Retirement and Postretirement Plans

OneBeacon previously sponsored the OneBeacon qualified pension plan (the “Qualified Plan”). During the year ended December 31, 2016, the Qualified Plan finalized its termination by purchasing group annuity contracts from the Principal Financial Group (“Principal”), and making lump sum distributions to Qualified Plan participants electing such payments, which eliminated the remaining Qualified Plan liability and also ceased administratively paying benefits. During the year ended December 31, 2016, OneBeacon recognized an estimated pre-tax pension settlement gain of $3.0 million, primarily resulting from a refund from Principal related to the final settlement of the Qualified Plan. As of December 31, 2016, OneBeacon no longer has a projected benefit obligation with respect to the Qualified Plan. During the year ended December 31, 2016, OneBeacon transferred $47.1 million of excess invested assets from the Qualified Plan into the trust supporting the OneBeacon 401(k) Savings and Employee Stock Ownership Plan (“KSOP”), which OneBeacon determined to be the Qualified Replacement Plan (“QRP”). See Note 13 — “Employee Share-Based Incentive Compensation Plans”. As of December 31, 2016, an additional $13.0 million of excess invested assets remain in the Qualified Plan trust for potential post-termination obligations of that plan, as approved by a March 2016 private letter ruling from the IRS. The invested assets related to both the Qualified Plan and the QRP are included in other assets and are accounted for at fair value with related income recognized in net other revenues (expenses).

OneBeacon continues to sponsor a non-qualified, non-contributory, defined benefit pension plan (“Non-qualified Plan”) covering certain employees who were employed as of December 31, 2001 and former employees who had met the eligibility requirements, as well as retirees. The Non-qualified Plan was frozen and curtailed in 2002, resulting in the pension benefit obligation being equal to the accumulated benefit obligation. The benefits are based primarily on years of service and employees’ compensation through December 31, 2002. OneBeacon’s funding policy is generally to contribute amounts to satisfy actual disbursements for the calendar year. There are no regulatory funding requirements that apply to the Non-qualified Plan.

The following tables set forth the obligations and funded status, assumptions, plan assets and cash flows associated with the Plans as of December 31, 2016 and 2015:



	Pension Benefits December 31,
Millions	2016			2015
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	109.5		$	119.7
Service cost	.2			.9
Interest cost	1.5			4.6
Settlement loss (gain) on projected benefit obligation⁽¹⁾⁽²⁾	1.2			(1.8		)
Assumption changes	(.9		)	(3.5		)
Actuarial loss	.4			.9
Annuity contract purchases related to termination of Qualified Plan ⁽³⁾	(69.0		)	—
Benefits, including lump sum payments, and expenses paid with plan assets⁽³⁾	(17.0		)	(13.7		)
Benefits paid directly by OneBeacon	(2.1		)	(2.2		)
Remeasurement due to plan termination ⁽⁴⁾	—			4.6
Projected benefit obligation at end of year	$	23.8		$	109.5
Change in plan assets:
Fair value of plan assets at beginning of year	$	139.8		$	146.0
Actual return on plan assets	6.3			7.5
Annuity contract purchases related to termination of Qualified Plan⁽³⁾	(69.0		)	—
Transfer of assets to the QRP⁽⁵⁾	(47.1		)	—
Benefits and expenses paid	(17.0		)	(13.7		)
Fair value of plan assets at end of year	$	13.0		$	139.8
(Unfunded) over funded status at end of year	$	(10.8	)	$	30.3

⁽¹⁾During the year ended December 31, 2016, OneBeacon recognized a $1.2 million settlement loss primarily resulting from final settlement of the Qualified Plan.

⁽²⁾During the fourth quarter of 2015, OneBeacon triggered settlement accounting for the Qualified Plan as the total lump sum payments exceeded the service plus interest costs, resulting in a $1.8 adverse effect on accumulated other comprehensive income.

⁽³⁾ During the year ended December 31, 2016, the Qualified Plan finalized its termination by purchasing group annuity contracts for $69.0 million from Principal and making lump sum distributions, included in the $17.0 million above, to Qualified Plan participants electing such payments.

⁽⁴⁾ As of December 31, 2015, the projected benefit obligation was valued on a plan termination basis.

⁽⁵⁾ During the year ended December 31, 2016, OneBeacon transferred excess invested assets from the Qualified Plan after its termination into the trust supporting the QRP.

