57 and have completed ten years of service with us. Retiree long-term care benefits are provided for employees whose retirement was effective prior to July 1, 2000. Our policy is to fund the cost of providing retiree benefits in the years the employees are providing service, taking into account the funded status of the trust.

Obligations and Funded Status

The plans' combined funded status, reconciled to amounts recognized in the consolidated statements of financial position, was as follows:

	Pension benefits						Other postretirement benefits
	December 31,						December 31,
	2017			2016			2017			2016
	(in millions)
Change in benefit obligation
Benefit obligation at beginning of year	$	(3,056.2	)	$	(3,052.2	)	$	(109.8	)	$	(165.7	)
Service cost		(67.1	)		(65.0	)		(0.1	)		(2.1	)
Interest cost		(124.4	)		(134.9	)		(3.9	)		(6.2	)
Actuarial gain (loss)		(268.0	)		(39.3	)		(1.7	)		5.8
Participant contribution		—			—			(3.5	)		(3.9	)
Benefits paid		109.0			235.2			9.9			10.7
Plan amendments		23.1			—			—			51.6
Benefit obligation at end of year	$	(3,383.6	)	$	(3,056.2	)	$	(109.1	)	$	(109.8	)
Change in plan assets
Fair value of plan assets at beginning of year	$	2,190.8		$	2,166.3		$	628.6		$	627.0
Actual return on plan assets		368.3			181.6			73.9			8.0
Employer contribution		92.1			78.1			0.7			0.4
Participant contributions		—			—			3.5			3.9
Benefits paid		(109.0	)		(235.2	)		(9.9	)		(10.7	)
Fair value of plan assets at end of year	$	2,542.2		$	2,190.8		$	696.8		$	628.6
Amount recognized in statement of financial position
Other assets	$	—		$	—		$	589.5		$	520.8
Other liabilities		(841.4	)		(865.4	)		(1.8	)		(2.0	)
Total	$	(841.4	)	$	(865.4	)	$	587.7		$	518.8
Amount recognized in accumulated other comprehensive (income) loss
Total net actuarial (gain) loss	$	682.8		$	706.9		$	(34.7	)	$	10.0
Prior service benefit		(23.7	)		(2.9	)		(24.1	)		(58.7	)
Pre-tax accumulated other comprehensive (income) loss	$	659.1		$	704.0		$	(58.8	)	$	(48.7	)

The accumulated benefit obligation for all defined benefit pension plans was $3,139.3 million and $2,821.1 million as of December 31, 2017 and 2016, respectively.

Employer contributions to the pension plans include contributions made directly to the qualified pension plan assets and contributions from corporate assets to pay nonqualified pension benefits. Benefits paid from the pension plans include both qualified and nonqualified plan benefits. Nonqualified pension plan assets are not included as part of the asset balances presented in this footnote. The nonqualified pension plan assets are held in Rabbi trusts for the benefit of all nonqualified plan participants. The assets held in a Rabbi trust are available to satisfy the claims of general creditors only in the event of bankruptcy. Therefore, these assets are fully consolidated in our consolidated statements of financial position and are not reflected in our funded status as they do not qualify as plan assets under U.S. GAAP. The market value of assets held in these trusts was $352.0 million and $341.0 million as of December 31, 2017 and 2016, respectively.

Pension Plan Changes and Plan Gains/Losses

On January 1, 2010, benefits under the Principal Pension Plan were frozen for certain participants. The qualified plan and agent nonqualified plan were amended on December 28, 2017, to freeze final average pay accruals for agents after December 31, 2018, but continue cash balance accruals. This gave rise to a total prior service cost of $(23.1) million as of December 31, 2017. The amendments also freeze plan eligibility for agents under both the qualified and nonqualified plans.

For the year ended December 31, 2017, the pension plans had an actuarial loss primarily due to a decrease in the discount rate and white collar mortality for the nonqualified plans. For the year ended December 31, 2016, the pension plans had an actuarial loss primarily due to assumption changes, including the decrease in the discount rate.

Other Postretirement Plan Changes and Plan Gains/Losses

Effective October 31, 2016, subsidies were eliminated for pre-65 retiree medical, retiree dental, and retiree group term life coverage for employees and agents who retire on or after January 1, 2020. The amendment to the other postretirement employee benefits ("OPEB") plan resulted in a remeasurement, which resulted in a change in discount rate. This plan amendment reduced our accumulated postretirement benefit obligation by $51.6 million.

