Retirement and Post Retirement Health Care Plans

Retirement Plans

The Company's domestic employees are participants in defined benefit pension plans and/or defined contribution plans. The majority of the Company's defined benefit pension plans covering the Company's domestic employees have been closed to new employees and frozen for existing employees. Most foreign employees are covered by government sponsored plans in the countries in which they are employed. The defined contribution plans provide for Company contributions based, depending on the plan, upon one or more of participant contributions, service and profits. Company contributions to domestic defined contribution plans totaled $8.7 million, $9.9 million, and $8.8 million in 2016, 2015 and 2014, respectively. Company contributions to non-US defined contribution plans were $10.4 million, $9.2 million and $12.6 million in 2016, 2015, and 2014, respectively.

Beginning in 2016, the Company changed the method used to estimate the service and interest cost components of the net periodic pension and other post retirement benefit costs. The new method uses the spot yield curve approach to estimate the service and interest costs by applying the specific spot rates along the yield curve used to determine the benefit obligations to relevant projected cash outflows. The change will not affect the measurement of the total benefit obligations as the change in service and interest costs is offset in the actuarial gains and losses recorded in other comprehensive income. The methodology of selecting a discount rate that matches each plan's cash flows to that of a theoretical bond portfolio yield curve will continue to be used to value the benefit obligation at the end of each year. The Company changed to the new method to provide a more precise measure of interest and service costs by improving the correlation between the projected benefit cash flows and the discrete spot yield curve rates. The Company has accounted for this change as a change in estimate prospectively and it resulted in a $2.9 million reduction in expense for fiscal 2016 as compared to the previous method.

Benefits provided under defined benefit pension plans are based, depending on the plan, on employees' average earnings and years of credited service, or a benefit multiplier times years of service. Funding of these qualified defined benefit pension plans is in accordance with federal laws and regulations. The actuarial valuation measurement date for pension plans is as of December 31, 2016.

The Company's target allocation, target return and actual weighted-average asset allocation by asset category are as follows:



	Target				Actual Allocation
	Allocation		Return		2016		2015
Equity Investments	76	%	6.3 - 7.5 %		70	%	70	%
Fixed Income	19	%	3.6 - 4.5%		25	%	26	%
Other	5	%	5.4	%	5	%	4	%
Total	100	%	7.0	%	100	%	100	%

The Company's investment strategy for its defined benefit pension plans is to achieve moderately aggressive growth, earning a long-term rate of return sufficient to allow the plans to reach fully funded status. Accordingly, allocation targets have been established to fit this strategy, with a heavier long-term weighting of investments in equity securities. The long-term rate of return assumptions consider historic returns and volatilities adjusted for changes in overall economic conditions that may affect future returns and a weighting of each investment class.

The following table presents a reconciliation of the funded status of the defined benefit pension plans (in millions):



	2016			2015
Change in Projected Benefit Obligation:
Obligation at Beginning of Period	$	255.1		$	194.3
Service Cost	8.1			10.0
Interest Cost	9.8			10.7
Actuarial (Gain) Loss	3.6			(18.2		)
Less: Benefits Paid ⁽¹⁾	18.9			11.7
Foreign Currency Translation	(0.8		)	(0.8		)
Acquisitions	—			70.8
Obligation at End of Period:	$	256.9		$	255.1
Change in Fair Value of Plan Assets:
Fair Value of Plan Assets at Beginning of Period	162.1			126.6
Actual Return on Plan Assets	7.9			(1.0		)
Employer Contributions	9.2			4.7
Less: Benefits Paid	18.9			11.7
Foreign Currency Translation	—			(0.4		)
Acquisitions	—			43.9
Fair Value of Plan Assets at End of Period	$	160.3		$	162.1
Funded Status	$	(96.6	)	$	(93.0	)

⁽¹⁾2016 benefit payments included $6.6 million of non-recurring lump sum benefit payments.

Pension Assets

The Company classifies the pension plan investments into Level 1, which refers to securities valued using quoted prices from active markets for identical assets, Level 2, which refers to securities not traded on an active market but for which observable market inputs are readily available, and Level 3, which refers to securities valued based on significant unobservable inputs. Common stocks and mutual funds are valued at the unadjusted quoted market prices for the securities. Real estate fund values are determined using model-based techniques that include relative value analysis and discounted cash flow techniques. Certain common collective trust funds and limited partnership interests are valued based on the net asset value ("NAV") as provided by the administrator of the fund as a practical expedient to estimate fair value. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. Investments in units of short-term investment funds, comprised of cash and money market funds, are valued at their respective NAVs as reported by the funds daily.

