Pension and Other Postemployment Benefits

Defined Contribution Plans

Our domestic and international subsidiaries provide retirement benefits for their employees primarily through defined contribution profit sharing and savings plans. Contributions to the plans vary by subsidiary and have generally been in amounts up to the maximum percentage of total eligible compensation of participating employees that is deductible for income tax purposes. Contribution expense in 2016, 2015 and 2014 was $108.5 million, $105.7 million and $108.4 million, respectively.

Defined Benefit Pension Plans

Two of our U.S. businesses and several of our non-U.S. businesses sponsor noncontributory defined benefit pension plans. These plans provide benefits to employees based on formulas recognizing length of service and earnings. The U.S. plans cover approximately 900 participants, are closed to new participants and do not accrue future benefit credits. The non-U.S. plans, which include plans required by local law, cover approximately 6,700 participants and are not covered by ERISA.

We have a Senior Executive Restrictive Covenant and Retention Plan (“Retention Plan”) for certain executive officers of Omnicom selected by the Compensation Committee. The Retention Plan is a non-qualified deferred compensation severance plan that was adopted to secure non-competition, non-solicitation, non-disparagement and ongoing consulting services from such executive officers and to strengthen the retention aspect of executive officer compensation. The Retention Plan provides annual payments upon termination following at least seven years of service with Omnicom or its subsidiaries to the participants or to their beneficiaries. A participant’s annual benefit is payable for 15 consecutive calendar years following termination, but in no event prior to age 55. The annual benefit is equal to the lesser of (i) the participant’s final average pay times an applicable percentage, which is based upon the executive’s years of service as an executive officer, not to exceed 35% or (ii) $1.5 million adjusted for cost-of-living, beginning with the second annual payment, not to exceed 2.5% per year. The Retention Plan is not funded and benefits are paid when due.

The components of net periodic benefit expense for the three years ended December 31, 2016 were (in millions):



	2016			2015			2014
Service cost	$	7.8		$	5.3		$	6.8
Interest cost	7.8			7.6			8.2
Expected return on plan assets	(3.7		)	(4.0		)	(4.2		)
Amortization of prior service cost	4.5			4.3			4.3
Amortization of actuarial losses	5.3			5.7			2.3
	$	21.7		$	18.9		$	17.4

Included in accumulated other comprehensive income at December 31, 2016 and 2015 were unrecognized actuarial losses and unrecognized prior service cost of $98.0 million ($60.0 million net of income taxes) and $95.0 million ($59.0 million net of income taxes), respectively, that have not yet been recognized in net periodic benefit cost. The unrecognized actuarial gains and losses and unrecognized prior service cost included in accumulated other comprehensive income and expected to be recognized in net periodic benefit cost in 2017 is $10.0 million.

The weighted average assumptions used to determine net periodic benefit expense for the three years ended December 31, 2016 were:



	2016		2015		2014
Discount rate	3.7	%	3.5	%	4.5	%
Compensation increases	2.0	%	1.9	%	1.8	%
Expected return on plan assets	4.8	%	5.7	%	5.8	%

The expected long-term rate of return for plan assets for the U.S. plans is based on several factors, including current and expected asset allocations, historical and expected returns on various asset classes and current and future market conditions. A total return investment approach using a mix of equities and fixed income investments maximizes the long-term return. This strategy is intended to minimize plan expense by achieving long-term returns in excess of the growth in plan liabilities over time. The discount rate used to compute net periodic benefit cost is based on yields of available high-quality bonds and reflects the expected cash flow as of the measurement date. The expected returns on plan assets and discount rates for the non-U.S. plans are based on local factors, including each plan’s investment approach, local interest rates and plan participant profiles.

Experience gains and losses and the effects of changes in actuarial assumptions are generally amortized over a period no longer than the expected average future service of active employees.

Our funding policy is to contribute amounts sufficient to meet minimum funding requirements in accordance with the applicable employee benefit and tax laws that the plans are subject to, plus such additional amounts as we may determine to be appropriate. In 2016, 2015 and 2014, we contributed $6.6 million, $4.2 million, $3.2 million, respectively, to our defined benefit pension plans. We do not expect our contributions for 2017 to differ materially from our 2016 contributions.

At December 31, 2016 and 2015, the benefit obligation, fair value of plan assets and funded status of our defined benefit pension plans were (in millions):



	2016			2015
Benefit Obligation:
January 1	$	234.8		$	222.7
Service cost	7.8			5.3
Interest cost	7.8			7.6
Amendments, curtailments and settlements	—			3.8
Actuarial losses	13.3			5.9
Benefits paid	(9.4		)	(7.2		)
Foreign currency translation	(3.2		)	(3.3		)
December 31	$	251.1		$	234.8
Fair Value of Plan Assets:
January 1	$	68.9		$	74.4
Actual return on plan assets	4.9			(0.5		)
Employer contributions	6.6			4.2
Benefits paid	(9.4		)	(7.2		)
Foreign currency translation and other	(2.4		)	(2.0		)
December 31	$	68.6		$	68.9

Funded Status December 31	$	(182.5	)	$	(165.9	)

At December 31, 2016 and 2015, the funded status was classified as follows (in millions):



	2016			2015
Other assets	$	4.2		$	5.4
Other current liabilities	(5.1		)	(4.6		)
Long-term liabilities	(181.6		)	(166.7		)
	$	(182.5	)	$	(165.9	)

The accumulated benefit obligation for our defined benefit pension plans at December 31, 2016 and 2015, was $240.8 million and $226.0 million, respectively.

