PENSIONS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company sponsors several U.S. defined benefit and defined contribution plans covering substantially all of the Company's 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 (OPEB) provide healthcare benefits, and in some instances, life insurance benefits for certain eligible employees.

On January 1, 2017, the Company adopted ASU 2017-07 which requires the Company to present the service cost component of net periodic benefit cost in the same income statement line as other employee compensation costs with the remaining components of net periodic benefit cost presented separately from the service cost component and outside of any subtotal of operating income, if one is presented. The Company applied the presentation requirements retrospectively.

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.

The following table details information regarding the Company’s pension plans at December 31:



In millions	2017			2016
Change in benefit obligations:
Benefit obligation at beginning of year	$	3,531.9		$	3,523.8
Service cost	70.8			72.1
Interest cost	109.0			110.2
Employee contributions	1.1			1.0
Amendments	3.8			6.2
Actuarial (gains) losses	175.8			129.6
Benefits paid	(194.8		)	(203.5		)
Currency translation	69.6			(89.4		)
Curtailments, settlements and special termination benefits	(13.1		)	(1.6		)
Other, including expenses paid	(11.9		)	(16.5		)
Benefit obligation at end of year	$	3,742.2		$	3,531.9
Change in plan assets:
Fair value at beginning of year	$	2,797.1		$	2,772.0
Actual return on assets	326.9			274.9
Company contributions	101.4			56.4
Employee contributions	1.1			1.0
Benefits paid	(194.8		)	(203.5		)
Currency translation	59.0			(85.6		)
Settlements	(13.5		)	(1.6		)
Other, including expenses paid	(14.1		)	(16.5		)
Fair value of assets end of year	$	3,063.1		$	2,797.1
Net unfunded liability	$	(679.1	)	$	(734.8	)
Amounts included in the balance sheet:
Other noncurrent assets	$	61.7		$	19.2
Accrued compensation and benefits	(15.3		)	(6.4		)
Postemployment and other benefit liabilities	(725.5		)	(747.6		)
Net amount recognized	$	(679.1	)	$	(734.8	)

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, 2017, approximately seven percent of the Company's 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 benefit (cost)			Net actuarial gains (losses)			Total
December 31, 2016	$	(25.5	)	$	(886.8	)	$	(912.3	)
Current year changes recorded to AOCI	(3.8		)	9.4			5.6
Amortization reclassified to earnings	3.8			56.8			60.6
Settlements/curtailments reclassified to earnings ⁽¹⁾	4.7			3.0			7.7
Currency translation and other	0.6			(15.9		)	(15.3		)
December 31, 2017	$	(20.2	)	$	(833.5	)	$	(853.7	)

(1) Includes $2.5 million recorded in restructuring charges.

Weighted-average assumptions used to determine the benefit obligation at December 31 are as follows:



	2017		2016
Discount rate:
U.S. plans	3.54	%	3.97	%
Non-U.S. plans	2.29	%	2.40	%
Rate of compensation increase:
U.S. plans	4.00	%	4.00	%
Non-U.S. plans	4.00	%	4.00	%

The accumulated benefit obligation for all defined benefit pension plans was $3,626.7 million and $3,418.2 million at December 31, 2017 and 2016, 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 $3,291.4 million, $3,194.7 million and $2,554.0 million, respectively, as of December 31, 2017, and $3,095.1 million, $3,002.0 million and $2,346.4 million, respectively, as of December 31, 2016.

Pension benefit payments are expected to be paid as follows:



In millions
2018	$	215.2
2019	209.0
2020	218.7
2021	218.4
2022	220.7
2023 — 2027	1,136.9

The components of the Company’s net periodic pension benefit costs for the years ended December 31 include the following:



In millions	2017			2016			2015
Service cost	$	70.8		$	72.1		$	75.2
Interest cost	109.0			110.2			129.5
Expected return on plan assets	(141.7		)	(146.1		)	(158.3		)
Net amortization of:
Prior service costs (benefits)	3.8			4.7			3.2
Plan net actuarial (gains) losses	56.8			61.6			60.7
Net periodic pension benefit cost	98.7			102.5			110.3
Net curtailment, settlement, and special termination benefits (gains) losses	5.6			2.1			0.7
Net periodic pension benefit cost after net curtailment and settlement (gains) losses	$	104.3		$	104.6		$	111.0
Amounts recorded in continuing operations:
Operating income	$	68.2		$	69.3		$	73.6
Other income/(expense), net	25.4			25.5			27.1
Amounts recorded in discontinued operations	10.7			9.8			10.3
Total	$	104.3		$	104.6		$	111.0

During 2017, the Company recognized a curtailment loss associated with certain defined benefit plan freezes that is effective January 1, 2022. As a result, projected benefit obligations for these plans were remeasured as of January 31, 2017. Also during 2017, the Company recognized settlement losses associated with lump sum distributions of non-U.S. defined benefit plans.

