The Company and certain of its subsidiaries sponsor defined benefit pension plans and defined contribution plans that cover a substantial portion of its worldwide employees. The principal defined benefit pension plans are the U.S. salaried pension plan and the U.K. pension plan. These plans were closed to new participants in 2005, after which defined contribution plans were offered to new employees. The principal defined contribution plan is the Retirement Savings Plan, in which a substantial portion of the U.S. employees participate. A similar plan is offered to U.K. employees. We also provide other postretirement benefits consisting primarily of healthcare benefits to U.S. retirees who meet age and service requirements.



	2018						2017						2016
	U.S.			International			U.S.			International			U.S.			International
Service cost		$25.5			$25.5			$29.0			$25.9			$36.5			$24.3
Interest cost	107.2			37.3			107.5			32.2			110.7			44.3
Expected return on plan assets	(201.6		)	(81.7		)	(207.7		)	(75.2		)	(202.0		)	(78.3		)
Amortization
Net actuarial loss	87.4			40.2			88.7			54.7			85.3			35.6
Prior service cost (credit)	1.6			—			2.3			(.1		)	2.8			(.2		)
Settlements	45.0			3.5			10.5			1.7			5.1			1.3
Curtailments	—			—			4.3			(1.3		)	—			(1.1		)
Special termination benefits	.4			—			2.8			.4			2.0			—
Other	—			1.5			—			1.1			(.3		)	2.1
Net Periodic Benefit Cost – Total		$65.5			$26.3			$37.4			$39.4			$40.1			$28.0
Less: Discontinued Operations	—			—			(.7		)	(4.1		)	(7.9		)	(4.4		)
Net Periodic Benefit Cost – Continuing Operations		$65.5			$26.3			$36.7			$35.3			$32.2			$23.6

As discussed in Note 2, New Accounting Guidance, we early adopted guidance on the presentation of net periodic pension and postretirement benefit cost during the first quarter of fiscal year 2018. The amendments require the service cost component of net periodic benefit cost to be presented within the same line items as other compensation costs arising from services rendered by employees during the period. Accordingly, our service costs are primarily included within "Cost of sales" and "Selling and administrative expense" on our consolidated income statements. The non-service related costs, including pension settlement losses, are presented outside operating income within "Other non-operating income (expense), net." The amount of service costs capitalized in fiscal year 2018 and the amount of net periodic benefit costs capitalized in fiscal years 2017 and 2016 were not material.

During the fourth quarter of fiscal year 2018, we recognized a pension settlement loss of $43.7 primarily resulting from the transfer of certain pension payment obligations for our U.S. salaried and hourly plans to an insurer through the purchase of an irrevocable, nonparticipating group annuity contract with plan assets on 17 September 2018. The transaction does not change the amount of the monthly pension benefits received by affected retirees.

Certain of our pension plans provide for a lump sum benefit payment option at the time of retirement, or for corporate officers, six months after their retirement date. A participant’s vested benefit is considered settled upon cash payment of the lump sum. We recognize pension settlement losses when cash payments exceed the sum of the service and interest cost components of net periodic benefit cost of the plan for the fiscal year. We recognized pension settlement losses of $10.5 and $5.1 in fiscal years 2017 and 2016, respectively, to accelerate recognition of a portion of actuarial losses deferred in accumulated other comprehensive loss, primarily associated with the U.S. Supplementary Pension Plan.

We calculate net periodic benefit cost for a given fiscal year based on assumptions developed at the end of the previous fiscal year. The following table sets forth the weighted average assumptions used in the calculation of net periodic benefit cost:



	2018				2017				2016
	U.S.		International		U.S.		International		U.S.		International
Discount rate – Service cost	3.9	%	2.6	%	3.6	%	2.1	%	4.5	%	3.4	%
Discount rate – Interest cost	3.3	%	2.2	%	3.0	%	1.8	%	3.6	%	2.9	%
Expected return on plan assets	7.5	%	5.8	%	8.0	%	6.1	%	8.0	%	6.3	%
Rate of compensation increase	3.5	%	3.6	%	3.5	%	3.5	%	3.5	%	3.5	%

The projected benefit obligation (PBO) is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future salary increases. The following table sets forth the weighted average assumptions used in the calculation of the PBO:



	2018						2017
	U.S.			International			U.S.			International
Change in Projected Benefit Obligation
Obligation at beginning of year		$3,357.7			$1,749.5			$3,477.7			$1,849.6
Service cost	25.5			25.5			29.0			25.9
Interest cost	107.2			37.3			107.5			32.2
Amendments	.1			.7			1.9			—
Actuarial gain	(217.8		)	(33.9		)	(68.0		)	(132.4		)
Divestitures	—			—			—			(34.1		)
Curtailments	—			—			(17.3		)	(4.2		)
Settlements	(193.0		)	(24.6		)	7.0			—
Special termination benefits	.4			—			2.8			—
Participant contributions	—			1.4			—			1.4
Benefits paid	(157.3		)	(51.3		)	(182.9		)	(46.5		)
Currency translation/other	—			(44.1		)	—			57.6
Obligation at End of Year		$2,922.8			$1,660.5			$3,357.7			$1,749.5



	2018						2017
	U.S.			International			U.S.			International
Change in Plan Assets
Fair value at beginning of year		$2,869.2			$1,540.0			$2,705.3			$1,411.1
Actual return on plan assets	150.2			115.5			319.6			87.9
Company contributions	14.6			53.7			27.2			42.2
Participant contributions	—			1.4			—			1.4
Divestitures	—			—			—			(3.0		)
Benefits paid	(157.3		)	(51.3		)	(182.9		)	(46.5		)
Settlements	(191.8		)	(24.6		)	—			(5.3		)
Currency translation/other	—			(46.5		)	—			52.2
Fair Value at End of Year		$2,684.9			$1,588.2			$2,869.2			$1,540.0
Funded Status at End of Year		($237.9	)		($72.3	)		($488.5	)		($209.5	)

Settlements in the table above primarily reflect the impact of the transfer of certain pension obligations and plan assets of our U.S. salaried and hourly plans to an insurer through the purchase of an irrevocable, nonparticipating group annuity contract in the fourth quarter of fiscal year 2018.



	2018						2017
	U.S.			International			U.S.			International
Net actuarial gain arising during the period		($167.7	)		($64.6	)		($189.8	)		($162.0	)
Amortization of net actuarial loss	(132.4		)	(43.7		)	(103.3		)	(55.7		)
Prior service cost arising during the period	.1			.7			1.9			—
Amortization of prior service cost	(1.6		)	—			(2.3		)	.1
Total		($301.6	)		($107.6	)		($293.5	)		($217.6	)

The net actuarial gain represents the actual changes in the estimated obligation and plan assets that have not yet been recognized in the consolidated income statements and are included in accumulated other comprehensive loss. Actuarial gains arising during fiscal year 2018 are primarily attributable to higher discount rates and higher than expected return on plan assets. Accumulated actuarial gains and losses that exceed a corridor are amortized over the average remaining service period of U.S. participants, which was approximately eight years as of 30 September 2018. For U.K. participants, accumulated actuarial gains and losses that exceed a corridor are amortized over the average remaining life expectancy, which was approximately 26 years as of 30 September 2018.



	2018					2017
	U.S.		International			U.S.		International
Net actuarial loss		$680.4		$443.6			$980.5		$551.9
Prior service cost (credit)	6.6		(1.1		)	8.1		(1.8		)
Net transition liability	—		.4			—		.4
Total		$687.0		$442.9			$988.6		$550.5

The amount of accumulated other comprehensive loss at 30 September 2018 that is expected to be recognized as a component of net periodic pension cost during fiscal year 2019, excluding discontinued operations and amounts that may be recognized through settlement losses, is as follows:

The accumulated benefit obligation (ABO) is the actuarial present value of benefits attributed to employee service rendered to a particular date, based on current salaries. The ABO for all defined benefit pension plans was $4,376.4 and $4,842.8 as of 30 September 2018 and 2017, respectively.



