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Pension and Other Retiree Benefits
 12 Months Ended
Dec. 31, 2018
Retirement Benefits [Abstract]  
Pension and Other Retiree Benefits
6. Pension and Other Retiree Benefits

We have a number of pension plans, principally in Germany, the U.K. and the U.S. The plans provide for payment of retirement benefits, primarily commencing between the ages of 60 and 65, and also for payment of certain disability and severance benefits. After meeting certain qualifications, an employee acquires a vested right to future benefits. The benefits payable under the plans are generally determined based on an employee’s length of service and earnings. The majority of these plans have been frozen and are no longer accruing additional service benefits. Cash contributions to the plans are made as necessary to ensure legal funding requirements are satisfied.

In the Esselte Acquisition, we acquired numerous pension plans, primarily in Germany and the U.K. The Esselte U.K. plan is frozen.

On January 20, 2009, the Company’s Board of Directors approved plan amendments to temporarily freeze our ACCO Brands Corporation Pension Plan for Salaried and Certain Hourly Paid Employees in the U.S. (the "U.S. Salaried Plan") effective March 7, 2009. During the fourth quarter of 2014, the U.S. Salaried Plan became permanently frozen and, as of December 31, 2014, we have permanently frozen a portion of our U.S. pension plan for certain bargained hourly employees.

On September 30, 2012, our legacy U.K. pension plan was frozen. As of December 31, 2016, all of our Canadian pension plans were frozen.

We also provide post-retirement health care and life insurance benefits to certain employees and retirees in the U.S., U.K. and Canada. All but one of these benefit plans have been frozen to new participants. Many employees and retirees outside of the U.S. are covered by government health care programs.
The following table sets forth our defined benefit pension and post-retirement plans funded status and the amounts recognized in our Consolidated Balance Sheets:
 
Pension
 
Post-retirement
 
U.S.
 
International
 
 
(in millions)
2018
 
2017
 
2018
 
2017
 
2018
 
2017
Change in projected benefit obligation (PBO)
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation at beginning of year
$
206.5

 
$
200.1

 
$
695.0

 
$
345.1

 
$
6.8

 
$
6.7

Service cost
1.6

 
1.4

 
1.9

 
1.9

 
0.1

 
—

Interest cost
6.7

 
7.1

 
12.9

 
13.4

 
0.2

 
0.2

Actuarial (gain) loss
(15.6
)
 
14.7

 
(26.6
)
 
13.2

 
(0.3
)
 
—

Participants’ contributions
—

 
—

 
0.1

 
0.1

 
0.1

 
0.1

Benefits paid
(10.9
)
 
(16.8
)
 
(26.9
)
 
(26.5
)
 
(0.4
)
 
(0.5
)
Curtailment gain
—

 
—

 
(0.9
)
 
—

 
—

 
—

Settlement gain
—

 
—

 
(2.0
)
 
—

 
—

 
—

Plan amendments
—

 
—

 
6.8

 
—

 
—

 
—

Foreign exchange rate changes
—

 
—

 
(35.3
)
 
59.8

 
(0.3
)
 
0.3

Esselte Acquisition
—

 
—

 
—

 
288.0

 
—

 
—

Other items
—

 
—

 
2.3

 
—

 
—

 
—

Projected benefit obligation at end of year
188.3

 
206.5

 
627.3

 
695.0

 
6.2

 
6.8

Change in plan assets
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
162.1

 
150.5

 
463.8

 
302.7

 
—

 
—

Actual return on plan assets
(15.8
)
 
21.1

 
(10.0
)
 
21.3

 
—

 
—

Employer contributions
5.7

 
7.3

 
14.9

 
14.0

 
0.3

 
0.4

Participants’ contributions
—

 
—

 
0.1

 
0.1

 
0.1

 
0.1

Benefits paid
(10.9
)
 
(16.8
)
 
(26.9
)
 
(26.5
)
 
(0.4
)
 
(0.5
)
Settlement gain
—

 
—

 
(2.0
)
 
