EMPLOYEE BENEFIT PLANS

Qualified Pension Plan and Nonqualified Excess Pension Plan

The Company sponsors a Qualified Pension Plan covering substantially all of its employees. Benefits are based on years of service and the employee’s compensation.

Effective January 1, 2008, the Company made the following changes to its Qualified Pension Plan. These changes have been reflected in the computations within this note.


•	Employees hired after December 31, 2007 and any former employee hired after that date, will receive a cash balance benefit.


•	Employees active on December 31, 2007, with age plus years of vesting service less than 55 years will receive a final pay-based pension benefit for service through December 31, 2007, plus a cash balance benefit for service after December 31, 2007.


•	Employees active on December 31, 2007, with age plus years of vesting service equaling or exceeding 55 years, will receive a final pay-based pension benefit for service both before and after December 31, 2007, with a modest reduction in the formula for benefits earned after December 31, 2007.


•	All participants terminating employment on or after December of 2007 may elect to receive a lump sum benefit.

The Company also sponsors a Nonqualified Excess Pension Plan, which is an unfunded nonqualified plan that provides defined pension benefits in excess of limits imposed on the Qualified Pension Plan by federal tax law.

The following table presents the benefit obligation, fair value of plan assets, funded status, and amounts not yet recognized as components of net periodic pension costs for the Company’s defined benefit pension plan and unfunded excess benefit plan as of December 31, 2018 and 2017:



	December 31, 2018						December 31, 2017
	Qualified Pension Plan			Nonqualified Excess Pension Plan			Qualified Pension Plan			Nonqualified Excess Benefit Plan
	(Dollars In Thousands)
Accumulated benefit obligation, end of year	$	269,802		$	46,299		$	278,084		$	50,149
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	300,423		$	54,590		$	265,848		$	47,802
Service cost	13,185			1,415			12,011			1,350
Interest cost	9,830			1,436			9,846			1,480
Amendments	—			—			—			—
Actuarial (gain)/loss	(15,608		)	(2,001		)	26,539			7,861
Benefits paid	(19,701		)	(8,095		)	(13,821		)	(3,903		)
Projected benefit obligation at end of year	288,129			47,345			300,423			54,590
Change in plan assets:
Fair value of plan assets at beginning of year	260,926			—			201,843			—
Actual return on plan assets	(6,070		)	—			29,404			—
Employer contributions⁽¹⁾	18,800			8,095			43,500			3,903
Benefits paid	(19,701		)	(8,095		)	(13,821		)	(3,903		)
Fair value of plan assets at end of year	253,955			—			260,926			—
After reflecting FASB guidance:
Funded status	(34,174		)	(47,345		)	(39,497		)	(54,590		)
Amounts recognized in the balance sheet:
Other liabilities	(34,174		)	(47,345		)	(39,497		)	(54,590		)
Amounts recognized in accumulated other comprehensive income:
Net actuarial (gain)/loss	10,370			9,025			2,850			13,521
Prior service cost/(credit)	—			—			—			—
Total amounts recognized in AOCI	$	10,370		$	9,025		$	2,850		$	13,521


(1)	Employer contributions are shown based on the calendar year in which contributions were made to each plan.

Weighted-average assumptions used to determine benefit obligations as of December 31 are as follows:



	Qualified Pension Plan				Nonqualified Excess Pension Plan
	2018		2017		2018		2017
Discount rate	4.21	%	3.55	%	3.93	%	3.26	%
Rate of compensation increase	4.75% prior to age 40/ 3.75% for age 40 and above		4.75% prior to age 40/ 3.75% for age 40 and above		4.75% prior to age 40/ 3.75% for age 40 and above		4.75% prior to age 40/ 3.75% for age 40 and above

Weighted-average assumptions used to determine the net periodic benefit cost for the years ended December 31, 2018, 2017, and 2016 are as follows:



	Qualified Pension Plan						Nonqualified Excess Pension Plan
	For The Year Ended December 31,
	2018		2017		2016		2018		2017		2016
Discount rate	3.55	%	4.04	%	4.29	%	3.25	%	3.60	%	3.63	%
Rate of compensation increase	4.75% prior to age 40/ 3.75% for age 40 and above		4.75% prior to age 40/ 3.75% for age 40 and above		4.75% prior to age 40/ 3.75% for age 40 and above		4.75% prior to age 40/ 3.75% for age 40 and above		4.75% prior to age 40/ 3.75% for age 40 and above		4.75% prior to age 40/ 3.75% for age 40 and above
Expected long-term return on plan assets	7.00	%	7.00	%	7.25	%	N/A		N/A		N/A

The assumed discount rates used to determine the benefit obligations were based on an analysis of future benefits expected to be paid under the plans. The assumed discount rate reflects the interest rate at which an amount that is invested in a portfolio of high-quality debt instruments on the measurement date would provide the future cash flows necessary to pay benefits when they come due.

To determine an appropriate long-term rate of return assumption, the Company received evaluations of market performance based on the Company’s asset allocation as provided by external consultants.

Components of the net periodic benefit cost for the years ended December 31, 2018, 2017, and 2016 are as follows:



	Qualified Pension Plan									Nonqualified Excess Pension Plan
	For The Year Ended December 31,
	2018			2017			2016			2018		2017		2016
	(Dollars In Thousands)
Service cost—benefits earned during the period	$	13,185		$	12,011		$	12,791		$	1,415	$	1,350	$	1,413
Interest cost on projected benefit obligation	9,830			9,846			9,751			1,436		1,480		1,353
Expected return on plan assets	(17,058		)	(13,570		)	(13,780		)	—		—		—
Amortization of prior service cost/(credit)	—			—			—			—		—		—
Amortization of actuarial loss/(gain)⁽¹⁾	—			—			—			969		634		178
Preliminary net periodic benefit cost	5,957			8,287			8,762			3,820		3,464		2,944
Settlement/curtailment expense^(2)(3)(4)	—			—			(964		)	1,526		—		2,135
Total net periodic benefit cost	$	5,957		$	8,287		$	7,798		$	5,346	$	3,464	$	5,079


(1)	2018 average remaining service period used is 9.17 years and for the unfunded excess benefit plan was 7.73 years from January 1, 2018 to June 30, 2018 and 7.87 from July 1, 2018 to December 31, 2018.

(2)

In 2016, the Company amended its Qualified Pension Plan to offer a limited-time opportunity of benefit payouts to eligible, terminated-vested participants (“lump sum window”). The lump sum window provided eligible, terminated-vested participants with an option to elect to receive a lump sum settlement of his or her pension benefit in December 2016 or to elect receipt of monthly pension benefits commencing in December 2016. This event triggered settlement accounting for the Company and resulted in the recognition of $1.0 million of settlement income for the twelve months ended December 31, 2016.


(3)	The Nonqualified Excess Pension Plan triggered settlement accounting for the year ended December 31, 2018 since the total lump sum payments exceeded the settlement threshold of service cost plus interest cost.

(4)

In 2016, the Board of Directors of Protective Life Corporation approved the conversion of the accrued benefit payable under the Nonqualified Excess Pension Plan as of March 31, 2016 to John D. Johns, the Company's Chairman and Chief Executive Officer at the time, into a lump sum amount. The lump sum amount is allocated to a book entry that will be treated as though it were a pay deferral account under the Company’s deferred compensation plan for officers. Mr. Johns will continue to accrue benefits as though he were accruing benefits under the Nonqualified Excess Pension Plan with respect to this continued service as an employee of the Company after March 31, 2016. The conversion event required the Company to re-measure the Nonqualified Excess Pension Plan as of May 31, 2016 and resulted in the recognition of $2.1 million in settlement expense during the twelve months ended December 31, 2016.

For the Qualified Pension Plan, the Company does not expect to amortize any net actuarial loss/(gain) from other comprehensive income into net periodic benefit cost during 2019 since the net actuarial loss/(gain) subject to amortization is less than 10% of the greater of the smooth value of assets or the projected benefit obligation. For the unfunded excess benefit plan, the Company expects to amortize approximately $0.6 million of net actuarial loss from other comprehensive income into net periodic benefit cost during 2019.

