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. We contribute to defined contribution plans in locations outside the U.S., including government-sponsored retirement plans. We also currently provide postretirement medical and life insurance benefits to certain U.S. employees and retirees.

During fiscal year 2017, we made the following significant changes to our employee benefit and retirement plans:

•

On December 1, 2016, our Management Committee approved the freezing of benefits under the McCormick U.K. Pension and Life Assurance Scheme (the U.K. plan). The effective date of this freeze was December 31, 2016. Although the U.K. plan has been frozen, employees who are participants in that plan retained benefits accumulated up to the date of the freeze, based on credited service and eligible earnings, in accordance with the terms of the plan.

•

On January 3, 2017, our Management Committee approved the freezing of benefits under the McCormick Pension Plan, the defined benefit pension plan available to U.S. employees hired on or prior to December 31, 2011. The effective date of this freeze is November 30, 2018. Although the U.S. Pension plan will be frozen, employees who are participants in that plan will retain benefits accumulated up to the date of the freeze, based on credited service and eligible earnings, in accordance with the terms of the plan.

•

On January 3, 2017, the Compensation Committee of our Board of Directors approved the freezing of benefits under the McCormick Supplemental Executive Retirement Plan (the “SERP”). The effective date of this freeze was January 31, 2017. Although the SERP has been frozen, executives who are participants in the SERP as of the date of the freeze, including certain named executive officers, retained benefits accumulated up to that date, based on credited service and eligible earnings, in accordance with the SERP’s terms.

As a result of these changes, we remeasured pension assets and benefit obligations as of the dates of the approvals indicated above and reduced the U.S. and U.K. plan benefit obligations by $69.9 million and $7.8 million, respectively. These remeasurements resulted in non-cash, pre-tax net actuarial gains of $77.7 million, which principally consist of curtailment gains of $76.7 million, and are included in our consolidated statement of comprehensive income for 2017, as a component of Other comprehensive income (loss) on the line entitled Unrealized components of pension plans. Deferred taxes associated with these actuarial gains, together with other unrealized components of pension plans recognized during 2017, are also included in that statement as a component of Other comprehensive income (loss).

Included in accumulated other comprehensive loss at November 30, 2017 was $225.8 million ($152.3 million net of tax) related to net unrecognized actuarial losses of $249.7 million and unrecognized prior service cost credits of $23.9 million that have not yet been recognized in net periodic pension or postretirement benefit cost. We expect to recognize $4.1 million ($3.0 million net of tax) in net periodic pension and postretirement benefit expense during 2018 related to the amortization of actuarial losses of $12.7 million and the amortization of prior service cost credits of $(8.6) million.

Defined Benefit Pension Plans

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



	United States				International
	2017		2016		2017		2016
Discount rate—funded plan	4.0	%	4.6	%	3.0	%	3.2	%
Discount rate—unfunded plan	3.9	%	4.5	%	—		—
Salary scale	3.8	%	3.8	%	3.0-3.5%		3.0-3.5%

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



	United States						International
	2017		2016		2015		2017		2016		2015
Discount rate—funded plan	4.6	%	4.7	%	4.4	%	3.2	%	3.9	%	3.8	%
Discount rate—unfunded plan	4.5	%	4.7	%	4.3	%	—		—		—
Salary scale	3.8	%	3.8	%	3.8	%	3.4	%	3.5	%	3.5	%
Expected return on plan assets	7.3	%	7.5	%	7.8	%	5.5	%	6.0	%	6.3	%

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 pension expense was as follows:



	United States									International
(millions)	2017			2016			2015			2017			2016			2015
Service cost	$	14.8		$	21.5		$	23.6		$	6.2		$	7.1		$	8.2
Interest costs	31.7			33.3			31.6			10.4			11.3			12.0
Expected return on plan assets	(41.4		)	(40.8		)	(40.2		)	(15.3		)	(16.2		)	(17.2		)
Amortization of prior service costs	—			—			—			0.7			0.3			0.3
Amortization of net actuarial loss	5.8			12.6			16.8			4.1			4.1			6.0
Settlement loss	—			—			—			0.6			—			—
	$	10.9		$	26.6		$	31.8		$	6.7		$	6.6		$	9.3

