Benefit Plans

Pension and other post-retirement plans

We sponsor U.S. and non-U.S. defined-benefit pension and other post-retirement plans. Pension benefits are based principally on an employee's years of service and/or compensation levels near retirement. In addition, we provide certain post-retirement health care and life insurance benefits. Generally, the post-retirement health care and life insurance plans require contributions from retirees. In December 2007, we announced that we would freeze certain U.S. pension plans as of December 31, 2017. As such, employees in these U.S. pension plans will no longer earn service credits and the Company will no longer incur service cost related to these plans.

In November 2017, our Board of Directors approved amendments to terminate the Pentair Salaried Plan (the "Salaried Plan"), a U.S. qualified pension plan. The Salaried Plan discontinued accruing benefits on December 31, 2017 and the termination was effective December 31, 2017. It is expected to take 18 to 24 months from the date of the approved amendment to complete the termination of the Salaried Plan.

At December 31, 2017, the projected benefit obligation of the Salaried Plan was $369.0 million and the plan assets were $355.4 million. There were approximately 2,610 active participants in the Salaried Plan, of which 2,048 were either active employees or terminated vested participants who had not yet begun to receive their benefits as of December 31, 2017. The Salaried Plan participants will not be adversely affected by the plan termination. Those participants whose plan benefits are not in pay status by July 1, 2018 will be given the opportunity to elect a lump sum (or monthly annuity) during a special election window. For all participants whose Salaried Plan benefits are not paid in a lump sum, Pentair will purchase an annuity for them with an annuity provider after the special election window and after all required government approvals for the termination of the pension plan are received.

The information herein relates to defined-benefit pension and other post-retirement plans of our continuing operations only.

Obligations and funded status

The following tables present reconciliations of plan benefit obligations, fair value of plan assets and the funded status of pension plans and other post-retirement plans as of and for the years ended December 31, 2017 and 2016:



	U.S. pension plans						Non-U.S. pension plans						Other post-retirement plans
In millions	2017			2016			2017			2016			2017			2016
Change in benefit obligations
Benefit obligation beginning of year	$	413.3		$	396.9		$	186.8		$	173.4		$	36.9		$	38.8
Service cost	10.3			11.2			8.0			6.6			0.2			0.2
Interest cost	16.3			16.4			4.2			4.1			1.3			1.5
Actuarial loss (gain)	40.0			0.9			(8.5		)	16.8			0.2			(0.5		)
Foreign currency translation	—			—			23.7			(9.2		)	—			—
Benefits paid	(16.9		)	(12.1		)	(7.0		)	(4.9		)	(3.0		)	(3.1		)
Benefit obligation end of year	$	463.0		$	413.3		$	207.2		$	186.8		$	35.6		$	36.9
Change in plan assets
Fair value of plan assets beginning of year	$	344.4		$	327.7		$	45.7		$	46.6		$	—		$	—
Actual return on plan assets	42.4			24.6			2.1			3.0			—			—
Company contributions	4.6			4.2			8.2			5.8			2.9			3.1
Foreign currency translation	—			—			3.7			(4.8		)	—			—
Benefits paid	(16.9		)	(12.1		)	(8.5		)	(4.9		)	(2.9		)	(3.1		)
Fair value of plan assets end of year	$	374.5		$	344.4		$	51.2		$	45.7		$	—		$	—
Funded status
Benefit obligations in excess of the fair value of plan assets	$	(88.5	)	$	(68.9	)	$	(156.0	)	$	(141.1	)	$	(35.6	)	$	(36.9	)

Amounts recorded in the Consolidated Balance Sheets were as follows:



	U.S. pension plans						Non-U.S. pension plans						Other post-retirement plans
In millions	2017			2016			2017			2016			2017			2016
Other non-current assets	$	—		$	0.8		$	3.8		$	3.2		$	—		$	—
Current liabilities	(6.0		)	(4.4		)	(3.6		)	(2.9		)	(3.1		)	(3.2		)
Non-current liabilities	(82.5		)	(65.3		)	(156.2		)	(141.4		)	(32.5		)	(33.7		)
Benefit obligations in excess of the fair value of plan assets	$	(88.5	)	$	(68.9	)	$	(156.0	)	$	(141.1	)	$	(35.6	)	$	(36.9	)

The accumulated benefit obligation for all defined benefit plans was $656.7 million and $585.9 million at December 31, 2017 and 2016, respectively.