Estimated future benefit payments under the Qualified Pension Plan and Nonqualified Excess Pension Plan are as follows:



Years	Qualified Pension Plan		Nonqualified Excess Pension Plan
	(Dollars In Thousands)
2019	$	19,544	$	6,788
2020	20,723		5,196
2021	21,153		5,286
2022	22,538		5,583
2023	22,765		4,754
2024 - 2028	120,355		19,586

Qualified Pension Plan Assets

Allocation of plan assets of the Qualified Pension Plan by category as of December 31, 2017 are as follows:



Asset Category	Target Allocation for 2017		2017 ₍₁₎
Cash and cash equivalents	2	%	15	%
Equity securities	60		55
Fixed income	38		30
Total	100	%	100	%

(1) During 2017, the Company made a $43.5 million contribution to the defined benefit pension plan and allocated the contribution to cash and cash equivalents pending further analysis of its investment strategy. The plan’s investment policy was amended to allow for an actual asset allocation outside of the current target allocation until the investment strategy analysis was complete.

Prior to the amendment for the $43.5 million contribution made in 2017, the defined benefit pension plan had a target asset allocation of 60% domestic equities, 38% fixed income, and 2% cash.

During 2018, the Company completed an asset and liability study of its defined benefit pension plan and the associated investment portfolio. As a result, the Plan’s investment policy statement and investment portfolio were updated. These changes are reflected in the disclosures below.

Allocation of plan assets of the defined benefit pension plan by category, as of December 31, 2018 are as follows:



Asset Category	Target Allocation for 2018		2018
Return-Seeking	60	%	61	%
Liability-Hedging Fixed Income	40		39
Total	100	%	100	%

The Company’s target asset allocation is designed to provide an acceptable level of risk and balance between return-seeking assets and liability-hedging fixed income assets. The weighting towards return-seeking securities is designed to help provide for an increased level of asset growth potential and liquidity.

The Company’s investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner necessary to meet expected future benefits earned by participants. The investment guidelines consider a broad range of economic conditions. Central to the policy are target allocation ranges (shown above) by major asset categories. The objectives of the target allocations are to maintain investment portfolios that diversify risk through prudent asset allocation parameters, achieve asset returns that meet or exceed the plans’ actuarial assumptions, and achieve asset returns that are competitive with like institutions employing similar investment strategies.

The Qualified Pension Plan’s return-seeking assets are in a Russell 3000 index fund that invests in a domestic equity index collective trust managed by Northern Trust Corporation, a Spartan 500 index fund managed by Fidelity, and a Collective All Country World ex-US index fund managed by Northern Trust. The Plan’s cash is invested in a collective trust managed by Northern Trust Corporation. The Plan’s liability-hedging fixed income assets are invested in a group deposit administration annuity contract with PLICO and a Long Government Credit Bond index fund managed by BlackRock. The Northern Trust Collective All Country World ex-US index fund and the BlackRock Long Government Credit Bond index fund were added to the Plan’s investment portfolio during 2018.

Plan assets of the Qualified Pension Plan by category as of December 31, 2018 and December 31, 2017, are as follows:



	As of December 31,
	2018		2017
	(Dollars In Thousands)
Asset Category
Cash and cash equivalents	$	1,225	$	39,897
Equity securities:
Collective Russell 3000 equity index fund	70,599		74,511
Fidelity Spartan 500 index fund	46,300		71,632
Northern Trust ACWI ex-US Fund	41,924		—
Liability-hedging fixed income:
Group Deposit Administration Annuity Contract	78,707		74,886
BlackRock Long Government Credit Bond Index Fund	15,200		—
Total investments	253,955		260,926
Employer contribution receivable	—		—
Total	$	253,955	$	260,926

The valuation methodologies used to determine the fair values reflect market participant assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value. The Qualified Pension Plan’s group deposit administration annuity contract with PLICO is recorded at contract value, which the Company believes approximates fair value. Contract value represents contributions made under the contract, plus interest at the contract rate, less funds used to purchase annuities. For the remaining investments, the Company determines the fair values based on quoted market prices. While the Company believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value could result in a different fair value measurement at the reporting date.

