8. Retirement and Postretirement Plans

As part of Nexstar’s merger with Media General (See Note 3), Nexstar assumed Media General’s pension and postretirement obligations which were remeasured at fair value on January 17, 2017. As a result, Nexstar now has a funded, qualified non-contributory defined benefit retirement plan which covers certain employees and former employees of Media General prior to its merger with Nexstar. Additionally, the Company has a non-contributory unfunded supplemental executive retirement and ERISA excess plans which supplement the coverage available to certain executives of Media General prior to its merger with Nexstar. All of these retirement plans are frozen. Nexstar also assumed a retiree medical savings account plan which reimburses eligible retired employees for certain medical expenses and an unfunded plan that provides certain health and life insurance benefits to retired employees who were hired prior to 1992.

As of the merger closing date, the projected benefit obligation of the retirement plans was approximately $562.2 million and the plan assets at fair value were approximately $394 million resulting in a liability for retirement plans of $108 million (included in other noncurrent liabilities). In addition, the other postretirement liabilities totaled approximately $22.6 million (included in other noncurrent liabilities).

The Company uses a December 31 measurement date for its pension and other postretirement benefit plans (“OPEB”). The Company recognizes the underfunded status of these plans liabilities on its balance sheet. The funded status of a plan represents the difference between the fair value of plan assets and the related plan projected benefit obligation. Changes in the funded status are recognized in other comprehensive income and amortized into comprehensive income over a five year term.

Benefit Obligations

The following table provides a reconciliation of the changes in the plans’ benefit obligations for the period January 17, 2017 to December 31, 2017 (in thousands):

	Pension Benefits			OPEB
Change in benefit obligation:
Benefit obligation at January 17, 2017	$	562,197		$	22,601
Service cost		-			22
Interest cost		14,981			695
Participant contributions		-			48
Plan settlements		(40,235	)		-
Divestiture transfer		(60,032	)		-
Actuarial gain		11,301			1,431
Benefit payments		(27,350	)		(1,423	)
Benefit obligation at end of year	$	460,862		$	23,374

As of December 31, 2017, the pension benefit obligation includes $404.3 million that is substantially funded by plan assets. These plan assets cover approximately 94% of the benefit obligation.

Upon the consummation of the Media General transaction, approximately $60 million of the benefit obligation related to the Company's retirement plan was transferred to Graham Media Group, Inc., as part of the Media General Divestitures discussed in Note 3.

Unless required, the Company’s policy is to fund benefits under the Media General supplemental executive retirement, ERISA Excess, and all postretirement benefits plans as claims and premiums are paid. As of December 31, 2017, the benefit obligation related to the supplemental executive retirement and ERISA Excess plans included in the preceding table was approximately $56.5 million.

In December 2017, the Company offered terminated vested participants of the legacy Media General Retirement Plan an opportunity to receive a lump sum payout in settlement of their retirement plan liability. Approximately one third of the roughly 2,200 participants elected to do so, resulting in $39.0 million in payouts from plan assets. The Company recognized an immediate gain of $1.2 million in 2017 related to this settlement and is included as an offset against pension expense in the Consolidated Statements of Operations and Comprehensive Income.

The Plans’ benefit obligations were determined using the following assumptions:

	Pension Benefits		OPEB
Discount rate	3.39% to 3.51%		3.30% to 3.53%
Compensation increase rate		-		3.00	%

The Company utilizes a spot rate approach for the calculation of interest on its benefit obligations. The Company updated its mortality table assumptions for the improvement scale in 2017. A 5.4% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2017. This rate was assumed to decrease gradually each year to a rate of 4.5% in 2023 and remain at that level thereafter. These rates have an effect on the amounts reported for the Company’s postretirement obligations. A one percentage-point change in the assumed health care trend rates would increase or decrease the Company’s accumulated postretirement benefit obligation by approximately $6.3 million to $5.5 million, respectively, and it would increase or decrease the Company’s net periodic cost by approximately $0.2 million to $0.2 million, respectively.

