EMPLOYEE BENEFITS

Pension and Other Post-employment Benefits

Pension and Other post-employment benefits—The principal pension plan is the Mead Johnson & Company Retirement Plan in the United States (“U.S. Pension Plan”) which represents approximately 84% and 73% of the Company’s total pension and other post-employment assets and obligations, respectively. The benefits of this plan are frozen as of February 9, 2014 and benefits are no longer accrued for service. The Company also provides comprehensive medical and group life benefits for substantially all U.S. and Canadian retirees who elect to participate in its comprehensive medical and group life plans. The retiree medical plan is contributory and participation is limited to those employees who participate in their respective country’s pension plan. Contributions are adjusted periodically and vary by date of retirement. The retiree life insurance plan is non-contributory.

Changes in benefit obligations, plan assets, funded status and amounts recognized in the balance sheet were as follows:



	Pension Benefits						Other Benefits
(In millions)	2014			2013			2014			2013
Beginning benefit obligations	$	404.0		$	463.6		$	32.6		$	35.1
Service cost—benefits earned during the year	4.8			5.2			0.9			1.1
Interest cost on projected benefit obligations	15.8			14.4			1.5			1.3
Actuarial assumptions (gains)/losses	44.9			(25.7		)	17.2			(3.8		)
Settlements and curtailments	(74.2		)	(50.4		)	—			—
Benefits paid	(2.8		)	(2.8		)	(0.4		)	(1.3		)
Exchange rate changes	(3.6		)	(0.3		)	(0.2		)	0.2
Benefit obligations at end of year	$	388.9		$	404.0		$	51.6		$	32.6

Beginning fair value of plan assets	$	276.1		$	312.1		$	—		$	—
Actual return on plan assets	20.7			(1.4		)	—			—
Employer contributions	4.8			18.5			0.4			0.9
Settlements	(65.1		)	(50.4		)	—			—
Benefits paid	(2.8		)	(2.8		)	(0.4		)	(1.3		)
Exchange rate changes	(2.6		)	0.1			—			0.4
Fair value of plan assets at end of year	$	231.1		$	276.1		$	—		$	—
Underfunded status at end of year	$	(157.8	)	$	(127.9	)	$	(51.6	)	$	(32.6	)

Amounts in the consolidated balance sheets include:
Other assets	$	1.7		$	1.3		$	—		$	—
Pension and other post-employment liabilities	(159.5		)	(129.2		)	(51.6		)	(32.6		)
Balance in the consolidated balance sheet at end of year	$	(157.8	)	$	(127.9	)	$	(51.6	)	$	(32.6	)

Amounts in accumulated other comprehensive loss include:
Prior service/(benefit)	0.9			1.2			(0.2		)	(0.3		)
Transition obligation	—			0.1			—			—
Balance in accumulated other comprehensive loss at end of year	$	0.9		$	1.3		$	(0.2	)	$	(0.3	)

Accumulated benefit obligation	$	353.4		$	375.7		$	51.6		$	32.6

The Company’s defined benefit pension and other post-employment benefit plans with an accumulated benefit obligation in excess of plan assets were as follows:



	Years Ended December 31,
(In millions)	2014		2013
Projected benefit obligation	$	409.0	$	366.3
Accumulated benefit obligation	405.0		356.1
Fair value of plan assets	197.1		210.8

The net periodic benefit cost of the Company’s defined benefit pension and other post-employment benefit plans includes:



	Pension Benefits									Other Benefits
	Years Ended December 31,									Years Ended December 31,
(In millions)	2014			2013			2012			2014		2013			2012
Service cost — benefits earned during the period	$	4.8		$	5.2		$	3.9		$	0.9	$	1.1		$	1.0
Interest cost on projected benefit obligations	15.8			14.4			15.6			1.5		1.3			1.3
Expected return on pension plan assets	(15.7		)	(17.1		)	(16.6		)	—		—			—
Amortization of prior service/(benefit)	—			—			—			0.2		(0.2		)	(0.2		)
Amortization of transition cost	0.1			0.1			0.1			—		—			—

Sub-total	$	5.0		$	2.6		$	3.0		$	2.6	$	2.2		$	2.1
Curtailments	(5.4		)	—			(1.4		)	—		—			—
Net actuarial (gains)/losses	39.7			(8.2		)	56.3			17.2		(3.8		)	2.6
Total Pension and Other Post-Employment Benefit costs	$	39.3		$	(5.6	)	$	57.9		$	19.8	$	(1.6	)	$	4.7

The estimated prior service and transition costs that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2015 are immaterial.

Actuarial Assumptions

Weighted-average assumptions used to determine benefit obligations are established as of the balance sheet date and were as follows:



	Pension Benefits				Other Benefits
	December 31,				December 31,
	2014		2013		2014		2013
Discount rate	3.98	%	4.08	%	4.08	%	4.98	%
Rate of compensation increase	3.24	%	3.22	%	3.06	%	3.08	%

The discount rate was determined based on the yield to maturity of high-quality corporate bonds and considering the duration of the pension plan obligations. The Aon Hewitt AA Above Median is used in developing the discount rate for the U.S. Pension Plan.

