Employee Retirement Plans

Defined Contribution Plans

The Quad/Graphics Diversified Plan is comprised of participant directed 401(k) contributions, Company match and profit sharing contributions, with total participant assets of $1.9 billion as of December 31, 2016. Company 401(k) matching contributions were $13.3 million, $16.6 million and $14.6 million for the years ended December 31, 2016, 2015 and 2014, respectively. The Quad/Graphics Employee Stock Ownership Plan holds profit sharing contributions of Company stock, which are made at the discretion of the Company's Board of Directors. There were no profit sharing contributions for the years ended December 31, 2016, 2015 and 2014.

Defined Benefit Plans and Other Postretirement Benefit Plans

The Company assumed various funded and unfunded frozen pension plans for a portion of its full-time employees in the United States as part of the acquisition of World Color Press in 2010. Benefits are generally based upon years of service and compensation. These plans are funded in conformity with the applicable government regulations. The Company funds at least the minimum amount required for all qualified plans using actuarial cost methods and assumptions acceptable under government regulations. In addition to pension benefits, the Company provided certain healthcare and life insurance benefits for some retired employees. In 2014, the Company eliminated the postretirement medical benefit coverage for all retirees, which resulted in the recognition of a termination gain of $4.9 million. The termination gain was recorded in restructuring, impairment and transaction-related charges in the consolidated statement of operations.

The components of net pension and postretirement benefit income for the years ended December 31, 2016, 2015 and 2014, were as follows:



	Pension Benefits									Postretirement Benefits
	2016			2015			2014			2016		2015		2014
Interest cost	$	(18.1	)	$	(26.9	)	$	(29.3	)	$	—	$	—	$	(0.1	)
Expected return on plan assets	30.2			34.9			34.4			—		—		—
Amortization of prior service credit	—			—			—			—		—		5.8
Amortization of actuarial gain	—			—			—			—		—		0.3
Net periodic benefit income	12.1			8.0			5.1			—		—		6.0
Settlement charge	(7.0		)	—			—			—		—		—
Termination gain	—			—			—			—		—		4.9
Total income	$	5.1		$	8.0		$	5.1		$	—	$	—	$	10.9

The underfunded pension obligations are calculated using generally accepted actuarial methods and are measured annually as of December 31. The following table provides a reconciliation of the projected benefit obligation, fair value of plan assets and the funded status of the pension plans as of December 31, 2016 and 2015:



	Pension Benefits
	2016			2015
Changes in benefit obligation
Projected benefit obligation, beginning of year	$	(645.9	)	$	(711.3	)
Interest cost	(18.1		)	(26.9		)
Actuarial gain (loss)	(22.3		)	39.3
Benefits paid	107.9			53.0
Liability benefit from lump-sum settlement	17.8			—
Projected benefit obligation, end of year	$	(560.6	)	$	(645.9	)

Changes in plan assets
Fair value of plan assets, beginning of year	$	508.1		$	548.6
Actual return on plan assets	33.8			(0.5		)
Employer contributions	12.4			13.0
Benefits paid	(107.9		)	(53.0		)
Fair value of plan assets, end of year	$	446.4		$	508.1

Funded status	$	(114.2	)	$	(137.8	)

Amounts recognized on the consolidated balance sheets as of December 31, 2016 and 2015, were as follows:



	Pension Benefits
	2016			2015
Current liabilities	$	(1.8	)	$	(1.8	)
Noncurrent liabilities	(112.4		)	(136.0		)
Total amount recognized	$	(114.2	)	$	(137.8	)

The following table provides a reconciliation of the Company's accumulated other comprehensive income (loss) prior to any deferred tax effects at December 31, 2016 and 2015:



	Pension Benefits
	Actuarial Gain / (Loss), net
Balance at January 1, 2015	$	(44.6	)
Amount arising during the period	3.7
Balance at December 31, 2015	$	(40.9	)
Amount arising during the period	(0.8		)
Impact of pension plan settlement charge included in net earnings (loss)	7.0
Balance at December 31, 2016	$	(34.7	)

On April 1, 2016, the Company provided the option to receive a lump-sum pension payment to a select group of terminated vested participants. Total lump-sum payments of $74.8 million were paid during 2016, of which $56.4 million million was paid in July 2016 under the lump-sum program. During 2016, the Company settled $92.6 million of pension liabilities for $74.8 million of pension payouts. Payments to eligible participants who elected to receive a lump-sum pension payment were funded from existing pension plan assets and constituted a settlement of the Company's pension liabilities with respect to these participants.

