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PENSION PLANS
12 Months Ended
Dec. 31, 2016
Compensation and Retirement Disclosure [Abstract]  
PENSION PLANS
PENSION PLANS

We sponsor domestic and foreign defined benefit pension plans for eligible employees and retirees. Most of our domestic employees participate in defined contribution plans.  However, a portion of our bargaining hourly employees continue to participate in our domestic defined benefit pension plans under a flat-benefit formula.  Our funding policy for the defined benefit pension plans is consistent with the requirements of federal laws and regulations.  Our foreign subsidiaries maintain pension and other benefit plans, which are consistent with statutory practices.  

Our domestic defined benefit pension plan provides that if, within three years following a change of control of Olin, any corporate action is taken or filing made in contemplation of, among other things, a plan termination or merger or other transfer of assets or liabilities of the plan, and such termination, merger or transfer thereafter takes place, plan benefits would automatically be increased for affected participants (and retired participants) to absorb any plan surplus (subject to applicable collective bargaining requirements).

Effective as of the Closing Date, we changed the approach used to measure service and interest costs for our defined benefit pension plans. Prior to the Closing Date, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. Subsequent to the Closing Date, we elected to measure service and interest costs by applying the specific spot rates along the yield curve to the plans’ estimated cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis.

During the fourth quarter of 2014, the Society of Actuaries (SOA) issued the final report of its mortality tables and mortality improvement scales. The updated mortality data reflected increasing life expectancies in the U.S. During the third quarter of 2012, the “Moving Ahead for Progress in the 21st Century Act” (MAP-21) became law. The law changed the mechanism for determining interest rates to be used for calculating minimum defined benefit pension plan funding requirements. Interest rates are determined using an average of rates for a 25-year period, which can have the effect of increasing the annual discount rate, reducing the defined benefit pension plan obligation, and potentially reducing or eliminating the minimum annual funding requirement. The law also increased premiums paid to the PBGC. During the third quarter of 2014, the “Highway and Transportation Funding Act” (HATFA 2014) became law, which includes an extension of MAP-21’s defined benefit plan funding stabilization relief.

During 2016, we made a discretionary cash contribution to our domestic qualified defined benefit pension plan of $6.0 million. Based on our plan assumptions and estimates, we will not be required to make any cash contributions to the domestic qualified defined benefit pension plan at least through 2017.

We have international qualified defined benefit pension plans to which we made cash contributions of $1.3 million and $0.9 million in 2016 and 2015, respectively, and we anticipate less than $5 million of cash contributions to international qualified defined benefit pension plans in 2017.

As of the Closing Date and as part of the Acquisition, our domestic qualified defined benefit pension plan assumed certain domestic qualified defined benefit pension obligations and assets related to active employees and certain terminated, vested retirees of the Acquired Business with a net liability of $281.7 million. In connection therewith, pension assets were transferred from TDCC’s domestic qualified defined benefit pension plans to our domestic qualified defined benefit pension plan. Immediately prior to the Acquisition, the Acquired Business’s participant accounts assumed in the Acquisition were closed to new participants and were no longer accruing additional benefits.

Also as of the Closing Date, we assumed certain accrued defined benefit pension liabilities relating to employees of TDCC in Germany, Switzerland and other international locations who transferred to Olin in connection with the Acquisition. The net liability assumed as of the Closing Date was $160.6 million.


Pension Obligations and Funded Status

Changes in the benefit obligation and plan assets were as follows:

 
December 31, 2016
 
December 31, 2015
 
($ in millions)
 
($ in millions)
Change in Benefit Obligation
U.S.
 
Foreign
 
Total
 
U.S.
 
Foreign
 
Total
Benefit obligation at beginning of year
$
2,458.5

 
$
227.4

 
$
2,685.9

 
$
2,116.5

 
$
66.3

 
$
2,182.8

Service cost
1.3

 
7.6

 
8.9

 
2.1

 
2.2

 
4.3

Interest cost
82.4

 
5.3

 
87.7

 
80.2

 
3.1

 
83.3

Actuarial (gain) loss
88.7

 
20.4

 
109.1

 
(45.8
)
 
1.8

 
(44.0
)
Benefits paid
(132.2
)
 
(3.4
)
 
(135.6
)
 
(205.6
)
 
(2.8
)
 
(208.4
)
Curtailments/settlements

 

 

 
12.6

 
0.1

 
12.7

Plan participant’s contributions

 
0.9

 
0.9

 

 

 

Plan amendments

 
(1.2
)
 
(1.2
)
 

 

 

Business combination
(32.5
)
 

 
(32.5
)
 
498.5

 
171.4

 
669.9

Currency translation adjustments

 
(6.0
)
 
(6.0
)
 

 
(14.7
)
 
(14.7
)
Benefit obligation at end of year
$
2,466.2

 
$
251.0

 
$
2,717.2

 
$
2,458.5

 
$
227.4

 
$
2,685.9


 
December 31, 2016
 
December 31, 2015
 
($ in millions)
 
($ in millions)
Change in Plan Assets
U.S.
 
