Employee Benefits

Qualified and Nonqualified Defined Benefit Pension Plans

YRC Worldwide and certain of our operating subsidiaries sponsor qualified and nonqualified defined benefit pension plans for certain employees not covered by collective bargaining agreements (approximately 9,000 current, former and retired employees). Qualified and nonqualified pension benefits are based on years of service and the employees’ covered earnings. Employees covered by collective bargaining agreements participate in various multi-employer pension plans to which YRC Worldwide contributes, as discussed below. Regional Transportation does not offer a defined benefit pension plan and instead offers retirement benefits through either contributory 401(k) savings plans or profit sharing plans, as discussed below. The domestic YRC Worldwide defined benefit pension plans closed to new participants effective January 1, 2004 and the benefit accrual for active employees was frozen effective July 1, 2008. Our actuarial valuation measurement date for our pension plans is December 31.

Funded Status

The reconciliation of the beginning and ending balances of the projected benefit obligation and the fair value of plan assets for the years ended December 31, 2016 and 2015, and the funded status at December 31, 2016 and 2015, is as follows:



(in millions)	2016			2015
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,202.7		$	1,355.2
Service cost	6.5			4.6
Interest cost	55.9			57.2
Benefits paid	(79.1		)	(151.9		)
Actuarial (gain) loss	53.4			(60.2		)
Expenses paid from assets	(5.9		)	(5.8		)
Other	0.1			3.6
Benefit obligation at year end	$	1,233.6		$	1,202.7
Change in plan assets:
Fair value of plan assets at prior year end	$	867.1		$	899.3
Actual return on plan assets	39.9			56.6
Employer contributions	56.5			70.9
Benefits paid	(79.1		)	(151.9		)
Expenses paid from assets	(5.9		)	(5.8		)
Other	0.2			(2.0		)
Fair value of plan assets at year end	$	878.7		$	867.1
Funded status at year end	$	(354.9	)	$	(335.6	)

The underfunded status of the plans of $354.9 million and $335.6 million at December 31, 2016 and 2015, respectively, is recognized in the accompanying consolidated balance sheets as shown in the table below. No plan assets are expected to be returned to the Company during the year ending December 31, 2017.

Our long-term strategy is to reduce the risk of our underfunded plans. In 2015, the Company amended its domestic pension plans and offered a one-time voluntary lump sum payment option in an effort to reduce its long-term pension obligations and ongoing annual pension expense. The lump sum pension settlement payments of $85.2 million, which are reflected in “Benefits paid” in the above table, were funded from existing pension plan assets. In connection with this transaction, the Company incurred a settlement charge of $28.7 million to salaries, wages and employee benefits expense as a result of the requirement to expense the unrecognized actuarial losses associated with the lump sum settlements. The charge had no effect on equity because the actuarial losses were already recognized in accumulated other comprehensive loss. Accordingly, the effect on retained earnings was offset by a corresponding reduction in accumulated other comprehensive loss.

Benefit Plan Obligations

Amounts recognized in the consolidated balance sheets for pension benefits at December 31 are as follows:



(in millions)	2016		2015
Noncurrent assets	$	1.2	$	1.3
Current liabilities	0.7		0.7
Noncurrent liabilities	355.4		336.2

Amounts recognized in accumulated other comprehensive loss at December 31 consist of:

As shown above, included in accumulated other comprehensive loss at December 31, 2016, are unrecognized actuarial losses of $462.1 million ($424.1 million, net of tax). The actuarial loss included in accumulated other comprehensive income and expected to be recognized in net periodic cost in 2017 is $15.7 million.

The total accumulated benefit obligation for all plans was $1,233.2 million and $1,202.2 million at December 31, 2016 and 2015, respectively.

Information for pension plans with an accumulated benefit obligation (“ABO”) in excess of plan assets and plan assets that exceed ABO at December 31, 2016 and 2015 is as follows:



	At December 31, 2016
(in millions)	ABO Exceeds Assets		Assets Exceed ABO		Total
Projected benefit obligation	$	1,229.4	$	4.2	$	1,233.6
Accumulated benefit obligation	1,229.4		3.8		1,233.2
Fair value of plan assets	873.3		5.4		878.7



	At December 31, 2015
(in millions)	ABO Exceeds Assets		Assets Exceed ABO		Total
Projected benefit obligation	$	1,198.3	$	4.4	$	1,202.7
Accumulated benefit obligation	1,198.3		3.9		1,202.2
Fair value of plan assets	861.4		5.7		867.1

Assumptions

Weighted average actuarial assumptions used to determine benefit obligations at December 31:



	2016		2015
Discount rate	4.27	%	4.81	%

Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31:



	2016		2015		2014
Discount rate	4.81	%	4.33	%	5.23	%
Expected rate of return on assets	7.0	%	7.0	%	7.0	%
Mortality table^(a)	RP-2014 (MP-2016 Scale, Custom)		RP-2014 (MP-2014 Scale, Custom)		RP-2000 Projected to 2014

^(a)The 2016 and 2015 mortality tables were based on a custom mortality improvement scale to reflect expectations of underlying plan participants.

