Employee Retirement Plans

12 Months Ended

Dec. 31, 2019

Retirement Benefits [Abstract]

Employee Retirement Plans

18. Employee Retirement Plans

HC2

The Company sponsors a 401(k) employee benefit plan (the "401(k) Plan") that covers substantially all United States based employees. Employees may contribute amounts to the 401(k) Plan not to exceed statutory limitations. The 401(k) Plan provides an employer matching contribution in cash of 50% of the first 6% of employee annual salary contributions capped at $6,000.

The matching contribution made during each of the years ended December 31, 2019,and 2018 was $0.3 million and $0.4 million, respectively.

DBMG

Certain of DBMG’s fabrication and erection workforce are subject to collective bargaining agreements. DBMG contributes to union-sponsored, multi-employer pension plans. Contributions are made in accordance with negotiated labor contracts. The passage of the Multi-Employer Pension Plan Amendments Act of 1980 (the "Act") may, under certain circumstances, cause DBMG to become subject to liabilities in excess of contributions made under collective bargaining agreements. Generally, liabilities are contingent upon the termination, withdrawal, or partial withdrawal from the plans. Under the Act, liabilities would be based upon DBMG’s proportionate share of each plan’s unfunded vested benefits.

DBMG made contributions to various Pension Trusts of $6.2 million and $12.2 million during the years ended December 31, 2019 and 2018, respectively. DBMG’s funding policy is to make monthly contributions to the plan. DBMG’s employees represent less than 5% of the participants in the Pension Trusts. As of December 31, 2019, DBMG has not undertaken to terminate, withdraw, or partially withdraw from the Field Pension.

DBMG maintains a 401(k) retirement savings plan which covers eligible employees and permits participants to contribute to the plan, subject to Internal Revenue Code restrictions and which features matching contributions of 100% of the first 1%, and 50% of the next 5% of employee annual salary contributions, depending on the subsidiary. The matching contributions for the years ended December 31, 2019 and 2018 was $1.8 million and $1.2 million, respectively.

GMSL

GMSL has established a number of pension schemes and contribute to other pension schemes around the world covering many of its employees. The principal funds are those in the UK comprising The Global Marine Systems Pension Plan, The Global Marine Personal Pension Plan (established in 2008), and Global Marine Systems (Guernsey) Pension Plan. A small number of employees are members of the MNOPF, a centralized defined benefit scheme to which the GMSL contributes.

The Global Marine Systems Pension Plan, the Global Marine Systems (Guernsey) Pension Plan and the MNOPF are defined benefit plans with assets held in separate trustee administered funds. However as the Global Marine Systems (Guernsey) Pension Plan, which operates both a Career Average Re-valued Earnings ("CARE") defined benefit section and a defined contribution section is small with few members, the scheme is accounted for as defined contribution type plan. The Global Marine Personal Pension Plan is predominantly of the money purchase type.

The Global Marine Systems Pension Plan was a hybrid, exempt approved, occupational pension scheme for the majority of staff, which provides pension and death in service benefits. The defined benefit section of the Plan provided final salary benefits up to December 31, 2003 and CARE benefits from January 1, 2004. In 2008 the defined contribution section was closed to new contributions and all the accumulated funds attributable to the defined contribution members were transferred to a Contracted in Money Purchase Scheme ("CIMP") set up by GMSL. These funds were held on behalf of the defined contribution members and were all transferred to the Global Marine Personal Pension plan of each member on or before June 30, 2009. From August 31, 2006 the defined benefit section of the Scheme closed to future accrual and active members were offered membership of the existing defined contribution section (with some enhanced benefits).

Global Marine Systems Pension Plan - Defined Benefit Section

The defined benefit section of the Global Marine Systems Plan (prior to its closure on August 31, 2006) was contributory, with employees contributing between 5% and 8% (depending on their age) and the employer contributing at a rate of 9.2% of pensionable salary plus deficit contributions of $1.4 million per year.