As a result of the lump-sums paid to participants, non-cash settlement charges of $7.0 million were recognized in 2016. The settlement charges were classified as restructuring, impairment and transaction-related charges in the consolidated statement of operations. These charges resulted from the recognition in earnings of a portion of the actuarial losses recorded in accumulated other comprehensive loss based on the proportion of the obligation settled.

Actuarial gains and losses in excess of 10% of the greater of the projected benefit obligation or the market-related value of plan assets are recognized as a component of net periodic benefit costs over the average remaining service period of a plan's active employees. Unrecognized prior service costs or credits are also recognized as a component of net periodic benefit cost over the average remaining service period of a plan's active employees. No amortization of amounts in accumulated other comprehensive loss is expected to be recognized as a component of net periodic pension income in 2017.

The weighted average assumptions, separately for the pension and postretirement benefit plans, used to determine net periodic benefit costs for the years ended December 31, 2016, 2015 and 2014, were as follows:



	Pension Benefits						Postretirement Benefits
	2016		2015		2014		2016	2015	2014
Discount rate	3.32	%	3.90	%	4.80	%	N/A	N/A	3.60	%
Expected long-term return on plan assets	6.50	%	6.50	%	6.50	%	N/A	N/A	N/A

The weighted average assumptions used to determine pension benefit obligations at December 31, 2016 and 2015, were as follows:



	Pension Benefits
	2016		2015
Discount rate (end of year rate)	3.91	%	4.14	%

The Company determines its assumed discount rate based on an index of high-quality corporate bond yields and matched-funding yield curve analysis as of the measurement date. For 2015, the Company measured interest costs utilizing a single weighted average discount rate derived from the yield curve used to measure the plan obligations. Beginning in 2016, the Company changed the approach used to measure interest costs for pension benefits and elected to measure interest costs by applying the specific spot rates along that yield curve to the plans' liability cash flows. The new method would also impact the calculation of service costs, but this is not applicable to the Company's pension plans due to their frozen status. The Company made this change to provide a more precise measurement of interest costs by aligning the timing of the plans' liability cash flows to the corresponding spot rates on the yield curve. This change did not affect the measurement of the plan obligations. The Company has reflected this as a change in accounting estimate, and accordingly, has accounted for it on a prospective basis.

Estimated Company Contributions and Benefit Payments

In 2017, the Company is not required to make cash contributions to its qualified defined benefit pension plans but expects to make estimated benefit payments of $1.8 million to its non-qualified defined benefit pension plans. The actual pension contributions may differ based on the funding calculations, and the Company may choose to make additional discretionary contributions. The estimated benefit payments may differ based on actual experience.

Estimated Future Benefit Payments by the Plans to or on behalf of Plan Participants

An estimate of the Plans' future benefit payments to be made from funded qualified plans and unfunded non-qualified plans to plan participants at December 31, 2016, were as follows:



	Pension Benefits
2017	$	44.2
2018	42.6
2019	41.4
2020	40.7
2021	39.5
2022 – 2026	181.6
Thereafter	170.6
Total	$	560.6

Plan Assets and Investment Strategy

The Company follows a disciplined investment strategy, which provides diversification of investments by asset class, foreign currency, sector and company. The Pension Committee has an approved investment policy for the pension plan that establishes long-term asset mix targets based on several factors including the following: the funded status, historical returns achieved by worldwide investment markets, the time horizon of the pension plan's obligations, and the investment risk. An allocation range by asset class is developed whereby a mix of equity securities and debt securities are used to provide an appropriate risk-adjusted long-term return on plan assets. Third-party investment managers are employed to invest assets in both passively-indexed and actively-managed strategies and investment returns and risks are monitored on an ongoing basis. Derivatives are used at certain times to hedge foreign currency exposure. Gains or losses on the derivatives are offset by a corresponding change in the value of the hedged assets. Derivatives are strictly used for hedging purposes and not speculative purposes.

