15. Pensions and Post-Retirement Benefit Plans

The Company and its subsidiaries maintain a number of defined benefit and defined contribution plans to provide retirement benefits for employees in the U.S., as well as employees outside the U.S. These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974 (“ERISA”), local statutory law or as determined by the board of directors. The defined benefit pension plans generally provide benefits based upon years of service and compensation. Pension plans are funded except for three domestic non-qualified defined benefit pension plans for certain key executives.

In the U.S., all qualified defined benefit pension plans for salaried and hourly employees have been closed to new participants and have been frozen. Accordingly, these pension plans no longer accrue additional years of service or recognize future increases in compensation for benefit purposes.

The defined contribution plans generally provide retirement assets to employee participants based upon employer and employee contributions to the participant’s individual investment account. The Company also provides retiree medical insurance coverage to certain U.S. employees and a life insurance benefit to most U.S. employees. For salaried employees, the retiree medical and retiree insurance plans have been closed to new participants.

In the third quarter of 2016, the Company offered a cash lump sum or annuity buyout to its terminated deferred vested participants in its U.S. defined benefit pension plan. Approximately 375 participants elected either a lump sum payout or annuity from a third party provider. The total dollar amount paid out of our defined benefit plan assets was $13.9 million and the Company recorded a pension settlement charge of $4.4 million for the year ended December 31, 2016.

Expense related to defined contribution plans totaled $7.8 million, $6.0 million and $6.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Net periodic pension costs for 2016, 2015 and 2014 were as follows:

	December 31,
	Pension Benefits									Other Benefits
	2016			2015			2014			2016			2015			2014
(Dollars in millions)
Service cost	$	1.7		$	2.0		$	2.7		$	0.1		$	0.1		$	0.1
Interest cost		11.0			10.9			11.8			0.4			0.4			0.5
Expected return on plan assets		(10.5	)		(12.0	)		(13.9	)		0.0			0.0			0.0
Amortization of prior service cost		0.0			(0.3	)		(0.2	)		0.0			(0.1	)		(0.2	)
Amortization of net loss		2.2			6.6			4.0			(0.4	)		(0.3	)		0.0
Settlements and curtailments		4.4			(0.8	)		0.0			0.0			0.0			0.0
Net periodic benefit cost	$	8.8		$	6.4		$	4.4		$	0.1		$	0.1		$	0.4

Net periodic pension cost is expected to be recognized from the amortization of net loss and is estimated to total $2.0 million for all plans in 2017.

The change in the funded status of the pension and postretirement plans as of December 31, 2016 and December 31, 2015 is as follows:

	December 31,
	Pension Benefits						Other Benefits
	2016			2015			2016			2015
(Dollars in millions)
Change in benefit obligation:
Benefit obligation at beginning of year	$	257.5		$	275.7		$	9.4		$	9.8
Service cost		1.7			2.0			0.1			0.1
Interest cost		11.0			10.9			0.4			0.4
Plan participants’ contributions		0.1			0.2			0.0			0.0
Actuarial losses (gains)		10.7			(14.9	)		1.0			(0.3	)
Plan amendments		(0.1	)		0.0			0.0			0.0
Settlements		(13.9	)		0.0			0.0			0.0
Currency translation		(9.9	)		(3.4	)		0.0			0.0
Benefits paid		(13.5	)		(13.0	)		(0.9	)		(0.6	)
Benefit obligation at end of year		243.6			257.5			10.0			9.4
Change in plan assets:
Fair value of plan assets at beginning of year		212.4			229.5			0.0			0.0
Actual return on plan assets		20.8			(4.6	)		0.0			0.0
Employer contribution		4.4			3.4			0.9			0.6
Plan participants’ contributions		0.1			0.2			0.0			0.0
Settlements		(13.9	)		0.0			0.0			0.0
Currency translation		(9.4	)		(3.1	)		0.0			0.0
Benefits paid		(13.5	)		(13.0	)		(0.9	)		(0.6	)
Fair value of plan assets at end of year		200.9			212.4			0.0			0.0
Funded status of the plan	$	(42.7	)	$	(45.1	)	$	(10.0	)	$	(9.4	)
Amounts recognized in the balance sheet consist of:
Noncurrent assets	$	0.8		$	0.8		$	0.0		$	0.0
Current liabilities		1.1			0.9			0.8			0.8
Noncurrent liabilities		42.4			45.0			9.2			8.6
Pension plans with projected benefit obligations in excess of plan assets:
Benefit obligation	$	238.7		$	252.7
Fair value of plan assets		195.3			206.9
Pension plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation	$	238.5		$	251.2
Fair value of plan assets		195.3			206.9

The measurement date for all pension and postretirement assets and obligations is December 31 for each respective year.

The accumulated benefit obligation for all defined benefit pension plans as of December 31, 2016 and 2015 was $243.3 million and $255.8 million, respectively.

Expected Contributions for the 2017 Fiscal Year

The expected contributions by the Company for 2017 are estimated to be $4.2 million for pension plans and $0.8 million for other benefit plans.

