Pension and Other Postretirement Benefits

Pension Plans

Substantially all active employees of the Company's U.S. operations participate in defined benefit pension plans and/or defined contribution retirement plans. The Company also has defined benefit plans and/or alternative retirement plans for substantially all its employees in Germany, the U.K, and the Netherlands. In addition, the Company maintains a SERP which is a non-qualified defined benefit plan. The Company provides benefits under the SERP to the extent necessary to fulfill the intent of its defined benefit retirement plans without regard to the limitations set by the Internal Revenue Code on qualified defined benefit plans.

During 2017, the Company recorded a $0.6 million settlement loss in SERP for a total payment of $1.3 million.

During 2016, the Company offered a lump sum payout option to all eligible U.S. participants with a deferred vested pension benefit (the participant had a vested pension benefit but was no longer an employee of the Company). For the year ended December 31, 2016, 265 individuals elected the option and the Company paid a total of $8.1 million in lump-sum payments. For the year ended December 31, 2016, as allowed under ASC Topic 715, Compensation — Retirement Benefits ("ASC Topic 715"), the Company adopted a policy to recognize settlement losses for deferred vested pension benefit payments regardless of whether the amount exceeded the sum of expected service cost and interest costs of the pension plan for the respective calendar year. In accordance with ASC Topic 715, for the year ended December 31, 2016, the Company measured the liabilities of the post-retirement benefit plans and recognized a settlement loss of $0.8 million.

The Company's funding policy for its U.S. qualified defined benefit plans and its U.K. defined benefit plan is to contribute assets in compliance with regulatory requirements to fund the projected benefit obligation. Nonqualified plans providing pension benefits in excess of limitations imposed by taxing authorities are not funded. There is no legal or governmental obligation to fund Neenah Germany's benefit plans and as such the Neenah Germany defined benefit plans are currently unfunded. As of December 31, 2017, Neenah Germany had investments of $1.7 million that were restricted to the payment of certain post-retirement employee benefits. As of December 31, 2017, $0.6 million and $1.1 million of such investments are classified as Prepaid and other current assets and Other assets, respectively, on the consolidated balance sheet. Neenah Coldenhove retirement benefit obligations are administered by a third-party insurance company, and funding for these benefits comes from premiums paid. The Company also holds $3.6 million of marketable securities that are designated for the payment of benefits under the SERP as of December 31, 2017, classified as Other assets on the consolidated balance sheet.

The Company uses the fair value of pension plan assets to determine pension expense, rather than averaging gains and losses over a period of years. Investment gains or losses represent the difference between the expected return calculated using the fair value of the assets and the actual return based on the fair value of assets. The Company's pension obligations are measured annually as of December 31.

Multi-Employer plan

The hourly employees of the Lowville, New York facility are covered by a multi-employer defined benefit plan. The Company's expense under this plan was less than $0.1 million for the year ended December 31, 2017. The Company contributes to the multi-employer pension plan under a collective bargaining agreement which provides retirement benefits for certain union employees. The risks of participating in a multi-employer plan are different from single employer plans, as assets contributed are available to provide benefits to all participants of the plan (including employees of other employers) and unfunded obligations are the responsibility of all remaining employers. In the event the Company ceases participation or in the event of the multi-employer plan's termination, the Company may be liable for a portion of the multi-employer plan’s unfunded benefits.

The most recent Pension Protection Act zone status available is for the plan's year-end at December 31, 2016. The zone status in the following table is based on information that the Company received from the plan and is certified by the plan's actuary. Among other factors, plans in the red zone are generally less than 65% funded, plans in the yellow zone are less than 80% funded, and plans in the green zone are at least 80% funded. Information for the multi-employer pension plan in which the Company participates is shown in the table below. The "FIP/RP Status Pending/Implemented" column indicates a financial improvement plan ("FIP") or a rehabilitation plan ("RP") is either pending or has been implemented for the plan. For the year ended December 31, 2016, the Company's contributions to the plan were less than 5% of total plan contributions.



