Retirement Benefits

We sponsor various non-contributory employee defined benefit plans through certain subsidiaries.

The Anthem Cash Balance Plan A and the Anthem Cash Balance Plan B are cash balance pension plans covering certain eligible employees of the affiliated companies that participate in these plans. Effective January 1, 2006, benefits were curtailed, with the result that most participants stopped accruing benefits but continue to earn interest on benefits accrued prior to the curtailment. Certain participants subject to collective bargaining and certain other participants who met grandfathering rules continue to accrue benefits. Participants that do not receive credits and/or benefit accruals are included in the Anthem Cash Balance Plan A, while current employees who are still receiving credits and/or benefits participate in the Anthem Cash Balance Plan B. Several pension plans acquired through various corporate mergers and acquisitions have been merged into these plans in prior years.

The UGS Pension Plan is a defined benefit pension plan with a cash balance component. The UGS Pension Plan covers eligible employees of the affiliated companies that participate in the UGS Pension Plan. Effective January 1, 2004, benefits were curtailed, with the result that most participants stopped accruing benefits but continue to earn interest on benefits previously accrued. Certain employees subject to collective bargaining and certain other employees who met grandfathering rules continue to accrue benefits.

The Employees’ Retirement Plan of Blue Cross of California, or the BCC Plan, is a defined benefit pension plan that covers eligible employees of Blue Cross of California who are covered by a collective bargaining agreement. Effective January 1, 2007, benefits were curtailed under the BCC Plan with the result that no Blue Cross of California employees hired or rehired after December 31, 2006 are eligible to participate in the BCC Plan.

All of the plans’ assets consist primarily of common stocks, fixed maturity securities, investment funds and short-term investments. The funding policies for all plans are to contribute amounts at least sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, as amended, or ERISA, including amendment by the Pension Protection Act of 2006, and in accordance with income tax regulations, plus such additional amounts as are necessary to provide assets sufficient to meet the benefits to be paid to plan participants.

We use a December 31 measurement date for determining benefit obligations and fair value of plan assets.

The following tables disclose consolidated “pension benefits,” which include the defined benefit pension plans described above, and consolidated “other benefits,” which include postretirement health and welfare benefits including medical, vision and dental benefits offered to certain employees. Calculations were computed using assumptions at the December 31 measurement dates.

The reconciliation of the benefit obligation is as follows:



	Pension Benefits						Other Benefits
	2016			2015			2016			2015
Benefit obligation at beginning of year	$	1,833.3		$	1,914.4		$	578.7		$	646.6
Service cost	11.6			13.1			1.6			2.1
Interest cost	68.5			68.2			22.4			23.4
Plan amendment	—			0.8			—			—
Actuarial loss (gain)	32.2			(41.2		)	(4.2		)	(58.1		)
Benefits paid	(120.7		)	(122.0		)	(33.3		)	(35.3		)
Benefit obligation at end of year	$	1,824.9		$	1,833.3		$	565.2		$	578.7

The changes in the fair value of plan assets are as follows:



	Pension Benefits						Other Benefits
	2016			2015			2016			2015
Fair value of plan assets at beginning of year	$	1,865.2		$	1,985.0		$	328.4		$	347.9
Actual return on plan assets	132.2			(1.5		)	21.8			(1.2		)
Employer contributions	11.1			3.7			14.9			17.3
Benefits paid	(120.7		)	(122.0		)	(33.3		)	(35.6		)
Fair value of plan assets at end of year	$	1,887.8		$	1,865.2		$	331.8		$	328.4

The net amount included in the consolidated balance sheets is as follows:



	Pension Benefits						Other Benefits
	2016			2015			2016			2015
Noncurrent assets	$	126.7		$	103.4		$	—		$	—
Current liabilities	(3.7		)	(10.5		)	—			—
Noncurrent liabilities	(60.1		)	(61.0		)	(233.4		)	(250.3		)
Net amount at December 31	$	62.9		$	31.9		$	(233.4	)	$	(250.3	)

