Pensions and Postretirement Benefits Other than Pensions

The Company has a number of plans providing pension, retirement or profit-sharing benefits. These plans include defined benefit and defined contribution plans. The plans cover substantially all U.S. domestic employees. There are also plans that cover employees in the U.K. and Germany. The Company has an unfunded, nonqualified supplemental retirement benefit plan in the U.S. covering certain employees whose participation in the qualified plan is limited by provisions of the Internal Revenue Code.

For defined benefit plans, benefits are generally based on compensation and length of service for salaried employees and length of service for hourly employees. In the U.S., the Company froze the pension benefits in its Spectrum (salaried employees) Plan in 2009. In 2012, the Company closed the U.S. pension plans for the bargaining units to new participants. Certain grandfathered participants in the bargaining unit plans continue to accrue pension benefits. Employees of certain of the Company’s foreign operations in the U.K. and Germany are covered by either contributory or non-contributory trusteed pension plans. In 2012, the Company froze the benefits in the U.K. pension plan.

Participation in the Company’s defined contribution plans is voluntary. The Company matches plan participants’ contributions up to various limits. Participants’ contributions are limited based on their compensation and, for certain supplemental contributions which are not eligible for Company matching, based on their age. Expense for those plans was $13,931, $13,260 and $14,236 for 2017, 2016 and 2015, respectively.

The Company currently provides retiree health care and life insurance benefits to a portion of its U.S. salaried and hourly employees. U.S. salaried and non-bargained hourly employees hired on or after January 1, 2003 are not eligible for retiree health care or life insurance coverage. The Company has reserved the right to modify or terminate certain of these salaried benefits at any time.

The Company has implemented household caps on the amounts of retiree medical benefits it will provide to certain retirees. The caps do not apply to individuals who retired prior to certain specified dates. Costs in excess of these caps will be paid by plan participants. The Company implemented increased cost sharing in 2004 in the retiree medical coverage provided to certain eligible current and future retirees. Since then, cost sharing has expanded such that nearly all covered retirees pay a charge to be enrolled.

In accordance with U.S. GAAP, the Company recognizes the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligation) of its pension and OPEB plans and the net unrecognized actuarial losses and unrecognized prior service costs in the Consolidated Balance Sheets. The unrecognized actuarial losses and unrecognized prior service costs (components of Accumulated other comprehensive loss in the Equity section of the balance sheet) will be subsequently recognized as net periodic pension cost pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit costs in the same periods will be recognized as a component of other comprehensive income.

The following table reflects changes in the projected obligations and fair market values of assets in all defined benefit pension and other postretirement benefit plans of the Company:



	2017 Pension Benefits									2016 Pension Benefits									Other Postretirement Benefits
	Domestic			International			Total			Domestic			International			Total			2017			2016
Change in benefit obligation:
Projected Benefit Obligation at beginning of year	$	1,040,498		$	422,528		$	1,463,026		$	1,045,467		$	405,884		$	1,451,351		$	262,275		$	265,579
Service cost - employer	9,860			—			9,860			9,613			9			9,622			2,003			2,149
Interest cost	39,251			11,525			50,776			41,595			14,097			55,692			10,063			10,819
Actuarial (gain)/loss	59,137			2,567			61,704			26,618			81,180			107,798			8,190			(5,760		)
Benefits paid	(60,113		)	(15,959		)	(76,072		)	(53,405		)	(12,846		)	(66,251		)	(10,805		)	(10,512		)
Settlements	—			—			—			(29,390		)	—			(29,390		)	—			—
Foreign currency translation effect	—			40,765			40,765			—			(65,796		)	(65,796		)	—			—
Projected Benefit Obligation at December 31	$	1,088,633		$	461,426		$	1,550,059		$	1,040,498		$	422,528		$	1,463,026		$	271,726		$	262,275
Change in plans’ assets:
Fair value of plans’ assets at beginning of year	$	848,341		$	328,533		$	1,176,874		$	836,514		$	309,916		$	1,146,430		$	—		$	—
Actual return on plans’ assets	120,620			27,199			147,819			59,310			77,711			137,021			—			—
Employer contribution	35,498			13,080			48,578			35,312			10,763			46,075			—			—
Benefits paid	(60,113		)	(15,959		)	(76,072		)	(53,405		)	(12,846		)	(66,251		)	—			—
Settlements	—			—			—			(29,390		)	—			(29,390		)	—			—
Foreign currency translation effect	—			33,026			33,026			—			(57,011		)	(57,011		)	—			—
Fair value of plans’ assets at December 31	$	944,346		$	385,879		$	1,330,225		$	848,341		$	328,533		$	1,176,874		$	—		$	—
Funded status	$	(144,287	)	$	(75,547	)	$	(219,834	)	$	(192,157	)	$	(93,995	)	$	(286,152	)	$	(271,726	)	$	(262,275	)
Amounts recognized in the balance sheets:
Accrued liabilities	$	(300	)	$	—		$	(300	)	$	(300	)	$	—		$	(300	)	$	(14,838	)	$	(15,048	)
Postretirement benefits other than pensions	—			—			—			—			—			—			$	(256,888	)	$	(247,227	)
Pension benefits	$	(143,987	)	$	(75,547	)	$	(219,534	)	$	(191,857	)	$	(93,995	)	$	(285,852	)	—			—

