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.

The Company's policy is 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. During 2018, the Company recorded a $0.8 million settlement loss in the SERP and a total payment of $2.2 million. During 2017, the Company recorded a $0.6 million settlement loss in the SERP and 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 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. 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, 2018, Neenah Germany had investments of $1.6 million that were restricted to the payment of certain post-retirement employee benefits. As of December 31, 2018, $0.5 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. Nonqualified plans providing pension benefits in excess of limitations imposed by taxing authorities are not funded; however, the Company holds $3.6 million of marketable securities that are designated for the payment of benefits under the SERP as of December 31, 2018, classified as Other Assets on the consolidated balance sheet.

During December 2018, the Company signed new collective bargaining agreements with the USW that affected hourly employees at the Munising Mill, Whiting Mill, Neenah Mill, and Neenah Finishing Center. In accordance with the new agreements, effective March 2019, the current defined benefit pension plans at these locations will be closed to new entrants, and the defined benefit pension plans will be replaced by a new defined contribution plan. All new hourly employees will participate in the new defined contribution plan, and certain hourly employees (375 of 690 employees at these locations) with less than 25 years of service will have their benefit frozen at current levels under the defined benefit plan and will begin participation in the new defined contribution plan. Hourly employees with over 25 years of service and certain other hourly employees will continue to participate in their respective defined benefit plans. There were no curtailment or amendment charges recognized due to these changes.

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

Prior to July 1, 2018, the hourly employees of the Lowville, New York facility were 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, 2018. The Company contributed 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 June 2018, the Company and representatives of the United Steelworkers Union (the "USW") of the Lowville mill reached an agreement to withdraw from the Pace Industry Union-Management Pension Fund (“PIUMPF”), effective July 1, 2018. As a result, the Company recorded an estimated withdrawal liability of $1.0 million, which assumes payment of $0.1 million per year over 20 years, discounted at a credit adjusted risk-free rate of 5.7%. In addition to the withdrawal liability, PIUMPF may also demand payment from the Company of a pro-rata share of the fund's accumulated funding deficiency. Based on the latest information available from PIUMPF, the Company estimates the demand of accumulated funding deficiency to be in the range of $1.0 to $1.25 million. The Company reserves the right to challenge any such demand and believes this demand is unenforceable. As such, the Company has not recorded a liability for this amount as of December 31, 2018. The most recent Pension Protection Act zone status available for the PIUMPF is as of year-end December 31, 2017. 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 participated prior to July 1, 2018 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, 2017, the Company's contributions to the plan were less than 5% of total plan contributions. The Company withdrew from the plan effective July 1, 2018.



Pension Fund	EIN/Pension Plan Number	Pension Zone Status 2017	FIP/RP Status Pending or Implemented	Contributions 2018	Surcharge Imposed	Expiration Date 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.

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,
	2018			2017			2018			2017
Change in Benefit Obligation:
Benefit obligation at beginning of year	$	463.9		$	370.9		$	44.0		$	40.7
Service cost	6.7			5.5			1.1			1.2
Interest cost	15.8			15.0			1.4			1.4
Currency	(4.6		)	6.8			(0.3		)	0.6
Actuarial (gain) loss	(29.3		)	33.3			1.1			3.9
Benefit payments from plans	(20.3		)	(18.1		)	(4.9		)	(3.8		)
Settlement payments	(2.2		)	(1.5		)	—			—
Net transfer in (1)	—			51.7			—			—
Other	0.7			0.3			—			—
Benefit obligation at end of year	$	430.7		$	463.9		$	42.4		$	44.0
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	400.4		$	318.1		$	—		$	—
Actual gain (loss) on plan assets	(18.9		)	38.5			—			—
Employer contributions	18.2			14.3			—			—
Currency	(2.7		)	2.2			—			—
Benefit payments	(20.3		)	(18.1		)	—			—
Settlement payments	(2.2		)	(1.5		)	—			—
Net transfers in (1)	—			46.8			—			—
Other	0.7			0.1			—			—
Fair value of plan assets at end of year	$	375.2		$	400.4		$	—		$	—
Reconciliation of Funded Status
Fair value of plan assets	$	375.2		$	400.4		$	—		$	—
Projected benefit obligation	430.7			463.9			42.4			44.0
Net liability recognized in statement of financial position	$	(55.5	)	$	(63.5	)	$	(42.4	)	$	(44.0	)
Amounts recognized in statement of financial position consist of:
Current liabilities	$	(1.7	)	$	(3.7	)	$	(5.2	)	$	(5.3	)
Noncurrent liabilities	(53.8		)	(59.8		)	(37.2		)	(38.7		)
Net amount recognized	$	(55.5	)	$	(63.5	)	$	(42.4	)	$	(44.0	)

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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 (loss) consist of:



	Pension Benefits				Postretirement Benefits Other than Pensions
	December 31,
	2018		2017		2018		2017
Accumulated actuarial loss	$	110.1	$	105.9	$	8.7	$	8.6
Prior service cost	0.7		0.8		—		(0.2		)
Total recognized in AOCI	$	110.8	$	106.7	$	8.7	$	8.4

