Pension. A noncontributory qualified defined benefit pension plan covers substantially all U.S. employees of Northern Trust. Employees of certain European subsidiaries retain benefits in local defined benefit plans, although those plans are closed to new participants and to future benefit accruals. Employees continue to accrue benefits under the Swiss pension plan, which is accounted for as a defined benefit plan under U.S. GAAP.

Northern Trust also maintains a noncontributory supplemental pension plan for participants whose retirement benefits under the U.S. Qualified Plan are expected to exceed the limits imposed by federal tax law. Northern Trust has a nonqualified trust, referred to as a “Rabbi” Trust, used to hold assets designated for the funding of benefits in excess of those permitted in certain of its qualified retirement plans. This arrangement offers participants a degree of assurance for payment of benefits in excess of those permitted in the related qualified plans. As the “Rabbi” Trust assets remain subject to the claims of creditors and are not the property of the employees, they are accounted for as corporate assets and are included in Other Assets in the consolidated balance sheets. Total assets in the “Rabbi” Trust related to the nonqualified pension plan at December 31, 2019 and 2018 amounted to $128.8 million and $129.9 million, respectively. Contributions of $3.0 million and $21.9 million were made to the “Rabbi” Trust in 2019 and 2018, respectively.

The following tables set forth the status, amounts included in AOCI, and net periodic pension expense of the U.S. Qualified Plan, Non-U.S. Pension Plans, and U.S. Non-Qualified Plan for 2019, 2018, and 2017. Prior service costs are being amortized on a straight-line basis over 11 years for the U.S. Qualified Plan and 10 years for the U.S. Non-Qualified Plan.



	U.S. QUALIFIED PLAN						NON-U.S. PENSION PLANS						U.S. NON-QUALIFIED PLAN
($ In Millions)	2019			2018			2019			2018			2019			2018
Accumulated Benefit Obligation	$	1,181.9		$	980.6		$	204.7		$	178.4		$	131.5		$	120.9

Projected Benefit Obligation	1,323.4			1,092.0			211.1			183.5			149.2			135.6
Plan Assets at Fair Value	1,601.2			1,380.1			190.1			166.7			—			—

Funded Status at December 31	$	277.8		$	288.1		$	(21.0	)	$	(16.8	)	$	(149.2	)	$	(135.6	)
Weighted-Average Assumptions:
Discount Rates	3.37		%	4.47		%	1.40		%	2.16		%	3.37		%	4.47		%
Rate of Increase in Compensation Level	4.97			4.39			1.50			1.75			4.97			4.39
Expected Long-Term Rate of Return on Assets	5.25			6.00			1.72			2.39			N/A			N/A



	U.S. QUALIFIED PLAN						NON-U.S. PENSION PLANS				U.S. NON-QUALIFIED PLAN
(In Millions)	2019			2018			2019		2018		2019		2018
Net Actuarial Loss	$	426.7		$	435.4		$	46.5	$	41.2	$	82.5	$	65.8
Prior Service (Benefit) Cost	(1.0		)	(1.4		)	3.0		3.6		0.2		0.4

Gross Amount in Accumulated Other Comprehensive Income	425.7			434.0			49.5		44.8		82.7		66.2
Income Tax Effect	105.7			108.5			6.2		6.0		20.4		16.4

Net Amount in Accumulated Other Comprehensive Income	$	320.0		$	325.5		$	43.3	$	38.8	$	62.3	$	49.8



	U.S. QUALIFIED PLAN									NON-U.S. PENSION PLANS									U.S. NON-QUALIFIED PLAN
($ In Millions)	2019			2018			2017			2019			2018			2017			2019			2018			2017
Service Cost	$	41.6		$	41.4		$	38.3		$	2.0		$	1.7		$	0.4		$	4.1		$	4.3		$	3.7
Interest Cost	47.2			44.3			45.9			3.9			4.0			4.0			5.8			5.3			5.2
Expected Return on Plan Assets	(86.9		)	(88.2		)	(93.8		)	(4.4		)	(4.4		)	(4.5		)	—			N/A			N/A
Settlement Expense	—			—			—			—			0.5			1.1			—			—			—
Amortization:
Net Actuarial Loss	17.2			28.2			19.0			0.6			0.9			1.3			5.6			7.4			5.7
Prior Service (Benefit) Cost	(0.4		)	(0.4		)	(0.4		)	0.3			0.2			0.1			0.2			0.2			0.2
Net Periodic Pension Expense	$	18.7		$	25.3		$	9.0		$	2.4		$	2.9		$	2.4		$	15.7		$	17.2		$	14.8
Weighted-Average Assumptions:
Discount Rates	4.47		%	3.79		%	4.46		%	2.16		%	2.08		%	2.33		%	4.47		%	3.79		%	4.46		%
Rate of Increase in Compensation Level	4.39			4.39			4.39			1.75			1.75			1.75			4.39			4.39			4.39
Expected Long-Term Rate of Return on Assets	6.00			6.00			6.75			2.39			2.61			3.13			N/A			N/A			N/A

