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Pensions and Postretirement Benefits Other Than Pensions
 12 Months Ended
Dec. 31, 2014
General Discussion of Pension and Other Postretirement Benefits [Abstract]  
Pensions and Postretirement Benefits Other Than Pensions
PENSIONS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors several U.S. defined benefit and defined contribution plans covering substantially all of our U.S. employees. Additionally, the Company has many non-U.S. defined benefit and defined contribution plans covering eligible non-U.S. employees. Postretirement benefits, other than pensions, provide healthcare benefits, and in some instances, life insurance benefits for certain eligible employees.
Pension Plans
The noncontributory defined benefit pension plans covering non-collectively bargained U.S. employees provide benefits on a final average pay formula while plans for most collectively bargained U.S. employees provide benefits on a flat dollar benefit formula or a percentage of pay formula. The non-U.S. pension plans generally provide benefits based on earnings and years of service. The Company also maintains additional other supplemental plans for officers and other key or highly compensated employees.
In connection with the 2013 spin-off, the Company transferred its obligations for pension benefits for all current and former employees of the commercial and residential security businesses to Allegion. The transfer of these obligations reduced our pension liabilities by $631.1 million, pension assets by $543.5 million, and accumulated other comprehensive losses by $164.8 million.
On June 8, 2012, the Board of Directors approved amendments to the Company's retirement plans for certain U.S. and Puerto Rico non-bargained employees. Eligible non-bargained employees hired prior to July 1, 2012 were given a choice of remaining in their respective defined benefit plan until the plan freezes on December 31, 2022 or freezing their accrued benefits in their respective defined benefit plan as of December 31, 2012 and receiving an additional 2% non-matching Company contribution into the Company's applicable defined contribution plan. Eligible employees hired or rehired on or after July 1, 2012 will automatically receive the 2% non-matching Company contribution into the applicable defined contribution plan in lieu of participating in the defined benefit plan. Beginning January 1, 2023, all eligible employees will receive the 2% non-matching contribution into the applicable defined contribution plan . As a result of these changes, the Company's projected benefit obligations for the amended plans were remeasured as of June 8, 2012, which included updating the discount rate assumption to 4.00% from the 4.25% assumed at December 31, 2011. The amendments resulted in a 2012 curtailment loss of $4.0 million. The amendment and remeasurement resulted in an increase of $1.0 million to the projected benefit obligation, an increase of $29.4 million to the plan assets, an actuarial gain of $28.4 million and a credit of $4.0 million to prior service cost during 2012.
The following table details information regarding the Company’s pension plans at December 31:
In millions
 
2014
 
2013
Change in benefit obligations:
 
 
 
 
Benefit obligation at beginning of year
 
$
3,333.2

 
$
4,228.6

Service cost
 
68.7

 
88.5

Interest cost
 
147.2

 
156.9

Employee contributions
 
1.2

 
1.5

Amendments
 
9.2

 
1.2

Actuarial (gains) losses
 
448.3

 
(314.4
)
Benefits paid
 
(215.3
)
 
(211.6
)
Currency translation
 
(57.8
)
 
19.5

Curtailments and settlements
 
(4.1
)
 
(3.7
)
Impact of spin-off
 
—

 
(631.1
)
Other, including expenses paid
 
(11.0
)
 
(2.2
)
Benefit obligation at end of year
 
$
3,719.6

 
$
3,333.2

Change in plan assets:
 
 
 
 
Fair value at beginning of year
 
$
2,779.2

 
$
3,310.2

Actual return on assets
 
395.2

 
98.9

Company contributions
 
116.5

 
109.7

Employee contributions
 
1.2

 
1.5

Benefits paid
 
(215.3
)
 
(211.6
)
Currency translation
 
(43.1
)
 
17.7

Settlements
 
(4.1
)
 
(1.6
)
Impact of spin-off
 
—

 
(543.5
)
Other, including expenses paid
 
(11.0
)
 
