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Qualified Employee Benefit Plans
 12 Months Ended
Dec. 31, 2020
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 were $15.6 million, $14.4 million and $15.0 million for 2020, 2019 and 2018, 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 $8.4 million, $7.7 million and $7.1 million in 2020, 2019 and 2018, 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 did not make a contribution to the Retirement Plan during 2020. We do not currently anticipate that we will contribute to the Retirement Plan during 2021. 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,
20202019
(in thousands)
Change in projected benefit obligation:
  Projected benefit obligation at beginning of year$136,113 $116,233 
  Interest cost4,443 4,944 
  Actuarial loss (gain)16,131 20,411 
  Benefits paid(5,563)(5,475)
  Projected benefit obligation at end of year151,124 136,113 
Change in plan assets:
  Plan assets at fair value at beginning of year114,080 98,584 
  Actual return on plan assets16,505 16,971 
  Employer contribution— 4,000 
  Benefits paid(5,563)(5,475)
  Plan assets at fair value at end of year125,022 114,080 
Funded status$(26,102)$(22,033)
Effective December 31, 2015, the Retirement Plan was amended to change the actuarial basis used for converting a life annuity benefit to optional forms of payment and converting benefits payable at age 65 to earlier commencement dates. This prior service cost will be amortized over future years.
The amounts recognized in other comprehensive income (loss) for the Retirement Plan for 2020, 2019 and 2018 were as follows:
202020192018
(in thousands)
Unrecognized net (loss) gain from experience different from that assumed and effects of changes and assumptions$(4,089)$(7,934)$1,870 
Prior service cost24 24 24 
(4,065)(7,910)1,894 
Income tax (expense) benefit(216)312 (207)
Other comprehensive (loss) income$(4,281)$(7,598)$1,687 
The loss of $4.3 million recognized in 2020 was primarily due to changes in the discount rate and lump sum interest rates ($16.7 million), offset by actual earnings exceeding expected earnings on plan assets ($10.4 million), changes in the mortality assumption ($1.0 million), the recognized actuarial loss ($1.4 million) and changes in the census data ($0.4 million). The loss of $7.6 million recognized in 2019 was primarily 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 ($0.2 million).
Foreign retirement plans and an individual's retirement plan maintained by AB are not material to AB's consolidated financial statements. As such, disclosure for these plans is not necessary. The reconciliation of the 2020 amounts recognized in other comprehensive income for the Retirement Plan as compared to the consolidated statement of comprehensive income ("OCI Statement") is as follows:
Retirement PlanRetired Individual PlanForeign Retirement PlansOCI Statement
(in thousands)
Recognized actuarial (loss) gain$(4,089)$(56)$(135)$(4,280)
Amortization of prior service cost24 — — 24 
Changes in employee benefit related items(4,065)(56)(135)(4,256)
Income tax (expense) benefit(216)(2)31 (187)
Employee benefit related items, net of tax$(4,281)$(58)$(104)$(4,443)
The amounts included in accumulated other comprehensive income (loss) for the Retirement Plan as of December 31, 2020 and 2019 were as follows:
20202019
(in thousands)
Unrecognized net loss from experience different from that assumed and effects of changes and assumptions$(59,625)$(55,537)
Prior service cost (707)(731)
(60,332)(56,268)
Income tax benefit296 513 
Accumulated other comprehensive loss$(60,036)$(55,755)
The amortization period over which we are amortizing the loss for the Retirement Plan from accumulated other comprehensive income is 29.9 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 $1.5 million, respectively.
The accumulated benefit obligation for the plan was $151.1 million and $136.1 million as of December 31, 2020 and 2019, respectively.
The discount rates used to determine benefit obligations as of December 31, 2020 and 2019 (measurement dates) were 2.55% and 3.35%, respectively.
Benefit payments are expected to be paid as follows (in thousands):
2021$7,606 
20229,373 
20237,782 
20247,811 
202510,055 
2026 - 2030
45,955 
Net expense under the Retirement Plan consisted of:
Year Ended December 31,
202020192018
(in thousands)
Interest cost on projected benefit obligations$4,443 $4,944 $4,771 
Expected return on plan assets(6,084)(5,639)(5,893)
Amortization of prior service cost24 24 24 
Recognized actuarial loss1,386 1,146 1,146 
Net pension expense$(231)$475 $48 
Actuarial computations used to determine net periodic costs were made utilizing the following weighted-average assumptions:
Years Ended December 31,
202020192018
Discount rate on benefit obligations3.35 %4.40 %3.90 %
Expected long-term rate of return on plan assets5.50 %5.75 %5.75 %
In developing the expected long-term rate of return on plan assets of 5.50%, 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, 2020, the mortality projection assumption has been updated to use the generational MP-2020 improvement scale. Previously, mortality was projected generationally using the MP-2019 improvements scale. The base mortality assumption used is 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.
The Internal Revenue Service (“IRS”) recently updated the mortality tables used to determine lump sums. For fiscal year-end 2020, we reflected the most recently published IRS table for lump sums assumed to be paid in 2022. We projected future mortality for lump sums assumed to be paid after 2022 using the current base mortality tables (RP-2014 backed off to 2006) and projection scale of MP-2020.
The Retirement Plan’s asset allocation percentages consisted of:
December 31,
20202019
Equity55 %47 %
Debt securities36 41 
Other9 12 
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, 2020 and 2019 was as follows (in thousands):
Level 1Level 2Level 3Total
December 31, 2020
Cash$458 $— $— $458 
U.S. Treasury Strips— 26,599 — 26,599 
Fixed income mutual funds17,834 — — 17,834 
Equity mutual fund44,020 — — 44,020 
Equity securities14,376 — — 14,376 
Total assets in the fair value hierarchy76,688 26,599 — 103,287 
Investments measured at net assets value— — — 21,735 
Investments at fair value$76,688 $26,599 $— $125,022 
Level 1Level 2Level 3Total
December 31, 2019
Cash$230 $— $— $230 
U.S. Treasury Strips— 27,318 — 27,318 
Fixed income mutual funds19,518 — — 19,518 
Equity mutual fund33,875 — — 33,875 
Equity securities11,182 — — 11,182 
Total assets in the fair value hierarchy64,805 27,318 — 92,123 
Investments measured at net assets value— — — 21,957 
Investments at fair value$64,805 $27,318 $— $114,080 
During 2020 and 2019, 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. One 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.