Weighted-average assumptions used to determine net periodic benefit cost are established at the beginning of the plan year and were as follows:



	Pension Benefits						Other Benefits
	Years Ended December 31,						Years Ended December 31,
	2014		2013		2012		2014		2013		2012
Discount rate	4.08	%	3.26	%	4.03	%	4.98	%	3.75	%	4.29	%
Expected long-term return on plan assets	6.16	%	5.22	%	5.65	%	—	%	—	%	—	%
Rate of compensation increase	3.22	%	3.59	%	4.00	%	3.08	%	3.48	%	3.94	%

The expected long-term return on plan assets was determined based on the target asset allocation, expected rate of return by each asset class and estimated future inflation.

For the U.S. Pension Plan, the expected long-term return on plan assets assumption to be used to determine net periodic benefit costs for the year ending December 31, 2015 is 6.60%. The expected long-term return on plan assets was determined based on the Company’s target asset allocation, expected rate of return by each asset class and estimated future inflation.

Assumed health care cost trend rates were as follows:



	December 31,
	2014		2013		2012
Health care cost trend rate assumed for next year	6.7	%	6.9	%	7.8	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.5	%	4.9	%	4.9	%
Year that the rate reaches the ultimate trend rate	2024		2023		2023

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



(In millions)	1-Percentage-Point Increase		1-Percentage-Point Decrease
Effect on total of service and interest cost	$	0.1	$	—
Increase/(decrease) in post-employment benefit obligation	0.6		(0.5		)

Plan Assets

The Company’s investment strategy for the U.S. Pension Plan assets consists of a mix of equities and fixed income in order to achieve returns over a market cycle which reduces contribution and expense at an acceptable level of risk. The target asset allocation as of December 31, 2014 was 60% public equity and 40% fixed income. Cash flow (i.e., cash contributions, benefit payments) is used to rebalance back to the targets as necessary. Investments are well diversified within each of the two major asset categories. All of the U.S. equity investments are actively managed. Investment strategies for international pension plans are typically similar, although the asset allocations are usually more conservative.

The fair values of the Company’s pension plan assets by asset category were as follows:



	December 31, 2014						December 31, 2013
(In millions)	Total		Level 1		Level 2		Total		Level 1		Level 2
Cash and cash equivalents	$	8.4	$	8.4	$	—	$	13.0	$	13.0	$	—
Equity securities:
U.S. large-cap	37.2		—		37.2		16.3		—		16.3
U.S. mid-cap growth	—		—		—		3.1		—		3.1
U.S. small-cap growth	4.9		—		4.9		0.1		—		0.1
Emerging markets	12.7		—		12.7		2.8		—		2.8
Real estate investment trusts	6.1		—		6.1		5.6		—		5.6
International large-cap value	45.1		7.5		37.6		37.0		8.5		28.5
Hedge fund	15.5		—		15.5		17.4		—		17.4
Fixed income securities:
Government bonds	40.2		—		40.2		72.8		—		72.8
Corporate bonds	55.5		—		55.5		101.7		—		101.7
Emerging markets	5.5		—		5.5		6.3		—		6.3
Total	$	231.1	$	15.9	$	215.2	$	276.1	$	21.5	$	254.6

Level 1 cash and cash equivalents, which excluded money market funds, are recorded at closing prices in active markets. Level 2 money market, equity, and fixed income funds are recorded at the net asset values per share, which were determined based on quoted market prices of the underlying assets contained within the funds. The Level 2 hedge fund is recorded at the net asset value per share, which was derived from the underlying funds’ net asset values per share; this diversified hedge fund may be redeemed quarterly with 60 days notice.

Contributions

The Company is required to make contributions estimated to be less than $3 million to its U.S. Pension Plan in 2015. However, the intention is to fund the plan to avoid potential benefit restrictions and penalties, therefore, an estimated $15 million is expected to be contributed in 2015 to the U.S. Pension Plan. Furthermore, the Company plans to fund current service and past service liabilities for other pension plans. There is not expected to be any cash funding for other post-employment benefit plans in 2015, except funding to cover benefit payments. MJN contributed $5.2 million, $19.4 million and $28.3 million to its pension and other post-employment benefit plans in 2014, 2013 and 2012, respectively.

Estimated Future Benefit Payments

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



(In millions)	Pension Benefits		Other Benefits
2015	$	29.5	$	1.4
2016	28.6		2.0
2017	29.6		2.5
2018	30.2		2.9
2019	29.3		3.3
Years 2020 - 2024	144.2		17.9

Defined Contribution Benefits

Employees who meet certain eligibility requirements may participate in various defined contribution plans. Total cost recognized for all defined contribution benefit plans were $22.5 million, $19.9 million and $21.3 million for the years ended December 31, 2014, 2013 and 2012, respectively.