NOTE 16. PENSION BENEFITS

Kemper sponsors a qualified defined benefit pension plan (the “Pension Plan”). The Pension Plan covers approximately 8,800 participants and beneficiaries, of which 1,400 are active employees. Effective June 30, 2016, benefit accruals were frozen for substantially all of the participants under the Pension Plan, and, effective January 1, 2006 the Pension Plan was closed to new hires. The Pension Plan is generally non-contributory, but participation requires or required some employees to contribute 3% of pay, as defined, per year. Benefits for participants who are or were required to contribute to the Pension Plan are based on compensation during plan participation and the number of years of participation. Benefits for the vast majority of participants who are not required to contribute to the Pension Plan are based on years of service and final average pay, as defined. The Company funds the Pension Plan in accordance with the requirements of ERISA.

NOTE 16. PENSION BENEFITS (Continued))

Changes in Fair Value of Plan Assets and Changes in Projected Benefit Obligation for the Pension Plan for the years ended December 31, 2018 and 2017 is presented below.



DOLLARS IN MILLIONS	2018			2017
Fair Value of Plan Assets at Beginning of Year	$	579.8		$	520.9
Actual Return on Plan Assets	(32.1		)	86.4
Employer Contributions	5.1			—
Benefits Paid	(27.5		)	(27.5		)
Fair Value of Plan Assets at End of Year	525.3			579.8
Projected Benefit Obligation at Beginning of Year	637.2			593.6
Interest Cost	20.3			20.6
Benefits Paid	(27.5		)	(27.5		)
Actuarial (Gains) Losses	(49.5		)	50.5
Projected Benefit Obligation at End of Year	580.5			637.2
Funded Status—Plan Assets in Deficit of Projected Benefit Obligation	$	(55.2	)	$	(57.4	)
Unamortized Amount Reported in AOCI at End of Year	$	(144.4	)	$	(137.2	)
Accumulated Benefit Obligation at End of Year	$	580.3		$	637.0

The measurement dates of the assets and liabilities at end of year presented in the preceding table under the headings, “2018” and “2017” were December 31, 2018 and December 31, 2017, respectively.

The weighted-average discount rate and rate of increase in future compensation levels used to estimate the components of the Projected Benefit Obligation for the Pension Plan at December 31, 2018 and 2017 were:

Weighted-average asset allocations for the Pension Plan at December 31, 2018 and 2017 by asset category were:



ASSET CATEGORY	2018		2017
Cash and Short-term Investments	1	%	2	%
Corporate Bonds and Notes	41		31
Common and Preferred Stocks	37		50
Exchange Traded Funds	6		1
Other Assets	15		16
Total	100	%	100	%

The investment objective of the Pension Plan is to produce current income and long-term capital growth through a combination of equity and fixed income investments which, together with appropriate employer contributions and any required employee contributions, is adequate to provide for the payment of the benefit obligations of the Pension Plan. The assets of the Pension Plan may be invested in fixed income and equity investments or any other investment vehicle or financial instrument deemed appropriate. Fixed income investments may include cash and short-term instruments, U.S. Government securities, corporate bonds, mortgages and other fixed income investments. Equity investments may include various types of stock, such as large-cap, mid-cap and small-cap stocks, and may also include investments in investment companies, collective investment funds and Kemper common stock (subject to Section 407 and other requirements of ERISA). The Pension Plan has not invested in Kemper common stock.

NOTE 16. PENSION BENEFITS (Continued))

The trust investment committee for the Pension Plan, along with its third party fiduciary advisor, periodically reviews the performance of the Pension Plan’s investments and asset allocation. Several external investment managers, one of which is Fayez Sarofim & Co. (see Note 24, “Related Parties,” to the Consolidated Financial Statements), manage the equity investments of the trust for the Pension Plan. Each manager is allowed to exercise investment discretion, subject to limitations, if any, established by the trust investment committee for the Pension Plan. All other investment decisions are made by the Company, subject to general guidelines as set by the trust investment committee for the Pension Plan.

The Company determines its Expected Long Term Rate of Return on Plan Assets based primarily on the Company’s expectations of future returns, with consideration to historical returns, for the Pension Plan’s investments, based on target allocations of the Pension Plan’s investments.

The fair values of pension plan assets are estimated using the same methodologies and inputs as those used to determine the fair values for the respective asset category of the Company. These methodologies and inputs are disclosed in Note 22, “Fair Value Measurements,” to the Consolidated Financial Statements. Fair value measurements for the Pension Plan’s assets at December 31, 2018 are summarized below.



DOLLARS IN MILLIONS	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Measured at Net Asset Value		Fair Value
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	110.9	$	—	$	—	$	—	$	110.9
States and Political Subdivisions	—		2.1		—		—		2.1
Corporate Bonds and Notes	—		103.4		—		—		103.4
Equity Securities:
Preferred Stocks:
Finance, Insurance and Real Estate	—		—		—		—		—
Common Stocks:
Manufacturing	—		—		—		—		—
Other Industries	106.0		17.4		—		—		123.4
Other Equity Interests:
Collective Investment Funds	—		—		—		68.6		68.6
Exchange Traded Funds	34.1		—		—		—		34.1
Limited Liability Companies and Limited Partnerships	—		—		—		77.1		77.1
Short-term Investments	4.4		—		—		—		4.4
Receivables and Other	1.0		—		0.3		—		1.3
Total	$	256.4	$	122.9	$	0.3	$	145.7	$	525.3

NOTE 16. PENSION BENEFITS (Continued)

Fair value measurements for the Pension Plan’s assets at December 31, 2017 are summarized below.



