Employees

12 Months Ended

Dec. 31, 2018

Workforce

As of December 31, 2018, operations, maintenance and warehouse hourly employees along with truck drivers at the Tyler refinery were represented by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union and its Local 202. Of these Tyler labor employees, 63.0% of operations, maintenance and warehouse hourly employees are currently covered by a collective bargaining agreement that expires January 31, 2022. In addition of these employees, 84.1% of Tyler truck drivers are currently covered by a collective bargaining agreement that expires May 1, 2021. As of December 31, 2018, operations and maintenance hourly employees at the El Dorado refinery were represented by the International Union of Operating Engineers and its Local 381. Of these employees, 61.2% are covered by a collective bargaining agreement which expires on August 1, 2021. As of December 31, 2018, our El Dorado and Texas based truck drivers for Lion Oil Company were represented by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL - CIO while our El Dorado refinery warehouse hourly employees were represented by the International Union of Operating Engineers and its Local 381; none are currently covered by a collective bargaining agreement. As of December 31, 2018, approximately 70.1% of employees who work at our Big Spring refinery are covered by a collective bargaining agreement that expires March 31, 2022. None of our employees in our logistics segment, retail segment or in our corporate office are represented by a union. We consider our relations with our employees to be satisfactory.

Postretirement Benefits

Pension Plans

Effective with the Delek/Alon Merger on July 1, 2017 (see Note 3), we had four defined benefit pension plans covering substantially all of Alon's employees, excluding employees of the retail segment. The benefits are based on years of service and the employee’s final average monthly compensation. Our funding policy is to contribute annually no less than the minimum required nor more than the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those benefits expected to be earned in the future. The plans were frozen for non-union employees effective September 30, 2017.

During the year ended December 31, 2018, we completely settled the supplemental retirement income plan of the retail segment, and we had a partial settlement of Alon's executive non-qualified restoration plan. In addition, we entered into an agreement with the International Union of Operating Engineers (the "Union") to extend the Union agreement to March 31, 2022, and to freeze Alon's qualified pension plan for union employees effective July 31, 2018. As part of the extended Union agreement, the Company agreed to compensate each pension-eligible employee in the Union for the loss of the pension benefit over the remaining union contract period in four annual installments, where payments are contingent upon continued employment at each annual payment date. The payments, the first of which was made in July 2018, are expected to total approximately $6.9 million in the aggregate without considering forfeitures (which cannot yet be estimated). The related expense has been or will be recognized over the remaining union contract period as follows (estimated without considering forfeitures): approximately $0.8 million for the year ended December 31, 2018; approximately $2.0 million during each of the years 2019, 2020 and 2021, and approximately $0.1 million in 2022.

On October 1, 2018, we spun off a portion of the Alon's qualified pension plan into a new plan - The Alon USA Pension Plan for Collective Bargained Employees. This new plan consist of Union employees. The assets were allocated as required under IRC Section 414. The remaining accumulated other comprehensive income at that date was split between the two plans based on their respective portions of Projected Benefit Obligation.

Financial information related to our pension plans is presented below:



	2018			2017
Change in projected benefit obligation:
Benefit obligation at beginning of the period (July 1, 2017 business combination)	$	146.9		$	145.2
Service cost	0.4			1.2
Interest cost	5.2			2.7
Actuarial (gain) loss	(9.9		)	6.5
Benefits paid	(9.1		)	(2.4		)
Other (effect of curtailment/settlement)	(2.5		)	(6.3		)
Projected benefit obligations at end of year	$	131.0		$	146.9
Change in plan assets:
Fair value of plan assets at beginning of the period (July 1, 2017 business combination)	$	108.8		$	96.1
Actual (loss) gain on plan assets	(8.2		)	9.8
Employer contribution	24.2			5.3
Benefits paid	(9.1		)	(2.4		)
Fair value of plan assets at end of year	$	115.7		$	108.8
Reconciliation of funded status:
Fair value of plan assets at end of year	$	115.7		$	108.8
Less projected benefit obligations at end of year	131.0			146.9
Under-funded status at end of year	$	(15.3	)	$	(38.1	)

The pre-tax amounts related to the defined benefit plans recognized as pension benefit liability in the consolidated balance sheets as of December 31, 2018 was $15.3 million.

The pre-tax amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit cost were as follows:



	December 31,
	2018		2017
Net actuarial loss	$	5.5	$	0.8
Prior service credit	—		—
Projected benefit obligations at end of year	$	5.5	$	0.8

The accumulated benefit obligation for each of our pension plans was in excess of the fair value of plan assets. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans were as follows:



	December 31,
	2018		2017
Projected benefit obligation	$	131.0	$	146.9
Accumulated benefit obligation	$	131.0	143.8
Fair value of plan assets	$	115.7	108.8

The weighted-average assumptions used to determine benefit obligations were as follows:



	December 31,
	2018		2017
Discount rate	4.15	%	3.60	%
Rate of compensation increase	N/A		3.00	%

The discount rate used reflects the expected future cash flow based on our funding valuation assumptions and participant data as of the beginning of the plan period. The expected future cash flow is discounted by the Principal Pension Discount Yield Curve for the fiscal year end because it has been specifically designed to help pension funds comply with statutory funding guidelines.