The unfunded status of the consolidated pension plans as of December 31, 2016 was $10.8 million, which includes $13.0 million of excess invested assets remaining in the Qualified Plan trust for potential post-termination obligations of that plan and an under-funding of $23.8 million related to the Non-qualified Plan. The Non-qualified Plan, which is unfunded, does not hold any assets. OneBeacon has set aside $20.6 million in an irrevocable rabbi trust for the benefit of Non-qualified Plan participants. Assets held in the rabbi trust are not reflected in the unfunded status of the consolidated pension plans as presented but are included in other assets in the consolidated balance sheet.

During the year ended December 31, 2016, OneBeacon transferred $47.1 million of excess invested assets from the Qualified Plan into the QRP. Amounts recognized in the financial statements as of December 31, 2016 and 2015 consist of:



	December 31,
Millions	2016			2015
Net balance sheet asset recorded in other assets	$	13.0		$	55.8
Net balance sheet liability recorded in other liabilities	(23.8		)	(25.5		)
Net amount recognized in the financial statements	$	(10.8	)	$	30.3

Information for the Non-qualified Plan, which had accumulated benefit obligations in excess of plan assets, was as follows:



	December 31,
Millions	2016		2015
Projected benefit obligation	$	23.8	$	25.5
Accumulated benefit obligation	$	23.8	$	25.5
Fair value of plan assets	$	—	$	—

During the year ended December 31, 2016, information for the Qualified Plan, which had accumulated benefit obligations less than plan assets until its termination, was finalized. Information for the Qualified Plan was as follows:



	December 31,
Millions	2016		2015
Projected benefit obligation	$	—	$	84.0	⁽¹⁾
Accumulated benefit obligation	$	—	$	84.0	⁽¹⁾
Fair value of plan net assets	$	13.0	$	139.8

⁽¹⁾ Measured on a plan termination basis

The amounts recognized in accumulated other comprehensive loss on a pre-tax basis and before non-controlling interest for the years ended December 31, 2016 and 2015 were as follows:



	December 31,
Millions	2016			2015
Accumulated other comprehensive loss beginning balance	$	(8.0	)	$	(8.0	)
Increase (decrease) in accumulated other comprehensive loss:
Amortization of net actuarial gains recognized during the year	1.3			1.3
Net actuarial gains (losses) occurring during the year ⁽¹⁾	3.2			(1.3		)
Qualified Plan termination impact ⁽²⁾	(3.0		)	—
Accumulated other comprehensive loss ending balance	$	(6.5	)	$	(8.0	)


⁽¹⁾	Net actuarial gains in 2016 resulted from investment returns and demographic experience different than assumed. The 2015 net actuarial losses reflect the valuation of the Qualified Plan on a termination basis.


⁽²⁾	During the year ended December 31, 2016, OneBeacon recognized a $3.0 million gain resulting from the final settlement of the Qualified Plan.

The amount in accumulated other comprehensive loss, on a pre-tax basis, that has not yet been recognized as a component of net periodic benefit cost for the year ended December 31, 2016 is attributable to net losses. During 2017, OneBeacon expects $0.9 million will be amortized from accumulated other comprehensive loss into net periodic benefit cost.

The components of net periodic benefit cost (income) for the years ended December 31, 2016, 2015 and 2014 were as follows:



	Year Ended December 31,
Millions	2016			2015			2014
Service cost	$	.2		$	.9		$	.6
Interest cost	1.5			4.6			4.7
Expected return on plan assets	(1.0		)	(8.7		)	(8.5		)
Amortization of net actuarial losses	1.3			1.3			.3
Net periodic pension (cost) income before special termination benefits	2.0			(1.9		)	(2.9		)
Settlement gain ⁽¹⁾	(3.0		)	—			—
Special termination benefits expense ⁽²⁾	—			—			.3
Total net periodic benefit income	$	(1.0	)	$	(1.9	)	$	(2.6	)

⁽¹⁾ Represents the impact of the termination of the Qualified Plan during the year ended December 31, 2016.

⁽²⁾ Special termination benefits represent additional payments made from the Qualified Plan to certain vested participants when their employment was terminated due to a reduction in force.

Assumptions

The weighted average discount rate assumptions used to determine benefit obligations was 3.78% and 3.22% as of December 31, 2016 and 2015. The weighted average assumptions used to determine net periodic benefit cost included a 3.88% discount rate and 3.00% expected long-term rate of return on plan assets for the year ended December 31, 2016. The weighted average assumptions used to determine net periodic benefit cost included a 3.91% discount rate and 6.00% expected long-term rate of return on plan assets for the year ended December 31, 2015.

