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Pension Plans and Other Retirement Plans
 12 Months Ended
Dec. 31, 2019
Pension and Other Postretirement Benefits Cost (Reversal of Cost) [Abstract]  
Pension Plans and Other Postretirement Benefit Plans
Pension Plans    The following table presents the funded status of Grace’s pension plans:
 
December 31,
(In millions)
2019
 
2018
Overfunded defined benefit pension plans
$
8.5

 
$
5.7

Underfunded defined benefit pension plans
(85.2
)
 
(67.1
)
Unfunded defined benefit pension plans
(434.6
)
 
(366.0
)
Total underfunded and unfunded defined benefit pension plans
(519.8
)
 
(433.1
)
Pension liabilities included in other current liabilities
(14.8
)
 
(14.7
)
Net funded status
$
(526.1
)
 
$
(442.1
)

Fully-funded plans include several advance-funded plans where the fair value of the plan assets exceeds the projected benefit obligation ("PBO"). Underfunded plans include a group of advance-funded plans that are underfunded on a PBO basis. Unfunded plans include several plans that are funded on a pay-as-you-go basis, and therefore, the entire PBO is unfunded.
Grace maintains defined benefit pension plans covering current and former employees of certain business units and divested business units who meet age and service requirements. Benefits are generally based on final average salary and years of service. Grace funds its U.S. qualified pension plans (“U.S. qualified pension plans”) in accordance with U.S. federal laws and regulations. Non-U.S. pension plans (“non-U.S. pension plans”) are funded under a variety of methods, as required under local laws and customs. The U.S. salaried plan was closed to new entrants after January 1, 2017.
Grace also provides, through nonqualified plans, supplemental pension benefits in excess of U.S. qualified pension plan limits imposed by federal tax law. These plans cover officers and higher-level employees and serve to increase the combined pension amount to the level that they otherwise would have received under the U.S. qualified pension plans in the absence of such limits. The nonqualified plans are unfunded and Grace pays the costs of benefits as they are due to the participants.
During 2018, Grace implemented a special lump sum and early commencement window for certain terminated vested participants who terminated employment prior to May 1, 2018, and had not previously commenced their pension benefits. As a result of the transaction, the U.S. qualified pension plans paid $42.2 million in lump sum distributions that reduced the PBO by $43.5 million and resulted in a $1.3 million gain.
Additionally, in the 2018 fourth quarter, Grace entered into an agreement with Prudential Financial, Inc. (“Prudential Financial”) to purchase a group annuity contract for $116.4 million that transferred $117.4 million of our U.S. pension plan obligations to Prudential Financial. Prudential Financial assumed responsibility to pay monthly annuities to certain retirees and beneficiaries that were receiving a monthly benefit from certain U.S. pension plans. Grace recognized a $1.0 million gain on the settlement.
At the December 31, 2019, measurement date for Grace’s defined benefit pension plans, the PBO was $1,507.0 million as measured under U.S. GAAP compared with $1,332.7 million as of December 31, 2018. The PBO reflects the present value (using a 3.13% weighted average discount rate for U.S. plans and a 1.41% weighted average discount rate for non-U.S. plans as of December 31, 2019) of vested and non-vested benefits earned from employee service to date, based upon current services and estimated future pay increases for active employees.
On an annual basis a full remeasurement of pension assets and pension liabilities is performed based on Grace’s estimates and actuarial valuations. These valuations reflect the terms of each pension plan and use participant-specific information as well as certain key assumptions provided by management.
Defined Contribution Retirement Plans    Grace sponsors a defined contribution retirement plan for its employees in the United States. This plan is qualified under section 401(k) of the U.S. tax code. Currently, Grace contributes an amount equal to 100% of employee contributions, up to 6% of an individual employee’s salary or
wages. Grace’s cost related to this benefit plan was $13.9 million, $12.6 million, and $11.5 million for the years ended December 31, 2019, 2018, and 2017, respectively.
U.S. salaried employees and certain U.S. hourly employees hired on or after January 1, 2017, and employees in Germany hired on or after January 1, 2016, participate in enhanced defined contribution plans instead of defined benefit pension plans. For the U.S. plan, Grace contributes 4% of an individual employee’s salary or wages. For the German plan, contributions vary based on the individual employee’s contributions and other factors. Grace’s cost related to these enhanced defined contribution plans established in the United States and Germany was $3.7 million, $1.9 million, and $0.8 million for the years ended December 31, 2019, 2018, and 2017, respectively.
Analysis of Plan Accounting and Funded Status    The following table summarizes the changes in benefit obligations and fair values of retirement plan assets during 2019 and 2018:
 
Defined Benefit Pension Plans
 
U.S.
 