DOLLARS IN MILLIONS	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Measured at Net Asset Value		Fair Value
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	56.7		$	—	$	—	—		$	56.7
States and Political Subdivisions	—			2.2		—		—		2.2
Corporate Bonds and Notes	—			122.0		—		—		122.0
Equity Securities:
Preferred Stocks:
Finance, Insurance and Real Estate	—			4.9		—		—		4.9
Common Stocks:
Manufacturing	86.8			15.3		—		—		102.1
Other Industries	99.6			4.7		—		—		104.3
Other Equity Interests:
Collective Investment Funds	—			—		—		79.2		79.2
Exchange Traded Funds	5.1			—		—		—		5.1
Limited Liability Companies and Limited Partnerships	—			—		—		95.9		95.9
Short-term Investments	9.0			—		—		—		9.0
Receivables and Other	(1.9		)	—		0.3		—		(1.6		)
Total	$	255.3		$	149.1	$	0.3	$	175.1	$	579.8

Additional information pertaining to the changes in the fair value of the Pension Plan’s assets classified as Level 3 in the two preceding tables for the years ended December 31, 2018 and 2017 is presented below.



DOLLARS IN MILLIONS	2018		2017
Balance at Beginning of Year	$	0.3	$	0.4
Purchases, Sales and Settlements, Net	—		(0.1		)
Balance at End of Year	$	0.3	$	0.3

The components of Comprehensive Pension Expense (Income) for the Pension Plan for the years ended December 31, 2018, 2017 and 2016 were:



DOLLARS IN MILLIONS	2018			2017			2016
Service Cost Earned During the Year	$	—		$	—		$	4.8
Interest Cost on Projected Benefit Obligation	20.3			20.6			20.1
Expected Return on Plan Assets	(28.9		)	(30.9		)	(32.7		)
Amortization of Actuarial Loss	4.3			2.6			6.6
Curtailment Gain	—			—			(0.3		)
Pension Expense (Income) Recognized in Consolidated Statements of Income	(4.3		)	(7.7		)	(1.5		)
Unrecognized Pension Gain (Loss) Arising During the Year	11.5			(4.9		)	(0.7		)
Amortization of Accumulated Unrecognized Pension Loss	(4.3		)	(2.6		)	(6.3		)
Comprehensive Pension Expense (Income)	$	2.9		$	(15.2	)	$	(8.5	)

NOTE 16. PENSION BENEFITS (Continued)

The actuarial loss included in AOCI at December 31, 2018 is being amortized over approximately 23 years, the remaining average estimated life expectancy of participants. The Company estimates that Pension Income for the Pension Plan for the year ended December 31, 2019 will include expense of $2.6 million resulting from the amortization of the related accumulated actuarial loss included in AOCI at December 31, 2018.

The weighted-average discount rate, service cost discount rate, interest cost discount rate, rate of increase in future compensation levels and expected long-term rate of return on plan assets used to develop the components of Pension Expense for the Pension Plan for the periods presented below were:



	Year Ended
	December 31, 2018		December 31, 2017		5/13/16 to 12/31/16		1/1/16 to 5/12/16
Weighted-average Discount Rate	3.63	%	4.19	%	3.94	%	4.47	%
Service Cost Discount Rate	3.61		4.15		4.22		4.78
Interest Cost Discount Rate	3.26		3.52		3.18		3.69
Rate of Increase in Future Compensation Levels	3.40		2.56		3.15		3.15
Expected Long Term Rate of Return on Plan Assets	5.35		5.80		6.25		6.25

On July 13, 2018, the Company made a voluntary cash contribution of $5.1 million to the Pension Plan. The Company did not contribute to the Pension Plan in 2017. On August 12, 2016, the Company made a voluntary cash contribution of $9.0 million to the Pension Plan. The Company does not expect that it will be required to contribute to the Pension Plan in 2019, but could make a voluntary contribution pursuant to the maximum funding limits under ERISA.

The following benefit payments (net of participant contributions), which consider expected future service of certain participants that remain eligible for a benefit accrual, as appropriate, are expected to be paid from the Pension Plan:



DOLLARS IN MILLIONS	Years Ending December 31,
DOLLARS IN MILLIONS	2019		2020		2021		2022		2023		2024-2028
Estimated Pension Benefit Payments	$	30.4	$	30.7	$	31.9	$	32.9	$	33.7	$	175.7

The Company also sponsors a non-qualified supplemental defined benefit pension plan (the “Supplemental Plan”). Benefit accruals for all participants in the Supplemental Plan were frozen effective June 30, 2016. The unfunded liability related to the Supplemental Plan was $24.2 million and $26.3 million at December 31, 2018 and 2017, respectively. Pension expense for the Supplemental Plan was $0.8 million and $0.8 million for the years ended December 31, 2018, and 2017, respectively. Pension income for the Supplemental Plan was $1.0 million for the year ended December 31, 2016. An actuarial gain of $1.3 million before taxes, an actuarial loss of $1.6 million before taxes and an actuarial gain of $4.8 million before taxes are included in Other Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and 2016, respectively.

The Company also sponsors several defined contribution benefit plans covering most of its employees. The Company made contributions to those plans of $15.1 million, $10.6 million and $8.4 million in 2018, 2017 and 2016, respectively.

Discount Rate

Rate of Increase in Future Compensation Levels