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SEC Filings

10-K
INTERPUBLIC GROUP OF COMPANIES, INC. filed this Form 10-K on 02/21/2017
Entire Document
 

Management’s Discussion and Analysis of Financial Condition and Results of Operations - (continued)
(Amounts in Millions, Except Per Share Amounts)



unit, loss of key personnel, the disposition of a significant portion of a reporting unit, significant decline in stock price or a significant adverse change in business climate or regulations.

Pension and Postretirement Benefit Plans
We use various actuarial assumptions in determining our net pension and postretirement benefit costs and obligations. Management is required to make significant judgments about a number of actuarial assumptions, including discount rates and expected returns on plan assets, which are updated annually or more frequently with the occurrence of significant events.
The discount rate is a significant assumption that impacts our net pension and postretirement benefit costs and obligations. We determine our discount rates for our domestic pension and postretirement benefit plans and significant foreign pension plans based on either a bond selection/settlement approach or bond yield curve approach. Using the bond selection/settlement approach, we determine the discount rate by selecting a portfolio of corporate bonds appropriate to provide for the projected benefit payments. Using the bond yield curve approach, we determine the discount rate by matching the plans' cash flows to spot rates developed from a yield curve. Both approaches utilize high-quality AA-rated corporate bonds and the plans' projected cash flows to develop a discounted value of the benefit payments, which is then used to develop a single discount rate. In countries where markets for high-quality long-term AA corporate bonds are not well developed, a portfolio of long-term government bonds is used as a basis to develop hypothetical corporate bond yields, which serve as a basis to derive the discount rate.
The discount rate used to calculate net pension and postretirement benefit costs is determined at the beginning of each year. For the year ended December 31, 2016, discount rates of 4.80% for the domestic pension plan and 4.65% for the postretirement benefit plan and a weighted-average discount rate of 3.61% for the significant foreign pension plans were used to calculate 2016 net pension and postretirement benefit costs. A 25 basis-point increase or decrease in the discount rate would have decreased or increased the 2016 net pension and postretirement benefit cost by approximately $0.4.
The discount rate used to measure our benefit obligations is determined at the end of each year. As of December 31, 2016, we used discount rates of 4.20% for the domestic pension plan and 4.05% for the domestic postretirement benefit plan and a weighted-average discount rate of 2.52% for our significant foreign pension plans to measure our benefit obligations. A 25 basis-point increase or decrease in the discount rate would have decreased or increased the December 31, 2016 benefit obligation by approximately $26.0 and $28.0, respectively.
The expected rate of return on pension plan assets is another significant assumption that impacts our net pension cost and is determined at the beginning of the year. Our expected rate of return considers asset class index returns over various market and economic conditions, current and expected market conditions, risk premiums associated with asset classes and long-term inflation rates. We determine both a short-term and long-term view and then select a long-term rate of return assumption that matches the duration of our liabilities.
For 2016, the weighted-average expected rates of return of 7.00% and 5.38% were used in the calculation of net pension costs for the domestic and significant foreign pension plans, respectively. For 2017, we plan to use expected rates of return of 7.00% and 4.66% for the domestic and significant foreign pension plans, respectively. Changes in the rates are typically due to lower or higher expected future returns based on the mix of assets held. A lower expected rate of return would increase our net pension cost. A 25 basis-point increase or decrease in the expected return on plan assets would have decreased or increased the 2016 net pension cost by approximately $1.0.

RECENT ACCOUNTING STANDARDS
See Note 14 to the Consolidated Financial Statements for further information on certain accounting standards that have been adopted during 2016 or that have not yet been required to be implemented and may be applicable to our future operations.

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