OneBeacon’s discount rate assumptions used to account for the Plans reflect the rates at which the benefit obligations could be effectively settled. In addition to consideration of published yields for high quality long-term corporate bonds, U.S. Treasuries and insurance company annuity contract pricings, consideration was given to cash flow matching analyses.

OneBeacon performed an analysis of expected long-term rates of return based on the allocation of its Qualified Plan assets as of December 31, 2015 and 2014 to develop expected rates of return for 2016 and 2015 for each significant asset class or economic indicator. A range of returns was developed based both on forecasts and on broad market historical benchmarks for expected return, correlation, and volatility for each asset class. During 2015, OneBeacon changed the asset allocation to more fixed income and shorter duration in anticipation of the plan termination, which resulted in a decrease in this assumption as compared to the prior year.

Plan Assets

The remaining assets of the Qualified Plan, which are managed internally by OneBeacon and consist substantially of common equity securities tracking the S&P 500 and Russell 1000 indices, are held for potential post-termination obligations of the plan, as approved by a March 2016 private letter ruling from the IRS. The Qualified Plan's investments are stated at fair value.

The fair value of the Qualified Plan’s assets and their related inputs as of December 31, 2016 and 2015 by asset category were as follows:



	December 31, 2016								December 31, 2015
Millions	Fair Value⁽¹⁾		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Common equity securities	$	12.8	$	12.8	$	—	$	—	$	—	$	—	$	—	$	—
Fixed maturity investments	—		—		—		—		132.4		132.4		—		—
Short-term investments	—		—		—		—		7.0		7.0		—		—
Total	$	12.8	$	12.8	$	—	$	—	$	139.4	$	139.4	$	—	$	—

⁽¹⁾Excludes cash and short-term investments

There were no transfers between Levels 1, 2 or 3 during the years ended December 31, 2016 and 2015.

The Qualified Plan’s asset allocations as of December 31, 2016 and 2015, by asset category were as follows:



	Plan Assets at December 31,
Asset Category	2016		2015
Common equity securities	98.5	%	—	%
Fixed maturity investments	—		95.0
Cash and short-term investments	1.5		5.0
Total	100.0	%	100.0	%

Cash Flows

OneBeacon anticipates contributing $2.1 million to the Non-qualified Plan in 2017, for which OneBeacon has assets held in a rabbi trust.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:



Millions	Expected Benefit Payments
2017	$	2.1
2018	2.1
2019	2.0
2020	2.0
2021	1.9
2022 - 2026	8.4

Other Benefit Plans

OneBeacon sponsors a defined contribution plan, the OneBeacon 401(k) Savings and KSOP, covering the majority of its employees. The contributory plan provides qualifying employees with matching contributions of 50% up to the first 6% of salary (subject to U.S. federal limits on allowable contributions in a given year). During 2016, the matching contribution of the contributory plan was replaced with a fixed 3% of salary employer contribution (subject to federal limits on allowable contributions in a given year). The total expense for employer contributions to the plan was $3.2 million, $3.0 million and $2.7 million in 2016, 2015 and 2014.

The employee stock ownership component of the KSOP provides all of its participants with an annual base contribution in common shares equal to 3% of their salary, up to the applicable Social Security wage base ($118,500 for 2016). Additionally, those participants not otherwise eligible to receive certain other OneBeacon benefits can earn a variable contribution of up to 6% of their salary, subject to the applicable IRS annual covered compensation limits ($265,000 for 2016) and contingent upon OneBeacon’s performance. White Mountains recorded $5.5 million, $5.7 million and $4.4 million in compensation expense to pay benefits and allocate common shares to participant’s accounts for the years ended 2016, 2015 and 2014.

OneBeacon had a post-employment benefit liability, which primarily relates to disability and health benefits available to former employees, of $3.1 million and $4.1 million as of December 31, 2016 and 2015.

OneBeacon also had a post-employment benefit liability related to death benefits to beneficiaries of former executives of $12.8 million and $12.5 million as of December 31, 2016 and 2015. OneBeacon has set aside funds to satisfy its obligation in a rabbi trust of $29.3 million and $33.9 million as of December 31, 2016 and 2015. During 2016, OneBeacon withdrew $5.5 million from the rabbi trust in accordance with the trust agreement, which remains overfunded.