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 88% 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. The Company also provides comprehensive medical and group life benefits for substantially all U.S. and Canadian retirees who elect to participate. 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
(Dollars in millions)	2015			2014			2015			2014
Beginning benefit obligations	$	388.9		$	404.0		$	51.6		$	32.6
Service cost—benefits earned during the year	2.9			4.8			1.3			0.9
Interest cost on projected benefit obligations	13.0			15.8			2.0			1.5
Actuarial assumptions (gains)/losses	(3.0		)	44.9			(5.5		)	17.2
Settlements and curtailments	(25.9		)	(74.2		)	—			—
Benefits paid	(4.7		)	(2.8		)	(0.5		)	(0.4		)
Exchange rate changes	(4.6		)	(3.6		)	(0.3		)	(0.2		)
Benefit obligations at end of year	$	366.6		$	388.9		$	48.6		$	51.6

Beginning fair value of plan assets	$	231.1		$	276.1		$	—		$	—
Actual return on plan assets	(2.1		)	20.7			—			—
Employer contributions	89.6			4.8			0.5			0.4
Settlements	(25.9		)	(65.1		)	—			—
Benefits paid	(4.7		)	(2.8		)	(0.5		)	(0.4		)
Exchange rate changes	(3.5		)	(2.6		)	—			—
Fair value of plan assets at end of year	$	284.5		$	231.1		$	—		$	—
Underfunded status at end of year	$	(82.1	)	$	(157.8	)	$	(48.6	)	$	(51.6	)

Amounts in the consolidated balance sheets include:
Other assets	$	3.3		$	1.7		$	—		$	—
Current liabilities	(1.6		)	—			—			—
Pension and other post-employment liabilities	(83.8		)	(159.5		)	(48.6		)	(51.6		)
Balance in the consolidated balance sheet at end of year	$	(82.1	)	$	(157.8	)	$	(48.6	)	$	(51.6	)

Amounts in accumulated other comprehensive loss include:
Prior service/(benefit) and Transition Obligation	0.9			0.9			(0.1		)	(0.2		)
Balance in accumulated other comprehensive loss at end of year	$	0.9		$	0.9		$	(0.1	)	$	(0.2	)

Accumulated benefit obligation	$	354.9		$	353.4		$	48.6		$	51.6

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,
(Dollars in millions)	2015		2014
Projected benefit obligation	$	386.8	$	409.0
Accumulated benefit obligation	383.2		405.0
Fair value of plan assets	253.1		197.1

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,
(Dollars in millions)	2015			2014			2013			2015			2014		2013
Service cost — benefits earned during the period	$	2.9		$	4.8		$	5.2		$	1.3		$	0.9	$	1.1
Interest cost on projected benefit obligations	13.0			15.8			14.4			2.0			1.5		1.3
Expected return on pension plan assets	(14.7		)	(15.7		)	(17.1		)	—			—		—
Amortization of prior service/(benefit)	—			—			—			—			0.2		(0.2		)
Amortization of transition cost	0.1			0.1			0.1			—			—		—

Sub-total	$	1.3		$	5.0		$	2.6		$	3.3		$	2.6	$	2.2
Curtailments	—			(5.4		)	—			—			—		—
Net actuarial (gains)/losses	13.7			39.7			(8.2		)	(5.5		)	17.2		(3.8		)
Total Pension and Other Post-Employment Benefit costs	$	15.0		$	39.3		$	(5.6	)	$	(2.2	)	$	19.8	$	(1.6	)

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,
	2015		2014		2015		2014
Discount rate	4.32	%	3.98	%	4.47	%	4.08	%
Rate of compensation increase	6.09	%	3.24	%	4.00	%	3.06	%

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 yield curve is used in developing the discount rate for the U.S. Pension Plan. Compensation rate increases represent the weighted average of plans that are not frozen and therefore excludes 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,
	2015		2014		2013		2015		2014		2013
Discount rate	3.98	%	4.08	%	3.26	%	4.08	%	4.98	%	3.75	%
Expected long-term return on plan assets	6.25	%	6.16	%	5.22	%	—	%	—	%	—	%
Rate of compensation increase	3.24	%	3.22	%	3.59	%	2.83	%	3.08	%	3.48	%

The discount rate used to determine periodic service cost and interest costs of the overall benefit costs for the year ending December 31, 2016 will be based on spot rates derived from the same high-quality corporate bond yield curve used to determine the December 31, 2015

benefit obligation matched with separate cash flows for each future year.

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, 2016 is 6.20%.

Assumed health care cost trend rates were as follows:



	December 31,
	2015		2014		2013
Health care cost trend rate assumed for next year	7.6	%	6.7	%	6.9	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.5	%	4.5	%	4.9	%
Year that the rate reaches the ultimate trend rate	2024		2024		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:



(Dollars in millions)	1-Percentage-Point Increase		1-Percentage-Point Decrease
Effect on total of service and interest cost	$	—	$	—
Increase/(decrease) in post-employment benefit obligation	0.5		(0.4		)

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, 2015 was 50% public equity and 50% 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, 2015						December 31, 2014
(Dollars in millions)	Total		Level 1		Level 2		Total		Level 1		Level 2
Cash and cash equivalents	11.1		11.1		—		8.4		8.4		—
Equity securities:
U.S. large-cap	38.1		—		38.1		37.2		—		37.2
U.S. small-cap growth	5.5		—		5.5		4.9		—		4.9
Emerging markets	14.3		—		14.3		12.7		—		12.7
Real estate investment trusts	6.8		—		6.8		6.1		—		6.1
International large-cap value	48.2		8.1		40.1		45.1		7.5		37.6
Hedge fund	12.7		—		12.7		15.5		—		15.5
Fixed income securities:
Government bonds	48.1		—		48.1		40.2		—		40.2
Corporate bonds	94.7		—		94.7		55.5		—		55.5
Emerging markets	5.0		—		5.0		5.5		—		5.5
Total	$	284.5	$	19.2	$	265.3	$	231.1	$	15.9	$	215.2

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 not required to make contributions to its U.S. Pension Plan in 2016. However, the intention is to fund the plan to avoid potential benefit restrictions and penalties, therefore, an estimated $15.0 million is expected to be contributed in 2016 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 2016, except funding to cover benefit payments. MJN contributed $90.1 million, $5.2 million and $19.4 million to its pension and other post-employment benefit plans in 2015, 2014 and 2013, respectively.

Estimated Future Benefit Payments

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



(Dollars in millions)	Pension Benefits		Other Benefits
2016	$	33.5	$	1.5
2017	29.6		2.0
2018	28.8		2.5
2019	28.9		2.9
2020	29.2		3.3
Years 2021 - 2025	138.0		19.0

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 was $23.4 million, $22.5 million and $19.9 million for the years ended December 31, 2015, 2014 and 2013, respectively.