The defined benefit section of the Global Marine Systems Pension Plan is funded by the payment of contributions determined with the advice of qualified independent actuaries on the basis of triennial valuations using the projected unit method. The most recent full actuarial valuation was conducted as of December 31, 2016 valuation, for the purpose of determining the funding requirements of the plan. The main assumptions used were as follows:

Assumption
Retail price inflation	Break even RPI curve
Consumer price inflation	RPI inflation curve less 1.1%
Rate of return on investments (post-retirement)	Fixed interest gilt yield curve plus 0.7%
At the actuarial valuation date the market value of the defined benefit section’s assets (in millions)	$	173.3
On a statutory funding objective basis the value of these assets covered the value of technical provisions by	80		%

Under a revised deficit recovery plan agreed between GMSL and the trustees of GMSL's pension plan dated March 20, 2018, which was subsequently submitted to the UK government’s Pension Regulator, contributions of approximately $13.1 million deferred from 2016 and 2017 due in December 2017 have been further deferred. To support this deferral, the Company has provided secured assets in the form of the CWind Phantom crew transfer vessel and two trenchers. Consistent with earlier recovery plans, the revised deficit recovery plan comprises three elements: fixed contributions, variable contributions (profit-related element) and variable contributions (dividend-related element), though the amounts and some definitions have been modified. As of December 31, 2019, the fixed contributions are payable in installments, comprise approximately $7.1 million in 2020, approximately $7.2 million in 2021 and approximately $3.1 million in 2022. The variable contributions (profit-related element) are calculated as 10% of GMSL's audited operating profit and paid two years in arrears in December each year from 2018. The variable contributions (dividend-related) equate to 50% of any future dividend paid by GMSL.

Global Marine Personal Pension Plan

This is a defined contribution pension scheme and is contributory from the employee; the rate of contributions is split as follows: 

•ex-CARE employees contributing between 2.5% and 7.5% and the employer contributing at a matching rate plus an additional 5% fixed contributions; and

•defined contribution employees contributing between 2% and 7.5% and the employer contributing at a matching rate.

For the year ended December 31, 2019, $7.0 million of contributions have been made to the Company's pension plans, comprising $6.7 million of fixed contributions and $0.3 million of profit-related contributions. For the year ended December 31, 2018, GMSL made contributions of $3.8 million, comprising $2.6 million of fixed contributions and $1.2 million of profit-related contributions.

MNOPF

The MNOPF is funded by the payment of contributions determined with the advice of qualified independent actuaries on the basis of triennial valuations using the projected unit method. The most recent available full actuarial valuation was conducted as at March 31, 2015 for the purpose of determining the funding requirements of the plan. The main assumptions used were that Retail Price Inflation would be 3.1% per year, Consumer Price Inflation would be 2.1% per year, the rate of return on investments (pre-retirement) would be  4.75% per year, the rate of return on investments (post-retirement) would be 2.6% per year and with pensions increasing (where relevant) by 2.9% per year.

At the actuarial valuation date the market value of the total assets in the scheme amounted to $3.6 billion of which 0.08% ($2.8 million) relates to GMSL. On an on-going basis the value of these assets, together with the deficit contributions receivable of $394 million, covered the value of pensioner liabilities, preserved pension liabilities for former employees and the value of benefits for active members based on accrued service and projected salaries, to the extent of 99.7%.

Following the March 31, 2016 actuarial valuation, contributions are payable by the GMSL as follows: 

•Maintain employer contributions to 20% of pensionable salaries to September 30, 2016, and then no more contributions thereafter.

Global Marine Systems (Guernsey) Pension Plan

The defined benefit section of the Guernsey Scheme is contributory, with employees contributing between 5% and 8% (depending on their age), the employer ceased contributing after July 2004. The defined contribution section is also contributory, with employees contributing between 2% and 7.5% (depending on their age and individual choice) and the employer contributing at a matching rate. The defined benefit section of the Guernsey Scheme is funded by the payment of contributions determined with the advice of qualified independent actuaries on the basis of triennial valuations using the projected unit method.

