The Company recognizes the funded status of its defined benefit plans in its Consolidated Balance Sheets. The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation of the Company’s defined benefit plans. The Company is required to aggregate separately all overfunded plans from all underfunded plans. Prior to its sale of Chaucer on December 28, 2018, the Company’s pension obligation included defined benefit pension retirement benefits for Chaucer’s employees.

Prior to 2005, THG provided retirement benefits to substantially all of its employees under defined benefit pension plans. These plans were based on a defined benefit cash balance formula, whereby the Company annually provided an allocation to each covered employee based on a percentage of that employee’s eligible salary, similar to a defined contribution plan arrangement. In addition to the cash balance allocation, certain transition group employees who had met specified age and service requirements as of December 31, 1994 were eligible for a grandfathered benefit based primarily on the employees’ years of service and compensation during their highest five consecutive plan years of employment. The Company’s policy for the plans is to fund at least the minimum amount required by the Employee Retirement Income Security Act of 1974 (“ERISA”).

As of January 1, 2005, the defined benefit pension plans were frozen and since that date, no further cash balance allocations have been credited to participants. Participants’ accounts are credited with interest daily, based upon the General Agreement of Trades and Tariffs rate (the 30-year Treasury Bond interest rate). In addition, the grandfathered benefits for the transition group were also frozen at January 1, 2005 levels with an annual transition pension adjustment calculated at an interest rate equal to 5% per year up to 35 years of completed service, and 3% thereafter. As of December 31, 2018, based on current estimates of plan liabilities and other assumptions, the projected benefit obligation of the qualified defined benefit pension plan exceeds plan assets by approximately $18.8 million.

In order to measure the expense associated with these plans, management must make various estimates and assumptions, including discount rates used to value liabilities, assumed rates of return on plan assets, employee turnover rates and anticipated mortality rates, for example. The estimates used by management are based on the Company’s historical experience, as well as current facts and circumstances. In addition, the Company uses outside actuaries to assist in measuring the expense and liability associated with these plans.

The Company measures the funded status of its plans as of the date of its year-end statement of financial position. The Company utilizes a measurement date of December 31^st to determine its benefit obligations, consistent with the date of its Consolidated Balance Sheets.

Weighted average assumptions used to determine pension benefit obligations are as follows:

DECEMBER 31	2018			2017			2016
U.S.
Discount rate - qualified plan		4.50	%		3.88	%		4.25	%
Discount rate - non-qualified plan		4.50	%		3.88	%		4.25	%
Cash balance interest crediting rate		3.50	%		3.50	%		3.50	%

The Company utilizes a measurement date of January 1^st to determine its periodic pension costs. Weighted average assumptions used to determine net periodic pension costs for the defined benefit plans are as follows:

YEARS ENDED DECEMBER 31	2018			2017			2016
U.S.Qualified plan
Discount rate		3.88	%		4.25	%		4.88	%
Expected return on plan assets		4.75	%		5.00	%		5.25	%
Cash balance interest crediting rate		3.50	%		3.50	%		3.50	%
U.S. Non-qualified plan
Discount rate		3.88	%		4.25	%		4.75	%

The expected rates of return were determined by using historical mean returns for each asset class, adjusted for certain factors believed to have an impact on future returns. These returns are generally weighted to the plan’s actual asset allocation, and are net of administrative expenses. For the U.S. defined benefit plans, the expected return on plan assets for 2018 of 4.75% reflects long-term expectations and remains generally consistent with 2017. The Company reviews and updates, at least annually, its expected return on plan assets based on changes in the actual assets held by the plans and market conditions.

The Company utilizes a target allocation approach, which focuses on creating a mix of assets that will generate modest growth from equity securities while minimizing volatility in the Company’s earnings from changes in the markets and economic environment. Various factors are taken into consideration in determining the appropriate asset mix, such as census data, actuarial valuation information and capital market assumptions. The Company reviews and updates, at least annually, the target allocation and makes changes periodically.

The following table provides 2018 target allocations and actual invested asset allocations for 2018 and 2017.

