NOTE 10. PENSION PLANS

Certain of our non-U.S. employees participate in noncontributory defined benefit pension plans. In general, our policy is to fund these plans based on considerations relating to legal requirements, underlying asset returns, the plan’s funded status, the anticipated deductibility of the contribution, local practices, market conditions, interest rates and other factors. During 2017, we completed the acquisition of a company with a frozen U.S. pension plan, and, as such, there are no ongoing benefit accruals associated with the acquired U.S. pension plan. Prior to the completed acquisition we did not have any U.S. noncontributory defined benefit pension plans.

The following sets forth the funded status of our plans as of the most recent actuarial valuations using measurement dates of December 31 ($ in millions):



	U.S. Pension Benefits			Non-U.S. Pension Benefits
	2017			2017			2016
Change in pension benefit obligation:
Benefit obligation at beginning of year	$	—		$	335.4		$	326.9
Service cost	—			4.0			3.5
Interest cost	0.3			5.9			7.4
Employee contributions	—			1.5			1.5
Benefits paid and other	(0.2		)	(11.1		)	(12.8		)
Plan combinations/acquisitions	33.1			1.5			2.8
Actuarial loss (gain)	0.5			(10.7		)	32.2
Amendments, settlements and curtailments	—			(17.6		)	(1.6		)
Foreign exchange rate impact	—			36.0			(24.5		)
Benefit obligation at end of year	33.7			344.9			335.4
Change in plan assets:
Fair value of plan assets at beginning of year	—			198.1			196.7
Actual return on plan assets	0.5			(9.4		)	17.9
Employer contributions	—			10.6			10.7
Employee contributions	—			1.5			1.5
Amendments and settlements	—			(5.1		)	(0.5		)
Benefits paid and other	(0.2		)	(11.1		)	(12.8		)
Plan combinations/acquisitions	25.5			0.9			1.8
Foreign exchange rate impact	—			19.7			(17.2		)
Fair value of plan assets at end of year	25.8			205.2			198.1
Funded status	$	(7.9	)	$	(139.7	)	$	(137.3	)

The difference between the accumulated benefit obligation and the projected benefit obligation as of December 31, 2017 and 2016 is immaterial.

Weighted average assumptions used to determine benefit obligations at date of measurement



	U.S. Pension Plans		Non-U.S. Pension Plans
	2017		2017		2016
Discount rate	3.73	%	1.96	%	1.91	%
Rate of compensation increase	N/A		2.31	%	2.89	%

Components of net periodic pension cost



	U.S. Pension Benefits			Non-U.S. Pension Benefits
($ in millions)	2017			2017			2016
Service cost	$	—		$	4.0		$	3.5
Interest cost	0.3			5.9			7.4
Expected return on plan assets	(0.3		)	(7.4		)	(8.1		)
Amortization of net loss	—			4.6			5.3
Net curtailment and settlement loss recognized	—			0.9			0.2
Net periodic pension cost	$	—		$	8.0		$	8.3

Net periodic pension costs are included in cost of sales and SG&A in the accompanying Consolidated and Combined Statements of Earnings according to the classification of the participant’s compensation.

Included in accumulated other comprehensive income (loss) as of December 31, 2017 are the following amounts that have not yet been recognized in net periodic pension cost: unrecognized prior service cost of $0.1 million ($0.1 million, net of tax) and unrecognized actuarial losses of approximately $95 million ($73 million, net of tax). The unrecognized prior service cost included in accumulated other comprehensive income (loss) and expected to be recognized in net periodic pension cost during the year ending December 31, 2018 is immaterial. The actuarial losses included in accumulated other comprehensive income (loss) and expected to be recognized in net periodic pension cost during the year ending December 31, 2018 is $4 million ($3 million, net of tax). The unrecognized losses are calculated as the difference between the actuarially determined projected benefit obligation, the value of the plan assets and the accumulated contributions in excess of net periodic pension cost as of December 31, 2017. No plan assets are expected to be returned to us during the year ending December 31, 2018.