Included in Accumulated other comprehensive loss at December 31, 2017 are the following amounts that have not yet been recognized in net periodic benefit cost: unrecognized prior service credits of ($1,038) (($779) net of tax) and unrecognized actuarial losses of $489,008 ($439,666 net of tax).

Included in Accumulated other comprehensive loss at December 31, 2016 are the following amounts that have not yet been recognized in net periodic benefit cost: unrecognized prior service credits of ($1,604) (($990) net of tax) and unrecognized actuarial losses of $534,060 ($472,693 net of tax).

The prior service credit and actuarial loss included in accumulated other comprehensive loss that are expected to be recognized in net periodic benefit cost during the fiscal year-ended December 31, 2018 are ($541) and $37,258, respectively.

The accumulated benefit obligation for all defined benefit pension plans was $1,546,705 and $1,459,809 at December 31, 2017 and 2016, respectively.

In 2016, in order to reduce the size and potential future volatility of the Company’s domestic defined benefit pension plan obligations, the Company commenced an offer to approximately 1,200 former employees with deferred vested pension plan benefits. These former employees had the opportunity to make a one-time election to receive a lump-sum distribution of their benefits by the end of the third quarter of 2016. The vested benefit obligation associated with these former employees was approximately $42,000, equivalent to about four percent of the Company’s benefit obligation for the domestic plans. Cash payments of $22,701 were made from plan assets in September 2016 to the former employees electing the lump-sum distribution. These payments represented a reduction of approximately two percent of the Company’s benefit obligation for the domestic plans.

Due to the size of the lump-sum distribution, in accordance with U.S. GAAP, the Company was required to recognize non-cash settlement charges for all 2016 settlements. Based on the lump-sum distributions that were paid through the third quarter, the Company incurred a non-cash settlement charge of $11,462 in the third quarter of 2016. Additionally, based on the lump-sum distributions that were paid in the fourth quarter, the Company incurred a non-cash settlement charge of $800 in the fourth quarter. In total, cash payments of $29,390 were made from plan assets as part of settlement activity in 2016.

Weighted average assumptions used to determine benefit obligations at December 31:



	Pension Benefits				Other Postretirement Benefits
	2017		2016		2017		2016
All plans
Discount rate	3.20	%	3.54	%	3.50	%	3.95	%
Domestic plans
Discount rate	3.50	%	3.90	%	3.50	%	3.95	%
Foreign plans
Discount rate	2.50	%	2.65	%	—		—

At December 31, 2017, the weighted average assumed annual rate of increase in the cost of medical benefits was 7.00 percent for 2017 trending linearly to 4.50 percent per annum in 2025.