DECEMBER 31	2018 TARGET LEVELS			2018			2017
Fixed income securities:
Fixed maturities		83	%		85	%		83	%
Money market funds		2	%		2	%		1	%
Total fixed income securities		85	%		87	%		84	%
Equity securities:
Domestic		12	%		10	%		12	%
International		3	%		3	%		4	%
Total equity securities		15	%		13	%		16	%
Total plan assets		100	%		100	%		100	%

The following tables present, for each hierarchy level, the U.S. qualified defined benefit plan’s investment assets that are measured at fair value at December 31, 2018 and 2017. Refer to Note 5 – “Fair Value” for a description of the different levels in the Fair Value Hierarchy.

DECEMBER 31	2018								2017
(in millions)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Fixed income securities:
Fixed maturities	$	35.1	$	9.3	$	—	$	25.8	$	38.8	$	13.1	$	—	$	25.7
Money market mutual funds		9.1		9.1		—		—		5.3		5.3		—		—
Mutual funds		36.3		36.3		—		—		42.6		42.6		—		—
Total investments at fair value	$	80.5	$	54.7	$	—	$	25.8	$	86.7	$	61.0	$	—	$	25.7

Securities classified as Level 1 at December 31, 2018 and 2017 include actively traded mutual funds and publicly traded securities, which are valued at quoted market prices. Securities classified as Level 3 at December 31, 2018 and 2017 include assets held in a fixed account of an insurance company. The fair value of the investment is estimated using a comparable public market financial institution derived fair value curve that uses non-observable inputs for market liquidity and unique credit characteristics of its underlying securities.

The Plan also holds investments measured at fair value using NAV based on the value of the underlying investments, which is determined independently by the investment manager and have not been included in the table above. These include investments in commingled pools and investment-grade fixed income securities held in a custom fund, and other commingled pools that primarily invest in publicly traded common stocks and international equity securities. The daily NAV, which is not published as a quoted market price for these investments, is used as the basis for transactions. Redemption of these funds is not subject to restriction. The fair values of these investments are as follows:

DECEMBER 31	2018		2017
Fixed maturities	$	346.4	$	343.5
Equity securities:
Domestic		9.3		12.6
International		14.6		17.3
Total equity		23.9		29.9
Total investments carried at NAV	$	370.3	$	373.4

The table below provides a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

The Company recognizes the current net underfunded status of its plans in its Consolidated Balance Sheets. Changes in the funded status of the plans are reflected as components of either net income or accumulated other comprehensive loss or income. The components of accumulated other comprehensive loss or income are reflected as either a net actuarial gain or loss or a net prior service cost.

The following table reflects the benefit obligations, fair value of plan assets and funded status of the U.S. plans at December 31, 2018 and 2017.

DECEMBER 31	U.S. Qualified Pension Plan						U.S. Non-Qualified Pension Plan
(in millions)	2018			2017			2018			2017
Change in benefit obligation:
Benefit obligation, beginning of period⁽¹⁾	$	501.2		$	506.8		$	36.6		$	38.0
Interest cost		18.4			20.4			1.4			1.5
Actuarial losses (gains)		(17.5	)		7.3			(1.3	)		0.1
Benefits paid		(32.6	)		(33.3	)		(2.9	)		(3.0	)
Benefit obligation, end of year⁽¹⁾		469.5			501.2			33.8			36.6
Change in plan assets:
Fair value of plan assets, beginning of period		460.1			453.3			—			—
Actual return on plan assets		(16.8	)		40.1			—			—
Contributions		40.0			—			2.9			3.0
Benefits paid		(32.6	)		(33.3	)		(2.9	)		(3.0	)
Fair value of plan assets, end of year		450.7			460.1			—			—
Funded status of the plans	$	(18.8	)	$	(41.1	)	$	(33.8	)	$	(36.6	)

(1)	The accumulated benefit obligation for these plans is equal to the projected benefit obligation.

The following table reflects the benefit obligations and fair value for the Chaucer plan as of December 31, 2017 and related changes in those balances, as well as the changes to those balances during 2018 prior to the plan’s disposition in conjunction with the sale of Chaucer on December 28, 2018.

