Employee Benefit and Retirement Plans

The Company and its subsidiaries have noncontributory pension, profit sharing and contributory 401(k) plans covering substantially all of their international and domestic employees. Plan benefits are generally based on years of service and/or compensation. The Company’s funding policy is to contribute not less than the minimum amounts required by the Employee Retirement Income Security Act of 1974, as amended, the Internal Revenue Code of 1986, as amended, or foreign statutes to ensure that plan assets will be adequate to provide retirement benefits.

Included in AOCI at December 31, 2013 is $716.0 million ($483.3 million net of tax) related to net unrecognized actuarial losses and unrecognized prior service credit that have not yet been recognized in net periodic pension cost. The Company expects to recognize $21.0 million ($13.9 million net of tax) of costs in 2014 associated with amortizing net actuarial losses and prior service credit.

The Company’s tax-qualified defined benefit pension plan is frozen for the entire U.S. workforce, and the Company has replaced the defined benefit pension plan with an additional defined contribution benefit arrangement, which has a three-year cliff-vesting schedule. The Company recorded $16.7 million, $19.0 million and $18.8 million in expense for the defined contribution benefit arrangement for 2013, 2012 and 2011, respectively. The liability associated with the defined contribution benefit arrangement as of December 31, 2013 and 2012 is $17.2 million and $18.8 million, respectively, and is included in other accrued liabilities in the Consolidated Balance Sheets.

As of December 31, 2013 and 2012, the Company maintained various nonqualified deferred compensation plans with varying terms. The total liability associated with these plans was $55.5 million and $65.3 million as of December 31, 2013 and 2012, respectively. These liabilities are included in other accrued liabilities and other noncurrent liabilities in the Consolidated Balance Sheets. The Company maintains assets to offset the impact of the market gains and losses associated with the deferred compensation liabilities, and the values of these assets were $52.3 million and $51.8 million as of December 31, 2013 and 2012, respectively. These assets are included in other assets in the Consolidated Balance Sheets.

The Company has a Supplemental Executive Retirement Plan (“SERP”), which is a nonqualified defined benefit and defined contribution plan pursuant to which the Company will pay supplemental benefits to certain key employees upon retirement based upon the employees’ years of service and compensation. The SERP is partially funded through a trust agreement with the Northern Trust Company, as trustee, that owns life insurance policies on approximately 350 active and former key employees with aggregate net death benefits of $275.3 million. At December 31, 2013 and 2012, the life insurance contracts were accounted for using the investment method and had a cash surrender value of $102.5 million and $106.7 million, respectively. All premiums paid and proceeds received associated with the life insurance policies are included in accrued liabilities and other in the Consolidated Statements of Cash Flows. The SERP is also partially funded through cash and mutual fund investments, which had a combined value of $10.3 million and $9.2 million at December 31, 2013 and 2012, respectively. These assets, as well as the cash surrender value of the life insurance contracts, are included in other assets in the Consolidated Balance Sheets. The projected benefit obligation was $110.2 million and $130.5 million at December 31, 2013 and 2012, respectively. The SERP liabilities are included in the pension table below; however, the value of the Company’s investments in the life insurance contracts, cash and mutual funds are excluded from the table, as they do not qualify as plan assets.

The Company’s matching contributions to the contributory 401(k) plan were $13.9 million, $14.2 million and $14.9 million for 2013, 2012 and 2011, respectively.

Defined Benefit Pension Plans

The following provides a reconciliation of benefit obligations, plan assets and funded status of the Company’s noncontributory defined benefit pension plans, including the SERP, as of December 31, (in millions, except percentages):



	U.S.						International
	2013			2012			2013			2012
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,170.5		$	1,054.9		$	602.6		$	536.3
Service cost	5.0			3.0			7.4			7.9
Interest cost	39.7			45.9			23.9			25.2
Actuarial (gain) loss	(110.6		)	135.0			(3.7		)	38.0
Currency translation	—			—			13.0			21.6
Benefits paid	(61.8		)	(69.3		)	(24.6		)	(32.3		)
Curtailments, settlement costs and other	(8.8		)	1.0			(3.2		)	5.9
Benefit obligation at end of year	$	1,034.0		$	1,170.5		$	615.4		$	602.6



