16. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The Corporation maintains ten separate and distinct pension and other post-retirement defined benefit plans, consisting of three domestic plans and seven separate foreign pension plans. The domestic plans include a qualified pension plan, a non-qualified pension plan, and a postretirement health-benefits plan. The foreign plans consist of one defined benefit pension plan each in the United Kingdom, Canada, and Switzerland, two in Germany, and two in Mexico.

Domestic Plans

Qualified Pension Plan

The Corporation maintains a defined benefit pension plan (the “CW Pension Plan”) covering certain employee populations under six benefit formulas: a non-contributory non-union and union formula for certain Curtiss-Wright (CW) employees, a contributory union and non-union benefit formula for employees at the EMD business unit, and two benefit formulas providing annuity benefits for participants in the former Williams Controls salaried and union plans.

CW non-union employees hired prior to February 1, 2010 receive a “traditional” benefit based on years of credited service, using the five highest consecutive years’ compensation during the last ten years of service. These employees became participants under the CW Pension Plan after one year of service and were vested after three years of service. CW non-union employees hired on or after the effective date were eligible for a cash balance benefit through December 31, 2013, and were transitioned to the new defined contribution plan, further described below. CW union employees who have negotiated a benefit under the CW Pension Plan are entitled to a benefit based on years of service multiplied by a monthly pension rate.

The formula for EMD employees covers both union and non-union employees and is designed to satisfy the requirements of relevant collective bargaining agreements. Employee contributions are withheld each pay period and are equal to 1.5% of salary. The benefits for the EMD employees are based on years of service and compensation. On December 31, 2012, the Corporation amended the CW Pension Plan to close the benefit to EMD employees hired after January 1, 2014.

Participants of the former Williams Controls Retirement Income Plan for salaried employees are either deferred vested participants or currently receiving benefits, as benefit accruals under the plan were frozen to future accruals effective January 1, 2003. Benefits in the salaried plan are based on average compensation and years of service.

Participants of the former Williams Controls UAW Local 492 Plan for union employees are entitled to a benefit based on years of service multiplied by a monthly pension rate, and may be eligible for supplemental benefits based upon attainment of certain age and service requirements.

Effective January 1, 2014, all active non-union employees participating in the final and career average pay formulas in the defined benefit plan will cease accruals 15 years from the effective date of the amendment. In addition to the sunset provision, the “cash balance” benefit for non-union participants ceased as of January 1, 2014. Non-Union employees who were not currently receiving final or career average pay benefits became eligible to participate in a new defined contribution plan which provides both employer match and non-elective contribution components. The amendment did not affect CW employees that are subject to collective bargaining agreements.

As of December 31, 2018 and 2017, the Corporation had a noncurrent pension liability of $26.6 million and $45.1 million, respectively. This decrease was driven by a $50 million pension contribution to the Curtiss-Wright Pension Plan in February 2018 and an increase in the discount rate as of December 31, 2018, partially offset by unfavorable asset experience during 2018.

Due to the aforementioned discretionary pension contribution of $50 million, the Corporation does not expect to make any required contributions through 2023.

Nonqualified Pension Plan

The Corporation also maintains a non-qualified restoration plan (the “CW Restoration Plan”) covering those employees of CW and EMD whose compensation or benefits exceed the IRS limitation for pension benefits. Benefits under the CW Restoration Plan are not funded, and, as such, the Corporation had an accrued pension liability of $52.8 million and $48.7 million as of December 31, 2018 and 2017, respectively. The Corporation’s contributions to the CW Restoration Plan are expected to be $4.6 million in 2019.

Other Post-Employment Benefits (OPEB) Plan

The Corporation provides post-employment benefits consisting of retiree health and life insurance to three distinct groups of employees/retirees: the CW Grandfathered plan, and plans assumed in the acquisitions of EMD and Williams Controls.

The Corporation also provides retiree health and life insurance benefits for substantially all of the Curtiss-Wright EMD employees. The plan provides basic health and welfare coverage for pre-65 participants based on years of service and are subject to certain caps. Effective January 1, 2011, the Corporation modified the benefit design for post-65 retirees by introducing Retiree Reimbursement Accounts (RRA’s) to participants in lieu of the traditional benefit delivery. Participant accounts are funded a set amount annually that can be used to purchase supplemental coverage on the open market, effectively capping the benefit.

The plan also provides retiree health and life insurance benefits for certain retirees of the Williams Controls salaried and union pension plans. Effective August 31, 2013, the Corporation modified the benefit design for post-65 retirees by introducing Retiree Reimbursement Accounts (RRA’s) to align with the EMD delivery model.