A 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)	2017			2016			2017			2016
Change in benefit obligation:
Benefit obligation at beginning of year	$	757.0		$	722.0		$	324.9		$	308.1
Service cost	14.8			21.5			6.2			7.1
Interest costs	31.7			33.3			10.4			11.3
Employee contributions	—			—			0.7			1.1
Plan amendments	—			—			0.3			—
Plan curtailments	(68.9		)	—			(7.8		)	—
Plan settlements	—			—			(3.1		)	—
Actuarial loss	65.6			10.6			3.3			47.5
Benefits paid	(35.2		)	(30.4		)	(15.3		)	(14.9		)
Business combinations	48.7			—			—			—
Expenses paid	—			—			(0.4		)	(0.5		)
Foreign currency impact	—			—			22.3			(34.8		)
Benefit obligation at end of year	$	813.7		$	757.0		$	341.5		$	324.9
Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	558.9		$	548.6		$	289.1		$	288.3
Actual return on plan assets	90.9			25.3			31.5			38.3
Employer contributions	11.4			15.4			7.3			9.7
Employee contributions	—			—			0.7			1.1
Plan settlements	—			—			(3.1		)	—
Benefits paid	(35.2		)	(30.4		)	(15.3		)	(14.9		)
Business combinations	28.2			—			—			—
Expenses paid	—			—			(0.4		)	(0.5		)
Foreign currency impact	—			—			21.5			(32.9		)
Fair value of plan assets at end of year	$	654.2		$	558.9		$	331.3		$	289.1
Funded status	$	(159.5	)	$	(198.1	)	$	(10.2	)	$	(35.8	)
Pension plans in which accumulated benefit obligation exceeded plan assets
Projected benefit obligation	$	813.7		$	757.0		$	20.9		$	218.8
Accumulated benefit obligation	797.6			674.9			16.7			208.8
Fair value of plan assets	654.2			558.9			1.6			191.9

Included in the U.S. in the preceding table is a benefit obligation of $105.4 million and $95.5 million for 2017 and 2016, respectively, related to the SERP. The accumulated benefit obligation related to this plan was $105.4 million and $91.8 million as of November 30, 2017 and 2016, respectively. The assets related to this plan, which totaled $89.2 million and $80.6 million as of November 30, 2017 and 2016, respectively, are held in a rabbi trust and accordingly have not been included in the preceding table.

As part of our acquisition of RB Foods in August 2017, we assumed a defined benefit pension plan that covers eligible union employees of the Reckitt Benckiser food business (the "RB Foods Union Pension Plan"). The related plan assets and benefit obligation of the RB Foods Union Pension Plan are included in the U.S. in the preceding table. As noted in the preceding table, at acquisition date, the funded status of that plan was $(20.5) million, representing a benefit obligation of $48.7 million less the fair value of plan assets of $28.2 million. Plan assets consist of a mix of equities, fixed income funds and real estate funds. At the date of acquisition, based upon a preliminary valuation, the accumulated benefit obligation was $40.9 million. During 2017, we made a $5.0 million contribution to the RB Foods Union Pension Plan.

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



	United States				International
(millions)	2017		2016		2017		2016
Non-current pension asset	$	—	$	—	$	22.5	$	1.5
Accrued pension liability	159.5		198.1		32.7		37.3
Deferred income tax assets	69.4		90.9		14.2		16.9
Accumulated other comprehensive loss	112.1		149.2		57.4		76.0

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 $797.6 million and $674.9 million as of November 30, 2017 and 2016, respectively. The accumulated benefit obligation for the international pension plans was $317.2 million and $296.9 million as of November 30, 2017 and 2016, 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.