Foreign
 
Total
 
U.S.
 
Foreign
 
Total
Fair value of plans’ assets at beginning of year
$
1,974.0

 
$
62.5

 
$
2,036.5

 
$
1,915.4

 
$
63.3

 
$
1,978.7

Actual return on plans’ assets
191.5

 
3.5

 
195.0

 
(25.4
)
 
0.4

 
(25.0
)
Employer contributions
6.4

 
2.0

 
8.4

 
77.6

 
1.0

 
78.6

Benefits paid
(132.2
)
 
(3.4
)
 
(135.6
)
 
(205.6
)
 
(2.8
)
 
(208.4
)
Business combination
(27.7
)
 

 
(27.7
)
 
212.0

 
10.8

 
222.8

Currency translation adjustments

 
1.9

 
1.9

 

 
(10.2
)
 
(10.2
)
Fair value of plans’ assets at end of year
$
2,012.0

 
$
66.5

 
$
2,078.5

 
$
1,974.0

 
$
62.5

 
$
2,036.5


 
December 31, 2016
 
December 31, 2015
 
($ in millions)
 
($ in millions)
Funded Status
U.S.
 
Foreign
 
Total
 
U.S.
 
Foreign
 
Total
Qualified plans
$
(450.6
)
 
$
(182.6
)
 
$
(633.2
)
 
$
(480.8
)
 
$
(163.5
)
 
$
(644.3
)
Non-qualified plans
(3.6
)
 
(1.9
)
 
(5.5
)
 
(3.7
)
 
(1.4
)
 
(5.1
)
Total funded status
$
(454.2
)
 
$
(184.5
)
 
$
(638.7
)
 
$
(484.5
)
 
$
(164.9
)
 
$
(649.4
)


Under ASC 715 we recorded a $40.7 million after-tax charge ($66.1 million pretax) to shareholders’ equity as of December 31, 2016 for our pension plans.  This charge reflected a 30-basis point decrease in the domestic pension plans’ discount rate, partially offset by favorable performance on plan assets during 2016. In 2015, we recorded a $78.8 million after-tax charge ($125.4 million pretax) to shareholders’ equity as of December 31, 2015 for our pension plans.  This charge reflected unfavorable performance on plan assets during 2015 partially offset by a 50-basis point decrease in the domestic pension plans’ discount rate. 

The $109.1 million actuarial loss for 2016 was primarily due to a 30-basis point decrease in the domestic pension plans’ discount rate. The $44.0 million actuarial gain for 2015 was primarily due to a 50-basis point increase in the plans’ discount rate. The $12.7 million curtailments/settlements for 2015 was primarily due to the change in control which created a mandatory acceleration of payments under the domestic non-qualified pension plan as a result of the Acquisition.

Amounts recognized in the consolidated balance sheets consisted of:

 
December 31, 2016
 
December 31, 2015
 
($ in millions)
 
($ in millions)
 
U.S.
 
Foreign
 
Total
 
U.S.
 
Foreign
 
Total
Accrued benefit in current liabilities
$
(0.4
)
 
$
(0.2
)
 
$
(0.6
)
 
$
(0.4
)
 
$
(0.1
)
 
$
(0.5
)
Accrued benefit in noncurrent liabilities
(453.8
)
 
(184.3
)
 
(638.1
)
 
(484.1
)
 
(164.8
)
 
(648.9
)
Accumulated other comprehensive loss
743.1

 
43.5

 
786.6

 
714.2

 
26.6

 
740.8

Net balance sheet impact
$
288.9

 
$
(141.0
)
 
$
147.9

 
$
229.7

 
$
(138.3
)
 
$
91.4



At December 31, 2016 and 2015, the benefit obligation of non-qualified pension plans was $5.5 million and $5.1 million, respectively, and was included in the above pension benefit obligation.  There were no plan assets for these non-qualified pension plans.  Benefit payments for the non-qualified pension plans are expected to be as follows:  2017$0.6 million; 2018$0.5 million; 2019$0.6 million; 2020$0.6 million; and 2021$0.3 million.  Benefit payments for the qualified plans are projected to be as follows:  2017$135.5 million; 2018$136.8 million; 2019$136.9 million; 2020$137.7 million; and 2021$136.5 million.

