9. 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.

Actuarial valuations of our benefit plans were made as of December 31, 2018 and 2017. The primary weighted-average assumptions used in the year-end valuation of our principal 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 rates are based on hypothetical yield curves developed from corporate bond yield information within each regional market. 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
	2018				2017				2016				2018		2017		2016
	U.S.		U.K.		U.S.		U.K.		U.S.		U.K.
Discount rate	4.30	%	2.95	%	3.65	%	2.75	%	4.15	%	2.70	%	4.35	%	3.65	%	4.20	%
Expected return on plan assets	7.50	%	5.10	%	7.45	%	5.10	%	7.50	%	5.00	%	N/A		N/A		N/A
Rate of compensation increase	4.00	%	3.40	%	4.00	%	3.40	%	4.00	%	3.45	%	4.00	%	4.00	%	4.00	%

The accumulated benefit obligation for all defined benefit pension plans was $732.5 million and $807.9 million at December 31, 2018 and December 31, 2017, respectively. As of December 31, 2018, the accumulated benefit obligation for our underfunded defined benefit pension plans was $623.2 million, the projected benefit obligation was $623.2 million and the fair value of assets for these plans was $488.1 million.

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 $232.9 million and $265.5 million at December 31, 2018 and December 31, 2017, respectively. We have also recorded a corresponding asset for these amounts on our Consolidated Balance Sheet, $13.5 million that is classified as a current asset and $219.4 million that is classified as a noncurrent asset as of December 31, 2018.

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,
	2018			2017			2018			2017
	(in millions)
Change in benefit obligation
Benefit obligation at beginning of year	$	824.0		$	717.6		$	613.3		$	571.7
Service cost	2.6			3.6			0.4			0.3
Interest cost	27.3			28.9			12.4			13.3
Plan amendments	4.3			0.5			(2.3		)	—
Actuarial loss (gain)	(63.2		)	28.1			(43.8		)	22.6
Change in GM portion of OPEB obligation	—			—			(32.6		)	16.5
Participant contributions	0.3			0.3			—			—
Curtailments	(11.6		)	—			(0.2		)	—
Settlements	(0.6		)	(14.3		)	—			—
Benefit payments	(39.7		)	(40.8		)	(9.9		)	(12.5		)
MPG acquisition / business combination	—			82.3			—			1.4
Currency fluctuations	(9.4		)	17.8			—			—
Other	0.5			—			—			—
Net change	(89.5		)	106.4			(76.0		)	41.6
Benefit obligation at end of year	$	734.5		$	824.0		$	537.3		$	613.3

Change in plan assets
Fair value of plan assets at beginning of year	$	702.2		$	611.3		$	—		$	—
Actual return on plan assets	(31.0		)	74.9			—			—
Employer contributions	4.4			4.4			9.9			12.5
Participant contributions	0.3			0.3			—			—
Benefit payments	(39.8		)	(40.8		)	(9.9		)	(12.5		)
Settlements	(0.6		)	(14.3		)	—			—
MPG acquisition / business combination	—			49.9			—			—
Currency fluctuations	(9.7		)	16.5			—			—
Net change	(76.4		)	90.9			—			—
Fair value of plan assets at end of year	$	625.8		$	702.2		$	—		$	—

Amounts recognized in our Consolidated Balance Sheets are as follows:



	Pension Benefits						OPEB
	December 31,						December 31,
	2018			2017			2018			2017
	(in millions)
Noncurrent assets	$	26.4		$	18.9		$	—		$	—
Current liabilities	(6.5		)	(6.0		)	(30.8		)	(30.3		)
Noncurrent liabilities	(128.6		)	(134.7		)	(506.5		)	(583.0		)
Net liability	$	(108.7	)	$	(121.8	)	$	(537.3	)	$	(613.3	)

Pre-tax amounts recorded in accumulated other comprehensive income (loss) (AOCI), not yet recognized in net periodic benefit cost (credit) as of December 31, 2018 and 2017, consists of:



	Pension Benefits						OPEB
	December 31,						December 31,
	2018			2017			2018		2017
	(in millions)
Net actuarial gain (loss)	$	(230.6	)	$	(237.4	)	$	31.3	$	(13.5	)
Net prior service credit (cost)	(1.2		)	(0.1		)	6.2		7.2
Total amounts recorded	$	(231.8	)	$	(237.5	)	$	37.5	$	(6.3	)

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



	Pension Benefits									OPEB
	2018			2017			2016			2018			2017			2016
	(in millions)
Service cost	$	2.6		$	3.6		$	2.9		$	0.4		$	0.3		$	0.3
Interest cost	27.3			28.9			28.8			12.4			13.3			14.0
Expected asset return	(45.8		)	(44.0		)	(42.1		)	—			—			—
Amortized actuarial loss	7.8			7.1			5.5			0.8			0.6			0.5
Amortized prior service credit	0.1			(0.1		)	(0.1		)	(2.7		)	(2.7		)	(2.7		)
Curtailment loss (gain)	3.2			—			—			(0.6		)	—			—
Settlement charge	0.4			3.2			—			—			—			—
Net periodic benefit cost (credit)	$	(4.4	)	$	(1.3	)	$	(5.0	)	$	10.3		$	11.5		$	12.1

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 Statements of Operations 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 or the remaining life expectancy of the inactive participants.

