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Defined Benefit Plans
 12 Months Ended
Dec. 31, 2018
Defined Benefit Plans
15.    Defined Benefit Plans
We have a number of pension plans in the United States, covering many of the Company’s employees, however these plans have been closed to new hires. The plans provide for payment of retirement benefits, mainly commencing between the ages of 55 and 65. After meeting certain qualifications, an employee acquires a vested right to future benefits. The benefits payable under the plans are generally determined on the basis of an employee’s length of service and/or earnings. Employer contributions to the plans are made, as necessary, to ensure legal funding requirements are satisfied. Also, from time to time, we may make contributions in excess of the legal funding requirements. Service cost for 2018 relates to benefit accruals in an hourly Union defined benefit plan in our Doors & Security segment. Benefit accruals under all other defined benefit pension plans were frozen as of December 31, 2016.
In addition, the Company provides postretirement health care and life insurance benefits to certain retirees.
 
   
(In millions)
 
Pension Benefits
 
 
Postretirement Benefits
 
     
Obligations and Funded Status at December 31
 
2018
 
 
2017
 
 
2018
 
 
2017
 
Change in the Projected Benefit Obligation (PBO):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Projected benefit obligation at beginning of year
 
$
832.4
 
 
$
791.7
 
 
$
1.6
 
 
$
3.6
 
Service cost
 
 
0.5
 
 
 
0.6
 
 
 
—
 
 
 
—
 
Interest cost
 
 
30.7
 
 
 
33.3
 
 
 
—
 
 
 
—
 
Plan amendments
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
Actuarial loss (gain)
 
 
(63.1
) 
 
 
40.6
 
 
 
(0.2
) 
 
 
(1.4
) 
Benefits paid
 
 
(37.3
) 
 
 
(33.8
) 
 
 
—
 
 
 
(0.4
) 
Foreign exchange
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(0.2
) 
Projected benefit obligation at end of year
 
$
763.2
 
 
$
832.4
 
 
$
1.4
 
 
$
1.6
 
Accumulated benefit obligation at end of year (excludes the impact of future compensation increases)
 
$
763.2
 
 
$
832.4
 
 
 
 
 
 
 
 
 
Change in Plan Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
 
$
656.6
 
 
$
577.7
 
 
$
—
 
 
$
—
 
Actual return on plan assets
 
 
(30.7
) 
 
 
83.2
 
 
 
—
 
 
 
—
 
Employer contributions
 
 
11.0
 
 
 
29.5
 
 
 
—
 
 
 
0.5
 
Benefits paid
 
 
(37.3
) 
 
 
(33.8
) 
 
 
—
 
 
 
(0.5
) 
Fair value of plan assets at end of year
 
$
599.6
 
 
$
656.6
 
 
$
—
 
 
$
—
 
Funded status (Fair value of plan assets less PBO)
 
$
(163.6
) 
 
$
(175.8
) 
 
$
(1.4
) 
 
$
(1.6
) 
The accumulated benefit obligation exceeds the fair value of assets for all pension plans. Amounts recognized in the consolidated balance sheets consist of:
 
   
 
 
Pension Benefits
 
 
Postretirement Benefits
 
     
(In millions)
 
2018
 
 
2017
 
 
2018
 
 
2017
 
Current benefit payment liability
 
$
(1.5
) 
 
$
(1.1
) 
 
$
(0.2
) 
 
$
(0.2
) 
Accrued benefit liability
 
 
(162.1
) 
 
 
(174.7
) 
 
 
(1.2
) 
 
 
(1.4
) 
Net amount recognized
 
$
(163.6
) 
 
$
(175.8
) 
 
$
(1.4
) 
 
$
(1.6
) 
In the first quarter of 2013, the Company communicated a plan amendment to reduce health benefits to certain retired employees. Due to the risk of litigation at the time of the initial communication, the Company elected to defer the full recognition of the benefit arising from the plan amendment. Following a favorable court decision in the first quarter of 2016, the Company determined that it would realize the benefit from the plan amendment. As a result, the Company performed a 
re-measurement
 of the affected retiree plan liability as of March 31, 2016. This remeasurement resulted in a $10.7 million reduction of accrued retiree benefit plan liabilities and a corresponding increase in prior service credits. In accordance with accounting requirements, the liability reduction from this remeasurement is recorded as amortization of prior service credits in net income. In addition, we recorded a $0.9 million actuarial loss during the first quarter of 2016.
In January 2018, we adopted ASU 
2017-07,
 which requires entities to present the defined benefit plan 
non-service
 related costs outside the operating income subtotal. The new guidance was applied retrospectively in the consolidated statement of comprehensive income. As a result, we reclassified $9.6 million and $14.1 million of income from the operating income subtotal to other income, in the twelve months ended December 31, 2017 and 2016, respectively. The retrospective impact of adopting ASU 
2017-07
 is as follows:
 
