Employee Benefit Plans

The Company’s defined benefit pension plans cover employees in the U.S., Canada, and Europe who meet eligibility requirements. The plan covering U.S. employees is noncontributory and the Company implemented a hard freeze for the U.S. qualified defined benefit plan as of December 31, 2013. The Canadian plan is contributory and benefits are based on career average compensation. The Company’s funding policy is to contribute an amount equal to the minimum required contribution under applicable pension legislation. For the plans in the U.S. and Canada, the Company may increase its contribution above the minimum, if appropriate to its tax and cash position and the plans’ funded position. For the plans in Europe, these plans will be funded in accordance with local regulations.

The Company also sponsors supplemental retirement plans covering employees in the U.S. and Canada. The Company uses a measurement date of December 31 for its pension and supplemental retirement plans.

Several assumptions are used to determine the benefit obligations, plan assets, and net periodic income. The discount rate for the pension plans is calculated using a bond matching approach to select specific bonds that would satisfy the projected benefit payments. The bond matching approach reflects the process that would be used to settle the pension obligations. The expected return on plan assets is based on a calculated market-related value of plan assets, where gains and losses on plan assets are amortized over a five year period and accumulate in other comprehensive income. Other non-investment unrecognized gains and losses are amortized in future net income based on a “corridor” approach, where the corridor is equal to 10% of the greater of the benefit obligation or the market-related value of plan assets at the beginning of the year. The unrecognized gains and losses in excess of the corridor criteria are amortized over the average future lifetime or service of plan participants, depending on the plan. These assumptions are updated at each annual measurement date.

Changes in benefit obligations for the years ended December 31, 2017 and 2016 were:



	2017			2016
	(In Thousands)
Changes in benefit obligation
Benefit obligation at beginning of year	$	2,306,859		$	2,199,356
Service cost	8,459			7,746
Interest cost	96,651			104,485
Plan participants’ contributions	2,454			2,585
Actuarial loss	94,546			139,851
Foreign currency exchange rate changes	15,073			5,449
Gross benefits paid	(106,885		)	(154,676		)
Plan amendments	4,768			2,063
Acquired plans	13,840			—
Benefit obligation at end of year	$	2,435,765		$	2,306,859

The benefit obligations for the Company’s U.S. pension plans included in the above were $2,187,700,000 and $2,105,665,000 at December 31, 2017 and 2016, respectively. The total accumulated benefit obligation for the Company’s defined benefit pension plans in the U.S., Canada, and Europe was approximately $2,409,091,000 and $2,281,648,000 at December 31, 2017 and 2016, respectively.

The assumptions used to measure the pension benefit obligations for the plans at December 31, 2017 and 2016, were:



	2017		2016
Weighted-average discount rate	3.70	%	4.26	%
Rate of increase in future compensation levels	3.11	%	3.14	%

Changes in plan assets for the years ended December 31, 2017 and 2016 were:



	2017			2016
	(In Thousands)
Changes in plan assets
Fair value of plan assets at beginning of year	$	1,965,502		$	1,912,736
Actual return on plan assets	277,650			146,022
Foreign currency exchange rate changes	14,449			5,172
Employer contributions	53,309			53,663
Plan participants’ contributions	2,454			2,585
Benefits paid	(106,885		)	(154,676		)
Fair value of plan assets at end of year	$	2,206,479		$	1,965,502

The fair values of plan assets for the Company’s U.S. pension plans included in the above were $1,969,196,000 and $1,760,713,000 at December 31, 2017 and 2016, respectively.

For the years ended December 31, 2017 and 2016, the aggregate benefit obligation and aggregate fair value of plan assets for plans with benefit obligations in excess of plan assets were as follows:



	2017		2016
	(In Thousands)
Aggregate benefit obligation	$	2,241,690	$	2,131,550
Aggregate fair value of plan assets	2,003,831		1,783,472

For the years ended December 31, 2017 and 2016, the aggregate accumulated benefit obligation and aggregate fair value of plan assets for plans with accumulated benefit obligations in excess of plan assets were as follows:



	2017		2016
	(In Thousands)
Aggregate accumulated benefit obligation	$	2,210,590	$	2,086,711
Aggregate fair value of plan assets	1,996,017		1,760,713