Information for pension plans with an accumulated benefit obligation or projected benefit obligation in excess of plan assets as of December 31 was as follows:



	Projected benefit obligation exceeds the fair value of plan assets				Accumulated benefit obligation exceeds the fair value of plan assets
In millions	2017		2016		2017		2016
U.S. pension plans
Projected benefit obligation	$	463.0	$	87.2	$	463.0	$	87.2
Fair value of plan assets	374.5		17.5		374.5		17.5
Accumulated benefit obligation	N/A		N/A		460.3		86.3
Non-U.S. pension plans
Projected benefit obligation	$	182.4	$	165.2	$	170.3	$	165.2
Fair value of plan assets	22.6		20.9		11.4		20.9
Accumulated benefit obligation	NA		NA		160.5		155.7

Components of net periodic benefit expense for our pension plans for the years ended December 31 were as follows:



	U.S. pension plans									Non-U.S. pension plans
In millions	2017			2016			2015			2017			2016			2015
Service cost	$	10.3		$	11.2		$	14.0		$	8.0		$	6.6		$	7.8
Interest cost	16.3			16.4			14.9			4.2			4.1			3.9
Expected return on plan assets	(11.5		)	(11.4		)	(10.0		)	(1.5		)	(1.5		)	(1.6		)
Net actuarial (gain) loss	9.1			(12.4		)	(18.0		)	(7.4		)	17.2			(2.4		)
Net periodic benefit expense	$	24.2		$	3.8		$	0.9		$	3.3		$	26.4		$	7.7

Components of net periodic benefit expense for our other post-retirement plans for the years ended December 31 2017, 2016 and 2015, were not material.

Assumptions

Weighted-average assumptions used to determine benefit obligations as of December 31 were as follows:



	U.S. pension plans						Non-U.S. pension plans						Other post-retirement plans
Percentages	2017 ⁽¹⁾		2016		2015		2017		2016		2015		2017		2016		2015
Discount rate	3.39	%	4.02	%	4.21	%	2.18	%	2.00	%	2.52	%	3.40	%	3.80	%	3.95	%
Rate of compensation increase	4.00	%	4.00	%	4.00	%	2.93	%	2.91	%	2.90	%	—		—		—


(1)	The benefit obligation for the Salaried Plan as of December 31, 2017 was determined using assumptions reflecting the termination of the plan. As a result, the weighted-average assumptions for U.S. pension plans as December 31, 2017 reflected in the table above do not include the Salaried Plan.

Weighted-average assumptions used to determine net periodic benefit expense (income) for years ended December 31 were as follows:



	U.S. pension plans						Non-U.S. pension plans						Other post-retirement plans
Percentages	2017		2016		2015		2017		2016		2015		2017		2016		2015
Discount rate	4.02	%	4.21	%	3.63	%	2.00	%	2.52	%	2.30	%	3.80	%	3.95	%	3.60	%
Expected long-term return on plan assets	4.11	%	4.28	%	3.65	%	3.02	%	3.29	%	3.57	%	—		—		—
Rate of compensation increase	4.00	%	4.00	%	4.00	%	2.91	%	2.90	%	2.89	%	—		—		—

Uncertainty in the securities markets and U.S. economy could result in investment returns less than those assumed. Should the securities markets decline or medical and prescription drug costs increase at a rate greater than assumed, we would expect increasing annual combined net pension and other post-retirement costs for the next several years. Should actual experience differ from actuarial assumptions, the projected pension benefit obligation and net pension cost and accumulated other post-retirement benefit obligation and other post-retirement benefit cost would be affected in future years.

