Note 16:

Pension and Employee Benefit Plans

Defined Contribution Employee Benefit Plans:

The Company maintains a domestic 401(k) plan that allows employees to contribute a portion of their salary to help them save for retirement. The Company currently matches employee contributions up to 4.5 percent of their compensation for participants. The Company’s expense for defined contribution employee benefit plans during fiscal 2018, 2017, and 2016 was $5.2 million, $4.7 million, and $4.6 million, respectively.

In addition, the Company maintains non-qualified deferred compensation plans for eligible employees, and various non-U.S. 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 non-U.S. 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 maintains non-contributory defined benefit pension plans that cover eligible domestic employees. These plans are closed to new participants. The primary domestic plans cover most domestic employees hired on or before December 31, 2003 and provide benefits based primarily upon years of service and average compensation for salaried and some hourly employees. Benefits for other hourly employees are based upon a monthly retirement benefit amount. 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 non-U.S. subsidiaries of the Company also have legacy defined benefit plans which cover a smaller number of active employees and are substantially unfunded. The primary non-U.S. plans are maintained in Germany, Austria, and Italy and are closed to new participants.

The Company contributed $13.4 million, $8.1 million, and $6.7 million to its U.S. pension plans during fiscal 2018, 2017, and 2016, respectively. In addition, the Company contributed $2.6 million, $1.4 million, and $1.2 million to its non-U.S. pension plans during fiscal 2018, 2017, and 2016, respectively. These contributions are reported in the change in other liabilities in the consolidated statements of cash flows.

During fiscal 2016, in an effort to reduce the size, volatility, mortality risk, and costs associated with its U.S. pension plans, the Company offered a voluntary lump-sum payout program to certain eligible former employees. Approximately 2,000 participants accepted the lump-sum settlement offer and a total of $65.3 million was paid from pension plan assets during fiscal 2016, which reduced the Company’s pension obligation by the same amount. In connection with these lump-sum payouts, the Company recorded $42.1 million of non-cash settlement losses as other income and expense within the consolidated statement of operations related to the accelerated recognition of unamortized actuarial losses previously recorded on the consolidated balance sheets within accumulated other comprehensive loss.

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 2018, 2017, and 2016 was $0.2 million, $0.3 million, and $0.3 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, 2018 and 2017 were as follows:

	2018			2017
Change in benefit obligation:
Benefit obligation at beginning of year	$	269.8		$	261.0
Service cost		0.5			0.6
Interest cost		9.9			9.8
Actuarial loss (gain)		4.4			(0.5	)
Benefits paid		(16.9	)		(19.8	)
Curtailment gain (a)		(0.3	)		-
Acquired obligations (b)		-			20.3
Effect of exchange rate changes		6.2			(1.6	)
Benefit obligation at end of year	$	273.6		$	269.8

Change in plan assets:
Fair value of plan assets at beginning of year	$	148.2		$	141.5
Actual return on plan assets		10.4			11.0
Benefits paid		(16.9	)		(19.8	)
Employer contributions		16.0			9.5
Acquired plan assets (b)		-			6.0
Fair value of plan assets at end of year	$	157.7		$	148.2
Funded status at end of year	$	(115.9	)	$	(121.6	)

Amounts recognized in the consolidated balance sheets:
Current liability	$	(6.3	)	$	(2.2	)
Noncurrent liability		(109.6	)		(119.4	)
	$	(115.9	)	$	(121.6	)

(a)

During the third quarter of fiscal 2018, the Company recorded a pension curtailment gain associated with the closure of a manufacturing facility in Austria (CIS segment). See Note 5 for additional information regarding the closure of this facility.

(b)

In fiscal 2017, as a result of its acquisition of Luvata HTS, the Company acquired pension plans in Italy, Austria and the U.S. See Note 2 for additional information regarding this acquisition.

The accumulated benefit obligation for pension plans was $271.8 million and $266.8 million as of March 31, 2018 and 2017, respectively. The net actuarial loss related to the pension plans recognized in accumulated other comprehensive loss was $157.9 million and $156.8 million as of March 31, 2018 and 2017, respectively.

Costs for the Company’s pension plans included the following components for the fiscal years ended March 31, 2018, 2017, and 2016:

	2018			2017			2016
Components of net periodic benefit cost:
Service cost	$	0.5		$	0.6		$	0.6
Interest cost		9.9			9.8			11.2
Expected return on plan assets		(11.9	)		(12.3	)		(14.9	)
Amortization of net actuarial loss		5.6			5.6			6.4
Settlements (a)		0.3			-			42.1
Curtailment gain (b)		(0.3	)		-			-
Net periodic benefit cost	$	4.1		$	3.7		$	45.4

Other changes in benefit obligation recognized in other comprehensive income (loss):
Net actuarial loss	$	(5.8	)	$	(1.0	)	$	(17.5	)
Amortization of net actuarial loss (a)		5.9			5.6			48.5
Total recognized in other comprehensive income (loss)	$	0.1		$	4.6		$	31.0

(a)

During fiscal 2016, in connection with lump-sum payouts to pension plan participants, the Company recorded $42.1 million of settlement losses, which were previously recorded in accumulated other comprehensive loss.

(b)

The Company estimates $5.6 million of net actuarial loss for its pension plans will be amortized from accumulated other comprehensive loss into net periodic benefit cost during fiscal 2019.

The Company used a discount rate of 4.0% and 4.1% as of March 31, 2018 and 2017, respectively, for determining its benefit obligations under its U.S. pension plans. The Company used a weighted-average discount rate of 1.7% as of both March 31, 2018 and 2017, for determining its benefit obligations under its non-U.S. pension plans. The Company used a discount rate of 4.1%, 4.1%, and 4.3% to determine its costs under its U.S. pension plans for fiscal 2018, 2017, and 2016, respectively. The Company used a weighted-average discount rate of 1.9%, 1.7%, and 1.3% to determine its costs under its non-U.S. pension plans for fiscal 2018, 2017, and 2016, 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. The Company used a similar process to determine the discount rate for its non-U.S. pension obligations.

Plan assets in the Company’s U.S. pension 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, 2018 and 2017 were as follows:

	Target allocation as of March 31, 2018			Plan assets
				2018			2017
Equity securities		60	%		58	%		58	%
Debt securities		38	%		38	%		38	%
Cash and cash equivalents		2	%		4	%		4	%
		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, 2018 and 2017, 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 2018, 2017, and 2016 U.S. pension plan expense, the expected rate of return on plan assets was 7.5 percent, 8.0 percent and 8.0 percent, respectively. For fiscal 2019 U.S. pension plan expense, the Company has assumed a rate of return on plan assets of 7.5 percent.

The Company’s funding policy for its U.S. 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 approximately $6.0 million to these plans during fiscal 2019.

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

Fiscal Year	Estimated Pension Benefit Payments
2019	$	20.4
2020		16.5
2021		17.0
2022		17.2
2023		17.4
2024-2028		85.2