Retirement Plans

Prior to the Separation, WestRock offered various long-term benefits to its employees, including Ingevity employees. In these cases, the participation of our employees in these plans is reflected in the Consolidated Financial Statements as though Ingevity participated in a multi-employer plan with the other businesses of WestRock. For periods prior to the Separation, assets and liabilities of such plans were retained by WestRock. Net periodic benefit costs allocated to Ingevity associated with these pension plans, prior to the Separation, for the years ended December 31, 2016 and 2015 were $3.2 million and $7.8 million, respectively. This allocated net periodic benefit cost is included in the overall allocations from WestRock, discussed further in Note 12. The adoption of ASU 2017-07, as further discussed in Note 4, had no impact on these allocated balances.

Defined Contribution Plans

U.S. Ingevity employees ceased participating in the WestRock 401(k) plan on December 31, 2015 preceding the Separation. Effective January 1, 2016, the Ingevity Corporation Retirement Savings Plan ("Plan") was established. The Plan is a qualified salary-reduction plan under Section 401(k) of the U.S. Internal Revenue Code. Eligible U.S. employees may participate by contributing a portion of their compensation. For non-union eligible employees participating in the Plan Ingevity makes matching contributions up to six percent of the employee deferral. In addition to the matching contributions, Ingevity also makes a non-elective contribution of three percent of eligible compensation per payroll for non-union employees. For union eligible employees participating in the Plan Ingevity makes matching contributions up to 100 percent of the first three percent of the employee deferrals and 50 percent on the next two percent of deferrals.

U.S. salaried employees who were no longer eligible to participate in the WestRock defined benefit pension plan, as of the date of Separation, were provided an enhanced contribution into the Plan. The enhanced benefits consist of a transition contribution of four or ten percent of the employee’s eligible compensation for employees who were grandfathered in the WestRock cash balance and final average pay pension plan, respectively. The transition contributions will continue to December 31, 2020, unless the grandfathered employee terminates employment sooner.

Charges associated with employer contributions to the Plan were $9.3 million and $7.7 million for the years ended December 31, 2017 and 2016, respectively.

Defined Benefit Pension and Postretirement Plans

In conjunction with the Separation, Ingevity employees stopped participating in WestRock pension and post-retirement benefit plans. On May 16, 2016, Ingevity established new qualified and non-qualified benefit plans, similar in design to the WestRock plans, to continue the pension and post-retirement benefits provided to our employees and retirees based on the obligations assumed from WestRock. As further defined by the EMA, Ingevity assumed certain domestic and international pension and other post-retirement benefit obligations from WestRock on the date of Separation. The assumed retirement obligations consisted of accrued defined benefit obligations earned by Ingevity domestic hourly union employees, as of the day of Separation, net of contributed assets; accrued obligations from a frozen non-qualified defined benefit pension plan for certain salaried and former salaried employees of Ingevity; and other post-retirement medical and life insurance benefits.

We are required to recognize in our consolidated balance sheets the overfunded and underfunded status of our defined benefit postretirement plans. The overfunded and underfunded status is defined as the difference between the fair value of plan assets and the projected benefit obligation. We are also required to recognize, as a component of other comprehensive income, the actuarial gains and losses and the prior service costs and credits that arise during the period.

The following table summarizes the weighted average assumptions used and components of our defined benefit postretirement plans. The following tables also reflect a measurement date of December 31:



	Pensions						Other Benefits
	December 31,
In millions, except percentages	2017			2016			2017			2016
Following are the weighted average assumptions used to determine the benefit obligations at December 31:
Discount rate - qualified benefit plans	3.55		%	4.10		%	—		%	—		%
Discount rate - non-qualified benefit plans	3.55		%	4.15		%	3.45		%	3.95		%
Rate of compensation increase	N/A			N/A			N/A			N/A
Change in projected benefit obligation
Project benefit obligation at beginning of period ⁽¹⁾	$	24.4		$	24.2		$	0.7		$	0.8
Service cost	1.2			0.7			—			—
Interest cost	1.0			0.6			—			—
Actuarial loss (gain)	2.0			(1.1		)	0.1			(0.1		)
Plan amendments	0.6			—			—			—
Benefit payments	(0.4		)	—			—			—
Projected benefit obligation at December 31 ⁽²⁾	28.8			24.4			0.8			0.7
Change in plan assets
Fair value of plan asset at beginning of period ⁽¹⁾	19.2			19.8			—			—
Actual return on plan assets	2.4			(1.6		)	—			—
Company contributions	1.4			1.0			—			—
Benefit payments	(0.4		)	—			—			—
Fair value of plan assets at December 31	22.6			19.2			—			—
Funded Status
Net Funded Status of the Plan (Liability)	$	(6.2	)	$	(5.2	)	$	(0.8	)	$	(0.7	)

Amount recognized in the consolidated balance sheets:
Pension and other postretirement benefit asset ⁽³⁾	$	—		$	—		$	—		$	—
Pension and other postretirement benefit (liability) ⁽³⁾	(6.2		)	(5.2		)	(0.8		)	(0.7		)
Total Net Funded Status of the Plan (Liability)	$	(6.2	)	$	(5.2	)	$	(0.8	)	$	(0.7	)

_______________


(1)	Beginning of period is January 1, 2017 and May 16, 2016 for 2017 and 2016, respectively.


