Pension Plans and Other Postretirement Benefits:

We maintain various noncontributory defined benefit pension plans covering certain employees, primarily in the U.S., the U.K., Germany and Japan. In connection with the acquisition of Rockwood, in the first quarter of 2015 we assumed the obligations of various defined benefit pension plans that were maintained by Rockwood which cover certain employees, primarily in the U.S., the U.K. and Germany. We also have a contributory defined benefit plan covering certain Belgian employees. The benefits for these plans are based primarily on compensation and/or years of service. Our U.S. and U.K. defined benefit plans for non-represented employees are closed to new participants, with no additional benefits accruing under these plans as participants’ accrued benefits have been frozen. The funding policy for each plan complies with the requirements of relevant governmental laws and regulations. The pension information for all periods presented includes amounts related to salaried and hourly plans.

The following provides a reconciliation of benefit obligations, plan assets and funded status, as well as a summary of significant assumptions, for our defined benefit pension plans (in thousands):



	Year Ended December 31, 2016						Year Ended December 31, 2015
	U.S. Pension Plans			Foreign Pension Plans			U.S. Pension Plans			Foreign Pension Plans
Change in benefit obligations:
Benefit obligation at January 1	$	682,839		$	245,747		$	729,652		$	53,112
Service cost	1,028			3,133			1,233			3,909
Interest cost	30,514			6,570			30,235			6,405
Plan amendments	—			—			—			864
Actuarial loss (gain)	7,357			28,083			(54,140		)	(30,978		)
Benefits paid	(56,050		)	(9,793		)	(37,512		)	(11,283		)
Acquisitions	—			—			13,371			270,618
Divestitures	—			(6,372		)	—			—
Reclass to liabilities held for sale	—			—			—			(26,608		)
Employee contributions	—			245			—			256
Foreign exchange gain	—			(21,724		)	—			(20,105		)
Settlements/curtailments	—			(427		)	—			(161		)
Other	—			818			—			(282		)
Benefit obligation at December 31	$	665,688		$	246,280		$	682,839		$	245,747

Change in plan assets:
Fair value of plan assets at January 1	$	555,084		$	64,911		$	598,250		$	9,444
Actual return on plan assets	37,725			12,534			(16,306		)	630
Employer contributions	1,323			10,911			1,398			11,864
Benefits paid	(56,050		)	(9,793		)	(37,512		)	(11,283		)
Acquisitions	—			—			9,254			56,418
Employee contributions	—			245			—			256
Foreign exchange loss	—			(10,492		)	—			(2,189		)
Settlements/curtailments	—			—			—			(161		)
Other	—			559			—			(68		)
Fair value of plan assets at December 31	$	538,082		$	68,875		$	555,084		$	64,911

Funded status at December 31	$	(127,606	)	$	(177,405	)	$	(127,755	)	$	(180,836	)



	December 31, 2016						December 31, 2015
	U.S. Pension Plans			Foreign Pension Plans			U.S. Pension Plans			Foreign Pension Plans
Amounts recognized in consolidated balance sheets:
Current liabilities (accrued expenses)	$	(1,100	)	$	(5,216	)	$	(1,110	)	$	(7,498	)
Noncurrent liabilities (pension benefits)	(126,506		)	(172,189		)	(126,645		)	(173,338		)
Net pension liability	$	(127,606	)	$	(177,405	)	$	(127,755	)	$	(180,836	)

Amounts recognized in accumulated other comprehensive income (loss):
Prior service benefit	$	(136	)	$	(322	)	$	(211	)	$	(1,046	)
Net amount recognized	$	(136	)	$	(322	)	$	(211	)	$	(1,046	)

Weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate	4.43		%	2.00		%	4.67		%	2.76		%
Rate of compensation increase	—		%	3.18		%	—		%	3.16		%

The accumulated benefit obligation for all defined benefit pension plans was $901.4 million and $916.7 million at December 31, 2016 and 2015, respectively.