 
December 31,
 
2016
 
2015
 
($ in millions)
Projected benefit obligation
$
2,717.2

 
$
2,685.9

Accumulated benefit obligation
2,685.7

 
2,655.0

Fair value of plan assets
2,078.5

 
2,036.5



 
Years Ended December 31,

2016
 
2015
 
2014
Components of Net Periodic Benefit Costs (Income)
($ in millions)
Service cost
$
12.3

 
$
7.8

 
$
5.3

Interest cost
87.7

 
83.3

 
86.5

Expected return on plans’ assets
(157.8
)
 
(147.4
)
 
(139.5
)
Amortization of prior service cost

 
1.6

 
2.2

Recognized actuarial loss
20.7

 
26.2

 
20.3

Curtailments/settlements

 
47.2

 
0.2

Net periodic benefit costs (income)
$
(37.1
)
 
$
18.7

 
$
(25.0
)
 
 
 
 
 
 
Included in Other Comprehensive Loss (Pretax)
 
 
 
 
 
Liability adjustment
$
66.1

 
$
125.4

 
$
138.9

Amortization of prior service costs and actuarial losses
(20.7
)
 
(62.4
)
 
(22.7
)


The $47.2 million curtailments/settlements for 2015 were due to a settlement of $47.1 million of costs incurred as a result of the change in control which created a mandatory acceleration of payments under the domestic non-qualified pension plan as a result of the Acquisition. These charges were included in acquisition-related costs. Also, for the years ended December 31, 2015 and 2014, we recorded a curtailment charge of $0.1 million and $0.2 million, respectively, associated with permanently closing a portion of the Becancour, Canada chlor alkali facility that has been shut down since late June 2014. These charges were included in restructuring charges.

The defined benefit pension plans’ actuarial loss that will be recognized from accumulated other comprehensive loss into net periodic benefit income in 2017 will be approximately $27 million.

The service cost and the amortization of prior service cost components of pension expense related to the employees of the operating segments are allocated to the operating segments based on their respective estimated census data.

Pension Plan Assumptions

Certain actuarial assumptions, such as discount rate and long-term rate of return on plan assets, have a significant effect on the amounts reported for net periodic benefit cost and accrued benefit obligation amounts.  We use a measurement date of December 31 for our pension plans.

 
U.S. Pension Benefits
 
Foreign Pension Benefits
Weighted-Average Assumptions
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Discount rate—periodic benefit cost
4.4%(1)

 
3.9
%
 
4.5
%
 
2.7
%
 
2.8
%
 
4.8
%
Expected return on assets
7.75
%
 
7.75
%
 
7.75
%
 
6.0
%
 
6.0
%
 
7.50
%
Rate of compensation increase
3.0
%
 
3.0
%
 
3.0
%
 
3.0
%
 
3.0
%
 
3.5
%
Discount rate—benefit obligation
4.1
%
 
4.4
%
 
3.9
%
 
2.3
%
 
2.7
%
 
3.9
%


(1) The discount rate—periodic benefit cost for our domestic qualified pension plan is comprised of the discount rate used to determine interest costs of 3.5% and the discount rate used to determine service costs of 4.6%.

The discount rate is based on a hypothetical yield curve represented by a series of annualized individual zero-coupon bond spot rates for maturities ranging from one-half to thirty years.  The bonds used in the yield curve must have a rating of AA or better per Standard & Poor’s, be non-callable, and have at least $250 million par outstanding.  The yield curve is then applied to the projected benefit payments from the plan.  Based on these bonds and the projected benefit payment streams, the single rate that produces the same yield as the matching bond portfolio is used as the discount rate.