	U.S.						International
	2013			2012			2013			2012
Change in plan assets:
Fair value of plan assets at beginning of year	$	707.1		$	634.9		$	501.9		$	484.5
Actual return on plan assets	74.7			74.9			26.9			4.7
Contributions	109.5			66.6			22.1			22.3
Currency translation	—			—			10.3			20.2
Benefits paid	(61.8		)	(69.3		)	(24.6		)	(32.3		)
Settlement charges and other	—			—			(3.1		)	2.5
Fair value of plan assets at end of year	$	829.5		$	707.1		$	533.5		$	501.9
Funded status at end of year	$	(204.5	)	$	(463.4	)	$	(81.9	)	$	(100.7	)
Amounts recognized in the Consolidated Balance Sheets:
Prepaid benefit cost, included in other assets	$	—		$	—		$	7.0		$	4.8
Accrued current benefit cost, included in other accrued liabilities	(9.5		)	(9.7		)	(4.1		)	(4.4		)
Accrued noncurrent benefit cost, included in other noncurrent liabilities	(195.0		)	(453.7		)	(84.8		)	(101.1		)
Total	$	(204.5	)	$	(463.4	)	$	(81.9	)	$	(100.7	)
Amounts recognized in AOCI:
Prior service credit (cost)	$	1.4		$	(7.6	)	$	0.7		$	0.6
Net loss	(621.4		)	(777.9		)	(124.5		)	(132.2		)
AOCI, pretax	$	(620.0	)	$	(785.5	)	$	(123.8	)	$	(131.6	)
Accumulated benefit obligation	$	1,034.0		$	1,162.5		$	607.6		$	592.3



	U.S.				International
	2013		2012		2013		2012
Weighted-average assumptions used to determine benefit obligation:
Discount rate	4.50	%	3.50	%	4.21	%	4.15	%
Long-term rate of compensation increase	2.50	%	2.50	%	4.16	%	3.84	%

The international amounts as of December 31, 2013 include a projected benefit obligation of $319.0 million and plan assets of $326.0 million for plans in which the benefit obligation is less than the fair value of plan assets.

Net pension cost includes the following components for the years ended December 31, (in millions, except percentages):



	U.S.									International
	2013			2012			2011			2013			2012			2011
Service cost-benefits earned during the year	$	5.0		$	3.0		$	4.3		$	7.4		$	7.9		$	6.0
Interest cost on projected benefit obligation	39.7			45.9			49.4			23.9			25.2			26.6
Expected return on plan assets	(58.7		)	(59.7		)	(59.6		)	(23.3		)	(25.6		)	(28.3		)
Amortization of:
Prior service cost	0.3			1.3			1.3			0.3			1.9			3.4
Actuarial loss	29.7			21.5			16.1			3.2			1.3			0.9
Curtailment, settlement and termination benefit costs	—			1.1			0.2			1.5			1.6			(0.8		)
Net pension cost	$	16.0		$	13.1		$	11.7		$	13.0		$	12.3		$	7.8



	U.S.						International
	2013		2012		2011		2013		2012		2011
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate	3.50	%	4.50	%	5.25	%	4.11	%	4.65	%	5.35	%
Long-term rate of return on plan assets	7.50	%	8.25	%	8.25	%	4.81	%	5.12	%	6.39	%
Long-term rate of compensation increase	2.50	%	2.80	%	2.70	%	3.86	%	3.74	%	4.02	%

The Company expects to make additional cash contributions of approximately $10 million and $17 million to its domestic and international defined benefit pension plans, respectively, in 2014.

