Qualified Employee Benefit Plans

12 Months Ended

Dec. 31, 2019

Retirement Benefits [Abstract]

Qualified Employee Benefit Plans

Qualified Employee Benefit Plans

We maintain a qualified profit sharing plan covering U.S. employees and certain foreign employees. Employer contributions are discretionary and generally limited to the maximum amount deductible for federal income tax purposes. Aggregate contributions for 2019, 2018 and 2017 were $14.4 million, $15.0 million and $14.4 million, respectively.

We maintain several defined contribution plans for foreign employees working for our subsidiaries in the United Kingdom, Australia, Japan and other locations outside the United States. Employer contributions generally are consistent with regulatory requirements and tax limits. Defined contribution expense for foreign entities was $7.7 million, $7.1 million and $6.8 million in 2019, 2018 and 2017, respectively.

We maintain a qualified, noncontributory, defined benefit retirement plan (“Retirement Plan”) covering current and former employees who were employed by AB in the United States prior to October 2, 2000. Benefits are based on years of credited service, average final base salary (as defined in the Retirement Plan) and primary Social Security benefits. Service and compensation after December 31, 2008 are not taken into account in determining participants’ retirement benefits.

Our policy is to satisfy our funding obligation for each year in an amount not less than the minimum required by the Employee Retirement Income Security Act of 1974, as amended, and not greater than the maximum amount we can deduct for federal income tax purposes. We contributed $4.0 million to the Retirement Plan during 2019. We do not currently anticipate that we will contribute to the Retirement Plan during 2020. Contribution estimates, which are subject to change, are based on regulatory requirements, future market conditions and assumptions used for actuarial computations of the Retirement Plan’s obligations and assets. Management, at the present time, has not determined the amount, if any, of additional future contributions that may be required.

The Retirement Plan’s projected benefit obligation, fair value of plan assets and funded status (amounts recognized in the consolidated statements of financial condition) were as follows:

	Years Ended December 31,
	2019			2018
	(in thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	116,233		$	125,200
Interest cost	4,944			4,771
Actuarial loss (gain)	20,411			(9,918		)
Benefits paid	(5,475		)	(3,820		)
Projected benefit obligation at end of year	136,113			116,233
Change in plan assets:
Plan assets at fair value at beginning of year	98,584			100,706
Actual return on plan assets	16,971			(3,302		)
Employer contribution	4,000			5,000
Benefits paid	(5,475		)	(3,820		)
Plan assets at fair value at end of year	114,080			98,584
Funded status	$	(22,033	)	$	(17,649	)

Effective December 31, 2015, the Retirement Plan was amended to change the actuarial basis used for converting a life annuity benefit to optional forms of payment and converting benefits payable at age 65 to earlier commencement dates. This prior service cost will be amortized over future years.

The amounts recognized in other comprehensive income (loss) for the Retirement Plan for 2019, 2018 and 2017 were as follows:

	2019			2018			2017
	(in thousands)
Unrecognized net (loss) gain from experience different from that assumed and effects of changes and assumptions	$	(7,934	)	$	1,870		$	(3,043	)
Prior service cost	24			24			24
	(7,910		)	1,894			(3,019		)
Income tax benefit (expense)	312			(207		)	(49		)
Other comprehensive (loss) income	$	(7,598	)	$	1,687		$	(3,068	)

The loss of $7.6 million recognized in 2019 primarily was due to changes in the discount rate and lump sum interest rates ($21.7 million), offset by actual earnings exceeding expected earnings on plan assets ($11.3 million), changes in the mortality assumption ($1.2 million), the recognized actuarial loss ($1.1 million) and changes in the census data ($0.1 million). The gain of $1.7 million recognized in 2018 primarily was due to changes in the discount rate and lump sum interest rates ($9.7 million), the recognized actuarial loss ($1.1 million) and changes in the mortality assumption ($0.4 million), offset by actual earnings exceeding expected earnings on plan assets ($9.2 million) and changes in the census data ($0.2 million). The loss of $3.1 million recognized in 2017 primarily was due to changes in the discount rate and lump sum interest rates ($11.9 million) and changes in the census data ($1.4 million), offset by actual earnings exceeding expected earnings on plan assets ($8.5 million), the recognized actuarial loss ($1.1 million) and changes in the mortality assumption ($0.7 million).

