EMPLOYEE BENEFIT PLANS

Pension Plans

We historically sponsored several defined benefit pension plans covering most employees not covered by union-administered plans, including certain employees in foreign countries. These plans generally provided participants with benefits based on years of service and career-average compensation levels.

In past years, we made amendments to defined benefit retirement plans which froze the retirement benefits for non-grandfathered and certain non-union employees in the U.S., Canada and the United Kingdom (U.K.). As a result of these amendments, non-grandfathered plan participants ceased accruing benefits under the plan as of the respective amendment effective date and began receiving an enhanced benefit under a defined contribution plan. All retirement benefits earned as of the amendment effective date were fully preserved and will be paid in accordance with the plan and legal requirements. The funding policy for these plans is to make contributions based on annual service costs plus amortization of unfunded past service liability, but not greater than the maximum allowable contribution deductible for federal income tax purposes. We may, from time to time, make voluntary contributions to our pension plans, which exceed the amount required by statute. The majority of the plans’ assets are invested in a master trust that, in turn, is invested primarily in commingled funds whose investments are listed stocks and bonds.

We also have a non-qualified supplemental pension plan covering certain U.S. employees, which provides for incremental pension payments from our funds so that total pension payments equal the amounts that would have been payable from our principal pension plans if it were not for limitations imposed by income tax regulations. The accrued pension liability related to this plan was $53 million and $51 million at December 31, 2016 and 2015, respectively.

Pension Expense

Pension expense from continuing operations was as follows:



	Years ended December 31,
	2016			2015		2014
	(In thousands)
Company-administered plans:
Service cost	$	12,977		13,820		13,023
Interest cost	94,476			88,013		100,909
Expected return on plan assets	(90,588		)	(98,892	)	(115,410	)
Pension lump sum settlement expense	—			—		97,231
Amortization of:
Net actuarial loss	31,777			30,741		23,573
Prior service loss (credit)	2,976			(306	)	(1,788	)
	51,618			33,376		117,538
Union-administered plans	9,597			8,328		21,118
Net pension expense	$	61,215		41,704		138,656

Company-administered plans:
U.S.	$	53,319		34,986		118,797
Foreign	(1,701		)	(1,610	)	(1,259	)
	51,618			33,376		117,538
Union-administered plans	9,597			8,328		21,118
	$	61,215		41,704		138,656

During 2016, we determined that certain pension benefit improvements made in 2009 had not been fully reflected in our projected benefit obligation. Because the amounts were not material to our consolidated financial statements in any individual period, and the cumulative amount is not material to 2016 results, we recognized a one-time, non-cash charge of $8 million in "Selling, general and administrative expenses" and a $13 million pre-tax increase to “Accumulated other comprehensive loss” in our consolidated financial statements to correctly state the pension benefit obligation and account for these 2009 benefit improvements.

During 2015, we recorded adjustments of $0.5 million to previously recorded, estimated pension settlement charges related to the exit from U.S multi-employer pension plans.

During 2014, we offered former vested employees in our U.S. defined benefit plan a one-time option to receive a lump sum distribution of their benefits. We made payments totaling $224 million from the U.S. defined benefit plan assets, which resulted in a settlement of $259 million, representing approximately 12% of our U.S. pension plan obligations. We recognized pension lump sum settlement expense of $97 million for unrecognized actuarial losses as a result of the partial settlement of our pension plan liability. The amount of the lump sum settlement expense is based on the proportionate amount of unrecognized U.S. actuarial net losses equal to the settled percentage of our pension benefit obligation.

The following table sets forth the weighted-average actuarial assumptions used for Ryder’s pension plans in determining annual pension expense:



	U.S. Plans Years ended December 31,			Foreign Plans Years ended December 31,
	2016	2015	2014	2016	2015	2014
Discount rate	4.50%	4.15%	5.00%	3.70%	3.70%	4.57%
Rate of increase in compensation levels	3.00%	3.00%	3.00%	3.10%	3.10%	3.09%
Expected long-term rate of return on plan assets	5.85%	5.95%	6.50%	5.44%	5.50%	5.94%
Gain and loss amortization period (years)	23	23	23	27	27	27

The return on plan assets assumption reflects the weighted-average of the expected long-term rates of return for the broad categories of investments held in the plans. The expected long-term rate of return is adjusted when there are fundamental changes in expected returns or in asset allocation strategies of the plan assets.

