Employee Benefit Plans

12 Months Ended

Dec. 31, 2018

Retirement Benefits [Abstract]

Employee Benefit Plans

Note 21. Employee Benefit Plans

The Company sponsors a qualified and a non-qualified non-contributory defined benefit pension plan that covers certain U.S. and non-U.S. employees. As of January 1, 2000, the Company froze the U.S. qualified defined pension plan benefits for its participants. These participants elected to enroll in ARRIS’s enhanced 401(k) plan.

The U.S. pension plan benefit formulas generally provide for payments to retired employees based upon their length of service and compensation as defined in the plans. ARRIS’s investment policy is to fund the qualified plan as required by the Employee Retirement Income Security Act of 1974 (“ERISA”) and to the extent that such contributions are tax deductible.

No minimum funding contributions was required in 2018 under the Company’s U.S. defined benefit, however the Company made a contribution of $1.8 million for the year ended December 31, 2018 to fully fund the plan termination. For the year ended December 31, 2017, the Company made a voluntary minimum funding contribution of $1.4 million to its U.S defined benefit plan. The Company also made funding contributions of $1.8 million and $1.2 million related to our non-U.S. pension plan in 2018 and 2017, respectively.

The Company established a rabbi trust to fund the pension obligations of the Executive Chairman under his SERP including the benefit under the Company’s non-qualified defined benefit plan. In October 2018, the full SERP obligation was distributed to the Executive Chairman and no further obligation exists. In addition, the Company has established a rabbi trust for certain executive officers to fund the Company’s pension liability to those officers under the non-qualified plan.

In late 2017, the Company commenced the process of terminating its U.S. defined benefit pension plan. The plan’s termination was approved and the Company proceeded with effecting termination, settlement of the plan obligations was completed by December 31, 2018.  The plan's deferred actuarial losses of $9.2 million remaining in Accumulated other comprehensive (loss) income were recognized as expense.

ARRIS also provides a non-contributory defined benefit plan which cover employees in Taiwan. Any other benefit plans outside of the U.S. are not material to ARRIS either individually or in the aggregate. As a result of restructuring activities in conjunction with the sale of the Taiwan manufacturing facility, the Company recorded a partial curtailment of the plan and recognized a deferral actuarial gain of $3.5 million as income from Accumulated other comprehensive (loss) income.

The following table summarizes the change in projected benefit obligations, fair value of plan assets and the funded status of pension plan for the years ended December 31, 2018 and 2017 (in thousands):

	U.S. Pension Plans						Non-U.S. Pension Plans
	2018			2017			2018			2017
Change in Projected Benefit Obligation:
Projected benefit obligation at beginning of year	$	49,220		$	45,270		$	38,136		$	35,706
Service cost		—			—			615			664
Interest cost		1,382			1,733			393			486
Actuarial (gain) loss		(2,571	)		3,868			(139	)		121
Benefit payments		(1,766	)		(1,651	)		—			—
Settlements		(36,585	)		—			(31,544	)		(1,596	)
Foreign currency		—			—			(1,058	)		2,755
Projected benefit obligation at end of year	$	9,680		$	49,220		$	6,403		$	38,136
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	19,664		$	18,510		$	20,324		$	19,011
Actual return on plan assets		76			949			689			183
Company contributions		18,611			1,856			1,722			1,259
Expenses and benefits paid from plan assets		(1,766	)		(1,651	)		—			—
Settlements		(36,585	)		—			(19,217	)		(1,596	)
Foreign currency		—			—			(564	)		1,467
Fair value of plan assets at end of year (1)	$	—		$	19,664		$	2,954		$	20,324
Funded Status:
Funded status of plan	$	(9,680	)	$	(29,557	)	$	(3,449	)	$	(17,812	)
Unrecognized actuarial loss (gain)		1,334			13,981			(592	)		(1,857	)
Net amount recognized	$	(8,346	)	$	(15,576	)	$	(4,041	)	$	(19,669	)

(1) In addition to the U.S. pension plan assets, ARRIS has established two rabbi trusts to further fund the pension obligations of the Executive Chairman and certain executive officers. The obligation for the Executive Chairman was distributed in the fourth quarter of 2018. The balance in the trusts as of December 31, 2018 and 2017 are $9.7 million and $25.4 million, respectively, and are included in Investments on the Consolidated Balance Sheets.

