BENEFIT PLANS

Defined Contribution Plans

The Company maintains a number of defined contribution plans. The DENTSPLY Employee Stock Ownership Plan (“ESOP”) and 401(k) plans are designed to have contribution allocations of eligible compensation, with a targeted 3% going into the ESOP in Company stock and a targeted 3% going into the 401(k) as a non-elective contribution in cash. The Company sponsors an employee 401(k) savings plan for its U.S. workforce to which enrolled participants may contribute up to Internal Revenue Service defined limits. The ESOP is a non-contributory defined contribution plan that covers substantially all of the U.S. based non-union employees of the Company. All future ESOP allocations will come from a combination of forfeited shares and shares acquired in the open market. The share allocation will be accounted for at fair value at the point of allocation, which is normally year-end. Effective December 31, 2016, the DENTSPLY Employee Stock Ownership Plan was merged with the DENTSPLY 401(k) Savings Plan. The result of this merger will be the creation of the Dentsply Sirona Inc. 401(k) Savings and Employee Stock Ownership Plan (the "Plan"), effective as of January 1, 2017. In addition to these plans, the Company also maintains various other U.S. and non-U.S. defined contribution and non-qualified deferred compensation plans. The annual expense, net of forfeitures, were $28.0 million, $24.9 million and $25.4 million for 2016, 2015 and 2014, respectively.

Defined Benefit Plans

The Company maintains a number of separate contributory and non-contributory qualified defined benefit pension plans for certain union and salaried employee groups in the United States. Pension benefits for salaried plans are based on salary and years of service; hourly plans are based on negotiated benefits and years of service. Annual contributions to the pension plans are sufficient to satisfy minimum funding requirements. Pension plan assets are held in trust and consist mainly of common stock and fixed income investments. The Company’s funding policy for its U.S. plans is to make contributions that are necessary to maintain the plans on a sound actuarial basis and to meet the minimum funding standards prescribed by law. The Company may, at its discretion, contribute amounts in excess of the minimum required contribution.

In addition to the U.S. plans, the Company maintains defined benefit pension plans for certain employees in Austria, France, Germany, Italy, Japan, the Netherlands, Norway, Sweden, Switzerland and Taiwan. These plans provide benefits based upon age, years of service and remuneration. Other foreign plans are not significant individually or in the aggregate. Substantially all of the German and Swedish plans are unfunded book reserve plans. Most employees and retirees outside the U.S. are covered by government health plans.

The Company predominantly uses liability durations in establishing its discount rates, which are observed from indices of high-grade corporate bond yield curves in the respective economic regions of the plan. During the first quarter of 2016, the Company changed the method utilized to estimate the service cost and interest cost components of net periodic benefit costs for the Company’s major defined benefit pension plans in Germany, Switzerland and for all defined benefit pension and other postemployment healthcare plans in the United States. Historically, the Company estimated the service cost and interest cost components using a single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. The Company has elected to use a spot rate approach for the estimation of these components of benefit cost by applying the specific spot rates along the yield curve to the relevant projected cash flows, as the Company believes this provides a better estimate of service and interest costs. The Company considers this a change in estimate and, accordingly, accounted for it prospectively. This change does not affect the measurement of the Company’s total benefit obligation.

Defined Benefit Pension Plan Assets

The primary investment strategy is to ensure that the assets of the plans, along with anticipated future contributions, will be invested in order that the benefit entitlements of employees, pensioners and beneficiaries covered under the plan can be met when due with high probability. Pension plan assets consist mainly of common stock and fixed income investments. The target allocations for defined benefit plan assets are 30% to 65% equity securities, 30% to 65% fixed income securities, 0% to 15% real estate, and 0% to 25% in all other types of investments. Equity securities include investments in companies located both in and outside the U.S. Equity securities do not include common stock of the Company. Fixed income securities include corporate bonds of companies from diversified industries, government bonds, mortgage notes and pledge letters. Other types of investments include investments in mutual funds, common trusts, insurance contracts, hedge funds and real estate. These plan assets are not recorded in the Company’s Consolidated Balance Sheet as they are held in trust or other off-balance sheet investment vehicles.