Pension Fund	EIN/Pension Plan Number	Pension Zone Status 2016	FIP/RP Status Pending or Implemented	Contributions 2017	Surcharge Imposed	ExpirationDate of Collective Bargaining Agreement
PACE Industry Union Management Pension Fund	11-6166763	Red	Implemented	$0.1 million	Yes	11/9/2021

Other Postretirement Benefit Plans

The Company maintains postretirement health care and life insurance benefit plans for active employees of the Company and former employees of the Canadian pulp operations. The Canadian plans are generally noncontributory for employees who were eligible to retire on or before December 31, 1992 and contributory for most employees who became eligible to retire on or after January 1, 1993. The Company does not provide a subsidized benefit to non-union U.S. employees hired after 2003 or collectively bargained employees after 2005.

The Company's obligations for postretirement benefits other than pensions are measured annually as of December 31. At December 31, 2017, the assumed inflationary health care cost trend rates used to determine obligations at December 31, 2017 and costs for the year ended December 31, 2018 is 6.8 percent gradually decreasing to an ultimate rate of 4.5 percent in 2037. The assumed inflationary health care cost trend rates used to determine obligations at December 31, 2016 and costs for the year ended December 31, 2017 were 7.0 percent gradually decreasing to an ultimate rate of 4.5 percent in 2037.

The following table reconciles the benefit obligations, plan assets, funded status and net liability information of the Company's pension and other postretirement benefit plans.



	Pension Benefits						Postretirement Benefits Other than Pensions
	Year Ended December 31,
	2017			2016			2017			2016
Change in Benefit Obligation:
Benefit obligation at beginning of year	$	370.9		$	360.1		$	40.7		$	40.5
Service cost	5.5			4.9			1.2			1.3
Interest cost	15.0			15.9			1.4			1.6
Currency	6.8			(3.1		)	0.6			0.1
Actuarial (gain) loss	33.3			18.2			3.9			(1.2		)
Benefit payments from plans	(18.1		)	(17.1		)	(3.8		)	(3.8		)
Settlement payments	(1.5		)	(8.1		)	—			—
Net transfer in (1)	51.7			0.1			—			—
Other	0.3			—			—			2.2
Benefit obligation at end of year	$	463.9		$	370.9		$	44.0		$	40.7
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	318.1		$	308.3		$	—		$	—
Actual gain (loss) on plan assets	38.5			17.6			—			—
Employer contributions	14.3			17.8			—			—
Currency	2.2			(1.7		)	—			—
Benefit payments	(18.1		)	(15.8		)	—			—
Settlement payments	(1.5		)	(8.1		)	—			—
Net transfers in (1)	46.8			—			—			—
Other	0.1			—			—			—
Fair value of plan assets at end of year	$	400.4		$	318.1		$	—		$	—
Reconciliation of Funded Status
Fair value of plan assets	$	400.4		$	318.1		$	—		$	—
Projected benefit obligation	463.9			370.9			44.0			40.7
Net liability recognized in statement of financial position	$	(63.5	)	$	(52.8	)	$	(44.0	)	$	(40.7	)
Amounts recognized in statement of financial position consist of:
Current liabilities	$	(3.7	)	$	(3.8	)	$	(5.3	)	$	(4.3	)
Noncurrent liabilities	(59.8		)	(49.0		)	(38.7		)	(36.4		)
Net amount recognized	$	(63.5	)	$	(52.8	)	$	(44.0	)	$	(40.7	)

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(1)	For the year ended December 31, 2017, the Company acquired $51.7 million of pension liabilities and $46.8 million of pension assets in conjunction with the Coldenhove Acquisition.

Amounts recognized in accumulated other comprehensive income consist of:



	Pension Benefits				Postretirement Benefits Other than Pensions
	December 31,
	2017		2016		2017			2016
Accumulated actuarial loss	$	105.9	$	95.8	$	8.6		$	4.9
Prior service cost	0.8		0.9		(0.2		)	(0.4		)
Total recognized in accumulated other comprehensive income	$	106.7	$	96.7	$	8.4		$	4.5

Summary disaggregated information about the pension plans follows:



	December 31,
	Assets Exceed ABO				ABO Exceed Assets				Total
	2017		2016		2017		2016		2017		2016
Projected benefit obligation	$	—	$	291.3	$	463.9	$	79.6	$	463.9	$	370.9
Accumulated benefit obligation	—		281.5		451.4		79.4		451.4		360.9
Fair value of plan assets	—		284.2		400.4		33.9		400.4		318.1

