
5.	EMPLOYEE BENEFIT PLANS

PENSION AND OTHER POSTRETIREMENT DEFINED BENEFIT PLANS We sponsor various qualified and non-qualified defined benefit pension plans for our eligible associates. We also maintain hourly and salaried benefit plans that provide postretirement medical, dental, vision and life insurance benefits (OPEB) to our eligible retirees and their dependents in the U.S.

AAM and GM share proportionally in the cost of OPEB for eligible retirees based on the length of service an employee had with AAM and GM. We have included in our OPEB obligation the amounts expected to be received pursuant to this agreement of $256.3 million and $287.8 million at December 31, 2015 and December 31, 2014, respectively. We have also recorded a corresponding asset for these amounts on our Consolidated Balance Sheet, $13.1 million that is classified as a current asset and $243.2 million that is classified as a noncurrent asset as of December 31, 2015.

Actuarial valuations of our benefit plans were made as of December 31, 2015 and 2014. The principal weighted-average assumptions used in the year-end valuation of our U.S. and U.K. plans appear in the following table. The U.S. discount rates are based on an actuarial review of a hypothetical portfolio of long-term, high quality corporate bonds matched against the expected payment stream for each of our plans. The U.K. discount rate is based on a review of long-term bonds, in consideration of the average duration of plan liabilities. The assumptions for expected return on plan assets are based on future capital market expectations for the asset classes represented within our portfolios and a review of long-term historical returns. The rates of increase in compensation and health care costs are based on current market conditions, inflationary expectations and historical information.



	Pension Benefits												OPEB
	2015				2014				2013				2015		2014		2013
	U.S.		U.K		U.S.		U.K		U.S.		U.K.
Discount rate	4.40	%	3.90	%	4.10	%	3.70	%	5.00	%	4.50	%	4.45	%	4.15	%	4.95	%
Expected return on plan assets	7.50	%	5.00	%	7.50	%	5.00	%	7.50	%	5.15	%	N/A		N/A		N/A
Rate of compensation increase	4.00	%	3.30	%	4.00	%	3.30	%	4.00	%	3.60	%	4.00	%	4.00	%	4.00	%

The accumulated benefit obligation for all defined benefit pension plans was $678.6 million and $723.9 million at December 31, 2015 and December 31, 2014, respectively. As of December 31, 2015, the accumulated benefit obligation for our underfunded defined benefit pension plans was $553.2 million, the projected benefit obligation was $565.1 million and the fair value of assets for these plans was $457.8 million. The following table summarizes the changes in projected benefit obligations and plan assets and reconciles the funded status of the benefit plans, which is the net benefit plan liability:



	Pension Benefits						OPEB
	December 31,						December 31,
	2015			2014			2015			2014
	(in millions)
Change in benefit obligation
Benefit obligation at beginning of year	$	738.8		$	755.4		$	654.7		$	577.9
Service cost	3.2			3.5			0.4			0.3
Interest cost	28.6			36.1			15.0			15.3
Actuarial loss (gain)	(32.1		)	119.3			(35.9		)	41.2
Change in GM portion of OPEB obligation	—			—			(31.6		)	31.8
Participant contributions	0.4			0.4			—			—
Settlements	—			(131.1		)	—			—
Benefit payments	(38.4		)	(36.5		)	(14.2		)	(11.8		)
Currency fluctuations	(7.4		)	(8.3		)	—			—
Net change	(45.7		)	(16.6		)	(66.3		)	76.8
Benefit obligation at end of year	$	693.1		$	738.8		$	588.4		$	654.7

Change in plan assets
Fair value of plan assets at beginning of year	$	643.7		$	713.4		$	—		$	—
Actual return on plan assets	(5.0		)	77.2			—			—
Employer contributions	20.1			1.9			14.2			11.8
Participant contributions	0.4			0.4			—			—
Benefit payments	(38.4		)	(36.5		)	(14.2		)	(11.8		)
Settlements	—			(104.2		)	—			—
Currency fluctuations	(8.0		)	(8.5		)	—			—
Net change	(30.9		)	(69.7		)	—			—
Fair value of plan assets at end of year	$	612.8		$	643.7		$	—		$	—

During 2014, the Society of Actuaries issued updated mortality tables for our U.S. benefit plans. These new mortality tables increased our projected benefit obligations for our U.S. pension and OPEB plans at December 31, 2014 by $25.2 million and $19.0 million, respectively.

