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Pension, Health Care and Postretirement Benefits Other Than Pensions
 12 Months Ended
Dec. 31, 2019
Retirement Benefits [Abstract]  
PENSION, HEALTH CARE AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS PENSION, HEALTH CARE AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides pension benefits to substantially all full-time employees through primarily noncontributory defined contribution or defined benefit plans and certain health care and life insurance benefits to domestic active employees and eligible retirees. In accordance with the Retirement Benefits Topic of the ASC, the Company recognizes an asset for overfunded defined benefit pension or other postretirement benefit plans and a liability for unfunded or underfunded plans. In addition, actuarial gains and losses and prior service costs of such plans are recorded in AOCI. The amounts recorded in AOCI will continue to be modified as actuarial assumptions and service costs change, and all such amounts will be amortized to expense over a period of years through the net pension cost (credit) and net periodic benefit cost.
Health Care Plans
The Company provides certain domestic health care plans that are contributory and contain cost-sharing features such as deductibles and coinsurance. There were 27,030, 26,323 and 26,565 active employees entitled to receive benefits under these plans at December 31, 2019, 2018 and 2017, respectively. The cost of these benefits for active employees, which includes claims incurred and claims incurred but not reported, amounted to $301.6 million, $298.8 million and $281.2 million for 2019, 2018 and 2017, respectively.
Defined Contribution Pension Plans
The Company’s annual contribution for its domestic defined contribution pension plan was $72.7 million, $65.2 million and $38.4 million for 2019, 2018 and 2017, respectively. The contribution percentage ranges from two percent to seven percent of compensation for covered employees based on an age and service formula. Assets in employee accounts of the domestic defined contribution pension plan are invested in various investment funds as directed by the participants. These investment funds did not own a significant number of shares of the Company’s common stock for any year presented.
The Company’s annual contributions for its foreign defined contribution pension plans, which are based on various percentages of compensation for covered employees up to certain limits, were $24.5 million, $19.5 million and $10.5 million for 2019, 2018 and 2017, respectively. Assets in employee accounts of the foreign defined contribution pension plans are invested in various investment funds. These investment funds did not own a significant number of shares of the Company’s common stock for any year presented.
Defined Benefit Pension Plans
Prior to December 31, 2017, the Company had one salaried and one hourly domestic defined benefit pension plan. In connection with the acquisition of Valspar (see Note 3), the Company acquired Valspar's domestic defined benefit pension plan. Effective December 31, 2017, the three domestic defined benefit pension plans were merged into one plan. In 2018, this plan was split into two separate overfunded plans: one that will continue to operate, and one that was frozen and subsequently terminated during 2018 (Terminated Plan). Active participants in the Terminated Plan were moved to the Company's domestic defined contribution plan (Qualified Replacement Plan). The Company settled the liabilities of the Terminated Plan through a combination of (i) lump sum payments to eligible participants who elected to receive them and (ii) the purchase of annuity contracts for participants who either did not elect lump sums or were already receiving benefit payments. The lump sum payments were paid in December 2018 and resulted in a settlement charge of $37.6 million in 2018. During the first quarter of 2019, the Company purchased annuity contracts to settle the remaining liabilities of the Terminated Plan. The annuity contract purchase resulted in a settlement charge of $32.4 million in the first quarter of 2019. The remaining surplus of the Terminated Plan is being used, as prescribed in the applicable regulations, to fund Company contributions to the Qualified Replacement Plan. During 2019, the Company transferred the remaining surplus of $242.2 million to a suspense account held within a trust for the Qualified Replacement Plan. This amount included $131.8 million of Company common stock (300,000 shares). The shares are treated as treasury stock in accordance with ASC 715.
At December 31, 2019, the domestic defined benefit pension plan was overfunded, with a projected benefit obligation of $103.0 million, fair value of plan assets of $125.9 million and excess plan assets of $22.9 million. The plan was funded in accordance with all applicable regulations at December 31, 2019. At December 31, 2018, the domestic defined benefit pension plans were overfunded, with a projected benefit obligation of $524.7 million, fair value of plan assets of $777.0 million and excess plan assets of $252.3 million. At December 31, 2017, the domestic defined benefit pension plan was overfunded, with a projected benefit obligation of $916.2 million, fair value of plan assets of $1.189 billion and excess plan assets of $272.4 million.
The Company has thirty-one foreign defined benefit pension plans, twelve of which were acquired through the acquisition of Valspar. At December 31, 2019, twenty-six of the Company’s foreign defined benefit pension plans were unfunded or underfunded, with combined accumulated benefit obligations, projected benefit obligations, fair values of net assets and deficiencies of plan assets of $208.3 million, $236.6 million, $143.8 million and $92.8 million, respectively.
The Company expects to make the following benefit payments for all domestic and foreign defined benefit pension plans: $13.5 million in 2020; $13.1 million in 2021; $14.0 million in 2022; $15.3 million in 2023; $16.5 million in 2024; and $88.9 million in 2025 through 2029. The Company expects to contribute $4.6 million to the foreign plans in 2020.
The estimated net actuarial losses and prior service costs for the defined benefit pension plans that are expected to be amortized from AOCI into the net pension costs in 2020 are $1.0 million and $1.4 million, respectively.
The following table summarizes the components of the net pension costs and AOCI related to the defined benefit pension plans:
 
