Retirement Benefit Plans

12 Months Ended

Dec. 31, 2021

Compensation And Retirement Disclosure [Abstract]

Retirement Benefit Plans

16. Retirement Benefit Plans

We have defined benefit pension plans covering certain U.S. and Puerto Rico employees.  Plan benefits are primarily based on years of credited service and the participant’s average eligible compensation.  The U.S. and Puerto Rico plans are frozen; meaning there are no new participants that can join the plan and participants in the plan do not accrue additional years of service or compensation.  In addition to the U.S. and Puerto Rico defined benefit pension plans, we sponsor various foreign pension arrangements, including retirement and termination benefit plans required by local law or coordinated with government sponsored plans.

We use a December 31 measurement date for our benefit plans.

Defined Benefit Plans

The components of net pension expense for our defined benefit retirement plans were as follows (in millions):

	For the Years Ended December 31,
	U.S. and Puerto Rico									Foreign
	2021			2020			2019			2021			2020			2019
Service cost	$	0.9		$	0.7		$	7.1		$	24.7		$	24.7		$	19.0
Interest cost		10.5			13.9			16.2			4.9			5.4			9.0
Expected return on plan assets		(29.8	)		(32.9	)		(32.4	)		(15.6	)		(13.3	)		(13.4	)
Curtailment gain		-			-			(7.2	)		-			-			-
Settlements		6.4			0.5			0.8			0.5			(0.5	)		-
Amortization of prior service cost		0.3			0.3			(3.4	)		(4.3	)		(4.2	)		(3.9	)
Amortization of unrecognized actuarial loss		8.6			7.2			19.3			2.5			1.3			2.5
Net periodic benefit (income) expense	$	(3.1	)	$	(10.3	)	$	0.4		$	12.7		$	13.4		$	13.2

In our consolidated statements of earnings, service cost is reported in the same location as other compensation costs arising from services rendered by the pertinent employees while the other components of net pension expense are reported in other income (expense), net.

The weighted average actuarial assumptions used to determine net pension expense for our defined benefit retirement plans were as follows:

	For the Years Ended December 31,
	U.S. and Puerto Rico									Foreign
	2021			2020			2019			2021			2020			2019
Discount rate		2.04	%		3.40	%		4.38	%		0.63	%		0.73	%		1.44	%
Rate of compensation increase	-			-				3.29	%		2.39	%		2.28	%		2.50	%
Expected long-term rate of return on    plan assets		6.75	%		7.75	%		7.75	%		2.09	%		2.17	%		2.14	%

The expected long-term rate of return on plan assets is based on the historical and estimated future rates of return on the different asset classes held in the plans.  The expected long-term rate of return is the weighted average of the target asset allocation of each individual asset class.  We believe that historical asset results approximate expected market returns applicable to the funding of a long-term benefit obligation.

Discount rates were determined for each of our defined benefit retirement plans at their measurement date to reflect the yield of a portfolio of high quality bonds matched against the timing and amounts of projected future benefit payments.  

Changes in projected benefit obligations and plan assets were (in millions):

	For the Years Ended December 31,
	U.S. and Puerto Rico						Foreign
	2021			2020			2021			2020
Projected benefit obligation - beginning of year	$	516.9		$	472.0		$	819.3		$	740.4
Service cost		0.9			0.7			24.7			24.7
Interest cost		10.5			13.9			4.9			5.4
Plan amendments		-			-			-			0.2
Employee contributions		-			-			23.4			22.1
Benefits paid		(13.3	)		(24.0	)		(41.7	)		(39.8	)
Actuarial loss		3.0			55.6			6.1			12.5
Expenses paid		-			-			(0.2	)		(0.3	)
Settlement		(14.9	)		(1.3	)		(3.0	)		(4.5	)
Translation (gain) loss		-			-			(25.6	)		58.6
Projected benefit obligation - end of year	$	503.1		$	516.9		$	807.9		$	819.3