Net periodic pension benefit cost for 2018 is projected to be approximately $86.1 million. The amounts expected to be recognized in net periodic pension benefit cost during the year ended 2018 for prior service cost and plan net actuarial losses are $4.2 million and $49.9 million, respectively.

Weighted-average assumptions used to determine net periodic pension cost for the years ended December 31 are as follows:



	2017		2016		2015
Discount rate:
U.S. plans
Service cost	4.18	%	4.25	%	3.75	%
Interest cost	3.36	%	3.29	%	3.75	%
Non-U.S. plans
Service cost	2.66	%	3.05	%	3.25	%
Interest cost	2.50	%	3.18	%	3.25	%
Rate of compensation increase:
U.S. plans	4.00	%	4.00	%	4.00	%
Non-U.S. plans	4.00	%	4.00	%	4.00	%
Expected return on plan assets:
U.S. plans	5.50	%	5.75	%	5.75	%
Non-U.S. plans	3.25	%	3.75	%	4.25	%

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.

The fair values of the Company’s pension plan assets at December 31, 2017 by asset category are as follows:



	Fair value measurements							Net asset value		Total fair value
In millions	Level 1		Level 2			Level 3		Net asset value		Total fair value
Cash and cash equivalents	$	4.8	$	35.4		$	—	$	—	$	40.2
Equity investments:
Registered mutual funds – equity specialty	—		—			—		77.6		77.6
Commingled funds – equity specialty	—		—			—		674.7		674.7
	—		—			—		752.3		752.3
Fixed income investments:
U.S. government and agency obligations	—		517.5			—		—		517.5
Corporate and non-U.S. bonds^(a)	—		1,336.8			—		—		1,336.8
Asset-backed and mortgage-backed securities	—		69.0			—		—		69.0
Registered mutual funds – fixed income specialty	—		—			—		111.0		111.0
Commingled funds – fixed income specialty	—		—			—		131.8		131.8
Other fixed income^(b)	—		—			26.3		—		26.3
	—		1,923.3			26.3		242.8		2,192.4
Derivatives	—		(0.3		)	—		—		(0.3		)
Real estate^(c)	—		—			4.9		—		4.9
Other^(d)	—		—			79.0		—		79.0
Total assets at fair value	$	4.8	$	1,958.4		$	110.2	$	995.1	$	3,068.5
Receivables and payables, net										(5.4		)
Net assets available for benefits										$	3,063.1

The fair values of the Company’s pension plan assets at December 31, 2016 by asset category are as follows:



	Fair value measurements							Net asset value		Total fair value
In millions	Level 1		Level 2			Level 3		Net asset value		Total fair value
Cash and cash equivalents	$	11.8	$	17.0		$	—	$	—	$	28.8
Equity investments:
Registered mutual funds – equity specialty	—		—			—		73.9		73.9
Commingled funds – equity specialty	—		—			—		640.8		640.8
	—		—			—		714.7		714.7
Fixed income investments:
U.S. government and agency obligations	—		460.0			—		—		460.0
Corporate and non-U.S. bonds^(a)	—		1,178.3			—		—		1,178.3
Asset-backed and mortgage-backed securities	—		74.0			—		—		74.0
Registered mutual funds – fixed income specialty	—		—			—		132.4		132.4
Commingled funds – fixed income specialty	—		—			—		96.0		96.0
Other fixed income^(b)	—		—			25.4		—		25.4
	—		1,712.3			25.4		228.4		1,966.1
Derivatives	—		(0.9		)	—		—		(0.9		)
Real estate^(c)	—		—			7.3		—		7.3
Other^(d)	—		—			64.3		—		64.3
Total assets at fair value	$	11.8	$	1,728.4		$	97.0	$	943.1	$	2,780.3
Receivables and payables, net										16.8
Net assets available for benefits										$	2,797.1


(a)	This class includes state and municipal bonds.


(b)	This class includes group annuity and guaranteed interest contracts.


(c)	This class includes a private equity fund that invests in real estate.


(d)	This investment comprises the Company's non-significant, non-US pension plan assets. It primarily includes insurance contracts.

