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Postretirement Benefit Plans
 12 Months Ended
Dec. 31, 2019
Postemployment Benefits [Abstract]  
Postretirement Benefit Plans
POSTRETIREMENT BENEFIT PLANS
Defined Contribution Plans
Substantially all of ITT’s U.S. and certain international employees are eligible to participate in a defined contribution plan. ITT sponsors numerous defined contribution savings plans, which allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. Certain plans require us to match a portion of the employee contributions. Company contributions charged to expense amounted to $17.6, $17.1 and $16.7 for 2019, 2018 and 2017, respectively.
The ITT Stock Fund, an investment option in our U.S. based defined contribution plan, is considered an employee stock ownership plan and, as a result, participants in the ITT Stock Fund may receive dividends in cash or may reinvest such dividends into the ITT Stock Fund. The ITT Stock Fund held approximately 0.2 shares of ITT common stock at December 31, 2019.
Defined Benefit Plans
ITT sponsors numerous defined benefit pension plans which have approximately 1,800 active participants. As of December 31, 2019, of our total projected benefit obligation, our U.S. plans represented 76% and international pension plans represented 24%. The U.S. plans are frozen. International plan benefits are primarily determined based on participant years of service, future compensation, and age at retirement or termination.
ITT also provides health care and life insurance benefits for eligible U.S. employees upon retirement. In some cases, the plan is still open to certain union employees, but for the majority of our businesses these plans are closed to new participants. The majority of the liability pertains to retirees with postretirement medical insurance.
U.S. Qualified Pension Plan Termination
On February 19, 2020, the Company’s Board of Directors conditionally authorized the termination of our U.S. qualified pension plan by offering lump sum distributions to certain participants and transferring the plan’s remaining benefit obligations to an insurance company through one or more group annuity contracts. The current projected benefit obligation is $296. Ultimate plan termination is subject to certain considerations, including regulatory review, interest rates and annuity pricing. If we proceed with the termination of the plan, the transaction is expected to occur in the second half of 2020 and would be funded with plan assets, $319.9 as of December 31, 2019. Any additional funding, if necessary, would be made with cash. Our investment strategy has since been updated to reduce risk by increasing the asset allocation to 100% fixed income and cash (see investment policy below). At the time such a transaction were to close, an insurance company (or companies) would assume responsibility for paying and administering pension benefits that had been an obligation of the plan to plan participants and their beneficiaries. Upon transfer of the pension obligation, we expect to recognize a non-cash pension settlement charge of approximately $130 to $140 before tax, which includes recognition of the remaining pension losses, currently recorded in accumulated other comprehensive loss, and derecognition of the net assets of the plan. As a result of the plan transfer, the amount of benefits to be received by participants will not be impacted and will be protected by state guaranty associations.
Balance Sheet Information
The following table provides a summary of the funded status of our postretirement benefit plans and the presentation of the funded status within our Consolidated Balance Sheet as of December 31, 2019 and 2018.
 
2019
 
2018
 
Pension

 
Other
Benefits

 
Total

 
Pension

 
Other
Benefits

 
Total

Fair value of plan assets
$
320.5

 
$
1.3

 
$
321.8

 
$
278.4

 
$
2.9

 
$
281.3

Projected benefit obligation
408.8

 
116.6

 
525.4

 
381.2

 
118.6

 
499.8

Funded status
$
(88.3
)
 
$
(115.3
)
 
$
(203.6
)
 
$
(102.8
)
 
$
(115.7
)
 
$
(218.5
)
Amounts reported within:
 
 
 
 
 
 
 
 
 
 
 
Non-current assets
$
24.5

 
$
—

 
$
24.5

 
$
1.7

 
$
—

 
$
1.7

Accrued liabilities
(4.9
)
 
(9.3
)
 
(14.2
)
 
(4.1
)
 
(7.9
)
 
(12.0
)
Non-current liabilities
(107.9
)
 
(106.0
)
 
(213.9
)
 
(100.4
)
 
(107.8
)
 
(208.2
)

A portion of our projected benefit obligation includes amounts that have not yet been recognized as expense in our results of operations. Such amounts are recorded within accumulated other comprehensive loss until they are amortized as a component of net periodic postretirement cost. The following table provides a summary of amounts recorded within accumulated other comprehensive loss at December 31, 2019 and 2018.
 