The Corporation had an accrued postretirement benefit liability as of December 31, 2018 and 2017 of $22.0 million and $25.0 million, respectively. The Corporation expects to contribute $1.6 million to the plan during 2019.

Foreign Plans

As of December 31, 2018 and 2017, the total projected benefit obligation related to all foreign plans was $83.5 million and $97.4 million, respectively. As of December 31, 2018 and 2017, the Corporation had a net pension asset of $2.7 million and $1.5 million, respectively. The Corporation's contributions to the foreign plans are expected to be $2.3 million in 2019.

Components of net periodic benefit expense

The net pension and net postretirement benefit costs (income) consisted of the following:



	Pension Benefits									Postretirement Benefits
(In thousands)	2018			2017			2016			2018			2017			2016
Service cost	$	27,116		$	25,093		$	25,100		$	490		$	435		$	338
Interest cost	26,149			25,895			30,495			719			762			996
Expected return on plan assets	(58,641		)	(53,552		)	(54,101		)	—			—			—
Amortization of prior service cost	(252		)	(100		)	(46		)	(656		)	(656		)	(657		)
Recognized net actuarial loss/(gain)	16,867			12,925			12,029			(131		)	(223		)	(296		)
Cost of settlements/curtailments	337			327			—			—			—			—
Net periodic benefit cost (income)	$	11,576		$	10,588		$	13,477		$	422		$	318		$	381

The cost of settlements/curtailments indicated above represents events that are accounted for under guidance on employers’ accounting for settlements and curtailments of defined benefit pension plans. In 2018, a settlement charge was incurred in connection with a restructuring in Switzerland. In 2017, there were settlement charges incurred in both the U.K. and Switzerland.

The following table outlines the Corporation's consolidated disclosure of the pension benefits and postretirement benefits information described previously. The Corporation had no foreign postretirement plans. All plans were valued using a December 31, 2018 measurement date.



	Pension Benefits						Postretirement Benefits
(In thousands)	2018			2017			2018			2017
Change in benefit obligation:
Beginning of year	$	868,887		$	798,605		$	25,035		$	24,436
Service cost	27,116			25,093			490			435
Interest cost	26,149			25,895			719			762
Plan participants’ contributions	1,402			1,655			319			253
Actuarial (gain) loss	(58,913		)	56,727			(1,982		)	2,056
Benefits paid	(41,962		)	(41,233		)	(2,521		)	(2,907		)
Actual expenses	(1,371		)	(1,301		)	—			—
Settlements	(2,228		)	(4,151		)	—			—
Currency translation adjustments	(4,186		)	7,597			—			—
End of year	$	814,894		$	868,887		$	22,060		$	25,035



Change in plan assets:
Beginning of year	$	776,482		$	714,608		$	—		$	—
Actual return on plan assets	(44,876		)	94,960			—			—
Employer contribution	55,311			4,561			2,203			2,654
Plan participants’ contributions	1,402			1,655			319			253
Benefits paid	(44,190		)	(45,384		)	(2,522		)	(2,907		)
Actual Expenses	(1,371		)	(1,301		)	—			—
Currency translation adjustments	(4,462		)	7,383			—			—
End of year	$	738,296		$	776,482		$	—		$	—

Funded status	$	(76,598	)	$	(92,405	)	$	(22,060	)	$	(25,035	)



	Pension Benefits						Postretirement Benefits
(In thousands)	2018			2017			2018			2017
Amounts recognized on the balance sheet
Noncurrent assets	$	9,098		$	8,663		$	—		$	—
Current liabilities	(4,905		)	(3,374		)	(1,623		)	(1,686		)
Noncurrent liabilities	(80,791		)	(97,694		)	(20,437		)	(23,349		)
Total	$	(76,598	)	$	(92,405	)	$	(22,060	)	$	(25,035	)
Amounts recognized in accumulated other comprehensive income (AOCI)
Net actuarial loss (gain)	$	228,430		$	201,390		$	(4,751	)	$	(2,899	)
Prior service cost	(1,225		)	(1,461		)	(2,060		)	(2,718		)
Total	$	227,205		$	199,929		$	(6,811	)	$	(5,617	)
Amounts in AOCI expected to be recognized in net periodic cost in the coming year:
Loss (gain) recognition	$	10,368		$	15,615		$	131		$	(29	)
Prior service cost recognition	$	(284	)	$	(250	)	$	(657	)	$	(657	)
Accumulated benefit obligation	$	784,205		$	834,745		N/A			N/A
Information for pension plans with an accumulated benefit obligation in excess of plan assets:
Projected benefit obligation	$	743,632		$	785,039		N/A			N/A
Accumulated benefit obligation	714,146			752,371			N/A			N/A
Fair value of plan assets	658,327			684,756			N/A			N/A

