PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

We sponsor a number of defined benefit pension plans. The primary plans are The Hershey Company Retirement Plan and The Hershey Company Retirement Plan for Hourly Employees. These are cash balance plans that provide pension benefits for most domestic employees hired prior to January 1, 2007. We also sponsor two post-retirement benefit plans: health care and life insurance. The health care plan is contributory, with participants’ contributions adjusted annually. The life insurance plan is non-contributory.

Obligations and Funded Status

A summary of the changes in benefit obligations, plan assets and funded status of these plans is as follows:



	Pension Benefits						Other Benefits
December 31,	2016			2015			2016			2015
Change in benefit obligation
Projected benefit obligation at beginning of year	$	1,169,424		$	1,260,895		$	255,617		$	294,064
Service cost	23,075			28,300			299			542
Interest cost	41,875			44,179			9,731			10,187
Plan amendments	(43,065		)	67			—			—
Actuarial (gain) loss	15,804			(51,064		)	(2,998		)	(26,887		)
Curtailment	—			(2,693		)	—			292
Settlement	(59,784		)	(57,193		)	—			—
Divestiture	—			(4,047		)	—			—
Currency translation and other	1,416			(11,456		)	314			(2,206		)
Benefits paid	(30,427		)	(37,564		)	(20,117		)	(20,375		)
Projected benefit obligation at end of year	1,118,318			1,169,424			242,846			255,617
Change in plan assets
Fair value of plan assets at beginning of year	1,041,902			1,136,943			—			—
Actual return on plan assets	49,012			(19,804		)	—			—
Employer contributions	21,580			32,898			20,117			20,375
Settlement	(59,784		)	(57,193		)	—			—
Divestiture	—			(2,485		)	—			—
Currency translation and other	1,393			(10,893		)	—			—
Benefits paid	(30,427		)	(37,564		)	(20,117		)	(20,375		)
Fair value of plan assets at end of year	1,023,676			1,041,902			—			—
Funded status at end of year	$	(94,642	)	$	(127,522	)	$	(242,846	)	$	(255,617	)

Amounts recognized in the Consolidated Balance Sheets:
Other assets	$	39		$	—		$	—		$	—
Accrued liabilities	(28,994		)	(4,841		)	(22,576		)	(24,205		)
Other long-term liabilities	(65,687		)	(122,681		)	(220,270		)	(231,412		)
Total	$	(94,642	)	$	(127,522	)	$	(242,846	)	$	(255,617	)

Amounts recognized in Accumulated Other Comprehensive Income (Loss), net of tax:
Actuarial net (loss) gain	$	(243,228	)	$	(264,570	)	$	9,264		$	7,574
Net prior service credit (cost)	28,360			4,267			(1,565		)	(1,919		)
Net amounts recognized in AOCI	$	(214,868	)	$	(260,303	)	$	7,699		$	5,655

The accumulated benefit obligation for all defined benefit pension plans was $1,081,261 as of December 31, 2016 and $1,129,052 as of December 31, 2015.

Plans with accumulated benefit obligations in excess of plan assets were as follows:



December 31,	2016		2015
Projected benefit obligation	$	1,118,294	$	1,110,232
Accumulated benefit obligation	1,081,254		1,081,002
Fair value of plan assets	1,023,613		985,111

Net Periodic Benefit Cost

The components of net periodic benefit cost were as follows:



	Pension Benefits									Other Benefits
For the years ended December 31,	2016			2015			2014			2016			2015			2014
Amounts recognized in net periodic benefit cost
Service cost	$	23,075		$	28,300		$	26,935		$	299		$	542		$	706
Interest cost	41,875			44,179			48,886			9,731			10,187			11,696
Expected return on plan assets	(58,820		)	(68,830		)	(74,080		)	—			—			—
Amortization of prior service (credit) cost	(1,555		)	(1,178		)	(667		)	575			611			616
Amortization of net loss (gain)	34,940			30,510			23,360			(13		)	(57		)	(141		)
Curtailment credit	—			(688		)	—			—			204			—
Settlement loss	22,657			23,067			—			—			—			—
Total net periodic benefit cost	$	62,172		$	55,360		$	24,434		$	10,592		$	11,487		$	12,877