2019
 
2018
 
Pension

 
Other
Benefits

 
Total

 
Pension

 
Other
Benefits

 
Total

Net actuarial loss
$
143.4

 
$
37.8

 
$
181.2

 
$
148.7

 
$
36.7

 
$
185.4

Prior service cost (benefit)
0.4

 
(32.2
)
 
(31.8
)
 
1.1

 
(39.0
)
 
(37.9
)
Total
$
143.8

 
$
5.6

 
$
149.4

 
$
149.8

 
$
(2.3
)
 
$
147.5


The following tables provide a rollforward of the benefit obligation, plan assets and funded status for our U.S. and international pension plans and our other employee-related defined benefit plans for the years ended December 31, 2019 and 2018.
 
2019
 
2018
 
U.S.

 
Int’l

 
Other Benefits

 
Total

 
U.S.

 
Int’l

 
Other Benefits

 
Total

Change in benefit obligation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Benefit obligation – January 1
$
291.8

 
$
89.4

 
$
118.6

 
$
499.8

 
$
325.7

 
$
93.3

 
$
138.1

 
$
557.1

Service cost
0.2

 
1.2

 
0.7

 
2.1

 
0.4

 
1.3

 
0.9

 
2.6

Interest cost
11.1

 
1.5

 
4.0

 
16.6

 
10.1

 
1.4

 
4.5

 
16.0

Amendments
—

 
—

 
1.7

 
1.7

 
—

 
(0.1
)
 
—

 
(0.1
)
Actuarial loss (gain)
31.0

 
10.4

 
3.6

 
45.0

 
(18.9
)
 
0.9

 
(15.8
)
 
(33.8
)
Benefits paid
(23.7
)
 
(3.0
)
 
(12.0
)
 
(38.7
)
 
(19.6
)
 
(3.0
)
 
(9.1
)
 
(31.7
)
Acquired
—

 
0.5

 
—

 
0.5

 
—

 
—

 
—

 
—

Settlement
—

 
—

 
—

 
—

 
(5.9
)
 
(0.4
)
 
—

 
(6.3
)
Foreign currency translation
—

 
(1.6
)
 
—

 
(1.6
)
 
—

 
(4.0
)
 
—

 
(4.0
)
Benefit obligation – December 31
$
310.4

 
$
98.4

 
$
116.6

 
$
525.4

 
$
291.8

 
$
89.4

 
$
118.6

 
$
499.8


 
2019
 
2018
 
U.S.

 
Int’l

 
Other Benefits

 
Total

 
U.S.

 
Int’l

 
Other Benefits

 
Total

Change in plan assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Plan assets – January 1
$
277.8

 
$
0.6

 
$
2.9

 
$
281.3

 
$
320.9

 
$
0.6

 
$
5.2

 
$
326.7

Actual return on plan assets
57.7

 
—

 
0.4

 
58.1

 
(16.8
)
 
—

 
(0.1
)
 
(16.9
)
Employer contributions
9.9

 
3.0

 
10.0

 
22.9

 
0.9

 
3.4

 
6.9

 
11.2

Benefits and expenses paid
(25.5
)
 
(3.0
)
 
(12.0
)
 
(40.5
)
 
(21.3
)
 
(3.0
)
 
(9.1
)
 
(33.4
)
Settlement
—

 
—

 
—

 
—

 
(5.9
)
 
(0.4
)
 
—

 
(6.3
)
Plan assets – December 31
$
319.9

 
$
0.6

 
$
1.3

 
$
321.8

 
$
277.8

 
$
0.6

 
$
2.9

 
$
281.3

Funded status at end of year
$
9.5

 
$
(97.8
)
 
$
(115.3
)
 
$
(203.6
)
 
$
(14.0
)
 
$
(88.8
)
 
$
(115.7
)
 
$
(218.5
)

The accumulated benefit obligation for all defined benefit pension plans was $406.3 and $379.1 at December 31, 2019 and 2018, respectively. Information for pension plans with an accumulated benefit obligation in excess of plan assets is included in the following table.
 
2019

 
2018

Projected benefit obligation
$
112.8

 
$
233.2

Accumulated benefit obligation
110.3

 
231.0

Fair value of plan assets
—

 
128.6



Statements of Operations Information
The following table provides the components of net periodic postretirement cost and other amounts recognized in other comprehensive loss for each of the years ended December 31, 2019, 2018 and 2017 as they pertain to our defined benefit pension plans.
 
2019
 
2018
 
2017
 
U.S.

 
Int’l

 
Total

 
U.S.

 
Int’l

 
Total

 
U.S.

