Note 17: Pension and Employee Benefit Plans

Defined Contribution Employee Benefit Plans:

The Company maintains domestic 401(k) plans that allow employees to contribute a portion of their salary to help save for retirement. The Company matched 50 percent of employee contributions, up to 5 percent of employee compensation, during fiscal 2015, 2014, and 2013. The Company also makes annual employer contributions into active employee accounts based upon a percentage of employee compensation. Employees can choose among various investment alternatives, including (subject to restrictions) Modine stock. The Company’s matching contributions and annual employer contributions are discretionary. The Company’s expense for defined contribution employee benefit plans during fiscal 2015, 2014, and 2013 was $5.9 million, $8.3 million, and $4.1 million, respectively. The decrease in expense in fiscal 2015, as compared with the prior fiscal year, was primarily due to lower discretionary employer contributions.

In addition, the Company maintains a non-qualified deferred compensation plan for eligible employees and various foreign subsidiaries have government-required defined contribution plans in place, under which they contribute a percentage of employee earnings into accounts, consistent with local laws.

Statutory Termination Plans:

Certain foreign subsidiaries have statutory termination indemnity plans covering eligible employees. The benefits under these plans are based upon years of service and final average compensation levels or a monthly retirement benefit amount. These programs are all substantially unfunded in accordance with local laws, but are often covered by national obligatory umbrella insurance programs that protect employees from losses in the event that an employer defaults on its obligations.

Defined Benefit Employee Benefit Plans:

Pension plans: The Company has a non-contributory defined benefit pension plan that covers most of its domestic employees hired on or before December 31, 2003. The benefits provided are based primarily on years of service and average compensation for salaried and some hourly employees. Benefits for other hourly employees are based on a monthly retirement benefit amount. Domestic salaried employees hired after December 31, 2003 are not covered under any defined benefit plan. Currently, the Company’s domestic pension plans do not include increases in annual earnings or future service in calculating the average annual earnings and years of credited service under the pension plan benefit formula. Certain of the Company’s foreign subsidiaries also have legacy defined benefit plans covering a small number of active employees.

Company contributions of $5.9 million, $8.0 million, and $9.2 million to U.S. pension plans during fiscal 2015, 2014, and 2013, respectively, are reported in the change in other liabilities in the consolidated statements of cash flows.

Postretirement plans: The Company provides selected healthcare and life insurance benefits for eligible retired domestic employees. The Company periodically amends these unfunded plans to change the contribution rate of retirees and the amounts and forms of coverage. An annual limit on the Company’s cost is defined for the majority of these plans. The Company’s net periodic income for its postretirement plans during fiscal 2015, 2014 and 2013 was $0.1 million, $1.0 million, and $1.1 million, respectively.

Measurement Date: The Company uses March 31 as the measurement date for its pension and postretirement plans.

Changes in benefit obligations and plan assets as well as the funded status of the Company’s pension plans for the fiscal years ended March 31, 2015 and 2014 were as follows:

	2015			2014
Change in benefit obligation:
Benefit obligation at beginning of year	$	295.7		$	309.6
Service cost		0.5			0.6
Interest cost		13.0			13.0
Actuarial loss (gain)		40.6			(10.8	)
Benefits paid		(14.6	)		(18.6	)
Effect of exchange rate changes		(7.0	)		1.9
Benefit obligation at end of year	$	328.2		$	295.7

Change in plan assets:
Fair value of plan assets at beginning of year	$	213.7		$	200.6
Actual return on plan assets		10.8			22.2
Benefits paid		(14.6	)		(18.6	)
Employer contributions		7.1			9.5
Fair value of plan assets at end of year	$	217.0		$	213.7
Funded status at end of year	$	(111.2	)	$	(82.0	)

Amounts recognized in the consolidated balance sheets:
Current liability	$	(0.8	)	$	(1.0	)
Noncurrent liability		(110.4	)		(81.0	)
	$	(111.2	)	$	(82.0	)

The accumulated benefit obligation for pension plans was $325.5 million and $293.0 million as of March 31, 2015 and 2014, respectively. The net actuarial loss related to the pension plans recognized in accumulated other comprehensive loss was $192.3 million and $153.4 million as of March 31, 2015 and 2014, respectively.