Foreign retirement plans and an individual's retirement plan maintained by AB are not material to AB's consolidated financial statements. As such, disclosure for these plans is not necessary. The reconciliation of the 2019 amounts recognized in other comprehensive income for the Retirement Plan as compared to the consolidated statement of comprehensive income ("OCI Statement") is as follows:

	Retirement Plan			Retired Individual Plan			Foreign Retirement Plans			OCI Statement
	(in thousands)
Recognized actuarial (loss) gain	$	(7,934	)	$	(69	)	$	112		$	(7,891	)
Amortization of prior service cost	24			—			—			24
Changes in employee benefit related items	(7,910		)	(69		)	112			(7,867		)
Income tax benefit (expense)	312			3			(41		)	274
Employee benefit related items, net of tax	$	(7,598	)	$	(66	)	$	71		$	(7,593	)

The amounts included in accumulated other comprehensive income (loss) for the Retirement Plan as of December 31, 2019 and 2018 were as follows:

	2019			2018
	(in thousands)
Unrecognized net loss from experience different from that assumed and effects of changes and assumptions	$	(55,537	)	$	(47,603	)
Prior service cost	(731		)	(755		)
	(56,268		)	(48,358		)
Income tax benefit	513			201
Accumulated other comprehensive loss	$	(55,755	)	$	(48,157	)

The amortization period over which we are amortizing the loss for the Retirement Plan from accumulated other comprehensive income is 30.9 years. The estimated prior service cost and amortization of loss for the Retirement Plan that will be amortized from accumulated other comprehensive income over the next year are $24 thousand and $1.4 million, respectively.

The accumulated benefit obligation for the plan was $136.1 million and $116.2 million as of December 31, 2019 and 2018, respectively.

The discount rates used to determine benefit obligations as of December 31, 2019 and 2018 (measurement dates) were 3.35% and 4.40%, respectively.

Benefit payments are expected to be paid as follows (in thousands):

2020	$	5,868
2021	7,113
2022	9,202
2023	7,451
2024	7,538
2025-2029	45,048

Net expense under the Retirement Plan consisted of:

	Year Ended December 31,
	2019			2018			2017
	(in thousands)
Interest cost on projected benefit obligations	$	4,944		$	4,771		$	4,999
Expected return on plan assets	(5,639		)	(5,893		)	(5,261		)
Amortization of prior service cost	24			24			24
Recognized actuarial loss	1,146			1,146			1,097
Net pension expense	$	475		$	48		$	859

Actuarial computations used to determine net periodic costs were made utilizing the following weighted-average assumptions:

	Years Ended December 31,
	2019		2018		2017
Discount rate on benefit obligations	4.40	%	3.90	%	4.55	%
Expected long-term rate of return on plan assets	5.75	%	5.75	%	6.00	%

In developing the expected long-term rate of return on plan assets of 5.75%, management considered the historical returns and future expectations for returns for each asset category, as well as the target asset allocation of the portfolio. The expected long-term rate of return on assets is based on weighted average expected returns for each asset class.

As of December 31, 2019, the mortality projection assumption has been updated to use the generational MP-2019 improvement scale. Previously, mortality was projected generationally using the MP-2018 improvements scale. The base mortality assumption was updated to the Society of Actuaries Pri-2012 base mortality table for private sector plans, with a white-collar adjustment, using the contingent annuitant table for beneficiaries of deceased participants. Previously, the mortality assumption was the RP-2014 white-collar mortality table for males and females adjusted back to 2006 using the MP-2014 improvement scale.

The Internal Revenue Service (“IRS”) recently updated the mortality tables used to determine lump sums. For fiscal year-end 2019, we reflected the most recently published IRS table for lump sums assumed to be paid in 2020. We projected future mortality for lump sums assumed to be paid after 2020 using the current base mortality tables (RP-2014 backed off to 2006) and projection scale of MP-2019.