Amounts recognized in the statement of financial position consist of (in thousands):

	U.S. Pension Plans						Non-U.S. Pension Plans
	2018			2017			2018			2017
Current liabilities	$	(520	)	$	(17,670	)	$	—		$	—
Noncurrent liabilities		(9,160	)		(11,887	)		(3,449	)		(17,812	)
Accumulated other comprehensive loss (income)(1)		1,334			13,981			(592	)		(1,857	)
Total	$	(8,346	)	$	(15,576	)	$	(4,041	)	$	(19,669	)

(1) The Accumulated other comprehensive (loss) income on the Consolidated Balance Sheets as of December 31, 2018 and 2017 is presented net of income tax.

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) are as follows (in thousands):  

	U.S. Pension Plans									Non-U.S. Pension Plans
	2018			2017			2016			2018			2017		2016
Net (gain) loss	$	(2,399	)	$	3,814		$	2,068		$	(562	)	$	261	$	225
Amortization of net gain (loss)		(1,012	)		(552	)		(544	)		—			78		248
Adjustments		—			—			—			—			—		1,849
Settlements		(9,236	)		—			—			1,776			—		—
Foreign currency		—			—			—			—			—		31
Total recognized in other comprehensive (loss) income	$	(12,647	)	$	3,262		$	1,524		$	1,214		$	339	$	2,353

Information for defined benefit plans with accumulated benefit obligations or projected benefit obligation in excess of plan assets as of December 31, 2018 and 2017 is as follows (in thousands):  

	U.S. Pension Plans				Non-U.S. Pension Plans
	2018		2017		2018		2017
Accumulated benefit obligation in excess of plan assets:
Accumulated benefit obligation	$	9,680	$	49,220	$	4,374	$	29,741
Fair value of plan assets		—		19,664		2,954		20,324
Projected benefit obligation in excess of plan assets:
Projected benefit obligation		9,680		49,220		6,403		38,136
Fair value of plan assets		—		19,664		2,954		20,324

Net periodic pension cost for 2018, 2017 and 2016 for pension and supplemental benefit plans includes the following components (in thousands):  

	U.S. Pension Plans									Non-U.S. Pension Plans
	2018			2017			2016			2018			2017			2016
Service cost	$	—		$	—		$	—		$	615		$	664		$	703
Interest cost		1,382			1,733			1,751			393			486			614
Return on assets (expected)		(248	)		(895	)		(795	)		(266	)		(323	)		(275	)
Amortization of net actuarial loss(gain) (1)		1,012			552			544			—			(78	)		(70	)
Settlement charge (benefit)		9,236			—			—			(3,571	)		—			(178	)
Adjustments		—			—			—			—			—			(1,849	)
Foreign currency		—			—			—			—			—			(31	)
Net periodic pension cost	$	11,382		$	1,390		$	1,500		$	(2,829	)	$	749		$	(1,086	)

(1) ARRIS uses the allowable 10% corridor approach to determine the amount of gains/losses subject to amortization in pension cost. Gains/losses are amortized on a straight-line basis over the average future service of members expected to receive benefits

Estimated amounts to be amortized from accumulated other comprehensive (loss) income into net periodic benefit costs in the year ending December 31, 2019 based on December 31, 2018 plan measurements are $0.1 million, consisting primarily of amortization of the net actuarial loss in the U.S. pension plans.

The assumptions used to determine the benefit obligations as of December 31, 2018, 2017 and 2016 are as set forth below (in percentage):

	U.S. Pension Plans									Non-U.S. Pension Plans
	2018			2017			2016			2018			2017			2016
Weighted-average assumptions used to determine benefit obligations:
Discount rate		4.05	%		3.45	%		3.90	%		1.00	%		1.10	%		1.30	%
Rate of compensation increase		N/A			N/A			N/A			N/A			N/A			N/A
Weighted-average assumptions used to determine net periodic benefit costs:
Discount rate		3.50	%		3.90	%		4.15	%		1.10	%		1.30	%		1.70	%
Expected long-term rate of return on plan assets		N/A			5.00	%		6.00	%		1.40	%		1.40	%		1.60	%
Rate of compensation increase (1)		N/A			N/A			N/A			4.00	%		3.00	%		3.00	%

(1) Represent an average rate for the non-U.S. pension plans. Rate of compensation increase is 4.00% for indirect labor for 2018, 2017 and 2016, and 2.00% for direct labor for 2017 and 2016.