The net amounts included in accumulated other comprehensive loss that have not been recognized as components of net periodic benefit costs are as follows:



	Pension Benefits					Other Benefits
	2016		2015			2016			2015
Net actuarial loss	$	655.8	$	635.0		$	146.6		$	162.7
Prior service cost (credit)	0.5		(0.1		)	(59.7		)	(73.5		)
Net amount before tax at December 31	$	656.3	$	634.9		$	86.9		$	89.2

The estimated net actuarial loss and prior service credit for the defined benefit pension plans that will be reclassified from accumulated other comprehensive loss into net periodic benefit costs over the next year are $18.0 and $0.6, respectively. The estimated net actuarial loss and prior service credit for postretirement benefit plans that will be reclassified from accumulated other comprehensive loss into net periodic benefit costs over the next year are $11.5 and $13.6, respectively.

The accumulated benefit obligation for the defined benefit pension plans was $1,821.1 and $1,829.6 at December 31, 2016 and 2015, respectively.

As of December 31, 2016, certain pension plans had accumulated benefit obligations in excess of plan assets. For those same plans, the projected benefit obligation was also in excess of plan assets. Such plans had a combined projected benefit obligation, accumulated benefit obligation and fair value of plan assets of $100.6, $98.5 and $36.8, respectively.

The weighted-average assumptions used in calculating the benefit obligations for all plans are as follows:



	Pension Benefits				Other Benefits
	2016		2015		2016		2015
Discount rate	3.77	%	3.92	%	3.82	%	4.01	%
Rate of compensation increase	3.00	%	3.00	%	3.00	%	3.00	%
Expected rate of return on plan assets	7.95	%	7.84	%	7.00	%	7.00	%

The components of net periodic benefit cost (benefit credit) included in the consolidated statements of income are as follows:



	2016			2015			2014
Pension Benefits
Service cost	$	11.6		$	13.1		$	13.0
Interest cost	68.5			68.2			74.1
Expected return on assets	(147.1		)	(143.2		)	(137.5		)
Recognized actuarial loss	19.0			25.7			21.0
Amortization of prior service credit	(0.6		)	(0.6		)	(0.8		)
Settlement loss	7.3			6.5			5.2
Net periodic benefit credit	$	(41.3	)	$	(30.3	)	$	(25.0	)

Other Benefits
Service cost	$	1.6		$	2.1		$	3.2
Interest cost	22.4			23.4			26.3
Expected return on assets	(22.4		)	(23.7		)	(23.4		)
Recognized actuarial loss	12.4			15.3			9.4
Amortization of prior service credit	(13.8		)	(14.4		)	(14.4		)
Net periodic benefit cost	$	0.2		$	2.7		$	1.1

During the years ended December 31, 2016, 2015 and 2014 we incurred total settlement losses of $7.3, $6.5 and $5.2, respectively, as lump-sum payments exceeded the service cost and interest cost components of net periodic benefit cost for certain of our plans.

The weighted-average assumptions used in calculating the net periodic benefit cost for all plans are as follows:



	2016		2015		2014
Pension Benefits
Discount rate	3.92	%	3.66	%	4.39	%
Rate of compensation increase	3.00	%	3.00	%	3.00	%
Expected rate of return on plan assets	7.84	%	7.62	%	7.66	%

Other Benefits
Discount rate	4.01	%	3.74	%	4.48	%
Rate of compensation increase	3.00	%	3.00	%	3.00	%
Expected rate of return on plan assets	7.00	%	7.00	%	7.00	%

The assumed health care cost trend rates used to measure the expected cost of pre-Medicare (those who are not currently eligible for Medicare benefits) other benefits at our December 31, 2016 measurement date was 8.00% for 2017 with a gradual decline to 4.50% by the year 2028. The assumed health care cost trend rates used to measure the expected cost of post-Medicare (those who are currently eligible for Medicare benefits) other benefits at our December 31, 2016 measurement date was 6.00% for 2017 with a gradual decline to 4.50% by the year 2024. These estimated trend rates are subject to change in the future. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, an increase in the assumed health care cost trend rate of one percentage point would increase the postretirement benefit obligation as of December 31, 2016 by $42.2 and would increase service and interest costs by $1.8. Conversely, a decrease in the assumed health care cost trend rate of one percentage point would decrease the postretirement benefit obligation as of December 31, 2016 by $36.2 and would decrease service and interest costs by $1.5.

