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Postretirement Benefit Plans
 12 Months Ended
Dec. 31, 2016
Postemployment Benefits [Abstract]  
Postretirement Benefit Plans POSTRETIREMENT BENEFIT PLANS
Defined Contribution Plans
Substantially all of ITT’s U.S. and certain international employees are eligible to participate in a defined contribution plan. ITT sponsors numerous defined contribution savings plans, which allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. Several of the plans require us to match a percentage of the employee contributions up to certain limits. Company contributions charged to income amounted to $17.3, $18.4, and $17.3 for 2016, 2015 and 2014, respectively.
The ITT Stock Fund, an investment option under the ITT Inc. Retirement Savings Plan, is considered an employee stock ownership plan and, as a result, participants in the ITT Stock Fund may receive dividends in cash or may reinvest such dividends into the ITT Stock Fund. The ITT Stock Fund held approximately 0.2 shares of ITT common stock at December 31, 2016.
Defined Benefit Plans
ITT sponsors several defined benefit pension plans which have approximately 2,100 active participants; however, most of these plans have been closed to new participants for several years. As of December 31, 2016, of our total projected benefit obligation, the ITT Industrial Process Pension Plan represented 35%, the ITT Consolidated Hourly Pension Plan represented 41%, other U.S. plans represented 4% and international pension plans represented 20%. The U.S. plans are generally for hourly employees with a flat dollar benefit formula based on years of service. International plan benefits are primarily determined based on participant years of service, future compensation, and age at retirement or termination.
ITT also provides health care and life insurance benefits for eligible U.S. employees upon retirement. In some cases, the plan is still open to certain union employees, but for the majority of our businesses these plans are closed to new participants. The majority of the liability pertains to retirees with postretirement medical insurance.
Balance Sheet Information
Amounts recognized as assets or liabilities in the Consolidated Balance Sheets for postretirement benefit plans reflect the funded status. The following table provides a summary of the funded status of our postretirement benefit plans and the presentation of the funded status within our Consolidated Balance Sheet as of December 31, 2016 and 2015.
 
2016
 
2015
 
Pension

 
Other
Benefits

 
Total

 
Pension

 
Other
Benefits

 
Total

Fair value of plan assets
$
263.1

 
$
6.1

 
$
269.2

 
$
279.0

 
$
7.9

 
$
286.9

Projected benefit obligation
392.2

 
138.8

 
531.0

 
417.9

 
143.4

 
561.3

Funded status
$
(129.1
)
 
$
(132.7
)
 
$
(261.8
)
 
$
(138.9
)
 
$
(135.5
)
 
$
(274.4
)
Amounts reported within:
 
 
 
 
 
 
 
 
 
 
 
Accrued liabilities
$
(3.7
)
 
$
(9.5
)
 
$
(13.2
)
 
$
(4.3
)
 
$
(9.7
)
 
$
(14.0
)
Non-current liabilities
(125.4
)
 
(123.2
)
 
(248.6
)
 
(134.6
)
 
(125.8
)
 
(260.4
)

A portion of our projected benefit obligation includes amounts that have not yet been recognized as expense in our results of operations. Such amounts are recorded within accumulated other comprehensive loss until they are amortized as a component of net periodic postretirement cost. The following table provides a summary of amounts recorded within accumulated other comprehensive loss at December 31, 2016 and 2015.
 
2016
 
2015
 
Pension

 
Other
Benefits

 
Total

 
Pension

 
Other
Benefits

 
Total

Net actuarial loss
$
154.0

 
$
59.6

 
$
213.6

 
$
168.9

 
$
66.6

 
$
235.5

Prior service cost (benefit)
5.1

 
(50.5
)
 
(45.4
)
 
5.6

 
(57.4
)
 
(51.8
)
Total
$
159.1

 
$
9.1

 
$
168.2

 
$
174.5

 
$
9.2

 
$
183.7


The following table provides a rollforward of the projected benefit obligations for our U.S. and international pension plans and our other employee-related defined benefit plans for the years ended December 31, 2016 and 2015.
 
2016
 
2015
 
U.S.