The expected long-term rate of return on assets is derived using the building block approach which includes assumptions for the long-term inflation rate, real return, and equity risk premiums.

No minimum funding contributions are required for 2019 for the U.S. Pension plan, however the Company may make a voluntary contribution. The Company estimates it will make funding contributions $0.3 million in 2019 for the non-U.S. plan.

As of December 31, 2018, the expected benefit payments related to the Company’s defined benefit pension plans during the next ten years are as follows (in thousands):   

	U.S. Pension Plans		Non-U.S. Pension Plans
2019	$	520	$	158
2020		520		154
2021		530		553
2022		530		246
2023		640		309
2024— 2028		3,320		2,309

The investment strategies of the plans place a high priority on benefit security. The plans invest conservatively so as not to expose assets to depreciation in adverse markets. The plans’ strategy also places a high priority on earning a rate of return greater than the annual inflation rate along with maintaining average market results. The plan has targeted asset diversification across different asset classes and markets to take advantage of economic environments and to also act as a risk minimizer by dampening the portfolio’s volatility. The following table summarizes the weighted average pension asset allocations as December 31, 2018 and 2017: 

	U.S. Pension Plans
	Target				Actual
	2018		2017		2018		2017
Equity securities		—		—		—		—
Debt securities		—		—		—		—
Cash and cash equivalents		—		80% - 100%		—		100	%

Asset allocation for the non-U.S. pension assets is 100% in money market investments.

The following table summarizes the Company’s U.S. pension plan assets by category and by level (as described in Note 8 Fair Value Measurements of the Notes to the Consolidated Financial Statements) as of December 31, 2017 (in thousands): 

	December 31, 2017
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents (1)	$	19,662	$	2	$	—	$	19,664
Total	$	19,662	$	2	$	—	$	19,664

(1) Cash and cash equivalents, which are used to pay benefits and administrative expenses, are held in money market and stable value fund.

(2) Equity securities consist of mutual funds and the underlying investments are indexes. Investments in mutual funds are valued at the net asset value per share multiplied by the number of shares held.

(3) Fixed income securities consist of bonds securities in mutual funds and are valued at the net asset value per share multiplied by the number of shares held.

Other Benefit Plans

ARRIS has established defined contribution plans pursuant to the Internal Revenue Code Section 401(k) that cover all eligible U.S. employees. ARRIS contributes to these plans based upon the dollar amount of each participant’s contribution. ARRIS made matching contributions to these plans of approximately $22.8 million, $16.5 million and $16.4 million in 2018, 2017 and 2016, respectively.

The Company has a deferred compensation plan that does not qualify under Section 401(k) of the Internal Revenue Code and is available to key executives of the Company and certain other employees. Employee compensation deferrals and matching contributions are held in a rabbi trust. The total of net employee deferrals and matching contributions, which is reflected in other long-term liabilities, was $5.4 million and $5.7 million at December 31, 2018 and 2017, respectively. Total expenses included in continuing operations for the matching contributions were approximately $0.1 million and $0.3 million in 2018 and 2017, respectively.

The Company previously offered a deferred compensation arrangement, which allowed certain employees to defer a portion of their earnings and defer the related income taxes. As of December 31, 2004, the plan was frozen and no further contributions are allowed. The deferred earnings are invested in a rabbi trust. The total of net employee deferral and matching contributions, which is reflected in other long-term liabilities, was $2.0 million and $3.1 million at December 31, 2018 and 2017, respectively.

The Company also has a deferred retirement salary plan, which was limited to certain current or former officers. The present value of the estimated future retirement benefit payments is being accrued over the estimated service period from the date of signed agreements with the employees. The accrued balance of this plan, the majority of which is included in other long-term liabilities, were $1.9 million and $1.5 million at December 31, 2018 and 2017, respectively. Total expenses (income) included in continuing operations for the deferred retirement salary plan were approximately $0.4 million and $0.2 million for 2018 and 2017, respectively.