Domestic
Defined Benefit Pension Plans
 
Foreign
Defined Benefit Pension Plans
 
2019
 
2018
 
2017
 
2019
 
2018
 
2017
Net pension cost (credit):
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
3.5

 
$
7.3

 
$
21.7

 
$
5.9

 
$
8.2

 
$
7.0

Interest cost
4.8

 
32.2

 
31.1

 
9.4

 
9.5

 
8.2

Expected return on plan assets
(5.3
)
 
(53.0
)
 
(48.3
)
 
(10.3
)
 
(10.8
)
 
(9.0
)
Amortization of prior service cost
1.4

 
3.5

 
1.4

 
 
 
 
 
 
Amortization of actuarial losses


 


 
6.2

 
1.0

 
1.5

 
1.8

Ongoing pension cost (credit)
4.4

 
(10.0
)
 
12.1

 
6.0

 
8.4

 
8.0

Settlement cost (credit)
32.4

 
37.6

 
(2.0
)
 
0.3

 
(0.4
)
 
0.1

Curtailment cost

 
0.8

 
 
 
 
 
 
 
 
Net pension cost
36.8

 
28.4

 
10.1

 
6.3

 
8.0

 
8.1

Other changes in plan assets and projected benefit
obligation recognized in AOCI (before taxes):
 
 
 
 
 
 
 
 
 
 
 
Net actuarial (gains) losses arising during the year
(22.0
)
 
29.9

 
(65.8
)
 
13.2

 
(5.1
)
 
(14.0
)
Prior service cost arising during the year
3.1

 
4.6

 
0.8

 
 
 
 
 
 
Amortization of actuarial losses


 


 
(6.2
)
 
(1.0
)
 
(1.5
)
 
(1.8
)
Amortization of prior service cost
(1.4
)
 
(3.5
)
 
(1.4
)
 
 
 
 
 
 
(Loss) gain recognized for settlement
(32.4
)
 
(37.6
)
 
2.0

 
(0.3
)
 
0.4

 
(0.1
)
Prior service cost recognized for curtailment


 
(0.8
)
 
 
 
 
 
 
 
 
Loss arising from curtailment

 
(0.8
)
 
 
 
(0.7
)
 


 


Exchange rate gain (loss) recognized during the year
 
 
 
 
 
 
1.0

 
(2.0
)
 
4.2

Total recognized in AOCI
(52.7
)
 
(8.2
)
 
(70.6
)
 
12.2

 
(8.2
)
 
(11.7
)
Total recognized in net pension cost and AOCI
$
(15.9
)
 
$
20.2

 
$
(60.5
)
 
$
18.5

 
$
(0.2
)
 
$
(3.6
)
 
 
 
 
 
 
 
 
 
 
 
 

Service cost is recorded in Cost of goods sold and Selling, general and administrative expense. All other components of Net pension costs are recorded in Other expense (income) - net.
The Company employs a total return investment approach for the domestic and foreign defined benefit pension plan assets. A mix of equities and fixed income investments are used to maximize the long-term return of assets for a prudent level of risk. In determining the expected long-term rate of return on defined benefit pension plan assets, management considers the historical rates of return, the nature of investments and an expectation of future investment strategies. The target allocations for plan assets are 35% – 65% equity securities and 35% – 55% fixed income securities.
The following tables summarize the fair value of the defined benefit pension plan assets at December 31, 2019, 2018 and 2017. The presentation is in accordance with the Retirement Benefits Topic of the ASC.
 
