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PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
 12 Months Ended
Dec. 31, 2019
Retirement Benefits [Abstract]  
Pension and Other Post-Retirement Benefit Plans PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
We sponsor a number of defined benefit pension plans. The primary plans are The Hershey Company Retirement Plan and The Hershey Company Retirement Plan for Hourly Employees. These are cash balance plans that provide pension benefits for most domestic employees hired prior to January 1, 2007. We also sponsor two post-retirement benefit plans: health care and life insurance. The health care plan is contributory, with participants’ contributions adjusted annually. The life insurance plan is non-contributory.
Obligations and Funded Status
A summary of the changes in benefit obligations, plan assets and funded status of these plans is as follows:
 
 
Pension Benefits 
 
Other Benefits 
December 31,
 
2019
 
2018
 
2019
 
2018
Change in benefit obligation
 
 
 
 
 
 
 
 
Projected benefit obligation at beginning of year
 
$
1,031,206

 
$
1,117,564

 
$
214,719

 
$
236,112

Service cost
 
20,878

 
21,223

 
151

 
230

Interest cost
 
35,756

 
31,943

 
7,837

 
6,923

Actuarial loss (gain)
 
89,092

 
(50,432
)
 
23,635

 
(10,842
)
Curtailment
 
—

 
(16
)
 
—

 
—

Settlement
 
(21,445
)
 
(61,268
)
 
—

 
—

Currency translation and other
 
2,956

 
(4,674
)
 
589

 
(1,073
)
Benefits paid
 
(53,237
)
 
(23,134
)
 
(16,474
)
 
(16,631
)
Projected benefit obligation at end of year
 
1,105,206

 
1,031,206

 
230,457

 
214,719

Change in plan assets
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
 
963,861

 
1,086,226

 
—

 
—

Actual return on plan assets
 
157,931

 
(43,118
)
 
—

 
—

Employer contributions
 
3,660

 
9,233

 
16,474

 
16,631

Settlement
 
(21,445
)
 
(61,268
)
 
—

 
—

Currency translation and other
 
2,668

 
(4,078
)
 
—

 
—

Benefits paid
 
(53,237
)
 
(23,134
)
 
(16,474
)
 
(16,631
)
Fair value of plan assets at end of year
 
1,053,438

 
963,861

 
—

 
—

Funded status at end of year
 
$
(51,768
)
 
$
(67,345
)
 
$
(230,457
)
 
$
(214,719
)
 
 
 
 
 
 
 
 
 
Amounts recognized in the Consolidated Balance Sheets:
 
 
 
 
 
 
 
 
Other assets
 
$
10,481

 
$
332

 
$
—

 
$
—

Accrued liabilities
 
(3,476
)
 
(1,298
)
 
(19,251
)
 
(19,553
)
Other long-term liabilities
 
(58,773
)
 
(66,379
)
 
(211,206
)
 
(195,166
)
Total
 
$
(51,768
)
 
$
(67,345
)
 
$
(230,457
)
 
$
(214,719
)
 
 
 
 
 
 
 
 
 
Amounts recognized in Accumulated Other Comprehensive Income (Loss), net of tax:
 
 
 
 
 
 
 
 
Actuarial net (loss) gain
 
$
(216,443
)
 
$
(254,735
)
 
$
444

 
$
17,967

Net prior service credit (cost)
 
27,031

 
32,350

 
(219
)
 
(812
)
Net amounts recognized in AOCI
 
$
(189,412
)
 
$
(222,385
)
 
$
225

 
$
17,155


The project benefit obligation during 2019 was impacted by actuarial loss of $89,092 which was the result of the discount rate assumption decreasing from 4.1% at December 31, 2018 to 3.1% at December 31, 2019. The accumulated benefit obligation for all defined benefit pension plans was $1,063,955 as of December 31, 2019 and $994,278 as of December 31, 2018.
Plans with accumulated benefit obligations in excess of plan assets were as follows:  
December 31,
 
2019
 
2018
Projected benefit obligation
 
$
709,651

 
$
1,030,382

Accumulated benefit obligation
 
674,017

 
993,892

Fair value of plan assets
 
647,402

 
962,705


Net Periodic Benefit Cost
The components of net periodic benefit cost were as follows:  
 
 
Pension Benefits
 
Other Benefits
For the years ended December 31,
 
2019
 
2018
 
2017
 
2019
 
2018
 
2017
Amounts recognized in net periodic benefit cost
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
20,878

 
$
21,223

 
$
20,657

 
$
151

 
$
230

 
$
263

Interest cost
 
35,756

 
31,943

 
40,996

 
7,837

 
6,923

 
8,837

Expected return on plan assets
 
(54,520
)
 
(58,612
)
 
(57,370
)
 
—

 
—

 
—

Amortization of prior service (credit) cost
 
(7,230
)
 
(7,202
)
 
(5,822
)
 
811

 
836

 
748

Amortization of net loss (gain)
 
32,647

 
26,875

 
33,648

 
(385
)
 
—

 
(1
)
Curtailment credit
 
—

 
(299
)
 
