PENSION PLANS AND OTHER BENEFITS

We sponsor pension and postretirement benefits through a variety of plans including defined benefit plans, defined contribution plans, and postretirement benefit plans in North America and certain of our international locations. We reserve the right to amend, modify, or terminate the Mosaic sponsored plans at any time, subject to provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”), prior agreements and our collective bargaining agreements.

Defined Benefit and Postretirement Medical Benefit Plans

We sponsor various defined benefit pension plans in the U.S. and in Canada. Benefits are based on different combinations of years of service and compensation levels, depending on the plan. Generally, contributions to the U.S. plans are made to meet minimum funding requirements of ERISA, while contributions to Canadian plans are made in accordance with Pension Benefits Acts instituted by the provinces of Saskatchewan and Ontario. Certain employees in the U.S. and Canada, whose pension benefits exceed Internal Revenue Code and Canada Revenue Agency limitations, respectively, are covered by supplementary non-qualified, unfunded pension plans. In 2016, as part of an initiative to “de-risk” certain of its pension plan obligations, Mosaic offered a one-time lump-sum window to terminated vested participants within select plans who had not commenced distribution of their benefits. As a result of this initiative, there was a decrease of $43.3 million of projected benefit obligations for the defined benefit plans.

We provide certain health care benefit plans for certain retired employees (“Retiree Health Plans”) which may be either contributory or non-contributory and contain certain other cost-sharing features such as deductibles and coinsurance. The Retiree Health Plans are unfunded and the projected benefit obligation was $44.9 million and $46.6 million as of December 31, 2016 and 2015, respectively. The related income statement effects of the Retiree Health Plans are not material to the Company.

Accounting for Pension Plans

The year-end status of the North American pension plans was as follows:



	Pension Plans
	Years Ended December 31,
(in millions)	2016			2015
Change in projected benefit obligation:
Benefit obligation at beginning of period	$	731.2		$	828.4
Service cost	5.8			6.5
Interest cost	25.1			30.1
Actuarial (gain) loss	16.0			(20.1		)
Currency fluctuations	9.7			(58.1		)
Benefits paid	(84.9		)	(56.2		)
Plan Amendments	10.6			—
Liability loss due to curtailment/settlement	—			0.6
Projected benefit obligation at end of period	$	713.5		$	731.2
Change in plan assets:
Fair value at beginning of period	$	726.7		$	812.1
Currency fluctuations	10.1			(57.6		)
Actual return	52.2			15.5
Company contribution	11.5			12.9
Benefits paid	(84.9		)	(56.2		)
Fair value at end of period	$	715.6		$	726.7
Funded/(unfunded) status of the plans as of the end of period	$	2.1		$	(4.5	)
Amounts recognized in the consolidated balance sheets:
Noncurrent assets	$	24.8		$	23.5
Current liabilities	(0.7		)	(0.7		)
Noncurrent liabilities	(22.0		)	(27.3		)
Amounts recognized in accumulated other comprehensive (income) loss
Prior service costs (credits)	$	23.2		$	13.9
Actuarial (gain) loss	109.6			110.1

The accumulated benefit obligation for the defined benefit pension plans was $712.1 million and $727.1 million as of December 31, 2016 and 2015, respectively.

The components of net annual periodic benefit costs and other amounts recognized in other comprehensive income include the following components:



	Pension Plans
(in millions)	Years Ended December 31,
	2016			2015			2014
Net Periodic Benefit Cost
Service cost	$	5.8		$	6.5		$	6.3
Interest cost	25.1			30.1			32.8
Expected return on plan assets	(44.9		)	(46.9		)	(44.0		)
Amortization of:
Prior service cost (credit)	1.7			1.6			1.9
Actuarial loss	5.0			6.2			4.7
Preliminary net periodic benefit cost (income)	$	(7.3	)	$	(2.5	)	$	1.7
Curtailment/settlement expense	6.2			2.4			2.3
Special termination costs	—			—			5.4
Total net periodic benefit cost	$	(1.1	)	$	(0.1	)	$	9.4
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Prior service cost (credit) recognized in other comprehensive income	$	8.9		$	(1.7	)	$	(1.9	)
Net actuarial loss (gain) recognized in other comprehensive income	(2.5		)	3.4			53.3
Total recognized in other comprehensive income	$	6.4		$	1.7		$	51.4
Total recognized in net periodic benefit (income) cost and other comprehensive income	$	5.3		$	1.6		$	60.8

The estimated net actuarial (gain) loss and prior service cost (credit) for the pension plans and postretirement plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2017 is $4.9 million.