(2.1
)
Fair value of assets end of year
 
$
3,018.6

 
$
2,779.2

Net unfunded liability
 
$
(701.0
)
 
$
(554.0
)
Amounts included in the balance sheet:
 
 
 
 
Other noncurrent assets
 
$
11.5

 
$
4.3

Accrued compensation and benefits
 
(11.3
)
 
(30.8
)
Postemployment and other benefit liabilities
 
(701.2
)
 
(527.5
)
Net amount recognized
 
$
(701.0
)
 
$
(554.0
)

It is the Company’s objective to contribute to the pension plans to ensure adequate funds, and no less than required by law, are available in the plans to make benefit payments to plan participants and beneficiaries when required. However, certain plans are not or cannot be funded due to either legal, accounting, or tax requirements in certain jurisdictions. As of December 31, 2014, approximately six percent of our projected benefit obligation relates to plans that cannot be funded.
The pretax amounts recognized in Accumulated other comprehensive income (loss) are as follows:
In millions
 
Prior service cost
 
Net actuarial losses
 
Total
December 31, 2013
 
$
(17.7
)
 
$
(849.1
)
 
$
(866.8
)
Current year changes recorded to Accumulated other comprehensive income (loss)
 
(9.2
)
 
(209.2
)
 
(218.4
)
Amortization reclassified to earnings
 
4.4

 
36.1

 
40.5

Settlements/curtailments reclassified to earnings
 
—

 
7.1

 
7.1

Currency translation and other
 
0.2

 
15.7

 
15.9

December 31, 2014
 
$
(22.3
)
 
$
(999.4
)
 
$
(1,021.7
)

Weighted-average assumptions used to determine the benefit obligation at December 31 are as follows:
 
 
2014
 
2013
Discount rate:
 
 
 
 
U.S. plans
 
3.75
%
 
4.75
%
Non-U.S. plans
 
3.25
%
 
4.25
%
Rate of compensation increase:
 
 
 
 
U.S. plans
 
4.00
%
 
4.00
%
Non-U.S. plans
 
4.00
%
 
4.25
%

The accumulated benefit obligation for all defined benefit pension plans was $3,568.5 million and $3,194.8 million at December 31, 2014 and 2013, respectively. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations more than plan assets were $3,244.3 million, $3,115.2 million and $2,536.2 million, respectively, as of December 31, 2014, and $3,291.3 million, $3,159.3 million and $2,735.5 million, respectively, as of December 31, 2013.
Pension benefit payments are expected to be paid as follows:
In millions
  
2015
$
207.8

2016
208.4

2017
212.4

2018
222.2

2019
222.4

2020 — 2024
1,164.6



The components of the Company’s net periodic pension benefit costs for the years ended December 31 include the following:
In millions
 
2014
 
2013
 
2012
Service cost
 
$
68.7

 
$
88.5

 
$
96.8

Interest cost
 
147.2

 
156.9

 
163.6

Expected return on plan assets
 
(156.1
)
 
(166.3
)
 
(173.6
)
Net amortization of:
 
 
 
 
 
 
Prior service costs
 
4.4

 
4.7

 
5.1

Plan net actuarial losses
 
36.1

 
63.0

 
60.6

Net periodic pension benefit cost
 
100.3

 
146.8

 
152.5

Net curtailment and settlement (gains) losses
 
7.1

 
0.7

 
4.9

Net periodic pension benefit cost after net curtailment and settlement (gains) losses
 