The defined benefit pension plan assets in the U.S. are held in trust and the investment policies of the plans are generally to invest the plans assets in equities and fixed income investments. The objective is to achieve a long-term rate of return in excess of 4% while at the same time mitigating the impact of investment risk associated with investment categories that are expected to yield greater than average returns. In accordance with the investment policies of the U.S. plans, the plans assets were invested in the following investment categories: interest-bearing cash, registered investment companies (e.g. mutual funds), common/collective trusts, master trust investment accounts and insurance company general accounts. The investment objective is for assets to be invested in a manner consistent with the fiduciary standards of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

The defined benefit pension plan assets maintained in Austria, France, Germany, Japan, Norway, the Netherlands, Switzerland and Taiwan all have separate investment policies but generally have an objective to achieve a long-term rate of return in excess of 4% while at the same time mitigating the impact of investment risk associated with investment categories that are expected to yield greater than average returns. In accordance with the investment policies for the plans outside the U.S., the plans’ assets were invested in the following investment categories: interest-bearing cash, U.S. and foreign equities, foreign fixed income securities (primarily corporate and government bonds), insurance company contracts, real estate and hedge funds.

In Germany, Sirona traditionally had an unfunded defined benefit pension plan whose benefits are based primarily on years of service and wage and salary group. This plan is closed to new participants. Sirona replaced its unfunded defined benefit pension plan in Germany with a defined contribution plan. All new hires now receive defined contributions to a pension plan based on a percentage of the employee’s eligible compensation. However, due to grandfathering provisions for certain existing employees hired before the new defined contribution plan was introduced, the Company continues to be obligated to provide pension benefits which are at a minimum equal to benefits that would have been available under the terms of the traditional defined benefit plans (the “Grandfathered Benefit”). The Grandfathered Benefit and contributions to the Sirona pension plan made for those employees are included in the disclosures for defined benefit plans. The Company accounts for the Grandfathered Benefit by recognizing the higher of the defined contribution obligation or the defined benefit obligation for the minimum benefit.

The Sirona plan assets in Germany consist of insurance policies with a guaranteed minimum return by the insurance company and an excess profit participation feature for a portion of the benefits. Sirona pays the premiums on the insurance policies, but does not manage the investment of the funds. The insurance company makes all decisions on investment of funds, including the allocation to asset groups. The fair value of the plan assets which include equity securities, fixed-income investments, and others is based on the cash surrender values reported by the insurance company.

Postemployment Healthcare

The Company sponsors postemployment healthcare plans that cover certain union and salaried employee groups in the U.S. and is contributory, with retiree contributions adjusted annually to limit the Company’s contribution for participants who retired after June 1, 1985. The plans for postemployment healthcare have no plan assets. The Company also sponsors unfunded non-contributory postemployment medical plans for a limited number of union employees and their spouses and retirees of a discontinued operation.

Reconciliations of changes in the defined benefit and postemployment healthcare plans’ benefit obligations, fair value of assets and statement of funded status are as follows:



							Other Postemployment
	Pension Benefits						Benefits
	December 31,						December 31,
(in millions)	2016			2015			2016			2015

Change in Benefit Obligation
Benefit obligation at beginning of year	$	378.9		$	436.9		$	14.1		$	13.9
Service cost	15.7			17.1			0.3			0.4
Interest cost	8.0			7.3			0.6			0.6
Participant contributions	3.8			3.7			0.3			0.4
Actuarial losses (gains)	26.8			(41.1		)	1.4			(0.4		)
Plan amendments	0.3			(0.3		)	—			—
Acquisitions/Divestitures	76.3			(0.7		)	—			—
Effect of exchange rate changes	(14.2		)	(28.7		)	—			—
Plan curtailments and settlements	(8.5		)	(1.6		)	—			—
Benefits paid	(14.0		)	(13.7		)	(0.6		)	(0.8		)
Benefit obligation at end of year	$	473.1		$	378.9		$	16.1		$	14.1