	For the Years Ended December 31,
	U.S. and Puerto Rico						Foreign
	2021			2020			2021			2020
Plan assets at fair market value - beginning of year	$	474.1		$	444.9		$	756.7		$	665.2
Actual return on plan assets		50.5			51.4			86.6			40.0
Employer contributions		3.1			3.1			22.4			21.2
Employee contributions		-			-			23.4			22.1
Settlements		(14.9	)		(1.3	)		(3.0	)		(4.5	)
Benefits paid		(13.3	)		(24.0	)		(41.7	)		(39.8	)
Expenses paid		-			-			(0.2	)		(0.3	)
Translation (loss) gain		-			-			(23.0	)		52.8
Plan assets at fair market value - end of year	$	499.5		$	474.1		$	821.2		$	756.7
Funded status	$	(3.6	)	$	(42.8	)	$	13.3		$	(62.6	)

	For the Years Ended December 31,
	U.S. and Puerto Rico						Foreign
	2021			2020			2021			2020
Amounts recognized in consolidated balance sheet:
Prepaid pension	$	2.7		$	-		$	54.9		$	20.4
Short-term accrued benefit liability		(0.1	)		(0.1	)		(1.3	)		(1.3	)
Long-term accrued benefit liability		(6.2	)		(42.7	)		(40.3	)		(81.7	)
Net amount recognized	$	(3.6	)	$	(42.8	)	$	13.3		$	(62.6	)

The weighted average actuarial assumptions used to determine the projected benefit obligation for our defined benefit retirement plans were as follows:

	For the Years Ended December 31,
	U.S. and Puerto Rico									Foreign
	2021			2020			2019			2021			2020			2019
Discount rate		2.70	%		2.70	%		3.40	%		0.73	%		0.61	%		0.74	%
Rate of compensation increase		-			-			3.29	%		2.48	%		2.36	%		2.45	%

Plans with projected benefit obligations in excess of plan assets were as follows (in millions):

	As of December 31,
	U.S. and Puerto Rico				Foreign
	2021		2020		2021		2020
Projected benefit obligation	$	468.5	$	516.9	$	38.8	$	778.4
Plan assets at fair market value		462.2		474.1		8.1		709.5

Total accumulated benefit obligations and plans with accumulated benefit obligations in excess of plan assets were as follows (in millions):

	As of December 31,
	U.S. and Puerto Rico				Foreign
	2021		2020		2021		2020
Total accumulated benefit obligations	$	503.1	$	516.9	$	783.0	$	801.3
Plans with accumulated benefit obligations in excess    of plan assets:
Accumulated benefit obligation		468.5		516.9		36.4		560.9
Plan assets at fair market value		462.2		474.1		8.1		508.6

The benefits expected to be paid out in each of the next five years and for the five years combined thereafter are as follows (in millions):

For the Years Ending December 31,	U.S. and Puerto Rico		Foreign
2022	$	24.6	$	32.8
2023		25.4		34.8
2024		25.7		33.6
2025		26.3		35.0
2026		27.0		34.7
2027-2031		133.1		175.7

The U.S. and Puerto Rico defined benefit retirement plans’ overall investment strategy is to balance total returns by emphasizing long-term growth of capital while mitigating risk.  We have established target ranges of assets held by the plans of 30 to 65 percent for equity securities, 30 to 50 percent for debt securities and 0 to 15 percent in non-traditional investments.  The plans strive to have sufficiently diversified assets so that adverse or unexpected results from one asset class will not have an unduly detrimental impact on the entire portfolio.  We regularly review the investments in the plans and we may rebalance them from time-to-time based upon the target asset allocation of the plans.

For the U.S. and Puerto Rico plans, we maintain an investment policy statement that guides the investment allocation in the plans.  The investment policy statement describes the target asset allocation positions described above.  Our benefits committee, along with our investment advisor, monitor compliance with and administer the investment policy statement and the plans’ assets and oversee the general investment strategy and objectives of the plans.  Our benefits committee generally meets quarterly to review performance.