(2)	The accumulated benefit obligation for all years presented equals the projected benefit obligation, for each plan respectively.


(3)	Asset balance is included in "Other assets" and liability balances are included in "Other liabilities" on the consolidated balance sheet.

Amounts Recognized in Other Comprehensive Income (Loss)

Changes in plan assets and benefit obligations recognized in other comprehensive income (loss) are as follows:



	Pensions				Other Benefits
	Years Ended December 31,
In millions	2017		2016		2017		2016
Current year net actuarial loss (gain)	$	1.1	$	0.9	$	0.1	$	(0.1	)
Current year prior service cost (credit)	—		0.1		—		—
Total recognized in other comprehensive (income) loss, before taxes	1.1		1.0		0.1		(0.1		)
Total recognized in other comprehensive (income) loss, after taxes	$	0.7	$	0.5	$	—	$	0.1

_______________


(1)	This also represents the accumulated other comprehensive income (loss), net of tax as of December 31, 2017 and 2016.

The estimated net actuarial loss and prior service cost that will be amortized from accumulated other comprehensive income (loss) into our net annual benefit cost during 2018 are zero and less than $0.1 million, respectively.

Net Annual Benefit Costs Assumptions

The following table summarizes the weighted-average assumptions used for the components of net annual benefit cost:



	Pensions						Other Benefits
	Years Ended December 31,
In millions, except percentages	2017			2016			2017			2016
Discount rate - qualified benefit plans ⁽¹⁾	4.10		%	4.00		%	—		%	—		%
Discount rate - non-qualified benefit plans ⁽¹⁾	4.15		%	3.75		%	3.95		%	3.75		%
Expected return on plan assets	4.50		%	4.50		%	N/A			N/A
Components of net annual benefit cost:
Service cost⁽²⁾	$	1.2		$	0.7		$	—		$	—
Interest cost⁽³⁾	1.0			0.6			—			—
Expected return on plan assets⁽³⁾	(0.9		)	(0.6		)	—			—
Amortization of prior service cost⁽³⁾	—			—			—			—
Amortization of net actuarial and other (gain) loss⁽³⁾	—			—			—			—
Net annual benefit cost	$	1.3		$	0.7		$	—		$	—

_______________

(1)

The discount rate used to calculate pension and other post-retirement obligations was based on a review of available yields on high-quality corporate bonds. In selecting a discount rate, we placed particular emphasis on a discount rate yield-curve provided by our third-party actuary which takes into consideration the projected cash flows that represent the expected timing and amount of our plans' benefit payments.


(2)	Amounts are recorded to "Cost of sales" on our consolidated statements of operations consistent with the employee compensation costs that participate in the plan.


(3)	Amounts are recorded to "Other (income) expense, net" on our consolidated statements of operations.

Contributions

We made a voluntary cash contribution of $1.2 million to our Union Hourly defined benefit pension plan in the year ended December 31, 2017. There are no required cash contributions to our Union Hourly defined benefit pension plan in 2018, and we currently have no plans to make any voluntary cash contributions in 2018.

Fair Value Hierarchy

The following table presents our fair value hierarchy for our major categories of pension plan assets by asset class. See Note 5 for the definition of fair value and the descriptions of Level 1, 2 and 3 in the fair value hierarchy.



In millions	December 31, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and short-term investments	$	0.5	$	0.5	$	—	$	—
Equity funds and other investments	2.7		2.7		—		—
Fixed income mutual funds	19.4		1.4		18.0		—
Total assets	$	22.6	$	4.6	$	18.0	$	—

In millions	December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and short-term investments	$	0.4	$	0.4	$	—	$	—
Equity funds and other investments	2.3		2.3		—		—
Fixed income mutual funds	16.5		1.1		15.4		—
Total assets	$	19.2	$	3.8	$	15.4	$	—

Estimated Future Benefit Payments

The following table reflects the estimated future benefit payments for our pension and other postretirement benefit plans. These estimates take into consideration expected future service, as appropriate.



In millions	Pensions		Other Benefits
2018	$	0.3	$	—
2019	0.5		$	—
2020	0.6		—
2021	0.8		—
2022	0.9		—
2023-2027	$	6.5	$	0.2

Sensitivity Analysis

A one-half percent increase in the assumed discount rate would have decreased pension benefit obligations by $2.1 million at December 31, 2017 and decreased pension benefit costs by $0.1 million for 2017. A one-half percent decrease in the assumed discount rate would have increased pension obligations by $2.4 million at December 31, 2017 and increased pension benefit cost by $0.2 million for 2017.

A one-half percent increase in the assumed expected long-term rate of return on plan assets would have decreased pension costs by $0.1 million for 2017. A one-half percent decrease in the assumed long-term rate of return on plan assets would have increased pension costs by $0.1 million for 2017.