Obligations and Funded Status

The following table sets forth the benefit obligations, assets and funded status associated with our pension plans:



	December 31,
	2016			2015
	(In thousands)
Change in benefit obligations:
Benefit obligations at January 1	$	2,091,844		2,221,115
Service cost	12,977			13,820
Interest cost	94,476			88,013
Actuarial loss (gain)	189,523			(98,996	)
Benefits paid	(96,723		)	(98,528	)
Foreign currency exchange rate changes	(63,335		)	(33,580	)
Benefit obligations at December 31	2,228,762			2,091,844

Change in plan assets:
Fair value of plan assets at January 1	1,647,286			1,775,417
Actual return on plan assets	176,066			(29,024	)
Employer contribution	127,991			33,746
Benefits paid	(96,723		)	(98,528	)
Foreign currency exchange rate changes	(67,545		)	(34,325	)
Fair value of plan assets at December 31	1,787,075			1,647,286
Funded status	$	(441,687	)	(444,558	)
Funded percent	80		%	79	%

The funded status of our pension plans was presented in the Consolidated Balance Sheets as follows:



	December 31,
	2016			2015
	(In thousands)
Noncurrent asset	$	14,049		44,124
Current liability	(3,796		)	(3,790	)
Noncurrent liability	(451,940		)	(484,892	)
Net amount recognized	$	(441,687	)	(444,558	)

Amounts recognized in accumulated other comprehensive loss (pre-tax) consisted of:



	December 31,
	2016		2015
	(In thousands)
Prior service credit	$	11,714	—
Net actuarial loss	961,010		905,944
Net amount recognized	$	972,724	905,944

In 2017, we expect to recognize $34 million of net actuarial loss amortization as a component of pension expense.

The following table sets forth the weighted-average actuarial assumptions used in determining funded status:



	U.S. Plans December 31,		Foreign Plans December 31,
	2016	2015	2016	2015
Discount rate	4.20%	4.50%	3.90%	4.00%
Rate of increase in compensation levels	3.00%	3.00%	3.10%	3.10%

At December 31, 2016 and 2015, our accumulated benefit obligations, as well as, our pension obligations (accumulated benefit obligations (ABO), and projected benefit obligations (PBO)), greater than the fair value of the related plan assets for our U.S. and foreign plans were as follows:



	U.S. Plans December 31,			Foreign Plans December 31,		Total December 31,
	2016		2015	2016	2015	2016	2015
	(In thousands)
Total accumulated benefit obligations	$	1,748,171	1,640,844	454,301	423,555	2,202,472	2,064,399
Plans with pension obligations in excess of plan assets:
PBO	1,771,968		1,671,949	7,383	7,916	1,779,351	1,679,865
ABO	1,748,171		1,640,844	5,997	6,793	1,754,168	1,647,637
Fair value of plan assets	1,323,751		1,191,182	—	—	1,323,751	1,191,182

Plan Assets

Our pension investment strategy is to reduce the effects of future volatility on the fair value of our pension assets relative to our pension liabilities. We increase our allocation of high quality, longer-term fixed income securities and reduce our allocation of equity investments as the funded status of the plans improve. The plans utilize several investment strategies, including actively and passively managed equity and fixed income strategies. The investment policy establishes targeted allocations for each asset class that incorporate measures of asset and liability risks. Deviations between actual pension plan asset allocations and targeted asset allocations may occur as a result of investment performance and changes in the funded status from time to time. Rebalancing of our pension plan asset portfolios is evaluated periodically and rebalanced if actual allocations exceed an acceptable range. U.S. plans account for approximately 74% of our total pension plan assets. Equity securities primarily include investments in both domestic and international common collective trusts and publicly traded equities. Fixed income securities primarily include domestic collective trusts and corporate bonds. Other types of investments include private equity fund-of-funds and hedge fund-of-funds. Equity and fixed income securities in our international plans include actively and passively managed mutual funds.