The investment strategies of foreign based plans vary according to the plan provisions and local laws.  The majority of the assets in foreign based plans are located in Switzerland-based plans.  These assets are held in trusts and are commingled with the assets of other Swiss companies with representatives of all the companies making the investment decisions.  The overall strategy is to maximize total returns while avoiding risk.  The trustees of the assets have established target ranges of assets held by the plans of 30 to 50 percent in debt securities, 20 to 37 percent in equity securities, 15 to 24 percent in real estate, 3 to 15 percent in cash funds and 0 to 12 percent in other funds.

The fair value of our U.S. and Puerto Rico pension plan assets by asset category was as follows (in millions):

	As of December 31, 2021
			Fair Value Measurements at Reporting Date Using:
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	3.8	$	3.8	$	-	$	-
Equity securities		342.1		-		342.1		-
Intermediate fixed income securities		153.6		-		153.6		-
Total	$	499.5	$	3.8	$	495.7	$	-

	As of December 31, 2020
			Fair Value Measurements at Reporting Date Using:
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	7.3	$	7.3	$	-	$	-
Equity securities		304.1		-		304.1		-
Intermediate fixed income securities		162.7		-		162.7		-
Total	$	474.1	$	7.3	$	466.8	$	-

The fair value of our foreign pension plan assets was as follows (in millions):

	As of December 31, 2021
			Fair Value Measurements at Reporting Date Using:
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	56.6	$	56.6	$	-	$	-
Equity securities		185.5		149.6		35.9		-
Fixed income securities		195.5		-		195.5		-
Other types of investments		223.0		-		223.0		-
Real estate		160.6		-		-		160.6
Total	$	821.2	$	206.2	$	454.4	$	160.6

	As of December 31, 2020
			Fair Value Measurements at Reporting Date Using:
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	42.7	$	42.7	$	-	$	-
Equity securities		163.9		126.8		37.1		-
Fixed income securities		262.5		-		262.5		-
Other types of investments		142.3		-		142.3		-
Real estate		145.3		-		-		145.3
Total	$	756.7	$	169.5	$	441.9	$	145.3

As of December 31, 2021 and 2020, our defined benefit pension plans’ assets did not hold any direct investment in Zimmer Biomet Holdings common stock.

Equity securities are valued using a market approach, based on quoted prices for the specific security from transactions in active exchange markets (Level 1), or in some cases where we are invested in mutual or collective funds, based upon the net asset value per unit of the fund which is determined from quoted market prices of the underlying securities in the fund’s portfolio (Level 2).  Fixed income securities are valued using a market approach, based upon quoted prices for the specific security or from institutional bid evaluations.  Real estate is valued by discounting to present value the cash flows expected to be generated by the specific properties.  

The following table provides a reconciliation of the beginning and ending balances of our foreign pension plan assets measured at fair value that used significant unobservable inputs (Level 3) (in millions):

	December 31, 2021
Beginning Balance	$	145.3
Gain on assets sold		0.7
Change in fair value of assets		7.0
Net purchases and sales		11.9
Translation gain		(4.3	)
Ending Balance	$	160.6

Contributions to the U.S. and Puerto Rico defined benefit retirement plans are estimated to be $1.8 million in 2022.  Contributions to foreign defined benefit plans are estimated to be $19.1 million in 2022.  We do not expect the assets in any of our plans to be returned to us in the next year.

Defined Contribution Plans

We also sponsor defined contribution plans for substantially all of the U.S. and Puerto Rico employees and certain employees in other countries.

The benefits offered under these plans are reflective of local customs and practices in the countries concerned.  We expensed $52.4 million, $49.6 million and $52.6 million related to these plans for the years ended December 31, 2021, 2020 and 2019, respectively.