$
107.4

 
$
147.5

 
$
157.4

Amounts recorded in continuing operations
 
$
100.2

 
$
119.2

 
$
125.5

Amounts recorded in discontinued operations
 
7.2

 
28.3

 
31.9

Total
 
$
107.4

 
$
147.5

 
$
157.4


The curtailment and settlement losses in 2014 are associated with lump sum distributions under supplemental benefit plans for officers and other key employees. The curtailment and settlement losses in 2012 are associated with the amendments to the pension plans and lump sum distributions under the supplemental benefit plans for officers and other key employees.
Pension expense for 2015 is projected to be approximately $113.5 million, utilizing the assumptions for calculating the pension benefit obligations at the end of 2014. The amounts expected to be recognized in net periodic pension cost during the year ended 2015 for prior service cost and plan net actuarial losses are $3.3 million and $62.1 million, respectively.
Weighted-average assumptions used to determine net periodic pension cost for the years ended December 31 are as follows:
 
 
2014
 
2013
 
2012
Discount rate:
 
 
 
 
 
 
U.S. plans
 
 
 
 
 
 
For the period January 1 to June 7
 
4.75
%
 
3.75
%
 
4.25
%
For the period June 8 to November 30
 
4.75
%
 
3.75
%
 
4.00
%
For the period December 1 to December 31
 
4.75
%
 
4.50
%
 
4.00
%
Non-U.S. plans
 
4.25
%
 
4.25
%
 
5.00
%
Rate of compensation increase:
 
 
 
 
 
 
U.S. plans
 
4.00
%
 
4.00
%
 
4.00
%
Non-U.S. plans
 
4.25
%
 
4.00
%
 
4.00
%
Expected return on plan assets:
 
 
 
 
 
 
U.S. plans
 
6.00
%
 
5.25
%
 
5.75
%
Non-U.S. plans
 
5.00
%
 
5.00
%
 
5.75
%

The expected long-term rate of return on plan assets reflects the average rate of returns expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. The expected long-term rate of return on plan assets is based on what is achievable given the plan’s investment policy, the types of assets held and target asset allocations. The expected long-term rate of return is determined as of the measurement date. The Company reviews each plan and its historical returns and target asset allocations to determine the appropriate expected long-term rate of return on plan assets to be used.
The Company's objective in managing its defined benefit plan assets is to ensure that all present and future benefit obligations are met as they come due. It seeks to achieve this goal while trying to mitigate volatility in plan funded status, contribution, and expense by better matching the characteristics of the plan assets to that of the plan liabilities. The Company utilizes a dynamic approach to asset allocation whereby a plan's allocation to fixed income assets increases as the plan's funded status improves. The Company monitors plan funded status and asset allocation regularly in addition to investment manager performance.
Fair Value Measurements
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value measurements are based on a framework that utilizes the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. The fair value hierarchy is comprised of three levels that are described below:
•
Level 1 - Inputs based on quoted prices in active markets for identical assets or liabilities.
•
Level 2 - Inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
•
Level 3 - Unobservable inputs based on little or no market activity and that are significant to the fair value of the assets and liabilities.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability based on the best information available under the circumstances. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The fair values of the Company’s pension plan assets at December 31, 2014 by asset category are as follows:
 
 
Fair value measurements
 
Total
fair value
In millions
 
Level 1
 
Level 2
 
Level 3
 
Cash and cash equivalents
 
$
1.3

 
$
27.3

 
$
—

 
$
28.6

Equity investments:
 
 
 
 
 
 
 
 
Registered mutual funds – equity specialty(a)
 
6.3

 
—

 
—

 
6.3

Commingled funds – equity specialty(a)
 
—

 
834.0

 
—

 
834.0

 
 
6.3

 
834.0

 
—

 
840.3

Fixed income investments:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
—

 
784.9

 
—

 
784.9

Corporate and non-U.S. bonds(b)
 
—

 
823.9

 
—

 
823.9

Asset-backed and mortgage-backed securities
 
—

 
45.3

 
—

 
45.3

Registered mutual funds – fixed income specialty(c)
 
33.0

 
—

 
—

 
33.0

Commingled funds – fixed income specialty(c)
 
—

 
354.3

 
—

 
354.3

Other fixed income(d)
 
—

 
—

 
23.4

 
23.4

 
 
33.0

 
2,008.4

 
23.4

 
2,064.8

Real estate(e)
 