The allocations of U.S. pension plan assets as of November 30, by asset category, were as follows:



	Actual				2017
Asset Category	2017		2016		Target
Equity securities	68.8	%	69.0	%	61.0	%
Fixed income securities	16.7	%	16.7	%	17.0	%
Other	14.5	%	14.3	%	22.0	%
Total	100.0	%	100.0	%	100.0	%

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



	Actual				2017
Asset Category	2017		2016		Target
Equity securities	53.8	%	55.7	%	53.0	%
Fixed income securities	46.1	%	44.2	%	40.5	%
Other	0.1	%	0.1	%	6.5	%
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, 2017 and 2016 for the United States and international plans:



As of November 30, 2017	United States
(millions)	Total fair value		Level 1		Level 2
Cash and cash equivalents	$	6.4	$	6.4	$	—
Equity securities:
U.S. equity securities^(a)	305.1		144.2		160.9
International equity securities^(b)	144.8		144.8		—
Fixed income securities:
U.S. government/corporate bonds^(c)	45.3		45.3		—
High yield bonds^(d)	35.6		—		35.6
International/government/corporate bonds^(e)	27.1		27.1		—
Insurance contracts^(f)	1.1		—		1.1
Other types of investments:
Real estate ^(g)	19.8		18.3		1.5
Natural resources^(h)	11.4		—		11.4
Total	$	596.6	$	386.1	$	210.5
Investments measured at net asset value⁽ⁱ⁾
Hedge funds^(j)	41.5
Private equity funds^(k)	3.2
Private debt funds^(l)	12.9
Total investments	$	654.2



As of November 30, 2017	International
(millions)	Total fair value		Level 1		Level 2
Cash and cash equivalents	$	0.3	$	0.3	$	—
International equity securities^(b)	178.2		—		178.2
Fixed income securities:
U.S./government/ corporate bonds^(c)	131.6		—		131.6
Insurance contracts^(f)	21.2		—		21.2
Total investments	$	331.3	$	0.3	$	331.0



As of November 30, 2016	United States
(millions)	Total fair value		Level 1		Level 2
Cash and cash equivalents	$	5.9	$	5.9	$	—
Equity securities:
U.S. equity securities^(a)	273.0		134.0		139.0
International equity securities^(b)	112.6		112.6		—
Fixed income securities:
U.S./government/ corporate bonds^(c)	33.5		33.5		—
High yield bonds^(d)	33.6		—		33.6
International/government/ corporate bonds^(e)	25.2		25.2		—
Insurance contracts^(f)	1.1		—		1.1
Other types of investments:
Real estate^(g)	16.8		16.8		—
Natural resources^(h)	12.4		—		12.4
Total	$	514.1	$	328.0	$	186.1
Investments measured at net asset value⁽ⁱ⁾
Hedge funds^(j)	40.7
Private equity funds^(k)	4.1
Total investments	$	558.9



As of November 30, 2016			International
(millions)	Total fair value		Level 1		Level 2
Cash and cash equivalents	$	0.1	$	0.1	$	—
International equity securities^(b)	161.1		—		161.1
Fixed income securities:
U.S./government/ corporate bonds^(c)	107.8		—		107.8
Insurance contracts^(f)	20.1		—		20.1
Total investments	$	289.1	$	0.1	$	289.0


(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 funds investing in real estate investment trusts (REIT). An appropriate benchmark is the MSCI U.S. REIT Index.


(h)	This category comprises funds investing in natural resources. An appropriate benchmark is the Alerian master limited partnership (MLP) Index.


(i)	Certain investments that are valued using the net asset value per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. These are included to permit reconciliation of the fair value hierarchy to the aggregate pension plan assets.


(j)	This category comprises hedge funds investing in strategies represented in various HFRI Fund Indices. The net asset value is generally based on the valuation of the underlying investment. Limitations exist on the timing from notice by the plan of its intent to redeem and actual redemptions of these funds and generally range from a minimum of one month to several months.

(k)

This category comprises private equity, venture capital and limited partnerships. The net asset is based on valuation models of the underlying securities as determined by the general partner or general partner's designee. These valuation models include unobservable inputs that cannot be corroborated using verifiable observable market data. These funds typically have redemption periods of approximately 10 years.

(l)

This category comprises limited partnerships funds investing in senior loans, mezzanine and distressed debt. The net asset is based on valuation models of the underlying securities as determined by the general partner or general partner's designee. These valuation models include unobservable inputs that cannot be corroborated using verifiable observable market data. These funds typically have redemption periods of approximately 10 years.

For the plans’ hedge funds, private equity funds and private debt funds, 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.

