15. Employee Benefit Plans

The Company maintains several different retirement plans for its operations in the Americas, EMEA and APAC. The current plans are based largely upon benefit plans that MTW maintained prior to the Spin-Off. The Company has established a Retirement Plan Committee to manage the operations and administration of all retirement plans and related trusts.

Defined Benefit Plans

Prior to December 31, 2015, MTW maintained two defined benefit pension plans for its eligible employees and retirees: (1) The Manitowoc Company, Inc. Pension Plan (the "MTW Pension Plan"); and (2) The Manitowoc Company, Inc. Supplemental Executive Retirement Plan (the "MTW SERP"). The MTW Pension Plan and the MTW SERP (together, the "MTW DB Plans") covered eligible employees of MTW, including MTW's crane business and foodservice business. The MTW Pension Plan is frozen to new participants and future benefit accruals.

Effective January 1, 2016, a portion of each MTW DB Plan was spun off to create separate plans for MTW's foodservice business, for which "MFS" was substituted with "Welbilt" in the following plans due to the Name Change: (1) the Welbilt Pension Plan and (2) the Welbilt Supplemental Executive Retirement Plan (the "Welbilt SERP"). The Welbilt Pension Plan and the Welbilt SERP (together, the "Welbilt DB Plans") were initially sponsored by Manitowoc FSG U.S. Holding, LLC (name of the entity changed to Welbilt FSG U.S. Holdings, LLC effective April 19, 2017). The Company assumed sponsorship of the Welbilt DB Pension Plans on March 4, 2016. The Company no longer participates in the MTW DB Plans. The Welbilt DB Plans are substantially similar to the former MTW DB Plans.

When comparing the current financial information to financial statements for prior years, it is important to distinguish between: (1) the defined benefit plans that also covered employees of MTW and other MTW subsidiaries (the "Shared Plans"); and (2) the defined benefit plans which are sponsored directly by the Company or its subsidiaries and offered only to the Company's employees or retirees (the "Direct Plans").

The Company accounted for the Shared Plans for the purpose of the consolidated financial statements as a multiemployer plan. Accordingly, the Company did not record an asset or liability to recognize the funded status of the Shared Plans. However, the costs associated with these Shared Plans of $0.9 million for the year ended December 31, 2016, is reflected in the consolidated statements of operations. This expense reflects an approximation of the Company's portion of the costs of the Shared Plans, including costs attributable to MTW corporate employees, which have been allocated to the Company based on a methodology deemed reasonable by management. Because the Company no longer participated in the MTW DB Plans as of March 4, 2016, no such costs were recorded in the years ended December 31, 2018 and 2017.

During the year ended December 31, 2016, Welbilt assumed certain pension obligations of $55.6 million and related plan assets of $34.1 million, and certain postretirement health obligations of $6.8 million, to newly-created single employer plans for the Company's employees and certain other Company-sponsored pension plans, as described above. This net transfer of approximately $28.3 million was treated as a non-cash transaction between the Company and MTW. The Company also assumed after-tax deferred gains of $6.1 million related to these plans, which were recorded in "Accumulated other comprehensive loss."

In connection with the Crem Acquisition, the Company assumed two defined benefit pension plans with a combined projected benefit obligation of $0.6 million and plan assets of $0.2 million at the acquisition date. The balances and activity of these plans are included within the Direct Plans below.

Direct Plans

The Direct Plans are accounted for as defined benefit plans. Accordingly, the funded and unfunded position of each Direct Plan is recorded in the consolidated balance sheets and the income and expenses are recorded in the consolidated statements of operations. Actuarial gains and losses that have not yet been recognized through income are recorded in "Accumulated other comprehensive loss" until they are amortized as a component of net periodic benefit cost. The determination of benefit obligations and the recognition of expenses related to the Direct Plans are dependent on various assumptions. The major assumptions primarily relate to discount rates and long-term expected rates of return on plan assets. Management develops each assumption using relevant Company experience in conjunction with market-related data for each individual country in which such plans exist.

The components of periodic benefit costs for the Direct Plans for the years ended December 31, 2018, 2017 and 2016 are as follows:



	Pension Plans									Postretirement Health and Other
(in millions, except percentage data)	2018			2017			2016			2018			2017			2016
Service cost - benefits earned during the year	$	0.1		$	—		$	0.2		$	—		$	—		$	—
Interest cost of projected benefit obligation	5.2			5.4			8.3			0.3			0.3			0.4
Expected return on assets	(5.8		)	(6.2		)	(6.2		)	—			—			—
Amortization of actuarial net loss	2.2			2.0			2.5			0.2			—			—
Settlement loss recognized	2.4			—			—			—			—			—
Net periodic benefit cost	$	4.1		$	1.2		$	4.8		$	0.5		$	0.3		$	0.4
Weighted average assumptions:
Discount rate	2.8		%	3.1		%	3.9		%	3.2		%	3.5		%	3.9		%
Expected return on plan assets	3.2		%	3.6		%	3.7		%	N/A			N/A			N/A
Rate of compensation increase	2.0		%	—		%	4.0		%	1.5		%	1.5		%	1.5		%

Gains and losses in excess of 10% of the greater of the benefit obligation and the market-related value of assets are amortized over the average remaining service period of active participants.