Fair value at December 31, 2019
 
Quoted Prices 
in Active Markets for Identical
Assets
(Level 1)
 
Significant 
Other
Observable 
Inputs
(Level 2)
 
Significant
Unobservable 
Inputs
(Level 3)
Investments at fair value:
 
 
 
 
 
 
 
Equity investments (1)
$
115.7

 
$
7.9

 
$
107.8

 
 
Fixed income investments (2)
173.4

 
29.7

 
143.7

 
 
Other assets (3)
36.6

 
 
 
36.6

 

Total investments in fair value hierarchy
325.7

 
$
37.6

 
$
288.1

 
 
Investments measured at NAV or its equivalent (4)
88.3

 
 
 
 
 
 
Total investments
$
414.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value at December 31, 2018
 
Quoted Prices in Active Markets for Identical
Assets
(Level 1)
 
Significant 
Other
Observable 
Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
Investments at fair value:
 
 
 
 
 
 
 
Equity investments (1)
$
215.8

 
$
124.0

 
$
91.8

 
 
Fixed income investments (2)
609.9

 
462.8

 
147.1

 
 
Other assets (3)
38.4

 
 
 
38.4

 
 
Total investments in fair value hierarchy
864.1

 
$
586.8

 
$
277.3

 
 
Investments measured at NAV or its equivalent (4)
166.4

 
 
 
 
 
 
Total investments
$
1,030.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value at December 31, 2017
 
Quoted Prices in Active Markets for Identical
Assets
(Level 1)
 
Significant 
Other
Observable 
Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
Investments at fair value:
 
 
 
 
 
 
 
Equity investments (1)
$
515.0

 
$
409.9

 
$
105.1

 
 
Fixed income investments (2)
380.9

 
146.8

 
234.1

 
 
Other assets (3)
39.2

 
 
 
39.2

 
 
Total investments in fair value hierarchy
935.1

 
$
556.7

 
$
378.4

 
 
Investments measured at NAV or its equivalent (4)
533.5

 
 
 
 
 
 
Total investments
$
1,468.6

 
 
 
 
 
 
(1) 
This category includes actively managed equity assets that track primarily to the S&P 500.
(2) 
This category includes government and corporate bonds that track primarily to the Barclays Capital Aggregate Bond Index.
(3) 
This category includes real estate and pooled investment funds.
(4)  
This category includes pooled investment funds and private equity funds that are measured at NAV or its equivalent using the practical expedient. Therefore, these investments are not classified in the fair value hierarchy.
As of December 31, 2018 and December 31, 2017 there were 300,000 shares of the Company's common stock with a market value of $118.0 million and $123.0 million, respectively, included as equity investments in the domestic defined benefit pension plan assets. There were no shares of the Company’s common stock included as equity investments in the domestic defined benefit pension plan assets at December 31, 2019 due to the wind-up of the Terminated Plan.


The following table summarizes the obligations, plan assets and assumptions used for the defined benefit pension plans, which are all measured as of December 31:
 
Domestic
Defined Benefit Pension Plans
 
Foreign
Defined Benefit Pension Plans
 
2019
 
2018
 
2017
 
2019
 
2018
 
2017
Accumulated benefit obligations
at end of year
$
97.2

 
$
521.0

 
$
913.4

 
$
331.7

 
$
280.0

 
$
308.2

Projected benefit obligations:
 
 
 
 
 
 
 
 
 
 
 
Balances at beginning of year
$
524.7

 
$
916.2

 
$
632.8

 
$
315.8

 
$
349.6

 
$
206.9

Service cost
3.5

 
7.3

 
21.7

 
5.9

 
8.2

 
7.0

Interest cost
4.8

 
32.2

 
31.1

 
9.4

 
9.5

 
8.2

Actuarial losses (gains)
4.4

 
(13.6
)
 
68.0

 
36.2

 
(21.0
)
 
(4.0
)
Acquisition


 

 
246.9

 


 

 
115.1

Contributions and other
3.1

 
3.8

 
0.8

 
0.7

 
1.6

 
1.4

Settlements
(429.3
)
 
(379.1
)
 