The discount rate refers to the interest rate used to discount the estimated future benefit payments to their present value, also referred to as the benefit obligation. The discount rate allows us to estimate what it would cost to settle the pension obligations as of the measurement date, December 31, and is used as the interest rate factor in the following year’s pension cost. We determine the discount rate by selecting a portfolio of high quality noncallable bonds such that the coupons and maturities exceed our expected benefit payments.

In determining the expected rate of return on assets, we consider our historical experience in the plans’ investment portfolio, historical market data and long-term historical relationships as well as a review of other objective indices including current market factors such as inflation and interest rates. Although plan investments are subject to short-term market volatility, we believe they are well diversified and closely managed.

Our asset allocation as of December 31, 2016 and 2015, and targeted long-term asset allocation for the plans are as follows:



	2016		2015		Target
Equities	38.0	%	37.0	%	37.0	%
Debt Securities	30.0	%	30.0	%	33.0	%
Absolute Return	32.0	%	33.0	%	30.0	%

Based on various market factors, we selected an expected rate of return on assets of 7.0% effective for the 2016 and 2015 valuations. We will continue to review our expected long-term rate of return on an annual basis and revise appropriately. The pension trust holds no YRC Worldwide securities.

Future Contributions and Benefit Payments

We expect to contribute approximately $53.9 million to our single-employer pension plans in 2017.

Expected benefit payments from our qualified and non-qualified defined benefit pension plans for each of the next five years and the total benefit payments for the following five years ended December 31 are as follows:



(in millions)	2017		2018		2019		2020		2021		2022-2026
Expected benefit payments	$	78.2	$	78.6	$	79.1	$	79.5	$	80.5	$	400.4

Pension and Other Post-retirement Costs

The components of our net periodic pension cost, other post-retirement costs and other amounts recognized in other comprehensive loss (income) for the years ended December 31, 2016, 2015 and 2014 were as follows:



(in millions)	2016			2015			2014
Net periodic benefit cost:
Service cost	$	6.5		$	4.6		$	4.3
Interest cost	55.9			57.2			60.7
Expected return on plan assets	(56.2		)	(59.9		)	(53.7		)
Amortization of prior net loss	13.7			16.0			12.8
Settlement loss	—			28.7			—
Net periodic pension cost	$	19.9		$	46.6		$	24.1
Other changes in plan assets and benefit obligations recognized in other comprehensive loss (income):
Net actuarial loss (gain) and other adjustments	$	69.5		$	(52.0	)	$	126.3
Less amortization of prior losses	(13.7		)	(16.0		)	(12.8		)
Settlement adjustment	—			(28.7		)	—
Total recognized in other comprehensive loss (income)	55.8			(96.7		)	113.5
Total recognized in net periodic benefit cost and other comprehensive loss (income)	$	75.7		$	(50.1	)	$	137.6

During the years ended December 31, 2015 and 2014, the income tax provision related to amounts in other comprehensive (income) loss was $12.2 million and $0.2 million, respectively. For the year ended December 31, 2016, the income tax provision was inconsequential.

Fair Value Measurement

Our pension assets are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of Level 1 assets are based on quoted market prices. The majority of the Level 1 assets presented in the table below include common stock of both U.S. and, to a lesser extent, international companies, and mutual funds, of which are actively traded and priced in the market. The fair value of Level 2 assets are based on other significant observable inputs, including quoted prices for similar securities. The Level 2 assets presented in the below table consist primarily of fixed income and absolute return funds where values are based on the NAV of the underlying investments held, as determined by the fund managers, or equity securities where values are based on the quoted prices of similar securities and observable market data. Level 3 assets are those where the fair value is determined based on unobservable inputs. The Level 3 assets presented in the table below consist of alternative investments where active market pricing is not readily available and, as such, we use NAV as an estimate of fair value. For the remaining Level 3 assets that do not use NAV to estimate fair value, which consists primarily of private equities, the assets are either priced at cost less cash distributions for recent asset purchases, third-party valuations or discounted cash flow methods. The methods and assumptions used by third-party pricing sources may include a variety of factors, such as recently executed transactions, existing contracts, economic conditions, industry or market developments, and overall credit ratings. These estimated fair values may differ significantly from the values that would have been used had a ready market for these investments existed and as such, differences could be material.