	Pension Benefits - Domestic									Pension Benefits - International
	2017			2016			2015			2017			2016			2015
Components of net periodic benefit cost:
Service cost	$	9,860		$	9,613		$	11,037		$	—		$	9		$	9
Interest cost	39,251			41,595			40,202			11,525			14,097			15,853
Expected return on plan assets	(54,058		)	(57,438		)	(55,299		)	(11,262		)	(11,322		)	(12,421		)
Amortization of actuarial loss	37,122			38,490			39,514			5,448			5,134			7,222
Effect of settlements	—			12,262			—			—			—			—
Net periodic benefit cost	$	32,175		$	44,522		$	35,454		$	5,711		$	7,918		$	10,663



	Other Post Retirement Benefits
	2017			2016			2015
Components of net periodic benefit cost:
Service cost	$	2,003		$	2,149		$	2,513
Interest cost	10,063			10,819			10,320
Amortization of prior service cost	(566		)	(566		)	(566		)
Net periodic benefit cost	$	11,500		$	12,402		$	12,267

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:



	Pension Benefits						Other Postretirement Benefits
	2017		2016		2015		2017		2016		2015
All plans
Discount rate	3.54	%	4.10	%	3.70	%	3.95	%	4.20	%	3.80	%
Expected return on plan assets	5.57	%	6.16	%	6.12	%	—	%	—	%	—	%
Domestic plans
Discount rate	3.90	%	4.20	%	3.75	%	3.95	%	4.20	%	3.80	%
Expected return on plan assets	6.50	%	7.00	%	7.00	%	—	%	—	%	—	%
Foreign plans
Discount rate	2.65	%	3.84	%	3.59	%	—	%	—	%	—	%
Expected return on plan assets	3.29	%	3.99	%	3.84	%	—	%	—	%	—	%

The following table lists the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets at December 31, 2017 and 2016:



	2017				2016
	Projected benefit obligation exceeds plan assets		Accumulated benefit obligation exceeds plan assets		Projected benefit obligation exceeds plan assets		Accumulated benefit obligation exceeds plan assets
Projected benefit obligation	$	1,550,059	$	1,550,059	$	1,463,026	$	1,463,026
Accumulated benefit obligation	1,546,705		1,546,705		1,459,809		1,459,809
Fair value of plan assets	1,330,225		1,330,225		1,176,874		1,176,874

Assumed health care cost trend rates for other postretirement benefits have a significant effect on the amounts reported. A one-percentage-point change in assumed health care cost trend rates would have the following effects:



	Percentage Point
	Increase		Decrease
Increase (decrease) in total service and interest cost components	$	50	$	(43	)
Increase (decrease) in the other postretirement benefit obligation	1,419		(1,222		)

The table below presents the Company’s weighted average asset allocations for its domestic and U.K. pension plans’ assets at December 31, 2017 and December 31, 2016 by asset category.



	U.S. Plans				U.K. Plan
Asset Category	2017		2016		2017		2016
Debt securities	52	%	36	%	68	%	68	%
Equity securities	40		63		18		18
Other investments	6		0		13		14
Cash	2		1		1		0
Total	100	%	100	%	100	%	100	%

The Company manages the plans' asset allocation relative to the liability profile and funded status of the plans. It is expected that as the plan’s funded status improves, the portfolio will take less risk as to preserve the funded status of the plan framework. The plans follow a glide path whereby a target return-seeking allocation is followed based upon a given funded ratio level. The plans' position with respect to the glide path is monitored, and asset allocation and strategy changes to the plans' portfolio are made as appropriate. The plans' strategy is also monitored in relation to the capital markets, interest rates, and the regulatory environment. The assets of the Company’s pension plan in Germany consist of investments in German insurance contracts.

The fair market value of U.S. plan assets was $944,346 and $848,341 at December 31, 2017 and 2016, respectively. The fair market value of the U.K. plan assets was $383,831 and $326,833 at December 31, 2017 and 2016, respectively. The fair market value of the German pension plan assets was $2,048 and $1,700 at December 31, 2017 and 2016, respectively.

The table below classifies the assets of the U.S. and U.K. plans using the Fair Value Hierarchy described in Note 8 – Fair Value Measurements.