The most recent full actuarial valuation was conducted as of December 31, 2016 for the purpose of determining the funding requirements of the plan. The principal actuarial assumptions used by the actuary were investment returns of 3.5% per year pre-retirement, 2.6% per year post-retirement, inflation of 3.7% per year and pension increases of 3.4% per year.

At the valuation date the market value of the assets amounted to $2.6 million. The results show a past service shortfall of $1.0 million corresponding to a funding ratio of 73%.

Following the December 31, 2016 actuarial valuation, contributions are as follows: 

•Six annual contributions of less than $0.2 million from December 31, 2019 to 2024 with a final contribution of $0.1 million on April 30, 2025.

Collectively hereafter, the defined benefit plans will be referred to as the "Plans".

Obligations and Funded Status

For all company sponsored defined benefit plans and our portion of the MNOPF, the benefit obligation is the "projected benefit obligation," the actuarial present value, as of our December 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefit to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees/survivors and average years of service rendered. It is measured based on assumptions concerning future interest rates and future employee compensation levels.

The following table presents this reconciliation and shows the change in the projected benefit obligation for the Plans for the period from December 31, 2017 through December 31, 2019 (in millions):

Projected benefit obligation at December 31, 2017	$	208.7
Service cost - benefits earning during the period	—
Interest cost on projected benefit obligation	5.3
Contributions	—
Actuarial loss	(11.6)
Benefits paid	(10.0)
Foreign currency loss	(11.1)
Projected benefit obligation at December 31, 2018	181.3
Service cost - benefits earning during the period	—
Interest cost on projected benefit obligation	5.3
Contributions	—
Actuarial loss	20.2
Benefits paid	(6.8)
Foreign currency loss	5.9
Projected benefit obligation at December 31, 2019	$	205.9

The following table presents the change in the value of the assets of the Plans for the period from December 31, 2017 through December 31, 2019 and the plans’ funded status at December 31, 2019 (in millions):

Fair value of plan assets at December 31, 2017	$	190.2
Actual return on plan assets	(11.7)
Benefits paid	(10.0)
Contributions	3.8
Foreign currency gain (loss)	(9.5)
Fair value of plan assets at December 31, 2018	162.8
Actual return on plan assets	18.7
Benefits paid	(6.8)
Contributions	7.0
Foreign currency gain (loss)	5.7
Fair value of plan assets at December 31, 2019	187.4
Unfunded status at end of year	$	18.5

Amounts recognized in the consolidated balance sheets within Other assets and Other liabilities at December 31, 2019 and 2018 are listed below (in millions):

	December 31,
	2019		2018
Pension Asset	$	0.4	$	—
Pension Liability	18.8		18.6
Net pension liability recognized	$	18.4	$	18.6

The accumulated benefit obligation for the Plans represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does not include an assumption about future compensation levels. As of December 31, 2019 contributions of $32.0 million were due to be payable to the Plans.

Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income

Periodic Benefit Costs

The aggregate net pension cost recognized in the consolidated statements of operations were costs of $6.5 million and $4.6 million for the years ended December 31, 2019 and 2018, respectively.

The following table presents the components of net periodic benefit cost are as follows (in millions):

	Years Ended December 31,
	2019		2018
Service cost—benefits earning during the period	$	—	$	—
Interest cost on projected benefit obligation	5.3		5.3
Expected return on assets	(6.7)		(7.5)
Actuarial (gain) loss	7.9		6.7
Foreign currency gain (loss)	—		0.1
Net pension (benefit) cost	$	6.5	$	4.6

Of the amounts presented above, income of $1.4 million has been included in cost of revenue and loss of $7.9 million included in other comprehensive income for the year ended December 31, 2019, and income of $2.1 million has been included in cost of revenue and loss of $6.7 million included in other comprehensive income for the year ended December 31, 2018.