Plan assets include a diversified mix of investment grade fixed maturity securities, equity securities and alternative investments across a range of sectors and levels of capitalization to maximize the long-term return for a prudent level of risk. The weighted-average target allocation for pension benefit plan assets is 45% equity securities, 46% fixed maturity securities, and 9% to all other types of investments. Equity securities primarily include a mix of domestic securities, foreign securities and mutual funds invested in equities. Fixed maturity securities primarily include treasury securities, corporate bonds, and asset-backed investments issued by corporations and the U.S. government. Other types of investments primarily include partnership interests, collective trusts that replicate money market funds and insurance contracts designed specifically for employee benefit plans. As of December 31, 2016, there were no significant concentrations of investments in the pension benefit assets or other benefit assets. No plan assets were invested in Anthem common stock.

Pension benefit assets and other benefit assets recorded at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value.

The fair values of our pension benefit assets and other benefit assets by asset category and level inputs at December 31, 2016, excluding cash, investment income receivable and amounts due to/from brokers, resulting in a net asset of $2.8, are as follows (see Note 6, “Fair Value,” for additional information regarding the definition of level inputs):



	Level I		Level II		Level III		Total
December 31, 2016
Pension Benefit Assets:
Equity securities:
U.S. securities	$	561.4	$	4.4	$	—	$	565.8
Foreign securities	264.5		—		—		264.5
Mutual funds	36.6		—		—		36.6
Fixed maturity securities:
Government securities	183.9		—		—		183.9
Corporate securities	—		385.9		—		385.9
Asset-backed securities	—		134.7		—		134.7
Other types of investments:
Common and collective trusts	—		27.5		—		27.5
Partnership interests	—		—		112.5		112.5
Insurance company contracts	—		—		173.3		173.3
Treasury futures contracts	0.3		—		—		0.3
Total pension benefit assets	$	1,046.7	$	552.5	$	285.8	$	1,885.0

Other Benefit Assets:
Equity securities:
U.S. securities	$	13.0	$	0.2	$	—	$	13.2
Foreign securities	5.4		—		—		5.4
Mutual funds	47.1		—		—		47.1
Fixed maturity securities:
Government securities	2.7		—		—		2.7
Corporate securities	—		7.9		—		7.9
Asset-backed securities	—		5.8		—		5.8
Other types of investments:
Common and collective trusts	—		1.0		—		1.0
Partnership interests	—		—		1.2		1.2
Life insurance contracts	—		—		237.7		237.7
Investment in DOL 103-12 trust	—		9.8		—		9.8
Total other benefit assets	$	68.2	$	24.7	$	238.9	$	331.8

The fair values of our pension benefit assets and other benefit assets by asset category and level inputs at December 31, 2015, excluding cash, investment income receivable and amounts due to/from brokers, resulting in a net asset of $3.4, are as follows (see Note 6, “Fair Value,” for additional information regarding the definition of level inputs):



	Level I		Level II		Level III		Total
December 31, 2015
Pension Benefit Assets:
Equity securities:
U.S. securities	$	542.8	$	4.4	$	—	$	547.2
Foreign securities	258.8		—		—		258.8
Mutual funds	34.7		—		—		34.7
Fixed maturity securities:
Government securities	176.6		—		—		176.6
Corporate securities	—		364.0		—		364.0
Asset-backed securities	—		141.1		—		141.1
Other types of investments:
Common and collective trusts	—		48.1		—		48.1
Partnership interests	—		—		117.1		117.1
Insurance company contracts	—		—		174.2		174.2
Total pension benefit assets	$	1,012.9	$	557.6	$	291.3	$	1,861.8