Effective January 1, 2016, post-65 medical coverage for employees who retired from January 1, 1992, to December 31, 2010, transitioned from a traditional medical plan to a stipend health reimbursement arrangement. This plan change reduced our accumulated postretirement benefit obligation by $15.5 million as of December 31, 2015. Offsetting this reduction is an adjustment in accumulated postretirement benefit obligation (recognized in fourth quarter 2015 expense) of $5.8 million related to dental plan benefits.

For the year ended December 31, 2017, the other postretirement benefit plans had an actuarial loss primarily due to a decrease in the discount rate offset by actual and projected medical claims costs being lower than previously expected. For the year ended December 31, 2016, the other postretirement benefit plans had an actuarial gain primarily due to actual and projected medical claims costs being lower than previously expected offset by a decrease in the discount rate.

Information for Pension Plans With an Accumulated Benefit Obligation in Excess of Plan Assets

For 2017 and 2016, both the qualified and nonqualified plans had accumulated benefit obligations in excess of plan assets. As noted previously, the nonqualified plans have assets that are deposited in trusts that fail to meet the U.S. GAAP requirements to be included in plan assets; however, these assets are included in our consolidated statements of financial position.

	December 31,
	2017		2016
	(in millions)
Projected benefit obligation	$	3,383.6	$	3,056.2
Accumulated benefit obligation		3,139.3		2,821.1
Fair value of plan assets		2,542.2		2,190.8

Information for Other Postretirement Benefit Plans With an Accumulated Postretirement Benefit Obligation in Excess of Plan Assets

	December 31,
	2017		2016
	(in millions)
Accumulated postretirement benefit obligation	$	2.2	$	2.6
Fair value of plan assets		0.4		0.6

Components of Net Periodic Benefit Cost

	Pension benefits									Other postretirement benefits
	For the year ended December 31,
	2017			2016			2015			2017			2016			2015
	(in millions)
Service cost	$	67.1		$	65.0		$	63.2		$	0.1		$	2.1		$	2.0
Interest cost		124.4			134.9			120.3			3.9			6.2			6.6
Expected return on plan assets		(144.2	)		(155.0	)		(160.6	)		(27.5	)		(32.6	)		(33.9	)
Amortization of prior service benefit		(2.3	)		(2.2	)		(1.9	)		(34.6	)		(25.9	)		(18.5	)
Recognized net actuarial (gain) loss		68.0			77.0			102.4			—			0.2			(0.8	)
Plan amendments		—			—			—			—			—			5.8
Net periodic benefit cost (income)	$	113.0		$	119.7		$	123.4		$	(58.1	)	$	(50.0	)	$	(38.8	)

The components of net periodic benefit cost including the service cost component are included in operating expenses on the consolidated statements of operations.

The pension plans' actuarial gains and losses are amortized using a straight-line amortization method over the average remaining service period of plan participants. For the qualified pension plan, gains and losses are amortized without use of the 10% allowable corridor. For the nonqualified pension plans and other postretirement benefit plans, the corridors allowed are used.

	Pension benefits						Other postretirement benefits
	For the year ended December 31,
	2017			2016			2017			2016
	(in millions)
Other changes recognized in accumulated other comprehensive income
Net actuarial (gain) loss	$	43.9		$	12.7		$	(44.7	)	$	18.8
Prior service benefit		(23.1	)		—			—			—
Amortization of net loss		(68.0	)		(77.0	)		—			(0.2	)
Amortization of prior service benefit		2.3			2.2			34.6			25.9
Plan amendments		—			—			—			(51.6	)
Total recognized in pre-tax accumulated other comprehensive income	$	(44.9	)	$	(62.1	)	$	(10.1	)	$	(7.1	)
Total recognized in net periodic benefit cost and pre-tax accumulated other comprehensive (income) loss	$	68.1		$	57.6		$	(68.2	)	$	(57.1	)

Net actuarial (gain) loss and net prior service cost benefit have been recognized in AOCI.

The estimated net actuarial (gain) loss and prior service cost (benefit) that will be amortized from AOCI into net periodic benefit cost for the pension benefits during the 2018 fiscal year are $67.7 million and $(3.4) million, respectively. The estimated net actuarial (gain) loss and prior service cost (benefit) for the postretirement benefits that will be amortized from AOCI into net periodic benefit cost during the 2018 fiscal year are $(1.5) million and $(13.9) million, respectively.

