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Employee Benefit Plans | 12 Months Ended
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Dec. 31, 2015
Employee Benefit Plans |
Employee Benefit Plans | (14) Employee Benefit Plans For the majority of its U.S. employees, the Company sponsored a funded non-contributory defined benefit pension plan, the Watts Water Technologies, Inc. Pension Plan (the "Pension Plan"), and an unfunded non-contributory defined benefit pension plan, the Watts Water Technologies, Inc. Supplemental Employees Retirement Plan (the "SERP"). Benefits were based primarily on years of service and employees' compensation. The funding policy of the Company for these plans was to contribute an annual amount that met the Pension Plan's minimum funding requirements and did not exceed the maximum amount that can be deducted for federal income tax purposes. On October 31, 2011, the Company's Board of Directors voted to cease accruals effective December 31, 2011 under both the Company's Pension Plan and the SERP. On April 28, 2014, the Company's Board of Directors voted to terminate the Company's Pension Plan and the SERP. The Board of Directors authorized the Company to make such contributions to the Pension Plan and SERP as may be necessary to make the plans sufficient to settle all plan liabilities. The Pension Plan was terminated effective July 31, 2014, and on June 4, 2015 the Company received the Internal Revenue Service's favorable determination letter for terminating the Pension Plan. The SERP was terminated effective May 15, 2014. In September 2015, the Company settled its Pension Plan and SERP benefit obligations, which included the following actions:
| • | The Company settled all liabilities under the SERP in accordance with Section 409A of the Internal Revenue Code by paying lump sums to all plan participants.
| • | The Company transferred the Pension Plan assets and benefit obligations to an annuity provider and distributed lump sum payments to participants based on their elections.
| • | The Company made cash contributions of $43.2 million to fully fund the above settlement actions.
The cumulative actuarial losses of $59.7 million that were previously recorded in accumulated other comprehensive income were recognized in selling, general and administrative expenses for the quarter ended September 27, 2015. The associated deferred tax asset of $23.0 million that was previously recorded in accumulated other comprehensive income and netted within long-term deferred tax liabilities was reversed in the quarter ended September 27, 2015. The funded status of the defined benefit plans and amounts recognized in the consolidated balance sheets are as follows:
|  | December 31, |
|  | 2015 |  | 2014 |
|  | (in millions) |
Change in projected benefit obligation |  |  |  |  |  |  |
Balance at beginning of the year |  | $ | 158.9 |  | $ | 126.3 |
Service cost |  |  | 1.3 |  |  | 0.7 |
Administration costs paid |  |  | (1.8 | ) |  | (1.5 | )
Interest cost |  |  | 4.0 |  |  | 5.9 |
Actuarial (gain) loss |  |  | (5.0 | ) |  | 32.6 |
Benefits paid |  |  | (3.8 | ) |  | (5.1 | )
Settlement |  |  | (153.6 | ) |  | — |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Balance at end of year |  |  | — |  | $ | 158.9 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Change in fair value of plan assets |  |  |  |  |  |  |
Balance at beginning of the year |  | $ | 118.9 |  | $ | 103.7 |
Actual (loss) gain on assets |  |  | (3.5 | ) |  | 21.1 |
Employer contributions |  |  | 43.8 |  |  | 0.7 |
Administration costs paid |  |  | (1.8 | ) |  | (1.5 | )
Benefits paid |  |  | (3.8 | ) |  | (5.1 | )
Settlement |  |  | (153.6 | ) |  | — |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Fair value of plan assets at end of the year |  |  | — |  | $ | 118.9 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Funded status at end of year |  |  | — |  | $ | (40.0 | )
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
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The $40.0 million unfunded balance as of December 31, 2014 was recorded in current liabilities on the consolidated balance sheets. Amounts recognized in accumulated other comprehensive income consist of:
|  | December 31, |
|  | 2015 |  | 2014 |
|  | (in millions) |
Net actuarial loss recognized |  | $ | (58.9 | ) | $ | 58.9 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
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Information for pension plans with an accumulated benefit obligation in excess of plan assets are as follows:
|  | December 31, |
|  | 2015 |  | 2014 |
|  | (in millions) |
Projected benefit obligation |  |  | — |  | $ | 158.9 |
Accumulated benefit obligation |  |  | — |  | $ | 158.9 |