The following estimated benefit payments, which reflect estimated future service are expected to be paid by the related plans in the years ending December 31:



(in millions)	Pension Plans Benefit Payments		Other Postretirement Plans Benefit Payments		Medicare Part D Adjustments
2017	$	39.8	$	4.5	$	0.3
2018	40.8		4.2		0.3
2019	41.9		3.9		0.2
2020	42.5		3.6		0.2
2021	43.4		3.3		0.2
2022-2026	221.9		13.2		0.7

In 2017, we expect to contribute cash of at least $19.6 million to the pension plans to meet minimum funding requirements. Also in 2017, we anticipate contributing cash of $4.5 million to the postretirement medical benefit plans to fund anticipated benefit payments.

Plan Assets and Investment Strategies

The Company’s overall investment strategy is to obtain sufficient return and provide adequate liquidity to meet the benefit obligations of our pension plans. Investments are made in public securities to ensure adequate liquidity to support benefit payments. Domestic and international stocks and bonds provide diversification to the portfolio.

For the U.S. plans, we utilize an asset allocation policy that seeks to maintain a fully funded plan status under the Pension Protection Act of 2006. As such, the primary investment objective beyond accumulating sufficient assets to meet future benefit obligations is to monitor and manage the liabilities of the plan to better insulate the portfolio from changes in interest rates that are impacting the liabilities. This requires an interest rate management strategy to reduce the sensitivity in the plan’s funded status and having a portion of the plan’s assets invested in return-seeking strategies. Currently, our policy includes a 75% allocation to fixed income and 25% to return-seeking strategies. Actual allocations may experience temporary fluctuations based on market movements and investment strategies.

For the Canadian pension plan the investment objectives for the pension plans’ assets are as follows: (i) achieve a nominal annualized rate of return equal to or greater than the actuarially assumed investment return over ten to twenty-year periods; (ii) achieve an annualized rate of return of the Consumer Price Index plus 5% over ten to twenty-year periods; (iii) realize annual, three and five-year annualized rates of return consistent with or in excess of specific respective market benchmarks at the individual asset class level; and (iv) achieve an overall return on the pension plans’ assets consistent with or in excess of the total fund benchmark, which is a hybrid benchmark customized to reflect the trusts’ asset allocation and performance objectives. Currently, our policy includes a 40% allocation to fixed income and 60% to return-seeking strategies. Actual allocations may experience temporary fluctuations based on market movements and investment strategies.

A significant amount of the assets are invested in funds that are managed by a group of professional investment managers. These funds are mainly commingled funds. Performance is reviewed by Mosaic management monthly by comparing each fund’s return to a benchmark with an in-depth quarterly review presented by the professional investment managers to the Global Pension Investment Committee. We do not have any significant concentrations of credit risk or industry sectors within the plan assets. Assets may be indirectly invested in Mosaic stock, but any risk related to this investment would be immaterial due to the insignificant percentage of the total pension assets that would be invested in Mosaic stock.