In determining the net periodic pension cost for the Plans, GMSL used the following weighted average assumptions: the pension increase assumption is that for benefits increasing with RPI limited to 5% per year, to which the majority of the Plan’s liabilities relate. GMSL employs a building block approach in determining the long-term rate of return of pension plan assets. Historical markets are studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted capital market principles. The overall expected rate of return on assets is then derived by aggregating the expected return for each asset class over the actual asset allocation for the Plans as of December 31, 2019.

	Years Ended December 31,
	2019		2018
Discount rate	3.00	%	2.60	%
Rate of compensation increases (MNOPF only)	N/A		N/A
Rate of future RPI inflation	3.15	%	3.15	%
Rate of future CPI inflation	2.05	%	2.05	%
Pension increases in payment	3.05	%	3.00	%
Long-term rate of return on assets	4.15	%	3.99	%

Other Changes in Benefit Obligations Recognized in Other Comprehensive Income

The following tables present the after-tax changes in benefit obligations recognized in comprehensive income and the after-tax prior service credits that were amortized from AOCI into net periodic costs are as follows (in millions):

	Years Ended December 31,
	2019		2018
Net loss (gain)	$	6.3	$	4.9
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	6.3	$	4.9

	Years Ended December 31,
	2019		2018
Actuarial (gain) loss	$	7.9	$	6.7
Total recognized in other comprehensive (income) loss	$	7.9	$	6.7

There is zero estimated loss for pension benefits to be amortized from AOCI into net periodic benefit cost in fiscal year 2020.

Estimated Future Benefit Payments

Expected benefit payments are estimated using the same assumptions used in determining the Plan’s benefit obligation at December 31, 2019. Because benefit payments will depend on future employment and compensation levels, average years employed, average life spans, and payment elections, among other factors, changes in any of these factors could significantly affect these expected amounts. The following table provides expected benefit payments under our pension and post-retirement plans (in millions):

2020	$	7.2
2021	7.4
2022	7.6
2023	7.8
2024	8.0
Thereafter	43.0
Total	$	81.0

Aggregate expected contributions in the coming fiscal year are expected to be $32.0 million.

Plan Assets - Description of plan assets and investment objectives

The assets of the Plans consist primarily of private and public equity, government and corporate bonds, among others. The asset allocations of the Plans are maintained to meet regulatory requirements where applicable. Any contributions to the Plans are made to a pension trust for the benefit of plan participants.

The principal investment objectives are to ensure the availability of funds to pay pension benefits as they become due under a broad range of future economic scenarios, to maximize long-term investment return with an acceptable level of risk based on our pension and post-retirement obligations, and to be broadly diversified across and within the capital markets to insulate asset values against adverse experience in any one market. Each asset class has broadly diversified characteristics. Substantial biases toward any particular investing style or type of security are sought to be avoided by managing the aggregation of all accounts with portfolio benchmarks. Asset and benefit obligation forecasting studies are conducted periodically, generally every two to three years, or when significant changes have occurred in market conditions, benefits, participant demographics or funded status. Decisions regarding investment policy are made with an understanding of the effect of asset allocation on funded status, future contributions and projected expenses.

The Plans’ weighted-average asset targets and actual allocations as a percentage of Plan assets, including the notional exposure of future contracts by asset categories at December 31, 2019, are as follows:

	Target		December 31, 2019
Liability hedging	29.9	%	37.1	%
Equities	12.9	%	6.9	%
Hedge funds	29.4	%	36.3	%
Corporate bonds	20.8	%	18.1	%
Property	6.1	%	1.6	%
Other	0.9	%	—	%
Total	100.0	%	100.0	%

Investment Valuation

GMSL’s plan investments related to the Global Marine Systems Pension Plan and MNOPF consist of the following (in millions):

	Global Marine Systems Pension Plan				MNOPF
	December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018
Equities	$	23.9	$	29.6	$	0.3	$	0.3
Liability Hedging Assets	53.6		52.5		2.0		1.6
Hedge Funds	54.8		42.8		0.5		0.4
Corporate Bonds	38.6		25.8		0.5		0.4
Property	11.4		8.6		0.2		0.1
Other	1.6		0.7		—		—
Total market value of assets	183.9		160.0		3.5		2.8
Present value of liabilities	(202.7)		(178.6)		(3.1)		(2.8)
Net pension liability	$	(18.8)	$	(18.6)	$	0.4	$	—

Investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Generally, investments are valued based on information provided by fund managers to our trustee as reviewed by management and its investment advisers.