Postretirement medical benefits and life insurance is provided for certain groups of U.S. retired employees. Medical and life insurance benefit costs have been funded principally on a pay-as-you-go basis. Although the availability of medical coverage after retirement varies for different groups of employees, the majority of employees who retire before becoming eligible for Medicare can continue group coverage by paying a portion of the cost of a monthly premium designed to cover the claims incurred by retired employees subject to a cap on payments allowed. The availability of group coverage for Medicare-eligible retirees also varies by employee group with coverage designed either to supplement or coordinate with Medicare. Retirees generally pay a portion of the cost of the coverage. Plan assets for retiree life insurance are held under an insurance contract and are reserved for retiree life insurance benefits. In 2005, the postretirement medical benefit available to U.S. employees was changed to provide that employees who are under age 50 as of December 31, 2005 would no longer be eligible for a company-paid retiree medical premium subsidy. Employees who are of age 50 and above as of December 31, 2005 and who retire after January 1, 2006 will have their retiree medical premium subsidy capped. Effective January 1, 2008, our medical insurance for certain groups of U.S. retired employees is now insured through a medical carrier.

The following provides a reconciliation of benefit obligations, plan assets and funded status, as well as a summary of significant assumptions, for our postretirement benefit plans (in thousands):



	Year Ended December 31,
	2016			2015
	Other Postretirement Benefits			Other Postretirement Benefits
Change in benefit obligations:
Benefit obligation at January 1	$	56,499		$	64,500
Service cost	115			137
Interest cost	2,483			2,573
Actuarial loss (gain)	1,529			(5,690		)
Benefits paid	(4,485		)	(5,021		)
Benefit obligation at December 31	$	56,141		$	56,499

Change in plan assets:
Fair value of plan assets at January 1	$	3,292		$	4,439
Actual return on plan assets	442			280
Employer contributions	2,983			3,594
Benefits paid	(4,485		)	(5,021		)
Fair value of plan assets at December 31	$	2,232		$	3,292

Funded status at December 31	$	(53,909	)	$	(53,207	)



	December 31,
	2016			2015
	Other Postretirement Benefits			Other Postretirement Benefits
Amounts recognized in consolidated balance sheets:
Current liabilities (accrued expenses)	$	(3,371	)	$	(3,560	)
Noncurrent liabilities (postretirement benefits)	(50,538		)	(49,647		)
Net postretirement liability	$	(53,909	)	$	(53,207	)

Amounts recognized in accumulated other comprehensive income (loss):
Prior service benefit	$	143		$	239
Net amount recognized	$	143		$	239

Weighted-average assumptions used to determine benefit obligations at December 31:
Discount rate	4.35		%	4.59		%
Rate of compensation increase	3.50		%	3.50		%

The components of pension benefits cost (credit) from continuing operations are as follows (in thousands):



	Year Ended						Year Ended						Year Ended
	December 31, 2016						December 31, 2015						December 31, 2014
	U.S. Pension Plans			Foreign Pension Plans			U.S. Pension Plans			Foreign Pension Plans			U.S. Pension Plans			Foreign Pension Plans
Service cost	$	1,028		$	3,133		$	1,233		$	3,909		$	7,029		$	1,746
Interest cost	30,514			6,570			30,235			6,405			30,491			1,571
Expected return on assets	(36,445		)	(4,027		)	(40,495		)	(3,670		)	(39,714		)	(427		)
Actuarial loss (gain)	5,988			19,418			2,665			(27,043		)	116,705			10,270
Amortization of prior service benefit	75			859			75			43			(727		)	50
Total net pension benefits cost (credit)^(a)	$	1,160		$	25,953		$	(6,287	)	$	(20,356	)	$	113,784		$	13,210

Weighted-average assumption percentages:
Discount rate	4.67		%	2.76		%	4.19		%	2.22		%	5.14		%	3.41		%
Expected return on plan assets	6.89		%	6.66		%	6.88		%	5.76		%	6.91		%	4.00		%
Rate of compensation increase	—		%	3.16		%	—		%	3.15		%	3.50		%	3.16		%


(a)	For the years ended December 31, 2016 and 2015, $10.8 million and $6.2 million, respectively, of net pension benefits credit is included in Income (loss) from discontinued operations (net of tax) in the consolidated statements of income. See Note 3, “Divestitures,” for additional information.

Effective January 1, 2017, the weighted-average expected rate of return on plan assets for the U.S. and foreign defined benefit pension plans is 6.89% and 6.16%, respectively.