TABLE 117: CHANGE IN PROJECTED BENEFIT OBLIGATION



	U.S. QUALIFIED PLAN						NON-U.S. PENSION PLANS						U.S. NON-QUALIFIED PLAN
(In Millions)	2019			2018			2019			2018			2019			2018
Beginning Balance	$	1,092.0		$	1,209.9		$	183.5		$	198.3		$	135.6		$	144.5
Service Cost	41.6			41.4			2.0			1.7			4.1			4.3
Interest Cost	47.2			44.3			3.9			4.0			5.8			5.3
Employee Contributions	—			—			0.6			0.4			—			—
Plan Amendment	—			—			(0.4		)	1.3			—			—
Actuarial Loss (Gain)	213.3			(112.4		)	20.9			(9.3		)	22.0			(9.7		)
Settlement	—			—			—			(2.7		)	—			—
Benefits Paid	(70.7		)	(91.2		)	(3.6		)	(1.1		)	(18.3		)	(8.8		)
Foreign Exchange Rate Changes	—			—			4.2			(9.1		)	—			—

Ending Balance	$	1,323.4		$	1,092.0		$	211.1		$	183.5		$	149.2		$	135.6



	U.S. QUALIFIED PLAN						NON-U.S PENSION PLANS
(In Millions)	2019			2018			2019			2018
Fair Value of Assets at Beginning of Period	$	1,380.1		$	1,506.4		$	166.7		$	178.7
Actual Return on Assets	291.8			(85.1		)	18.6			(2.3		)
Employer Contributions	—			50.0			3.1			2.6
Employee Contributions	—			—			0.6			0.4
Settlement	—			—			—			(2.7		)
Benefits Paid	(70.7		)	(91.2		)	(3.6		)	(1.1		)
Foreign Exchange Rate Changes	—			—			4.7			(8.9		)

Fair Value of Assets at End of Period	$	1,601.2		$	1,380.1		$	190.1		$	166.7

During 2017, the investment strategy employed for Northern Trust's U.S. Qualified Plan was changed to utilize a dynamic glide path based on a set of pre-approved asset allocations to return-seeking and liability-hedging assets that vary in accordance with the U.S. Qualified Plan's projected benefit obligation funded ratio. In general, as the U.S. Qualified Plan’s projected benefit obligation funded ratio increases beyond an established threshold, the U.S. Qualified Plan’s allocation to liability-hedging assets will increase while the allocation to return-seeking assets will decrease. Conversely, a decrease in the U.S. Qualified Plan’s projected benefit obligation funded ratio beyond an established threshold will result in a decrease in the U.S. Qualified Plan’s allocation to liability-hedging assets and increase in the allocation to return-seeking assets. Liability-hedging assets include U.S. long credit bonds, U.S. long government bonds, and a custom completion strategy used to hedge more closely the liability duration of projected plan benefits with bond duration across all durations. Return-seeking assets include: U.S. equity, international developed equity, emerging markets equity, real estate, high yield bonds, global listed infrastructure, emerging market debt, private equity and hedge funds.

Northern Trust utilizes an asset/liability methodology to determine the investment policies that will best meet its short and long-term objectives. The process is performed by modeling current and alternative strategies for asset allocation, funding policy and actuarial methods and assumptions. The financial modeling uses projections of expected capital market returns and expected volatility of those returns to determine alternative asset mixes having the greatest probability of meeting the U.S. Qualified Plan’s investment objectives. Risk tolerance is established through careful consideration of the U.S. Qualified Plan liabilities, funded status, and corporate financial condition. The intent of this strategy is to protect the U.S. Qualified Plan's healthy funded status and generate returns, which in combination with minimal voluntary contributions are expected to outpace the U.S. Qualified Plan's liability growth over the long run.

The target allocation of the U.S. Qualified Plan assets since February 2019 is 45% U.S. long credit bonds, 10% U.S. long government bonds, 10% custom completion, 8% U.S. equities, 5% international developed equity, 3% emerging markets equity, 3% private real estate, 4% high yield bonds, 3% global listed infrastructure, 4% emerging market debt, 2% private equity, and 3% hedge funds.