Amounts recognized in our Consolidated Balance Sheets are as follows:



	Pension Benefits						OPEB
	December 31,						December 31,
	2015			2014			2015			2014
	(in millions)
Noncurrent assets	$	27.0		$	6.9		$	—		$	—
Current liabilities	(4.2		)	(3.0		)	(29.4		)	(29.6		)
Noncurrent liabilities	(103.1		)	(99.0		)	(559.0		)	(625.1		)
Net liability	$	(80.3	)	$	(95.1	)	$	(588.4	)	$	(654.7	)

Pre-tax amounts recorded in accumulated other comprehensive income (loss) (AOCI), not yet recognized in net periodic benefit cost as of December 31, 2015 and 2014, consists of:



	Pension Benefits						OPEB
	December 31,						December 31,
	2015			2014			2015		2014
	(in millions)
Net actuarial gain (loss)	$	(222.9	)	$	(215.3	)	$	1.1	$	(35.7	)
Net prior service credit	0.6			0.7			12.7		15.4
Total amounts recorded	$	(222.3	)	$	(214.6	)	$	13.8	$	(20.3	)

The components of net periodic benefit cost (credit) are as follows:



	Pension Benefits									OPEB
	2015			2014			2013			2015			2014			2013
	(in millions)
Service cost	$	3.2		$	3.5		$	3.4		$	0.4		$	0.3		$	0.4
Interest cost	28.6			36.1			33.8			15.0			15.3			13.2
Expected asset return	(42.0		)	(48.4		)	(45.8		)	—			—			—
Amortized actuarial loss	6.0			5.4			8.9			0.8			0.5			0.9
Amortized prior service cost (credit)	(0.1		)	(0.1		)	5.4			(2.7		)	(2.7		)	(1.8		)
Settlement charge	—			35.5			—			—			—			—
Net periodic benefit cost (credit)	$	(4.3	)	$	32.0		$	5.7		$	13.5		$	13.4		$	12.7

Our postretirement cost sharing asset from GM is measured on the same basis as the portion of the obligation to which it relates. The actuarial gains and losses related to the GM portion of the OPEB obligation are recognized immediately in the Consolidated Statement of Income as an offset against the gains and losses related to the change in the corresponding GM postretirement cost sharing asset. These items are presented net in the change in benefit obligation and net periodic benefit cost components disclosed above. Remaining actuarial gains and losses are deferred and amortized over the expected future service periods of the active participants.

The estimated net actuarial loss and prior service credit for the defined benefit pension plans that is expected to be amortized from AOCI into net periodic benefit credit in 2016 are $5.4 million and $0.1 million, respectively. The estimated net actuarial loss and prior service credit for the other defined benefit postretirement plans that is expected to be amortized from AOCI into net periodic benefit cost in 2016 are $0.5 million and $2.7 million, respectively.

For measurement purposes, a weighted average annual increase in the per-capita cost of covered health care benefits of 6.75% was assumed for 2016. The rate was assumed to decrease gradually to 5.0% by 2023 and to remain at that level thereafter. Health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1.0% increase in the assumed health care cost trend rate would have increased total service and interest cost in 2015 and the postretirement obligation, net of GM cost sharing, at December 31, 2015 by $1.7 million and $37.5 million, respectively. A 1.0% decrease in the assumed health care cost trend rate would have decreased total service and interest cost in 2015 and the postretirement obligation, net of GM cost sharing, at December 31, 2015 by $1.5 million and $31.2 million, respectively.

The expected future pension and other postretirement benefits to be paid, net of GM cost sharing, for each of the next five years and in the aggregate for the succeeding five years thereafter are as follows: $55.5 million in 2016; $55.1 million in 2017; $55.5 million in 2018; $55.8 million in 2019; $56.5 million in 2020 and $295.5 million for 2021 through 2025. These amounts were estimated using the same assumptions that were used to measure our 2015 year-end pension and OPEB obligations and include an estimate of future employee service.

Contributions In December 2015, we voluntarily contributed $18.3 million to our U.K. pension trust, which satisfies our estimated U.K. regulatory funding requirements for 2016 through 2018. Due to the availability of our prefunding pension balances related to our U.S. pension plans, we do not expect to make any cash payments in 2016 to satisfy our regulatory funding requirements. We expect our cash outlay, net of GM cost sharing, for OPEB to be approximately $16 million in 2016.

Terminated vested lump sum payout offer In 2014, we offered a voluntary one-time lump sum payment option to certain eligible terminated vested participants in our U.S. pension plans that settled our pension obligations to them (“AAM Pension Payout Offer”). The lump sum settlements, which were paid from plan assets, reduced our liabilities and administrative costs going forward.

In total, 3,335 participants accepted the offer and we made a one-time lump sum payment from our pension trust of $104.2 million in 2014. As a result of this settlement, we remeasured the assets and liabilities of our U.S. pension plans, which reduced our projected benefit obligation by $131.1 million and resulted in a non-cash charge of $35.5 million in 2014 related to the accelerated recognition of certain deferred losses.

Amendments to pension and OPEB plans and contractual termination benefits In 2013, we remeasured the AAM Supplemental Executive Retirement Plan (SERP) due to the passing of our Co-Founder and former Executive Chairman of the Board of Directors. As a result of this remeasurement, we recorded $4.7 million in selling, general and administrative expense related to the acceleration of prior service cost.

Pension plan assets The weighted-average asset allocations of our pension plan assets at December 31, 2015 and 2014 appear in the following table. The asset allocation for our plans is developed in consideration of the demographics of the plan participants and expected payment stream of the benefit obligation.



