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Benefit Plans and Other Postretirement Benefits | 12 Months Ended
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Dec. 31, 2014
Benefit Plans and Other Postretirement Benefits |
Benefit Plans and Other Postretirement Benefits | Note 7—Benefit Plans and Other Postretirement Benefits The Company and certain of its domestic subsidiaries have defined benefit pension plans (the “U.S. Plans”), which cover certain U.S. employees and which represent the majority of the plan assets and benefit obligations of the aggregate defined benefit plans of the Company. The U.S. Plans’ benefits are generally based on years of service and compensation and are generally noncontributory. Certain U.S. employees not covered by the U.S. Plans are covered by defined contribution plans. Certain foreign subsidiaries have defined benefit plans covering their employees (the “International Plans”). The largest international pension plan, in accordance with local regulations, is unfunded and had a projected benefit obligation of approximately $86.0 and $74.0 at December 31, 2014 and 2013, respectively. Total required contributions to be made during 2015 for the unfunded International Plans amount to approximately $5.0. This amount, which is classified as Other accrued expenses, and the obligations discussed above, are included in the accompanying Consolidated Balance Sheets and in the tables below. The following is a summary of the Company’s defined benefit plans’ funded status as of the most recent actuarial valuations; for each year presented below, projected benefits exceed assets.
|  | December 31, |
|  | 2014 |  | 2013 |
Change in projected benefit obligation: |  |  |  |  |
Projected benefit obligation at beginning of year |  | $ | 560.1 |  | $ | 565.4 |
Service cost |  | 10.8 |  | 10.5 |
Interest cost |  | 24.1 |  | 20.9 |
Acquisitions |  | 7.0 |  | 16.4 |
Plan amendments |  | — |  | 5.6 |
Actuarial (gain) loss |  | 123.1 |  | (33.7 | )
Foreign exchange translation |  | (18.7 | ) | 2.6 |
Benefits paid |  | (29.9 | ) | (27.6 | )
Projected benefit obligation at end of year |  | 676.5 |  | 560.1 |
Change in plan assets: |  |  |  |  |
Fair value of plan assets at beginning of year |  | 392.5 |  | 334.4 |
Actual return on plan assets |  | 26.4 |  | 50.7 |
Employer contributions |  | 23.8 |  | 23.3 |
Acquisitions |  | — |  | 12.3 |
Foreign exchange translation |  | (4.7 | ) | (0.6 | )
Actuarial loss |  | 1.3 |  | — |
Benefits paid |  | (29.9 | ) | (27.6 | )
Fair value of plan assets at end of year |  | 409.4 |  | 392.5 |
Funded status |  | $ | (267.1 | ) | $ | (167.6 | )
The accumulated benefit obligation for the Company’s defined benefit pension plan was $653.7 and $539.4 at December 31, 2014 and 2013, respectively.