	30 September 2018				30 September 2017
	U.S.		International		U.S.		International
Pension Plans with PBO in Excess of Plan Assets:
PBO		$2,733.6		$452.6		$3,116.7		$465.7
Fair value of plan assets	2,467.5		276.8		2,623.0		243.1
Pension Plans with ABO in Excess of Plan Assets:
ABO		$2,608.6		$357.9		$2,951.0		$365.6
Fair value of plan assets	2,467.5		228.2		2,623.0		197.1

Our pension plan investment strategy is to invest in diversified portfolios to earn a long-term return consistent with acceptable risk in order to pay retirement benefits and meet regulatory funding requirements while minimizing company cash contributions over time. De-risking strategies are also employed for closed plans as funding improves, generally resulting in higher allocations to long duration bonds. The plans invest primarily in passive and actively managed equity and debt securities. Equity investments are diversified geographically and by investment style and market capitalization. Fixed income investments include sovereign, corporate and asset-backed securities generally denominated in the currency of the plan.

Asset allocation targets are established based on the long-term return, volatility and correlation characteristics of the asset classes, the profiles of the plans’ liabilities, and acceptable levels of risk. Actual allocations vary from target due to market changes and are reviewed regularly. Assets are routinely rebalanced through contributions, benefit payments, and otherwise as deemed appropriate. The actual and target allocations at the measurement date are as follows:



	2018 Target Allocation						2018 Actual Allocation				2017 Actual Allocation
	U.S.			International			U.S.		International		U.S.		International
Asset Category
Equity securities	38	-	48%	40	-	49%	41	%	46	%	58	%	53	%
Debt securities	44	-	54%	50	-	60%	50	%	53	%	34	%	46	%
Real estate/other	—	-	10%	—	-	—%	8	%	—	%	7	%	1	%
Cash			—%			—%	1	%	1	%	1	%	—	%
Total							100	%	100	%	100	%	100	%

In fiscal year 2018, the 7.5% expected return for U.S. plan assets was based on a weighted average of estimated long-term returns of major asset classes and the historical performance of plan assets. The estimated long-term return for equity, debt securities, and real estate is 8.0%, 5.4%, and 6.9%, respectively. In determining asset class returns, we take into account historical long-term returns and the value of active management, as well as other economic and market factors.

In fiscal year 2018, the 5.8% expected rate of return for international plan assets was based on a weighted average return for plans outside the U.S., which vary significantly in size, asset structure and expected returns. The expected asset return for the U.K. plan, which represents over 80% of the assets of our International plans, is 6.2% and was derived from expected equity and debt security returns of 7.4% and 2.7%, respectively.



	30 September 2018								30 September 2017
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
U.S. Qualified Pension Plans
Cash and cash equivalents		$13.8		$13.8		$—		$—		$13.6		$13.6		$—		$—
Equity securities	397.9		397.9		—		—		598.6		598.6		—		—
Equity mutual funds	173.8		173.8		—		—		276.5		276.5		—		—
Equity pooled funds	545.2		—		545.2		—		787.0		—		787.0		—
Fixed income:
Bonds (government and corporate)	1,344.6		—		1,344.6		—		985.7		—		985.7		—
Total U.S. Qualified Pension Plans at Fair Value		$2,475.3		$585.5		$1,889.8		$—		$2,661.4		$888.7		$1,772.7		$—
Real estate pooled funds^(A)		$209.6								$207.8
Total U.S. Qualified Pension Plans		$2,684.9								$2,869.2
International Pension Plans
Cash and cash equivalents		$15.8		$15.8		$—		$—		$7.3		$7.3		$—		$—
Equity pooled funds	727.9		—		727.9		—		821.4		—		821.4		—
Fixed income pooled funds	615.2		—		615.2		—		651.3		—		651.3		—
Other pooled funds	11.6		—		11.6		—		18.6		—		10.8		7.8
Insurance contracts	217.7		—		—		217.7		41.4		—		—		41.4
Total International Pension Plans		$1,588.2		$15.8		$1,354.7		$217.7		$1,540.0		$7.3		$1,483.5		$49.2



	Other Pooled Funds			Insurance Contracts			Total
30 September 2016		$7.3			$45.8			$53.1
Actual return on plan assets:
Assets held at end of year	1.2			(1.0		)	.2
Assets sold during the period	.3			—			.3
Purchases, sales, and settlements, net	(1.0		)	(3.4		)	(4.4		)
30 September 2017		$7.8			$41.4			$49.2
Actual return on plan assets:
Assets held at end of year	—			.9			.9
Assets sold during the period	.5			—			.5
Purchases, sales, and settlements, net	(8.3		)	175.4			167.1
30 September 2018		$—			$217.7			$217.7

Shares of mutual funds are valued at the net asset value (NAV) of the fund and are classified as Level 1 assets. Units of pooled funds are valued at the per unit NAV determined by the fund manager based on the value of the underlying traded holdings and are classified as Level 2 assets.