 
Int’l

 
Other Benefits

 
Total

 
U.S.

 
Int’l

 
Other Benefits

 
Total

Change in benefit obligation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefit obligation – January 1
$
339.9

 
$
78.0

 
$
143.4

 
$
561.3

 
$
324.1

 
$
87.5

 
$
134.5

 
$
546.1

Service cost
4.1

 
1.3

 
0.9

 
6.3

 
3.5

 
1.5

 
0.9

 
5.9

Interest cost
11.9

 
1.5

 
4.9

 
18.3

 
13.0

 
1.5

 
5.0

 
19.5

Amendments
—

 
0.4

 
—

 
0.4

 
—

 
—

 
—

 
—

Actuarial loss (gain)
5.9

 
4.2

 
(1.9
)
 
8.2

 
(14.9
)
 
(2.9
)
 
7.0

 
(10.8
)
Benefits and expenses paid
(21.5
)
 
(2.7
)
 
(8.5
)
 
(32.7
)
 
(18.5
)
 
(2.7
)
 
(7.9
)
 
(29.1
)
Acquired
—

 
—

 
—

 
—

 
32.7

 
2.8

 
1.9

 
37.4

Settlement(a)
(28.0
)
 
(0.5
)
 
—

 
(28.5
)
 
—

 
(1.1
)
 
—

 
(1.1
)
Curtailment
—

 
(0.2
)
 
—

 
(0.2
)
 
—

 
—

 
2.0

 
2.0

Foreign currency translation
—

 
(2.1
)
 
—

 
(2.1
)
 
—

 
(8.6
)
 
—

 
(8.6
)
Benefit obligation – December 31
$
312.3

 
$
79.9

 
$
138.8

 
$
531.0

 
$
339.9

 
$
78.0

 
$
143.4

 
$
561.3


The following table provides a rollforward of our U.S. and international pension plan and other employee-related defined benefit plan assets and the funded status as of and for the years ended December 31, 2016 and 2015.
 
2016
 
2015
 
U.S.

 
Int’l

 
Other Benefits

 
Total

 
U.S.

 
Int’l

 
Other Benefits

 
Total

Change in plan assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plan assets – January 1
$
278.1

 
$
0.9

 
$
7.9

 
$
286.9

 
$
272.9

 
$
1.0

 
$
9.5

 
$
283.4

Actual return on plan assets
24.0

 
—

 
0.5

 
24.5

 
(8.0
)
 
—

 
0.1

 
(7.9
)
Employer contributions
9.6

 
3.2

 
6.2

 
19.0

 
8.6

 
3.8

 
6.2

 
18.6

Benefits and expenses paid
(21.5
)
 
(2.7
)
 
(8.5
)
 
(32.7
)
 
(18.5
)
 
(2.7
)
 
(7.9
)
 
(29.1
)
Acquired
—

 
—

 
—

 
—

 
23.1

 
—

 
—

 
23.1

Settlement(a)
(28.0
)
 
(0.5
)
 
—

 
(28.5
)
 
—

 
(1.1
)
 
—

 
(1.1
)
Foreign currency translation
—

 
—

 
—

 
—

 
—

 
(0.1
)
 
—

 
(0.1
)
Plan assets – December 31
$
262.2

 
$
0.9

 
$
6.1

 
$
269.2

 
$
278.1

 
$
0.9

 
$
7.9

 
$
286.9

Funded status at end of year
$
(50.1
)
 
$
(79.0
)
 
$
(132.7
)
 
$
(261.8
)
 
$
(61.8
)
 
$
(77.1
)
 
$
(135.5
)
 
$
(274.4
)

The accumulated benefit obligation for all defined benefit pension plans was $389.4 and $415.4 at December 31, 2016 and 2015, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets is included in the following table.
 
2016

 
2015

Projected benefit obligation
$
391.6

 
$
417.9

Accumulated benefit obligation
388.8

 
415.4

Fair value of plan assets
262.2

 
279.0


Statements of Operations Information
The following table provides the components of net periodic postretirement cost and other amounts recognized in other comprehensive loss for each of the years ended December 31, 2016, 2015 and 2014 as they pertain to our defined benefit pension plans.
 