Change in plan assets and benefit obligations recognized in AOCI, pre-tax
Actuarial net (gain) loss	$	(31,772	)	$	(21,554	)	$	99,136		$	(3,047	)	$	(26,270	)	$	36,021
Prior service (credit) cost	(41,517		)	1,748			833			(572		)	(834		)	(629		)
Total recognized in other comprehensive (income) loss, pre-tax	$	(73,289	)	$	(19,806	)	$	99,969		$	(3,619	)	$	(27,104	)	$	35,392
Net amounts recognized in periodic benefit cost and AOCI	$	(11,117	)	$	35,554		$	124,403		$	6,973		$	(15,617	)	$	48,269

Amounts expected to be amortized from AOCI into net periodic benefit cost during 2017 are as follows:



	Pension Plans			Post-Retirement Benefit Plans
Amortization of net actuarial loss (gain)	$	33,567		$	(1	)
Amortization of prior service (credit) cost	$	(5,822	)	$	747

Assumptions

The weighted-average assumptions used in computing the benefit obligations were as follows:



	Pension Benefits				Other Benefits
December 31,	2016		2015		2016		2015
Discount rate	3.8	%	4.0	%	3.8	%	4.0	%
Rate of increase in compensation levels	3.8	%	3.8	%	N/A		N/A

The weighted-average assumptions used in computing net periodic benefit cost were as follows:



	Pension Benefits						Other Benefits
For the years ended December 31,	2016		2015		2014		2016		2015		2014
Discount rate	4.0	%	3.7	%	4.5	%	4.0	%	3.7	%	4.5	%
Expected long-term return on plan assets	6.1	%	6.3	%	7.0	%	N/A		N/A		N/A
Rate of compensation increase	3.8	%	4.1	%	4.0	%	N/A		N/A		N/A

The Company’s discount rate assumption is determined by developing a yield curve based on high quality corporate bonds with maturities matching the plans’ expected benefit payment streams. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. We base the asset return assumption on current and expected asset allocations, as well as historical and expected returns on the plan asset categories.

For purposes of measuring our post-retirement benefit obligation at December 31, 2016, we assumed a 7.0% annual rate of increase in the per capita cost of covered health care benefits for 2017, grading down to 5.0% by 2021. For measurement purposes as of December 31, 2015, we assumed a 6.5% pre-65 and a 7.3% post-65 annual rate of increase in the per capita cost of covered health care benefits for 2016, grading down to 5.0% by 2019. Assumed health care cost trend rates could have a significant effect on the amounts reported for the post-retirement health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects:



Impact of assumed health care cost trend rates	One-Percentage Point Increase		One-Percentage Point Decrease
Effect on total service and interest cost components	$	151	$	(132	)
Effect on accumulated post-retirement benefit obligation	3,858		(3,373		)

The valuations and assumptions reflect adoption of the Society of Actuaries updated RP-2014 mortality tables with MP-2016 generational projection scales, which we adopted as of December 31, 2016. Adoption of the updated scale did not have a significant impact on our current pension obligations or net period benefit cost since our primary plans are cash balance plans and most participants take lump-sum settlements upon retirement.

Plan Assets

We broadly diversify our pension plan assets across public equity, fixed income, diversified credit strategies and diversified alternative strategies asset classes. Our target asset allocation for our major domestic pension plans as of December 31, 2016 was as follows:



Asset Class		Target Asset Allocation
Cash		1%
Equity securities		25%
Fixed income securities		49%
Alternative investments, including real estate, listed infrastructure and other		25%

As of December 31, 2016, actual allocations were consistent with the targets and within our allowable ranges. We expect the level of volatility in pension plan asset returns to be in line with the overall volatility of the markets within each asset class.

The following table sets forth by level, within the fair value hierarchy (as defined in Note 6), pension plan assets at their fair values as of December 31, 2016:



	Quoted prices in active markets of identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant other unobservable inputs (Level 3)		Total
Cash and cash equivalents	$	576	$	9,540	$	—	$	10,116
Equity securities:
Global all-cap (a)	20,216		242,214		—		262,430
Fixed income securities:
U.S. government/agency	—		228,648		—		228,648
Corporate bonds (b)	—		199,634		—		199,634
Collateralized obligations (c)	—		50,532		—		50,532
International government/corporate bonds (d)	—		30,928		—		30,928
Alternative investments:
Global diversified assets (e)	—		146,975		—		146,975
Global real estate investment trusts (f)	—		48,000		—		48,000
Global infrastructure (g)	—		46,413		—		46,413
Total pension plan assets	$	20,792	$	1,002,884	$	—	$	1,023,676

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair values as of December 31, 2015:



	Quoted prices in active markets of identical assets (Level 1)		Significant other observable inputs(Level 2)		Significant other unobservable inputs (Level 3)		Total
Cash and cash equivalents	$	1,763	$	30,389	$	—	$	32,152
Equity securities:
U.S. all-cap (h)	—		138,367		—		138,367
International all-cap (i)	108,862		3,118		—		111,980
Global all-cap (a)	73,157		196,063		—		269,220
Fixed income securities:
U.S. government/agency	117,378		120,136		—		237,514
Corporate bonds (b)	101,476		37,748		—		139,224
Collateralized obligations (c)	32,532		8,157		—		40,689
International government/corporate bonds (d)	31,917		40,839		—		72,756
Total pension plan assets	$	467,085	$	574,817	$	—	$	1,041,902



(a)	This category comprises equity funds that primarily track the MSCI World Index or MSCI All Country World Index.
(b)	This category comprises fixed income funds primarily invested in investment grade and high yield bonds.
(c)	This category comprises fixed income funds primarily invested in high quality mortgage-backed securities and other asset-backed obligations.
(d)	This category comprises fixed income funds primarily invested in Canadian and other international bonds.
(e)	This category comprises diversified funds invested across alternative asset classes.
(f)	This category comprises equity funds primarily invested in publicly traded real estate securities.
(g)	This category comprises equity funds primarily invested in publicly traded listed infrastructure securities.
(h)	This category comprises equity funds that track the Russell 3000 index.
(i)	This category comprises equity funds that track the MSCI World Ex-US index.

The fair value of the Level 1 assets was based on quoted prices in active markets for the identical assets. The fair value of the Level 2 assets was determined by management based on an assessment of valuations provided by asset management entities and was calculated by aggregating market prices for all underlying securities.

Investment objectives for our domestic plan assets are:



l	To ensure high correlation between the value of plan assets and liabilities;
l	To maintain careful control of the risk level within each asset class; and
l	To focus on a long-term return objective.

We believe that there are no significant concentrations of risk within our plan assets as of December 31, 2016. We comply with the rules and regulations promulgated under the Employee Retirement Income Security Act of 1974 (“ERISA”) and we prohibit investments and investment strategies not allowed by ERISA. We do not permit direct purchases of our Company’s securities or the use of derivatives for the purpose of speculation. We invest the assets of non-domestic plans in compliance with laws and regulations applicable to those plans.

Cash Flows and Plan Termination

Our policy is to fund domestic pension liabilities in accordance with the limits imposed by the ERISA, federal income tax laws and the funding requirements of the Pension Protection Act of 2006. We fund non-domestic pension liabilities in accordance with laws and regulations applicable to those plans.

We made total contributions to the pension plans of $21,580 during 2016, including contributions of $18,000 to maintain the funded status of our domestic plans. In 2015, we made total contributions of $32,898 to the pension plans. For 2017, minimum funding requirements for our pension plans are approximately $1,158.

Total benefit payments expected to be paid to plan participants, including pension benefits funded from the plans and other benefits funded from Company assets, are as follows:



	Expected Benefit Payments
	2017		2018		2019		2020		2021		2022-2026
Pension Benefits	$	96,972	$	69,299	$	73,438	$	78,863	$	79,714	$	423,587
Other Benefits	22,593		20,546		18,813		17,642		16,698		71,616

During the third quarter of 2016, the Company’s Board Compensation and Executive Organization Committee approved the termination of the Hershey Company Puerto Rico Hourly Pension Plan with an effective date of December 31, 2016. It is expected to take 15 to 18 months from the date of the approved amendment to complete the termination of this plan. The net pension liability for this plan of $5,082 as of December 31, 2016 will be settled through either lump sum payments or purchased annuities.

Multiemployer Pension Plan

During 2016, we exited a facility as part of the 2016 Operational Optimization Program (see Note 7) and no longer participate in the BCTGM Union and Industry Canadian Pension Plan, a trustee-managed multiemployer defined benefit pension plan. Our obligation during the term of the collective bargaining agreement was limited to remitting the required contributions to the plan and contributions made were not significant during 2014 through 2016.

Savings Plans

The Company sponsors several defined contribution plans to provide retirement benefits to employees. Contributions to The Hershey Company 401(k) Plan and similar plans for non-domestic employees are based on a portion of eligible pay up to a defined maximum. All matching contributions were made in cash. Expense associated with the defined contribution plans was $43,545 in 2016, $44,285 in 2015 and $46,064 in 2014.