Qualified Employee Benefit Plans

We maintain a qualified profit sharing plan covering U.S. employees and certain foreign employees. Employer contributions are discretionary and generally limited to the maximum amount deductible for federal income tax purposes. Aggregate contributions for 2017, 2016 and 2015 were $14.4 million, $14.3 million and $14.2 million, respectively.

We maintain several defined contribution plans for foreign employees working for our subsidiaries in the United Kingdom, Australia, Japan and other locations outside the United States. Employer contributions generally are consistent with regulatory requirements and tax limits. Defined contribution expense for foreign entities was $6.8 million, $6.8 million and $7.9 million in 2017, 2016 and 2015, respectively.

We maintain a qualified, noncontributory, defined benefit retirement plan (“Retirement Plan”) covering current and former employees who were employed by AB in the United States prior to October 2, 2000. Benefits are based on years of credited service, average final base salary (as defined in the Retirement Plan) and primary Social Security benefits. Service and compensation after December 31, 2008 are not taken into account in determining participants’ retirement benefits.

Our policy is to satisfy our funding obligation for each year in an amount not less than the minimum required by the Employee Retirement Income Security Act of 1974, as amended, and not greater than the maximum amount we can deduct for federal income tax purposes. We contributed $4.0 million to the Retirement Plan during 2017. We currently estimate that we will contribute $5.0 million to the Retirement Plan during 2018. Contribution estimates, which are subject to change, are based on regulatory requirements, future market conditions and assumptions used for actuarial computations of the Retirement Plan’s obligations and assets. Management, at the present time, has not determined the amount, if any, of additional future contributions that may be required.

The Retirement Plan’s projected benefit obligation, fair value of plan assets, and funded status (amounts recognized in the consolidated statements of financial condition) were as follows:



	Years Ended December 31,
	2017			2016
	(in thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	111,315		$	107,784
Interest cost	4,999			4,972
Actuarial loss (gain)	12,617			1,794
Benefits paid	(3,731		)	(3,235		)
Projected benefit obligation at end of year	125,200			111,315
Change in plan assets:
Plan assets at fair value at beginning of year	86,699			86,292
Actual return on plan assets	13,738			3,642
Employer contribution	4,000			—
Benefits paid	(3,731		)	(3,235		)
Plan assets at fair value at end of year	100,706			86,699
Funded status	$	(24,494	)	$	(24,616	)

Effective December 31, 2015, the Retirement Plan was amended to change the actuarial basis used for converting a life annuity benefit to optional forms of payment and converting benefits payable at age 65 to earlier commencement dates. This prior service cost will be amortized over future years.

The amounts recognized in other comprehensive income (loss) for the Retirement Plan for 2017, 2016 and 2015 were as follows:



	2017			2016			2015
	(in thousands)
Unrecognized net (loss) gain from experience different from that assumed and effects of changes and assumptions	$	(3,043	)	$	(3,115	)	$	2,882
Prior service cost	24			93			(895		)
	(3,019		)	(3,022		)	1,987
Income tax expense	(49		)	(10		)	(99		)
Other comprehensive (loss) income	$	(3,068	)	$	(3,032	)	$	1,888

The loss of $3.1 million recognized in 2017 primarily was due to changes in the discount rate and lump sum interest rates ($11.9 million) and changes in the census data ($1.4 million), offset by actual earnings exceeding expected earnings on plan assets ($8.5 million), the recognized actuarial loss ($1.1 million) and changes in the mortality assumption ($0.7 million). The loss of $3.0 million recognized in 2016 primarily was due to expected earnings on plan assets exceeding actual earnings ($1.8 million) and changes in the discount rate and lump sum interest rates ($3.5 million), offset by changes in the mortality assumption ($1.7 million). The gain of $1.9 million in 2015 primarily was due to changes in the discount rate and lump sum interest rates ($5.6 million) and changes in the mortality assumption ($1.4 million), offset by expected earnings on plan assets exceeding actual earnings ($5.3 million).

Foreign retirement plans and an individual's retirement plan maintained by AB are not material to AB's consolidated financial statements. As such, disclosure for these plans is not necessary. The reconciliation of the 2017 amounts recognized in other comprehensive income for the Retirement Plan as compared to the consolidated statement of comprehensive income ("OCI Statement") is as follows:



	Retirement Plan			Retired Individual Plan			Foreign Retirement Plans			OCI Statement
	(in thousands)
Recognized actuarial (loss)	$	(3,043	)	$	(20	)	$	(127	)	$	(3,190	)
Amortization of prior service cost	24			—			—			24
Changes in employee benefit related items	(3,019		)	(20		)	(127		)	(3,166		)
Income tax (expense) benefit	(49		)	(1		)	23			(27		)
Employee benefit related items, net of tax	$	(3,068	)	$	(21	)	$	(104	)	$	(3,193	)

The amounts included in accumulated other comprehensive income (loss) for the Retirement Plan as of December 31, 2017 and 2016 were as follows:



	2017			2016
	(in thousands)
Unrecognized net loss from experience different from that assumed and effects of changes and assumptions	$	(49,473	)	$	(46,430	)
Prior service cost	(779		)	(803		)
	(50,252		)	(47,233		)
Income tax benefit	408			457
Accumulated other comprehensive loss	$	(49,844	)	$	(46,776	)

The amortization period over which we are amortizing the loss for the Retirement Plan from accumulated other comprehensive income is 32 years. The estimated prior service cost and amortization of loss for the Retirement Plan that will be amortized from accumulated other comprehensive income over the next year are $23,959 and $1.1 million, respectively.

The accumulated benefit obligation for the plan was $125.2 million and $111.3 million, respectively, as of December 31, 2017 and 2016.