Change in Plan Assets
Fair value of plan assets at beginning of year	$	142.0		$	143.6		$	—		$	—
Actual return on assets	6.5			0.5			—			—
Plan settlements	(8.0		)	(0.3		)	—			—
Acquisitions/Divestitures	12.7			—			—			—
Effect of exchange rate changes	(2.4		)	(2.2		)	—			—
Employer contributions	16.2			10.4			0.3			0.4
Participant contributions	3.8			3.7			0.3			0.4
Benefits paid	(14.0		)	(13.7		)	(0.6		)	(0.8		)
Fair value of plan assets at end of year	$	156.8		$	142.0		$	—		$	—

Funded status at end of year	$	(316.3	)	$	(236.9	)	$	(16.1	)	$	(14.1	)

The amounts recognized in the accompanying Consolidated Balance Sheets, net of tax effects, are as follows:



		Pension Benefits						Other Postemployment Benefits
	Location On The	December 31,						December 31,
(in millions)	Consolidated Balance Sheet	2016			2015			2016			2015

Other noncurrent assets, net	Other noncurrent assets, net	$	0.1		$	—		$	—		$	—
Deferred tax asset	Other noncurrent assets, net	31.7			27.0			1.4			0.9
Total assets		$	31.8		$	27.0		$	1.4		$	0.9

Current liabilities	Accrued liabilities	(6.9		)	(4.2		)	(0.7		)	(0.7		)
Other noncurrent liabilities	Other noncurrent liabilities	(309.5		)	(232.7		)	(15.4		)	(13.4		)
Deferred tax liability	Deferred income taxes	(0.5		)	(0.8		)	—			—
Total liabilities		$	(316.9	)	$	(237.7	)	$	(16.1	)	$	(14.1	)

Accumulated other comprehensive income	Accumulated other comprehensive loss	82.3			71.5			2.2			1.5
Net amount recognized		$	(202.8	)	$	(139.2	)	$	(12.5	)	$	(11.7	)

Amounts recognized in AOCI consist of:



							Other Postemployment
	Pension Benefits						Benefits
	December 31,						December 31,
(in millions)	2016			2015			2016		2015

Net actuarial loss	$	115.3		$	100.1		$	3.5	$	2.4
Net prior service cost	(1.8		)	(2.4		)	—		—
Before tax AOCI	$	113.5		$	97.7		$	3.5	$	2.4
Less: Deferred taxes	31.2			26.2			1.3		0.9
Net of tax AOCI	$	82.3		$	71.5		$	2.2	$	1.5

Information for pension plans with an accumulated benefit obligation in excess of plan assets:



	December 31,
(in millions)	2016		2015

Projected benefit obligation	$	458.7	$	377.7
Accumulated benefit obligation	427.2		361.0
Fair value of plan assets	142.3		140.7

Components of net periodic benefit cost:



	Pension Benefits									Other Postemployment Benefits
(in millions)	2016			2015			2014			2016		2015		2014

Service cost	$	15.7		$	17.1		$	14.0		$	0.3	$	0.4	$	0.2
Interest cost	8.0			7.3			11.1			0.6		0.6		0.5
Expected return on plan assets	(5.1		)	(5.4		)	(5.5		)	—		—		—
Amortization of prior service (credit) cost	(0.2		)	(0.2		)	(0.1		)	—		—		—
Amortization of net actuarial loss	5.1			7.8			2.8			0.2		0.2		0.1
Curtailment and settlement loss (gains)	1.2			(0.8		)	0.1			—		—		—
Net periodic benefit cost	$	24.7		$	25.8		$	22.4		$	1.1	$	1.2	$	0.8

Other changes in plan assets and benefit obligations recognized in AOCI:



	Pension Benefits									Other Postemployment Benefits
(in millions)	2016			2015			2014			2016			2015			2014

Net actuarial loss (gain)	$	20.3		$	(48.6	)	$	88.5		$	1.4		$	(0.4	)	$	1.4
Net prior service cost (credit)	0.4			(0.3		)	0.4			—			—			—
Amortization	(4.9		)	(7.6		)	(2.6		)	(0.2		)	(0.2		)	—
Total recognized in AOCI	$	15.8		$	(56.5	)	$	86.3		$	1.2		$	(0.6	)	$	1.4
Total recognized in net periodic benefit cost and AOCI	$	40.5		$	(30.7	)	$	108.7		$	2.3		$	0.6		$	2.2

The estimated net loss, prior service cost and transition obligation for the defined benefit plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year are $6.3 million. There will be an immaterial amount of estimated net loss and prior service credit for the other postemployment plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year.