Summary disaggregated information about the pension plans follows:



	December 31,
	Assets Exceed ABO				ABO Exceed Assets				Total
	2018		2017		2018		2017		2018		2017
Projected benefit obligation	$	130.3	$	—	$	300.4	$	463.9	$	430.7	$	463.9
Accumulated benefit obligation	125.4		—		298.5		451.4		423.9		451.4
Fair value of plan assets	128.8		—		246.4		400.4		375.2		400.4

Components of Net Periodic Benefit Cost



	Pension Benefits									Postretirement Benefits Other than Pensions
	Year Ended December 31,
	2018			2017			2016			2018			2017			2016
Service cost	$	6.7		$	5.5		$	4.9		$	1.1		$	1.2		$	1.3
Interest cost	15.8			15.0			15.9			1.4			1.4			1.6
Expected return on plan assets (a)	(21.0		)	(19.9		)	(18.9		)	—			—			—
Recognized net actuarial loss	5.2			5.6			6.6			0.8			0.3			0.6
Amortization of prior service cost (credit)	0.2			0.2			0.2			(0.2		)	(0.2		)	(0.2		)
Amount of settlement loss recognized	0.8			0.6			0.8			—			—			—
Net periodic benefit cost	$	7.7		$	7.0		$	9.5		$	3.1		$	2.7		$	3.3

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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 (Loss)



	Pension Benefits									Postretirement Benefits Other than Pensions
	Year Ended December 31,
	2018			2017			2016			2018		2017		2016
Net periodic benefit expense	$	7.7		$	7.0		$	9.5		$	3.1	$	2.7	$	3.3
Accumulated actuarial gain (loss)	4.2			10.1			11.7			0.1		3.7		(0.9		)
Prior service cost (credit)	(0.1		)	(0.1		)	(0.3		)	0.2		0.2		0.1
Total recognized in other comprehensive income (loss)	4.1			10.0			11.4			0.3		3.9		(0.8		)
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	11.8		$	17.0		$	20.9		$	3.4	$	6.6	$	2.5

The estimated net actuarial loss and prior service cost for the defined benefit pension plans expected to be amortized from AOCI into net periodic benefit cost over the next fiscal year are $5.6 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 AOCI into net periodic benefit cost over the next fiscal year is $0.8 million and $0.0 million, respectively.

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



	Pension Benefits				Postretirement Benefits Other than Pensions
	2018		2017		2018		2017
Discount rate	3.94	%	3.49	%	3.84	%	3.27	%
Rate of compensation increase	2.34	%	2.40	%	—	%	—	%
Initial healthcare cost trend rate	—	%	—	%	6.80	%	6.80	%
Ultimate healthcare cost trend rate	—	%	—	%	4.50	%	4.50	%
Ultimate year	—		—		2037		2037

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,
	2018		2017		2016		2018		2017		2016
Discount rate	3.65	%	4.18	%	4.54	%	3.42	%	3.89	%	4.07	%
Expected long-term return on plan assets (a)	5.78	%	6.31	%	6.20	%	—	%	—	%	—	%
Rate of compensation increase	2.44	%	2.49	%	2.18	%	2.50	%	—	%	—	%
Initial healthcare cost trend rate	—	%	—	%	—	%	6.80	%	7.00	%	7.30	%
Ultimate healthcare cost trend rate	—	%	—	%	—	%	4.50	%	4.50	%	4.50	%
Ultimate year	—		—		—		2037		2037		2037

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(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 a return of 6 percent. The expected long-term rate of return on the assets in the plans was based on an asset allocation assumption of approximately 33 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 58 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,
	2018		2017
Asset Category (a)
Equity securities	33	%	35	%
Hedge fund	8	%	8	%
Debt securities	58	%	57	%
Cash and money-market funds	1	%	—	%
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 is 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, 2018, no company or group of companies in a single industry represented more than 5 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, 2018, 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, 2018, 2017 and 2016, no plan assets were invested in the Company's securities.

Cash Flows

At December 31, 2018, the Company expects to make aggregate contributions to qualified pension trusts and payments of pension benefits for unfunded pension plans in 2019 of approximately $9.4 million (based on exchange rates at December 31, 2018).

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
2019	$	21.5	$	5.2
2020	21.7		4.9
2021	26.9		5.3
2022	23.0		5.3
2023	24.1		5.0
Years 2024-2028	128.3		17.6

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	0.3		(0.3		)

Defined Contribution Retirement Plans

Company contributions to defined contribution retirement plans are based on various factors for covered employees. Contributions to these plans, all of which were charged to expense, were $2.3 million in 2018, $2.5 million in 2017 and $2.7 million in 2016. 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, 2018, 2017 and 2016, the Company recognized expense related to the SRCP of $0.0 million, $0.4 million and $0.4 million, respectively. At both December 31, 2018 and December 31, 2017, the unfunded obligation of the SRCP was $1.7 million.

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, 2018, 2017 and 2016, costs charged to expense for Company matching contributions under these plans were $4.0 million, $3.7 million and $3.1 million, respectively.