|  | Year Ended December 31, |
|  | 2014 |  | 2013 |  | 2012 |
Components of net pension expense: |  |  |  |  |  |  |
Service cost |  | $ | 8.2 |  | $ | 8.5 |  | $ | 7.7 |
Interest cost |  | 24.1 |  | 20.9 |  | 22.0 |
Expected return on plan assets |  | (28.5 | ) | (24.8 | ) | (25.0 | )
Net amortization of actuarial losses |  | 18.6 |  | 25.5 |  | 20.5 |
Net pension expense |  | $ | 22.4 |  | $ | 30.1 |  | $ | 25.2 |
|  | Weighted-average assumptions used to determine benefit obligations at December 31, |
|  | Pension Benefits |  | Other Benefits |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |
Discount rate: |  |  |  |  |  |  |  |  |
U.S. plans |  | 3.75 | % | 4.60 | % | 3.50 | % | 4.15 | %
International plans |  | 2.91 | % | 4.09 | % | n/a |  | n/a |
Rate of compensation increase: |  |  |  |  |  |  |  |  |
U.S. plans |  | 3.00 | % | 3.00 | % | n/a |  | n/a |
International plans |  | 1.45 | % | 2.95 | % | n/a |  | n/a |
|  | Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31, |
|  | Pension Benefits |  | Other Benefits |
|  | 2014 |  | 2013 |  | 2012 |  | 2014 |  | 2013 |  | 2012 |
Discount rate: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. plans |  | 4.60 | % | 3.75 | % | 4.45 | % | 4.15 | % | 3.45 | % | 4.25 | %
International plans |  | 4.09 | % | 3.97 | % | 4.97 | % | n/a |  | n/a |  | n/a |
Expected long-term return on assets: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. plans |  | 8.00 | % | 8.00 | % | 8.00 | % | n/a |  | n/a |  | n/a |
International plans |  | 5.99 | % | 5.50 | % | 5.66 | % | n/a |  | n/a |  | n/a |
Rate of compensation increase: |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. plans |  | 3.00 | % | 3.00 | % | 3.00 | % | n/a |  | n/a |  | n/a |
International plans |  | 1.48 | % | 2.57 | % | 2.83 | % | n/a |  | n/a |  | n/a |
The pension expense for the U.S. Plans and the International Plans (the “Plans”) is calculated based upon a number of actuarial assumptions established on January 1 of the applicable year, including mortality projections as well as a weighted-average discount rate, rate of increase in future compensation levels and an expected long-term rate of return on the respective Plans’ assets which are detailed in the table above. The discount rate used by the Company for valuing pension liabilities is based on a review of high quality corporate bond yields with maturities approximating the remaining life of the projected benefit obligations. The discount rate for the U.S. Plans on this basis was 3.75% at December 31, 2014 and 4.60% at December 31, 2013. The mortality assumptions used by the Company reflect commonly used mortality tables and improvement scales for each plan. In 2014, the Company considered the updated mortality tables and improvement scales recently issued by the Society of Actuaries along with other mortality information available to develop updated mortality assumptions for the U.S. Plans. These updated mortality assumptions reflected increased life expectancies for plan participants. The decrease in the discount rate and the updated mortality assumptions resulted in an increase in the accrued benefit obligation for the U.S. Plans of approximately $80.0 at December 31,2014. The Company’s investment strategy for the Plans’ assets is to achieve a rate of return on plan assets equal to or greater than the average for the respective investment classification through prudent allocation and periodic rebalancing between fixed income and equity instruments. The current investment policy includes a strategy to maintain an adequate level of diversification, subject to portfolio risks. The target allocations for the U.S. Plans, which represent the majority of the Plans’ assets, are generally 60% equity and 40% fixed income. Short-term strategic ranges for investments are established within these long term target percentages. The Company invests in a diversified investment portfolio through various investment managers and evaluates its plan assets for the existence of concentration risks. As of December 31, 2014, there were no significant concentrations of risks in the Company’s defined benefit plan assets. The Company does not invest pension assets and does not instruct investment managers to invest pension assets in Amphenol securities. The Plans may indirectly hold the Company’s securities as a result of external investment management in certain commingled funds. Such holdings would not be material relative to the Plans’ total assets. In developing the expected long-term rate of return assumption for the U.S. Plans, the Company evaluated input from its external actuaries and investment consultants as well as long-term