Assumptions

Weighted-average assumptions used to determine benefit obligations as disclosed under the Obligations and Funded Status section

	Pension benefits
	For the year ended December 31,
	2017			2016
Discount rate		3.60	%		4.15	%
Rate of compensation increase:
Cash balance benefit		4.96	%		5.02	%
Traditional benefit		2.66	%		2.70	%

	Other postretirement benefits
	For the year ended December 31,
	2017			2016
Discount rate		3.35	%		3.75	%
Rate of compensation increase		2.39	%		2.44	%

Weighted average assumptions used to determine net periodic benefit cost

	Pension benefits
	For the year ended December 31,
	2017			2016			2015
Discount rate		4.15	%		4.50	%		4.00	%
Expected long-term return on plan assets		6.70	%		7.20	%		7.20	%
Rate of compensation increase:
Cash balance benefit		5.02	%		5.24	%		5.25	%
Traditional benefit		2.70	%		2.98	%		3.02	%

	Other postretirement benefits
	For the year ended December 31,
	2017			2016			2015
Discount rate (1)		3.75	%		3.35	%		4.00	%
Expected long-term return on plan assets		4.40	%		5.24	%		5.36	%
Rate of compensation increase		2.44	%		4.82	%		4.82	%

   (1) The funded statuses of the OPEB plans for which subsidies were eliminated in 2016 were remeasured as of October 31, 2016, and a portion of the impact was reflected in the 2016 net periodic postretirement benefit cost. A discount rate of 4.15% was used until the remeasurement date at which time a discount rate of 3.35% was used.

The assumed salary growth rates used to project benefits for the projected benefit obligation are age-based for home office employees. The rate labeled cash balance benefit (relative to employees accruing a cash balance) is the lifecount-weighted average rate of salary growth in the coming year only, as the impact of salary assumption for cash balance benefits are limited to the upcoming year service cost. The rate labeled traditional benefit (relative to employees still accruing a final average pay benefit) is the lifecount-weighted average (at each age) of the single annual growth rate at the age that is equivalent to applying the scale from that age to age 65.

For the pension benefits, the discount rate is determined by projecting future benefit payments inherent in the projected benefit obligation and discounting those cash flows using a spot yield curve for high quality corporate bonds. The plans' expected benefit payments are discounted to determine a present value using the yield curve and the discount rate is the level rate that produces the same present value. The expected return on plan assets is the long-term rate we expect to be earned based on the plans' investment strategy. Historical and expected future returns of multiple asset classes were analyzed to develop a risk-free rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk-free real rate of return and the associated risk premium. A weighted average rate was developed based on those overall rates and the target asset allocation of the plans.

For other postretirement benefits, the discount rate is determined by projecting future benefit payments inherent in the accumulated postretirement benefit obligation, and discounting those cash flows using a spot yield curve for high quality corporate bonds. The plans' expected benefit payments are discounted to determine a present value using the yield curve and the discount rate is the level rate that produces the same present value. The 4.40% expected long-term return on plan assets for 2017 was based on the weighted average expected long-term asset returns for the medical, life and long-term care plans. The expected long-term rates for the medical and life under age 65, medical and life age 65 and over and long-term care plans were 4.40%, 4.50% and 3.75%, respectively.

Assumed Health Care Cost Trend Rates

	December 31,
	2017			2016
Health care cost trend rate assumed for next year under age 65		7.0	%		7.0	%
Health care cost trend rate assumed for next year age 65 and over		7.0	%		6.0	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		4.5	%		4.5	%
Year that the rate reaches the ultimate trend rate (under age 65)		2024			2023
Year that the rate reaches the ultimate trend rate (65 and older)		2024			2021

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	1-percentage point increase			1-percentage point decrease
	(in millions)
Effect on total of service cost and interest cost components	$	0.1		$	(0.1	)
Effect on accumulated postretirement benefit obligation		(1.5	)		1.4

Pension Plan and Other Postretirement Benefit Plan Assets

Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date (an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels.

Level 1 — Fair values are based on unadjusted quoted prices in active markets for identical assets. Our Level 1 assets include cash, U.S. Treasury bonds, fixed income investment funds, exchange traded equity securities and alternative mutual fund investments.

Level 2 — Fair values are based on inputs other than quoted prices within Level 1 that are observable for the asset, either directly or indirectly. Our Level 2 assets primarily include fixed income securities, fixed income and equity investment funds and real estate investments.