Equity investments include common stocks that are listed on an exchange and investments in commingled funds that invest primarily in publicly traded equities. Equity investments are diversified across U.S. and non-U.S. stocks and divided by investment style and market capitalization. Fixed income securities held include U.S. treasury securities and investments in commingled funds that invest in a diversified blend of longer duration fixed income securities; the custom completion strategy uses U.S. treasury securities and interest rate futures (or similar instruments) to align more closely with the target hedge ratio across maturities. Diversifying investments, including private equity, hedge funds, private real estate, emerging market debt, high yield bonds, and global listed infrastructure, are used judiciously to enhance long-term returns while improving portfolio diversification. Private equity assets consist primarily of investments in limited partnerships that invest in individual companies in the form of non-public equity or non-public debt positions. Direct or co-investment in non-public stock by the U.S. Qualified Plan is prohibited. The U.S. Qualified Plan’s private equity investments are limited to 2% of the total limited partnership and the maximum allowable loss cannot exceed the commitment amount. The U.S. Qualified Plan invests in one hedge fund of funds, which invests, either directly or indirectly, in diversified portfolios of funds or other pooled investment vehicles.

Investment risk is measured and monitored on an ongoing basis through monthly liability measurements, periodic asset/liability studies, and quarterly investment portfolio reviews. Standards used to evaluate the U.S. Qualified Plan’s investment manager performance include, but are not limited to, the achievement of objectives, operation within guidelines and policy, and comparison against a relative benchmark. In addition, each manager of the investment funds held by the U.S. Qualified Plan is ranked against a universe of peers and compared to a relative benchmark. Total U.S. Qualified Plan performance analysis includes an analysis of the market environment, asset allocation impact on performance, risk and return relative to other ERISA plans, and manager impacts upon U.S. Qualified Plan performance.

Level 1 – Quoted, active market prices for identical assets or liabilities. The U.S. Qualified Plan’s Level 1 investments are comprised of a mutual fund and domestic common stocks. The U.S. Qualified Plan’s Level 1 investments that are exchange traded are valued at the closing price reported by the respective exchanges on the day of valuation.

Level 2 – Observable inputs other than Level 1 prices, such as quoted active market prices for similar assets or liabilities, quoted prices for identical or similar assets in inactive markets, and model-derived valuations in which all significant inputs are observable in active markets. The U.S. Qualified Plan’s Level 2 assets are comprised of U.S. government obligations and collective trust funds. The investments in collective trust funds fair values are calculated on a scheduled basis using the closing market prices and accruals of securities in the funds (total value of the funds) divided by the number of fund shares currently issued and outstanding. Redemptions of the collective trust funds occur by contract at the respective fund’s redemption date NAV.

Level 3 – Valuation techniques in which one or more significant inputs are unobservable in the marketplace. The U.S. Qualified Plan’s Level 3 assets are comprised of private equity and hedge funds, which invest in underlying groups of investment funds or other pooled investment vehicles that are selected by the respective funds’ investment managers. The investment funds and the underlying investments held by these investment funds are valued at fair value. In determining the fair value of the underlying investments of each fund, the fund’s investment manager or general partner takes into account the estimated value reported by the underlying funds as well as any other considerations that may, in their judgment, increase or decrease such estimated value.

The U.S. Qualified Plan’s Level 3 assets are also comprised of real estate funds, which invest in real estate assets. The investment in properties by the real estate funds are carried at fair value, which is estimated based on the price that would be received to sell an asset in an orderly transaction between marketplace participants at the measurement date. The valuation plan for each real estate investment is subject to review on an annual basis which is based on either an external appraisal from appraisal firms or internal valuations prepared by the real estate fund's investment advisor.

While Northern Trust believes its valuation methods for U.S. Qualified Plan assets are appropriate and consistent with other market participants, the use of different methodologies or assumptions, particularly as applied to Level 3 assets, could have a material effect on the computation of the estimated fair values.