The asset allocations for the Company’s funded pension plans at December 31, 2017 and 2016, and the target allocation for 2018, by asset category were:



	Target Allocation 2018		Percentage of Plan Assets at December 31
	Target Allocation 2018		2017		2016
Asset Category
Equity securities	72	%	71	%	70	%
Debt securities	28	%	29	%	30	%
	100	%	100	%	100	%

The Company’s benefit plan committees in the U.S. and Canada establish investment policies and strategies and regularly monitor the performance of the funds. The plans in Europe are unfunded and, therefore, there are no plan assets. The pension plan strategy implemented by the Company’s management is to achieve long-term objectives and invest the pension assets in accordance with the applicable pension legislation in the U.S. and Canada as well as fiduciary standards. The long-term primary investment objectives for the pension plans are to provide for a reasonable amount of long-term growth of capital, without undue exposure to risk, protect the assets from erosion of purchasing power, and provide investment results that meet or exceed the pension plans’ actuarially assumed long-term rates of return. The Company’s investment strategy with respect to pension plan assets is to generate a return in excess of the passive portfolio benchmark (47% S&P 500 Index, 5% Russell Mid Cap Index, 7% Russell 2000 Index, 5% MSCI EAFE Index, 5% DJ Global Moderate Index, 3% MSCI Emerging Market Net, and 28% BarCap U.S. Govt/Credit).

The fair values of the plan assets as of December 31, 2017 and 2016, by asset category, are shown in the tables below. Various inputs are considered when determining the value of the Company’s pension plan assets. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. Level 1 represents observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2 represents other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.). Level 3 represents significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments). Certain investments are measured at fair value using the net asset value ("NAV") per share as a practical expedient and have not been classified in the fair value hierarchy.

The valuation methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with 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. Equity securities are valued at the closing price reported on the active market on which the individual securities are traded on the last day of the calendar plan year. Debt securities including corporate bonds, U.S. Government securities, and asset-backed securities are valued using price evaluations reflecting the bid and/or ask sides of the market for an investment as of the last day of the calendar plan year.



	2017
	Total		Assets Measured at NAV		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In Thousands)
Equity Securities
Common stocks — mutual funds — equity	$	536,609	$	193,628	$	342,981	$	—	$	—
Genuine Parts Company common stock	191,771		—		191,771		—		—
Other stocks	838,694		—		838,659		—		35

Debt Securities
Short-term investments	47,745		—		47,745		—		—
Cash and equivalents	13,530		—		13,530		—		—
Government bonds	180,838		—		121,834		59,004		—
Corporate bonds	207,978		—		—		207,978		—
Asset-backed and mortgage–backed securities	9,725		—		—		9,725		—
Convertible securities	211		—		—		211		—
Other-international	29,431		—		29,221		210		—
Municipal bonds	7,346		—		—		7,346		—
Mutual funds—fixed income	139,801		92,248		—		47,553		—

Other
Options and futures	38		—		38		—		—
Cash surrender value of life insurance policies	2,762		—		—		—		2,762
Total	$	2,206,479	$	285,876	$	1,585,779	$	332,027	$	2,797



	2016
	Total		Assets Measured at NAV		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In Thousands)
Equity Securities
Common stocks — mutual funds — equity	$	384,103	$	114,182	$	269,921	$	—	$	—
Genuine Parts Company common stock	192,841		—		192,841		—		—
Other stocks	793,101		—		793,007		—		94

Debt Securities
Short-term investments	55,607		—		55,607		—		—
Cash and equivalents	15,995		—		15,995		—		—
Government bonds	157,303		—		102,468		54,835		—
Corporate bonds	192,457		—		—		192,457		—
Asset-backed and mortgage–backed securities	8,872		—		—		8,872		—
Convertible securities	216		—		—		216		—
Other-international	24,613		—		20,868		3,745		—
Municipal bonds	9,272		—		—		9,272		—
Mutual funds—fixed income	128,367		82,394		—		45,973		—

Other
Cash surrender value of life insurance policies	2,755		—		—		—		2,755
Total	$	1,965,502	$	196,576	$	1,450,707	$	315,370	$	2,849

Equity securities include Genuine Parts Company common stock in the amounts of $191,771,000 (9% of total plan assets) and $192,841,000 (10% of total plan assets) at December 31, 2017 and 2016, respectively. Dividend payments received by the plan on Company stock totaled approximately $5,450,000 and $5,308,000 in 2017 and 2016, respectively. Fees paid during the year for services rendered by parties in interest were based on customary and reasonable rates for such services.

