PENSION BENEFIT PLANS

The Company has noncontributory defined benefit pension plans which cover certain of its U.S. employees. During 2012, all remaining benefit accruals under the U.S. plans ceased. Defined benefit plans from acquisitions subsequent to 2012 are ceased as soon as practical. The Company also has noncontributory defined benefit pension plans which cover certain of its non-U.S. employees, and under certain of these plans, benefit accruals continue. In general, the Company’s policy is to fund these plans based on considerations relating to legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates and other factors.

The following sets forth the funded status of the U.S. and non-U.S. 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
	2018			2017			2018			2017
Change in pension benefit obligation:
Benefit obligation at beginning of year	$	(2,612.9	)	$	(2,558.1	)	$	(1,571.8	)	$	(1,493.0	)
Service cost	(6.7		)	(7.3		)	(35.5		)	(32.7		)
Interest cost	(81.0		)	(82.3		)	(25.1		)	(25.5		)
Employee contributions	—			—			(9.3		)	(8.2		)
Benefits and other expenses paid	179.0			181.8			51.4			58.3
Acquisitions and other	—			—			(3.6		)	—
Actuarial gain (loss)	145.2			(139.9		)	68.9			51.4
Amendments, settlements and curtailments	31.4			(7.1		)	26.5			10.5
Foreign exchange rate impact	—			—			56.2			(132.6		)
Benefit obligation at end of year	(2,345.0		)	(2,612.9		)	(1,442.3		)	(1,571.8		)
Change in plan assets:
Fair value of plan assets at beginning of year	2,004.9			1,868.2			1,199.3			1,042.9
Actual (loss) return on plan assets	(72.1		)	265.3			(19.9		)	74.6
Employer contributions	55.1			53.2			52.4			44.7
Employee contributions	—			—			9.3			8.2
Amendments and settlements	(30.6		)	—			(28.2		)	(3.7		)
Benefits and other expenses paid	(179.0		)	(181.8		)	(51.4		)	(58.3		)
Acquisitions and other	—			—			1.9			—
Foreign exchange rate impact	—			—			(45.0		)	90.9
Fair value of plan assets at end of year	1,778.3			2,004.9			1,118.4			1,199.3
Funded status	$	(566.7	)	$	(608.0	)	$	(323.9	)	$	(372.5	)

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



	U.S. Plans				Non-U.S. Plans
	2018		2017		2018		2017
Discount rate	4.3	%	3.6	%	2.0	%	1.8	%
Rate of compensation increase	4.0	%	4.0	%	2.3	%	2.2	%

Components of net periodic pension benefit (cost):



	U.S. Pension Benefits						Non-U.S. Pension Benefits
($ in millions)	2018			2017			2018			2017
Service cost	$	(6.7	)	$	(7.3	)	$	(35.5	)	$	(32.7	)
Interest cost	(81.0		)	(82.3		)	(25.1		)	(25.5		)
Expected return on plan assets	132.0			130.5			46.9			42.4
Amortization of prior service (cost) credit	(0.9		)	—			0.5			0.3
Amortization of net loss	(31.3		)	(24.9		)	(6.0		)	(7.8		)
Curtailment and settlement gains recognized	—			—			4.9			0.5
Net periodic pension benefit (cost)	$	12.1		$	16.0		$	(14.3	)	$	(22.8	)

In the first quarter of 2018, the Company adopted ASU No. 2017-07, which requires the Company to disaggregate the service cost component from other components of net periodic benefit costs and report the service cost component in the same line item as other compensation costs and the other components of net periodic benefit costs (which include interest costs, expected return on plan assets, amortization of prior service cost or credits and actuarial gains and losses) separately and outside a subtotal of operating income. As this ASU requires application on a retrospective basis, the Company reclassified the prior period presentation of the noncontributory defined benefit pension plans for the adoption of this ASU, resulting in a decrease in operating profit and an increase in other income, net of $33 million and $19 million for the years ended December 31, 2017 and 2016, respectively. The net periodic benefit cost of the noncontributory defined benefit pension plans incurred during the years ended December 31, 2018 and 2017 are reflected in the following captions in the accompanying Consolidated Statements of Earnings ($ in millions):



	Year Ended December 31
	2018			2017			2016
Service cost:
Cost of sales	$	(11.4	)	$	(8.2	)	$	(9.8	)
Selling, general and administrative expenses	(30.8		)	(31.8		)	(35.6		)
Total service cost	(42.2		)	(40.0		)	(45.4		)
Other net periodic pension costs:
Nonoperating income (expense), net	40.0			33.2			19.2
Total	$	(2.2	)	$	(6.8	)	$	(26.2	)

Weighted average assumptions used to determine net periodic pension (cost) benefit at date of measurement:



	U.S. Plans				Non-U.S. Plans
	2018		2017		2018		2017
Discount rate	3.6	%	4.1	%	1.8	%	1.8	%
Expected long-term return on plan assets	7.0	%	7.0	%	3.9	%	3.9	%
Rate of compensation increase	4.0	%	4.0	%	2.3	%	2.9	%

The discount rate reflects the market rate on December 31 of the prior year for high-quality fixed-income investments with maturities corresponding to the Company’s 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. During 2018, the Company updated the mortality assumptions used to estimate the projected benefit obligation to reflect updated mortality tables.

Included in accumulated other comprehensive income (loss) as of December 31, 2018 are the following amounts that have not yet been recognized in net periodic pension cost: unrecognized prior service cost of $7 million ($5 million, net of tax) and unrecognized actuarial losses of approximately $919 million ($695 million, net of tax). The unrecognized losses and prior service cost, net, is calculated as the difference between the actuarially determined projected benefit obligation and the value of the plan assets less accrued pension costs as of December 31, 2018. The prior service cost and actuarial losses included in accumulated other comprehensive income (loss) and expected to be recognized in net periodic pension costs during the year ending December 31, 2019 is $0.7 million ($0.5 million, net of tax) and $30 million ($23 million, net of tax), respectively. No plan assets are expected to be returned to the Company during the year ending December 31, 2019.

