Employee Benefit Plans

12 Months Ended

Dec. 31, 2019

Retirement Benefits, Description [Abstract]

Employee Benefit Plans

U.S. Contribution Plan

We offer a savings plan to eligible U.S. employees. The plan is intended to qualify under Section 401(k) of the Internal Revenue Code. Substantially all of our U.S. employees are eligible to participate in the 401(k) savings plan. Participating employees may defer a portion of their pre-tax compensation, as defined, but not more than statutory limits. Under this plan, we match a specified percentage of employee contributions, and are able to make a discretionary core contribution, subject to certain limitations. For the first part of 2018, we contributed 50% of the amount contributed by the employee, up to a maximum of 5% of the employee’s earnings. Our matching contributions vest at a rate of 20% per year of service, with full vesting after five years of service. Effective August 28, 2018, the Company had a 401(k) benefit update, wherein the Company contributed 100% of the amount contributed by the employee, up to a maximum of 4% of the employee's earnings. Matching contributions under the updated 401(k) benefit plan vest 0% after one year, 50% after two years, and 100% after three years in the matching contribution. Effective January 1, 2020, the Company has suspended the 401(k) match for select plans.

The cost of our 401(k) plan is outlined below (in thousands):

	Year Ended December 31,
	2019		2018		2017
Cost of 401(k) plan	$	3,428	$	1,847	$	1,978

Pension & Other Post-Retirement Benefit Obligations

The Company also sponsors various defined benefit plans, and other post-retirement benefits plans, including health and life insurance, for former employees of an acquired business. These plans include significant benefit obligations which are calculated based on actuarial valuations. Key assumptions are made in determining these obligations and related net periodic benefit costs, including discount rates, mortality, and expected long-term return on plan assets.

On December 11, 2017, the Company acquired FH. The acquisition included all of the pension obligations associated with the acquired business outside of the U.S., and a significant portion of the post-retirement obligations associated with the acquired business in the U.S. The Company maintains a qualified noncontributory defined benefit pension plan, a nonqualified, noncontributory defined benefit supplemental pension plan, and other post-retirement benefit plans, including health and life insurance, in the U.S., which are frozen. To date, the supplemental and the other post-retirement benefits plans remain unfunded.

Outside of the U.S., the Company sponsors various funded and unfunded defined benefit plans. The obligations are primarily attributed to partially funded plans in Germany and the U.K.

During fiscal year 2019, we made cash contributions of approximately $0.8 million to our U.S. plans and $4.3 million to our foreign plans. In 2020, we expect to make defined benefit plan contributions based on the minimum required funding in accordance with statutory requirements (approximately $1.1 million in the U.S. and approximately $4.2 million for our foreign plans). The estimates for plan funding for future periods may change as a result of the uncertainties concerning the return on plan assets, the number of plan participants, and other changes in actuarial assumptions. We anticipate fulfilling these commitments through the generation of cash flow from operations.

The components of net periodic benefit cost for the postretirement plans were as follows (in thousands):

	Pension Benefits									Other Post-retirement Benefits
	Year Ended December 31,									Year Ended December 31,
	2019			2018			2017			2019			2018		2017
Components of net periodic benefit cost:
Service cost	$	2,694		$	2,993		$	181		$	2		$	1	$	—
Interest cost	10,061			9,164			2,158			359			336		20
Expected return on assets	(11,979		)	(15,418		)	(2,994		)	—			—		—
Net periodic benefit cost	776			(3,261		)	(655		)	361			337		20
Net loss (gain) amortization	441			153			735			(32		)	—		—
Prior service cost amortization	15			—			—			—			—		—
Total amortization	456			153			735			(32		)	—		—
Net periodic benefit cost	$	1,232		$	(3,108	)	$	80		$	329		$	337	$	20

The weighted average assumptions used in determining the net periodic benefit cost and benefit obligations for the post-retirement plans are shown below:

	Pension Benefits			Other Post-retirement Benefits
	Year Ended December 31,			Year Ended  December 31,
	2019	2018	2017	2019	2018	2017
Net periodic benefit cost (1):
Discount rate – U.S.	3.93%	3.27%	3.86%	4.10%	3.48%	3.63%
Discount rate – Foreign	2.00%	1.97%	N/A	N/A	N/A	N/A
Expected return on plan assets - U.S. (2)	6.25%	7.00%	7.25%	N/A	N/A	N/A
Expected return on plan assets - Foreign	3.70%	3.53%	N/A	N/A	N/A	N/A
Rate of compensation increase - Foreign	3.15%	3.11%	N/A	N/A	N/A	N/A
Benefit obligations:
Discount rate – U.S.	2.83%	3.93%	3.27%	3.05%	4.10%	3.48%
Discount rate – Foreign	1.24%	2.00%	1.97%	N/A	N/A	N/A
Rate of compensation increase - Foreign	3.09%	3.14%	3.11%	N/A	N/A	N/A
(1) 2017 Assumption excludes those that would have been applicable for 21 days of CIRCOR's ownership of FH.
(2) 2017 excludes estimate of return on assets still held in the prior plan which had an expected long-term return on plan assets for the time since acquisition of 6.25% for 2017 for which CIRCOR is entitled to its portion of the return.

