LabCorp 2015 Annual Report Download - page 60

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The Company has a defined benefit retirement plan (Company Plan) and a non-qualified supplemental retirement plan (PEP). In October 2009, the
Company received approval from its Board of Directors to freeze any additional service-based credits for any years of service after December 31, 2009 on the
Company Plan and the PEP. Both plans have been closed to new participants. Employees participating in the Company Plan and the PEP no longer earn
service-based credits, but continue to earn interest credits. In addition, effective January 1, 2010, all employees eligible for the defined contribution
retirement plan (401K Plan) receive a minimum 3% non-elective contribution (NEC) concurrent with each payroll period. The 401K Plan also permits
discretionary contributions by the Company of up to 1% and up to 3% of pay for eligible employees, based on service.
The Company Plan covers substantially all employees hired prior to December 31, 2009. The benefits to be paid under the Company Plan are based on
years of credited service through December 31, 2009, interest credits and average compensation. The Company's policy is to fund the Company Plan with at
least the minimum amount required by applicable regulations. The PEP covers the Company's senior management group. Prior to 2010, the PEP provided for
the payment of the difference, if any, between the amount of any maximum limitation on annual benefit payments under the Employee Retirement Income
Security Act of 1974 and the annual benefit that would be payable under the Company Plan but for such limitation. Effective January 1, 2010, employees
participating in the PEP no longer earn service-based credits. The PEP is an unfunded plan.
In addition, as a result of the Acquisition, the Company also has a frozen non-qualified Supplemental Executive Retirement Plan (SERP). The SERP,
which is not funded, is intended to provide retirement benefits for certain employees who were executive officers of Covance prior to the Acquisition. Benefit
amounts are based upon years of service and compensation of the participating employees. The Company also sponsors two defined benefit pension plans for
the benefit of its employees at two U.K. subsidiaries (U.K. Plans) and one defined benefit pension plan for the benefit of its employees at a German subsidiary
(German Plan), all of which are legacy plans of previously acquired companies. Benefit amounts for all three plans are based upon years of service and
compensation. The German Plan is unfunded while the U.K. Plans are funded. The Company’s funding policy for the U.K. Plans has been to contribute
annually amounts at least equal to the local statutory funding requirements.
The Company's net pension cost is developed from actuarial valuations. Inherent in these valuations are key assumptions, including discount rates and
expected return on plan assets, which are updated on an annual basis at the beginning of each year. The Company is required to consider current market
conditions, including changes in interest rates, in making these assumptions. Changes in pension costs may occur in the future due to changes in these
assumptions. The key assumptions used in accounting for the defined benefit retirement plans were a 4.0% discount rate and a 7.0% expected long-term rate
of return on plan assets for the Company Plan and the PEP, a 3.8% discount rate for the SERP, a 2.5% discount rate and a 2.0% expected salary increase for
the German plan, a 3.8% discount rate and a 3.6% expected salary increase for the U.K. Plans as of December 31, 2015.
Discount Rate
The Company evaluates several approaches toward setting the discount rate assumption that is used to value the benefit obligations of its retirement
plans. At year-end, priority was given to use of the Towers Watson Bond:Link model, which simulates the purchase of investment-grade corporate bonds at
current market yields with principal amounts and maturity dates closely matching the Company's projected cash disbursements from its plans. This
completed model represents the yields to maturity that the Company could theoretically settle its plan obligations at year end. The weighted-average yield
on the modeled bond portfolio is then used to form the discount rate assumption used for each retirement plan. A one percentage point decrease or increase in
the discount rate would have resulted in a respective increase or decrease in 2015 retirement plan expense of $1.8 for the Company Plan and PEP. A one
percentage point decrease or increase in the discount rate would have resulted in a respective increase or decrease in 2015 retirement plan expense of $1.0 for
the U.K. Plans.
Return on Plan Assets
In establishing its expected return on plan assets assumption, the Company reviews its asset allocation and develops return assumptions based on
different asset classes adjusting for plan operating expenses. Actual asset over/under performance compared to expected returns will respectively
decrease/increase unrecognized loss. The change in the unrecognized loss will change amortization cost in upcoming periods. A one percentage point
increase or decrease in the expected return on plan assets would have resulted in a corresponding change in 2015 pension expense of $2.6 for the Company
Plan and the SERP. A one percentage point increase or decrease in the expected return on plan assets would have resulted in a corresponding change in 2015
pension expense of $2.0 for the U.K. Plans.
Net pension cost for 2015 was $12.0 as compared with $8.1 in 2014 and $11.0 in 2013. The increase in pension expense was due to increases in the
amount of net amortization and deferral as a result of lower discount rates. The decrease in pension expense
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