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 $55 million and $53 million at December 31, 2017 and 2016, respectively.

Pension Expense

Pension expense from continuing operations was as follows:



	Years ended December 31,
	2017			2016		2015
	(In thousands)
Company-administered plans:
Service cost	$	12,345		12,977		13,820
Interest cost	86,431			94,476		88,013
Expected return on plan assets	(91,062		)	(90,588	)	(98,892	)
Amortization of:
Net actuarial loss	32,987			31,777		30,741
Prior service cost (credit)	579			2,976		(306	)
	41,280			51,618		33,376
Union-administered plans	15,553			9,597		8,328
Net pension expense	$	56,833		61,215		41,704

Company-administered plans:
U.S.	$	43,717		53,319		34,986
Foreign	(2,437		)	(1,701	)	(1,610	)
	41,280			51,618		33,376
Union-administered plans	15,553			9,597		8,328
	$	56,833		61,215		41,704

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.

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,
	2017	2016	2015	2017	2016	2015
Discount rate	4.20%	4.50%	4.15%	3.90%	3.70%	3.70%
Rate of increase in compensation levels	3.00%	3.00%	3.00%	3.10%	3.10%	3.10%
Expected long-term rate of return on plan assets	5.40%	5.85%	5.95%	5.48%	5.44%	5.50%
Gain and loss amortization period (years)	21	23	23	26	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,
	2017			2016
	(In thousands)
Change in benefit obligations:
Benefit obligations at January 1	$	2,228,762		2,091,844
Service cost	12,345			12,977
Interest cost	86,431			94,476
Actuarial loss	100,905			189,523
Pension annuity settlement	(66,423		)	—
Benefits paid	(104,054		)	(96,723	)
Foreign currency exchange rate changes	40,936			(63,335	)
Benefit obligations at December 31	2,298,902			2,228,762

Change in plan assets:
Fair value of plan assets at January 1	1,787,075			1,647,286
Actual return on plan assets	244,916			176,066
Employer contribution	41,219			127,991
Benefits paid	(104,054		)	(96,723	)
Pension annuity settlement	(71,299		)	—
Foreign currency exchange rate changes	43,473			(67,545	)
Fair value of plan assets at December 31	1,941,330			1,787,075
Funded status	$	(357,572	)	(441,687	)
Funded percent	84		%	80	%

During 2017, we completed a transfer of future retiree benefits in our U.S. defined benefit plan to a third-party annuity company. We paid $71 million in connection with this transfer, which included a $66 million reduction in our projected benefit obligation and an annuity premium. We did not record a gain or loss on this transaction as the cost of all settlements during the year, including this transaction, were less than our combined service and interest costs for the year.

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



	December 31,
	2017			2016
	(In thousands)
Noncurrent asset	$	58,708		14,049
Current liability	(3,863		)	(3,796	)
Noncurrent liability	(412,417		)	(451,940	)
Net amount recognized	$	(357,572	)	(441,687	)

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



	December 31,
	2017		2016
	(In thousands)
Prior service cost	$	11,135	11,714
Net actuarial loss	878,386		961,010
Net amount recognized	$	889,521	972,724

In 2018, we expect to recognize $29 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,
	2017	2016	2017	2016
Discount rate	3.70%	4.20%	2.70%	3.90%
Rate of increase in compensation levels	3.00%	3.00%	3.10%	3.10%

At December 31, 2017 and 2016, 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,
	2017		2016	2017	2016	2017	2016
	(In thousands)
Total accumulated benefit obligations	$	1,781,882	1,748,171	492,864	454,301	2,274,746	2,202,472
Plans with pension obligations in excess of plan assets:
PBO	1,804,260		1,771,968	7,802	7,383	1,812,062	1,779,351
ABO	1,781,882		1,748,171	6,502	5,997	1,788,384	1,754,168
Fair value of plan assets	1,395,790		1,323,751	—	—	1,395,790	1,323,751

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 72% 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, 2017 and 2016:



	Fair Value Measurements at December 31, 2017
Asset Category	Total		Level 1	Level 2	Level 3
	(In thousands)
Equity securities:
U.S. common collective trusts	$	443,405	—	443,405	—
Foreign common collective trusts	458,111		—	458,111	—
Fixed income securities:
Corporate bonds	85,117		—	85,117	—
Common collective trusts	840,104		—	840,104	—
Private equity and hedge funds	114,593		—	—	114,593
Total	$	1,941,330	—	1,826,737	114,593



	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

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. 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, 2017 and 2016:



	2017			2016
	(In thousands)
Beginning balance at January 1	$	102,884		100,631
Return on plan assets:
Relating to assets still held at the reporting date	10,795			1,548
Relating to assets sold during the period	(405		)	703
Purchases, sales, settlements and expenses	1,319			2
Ending balance at December 31	$	114,593		102,884

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)
2018	$	102,131
2019	104,563
2020	109,013
2021	113,370
2022	117,272
2023-2027	626,726

For 2018, required pension contributions to our pension plans are estimated to be $34 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 2017, we recorded an estimated pension settlement charge of $5 million for the exit from the Central States Southeast and Southwest Areas multi-employer pension plan. This charge was recorded within “Selling, general, and administrative expenses” in our Consolidated Statement of Earnings and is included in the Union-administered plans expense. 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. 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 2017 and 2016 is for the plan years ended December 31, 2016 and December 31, 2015, 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	2017	2016	FIP/RP Status Pending/ Implemented ⁽¹⁾	2017		2016		2015		Surcharge Imposed	Expiration Date(s) of Collective-Bargaining Agreement(s)
					(Dollars in thousands)
Western Conference Teamsters	91-6145047	Green	Green	No	$	3,245	2,613		2,430		No	1/12/18 to 4/1/21
IAM National	51-6031295	Green	Green	No	3,891		4,162		3,801		No	3/31/17 to 11/30/19
Automobile Mechanics Local No. 701	36-6042061	Yellow	Yellow	RP Adopted	2,048		2,201		1,902		Yes	10/31/17 to 5/31/19
Central States Southeast and Southwest Areas	36-6044243	Red	Red	RP Adopted	244		259		254		Yes	5/6/17 to 10/31/17
Other funds					671		501		450
Total contributions					10,099		9,736		8,837
Pension settlement charges (benefit)					5,454		(139	)	(509	)
Union-administered plans					$	15,553	9,597		8,328

_____________


(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 for employees hired before January 1, 2016, (ii) a company match of employee contributions of eligible pay, subject to tax limits and (iii) a discretionary company match. Savings plan costs totaled $39 million in 2017 and $38 million in both 2016 and 2015.

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 $63 million and $50 million at December 31, 2017 and 2016, 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 $63 million and $50 million at December 31, 2017 and 2016, 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 in our common stock at both December 31, 2017 and 2016, is reflected at historical cost and included in shareholders’ equity.