To develop the expected long-term rate of return on assets assumptions, the Company considered the historical returns and future expectations for returns in each asset class, as well as targeted asset allocation percentages within the pension portfolio.

In October 2018, the Company completed the purchase of a group annuity contract using assets from the U.S. pension plan. Under the group annuity contract, accrued pension obligations of $7.9 million for certain participants that were receiving payments from the U.S. pension plan were transferred to an insurer. This agreement was an irrevocable action that unconditionally transferred the legal obligation to provide these payments to the insurer, as well as the risks attributable to that obligation. As a result, the Company recorded a non-cash settlement loss of $2.4 million, related to the accelerated recognition of unamortized losses in the fourth quarter of 2018, which was recorded in "Other expense — net" in the consolidated statement of operations.

The following is a reconciliation of the changes in benefit obligation, the changes in plan assets and the funded status of the Direct Plans as of December 31, 2018 and 2017:



	Pension Plans						Postretirement Health and Other
(in millions, except percentage data)	2018			2017			2018			2017
Change in Benefit Obligations
Benefit obligation, beginning of year	$	216.8		$	203.9		$	10.1		$	9.0
Service cost	0.1			—			—			—
Interest cost	5.2			5.4			0.3			0.3
Participant contributions	—			—			0.7			0.6
Plan settlements	(7.9		)	—			—			—
Plan amendments	(0.6		)	—			(1.5		)	—
Acquisition	0.6			—			—			—
Actuarial (gain)/loss	(9.0		)	7.7			0.5			1.7
Currency translation adjustment	(7.4		)	13.8			(0.1		)	0.1
Benefits paid	(11.3		)	(14.0		)	(2.7		)	(1.6		)
Benefit obligation, end of year	$	186.5		$	216.8		$	7.3		$	10.1
Change in Plan Assets
Fair value of plan assets, beginning of year	$	176.7		$	163.8		$	—		$	—
Actual return on plan assets	(6.8		)	9.2			—			—
Employer contributions	8.4			5.4			2.0			1.0
Participant contributions	—			—			0.7			0.6
Plan settlements	(7.9		)	—			—			—
Currency translation adjustment	(6.7		)	12.3			—			—
Acquisition	0.2			—			—			—
Benefits paid	(11.3		)	(14.0		)	(2.7		)	(1.6		)
Fair value of plan assets, end of year	$	152.6		$	176.7		$	—		$	—
Unfunded status ⁽¹⁾	$	(33.9	)	$	(40.1	)	$	(7.3	)	$	(10.1	)
Weighted-Average Assumptions
Discount rate	3.3		%	2.8		%	3.8		%	3.2		%
Rate of compensation increase	2.0		%	—		%	3.0		%	1.5		%

⁽¹⁾ As of December 31, 2018 and 2017, the short-term portion of the pension obligation totaled $0.9 million and $0.7 million, respectively and postretirement health and other benefit obligation totaled $1.1 million, and $1.2 million, respectively. These short-term obligations are included in "Accrued expenses and other liabilities."

The primary driver of the actuarial gain in 2018 within the change in the benefit obligation for pension plans is the increase in the discount rate assumption partially offset by the increase in inflation rate assumption and updated census data.

Amounts recognized in AOCI as of December 31, 2018 and 2017, consist of the following:



	Pension Plans						Postretirement Health and Other
(in millions)	2018			2017			2018			2017
Net actuarial loss	$	(41.8	)	$	(44.3	)	$	(2.5	)	$	(2.2	)
Prior service credit	0.6			—			1.5			—
Total amount recognized	$	(41.2	)	$	(44.3	)	$	(1.0	)	$	(2.2	)

For measurement purposes, a 6.1% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2018. The rate was assumed to decrease gradually to 4.5% for 2037 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The following table summarizes the sensitivity of the Company's December 31, 2018 retirement obligations and 2018 retirement benefit costs of its plans to changes in the key assumptions used to determine those results (in millions):



