THG 2018 Annual Report

completed service, and 3% thereafter. As of December 31, 2018, based on current estimates of plan liabilities and other assumptions, the projected benefit obligation of the qualified defined benefit pension plan exceeds plan assets by approximately $18.8 million. Assumptions U.S. Defined Benefit Plans In order to measure the expense associated with these plans, management must make various estimates and assumptions, including discount rates used to value liabilities, assumed rates of return on plan assets, employee turnover rates and anticipated mortality rates, IRU H[DPSOH 7KH HVWLPDWHV XVHG E\ PDQDJHPHQW DUH EDVHG RQ WKH &RPSDQ\¶V KLVWR rical experience, as well as current facts and circumstances. In addition, the Company uses outside actuaries to assist in measuring the expense and liability associated with these plans. The Company measures the funded status of its plans as of the date of its year-end statement of financial position. The Company utilizes a measurement date of December 31 st to determine its benefit obligations, consistent with the date of its Consolidated Balance Sheets. Weighted average assumptions used to determine pension benefit obligations are as follows: DECEMBER 31 2018 2017 2016 U.S. Discount rate - qualified plan 4.50% 3.88% 4.25% Discount rate - non-qualified plan 4.50% 3.88% 4.25% Cash balance interest crediting rate 3.50% 3.50% 3.50% The Company utilizes a measurement date of January 1 st to determine its periodic pension costs. Weighted average assumptions used to determine net periodic pension costs for the defined benefit plans are as follows: YEARS ENDED DECEMBER 31 2018 2017 2016 U.S.Qualified plan Discount rate 3.88% 4.25% 4.88% Expected return on plan assets 4.75% 5.00% 5.25% Cash balance interest crediting rate 3.50% 3.50% 3.50% U.S. Non-qualified plan Discount rate 3.88% 4.25% 4.75% The expected rates of return were determined by using historical mean returns for each asset class, adjusted for certain factors believed WR KDYH DQ LPSDFW RQ IXWXUH UHWXUQV 7KHVH UHWXUQV DUH JHQHUDOO\ ZHLJKWHG WR WKH SODQ¶V DFWXDO DVVHW DOORFDWLRQ DQG D re net of administrative expenses. For the U.S. defined benefit plans, the expected return on plan assets for 2018 of 4.75% reflects long-term expectations and remains generally consistent with 2017. The Company reviews and updates, at least annually, its expected return on plan assets based on changes in the actual assets held by the plans and market conditions. Plan Assets U.S. Qualified Defined Benefit Plan The Company utilizes a target allocation approach, which focuses on creating a mix of assets that will generate modest growth from HTXLW\ VHFXULWLHV ZKLOH PLQLPL]LQJ YRODWLOLW\ LQ WKH &RPSDQ\¶V HDUQLQJV IURP FKDQJHV LQ WKH PDUNHWV DQG HFRQRPLF HQYLURQPHQW Various factors are taken into consideration in determining the appropriate asset mix, such as census data, actuarial valuation information and capital market assumptions. The Company reviews and updates, at least annually, the target allocation and makes changes periodically. 106 THE HANOVER INSURANCE GROUP | 2018 ANNUAL REPORT