Other Benefit Assets:
Equity securities:
U.S. securities	$	16.8	$	0.3	$	—	$	17.1
Foreign securities	7.4		—		—		7.4
Mutual funds	36.6		—		—		36.6
Fixed maturity securities:
Government securities	3.8		—		—		3.8
Corporate securities	—		9.5		—		9.5
Asset-backed securities	—		7.7		—		7.7
Other types of investments:
Common and collective trusts	—		1.5		—		1.5
Partnership interests	—		—		1.5		1.5
Life insurance contracts	—		—		229.9		229.9
Investment in DOL 103-12 trust	—		13.4		—		13.4
Total other benefit assets	$	64.6	$	32.4	$	231.4	$	328.4

A reconciliation of the beginning and ending balances of plan assets measured at fair value using Level III inputs for the years ended December 31, 2016, 2015 and 2014 is as follows:



	Partnership Interests			Insurance Company Contracts			Life Insurance Contracts			Total
Year ended December 31, 2016
Beginning balance at January 1, 2016	$	118.6		$	174.2		$	229.9		$	522.7
Actual return on plan assets:
Relating to assets still held at the reporting date	(3.5		)	(3.1		)	10.8			4.2
Purchases	17.8			8.9			—			26.7
Sales	(19.2		)	(6.7		)	(3.0		)	(28.9		)
Ending balance at December 31, 2016	$	113.7		$	173.3		$	237.7		$	524.7

Year ended December 31, 2015
Beginning balance at January 1, 2015	$	122.2		$	187.7		$	238.4		$	548.3
Actual return on plan assets:
Relating to assets still held at the reporting date	(5.9		)	(5.7		)	(6.8		)	(18.4		)
Purchases	10.9			7.0			—			17.9
Sales	(8.6		)	(14.8		)	(1.7		)	(25.1		)
Ending balance at December 31, 2015	$	118.6		$	174.2		$	229.9		$	522.7

Year ended December 31, 2014
Beginning balance at January 1, 2014	$	160.3		$	197.4		$	230.0		$	587.7
Actual return on plan assets:
Relating to assets still held at the reporting date	(5.4		)	1.4			8.4			4.4
Purchases	8.4			11.6			—			20.0
Sales	(41.1		)	(22.7		)	—			(63.8		)
Ending balance at December 31, 2014	$	122.2		$	187.7		$	238.4		$	548.3

There were no transfers between Levels I, II and III during the years ended December 31, 2016, 2015 and 2014.

Our current funding strategy is to fund an amount at least equal to the minimum required funding as determined under ERISA with consideration of maximum tax deductible amounts. We may elect to make discretionary contributions up to the maximum amount deductible for income tax purposes. For the years ended December 31, 2016, 2015 and 2014, no material contributions were necessary to meet ERISA required funding levels. However, during the years ended December 31, 2016, 2015 and 2014, we made tax deductible discretionary contributions to the pension benefit plans of $11.1, $3.7 and $3.6, respectively. Employer contributions to other benefit plans represent discretionary contributions and do not include payments to retirees for current benefits.

Our estimated future payments for pension benefits and postretirement benefits, which reflect expected future service, as appropriate, are as follows:



	Pension Benefits		Other Benefits
2017	$	157.9	$	41.4
2018	154.0		42.2
2019	153.1		42.5
2020	147.8		42.5
2021	143.0		42.2
2022 – 2026	637.6		197.4

In addition to the defined benefit plans, we maintain the Anthem 401(k) Plan which is a qualified defined contribution plan covering substantially all employees. Voluntary employee contributions are matched by us subject to certain limitations. Contributions made by us totaled $131.5, $125.4 and $111.1 during 2016, 2015 and 2014, respectively.