The current target allocations for plan assets on a weighted average basis are 55% equity securities and 45% debt securities, including cash and cash equivalents. The actual asset allocation as of December 31, 2016, was approximately 56% equity securities and 44% debt securities. The actual asset allocation as of December 31, 2015, was approximately 54% equity securities and 46% debt securities. Equity investments are diversified by country, issuer and industry sector. Debt securities primarily consist of government bonds and corporate bonds from diversified industries.

The expected long-term rate of return on assets assumption is selected by first identifying the expected range of long-term rates of return for each major asset class. Expected long-term rates of return are developed based on long-term historical averages, current expectations of future returns and anticipated inflation rates. The expected long-term rate of return on plan assets is then calculated by weighting each asset class.

The fair values of the Company's pension plan assets at December 31, 2016 and 2015, by asset category were as follows:



	December 31, 2016								December 31, 2015
Asset Category	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	0.9	$	0.9	$	—	$	—	$	3.7	$	3.7	$	—	$	—
Debt securities	91.4		—		91.4		—		105.6		—		105.6		—
Equity securities	75.1		22.0		53.1		—		81.2		22.9		58.3		—
	167.4		$	22.9	$	144.5	$	—	190.5		$	26.6	$	163.9	$	—
Investments measured at net asset value ("NAV") ⁽¹⁾	279.0								317.6
	$	446.4							$	508.1

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⁽¹⁾

These investments consist of privately placed funds that are valued based on NAV. NAV of the funds is based on the fair value of each fund's underlying investments. In accordance with ASC Subtopic 820-10, certain investments that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. See Note 24, "New Accounting Pronouncements," for further discussion on the adoption of this new accounting standard.

There are no Level 3 assets or liabilities as of December 31, 2016 and 2015. See Note 15, " Financial Instruments and Fair Value Measurements," for definitions of fair value levels.

The Company segregated its plan assets by the following major categories and levels for determining their fair value as of December 31, 2016:

Cash and cash equivalents. Carrying value approximates fair value and these assets are classified as Level 1.

Debt Securities. This category consists of bonds, short-term fixed income securities and fixed income pooled funds fair valued based on a compilation of primarily observable market information or broker quotes in over-the-counter markets and are classified as Level 2.

Equity Securities. This category consists of equity investments and equity pooled funds and these assets are classified as Level 1 and Level 2, respectively. Level 1 assets are valued based on quoted prices in an active market. Level 2 assets are valued using quoted prices in markets that are not active, broker dealer quotations, and other methods by which all significant input was observable at the measurement date.

The valuation methodologies described above may generate a fair value calculation that may not be indicative of net realizable value or future fair values. While the Company believes the valuation methodologies used are appropriate, the use of different methodologies or assumptions in calculating fair value could result in different amounts. The Company invests in various assets in which valuation is determined by NAV. The Company believes that NAV is representative of fair value at the reporting date, as there are no significant restrictions on redemption on these investments or other reasons to indicate that the investment would be redeemed at an amount different than NAV.

The fair value measurements in common/collective trusts, calculated using a NAV and their redemption restrictions, for the years ended December 31, 2016 and 2015, are as follows:



	Fair Value				Redemption Frequency (If Currently Eligible)	Redemption Notice Period
	2016		2015		Redemption Frequency (If Currently Eligible)	Redemption Notice Period
JP Morgan Chase Bank Strategic Property Fund	$	26.4	$	31.0	Quarterly	45 days
Pyramis Long Corporate A or Better	53.2		61.2		Daily	15 days
Pyramis Long Duration	52.6		61.6		Daily	15 days
Russell 1000 Index NL	146.8		163.8		Daily	1 day

Risk Management

For all directly invested funds, the concentration risk is monitored through specific guidelines in the investment manager mandates. The investment manager mandates were developed by the Company's external investment advisor, and specify diversification standards such as the maximum exposure per issuer, and concentration limits per type of security, industry and country when applicable.