Plan Assets

The following table provides a reconciliation of the changes in the fair value of the Plans’ assets for the for the period January 17, 2017 to December 31, 2017 (in thousands):

	Pension Benefits			OPEB
Change in plan assets:
Fair value of plan assets at beginning of period	$	394,526		$	-
Actual return on plan assets		49,853			-
Employer contributions		4,661			1,375
Participant contributions		-			48
Plan settlements		(40,235	)		-
Benefit payments		(27,350	)		(1,423	)
Fair value of plan assets at end of year	$	381,455		$	-

Under the fair value hierarchy, $57.6 million of the Company’s retirement plan assets as of December 31, 2017 fall under Level 1 (quoted prices in active markets). The Company also utilizes common collective trust funds as the remaining investment vehicle for its defined benefit plans. A Common Collective Trust Fund is a pooled fund operated by a bank or trust company for investment of the assets of various organizations and individuals in a well-diversified portfolio. Investments in Common Collective Trust Funds are stated at the fair value as determined by the issuer based on the fair value of the underlying investments (Net Asset Value or “NAV”). As of December 31, 2017, $323.8 million of the plan assets were measured at NAV.

The asset allocation for the Company’s funded retirement plans at the end of 2017, and the asset allocation range for 2018, by asset category, are as follows:

	Asset Allocation	Percentage of Plan Assets at Year End
Asset Category	2018	2017
Equity securities	40%	37%
Fixed income securities/cash	60%	62%
Other		1%
Total		100%

As the plan sponsor of the funded retirement plans, the Company’s investment strategy is to achieve a rate of return on the plans’ assets that, over the long-term, will fund the plans’ benefit payments and will provide for other required amounts in a manner that satisfies all fiduciary responsibilities. A determinant of the plans’ returns is the asset allocation policy. The Company’s investment policy provides ranges (3-23% U.S. large cap equity, 0-13% U.S. small/mid cap equity, 0-19% international/global equity, 0-17% other equity, 50-70% fixed income and 0-10% cash) for the plans’ long-term asset mix. The Company periodically (at least annually) reviews and rebalances the asset mix if necessary. The Company also reviews the plans’ overall asset allocation to determine the proper balance of securities by market capitalization, value or growth, U.S., international or global or the addition of other asset classes.

The plans’ investment policy is reviewed frequently and administered by an investment consultant. Periodically, the Company evaluates each investment with the investment consultant to determine if the overall portfolio has performed satisfactorily when compared to the defined objectives, similarly invested portfolios and specific market indices. The policy contains general guidelines for prohibited transactions such as:

•

borrowing of money

•

purchase of securities on margin

•

short sales

•

pledging any securities except loans of securities that are fully-collateralized

•

purchase or sale of futures or options for speculation or leverage

Restricted transactions include:

•

purchase or sale of commodities, commodity contracts or illiquid interests in real estate or mortgages

•

purchase of illiquid securities such as private placements

•

use of various futures and options for hedging or for taking limited risks with a portion of the portfolio’s assets

Investments in Common Collective Trust Funds do not have any unfunded commitments, and do not have any applicable liquidation periods or defined terms and periods to be held. The portfolios offer daily liquidity; however, they request 5 business days’ notice for both withdrawals and redemptions. Strategies of the Common Collective Trust Funds by major category are as follows:

•

Equity Common Collective Trusts are primarily invested in funds seeking investment results that correspond to the total return performance of their respective benchmarks in both the U.S. and International markets.

•

Fixed Income Common Collective Trusts are primarily invested in funds with an investment objective to provide investment returns through fixed-income and commingled investment vehicles that seek to outperform their respective benchmarks.

•

Real Estate and Real Asset Common Collective Trusts seek to achieve high current return and long-term capital growth by investing in equity securities of real estate investment trusts that seek to outperform their respective benchmarks.