Discount rates

The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year based on our December 31 measurement date. The discount rate was determined by matching our expected benefit payments to payments from a stream of bonds rated AA or higher available in the marketplace, adjusted to eliminate the effects of call provisions. This produced a weighted-average discount rate for our U.S. pension plans of 3.39%, 4.02% and 4.21% in 2017, 2016 and 2015, respectively. The discount rates on our non-U.S. pension plans ranged from 0.50% to 3.50%, 0.50% to 4.00% and 0.50% to 4.25% in 2017, 2016 and 2015, respectively. There are no known or anticipated changes in our discount rate assumptions that will impact our pension expense in 2018.

Expected rates of return

Our expected rates of return on U.S. pension plan assets were 4.11%, 4.28% and 3.65% for 2017, 2016 and 2015, respectively. The expected rates of return on non-U.S. pension plan assets ranged from 1.00% to 5.50%, 1.00% to 5.50% and 1.00% to 6.00% in 2017, 2016 and 2015, respectively. The expected rate of return is designed to be a long-term assumption that may be subject to considerable year-to-year variance from actual returns. In developing the expected long-term rate of return, we considered our historical returns, with consideration given to forecasted economic conditions, our asset allocations, input from external consultants and broader longer-term market indices. U.S. pension plan assets yielded returns of 12.30%, 7.50% and (3.20)% in 2017, 2016 and 2015, respectively. As a result of our de-risking strategy to reduce U.S. pension plan liability, we anticipate the expected rate of return on our U.S. funded pension plans will continue to be consistent with the discount rate utilized. Any difference in the expected rate and actual returns will be included with the actuarial gain or loss recorded in the fourth quarter when our plans are remeasured.

Healthcare cost trend rates

The assumed healthcare cost trend rates for other post-retirement plans as of December 31 were as follows:



	2017		2016
Healthcare cost trend rate assumed for following year	6.6	%	7.0	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.4	%	4.4	%
Year the cost trend rate reaches the ultimate trend rate	2038		2038

The assumed healthcare cost trend rates can have a significant effect on the amounts reported for healthcare plans. A one-percentage-point change in the assumed healthcare cost trend rates would have the following effects as of and for the year ended December 31, 2017:



	One Percentage Point
In millions	Increase		Decrease
Increase (decrease) in annual service and interest cost	$	0.1	$	(0.1	)
Increase (decrease) in other post-retirement benefit obligations	0.7		(0.6		)

Pension plans assets

Objective

The primary objective of our investment strategy is to meet the pension obligation to our employees at a reasonable cost to us. This is primarily accomplished through growth of capital and safety of the funds invested.

Asset allocation

Our actual overall asset allocation for our U.S. and non-U.S. pension plans as compared to our investment policy goals as of December 31 was as follows:



	U.S. pension plans
	Actual				Target
Percentages	2017		2016		2017		2016
Fixed income	99	%	99	%	100	%	100	%
Alternative	1	%	1	%	—	%	—	%



	Non-U.S. pension plans
	Actual				Target
Percentages	2017		2016		2017		2016
Equity securities	22	%	23	%	24	%	23	%
Fixed income	53	%	46	%	51	%	48	%
Alternative	22	%	26	%	23	%	27	%
Cash	3	%	5	%	2	%	2	%

Fair value measurement

The fair values of our pension plan assets and their respective levels in the fair value hierarchy as of December 31, 2017 and December 31, 2016 were as follows:



	December 31, 2017
In millions	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	—	$	2.8	$	—	$	2.8
Fixed income:
Corporate and non U.S. government	—		289.5		—		289.5
U.S. treasuries	—		43.2		—		43.2
Mortgage-backed securities	—		3.3		—		3.3
Other	—		63.1		—		63.1
Global equity securities:
Small cap equity	—		1.2		—		1.2
International equity	—		10.2		—		10.2
Other investments	—		11.3		1.1		12.4
Total fair value of plan assets	$	—	$	424.6	$	1.1	$	425.7



	December 31, 2016
In millions	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	—	$	3.4	$	—	$	3.4
Fixed income:
Corporate and non U.S. government	—		290.5		—		290.5
U.S. treasuries	—		30.5		—		30.5
Mortgage-backed securities	—		4.5		—		4.5
Other	—		37.0		—		37.0
Global equity securities:
Large cap equity	—		2.2		—		2.2
International equity	—		8.3		—		8.3
Other investments	—		11.7		2.0		13.7
Total fair value of plan assets	$	—	$	388.1	$	2.0	$	390.1

Valuation methodologies used for investments measured at fair value were as follows:


•	Cash and cash equivalents: Cash consists of cash held in bank accounts and was classified as Level 1. Cash equivalents consist of investments in commingled funds valued based on observable market data. Such investments were classified as Level 2.

•

Fixed income: Investments in corporate bonds, government securities, mortgages and asset backed securities were valued based upon quoted market prices for similar securities and other observable market data. Investments in commingled funds were generally valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service. Such investments were classified as Level 2.


•	Global equity securities: Investments in commingled funds were valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service. Such investments were classified as Level 2.

•

Other investments: Other investments include investments in commingled funds with diversified investment strategies. Investments in commingled funds that were valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service were classified as Level 2. Investments in commingled funds that were valued based on unobservable inputs due to liquidation restrictions were classified as Level 3.

Activity for our Level 3 pension plan assets held during the years ended December 31, 2017 and 2016 was not material.

Cash flows

Contributions

Pension contributions totaled $12.8 million and $10.0 million in 2017 and 2016, respectively. Our 2018 pension contributions are expected to be approximately $18.0 million to $21.0 million. The 2018 expected contributions will equal or exceed our minimum funding requirements.

Estimated future benefit payments

The following benefit payments, which reflect expected future service or payout from termination, as appropriate, are expected to be paid by the plans for the years ended December 31 as follows:



In millions	U.S. pension plans		Non-U.S. pension plans		Other post- retirement plans
2018	$	203.7	$	5.2	$	3.1
2019	178.3		5.8		3.0
2020	6.7		5.5		2.9
2021	6.7		6.1		2.8
2022	6.8		6.3		2.7
Thereafter	33.6		41.1		11.7

Savings plan

We have a 401(k) plan (the "401(k) plan") with an employee share ownership ("ESOP") bonus component, which covers certain union and all non-union U.S. employees who met certain age requirements. Under the 401(k) plan, eligible U.S. employees could voluntarily contribute a percentage of their eligible compensation. We matched contributions made by employees who met certain eligibility and service requirements. During 2017, 2016 and 2015, our matching contribution was 100% of eligible employee contributions for the first 1% of eligible compensation and 50% of the next 5% of eligible compensation.

In addition to the matching contribution, all employees who met certain service requirements received a discretionary ESOP contribution equal to 1.5% of annual eligible compensation.

As of January 1, 2018, the 401(k) company match contribution was changed to a dollar-for-dollar (100%) matching contribution on up to 5% of employee eligible earnings, contributed as before-tax contributions. This change will replace the ESOP component discussed above and offers the same 5% total company match.

Our combined expense for the 401(k) plan and the ESOP was $27.9 million, $27.1 million and $26.5 million in 2017, 2016 and 2015, respectively.

Other retirement compensation

Total other accrued retirement compensation, primarily related to deferred compensation and supplemental retirement plans, was $62.9 million and $61.0 million as of December 31, 2017 and 2016, respectively, and is included in Pension and other post-retirement compensation and benefits and Other non-current liabilities in the Consolidated Balance Sheets.