The availability of observable data is monitored by plan management to assess appropriate classification of financial instruments within the fair value hierarchy. Depending upon the availability of such inputs, specific securities may transfer between levels. In such instances, the transfer is reported at the end of the reporting period. In 2016, the Company transferred certain short-term interest bearing investments from level 1 to level 2 due to variability in how the underlying investments are priced, whether by an active market or a model. There were no other transfers among the fair value hierarchy levels for the years ended December 31, 2016 and 2015, respectively.

The Company adopted ASU 2015-07 beginning January 1, 2016, which eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at net asset value per share (or its equivalent) using the practical expedient. The fair value tables below reflect the adoption of this standard.

The tables below detail by level, within the fair value hierarchy, the pension assets at fair value as of December 31, 2016 and December 31, 2015:



	Pension Assets at Fair Value as of December 31, 2016
(in millions)	Total		Level 1		Level 2		Level 3
Equities	$	87.9	$	87.9	$	—	$	—
Private equities	38.3		—		—		38.3
Fixed income:
Corporate and other	24.8		5.4		15.9		3.5
Government	184.1		72.9		111.2		—
Absolute return	—		—		—		—
Interest bearing	47.3		18.6		28.7		—
Investments measured at net asset value^(a)	$	496.3
Total plan assets	$	878.7	$	184.8	$	155.8	$	41.8



	Pension Assets at Fair Value as of December 31, 2015
(in millions)	Total		Level 1		Level 2		Level 3
Equities	$	83.2	$	83.2	$	—	—
Private equities	40.0		—		—		40.0
Fixed income:
Corporate and other	35.9		16.0		15.7		4.2
Government	194.5		73.0		121.5		—
Absolute return	0.7		—		0.7		—
Interest bearing	15.4		15.4		—		—
Investments measured at net asset value^(a)	497.4
Total plan assets	$	867.1	$	187.6	$	137.9	$	44.2

^(a)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy.

The table below presents the activity of our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):



(in millions)	Private Equities			Fixed income			Total Level 3
Balance at December 31, 2014	$	37.0		$	4.4		$	41.4
Purchases	4.5			—			4.5
Sales	(0.7		)	—			(0.7		)
Unrealized gain	(0.8		)	(0.2		)	(1.0		)
Balance at December 31, 2015	$	40.0		$	4.2		$	44.2
Purchases	4.0			2.7			6.7
Sales	(0.6		)	—			(0.6		)
Unrealized gain	(5.1		)	(3.4		)	(8.5		)
Balance at December 31, 2016	$	38.3		$	3.5		$	41.8

The following table sets forth a summary of the assets for which a reported NAV is used to estimate the fair value as of December 31, 2016:



	Fair value estimated using Net Asset Value per Share
(in millions)	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Private equities^(a)	$	94.6	$	11.0	Redemptions not permitted
Fixed income^(b)	186.2		6.2		Redemptions not permitted
Equities^(c)	91.7		—		Monthly	3-30 days
Absolute return^(d)	123.8		—		Monthly, Quarterly	2-45 days
Total	$	496.3


(a)	Consists of private equity investments in pharmaceuticals and companies primarily in the technology and healthcare sectors.


(b)	Primarily consists of investments in royalty payments from marketers of pharmaceuticals and related debt securities.


(c)	Consists of public equity investments in U.S. and non-U.S. markets.


(d)	Consists of investments in global markets, including derivative securities of equity and fixed income indexes, commodities and interest rates.

The following table sets forth a summary of the assets for which a reported NAV is used to estimate the fair value as of December 31, 2015:



	Fair value estimated using Net Asset Value per Share
(in millions)	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Private equities^(a)	$	91.1	$	11.3	Redemptions not permitted
Fixed income^(b)	193.1		4.0		Redemptions not permitted
Equities^(c)	103.4		—		Monthly, Quarterly	3-30 days
Absolute return^(d)	109.8		—		Monthly, Quarterly	2-60 days
Total	$	497.4


(a)	Consists of private equity investments in pharmaceuticals and companies primarily in the technology and healthcare sectors.