Equity securities in the U.S. plan included McCormick stock with a fair value of $39.0 million (0.4 million shares and 6.0% of total U.S. pension plan assets) and $35.3 million (0.4 million shares and 6.3% of total U.S. pension plan assets) at November 30, 2017 and 2016, respectively. Dividends paid on these shares were $0.7 million in 2017 and in 2016.

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. and International plans for the next 10 fiscal years will be as follows:



(millions)	United States		International
2018	$	40.5	$	15.3
2019	38.5		15.9
2020	39.0		16.0
2021	42.1		16.9
2022	43.8		17.0
2023-2027	237.0		94.3

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 of 3% of the participant's salary 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 $12.2 million, $10.4 million and $9.5 million in 2017, 2016 and 2015, respectively.

At the participant’s election, 401(k) retirement plans held 1.9 million shares of McCormick stock, with a fair value of $196.6 million, at November 30, 2017. Dividends paid on these shares in 2017 were $3.8 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.

During 2017, we made the following changes to our postretirement medical and life insurance benefits impacting certain U.S. employees:

•

On August 23, 2017, our Management Committee approved changes to our postretirement medical benefits plan for eligible U.S. employees and retirees (employees hired after December 31, 2008 are not eligible for the subsidy). These changes included consolidating benefits providers and simplifying and reducing our subsidy for postretirement medical benefits. The effective date of the change in our subsidy is January 1, 2018.

•

On August 23, 2017, our Management Committee approved the elimination of life insurance benefits under our other postretirement benefit plan to eligible U.S. active employees (that life insurance benefit was available to U.S. employees hired on or prior to December 31, 2008). The effective date of this plan amendment is January 1, 2018, unless an employee commits to their retirement date by December 31, 2017 and retires on or before December 31, 2018.

As a result of these changes, we remeasured the other postretirement benefit obligation as of August 23, 2017, resulting in a reduction of the other postretirement benefit obligation of $27.1 million. These remeasurements resulted in an aggregate non-cash, pre-tax net prior service cost credit of $27.1 million, which is included in our consolidated statement of comprehensive income for 2017, as a component of Other comprehensive income (loss) on the line entitled Unrealized components of pension and other postretirement plans. Deferred taxes associated with these aggregate prior service cost credits, together with other unrealized components of pension plans recognized during 2017, are also included in that statement as a component of Other comprehensive income (loss).

Our other postretirement benefit expense follows:



(millions)	2017			2016		2015
Service cost	$	2.6		$	2.7	$	3.1
Interest costs	3.3			3.8		3.7
Amortization of prior service credits	(2.3		)	—		—
Amortization of actuarial gains	(0.2		)	—		—
Postretirement benefit expense	$	3.4		$	6.5	$	6.8

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)	2017			2016
Change in benefit obligation:
Benefit obligation at beginning of year	$	95.5		$	92.4
Service cost	2.6			2.7
Interest costs	3.3			3.8
Employee contributions	3.2			3.6
Plan amendments	(27.1		)	—
Demographic assumptions change	2.4			(0.2		)
Other plan assumptions	—			(0.1		)
Discount rate change	3.7			0.8
Actuarial (gain) loss	(3.5		)	2.0
Benefits paid	(9.2		)	(9.5		)
Benefit obligation at end of year	$	70.9		$	95.5
Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	—		$	—
Employer contributions	6.0			5.9
Employee contributions	3.2			3.6
Benefits paid	(9.2		)	(9.5		)
Fair value of plan assets at end of year	$	—		$	—
Other postretirement benefit liability	$	70.9		$	95.5

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



(millions)	Retiree medical		Retiree life insurance		Total
2018	$	4.4	$	1.3	$	5.7
2019	4.3		1.3		5.6
2020	4.2		1.3		5.5
2021	4.2		1.3		5.5
2022	4.2		1.3		5.5
2023-2027	20.3		6.5		26.8

The assumed discount rate in determining the benefit obligation was 3.6% and 4.1% for 2017 and 2016, respectively.

For 2017, the assumed annual rate of increase in the cost of covered health care benefits is 8.0% (7.6% last year). It is assumed to decrease gradually to 4.5% in the year 2027 (4.5% in 2028 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 2017.