The following table sets forth by level, within the fair value hierarchy, the Qualified Pension Plan’s assets at fair value as of December 31, 2018:



	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Cash	$	1,225	$	—	$	—	$	1,225
Equity securities	158,823		—		—		158,823
Fixed income	15,200		—		—		15,200
Group deposit administration annuity contract	—		—		78,707		78,707
Total investments	$	175,248	$	—	$	78,707	$	253,955

The following table sets forth by level, within the fair value hierarchy, the Qualified Pension Plan’s assets at fair value as of December 31, 2017:



	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Cash	$	39,897	$	—	$	—	$	39,897
Equity securities	146,143		—		—		146,143
Group deposit administration annuity contract	—		—		74,886		74,886
Total investments	$	186,040	$	—	$	74,886	$	260,926

For the year ended December 31, 2018 and December 31, 2017, there were no transfers between levels.

The following table presents a reconciliation of the beginning and ending balances for the fair value measurements for the year ended December 31, 2018 and for the year ended December 31, 2017, for which the Company has used significant unobservable inputs (Level 3):



	December 31, 2018		December 31, 2017
	(Dollars In Thousands)
Balance, beginning of year	$	74,886	$	71,226
Interest income	3,821		3,660
Transfers from collective short-term investments fund	—		—
Transfers to collective short-term investments fund	—		—
Balance, end of year	$	78,707	$	74,886

The following table represents the Plan’s Level 3 financial instrument, the valuation technique used, and the significant unobservable input and the ranges of values for that input as of December 31, 2018:



Instrument	Fair Value		Principal Valuation Technique	Significant Unobservable Inputs	Range of Significant Input Values
	(Dollars In Thousands)
Group deposit administration annuity contract	$	78,707	Contract Value	Contract Rate	5.06% - 5.14%

Investment securities are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term could materially affect the amounts reported.

Qualified Pension Plan Funding Policy

The Company’s funding policy is to contribute amounts to the Qualified Pension Plan sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act (“ERISA”) plus such additional amounts as the Company may determine to be appropriate from time to time. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.

Under the Pension Protection Act of 2006 (“PPA”), a plan could be subject to certain benefit restrictions if the plan’s adjusted funding target attainment percentage (“AFTAP”) drops below 80%. Therefore, the Company may make additional contributions in future periods to maintain an AFTAP of at least 80%. In general, the AFTAP is a measure of how well a plan is funded and is obtained by dividing a plan’s assets by its funding liabilities. AFTAP is based on participant data, plan provisions, plan methods and assumptions, funding credit balances, and plan assets as of the plan valuation date. Some of the assumptions and methods used to determine a plan’s AFTAP may be different from the assumptions and methods used to measure a plan’s funded status on a GAAP basis.

In July of 2012, the Moving Ahead for Progress in the 21st Century Act (“MAP-21”), which includes pension funding stabilization provisions, was signed into law. These provisions establish an interest rate corridor which is designed to stabilize the segment rates used to determine funding requirements from the effects of interest rate volatility. In August of 2014, the Highway and Transportation Funding Act of 2014 (“HATFA”) was signed into law. HAFTA extends the funding relief provided by MAP-21 by delaying the interest rate corridor expansion. The funding stabilization provisions of MAP-21 and HATFA reduced the Company’s minimum required Qualified Pension Plan contributions. Since the funding stabilization provisions of MAP-21 and HATFA do not apply for Pension Benefit Guaranty Corporation (“PBGC”) reporting purposes, the Company may also make additional contributions in future periods to avoid certain PBGC reporting triggers.

During the twelve months ended December 31, 2018, the Company contributed $18.8 million to the Qualified Pension Plan for the 2017 plan year. The Company has not yet determined what amount it will fund during 2019, but may contribute an amount that would eliminate the PBGC variable-rate premium payable in 2019. The Company currently estimates that amount will be between $10 million and $20 million.