The estimated amounts to be amortized from accumulated other comprehensive loss into net periodic pension costs during 2017 are as follows (in thousands):



	U.S. Pension Plans		Foreign Pension Plans
Amortization of prior service benefit	$	75	$	36

The components of postretirement benefits cost (credit) from continuing operations are as follows (in thousands):



	Year Ended December 31,
	2016			2015			2014
	Other Postretirement Benefits			Other Postretirement Benefits			Other Postretirement Benefits
Service cost	$	115		$	137		$	216
Interest cost	2,483			2,573			3,040
Expected return on assets	(187		)	(263		)	(342		)
Actuarial loss (gain)	1,275			(5,707		)	3,868
Amortization of prior service benefit	(95		)	(95		)	(95		)
Total net postretirement benefits cost (credit)^(a)	$	3,591		$	(3,355	)	$	6,687

Weighted-average assumption percentages:
Discount rate	4.59		%	4.15		%	5.03		%
Expected return on plan assets	7.00		%	7.00		%	7.00		%
Rate of compensation increase	3.50		%	3.50		%	3.50		%


(a)	For the year ended December 31, 2015, $2.6 million of net postretirement benefits credit is included in Income (loss) from discontinued operations (net of tax) in the consolidated statements of income. See Note 3, “Divestitures,” for additional information.

Effective January 1, 2017, the weighted-average expected rate of return on plan assets for our postretirement benefit plans is 7.00%.

The estimated amounts to be amortized from accumulated other comprehensive loss into net periodic postretirement costs during 2017 are as follows (in thousands):



	Other Postretirement Benefits
Amortization of prior service benefit	$	(95	)

Fair value is defined as 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 (exit price). The inputs used to measure fair value are classified into the following hierarchy:



Level 1	Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2	Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability

Level 3	Unobservable inputs for the asset or liability

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Transfers between levels of the fair value hierarchy are deemed to have occurred on the date of the event or change in circumstance that caused the transfer. There were no transfers between Levels 1 and 2 during the year ended December 31, 2016. Investments for which market quotations are readily available are valued at the closing price on the last business day of the year. Listed securities for which no sale was reported on such date are valued at the mean between the last reported bid and asked price. Securities traded in the over-the-counter market are valued at the closing price on the last business day of the year or at bid price. The net asset value of shares or units is based on the quoted market value of the underlying assets. The market value of corporate bonds is based on institutional trading lots and is most often reflective of bid price. Government securities are valued at the mean between bid and ask prices. Holdings in private equity securities are typically valued using the net asset valuations provided by the underlying private investment companies.

The following tables set forth the assets of our pension and postretirement plans that were accounted for at fair value on a recurring basis as of December 31, 2016 and 2015 (in thousands):



	December 31, 2016		Quoted Prices in Active Markets for Identical Items (Level 1)		Quoted Prices in Active Markets for Similar Items (Level 2)		Unobservable Inputs (Level 3)
Pension Assets:
Domestic Equity^(a)	$	146,683	$	143,987	$	2,696	$	—
International Equity^(b)	116,649		83,839		32,810		—
Fixed Income^(c)	255,401		230,309		25,092		—
Absolute Return Measured at Net Asset Value^(d)	86,112		—		—		—
Cash	2,112		2,112		—		—
Total Pension Assets	$	606,957	$	460,247	$	60,598	$	—
Postretirement Assets:
Fixed Income^(c)	$	2,232	$	—	$	2,232	$	—



	December 31, 2015		Quoted Prices in Active Markets for Identical Items (Level 1)		Quoted Prices in Active Markets for Similar Items (Level 2)		Unobservable Inputs (Level 3)
Pension Assets:
Domestic Equity^(a)	$	163,408	$	161,075	$	2,333	$	—
International Equity^(b)	115,949		84,019		31,930		—
Fixed Income^(c)	254,560		231,411		23,149		—
Absolute Return Measured at Net Asset Value^(d)	80,746		—		—		—
Cash	5,332		5,332		—		—
Total Pension Assets	$	619,995	$	481,837	$	57,412	$	—
Postretirement Assets:
Fixed Income^(c)	$	3,292	$	—	$	3,292	$	—


(a)	Consists primarily of U.S. stock funds that track or are actively managed and measured against the S&P 500 index.


(b)	Consists primarily of international equity funds which invest in common stocks and other securities whose value is based on an international equity index or an underlying equity security or basket of equity securities.