The amounts reported for net periodic benefit cost and the respective benefit obligation amounts are dependent upon the actuarial assumptions used. The Company reviews historical trends, future expectations, current market conditions, and external data to determine the assumptions. The actuarial assumptions used to determine the net periodic pension cost are based upon the prior year’s assumptions used to determine the benefit obligation.

Effective with fiscal year 2018, the Company changed the method used to estimate the service and interest cost components of the net periodic benefit costs for all of its plans in the U.S., U.K., and Germany. The new method uses the spot yield curve approach to estimate the service and interest costs by applying the specific spot rates along the yield curve used to determine the benefit obligations to relevant projected cash outflows.  The Company changed to the new method to provide a more precise measure of interest and service costs by more closely correlating the application of the discrete spot yield curve rates with the projected benefit cash flows.  Prior to fiscal year 2018, the service and interest costs were determined using a single weighted-average discount rate used to measure the benefit obligation at the measurement date.

Assumed health care cost trend rates pre-65 trend at December 31, 2019 and 2018 were 6.8% and 7.0%, respectively. The rate to which the cost trend rate is assumed to decline (the ultimate trend rate) for December 31, 2019 and 2018 were 4.5% and 5.0%, respectively, and the years that the rate reaches the ultimate trend rate were 2028 and 2027, respectively. Assumed health care cost trend rates post-65 trend at December 31, 2019 and 2018 were 6.8% and 7.0%, respectively. The rate to which the cost trend rate is assumed to decline (the ultimate trend rate) for December 31, 2019 and 2018 were 4.5% and 5.00%, respectively, and the year that the rate reaches the ultimate trend rate were 2028 and 2027, respectively.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage point change in assumed health care cost trend rates would have the following pre-tax effects:

	1% Increase		1% Decrease
Effect on total service and interest cost components for the year ended December 31, 2019	$	50	$	(40	)
Effect on post-retirement benefit obligation at December 31, 2019	1,359		(1,102		)

In selecting the expected long-term return on assets for the qualified and foreign plans, we considered the average rate of earnings expected on the funds invested or to be invested to provide for the benefits of these plans. We, with input from the plans’ professional investment managers and actuaries, also considered the average rate of earnings expected on the funds invested or to be invested to provide plan benefits. This process included determining expected returns for the various asset

classes that comprise the plans’ target asset allocation. This basis for selecting the long-term return on assets is consistent with the prior year. Using generally accepted diversification techniques, the plans’ assets, in aggregate and at the individual portfolio level, are invested so that the total portfolio risk exposure and risk-adjusted returns best meet the plans’ long-term benefit obligations to employees. Plan asset allocations are reviewed periodically and rebalanced to achieve target allocation among the asset categories when necessary. This included considering the pension asset allocation and the expected returns likely to be earned over the life of the plans.

The funded status of the defined benefit post-retirement plans and amounts recognized in the consolidated balance sheets, measured as of December 31, 2019 and December 31, 2018 were as follows (in thousands):

	Pension Benefits						Other Post-retirement Benefits
	December 31,						December 31,
	2019			2018			2019			2018
Change in projected benefit obligation:
Balance at beginning of year	$	363,334		$	399,638		$	10,276		$	11,685
Service cost	2,694			2,993			2			1
Interest cost	10,061			9,164			359			336
Amendments	—			341			—			—
Actuarial loss (gain)	37,243			(16,081		)	(12		)	(1,166		)
Exchange rate (gain) / loss	(1,692		)	(9,661		)	—			—
Benefits paid	(24,533		)	(23,060		)	(432		)	(580		)
Settlement payments	(3,451		)	—			—			—
Curtailments (1)	(1,477		)	—			—			—
Balance at end of year	$	382,179		$	363,334		$	10,193		$	10,276
Change in fair value of plan assets:
Balance at beginning of year	$	210,993		$	247,583		$	—		$	—
Actual return on assets	46,665			(15,183		)	—			(580		)
Exchange rate (gain) / loss	935			(2,430		)	—			—
Benefits paid	(24,533		)	(23,060		)	(432		)	—
Settlement payments	(3,451		)	—			—			—
Employer contributions	4,688			4,083			432			580
Fair value of plan assets at end of year (2)	$	235,297		$	210,993		$	—		$	—
Funded status:
Excess of benefit obligation over the fair value of plan assets	$	(146,882	)	$	(152,341	)	$	(10,193	)	$	(10,276	)
Pension plan accumulated benefit obligation (“ABO”)	$	382,179		$	363,334		N/A			N/A
(1) On December 31, 2019, the Company transitioned its defined benefit plan in Norway to a defined contribution plan.
(2) Refer to table below for further disclosure regarding the fair value of our plan assets.