Components of Net Periodic Benefit Cost



	Pension Benefits									Postretirement Benefits Other than Pensions
	Year Ended December 31,
	2017			2016			2015			2017			2016			2015
Service cost	$	5.5		$	4.9		$	5.5		$	1.2		$	1.3		$	1.7
Interest cost	15.0			15.9			13.8			1.4			1.6			1.6
Expected return on plan assets (a)	(19.9		)	(18.9		)	(19.3		)	—			—			—
Recognized net actuarial loss	5.6			6.6			6.3			0.3			0.6			0.3
Amortization of prior service cost (credit)	0.2			0.2			0.2			(0.2		)	(0.2		)	(0.2		)
Amount of settlement loss recognized	0.6			0.8			—			—			—			—
Net periodic benefit cost (credit)	7.0			9.5			6.5			2.7			3.3			3.4
Amounts related to discontinued operations	—			—			(14.9		)	—			—			—
Net periodic benefit cost	$	7.0		$	9.5		$	(8.4	)	$	2.7		$	3.3		$	3.4

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(a)

The expected return on plan assets, excluding the Dutch plan assets, is determined by multiplying the fair value of plan assets at the prior year-end (adjusted for estimated current year cash benefit payments and contributions) by the expected long-term rate of return. The Dutch pension plan is funded through an insurance contract, and the expected return on plan assets is calculated based on the discount rate of the insured obligations.

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income



	Pension Benefits									Postretirement Benefits Other than Pensions
	Year Ended December 31,
	2017			2016			2015			2017		2016			2015
Net periodic benefit expense	$	7.0		$	9.5		$	(8.4	)	$	2.7	$	3.3		$	3.4
Accumulated actuarial gain (loss)	10.1			11.7			(7.1		)	3.7		(0.9		)	1.1
Prior service cost (credit)	(0.1		)	(0.3		)	(0.3		)	0.2		0.1			0.2
Total recognized in other comprehensive income	10.0			11.4			(7.4		)	3.9		(0.8		)	1.3
Total recognized in net periodic benefit cost and other comprehensive income	$	17.0		$	20.9		$	(15.8	)	$	6.6	$	2.5		$	4.7

The estimated net actuarial loss and prior service cost for the defined benefit pension plans expected to be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $5.4 million and $0.2 million, respectively. The estimated net actuarial loss and prior service (credit) for postretirement benefits other than pensions expected to be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $0.6 million and $(0.2) million, respectively.

Weighted-Average Assumptions Used to Determine Benefit Obligations at December 31



	Pension Benefits				Postretirement Benefits Other than Pensions
	2017		2016		2017		2016
Discount rate	3.49	%	4.16	%	3.27	%	3.69	%
Rate of compensation increase	2.40	%	2.22	%	—	%	—	%

Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31



	Pension Benefits						Postretirement Benefits Other than Pensions
	Year Ended December 31,
	2017		2016		2015		2017		2016		2015
Discount rate	4.18	%	4.54	%	3.91	%	3.89	%	4.07	%	4.05	%
Expected long-term return on plan assets (a)	6.31	%	6.20	%	6.50	%	—	%	—	%	—	%
Rate of compensation increase	2.49	%	2.18	%	2.92	%	—	%	—	%	—	%

_______________________


(a)	The expected long-term return on plan assets does not include the Dutch plan assets. The Dutch pension plan is funded through an insurance contract, and the expected return on plan assets is calculated based on the discount rate of the insured obligations.

Expected Long-Term Rate of Return and Investment Strategies

The expected long-term rate of return on pension fund assets held by the Company's pension trusts was determined based on several factors, including input from pension investment consultants and projected long-term returns of broad equity and bond indices. Also considered were the plans' historical compounded annual returns. It is anticipated that, on average, the managed pension plan assets will generate annual long-term rates of return of 6.30 percent. The expected long-term rate of return on the assets in the plans was based on an asset allocation assumption of approximately 35 percent with equity managers, with expected long-term rates of return of approximately 8 to 10 percent, 8 percent with hedge funds, with expected long-term rates of return of approximately 6 to 8 percent, and 57 percent with fixed income managers, with an expected long-term rate of return of about 3 to 5 percent. The actual asset allocation is regularly reviewed and periodically rebalanced to the targeted allocation when considered appropriate.