2016
 
2015
 
2014
 
U.S.

 
Int’l

 
Total

 
U.S.

 
Int’l

 
Total

 
U.S.

 
Int’l

 
Total

Net periodic postretirement cost - pension
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
4.1

 
$
1.3

 
$
5.4

 
$
3.5

 
$
1.5

 
$
5.0

 
$
3.2

 
$
1.6

 
$
4.8

Interest cost
11.9

 
1.5

 
13.4

 
13.0

 
1.5

 
14.5

 
13.1

 
2.4

 
15.5

Expected return on plan assets
(20.1
)
 
—

 
(20.1
)
 
(20.8
)
 
—

 
(20.8
)
 
(20.0
)
 
(0.1
)
 
(20.1
)
Amortization of net actuarial loss
7.1

 
0.7

 
7.8

 
7.5

 
1.0

 
8.5

 
5.8

 
0.4

 
6.2

Amortization of prior service cost
0.9

 
—

 
0.9

 
1.0

 
—

 
1.0

 
0.6

 
—

 
0.6

Net periodic postretirement cost
3.9

 
3.5

 
7.4

 
4.2

 
4.0

 
8.2

 
2.7

 
4.3

 
7.0

Effect of settlement, curtailment, or special termination benefit(a)
12.7

 
—

 
12.7

 
—

 
0.1

 
0.1

 
—

 
0.4

 
0.4

Total net periodic postretirement cost
16.6

 
3.5

 
20.1

 
4.2

 
4.1

 
8.3

 
2.7

 
4.7

 
7.4

Other changes in plan assets and benefit obligations recognized in other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net actuarial loss (gain)
2.1

 
4.0

 
6.1

 
13.9

 
(2.9
)
 
11.0

 
37.0

 
13.7

 
50.7

Prior service cost
—

 
0.4

 
0.4

 
—

 
—

 
—

 
4.5

 
—

 
4.5

Amortization of net actuarial (loss) gain
(19.8
)
 
(0.7
)
 
(20.5
)
 
(7.5
)
 
(1.1
)
 
(8.6
)
 
(5.8
)
 
(0.9
)
 
(6.7
)
Amortization of prior service cost
(0.9
)
 
—

 
(0.9
)
 
(1.0
)
 
—

 
(1.0
)
 
(0.6
)
 
—

 
(0.6
)
Foreign currency translation
—

 
(0.5
)
 
(0.5
)
 
—

 
(2.5
)
 
(2.5
)
 
—

 
(1.8
)
 
(1.8
)
Total change recognized in other comprehensive loss
(18.6
)
 
3.2

 
(15.4
)
 
5.4

 
(6.5
)
 
(1.1
)
 
35.1

 
11.0

 
46.1

Total impact from net periodic postretirement cost and changes in other comprehensive loss
$
(2.0
)
 
$
6.7

 
$
4.7

 
$
9.6

 
$
(2.4
)
 
$
7.2

 
$
37.8

 
$
15.7

 
$
53.5


(a)
During 2016, we recognized a non-cash pretax pension settlement charge of $12.7 as the result of a program offering certain former U.S. employees with a vested pension benefit an option to take a one-time lump sum distribution as part of ITT's overall plan to de-risk its pension plans. Approximately 1,100 participants accepted the offer, resulting in a payment of $28.0 from the plan and a reduction in the Company's projected benefit obligation of $26.6, including an actuarial loss of $1.4.
The following table provides the components of net periodic postretirement cost and other amounts recognized in other comprehensive loss for each of the years ended December 31, 2016, 2015 and 2014 as they pertain to other employee-related defined benefit plans.
 