Plan Assumptions



	Pension Benefits				Postretirement Benefits
	2018		2017		2018		2017
Weighted-average assumptions in determination of benefit obligation:
Discount rate	4.09	%	3.46	%	4.20	%	3.54	%
Rate of compensation increase	3.50	%	3.55	%	N/A		N/A
Health care cost trends:
Rate assumed for subsequent year	N/A		N/A		7.85	%	8.30	%
Ultimate rate reached in 2026	N/A		N/A		4.50	%	4.50	%
Weighted-average assumptions in determination of net periodic benefit cost:
Discount rate	3.46	%	3.93	%	3.54	%	4.02	%
Expected return on plan assets	7.47	%	7.47	%	N/A		N/A
Rate of compensation increase	3.50	%	3.54	%	N/A		N/A
Health care cost trends:
Rate assumed for subsequent year	N/A		N/A		8.30	%	8.25	%
Ultimate rate reached in 2026	N/A		N/A		4.50	%	4.50	%

Effective December 31, 2016, the Corporation adopted the spot rate, or full yield curve, approach for developing discount rates. The discount rate for each plan's past service liabilities and service cost is determined by discounting the plan’s expected future benefit payments using a yield curve developed from high quality bonds that are rated Aa or better by Moody’s as of the measurement date. The yield curve calculation matches the notional cash inflows of the hypothetical bond portfolio with the expected benefit payments to arrive at one effective rate for these components. Interest cost is determined by applying the spot rate from the full yield curve to each anticipated benefit payment, based on the anticipated optional form elections.

The overall expected return on assets assumption is based on a combination of historical performance of the pension fund and expectations of future performance. Expected future performance is determined by weighting the expected returns for each asset class by the plan’s asset allocation. The expected returns are based on long-term capital market assumptions utilizing a ten-year time horizon through consultation with investment advisors. While consideration is given to recent performance and historical returns, the assumption represents a long-term prospective return.

The effect on the Other Post-Employment Benefits plan of a 1% change in the health care cost trend is as follows:



(In thousands)	1% Increase		1% Decrease
Total service and interest cost components	$	29	$	(23	)
Postretirement benefit obligation	$	331	$	(272	)

Pension Plan Assets

The overall objective for plan assets is to earn a rate of return over time to meet anticipated benefit payments in accordance with plan provisions. The long-term investment objective of the domestic retirement plans is to achieve a total rate of return, net of fees, which exceeds the actuarial overall expected return on asset assumptions used for funding purposes and which provides an appropriate premium over inflation. The intermediate-term objective of the domestic retirement plans, defined as three to five years, is to outperform each of the capital markets in which assets are invested, net of fees. During periods of extreme market volatility, preservation of capital takes a higher precedence than outperforming the capital markets.

The Finance Committee of the Corporation’s Board of Directors is responsible for formulating investment policies, developing investment manager guidelines and objectives, and approving and managing qualified advisors and investment managers. The guidelines established define permitted investments within each asset class and apply certain restrictions such as limits on concentrated holdings, and prohibits selling securities short, buying on margin, and the purchase of any securities issued by the Corporation.

The Corporation maintains the funds of the CW Pension Plan under a trust that is diversified across investment classes and among investment managers to achieve an optimal balance between risk and return. As a part of its diversification strategy, the Corporation has established target allocations for each of the following assets classes: domestic equity securities, international equity securities, and debt securities. Below are the Corporation’s actual and established target allocations for the CW Pension Plan, representing 88% of consolidated assets:



	As of December 31,		Target	Expected
	2018	2017	Exposure	Range
Asset class
Domestic equities	48%	52%	50%	40%-60%
International equities	15%	15%	15%	10%-20%
Total equity	63%	67%	65%	55%-75%
Fixed income	37%	33%	35%	25%-45%

As of December 31, 2018 and 2017, cash funds in the CW Pension Plan represented approximately 6% of portfolio assets in both periods.

Foreign plan assets represent 12% of consolidated plan assets, with the majority of the assets supporting the U.K. plan. Generally, the foreign plans follow a similar asset allocation strategy and are more heavily weighted in fixed income resulting in a weighted expected return on assets assumption of 4.50% for all foreign plans.

The Corporation may from time to time require the reallocation of assets in order to bring the retirement plans into conformity with these ranges. The Corporation may also authorize alterations or deviations from these ranges where appropriate for achieving the objectives of the retirement plans.

Fair Value Measurements

The following table presents consolidated plan assets (in thousands) as of December 31, 2018 using the fair value hierarchy, as described in Note 10 to the Consolidated Financial Statements.



Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	42,374	$	12,551	$	29,823	$	—
Equity securities- Mutual funds⁽¹⁾	504,633		455,175		49,458		—
Bond funds ⁽²⁾	216,372		150,265		66,107		—
Insurance Contracts ⁽³⁾	10,912		—		—		10,912
Other ⁽⁴⁾	2,191		—		—		2,191
December 31, 2017	$	776,482	$	617,991	$	145,388	$	13,103
Cash and cash equivalents	$	42,261	$	20,034	$	22,227	$	—
Equity securities- Mutual funds ⁽¹⁾	446,434		404,509		41,925		—
Bond funds ⁽²⁾	238,880		177,731		61,149		—
Insurance Contracts⁽³⁾	8,408		—		—		8,408
Other ⁽⁴⁾	2,313		—		—		2,313
December 31, 2018	$	738,296	$	602,274	$	125,301	$	10,721

(1)This category consists of domestic and international equity securities. It is comprised of U.S. securities benchmarked against the S&P 500 index and Russell 2000 index, international mutual funds benchmarked against the MSCI EAFE index, global equity index mutual funds associated with our U.K. based pension plans and balanced funds associated with the U.K. and Canadian based pension plans.

(2)This category consists of domestic and international bonds. The domestic fixed income securities are benchmarked against the Bloomberg Barclays Capital Aggregate Bond index, actively-managed bond mutual funds comprised of domestic investment grade debt, fixed income derivatives, and below investment-grade issues, U.S. mortgage backed securities, asset backed securities, municipal bonds, and convertible debt. International bonds consist of bond mutual funds for institutional investors associated with the CW Pension Plan, Switzerland, and U.K. based pension plans.

(3)This category consists of a guaranteed investment contract (GIC) in Switzerland. Amounts contributed to the plan are guaranteed by a foundation for occupational benefits that in turn entered into a group insurance contract and the foundation pays a guaranteed rate of interest that is reset annually.

(4)This category consists primarily of real estate investment trusts in Switzerland.

Valuation

Equity securities and exchange-traded equity and bond mutual funds are valued using a market approach based on the quoted market prices of identical instruments. Pooled institutional funds are valued at their net asset values and are calculated by the sponsor of the fund.

Fixed income securities are primarily valued using a market approach utilizing various underlying pricing sources and methodologies. Real estate investment trusts are priced at net asset value based on valuations of the underlying real estate holdings using inputs such as discounted cash flows, independent appraisals, and market-based comparable data.

Cash balances in the United States are held in a pooled fund and classified as a Level 2 asset. Non-U.S. cash is valued using a market approach based on quoted market prices of identical instruments.

The following table presents a reconciliation of Level 3 assets held during the years ended December 31, 2018 and 2017:



(In thousands)	Insurance Contracts			Other			Total
December 31, 2016	$	10,760		$	1,618		$	12,378
Actual return on plan assets:
Relating to assets still held at the reporting date	167			58			226
Purchases, sales, and settlements	(503		)	436			(68		)
Foreign currency translation adjustment	488			79			567
December 31, 2017	$	10,912		$	2,191		$	13,103
Actual return on plan assets:
Relating to assets still held at the reporting date	163			(13		)	150
Purchases, sales, and settlements	(2,595		)	152			(2,443		)
Foreign currency translation adjustment	(72		)	(17		)	(89		)
December 31, 2018	$	8,408		$	2,313		$	10,721

Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid from the plans:



(In thousands)	Pension Plans		Postretirement Plans		Total
2019	$	48,806	$	1,623	$	50,429
2020	48,976		1,630		50,606
2021	50,691		1,616		52,307
2022	51,360		1,615		52,975
2023	52,418		1,619		54,037
2024 — 2028	275,736		7,611		283,347

Defined Contribution Retirement Plans

The Corporation offers all of its domestic employees the opportunity to participate in a defined contribution plan. Costs incurred by the Corporation in the administration and record keeping of the defined contribution plan are paid for by the Corporation and are not considered material.

Effective January 1, 2014, all non-union employees who were not currently receiving final or career average pay benefits became eligible to receive employer contributions in the Corporation's sponsored 401(k) plan, including both employer match and non-elective contribution components. Effective January 1, 2019, the employer contribution was increased to a maximum of 7% of eligible compensation from 6% previously. During the year ended December 31, 2018, the expense relating to the plan was $14.4 million, consisting of $6.3 million in matching contributions to the plan in 2018, and $8.1 million in non-elective contributions paid in January 2019. Cumulative contributions of approximately $81 million are expected to be made from 2019 through 2023.

In addition, the Corporation had foreign pension costs under various defined contribution plans of $5.3 million, $4.2 million, and $4.2 million in 2018, 2017, and 2016, respectively.