Fair value of plan assets |  |  | — |  | $ | 118.9 |
The components of net periodic benefit cost are as follows:
|  | Years Ended December 31, |
|  | 2015 |  | 2014 |  | 2013 |
|  | (in millions) |
Service cost—benefits earned |  | $ | 1.3 |  | $ | 0.7 |  | $ | 0.5 |
Interest costs on benefits obligation |  |  | 4.0 |  |  | 5.9 |  |  | 5.4 |
Expected return on assets |  |  | (3.4 | ) |  | (6.3 | ) |  | (6.8 | )
Net actuarial loss amortization |  |  | 1.1 |  |  | 1.2 |  |  | 1.0 |
Settlement charge |  |  | 59.7 |  |  | 1.2 |  |  | 1.0 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net periodic benefit cost |  | $ | 62.7 |  | $ | 1.5 |  | $ | 0.1 |
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Assumptions: Weighted-average assumptions used to determine benefit obligations:
|  | December 31, |
|  | 2015 |  | 2014 |
Discount rate |  |  | N/A |  |  | 3.5 | %
Weighted-average assumptions used to determine net periodic benefit costs prior to the settlement in 2015 and as of the balance sheet dates for 2014 and 2013:
|  | Years Ended December 31, |
|  | 2015 |  | 2014 |  | 2013 |
Discount rate |  |  | N/A |  |  | 4.9 | % |  | 4.0 | %
Long-term rate of return on assets |  |  | 4.0 | % |  | 6.0 | % |  | 6.0 | %
Discount rates are selected based upon rates of return at the measurement date utilizing a bond matching approach to match the expected benefit cash flows. In selecting the expected long-term rate of return on assets, the Company considers the average rate of earnings expected on the funds invested or to be invested to provide for the benefits of this plan. This includes considering the trust's asset allocation and the expected returns likely to be earned over the life of the plan. The long-term rate of return on assets was decreased from 6.0% to 4.0% for 2015 to reflect changes made in the asset allocation in anticipation of plan termination. Plan assets The Company's written Retirement Plan Investment Policy set forth the investment policy, objectives and constraints of the Watts Water Technologies, Inc. Pension Plan. This Retirement Plan Investment Policy, set forth by the Pension Plan Committee, defined general investment principles and directed investment management policy, addressing preservation of capital, risk aversion and adherence to investment discipline. Investment managers were to make a reasonable effort to control risk and were evaluated twice a year against commonly accepted benchmarks to ensure that the risk assumed was commensurate with the given investment style and objectives. The portfolio was designed to achieve a balanced return of current income and modest growth of capital, while achieving returns in excess of the rate of inflation over the investment horizon in order to preserve purchasing power of Plan assets. All Plan assets were required to be invested in liquid securities. Derivative investments were not allowed. Prohibited investments included, but were not limited to the following: futures contracts, private placements, options, limited partnerships, venture-capital investments, interest-only (IO), principal-only (PO), and residual tranche collateralized mortgage obligation (CMOs), and Watts Water Technologies, Inc. stock. Prohibited transactions included, but were not limited to the following: short selling and margin transactions. Allowable assets included: cash equivalents, fixed income securities, equity securities, mutual funds, and guaranteed investment contracts. Specific guidelines regarding allocation of assets were followed using a liability driven investment (LDI) strategy. Under an LDI strategy, investments were made based on the expected cash flows required to fund the pension plan's liabilities. This cash flow matching technique required a plan's asset allocation to be heavily weighted toward fixed income securities. The Company's allocation target at the end of 2014 was 95% fixed income and 5% equities and other investments in anticipation of the expected termination of the plan in 2015. Investment performance was monitored on a regular basis and investments were re-allocated to stay within specific guidelines. The securities of any one company or government agency should not have exceeded 10% of the total fund, and no more than 20% of the total fund should have been invested in any one industry. Individual treasury securities may have represented 50% of the total fund, while the total allocation to treasury bonds and notes may have represented up to 100% of the Plan's aggregate bond position. There were no plan assets outstanding as of December 31, 2015. The weighted average asset allocations by asset category as of December 31, 2014 were as follows:
Asset Category |  |  |
Equity securities |  |  | 4.2 | %
Debt securities |  |  | 94.0 |
Other |  |  | 1.8 |