(c)	Consists primarily of debt obligations issued by governments, corporations, municipalities and other borrowers. Also includes insurance policies.

(d)

Consists primarily of funds with holdings in private investment companies. See additional information about the Absolute Return investments below. Holdings in private investment companies are measured at fair value using the net asset value per share as a practical expedient and have not been categorized in the fair value hierarchy as a result of the adoption of new accounting guidance effective January 1, 2016 on a retrospective basis. The fair value amounts of $86.1 million and $80.7 million as of December 31, 2016 and 2015, respectively, are included in this table to permit reconciliation to the reconciliation of plan assets table above. See Note 1, “Summary of Significant Accounting Policies,” for additional information.

The Company’s pension plan assets in the U.S. and U.K. represent approximately 98% of the total pension plan assets. The investment objective of these pension plan assets is to achieve solid returns while preserving capital to meet current plan cash flow requirements. Assets should participate in rising markets, with defensive action in declining markets expected to an even greater degree. Depending on market conditions, the broad asset class targets may range up or down by approximately 10%. These asset classes include but are not limited to hedge fund of funds, bonds and other fixed income vehicles, high yield fixed income securities, equities and distressed debt. At December 31, 2016 and 2015, equity securities held by our pension and OPEB plans did not include direct ownership of Albemarle common stock.

The weighted-average target allocations as of the measurement date are as follows:



	Target Allocation
Equity securities	44	%
Fixed income	42	%
Absolute return	13	%
Other	1	%

Our Absolute Return investments consist primarily of our investments in hedge fund of funds. These are holdings in private investment companies with fair values that are based on significant unobservable inputs including assumptions where there is little, if any, market activity for the investment. Investment managers or fund managers associated with these investments provide valuations of the investments on a monthly basis utilizing the net asset valuation approach for determining fair values. These valuations are reviewed by the Company for reasonableness based on applicable sector, benchmark and company performance to validate the appropriateness of the net asset values as a fair value measurement. Where available, audited financial statements are obtained and reviewed for the investments as support for the manager’s investment valuation. In general, the investment objective of these funds is high risk-adjusted returns with an emphasis on preservation of capital. The investment strategies of each of the funds vary; however, the objective of our Absolute Return investments is complementary to the overall investment objective of our U.S. pension plan assets.

We made contributions to our defined benefit pension and OPEB plans of $20.1 million, $21.6 million and $13.9 million during the years ended December 31, 2016, 2015 and 2014, respectively, related to continuing and discontinued operations. We expect contributions to our domestic nonqualified and foreign qualified and nonqualified pension plans to approximate $10 million in 2017. Also, we expect to pay approximately $3 million in premiums to our U.S. postretirement benefit plan in 2017. However, we may choose to make additional voluntary pension contributions in excess of these amounts.

The current forecast of benefit payments, which reflects expected future service, amounts to (in millions):



	U.S. Pension Plans		Foreign Pension Plans		Other Postretirement Benefits
2017	$	39.6	$	9.2	$	4.7
2018	$	40.9	$	8.7	$	4.5
2019	$	41.9	$	8.2	$	4.3
2020	$	42.7	$	9.0	$	4.0
2021	$	43.1	$	9.6	$	3.8
2022-2026	$	219.2	$	51.2	$	18.2

We have a supplemental executive retirement plan (“SERP”), which provides unfunded supplemental retirement benefits to certain management or highly compensated employees. The SERP provides for incremental pension benefits to offset the limitations imposed on qualified plan benefits by federal income tax regulations. Costs (credits) relating to our SERP were $1.6 million, ($2.1) million and $7.3 million for the years ended December 31, 2016, 2015 and 2014, respectively. The projected benefit obligation for the SERP recognized in the consolidated balance sheets at December 31, 2016 and 2015 was $23.5 million and $23.1 million, respectively. The benefit expenses and obligations of this SERP are included in the tables above. Benefits of $1.1 million are expected to be paid to SERP retirees in 2017. On October 1, 2012, our Board of Directors approved amendments to the SERP, such that effective December 31, 2014, no additional benefits shall accrue under this plan and participants’ accrued benefits shall be frozen as of that date to reflect the same changes as were made under the U.S. qualified defined benefit plan.

