Employee Benefit Plans

The Company’s defined benefit pension plans cover employees in the U.S. and Canada who meet eligibility requirements. The plan covering U.S. employees is noncontributory. As of December 31, 2013, the Company implemented a hard freeze for the U.S. qualified defined benefit plan. Therefore, no further benefit accruals were provided after that date for additional credited service or earnings. In addition, all participants who were employed after December 31, 2013 became fully vested as of December 31, 2013. The Canadian plan is contributory and benefits are based on career average compensation. The Company’s funding policy is to contribute an amount equal to the minimum required contribution under applicable pension legislation. The Company may increase its contribution above the minimum, if appropriate to its tax and cash position and the plans’ funded position.

The Company also sponsors supplemental retirement plans covering employees in the U.S. and Canada. The Company uses a measurement date of December 31 for its pension and supplemental retirement plans.

Several assumptions are used to determine the benefit obligations, plan assets, and net periodic income. The discount rate for the pension plans is calculated using a bond matching approach to select specific bonds that would satisfy the projected benefit payments. The bond matching approach reflects the process that would be used to settle the pension obligations. The expected return on plan assets is based on a calculated market-related value of plan assets, where gains and losses on plan assets are amortized over a five year period and accumulate in other comprehensive income. Other non-investment unrecognized gains and losses are amortized in future net income based on a “corridor” approach, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year. The unrecognized gains and losses in excess of the corridor criteria are amortized over the average future lifetime or service of plan participants, depending on the plan. These assumptions are updated at each annual measurement date.

Changes in benefit obligations for the years ended December 31, 2016 and 2015 were:



	2016			2015
	(In Thousands)
Changes in benefit obligation
Benefit obligation at beginning of year	$	2,199,356		$	2,352,094
Service cost	7,746			8,562
Interest cost	104,485			98,088
Plan participants’ contributions	2,585			2,838
Actuarial loss (gain)	139,851			(139,573		)
Foreign currency exchange rate changes	5,449			(35,082		)
Gross benefits paid	(154,676		)	(87,571		)
Plan amendments	2,063			—
Benefit obligation at end of year	$	2,306,859		$	2,199,356

The benefit obligations for the Company’s U.S. pension plans included in the above were $2,105,665,000 and $2,012,935,000 at December 31, 2016 and 2015, respectively. The total accumulated benefit obligation for the Company’s defined benefit pension plans in the U.S. and Canada was approximately $2,281,648,000 and $2,179,626,000 at December 31, 2016 and 2015, respectively.

The assumptions used to measure the pension benefit obligations for the plans at December 31, 2016 and 2015, were:



	2016		2015
Weighted-average discount rate	4.26	%	4.82	%
Rate of increase in future compensation levels	3.14	%	3.12	%

Changes in plan assets for the years ended December 31, 2016 and 2015 were:



	2016			2015
	(In Thousands)
Changes in plan assets
Fair value of plan assets at beginning of year	$	1,912,736		$	2,021,837
Actual return on plan assets	146,022			(45,529		)
Foreign currency exchange rate changes	5,172			(33,382		)
Employer contributions	53,663			54,543
Plan participants’ contributions	2,585			2,838
Benefits paid	(154,676		)	(87,571		)
Fair value of plan assets at end of year	$	1,965,502		$	1,912,736

The fair values of plan assets for the Company’s U.S. pension plans included in the above were $1,760,713,000 and $1,731,368,000 at December 31, 2016 and 2015, respectively.

For the years ended December 31, 2016 and 2015, the aggregate benefit obligation and aggregate fair value of plan assets for plans with benefit obligations in excess of plan assets were as follows:



	2016		2015
	(In Thousands)
Aggregate benefit obligation	$	2,131,550	$	2,186,412
Aggregate fair value of plan assets	1,783,472		1,896,456

For the years ended December 31, 2016 and 2015, the aggregate accumulated benefit obligation and aggregate fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets were as follows:



	2016		2015
	(In Thousands)
Aggregate accumulated benefit obligation	$	2,086,711	$	2,167,216
Aggregate fair value of plan assets	1,760,713		1,896,456