 
Int’l

 
Total

Net periodic postretirement cost - pension
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
0.2

 
$
1.2

 
$
1.4

 
$
0.4

 
$
1.3

 
$
1.7

 
$
1.5

 
$
1.4

 
$
2.9

Interest cost
11.1

 
1.5

 
12.6

 
10.1

 
1.4

 
11.5

 
10.5

 
1.6

 
12.1

Expected return on plan assets
(14.8
)
 
—

 
(14.8
)
 
(15.8
)
 
—

 
(15.8
)
 
(15.2
)
 
—

 
(15.2
)
Amortization of net actuarial loss
4.3

 
0.8

 
5.1

 
4.9

 
0.9

 
5.8

 
6.6

 
1.0

 
7.6

Amortization of prior service cost
0.7

 
—

 
0.7

 
0.9

 
—

 
0.9

 
1.0

 
—

 
1.0

Net periodic postretirement cost
1.5

 
3.5

 
5.0

 
0.5

 
3.6

 
4.1

 
4.4

 
4.0

 
8.4

Curtailment or settlement charges
—

 
—

 
—

 
1.7

 
—

 
1.7

 
3.7

 
—

 
3.7

Total net periodic postretirement cost
1.5

 
3.5

 
5.0

 
2.2

 
3.6

 
5.8

 
8.1

 
4.0

 
12.1

Other changes in plan assets and benefit obligations recognized in other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net actuarial (gain) loss
(10.2
)
 
10.3

 
0.1

 
15.4

 
0.8

 
16.2

 
(7.9
)
 
(0.3
)
 
(8.2
)
Prior service cost
—

 
—

 
—

 
—

 
(0.1
)
 
(0.1
)
 
1.6

 
—

 
1.6

Amortization of net actuarial loss
(4.3
)
 
(0.8
)
 
(5.1
)
 
(6.6
)
 
(0.9
)
 
(7.5
)
 
(6.6
)
 
(1.0
)
 
(7.6
)
Amortization of prior service cost
(0.7
)
 
—

 
(0.7
)
 
(0.9
)
 
—

 
(0.9
)
 
(4.7
)
 
—

 
(4.7
)
Foreign currency translation
—

 
(0.3
)
 
(0.3
)
 
—

 
(1.0
)
 
(1.0
)
 
—

 
2.9

 
2.9

Total change recognized in other comprehensive income
(15.2
)
 
9.2

 
(6.0
)
 
7.9

 
(1.2
)
 
6.7

 
(17.6
)
 
1.6

 
(16.0
)
Total impact from net periodic postretirement cost and changes in other comprehensive income
$
(13.7
)
 
$
12.7

 
$
(1.0
)
 
$
10.1

 
$
2.4

 
$
12.5

 
$
(9.5
)
 
$
5.6

 
$
(3.9
)

In 2018, we recorded a settlement loss of $1.7 related to retiree lump sum pension payments in our Industrial Process segment. In 2017, we recorded a curtailment loss of $3.7 related to a freeze of benefit accruals for certain employees at our Industrial Process segment.
The following table provides the components of net periodic postretirement cost and other amounts recognized in other comprehensive loss for each of the years ended December 31, 2019, 2018 and 2017 as they pertain to other employee-related defined benefit plans.
 
2019

 
2018

 
2017

Net periodic postretirement cost - other postretirement
 
 
 
 
 
Service cost
$
0.7

 
$
0.9

 
$
0.8

Interest cost
4.0

 
4.5

 
4.4

Expected return on plan assets
(0.2
)
 
(0.1
)
 
(0.3
)
Amortization of net actuarial loss
2.3

 
4.0

 
4.4

Amortization of prior service credit
(5.1
)
 
(5.3
)
 
(5.8
)
Total net periodic postretirement cost
1.7

 
4.0

 
3.5

Other changes in plan assets and benefit obligations recognized in other comprehensive income
 
 
 
 
 
Net actuarial (gain) loss
3.4

 
(15.6
)
 
1.0

Prior service cost
1.7

 
—

 
0.5

Amortization of net actuarial loss
(2.3
)
 
(4.0
)
 
(4.4
)
Amortization of prior service credit
5.1

 
5.3

 
5.8

Total changes recognized in other comprehensive income
7.9

 
(14.3
)
 
2.9

Total impact from net periodic postretirement cost and changes in other comprehensive income
$
9.6

 
$
(10.3
)
 
$
6.4


Postretirement Plan Assumptions
The determination of projected benefit obligations and the recognition of expenses related to postretirement benefit plans are dependent on various assumptions that are judgmental and developed in consultation with external advisors. Management develops each assumption using relevant Company experience in conjunction with market-related data for each individual country in which such plans exist. Periodically, the Company performs experience studies to validate certain actuarial assumptions such as age of retirement, rates of turnover, utilization of optional forms of payments. In 2015, the Company performed such study for its U.S. pension and other benefit plans and reflected the results in its valuation. The actuarial assumptions are based on the provisions of the applicable accounting pronouncements, review of various market data and discussion with our external advisors. Assumptions are reviewed annually and adjusted as necessary. Changes in these assumptions could materially affect our financial statements.
The following table provides the weighted-average assumptions used to determine projected benefit obligations and net periodic postretirement cost, as they pertain to our U.S. and non-U.S. defined benefit pension plans and other employee-related defined benefit plans.
 
