BENEFIT PLANS

The principal pension plan is the Mead Johnson & Company Retirement Plan in the United States (“U.S. Pension Plan”) which represents approximately 87% and 71% 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)	2016			2015			2016			2015
Beginning benefit obligations	$	366.6		$	388.9		$	48.6		$	51.6
Service cost—benefits earned during the year	2.8			2.9			1.1			1.3
Interest cost on projected benefit obligations	11.2			13.0			1.8			2.0
Actuarial assumptions (gains)/losses	(1.8		)	(3.0		)	(0.2		)	(5.5		)
Settlements and curtailments	(42.5		)	(25.9		)	—			—
Benefits paid	(3.9		)	(4.7		)	(0.1		)	(0.5		)
Exchange rate changes	(2.2		)	(4.6		)	0.1			(0.3		)
Benefit obligations at end of year	$	330.2		$	366.6		$	51.3		$	48.6

Beginning fair value of plan assets	$	284.5		$	231.1		$	—		$	—
Actual return on plan assets	22.5			(2.1		)	—			—
Employer contributions	19.2			89.6			0.1			0.5
Settlements	(42.5		)	(25.9		)	—			—
Benefits paid	(3.9		)	(4.7		)	(0.1		)	(0.5		)
Exchange rate changes	(0.8		)	(3.5		)	—			—
Fair value of plan assets at end of year	$	279.0		$	284.5		$	—		$	—
Underfunded status at end of year	$	(51.2	)	$	(82.1	)	$	(51.3	)	$	(48.6	)

Amounts in the consolidated balance sheets include:
Other assets	$	3.4		$	3.3		$	—		$	—
Current liabilities	(1.7		)	(1.6		)	—			—
Pension and other post-employment liabilities	(52.9		)	(83.8		)	(51.3		)	(48.6		)
Balance in the consolidated balance sheet at end of year	$	(51.2	)	$	(82.1	)	$	(51.3	)	$	(48.6	)

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

Accumulated benefit obligation	$	320.2		$	354.9		$	51.3		$	48.6

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)	2016		2015
Projected benefit obligation	$	352.3	$	386.8
Accumulated benefit obligation	349.3		383.2
Fair value of plan assets	246.5		253.1

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)	2016			2015			2014			2016			2015			2014
Service cost — benefits earned during the period	$	2.8		$	2.9		$	4.8		$	1.1		$	1.3		$	0.9
Interest cost on projected benefit obligations	11.2			13.0			15.8			1.8			2.0			1.5
Expected return on pension plan assets	(16.9		)	(14.7		)	(15.7		)	—			—			—
Amortization of prior service/(benefit)	0.1			—			—			(0.1		)	—			0.2
Amortization of transition cost	—			0.1			0.1			—			—			—
Net periodic benefit cost	$	(2.8	)	$	1.3		$	5.0		$	2.8		$	3.3		$	2.6
Curtailments	—			—			(5.4		)	—			—			—
Net actuarial (gains)/losses	(7.2		)	13.7			39.7			(0.2		)	(5.5		)	17.2
Total net periodic expense/(benefit)	$	(10.0	)	$	15.0		$	39.3		$	2.6		$	(2.2	)	$	19.8

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,
	2016		2015		2016		2015
Discount rate	4.11	%	4.32	%	4.19	%	4.47	%
Rate of compensation increase	5.70	%	6.09	%	4.00	%	4.00	%

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,
	2016		2015		2014		2016		2015		2014
Discount rate	4.32	%	3.98	%	4.08	%	4.44	%	4.08	%	4.98	%
Expected long-term return on plan assets	5.99	%	6.25	%	6.16	%	—	%	—	%	—	%
Rate of compensation increase	5.90	%	3.24	%	3.22	%	4.00	%	2.83	%	3.08	%

The discount rate used to determine periodic service cost and interest costs of the overall benefit costs for the year ending December 31, 2017 will be based on spot rates derived from the same high-quality corporate bond yield curve used to determine the December 31, 2016

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, 2017 is 6.20%.

Assumed health care cost trend rates were as follows:



	December 31,
	2016		2015		2014
Health care cost trend rate assumed for next year	7.5	%	7.6	%	6.7	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.5	%	4.5	%	4.5	%
Year that the rate reaches the ultimate trend rate	2025		2024		2024

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	0.6		(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, 2016 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, 2016				December 31, 2015
(Dollars in millions)	Total		Level 1		Total		Level 1
Cash and cash equivalents	$	21.0	$	21.0	$	11.1	$	11.1
Equity securities:
U.S. large-cap	45.6		—		38.1		—
U.S. small-cap growth	4.3		—		5.5		—
Emerging markets	15.8		—		14.3		—
Real estate investment trusts	15.0		—		6.8		—
International large-cap value	31.7		—		48.2		—
Hedge fund	13.4		—		12.7		—
Fixed income securities:
Government bonds	42.3		—		48.1		—
Corporate bonds	85.8		—		94.7		—
Emerging markets	4.1		—		5.0		—
Total	$	279.0	$	21.0	$	284.5	$	11.1

Level 1 cash and cash equivalents, which excluded money market funds, are recorded at closing prices in active markets. Money market, equity, and fixed income funds recorded at the net asset values per share, which were determined based on quoted market prices of the underlying assets contained within the funds are excluded from the fair value hierarchy. The 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 2017. However, the intention is to fund the plan to avoid potential benefit restrictions and penalties, therefore, an estimated $5.0 million is expected to be contributed in 2017 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 2017, except funding to cover benefit payments. MJN contributed $19.3 million, $90.1 million and $5.2 million to its pension and other post-employment benefit plans in 2016, 2015 and 2014, 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
2017	$	32.7	$	2.5
2018	29.5		2.9
2019	28.9		3.2
2020	29.1		3.4
2021	25.1		3.6
Years 2022 - 2026	111.4		18.5

Lump Sum Settlements

A lump sum settlement window was offered to approximately 300 terminated, vested participants in the U.S. Pension Plan. This window expired on September 30, 2016 and approximately 40% of these participants accepted the offer. Payments to participants who accepted the offer were made in the fourth quarter of 2016 and totaled $15.7 million. This amount is included in the Settlements and curtailments line of the table above which details the changes in benefit obligations, plan assets, funded status and amounts recognized in the balance sheet. There was no impact to the Company’s results of operations related to this settlement.

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 $22.2 million, $23.4 million and $22.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.