inflation assumptions. Projected returns by such consultants are based on broad equity and bond indices. The Company also considered its historical twenty-year compounded return of approximately 9%, which has been in excess of these broad equity and bond benchmark indices. As described above, the expected long-term rate of return on the U.S. Plans’ assets is based on an asset allocation assumption of 60% with equity managers (with an expected long-term rate of return of approximately 9%) and 40% with fixed income managers (with an expected long-term rate of return of approximately 7%). The Company believes that the long-term asset allocation on average will approximate 60% with equity managers and 40% with fixed income managers. The Company regularly reviews the actual asset allocation and periodically rebalances investments to its targeted allocation when considered appropriate. Based on this methodology, the Company’s expected long-term rate of return assumption to determine the benefit obligation of the U.S. Plans at December 31, 2014 and 2013 is 8.00%. The Company’s Plan assets are reported at fair value and classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The process requires judgment and may have an effect on the placement of the Plan assets within the fair value measurement hierarchy. The fair values of the Company’s pension Plans’ assets at December 31, 2014 and 2013 by asset category are as follows (refer to Note 3 for definitions of Level 1, 2 and 3 inputs):
|  | Fair Value Measurements at December 31, 2014 |
Asset Category |  | Total |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |
Equity securities: |  |  |  |  |  |  |  |  |
U.S. equities — large cap |  | $ | 106.6 |  | $ | 80.9 |  | $ | 25.7 |  | $ | — |
U.S. equities — small/mid cap and other |  | 23.0 |  | — |  | 23.0 |  | — |
International equities — growth |  | 46.9 |  | 46.9 |  | — |  | — |
International equities — other |  | 50.7 |  | — |  | 50.7 |  | — |
|  | 227.2 |  | 127.8 |  | 99.4 |  |  |
Alternative investment funds |  | 40.1 |  | — |  | 40.1 |  | — |
Fixed income securities: |  |  |  |  |  |  |  |  |
U.S. fixed income securities — intermediate term |  | 59.1 |  | 59.1 |  | — |  | — |
U.S. fixed income securities — high yield |  | 20.2 |  | — |  | 20.2 |  | — |
International fixed income securities — other |  | 40.6 |  | — |  | 40.6 |  | — |
|  | 119.9 |  | 59.1 |  | 60.8 |  | — |
Cash and cash equivalents |  | 22.2 |  | 22.2 |  | — |  | — |
Total |  | $ | 409.4 |  | $ | 209.1 |  | $ | 200.3 |  | $ |  |
|  | Fair Value Measurements at December 31, 2013 |
Asset Category |  | Total |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |
Equity securities: |  |  |  |  |  |  |  |  |
U.S. equities — large cap |  | $ | 122.2 |  | $ | 93.1 |  | $ | 29.1 |  | $ | — |
U.S. equities — small/mid cap and other |  | 24.7 |  | 1.6 |  | 23.1 |  | — |
International equities — growth |  | 51.8 |  | 51.8 |  | — |  | — |
International equities — other |  | 56.3 |  | 8.1 |  | 48.2 |  | — |
|  | 255.0 |  | 154.6 |  | 100.4 |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |
U.S. fixed income securities — intermediate term |  | 62.2 |  | 62.2 |  | — |  | — |
U.S. fixed income securities — high yield |  | 24.4 |  | 0.3 |  | 24.1 |  | — |
International fixed income securities — other |  | 39.7 |  |  |  | 39.7 |  | — |
|  | 126.3 |  | 62.5 |  | 63.8 |  | — |
Cash and cash equivalents |  | 11.2 |  | 11.2 |  | — |  | — |
Total |  | $ | 392.5 |  | $ | 228.3 |  | $ | 164.2 |  | $ |  |
Equity securities consist primarily of publicly traded U.S. and non-U.S. equities. Publicly traded securities are valued at the last trade or closing price reported in the active market in which the individual securities are traded. Certain Level 2 equity securities held in commingled funds are valued at unitized net asset value (“NAV”) based on the fair value of the underlying net assets owned by the funds. Alternative investment funds include investments in hedge funds including fund of fund products. Fixed income securities consist primarily of government securities and corporate bonds. They are valued at the closing price in the active market or at quotes obtained from brokers/dealers or pricing services. Certain Level 2 fixed income securities held within commingled funds are valued at NAV as determined by the custodian of the funds based on the fair value of the underlying net assets of the funds. The Company also has an unfunded Supplemental Employee Retirement Plan (“SERP”), which provides for the payment of the portion of annual pension which cannot be paid from the retirement plan as a result of regulatory limitations on average