At December 31, 2016, the assumed rate of increase in the pre-65 and post-65 per capita cost of covered health care benefits for U.S. retirees was zero as the employer-paid premium caps (pre-65 and post-65) were met starting January 1, 2013.

Defined Contribution Plans

On March 31, 2004, a new defined contribution pension plan benefit was adopted under the qualified defined contribution plan for U.S. non-represented employees hired after March 31, 2004. On October 1, 2012 our Board of Directors approved certain plan amendments, such that effective January 1, 2013, the defined contribution pension plan benefit is expanded to include non-represented employees hired prior to March 31, 2004, and revised the contribution for all participants to be based on 5% of eligible employee compensation. The employer portion of contributions to our U.S. defined contribution pension plan amounted to $15.1 million, $12.8 million, and $8.4 million in 2016, 2015 and 2014, respectively.

Certain of our employees participate in our defined contribution 401(k) employee savings plan, which is generally available to all U.S. full-time salaried and non-union hourly employees and to employees who are covered by a collective bargaining agreement that provides for such participation. This U.S. defined contribution plan is funded with contributions made by the participants and us. Our contributions to the 401(k) plan amounted to $12.7 million, $11.7 million and $10.0 million in 2016, 2015 and 2014, respectively. Contributions for 2015 include our contributions to Rockwood’s former 401(k) plan which was merged into Albemarle’s 401(k) plan effective December 1, 2015.

In 2006, we formalized a new plan in the Netherlands similar to a collective defined contribution plan. The collective defined contribution plan is supported by annuity contracts through an insurance company. The insurance company unconditionally undertakes the legal obligation to provide specific benefits to specific individuals in return for a fixed amount of premiums. Our obligation under this plan is limited to a variable calculated employer match for each participant plus an additional fixed amount of contributions to assist in covering estimated cost of living and salary increases (indexing) and administrative costs for the overall plan. We paid approximately $9.5 million, $7.2 million and $10.1 million in 2016, 2015 and 2014, respectively, in annual premiums and related costs pertaining to this plan.

Multiemployer Plan

Certain current and former employees of Rockwood participate in a multiemployer plan in Germany, the Pensionskasse Dynamit Nobel Versicherungsverein auf Gegenseitigkeit, Troisdorf (“DN Pensionskasse”), that provides monthly payments in the case of disability, death or retirement. The risks of participating in a multiemployer plan are different from single-employer plans in the following ways: (a) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers, and (b) if a participating employer stops contributing to the plan, the unfunded obligation of the plan may be borne by remaining participating employers.

Some participants in the plan are subject to collective bargaining arrangements, which have no fixed expiration date. The contribution and benefit levels are not negotiated or significantly influenced by these collective bargaining arrangements. Also, the benefit levels generally are not subject to reduction. Under German insurance law, the DN Pensionskasse must be fully funded at all times. The DN Pensionskasse was fully funded as of December 31, 2015, the date of the most recently available information for the plan. This funding level would correspond to the highest funding zone status (at least 80% funded) under U.S. pension regulation. Since the plan liabilities need to be fully funded at all times according to local funding requirements, it is unlikely that the DN Pensionskasse plan will fail to fulfill its obligations, however, in such an event, the Company is liable for the benefits of its employees who participate in the plan. Additional information of the DN Pensionskasse is available in the public domain.

The majority of the Company’s contributions are tied to employees’ contributions, which are generally calculated as a percentage of base compensation, up to a certain statutory ceiling. Our contributions to this plan for continuing and discontinued operations were €2.7 million (approximately $3.0 million and $3.1 million) during the years ended December 31, 2016 and 2015, respectively. The Company’s contributions represented more than 5% of total contributions to the DN Pensionskasse in 2016. Effective July 1, 2016, the DN Pensionskasse is subject to a financial improvement plan which expires on December 31, 2022. This financial improvement plan calls for increased capital reserves to avoid future underfunding risk. The value of the additional funding for the year ended December 31, 2016 required under the financial improvement plan is determined upon the completion of the annual financial statements and are payable in the second quarter of 2017. For the remaining years of the financial improvement plan, a portion of the additional funding necessary for the year will be based on an estimate prepared on September 30 of each year and payable in the fourth quarter of each year. The remaining annual amount of additional funding necessary will be determined upon the completion of the annual financial statements and is payable in the second quarter of the following year.