The asset allocations for the Company’s funded pension plans at December 31, 2016 and 2015, and the target allocation for 2017, by asset category were:



	Target Allocation 2017		Percentage of Plan Assets at December 31
	Target Allocation 2017		2016		2015
Asset Category
Equity securities	71	%	70	%	69	%
Debt securities	29	%	30	%	31	%
	100	%	100	%	100	%

The Company’s benefit plan committees in the U.S. and Canada establish investment policies and strategies and regularly monitor the performance of the funds. The pension plan strategy implemented by the Company’s management is to achieve long-term objectives and invest the pension assets in accordance with the applicable pension legislation in the U.S. and Canada, as well as fiduciary standards. The long-term primary investment objectives for the pension plans are to provide for a reasonable amount of long-term growth of capital, without undue exposure to risk, protect the assets from erosion of purchasing power, and provide investment results that meet or exceed the pension plans’ actuarially assumed long-term rates of return. The Company’s investment strategy with respect to pension plan assets is to generate a return in excess of the passive portfolio benchmark (47% S&P 500 Index, 5% Russell Mid Cap Index, 7% Russell 2000 Index, 5% MSCI EAFE Index, 5% DJ Global Moderate Index, 3% MSCI Emerging Market Net, and 28% BarCap U.S. Govt/Credit).

The fair values of the plan assets as of December 31, 2016 and 2015, by asset category, are shown in the tables below. Various inputs are considered when determining the value of the Company’s pension plan assets. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. Level 1 represents observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 represents other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.). Level 3 represents significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments). Certain investments are measured at fair value using the net asset value ("NAV") per share as a practical expedient and have not been classified in the fair value hierarchy.

The valuation methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. Equity securities are valued at the closing price reported on the active market on which the individual securities are traded on the last day of the calendar plan year. Debt securities including corporate bonds, U.S. Government securities, and asset-backed securities are valued using price evaluations reflecting the bid and/or ask sides of the market for an investment as of the last day of the calendar plan year.



	2016
	Total		Assets Measured at NAV		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In Thousands)
Equity Securities
Common stocks — mutual funds — equity	$	384,103	$	114,182	$	269,921	$	—	$	—
Genuine Parts Company common stock	192,841		—		192,841		—		—
Other stocks	793,101		—		793,007		—		94

Debt Securities
Short-term investments	55,607		—		55,607		—		—
Cash and equivalents	15,995		—		15,995		—		—
Government bonds	157,303		—		102,468		54,835		—
Corporate bonds	192,457		—		—		192,457		—
Asset-backed and mortgage–backed securities	8,872		—		—		8,872		—
Convertible securities	216		—		—		216		—
Other-international	24,613		—		20,868		3,745		—
Municipal bonds	9,272		—		—		9,272		—
Mutual funds—fixed income	128,367		82,394		—		45,973		—

Other
Cash surrender value of life insurance policies	2,755		—		—		—		2,755
Total	$	1,965,502	$	196,576	$	1,450,707	$	315,370	$	2,849



	2015
	Total		Assets Measured at NAV		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In Thousands)
Equity Securities
Common stocks — mutual funds — equity	$	349,852	$	107,441	$	242,411	$	—	$	—
Genuine Parts Company common stock	173,363		—		173,363		—		—
Other stocks	793,229		—		792,624		—		605

Debt Securities
Short-term investments	46,195		—		46,195		—		—
Cash and equivalents	2,978		—		2,978		—		—
Government bonds	193,436		—		109,559		83,877		—
Corporate bonds	172,119		—		—		172,119		—
Asset-backed and mortgage–backed securities	27,510		—		—		27,510		—
Convertible securities	434		—		—		434		—
Other-international	21,137		—		20,785		352		—
Municipal bonds	5,857		—		—		5,857		—
Mutual funds—fixed income	123,895		83,241		—		40,654		—

Other
Cash surrender value of life insurance policies	2,731		—		—		—		2,731
Total	$	1,912,736	$	190,682	$	1,387,915	$	330,803	$	3,336

Equity securities include Genuine Parts Company common stock in the amounts of $192,841,000 (10% of total plan assets) and $173,363,000 (9% of total plan assets) at December 31, 2016 and 2015, respectively. Dividend payments received by the plan on Company stock totaled approximately $5,308,000 and $4,965,000 in 2016 and 2015, respectively. Fees paid during the year for services rendered by parties in interest were based on customary and reasonable rates for such services.

