Avon 2015 Annual Report Download - page 116

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. Employee Benefit Plans
Savings Plan
We offer a qualified defined contribution plan for U.S.-based employees, the Avon Personal Savings Account Plan (the “PSA”), which allows
eligible participants to contribute up to 25% of eligible compensation through payroll deductions. We match employee contributions dollar
for dollar up to the first 3% of eligible compensation and fifty cents for each dollar contributed from 4% to 6% of eligible compensation.
We made matching contributions in cash to the PSA of $4.0 in 2015, $5.0 in 2014 and $5.5 in 2013, which follow the same investment
allocation that the participant has selected for his or her own contributions. For U.S. employees hired on or after January 1, 2015, we made
additional contributions to a Retirement Savings Account (“RSA”) within the PSA. Such contributions will range from 3% to 6% of a
participant’s eligible compensation depending on the sum of the participant’s age and length of service (as of December 31 of the prior
year). Investment of such contributions will follow the same investment allocation that the participant has selected for his or her own
contributions to the PSA. A participant will be vested in the RSA generally after three full years of applicable service.
Defined Benefit Pension and Postretirement Plans
Avon and certain subsidiaries have contributory and noncontributory defined benefit retirement plans for substantially all employees of those
subsidiaries. Benefits under these plans are generally based on an employee’s length of service and average compensation near retirement,
and certain plans have vesting requirements. Plans are funded based on legal requirements and cash flow. The U.S. defined benefit pension
plan, the Avon Products, Inc. Personal Retirement Account Plan (the “PRA”), is closed to employees hired on or after January 1, 2015.
Qualified retirement benefits for U.S. employees hired on or after January 1, 2015 will be provided solely through the PSA, as described
above.
As part of the separation of the North America business, we will transfer certain pension liabilities under the PRA associated with current and
former employees of the North America business and certain other former Avon employees, along with a portion of the assets held by the
U.S. defined benefit pension plan, to a defined benefit pension plan sponsored by the new privately-held company. We will also transfer
certain other postretirement liabilities (namely, retiree medical and supplemental pension liabilities) in respect of such employees and former
employees. We will continue to retain certain U.S. pension and other postretirement liabilities primarily associated with employees who are
actively employed by Avon outside of the North America business. Prior to this separation, our net periodic benefit costs for the U.S. pension
and postretirement benefit plans were allocated between Discontinued Operations and Global and Other Expenses as the plan includes both
North America and U.S. Corporate Avon associates.
We provide health care benefits, subject to certain limitations, to many retired employees in the U.S. and certain foreign countries. In the
U.S., the cost of such health care benefits is shared by us and our retirees for employees hired on or before January 1, 2005. Employees
hired after January 1, 2005, will pay the full cost of the health care benefits upon retirement. In August 2009, we announced changes to our
postretirement medical and life insurance benefits offered to U.S. retirees. The changes to the retiree medical benefits reduced the plan’s
obligations by $36.3, of which $33.6 are associated with discontinued operations. This amount is being amortized as a negative prior service
cost over the average future service of active participants which is approximately 12 years. The changes to the retiree life insurance benefits
reduced the plan’s obligations by $27.7. This amount was amortized as a negative prior service cost over 3.3 years, which was the remaining
term of the plan.
In October 2015, we announced changes to our postretirement medical benefits offered to U.S. retirees to be effective as of January 1,
2016. The changes to the retiree medical benefits reduced the plan’s obligations by $9.0, of which $8.3 are associated with discontinued
operations. This amount is being amortized as a negative prior service cost over the average future service of active participants which is
approximately 8 years.
We are required, among other things, to recognize the funded status of defined benefit pension and other postretirement benefit plans on
the balance sheet. Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability. The recognition of
prior service costs or credits and net actuarial gains or losses, as well as subsequent changes in the funded status, are recognized as
components of AOCI, net of tax, in shareholders’ equity, until they are amortized as a component of net periodic benefit cost. We recognize
prior service costs or credits and actuarial gains and losses beyond a 10% corridor to earnings based on the estimated future service period
of the participants. The determination of the 10% corridor utilizes a calculated value of plan assets for our more significant plans, whereby
gains and losses are smoothed over three- and five-year periods.
7553_fin.pdf 106