2016

 
2015

 
2014

Net periodic postretirement cost - other postretirement
 
 
 
 
 
Service cost
$
0.9

 
$
0.9

 
$
1.5

Interest cost
4.9

 
5.0

 
7.4

Expected return on plan assets
(0.5
)
 
(0.9
)
 
(0.7
)
Amortization of net actuarial loss
4.6

 
4.6

 
2.7

Amortization of prior service credit
(6.5
)
 
(11.0
)
 
(6.6
)
Net periodic postretirement cost (benefit)
3.4

 
(1.4
)
 
4.3

Gain due to curtailment(b)
—

 
(4.2
)
 
—

Total net periodic postretirement cost (benefit)
3.4

 
(5.6
)
 
4.3

Other changes in plan assets and benefit obligations recognized in other comprehensive loss
 
 
 
 
 
Net actuarial (gain) loss
(1.9
)
 
7.7

 
26.3

Prior service credit
—

 
—

 
(58.7
)
Amortization of net actuarial loss
(4.6
)
 
(4.6
)
 
(2.7
)
Amortization of prior service credit
6.5

 
11.0

 
6.6

Acceleration of prior service costs
—

 
6.2

 
—

Total changes recognized in other comprehensive loss
—

 
20.3

 
(28.5
)
Total impact from net periodic postretirement cost and changes in other comprehensive loss
$
3.4

 
$
14.7

 
$
(24.2
)

(b)
During 2015, we recognized a benefit of $4.2 from a curtailment gain related to a reduction in force in our ICS segment.
The following table provides the estimated net actuarial loss and prior service cost that is expected to be amortized from accumulated other comprehensive loss into net periodic postretirement cost during 2017.
 
Pension

 
Other
Benefits

 
Total

Net actuarial loss
$
6.8

 
$
4.2

 
$
11.0

Prior service cost (credit)
0.9

 
(5.8
)
 
(4.9
)
Total
$
7.7

 
$
(1.6
)
 
$
6.1


Postretirement Plan Assumptions
The determination of projected benefit obligations and the recognition of expenses related to postretirement benefit plans are dependent on various assumptions that are judgmental and developed in consultation with external advisors. Management develops each assumption using relevant Company experience in conjunction with market-related data for each individual country in which such plans exist. Periodically, the Company performs experience studies to validate certain actuarial assumptions such as age of retirement, rates of turnover, utilization of optional forms of payments. In 2015, the Company performed such study for its U.S. pension plans and reflected the results in its valuation. The actuarial assumptions are based on the provisions of the applicable accounting pronouncements, review of various market data and discussion with our external advisors. Assumptions are reviewed annually and adjusted as necessary. Changes in these assumptions could materially affect our financial statements.
The following table provides the weighted-average assumptions used to determine projected benefit obligations and net periodic postretirement cost, as they pertain to our U.S. and non-U.S. defined benefit pension plans and other employee-related defined benefit plans.
 
2016
 
2015
 
U.S.

 
Int’l

 
Other Benefits

 
U.S.

 
Int’l

 
Other Benefits

Obligation Assumptions:
 
 
 
 
 
 
 
 
 
 
 
Discount rate
4.2
%
 
1.7
%
 
4.1
%
 
4.3
%
 
2.3
%
 
4.1
%
Rate of future compensation increase
N/A

 
3.4
%
 
N/A

 
N/A

 
3.4
%
 
N/A

Cost Assumptions:
 
 
 
 
 
 
 
 
 
 
 