At December 31, 2016 and 2015, plans with benefit obligations in excess of plan assets were (in millions):



	2016		2015
Benefit obligation	$	241.3	$	215.9
Plan assets	54.6		44.6
	$	186.7	$	171.3

The weighted average assumptions used to determine the benefit obligation at December 31, 2016 and 2015, were:



	2016		2015
Discount rate	3.5	%	3.8	%
Compensation increases	2.0	%	2.0	%

At December 31, 2016, the estimated benefits expected to be paid over the next 10 years are (in millions):



2017	$	9.0
2018	8.8
2019	9.7
2020	12.6
2021	15.2
2022 - 2026	87.7

The fair value of plan assets at December 31, 2016 and 2015 was (in millions):



2016	Level 1		Level 2		Level 3		Total
Cash	$	1.6					$	1.6
Mutual funds	39.0						39.0
Unit trusts	23.5						23.5
Insurance contracts					$	4.3	4.3
Other			$	0.2			0.2
	$	64.1	$	0.2	$	4.3	$	68.6



2015
Cash	$	1.8					$	1.8
Mutual funds	39.7						39.7
Unit trusts	22.9						22.9
Insurance contracts					$	4.2	4.2
Other			$	0.3			0.3
	$	64.4	$	0.3	$	4.2	$	68.9

Mutual funds and unit trusts are publicly traded and are valued using quoted market prices. The mutual funds and unit trusts include investments in equity and fixed income securities. Insurance contracts primarily consist of guaranteed investment contracts. Other investments primarily consist of commingled short-term investment funds.

Changes in the fair value of plan assets measured using Level 3 inputs at December 31, 2016 and 2015 were (in millions):



	2016			2015
January 1	$	4.2		$	3.7
Actual return on assets	0.2			0.1
Purchases, sales and settlements, net	(0.1		)	0.4
December 31	$	4.3		$	4.2

The weighted average asset allocations at December 31, 2016 and 2015 were:



	2016				2015
	Target Allocation		Actual Allocation		Actual Allocation
Cash	4	%	3	%	3	%
Mutual funds	54	%	57	%	58	%
Unit trusts	35	%	34	%	33	%
Insurance contracts	6	%	6	%	6	%
Other	1	%	—	%	—	%
	100	%	100	%	100	%

Risk tolerance for these plans is established through consideration of plan liabilities, funded status and evaluation of the overall investment environment. The investment portfolios contain a diversified blend of equity and fixed-income investments. Equity investments are diversified across geography and market capitalization through investment in large and medium capitalization U.S. and international equities and U.S. and international debt securities. Investment risk is measured and monitored on an ongoing basis through annual liability measurements, and periodic asset/liability studies and investment portfolio reviews.

Postemployment Arrangements

We have executive retirement agreements under which benefits will be paid to participants or to their beneficiaries over periods up to ten years beginning after cessation of full-time employment. Our postemployment arrangements are unfunded and benefits are paid when due.

The components of net periodic benefit expense for the three years ended December 31, 2016 were (in millions):



	2016		2015		2014
Service cost	$	3.9	$	4.8	$	3.8
Interest cost	3.5		4.3		4.5
Amortization of prior service cost	3.1		3.2		2.1
Amortization of actuarial losses	1.1		1.6		0.9
	$	11.6	$	13.9	$	11.3

Included in accumulated other comprehensive income at December 31, 2016 and 2015 were unrecognized actuarial losses and unrecognized prior service cost of $51.0 million ($30.0 million net of income taxes) and $49.0 million ($29.0 million net of income taxes), respectively, that have not yet been recognized in the net periodic benefit cost. The unrecognized actuarial gains and losses and unrecognized prior service cost included in accumulated other comprehensive income and expected to be recognized in net periodic benefit cost in 2017 is $4.6 million.

The weighted average assumptions used to determine net periodic benefit expense for the three years ended December 31, 2016 were:



	2016		2015		2014
Discount rate	4.1	%	3.8	%	4.7	%
Compensation increases	3.5	%	3.5	%	3.5	%

Experience gains and losses and effects of changes in actuarial assumptions are amortized over a period no longer than the expected average future service of active employees.

At December 31, 2016 and 2015, the benefit obligation was (in millions):



	2016			2015
January 1	$	115.9		$	122.1
Service cost	3.9			4.8
Interest cost	3.5			4.3
Amendments	5.6			(0.6		)
Actuarial (gain) loss	0.6			(6.0		)
Benefits paid	(9.2		)	(8.7		)
December 31	$	120.3		$	115.9

At December 31, 2016 and 2015, the liability was classified as follows (in millions):



	2016		2015
Other current liabilities	$	8.1	$	9.3
Long-term liabilities	112.2		106.6
	$	120.3	$	115.9

The weighted average assumptions used to determine the benefit obligation at December 31, 2016 and 2015 were:



	2016		2015
Discount rate	3.9	%	4.1	%
Compensation increases	3.5	%	3.5	%

At December 31, 2016, the estimated benefits expected to be paid over the next 10 years are (in millions):



2017	$	8.1
2018	8.2
2019	6.9
2020	5.8
2021	5.5
2022 - 2026	30.5