2019
 
2018
 
U.S.

 
Int’l

 
Other Benefits

 
U.S.

 
Int’l

 
Other Benefits

Obligation Assumptions:
 
 
 
 
 
 
 
 
 
 
 
Discount rate
3.2
%
 
1.0
%
 
3.2
%
 
4.3
%
 
1.7
%
 
4.3
%
Rate of future compensation increase
N/A

 
3.0
%
 
N/A

 
N/A

 
3.2
%
 
N/A

Cost Assumptions:
 
 
 
 
 
 
 
 
 
 
 
Discount rate
4.3
%
 
1.7
%
 
4.3
%
 
3.6
%
 
1.7
%
 
3.6
%
Expected return on plan assets
6.0
%
 
1.0
%
 
6.0
%
 
6.0
%
 
1.0
%
 
6.0
%

The discount rate is used to calculate the present value of expected future benefit payments at the measurement date. The discount rate assumption is based on current investment yields of high-quality fixed income investments during the retirement benefits maturity period. The pension discount rate is determined by considering an interest rate yield curve comprising AAA/AA bonds, with maturities that are generally between zero and 30 years, developed by the plan's actuaries. Annual benefit payments are then discounted to present value using this yield curve to develop a single discount rate matching the plan's characteristics.
We estimate the service and interest components of net periodic benefit cost of the U.S. defined benefit plans by discounting the individual expected cash flows underlying the service cost and interest cost using the applicable spot rates from the yield curve used to discount the cash flows in measuring the benefit obligation.
The rate of future compensation increase assumption for foreign plans reflects our long-term actual experience and future and near-term outlook. The rate of future compensation increase assumption is not applicable for U.S. plans because the plan is frozen.
The Company has updated the mortality assumption to reflect the most recent projection update.
The assumed rate of future increases in the per capita cost of health care (the health care trend rate) is 6.8% for pre-age 65 retirees and 6.0% for post-age 65 retirees for 2020, decreasing ratably to 4.5% in 2028. To the extent that actual experience differs from these assumptions, the effect will be amortized over the average future working life or life expectancy of the plan participants.
The expected long-term rate of return on assets reflects the expected returns for each major asset class in which the plans invest, the weight of each asset class in the target mix, the correlations among asset classes, and their expected volatilities. Our expected return on plan assets is estimated by evaluating both historical returns and estimates of future returns based on our target asset allocation. Specifically, we estimate future returns based on independent estimates of asset class returns weighted by the target investment allocation.
The chart below shows actual returns compared to the expected long-term returns for our postretirement plans that were utilized in the calculation of the net periodic postretirement cost for each respective year.
 
2019

 
2018

 
2017

Expected rate of return on plan assets
6.0
%
 
6.0
 %
 
7.0
%
Actual rate of return on plan assets
21.7
%
 
(5.4
)%
 
18.0
%

For the recognition of net periodic postretirement cost, the calculation of the expected return on plan assets is generally derived using a market-related value of plan assets based on average asset values at the measurement date over the last five years. The use of fair value, rather than a market-related value, of plan assets could materially affect net periodic postretirement cost.
Investment Policy
The investment strategy for managing worldwide postretirement benefit plan assets is to seek an optimal rate of return relative to an appropriate level of risk for each plan. Investment strategies vary by plan, depending on the specific characteristics of the plan, such as plan size and design, funded status, liability profile and legal requirements. Pursuant to our potential U.S. qualified plan termination, the investment policy was updated in December 2019 to reduce risk by increasing the target allocation to 100% fixed income and cash. In fiscal 2020, we expect our estimate of the long term annual return on assets to be 4% for the U.S. defined benefit plans reflecting the current asset allocation.
Substantially all of the postretirement benefit plan assets are managed on a commingled basis in a master investment trust. With respect to the master investment trust, the Company allows itself broad discretion to invest tactically to respond to changing market conditions, while staying reasonably within the target asset allocation ranges prescribed by its investment guidelines. In making these asset allocation decisions, the Company takes into account recent and expected returns and volatility of returns for each asset class, the expected correlation of returns among the different investments, as well as anticipated funding and cash flows. To enhance returns and mitigate risk, the Company diversifies its investments by strategy, asset class, geography and sector.
The following table provides the allocation of postretirement benefit plan assets by asset category, as of December 31, 2019 and 2018, and the current asset allocation ranges by asset category.
 