			Fair Value Hierarchy
	Total		Level 1		Level 2		Level 3
December 31, 2017
United States plans
Cash and cash equivalents	$	18,819	$	18,819			$	—
Collective Trust Funds - Equity	381,696		—		381,696		—
Collective Trust Funds - Fixed income	490,955		—		490,955		—
Collective Trust Funds - Real Estate	52,876		$	—	$	52,876	$	—
	$	944,346	$	18,819	$	925,527	$	—
United Kingdom plan
Cash and cash equivalents	$	1,578	$	1,578	$	—	$	—
Equity securities	69,547		69,547		—		—
Fixed income securities	261,260		261,260		—		—
Other investments	51,446		—		13,376		38,070
	$	383,831	$	332,385	$	13,376	$	38,070
December 31, 2016
United States plans
Cash and cash equivalents	$	8,491	$	8,491	$	—	$	—
Equity securities	184,690		184,690		—		—
Fixed income securities	138,988		138,988		—		—
Collective Trust Funds - Equity	347,249		—		347,249		—
Collective Trust Funds - Fixed income	168,923		—		168,923		—
	$	848,341	$	332,169	$	516,172	$	—
United Kingdom plan
Cash and cash equivalents	$	1,078	$	1,078	$	—	$	—
Equity securities	60,185		60,185		—		—
Fixed income securities	220,974		220,974		—		—
Other investments	44,596		—		10,800		33,796
	$	326,833	$	282,237	$	10,800	$	33,796

Plan assets are measured at fair value. While the Company believes its valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The Company’s valuation methodologies used for the plan assets measured at fair value are as follows:

Cash and cash equivalents – Cash and cash equivalents include cash on deposit and investments in money market mutual funds that invest mainly in short-term instruments and cash, both of which are valued using a market approach.

Equity securities – Common, preferred, and foreign stocks are valued using a market approach at the closing price on their principal exchange and are included in Level 1 of the fair value hierarchy.

Fixed income securities – Corporate and foreign bonds are valued using a market approach at the closing price reported on the active market on which the individual securities are traded and are included in Level 1 of the fair value hierarchy.

Collective trust funds – Collective trust funds are valued at the net asset value of units held at year end and are included in Level 2 of the fair value hierarchy based on their underlying investment strategy.

Equity Funds – Collective trust funds classified as Equity primarily invest in U.S. and non-U.S. securities in both small and large capitalization markets.

Fixed Income Funds – Collective trust funds classified as Fixed Income primarily invest in debt securities, U.S. treasury securities, and fixed income securities.

Real Estate Funds - Collective trust funds classified as Real Estate Funds are invested in global real estate securities.

The fair market values of the Level 3 assets in the U.K. plan are determined by the fund manager using a discounted cash flow methodology. The future cash flows expected to be generated by the assets of the funds and made available to investors are estimated and then discounted back to the valuation date. The discount rate is derived by adding a risk premium to the risk-free interest rate applicable to the country in which the assets are located.

The following table details the activity in these investments for the years ended December 31, 2016 and 2017:



	U.K. Plan Level 3 Assets
Balance at December 31, 2014	$	25,812
Transfer into level 3	—
Disbursements	—
Change in fair value	2,798
Foreign currency translation effect	(1,548		)
Balance at December 31, 2015	27,062
Transfer into level 3	9,489
Disbursements	—
Change in fair value	3,545
Foreign currency translation effect	(6,300		)
Balance at December 31, 2016	33,796
Transfer into level 3	—
Disbursements	—
Change in fair value	969
Foreign currency translation effect	3,305
Balance at December 31, 2017	$	38,070

The Company determines the annual expected rates of return on pension assets by first analyzing the composition of its asset portfolio. Historical rates of return are applied to the portfolio. These computed rates of return are reviewed by the Company’s investment advisors and actuaries. Industry comparables and other outside guidance are also considered in the annual selection of the expected rates of return on pension assets.

During 2017, the Company contributed $48,578 to its domestic and foreign pension plans, and during 2018, the Company expects to contribute between $45,000 and $55,000 to its domestic and foreign pension plans.

The Company estimates its benefit payments for its domestic and foreign pension plans and other postretirement benefit plans during the next ten years to be as follows:



	Pension Benefits		Other Postretirement Benefits
2018	$	89,433	$	14,838
2019	84,648		15,261
2020	86,980		15,919
2021	87,027		16,225
2022	88,491		16,462
2022 through 2026	446,996		82,126