The long-term expected rate of return on plan assets represents an estimate of the long-term rate of returns on the investment portfolio consisting of equities, fixed income and alternative investments.  We use long-term historical actual return information, the allocation mix of investments that comprise plan assets, and forecast estimates of long-term investment returns, including inflation rates, by reference to external sources.  The historic rates of return on plan assets have been 7.0% for the last 5 years, 9.1% for the last 10 years and 9.0% for the last 15 years.  The following rates of return by asset class were considered in setting the long-term rate of return assumption:

U.S. equities
9%
 
to
 
13%
Non-U.S. equities
10%
 
to
 
14%
Fixed income/cash
5%
 
to
 
9%
Alternative investments
5%
 
to
 
15%
Absolute return strategies
8%
 
to
 
12%

Plan Assets

Our pension plan asset allocation at December 31, 2016 and 2015 by asset class was as follows:

 
Percentage of Plan Assets
Asset Class
2016
 
2015
U.S. equities
19
%
 
4
%
Non-U.S. equities
15
%
 
6
%
Fixed income/cash
35
%
 
47
%
Acquisition plan receivable
%
 
10
%
Alternative investments
20
%
 
19
%
Absolute return strategies
11
%
 
14
%
Total
100
%
 
100
%


The Alternative Investments asset class includes hedge funds, real estate and private equity investments.  The Alternative Investments class is intended to help diversify risk and increase returns by utilizing a broader group of assets.

Absolute Return Strategies further diversify the plan’s assets through the use of asset allocations that seek to provide a targeted rate of return over inflation.  The investment managers allocate funds within asset classes that they consider to be undervalued in an effort to preserve gains in overvalued asset classes and to find opportunities in undervalued asset classes.

A master trust was established by our pension plan to accumulate funds required to meet benefit payments of our plan and is administered solely in the interest of our plan’s participants and their beneficiaries.  The master trust’s investment horizon is long term.  Its assets are managed by professional investment managers or invested in professionally managed investment vehicles.

Our pension plan maintains a portfolio of assets designed to achieve an appropriate risk adjusted return.  The portfolio of assets is also structured to manage risk by diversifying assets across asset classes whose return patterns are not highly correlated, investing in passively and actively managed strategies and in value and growth styles, and by periodic rebalancing of asset classes, strategies and investment styles to objectively set targets.

As of December 31, 2016, the following target allocation and ranges have been set for each asset class:

Asset Class
Target Allocation
 
Target Range
U.S. equities
27
%
 
19-35
Non-U.S. equities
18
%
 
4-35
Fixed income/cash
29
%
 
20-80
Alternative investments
6
%
 
0-32
Absolute return strategies
20
%
 
10-30




Determining which hierarchical level an asset or liability falls within requires significant judgment.  The following table summarizes our domestic and foreign defined benefit pension plan assets measured at fair value as of December 31, 2016:

Asset Class
Investments Measured at NAV(1)
 
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
 
 
($ in millions)
Equity securities
 
 
 
 
 
 
 
 
 
U.S. equities
$
241.4

 
$
143.2

 
$

 
$

 
$
384.6

Non-U.S. equities
248.6

 
38.6

 
29.9

 

 
317.1

Fixed income/cash


 
 
 
 
 
 
 
 
Cash

 
259.6

 

 

 
259.6

Government treasuries
18.2

 

 
169.4

 

 
187.6

Corporate debt instruments
51.8

 
0.2

 
129.6

 

 
181.6

Asset-backed securities
61.4

 

 
36.4

 

 
97.8

Alternative investments


 
 
 
 
 
 
 
 
Hedge fund of funds
380.6

 

 

 

 
380.6

Real estate funds
22.5

 

 

 

 
22.5

Private equity funds
16.4

 

 

 

 
16.4

Absolute return strategies
230.7

 

 

 

 
230.7

Total assets
$
1,271.6

 
$
441.6

 
$
365.3

 
$

 
$
2,078.5


The following table summarizes our domestic and foreign defined benefit pension plan assets measured at fair value as of December 31, 2015:

Asset Class
Investments Measured at NAV(1)
 
Quoted Prices
In Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
 
 
 
($ in millions)
Equity securities
 
 
 
 
 
 
 
 
 
U.S. equities
$
43.2

 
$
36.4

 
$

 
$

 
$
79.6

Non-U.S. equities
118.2

 
0.8

 
3.7

 

 
122.7

Acquisition plan receivable

 

 

 
212.0

 
212.0

Fixed income/cash


 
 
 
 
 
 
 
 
Cash

 
60.1

 

 

 
60.1

Government treasuries
41.7

 

 
385.9

 

 
427.6

Corporate debt instruments
52.8

 
0.3

 
261.1

 

 
314.2

Asset-backed securities
118.6

 

 
37.0

 

 
155.6

Alternative investments


 
 
 
 
 
 
 
 
Hedge fund of funds
335.6

 

 

 

 
335.6

Real estate funds
27.4

 

 

 

 
27.4

Private equity funds
18.4

 

 

 

 
18.4

Absolute return strategies
283.3

 

 

 

 
283.3

Total assets
$
1,039.2

 
$
97.6

 
$
687.7

 
$
212.0

 
$
2,036.5


(1)
Investments measured at net asset value (NAV) as a practical expedient reflect the adoption of ASU 2015-07, which was applied retrospectively, and, therefore, all prior periods have been retrospectively adjusted.