—

 
—

 
—

Foreign exchange rate changes
—

 
—

 
(24.6
)
 
38.2

 
—

 
—

Esselte Acquisition
—

 
—

 
—

 
114.0

 
—

 
—

Other items
—

 
—

 
2.3

 
—

 
—

 
—

Fair value of plan assets at end of year
141.1

 
162.1

 
417.6

 
463.8

 
—

 
—

Funded status (Fair value of plan assets less PBO)
$
(47.2
)
 
$
(44.4
)
 
$
(209.7
)
 
$
(231.2
)
 
$
(6.2
)
 
$
(6.8
)
Amounts recognized in the Consolidated Balance Sheets consist of:
 
 
 
 
 
 
 
 
 
 
 
Other non-current assets
$
—

 
$
—

 
$
1.4

 
$
0.6

 
$
—

 
$
—

Other current liabilities
—

 
—

 
6.7

 
6.9

 
0.6

 
0.6

Pension and post-retirement benefit obligations(1)
47.2

 
44.4

 
204.4

 
224.9

 
5.6

 
6.2

Components of accumulated other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
 
Unrecognized actuarial loss (gain)
64.7

 
56.9

 
97.1

 
100.5

 
(3.5
)
 
(3.6
)
Unrecognized prior service cost (credit)
1.5

 
1.7

 
5.0

 
(0.2
)
 
(0.2
)
 
(0.2
)
(1)
Pension and post-retirement benefit obligations of $257.2 million as of December 31, 2018, decreased from $275.5 million as of December 31, 2017, primarily due to cash contributions and favorable foreign currency translation.

The accumulated benefit obligation for all pension plans was $806.1 million and $887.9 million at December 31, 2018 and 2017, respectively.

The following table sets out information for pension plans with an accumulated benefit obligation in excess of plan assets:
 
U.S.
 
International
(in millions)
2018
 
2017
 
2018
 
2017
Accumulated benefit obligation
$
188.3

 
$
205.4

 
$
564.6

 
$
662.8

Fair value of plan assets
141.1

 
162.1

 
362.9

 
443.5



The following table sets out information for pension plans with a projected benefit obligation in excess of plan assets:
 
U.S.
 
International
(in millions)
2018
 
2017
 
2018
 
2017
Projected benefit obligation
$
188.3

 
$
206.5

 
$
574.0

 
$
675.3

Fair value of plan assets
141.1

 
162.1

 
362.9

 
443.5



The components of net periodic benefit (income) expense for pension and post-retirement plans for the years ended December 31, 2018, 2017, and 2016, were as follows:
 
Pension
 
Post-retirement
 
U.S.
 
International
 
 
 
 
 
 
(in millions)
2018
 
2017
 
2016
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
Service cost
$
1.6

 
$
1.4

 
$
1.3

 
$
1.9

 
$
1.9

 
$
0.8

 
$
0.1

 
$
—

 
$
0.1

Interest cost
6.7

 
7.1

 
7.3

 
12.9

 
13.4

 
10.3

 
0.2

 
0.2

 
0.2

Expected return on plan assets
(11.8
)
 
(12.3
)
 
(11.9
)
 
(22.7
)
 
(21.8
)
 
(17.6
)
 
—

 
—

 
—

Amortization of net loss (gain)
2.7

 
2.0

 
1.8

 
3.4

 
3.0

 
2.3

 
(0.4
)
 
(0.4
)
 
(0.4
)
Amortization of prior service cost
0.4

 
0.4

 
0.4

 
—

 
—

 
—

 
(0.1
)
 
—

 
—

Curtailment gain
—

 
—

 
—

 
(0.6
)
 
—

 
—

 
—

 
—

 
(0.6
)
Net periodic benefit income(2)
$
(0.4
)
 
$
(1.4
)
 
$
(1.1
)
 
$
(5.1
)
 
$
(3.5
)
 
$
(4.2
)
 
$
(0.2
)
 
$
(0.2
)
 
$
(0.7
)


(2)
The components, other than service cost, are included in the line "Non-operating pension income" in the Consolidated Statements of Income.