The Retirement Plan’s asset allocation percentages consisted of:

	December 31,
	2019		2018
Equity	47	%	43	%
Debt securities	41		41
Other	12		16
	100	%	100	%

The guidelines regarding allocation of assets are formalized in the Investment Policy Statement adopted by the Investment Committee for the Retirement Plan. The objective of the investment program is to enhance the portfolio of the Retirement Plan through total return (capital appreciation and income), thereby promoting the ongoing ability of the plan to meet future liabilities and obligations, while minimizing the need for additional contributions. The guidelines specify an allocation weighting of 10% to 35% for liability hedging investments (target of 20%), 15% to 40% for return seeking investments (target of 27%), 5% to 35% for risk mitigating investments (target of 14%), 10% to 35% for diversifying investments (target of 21%) and 5% to 35% for dynamic asset allocation (target of 18%). Investments in mutual funds, hedge funds (and other alternative investments), and other commingled investment vehicles are permitted under the guidelines. Investments are permitted in overlay portfolios (regulated mutual funds), which are designed to manage short-term portfolio risk and mitigate the effect of extreme outcomes by varying the asset allocation of a portfolio.

See Note 9, Fair Value for a description of how we measure the fair value of our plan assets.

The valuation of our Retirement Plan assets by pricing observability levels as of December 31, 2019 and 2018 was as follows (in thousands):

	Level 1		Level 2		Level 3		Total
December 31, 2019
Cash	$	230	$	—	$	—	$	230
U.S. Treasury Strips	—		27,318		—		27,318
Fixed income mutual funds	19,518		—		—		19,518
Equity mutual fund	33,875		—		—		33,875
Equity securities	11,182		—		—		11,182
Total assets in the fair value hierarchy	64,805		27,318		—		92,123
Investments measured at net assets value	—		—		—		21,957
Investments at fair value	$	64,805	$	27,318	$	—	$	114,080

	Level 1		Level 2		Level 3		Total
December 31, 2018
Cash	$	238	$	—	$	—	$	238
U.S. Treasury Strips	—		22,355		—		22,355
Fixed income mutual funds	18,362		—		—		18,362
Equity mutual fund	26,508		—		—		26,508
Equity securities	8,970		—		—		8,970
Total assets in the fair value hierarchy	54,078		22,355		—		76,433
Investments measured at net assets value	—		—		—		22,151
Investments at fair value	$	54,078	$	22,355	$	—	$	98,584

During 2019 and 2018, the Retirement Plan's investments include the following:

• U.S. Treasury strips, (zero-coupon bonds);

• two fixed income mutual funds, which seek to generate income consistent with preservation of capital. One fund invests in a portfolio of investment-grade securities primarily in the U.S. with additional non-U.S. securities. The second fund invests in inflation-indexed fixed-income securities and similar bonds issued by non-U.S. governments and various commodities;

• seven equity mutual funds, four of which focus on U.S.-based equity securities of various capitalization sizes ranging from small to large capitalizations and diversified portfolios within those capitalization ranges; and three funds that focus on non-U.S. based equity securities of various capitalization sizes ranging from small to large capitalizations and diversified portfolios therein across non-U.S. regions;

• separate equity and fixed income mutual funds, which seek to moderate the volatility of equity and fixed income oriented asset allocation over the long term, as part of the overall asset allocation managed by AB;

• a multi-style, multi-cap integrated portfolio adding U.S. equity diversification to its value and growth equity selections, designed to deliver a long-term premium to the S&P 500 with greater consistency across a range of market environments; and

•

investments measured at net asset value, including three hedge funds that seek to provide attractive risk-adjusted returns over full market cycles with less volatility than the broad equity markets by allocating all or substantially all of their assets among portfolio managers through portfolio funds that employ a broad range of investment strategies; one private investment trust that invests primarily in equity securities of non-U.S. companies located in emerging market countries; and one collective investment trust that invests in U.S. and non-U.S. equities of various capitalization sizes.