The changes in the fair value measurement of plan assets using significant unobservable inputs (Level 3) during 2017 and 2016 were not material.

Based on the investment policy for the pension plans, as well as an asset study that was performed based on the Company’s asset allocations and future expectations, the Company’s expected rate of return on plan assets for measuring 2018 pension income is 7.20% for the plans. The asset study forecasted expected rates of return for the approximate duration of the Company’s benefit obligations, using capital market data and historical relationships.

The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheets at December 31:



	2017			2016
	(In Thousands)
Other long-term asset	$	8,573		$	6,721
Other current liability	(9,280		)	(8,206		)
Pension and other post-retirement liabilities	(228,579		)	(339,872		)
	$	(229,286	)	$	(341,357	)

Amounts recognized in accumulated other comprehensive loss consist of:



	2017		2016
	(In Thousands)
Net actuarial loss	$	941,063	$	1,003,247
Prior service cost	5,773		672
	$	946,836	$	1,003,919

The following table reflects the total benefits expected to be paid from the pension plans’ or the Company’s assets. Of the pension benefits expected to be paid in 2018, approximately $9,283,000 is expected to be paid from employer assets. Expected employer contributions below reflect amounts expected to be contributed to funded plans. Information about the expected cash flows for the pension plans follows (in thousands):



Employer contribution
2018 (expected)	$	47,038
Expected benefit payments:
2018	$	116,326
2019	121,779
2020	127,219
2021	133,143
2022	138,211
2023 through 2027	739,406

Net periodic benefit income included the following components:



	2017			2016			2015
	(In Thousands)
Service cost	$	8,459		$	7,746		$	8,562
Interest cost	96,651			104,485			98,088
Expected return on plan assets	(155,432		)	(156,832		)	(150,130		)
Amortization of prior service credit	(350		)	(432		)	(565		)
Amortization of actuarial loss	38,034			31,641			38,197
Net periodic benefit income	$	(12,638	)	$	(13,392	)	$	(5,848	)

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) are as follows:



	2017			2016			2015
	(In Thousands)
Current year actuarial loss	$	(27,672	)	$	152,415		$	44,930
Recognition of actuarial loss	(38,034		)	(31,641		)	(38,197		)
Current year prior service cost	4,768			2,063			—
Recognition of prior service credit	350			432			565
Total recognized in other comprehensive (loss) income	$	(60,588	)	$	123,269		$	7,298
Total recognized in net periodic benefit income and other comprehensive (loss) income	$	(73,226	)	$	109,877		$	1,450

The estimated amounts that will be amortized from accumulated other comprehensive loss into net periodic benefit income in 2018 are as follows in thousands:



Actuarial loss	$	39,856
Prior service credit	(148		)
Total	$	39,708

The assumptions used in measuring the net periodic benefit income for the plans follow:



	2017		2016		2015
Weighted average discount rate	4.26	%	4.82	%	4.26	%
Rate of increase in future compensation levels	3.15	%	3.12	%	3.07	%
Expected long-term rate of return on plan assets	7.80	%	7.83	%	7.85	%

The Company has one defined contribution plan in the U.S. that covers substantially all of its domestic employees. Employees receive a matching contribution of 100% of the first 5% of the employees’ salary. Total plan expense was approximately $58,186,000 in 2017, $56,975,000 in 2016, and $55,066,000 in 2015.

The Company launched a new defined contribution plan on April 1, 2017 that covers full-time Canadian employees after six months of employment and part-time employees upon meeting provincial minimum standards. Employees receive a matching contribution of 100% of the first 5% of the employees’ salary. Total plan expense was approximately $2,600,000 in 2017.