​ | ​ | ​ | ​ | ​
Total |  |  | 100.0 | %
​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​
The following table presents the investments in the pension plan measured at fair value at December 31, 2014:
|  | December 31, 2014 |
|  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Money market funds |  | $ | 2.0 |  | $ | — |  | $ | — |  | $ | 2.0 |
Equity securities |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. equity securities(a) |  |  | 3.2 |  |  | — |  |  | — |  |  | 3.2 |
Non-U.S. equity securities(a) |  |  | 1.2 |  |  | — |  |  | — |  |  | 1.2 |
Other equity securities(b) |  |  | 0.5 |  |  | — |  |  | — |  |  | 0.5 |
Debt securities |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government |  |  | — |  |  | — |  |  | — |  |  | — |
U.S. and non-U.S. corporate(c) |  |  | — |  |  | 110.7 |  |  | — |  |  | 110.7 |
Other investments(d) |  |  | 1.3 |  |  | — |  |  | — |  |  | 1.3 |
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total investments |  | $ | 8.2 |  | $ | 110.7 |  | $ | — |  | $ | 118.9 |
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(a) | Included investments in common stock from diverse industries
(b) | Included investments in index and exchange-traded funds
(c) | Includes investment grade bonds from diverse industries
(d) | Included investments in real estate investment funds, exchange- traded funds, commodity mutual funds and accrued interest
Cash flows The information related to the Company's pension funds cash flow is as follows:
|  | December 31, |
|  | 2015 |  | 2014 |
|  | (in millions) |
Employer Contributions |  | $ | 43.8 |  | $ | 0.7 |
Benefit Payments |  | $ | 3.8 |  | $ | 5.1 |
The Company contributed approximately $43.8 million in 2015 for the Pension Plan and SERP. The $43.8 million contribution in 2015 included the $43.2 million in cash contributions for the settlement and $0.6 million contributed throughout the nine months ended September 27, 2015 related to the SERP. The contribution was based on the distribution date, fair value of the plan assets at distribution, market interest rates and annuity purchase rates at distribution. There are no further benefit payments to be paid by the pension plans. Additionally, all of the Company's domestic employees are eligible to participate in the Company's 401(k) savings plan. Effective January 1, 2012, the Company provides a base contribution of 2% of an employee's salary, regardless of whether the employee participates in the plan. Further, the Company matches the contribution of up to 100% of the first 4% of an employee's contribution. The Company's match contribution for the years ended December 31, 2015, 2014 and 2013, were $4.3 million, $4.4 million, and $4.2 million, respectively. Charges for EMEA pension plans approximated $4.9 million, $5.5 million and $5.8 million for the years ended December 31, 2015, 2014 and 2013, respectively. These costs relate to plans administered by certain European subsidiaries, with benefits calculated according to government requirements and paid out to employees upon retirement or change of employment. On August 18, 2015, the Company entered into Amendment No. 3 to Supplemental Compensation Agreement (the "Amendment") with Timothy P. Horne, the Company's former Chief Executive Officer and President and a principal stockholder. Under the Supplemental Compensation Agreement, dated September 1, 1995, as amended on July 25, 2000 and October 23, 2002 (the "Compensation Agreement"), between the Company and Mr. Horne, Mr. Horne received payments for consulting services equal to the greater of (i) one-half of the average of his annual base salary as an employee of the Company during the three years immediately prior to his retirement and (ii) $400,000 for each calendar year following his retirement until the date of his death, subject to certain cost-of-living increases each year. Mr. Horne was paid $598,562 for his consulting services in 2014. Under the Compensation Agreement Mr. Horne was also entitled to receive lifetime benefits, including use of secretarial services, use of an office, retiree health insurance, reimbursement of tax and financial planning expenses, and certain other benefits. The Amendment provides for a $6 million lump-sum buyout of all of the Company's ongoing lifetime payment obligations and all benefits under the Compensation Agreement, except for the use of an office and administrative support. The Amendment also provides for consulting services from Mr. Horne as requested by the Company rather than per year hourly requirements. The Company paid the $6 million lump-sum buyout amount to Mr. Horne in September 2015, which resulted in a $5 million pre-tax charge for the year ended December 31, 2015.

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