Change in assumption:	Estimated increase (decrease) in 2019 pension cost			Estimated increase (decrease) in projected benefit obligation for the year ended December 31, 2018			Estimated increase (decrease) in 2019 other postretirement benefit costs		Estimated increase (decrease) in other postretirement benefit obligation for the year ended December 31, 2018
0.5% increase in discount rate	$	(0.5	)	$	(13.3	)	$	—	$	(0.2	)
0.5% decrease in discount rate	0.6			14.5			—		0.2
0.5% increase in long-term return on assets	(0.7		)	N/A			N/A		N/A
0.5% decrease in long-term return on assets	0.7			N/A			N/A		N/A

The weighted-average asset allocations of the pension plans at December 31, 2018 and 2017, by asset category are as follows:



	2018		2017
Equity	14.2	%	17.6	%
Debt securities	32.1	%	34.6	%
Other	53.7	%	47.8	%
	100.0	%	100.0	%

Investment Strategy

The overall objective of the Company's pension assets is to earn a rate of return over time to satisfy the benefit obligations of the pension plans and to maintain sufficient liquidity to pay benefits and address other cash requirements of the pension fund. Specific investment objectives for the Company's long-term investment strategy include reducing the volatility of pension assets relative to pension liabilities, achieving a competitive, total investment return, achieving diversification between and within asset classes and managing other risks. Investment objectives for each asset class are determined based on specific risks and investment opportunities identified.

The Company reviews its long-term, strategic asset allocations annually. The Company uses various analytics to determine the optimal asset mix and consider plan liability characteristics, liquidity characteristics, funding requirements, expected rates of return and the distribution of returns. The Company identifies investment benchmarks for the asset classes in the strategic asset allocation that are market-based and investable where possible.

Actual allocations to each asset class vary from target allocations due to periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions and the timing of benefit payments and contributions. The asset allocation is monitored and rebalanced on a monthly basis.

The actual allocations for the pension assets at December 31, 2018, and target allocations by asset class, are as follows:



	Target Allocations		Weighted Average Asset Allocations
Equity securities	18.5	%	14.2	%
Debt securities	38.9	%	32.1	%
Other	42.6	%	53.7	%

Risk Management

In managing the plan assets, the Company 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. Further, asset classes are constructed to achieve diversification by investment strategy, by investment manager, by industry or sector and by holding. Investment manager guidelines for publicly traded assets are specified and are monitored regularly.

Fair Value Measurements

The following table presents the Company's plan assets using the fair value hierarchy as of December 31, 2018 and 2017. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs.



	December 31, 2018
Assets (in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total
Cash and cash equivalents	$	6.1	$	—	$	—	$	6.1
Insurance group annuity contracts	—		—		65.6		65.6
Common/collective trust funds — Government, corporate and other non-government debt	—		49.0		—		49.0
Common/collective trust funds — Corporate equity	—		21.7		—		21.7
Common/collective trust funds — Customized strategy	—		10.2		—		10.2
Total	$	6.1	$	80.9	$	65.6	$	152.6



	December 31, 2017
Assets (in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)		Total
Cash and cash equivalents	$	2.4	$	—	$	—	$	2.4
Insurance group annuity contracts	—		—		74.6		74.6
Common/collective trust funds — Government, corporate and other non-government debt	—		63.2		—		63.2
Common/collective trust funds — Corporate equity	—		30.4		—		30.4
Common/collective trust funds — Customized strategy	—		6.1		—		6.1
Total	$	2.4	$	99.7	$	74.6	$	176.7

Cash equivalents and other short-term investments, which are used to pay benefits, are primarily held in registered money market funds which are valued using a market approach based on the quoted market prices of identical instruments. Other cash equivalent and short-term investments are valued daily by the fund using a market approach with inputs that include quoted market prices for similar instruments.

Insurance group annuity contracts are valued at the present value of the future benefit payments owed by the insurance company to the plans’ participants.

Common/collective funds are typically common or collective trusts valued at their net asset values that are calculated by the investment manager or sponsor of the fund and have daily or monthly liquidity.

A reconciliation of the fair value measurements of plan assets using significant unobservable inputs (Level 3) from the beginning of the year to the end of the year is as follows:



	Insurance Contracts Year Ended December 31,
(in millions)	2018			2017
Beginning Balance	$	74.6		$	72.2
Acquisition	0.2			—
Contributions	0.1			—
Actual return on assets	(1.2		)	—
Benefit payments	(4.6		)	(4.6		)
Foreign currency impact	(3.5		)	7.0
Ending Balance	$	65.6		$	74.6

The expected 2019 contributions for pension plans are as follows: the minimum contribution for 2019 is $8.3 million with no planned discretionary or non-cash contributions. Expected company paid claims for the postretirement health and life insurance plans are $1.1 million for 2019.