Fair Value Measurements of Plan Assets

The following tables provide fair value measurement, by asset class, of the Company’s defined benefit plan assets for both the U.S. and Canadian plans:



(in millions)	December 31, 2016
Pension Plan Asset Category	Total		Level 1		Level 2		Level 3
Cash	$	10.7	$	10.7	$	—	$	—
Equity securities^(a)	257.3		—		257.3		—
Fixed income^(b)	443.5		—		443.5		—
Private equity funds	4.1		—		—		4.1
Total assets at fair value	$	715.6	$	10.7	$	700.8	$	4.1

(in millions)	December 31, 2015
Pension Plan Asset Category	Total		Level 1		Level 2		Level 3
Cash	$	9.2	$	9.2	$	—	$	—
Equity securities^(a)	194.9		—		194.9		—
Fixed income^(b)	514.9		—		514.9		—
Private equity funds	7.7		—		—		7.7
Total assets at fair value	$	726.7	$	9.2	$	709.8	$	7.7

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(a)	This class, which includes several funds, was invested approximately 44% in U.S. equity securities, 30% in Canadian equity securities, and 26% in international equity securities as of December 31, 2016, and 41% in U.S. equity securities, 32% in Canadian equity securities, and 27% in international equity securities as of December 31, 2015.


(b)	This class, which includes several funds, was invested approximately 61% in corporate debt securities, 37% in governmental securities in the U.S. and Canada, and 2% in foreign entity debt securities as of December 31, 2016, and 61% in corporate debt securities, 35% in governmental securities in the U.S. and Canada, and 4% in foreign entity debt securities as of December 31, 2015.

Rates and Assumptions

The approach used to develop the discount rate for the pension and postretirement plans is commonly referred to as the yield curve approach. Under this approach, we use a hypothetical curve formed by the average yields of available corporate bonds rated AA and above and match it against the projected benefit payment stream. Each category of cash flow of the projected benefit payment stream is discounted back using the respective interest rate on the yield curve. Using the present value of projected benefit payments, a weighted-average discount rate is derived.

The approach used to develop the expected long-term rate of return on plan assets combines an analysis of historical performance, the drivers of investment performance by asset class, and current economic fundamentals. For returns, we utilized a building block approach starting with inflation expectations and added an expected real return to arrive at a long-term nominal expected return for each asset class. Long-term expected real returns are derived from future expectations of the U.S. Treasury real yield curve.

Weighted average assumptions used to determine benefit obligations were as follows:



	Pension Plans
	Years Ended December 31,
	2016		2015		2014
Discount rate	3.97	%	4.17	%	3.95	%
Expected return on plan assets	5.54	%	5.66	%	6.15	%
Rate of compensation increase	3.50	%	3.50	%	3.50	%

Weighted-average assumptions used to determine net benefit cost were as follows:



	Pension Plans
	Years Ended December 31,
	2016		2015		2014
Discount rate	4.17	%	3.95	%	4.75	%
Service cost discount rate ^(a)	4.19	%	n/a		n/a
Interest cost discount rate ^(a)	3.45	%	n/a		n/a
Expected return on plan assets	5.66	%	6.15	%	6.15	%
Rate of compensation increase	3.50	%	3.50	%	3.50	%

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(a)

In 2016, we changed the method used to estimate the service and interest cost components of net periodic benefit cost for our defined benefit pension and other postretirement benefit plans by electing a full yield curve approach and applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The impact of this change to our earnings and earnings per share was not material.

Defined Contribution Plans

Eligible salaried and nonunion hourly employees in the U.S. participate in a defined contribution investment plan which permits employees to defer a portion of their compensation through payroll deductions and provides matching contributions. We match 100% of the first 3% of the participant’s contributed pay plus 50% of the next 3% of the participant’s contributed pay, subject to Internal Revenue Service limits. Participant contributions, matching contributions, and the related earnings immediately vest. Mosaic also provides an annual non-elective employer contribution feature for eligible salaried and non-union hourly employees based on the employee’s age and eligible pay. Participants are generally vested in the non-elective employer contributions after three years of service. In addition, a discretionary feature of the plan allows the Company to make additional contributions to employees. Certain union employees participate in a defined contribution retirement plan based on collective bargaining agreements.

Canadian salaried and non-union hourly employees participate in an employer funded plan with employer contributions similar to the U.S. plan. The plan provides a profit sharing component which is paid each year. We also sponsor one mandatory union plan in Canada. Benefits in these plans vest after two years of consecutive service.

The expense attributable to defined contribution plans in the U.S. and Canada was $51.1 million, $55.1 million and $51.5 million for 2016, 2015 and 2014, respectively.