Investments in securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the year. If no sale was reported on that date, they are valued at the last reported bid price. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Over-the-counter (OTC) securities and government obligations are valued at the bid price or the average of the bid and asked price on the last business day of the year from published sources where available and, if not available, from other sources considered reliable. Depending on the types and contractual terms of OTC derivatives, fair value is measured using a series of techniques, such as Black-Scholes option pricing model, simulation models or a combination of various models.

Alternative investments, including investments in private equities, private bonds, limited partnerships, hedge funds, real assets and natural resources, do not have readily available market values. These estimated fair values may differ significantly from the values that would have been used had a ready market for these investments existed, and such differences could be material. Private equity, private bonds, limited partnership interests, hedge funds and other investments not having an established market are valued at net asset values as determined by the investment managers, which management has determined approximates fair value. Private equity investments are often valued initially based upon cost; however, valuations are reviewed utilizing available market data to determine if the carrying value of these investments should be adjusted. Such market data primarily includes observations of the trading multiples of public companies considered comparable to the private companies being valued. Investments in real assets funds are stated at the aggregate net asset value of the units of these funds, which management has determined approximates fair value. Real assets and natural resource investments are valued either at amounts based upon appraisal reports prepared by appraisers or at amounts as determined by an internal appraisal performed by the investment manager, which management has determined approximates fair value.

Purchases and sales of securities are recorded as of the trade date. Realized gains and losses on sales of securities are determined on the basis of average cost. Interest income is recognized on the accrual basis. Dividend income is recognized on the ex-dividend date.

The following table sets forth by level, within the fair value hierarchy, the pension assets and liabilities at fair value for the Global Marine Systems Pension Plan (in millions):

As of December 31, 2019	Fair Value Measurement Using:
	Level 1		Level 2		Total
Equities	$	—	$	23.9	$	23.9
Liability Hedging Assets	—		53.6		53.6
Hedge Funds	—		54.8		54.8
Corporate Bonds	—		38.6		38.6
Property	—		11.4		11.4
Other	0.9		0.7		1.6
Total Plan Net Assets	$	0.9	$	183.0	$	183.9

As of December 31, 2018	Fair Value Measurement Using:
	Level 1		Level 2		Total
Equities	$	—	$	29.6	$	29.6
Liability Hedging Assets	—		52.5		52.5
Hedge Funds	—		42.8		42.8
Corporate Bonds	—		25.8		25.8
Property	—		8.6		8.6
Other	0.4		0.3		0.7
Total Plan Net Assets	$	0.4	$	159.6	$	160.0

The following table sets forth by level, within the fair value hierarchy, the pension assets and liabilities at fair value for the MNOPF (in millions):

	Fair Value Measurement Using Level 3
	December 31, 2019		December 31, 2018
Equities	$	0.3	$	0.3
Liability Hedging Assets	2.0		1.6
Hedge Funds	0.5		0.4
Corporate Bonds	0.5		0.4
Property	0.2		0.1
Other	—		—
Total Plan Net Assets	$	3.5	$	2.8

The table below set forth a summary of changes in the fair value of the Level 3 pension assets for the period from December 31, 2017 through December 31, 2019 for the MNOPF (in millions):

Balance at December 31, 2017	$	3.2
Actual return on plan assets	(0.1)
Contributions	—
Benefits paid	(0.1)
Foreign currency gain (loss)	(0.2)
Balance at December 31, 2018	2.8
Actual return on plan assets	0.8
Contributions	—
Benefits paid	(0.3)
Foreign currency gain (loss)	0.2
Balance at December 31, 2019	$	3.5