Selection of Expected Rate of Return on Assets

For the years ended December 31, 2018, 2017 and 2016, the Company used an expected long-term rate of return assumption of 7.0% for its U.S. defined benefit pension plan. The Company intends to use an expected long-term rate of return assumption of 7.0% for 2019 for its U.S. plan. This expected rate of return reflects the asset allocation of the plan, and is based primarily on broad, publicly-traded equity and fixed-income indices and forward-looking estimates of active portfolio and investment management. Long-term rate 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 1.0% to 5.8% in both 2018 and 2017, with a weighted average rate of return assumption of 3.9% in both 2018 and 2017.

Plan Assets

The U.S. plan’s goal is to maintain between 60% and 70% of its assets in equity portfolios, which are invested in individual equity securities or funds that are expected to mirror broad market returns for equity securities or in assets with characteristics similar to equity investments, such as venture capital funds and partnerships. Asset holdings are periodically rebalanced when equity holdings are outside this range. The balance of the U.S. plan asset portfolio is invested in bond funds, real estate funds, various absolute and real return funds and private equity funds. Non-U.S. plan assets are invested in various insurance contracts, equity and debt securities as determined by the administrator of each plan. The value of the plan assets directly affects the funded status of the Company’s pension plans recorded in the Consolidated Financial Statements.

The Company has some investments that are valued using Net Asset Value (“NAV”) as the practical expedient. In addition, some of the investments valued using NAV as the practical expedient have limits on their redemption to monthly, quarterly, semiannually or annually and require up to 90 days prior written notice. These investments valued using NAV consist of mutual funds, common collective trusts, venture capital funds, partnerships, and other private investments, which allow the Company to allocate investments across a broad array of types of funds and diversify the portfolio.

The fair values of the Company’s pension plan assets for both the U.S. and non-U.S. plans as of December 31, 2018, 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	$	29.7	$	—	$	—	$	29.7
Equity securities:
Common stock	355.7		—		—		355.7
Preferred stock	4.6		—		—		4.6
Fixed income securities:
Corporate bonds	—		76.8		—		76.8
Government issued	—		32.8		—		32.8
Mutual funds	284.6		205.2		—		489.8
Insurance contracts	—		168.7		—		168.7
Total	$	674.6	$	483.5	$	—	1,158.1
Investments measured at NAV ^(a):
Mutual funds							179.8
Insurance contracts							209.1
Common collective trusts							957.8
Venture capital, partnerships and other private investments							391.9
Total assets at fair value							$	2,896.7


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

The fair values of the Company’s pension plan assets for both the U.S. and non-U.S. plans 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	$	36.0	$	—	$	—	$	36.0
Equity securities:
Common stock	444.8		—		—		444.8
Preferred stock	6.7		—		—		6.7
Fixed income securities:
Corporate bonds	—		113.3		—		113.3
Government issued	—		37.5		—		37.5
Mutual funds	341.5		147.0		—		488.5
Insurance contracts	—		299.4		—		299.4
Total	$	829.0	$	597.2	$	—	1,426.2
Investments measured at NAV ^(a):
Mutual funds							232.4
Insurance contracts							72.1
Common collective trusts							1,089.8
Venture capital, partnerships and other private investments							383.7
Total assets at fair value							$	3,204.2


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

Preferred stock and common stock traded on an active market, as well as mutual funds are valued at the quoted closing price reported on the active market on which the individual securities are traded. Preferred stock, common stock, corporate bonds, U.S. government securities 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. Insurance contracts are valued based upon the quoted prices of the underlying investments with the insurance company.

Common/collective trusts are valued based on the plan’s interest, represented by investment units, in the underlying investments held within the trust that are traded in an active market by the trustee.

Venture capital, partnerships and other private investments are valued using the 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. 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 the Company believes 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 2018, the Company contributed $55 million to its U.S. defined benefit pension plan and $52 million to its non-U.S. defined benefit pension plans. During 2019, the Company’s cash contribution requirements for its U.S. and its non-U.S. defined benefit pension plans are expected to be approximately $10 million and $50 million, respectively.

The following sets forth benefit payments, 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
2019	$	172.3	$	50.2	$	222.5
2020	174.1		52.4		226.5
2021	174.8		51.1		225.9
2022	174.3		54.1		228.4
2023	174.2		56.3		230.5
2024 - 2028	814.7		308.7		1,123.4

Other Matters

Substantially all employees not covered by defined benefit plans are covered by defined contribution plans, which generally provide for Company funding based on a percentage of compensation.

A limited number of the Company’s subsidiaries participate in multiemployer defined benefit and contribution plans, primarily outside of the United States, that require the Company to periodically contribute funds to the plan. The risks of participating in a multiemployer plan differ from the risks of participating in a single-employer plan in the following respects: (1) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, (2) if a participating employer ceases contributing to the plan, the unfunded obligations of the plan may be required to be borne by the remaining participating employers and (3) if the Company elects to stop participating in the plan, the Company may be required to pay the plan an amount based on the unfunded status of the plan. None of the multiemployer plans in which the Company’s subsidiaries participate are considered to be quantitatively or qualitatively significant, either individually or in the aggregate. In addition, contributions made to these plans during 2018, 2017 and 2016 were not considered significant, either individually or in the aggregate.

Expense for all defined benefit and defined contribution pension plans amounted to $187 million, $177 million and $177 million for the years ended December 31, 2018, 2017 and 2016, respectively.