Discount rate
4.3
%
 
2.3
%
 
4.1
%
 
4.0
%
 
1.9
%
 
3.8
%
Expected return on plan assets
7.2
%
 
4.8
%
 
7.2
%
 
8.0
%
 
4.8
%
 
8.0
%

The discount rate is used to calculate the present value of expected future benefit payments at the measurement date. The discount rate assumption is based on current investment yields of high-quality fixed income investments during the retirement benefits maturity period. The pension discount rate is determined by considering an interest rate yield curve comprising AAA/AA bonds, with maturities that are generally between zero and thirty years, developed by the plan's actuaries. Annual benefit payments are then discounted to present value using this yield curve to develop a single discount rate matching the plan's characteristics.
Effective as of December 31, 2015, we changed the approach used to estimate the service and interest components of net periodic benefit cost of the U.S. defined benefit plans. This estimation approach discounts the individual expected cash flows underlying the service cost and interest cost using the applicable spot rates from the yield curve used to discount the cash flows in measuring the benefit obligation. Historically, we estimated these service and interest cost components utilizing a single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. The impact of this change was not material.
The rate of future compensation increase assumption for foreign plans reflects our long-term actual experience and future and near-term outlook. The rate of future compensation increase assumption is not applicable for U.S. plans because the benefit formula is based on a flat dollar benefit and years of service approach.
The Company has updated the mortality assumption to reflect the most recent projection update.
The assumed rate of future increases in the per capita cost of health care (the health care trend rate) is 7.5% for pre-age 65 retirees and 7.0% for post-age 65 retirees for 2017, decreasing ratably to 4.5% in 2026. Increasing the health care trend rates by one percent per year would have the effect of increasing the benefit obligation by $7.4 and the aggregate annual service and interest cost components by $0.3. A decrease of one percent in the health care trend rate would reduce the benefit obligation by $6.3 and the aggregate annual service and interest cost components by $0.3. To the extent that actual experience differs from these assumptions, the effect will be amortized over the average future working life or life expectancy of the plan participants.
The expected long-term rate of return on assets reflects the expected returns for each major asset class in which the plans invest, the weight of each asset class in the target mix, the correlations among asset classes, and their expected volatilities. Our expected return on plan assets is estimated by evaluating both historical returns and estimates of future returns based on our target asset allocation. Specifically, we estimate future returns based on independent estimates of asset class returns weighted by the target investment allocation.
The chart below shows actual returns compared to the expected long-term returns for our postretirement plans that were utilized in the calculation of the net periodic postretirement cost for each respective year.
 
2016

 
2015

 
2014

Expected rate of return on plan assets
7.2
%
 
8.0
 %
 
8.0
%
Actual rate of return on plan assets
9.2
%
 
(2.8
)%
 
8.6
%

For the recognition of net periodic postretirement cost, the calculation of the expected return on plan assets is generally derived using a market-related value of plan assets based on average asset values at the measurement date over the last five years. The use of fair value, rather than a market-related value, of plan assets could materially affect net periodic postretirement cost.
Investment Policy
The investment strategy for managing worldwide postretirement benefit plan assets is to seek an optimal rate of return relative to an appropriate level of risk for each plan. Investment strategies vary by plan, depending on the specific characteristics of the plan, such as plan size and design, funded status, liability profile and legal requirements. During 2015, our investment policy was updated to reduce risk by increasing the target allocation in fixed income by approximately 15% with a corresponding decrease in allocations to equity investments. Based on this approach, the long-term annual rate of return on assets was estimated at 7.2% and8.0% for fiscal 2016 and 2015, respectfully. In fiscal 2017, we expect our estimate of the long term annual return on assets to be 7.0% for the U.S. defined benefit plans reflecting the current asset allocation.
Substantially all of the postretirement benefit plan assets are managed on a commingled basis in a master investment trust. With respect to the master investment trust, the Company allows itself broad discretion to invest tactically to respond to changing market conditions, while staying reasonably within the target asset allocation ranges prescribed by its investment guidelines. In making these asset allocation decisions, the Company takes into account recent and expected returns and volatility of returns for each asset class, the expected correlation of returns among the different investments, as well as anticipated funding and cash flows. To enhance returns and mitigate risk, the Company diversifies its investments by strategy, asset class, geography and sector.
The following table provides the allocation of postretirement benefit plan assets by asset category, as of December 31, 2016 and 2015, and the related targeted asset allocation ranges by asset category.
 