The discount rates used to determine benefit obligations as of December 31, 2017 and 2016 (measurement dates) were 3.90% and 4.55%, respectively.

Benefit payments are expected to be paid as follows (in thousands):



2018	$	6,517
2019	7,076
2020	5,302
2021	6,157
2022	8,040
2023-2027	39,643

Net (benefit) expense under the Retirement Plan consisted of:



	Year Ended December 31,
	2017			2016			2015
	(in thousands)
Interest cost on projected benefit obligations	$	4,999		$	4,972		$	4,816
Expected return on plan assets	(5,261		)	(5,407		)	(6,176		)
Amortization of prior service cost	24			24			—
Recognized actuarial loss	1,097			959			979
Net pension (benefit) expense	$	859		$	548		$	(381	)

Actuarial computations used to determine net periodic costs were made utilizing the following weighted-average assumptions:



	Years Ended December 31,
	2017		2016		2015
Discount rate on benefit obligations	4.55	%	4.75	%	4.3	%
Expected long-term rate of return on plan assets	6.0		6.5		7.0

In developing the expected long-term rate of return on plan assets of 6.0%, management considered the historical returns and future expectations for returns for each asset category, as well as the target asset allocation of the portfolio. The expected long-term rate of return on assets is based on weighted average expected returns for each asset class.

As of December 31, 2017, the mortality projection assumption has been updated to use the generational MP-2017 improvement scale. Previously, mortality was projected generationally using the MP-2016 improvements scale. The base mortality assumption remains at the RP-2014 white-collar mortality table for males and females adjusted back to 2006 using the MP-2014 improvement scale.

The Internal Revenue Service (“IRS”) recently updated the mortality tables used to determine lump sums. For fiscal year-end 2017, we reflected the actual IRS table for 2018 with assumed annual updates for years 2019 and later on the base table (RP-2014 backed off to 2006) with the assumed projection scale of MP-2017.

The Retirement Plan’s asset allocation percentages consisted of:



	December 31,
	2017		2016
Equity	66	%	61	%
Debt securities	15		18
Other	19		21
	100	%	100	%

The guidelines regarding allocation of assets are formalized in the Investment Policy Statement adopted by the Investment Committee for the Retirement Plan. The objective of the investment program is to enhance the portfolio of the Retirement Plan through total return (capital appreciation and income), thereby promoting the ongoing ability of the plan to meet future liabilities and obligations, while minimizing the need for additional contributions. The guidelines specify an allocation weighting of 30% to 60% for return seeking investments (target of 40%), 10% to 30% for risk mitigating investments (target of 15%), 0% to 25% for diversifying investments (target of 17%) and 18% to 38% for dynamic asset allocation (target of 28%). Investments in mutual funds, hedge funds (and other alternative investments), and other commingled investment vehicles are permitted under the guidelines. Investments are permitted in overlay portfolios (regulated mutual funds), which are designed to manage short-term portfolio risk and mitigate the effect of extreme outcomes by varying the asset allocation of a portfolio.

See Note 9, Fair Value for a description of how we measure the fair value of our plan assets.

The valuation of our Retirement Plan assets by pricing observability levels as of December 31, 2017 and 2016 was as follows (in thousands):



	Level 1		Level 2		Level 3		Total
December 31, 2017
Cash	$	91	$	—	$	—	$	91
Fixed income mutual funds	23,696		—		—		23,696
Equity mutual fund	29,352		—		—		29,352
Equity securities	25,191		—		—		25,191
Total assets in the fair value hierarchy	78,330		—		—		78,330
Investments measured at net assets value	—		—		—		22,376
Investments at fair value	$	78,330	$	—	$	—	$	100,706



December 31, 2016
Cash	$	344	$	—	$	—	$	344
Fixed income mutual funds	21,441		—		—		21,441
Equity mutual fund	25,037		—		—		25,037
Equity securities	20,690		—		—		20,690
Total assets in the fair value hierarchy	67,512		—		—		67,512
Investments measured at net assets value	—		—		—		19,187
Investments at fair value	$	67,512	$	—	$	—	$	86,699

The Retirement Plan’s investments include the following:

•

two fixed income mutual funds, each of which seeks to generate income consistent with preservation of capital. One mutual fund invests in a portfolio of fixed income securities of U.S. and non-U.S. companies and U.S. and non-U.S. government securities and supranational entities, including lower-rated securities, while the second fund invests in a broad range of fixed income securities in both developed and emerging markets with a range of maturities from short- to long-term;

•

three equity mutual funds, one of which invests primarily in a diversified portfolio of equity securities of small- to mid-capitalization U.S. companies, the second which invests primarily in a diversified portfolio of equity securities with relatively smaller capitalizations as compared to the overall U.S market, and the third which primarily invests in equity securities of small capitalization companies or other securities or instruments with similar economic characteristics;


•	separate equity and fixed income mutual funds, which seek to moderate the volatility of equity and fixed income oriented asset allocation over the long term, as part of the overall asset allocation managed by AB;


•	a multi-style, multi-cap integrated portfolio adding U.S. equity diversification to its value and growth equity selections, designed to deliver a long-term premium to the S&P 500 with greater consistency across a range of market environments; and

•

investments measured at net asset value, including two equity private investment trusts, one of which invests primarily in equity securities of non-U.S. companies located in emerging market countries, and the other of which invests in equity securities of established non-U.S. companies located in the countries comprising the MSCI EAFE Index, plus Canada; and a hedge fund that seeks to provide attractive risk-adjusted returns over full market cycles with less volatility than the broad equity markets by allocating all or substantially all of its assets among portfolio managers through portfolio funds that employ a broad range of investment strategies.