Note 9. Pension Plans

United Kingdom plan

The Company maintains a defined benefit pension plan (the “Plan”) covering a number of its current and former employees in the United Kingdom, although it does also have other much smaller pension arrangements in the U.S. and overseas. The Plan is closed to future service accrual but has a large number of deferred and current pensioners. The Projected Benefit Obligation (“PBO”) is based on final salary and years of credited service reduced by social security benefits according to a plan formula. Normal retirement age is 65 but provisions are made for early retirement. The Plan’s assets are invested by several investment management companies in funds holding United Kingdom and overseas equities, United Kingdom and overseas fixed interest securities, index linked securities, property unit trusts and cash or cash equivalents. The trustees’ investment policy is to seek to achieve specified objectives through investing in a suitable mixture of real and monetary assets. The trustees recognize that the returns on real assets, while expected to be greater over the long-term than those on monetary assets, are likely to be more volatile. A mixture across asset classes should nevertheless provide the level of returns required by the Plan to meet its liabilities at an acceptable level of risk for the trustees and an acceptable level of cost to the Company.

During the second quarter of 2010 the Company implemented a pension increase exchange (“PIE”) program for current pensioners, effective April 1, 2010, which reduced the PBO by $17.1 million. This reduction in PBO resulted in a prior service credit which is being amortized using the straight-line method over the remaining life expectancy of Plan pensioners of 15 years commencing April 1, 2010.

When the plan closed to future accrual in 2010 all employees became inactive and GAAP requires that the average remaining life expectancy of the inactive participants is used, instead of the average remaining service, to spread future amortization of actuarial net losses. The average remaining life expectancy of the inactive participants has been approximately 24 years since the plan closed in 2010.

In 2013, the Company contributed approximately $11 million in cash to the Plan in accordance with an actuarial deficit recovery plan agreed with the trustees.


(in millions)	2013			2012			2011
Plan net pension charge/(credit):
Service cost	$	1.6		$	1.6		$	1.6
Interest cost on PBO		31.3			32.2			36.6
Expected return on plan assets		(35.5	)		(34.1	)		(36.7	)
Amortization of prior service credit		(1.3	)		(1.3	)		(1.3	)
Amortization of actuarial net losses		6.2			3.2			2.7

	$	2.3		$	1.6		$	2.9

Plan assumptions at December 31, (%):
Discount rate		4.40			4.15			4.75
Inflation rate		2.55			2.20			2.15
Rate of return on plan assets – overall on bid-value		4.85			4.90			4.85
Rate of return on plan assets – equity securities		7.50			7.25			7.70
Rate of return on plan assets – debt securities		3.40			3.65			3.60

Plan asset allocation by category (%):
Equity securities		35			33			29
Debt securities		61			61			66
Cash		4			6			5

		100			100			100

The discount rate used represents the annualized yield based on a cash flow matched methodology with reference to an AA corporate bond spot curve and having regard to the duration of the Plan’s liabilities. The inflation rate is derived using a similar cash flow matched methodology as used for the discount rate but having regard to the difference between yields on fixed interest and index linked United Kingdom government gilts. The rate of increase in compensation levels is no longer relevant since the Company closed the Plan to future service accrual with effect from March 31, 2010. A 0.25% change in the discount rate assumption would change the PBO by approximately $28 million and the net pension charge for 2014 by approximately $0.5 million. A 0.25% change in the level of price inflation assumption would change the PBO by approximately $22 million and the net pension charge for 2014 by approximately $1.7 million.

The current investment strategy of the Plan is to obtain an asset allocation of 65% debt securities and 35% equity securities in order to achieve a more predictable return on assets. As at December 31, 2013 and 2012, approximately 55% of the Plan’s assets were held in index-tracking funds with one investment management company. Approximately 25% of the Plan’s assets were invested in United Kingdom government gilts. No more than 5% of the Plan’s assets were invested in any one individual company’s investment funds.

Movements in PBO and fair value of Plan assets are as follows:


(in millions)	2013			2012
Change in PBO:
Opening balance	$	805.3		$	687.4
Interest cost		31.3			32.2
Service cost		1.6			1.6
Benefits paid		(39.4	)		(43.9	)
Actuarial losses/(gains)		5.9			94.4
Exchange effect		15.1			33.6

Closing balance	$	819.8		$	805.3

Fair value of plan assets:
Opening balance	$	768.6		$	708.8
Actual benefits paid		(39.4	)		(43.9	)
Actual contributions by employer		10.8			9.2
Actual return on assets		35.5			61.2
Exchange effect		14.8			33.3

Closing balance	$	790.3		$	768.6

The accumulated benefit obligation for the Plan was $819.8 million and $805.3 million at December 31, 2013 and 2012, respectively.