Other Postretirement Benefits

In addition to pension benefits, the Company provides limited healthcare benefits to eligible retired employees until age 65. This postretirement benefit is provided by an unfunded plan. As of December 31, 2018 and December 31, 2017, the accumulated postretirement benefit obligation and projected benefit obligation were immaterial.

For a closed group of retirees over age 65, the Company provides a prescription drug benefit. As of December 31, 2018 and December 31, 2017, the Company’s liability related to this benefit was immaterial.

The Company also offers life insurance benefits for retirees from $10,000 up to a maximum of $75,000 which are provided through the payment of premiums under a group life insurance policy. This plan is partially funded at a maximum of $50,000 face amount of insurance. The benefit obligation associated with these benefits is as follows:



	As of December 31,
Postretirement Life Insurance Plan	2018			2017
	(Dollars In Thousands)
Change in Benefit Obligation
Benefit obligation, beginning of year	$	10,978		$	9,634
Service cost	153			122
Interest cost	366			354
Actuarial (gain)/loss	(1,045		)	1,347
Benefits paid	(440		)	(479		)
Benefit obligation, end of year	$	10,012		$	10,978

For the postretirement life insurance plan, the Company’s discount rate assumption used to determine the benefit obligation and the net periodic benefit cost as of December 31, 2018, is 4.38% and 3.74%, respectively.

The Company’s expected long-term rate of return assumption used to determine the net periodic benefit cost as of December 31, 2018, is 2.75%. To determine an appropriate long-term rate of return assumption, the Company utilized 25 year average and annualized return results on the Barclay’s short treasury index.

Investments of the Company’s group life insurance plan are held by Wells Fargo Bank, N.A. and are invested in a money market fund.

Investments are stated at fair value and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The money market funds are valued based on historical cost, which represents fair value, at year end. This method of valuation may produce a fair value calculation that may not be reflective of future fair values. Furthermore, while the Company believes its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value could result in a different fair value measurement at the reporting date.

The following table sets forth by level, within the fair value hierarchy, the life insurance plan’s assets at fair value as of December 31, 2018:



	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Money market fund	$	4,854	$	—	$	—	$	4,854

The following table sets forth by level, within the fair value hierarchy, the life insurance plan’s assets at fair value as of December 31, 2017:



	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Money market fund	$	5,104	$	—	$	—	$	5,104

For the year ended December 31, 2018 and December 31, 2017, there were no transfers between levels.

Investments are exposed to various risks, such as interest rate and credit risks. Due to the level of risk associated with investments and the level of uncertainty related to credit risks, it is at least reasonably possible that changes in risk in the near term could materially affect the amounts reported.

401(k) Plan

The Company sponsors a tax-qualified 401(k) Plan (“401 (k) Plan”) which covers substantially all employees. Employee contributions are made on a before-tax basis as provided by Section 401(k) of the Internal Revenue Code or as after-tax “Roth” contributions. Employees may contribute up to 25% of their eligible annual compensation to the 401(k) Plan, limited to a maximum annual contribution amount as set periodically by the Internal Revenue Service ($18,500 for 2018). The Plan also provides a “catch-up” contribution provision which permits eligible participants (age 50 or over at the end of the calendar year), to make additional contributions that exceed the regular annual contribution limits up to a limit periodically set by the Internal Revenue Service ($6,000 for 2018). The Company matches the sum of all employee contributions dollar for dollar up to a maximum of 4% of an employee’s pay per year per person. All matching contributions vest immediately. For the year ended December 31, 2018 and December 31, 2017, the Company recorded an expense of $9.2 million and $8.2 million associated with 401(k) Plan matching contributions, respectively.

The Company also has a supplemental matching contribution program, which is a nonqualified plan that provides supplemental matching contributions in excess of the limits imposed on qualified defined contribution plans by federal tax law. The expense recorded by the Company for this employee benefit was $1.3 million, $1.1 million, and $0.6 million, respectively, in 2018, 2017, and 2016.