—

 
—

 
—

 
—

Settlement loss
 
5,498

 
20,211

 
17,732

 
—

 
—

 
—

Total net periodic benefit cost
 
$
33,029

 
$
34,139

 
$
49,841

 
$
8,414

 
$
7,989

 
$
9,847

 
 
 
 
 
 
 
 
 
 
 
 
 
Change in plan assets and benefit obligations recognized in AOCI, pre-tax
 
 
 
 
 
 
 
 
 
 
 
 
Actuarial net (gain) loss
 
$
(52,028
)
 
$
3,715

 
$
(73,768
)
 
$
23,956

 
$
(10,771
)
 
$
2,139

Prior service cost (credit)
 
7,232

 
7,198

 
(2,650
)
 
(810
)
 
(838
)
 
(744
)
Total recognized in other comprehensive (income) loss, pre-tax
 
$
(44,796
)
 
$
10,913

 
$
(76,418
)
 
$
23,146

 
$
(11,609
)
 
$
1,395

Net amounts recognized in periodic benefit cost and AOCI
 
$
(11,767
)
 
$
45,052

 
$
(26,577
)
 
$
31,560

 
$
(3,620
)
 
$
11,242



The non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans is reflected within other (income) expense, net in the Consolidated Statements of Income
Assumptions
The weighted-average assumptions used in computing the year end benefit obligations were as follows:
 
 
Pension Benefits 
 
Other Benefits
December 31,
 
2019
 
2018
 
2019
 
2018
Discount rate
 
3.1
%
 
4.1
%
 
3.2
%
 
4.2
%
Rate of increase in compensation levels
 
3.6
%
 
3.6
%
 
N/A

 
N/A

Interest crediting rate
 
4.7
%
 
4.7
%
 
N/A

 
N/A



The weighted-average assumptions used in computing net periodic benefit cost were as follows:  
 
 
Pension Benefits
 
Other Benefits
For the years ended December 31,
 
2019
 
2018
 
2017
 
2019
 
2018
 
2017
Discount rate
 
4.1
%
 
3.4
%
 
3.8
%
 
4.2
%
 
3.5
%
 
3.8
%
Expected long-term return on plan assets
 
5.9
%
 
5.8
%
 
5.8
%
 
N/A

 
N/A

 
N/A

Rate of compensation increase
 
3.6
%
 
3.8
%
 
3.8
%
 
N/A

 
N/A

 
N/A



The Company’s discount rate assumption is determined by developing a yield curve based on high quality corporate bonds with maturities matching the plans’ expected benefit payment streams. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. We base the asset return assumption on current and expected asset allocations, as well as historical and expected returns on the plan asset categories.

Prior to December 31, 2017, the service and interest cost components of net periodic benefit cost were determined utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. Beginning in 2018, we elected to utilize a full yield curve approach in the estimation of service and interest costs by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. We made this change to provide a more precise measurement of service and interest costs by improving the correlation between the projected cash flows to the corresponding spot rates along the yield curve. This change does not affect the measurement of our pension and other post-retirement benefit liabilities but generally results in lower benefit expense in periods when the yield curve is upward sloping, which was the case in 2018. We accounted for this change as a change in accounting estimate and, accordingly, accounted for it on a prospective basis starting in 2018.

For purposes of measuring our post-retirement benefit obligation at December 31, 2019, we assumed a 6.4% annual rate of increase in the per capita cost of covered health care benefits for 2020, grading down to 5.0% by 2025. For purposes of measuring our post-retirement benefit obligation at December 31, 2018, we assumed a 7.0% annual rate of increase in the per capita cost of covered health care benefits for 2019, grading down to 5.0% by 2023.
The valuations and assumptions reflect adoption of the Society of Actuaries updated Pri-2012 mortality tables with MP-2019 generational projection scales, which we adopted as of December 31, 2019. Adoption of the updated scale did not have a significant impact on our current pension obligations or net period benefit cost since our primary plans are cash balance plans and most participants take lump-sum settlements upon retirement.
Plan Assets
We broadly diversify our pension plan assets across public equity, fixed income, diversified credit strategies and diversified alternative strategies asset classes. Our target asset allocation for our major domestic pension plans as of December 31, 2019 was as follows:
Asset Class
 
Target Asset Allocation 
Cash
 
1%
Equity securities
 
25%
Fixed income securities
 
49%
Alternative investments, including real estate, listed infrastructure and other
 
25%

As of December 31, 2019, actual allocations were consistent with the targets and within our allowable ranges. We expect the level of volatility in pension plan asset returns to be in line with the overall volatility of the markets within each asset class.
The following table sets forth by level, within the fair value hierarchy (as defined in Note 6), pension plan assets at their fair values as of December 31, 2019:
 
Quoted prices in active markets of identical assets
(Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant other unobservable inputs (Level 3)
 
Investments Using NAV as a Practical Expedient (1)
 
Total
Cash and cash equivalents
$
365

 
$
13,194

 
$
—

 
$
629

 
$
14,188

Equity securities:
 