The following table presents the fair value of each major category of pension plan assets and the level of inputs used to measure fair value as of December 31, 2016 and 2015:



	Fair Value Measurements at December 31, 2016
Asset Category	Total		Level 1	Level 2	Level 3
	(In thousands)
Equity securities:
U.S. common collective trusts	$	429,456	—	429,456	—
Foreign common collective trusts	398,282		—	398,282	—
Fixed income securities:
Corporate bonds	76,086		—	76,086	—
Common collective trusts	780,367		—	780,367	—
Private equity and hedge funds	102,884		—	—	102,884
Total	$	1,787,075	—	1,684,191	102,884



	Fair Value Measurements at December 31, 2015
Asset Category	Total		Level 1	Level 2	Level 3
	(In thousands)
Equity securities:
U.S. common collective trusts	$	387,123	—	387,123	—
Foreign common collective trusts	374,858		—	374,858	—
Fixed income securities:
Corporate bonds	64,834		—	64,834	—
Common collective trusts	719,840		—	719,840	—
Private equity and hedge funds	100,631		—	—	100,631
Total	$	1,647,286	—	1,546,655	100,631

The following is a description of the valuation methodologies used for our pension assets as well as the level of input used to measure fair value:

Equity securities — These investments include common and preferred stocks and index common collective trusts that track U.S. and foreign indices. Fair values for the common and preferred stocks were based on quoted prices in active markets and were therefore classified within Level 1 of the fair value hierarchy. The common collective trusts were valued at the unit prices established by the funds’ sponsors based on the fair value of the assets underlying the funds. Since the units of the funds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy.

Fixed income securities — These investments include investment grade bonds of U.S. issuers from diverse industries, government issuers, index common collective trusts that track the Barclays Aggregate Index and other fixed income investments (primarily mortgage-backed securities). Fair values for the corporate bonds were valued using third-party pricing services. These sources determine prices utilizing market income models which factor in, where applicable, transactions of similar assets in active markets, transactions of identical assets in infrequent markets, interest rates, bond or credit default swap spreads and volatility. Since the corporate bonds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy. The common collective trusts were valued at the unit prices established by the funds’ sponsors based on the fair value of the assets underlying the funds. Since the units of the funds are not actively traded, the fair value measurements have been classified within Level 2 of the fair value hierarchy. The other investments are not actively traded and fair values are estimated using bids provided by brokers, dealers or quoted prices of similar securities with similar characteristics or pricing models. Therefore, the other investments have been classified within Level 2 of the fair value hierarchy.

Private equity and hedge funds — These investments represent limited partnership interests in private equity and hedge funds. The partnership interests are valued by the general partners based on the underlying assets in each fund. The limited partnership interests are valued using unobservable inputs and have been classified within Level 3 of the fair value hierarchy.

The following table presents a summary of changes in the fair value of the pension plans’ Level 3 assets for the years ended December 31, 2016 and 2015:



	2016		2015
	(In thousands)
Beginning balance at January 1	$	100,631	89,727
Return on plan assets:
Relating to assets still held at the reporting date	1,548		5,399
Relating to assets sold during the period	703		226
Purchases, sales, settlements and expenses	2		5,279
Ending balance at December 31	$	102,884	100,631

The following table details pension benefits expected to be paid in each of the next five fiscal years and in aggregate for the five fiscal years thereafter:



	(In thousands)
2017	$	102,378
2018	105,256
2019	109,348
2020	113,471
2021	117,724
2022-2026	633,451

For 2017, required pension contributions to our pension plans are estimated to be $22 million.

Multi-employer Plans

We participate in multi-employer plans that provide defined benefits to certain employees covered by collective-bargaining agreements. Such plans are usually administered by a board of trustees comprised of the management of the participating companies and labor representatives. The net pension cost of these plans is equal to the annual contribution determined in accordance with the provisions of negotiated labor contracts. Assets contributed to such plans are not segregated or otherwise restricted to provide benefits only to our employees. The risks of participating in these multi-employer plans are different from single-employer plans in the following respects: 1) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees and former employees of other participating employers; 2) if a participating employer is no longer able to contribute to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers at annual contribution rates under the collective bargaining agreements; 3) if there is a mass withdrawal of substantially all employers from the plan, we may be required to pay the plan an annual contribution based on historical contribution levels as prescribed by federal statute; and 4) if we choose to stop participating in some of our multi-employer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, which is referred to as a withdrawal liability.