Non-U.S.
 
Total
(In millions)
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Change in Projected Benefit Obligation:
 
 
 
 
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
1,027.1

 
$
1,325.6

 
$
305.6

 
$
323.1

 
$
1,332.7

 
$
1,648.7

Service cost
15.7

 
19.2

 
8.6

 
9.5

 
24.3

 
28.7

Interest cost
38.3

 
40.9

 
5.4

 
5.0

 
43.7

 
45.9

Settlements
—

 
(160.9
)
 
—

 
—

 
—

 
(160.9
)
Acquisitions
—

 
—

 
—

 
0.6

 
—

 
0.6

Actuarial (gain) loss—change in rates
144.1

 
(90.0
)
 
58.2

 
(23.2
)
 
202.3

 
(113.2
)
Actuarial (gain) loss—other changes
(10.7
)
 
(12.6
)
 
4.1

 
11.3

 
(6.6
)
 
(1.3
)
Benefits paid
(76.7
)
 
(95.1
)
 
(8.4
)
 
(8.4
)
 
(85.1
)
 
(103.5
)
Currency exchange translation adjustments
—

 
—

 
(4.3
)
 
(12.3
)
 
(4.3
)
 
(12.3
)
Benefit obligation at end of year
$
1,137.8

 
$
1,027.1

 
$
369.2

 
$
305.6

 
$
1,507.0

 
$
1,332.7

Change in Plan Assets:
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
871.1

 
$
1,109.8

 
$
19.5

 
$
21.5

 
$
890.6

 
$
1,131.3

Actual return on plan assets
154.6

 
(41.9
)
 
4.1

 
(1.7
)
 
158.7

 
(43.6
)
Employer contributions
6.7

 
56.9

 
9.1

 
9.6

 
15.8

 
66.5

Settlements
—

 
(158.6
)
 
—

 
—

 
—

 
(158.6
)
Benefits paid
(76.7
)
 
(95.1
)
 
(8.4
)
 
(8.4
)
 
(85.1
)
 
(103.5
)
Currency exchange translation adjustments
—

 
—

 
0.9

 
(1.5
)
 
0.9

 
(1.5
)
Fair value of plan assets at end of year
$
955.7

 
$
871.1

 
$
25.2

 
$
19.5

 
$
980.9

 
$
890.6

Funded status at end of year (PBO basis)
$
(182.1
)
 
$
(156.0
)
 
$
(344.0
)
 
$
(286.1
)
 
$
(526.1
)
 
$
(442.1
)
Amounts recognized in the Consolidated Balance Sheets consist of:
 
 
 
 
 
 
 
 
 
 
 
Noncurrent assets
$
8.5

 
$
5.7

 
$
—

 
$
—

 
$
8.5

 
$
5.7

Current liabilities
(7.3
)
 
(7.0
)
 
(7.5
)
 
(7.7
)
 
(14.8
)
 
(14.7
)
Noncurrent liabilities
(183.3
)
 
(154.7
)
 
(336.5
)
 
(278.4
)
 
(519.8
)
 
(433.1
)
Net amount recognized
$
(182.1
)
 
$
(156.0
)
 
$
(344.0
)
 
$
(286.1
)
 
$
(526.1
)
 
$
(442.1
)
Amounts recognized in Accumulated Other Comprehensive (Income) Loss consist of:
 
 
 
 
 
 
 
 
 
 
 
Prior service credit
$
(2.6
)
 
$
(3.2
)
 
$
(0.1
)
 
$
(0.1
)
 
$
(2.7
)
 
$
(3.3
)
Net amount recognized
$
(2.6
)
 
$
(3.2
)
 
$
(0.1
)
 
$
(0.1
)
 
$
(2.7
)
 
$
(3.3
)

 
Defined Benefit Pension Plans
 
U.S.
 
Non-U.S.
2019
 
2018
 
2019
 
2018
Weighted Average Assumptions Used to Determine Benefit Obligations as of December 31:
 
 
 
 
 
 
 
Discount rate
3.13
%
 
4.22
%
 
1.41
%
 
2.17
%
Rate of compensation increase
4.50
%
 
4.10
%
 
2.59
%
 
2.59
%
Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31:
 
 
 
 
 
 
 
Discount rate for determining service cost
4.46
%
 
3.77
%
 
2.42
%
 
1.99
%
Discount rate for determining interest cost
3.86
%
 
3.20
%
 
1.84
%
 
1.57
%
Expected return on plan assets
5.75
%
 
5.25
%
 
4.43
%
 
4.69
%
Rate of compensation increase
4.10
%
 
4.10
%
 
2.59
%
 
2.64
%

The following table presents the components of net periodic benefit cost (income) and other amounts recognized in “other comprehensive (income) loss.”
(In millions)
2019
 
2018
 
2017
U.S.
 
Non-U.S.
 
