Note 17: Pension and Employee Benefit Plans

Defined Contribution Employee Benefit Plans:

401(k) plans: The Company maintains domestic 401(k) plans that allow employees to contribute a portion of their salary to help save for retirement. The Company matched 50 percent of employee contributions, up to 5 percent of employee compensation, during fiscal 2014, 2013, and 2012. Modine also makes annual employer contributions into active employee accounts based upon a percentage of employee compensation. Employees can choose among various investment alternatives, including (subject to restrictions) Modine stock. The Company’s matching contributions and the annual employer contributions are discretionary. Modine’s expense for defined contribution employee benefit plans during fiscal 2014, 2013, and 2012 was $8.3 million, $4.1 million, and $4.4 million, respectively. The increased expense in fiscal 2014 was primarily due to higher discretionary employer contributions.

In addition, the Company maintains a non-qualified deferred compensation plan for eligible employees, and various foreign subsidiaries have in place government-required defined contribution plans under which Modine contributes a percentage of employee earnings into accounts, consistent with local laws.

Statutory Termination Plans:

Certain of Modine’s foreign subsidiaries have statutory termination indemnity plans covering eligible employees. The benefits under these plans are based upon years of service and final average compensation levels or a monthly retirement benefit amount. These programs are all substantially unfunded in accordance with local laws, but are often covered by national obligatory umbrella insurance programs that protect employees from losses in the event that an employer defaults on its obligations.

Defined Benefit Employee Benefit Plans:

Pension plans: Modine has a non-contributory defined benefit pension plan that covers most of its domestic employees hired on or before December 31, 2003. The benefits provided are based primarily on years of service and average compensation for salaried and some hourly employees. Benefits for other hourly employees are based on a monthly retirement benefit amount. Domestic salaried employees hired after December 31, 2003 are not covered under any defined benefit plan. Currently the Company’s domestic pension plans do not include increases in annual earnings or future service in calculating the average annual earnings and years of credited service under the pension plan formula. Certain of Modine’s foreign subsidiaries also have legacy defined benefit plans covering a small number of active employees.

Company contributions of $8.0 million, $9.2 million, and $11.5 million to our U.S. pension plans during fiscal 2014, 2013, and 2012, respectively, are reported in the change in other noncurrent assets and liabilities in the consolidated statements of cash flows.

Postretirement plans: The Company provides selected healthcare and life insurance benefits for eligible retired domestic employees. Modine periodically amends these unfunded plans to change the contribution rate of retirees and the amounts and forms of coverage. An annual limit on the Company’s cost is defined for the majority of these plans.

Measurement Date: Modine uses March 31 as the measurement date for its pension and postretirement plans.

The change in benefit obligations and plan assets as well as the funded status of Modine's pension and postretirement plans for the fiscal years ended March 31, 2014 and 2013 were as follows:

	Pension Plans						Postretirement Plans
	2014			2013			2014			2013
Change in benefit obligation:
Benefit obligation at beginning of year	$	309.6		$	281.8		$	7.5		$	7.2
Service cost		0.6			0.6			0.1			0.1
Interest cost		13.0			13.5			0.2			0.3
Actuarial (gain) loss		(10.8	)		27.1			(1.4	)		0.1
Benefits paid		(18.6	)		(12.6	)		(0.5	)		(0.2	)
Effect of exchange rate changes		1.9			(0.8	)		-			-
Benefit obligation at end of year	$	295.7		$	309.6		$	5.9		$	7.5

Change in plan assets:
Fair value of plan assets at beginning of year	$	200.6		$	186.6		$	-		$	-
Actual return on plan assets		22.2			16.2			-			-
Benefits paid		(18.6	)		(12.6	)		(0.5	)		(0.2	)
Employer contributions		9.5			10.4			0.5			0.2
Fair value of plan assets at end of year	$	213.7		$	200.6		$	-		$	-
Funded status at end of year	$	(82.0	)	$	(109.0	)	$	(5.9	)	$	(7.5	)

Amounts recognized in the consolidated balance sheets:
Current liability	$	(1.0	)	$	(1.0	)	$	(0.5	)	$	(0.8	)
Noncurrent liability		(81.0	)		(108.0	)		(5.4	)		(6.7	)
	$	(82.0	)	$	(109.0	)	$	(5.9	)	$	(7.5	)

Amounts recognized in accumulated other comprehensive loss:
Net actuarial loss (gain)	$	153.4		$	176.4		$	(1.7	)	$	(0.3	)
Prior service credit		-			-			(0.2	)		(1.5	)
	$	153.4		$	176.4		$	(1.9	)	$	(1.8	)

The accumulated benefit obligation for all defined benefit pension plans was $293.0 million and $307.2 million as of March 31, 2014 and 2013, respectively.