U.S. equities—This class included actively and passively managed equity investments in common stock and commingled funds comprised primarily of large-capitalization stocks with value, core and growth strategies.

Non-U.S. equities—This class included actively managed equity investments in commingled funds comprised primarily of international large-capitalization stocks from both developed and emerging markets.

Acquisition plan receivable—This class included pension assets which will be transferred from TDCC’s U.S. qualified defined benefit pension plan trustee to our qualified defined benefit pension plan trustee in the form of cash related to the Acquisition. As of December 31, 2015, this amount was subject to certain post-closing adjustments. During 2016, assets of $184.3 million were transferred from TDCC’s U.S. qualified defined benefit pension plan trustee to our qualified defined benefit pension plan trustee, resulting in the settlement of the acquisition plan receivable.

Fixed income and cash—This class included commingled funds comprised of debt instruments issued by the U.S. and Canadian Treasuries, U.S. Agencies, corporate debt instruments, asset- and mortgage-backed securities and cash.

Hedge fund of funds—This class included a hedge fund which invests in the following types of hedge funds:

Event driven hedge funds—This class included hedge funds that invest in securities to capture excess returns that are driven by market or specific company events including activist investment philosophies and the arbitrage of equity and private and public debt securities.

Market neutral hedge funds—This class included investments in U.S. and international equities and fixed income securities while maintaining a market neutral position in those markets.

Other hedge funds—This class primarily included long-short equity strategies and a global macro fund which invested in fixed income, equity, currency, commodity and related derivative markets.

Real estate funds—This class included several funds that invest primarily in U.S. commercial real estate.

Private equity funds—This class included several private equity funds that invest primarily in infrastructure and U.S. power generation and transmission assets.

Absolute return strategies—This class included multiple strategies which use asset allocations that seek to provide a targeted rate of return over inflation.  The investment managers allocate funds within asset classes that they consider to be undervalued in an effort to preserve gains in overvalued asset classes and to find opportunities in undervalued asset classes.  

U.S. equities and non-U.S. equities are primarily valued at the net asset value provided by the independent administrator or custodian of the commingled fund.  The net asset value is based on the value of the underlying equities, which are traded on an active market.  U.S. equities are also valued at the closing price reported in an active market on which the individual securities are traded.  A portion of our fixed income investments are valued at the net asset value provided by the independent administrator or custodian of the fund.  The net asset value is based on the underlying assets, which are valued using inputs such as the closing price reported, if traded on an active market, values derived from comparable securities of issuers with similar credit ratings, or under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar instruments, but includes adjustments for risks that may not be observable such as certain credit and liquidity risks.  Alternative investments are valued at the net asset value as determined by the independent administrator or custodian of the fund.  The net asset value is based on the underlying investments, which are valued using inputs such as quoted market prices of identical instruments, discounted future cash flows, independent appraisals and market-based comparable data.  Absolute return strategies are commingled funds which reflect the fair value of our ownership interest in these funds.  The investments in these commingled funds include some or all of the above asset classes and are primarily valued at net asset values based on the underlying investments, which are valued consistent with the methodologies described above for each asset class.

The following table summarizes the activity for our defined benefit pension plans level 3 assets for the year ended December 31, 2016:

 
December 31, 2015
 
Realized
Gain/(Loss)
 
Unrealized Gain/(Loss) Relating to Assets Held at Period End
 
Purchases, Sales, Settlements, and Other
 
Transfers
In/(Out)
 
December 31, 2016
 
($ in millions)
Acquisition plan receivable
$
212.0

 
$

 
$

 
$
(212.0
)
 
$

 
$


The following table summarizes the activity for our defined benefit pension plans level 3 assets for the year ended December 31, 2015:

 
December 31, 2014
 
Realized
Gain/(Loss)
 
Unrealized Gain/(Loss) Relating to Assets Held at Period End
 
Purchases, Sales, Settlements, and Other
 
Transfers
In/(Out)
 
December 31, 2015
 
($ in millions)
Acquisition plan receivable
$

 
$

 
$

 
$
212.0

 
$

 
$
212.0