Other changes in plan assets and benefit obligations that were recognized in accumulated other comprehensive income (loss) during the years ended December 31, 2018, 2017, and 2016 were as follows:
 
Pension
 
Post-retirement
 
U.S.
 
International
 
 
 
 
 
 
(in millions)
2018
 
2017
 
2016
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
Current year actuarial loss (gain)
$
12.0

 
$
5.9

 
$
0.9

 
$
5.3

 
$
14.3

 
$
27.9

 
$
(0.3
)
 
$
—

 
$
(1.0
)
Amortization of actuarial (loss) gain
(2.7
)
 
(2.0
)
 
(1.8
)
 
(3.4
)
 
(3.0
)
 
(2.3
)
 
0.4

 
0.4

 
1.0

Current year prior service cost
—

 
—

 
—

 
6.5

 
—

 
—

 
—

 
—

 
—

Amortization of prior service (cost) credit
(0.4
)
 
(0.4
)
 
(0.4
)
 
0.3

 
—

 
—

 
0.1

 
—

 
—

Foreign exchange rate changes
—

 
—

 
—

 
(7.1
)
 
10.7

 
(15.5
)
 
0.1

 
(0.2
)
 
0.5

Total recognized in other comprehensive income (loss)
$
8.9

 
$
3.5

 
$
(1.3
)
 
$
1.6

 
$
22.0

 
$
10.1

 
$
0.3

 
$
0.2

 
$
0.5

Total recognized in net periodic benefit cost (income) and other comprehensive income (loss)
$
8.5

 
$
2.1

 
$
(2.4
)
 
$
(3.5
)
 
$
18.5

 
$
5.9

 
$
0.1

 
$
—

 
$
(0.2
)


Assumptions

The weighted average assumptions used to determine benefit obligations for the years ended December 31, 2018, 2017, and 2016 were as follows:
 
Pension
 
Post-retirement
 
U.S.
 
International
 
 
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
Discount rate
4.6
%
 
3.7
%
 
4.3
%
 
2.5
%
 
2.3
%
 
2.7
%
 
3.7
%
 
3.2
%
 
3.4
%
Rate of compensation increase
N/A

 
N/A

 
N/A

 
3.0
%
 
2.8
%
 
3.1
%
 
N/A

 
N/A

 
N/A


The weighted average assumptions used to determine net periodic benefit (income) expense for the years ended December 31, 2018, 2017, and 2016 were as follows:
 
Pension
 
Post-retirement
 
U.S.
 
International
 
 
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
Discount rate
3.5
%
 
3.8
%
 
4.6
%
 
2.1
%
 
2.3
%
 
3.7
%
 
3.2
%
 
3.4
%
 
3.9
%
Expected long-term rate of return
7.4
%
 
7.8
%
 
7.8
%
 
5.0
%
 
5.5
%
 
6.0
%
 
N/A

 
N/A

 
N/A

Rate of compensation increase
N/A

 
N/A

 
N/A

 
2.8
%
 
3.1
%
 
3.0
%
 
N/A

 
N/A

 
N/A

The weighted average health care cost trend rates used to determine post-retirement benefit obligations and net periodic benefit (income) expense as of December 31, 2018, 2017, and 2016 were as follows:
 
Post-retirement
 
2018
 
2017
 
2016
Health care cost trend rate assumed for next year
7
%
 
7
%
 
8
%
Rate that the cost trend rate is assumed to decline (the ultimate trend rate)
5
%
 
5
%
 
5
%
Year that the rate reaches the ultimate trend rate
2026

 
2025

 
2025



Plan Assets

The investment strategy for the Company is to optimize investment returns through a diversified portfolio of investments, taking into consideration underlying plan liabilities and asset volatility. Each plan has a different target asset allocation, which is reviewed periodically and is based on the underlying liability structure. The target asset allocation for our U.S. plan is 60% in equity securities, 28% in fixed income securities and 12% in alternative assets. The target asset allocation for non-U.S. plans is set by the local plan trustees.