Funded Status

The following table provides a statement of the funded status of the plans at December 31, 2017 (in thousands):

	Pension Benefits			OPEB
Amounts recorded in the balance sheet:
Current liabilities	$	(3,714	)	$	(1,882	)
Noncurrent liabilities		(75,693	)		(21,492	)
Funded status	$	(79,407	)	$	(23,374	)

The following table provides a summary of the Company’s accumulated other comprehensive income (loss) related to pension and other postretirement benefit plans prior to any deferred tax effects (in thousands):

	Pension Benefits		OPEB
January 17, 2017	$	-	$	-
Actuarial gain (loss)		9,733		(1,433	)
December 31, 2017	$	9,733	$	(1,433	)

The estimated net loss for the other postretirement benefit plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2018 is $44 thousand. There is no prior service cost or transition obligation recognized in accumulated other comprehensive income.

Expected Cash Flows

The following table includes amounts that are expected to be contributed to the plans by the Company, in thousands. It additionally reflects benefit payments that are made from the plans’ assets as well as those made directly from the Company’s assets, and it includes the participants’ share of the costs, which is funded by participant contributions. The amounts in the table are actuarially determined and reflect the Company’s best estimate given its current knowledge including the impact of recent pension funding relief legislation. Actual amounts could be materially different.

	Pension Benefits		OPEB
Employer Contributions
2018 to participant benefits	$	3,714	$	1,882
Expected Benefit Payments
2018	$	29,163	$	1,882
2019		29,904		1,862
2020		29,596		1,839
2021		29,408		1,801
2022		29,155		1,788
2023-2027		142,107		8,271

Net Periodic Cost

The following table provides the components of net periodic benefit cost for the Plans for the period January 17, 2017 to December 31, 2017 (in thousands):

	Pension Benefits			OPEB
Service cost	$	-		$	22
Interest cost		14,981			695
Expected return on plan assets		(27,658	)		-
Settlement gain recognized		(1,160	)		-
Net periodic benefit cost (benefit)	$	(13,837	)	$	717

The Company anticipates recording an aggregate net periodic benefit of $11.8 million for its pension and other benefits in 2018, as the expected return on plan assets exceeds estimated interest cost. An interest crediting rate of 1.85% was assumed for 2017 to determine net periodic costs for LIN TV’s supplemental retirement plan. This rate is assumed to increase to 2.3% in 2018 and to 3.5% thereafter compounded annually.

The net periodic costs for the Company’s pension and other benefit plans were determined using the following assumptions:

	Pension Benefits			OPEB
Discount rate		3.87	%		3.80	%
Expected return on plan assets		7.25	%		-
Compensation increase rate		-			3.00	%

The reasonableness of the expected return on the funded retirement plan assets was assessed with the assistance of an investment consultant, but all assumptions were reviewed by management. Their proprietary model simulates possible capital market scenarios based on the current economic environment and their capital market assumptions to come up with expected returns for the portfolio based on the current asset allocation.

Defined Contribution Plans

The Company has established retirement savings plans under Section 401(k) of the Internal Revenue Code (the “Plans”). The Plans cover substantially all Company employees who meet the minimum age and service requirements and allow participants to defer a portion of their annual compensation on a pre-tax basis. Employer contributions to the Plans may be made at the discretion of management of the Company. During the years ended December 31, 2017, 2016 and 2015, Nexstar contributed $4.2 million, $1.6 million and $1.3 million, respectively, to the Plans. The Company also sponsors a Supplemental 401(k) plan as previously described.

The Company has a Supplemental Income Deferral Plan for which certain employees, including executive officers, were eligible. The plan provides benefits to highly compensated employees in circumstances in which the maximum limits established under the ERISA and the Internal Revenue Code prevent them from receiving Company contributions. The amounts recorded by the Company for these plans for 2017 is nominal.