Retirement Plans and Profit Sharing Arrangements

Defined Benefit Plans

Pension Plans and Other Postretirement Benefits

The Company’s U.S. non-advisor employees are generally eligible for the Ameriprise Financial Retirement Plan (the “Retirement Plan”), a noncontributory defined benefit plan which is a qualified plan under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Funding of costs for the Retirement Plan complies with the applicable minimum funding requirements specified by ERISA and is held in a trust. The Retirement Plan is a cash balance plan by which the employees’ accrued benefits are based on notional account balances, which are maintained for each individual. Each pay period these balances are credited with an amount equal to a percentage of eligible compensation as defined by the Retirement Plan (which includes, but is not limited to, base pay, performance based incentive pay, commissions, shift differential and overtime). Prior to March 1, 2010, the percentage ranged from 2.5% to 10% based on employees’ age plus years of service. Effective March 1, 2010, the percentage ranges from 2.5% to 5% based on employees’ years of service. Employees eligible for the plan at the time of the change will continue to receive the same percentage they were receiving until the new schedule becomes more favorable. Employees’ balances are also credited with a fixed rate of interest that is updated each January 1 and is based on the average of the daily five-year U.S. Treasury Note yields for the previous October 1 through November 30, with a minimum crediting rate of 5%. Employees are fully vested after three years of service or upon retirement at or after age 65, disability or death while employed. Employees have the option to receive annuity payments or a lump sum payout of vested balance at termination or retirement. The Retirement Plan’s year-end is September 30.

In addition, the Company sponsors the Ameriprise Financial Supplemental Retirement Plan (the “SRP”), an unfunded non-qualified deferred compensation plan subject to Section 409A of the Internal Revenue Code. This plan is for certain highly compensated employees to replace the benefit that cannot be provided by the Retirement Plan due to IRS limits. The SRP generally parallels the Retirement Plan but offers different payment options.

The Company also sponsors unfunded defined benefit postretirement plans that provide health care and life insurance to retired U.S. employees. On December 31, 2016, the access to retiree health care coverage was closed to all active employees who had previously met the qualification requirements. Instead, only existing retirees, as of January 1, 2017, qualifying for the plan and electing coverage will be provided a fixed amount to subsidize health care insurance purchased through other providers. Net periodic postretirement benefit costs were not material for the years ended December 31, 2016, 2015 and 2014.

Most employees outside the U.S. are covered by local retirement plans, some of which are funded, while other employees receive payments at the time of retirement or termination under applicable labor laws or agreements.

The components of the net periodic benefit cost for pension plans were as follows:



	Years Ended December 31,
	2016			2015			2014
	(in millions)
Service cost	$	44		$	46		$	43
Interest cost	29			27			28
Expected return on plan assets	(41		)	(40		)	(38		)
Amortization of prior service costs	(1		)	(1		)	(1		)
Amortization of net loss	6			9			7
Other	4			4			3
Net periodic benefit cost	$	41		$	45		$	42

The prior service costs are amortized on a straight-line basis over the average remaining service period of active participants. Actuarial gains and losses in excess of 10% of the greater of the projected benefit obligation or the market-related value of assets are amortized on a straight-line basis over the expected average remaining service period of active participants.

The following table provides a reconciliation of changes in the benefit obligation:



	Pension Plans						Other Postretirement Plans
	2016			2015			2016			2015
	(in millions)
Benefit obligation, January 1	$	812		$	776		$	18		$	18
Service cost	44			46			—			—
Interest cost	29			27			1			1
Benefits paid	(8		)	(6		)	(4		)	(3		)
Actuarial (gain) loss	65			(3		)	—			—
Plan change	—			—			(2		)	—
Participant contributions	—			—			2			2
Settlements	(18		)	(20		)	—			—
Foreign currency rate changes	(25		)	(8		)	—			—
Benefit obligation, December 31	$	899		$	812		$	15		$	18

The following table provides a reconciliation of changes in the fair value of assets:



	Pension Plans
	2016			2015
	(in millions)
Fair value of plan assets, January 1	$	608		$	612
Actual return on plan assets	62			(9		)
Employer contributions	13			40
Benefits paid	(8		)	(6		)
Settlements	(18		)	(20		)
Foreign currency rate changes	(29		)	(9		)
Fair value of plan assets, December 31	$	628		$	608

The Company complies with the minimum funding requirements in all countries. The following table provides the amounts recognized in the Consolidated Balance Sheets at December 31, which equal the funded status of the plans:



	Pension Plans						Other Postretirement Plans
	2016			2015			2016			2015
	(in millions)
Benefit liability	$	(271	)	$	(223	)	$	(15	)	$	(18	)
Benefit asset	—			19			—			—
Net amount recognized	$	(271	)	$	(204	)	$	(15	)	$	(18	)

The accumulated benefit obligation for all pension plans as of December 31, 2016 and 2015 was $822 million and $740 million, respectively. The following table provides information for pension plans with benefit obligations in excess of plan assets:



	December 31,
	2016		2015
	(in millions)
Pension plans with accumulated benefit obligations in excess of plan assets
Accumulated benefit obligation	$	684	$	620
Fair value of plan assets	469		446
Pension plans with projected benefit obligations in excess of plan assets
Projected benefit obligation	$	899	$	668
Fair value of plan assets	628		446

The weighted average assumptions used to determine benefit obligations were as follows:



	Pension Plans				Other Postretirement Plans
	2016		2015		2016		2015
Discount rates	3.66	%	3.66	%	3.77	%	3.90	%
Rates of increase in compensation levels	4.39		4.36		N/A		N/A
Healthcare cost increase rates:
Next year trend rate	N/A		N/A		N/A		5.75
Ultimate trend rate	N/A		N/A		N/A		5.00
Years to ultimate trend rate	N/A		N/A		N/A		3

The weighted average assumptions used to determine net periodic benefit cost of pension plans were as follows:



	2016		2015		2014
Discount rates	3.67	%	3.43	%	4.06	%
Rates of increase in compensation levels	4.43		4.41		4.38
Expected long-term rates of return on assets	6.98		7.10		7.58

In developing the expected long-term rate of return on assets, management evaluated input from an external consulting firm, including their projection of asset class return expectations and long-term inflation assumptions. The Company also considered historical returns on the plans’ assets. Discount rates are based on yields available on high-quality corporate bonds that would generate cash flows necessary to pay the benefits when due. The Company modified the discount rate methodology to utilize a spot rate approach, which did not impact the 2016 net periodic benefit cost. The healthcare cost increase rates are no longer applicable as the Company provides a fixed amount to subsidize healthcare costs.

The Company’s pension plans’ assets are invested in an aggregate diversified portfolio to minimize the impact of any adverse or unexpected results from a security class on the entire portfolio. Diversification is interpreted to include diversification by asset type, performance and risk characteristics and number of investments. When appropriate and consistent with the objectives of the plans, derivative instruments may be used to mitigate risk or provide further diversification, subject to the investment policies of the plans. Asset classes and ranges considered appropriate for investment of the plans’ assets are determined by each plan’s investment committee. The target allocations are 70% equity securities, 20% debt securities and 10% all other types of investments, except for the assets in pooled pension funds which are 83% equity securities and 17% debt securities and additional voluntary contribution (“AVC”) assets outside the U.S. which are allocated at the discretion of the individual and will be converted at retirement into the defined benefit pension plan. Actual allocations will generally be within 5% of these targets. At December 31, 2016, there were no significant holdings of any single issuer and the exposure to derivative instruments was not significant.

The following tables present the Company’s pension plan assets measured at fair value on a recurring basis:



Asset Category	December 31, 2016
	Level 1		Level 2		Level 3		Total
	(in millions)
Equity securities:
U.S. large cap stocks	$	73	$	76	$	—	$	149
U.S. small cap stocks	69		4		—		73
Non-U.S. large cap stocks	22		34		—		56
Non-U.S. small cap stocks	21		—		—		21
Emerging markets	14		23		—		37
Debt securities:
U.S. investment grade bonds	26		10		—		36
U.S. high yield bonds	—		24		—		24
Non-U.S. investment grade bonds	—		14		—		14
Real estate investment trusts at NAV	—		—		—		17		⁽¹⁾
Hedge funds at NAV	—		—		—		26		⁽¹⁾
Pooled pension funds	—		142		—		142
AVC assets (pooled pension funds)	—		17		—		17
Cash equivalents	16		—		—		16
Total	$	241	$	344	$	—	$	628