   
(In millions)
 
2017
 
 
2016
 
Increase to cost of products sold
 
$
7.5
 
 
$
8.5
 
Increase to selling, general and administrative expenses
 
 
2.1
 
 
 
5.6
 
Decrease to operating income
 
$
(9.6
) 
 
$
(14.1
) 
As of December 31, 2018, we adopted the new Society of Actuaries 
MP-2018
 mortality tables, resulting in an immaterial decrease of our pension benefit obligation, and deferred actuarial losses in accumulated other comprehensive income. As of December 31, 2017, we adopted the new Society of Actuaries 
MP-2017
 mortality tables, resulting in a decrease in our pension benefit obligations of approximately $5.0 million, and a corresponding decrease in deferred actuarial losses in accumulated other comprehensive income.
The amounts in accumulated other comprehensive loss on the consolidated balance sheets that have not yet been recognized as components of net periodic benefit cost were as follows:
 
   
(In millions)
 
Pension Benefits  
 
 
Postretirement Benefits
 
Net actuarial loss at December 31, 2016
 
$
73.4
 
 
$
—
 
Recognition of actuarial (loss) gain
 
 
(0.9
) 
 
 
1.4
 
Current year actuarial gain
 
 
(5.3
) 
 
 
(1.4
) 
Net actuarial loss at December 31, 2017
 
$
67.2
 
 
$
—
 
Recognition of actuarial (loss) gain
 
 
(3.9
) 
 
 
0.1
 
Current year actuarial loss (gain)
 
 
8.5
 
 
 
(0.4
) 
Net actuarial loss at December 31, 2018
 
$
71.8
 
 
$
(0.3
) 
Net prior service cost (credit) at December 31, 2016
 
$
—
 
 
$
(5.1
) 
Amortization
 
 
—
 
 
 
5.1
 
Net prior service cost (credit) at December 31, 2017
 
$
—
 
 
$
—
 
Amortization
 
 
—
 
 
 
—
 
Net prior service cost (credit) at December 31, 2018
 
$
—
 
 
$
—
 
Total at December 31, 2018
 
$
71.8
 
 
$
(0.3
) 
There are no accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year.
Components of net periodic benefit cost were as follows:
 
   
Components of Net Periodic Benefit (Income) Cost
 
Pension Benefits
 
 
Postretirement Benefits
 
       
(In millions)
 
2018
 
 
2017
 
 
2016
 
 
2018
 
 
2017
 
 
2016
 
Service cost
 
$
0.5
 
 
$
0.6
 
 
$
9.6
 
 
$
—
 
 
$
—
 
 
$
—
 
Interest cost
 
 
30.7
 
 
 
33.3
 
 
 
34.4
 
 
 
—
 
 
 
—
 
 
 
0.3
 
Expected return on plan assets
 
 
(41.0
) 
 
 
(37.3
) 
 
 
(37.2
) 
 
 
—
 
 
 
—
 
 
 
—
 
Recognition of actuarial losses (gains)
 
 
3.9
 
 
 
0.9
 
 
 
—
 
 
 
(0.1
) 
 
 
(1.4
) 
 
 
1.9
 
Amortization of prior service credits
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
(5.1
) 
 
 
(13.5
) 
Net periodic benefit (income) cost
 
$
(5.9
) 
 
$
(2.5
) 
 
$
6.8
 
 
$
(0.1
) 
 
$
(6.5
) 
 
$
(11.3
) 
 
 
 
 
 
Assumptions
 
Pension Benefits
 
Postretirement Benefits
       
 
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
Weighted-Average Assumptions Used to
Determine Benefit Obligations at December 31:
 
 
 
 
 
 
 
 
 
 
 
 
Discount rate
 
4.4%
 
3.8%
 
4.3%
 
4.2%
 
3.4%
 
3.4%
Rate of compensation increase
 
—
 
—
 
4.0%
 
—
 
—
 
—
Weighted-Average Assumptions Used to
Determine Net Cost for Years Ended December 31:
 
 
 
 
 
 
 
 
 
 
 
 
Discount rate
 
3.8%
 
4.3%
 
4.6%
 
3.4%
 
3.4%
 
4.1%
Expected long-term rate of return on plan assets
 
6.0%
 
6.4%
 
6.6%
 
—
 
—
 
—
Rate of compensation increase
 
—
 
—
 
4.0%
 
—
 
—
 
—
 
  
 
 
Postretirement
Benefits
 
   
 