(b)	Primarily consists of investments in royalty payments from marketers of pharmaceuticals and related debt securities.


(c)	Consists of public equity investments in U.S. and non-U.S. markets.


(d)	Consists of investments in global markets, including derivative securities of equity and fixed income indexes, commodities and interest rates.

Generally, the investment strategy for private equities consists of direct investments or investments through limited partnerships with managers who purchase interests in non-public companies. The typical investment strategies of the fixed income and equity funds is based on fundamental and quantitative analysis and consists of long and hedged strategies. The general strategy of the absolute return funds consists of alternative investment techniques, including derivative instruments and other unconventional assets, to achieve an absolute return rate.

Multi-Employer Pension Plans

YRC Freight, Holland, Reddaway, and New Penn contribute to various separate multi-employer health, welfare and pension plans for employees that are covered by our collective bargaining agreements (approximately 78% of total Company employees). The collective bargaining agreements determine the amounts of these contributions. The health and welfare plans provide medical related benefits to active employees and retirees. The pension plans provide defined benefits to retired participants. We recognize as net pension cost within ‘Salaries, wages and employee benefits’ the contractually required contributions for the period and recognize as a liability any contributions due and unpaid at period end. We do not directly manage multi-employer plans. The trusts covering these plans are generally managed by trustees, half of whom the unions appoint and half of whom various contributing employers appoint.

We expensed the following amounts related to these plans for the years ended December 31:



(in millions)	2016		2015		2014
Health and welfare	$	453.1	$	436.8	$	416.2
Pension	90.3		91.1		93.6
Total	$	543.4	$	527.9	$	509.8

Pension

Through the third quarter of 2009, we deferred payment of certain of our contributions to multi-employer pension funds. These deferred payments have been recognized as an operating expense and the liability was recorded as deferred contribution obligations. Beginning in the third quarter of 2009 through May 2011, most of our collective bargaining agreements provided for a temporary cessation of pension contributions so no expense or liability was required to be recognized for that period. In accordance with modifications to our collective bargaining agreements, we agreed to resume making pension contributions effective June 1, 2011 at 25.0% of the contribution rate in effect as of July 1, 2009.

The following table provides additional information related to our participation in individually significant multi-employer pension plans for the year ended December 31, 2016:



		Pension Protection Zone Status^(b)		Funding Improvement or Rehabilitation Plan	Employer Surcharge Imposed	Expiration Date of Collective-Bargaining Agreement
Pension Fund^(a)	EIN Number	2016	2015	Funding Improvement or Rehabilitation Plan	Employer Surcharge Imposed	Expiration Date of Collective-Bargaining Agreement
Central States, Southeast and Southwest Areas Pension Fund	36-6044243	Critical and Declining	Critical	Yes	No	3/31/2019
Teamsters National 401(k) Savings Plan^(c)	52-1967784	N/A	N/A	N/A	No	3/31/2019
Road Carriers Local 707 Pension Fund	51-6106510	Critical and Declining	Critical	Yes	No	3/31/2019
Teamsters Local 641 Pension Fund	22-6220288	Critical	Critical	Yes	No	3/31/2019


^(a)	The determination of individually significant multi-employer plans is based on the relative contributions to the plans over the periods presented as well as other factors.

^(b)

The Pension Protection Zone Status is based on information that the Company obtained from the plans’ Forms 5500. Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available for 2016 and 2015 is for the plan’s year-end during calendar years 2015 and 2014, respectively. Among other factors, plans in the critical or critical and declining zone are generally less than 65 percent funded, plans in the endangered zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded.


^(c)	The policies of the Western Conference of Teamsters Pension Trust precluded the Company from reentering the plan on June 1, 2011. The plan did not assess a withdrawal liability and has not done so since June 1, 2011. Contributions related to the employees previously covered by this plan are now being made to the Teamsters National 401(k) Plan.

YRC Worldwide was listed in the Central States, Road Carriers Local 707 Pension Fund, Central Pennsylvania Teamsters Defined Benefit Plan and Teamsters Local 641 Pension Fund’s Forms 5500 as providing more than 5 percent of the total contributions for 2015 and 2014.