Costs for Modine’s pension and postretirement benefit plans include the following components for the fiscal years ended March 31, 2014, 2013, and 2012:

	Pension Plans									Postretirement Plans
	2014			2013			2012			2014			2013			2012
Components of net periodic benefit costs:
Service cost	$	0.6		$	0.6		$	1.4		$	0.1		$	0.1		$	-
Interest cost		13.0			13.5			13.9			0.2			0.3			0.4
Expected return on plan assets		(15.7	)		(16.1	)		(15.7	)		-			-			-
Amortization of:
Unrecognized net loss (gain)		6.3			5.0			7.0			(0.1	)		-			-
Unrecognized prior service credit		-			-			-			(1.2	)		(1.5	)		(1.7	)
Adjustment for curtailment		-			-			-			-			-			(0.3	)
Net periodic benefit cost (income)	$	4.2		$	3.0		$	6.6		$	(1.0	)	$	(1.1	)	$	(1.6	)

Other changes in plan assets and benefit obligation recognized in other comprehensive (income) loss:
Net actuarial (gain) loss	$	(17.3	)	$	27.0		$	45.7		$	(1.4	)	$	-		$	0.7
Prior service costs		-			-			-			-			-			0.3
Reversal of amortization items:
Net actuarial (gain) loss		(6.3	)		(5.0	)		(7.0	)		0.1			0.1			-
Prior service costs		-			-			-			1.2			1.5			1.7
Total recognized in other comprehensive (income) loss	$	(23.6	)	$	22.0		$	38.7		$	(0.1	)	$	1.6		$	2.7

The estimated net actuarial loss for the pension plans expected to be amortized from accumulated other comprehensive loss into net periodic benefit cost during fiscal 2015 is $5.4 million. The estimated prior service credit and the net actuarial gain for the postretirement plans expected to be amortized from accumulated other comprehensive loss into net periodic benefit income during fiscal 2015 total $0.2 million.

The weighted average assumptions used to determine Modine’s benefit obligation under the plans were as follows:

	2014						2013
	U.S. Plans			Foreign Plans			U.S. Plans			Foreign Plans
Pension plans:
Discount rate		4.7	%		3.0	%		4.4	%		3.5	%
Postretirement plans:
Discount rate		4.3	%		N/	A		3.7	%		N/	A

The weighted average assumptions used to determine Modine's costs under the plans were as follows:

	Years ended March 31,
	2014						2013						2012
	U.S. Plans			Foreign Plans			U.S. Plans			Foreign Plans			U.S. Plans			Foreign Plans
Pension plans:
Discount rate		4.4	%		3.5	%		4.9	%		5.0	%		5.8	%		5.8	%
Expected return on plan assets		8.0	%		N/	A		8.0	%		N/	A		8.0	%		N/	A
Postretirement plans:
Discount rate		3.7	%		N/	A		4.4	%		N/	A		5.4	%		N/	A

The discount rates used to determine the present value of the Company’s future U.S. pension obligations as of the measurement date use a methodology that equates the plans’ projected benefit obligations to a present value, calculated using a yield curve. The yield curve was constructed from a portfolio of high quality, non-callable corporate debt securities with maturities ranging from six months to thirty years. We determined the discount rate by matching the pension plans’ expected cash flows with spot rates developed from the yield curve. The discount rate used to determine the present value of the Company’s future foreign pension obligations as of the measurement date is based upon the yield for zero coupon bonds plus a yield margin measured as the difference between euro denominated corporate bonds (AA or higher) in Europe and government bonds.

Plan assets in the U.S. defined benefit plans comprise 100 percent of the Company’s world-wide benefit plan assets. Modine's U.S. pension plan weighted average asset allocations at the measurement dates of March 31, 2014 and 2013 were as follows:

	Target allocation			Plan assets
				2014			2013
Equity securities		55	%		57	%		57	%
Debt securities		38	%		37	%		37	%
Alternative assets		5	%		5	%		5	%
Cash		2	%		1	%		1	%
		100	%		100	%		100	%

Due to market conditions and other factors, including timing of benefit payments, actual asset allocation may vary from the target allocation outlined above. We periodically rebalance the assets to the target allocations. There were no shares of Modine common stock included in the plan assets at the end of fiscal 2014 and 2013.

Modine employs a total return investment approach, whereby a mix of equities and fixed-income investments are used to maximize the long-term return of plan assets while avoiding excessive risk. We have established pension plan guidelines based upon an evaluation of market conditions, tolerance for risk and cash requirements for benefit payments. We measure and monitor investment risk on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements and periodic asset/liability studies.

The expected rate of return on U.S. plan assets is based upon historical return experience and forward-looking return expectations for major asset class categories. For fiscal year 2015 U.S. pension plan expense, Modine has assumed a rate of 8.0 percent, net of administrative expenses.

With respect to the postretirement plans, for measurement purposes, the assumed healthcare cost trend rates were as follows:

	Years ended March 31,
	2014			2013
Healthcare costs trend rate		7.3	%		7.5	%
Ultimate trend rate		5.0	%		5.0	%
Year the rate reaches the ultimate trend rate		2019			2019

Assumed healthcare cost trend rates affect the amounts reported for the postretirement plans. One percentage point change would have a less than $0.1 million effect on the total service and interest cost. While one percentage point increase or decrease would have a $0.1 million and ($0.1) million effect, respectively, on the postretirement benefit obligation.

The Company’s funding policy for domestic qualified pension plans is to contribute annually, at a minimum, the amount necessary on an actuarial basis to provide for benefits in accordance with applicable laws and regulations. Modine anticipates that it will make contributions of $9.5 million to these plans during fiscal 2015.

Estimated pension benefit payments for the next ten fiscal years are as follows:

Fiscal Year	Estimated pension benefit payments
2015	$	15.6
2016		15.7
2017		16.2
2018		17.6
2019		18.0
2020-2024		95.3