Level 3 — Fair values are based on significant unobservable inputs for the asset. Our Level 3 assets include a Principal Life general account investment.

Our pension plan assets consist of investments in pooled separate accounts and single client separate accounts. Net asset value ("NAV") of the pooled separate accounts is calculated in a manner consistent with U.S. GAAP for investment companies and is determinative of their fair value. Several of the pooled separate accounts invest in publicly quoted mutual funds or actively managed stocks. The fair value of the underlying mutual funds or stocks is used to determine the NAV of the separate account, which is not publicly quoted. Some of the pooled separate accounts also invest in fixed income securities. The fair value of the underlying securities is based on quoted prices of similar assets and used to determine the NAV of the separate account. Some of the pooled separate accounts invest in real estate properties. The fair value is based on discounted cash flow valuation models that utilize public real estate market data inputs such as transaction prices, market rent growth, vacancy levels, leasing absorption, market capitalization rates and discount rates.

The single client separate accounts invest in fixed income securities, hedge funds, a pooled separate account investment and other assets. The fixed income securities include U.S. Treasury bonds for which the fair value is based on quoted prices of identical assets in active markets. The fair value of the other fixed income securities is determined either from prices obtained from third party pricing vendors who use observable market information to determine prices or from internal models using substantially all observable inputs or a matrix pricing valuation approach. The hedge funds are measured at fair value using the NAV per share (or its equivalent) practical expedient and have not been classified in the fair value hierarchy. The NAV of the pooled separate account investment is calculated in a manner consistent with U.S. GAAP for investment companies and is determinative of its fair value. The carrying amounts of other assets, which are highly liquid in nature, are used to approximate fair value.

Our other postretirement benefit plan assets consist of cash, investments in fixed income security portfolios, investments in equity security portfolios, investments in alternative mutual fund portfolios and investment in a real estate mutual fund. Because of the nature of cash, its carrying amount approximates fair value. The fair value of fixed income investment funds, U.S. equity portfolios and international equity portfolios is based on quoted prices in active markets for identical assets. The fair value of the alternative mutual fund portfolios and the real estate mutual fund are based on quoted market prices, which represent the NAV of shares held by the other postretirement benefit plan. The fair value of the Principal Life general account investment is the amount the plan would receive if withdrawing funds from this participating contract. The amount that would be received is calculated using a cash-out factor based on an associated pool of general account fixed income securities. The cash-out factor is a ratio of the asset investment value of these securities to asset book value. As the investment values change, the cash-out factor is adjusted, impacting the amount the plan receives at measurement date. To determine investment value for each category of assets, we project cash flows. This is done using contractual provisions for the assets, with adjustment for expected prepayments and call provisions. Projected cash flows are discounted to present value for each asset category. Interest rates for discounting are based on current rates on similar new assets in the general account based on asset strategy.

Pension Plan Assets

The fair value of the qualified pension plan's assets by asset category as of the most recent measurement date was as follows:

	December 31, 2017
						Fair value hierarchy level
	Assets measured at fair value			Amount measured at net asset value
						Level 1		Level 2			Level 3
	(in millions)
Asset category
Pooled separate account investments:
U.S. large cap equity portfolios (1)	$	651.2		$	—	$	—	$	651.2		$	—
U.S. small/mid cap equity portfolios (2)		112.2			—		—		112.2			—
Balanced asset portfolios (3)		128.4			—		—		128.4			—
International equity portfolios (4)		325.8			—		—		325.8			—
Real estate investment portfolios (6)		126.2			—		—		126.2			—
Single client separate account investments:
Fixed income securities:
U.S. government and agencies		292.7			—		292.7		—			—
States and political subdivisions		16.9			—		—		16.9			—
Corporate		745.2			—		—		745.2			—
Commercial mortgage-backed securities		21.3			—		—		21.3			—
Other debt obligations		3.4			—		—		3.4			—
Hedge funds (7)		120.4			120.4		—		—			—
Pooled separate account investment (8)		4.6			—		—		4.6			—
Other (9)		(6.1	)		—		0.8		(6.9	)		—
Total	$	2,542.2		$	120.4	$	293.5	$	2,128.3		$	—