Pension assets by type and level are as follows (in millions):



	December 31, 2016
	Total		Level 1		Level 2		Level 3
Cash and Cash Equivalents	$	3.5	$	3.5	$	—	$	—
Common Stocks:
Domestic Equities	22.9		22.9		—		—
International Equities	12.6		12.6		—		—
Mutual Funds:
US Equity Funds	18.8		18.8		—		—
International Equity Funds	16.2		16.2		—		—
Balanced Funds	8.4		8.4		—		—
Fixed Income Funds	15.1		15.1		—		—
Other	1.3		1.3		—		—
Real Estate Fund	10.0		—		—		10.0
	$	108.8	$	98.8	$	—	$	10.0
Investments Measured at Net Asset Value	51.5
Total	$	160.3



	January 2, 2016
	Total		Level 1		Level 2		Level 3
Cash and Cash Equivalents	$	4.5	$	4.5	$	—	$	—
Common Stocks:
Domestic Equities	24.9		24.9		—		—
International Equities	9.6		9.6		—		—
Mutual Funds:
US Equity Funds	22.3		22.3		—		—
Balanced funds	9.7		9.7		—
International Equity Funds	16.8		16.8		—		—
Fixed Income Funds	15.0		15.0
Other	1.0		1.0		—		—
Real Estate Fund	8.1		—		—		8.1
	$	111.9	$	103.8	$	—	$	8.1
Investments Measured at Net Asset Value	50.2
Total	$	162.1

The common collective trust funds are investments in the Northern Trust Collective S&P 500 Index Fund and the Northern Trust Collective Aggregate Bond Index Fund. The Northern Trust Collective S&P 500 Index Fund seeks to provide investment results that approximate the overall performance of the common stocks in that index. The Northern Trust Collective Aggregate Bond Index Fund seeks to provide investment results that approximate the overall performance of the Barclays Capital US Aggregate Index by investing primarily, but not exclusively, in securities that comprise that index. The common collective trust funds are available for immediate redemption. The global emerging markets fund limited partnership interest is an investment in the Vontobel Global Emerging Markets Fund, which seeks to provide capital appreciation by investing in a diversified portfolio consisting primarily of equity based securities. The global emerging markets fund limited partnership interest can be redeemed on a monthly basis with immediate payment.

The following table sets forth additional disclosures for the fair value measurement of the fair value of pension plan assets that calculate fair value based on NAV per share practical expedient as of December 31, 2016 (in millions):



	2016		2015
Common Collective Trust Funds	$	45.1	$	43.8
Global Emerging Markets Fund Limited Partnership	6.4		6.4
Total	$	51.5	$	50.2

The Level 3 assets noted below represent investments in real estate funds managed by a major US insurance company and a global emerging markets fund limited partnership. Estimated values provided by fund management approximate the cost of the investments. In determining the reasonableness of the methodology used to value the Level 3 investments, the Company evaluates a variety of factors including reviews of economic conditions, industry and market developments, and overall credit ratings. The real estate fund can be redeemed on a quarterly basis and paid within two weeks of the request for redemption.

The table below sets forth a summary of changes in the Company's Level 3 assets in its pension plan investments as of December 31, 2016 and January 2, 2016 (in millions):



	December 31, 2016		January 2, 2016
Beginning Balance	$	8.1	$	6.2
Acquisition	—		1.0
Net Purchases	1.7		0.2
Net Gains	0.2		0.7
Ending Balance	$	10.0	$	8.1

The following table sets forth a summary of quantitative information about the significant unobservable inputs used in the fair value measurement of the Level 3 real estate fund as of December 31, 2016 (in millions):



Fair Value		Significant Unobservable Inputs
$	10.0	Exit Capitalization Rate	4.9% to 7.0%
		Discount Rate	6.6% to 8.0%



Fair Value		Significant Unobservable Inputs
$	8.1	Exit Capitalization Rate	4.9% to 7.0%
		Discount Rate	6.6% to 8.3%

Funded Status and Expense

The Company recognized the funded status of its defined benefit pension plans on the Balance Sheet as follows (in millions):



	2016		2015
Accrued Compensation and Employee Benefits	$	2.8	$	2.7
Pension and Other Post Retirement Benefits	93.8		90.3
	$	96.6	$	93.0

Amounts Recognized in Accumulated Other Comprehensive Loss
Net Actuarial Loss	$	54.5	$	51.1
Prior Service Cost	1.2		1.2
	$	55.7	$	52.3

The accumulated benefit obligation for all defined benefit pension plans was $232.9 million and $226.9 million at December 31, 2016 and January 2, 2016, respectively.

The accumulated plan benefit obligation exceeded plan assets for all pension plans as of December 31, 2016 and January 2, 2016.

The following weighted average assumptions were used to determine the projected benefit obligation at December 31, 2016 and January 2, 2016, respectively:



	2016	2015
Discount Rate	4.3%	4.6%

The objective of the discount rate assumption is to reflect the rate at which the pension benefits could be effectively settled. In making the determination, the Company takes into account the timing and amount of benefits that would be available under the plans. The methodology for selecting the discount rate was to match the plan's cash flows to that of a theoretical bond portfolio yield curve.

