Retirement and Other Benefit Programs

The Company sponsored various pension and other post-employment benefit (“OPEB”) plans in the United States and other countries during 2016. The Company did not report any pension or OPEB obligations as of December 31, 2015.

Reconciliation of Pension and OPEB Plan Obligations and Funded Status

The benefit plan information is for the year ended December 31, 2016.



(In millions)	U.S. pensions			International pensions			OPEB
Benefit obligations
Beginning of period	$	—		$	—		$	—
Assumption of benefit obligations from Baxalta	441.6			503.8			23.5
Service cost	13.0			18.6			0.8
Interest cost	11.1			3.2			0.6
Participant contributions	—			3.2			—
Actuarial (gain) / loss	(10.6		)	(29.8		)	0.1
Benefit payments	(1.6		)	(9.1		)	—
Settlements	—			(3.2		)	—
Curtailments	(73.4		)	—			—
Foreign exchange	—			(18.3		)	—
Other	4.0			113.0			—
End of Period	$	384.1		$	581.4		$	25.0

Fair value of plan assets
Beginning of period	$	—		$	—		$	—
Assumption of plan assets from Baxalta	218.0			140.5			—
Actual return on plan assets	8.3			2.0			—
Employer contributions	0.4			12.3			—
Participant contributions	—			3.2			—
Benefit payments	(1.6		)	(9.1		)	—
Settlements	—			(3.2		)	—
Foreign exchange	—			(3.8		)	—
Other	3.3			56.0			—
End of period	228.4			197.9			—
Funded status at December 31, 2016	$	(155.7	)	$	(383.5	)	$	(25.0	)

Amounts recognized in the Consolidated Balance Sheets
Other current liabilities	$	(0.6	)	$	(8.8	)	$	(0.2	)
Other non-current liabilities	(155.1		)	(374.7		)	(24.8		)
Net liability recognized at December 31, 2016	$	(155.7	)	$	(383.5	)	$	(25.0	)

Curtailments represent the adoption of an amendment to the company’s U.S. pension plans which eliminates the estimate of future compensation levels beyond the December 31, 2017 effective date.

Other primarily represents the recognition of an additional defined benefit plan in Switzerland.

Accumulated Benefit Obligation Information

The pension obligation represents the projected benefit obligation (“PBO”) as of December 31, 2016. The PBO incorporates assumptions relating to future compensation levels. The accumulated benefit obligation (“ABO”) is the same as the PBO except that it does not include assumptions relating to future compensation levels. The ABO for all the U.S. pension plans was $373.2 million as of December 31, 2016. The ABO for the International pension plans was $457.9 million as of December 31, 2016.

The funded status figures and ABO disclosed above reflect all of the Company's pension plans. The following ABO and plan asset information includes only those individual plans that have an ABO in excess of plan assets as of December 31, 2016.



(In millions)	December 31, 2016
U.S.
ABO	$	373.2
Fair value of plan assets	228.4
International
ABO	437.5
Fair value of plan assets	176.2

Expected Net Pension and OPEB Plan Payments for the Next 10 Years



(In millions)	U.S. pensions		International pensions		OPEB
2017	$	3.6	$	21.1	$	0.2
2018	5.7		18.6		0.3
2019	7.6		19.9		0.5
2020	9.7		20.1		0.6
2021	11.7		22.7		0.7
2022 through 2026	85.3		124.1		4.6
Total expected benefit payments for next 10 years	$	123.6	$	226.5	$	6.9

The expected net benefit payments reflect the Company’s share of the total net benefits expected to be paid from the plans’ assets (for funded plans) or from the Company’s assets (for unfunded plans) as of December 31, 2016. The federal subsidies relating to the Medicare Prescription Drug, Improvement and Modernization Act are not expected to be significant.

Amounts Recognized in AOCI

The pension and OPEB plans' gains or losses not yet recognized in net periodic benefit cost are recognized on a net of tax basis in AOCI and will be amortized from AOCI to net periodic benefit cost in the future.

The Company had net pre-tax gains included in AOCI as of December 31, 2016 of $14.0 million related to its U.S. pension plans and net pre-tax losses included in AOCI as of December 31, 2016 of $10.3 million and $0.1 million related to its International plans and OPEB plan, respectively. Refer to Note 19, Accumulated Other Comprehensive Loss, for the net of tax balances included in AOCI as of December 31, 2016. The Company does not expect to amortize a significant amount of AOCI to net periodic benefit cost in 2017.