The amounts in AOCI that are expected to be amortized as net expense (income) during fiscal year 2017 are as follows:



(in millions)	Pension Benefits			Other Postemployment Benefits

Amount of net prior service (credit) cost	$	(0.2	)	$	—
Amount of net loss	6.5			0.2

Assumptions

The assumptions used to determine benefit obligations and net periodic benefit cost for the Company’s plans are similar for both U.S. and foreign plans.

The weighted average assumptions used to determine benefit obligations for the Company’s plans, principally in foreign locations, at December 31, 2016, 2015 and 2014 are as follows:



	Pension Benefits						Other Postemployment Benefits
	2016		2015		2014		2016		2015		2014

Discount rate	1.6	%	2.1	%	1.8	%	4.4	%	4.7	%	4.3	%
Rate of compensation increase	2.6	%	2.5	%	2.6	%	n/a		n/a		n/a
Health care cost trend pre 65	n/a		n/a		n/a		7.8	%	7.6	%	8.0	%
Health care cost trend post 65	n/a		n/a		n/a		8.5	%	8.2	%	7.0	%
Ultimate health care cost trend	n/a		n/a		n/a		4.5	%	5.0	%	5.0	%
Years until trend is reached pre 65	n/a		n/a		n/a		9.0		9.0		8.0
Years until ultimate trend is reached post 65	n/a		n/a		n/a		9.0		9.0		7.0

The weighted average assumptions used to determine net periodic benefit cost for the Company’s plans, principally in foreign locations, for the years ended December 31, 2016, 2015 and 2014 are as follows:



	Pension Benefits						Other Postemployment Benefits
	2016		2015		2014		2016		2015		2014

Discount rate	2.1	%	1.8	%	3.2	%	4.7	%	4.3	%	4.8	%
Expected return on plan assets	3.3	%	3.7	%	3.8	%	n/a		n/a		n/a
Rate of compensation increase	2.5	%	2.6	%	2.7	%	n/a		n/a		n/a
Health care cost trend	n/a		n/a		n/a		7.8	%	8.5	%	8.5	%
Ultimate health care cost trend	n/a		n/a		n/a		4.5	%	5.0	%	5.0	%
Years until ultimate trend is reached	n/a		n/a		n/a		9.0		8.0		8.0

Measurement Date	12/31/2016		12/31/2015		12/31/2014		12/31/2016		12/31/2015		12/31/2014

To develop the assumptions for the expected long-term rate of return on assets, the Company considered the current level of expected returns on risk free investments (primarily U.S. government bonds), the historical level of the risk premium associated with the other asset classes in which the assets are invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocations to develop the assumptions for the expected long-term rate of return on assets.

Assumed health care cost trend rates have an impact on the amounts reported for postemployment benefits. An ongoing one percentage point change in assumed healthcare cost trend rates would have had the following effects for the year ended December 31, 2016:



	Other Postemployment Benefits
(in millions)	1% Increase		1% Decrease

Effect on total of service and interest cost components	$	0.2	$	(0.2	)
Effect on postemployment benefit obligation	2.6		(2.1		)

Fair Value Measurements of Plan Assets

The fair value of the Company’s pension plan assets at December 31, 2016 is presented in the table below by asset category. Approximately 75% of the total plan assets are categorized as Level 1, and therefore, the values assigned to these pension assets are based on quoted prices available in active markets. For the other category levels, a description of the valuation is provided in Note 1, Significant Accounting Policies, under the “Fair Value Measurement” heading.