Certain of the Company's defined benefit pension plan obligations are based on years of service rather than on projected compensation percentage increases. For those plans that use compensation increases in the calculation of benefit obligations and net periodic pension cost, the Company used an assumed rate of compensation increase of 3.0% for the years ended December 31, 2016 and January 2, 2016.

Net periodic pension benefit costs and the net actuarial loss and prior service cost recognized in other comprehensive income (“OCI”) for the defined benefit pension plans were as follows (in millions):



	2016			2015			2014
Service Cost	$	8.1		$	10.0		$	2.5
Interest Cost	9.8			10.7			8.3
Expected Return on Plan Assets	(11.9		)	(11.5		)	(9.2		)
Amortization of Net Actuarial Loss	3.1			4.3			2.3
Amortization of Prior Service Cost	0.2			0.2			0.2
Net Periodic Benefit Cost	$	9.3		$	13.7		$	4.1

Change in Obligations Recognized in OCI, Net of Tax
Prior Service Cost	$	0.1		$	0.1		$	0.1
Net Actuarial Loss	2.0			2.8			1.3
Total Recognized in OCI	$	2.1		$	2.9		$	1.4

The estimated prior service cost and net actuarial loss for the defined benefit pension plans that will be amortized from AOCI into net periodic benefit cost during the 2017 fiscal year are $0.2 million, and $2.2 million respectively.

As permitted under relevant accounting guidance, the amortization of any prior service cost is determined using a straight-line amortization of the cost over the average remaining service period of employees expected to receive benefits under the plans.

The following weighted average assumptions were used to determine net periodic pension cost for fiscal years 2016, 2015 and 2014, respectively.



	2016	2015	2014
Discount Rate	4.6%	4.2%	5.0%
Expected Long-Term Rate of Return on Assets	7.2%	7.5%	8.0%

The Company made contributions to its defined benefit plan of $9.2 million and $4.7 million for the fiscal years ended December 31, 2016 and January 2, 2016, respectively.

The Company estimates that in 2017 it will make contributions in the amount of $3.3 million to fund its defined benefit pension plans.

The following pension benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in millions):



Year	Expected Payments
2017	$	13.6
2018	13.2
2019	14.0
2020	14.6
2021	15.7
2022- 2025	83.5

Post Retirement Health Care Plan

In connection with the PTS acquisition, the Company established an unfunded post retirement health care plan for certain domestic retirees and their dependents.

The following table presents a reconciliation of the benefit obligation of the post retirement health care plan (in millions):



Change in accumulated post retirement benefit obligation	2016			2015
Obligation at Beginning of Period	$	16.8		$	—
Service Cost	0.1			0.1
Interest Cost	0.5			0.5
Actuarial (Gain) Loss	(2.4		)	2.9
Participant Contributions	0.2			0.6
Less: Benefits Paid	1.4			3.1
Acquisitions	—			15.8
Obligation at End of Period	$	13.8		$	16.8

The Company recognized the funded status of its post retirement health care plan on the balance sheet as follows (in millions):



	2016		2015
Accrued Compensation and Employee Benefits	$	1.1	$	1.2
Pension and Other Post Retirement Benefits	12.7		15.6
	$	13.8	$	16.8
Amounts Recognized in Accumulated Other Comprehensive Loss
Net Actuarial Loss	$	0.4	$	2.9

Net periodic benefit costs for the post retirement health care plan were as follows (in millions):



	2016		2015
Service Cost	$	0.1	$	0.1
Interest Cost	0.5		0.5
Amortization of Net Actuarial Loss	0.2		—
Net Periodic Benefit Cost	$	0.8	$	0.6

The amortization of prior service cost recognized in OCI, net of tax, for fiscal 2016 was $0.1 million. There will be no amortization of net actuarial loss for the post retirement health care plan from Other Comprehensive Income into net periodic benefit cost during the 2017 fiscal year.

The discount rate used to measure the benefit as of December 31, 2016 was 3.9%. The health care cost trend rate for 2017 is 7.0% for pre-65 participants and 5.4% for post-65 participants, decreasing to 4.5% in 2025. A one percentage point change in the health care cost trend rate assumption would have a $0.4 million impact on the benefit obligation and an immaterial impact on post retirement benefits expense.

In 2016, the Company contributed $1.2 million to the post retirement health care plan. The Company estimates that, in 2017, it will make contributions of $1.1 million to the post retirement health care plan.

The following post retirement benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in millions):



Year	Expected Payments
2017	$	1.1
2018	1.2
2019	1.3
2020	1.3
2021	1.3
2022 - 2026	5.5