(43.4
)
 
(6.6
)
 
(6.3
)
 
(0.8
)
Effect of foreign exchange
 
 
 
 
 
 
7.8

 
(16.3
)
 
22.9

Benefits paid
(8.2
)
 
(42.1
)
 
(41.7
)
 
(8.5
)
 
(9.5
)
 
(7.1
)
Balances at end of year
103.0

 
524.7

 
916.2

 
360.7

 
315.8

 
349.6

Plan assets:
 
 
 
 
 
 
 
 
 
 
 
Balances at beginning of year
777.0

 
1,188.6

 
847.0

 
253.5

 
280.0

 
165.0

Actual returns on plan assets
31.7

 
9.6

 
182.0

 
33.3

 
(4.9
)
 
16.3

Acquisition


 

 
244.7

 


 


 
82.3

Contributions and other
 
 
 
 

 
7.7

 
8.3

 
6.1

Settlements
(429.3
)
 
(379.1
)
 
(43.4
)
 
(6.6
)
 
(6.3
)
 
(0.8
)
Transfer related to plan termination
(245.3
)
 

 

 
 
 
 
 
 
Effect of foreign exchange
 
 
 
 
 
 
8.7

 
(14.1
)
 
18.2

Benefits paid
(8.2
)
 
(42.1
)
 
(41.7
)
 
(8.5
)
 
(9.5
)
 
(7.1
)
Balances at end of year
125.9

 
777.0

 
1,188.6

 
288.1

 
253.5

 
280.0

Excess (deficient) plan assets over
projected benefit obligations
$
22.9

 
$
252.3

 
$
272.4

 
$
(72.6
)
 
$
(62.3
)
 
$
(69.6
)
Assets and liabilities recognized in the
Consolidated Balance Sheets:
 
 
 
 
 
 
 
 
 
 
 
Deferred pension assets
$
22.9

 
$
252.3

 
$
272.4

 
$
20.1

 
$
18.4

 
$
24.3

Other accruals
 
 
 
 
 
 
(2.3
)
 
(2.7
)
 
(2.5
)
Other long-term liabilities
 
 

 


 
(90.4
)
 
(78.0
)
 
(91.4
)
 
$
22.9

 
$
252.3

 
$
272.4

 
$
(72.6
)
 
$
(62.3
)
 
$
(69.6
)
Amounts recognized in AOCI:
 
 
 
 
 
 
 
 
 
 
 
Net actuarial losses
$
(2.0
)
 
$
(56.4
)
 
$
(64.8
)
 
$
(37.9
)
 
$
(25.7
)
 
$
(33.9
)
Prior service costs
(7.4
)
 
(5.7
)
 
(5.5
)
 
 
 
 
 
 
 
$
(9.4
)
 
$
(62.1
)
 
$
(70.3
)
 
$
(37.9
)
 
$
(25.7
)
 
$
(33.9
)
Weighted-average assumptions used to
determine projected benefit obligations:
 
 
 
 
 
 
 
 
 
 
 
Discount rate
3.44
%
 
3.60
%
 
3.60
%
 
2.17
%
 
3.04
%
 
2.73
%
Rate of compensation increase
3.00
%
 
3.17
%
 
3.33
%
 
3.08
%
 
3.65
%
 
3.69
%
Weighted-average assumptions used to
determine net pension costs:
 
 
 
 
 
 
 
 
 
 
 
Discount rate
3.60
%
 
3.60
%
 
4.15
%
 
3.04
%
 
2.73
%
 
3.88
%
Expected long-term rate of
return on assets
5.00
%
 
5.00
%
 
5.00
%
 
4.09
%
 
3.84
%
 
4.75
%
Rate of compensation increase
3.17
%
 
3.33
%
 
3.30
%
 
3.65
%
 
3.69
%
 
4.33
%

Postretirement Benefits Other Than Pensions
Employees of the Company hired in the United States prior to January 1, 1993 who are not members of a collective bargaining unit, and certain groups of employees added through acquisitions, are eligible for health care and life insurance benefits upon retirement, subject to the terms of the unfunded plans. There were 3,481, 3,498 and 3,486 retired employees entitled to receive such postretirement benefits at December 31, 2019, 2018 and 2017, respectively.