Plan Assets

Current Allocation

The fair value of each major category of pension plan assets as of December 31, 2013 and 2012 is as follows (in millions):



	U.S.										International
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total		% of Total Assets as of December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs		Total			% of Total Assets as of December 31,
2013	(Level 1)		(Level 2)		(Level 3)				2013	2012	(Level 1)		(Level 2)			(Level 3)					2013	2012
Equity^(1),(7)
U.S. large cap	$	1.6	$	153.8	$	—	$	155.4			$	34.6	$	5.7		$	—	$	40.3
U.S. small cap	27.0		—		—		27.0				7.1		—			—		7.1
International	23.8		110.7		—		134.5				27.5		30.5			—		58.0
Total equity	52.4		264.5		—		316.9		38%	44%	69.2		36.2			—		105.4			20%	12%
Fixed income^(2),(7)
U.S. Treasury	91.5		15.5		—		107.0				—		—			—		—
Other government	34.5		22.4		—		56.9				—		83.1			—		83.1
Asset-backed securities	—		15.8		—		15.8				—		—			—		—
Corporate bonds	186.7		33.6		—		220.3				—		30.7			—		30.7
Short-term investments	10.2		7.4		—		17.6				—		—			—		—
Total fixed income	322.9		94.7		—		417.6		50	42	—		113.8			—		113.8			21	20
Insurance contracts⁽³⁾	—		16.3		—		16.3		2	2	—		235.0			—		235.0			44	46
Venture capital and partnerships⁽⁴⁾	—		0.2		45.7		45.9		6	7	—		14.1			1.6		15.7			3	5
Real estate⁽⁵⁾	—		—		28.0		28.0		3	4	—		1.8			2.1		3.9			1	1
Cash and cash equivalents⁽⁶⁾	—		4.8		—		4.8		1	1	17.7		42.1			—		59.8			11	13
Derivatives⁽⁸⁾	—		—		—		—		—	—	—		(18.2		)	—		(18.2		)	(3)	(6)
Commodity funds	—		—		—		—		—	—	—		4.6			—		4.6			1	5
Other	—		—		—		—		—	—	—		13.5			—		13.5			2	4
Total	$	375.3	$	380.5	$	73.7	$	829.5	100%	100%	$	86.9	$	442.9		$	3.7	$	533.5		100%	100%



	U.S.										International
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total		% of Total Assets as of December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs			Significant Unobservable Inputs		Total			% of Total Assets as of December 31,
2012	(Level 1)		(Level 2)		(Level 3)				2012	2011	(Level 1)		(Level 2)			(Level 3)					2012	2011
Equity^(1),(7)
U.S. large cap	$	41.0	$	108.0	$	—	$	149.0			$	4.9	$	6.5		$	—	$	11.4
U.S. small cap	27.0		—		—		27.0				5.5		3.2			—		8.7
International	28.7		105.0		—		133.7				8.3		29.5			—		37.8
Total equity	96.7		213.0		—		309.7		44%	40%	18.7		39.2			—		57.9			12%	11%
Fixed income^(2),(7)
U.S. Treasury	46.4		10.9		—		57.3				—		2.0			—		2.0
Other government	26.2		28.2		—		54.4				—		59.0			—		59.0
Asset-backed securities	—		14.7		—		14.7				—		—			—		—
Corporate bonds	133.0		30.8		—		163.8				—		41.6			—		41.6
Short-term investments	2.8		6.3		—		9.1				—		—			—		—
Total fixed income	208.4		90.9		—		299.3		42	45	—		102.6			—		102.6			20	19
Insurance contracts⁽³⁾	—		16.6		—		16.6		2	3	—		228.6			—		228.6			46	37
Venture capital and partnerships⁽⁴⁾	—		—		47.5		47.5		7	7	—		25.5			0.3		25.8			5	5
Real estate⁽⁵⁾	—		—		25.0		25.0		4	4	—		3.6			2.7		6.3			1	2
Cash and cash equivalents⁽⁶⁾	—		6.0		—		6.0		1	1	32.9		32.5			—		65.4			13	14
Derivatives⁽⁸⁾	—		—		—		—		—	—	—		(27.8		)	—		(27.8		)	(6)	—
Commodity funds	—		—		—		—		—	—	18.3		4.3			—		22.6			5	—
Other	—		3.0		—		3.0		—	—	—		20.5			—		20.5			4	12
Total	$	305.1	$	329.5	$	72.5	$	707.1	100%	100%	$	69.9	$	429.0		$	3.0	$	501.9		100%	100%


(1)	Equity securities primarily comprise mutual funds and common/collective trust funds. Investments in mutual funds and common/collective trust funds are valued at the net asset value per share or unit multiplied by the number of shares or units held as of the measurement date. The common/collective trust funds are generally actively managed investment vehicles.