	U.S.					U.K.
					Target					Target
	2015		2014		Allocation	2015		2014		Allocation
Equity securities	34.8	%	33.1	%	30% - 65%	26.7	%	28.7	%	25% - 35%
Fixed income securities	46.2		47.3		35% - 55%	52.0		61.1		55% - 65%
Hedge funds	17.8		18.3		0% - 20%	9.6		10.1		5% - 15%
Cash	1.2		1.3		0% - 5%	11.7		0.1		0% - 5%
Total	100.0	%	100.0	%		100.0	%	100.0	%

The primary objective of our pension plan assets is to provide a source of retirement income for participants and beneficiaries. Our primary financial objectives for the pension plan assets have been established in conjunction with a comprehensive review of our current and projected financial requirements. These objectives include having the ability to pay all future benefits and expenses when due, maintaining flexibility and minimizing volatility. These objectives are based on a long-term investment horizon.

Defined Benefit Pension Plan Assets Investments in our defined benefit plans are stated at fair value. Level 1 assets are valued using quoted market prices that represent the asset value of the shares held by the trusts. The level 2 assets are investments in pooled funds, which are valued using a model to reflect the valuation of their underlying assets that are publicly traded with observable values. The fair value of our level 3 defined benefit pension plan assets are measured by compiling the portfolio holdings and independently valuing the securities in those portfolios. The fair values of our pension plan assets are as follows:



December 31, 2015
Asset Categories	Level 1		Level 2		Level 3		Total
	(in millions)
Cash & Cash Equivalents	$	23.7	$	—	$	—	$	23.7
Equity
U.S. Large Cap	77.1		—		—		77.1
U.S. Small/Mid Cap	28.2		—		—		28.2
World Equity	95.5		—		—		95.5
Fixed Income Securities
Government & Agencies	68.1		35.8		—		103.9
Corporate Bonds - Investment Grade	138.4		—		—		138.4
Corporate Bonds - Non-investment Grade	24.8		—		—		24.8
Emerging Market Debt	18.1		—		—		18.1
Other	6.9		—		—		6.9
Hedge Funds
Property Funds	—		—		54.6		54.6
Multi Strategy Hedge Fund	—		—		41.6		41.6
Total Plan Assets	$	480.8	$	35.8	$	96.2	$	612.8


December 31, 2014
Asset Categories	Level 1		Level 2		Level 3		Total
	(in millions)
Cash & Cash Equivalents	$	6.7	$	—	$	—	$	6.7
Equity
U.S. Large Cap	87.3		—		—		87.3
U.S. Small/Mid Cap	25.2		—		—		25.2
World Equity	94.2		—		—		94.2
Fixed Income Securities
Government & Agencies	67.9		58.8		—		126.7
Corporate Bonds - Investment Grade	139.9		—		—		139.9
Corporate Bonds - Non-investment Grade	31.9		—		—		31.9
Emerging Market Debt	19.0		—		—		19.0
Other	7.2		—		—		7.2
Hedge Funds
Property Funds	—		—		48.3		48.3
Multi Strategy Hedge Fund	—		—		57.3		57.3
Total Plan Assets	$	479.3	$	58.8	$	105.6	$	643.7

The changes in the fair value of our level 3 assets in the Property Funds and Multi Strategy Hedge Fund are as follows:



	December 31,
	2015			2014
	(in millions)
Beginning balance	$	105.6		$	64.5
Actual return on plan assets:
Relating to assets still held at the reporting date	3.8			3.3
Purchases, sales and settlements, net	(13.2		)	37.8
Ending balance	$	96.2		$	105.6

DEFINED CONTRIBUTION PLANS Most of our salaried U.S. associates are eligible to participate in voluntary savings plans. Our maximum match is 50% of eligible salaried associates' contribution up to 10% of their eligible salary. Matching contributions amounted to $4.6 million in 2015, $3.9 million in 2014 and $3.9 million in 2013. U.S. salaried associates are eligible annually to receive an additional AAM Retirement Contribution (ARC) benefit between 3% to 5% of eligible salary, depending on years of service. We made ARC contributions of $5.3 million, $4.9 million and $4.6 million in 2015, 2014 and 2013, respectively.

Certain UAW represented associates at our original U.S. locations are eligible for a Company match on associate contributions made to the voluntary savings plans. Our maximum match is 25% of hourly associates' contribution up to the first 6% of their contributions. Matching contributions amounted to $0.1 million in 2015, 2014 and 2013. Certain UAW represented associates are also eligible to receive an ARC benefit of 5% of eligible wages. We made ARC contributions of $2.5 million in 2015, $2.6 million in 2014 and $1.9 million in 2013 related to these associates.

DEFERRED COMPENSATION PLAN Certain U.S. associates are eligible to participate in a non-qualified deferred compensation plan. Payments of $0.7 million, $1.2 million and $6.1 million have been made in 2015, 2014 and 2013, respectively, to eligible associates that have elected distributions.

At December 31, 2015 and 2014, our deferred compensation liability was $5.1 million and $5.6 million, respectively. Due to the changes in the value of this deferred compensation plan we increased our liability by $0.1 million, $0.3 million and $0.8 million in 2015, 2014 and 2013, respectively.