Following is a summary of the net of tax amounts recorded in OCI relating to the pension and OPEB plans during 2016:



(In millions)	U.S. pensions			International pensions			OPEB
Gain (loss) arising during the year, net of tax expense of $30.9 million for U.S. plans and $3.8 million for international plans	$	52.5		$	(14.2	)	$	—
Reclassification of gain to income statement, net of tax benefit of $25.9 million for U.S. plans	(43.5		)	—			—
Pension and other employee benefits gain (loss), net of tax	$	9.0		$	(14.2	)	$	—

Gain (loss) arising during the year includes a loss of $34.6 million, net of tax, related to the recognition of a defined benefit plan in Switzerland.

The reclassification of gain to income statement represents the recognition of the curtailment gain associated with the U.S. pension plans as further described above.

Net Periodic Benefit Cost

The net periodic benefit cost is from June 3, 2016, the date the Company assumed the obligations from Baxalta, through December 31, 2016:



	June 3, 2016 through December 31, 2016
(In millions)	U.S. pensions			International pensions			OPEB
Net periodic benefit cost
Service cost	$	13.0		$	18.6		$	0.8
Interest cost	11.1			3.2			0.6
Expected return on plan assets	(8.9		)	(3.9		)	—
Curtailment and other	(69.4		)	20.0			—
Net periodic benefit cost	$	(54.2	)	$	37.9		$	1.4

Curtailment and other relates to the recognition of a curtailment gain of $69.4 million associated with the U.S. pension plans as described above and a loss of $20.0 million for the recognition of a defined benefit plan in Switzerland.

Weighted-Average Assumptions Used in Determining Benefit Obligations at the Measurement Date

The following weighted-average assumptions were used in calculating the December 31, 2016 measurement date benefit obligations.



	U.S. pensions		International pensions		OPEB
Discount rate	4.2	%	1.0	%	4.3	%
Rate of compensation increase	3.8	%	2.9	%	n/a
Annual rate of increase in the per-capita cost	n/a		n/a		6.3	%
Rate decreased to	n/a		n/a		5.0	%
by the year ended	n/a		n/a		2022

Weighted-Average Assumptions Used in Determining Net Periodic Benefit Cost

The following weighted-average assumptions were used in determining net periodic benefit cost for 2016.



	U.S. pensions		International pensions		OPEB
Discount rate	4.1	%	1.0	%	4.2	%
Expected return on plan assets	7.0	%	4.5	%	n/a
Rate of compensation increase	3.8	%	3.2	%	n/a
Annual rate of increase in the per-capita cost	n/a		n/a		6.5	%
Rate decreased to	n/a		n/a		5.0	%
by the year ended	n/a		n/a		2022

The Company establishes the expected return on plan assets assumption based primarily on a review of historical compound average asset returns, both Company-specific and the broad market (and considering the Company’s asset allocations), an analysis of current market and economic information and future expectations.

The effect of a one-percent change in the assumed healthcare cost trend rate would not have a significant impact on the OPEB plan benefit obligation as of December 31, 2016 or the plan’s service and interest cost during 2016.

Pension Plan Assets

A committee of members of senior management is responsible for supervising, monitoring and evaluating the invested assets of the Company’s funded pension plans. The committee abides by policies and procedures relating to investment goals, targeted asset allocations, risk management practices, allowable and prohibited investment holdings, diversification, use of derivatives, the relationship between plan assets and benefit obligations, and other relevant factors and considerations. In the United States, Goldman Sachs Asset Management acts as an outsourced chief investment officer (“oCIO”) to perform the day-to-day management of pension assets.

The policies and procedures include the following:


•	Ability to pay all benefits when due;


•	Targeted long-term performance expectations relative to applicable market indices, such as Standard & Poor’s, Russell, MSCI EAFE, and other indices;


•	Targeted asset allocation percentage ranges (summarized below), and periodic reviews of these allocations;


•	Specified investment holding and transaction prohibitions (for example, private placements or other restricted securities, securities that are not traded in a sufficiently active market, short sales, certain derivatives, commodities and margin transactions);


•	Specified portfolio percentage limits on holdings in a single corporate or other entity (generally 5%, except for holdings in U.S. government or agency securities);


•	Specified average credit quality for the fixed-income securities portfolio (at least A- by Standard & Poor’s or A3 by Moody’s);


•	Specified portfolio percentage limits on foreign holdings; and


•	Periodic monitoring of oCIO performance and adherence to policies.

Plan assets are invested using a total return investment approach whereby a mix of equity securities, debt securities and other investments are used to preserve asset values, diversify risk and exceed the planned benchmark investment return. Investment strategies and asset allocations are based on consideration of plan liabilities, the plans’ funded status and other factors, such as the plans’ demographics and liability durations. Investment performance is reviewed on a quarterly basis and asset allocations are reviewed at least annually.