 
 
 
 
 
 
 
 
Global all-cap (a)
—

 
—

 
—

 
248,222

 
248,222

Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. government/agency
—

 
—

 
—

 
264,066

 
264,066

Corporate bonds (b)
—

 
—

 
—

 
136,896

 
136,896

International government/corporate bonds (c)
—

 
—

 
—

 
32,407

 
32,407

Diversified credit (d)
—

 
—

 
—

 
103,793

 
103,793

Alternative investments:
 
 
 
 
 
 
 
 
 
Global diversified assets (e)
—

 
—

 
—

 
146,681

 
146,681

Global real estate investment trusts (f)
—

 
—

 
—

 
53,159

 
53,159

Global infrastructure (g)
—

 
—

 
—

 
54,026

 
54,026

Total pension plan assets
$
365

 
$
13,194

 
$
—

 
$
1,039,879

 
$
1,053,438


The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair values as of December 31, 2018:
 
Quoted prices in active markets of identical assets 
(Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant other unobservable inputs (Level 3)
 
Investments Using NAV as a Practical Expedient (1)
 
Total
Cash and cash equivalents
$
1,040

 
$
17,857

 
$
—

 
$
664

 
$
19,561

Equity securities:
 
 
 
 
 
 
 
 
 
Global all-cap (a)
—

 
—

 
—

 
210,850

 
210,850

Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. government/agency
—

 
—

 
—

 
242,618

 
242,618

Corporate bonds (b)
—

 
—

 
—

 
117,656

 
117,656

International government/corporate bonds (c)
—

 
—

 
—

 
29,115

 
29,115

Diversified credit (d)
—

 
—

 
—

 
94,008

 
94,008

Alternative investments:
 
 
 
 
 
 
 
 
 
Global diversified assets (e)
—

 
—

 
—

 
147,661

 
147,661

Global real estate investment trusts (f)
—

 
—

 
—

 
57,854

 
57,854

Global infrastructure (g)
—

 
—

 
—

 
44,538

 
44,538

Total pension plan assets
$
1,040

 
$
17,857

 
$
—

 
$
944,964

 
$
963,861


(1)
Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy but are included to reconcile to the amounts presented in our Obligations and Funded Status table.
(a)
This category comprises equity funds that primarily track the MSCI World Index or MSCI All Country World Index.
(b)
This category comprises fixed income funds primarily invested in investment grade and high yield bonds.
(c)
This category comprises fixed income funds primarily invested in Canadian and other international bonds.
(d)
This category comprises fixed income funds primarily invested in high yield bonds, loans, securitized debt, and emerging market debt.
(e)
This category comprises diversified funds invested across alternative asset classes.
(f)
This category comprises equity funds primarily invested in publicly traded real estate securities.
(g)
This category comprises equity funds primarily invested in publicly traded listed infrastructure securities.

The fair value of the Level 1 assets was based on quoted prices in active markets for the identical assets. The fair value of the Level 2 assets was determined by management based on an assessment of valuations provided by asset management entities and was calculated by aggregating market prices for all underlying securities.
Investment objectives for our domestic plan assets are:

•
To ensure high correlation between the value of plan assets and liabilities;
•
To maintain careful control of the risk level within each asset class; and
•
To focus on a long-term return objective.

We believe that there are no significant concentrations of risk within our plan assets as of December 31, 2019. We comply with the rules and regulations promulgated under the Employee Retirement Income Security Act of 1974 (“ERISA”) and we prohibit investments and investment strategies not allowed by ERISA. We do not permit direct purchases of our Company’s securities or the use of derivatives for the purpose of speculation. We invest the assets of non-domestic plans in compliance with laws and regulations applicable to those plans.
Cash Flows and Plan Termination
Our policy is to fund domestic pension liabilities in accordance with the limits imposed by the ERISA, federal income tax laws and the funding requirements of the Pension Protection Act of 2006. We fund non-domestic pension liabilities in accordance with laws and regulations applicable to those plans.
We made total contributions to the pension plans of $3,660 during 2019. In 2018, we made total contributions of $9,233 to the pension plans. For 2020, minimum funding requirements for our pension plans are approximately $1,503.
Total benefit payments expected to be paid to plan participants, including pension benefits funded from the plans and other benefits funded from Company assets, are as follows:
 
Expected Benefit Payments 
 
2020
 
2021
 
2022
 
2023
 
2024
 
2025-2029
Pension Benefits
$
105,287

 
$
93,240

 
$
115,785

 
$
89,634

 
$
90,039

 
$
372,692

Other Benefits
19,247

 
18,239

 
17,021

 
16,239

 
15,583

 
66,581


Savings Plans
The Company sponsors several defined contribution plans to provide retirement benefits to employees. Contributions to The Hershey Company 401(k) Plan and similar plans for non-domestic employees are based on a portion of eligible pay up to a defined maximum. All matching contributions were made in cash. Expense associated with the defined contribution plans was $47,651 in 2019, $47,959 in 2018 and $46,154 in 2017.