EMPLOYEE BENEFIT AND RETIREMENT PLANS

We sponsor defined benefit pension plans in the U.S. and certain foreign locations. In addition, we sponsor defined contribution plans in the U.S. and contribute to government-sponsored retirement plans in locations outside the U.S. We also currently provide postretirement medical and life insurance benefits to certain U.S. employees.

Included in accumulated other comprehensive loss at November 30, 2014 was $330.0 million ($224.0 million net of tax) related to net unrecognized actuarial losses of $327.9 million and unrecognized prior service costs of $2.1 million that have not yet been recognized in net periodic pension or postretirement benefit cost. We expect to recognize $23.4 million ($15.7 million net of tax) in net periodic pension and postretirement benefit expense during 2015 related to the amortization of actuarial losses of $23.1 million and the amortization of prior service costs of $0.3 million.

Defined Benefit Pension Plans

The significant assumptions used to determine benefit obligations are as follows as of November 30:



	United States				International
	2014		2013		2014		2013
Discount rate—funded plan	4.4	%	5.2	%	3.8	%	4.6	%
Discount rate—unfunded plan	4.3	%	5.1	%	—		—
Salary scale	3.8	%	3.8	%	3.0-3.8%		3.0-3.8%

The significant assumptions used to determine pension expense are as follows:



	United States						International
	2014		2013		2012		2014		2013		2012
Discount rate—funded plan	5.2	%	4.3	%	5.5	%	4.6	%	4.4	%	5.1	%
Discount rate—unfunded plan	5.1	%	4.2	%	5.4	%	—		—		—
Salary scale	3.8	%	3.8	%	3.8	%	3.0-3.8%		3.0-3.8%		3.0-3.8%
Expected return on plan assets	8.0	%	8.0	%	8.3	%	6.4	%	6.6	%	6.7	%

Annually, we undertake a process, with the assistance of our external investment consultants, to evaluate the appropriate projected rates of return to use for our pension plans’ assumptions. We engage our investment consultants' research teams to develop capital market assumptions for each asset category in our plans to project investment returns into the future. The specific methods used to develop expected return assumptions vary by asset category. We adjust the outcomes for the fact that plan assets are invested with actively managed funds and subject to tactical asset reallocation.

Our 2013 pension expense includes a loss on voluntary pension settlement of $15.3 million related to the U.S. pension plan. During the third quarter of 2013, we offered former employees with deferred vested benefits in that plan the opportunity to settle those benefits in exchange for a lump sum payment. Based upon the acceptance of that offer by certain employees, $63.3 million was paid from plan assets in the fourth quarter of 2013 with a corresponding decrease in the benefit obligation and we recognized the $15.3 million settlement loss previously described. The loss on voluntary pension settlement is reflected as a separate line in the consolidated income statement.

Our pension expense was as follows:



	United States									International
(millions)	2014			2013			2012			2014			2013			2012
Service cost	$	20.0		$	23.2		$	17.5		$	7.8		$	8.8		$	6.8
Interest costs	31.1			31.2			31.8			13.8			12.6			12.8
Expected return on plan assets	(38.8		)	(41.4		)	(37.8		)	(18.7		)	(17.2		)	(16.2		)
Loss on voluntary pension settlement	—			15.3			—			—			—			—
Amortization of prior service costs	—			—			0.1			0.3			0.4			0.4
Amortization of net actuarial loss	11.8			29.5			18.1			4.6			5.6			3.5
Other	—			—			—			—			0.1			—
	$	24.1		$	57.8		$	29.7		$	7.8		$	10.3		$	7.3

Rollforward of the benefit obligation, fair value of plan assets and a reconciliation of the pension plans’ funded status as of November 30, the measurement date, follows:



	United States						International
(millions)	2014			2013			2014			2013
Change in benefit obligation:
Benefit obligation at beginning of year	$	607.7		$	735.2		$	304.9		$	300.8
Service cost	20.0			23.2			7.8			8.8
Interest costs	31.1			31.2			13.8			12.6
Employee contributions	—			—			1.5			1.7
Voluntary pension settlement	—			(63.3		)	—			—
Plan changes and other	—			—			(0.6		)	(1.4		)
Actuarial (gain) loss	94.0			(97.8		)	49.9			(5.5		)
Benefits paid	(24.4		)	(20.8		)	(13.9		)	(8.6		)
Expenses paid	—			—			(0.8		)	(0.8		)
Foreign currency impact	—			—			(21.0		)	(2.7		)
Benefit obligation at end of year	$	728.4		$	607.7		$	341.6		$	304.9
Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	552.3		$	519.8		$	279.9		$	247.6
Actual return on plan assets	43.9			84.5			44.8			31.4
Employer contributions	4.5			32.1			12.3			10.6
Employee contributions	—			—			1.5			1.7
Voluntary pension settlement	—			(63.3		)	—			—
Benefits paid	(24.4		)	(20.8		)	(13.9		)	(8.6		)
Expenses paid	—			—			(0.8		)	(0.8		)
Foreign currency impact	—			—			(18.5		)	(2.0		)
Fair value of plan assets at end of year	$	576.3		$	552.3		$	305.3		$	279.9
Funded status	$	(152.1	)	$	(55.4	)	$	(36.3	)	$	(25.0	)
Pension plans in which accumulated benefit obligation exceeded plan assets
Accumulated benefit obligation	$	86.7		$	76.8		$	189.2		$	191.4
Fair value of plan assets	—			—			174.2			176.8

Included in the U.S. in the preceding table is a benefit obligation of $91.3 million and $81.2 million for 2014 and 2013, respectively, related to a nonqualified defined benefit plan pursuant to which we will pay supplemental pension benefits to certain key employees upon retirement based upon the employees’ years of service and compensation. The accumulated benefit obligation related to this plan was $86.7 million and $76.8 million as of November 30, 2014 and 2013, respectively. The assets related to this plan, which totaled $79.6 million and $74.4 million as of November 30, 2014 and 2013, respectively, are held in a rabbi trust and accordingly have not been included in the preceding table.

Amounts recorded in the balance sheet for all defined benefit pension plans consist of the following:



	United States				International
(millions)	2014		2013		2014		2013
Non-current pension asset	—		$	25.8	$	0.3	—
Accrued pension liability	$	152.1	81.2		36.6		$	25.0
Deferred income tax assets	87.9		59.4		19.3		15.7
Accumulated other comprehensive loss	144.0		95.5		82.5		74.1

The accumulated benefit obligation is the present value of pension benefits (whether vested or unvested) attributed to employee service rendered before the measurement date and based on employee service and compensation prior to that date. The accumulated benefit obligation differs from the projected benefit obligation in that it includes no assumption about future compensation or service levels. The accumulated benefit obligation for the U.S. pension plans was $636.7 million and $532.8 million as of November 30, 2014 and 2013, respectively. The accumulated benefit obligation for the international pension plans was $310.9 million and $276.5 million as of November 30, 2014 and 2013, respectively.

The investment objectives of the defined benefit pension plans are to provide assets to meet the current and future obligations of the plans at a reasonable cost to us. The goal is to optimize the long-term return across the portfolio of investments at a moderate level of risk. Higher-returning assets include mutual, co-mingled and other funds comprised of equity securities, utilizing both active and passive investment styles. These more volatile assets are balanced with less volatile assets, primarily mutual, co-mingled and other funds comprised of fixed income securities. Professional investment firms are engaged to provide advice on the selection and monitoring of investment funds, and to provide advice on the allocation of plan assets across the various fund managers. This advice is based in part on the duration of each plan’s liability. The investment return performances are evaluated quarterly against specific benchmark indices and against a peer group of funds of the same asset classification.

Our allocations of U.S. pension plan assets as of November 30, 2014 and 2013, by asset category, were as follows:



	Actual				2014
Asset Category	2014		2013		Target
Equity securities	70.4	%	70.2	%	65.0	%
Fixed income securities	15.5	%	23.1	%	17.5	%
Other	14.1	%	6.7	%	17.5	%
Total	100.0	%	100.0	%	100.0	%

The allocations of the international pension plans’ assets as of November 30, 2014 and 2013, by asset category, were as follows:



	Actual				2014
Asset Category	2014		2013		Target
Equity securities	56.6	%	57.6	%	53.0	%
Fixed income securities	43.2	%	42.1	%	41.0	%
Other	0.2	%	0.3	%	6.0	%
Total	100.0	%	100.0	%	100.0	%

The following tables set forth by level, within the fair value hierarchy as described in note 8, pension plan assets at their fair value as of November 30, 2014 and 2013 for the United States and international plans:



As of November 30, 2014	United States
(millions)	Total fair value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	15.0	$	15.0	—		—
Equity securities:
U.S. equity securities^(a)	301.0		144.3		$	156.7	—
International equity securities^(b)	111.1		111.1		—		—
Fixed income securities:
U.S./government/ corporate bonds^(c)	30.6		30.6		—		—
High yield bonds^(d)	31.9		—		31.9		—
International/government/ corporate bonds^(e)	25.9		25.9		—		—
Insurance contracts^(f)	1.1		—		1.1		—
Other types of investments:
Hedge funds^(g)	54.7		—		—		$	54.7
Private equity funds^(h)	5.0		—		—		5.0
Total investments	$	576.3	$	326.9	$	189.7	$	59.7



As of November 30, 2014	International
(millions)	Total fair value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	0.6	$	0.6	—		—
International equity securities^(b)	172.7		—		$	172.7	—
Fixed income securities:
U.S./government/ corporate bonds^(c)	108.5		—		108.5		—
Insurance contracts^(f)	23.5		—		23.5		—
Total investments	$	305.3	$	0.6	$	304.7	—



As of November 30, 2013	United States
(millions)	Total fair value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	13.5	$	13.5	—		—
Equity securities:
U.S. equity securities^(a)	277.2		129.5		$	147.7	—
International equity securities^(b)	110.7		110.7		—		—
Fixed income securities:
U.S./government/ corporate bonds^(c)	72.5		72.5		—		—
High yield bonds^(d)	29.3		—		29.3		—
International/government/ corporate bonds^(e)	24.7		24.7		—		—
Insurance contracts^(f)	1.0		—		1.0		—
Other types of investments:
Hedge funds^(g)	18.5		—		—		$	18.5
Private equity funds^(h)	4.9		—		—		4.9
Total investments	$	552.3	$	350.9	$	178.0	$	23.4



As of November 30, 2013			International
(millions)	Total fair value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	0.6	$	0.6	—		—
International equity securities^(b)	161.4		—		$	161.4	—
Fixed income securities:
U.S./government/ corporate bonds^(c)	99.3		—		99.3		—
Insurance contracts^(f)	18.6		—		18.6		—
Total investments	$	279.9	$	0.6	$	279.3	—


(a)	This category comprises equity funds and collective equity trust funds that most closely track the S&P index and other equity indices.


(b)	This category comprises international equity funds with varying benchmark indices.


(c)	This category comprises funds consisting of U.S. government and U.S. corporate bonds and other fixed income securities. An appropriate benchmark is the Barclays Capital Aggregate Bond Index.


(d)	This category comprises funds consisting of real estate related debt securities with an appropriate benchmark of the Barclays Investment Grade CMBS Index.


(e)	This category comprises funds consisting of international government/corporate bonds and other fixed income securities with varying benchmark indices.


(f)	This category comprises insurance contracts, the majority of which have a guaranteed investment return.


(g)	This category comprises hedge funds investing in strategies represented in various HFRI Fund Indices.


(h)	This category comprises private equity, venture capital and limited partnerships.

The change in fair value of the plans’ Level 3 assets for 2014 is summarized as follows:



(millions)	Beginning of year		Realized gains		Unrealized gains (losses)			Net, purchases and (sales)			End of year
Hedge funds	$	18.5	$	1.5	$	(1.7	)	$	36.4		$	54.7
Private equity funds	4.9		0.9		0.2			(1.0		)	5.0
Total	$	23.4	$	2.4	$	(1.5	)	$	35.4		$	59.7

The change in fair value of the plans’ Level 3 assets for 2013 is summarized as follows:



(millions)	Beginning of year		Realized gains		Unrealized gains (losses)			Net, purchases and (sales)			End of year
Hedge funds	$	21.1	$	0.9	$	1.5		$	(5.0	)	$	18.5
Private equity funds	5.3		0.5		(0.1		)	(0.8		)	4.9
Total	$	26.4	$	1.4	$	1.4		$	(5.8	)	$	23.4

The value for the Level 3 hedge funds’ assets is determined by an administrator using financial statements of the underlying funds or estimates provided by fund managers. The value for the Level 3 private equity funds’ assets is determined by the general partner or the general partner’s designee. In addition, for the plans’ Level 3 assets, we engage an independent advisor to compare the funds’ returns to other funds with similar strategies. Each fund is required to have an annual audit by an independent accountant, which is provided to the independent advisor. This provides a basis of comparability relative to similar assets in this category.