The changes in the fair value measurement of plan assets using significant unobservable inputs (Level 3) during 2016 and 2015 were not material.

Based on the investment policy for the pension plans, as well as an asset study that was performed based on the Company’s asset allocations and future expectations, the Company’s expected rate of return on plan assets for measuring 2017 pension income is 7.82% for the plans. The asset study forecasted expected rates of return for the approximate duration of the Company’s benefit obligations, using capital market data and historical relationships.

The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheets at December 31:



	2016			2015
	(In Thousands)
Other long-term asset	$	6,721		$	3,336
Other current liability	(8,206		)	(7,432		)
Pension and other post-retirement liabilities	(339,872		)	(282,524		)
	$	(341,357	)	$	(286,620	)

Amounts recognized in accumulated other comprehensive loss consist of:



	2016		2015
	(In Thousands)
Net actuarial loss	$	1,003,247	$	882,464
Prior service cost (credit)	672		(1,814		)
	$	1,003,919	$	880,650

The following table reflects the total benefits expected to be paid from the pension plans’ or the Company’s assets. Of the pension benefits expected to be paid in 2017, approximately $8,206,000 is expected to be paid from employer assets. Expected employer contributions below reflect amounts expected to be contributed to funded plans. Information about the expected cash flows for the pension plans follows (in thousands):



Employer contribution
2017 (expected)	$	48,000
Expected benefit payments:
2017	$	109,000
2018	116,000
2019	122,000
2020	127,000
2021	133,000
2022 through 2026	721,000

Net periodic benefit income included the following components:



	2016			2015			2014
	(In Thousands)
Service cost	$	7,746		$	8,562		$	7,824
Interest cost	104,485			98,088			102,465
Expected return on plan assets	(156,832		)	(150,130		)	(144,746		)
Amortization of prior service credit	(432		)	(565		)	(1,890		)
Amortization of actuarial loss	31,641			38,197			26,791
Net periodic benefit income	$	(13,392	)	$	(5,848	)	$	(9,556	)

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) are as follows:



	2016			2015			2014
	(In Thousands)
Current year actuarial loss	$	152,415		$	44,930		$	312,011
Recognition of actuarial loss	(31,641		)	(38,197		)	(26,791		)
Current year prior service cost	2,063			—			—
Recognition of prior service credit	432			565			638
Total recognized in other comprehensive income (loss)	$	123,269		$	7,298		$	285,858
Total recognized in net periodic benefit income and other comprehensive income (loss)	$	109,877		$	1,450		$	276,303

The estimated amounts that will be amortized from accumulated other comprehensive loss into net periodic benefit income in 2017 are as follows in thousands:



Actuarial loss	$	37,870
Prior service credit	(349		)
Total	$	37,521

The assumptions used in measuring the net periodic benefit income for the plans follow:



	2016		2015		2014
Weighted average discount rate	4.82	%	4.26	%	5.10	%
Rate of increase in future compensation levels	3.12	%	3.07	%	3.04	%
Expected long-term rate of return on plan assets	7.83	%	7.85	%	7.85	%

Prior to 2014, the Company had two defined contribution plans that covered substantially all of its domestic employees. The Company’s matching contributions were determined based on the employee’s participation in the U.S. pension plan. Prior to 2014, U.S. pension plan participants who continued earning credited service after 2008 received a matching contribution of 20% of the first 6% of the employee’s salary. Other employees received a matching contribution of 100% of the first 5% of the employee’s salary. The two plans were merged effective January 1, 2014. Beginning in 2014, all employees receive a matching contribution of 100% of the first 5% of the employees’ salary. Total plan expense was approximately $56,975,000 in 2016, $55,066,000 in 2015, and $53,351,000 in 2014.