For the investments made through pooled funds, the investment mandates of the funds were again reviewed by the Company's external investment advisor, to determine that the investment objectives and guidelines were consistent with the Company's overall pension plan risk management objectives. In managing the plan assets, management reviews and manages risk associated with funded status risk, interest rate risk, market risk, counterparty risk, liquidity risk and operational risk. Liability management and asset class diversification are central to the Company's risk management approach and are integral to the overall investment strategy.

Given the process in place to ensure a proper diversification of the portfolio, management believes that the Company pension plan assets are not exposed to significant concentration risk.

Multiemployer Pension Plans

The Company has previously participated in a number of MEPPs under terms of collective bargaining agreements that cover a number of its employees. The risks of participating in these MEPPs are different from single employer plans in the following aspects:


•	Assets contributed to the MEPPs by one company may be used to provide benefits to employees of other participating companies.


•	If a participating company stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating companies.


•	If the Company stops participating in some or all of its MEPPs, and continues in business, the Company would be required to pay an amount, referred to as a withdrawal liability, based on the unfunded status of the plan.

The Company has withdrawn from all significant MEPPs and replaced these union sponsored "promise to pay in the future" defined benefit plans with a Company sponsored "pay as you go" defined contribution plan. The two MEPPs, the GCIU and GCC, are significantly underfunded, and will require the Company to pay a withdrawal liability to fund its pro rata share of the underfunding as of the plan year the full withdrawal was completed. As a result of the decision to withdraw, the Company accrued the estimated withdrawal liability based on information provided by each plan's trustee, as part of the purchase price allocation for World Color Press.

The GCIU Plan is a defined benefit plan that provides retirement benefits, total and permanent disability benefits, and pre-retirement death benefits for the participating union employees of the Company. The funded status of the GCIU Plan is classified as critical and declining based on the GCIU Plan's 2016 certification to the United States Department of Labor, as the funded percentage for the plan is less than 65% and the plan is projected to become insolvent within the next 20 years. As a result, the GCIU Plan implemented a rehabilitation plan to improve the plan's funded status.

The Company has received a notice of withdrawal and demand for payment letter from the GCIU, which is in excess of the reserve established by the Company for the GCIU withdrawal. The Company is currently in litigation with the GCIU trustees to determine the amount and duration of the withdrawal payments for the GCIU. Arbitration proceedings with the GCIU have been completed, both sides have appealed the arbitrator's ruling, and litigation in Federal court has commenced.

The GCC Plan is a defined benefit plan that provides retirement benefits, disability benefits, and early retirement benefits for the participating union employees of the Company. The funded status of the GCC Plan is classified as critical and declining based on the GCC Plan's 2016 certification to the United States Department of Labor, as the funded percentage for the plan is less than 65% and the plan is projected to be insolvent within the next 15 years. As a result, the GCC Plan implemented a rehabilitation plan to improve the plan's funded status.

During the fourth quarter of 2016, the Company and the GCC reached a settlement agreement for all claims, with scheduled payments until February 2024.

The Company made payments totaling $11.8 million, $11.4 million and $13.9 million for the years ended December 31, 2016, 2015 and 2014, respectively. The Company has reserved $48.1 million as its estimate of the total MEPPs withdrawal liability as of December 31, 2016, of which $33.4 million was recorded in other long-term liabilities, $10.6 million was recorded in accrued liabilities and $4.1 million was recorded in unsecured notes to be issued in the consolidated balance sheets. The withdrawal liability reserved by the Company is within the range of the Company's estimated potential outcomes. This estimate may increase or decrease depending on the final conclusion of the litigation with the GCIU trustees.