Plan assets are managed in a balanced equity and fixed income portfolio. The target allocations for plan assets are 75% in an equity portfolio and 25% in a fixed income portfolio. The policy includes an allocation range based on each individual investment type within the major portfolios that allows for a variance from the target allocations of approximately 5%. The equity portfolio may include common stock of U.S. and international companies, common/collective trust funds, mutual funds, hedge funds and real asset investments. The fixed income portfolio may include cash, money market funds with an original maturity of three months or less, U.S. and foreign government and governmental agency issues, common/collective trust funds, corporate bonds, municipal securities, derivative contracts and asset-backed securities.

While the committee provides oversight over plan assets for U.S. and international plans, the summary above is specific to the plans in the U.S. The plan assets for international plans are managed and allocated by the entities in each country, with input and oversight provided by the committee.

The following pension assets are recorded at fair value on a recurring basis using quoted prices in active markets for identical assets (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3). Investments that are measured at fair value using the net asset value per share or its equivalent as a practical expedient are not classified in the fair value hierarchy.



U.S. pension plan assets
(In millions)	Balance as of December 31, 2016		Level 1		Level 2		Level 3
Assets
Fixed income
Cash equivalents	$	5.7	$	—	$	—	$	—
Collective trust funds	46.4		—		—		—
Mutual fund	11.4		—		—		—
Equity
Collective trust funds	100.4		—		—		—
Mutual fund	53.4		16.5		—		—
Hedge funds	11.1		—		—		—
Fair value of pension plan assets	$	228.4	$	16.5	$	—	$	—



International pension plan assets
(In millions)	Balance as of December 31, 2016		Level 1		Level 2		Level 3
Assets
Fixed income
Cash and cash equivalents	$	6.2	$	6.2	$	—	$	—
Government agency issues	0.6		0.6		—		—
Corporate bonds	21.1		21.1		—		—
Mutual funds	24.4		24.4		—		—
Equity
Common stock:
Large cap	19.9		19.9		—		—
Mid cap	1.6		1.6		—		—
Total common stock	21.5		21.5		—		—
Mutual funds	40.6		40.6		—		—
Real estate funds	12.1		8.4		—		—
Other holdings	71.4		—		71.4		—
Fair value of pension plan assets	$	197.9	$	122.8	$	71.4	$	—

The assets and liabilities of the Company’s pension plans are valued using the following valuation methods:



Investment category		Valuation methodology
Cash and cash equivalents		These largely consist of a short-term investment fund, U.S. dollars and foreign currency. The fair value of the short-term investment fund is based on the net asset value
Government agency issues		Values are based on quoted prices in an active market
Corporate bonds		Values are based on the valuation date in an active market
Common stock		Values are based on the closing prices on the valuation date in an active market
Mutual funds		Values are based on the net asset value of the units held in the respective fund which are obtained from active markets or as reported by the fund managers
Collective trust funds and hedge funds		Values are based on the net asset value of the units held at year end
Real estate funds		The value of these assets are either determined by the net asset value of the units held in the respective fund which are obtained from active markets or based on the net asset value of the underlying assets of the fund provided by the fund manager
Other holdings		These primarily consist of insurance contracts whose value is based on the underlying assets and other holdings valued primarily based on reputable pricing vendors that typically use pricing matrices or models

Expected Pension and OPEB Plan Funding

The Company’s funding policy for its pension plans is to contribute amounts sufficient to meet legal funding requirements, plus any additional amounts that the Company may determine to be appropriate considering the funded status of the plans, tax deductibility, the cash flows generated by the Company, and other factors. Volatility in the global financial markets could have an unfavorable impact on future funding requirements. The Company has no obligation to fund its principal plans in the U.S. in 2017. The Company did not make any significant voluntary contributions to its U.S. Qualified plan from the June 3, 2016 acquisition date through December 31, 2016. During 2017, the Company expects to make cash contributions to its pension plans of at least $11.0 million, primarily related to its international plans, and expects to have net cash outflows relating to its OPEB plan of less than $1.0 million. The Company continually reassesses the amount and timing of any discretionary contributions, which could be significant in any period.

The table below details the funded status percentage of the Company’s pension plans as of December 31, 2016 including certain plans that are unfunded in accordance with the guidelines of the Company’s funding policy outlined above.



	United States				International
(in millions, except %)	Qualified plan			Nonqualified plan	Funded plans			Unfunded plans	Total
Fair value of plan assets	$	228.4		n/a	$	197.9		n/a	$	426.3
PBO	352.8			31.3	413.7			167.7	965.5
Funded status percentage	65		%	n/a	48		%	n/a	44		%

U.S. Defined Contribution Plans

In addition to benefits provided under the pension and OPEB plans described above, the Company provides benefits under defined contribution plans. The Company's most significant defined contribution plans are in the United States. The Company recognized expenses related to U.S. defined contribution plans of $68.1 million, $38.9 million and $34.3 million during 2016, 2015 and 2014, respectively.