U.S.
 
Non-U.S.
 
U.S.
 
Non-U.S.
Net Periodic Benefit Cost (Income)
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
15.7

 
$
8.6

 
$
19.2

 
$
9.5

 
$
17.1

 
$
8.4

Interest cost
38.3

 
5.4

 
40.9

 
5.0

 
42.0

 
4.4

Expected return on plan assets
(48.2
)
 
(0.9
)
 
(57.2
)
 
(1.0
)
 
(57.5
)
 
(0.9
)
Amortization of prior service cost (credit)
(0.6
)
 
—

 
(0.6
)
 
—

 
(0.4
)
 
—

Annual mark-to-market adjustment (gain) loss
26.8

 
59.1

 
(3.4
)
 
(9.2
)
 
36.0

 
13.2

Net curtailment and settlement gain
—

 
—

 
(2.3
)
 
—

 
—

 
—

Net periodic benefit cost (income)
$
32.0

 
$
72.2

 
$
(3.4
)
 
$
4.3

 
$
37.2

 
$
25.1

Other Changes in Plan Assets and Benefit Obligations Recognized in OCI
 
 
 
 
 
 
 
 
 
 
 
Amortization of prior service cost (credit)
$
0.6

 
$
—

 
$
0.6

 
$
—

 
$
0.4

 
$
—

Total recognized in OCI
0.6

 
—

 
0.6

 
—

 
0.4

 
—

Total recognized in net periodic benefit cost (income) and OCI
$
32.6

 
$
72.2

 
$
(2.8
)
 
$
4.3

 
$
37.6

 
$
25.1


The estimated prior service credit for the defined benefit pension plans that will be amortized from “accumulated other comprehensive (income) loss” into net periodic benefit cost (income) over the next fiscal year is $0.6 million.
The tables below present the funded status of U.S. and non-U.S. pension plans.
Funded Status of U.S. Pension Plans
Fully-Funded U.S. Qualified
Pension Plans(1)
 
Underfunded U.S.
Qualified Pension Plans(1)
 
Unfunded Pay-As-You-Go
U.S. Nonqualified Plans(2)
(In millions)
2019

2018

2019

2018

2019

2018
Projected benefit obligation
$
35.6

 
$
32.4

 
$
993.8

 
$
897.6

 
$
108.3

 
$
97.1

Fair value of plan assets
44.1

 
38.1

 
911.5

 
833.0

 
—

 
—

Funded status (PBO basis)
$
8.5

 
$
5.7

 
$
(82.3
)
 
$
(64.6
)
 
$
(108.3
)
 
$
(97.1
)

Funded Status of Non-U.S. Pension Plans
Underfunded Non-U.S.
Pension Plans(1)
 
Unfunded Pay-As-You-Go
Non-U.S. Pension Plans(2)
(In millions)
2019
 
2018
 
2019
 
2018
Projected benefit obligation
$
29.0

 
$
22.7

 
$
340.2

 
$
282.9

Fair value of plan assets
25.2

 
19.5

 
—

 
—

Funded status (PBO basis)
$
(3.8
)
 
$
(3.2
)
 
$
(340.2
)
 
$
(282.9
)
___________________________________________________________________________________________________________________
(1)
Plans intended to be advance-funded.
(2)
Plans intended to be pay-as-you-go. The U.S. unfunded plan is a Supplemental Executive Retirement Plan, and the non-U.S. plans primarily relate to an unfunded German pension plan.
The accumulated benefit obligation for all defined benefit pension plans was approximately $1,423 million and $1,263 million as of December 31, 2019 and 2018, respectively.
The following table presents the funded status of defined benefit pension plans that are underfunded or unfunded on an accumulated benefit obligation basis.

(In millions)
U.S.
 
Non-U.S.
 
Total
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Projected benefit obligation
$
1,102.1

 
$
994.8

 
$
342.1

 
$
284.5

 
$
1,444.2

 
$
1,279.3

Accumulated benefit obligation
1,058.6

 
960.1

 
306.7

 
253.2

 
1,365.3

 
1,213.3

Fair value of plan assets
911.6

 
833.0

 
0.8

 
0.7

 
912.4

 
833.7


Estimated Expected Future Benefit Payments Including Future Service for the Fiscal Years Ending
(In millions)
Pension Plans
 
Total
Payments
U.S.
 