(2)

Fixed-income investments primarily comprise mutual funds and common/collective trust funds that invest in corporate and government bonds. Investments in mutual funds and common/collective trust funds are valued at the net asset value per share or unit multiplied by the number of shares or units held as of the measurement date. The investments in fixed income securities include both actively managed funds and index funds.


(3)	The fair values of insurance contracts are estimated based on the future cash flows to be received under the contracts discounted to the present using a discount rate that approximates the discount rate used to measure the associated pension plan liabilities.


(4)	Venture capital and partnerships are valued at net asset value, which is generally calculated using the most recent partnership financial reports.

(5)

Real estate investments are generally investments in limited partnerships, real estate investment trusts and similar vehicles that invest in real estate. The values of the investments are generally based on the most recent financial reports of the investment vehicles. The managers of each of the investment vehicles estimate the values of the real estate assets underlying the real estate investments using third-party appraisals and other valuation techniques and analysis.


(6)	Cash and cash equivalents include investments in stable value funds. Stable value funds are generally invested in common trust funds and interest-bearing accounts.

(7)

In the U.S. pension plan assets, certain equity and fixed-income investments are held in separately managed investment accounts. The underlying investments in these separately managed accounts are primarily publicly traded securities that are directly owned by the U.S. pension plan, and such investments have been valued using the quoted price as of December 31, 2013 and 2012. Accordingly, these investments have been classified as Level 1 as of December 31, 2013 and 2012.


(8)	Derivatives primarily consist of interest rate and inflation swaps relating to the Company’s international plans. Included in other government fixed income investments is an amount of $25.6 million that relates to cash collateral posted with third parties for the derivatives that are in a liability position as of December 31, 2013.

A reconciliation of the change in the fair value measurement of the defined benefit plans’ consolidated assets using significant unobservable inputs (Level 3) for 2013 and 2012 is as follows (in millions):



	Venture Capital and Partnerships			Real Estate			Total
Fair value as of December 31, 2011	$	46.3		$	28.3		$	74.6
Realized losses	—			(0.3		)	(0.3		)
Unrealized gains	2.7			2.6			5.3
Purchases	3.6			0.9			4.5
Sales	(4.8		)	(3.8		)	(8.6		)
Fair value as of December 31, 2012	$	47.8		$	27.7		$	75.5
Realized gains	3.5			—			3.5
Unrealized gains	1.7			2.4			4.1
Purchases	3.7			—			3.7
Sales	(9.4		)	—			(9.4		)
Fair value as of December 31, 2013	$	47.3		$	30.1		$	77.4

Investment Strategy

The Company has established formal investment policies for the assets associated with its pension plans. The objectives of the investment strategies generally include maximizing long-term return at acceptable risk levels, diversifying among asset classes, if appropriate, as well as establishing relevant risk parameters within each asset class. Investment policies reflect the unique circumstances of the respective plans, and risk tolerance is established through consideration of plan liabilities, plan funded status and corporate financial condition. Asset allocation targets are based on periodic asset liability and/or risk budgeting study results, which help determine the appropriate investment strategies for acceptable risk levels. The investment policies permit variances from the targets within certain parameters.

The target asset allocations for the Company’s U.S. pension plan and primary international pension plans are as follows as of December 31, 2013:



Asset Category	Target
Asset Category	U.S.	International
Equity	37%	23%
Fixed income	51	14
Insurance contracts	3	24
Cash and equivalents	—	21
Other investments⁽¹⁾	9	18
Total	100%	100%

(1) Other investments include private equity funds, hedge funds and real estate funds.

Expected Long-term Rate of Return on Plan Assets

The Company employs a building-block approach in determining the long-term rate of return for plan assets. Historical markets are studied and long-term historical relationships between equities and fixed income are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors, such as inflation and interest rates, are evaluated before long-term capital market assumptions are determined. The long-term portfolio return is established giving consideration to investment diversification and rebalancing. Peer data and historical returns are reviewed to assess for reasonableness and appropriateness. The weighted-average expected long-term rates of return are based on reviews of the target investment allocation and the historical and expected rates of return of the asset classes included in the pension plans’ target asset allocations.