Equity securities in the U.S. plan included McCormick stock with a fair value of $33.0 million (0.5 million shares and 5.7% of total U.S. pension plan assets) and $31.6 million (0.5 million shares and 5.7% of total U.S. pension plan assets) at November 30, 2014 and 2013, respectively. Dividends paid on these shares were $0.7 million in 2014 and $0.6 million in 2013.

Pension benefit payments in our most significant plans are made from assets of the pension plans. It is anticipated that future benefit payments for the U.S. plans for the next 10 fiscal years will be as follows:



(millions)	United States expected payments
2015	$	24.5
2016	25.5
2017	27.4
2018	30.1
2019	31.7
2020-2024	195.4

It is anticipated that future benefit payments for the international plans for the next 10 fiscal years will be as follows:



(millions)	International expected payments
2015	$	8.5
2016	8.9
2017	9.9
2018	10.8
2019	12.3
2020-2024	79.7

U.S. Defined Contribution Retirement Plans

For the U.S. defined contribution retirement plan, we match 100% of a participant’s contribution up to the first 3% of the participant’s salary, and 50% of the next 2% of the participant’s salary. In addition we make contributions for U.S. employees not covered by the defined benefit plan. Some of our smaller U.S. subsidiaries sponsor separate 401(k) retirement plans. Our contributions charged to expense under all 401(k) retirement plans were $7.7 million, $7.7 million and $7.4 million in 2014, 2013 and 2012, respectively.

At the participant’s election, 401(k) retirement plans held 2.3 million shares of McCormick stock, with a fair value of $164.9 million, at November 30, 2014. Dividends paid on these shares in 2014 were $3.5 million.

Postretirement Benefits Other Than Pensions

We currently provide postretirement medical and life insurance benefits to certain U.S. employees who were covered under the active employees’ plan and retire after age 55 with at least five years of service. The subsidy provided under these plans is based primarily on age at date of retirement. These benefits are not pre-funded but paid as incurred. Employees hired after December 31, 2008 are not eligible for a company subsidy. They are eligible for coverage on an access-only basis.

Our other postretirement benefit expense follows:



(millions)	2014		2013			2012
Service cost	$	3.6	$	5.1		$	4.0
Interest costs	4.3		4.1			4.9
Amortization of prior service costs	—		(1.2		)	(4.0		)
Amortization of losses	—		1.4			—
Special termination benefits	—		—			(0.1		)
Postretirement benefit expense	$	7.9	$	9.4		$	4.8

Rollforwards of the benefit obligation, fair value of plan assets and a reconciliation of the plans’ funded status at November 30, the measurement date, follow:



(millions)	2014			2013
Change in benefit obligation:
Benefit obligation at beginning of year	$	94.9		$	112.8
Service cost	3.6			5.1
Interest costs	4.3			4.1
Employee contributions	2.9			2.9
Demographic assumptions change	(5.8		)	(8.1		)
Other plan assumptions	1.1			(1.5		)
Trend rate assumption change	0.1			—
Discount rate change	5.8			(8.7		)
Actuarial gain	(2.3		)	(3.3		)
Benefits paid	(8.3		)	(8.4		)
Benefit obligation at end of year	$	96.3		$	94.9
Change in fair value of plan assets:
Fair value of plan assets at beginning of year	—			—
Employer contributions	$	5.4		$	5.5
Employee contributions	2.9			2.9
Benefits paid	(8.3		)	(8.4		)
Fair value of plan assets at end of year	—			—
Other postretirement benefit liability	$	96.3		$	94.9

Estimated future benefit payments (net of employee contributions) for the next 10 fiscal years are as follows:



(millions)	Retiree medical		Retiree life insurance		Total
2015	$	5.8	$	1.1	$	6.9
2016	5.7		1.1		6.8
2017	5.7		1.2		6.9
2018	5.8		1.2		7.0
2019	5.9		1.2		7.1
2020-2024	29.4		6.3		35.7

The assumed discount rate was 4.0% and 4.7% for 2014 and 2013, respectively.

For 2014, the assumed annual rate of increase in the cost of covered health care benefits is 7.0% (7.0% last year). It is assumed to decrease gradually to 5.0% in the year 2022 (5.0% in 2021 last year) and remain at that level thereafter. A one percentage point increase or decrease in the assumed health care cost trend rate would have had an immaterial effect on the benefit obligation and the total of service and interest cost components for 2014.