—

 
—

 
16.4

 
16.4

Other(f)
 
—

 
—

 
62.8

 
62.8

Total assets at fair value
 
$
40.6

 
$
2,869.7

 
$
102.6

 
$
3,012.9

Receivables and payables, net
 
 
 
 
 
 
 
5.7

Net assets available for benefits
 
 
 
 
 
 
 
$
3,018.6

(a)
This class comprises commingled and registered mutual funds that focus on equity investments. It includes both indexed and actively managed funds.
(b)
This class includes state and municipal bonds.
(c)
This class comprises commingled and registered mutual funds that focus on fixed income securities.
(d)
This class includes group annuity and guaranteed interest contracts.
(e)
This class includes private equity funds that invest in real estate, including funds of funds.
(f)
This investment comprises the Company’s non-significant, non-U.S. pension plan assets. It mostly includes insurance contracts.
The fair values of the Company’s pension plan assets at December 31, 2013 by asset category are as follows:
 
 
Fair value measurements
 
Total
fair value
In millions
 
Level 1
 
Level 2
 
Level 3
 
Cash and cash equivalents
 
$
4.1

 
$
37.9

 
$
—

 
$
42.0

Equity investments:
 
 
 
 
 
 
 
 
Registered mutual funds – equity specialty(a)
 
6.0

 
—

 
—

 
6.0

Commingled funds – equity specialty(a)
 
—

 
826.8

 
—

 
826.8

 
 
6.0

 
826.8

 
—

 
832.8

Fixed income investments:
 
 
 
 
 
 
 
 
U.S. government and agency obligations
 
—

 
702.9

 
—

 
702.9

Corporate and non-U.S. bonds(b)
 
—

 
748.4

 
—

 
748.4

Asset-backed and mortgage-backed securities
 
—

 
59.4

 
—

 
59.4

Registered mutual funds – fixed income specialty(c)
 
32.3

 
—

 
—

 
32.3

Commingled funds – fixed income specialty(c)
 
—

 
268.5

 
—

 
268.5

Other fixed income(d)
 
—

 
—

 
22.6

 
22.6

 
 
32.3

 
1,779.2

 
22.6

 
1,834.1

Real estate(e)
 
—

 
—

 
19.3

 
19.3

Other(f)
 
—

 
—

 
58.1

 
58.1

Total assets at fair value
 
$
42.4

 
$
2,643.9

 
$
100.0

 
$
2,786.3

Receivables and payables, net(g)
 
 
 
 
 
 
 
(7.1
)
Net assets available for benefits
 
 
 
 
 
 
 
$
2,779.2

(a)
This class comprises commingled and registered mutual funds that focus on equity investments. It includes both indexed and actively managed funds.
(b)
This class includes state and municipal bonds.
(c)
This class comprises commingled and registered mutual funds that focus on fixed income securities.
(d)
This class includes group annuity and guaranteed interest contracts.
(e)
This class includes private equity funds that invest in real estate, including funds of funds.
(f)
This investment comprises the Company’s non-significant, non-U.S. pension plan assets. It mostly includes insurance contracts.
(g)
Includes an estimated $20.0 million payable to Allegion in accordance with the terms of the Employee Matters Agreement.