2019

 
2018

 
Asset Allocation
Range
U.S. equities
—
%
 
18
%
 
0-50 %
International equities
—
%
 
9
%
 
0-25 %
Fixed income
74
%
 
72
%
 
50-100 %
Cash and other
26
%
 
1
%
 
0-50 %

Fair Value of Plan Assets
In measuring plan assets at fair value, a fair value hierarchy is applied which categorizes and prioritizes the inputs used to estimate fair value into three levels. The fair value hierarchy is based on maximizing the use of observable inputs and minimizing the use of unobservable inputs when measuring fair value. Classification within the fair value hierarchy is based on the lowest level input that is significant to the fair value measurement. The three levels of the fair value hierarchy are defined as follows:
•
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
•
Level 2 inputs are other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices (in non-active markets or in active markets for similar assets or liabilities), inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•
Level 3 inputs are unobservable inputs for the assets or liabilities.
Collective trusts are valued at net asset value (NAV) as a practical expedient and thus are not leveled in this table, but are included in the totals column to assist in reconciling to fair value of plan assets. Mutual funds are valued at quoted market prices that represent the NAV of shares and are classified within level 1 of the fair value hierarchy. Cash and cash equivalents are held in money market or short-term investment funds and are classified within level 1 of the fair value hierarchy.   

The following table provides the investments at fair value held by our postretirement benefit plans at December 31, 2019 and 2018, by asset class.
 
Pension
 
Other Benefits
2019
Level 1
 
Measured at NAV
 
Total
 
Level 1
 
Total
Collective Trusts:
 
 
 
 
 
 
 
 
 
Fixed income
$
—

 
$
238.8

 
$
238.8

 
$
—

 
$
—

Mutual funds
—

 
—

 
—

 
1.3

 
1.3

Cash and other
81.7

 
—

 
81.7

 
—

 
—

Total
$
81.7

 
$
238.8

 
$
320.5

 
$
1.3

 
$
1.3


 
Pension
 
Other Benefits
2018
Level 1
 
Measured at NAV
 
Total
 
Level 1
 
Total
Collective Trusts:
 
 
 
 
 
 
 
 
 
U.S. equity
$
—

 
$
49.4

 
$
49.4

 
$
—

 
$
—

International equity
—

 
25.1

 
25.1

 
—

 
—

Fixed income
—

 
201.8

 
201.8

 
—

 
—

Mutual funds
—

 
—

 
—

 
2.9

 
2.9

Cash and other
2.1

 
—

 
2.1

 
—

 
—

Total
$
2.1

 
$
276.3

 
$
278.4

 
$
2.9

 
$
2.9


Contributions
While we make contributions to our postretirement benefit plans when considered necessary or advantageous to do so, the minimum funding requirements established by local government funding or taxing authorities, or established by other agreements, may influence future contributions. Funding requirements under IRS rules are a major consideration in making contributions to our defined benefit pension plans in the U.S. In addition, we fund certain of our international pension plans in countries where funding is allowable and tax-efficient. During 2019 and 2018, we contributed $12.9 and $4.3 to our global pension plans which includes a $9.0 discretionary contribution to our U.S. pension plans in 2019. We anticipate making contributions to our global pension plans of approximately $5 during 2020 which excludes cash funding required to terminate the U.S. qualified pension plan.
We contributed $10.0 and $6.9 to our other employee-related defined benefit plans during 2019 and 2018, respectively. We estimate that the 2020 contributions to our other employee-related defined benefit plans will be approximately $10.
Estimated Future Benefit Payments
The following table provides the projected timing of payments for benefits earned to date and the expectation that certain future service will be earned by current active employees for our pension and other employee-related benefit plans.
 
U.S.
Pension(a)

 
Int’l
Pension

 
Other
Benefits

2020
$
23.5

 
$
4.0

 
$
10.4

2021
23.1

 
3.8

 
9.3

2022
22.4

 
3.5

 
8.9

2023
21.6

 
3.7

 
8.5

2024
20.9

 
3.9

 
8.2

2025 - 2029
96.9

 
19.1

 
35.4


(a)
Excludes any impact of a potential U.S. pension plan termination.