The fair values of the Company’s pension plan assets as of December 31, 2019 and 2018 utilizing the fair value hierarchy were as follows (in thousands):

	December 31, 2019								December 31, 2018
	Measured at Net Asset Value (1)		Level 1		Level 2		Total		Measured at Net Asset Value (1,2)		Level 1		Level 2		Total
U.S. Plans:
Cash Equivalents:
Money Market Funds	$	2,284	$	—	$	—	$	2,284	$	3,831	$	—	$	—	$	3,831
Mutual Funds:
Bond Funds	—		—		—		—		—		—		—		—
Large Cap Funds	—		—		—		—		—		—		—		—
International Funds	28,036		—		—		28,036		20,295		—		—		20,295
Small Cap Funds	—		—		—		—		—		—		—		—
Blended Funds	—		—		—		—		—		—		—		—
Mid Cap Funds	—		—		—		—		—		—		—		—
Comingled Pools:
Opportunistic	12,480		—		—		12,480		15,461		—		—		15,461
Investment Grade	62,134		—		—		62,134		51,340		—		—		51,340
Non-U.S. Equity	20,363		—		—		20,363		17,432		—		—		17,432
U.S. Equity	81,209		—		—		81,209		70,059		—		—		70,059
Global Low Volatility	1,396		—		—		1,396		5,400		—		—		5,400
Insurance Contracts	—		—		806		806		—		—		—		—
Foreign Plans:
Cash	—		42		—		42		—		22		—		22
Equity	10,742		—		—		10,742		8,623		—		—		8,623
Non-U.S. government and corporate bonds	15,504		—		—		15,504		13,569		—		—		13,569
Insurance Contracts	271		—		30		301		240		—		3,542		3,782
Other	—		—		—		—		—		—		368		368
Total Fair Value	$	234,419	$	42	$	836	$	235,297	$	206,250	$	22	$	3,910	$	210,182
(1) Certain investments that are measured at fair value using NAV have not been classified in the fair value hierarchy. These investments, consisting of common/collective trusts, are valued using the NAV provided by the Trustee. The NAV is based on the underlying investments held by the fund that are traded in an active market, less its liabilities. These investments are able to be redeemed in the near-term.
(2) $0.8 million of pension plan asset receivable was excluded from the fiscal year 2018 leveling table above as CIRCOR did not yet control the assets.
In fiscal year 2019, the Company reimbursed Colfax $2.2 million from plan assets related to 2018 pension benefits paid, expenses and lost investment return on those payments.

The following information is presented as of December 31, 2019 and 2018 (in thousands):

	Pension Benefits						Other Post-retirement Benefits
	2019			2018			2019			2018
Funded status, end of year:
Fair value of plan assets	$	235,297		$	210,993		$	—		$	—
Projected Benefit obligation	(382,179		)	(363,334		)	(10,193		)	(10,276		)
Net pension liability	$	(146,882	)	$	(152,341	)	$	(10,193	)	$	(10,276	)
Post-retirement amounts recognized in the balance sheet consists of:
Non-current asset	$	3,917		$	1,776		$	—		$	—
Current liability	(3,998		)	(3,494		)	(669		)	(701		)
Non-current liability	(146,801		)	(150,623		)	(9,524		)	(9,575		)
Total	$	(146,882	)	$	(152,341	)	$	(10,193	)	$	(10,276	)
Amounts recognized in accumulated other comprehensive income consist of:
Net losses	$	30,872		$	28,497		$	(883	)	$	(902	)
Prior service cost	322			325			—			—
Total	$	31,194		$	28,822		$	(883	)	$	(902	)
Estimated future benefit expense to be recognized in other comprehensive income (loss):	2020
Amortization of net losses	$	277
Prior service cost	16
Total	$	293

As of December 31, 2019, the benefit payments expected to be paid in each of the next five years and the aggregate for the five fiscal years thereafter were as follows (in thousands):

	2020		2021		2022		2023		2024		Thereafter
Pension Benefits - All Plans	$	23,055	$	22,799	$	22,516	$	22,238	$	21,789	$	101,297
Other Post-retirement Benefits	669		652		618		596		569		2,560
Expected benefit payments	$	23,724	$	23,451	$	23,134	$	22,834	$	22,358	$	103,857