Asset Category	December 31, 2015
	Level 1		Level 2		Level 3		Total
	(in millions)
Equity securities:
U.S. large cap stocks	$	74	$	83	$	—	$	157
U.S. small cap stocks	55		3		—		58
Non-U.S. large cap stocks	21		34		—		55
Non-U.S. small cap stocks	21		—		—		21
Emerging markets	14		21		—		35
Debt securities:
U.S. investment grade bonds	19		14		—		33
U.S. high yield bonds	—		26		—		26
Non-U.S. investment grade bonds	—		14		—		14
Real estate investment trusts at NAV	—		—		—		16		⁽¹⁾
Hedge funds at NAV	—		—		—		21		⁽¹⁾
Pooled pension funds	—		143		—		143
AVC assets (pooled pension funds)	—		19		—		19
Cash equivalents	10		—		—		10
Total	$	214	$	357	$	—	$	608

⁽¹⁾Amounts are comprised of certain investments that are measured at fair value using the NAV per share (or its equivalent) as a practical expedient and have not been classified in the fair value hierarchy. See Note 2 for further information.

Equity securities are managed to track the performance of common market indices for both U.S. and non-U.S. securities, primarily across large cap, small cap and emerging market asset classes. Debt securities are managed to track the performance of common market indices for both U.S. and non-U.S. investment grade bonds as well as a pool of U.S. high yield bonds. Real estate funds are managed to track the performance of a broad population of investment grade non-agricultural income producing properties. The Company’s investments in hedge funds include investments in a multi-strategy fund and an off-shore fund managed to track the performance of broad fund of fund indices. Pooled pension funds are managed to track a specific benchmark based on the investment objectives of the fund. Cash equivalents consist of holdings in a money market fund that seeks to equal the return of the three month U.S. Treasury bill.

The fair value of real estate funds and hedge funds is measured at NAV as a practical expedient and is based upon the total net assets held by the respective fund. These funds have not been classified within the fair value hierarchy. The fair value of pooled pension funds and equity securities held in collective trust funds is based on the fund’s NAV and classified as Level 2 as they trade in principal-to-principal markets. Equity securities and mutual funds traded in active markets are classified as Level 1. For debt securities and cash equivalents, the valuation techniques and classifications are consistent with those used for the Company’s own investments as described in Note 14.

The amounts recognized in AOCI, net of tax, as of December 31, 2016 but not recognized as components of net periodic benefit cost included an unrecognized actuarial loss of $127 million, an unrecognized prior service credit of $1 million, and a currency exchange rate adjustment loss of $3 million related to the Company’s pension plans. The Company’s other postretirement plans included an unrecognized actuarial gain of $3 million and an unrecognized prior service credit of $1 million. The estimated amounts that will be amortized from AOCI, net of tax, into net periodic benefit cost in 2017 include a prior service credit of $1 million and an actuarial loss of $7 million related to Company’s pension plans and an actuarial gain of $1 million related to Company’s other postretirement plans. See Note 18 for a rollforward of AOCI related to the Company’s defined benefit plans.

The Company’s pension plans expect to make benefit payments to retirees as follows:



	Pension Plans		Other Postretirement Plans
2017	$	71	$	1
2018	54		1
2019	51		1
2020	64		1
2021	64		1
2022-2026	351		5

The Company expects to contribute $31 million and $1 million to its pension plans and other postretirement plans, respectively, in 2017.

Defined Contribution Plans

The Company’s employees are generally eligible to participate in the Ameriprise Financial 401(k) Plan (the “401(k) Plan”). The 401(k) Plan allows eligible employees to make contributions through payroll deductions up to IRS limits and invest their contributions in one or more of the 401(k) Plan investment options, which include the Ameriprise Financial Stock Fund. The Company provides a dollar for dollar match up to the first 5% of eligible compensation an employee contributes on a pretax and/or Roth 401(k) basis for each annual period.

Under the 401(k) Plan, employees become eligible for contributions under the plan during the pay period they reach 60 days of service. Match contributions are fully vested after five years of service, vesting ratably over the first five years of service, or upon retirement at or after age 65, disability or death while employed. The Company’s defined contribution plan expense was $48 million, $47 million and $37 million in 2016, 2015 and 2014, respectively.

Employees outside the U.S. who are not covered by the 401(k) may be covered by local defined contribution plans which are subject to applicable laws and rules of the country where the plan is administered. The Company’s expense related to defined contribution plans outside the U.S. was $6 million in 2016, 2015 and 2014.

Threadneedle Profit Sharing Plan

On an annual basis, Threadneedle employees are eligible for a profit sharing arrangement. The profit sharing percentage is variable and linked to certain performance criteria. Compensation expense related to the employee profit sharing plan was $49 million, $60 million and $66 million in 2016, 2015 and 2014, respectively.