DECEMBER 31	Chaucer Pension Plan
(in millions)	2018			2017
Change in benefit obligation:
Benefit obligation, beginning of period ⁽¹⁾	$	146.1		$	132.2
Plan amendment		0.3			—
Interest cost		3.7			3.9
Actuarial losses (gains)		(8.6	)		3.2
Benefits paid		(3.9	)		(5.8	)
Foreign currency translation		(8.3	)		12.6
Disposition of benefit obligations with the sale of Chaucer		(129.3	)		—
Benefit obligation, end of year ⁽¹⁾	—				146.1
Change in plan assets:
Fair value of plan assets, beginning of period		144.6			116.5
Actual return on plan assets		(5.8	)		14.4
Contributions		—			7.7
Benefits paid		(3.9	)		(5.8	)
Foreign currency translation		(8.1	)		11.8
Disposition of plan assets with the sale of Chaucer		(126.8	)		—
Fair value of plan assets, end of year	—				144.6
Funded status of the plans	$ —			$	(1.5	)

(1)

The accumulated benefit obligation for the plan is equal to the projected benefit obligation.

YEARS ENDED DECEMBER 31	2018			2017			2016
(in millions)
Interest cost	$	19.8		$	21.9		$	24.9
Expected return on plan assets		(20.6	)		(21.4	)		(23.5	)
Recognized net actuarial loss		9.6			13.5			11.2
Net periodic pension cost	$	8.8		$	14.0		$	12.6

Net periodic pension benefit for Chaucer’s pension plan of $2.3 million, $0.3 million and $0.9 million in 2018, 2017 and 2016, respectively, have been reported in discontinued operations and are not included in the amounts disclosed above.

During 2016, the Chaucer plan was closed to future salary accruals, which eliminated any remaining benefits to be accumulated in future periods, and resulted in a $2.4 million curtailment gain. An equal and offsetting expense was included in recognized net actuarial losses. These items are reflected in discontinued operations and not included in the amounts disclosed in the table above.

The following table reflects the total amounts recognized in accumulated other comprehensive income relating to the U.S. defined benefit pension plans as of December 31, 2018 and 2017.

The unrecognized net actuarial gains (losses) which exceed 10% of the greater of the projected benefit obligation or the fair value of plan assets are amortized as a component of net periodic pension cost over the next five years. The total estimated amount of actuarial losses that will be amortized from accumulated other comprehensive income into net periodic pension cost in 2019 is $11.9 million.

In accordance with ERISA guidelines, the Company is not required to fund its U.S. qualified benefit plan in 2019. The Company expects to contribute $3.1 million to its U.S. non-qualified pension plans to fund 2019 benefit payments. During 2018, the Company made a discretionary contribution of $40.0 million to its qualified benefit plan. At this time, no additional discretionary contributions are expected to be made into any of the U.S. plans during 2019, and the Company does not expect that any funds will be returned from the plans to the Company during 2019.

The Company estimates that benefit payments over the next 10 years will be as follows:

YEARS ENDED DECEMBER 31	2019		2020		2021		2022		2023		2024-2028
(in millions)
U.S. qualified pension plan	$	38.5	$	37.4	$	38.7	$	37.3	$	37.1	$	163.7
U.S. non-qualified pension plan	$	3.1	$	3.0	$	3.0	$	2.9	$	2.7	$	12.4

The benefit payments are based on the same assumptions used to measure the Company’s benefit obligations at the end of 2018. Benefit payments related to the qualified plan will be made from plan assets held in trust and not included with Company assets, whereas those payments related to the non-qualified plans will be provided for by the Company.

In addition to the defined benefit plans, THG provides a qualified defined contribution 401(k) plan for its U.S. employees, whereby the Company matches employee elective 401(k) contributions, up to a maximum of 6% of eligible compensation in 2018, 2017, and 2016. The Company’s expense for this matching provision was $21.7 million, $21.3 million and $21.4 million for 2018, 2017, and 2016, respectively. In addition to this matching provision, the Company can elect to make an annual contribution to employees’ accounts. Additional contributions amounted to $2.2 million and were contributed to the plan during 2017.

Chaucer also provides a defined contribution plan for its employees which includes employer contributions. Prior to its sale, the Company’s expense included $4.5 million, $4.8 million and $3.9 million for 2018, 2017 and 2016, respectively, related to these benefits; such costs are reflected in discontinued operations.