	December 31, 2016
					Fair value hierarchy level
	Assets measured at fair value		Amount measured at net asset value
					Level 1		Level 2		Level 3
	(in millions)
Asset category
Pooled separate account investments:
U.S. large cap equity portfolios (1)	$	772.7	$	—	$	—	$	772.7	$	—
U.S. small/mid cap equity portfolios (2)		153.0		—		—		153.0		—
Balanced asset portfolios (3)		123.0		—		—		123.0		—
International equity portfolios (4)		294.3		—		—		294.3		—
Fixed income security portfolios (5)		13.4		—		—		13.4		—
Real estate investment portfolios (6)		129.4		—		—		129.4		—
Single client separate account investments:
Fixed income securities:
U.S. government and agencies		226.9		—		226.9		—		—
Corporate		444.8		—		—		444.8		—
Commercial mortgage-backed securities		17.8		—		—		17.8		—
Other debt obligations		2.7		—		—		2.7		—
Pooled separate account investment (8)		6.9		—		—		6.9		—
Other (9)		5.9		—		—		5.9		—
Total	$	2,190.8	$	—	$	226.9	$	1,963.9	$	—

(1)	The portfolios invest primarily in publicly traded equity securities of large U.S. companies.
(2)	The portfolios invest primarily in publicly traded equity securities of mid-sized and small U.S. companies.
(3)	The portfolios are a combination of underlying fixed income and equity investment options. These investment options may include balanced, asset allocation, target-date and target-risk investment options. Although typically lower risk than investment options that invest solely in equities, all investment options in this category have the potential to lose value.
(4)	The portfolios invest primarily in publicly traded equity securities of non-U.S. companies.
(5)	The portfolios invest in various fixed income securities, primarily of U.S. origin. These include, but are not limited to, corporate bonds, residential mortgage-backed securities, commercial mortgage-backed securities, U.S. Treasury securities, agency securities, asset-backed securities and collateralized mortgage obligations.
(6)	The portfolio invests primarily in U.S. commercial real estate properties through a separate account.
(7)	The hedge funds have varying investment strategies that also have a variety of redemption terms and conditions. We do not have unfunded commitments associated with these hedge funds.
(8)	The single client separate accounts invest in a money market pooled separate account.
(9)	Includes cash and net (payables)/receivables for the single client separate accounts.

We have established an investment policy that provides the investment objectives and guidelines for the pension plan. Our investment strategy is to achieve the following:

Obtain a reasonable long-term return consistent with the level of risk assumed and at a cost of operation within prudent levels. Performance benchmarks are monitored.

Ensure sufficient liquidity to meet the emerging benefit liabilities for the plan.

Provide for diversification of assets in an effort to avoid the risk of large losses and maximize the investment return to the pension plan consistent with market and economic risk.

In administering the qualified pension plan's asset allocation strategy, we consider the projected liability stream of benefit payments, the relationship between current and projected assets of the plan and the projected actuarial liabilities streams, the historical performance of capital markets adjusted for the perception of future short- and long-term capital market performance and the perception of future economic conditions.

According to our investment policy, the target asset allocation for the qualified plan is:

Asset category	Target allocation
Fixed income security portfolios	25% - 80%
Equity portfolios	5% - 60%
Real estate investment portfolios	10%
Altenatives	5%

Other Postretirement Benefit Plan Assets

The fair value of the other postretirement benefit plans' assets by asset category as of the most recent measurement date was as follows:

	December 31, 2017
			Fair value hierarchy level
	Assets measured at fair value
			Level 1		Level 2		Level 3
	(in millions)
Asset category
Cash and cash equivalents	$	0.3	$	0.3	$	—	$	—
Fixed income security portfolios:
Fixed income investment funds (1)		209.8		177.7		32.1		—
U.S. equity portfolios (2)		159.4		108.5		50.9		—
International equity portfolios (3)		67.8		57.7		10.1		—
Alternative mutual fund portfolios (4)		251.4		251.4		—		—
Real estate mutual fund (5)		8.1		8.1		—		—
Total	$	696.8	$	603.7	$	93.1	$	—

	December 31, 2016
			Fair value hierarchy level
	Assets measured at fair value
			Level 1		Level 2		Level 3
	(in millions)
Asset category
Cash and cash equivalents	$	1.2	$	1.2	$	—	$	—
Fixed income security portfolios:
Fixed income investment funds (1)		195.5		164.3		31.2		—
U.S. equity portfolios (2)		145.5		103.2		42.3		—
International equity portfolios (3)		51.2		43.2		8.0		—
Alternative mutual fund portfolios (4)		227.5		227.5		—		—
Real estate mutual fund (5)		7.7		7.7		—		—
Total	$	628.6	$	547.1	$	81.5	$	—