The weighted-average assumptions used to determine net periodic benefit costs were as follows:



	Year Ended December 31,
	2018		2017
Discount rate	3.60	%	3.80	%
Expected long-term rate of return on plan assets	7.33	%	7.45	%
Rate of compensation increase	3.00	%	3.00	%

The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories.

The components of net periodic benefit cost related to our benefit plans consisted of the following:



	Year Ended December 31,
Components of net periodic benefit cost:	2018			2017
Service cost	$	0.4		$	1.2
Interest cost	5.2			2.7
Expected return on plan assets	(8.0		)	(2.7		)
Recognition of gain due to settlement	(0.1		)	—
Recognition of gain due to curtailment	(2.4		)	(6.1		)
Net periodic benefit cost	$	(4.9	)	$	(4.9	)

The service cost component of net periodic benefit costs are included as part of general and administrative expenses in the accompanying statements of income. The other components of net benefit costs are included as part of other non-operating expense (income), net.

The weighted-average asset allocation of our pension benefits plan assets were as follows:



	Year Ended December 31,
	2018		2017
Asset Category:
Equity securities	66.4	%	78.5	%
Debt securities	26.8	%	13.0	%
Real estate investment trust	6.8	%	8.5	%
Total	100.0	%	100.0	%

The fair value of our pension assets by category were as follows:



	Quoted Prices in Active Markets For Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Consolidated Total
Year Ended December 31, 2018
Equity securities:
U.S. companies	$	—	$	62.8	$	—	$	62.8
International companies	—		14.0		—		14.0
Debt securities:
Preferred securities	—		4.4		—		4.4
Bond securities	—		26.6		—		26.6
Real estate securities	—		7.9		—		7.9
Total	$	—	$	115.7	$	—	$	115.7
Year Ended December 31, 2017
Equity securities:
U.S. companies	$	67.1	$	—	$	—	$	67.1
International companies	18.3		—		—		18.3
Debt securities:
Preferred securities	4.6		—		—		4.6
Bond securities	—		9.5		—		9.5
Real estate securities	9.3		—		—		9.3
Total	$	99.3	$	9.5	$	—	$	108.8

The investment policies and strategies for the assets of our pension benefits is to, over a five-year period, provide returns in excess of the benchmark. The portfolio is expected to earn long-term returns from capital appreciation and a stable stream of current income. This approach recognizes that assets are exposed to price risk and the market value of the plans’ assets may fluctuate from year to year. Risk tolerance is determined based on our specific risk management policies. In line with the investment return objective and risk parameters, the plans’ mix of assets includes a diversified portfolio of equity, fixed-income and real estate investments. Equity investments include domestic and international stocks of various sizes of capitalization. The asset allocation of the plan is reviewed on at least an annual basis.

We contributed $24.2 million to the pension plans for the year ended December 31, 2018, and expect to contribute $5.8 million to the pension plans in 2019. There were no employee contributions to the plans.

The benefits expected to be paid in each year 2019–2023 are $5.8 million, $6.0 million, $6.3 million, $6.7 million, and $6.7 million, respectively. The aggregate benefits expected to be paid in the five years from 2024–2028 are $37.1 million. The expected benefits are based on the same assumptions used to measure our benefit obligation at December 31, 2018 and include estimated future employee service.

401(k) Plans

For the years ended December 31, 2018, 2017 and 2016, we sponsored a voluntary 401(k) Employee Retirement Savings Plans for eligible employees. Employees must be at least 21 years of age and have 45 days of service to be eligible to participate in the plan. Employee contributions are matched on a fully-vested basis by us up to a maximum of 8% of eligible compensation. Eligibility for the Company matching contribution begins on the first of the month following one year of employment. For the years ended December 31, 2018, 2017 and 2016, the 401(k) plans expense recognized was $9.6 million, $6.5 million, and $3.8 million, respectively.

Postretirement Medical Plan

In addition to providing pension benefits, Alon has an unfunded postretirement medical plan covering certain health care and life insurance benefits for certain employees of Alon that retired prior to January 2, 2017, who met eligibility requirements in the plan documents. This plan is closed to new participants. The health care benefits in excess of certain limits are insured. The accrued benefit liability related to this plan reflected in the consolidated balance sheet was $3.3 million and $3.9 million at December 31, 2018 and 2017, respectively.