Non-U.S.(1)
 
Benefit
Payments
 
Benefit
Payments
 
2020
$
82.4

 
$
8.3

 
$
90.7

2021
77.5

 
8.4

 
85.9

2022
76.5

 
8.7

 
85.2

2023
75.6

 
9.0

 
84.6

2024
74.8

 
9.3

 
84.1

2025 - 2029
352.0

 
53.4

 
405.4


___________________________________________________________________________________________________________________
(1)
Non-U.S. estimated benefit payments for 2020 and future periods have been translated at the applicable December 31, 2019, exchange rates.
Discount Rate Assumption    The assumed discount rate for pension plans reflects the market rates for high-quality corporate bonds currently available and is subject to change based on changes in overall market interest rates. For the U.S. qualified pension plans, the assumed weighted average discount rate of 3.13% as of December 31, 2019, was selected by Grace, in consultation with its independent actuaries, based on a yield curve constructed from a portfolio of high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plan.
As of December 31, 2019 and 2018, the German pension plans represented approximately 91% and 92%, respectively, of the benefit obligation of the non-U.S. pension plans. The assumed weighted average discount rate as of December 31, 2019, for Germany (1.25%) was selected by Grace, in consultation with its independent actuaries, based on a yield curve constructed from a portfolio of euro-denominated high quality bonds for which the timing and amount of cash outflows approximate the estimated payouts of the plans. The assumed discount rates for the remaining non-U.S. pension plans were determined based on the nature of the liabilities, local economic environments and available bond indices.
Investment Guidelines for Advance-Funded Pension Plans    The investment goal for the U.S. qualified pension plans subject to advance funding is to earn a long-term rate of return consistent with the related cash flow profile of the underlying benefit obligation. The plans are pursuing a well-defined risk management strategy designed to reduce investment risks as their funded status improves.
The U.S. qualified pension plans have adopted a diversified set of portfolio management strategies to optimize the risk reward profile of the plans:
•
Liability hedging portfolio: primarily invested in intermediate-term and long-term investment grade corporate bonds in actively managed strategies.
•
Return-seeking portfolio: invested in a diversified set of assets designed to deliver performance in excess of the underlying liabilities with controls regarding the level of risk.
•
Global public equities: the portfolio contains both domestic U.S. and non-U.S. equities that are both passively and actively managed. Benchmarks for individual managers include S&P 500 and Russell 2000 benchmarks as well as MSCI ACWI ex US index.
•
Other investments: may include (a) high yield bonds: fixed income portfolio of securities below investment grade including non-U.S. issuers. These portfolios combine income generation and capital appreciation opportunities globally.
•
Liquidity portfolio: invested in short-term assets intended to pay periodic plan benefits and expenses.
For 2019, the expected long-term rate of return on assets for the U.S. qualified pension plans was 5.75%. Average annual returns over one-, three-, five-, and ten-year periods were approximately 19%, 8%, 6%, and 8%, respectively.
The expected return on plan assets for the U.S. qualified pension plans for 2019 was selected by Grace, in consultation with its independent actuaries, using an expected return model. The model determines the weighted average return for an investment portfolio based on the target asset allocation and expected future returns for each asset class, which were developed using a building block approach based on observable inflation, available interest rate information, current market characteristics, and historical results.
The target allocation of investment assets at December 31, 2019, and the actual allocation at December 31, 2019 and 2018, for Grace’s U.S. qualified pension plans are as follows:
 
Target
Allocation
 
Percentage of Plan Assets
December 31,
U.S. Qualified Pension Plans Asset Category
2019
 
2019
 
2018(1)
Global equities
22
%
 
22
%
 
14
%
Multi-asset credit
3
%
 
3
%
 
2
%
Liability-hedging assets
75
%
 
75
%
 
84
%
Total
100
%
 
100
%
 
100
%
___________________________________________________________________________________________________________________
(1)
In light of the two settlement transactions that occurred in 2018, the risk management strategy of the U.S. qualified pension plans was updated in 2019 to increase the return-seeking allocation, add diversification through rebalancing to global equity weights, increase the duration of the liability-hedging portfolio, and reduce interest rate sensitivity through adding long duration credit.

The following tables present the fair value hierarchy for the U.S. qualified pension plan assets measured at fair value as of December 31, 2019 and 2018.
 