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. Refer to Note 9, "Fair Value Measurements" for additional information related to the fair value hierarchy defined by ASC 820. 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 $101.4 million in 2017, $56.4 million in 2016, and $35.6 million in 2015 and currently projects that it will contribute approximately $75.2 million to its plans worldwide in 2018. 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. However, the Company anticipates funding the plans in 2018 in accordance with contributions required by funding regulations or the laws of each jurisdiction. In October 2017, the U.S. Internal Revenue Service (IRS) issued final mortality regulations effective for plan years beginning in 2018 with the option to defer recognition for one year under certain exemption criteria. The Company has chosen to defer recognition of new IRS mortality rates for one year.

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 $118.7 million, $108.3 million, and $98.1 million in 2017, 2016 and 2015, respectively. The Company’s contributions relating to non-U.S. defined contribution plans and other non-U.S. benefit plans were $47.7 million, $39.9 million and $30.5 million in 2017, 2016 and 2015, 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, 2017, 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	2017		2016		2015
Total contributions	$	9.0	$	7.7	$	6.7

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.

The following table details changes in the Company’s postretirement plan benefit obligations for the years ended December 31:



In millions	2017			2016
Benefit obligation at beginning of year	$	578.6		$	624.1
Service cost	3.1			3.7
Interest cost	15.7			17.5
Plan participants’ contributions	9.8			10.2
Actuarial (gains) losses	(30.2		)	(24.4		)
Benefits paid, net of Medicare Part D subsidy ⁽¹⁾	(55.4		)	(55.7		)
Special termination benefits recorded in restructuring	5.9			—
Other	0.5			3.2
Benefit obligations at end of year	$	528.0		$	578.6

(1) Amounts are net of Medicare Part D subsidy of $1.1 million and $2.5 million in 2017 and 2016, respectively

The benefit plan obligations are reflected in the Consolidated Balance Sheets as follows:



In millions	December 31, 2017			December 31, 2016
Accrued compensation and benefits	$	(48.5	)	$	(53.3	)
Postemployment and other benefit liabilities	(479.5		)	(525.3		)
Total	$	(528.0	)	$	(578.6	)

The pre-tax amounts recognized in Accumulated other comprehensive income (loss) were as follows:



In millions	Prior service benefit (cost)			Net actuarial gains (losses)			Total
Balance at December 31, 2016	$	12.7		$	0.8		$	13.5
Gain (loss) in current period	—			30.2			30.2
Amortization reclassified to earnings	(8.6		)	0.1			(8.5		)
Currency translation and other	—			(0.1		)	(0.1		)
Balance at December 31, 2017	$	4.1		$	31.0		$	35.1

The components of net periodic postretirement benefit (income) cost for the years ended December 31 were as follows:



In millions	2017			2016			2015
Service cost	$	3.1		$	3.7		$	4.4
Interest cost	15.7			17.5			22.6
Net amortization of:
Prior service costs (benefits)	(8.6		)	(8.9		)	(8.9		)
Net actuarial (gains) losses	0.1			0.1			0.1
Net periodic postretirement benefit cost	$	10.3		$	12.4		$	18.2
Amounts recorded in continuing operations:
Operating income	$	3.1		$	3.7		$	4.4
Other income/(expense), net	5.6			4.6			6.6
Amounts recorded in discontinued operations	1.6			4.1			7.2
Total	$	10.3		$	12.4		$	18.2

Postretirement cost for 2018 is projected to be $14.1 million. The amount expected to be recognized in net periodic postretirement benefits cost in 2018 for prior service gains is $3.8 million.

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31 are as follows:



	2017		2016		2015
Discount rate:
Benefit obligations at December 31	3.38	%	3.73	%	3.88	%
Net periodic benefit cost
Service cost	3.82	%	3.97	%	3.50	%
Interest cost	2.99	%	2.99	%	3.50	%
Assumed health-care cost trend rates at December 31:
Current year medical inflation	6.85	%	7.25	%	7.25	%
Ultimate inflation rate	5.00	%	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2023		2023		2023

A 1% change in the assumed medical trend rate would have the following effects as of and for the year ended December 31, 2017:



In millions	1% Increase		1% Decrease
Effect on total of service and interest cost components of current year benefit cost	$	0.7	$	(0.6	)
Effect on benefit obligation at year-end	18.5		(16.1		)

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
2018	$	49.4
2019	47.7
2020	45.8
2021	44.3
2022	42.3
2023 — 2026	178.7