Corporate and government bonds are classified as Level 2 assets, as they are either valued at quoted market prices from observable pricing sources at the reporting date or valued based upon comparable securities with similar yields and credit ratings.

Other pooled funds classified as Level 2 assets are valued at the NAV of the shares held at year end, which is based on the fair value of the underlying investments. Securities and interests classified as Level 3 are carried at the estimated fair value. The estimated fair value is based on the fair value of the underlying investment values, which includes estimated bids from brokers or other third-party vendor sources that utilize expected cash flow streams and other uncorroborated data including counterparty credit quality, default risk, discount rates, and the overall capital market liquidity.

Insurance contracts are classified as Level 3 assets, as they are carried at contract value, which approximates the estimated fair value. The estimated fair value is based on the fair value of the underlying investment of the insurance company and discount rates that require inputs with limited observability.

Pension contributions to funded plans and benefit payments for unfunded plans for fiscal year 2018 were $68.3. Contributions for funded plans resulted primarily from contractual and regulatory requirements. Benefit payments to unfunded plans were due primarily to the timing of retirements. We anticipate contributing $45 to $65 to the defined benefit pension plans in fiscal year 2019. These contributions are anticipated to be driven primarily by contractual and regulatory requirements for funded plans and benefit payments for unfunded plans, which are dependent upon timing of retirements.

On 26 October 2018, the United Kingdom High Court issued a ruling in a case relating to equalization of pension plan participants’ benefits for the gender effects of Guaranteed Minimum Pensions ("GMP equalization"). The ruling relates to the Lloyds Banking Group pension plans but impacts other U.K. defined benefit pension plans. We are still assessing the impact of this ruling. If we determine that the ruling impacts our U.K. pension plan, the approach to achieve GMP equalization may retroactively increase our benefit obligation for some participants in the plan and may impact funding requirements.

We maintain a nonleveraged employee stock ownership plan (ESOP) which forms part of the Air Products and Chemicals, Inc. Retirement Savings Plan (RSP). The ESOP was established in May of 2002. The balance of the RSP is a qualified defined contribution plan including a 401(k) elective deferral component. A substantial portion of U.S. employees are eligible and participate.

We treat dividends paid on ESOP shares as ordinary dividends. Under existing tax law, we may deduct dividends which are paid with respect to shares held by the plan. Shares of the Company’s common stock in the ESOP totaled 2,378,336 as of 30 September 2018.

Our contributions to the RSP include a Company core contribution for certain eligible employees who do not receive their primary retirement benefit from the defined benefit pension plans, with the core contribution based on a percentage of pay that is dependent on years of service. For the RSP, we also make matching contributions on overall employee contributions as a percentage of the employee contribution and include an enhanced contribution for certain eligible employees that do not participate in the defined benefit pension plans. Worldwide contributions, excluding discontinued operations, expensed to income in fiscal years 2018, 2017, and 2016 were $34.2, $33.7, and $34.6, respectively.

We provide other postretirement benefits consisting primarily of healthcare benefits to certain U.S. retirees who meet age and service requirements. The healthcare benefit is a continued medical benefit until the retiree reaches age 65. Healthcare benefits are contributory, with contributions adjusted periodically. The retiree medical costs are capped at a specified dollar amount, with the retiree contributing the remainder. The cost of these benefits were not material in fiscal years 2018, 2017, and 2016. Accumulated postretirement benefit obligations as of the end of fiscal years 2018 and 2017 were $56.4 and $67.0, respectively, of which $9.4 and $10.0 were current obligations, respectively.

The changes in other postretirement benefit plan obligations that have been recognized in other comprehensive income on a pretax basis during fiscal years 2018 and 2017 were gains of $3.1 and $10.7 that arose during the periods, respectively, and $.3 and $.2 of net actuarial loss amortization, respectively. The net actuarial loss recognized in accumulated other comprehensive loss on a pretax basis was $4.4 at 30 September 2018 and $7.8 at 30 September 2017.