We contributed a total of $89.1 million, $89.4 million and $91.6 million to the multi-employer pension funds for the years ended December 31, 2016, 2015 and 2014. The following table provides the pension amounts contributed by fund for those funds that are considered to be individually significant:



(in millions)	2016		2015		2014
Central States, Southeast and Southwest Areas Pension Plan	$	51.8	$	51.7	$	52.2
Teamsters National 401(k) Savings Plan	12.5		12.5		13.1
Road Carriers Local 707 Pension Fund	1.8		2.0		2.3
Teamsters Local 641 Pension Fund	1.3		1.5		1.5

In 2006, the Pension Protection Act became law and modified both the Code as it applies to multi-employer pension plans and the Employment Retirement Income Security Act of 1974 (as amended, “ERISA”). The Code and ERISA (in each case, as so modified) and related regulations establish minimum funding requirements for multi-employer pension plans.

In 2014, the MPRA became law which modified the ability to suspend accrued benefits of plans facing insolvency by adding a new zone status of Critical and Declining.

If any of our multi-employer pension plans fails to meet minimum funding requirements, meet a required funding improvement or rehabilitation plan that the Pension Protection Act may require for certain of our underfunded plans, obtain from the IRS certain changes to or a waiver of the requirements in how the applicable plan calculates its funding levels, or reduce pension benefits to a level where the requirements are met then we could be required to make additional contributions to the pension plan. If any of our multi-employer pension plans enters critical status or worse and our contributions are not sufficient to satisfy any rehabilitation plan schedule, the Pension Protection Act could require us to make additional surcharge contributions to the multi-employer pension plan in the amount of five to ten percent of the existing contributions required by our labor agreement for the remaining term of the labor agreement.

In 2016 and 2015, the Central States, Southeast and Southwest Pension Plan and Road Carriers Local 707 Pension Fund filed an application under MPRA with the Department of Treasury requesting the approval of a benefit suspension plan, which was denied. In 2016 the New York State Teamsters Conference Pension and Retirement Fund filed an application which is pending approval. The plan will have to be evaluated and approved by the Department of Treasury in concert with Department of Labor and Pension Benefit Guaranty Corporation (“PBGC”) before being submitted to a vote of participants. If ultimately approved, the plan would require future employer contribution increases to the plan.

If we fail to make our required contributions to a multi-employer plan under a funding improvement or rehabilitation plan, it would expose us to penalties including potential withdrawal liability. If the benchmarks that an applicable funding improvement or rehabilitation plan provides are not met by the end of a prescribed period, the IRS could impose an excise tax on us and the plan’s other contributing employers. These excise taxes are not contributed to the deficient funds, but rather are deposited in the United States general treasury funds. The Company does not believe that the temporary cessation of certain of its contributions to applicable multi-employer pension funds beginning in the third quarter of 2009 and continuing through May 2011 will give rise to these excise taxes as the underlying employer contributions were not required for that period.

A requirement to materially increase contributions beyond our contractually agreed rate or the imposition of an excise tax on us could have a material adverse impact on the financial results and liquidity of YRC Worldwide.

401(k) Savings Plans

We sponsor the YRC Worldwide Inc. 401(k) Plan and the Reddaway Hourly 401(k) Plan, which are defined contribution plans primarily for employees that our collective bargaining agreements do not cover. The plans permit participants to make contributions to the plans and permit the employer of participants to make contributions on behalf of the participants. Additionally, the Reddaway Hourly 401(k) Plan allows for a non-elective employer contribution. Including non-elective employer contributions, total employer contributions were $7.2 million in 2016, $4.7 million in 2015 and $2.1 million in 2014. Our employees covered under collective bargaining agreements may also participate in union-sponsored 401(k) plans.

Performance Incentive Awards

We provide annual performance incentive awards and more frequent sales and operations incentive awards to certain non-union employees, which are based primarily on actual operating results achieved compared to targeted operating results or sales and operations targets and are paid in cash. Operating income in 2016, 2015 and 2014 included performance and sales incentive expense for non-union employees of $11.7 million, $13.2 million and $13.9 million, respectively. We generally pay annual performance incentive awards in the first quarter of the following year and sales performance incentive awards on a monthly basis.

We also provide short-term performance based cash compensation to key management personnel. During the years ended December 31, 2016, 2015 and 2014, compensation expense related to these awards was $2.1 million, $14.1 million and $2.9 million, respectively. Refer to the “Stock Compensation Plans” footnote for an overview of long-term performance based equity compensation, and related compensation expense, associated with such awards.

Additionally, operating income in 2015 included a profit sharing bonus for eligible union employees at the Regional Transportation segment of $5.5 million. No such bonus was paid for the years ended December 31, 2016 or 2014.

(in millions)

Net actuarial loss