(1)	The portfolios invest in various fixed income securities, primarily of U.S. origin. These include, but are not limited to, corporate bonds, residential mortgage-backed securities, commercial mortgage-backed securities, U.S. Treasury securities, agency securities, asset-backed securities and collateralized mortgage obligations.
(2)	The portfolios invest primarily in publicly traded equity securities of large U.S. companies.
(3)	The portfolios invest primarily in publicly traded equity securities of non-U.S. companies.
(4)	The portfolios invest primarily in equities, corporate bonds, foreign currencies, convertible securities and derivatives.
(5)	The mutual fund invests primarily in U.S. commercial real estate properties.

We had no Level 3 assets in 2017 and 2016.

As of December 31, 2017 and 2016, respectively, $93.2 million and $81.8 million of assets, respectively, in cash, fixed income security portfolios, U.S. equity portfolios and international equity portfolios were included in a trust owned life insurance contract.

The reconciliation for all assets measured at fair value using significant unobservable inputs (Level 3) is as follows:

	For the year ended December 31, 2016
			Actual return gains (losses) on plan assets
															Ending asset balance as of December 31, 2016
	Beginning asset balance as of December 31, 2015		Relating to assets still held at the reporting date			Relating to assets sold during the period			Net purchases, sales, and settlements		Transfers into Level 3		Transfers out of Level 3
	(in millions)
Asset category
Principal Life general account investment	$	33.5	$	(1.7	)	$	(33.6	)	$	1.8	$	—	$	—	$	—

	For the year ended December 31, 2015
			Actual return gains (losses) on plan assets
														Ending assets balance as of December 31, 2015
	Beginning assets balance as of December 31, 2014		Relating to assets still held at the reporting date		Relating to assets sold during the period		Net purchases, sales, and settlements			Transfers into Level 3		Transfers out of Level 3
	(in millions)
Asset category
Principal Life general account investment	$	36.3	$	0.2	$	—	$	(3.0	)	$	—	$	—	$	33.5

The investment strategies and policies for the other postretirement benefit plans are similar to those employed by the qualified pension plan. According to our investment policy, the target asset allocation for the other postretirement benefit plans is:

Asset category	Target allocation
U.S. equity portfolios		24	%
International equity portfolios		15	%
Fixed income security portfolios		32	%
Alternatives		24	%
Real estate		5	%

Contributions

Our funding policy for the qualified pension plan is to fund the plan annually in an amount at least equal to the minimum annual contribution required under ERISA and, generally, not greater than the maximum amount that can be deducted for U.S. federal income tax purposes. We do not anticipate contributions will be needed to satisfy the minimum funding requirements of ERISA for our qualified plan. We are unable to estimate the amount that may be contributed, but it is possible that we may fund the plans in 2018 up to $125.0 million. This includes funding for both our qualified and nonqualified pension plans. While we designate assets to cover the computed liability of the nonqualified plan, the assets are not included as part of the asset balances presented in this footnote as they do not qualify as plan assets in accordance with U.S. GAAP. We may contribute to our other postretirement benefit plans in 2018 pending future analysis.

Estimated Future Benefit Payments

The estimated future benefit payments, which reflect expected future service are:

	Pension benefits		Other postretirement benefits (gross benefit payments, including prescription drug benefits)
	(in millions)
Year ending December 31:
2018	$	127.5	$	13.1
2019		129.4		13.6
2020		139.5		12.5
2021		145.3		11.6
2022		154.5		10.8
2023-2027		882.6		9.9

The above table reflects the total estimated future benefits to be paid from the plan, including both our share of the benefit cost and the participants' share of the cost, which is funded by their contributions to the plan.

The assumptions used in calculating the estimated future benefit payments are the same as those used to measure the benefit obligation for the year ended December 31, 2017.

Defined Benefit Pension Plans Supplemental Information

Certain key summary data is shown below separately for qualified and nonqualified plans.