For the vast majority of assets, a market approach is adopted to assess the fair value of the assets, with the inputs being the quoted market prices for the actual securities held in the relevant fund. For Level 3 assets where there is no ready market and for which no indicative dealer prices are available, fund assets are independently evaluated, with the use of agreed upon procedures conducted by an audit firm to provide independent confirmation that proper valuation procedures are being followed. The fair values of pension assets by level of input were as follows:


(in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
At December 31, 2013
Fixed income securities:
Debt securities issued by U.S. government and government agencies	$	1.3	$		$		$	1.3
Debt securities issued by non-U.S. governments and government agencies		198.7						198.7
Corporate debt securities		275.5						275.5
Residential mortgage-backed securities		0.2						0.2
Other asset-backed securities		3.8						3.8
Equity securities:
Equity securities held for proprietary investment purposes		156.7						156.7
Real estate		61.4						61.4
Other assets				25.3		38.3		63.6

Total assets at fair value		697.6		25.3		38.3		761.2
Cash		29.1						29.1

Total plan assets	$	726.7	$	25.3	$	38.3	$	790.3

At December 31, 2012
Fixed income securities:
Debt securities issued by U.S. government and government agencies	$	1.6	$		$		$	1.6
Debt securities issued by non-U.S. governments and government agencies		191.3						191.3
Corporate debt securities		284.6						284.6
Residential mortgage-backed securities		0.2						0.2
Other asset-backed securities		3.1						3.1
Equity securities:
Equity securities held for proprietary investment purposes		134.8						134.8
Real estate		33.2						33.2
Other assets				39.0		31.0		70.0

Total assets at fair value		648.8		39.0		31.0		718.8
Cash		49.8						49.8

Total plan assets	$	698.6	$	39.0	$	31.0	$	768.6

The reconciliation of the fair value of the Plan assets using significant unobservable inputs (Level 3) was as follows:


(in millions)	Other Assets
Balance at December 31, 2011	$	28.1
Realized/unrealized gains/(losses):
Relating to assets still held at the reporting date		1.3
Relating to assets sold during the period		0.0
Purchases, issuances and settlements		0.5
Exchange effect		1.1

Balance at December 31, 2012		31.0
Realized/unrealized gains/(losses):
Relating to assets still held at the reporting date		3.5
Relating to assets sold during the period		0.0
Purchases, issuances and settlements		3.6
Exchange effect		0.2

Balance at December 31, 2013	$	38.3

The projected net pension charge for the year ending December 31, 2014 is as follows:


(in millions)
Service cost	$	1.7
Interest cost on PBO		34.7
Expected return on plan assets		(37.3	)
Amortization of prior service credit		(1.3	)
Amortization of actuarial net losses		5.5

	$	3.3

The following benefit payments are expected to be made:


(in millions)
2014	$	49.7
2015	$	47.0
2016	$	47.9
2017	$	48.5
2018	$	49.2
2019 – 2023	$	258.0

German plan

The Company also maintains an unfunded defined benefit pension plan covering a number of its current and former employees in Germany (the “German plan”). The German plan is closed to new entrants and has no assets.


(in millions)	2013			2012		2011
German plan net pension charge:
Service cost	$	0.2		$	0.1	$	0.2
Interest cost on PBO		0.3			0.3		0.3
Amortization of prior service cost/(credit)		(0.1	)		0.0		0.0
Amortization of actuarial net loss/(gain)		0.2			0.0		0.0

	$	0.6		$	0.4	$	0.5

German plan assumptions (%):
Discount rate		3.50			3.25		5.00
Inflation rate		2.00			2.00		2.00
Rate of increase in compensation levels		2.75			2.75		2.75

Movements in PBO of the German plan are as follows:


(in millions)	2013			2012
Change in PBO:
Opening balance	$	9.3		$	6.3
Service cost		0.2			0.1
Interest cost		0.3			0.3
Amortization of prior service cost/(credit)		(0.1	)		0.0
Benefits paid		(0.2	)		(0.2	)
Actuarial losses/(gains)		(0.4	)		2.6
Exchange effect		0.5			0.2

Closing balance	$	9.6		$	9.3

The amount of unrecognized actuarial net losses in other comprehensive loss in respect of the German plan is $1.6 million, net of tax of $0.6 million.

Other plans

Company contributions to defined contribution schemes during 2013 were $7.7 million (2012 – $7.4 million).