Costs for the Company’s pension plans included the following components for the fiscal years ended March 31, 2015, 2014, and 2013:

	2015			2014			2013
Components of net periodic benefit cost:
Service cost	$	0.5		$	0.6		$	0.6
Interest cost		13.0			13.0			13.5
Expected return on plan assets		(16.7	)		(15.7	)		(16.1	)
Amortization of net actuarial loss		5.5			6.3			5.0
Net periodic benefit cost	$	2.3		$	4.2		$	3.0

Other changes in benefit obligation recognized in other comprehensive loss (income):
Net actuarial loss (gain)	$	46.4		$	(17.3	)	$	27.0
Amortization of net actuarial loss		(5.5	)		(6.3	)		(5.0	)
Total recognized in other comprehensive loss (income)	$	40.9		$	(23.6	)	$	22.0

The Company estimates $7.2 million of net actuarial loss for its pension plans will be amortized from accumulated other comprehensive loss into net periodic benefit cost during fiscal 2016.

The Company used a discount rate of 4.0% and 4.7% as of March 31, 2015 and 2014, respectively, in determining its benefit obligations under its U.S. pension plans. The Company used a discount rate of 1.3% and 3.0% as of March 31, 2015 and 2014, respectively, in determining its benefit obligations under its foreign pension plans. The Company used a discount rate of 4.7%, 4.4%, and 4.9% to determine its costs under its U.S. pension plans for the fiscal years ended March 31, 2015, 2014, and 2013, respectively. The Company used a discount rate of 3.0%, 3.5%, and 5.0% to determine its costs under its foreign pension plans for the fiscal years ended March 31, 2015, 2014, and 2013, respectively. The Company determined the discount rates used for its U.S. pension plans by modeling a portfolio of high-quality corporate bonds, with appropriate consideration given to expected defined benefit payment terms and duration of the respective pension obligations. A similar process was used to determine the discount rate for the Company’s foreign pension obligations

Plan assets in the U.S. defined benefit plans comprise 100 percent of the Company’s world-wide pension plan assets. The Company’s U.S. pension plan weighted average asset allocations at the measurement dates of March 31, 2015 and 2014 were as follows:

	Target allocation			Plan assets
				2015			2014
Equity securities		55	%		55	%		57	%
Debt securities		38	%		36	%		37	%
Alternative assets		5	%		5	%		5	%
Cash		2	%		4	%		1	%
		100	%		100	%		100	%

Due to market conditions and other factors, including timing of benefit payments and other transactions, actual asset allocation may vary from the target allocation outlined above. The Company periodically rebalances the assets to the target allocations. As of March 31, 2015 and 2014, the Company’s pension plans did not directly own shares of Modine common stock.

The Company employs a total return investment approach, whereby a mix of equities and fixed-income investments are used to maximize the long-term return of plan assets, while avoiding excessive risk. The Company has established pension plan guidelines based upon an evaluation of market conditions, tolerance for risk and cash requirements for benefit payments. The Company measures and monitors investment risk on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements and periodic asset/liability studies.

The expected rate of return on U.S. plan assets is based upon historical return experience and forward-looking return expectations for major asset class categories. For fiscal 2015, 2014 and 2013 U.S. pension plan expense, the expected rate of return on plan assets was 8.0 percent. For fiscal 2016 U.S. pension plan expense, the Company has assumed a rate of return on plan assets of 8.0 percent.

The Company’s funding policy for domestic qualified pension plans is to contribute annually, at a minimum, the amount necessary on an actuarial basis to provide for benefits in accordance with applicable laws and regulations. The Company expects to make contributions of $6.7 million to these plans during fiscal 2016.

Estimated pension benefit payments for the next ten fiscal years are as follows:

Fiscal Year	Estimated pension benefit payments
2016	$	15.1
2017		15.7
2018		16.9
2019		17.2
2020		18.0
2021-2025		94.0