Plan Assets

Pension plan asset allocations are as follows:



	Percentage of Plan Assets At December 31,
	2017		2016
Asset Category (a)
Equity securities	35	%	36	%
Hedge fund	8	%	7	%
Debt securities	57	%	57	%
Total	100	%	100	%

(a) The asset categories do not include the insurance contract related to the Dutch pension plan.

The Company's investment objective for pension plan assets are to ensure, over the long-term life of the pension plans, an adequate pool of assets to support the benefit obligations to participants, retirees, and beneficiaries. Specifically, these objectives include the desire to: (a) invest assets in a manner such that future assets are available to fund liabilities, (b) maintain liquidity sufficient to pay current benefits when due and (c) diversify, over time, among asset classes so assets earn a reasonable return with acceptable risk to capital.

The weighted average target investment allocation and permissible allocation range for plan assets by category are as follows:



	Strategic Target		Permitted Range
Asset Category
Equity securities	35	%	30-40%
Hedge fund	8	%	3-12%
Debt securities / Fixed Income	57	%	52-62%

As of December 31, 2017, no company or group of companies in a single industry represented more than five percent of plan assets.

The Company's investment assumptions are established by an investment committee composed of members of senior management and are validated periodically against actual investment returns. As of December 31, 2017, the Company's investment assumptions are as follows:


(a)	The plan should be substantially fully invested in debt and equity securities at all times because substantial cash holdings will reduce long-term rates of return;


(b)	Equity investments will provide greater long-term returns than fixed income investments, although with greater short-term volatility;


(c)	It is prudent to diversify plan investments across major asset classes;


(d)	Allocating a portion of plan assets to foreign equities will increase portfolio diversification, decrease portfolio risk and provide the potential for long-term returns;


(e)	Investment managers with active mandates can reduce portfolio risk below market risk and potentially add value through security selection strategies, and a portion of plan assets should be allocated to such active mandates;


(f)	A component of passive, indexed management can benefit the plans through greater diversification and lower cost, and a portion of the plan assets should be allocated to such passive mandates, and


(g)	It is appropriate to retain more than one investment manager, given the size of the plans, provided that such managers offer asset class or style diversification.

For the years ended December 31, 2017, 2016 and 2015, no plan assets were invested in the Company's securities.

Cash Flows

At December 31, 2017, the Company expects to make aggregate contributions to qualified pension trusts and payments of pension benefits for unfunded pension plans in 2018 of approximately $14.7 million (based on exchange rates at December 31, 2017).

Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:



	Pension Plans		Postretirement Benefits Other than Pensions
2018	$	22.7	$	5.3
2019	24.4		4.3
2020	21.7		4.6
2021	23.4		4.9
2022	23.3		4.8
Years 2023-2027	128.1		18.1

Health Care Cost Trends

Assumed health care cost trend rates affect the amounts reported for postretirement health care benefit plans. A one percentage-point change in assumed health care cost trend rates would have the following effects:



	One Percentage- Point
	Increase		Decrease
Effect on total of service and interest cost components	$	—	$	—
Effect on post-retirement benefit other than pension obligation	0.2		(0.3		)

Defined Contribution Retirement Plans

Company contributions to defined contribution retirement plans are primarily based on the age and compensation of covered employees. Contributions to these plans, all of which were charged to expense, were $2.5 million in 2017, $2.7 million in 2016 and $2.5 million in 2015. In addition, the Company maintains a supplemental retirement contribution plan (the "SRCP") which is a non-qualified, unfunded defined contribution plan. The Company provides benefits under the SRCP to the extent necessary to fulfill the intent of its defined contribution retirement plans without regard to the limitations set by the Internal Revenue Code on qualified defined contribution plans. For the years ended December 31, 2017, 2016 and 2015, the Company recognized expense related to the SRCP of $0.4 million, $0.4 million and $0.2 million, respectively. At December 31, 2017 and December 31, 2016, the unfunded obligation of the SRCP was $1.7 million and $1.3 million, respectively.

Investment Plans

The Company provides voluntary contribution investment plans to substantially all North American employees. Under the plans, the Company matches a portion of employee contributions. For the years ended December 31, 2017, 2016 and 2015, costs charged to expense for Company matching contributions under these plans were $3.7 million, $3.1 million and $2.7 million, respectively.