Projected Benefit Payments

Benefit payments for pension benefits, which are primarily funded by the pension plan assets, and other benefits, which are funded by general corporate assets and reflecting future expected service as appropriate, are expected to be paid as follows:

	Pension Benefits		Other Benefits
(Dollars in millions)
2017	$	13.0	$	0.9
2018		12.9		0.9
2019		13.2		0.8
2020		13.5		0.8
2021		13.8		0.7
Next five years		75.0		3.1

Weighted-Average Assumptions as of December 31

	December 31,
	Pension Benefits						Other Benefits
	2016			2015			2016			2015
Discount rate		4.09	%		4.52	%		4.53	%		4.73	%
Expected return on plan assets		5.10			5.16
Rate of compensation increase		3.50			3.82
Initial medical trend rate								6.30			6.50

Basis for the Selection of the Long-Term Rate of Return on Assets

The long-term rate of return on assets assumption was determined by using the plan’s asset allocation as described in the plan’s investment policy and modeling a distribution of compound average returns over a time horizon. The model uses asset class return, variance, and correlation assumptions to produce the expected return. The return assumptions used forward looking gross returns influenced by the current bond yields, corporate bond spreads and equity risk premiums based on current market conditions.

In general, the long-term rate of return is the sum of the portion of total assets in each asset class multiplied by the expected return for that class, adjusted for expected expenses to be paid from the assets. To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio.

Investment Strategy

The weighted average asset allocation for the Company’s pension plans at December 31 by asset category is as follows:

	December 31,
	2016			2015
Debt securities		71	%		70	%
Equity securities		24			26
Other		5			4
		100	%		100	%

The Company’s investment strategy for its pension plans is to maintain an adequate level of diversification, to reduce interest rate and market risk and to provide adequate liquidity to meet immediate and future benefit payment requirements. The Company’s overall investment strategy is to achieve a mix of growth seeking assets, principally U.S. and international public company equity securities and income generating assets, principally debt securities, real estate and cash. Currently, the Company targets an allocation of 30 percent to 40 percent growth seeking assets and 60 percent to 70 percent income generating assets on an overall basis. The Company utilizes investment managers to assist in identifying and monitoring investments that meet these allocation criteria. With respect to the U.S defined benefit plan, the Company has implemented a strategy of reallocating pension assets from growth seeking assets to income generating assets as certain funded status levels are reached.

The investment valuation policy of the Company is to value investments at fair value. Most of the assets are invested in pooled or commingled investment vehicles. The Company’s interest in these investment vehicles is expressed as a unit of account with a value per unit that is the result of the accumulated values of the underlying investments. Equity securities held within these investment vehicles are typically priced on a daily basis using the closing market price from the exchange through which the security is traded. Debt securities held within these investment vehicles are typically priced on a daily basis by independent pricing services. The fair value of real estate investments is either priced through a listing on an exchange or are subject to periodic appraisals.

The following table sets forth by level, the Company’s pension plan assets at fair value, within the fair value hierarchy, as of December 31, 2016 and December 31, 2015:

	As of December 31, 2016
	Quoted prices
	in active		Significant		Significant
	markets for		observable		unobservable
	identical assets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)		Total
(Dollars in millions)
U.S. equity securities	$	12.3	$	13.2		0.0	$	25.5
International equity securities		12.6		10.9		0.0		23.5
U.S. debt securities		29.7		75.2		3.2		108.1
International debt securities		8.3		24.3		1.1		33.7
Real estate and other investments		0.0		0.5		5.7		6.2
Cash and cash equivalents		0.0		3.9		0.0		3.9
	$	62.9	$	128.0	$	10.0	$	200.9

	As of December 31, 2015
	Quoted prices
	in active		Significant		Significant
	markets for		observable		unobservable
	identical assets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)		Total
(Dollars in millions)
U.S. equity securities	$	15.0	$	10.2	$	0.0	$	25.2
International equity securities	12.1			18.6		0.0	30.7
U.S. debt securities	32.3		84.8			0.0	117.1
International debt securities		7.0	25.5			0.0	32.5
Real estate and other investments		0.0	1.4			0.0	1.4
Cash and cash equivalents		0.0	5.5			0.0	5.5
	$	66.4	$	146.0	$	0.0	$	212.4

The table below sets forth a summary of changes in the fair value of the Level 3 pension plans’ assets for the year ended December 31, 2016:

	As of December 31, 2016
	Other Investments			Debt Securities
(Dollars in millions)
Balance at beginning of year	$	0.0		$	0.0
Purchases, sales, issuances and settlements	4.4				6.0
Realized and unrealized gains	0.2			0.1
Foreign currency translation loss		(0.3	)		(0.4	)
Balance at the end of year	$	4.3		$	5.7
The amount of total gains during the period attributable to the change in unrealized gains relating to Level 3 net assets still held at the reporting date	$	0.2		$	0.1

Health Care Cost Trend Rates

The 2017 initial health care cost trend rate is assumed to be 6.3 percent and is assumed to decrease gradually to 4.5 percent in 2037 and remain at that level thereafter. The assumed health care cost trend rate has a significant effect on the amounts reported for other postretirement benefit liability. A one-percentage-point change in the assumed health care cost trend rate would have the following effects:

	1% Increase		1% Decrease
(Dollars in millions)
Increase (decrease) from change in health care cost trend rates:
Postretirement benefit expense	$	0.0	$	0.0
Postretirement benefit liability		0.2		(0.1	)

Incentive Plan

The Company has short-term management incentive plans that pay cash bonuses if certain Company performance goals are met. The charge to operating expense for these plans was $10.4 million in 2016, $9.2 million in 2015 and $3.8 million in 2014.