Cash equivalents are valued using a market approach with inputs including quoted market prices for either identical or similar instruments. Fixed income securities are valued through a market approach with inputs including, but not limited to, benchmark yields, reported trades, broker quotes and issuer spreads. Commingled funds are valued at their daily net asset value (NAV) per share or the equivalent. NAV per share or the equivalent is used for fair value purposes as a practical expedient. NAVs are calculated by the investment manager or sponsor of the fund. Private real estate fund values are reported by the fund manager and are based on valuation or appraisal of the underlying investments.
The methodologies used by the Company to determine the fair value of its financial assets and liabilities at December 31, 2014 are the same as those used at December 31, 2013. There have been no significant transfers between levels of the fair value hierarchy.
The Company made required and discretionary contributions to its pension plans of $116.5 million in 2014, $109.7 million in 2013, and $89.1 million in 2012. The Company currently projects that it will contribute approximately $59.9 million to its plans worldwide in 2015. The Company’s policy allows it to fund an amount, which could be in excess of or less than the pension cost expensed, subject to the limitations imposed by current tax regulations. The Company anticipates funding the plans in 2015 in accordance with contributions required by funding regulations or the laws of each jurisdiction.
Most of the Company’s U.S. employees are covered by defined contribution plans. Employer contributions are determined based on criteria specific to the individual plans and amounted to approximately $88.7 million, $89.0 million, and $76.8 million in 2014, 2013 and 2012, respectively. The Company’s contributions relating to non-U.S. defined contribution plans and other non-U.S. benefit plans were $32.1 million, $33.8 million and $27.1 million in 2014, 2013 and 2012, respectively.
Multiemployer Pension Plans
The Company also participates in a number of multiemployer defined benefit pension plans related to collectively bargained U.S. employees of Trane. The Company's contributions, and the administration of the fixed retirement payments, are determined by the terms of the related collective-bargaining agreements. These multiemployer plans pose different risks to the Company than single-employer plans, including:
1.
The Company's contributions to multiemployer plans may be used to provide benefits to all participating employees of the program, including employees of other employers.
2.
In the event that another participating employer ceases contributions to a plan, the Company may be responsible for any unfunded obligations along with the remaining participating employers.
3.
If the Company chooses to withdraw from any of the multiemployer plans, the Company may be required to pay a withdrawal liability, based on the underfunded status of the plan.
As of December 31, 2014, the Company does not participate in any plans that are individually significant, nor is the Company an individually significant participant to any of these plans. Total contributions to multiemployer plans for the years ended December 31 were as follows:
In millions
 
2014
 
2013
 
2012
Total contributions
 
$
6.3

 
$
5.4

 
$
5.4


Contributions to these plans may increase in the event that any of these plans are underfunded.
Postretirement Benefits Other Than Pensions
The Company sponsors several postretirement plans that provide for healthcare benefits, and in some instances, life insurance benefits that cover certain eligible employees. These plans are unfunded and have no plan assets, but are instead funded by the Company on a pay-as-you-go basis in the form of direct benefit payments. Generally, postretirement health benefits are contributory with contributions adjusted annually. Life insurance plans for retirees are primarily noncontributory.
In connection with the 2013 spin-off, the Company transferred its obligations for post retirement benefits other than pension for all current and former employees of the commercial and residential security businesses to Allegion. The transfer of these obligations reduced our post retirement plan liabilities by $14.1 million, and increased our accumulated other comprehensive income by $5.6 million.
The Board of Directors approved amendments on February 1, 2012 to its postretirement medical plan with respect to post-65 retiree medical coverage. Effective January 1, 2013, the Company discontinued offering company-sponsored retiree medical coverage for certain individuals age 65 and older. The Company transitioned affected individuals to coverage through the individual Medicare market and will provide a tax-advantaged subsidy to those retirees eligible for subsidized company coverage that can be used toward reimbursing premiums and other qualified medical expenses for individual Medicare supplemental coverage that is purchased through our third-party Medicare coordinator. As a result of these changes, the Company's projected benefit obligations were remeasured as of February 1, 2012, which included updating the discount rate assumption to 3.75% from the 4.00% assumed at December 31, 2011. The remeasurement resulted in a decrease of $40.5 million to the projected benefit obligation, an actuarial loss of $21.3 million and a credit of $61.8 million to prior service cost.
The following table details changes in the Company’s postretirement plan benefit obligations for the years ended December 31:
In millions
 
2014
 
2013
Benefit obligation at beginning of year
 
$
713.3

 
$
851.4

Service cost
 
5.1

 
6.6

Interest cost
 
28.1

 
26.0

Plan participants’ contributions
 
11.4

 
11.2

Actuarial (gains) losses
 
11.7

 
(109.8
)
Benefits paid, net of Medicare Part D subsidy *
 
(67.8
)
 