	DECEMBER 31, 2019
(In Millions)	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Domestic Common Stock	$	12.3	$	—	$	—	$	12.3
Domestic Corporate Bonds	—		254.6		—		254.6
Foreign Corporate Bonds	—		45.0		—		45.0
U.S. Government Obligations	—		168.3		—		168.3
Non-U.S. Government Obligations	—		18.8		—		18.8
Domestic Municipal and Provincial Bonds	—		23.1		—		23.1
Foreign Municipal and Provincial Bonds	—		0.3		—		0.3
Collective Trust Funds	—		866.6		—		866.6
Mutual Funds	112.8		—		—		112.8
Northern Trust Private Equity Funds	—		—		20.3		20.3
Northern Trust Hedge Funds	—		—		30.2		30.2
Real Estate Funds	—		—		46.3		46.3
Cash and Other	2.6		—		—		2.6

Total Assets at Fair Value	$	127.7	$	1,376.7	$	96.8	$	1,601.2



	DECEMBER 31, 2018
(In Millions)	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Domestic Common Stock	$	27.7	$	—	$	—	$	27.7
Domestic Corporate Bonds	—		227.6		—		227.6
Foreign Corporate Bonds	—		34.2		—		34.2
U.S. Government Obligations	—		155.5		—		155.5
Non-U.S. Government Obligations	—		15.1		—		15.1
Domestic Municipal and Provincial Bonds	—		22.7		—		22.7
Foreign Municipal and Provincial Bonds	—		2.0		—		2.0
Collective Trust Funds	—		745.8		—		745.8
Mutual Funds	92.4		—		—		92.4
Exchange Traded Fund	0.1		—		—		0.1
Northern Trust Private Equity Funds	—		—		25.5		25.5
Northern Trust Hedge Funds	—		—		29.2		29.2
Cash and Other	2.3		—		—		2.3

Total Assets at Fair Value	$	122.5	$	1,202.9	$	54.7	$	1,380.1



	PRIVATE EQUITY FUNDS						HEDGE FUNDS						REAL ESTATE FUNDS
(In Millions)	2019			2018			2019			2018			2019		2018
Fair Value at January 1	$	25.5		$	29.3		$	29.2		$	44.6		$	—	$	—
Actual Return on Plan Assets⁽¹⁾	(2.8		)	(1.5		)	1.2			(2.7		)	0.2		—
Realized Gain	7.4			8.7			—			2.4			—		—
Purchases	0.1			0.3			—			—			46.1		—
Sales	(9.9		)	(11.3		)	(0.2		)	(15.1		)	—		—

Fair Value at December 31	$	20.3		$	25.5		$	30.2		$	29.2		$	46.3	$	—

A building block approach is employed for Northern Trust’s U.S. Qualified Plan in determining the long-term rate of return for plan assets. Historical markets and long-term historical relationships between equities, fixed income and other asset classes are studied using the widely accepted capital market principle that assets with higher volatility generate a greater return over the long-run. Current market factors such as inflation expectations and interest rates are evaluated before long-term capital market assumptions are determined. The long-term portfolio rate of return is established with consideration given to diversification and rebalancing. The rate is reviewed against peer data and historical returns to verify the return is reasonable and appropriate. Based on this approach and the U.S. Qualified Plan’s target asset allocation, the expected long-term rate of return on assets as of the U.S. Qualified Plan’s December 31, 2019 measurement date was set at 5.25%.

Postretirement Health Care. Northern Trust maintains an unfunded postretirement health care plan under which those employees who retire at age 55 or older under the provisions of the U.S. defined benefit plan and had attained 15 years of service as of December 31, 2011 may be eligible for subsidized postretirement health care coverage. The provisions of this health care plan may be changed further at the discretion of Northern Trust, which also reserves the right to terminate these benefits at any time.



	FOR THE YEAR ENDED DECEMBER 31,
(In Millions)	2019			2018		2017
Service Cost	$	—		$	—	$	0.1
Interest Cost	1.2			1.3		1.4
Expected Return on Plan Assets	—			—		—
Amortization
Net Gain	(1.1		)	—		—
Prior Service Benefit	—			—		—

Net Periodic Postretirement Expense	$	0.1		$	1.3	$	1.5

Northern Trust uses the aggregate Pri-2012 mortality table with a 2012 base year and proposed future improvements under scale MP-2019, as released by the Society of Actuaries in October 2019. These assumptions were updated at December 31, 2019 from the aggregate table RP-2014 and improvement scale MP-2018.

The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 3.37% at December 31, 2019, and 4.47% at December 31, 2018. For measurement purposes, a 6.25% annual increase in the cost of pre-age 65 medical benefits and post-age 65 medical benefits were assumed for 2019. For drug claims, an 8.25% annual increase in cost was assumed for 2019. These rates are both assumed to gradually decrease until they reach 4.50% in 2027. The health care cost trend rate assumption has an effect on the amounts reported.

Defined Contribution Plans. The Corporation and its subsidiaries maintain various defined contribution plans covering substantially all employees. The Corporation’s contribution to the U.S. plan and to certain European-based plans includes a matching component. The expense associated with defined contribution plans is charged to employee benefits and totaled $57.6 million in 2019, $54.4 million in 2018, and $53.4 million in 2017.