2016

 
2015

 
Target Allocation
Range
U.S. equities
26
%
 
31
%
 
20-35 %
International equities
22
%
 
24
%
 
10-35 %
Fixed income
51
%
 
43
%
 
40-75 %
Cash and other
1
%
 
2
%
 
0-5 %

Fair Value of Plan Assets
In measuring plan assets at fair value, a fair value hierarchy is applied which categorizes and prioritizes the inputs used to estimate fair value into three levels. The fair value hierarchy is based on maximizing the use of observable inputs and minimizing the use of unobservable inputs when measuring fair value. Classification within the fair value hierarchy is based on the lowest level input that is significant to the fair value measurement. The three levels of the fair value hierarchy are defined as follows:
•
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
•
Level 2 inputs are other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices (in non-active markets or in active markets for similar assets or liabilities), inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•
Level 3 inputs are unobservable inputs for the assets or liabilities.
Collective trusts are valued at NAV as a practical expedient and thus are not leveled in this table, but are included in the totals column to assist in reconciling to fair value of plan assets. Mutual funds are valued at quoted market prices that represent the net asset value (NAV) of shares and are classified within level 1 of the fair value hierarchy. Pension plan assets as of December 31, 2015 include an investment in a hedge fund acquired from Wolverine. The hedge fund is valued using broker quotes and classified within Level 3 of the fair value hierarchy due to the significance of unobservable inputs involved in the broker quote. This investment was sold in 2016. Cash and cash equivalents are held in money market or short-term investment funds and are classified within level 1 of the fair value hierarchy.   

The following table provides the investments at fair value held by our postretirement benefit plans at December 31, 2016 and 2015, by asset class.
 
Pension
 
Other Benefits
2016
Level 1
 
Measured at NAV
 
Total
 
Level 1
 
Total
Collective Trusts:
 
 
 
 
 
 
 
 
 
U.S. equity
$
—

 
$
67.4

 
$
67.4

 
$
—

 
$
—

International equity
—

 
58.9

 
58.9

 
—

 
—

Fixed income
—

 
135.0

 
135.0

 
—

 
—

Mutual funds
—

 
—

 
—

 
6.1

 
6.1

Cash and other
1.8

 
—

 
1.8

 
—

 
—

Total
$
1.8

 
$
261.3

 
$
263.1

 
$
6.1

 
$
6.1


 
Pension
 
Other Benefits
2015
Level 1
 
Level 3
 
Measured at NAV
 
Total
 
Level 1
 
Total
Collective Trusts:
 
 
 
 
 
 
 
 
 
 
 
U.S. equity
$
—

 
$
—

 
$
85.8

 
$
85.8

 
$
—

 
$
—

International equity
—

 
—

 
65.2

 
65.2

 
—

 
—

Fixed income
—

 
—

 
121.1

 
121.1

 
—

 
—

Hedge funds
—

 
4.0

 
—

 
4.0

 
—

 
—

Mutual funds
—

 
—

 
—

 
—

 
7.9

 
7.9

Cash and other
2.9

 
—

 
—

 
2.9

 
—

 
—

Total
$
2.9

 
$
4.0

 
$
272.1

 
$
279.0

 
$
7.9

 
$
7.9


Contributions
While we make contributions to our postretirement benefit plans when considered necessary or advantageous to do so, the minimum funding requirements established by local government funding or taxing authorities, or established by other agreements, may influence future contributions. Funding requirements under IRS rules are a major consideration in making contributions to our post-retirement plans. In addition, we fund certain of our international pension plans in countries where funding is allowable and tax-efficient. During 2016 and 2015, we contributed $12.8 and $12.4 to our global pension plans, respectively. The 2016 and 2015 contributions included a $7.8 and $7.5 discretionary contribution to our U.S. pension plans, respectively. We anticipate making contributions to our global pension plans of $4.0 during 2017.
We contributed $6.2 to our other employee-related defined benefit plans during both 2016 and 2015. We currently estimate that the 2017 contributions to our other employee-related defined benefit plans will be approximately $9.0.
Estimated Future Benefit Payments
The following table provides the projected timing of payments for benefits earned to date and the expectation that certain future service will be earned by current active employees for our pension and other employee-related benefit plans.
 
U.S.
Pension

 
Int’l
Pension

 
Other
Benefits

2017
$
20.0

 
$
3.2

 
$
11.7

2018
20.3

 
3.3

 
11.3

2019
20.5

 
3.1

 
10.9

2020
20.6

 
3.9

 
10.6

2021
20.8

 
3.2

 
10.2

2022 - 2026
100.9

 
16.6

 
43.9