Fair Value Measurements at December 31, 2019, Using

(In millions)
Total
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Common/collective trust funds
$
8.0

 
$
—

 
$
8.0

 
$
—

Annuity and immediate participation contracts
20.5

 
—

 
20.5

 
—

 
$
28.5

 
$
—

 
$
28.5

 
$
—

Investments measured at net asset value(1)
927.2

 
 
 
 
 
 
Total Assets at Fair Value
$
955.7

 
 
 
 
 
 
___________________________________________________________________________________________________________________
(1)
In accordance with ASC 820-10, certain investments that are measured at net asset value (“NAV”) per share (or its equivalent) have not been classified in the fair value hierarchy. NAV is provided by the investment account manager as a practical expedient to estimate fair value. Fair values presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheets.
 
Fair Value Measurements at December 31, 2018, Using

(In millions)
Total
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Common/collective trust funds
$
10.5

 
$
—

 
$
10.5

 
$
—

Annuity and immediate participation contracts
19.8

 
—

 
19.8

 
—

 
$
30.3

 
$
—

 
$
30.3

 
$
—

Investments measured at net asset value(1)
840.8

 
 
 
 
 
 
Total Assets at Fair Value
$
871.1

 
 
 
 
 
 

___________________________________________________________________________________________________________________
(1)
In accordance with ASC 820-10, certain investments that are measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. NAV is provided by the investment account manager as a practical expedient to estimate fair value. Fair values presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheets.
Non-U.S. pension plans accounted for approximately 3% and 2% of total global pension assets at December 31, 2019 and 2018, respectively. Each of these plans, where applicable, follows local requirements and regulations. Some of the local requirements include the establishment of a local pension committee, a formal statement of investment policy and procedures, and routine valuations by plan actuaries.
The target allocation of investment assets for non-U.S. pension plans varies depending on the investment goals of the individual plans. The plan assets of the Canadian pension plan represent approximately 96% of the total non-U.S. pension plan assets at December 31, 2019 and 2018. The expected long-term rate of return on assets for the Canadian pension plan was 4.5% for 2019.
The target allocation of investment assets at December 31, 2019, and the actual allocation at December 31, 2019 and 2018, for the Canadian pension plan are as follows:
 
Target
Allocation
 
Percentage of Plan Assets
December 31,
Canadian Pension Plan Asset Category
2019
 
2019
 
2018
Equity securities
23
%
 
25
%
 
28
%
Bonds
65
%
 
62
%
 
58
%
Other investments
12
%
 
13
%
 
14
%
Total
100
%
 
100
%
 
100
%

The plan assets of the other country plans represent approximately 4% in the aggregate of total non-U.S. pension plan assets at December 31, 2019 and 2018.
The following tables present the fair value hierarchy for the non-U.S. pension plan assets measured at fair value as of December 31, 2019 and 2018.
 
Fair Value Measurements at December 31, 2019, Using
(In millions)
Total
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Corporate bonds
$
0.4

 
$
—

 
$
0.4

 
$
—

Insurance contracts and other investments
0.5

 
—

 
0.5

 
—

Cash
0.1

 
0.1

 
—

 
—

 
$
1.0

 
$
0.1


$
0.9

 
$
—

Investments measured at net asset value(1)
24.2

 
 
 
 
 
 
Total Assets at Fair Value
$
25.2

 
 
 
 
 
 

___________________________________________________________________________________________________________________
(1)
In accordance with ASC 820-10, certain investments that are measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. NAV is provided by the investment account manager as a practical expedient to estimate fair value. Fair values presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheets.
 
Fair Value Measurements at December 31, 2018, Using
(In millions)
Total
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
 
Significant Other Observable Inputs
(Level 2)
 
Significant Unobservable Inputs
(Level 3)
Corporate bonds
$
0.4

 
$
—

 
$
0.4

 
$
—

Insurance contracts and other investments
0.4

 
—

 
0.4

 
—

Cash
0.1

 
0.1

 
—

 
—

 
$
0.9

 
$
0.1

 
$
0.8

 
$
—

Investments measured at net asset value(1)
18.6

 
 
 
 
 
 
Total Assets at Fair Value
$
19.5

 
 
 
 
 
 
___________________________________________________________________________________________________________________
(1)
In accordance with ASC 820-10, certain investments that are measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. NAV is provided by the investment account manager as a practical expedient to estimate fair value. Fair values presented in the table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheets.
Plan Contributions and Funding    Grace intends to satisfy its funding obligations under the U.S. qualified pension plans and to comply with all of the requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”). For ERISA purposes, funded status is calculated on a different basis than under U.S. GAAP. Based on the U.S. qualified pension plans’ status as of December 31, 2019, there is a $0.5 million minimum required payment under ERISA for 2020.
Grace intends to fund non-U.S. pension plans based on applicable legal requirements and actuarial and trustee recommendations. Grace expects to make contributions of approximately $9 million related to its non-U.S. pension plans in 2020.