The estimated net actuarial loss and prior service cost for the defined benefit pension plans that is expected to be amortized from AOCI into net periodic benefit credit in 2019 are $6.3 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 2019 are $0.1 million and $1.5 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 2019. The rate was assumed to decrease gradually to 5.00% by 2026 and to remain at that level thereafter. Health care cost trend rates may 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 2018 and the postretirement obligation, net of GM cost sharing, at December 31, 2018 by $1.4 million and $31.0 million, respectively. A 1.0% decrease in the assumed health care cost trend rate would have decreased total service and interest cost in 2018 and the postretirement obligation, net of GM cost sharing, at December 31, 2018 by $1.2 million and $26.1 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: $60.7 million in 2019; $59.0 million in 2020; $60.1 million in 2021; $58.4 million in 2022; $58.9 million in 2023 and $305.6 million for 2024 through 2028. These amounts were estimated using the same assumptions that were used to measure our 2018 year-end pension and OPEB obligations and include an estimate of future employee service.

Contributions We contributed $2.2 million to our pension trusts in 2018. Due to the availability of our pre-funded pension balances (previous contributions in excess of prior required pension contributions) related to certain of our U.S. pension plans, we expect our regulatory pension funding requirements in 2019 to be approximately $2.2 million. We expect our cash payments, net of GM cost sharing, for OPEB to be approximately $17.7 million in 2019.

Pension plan assets The weighted-average asset allocations of our pension plan assets at December 31, 2018 and 2017 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
	2018		2017		Allocation	2018		2017		Allocation
Equity securities	31.9	%	42.7	%	30% - 55%	19.0	%	28.6	%	25% - 35%
Fixed income securities	57.5		47.5		40% - 60%	68.3		57.9		55% - 65%
Alternative assets	10.0		8.2		5% - 10%	10.5		11.2		5% - 15%
Cash	0.6		1.6		0% - 5%	2.2		2.3		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 values of our pension plan assets are as follows:



December 31, 2018
Asset Categories	Level 1		Level 2		Level 3		Total
	(in millions)
Cash and Cash Equivalents	$	3.5	$	3.2	$	—	$	6.7
Equity
U.S. Large Cap	72.5		3.4		—		75.9
U.S. Small/Mid Cap	17.4		0.1		—		17.5
World Equity	79.5		5.3		—		84.8
Fixed Income Securities
Government & Agencies	86.5		54.3		—		140.8
Corporate Bonds - Investment Grade	177.2		2.7		—		179.9
Corporate Bonds - Non-investment Grade	19.8		1.5		—		21.3
Emerging Market Debt	18.0		0.9		—		18.9
Other	6.9		8.9		—		15.8
Other
Property Funds ^(a)	—		—		—		56.0
Liquid Alternatives Fund ^(a)	—		—		—		2.5
Structured Credit Fund ^(a)	—		—		—		5.7
Multi Strategy Hedge Fund ^(a)	—		—		—		—
Total Plan Assets	$	481.3	$	80.3	$	—	$	625.8

December 31, 2017
Asset Categories	Level 1		Level 2		Level 3		Total
	(in millions)
Cash and Cash Equivalents	$	10.1	$	2.8	$	—	$	12.9
Equity
U.S. Large Cap	92.0		6.3		—		98.3
U.S. Small/Mid Cap	44.0		1.2		—		45.2
World Equity	123.5		6.2		—		129.7
Fixed Income Securities
Government & Agencies	81.3		46.4		—		127.7
Corporate Bonds - Investment Grade	150.5		4.2		—		154.7
Corporate Bonds - Non-investment Grade	24.8		1.8		—		26.6
Emerging Market Debt	25.2		1.2		—		26.4
Other	8.7		8.1		—		16.8
Other
Property Funds ^(a)	—		—		—		52.4
Liquid Alternatives Fund ^(a)	—		—		—		4.6
Structured Credit Fund ^(a)	—		—		—		6.0
Multi Strategy Hedge Fund ^(a)	—		—		—		0.9
Total Plan Assets	$	560.1	$	78.2	$	—	$	702.2

(a) In accordance with ASC 810-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Consolidated Balance Sheets.

DEFINED CONTRIBUTION PLANS Most of our salaried and hourly U.S. associates, including certain UAW represented associates at our legacy U.S. locations, are eligible to participate in voluntary savings plans. Our maximum match is 50% of eligible associates' contribution up to 10% of their eligible salary. Matching contributions amounted to $12.4 million in 2018, $10.0 million in 2017 and $5.6 million in 2016. Certain U.S. 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 $7.3 million, $7.1 million and $7.7 million in 2018, 2017 and 2016, respectively.

DEFERRED COMPENSATION PLAN Certain U.S. associates are eligible to participate in a non-qualified deferred compensation plan. Payments of $0.7 million, $0.6 million and $0.5 million have been made in 2018, 2017 and 2016, respectively, to eligible associates that have elected distributions. At December 31, 2018 and 2017, our deferred compensation liability was $5.8 million and $6.0 million, respectively.