Our pension plan weighted average asset allocations as of December 31, 2018 and 2017 were as follows:
 
 
2018
 
2017
 
 
U.S.
 
International
 
U.S.
 
International
Asset category
 
 
 
 
 
 
 
Equity securities
58
%
 
16
%
 
57
%
 
26
%
Fixed income
27

 
20

 
30

 
29

Real estate
3

 
5

 
6

 
5

Other(3)
 
12

 
59

 
7

 
40

Total
100
%
 
100
%
 
100
%
 
100
%

(3)
Multi-strategy hedge funds, insurance contracts and cash and cash equivalents for certain of our plans.

U.S. Pension Plan Assets

The fair value measurements of our U.S. pension plan assets by asset category as of December 31, 2018 were as follows:
(in millions)
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value
as of
December 31,
2018
Mutual funds
$
77.1

 
$
—

 
$
—

 
$
77.1

Exchange traded funds
54.0

 
—

 
—

 
54.0

Common collective trust funds
—

 
1.7

 
—

 
1.7

Investments measured at net asset value(4)
 
 
 
 
 
 
 
Multi-strategy hedge funds
 
 
 
 
 
 
8.3

Total
$
131.1

 
$
1.7

 
$
—

 
$
141.1


(4)
Certain investments that are measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the table that presents our defined benefit pension and post-retirement plans funded status.

The fair value measurements of our U.S. pension plan assets by asset category as of December 31, 2017 were as follows:
(in millions)
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value
as of
December 31,
2017
Mutual funds
$
94.8

 
$
—

 
$
—

 
$
94.8

Exchange traded funds
56.6

 
—

 
—

 
56.6

Common collective trust funds
—

 
1.7

 
—

 
1.7

Investments measured at net asset value(4)
 
 
 
 
 
 
 
Multi-strategy hedge funds
 
 
 
 
 
 
9.0

Total
$
151.4

 
$
1.7

 
$
—

 
$
162.1



Mutual funds and exchange traded funds: The fair values of mutual fund and common stock fund investments are determined by obtaining quoted prices on nationally recognized securities exchanges (level 1 inputs).

Common collective trusts: The fair values of participation units held in common collective trusts are based on their net asset values, as reported by the managers of the common collective trusts and as supported by the unit prices of actual purchase and sale transactions occurring as of or close to the financial statement date (level 2 inputs).

Debt securities: Fixed income securities, such as corporate and government bonds, collateralized mortgage obligations, asset-backed securities, government mortgage-backed securities and other debt securities are valued using quotes from independent pricing vendors based on recent trading activity and other relevant information, including market interest rate curves, referenced credit spreads, and estimated prepayment rates, where applicable (level 2 inputs).

International Pension Plans Assets

The fair value measurements of our international pension plans assets by asset category as of December 31, 2018 were as follows:
(in millions)
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value
as of
December 31,
2018
Cash and cash equivalents
$
2.7

 
$
—

 
$
—

 
$
2.7

Equity securities
65.7

 
—

 
—

 
65.7

Exchange traded funds
0.3

 
—

 
—

 
0.3

Corporate debt securities
—

 
71.7

 
—

 
71.7

Multi-strategy hedge funds
—

 
196.3

 
—

 
196.3

Insurance contracts
—

 
25.4

 
—

 
25.4

Government debt securities
—

 
14.0

 
—

 
14.0

Investments measured at net asset value(4)
 
 
 
 
 
 
 
Multi-strategy hedge funds
 
 
 
 
 
 
21.0

Real estate
 
 
 
 
 
 
20.5

Total
$
68.7

 
$
307.4

 
$
—

 
$
417.6


The fair value measurements of our international pension plans assets by asset category as of December 31, 2017 were as follows:
(in millions)
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value
as of
December 31,
2017
Cash and cash equivalents
$
2.2