During 2015, we recognized a benefit of $1 million for adjustments to previously recognized estimated pension settlement charges related to our exit from U.S. multi-employer pension plans. During 2014, we recognized estimated pension settlement charges of $13 million related to the transition of employees from two U.S. multi-employer plans into another multi-employer plan in which we participate, and our exit from two U.S. multi-employer pension plans. These adjustments were included in "Selling, general, and administrative expenses" in our Consolidated Statement of Earnings and are a component of Union-administered plans expense.

Our participation in these plans is outlined in the table below. Unless otherwise noted, the most recent Pension Protection Act zone status available in 2016 and 2015 is for the plan years ended December 31, 2015 and December 31, 2014, respectively. The zone status is based on information that we received from the plan. Among other factors, plans in the red zone are generally less than sixty-five percent funded, plans in the yellow zone are less than eighty percent funded, and plans in the green zone are at least eighty percent funded.



		Pension Protection Act Zone Status			Ryder Contributions							Expiration Date(s) of Collective-Bargaining Agreement(s)
Pension Fund	Employer Identification Number	2016	2015	FIP/RP Status Pending/ Implemented ⁽¹⁾	2016			2015		2014	Surcharge Imposed	Expiration Date(s) of Collective-Bargaining Agreement(s)
					(Dollars in thousands)
Western Conference Teamsters	91-6145047	Green	Green	No	$	2,613		2,430		2,315	No	1/12/18 to 4/1/21
IAM National	51-6031295	Green	Green	No	4,162			3,801		3,311	No	3/31/17 to 11/30/19
Automobile Mechanics Local No. 701	36-6042061	Yellow	Red	RP Adopted	2,201			1,902		1,632	Yes	10/31/17 to 5/31/19
Central States Southeast and Southwest Areas	36-6044243	Red	Red	RP Adopted	259			254		211	Yes	5/6/17 to 10/31/17
Other funds					501			450		1,085
Total contributions					9,736			8,837		8,554
Pension settlement (benefit) charges					(139		)	(509	)	12,564
Union-administered plans					$	9,597		8,328		21,118

_____________


(1)	The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented.

Our contributions are impacted by changes in contractual contributions rates as well as changes in the number of employees covered by each plan.

Savings Plans

Employees who do not actively participate in pension plans and are not covered by union-administered plans are generally eligible to participate in enhanced savings plans. These plans provide for (i) a company contribution even if employees do not make contributions, (ii) a company match of employee contributions of eligible pay, subject to tax limits and (iii) a discretionary company match. Savings plan costs totaled $38 million in both 2016 and 2015 and $35 million in 2014.

Deferred Compensation and Long-Term Compensation Plans

We have deferred compensation plans that permit eligible U.S. employees, officers and directors to defer a portion of their compensation. The deferred compensation liability, including Ryder matching amounts and accumulated earnings, totaled $50 million and $44 million at December 31, 2016 and 2015, respectively.

We have established grantor trusts (Rabbi Trusts) to provide funding for benefits payable under the supplemental pension plan, deferred compensation plans and long-term incentive compensation plans. The assets held in the trusts were $50 million and $43 million at December 31, 2016 and 2015, respectively. The Rabbi Trusts’ assets consist of short-term cash investments and a managed portfolio of equity securities, including our common stock. These assets, except for the investment in our common stock, are included in “Direct financing leases and other assets” because they are available to our general creditors in the event of insolvency. The equity securities are classified as trading securities and stated at fair value. Both realized and unrealized gains and losses are included in “Miscellaneous income, net.” The Rabbi Trusts’ investment of $2 million and $1 million in our common stock at December 31, 2016 and 2015, respectively, is reflected at historical cost and included in shareholders’ equity.