 
2018
 
 
2017
 
Assumed Health Care Cost Trend Rates Used to Determine Benefit Obligations and Net Cost at December 31:
 
 
 
 
 
 
 
 
Health care cost trend rate assumed for next year
 
 
6.9/8.0
%
(a)
 
 
 
7.1/8.4
%
(a)
 
Rate that the cost trend rate is assumed to decline (the ultimate trend rate)
 
 
4.5
% 
 
 
4.5
% 
Year that the rate reaches the ultimate trend rate
 
 
2027
 
 
 
2026
 
 
(a)
 
The 
pre-65
 initial health care cost trend rate is shown first / followed by the 
post-65
 rate.
A 
one-percentage-point
 change in assumed health care cost trend rates would have had the following effects in 2018:
 
   
(In millions)
 
1-Percentage-

Point  Increase
 
 
1-Percentage-

Point
Decrease
 
Effect on postretirement benefit obligation
 
 
(0.1
) 
 
 
0.1
 
Plan Assets
The fair value of the pension assets by major category of plan assets as of December 31, 2018 and 2017 were as follows:
 
  
(In millions)
 
Total as of
balance sheet
date
 
   
 
 
2018
 
 
2017
 
Group annuity/insurance contracts (level 3)
 
$
23.6
 
 
$
23.3
 
Collective trusts:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
7.7
 
 
 
12.5
 
Equity
 
 
197.7
 
 
 
285.9
 
Fixed income
 
 
324.6
 
 
 
277.7
 
Multi-strategy hedge funds
 
 
22.0
 
 
 
24.6
 
Real estate
 
 
24.0
 
 
 
32.6
 
Total
 
$
599.6
 
 
$
656.6
 
 
A reconciliation of Level 3 measurements was as follows:
 
  
 
 
Group annuity/
insurance contracts
 
   
(In millions)
 
2018
 
 
2017
 
January 1
 
$
23.3
 
 
$
22.8
 
Actual return on assets related to assets still held
 
 
0.3
 
 
 
0.5
 
December 31
 
$
23.6
 
 
$
23.3
 
Our defined benefit plans Master Trust own a variety of investment assets. All of these investment assets, except for group annuity/insurance contracts are measured using net asset value per share as a practical expedient per ASC 820. Following the retrospective adoption of ASU 
2015-07
 (Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share) we excluded all investments measured using net asset value per share in the amount of $576.0 million and $633.3 million as of December 31, 2018 and 2017, respectively, from the tabular fair value hierarchy disclosure.
The terms and conditions for redemptions vary for each class of the investment assets valued at net asset value per share as a practical expedient. Real estate assets may be redeemed quarterly with a 45 day redemption notice period. Investment assets in multi-strategy hedge funds may be redeemed semi-annually with a 95 day redemption notice period. Equity, fixed income and cash and cash equivalents have no specified redemption frequency and notice period and may be redeemed daily. As of December 31, 2018 we do not have an intent to sell or otherwise dispose of these investment assets at prices different than the net asset value per share.
Our investment strategy is to optimize investment returns through a diversified portfolio of investments, taking into consideration underlying plan liabilities and asset volatility. The defined benefit asset allocation policy of the plans allow for an equity allocation of 0% to 75%, a fixed income allocation of 25% to 100%, a cash allocation of up to 25% and other investments of up to 20%. Asset allocations are based on the underlying liability structure. All retirement asset allocations are reviewed periodically to ensure the allocation meets the needs of the liability structure.
Our 2019 expected blended long-term rate of return on plan assets of 6.0% was determined based on the nature of the plans’ investments, our current asset allocation and projected long-term rates of return from pension investment consultants.
Estimated Future Retirement Benefit Payments
The following retirement benefit payments are expected to be paid:
 
   
(In millions)
 
Pension
Benefits
 
 
Postretirement
Benefits
 
2019
 
$
39.4
 
 
$
0.1
 
2020
 
 
41.0
 
 
 
0.1
 
2021
 
 
42.1
 
 
 
0.1
 
2022
 
 
43.4
 
 
 
0.1
 
2023
 
 
44.4
 
 
 
0.1
 
Years 2024-2028
 
 
234.7
 
 
 
0.3
 
Estimated future retirement benefit payments above are estimates and could change significantly based on differences between actuarial assumptions and actual events and decisions related to lump sum distribution options that are available to participants in certain plans.
Defined Contribution Plan Contributions
We sponsor a number of defined contribution plans. Contributions are determined under various formulas. Cash contributions by the Company related to these plans amounted to $29.5 million, $29.1 million and $22.7 million in 2018, 2017 and 2016, respectively.