compensation for purposes of the benefit computation. The obligation related to the SERP is included in the accompanying Consolidated Balance Sheets and in the tables above. As of December 31, 2014, the amounts before tax for unrecognized net loss, net prior service cost and net transition asset in Accumulated other comprehensive loss related to the Plans above are $274.7, $10.9, and $0.2, respectively. As of December 31, 2013, the amounts before tax for unrecognized net loss, net prior service cost and net transition asset in Accumulated other comprehensive loss related to the Plans above are $173.9, $13.6 and $0.3, respectively. The estimated net loss, prior service cost and net transition asset for the Plans above that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are expected to be $26.2, $2.3 and $0.1, respectively. The Company made cash contributions to the Plans of $23.8, $23.3, and $21.8 in 2014, 2013, and 2012, respectively, and estimates that, based on current actuarial calculations, it will make cash contributions to the Plans in 2015 of approximately $22.0 most of which is to the U.S. Plans. Cash contributions in subsequent years will depend on a number of factors, including the investment performance of the Plan assets. Benefit payments related to the Plans above, including those amounts to be paid out of Company assets and reflecting future expected service as appropriate, are expected to be as follows:
2015 |  | $ | 27.0 |
2016 |  | 28.0 |
2017 |  | 29.2 |
2018 |  | 30.3 |
2019 |  | 31.5 |
2020-2024 |  | 175.5 |
The Company offers various defined contribution plans for U.S. and foreign employees. Participation in these plans is based on certain eligibility requirements. The Company matches the majority of employee contributions to the U.S. defined contribution plans with cash contributions up to a maximum of 5% of eligible compensation. The Company provided matching contributions of approximately $3.8, $3.0 and $2.7 in 2014, 2013 and 2012, respectively. The Company maintains self-insurance programs for that portion of its health care and workers compensation costs not covered by insurance. The Company also provides certain health care and life insurance benefits to certain eligible retirees through post-retirement benefit (“OPEB”) programs. The Company’s share of the cost of such plans for most participants is fixed, and any increase in the cost of such plans will be the responsibility of the retirees. The Company funds the benefit costs for such plans on a pay-as-you-go basis. Since the Company’s obligation for postretirement medical plans is fixed and since the benefit obligation and the net postretirement benefit expense are not material in relation to the Company’s financial condition or results of operations, the Company believes any change in medical costs from that estimated will not have a significant impact on the Company. The discount rate used in determining the benefit obligation was 3.50% and 4.15% at December 31, 2014 and 2013, respectively. Summary information on the Company’s OPEB programs is as follows:
|  | December 31, |
|  | 2014 |  | 2013 |
Change in benefit obligation: |  |  |  |  |
Benefit obligation at beginning of year |  | $ | 11.9 |  | $ | 15.7 |
Service cost |  | 0.1 |  | 0.2 |
Interest cost |  | 0.5 |  | 0.5 |
Paid benefits and expenses |  | (0.9 | ) | (1.1 | )
Actuarial gain (loss) |  | 0.6 |  | (3.4 | )
Benefit obligation at end of year |  | $ | 12.2 |  | $ | 11.9 |
The accumulated benefit obligation for the Company’s OPEB plan was equal to its projected benefit obligation at December 31, 2014 and 2013.
|  | Year ended December 31, |
|  | 2014 |  | 2013 |  | 2012 |
Components of net post-retirement benefit cost: |  |  |  |  |  |  |
Service cost |  | $ | 0.1 |  | $ | 0.2 |  | $ | 0.2 |
Interest cost |  | 0.5 |  | 0.5 |  | 0.7 |
Net amortization of actuarial losses |  | 0.4 |  | 0.8 |  | 1.0 |
Net post-retirement benefit cost |  | $ | 1.0 |  | $ | 1.5 |  | $ | 1.9 |
As of December 31, 2014, the amounts for unrecognized net loss, net prior service cost and net transition obligation in Accumulated other comprehensive loss related to OPEB programs are $4.1, nil and nil, respectively. The estimated net loss, prior service cost and net transition obligation for the OPEB programs that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are expected to be $0.4, nil and nil, respectively. Benefit payments for the OPEB plan, including those amounts to be paid out of Company assets and reflecting future expected service as appropriate are expected to be between $0.9 and $1.1 per year for the next ten years.

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