Weighted average assumptions used to determine net periodic pension cost at date of measurement



	U.S. Pension Plans		Non-U.S. Pension Plans
	2017		2017		2016
Discount rate	3.83	%	1.91	%	2.63	%
Expected return on plan assets	5.75	%	3.58	%	4.19	%
Rate of compensation increase	N/A		2.89	%	2.77	%

The discount rates reflect the market rate on December 31 for high-quality fixed-income investments with maturities corresponding to our benefit obligations and is subject to change each year. For non-U.S. plans rates appropriate for each plan are determined based on investment grade instruments with maturities approximately equal to the average expected benefit payout under the plan.

The expected rates of return reflects the asset allocation of the plans. This rate is based primarily on broad publicly-traded-equity and fixed-income indices and forward-looking estimates of active portfolio and investment management. The expected rates of return on asset assumptions for the non-U.S. plans were determined on a plan-by-plan basis based on the composition of assets and ranged from 1.75% to 6.00% in both 2017 and 2016.

Plan Assets

Plan assets are invested in various insurance contracts and equity and debt securities as determined by the administrator of each plan. Some of these investments, consisting of mutual funds and other private investments, are valued using the net asset value (“NAV”) method as a practical expedient. The investments valued using the NAV method are allocated across a broad array of funds and diversify the portfolio. The value of the plan assets directly affects the funded status of our pension plans recorded in the financial statements.

The fair values of our pension plan assets as of December 31, 2017, by asset category were as follows ($ in millions):



	Quoted Prices in Active Market (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and equivalents	$	5.6	$	—	$	—	$	5.6
Fixed income securities:
Corporate bonds	—		0.3		—		0.3
Mutual funds	—		9.7		—		9.7
Insurance contracts	—		1.8		—		1.8
Total	$	5.6	$	11.8	$	—	$	17.4
Investments measured at NAV^(a):
Mutual funds							211.7
Other private investments							1.9
Total assets at fair value							$	231.0

^(a)The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the total fair value of plan assets.

The fair values of our pension plan assets as of December 31, 2016, by asset category were as follows ($ in millions):



	Quoted Prices in Active Market (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and equivalents	$	4.4	$	—	$	—	$	4.4
Fixed income securities:
Corporate bonds	—		0.3		—		0.3
Mutual funds	—		7.7		—		7.7
Insurance contracts	—		1.4		—		1.4
Total	$	4.4	$	9.4	$	—	$	13.8
Investments measured at NAV^(a):
Mutual funds							179.8
Other private investments							4.5
Total assets at fair value							$	198.1

^(a) The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the total fair value of plan assets.

Certain mutual funds are valued at the quoted closing price reported on the active market on which the individual securities are traded. Common stock, corporate bonds and mutual funds that are not traded on an active market are valued at quoted prices reported by investment brokers and dealers based on the underlying terms of the security and comparison to similar securities traded on an active market.

Certain mutual funds and other private investments are valued using NAV based on the information provided by the asset fund managers, which reflects the plan’s share of the fair value of the net assets of the investment. Depending on the nature of the assets, the underlying investments are valued using a combination of either discounted cash flows, earnings and market multiples, third party appraisals or through reference to the quoted market prices of the underlying investments held by the venture, partnership or private entity where available. In addition, some of these investments have limits on their redemption to monthly, quarterly, semiannually or annually and may require up to 90 days prior written notice. Valuation adjustments reflect changes in operating results, financial condition or prospects of the applicable portfolio company.

The methods described above may produce a fair value estimate that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe the valuation methods are appropriate and consistent with the methods used by other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Expected Contributions

During 2017, we contributed $11 million to our non-U.S. defined benefit pension plans. During 2018, our cash contribution requirements for our non-U.S. defined benefit pension plans are expected to be approximately $10 million. We do not expect to make contributions to the U.S. plan during 2018.

The following sets forth benefit payments to participants, which reflect expected future service, as appropriate, expected to be paid by the plans in the periods indicated ($ in millions):



	U.S. Pension Plans		Non-U.S. Pension Plans		All Pension Plans
2018	$	1.1	$	13.2	$	14.3
2019	1.3		13.1		14.4
2020	1.3		14.0		15.3
2021	1.5		13.9		15.4
2022	1.6		15.7		17.3
2023-2027	9.0		73.5		82.5

Defined Contribution Plans

We administer and maintain 401(k) Programs. Contributions are determined based on a percentage of compensation. We recognized compensation expense for our participating U.S. employees in the 401(k) Programs totaling $52 million in 2017, $50 million in 2016 and $26 million in 2015.