(56.4
)
Impact of spin-off
 
—

 
(14.1
)
Other
 
(1.1
)
 
(1.6
)
Benefit obligations at end of year
 
$
700.7

 
$
713.3

* Amounts are net of Medicare Part D subsidy of $0.1 million and $12.8 million in 2014 and 2013, respectively

The benefit plan obligations are reflected in the Consolidated Balance Sheets as follows:
In millions
 
December 31, 2014
 
December 31, 2013
Accrued compensation and benefits
 
$
(58.5
)
 
$
(65.2
)
Postemployment and other benefit liabilities
 
(642.2
)
 
(648.1
)
Total
 
$
(700.7
)
 
$
(713.3
)

The pre-tax amounts recognized in Accumulated other comprehensive income (loss) were as follows:
In millions
 
Prior service gains
 
Net actuarial losses
 
Total
Balance at December 31, 2013
 
$
39.4

 
$
(62.3
)
 
$
(22.9
)
Gain (loss) in current period
 
—

 
(11.7
)
 
(11.7
)
Amortization reclassified to earnings
 
(8.9
)
 
—

 
(8.9
)
Currency translation and other
 
—

 
0.2

 
0.2

Balance at December 31, 2014
 
$
30.5

 
$
(73.8
)
 
$
(43.3
)

The components of net periodic postretirement benefit (income) cost for the years ended December 31 were as follows:
In millions
 
2014
 
2013
 
2012
Service cost
 
$
5.1

 
$
6.6

 
$
7.3

Interest cost
 
28.1

 
26.0

 
30.8

Net amortization of:
 
 
 
 
 
 
Prior service gains
 
(8.9
)
 
(10.3
)
 
(10.3
)
Net actuarial losses
 
—

 
6.5

 
7.3

Net periodic postretirement benefit cost
 
$
24.3

 
$
28.8

 
$
35.1

Amounts recorded in continuing operations
 
$
16.2

 
$
19.8

 
$
22.2

Amounts recorded in discontinued operations
 
8.1

 
9.0

 
12.9

Total
 
$
24.3

 
$
28.8

 
$
35.1


Postretirement cost for 2015 is projected to be $19.8 million. The amount expected to be recognized in net periodic postretirement benefits cost in 2015 for prior service gains is $8.9 million.






Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31 are as follows:
 
 
2014
 
2013
 
2012
Discount rate:
 
 
 
 
 
 
Benefit obligations at December 31
 
3.50
%
 
4.25
%
 
3.25
%
Net periodic benefit cost
 
 
 
 
 
 
For the period January 1 to January 31
 
4.25
%
 
3.25
%
 
4.00
%
For the period February 1 to November 30
 
4.25
%
 
3.25
%
 
3.75
%
For the period November 30 to December 31
 
4.25
%
 
4.00
%
 
3.75
%
Assumed health-care cost trend rates at December 31:
 
 
 
 
 
 
Current year medical inflation
 
7.25
%
 
7.65
%
 
8.05
%
Ultimate inflation rate
 
5.00
%
 
5.00
%
 
5.00
%
Year that the rate reaches the ultimate trend rate
 
2021

 
2021

 
2021


A 1% change in the assumed medical trend rate would have the following effects as of and for the year ended December 31, 2014:
In millions
 
1%
Increase
 
1%
Decrease
Effect on total of service and interest cost components of current year benefit cost
 
$
1.1

 
$
(0.8
)
Effect on benefit obligation at year-end
 
31.8

 
(27.4
)

Benefit payments for postretirement benefits, which are net of expected plan participant contributions and Medicare Part D subsidy, are expected to be paid as follows:
In millions
  
2015
$
59.5

2016
58.4

2017
57.4

2018
55.9

2019
53.7

2020 — 2024
236.8