	December 31, 2016
(in millions)	Total		Level 1		Level 2		Level 3

Assets Category
Cash and cash equivalents	$	11.5	$	11.5	$	—	$	—
Equity securities:
International	39.1		39.1		—		—
Fixed income securities:
Fixed rate bonds (a)	52.6		52.6		—		—
Other types of investments:
Mutual funds (b)	14.3		14.3		—		—
Common trusts (c)	9.9		—		9.9		—
Insurance contracts	25.1		—		—		25.1
Hedge funds	4.0		—		—		4.0
Real estate	0.3		—		—		0.3
Total	$	156.8	$	117.5	$	9.9	$	29.4



	December 31, 2015
(in millions)	Total		Level 1		Level 2		Level 3

Assets Category
Cash and cash equivalents	$	9.2	$	9.2	$	—	$	—
Equity securities:
International	39.2		39.2		—		—
Fixed income securities:
Fixed rate bonds (a)	52.4		52.4		—		—
Other types of investments:
Mutual funds (b)	14.5		14.5		—		—
Common trusts (c)	9.0		—		9.0		—
Insurance contracts	14.2		—		3.9		10.3
Hedge funds	3.2		—		—		3.2
Real estate	0.3		—		—		0.3
Total	$	142.0	$	115.3	$	12.9	$	13.8


(a)	This category includes fixed income securities invested primarily in Swiss bonds, foreign bonds denominated in Swiss francs, foreign currency bonds, mortgage notes and pledged letters.


(b)	This category includes mutual funds balanced between moderate-income generation and moderate capital appreciation with investment allocations of approximately 50% equities and 50% fixed income investments.


(c)	This category includes common/collective funds with investments in approximately 65% equities and 35% in fixed income investments.

The following table provides a reconciliation from December 31, 2015 to December 31, 2016 for the plan assets categorized as Level 3. During the year ended December 31, 2016, $0.2 million of plan assets were transferred out of the Level 3 category.



	Year Ended December 31, 2016
(in millions)	Insurance Contracts			Hedge Funds			Real Estate		Total

Balance at December 31, 2015	$	10.3		$	3.2		$	0.3	$	13.8
Actual return on plan assets:
Relating to assets still held at the reporting date	2.1			—			—		2.1
Acquisitions/Divestitures	12.7			—			—		12.7
Purchases, sales and settlements, net	1.0			0.9			—		1.9
Transfers in and/or (out)	(0.2		)	—			—		(0.2		)
Effect of exchange rate changes	(0.8		)	(0.1		)	—		(0.9		)
Balance at December 31, 2016	$	25.1		$	4.0		$	0.3	$	29.4

The following tables provide a reconciliation from December 31, 2014 to December 31, 2015 for the plan assets categorized as Level 3. During the year ended December 31, 2015, no assets were transferred in or out of the Level 3 category.



	Year Ended December 31, 2015
(in millions)	Insurance Contracts			Hedge Funds			Real Estate			Total

Balance at December 31, 2014	$	11.9		$	1.8		$	0.4		$	14.1
Actual return on plan assets:
Relating to assets still held at the reporting date	(0.6		)	0.1			—			(0.5		)
Purchases, sales and settlements, net	0.3			1.4			—			1.7
Effect of exchange rate changes	(1.3		)	(0.1		)	(0.1		)	(1.5		)
Balance at December 31, 2015	$	10.3		$	3.2		$	0.3		$	13.8

Fair values for Level 3 assets are determined as follows:

Common Trusts and Hedge Funds: The investments are valued using the net asset value provided by the administrator of the trust or fund, which is based on the fair value of the underlying securities.

Real Estate: Investment is stated by its appraised value.

Insurance Contracts: The value of the asset represents the mathematical reserve of the insurance policies and is calculated by the insurance firms using their own assumptions.

Cash Flows

In 2017, the Company expects to make contributions and direct benefit payments of $11.4 million to its defined benefit pension plans and $0.7 million to its postemployment medical plans.

Estimated Future Benefit Payments



(in millions)	Pension Benefits		Other Postemployment Benefits

2017	$	15.4	$	0.7
2018	15.5		0.7
2019	14.8		0.6
2020	17.2		0.6
2021	16.2		0.6
2022-2026	95.9		3.2

The above table reflects the total employer contributions and benefits expected to be paid from the plan and does not include the participants’ share of the cost.