Projected benefit payments from the plans as of December 31, 2018 are estimated as follows:



(in millions)	Pension Plans		Postretirement Health and Other
2019	$	16.0	$	1.1
2020	11.1		1.0
2021	11.4		1.0
2022	11.7		1.1
2023	12.2		0.9
2024-2028	65.9		2.4

The fair value of plan assets for which the accumulated benefit obligation is in excess of the plan assets as of December 31, 2018 and 2017 is as follows:



	Pension Plans
(in millions)	2018		2017
Projected benefit obligation	$	186.5	$	216.8
Accumulated benefit obligation	186.5		216.8
Fair value of plan assets	152.6		176.7

The measurement date for all plans is December 31, 2018.

The Company, through its Lincoln Foodservice operation, participated in a multiemployer defined benefit pension plan under a collective bargaining agreement that covered certain of its union-represented employees. In 2013, with the finalization of the reorganization and plant restructuring that affected the Lincoln Foodservice operation, the Company was deemed to have effectively withdrawn its participation in the multiemployer defined benefit pension plan. This withdrawal obligation is part of the restructuring accrual in the consolidated balance sheets as described in Note 16, "Restructuring." The withdrawal obligation totaled $17.5 million, of which $11.3 million and $12.2 million were outstanding as of December 31, 2018 and 2017, respectively, and is payable in quarterly installments of $0.5 million through April 2026, which includes both principal and accrued interest. As the Company was deemed to have effectively withdrawn its participation in this plan in 2013, no further contributions were made to the plan.

Defined Contribution Plans

Prior to December 31, 2015, MTW maintained three defined contribution retirement plans for its eligible employees and retirees: (1) The Manitowoc Company, Inc. 401(k) Retirement Plan (the "MTW 401(k) Retirement Plan"); (2) The Manitowoc Company, Inc. Retirement Savings Plan (the "MTW Retirement Savings Plan"); and (3) The Manitowoc Company, Inc. Deferred Compensation Plan (the "MTW Deferred Compensation Plan"). The MTW 401(k) Retirement Plan, the MTW Retirement Savings Plan and the MTW Deferred Compensation Plan (together, the "MTW DC Plans") covered eligible employees of MTW, including MTW's crane business and foodservice business.

Effective January 1, 2016, a portion of each MTW DC Plan was spun off to create separate plans for MTW's Foodservice business: for which "MFS" was substituted with "Welbilt" in the following plans due to the Name Change (1) the Manitowoc Foodservice 401(k) Retirement Plan (the "Welbilt 401(k) Retirement Plan"); (2) the Welbilt Retirement Savings Plan, and (3) the Welbilt Foodservice Deferred Compensation Plan (the "Welbilt Deferred Compensation Plan"). The Welbilt 401(k) Retirement Plan, the Welbilt Retirement Savings Plan and the Welbilt Deferred Compensation Plan (together, the "Welbilt DC Plans") were initially sponsored by Manitowoc FSG U.S. Holding, LLC. Welbilt assumed sponsorship of the Welbilt DC Pension Plans on March 4, 2016. Welbilt no longer participates in the MTW DC Plans. The Welbilt DC Plans are substantially similar to the former MTW DC Plans.

Welbilt 401(k) Retirement Plan The Welbilt 401(k) Retirement Plan is a tax-qualified retirement plan that is available to substantially all non-union U.S. employees of Welbilt, its subsidiaries and related entities.

Welbilt Retirement Savings Plan The Welbilt Retirement Savings Plan is a tax-qualified retirement plan that is available to certain collectively bargained U.S. employees of Welbilt, its subsidiaries and related entities.

For both the Welbilt 401(k) Retirement Plan and the Welbilt Retirement Savings Plan, the Company's portion of total costs incurred under these plans was $4.0 million, $2.8 million, and $2.0 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Welbilt Deferred Compensation Plan The Welbilt Deferred Compensation Plan is an unfunded, non-tax-qualified supplemental deferred compensation plan for highly compensated and key management employees and for directors that allows participants to defer a portion of their compensation. The Company utilizes a rabbi trust to hold assets intended to satisfy the Company's obligations under the deferred compensation plan. The trust restricts the Company's use and access to the assets held but is subject to the claims of the Company's general creditors. As of December 31, 2018, the fair value of the investments held in trust was $4.2 million, Company stock held in trust was $0.3 million, at cost, and the related liability was $4.5 million. As of December 31, 2017, the fair value of the investments held in trust was $5.1 million, Company stock held in trust was $0.2 million at cost, and the related liability was $5.3 million.