	For the year ended December 31,
	2017									2016
	Qualified Plan			Nonqualified Plan			Total			Qualified Plan			Nonqualified Plan			Total
	(in millions)
Amount recognized in statement of financial position
Other assets	$	—		$	—		$	—		$	—		$	—		$	—
Other liabilities		(340.0	)		(501.4	)		(841.4	)		(410.0	)		(455.4	)		(865.4	)
Total	$	(340.0	)	$	(501.4	)	$	(841.4	)	$	(410.0	)	$	(455.4	)	$	(865.4	)
Amount recognized in accumulated other comprehensive loss
Total net actuarial loss	$	516.4		$	166.4		$	682.8		$	587.5		$	119.4		$	706.9
Prior service benefit		(12.5	)		(11.2	)		(23.7	)		(1.6	)		(1.3	)		(2.9	)
Pre-tax accumulated other comprehensive loss	$	503.9		$	155.2		$	659.1		$	585.9		$	118.1		$	704.0
Components of net periodic benefit cost
Service cost	$	60.3		$	6.8		$	67.1		$	58.1		$	6.9		$	65.0
Interest cost		106.0			18.4			124.4			115.9			19.0			134.9
Expected return on plan assets		(144.2	)		—			(144.2	)		(155.0	)		—			(155.0	)
Amortization of prior service benefit		(1.2	)		(1.1	)		(2.3	)		(1.1	)		(1.1	)		(2.2	)
Recognized net actuarial loss		59.2			8.8			68.0			69.5			7.5			77.0
Net periodic benefit cost	$	80.1		$	32.9		$	113.0		$	87.4		$	32.3		$	119.7
Other changes recognized in accumulated other comprehensive (income) loss
Net actuarial (gain) loss	$	(11.9	)	$	55.8		$	43.9		$	(2.0	)	$	14.7		$	12.7
Prior service benefit		(12.2	)		(10.9	)		(23.1	)		—			—			—
Amortization of net loss		(59.2	)		(8.8	)		(68.0	)		(69.5	)		(7.5	)		(77.0	)
Amortization of prior service benefit		1.2			1.1			2.3			1.1			1.1			2.2
Total recognized in pre-tax accumulated other
comprehensive (income) loss	$	(82.1	)	$	37.2		$	(44.9	)	$	(70.4	)	$	8.3		$	(62.1	)
Total recognized in net periodic benefit cost and pre-tax accumulated other comprehensive (income) loss	$	(2.0	)	$	70.1		$	68.1		$	17.0		$	40.6		$	57.6

Defined Contribution and Deferred Compensation Plans

In addition, we have defined contribution plans that are generally available to all U.S. employees and agents. Eligible participants could not contribute more than $18,000 of their compensation to the plans in 2017. Effective January 1, 2006, we made several changes to the retirement programs. In general, the pension and supplemental executive retirement plan benefit formulas were reduced, and the 401(k) matching contribution was increased. Employees who were ages 47 or older with at least ten years of service on December 31, 2005, could elect to retain the prior benefit provisions and forgo receipt of the additional matching contributions. The employees who elected to retain the prior benefit provisions are referred to as "Grandfathered Choice Participants." We match the Grandfathered Choice Participant's contribution at a 50% contribution rate up to a maximum matching contribution of 3% of the participant's compensation. For all other participants, we match the participant's contributions at a 75% contribution rate up to a maximum matching contribution of 6% of the participant's compensation. The defined contribution plans allow employees to choose among various investment options, including our common stock, which is available through our Employee Stock Ownership Plan ("ESOP"). We contributed $48.9 million, $46.6 million and $45.7 million in 2017, 2016 and 2015, respectively, to our qualified defined contribution plans.

The number of shares of our common stock allocated to participants in the ESOP was 2.1 million and 2.4 million as of December 31, 2017 and 2016, respectively. As of December 31, 2017 and 2016, the fair value of the ESOP, which includes earned and unearned common stock, was $149.4 million and $137.9 million, respectively. The ESOP's total assets include our common stock and cash. The ESOP purchases our common stock on the open market. The number of shares of our common stock held within the ESOP is treated as outstanding in both our basic and diluted earnings per share calculations.

We also have nonqualified deferred compensation plans available to select employees and agents that allow them to defer compensation amounts in excess of limits imposed by U.S. federal tax law with respect to the qualified plans. For certain nonqualified deferred compensation plans that include an employer matching contribution, in 2017 we matched the Grandfathered Choice Participant's deferral at a 50% match deferral rate up to a maximum matching deferral of 3% of the participant's compensation. For all other participants in nonqualified deferred compensation plans that include an employer matching contribution, we matched the participant's deferral at a 75% match deferral rate up to a maximum matching deferral of 6% of the participant's compensation. We contributed $3.8 million, $3.3 million and $4.5 million in 2017, 2016 and 2015, respectively, to our nonqualified deferred compensation plans.