 
$
—

 
$
—

 
$
2.2

Equity securities
102.0

 
—

 
—

 
102.0

Exchange traded funds
16.9

 
—

 
—

 
16.9

Corporate debt securities
—

 
72.2

 
—

 
72.2

Multi-strategy hedge funds
—

 
133.4

 
—

 
133.4

Insurance contracts
—

 
24.4

 
—

 
24.4

Government debt securities
—

 
61.0

 
—

 
61.0

Investments measured at net asset value(4)
 
 
 
 
 
 
 
Multi-strategy hedge funds
 
 
 
 
 
 
30.5

Real estate
 
 
 
 
 
 
21.2

Total
$
121.1

 
$
291.0

 
$
—

 
$
463.8



Equity securities and exchange traded funds: The fair values of equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (level 1 inputs).

Debt securities: Fixed income securities, such as corporate and government bonds and other debt securities, consist of index-linked securities. These debt securities are valued using quotes from independent pricing vendors based on recent trading activity and other relevant information, including market interest rate curves, referenced credit spreads, and estimated prepayment rates, where applicable (level 2 inputs).

Insurance contracts: Valued at contributions made, plus earnings, less participant withdrawals and administrative expenses, which approximate fair value (level 2 inputs).

Multi-strategy hedge funds: The fair values of participation units held in multi-strategy hedge funds are based on their net asset values, as reported by the managers of the funds and are based on the daily closing prices of the underlying investments (level 2 inputs).

Cash Contributions

We contributed $20.9 million to our pension and post-retirement plans in 2018 and expect to contribute approximately $21 million in 2019.

The following table presents estimated future benefit payments to participants for the next ten fiscal years:
 
Pension
 
Post-retirement
(in millions)
Benefits
 
Benefits
2019
$
38.0

 
$
0.6

2020
38.6

 
0.6

2021
39.5

 
0.6

2022
40.3

 
0.5

2023
41.1

 
0.5

Years 2024 - 2028
213.5

 
2.2



We also sponsor a number of defined contribution plans. Contributions are determined under various formulas. Costs related to such plans amounted to $13.3 million, $13.4 million and $11.3 million for the years ended December 31, 2018, 2017, and 2016, respectively. The $2.1 million increase in defined contribution plan costs in 2017 compared to 2016 was due to the Esselte Acquisition and additional matching contributions in the U.S.

Multi-Employer Pension Plan

We are a participant in a multi-employer pension plan. The plan has reported significant underfunded liabilities and declared itself in critical and declining status (red). As a result, the trustees of the plan adopted a rehabilitation plan (RP) in an effort to forestall insolvency. Our required contributions to this plan could increase due to the shrinking contribution base resulting from the insolvency of or withdrawal of other participating employers, from the inability or the failure of withdrawing participating employers to pay their withdrawal liability, from lower than expected returns on pension fund assets, and from other funding deficiencies. In the event that we withdraw from participation in the plan, we will be required to make withdrawal liability payments for a period of 20 years or longer in certain circumstances. The present value of our withdrawal liability payments would be recorded as an expense in our Consolidated Statements of Income and as a liability on our Consolidated Balance Sheets in the first year of our withdrawal. The most recent Pension Protection Act (PPA) zone status available in 2018 and 2017 is for the plan’s years ended December 31, 2017 and 2016, respectively. The zone status is based on information that we received from the plan and is certified by the plan’s actuary. Plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The Company's contributions are not more than 5% of the total contributions to the plan. Details regarding the plan are outlined in the table below.
 
 
 
 
Pension Protection Act Zone Status
 
FIP/RP Status Pending/Implemented
 
Contributions
 
 
 
Expiration Date of Collective-Bargaining Agreement
 
 
 
 
 
 
Year Ended December 31,
 
 
 
Pension Fund
 
EIN/Pension Plan Number
 
2018
 
2017
 
 
2018
 
2017
 
2016
 
Surcharge Imposed
 
PACE Industry Union-Management Pension Fund
 
11-6166763 / 001
 
Red
 
Red
 
Implemented
 
$
0.3

 
$
0.2

 
$
0.3

 
Yes
 
6/30/2023