The following table summarizes the obligation and the assumptions used for postretirement benefits other than pensions:
 
Postretirement Benefits Other than Pensions
 
2019
 
2018
 
2017
Benefit obligation:
 
 
 
 
 
Balance at beginning of year - unfunded
$
274.6

 
$
290.8

 
$
265.1

Service cost
1.5

 
2.0

 
2.1

Interest cost
11.2

 
10.2

 
10.8

Acquisition


 


 
17.0

Actuarial loss (gain)
12.8

 
(9.1
)
 
11.6

Plan amendments


 
(0.1
)
 


Benefits paid
(19.6
)
 
(19.2
)
 
(15.8
)
Balance at end of year - unfunded
$
280.5

 
$
274.6

 
$
290.8

Liabilities recognized in the Consolidated Balance Sheets:
 
 
 
 
 
Postretirement benefits other than pensions
$
(263.0
)
 
$
(257.6
)
 
$
(274.7
)
Other accruals
(17.5
)
 
(17.0
)
 
(16.1
)
 
$
(280.5
)
 
$
(274.6
)
 
$
(290.8
)
Amounts recognized in AOCI:
 
 
 
 
 
Net actuarial losses
$
(45.1
)
 
$
(32.8
)
 
$
(44.1
)
Prior service credits
1.1

 
6.1

 
12.6

 
$
(44.0
)
 
$
(26.7
)
 
$
(31.5
)
Weighted-average assumptions used to determine benefit obligation:
 
 
 
 
 
Discount rate
3.22
%
 
4.21
%
 
3.61
%
Health care cost trend rate - pre-65
6.38
%
 
6.69
%
 
7.00
%
Health care cost trend rate - post-65
5.25
%
 
4.94
%
 
5.00
%
Prescription drug cost increases
9.00
%
 
9.75
%
 
11.00
%
Employer Group Waiver Plan (EGWP) trend rate
9.00
%
 
9.75
%
 
11.00
%
Weighted-average assumptions used to determine net periodic benefit cost:
 
 
 
 
 
Discount rate
4.21
%
 
3.61
%
 
4.10
%
Health care cost trend rate - pre-65
6.69
%
 
7.00
%
 
6.00
%
Health care cost trend rate - post-65
4.94
%
 
5.00
%
 
5.50
%
Prescription drug cost increases
9.75
%
 
11.00
%
 
10.50
%



The following table summarizes the components of the net periodic benefit cost and AOCI related to postretirement benefits other than pensions:
 
Postretirement Benefits Other than Pensions
 
2019
 
2018
 
2017
Net periodic benefit cost (credit):
 
 
 
 
 
Service cost
$
1.5

 
$
2.0

 
$
2.1

Interest cost
11.2

 
10.2

 
10.8

Amortization of actuarial losses
0.5

 
2.3

 


Amortization of prior service credit
(5.0
)
 
(6.6
)
 
(6.6
)
Net periodic benefit cost
8.2

 
7.9

 
6.3

  Settlement credit


 

 
(9.3
)
  Net periodic benefit cost (credit)
8.2

 
7.9

 
(3.0
)
 
 
 
 
 
 
Other changes in projected benefit obligation recognized in
AOCI (before taxes):
 
 
 
 
 
Net actuarial loss (gain) arising during the year
12.8

 
(9.0
)
 
11.6

Prior service credit arising during the year


 
(0.1
)
 


Amortization of actuarial losses
(0.5
)
 
(2.3
)
 


Settlement cost


 


 
9.3

Amortization of prior service credit
5.0

 
6.6

 
6.6

Total recognized in AOCI
17.3

 
(4.8
)
 
27.5

Total recognized in net periodic benefit cost and AOCI
$
25.5

 
$
3.1

 
$
24.5



The estimated net actuarial losses and prior service (credits) for postretirement benefits other than pensions that are expected to be amortized from AOCI into net periodic benefit cost in 2020 are $2.0 million and $(1.1) million, respectively.
The assumed health care cost trend rate and prescription drug cost increases used to determine the net periodic benefit cost for postretirement health care benefits for 2020 both decrease in each successive year until reaching 4.5% in 2026.

The Company expects to make retiree health care benefit cash payments as follows:
 
Expected Cash
Payments
2020
$
17.5

2021
16.8

2022
17.2

2023
17.2

2024
18.7

2025 through 2029
88.3

Total expected benefit cash payments
$
175.7