Note 6 - Employee Benefit Plans

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Retirement Benefits [Text Block]

Note 6: Employee Benefit Plans

Pensions and Other Post-retirement Plans

We sponsor defined benefit pension plans covering substantially all U.S. employees and a Supplemental Excess Retirement Plan (“SERP”) covering certain eligible employees. The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets over the two-year period ended December 31, 2021, and the funded status as of December 31, 2021 and 2020 (in thousands):

	Pension Benefits
	2021			2020
Change in benefit obligation:
Benefit obligation at beginning of year	$	192,954		$	172,909
Service cost		5,820			5,334
Interest cost		4,990			5,618
Amendments		550			—
Change due to mortality change		548			(1,521	)
Change due to discount rate change		(5,865	)		17,040
Actuarial return (loss)		4,342			121
Benefits paid		(7,477	)		(6,547	)
Benefit obligation at end of year		195,862			192,954
Change in fair value of plan assets:
Fair value of plan assets at beginning of year		148,052			116,067
Actual return on plan assets		27,049			14,801
Employer contributions		22,250			23,731
Benefits paid		(7,477	)		(6,547	)
Fair value of plan assets at end of year		189,874			148,052
Underfunded status at end of year	$	(5,988	)	$	(44,902	)

The following table provides the amounts recognized in the consolidated balance sheets as of December 31, 2021 and 2020 (in thousands):

	Pension Benefits
	2021			2020
Current liabilities:
Accrued benefit liability	$	(1,315	)	$	(758	)
Non- current pension liability:
Accrued benefit liability		(4,673	)		(44,144	)
Accumulated other comprehensive loss		29,966			53,085
Net amount recognized	$	23,978		$	8,183

The benefit obligation and prepaid benefit costs were calculated by applying the following weighted average assumptions:

	Pension Benefits
	2021					2020
Discount rate: net periodic pension cost		2.64	%				3.32	%
Discount rate: projected benefit obligation		2.86	%				2.64	%
Expected rate of return on plan assets		6.40	%				6.45	%
Rate of compensation increase: net periodic pension cost	5.00%/2.00%			(1	)		2.00	%
Rate of compensation increase: projected benefit obligation	5.00%/2.00%			(1	)		2.00	%

⁽¹⁾ 5.00% for 2022, 2.00% per year thereafter.

The above assumptions were calculated based on information as of December 31, 2021 and 2020, the measurement dates for the plans. The discount rate is based on the yield curve for investment-grade corporate bonds as published by the U.S. Treasury Department. The expected rate of return on plan assets is based upon consideration of the plan’s current asset mix, historical long-term return rates and the plan’s historical performance. Our current assumption for the rate on plan assets is 7.25%. The vested benefit obligation is determined based on the actuarial present value of benefits to which employees are currently entitled, based on employees' expected date of separation or retirement.

Net periodic pension cost for the plans consisted of the following in 2021, 2020, and 2019 (in thousands):

	Pension Benefits
	2021			2020			2019
Service cost	$	5,820		$	5,334		$	4,401
Interest cost		4,990			5,618			6,482
Expected return on plan assets		(9,252	)		(7,489	)		(5,982	)
Amortization of prior service benefit		394			117			61
Amortization of net gain from earlier periods		4,502			4,652			4,389
Net periodic pension cost	$	6,454		$	8,232		$	9,351

The service cost component of net periodic pension cost is included in the same line items of our consolidated financial statements as other employee compensation costs. The net expense of $0.6 million, $2.9 million and $5.0 million for 2021, 2020, and 2019, respectively, related to all other components of net periodic pension cost is included in other (expense) income on our consolidated statements of operations and comprehensive (loss) income.

Each defined benefit pension plan's statement of investment policy delineates the responsibilities of the board, the committee which administers the plan, the investment manager(s), and investment adviser/consultant, and provides guidelines on investment management. Investment objectives are established for each of the asset categories included in the pension plans with comparisons of performance against appropriate benchmarks. Each plan's policy calls for investments to be supervised by qualified investment managers. The investment managers are monitored on an ongoing basis by our outside consultant, with formal reporting to us and the consultant performed each quarter. The policy sets forth the following allocation of assets:

	Target			Maximum
Large cap U.S. equities		17	%		20	%
Small cap U.S. equities		8	%		10	%
Non-U.S. equities		25	%		30	%
U.S. Fixed income		18	%		23	%
Emerging markets debt		5	%		8	%
Real estate		15	%		18	%
Absolute return		5	%		7	%
Company stock/Real return		7	%		13	%

Each defined benefit pension plan's statement of investment policy and objectives aspires to achieve the assumed long term rate of return on plan assets established by the plan’s actuary plus one percent.

Accounting guidance has established a hierarchy of assets measured at fair value on a recurring basis. The three levels included in the hierarchy are:

Level 1: quoted prices in active markets for identical assets or liabilities

Level 2: significant other observable inputs

Level 3: significant unobservable inputs

The fair values by asset category in each pension plan, along with their hierarchy levels, are as follows as of December 31, 2021 (in thousands):

	Hecla plans								Lucky Friday
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Investments measured at fair value
Interest-bearing cash	$	1,835	$	—	$	—	$	1,835	$	305	$	—	$	—	$	305
Common stock		8,869		—		—		8,869		1,580		—		—		1,580
Mutual funds		96,957		—		—		96,957		15,707		—		—		15,707
Total investments in the fair value hierarchy		107,661		—		—		107,661		17,592		—		—		17,592
Investments measured at net asset value
Real estate funds								19,119								4,482
Hedge funds								12,866								2,828
Common collective funds								20,626								4,700
Total investments measured at net asset value								52,611								12,010
Total fair value	$	107,661	$	—	$	—	$	160,272	$	17,592	$	—	$	—	$	29,602

The fair values by asset category in each defined benefit pension plan, along with their hierarchy levels, were as follows as of December 31, 2020 (in thousands):

	Hecla								Lucky Friday
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Investments measured at fair value
Interest-bearing cash	$	367	$	—	$	—	$	367	$	111	$	—	$	—	$	111
Common stock		13,947		—		—		13,947		3,203		—		—		3,203
Mutual funds		69,994		—		—		69,994		15,786		—		—		15,786
Total investments in the fair value hierarchy		84,308		—		—		84,308		19,100		—		—		19,100
Investments measured at net asset value
Real estate funds								12,708								3,428
Hedge funds								5,823								1,215
Common collective funds								17,545								3,925
Total investments measured at net asset value								36,076								8,568
Total fair value	$	84,308	$	—	$	—	$	120,384	$	19,100	$	—	$	—	$	27,668

Generally, investments are valued based on information provided by fund managers to each plan's trustee as reviewed by management and its investment advisers. Mutual funds and equities are valued based on available exchange data. Commingled equity funds consist of publicly-traded investments.

Fair value for real estate funds, hedge funds and common collective equity funds is measured using the net asset value per share (or its equivalent) practical expedient (“NAV”), and has not been categorized in the fair value hierarchy. There are no unfunded commitments related to these investments. There are no restrictions on redemptions of these funds as of December 31, 2021, except as limited by the redemption terms discussed below. The following summarizes information on the asset classes measured using NAV:

	Investment strategy	Redemption terms
Real estate funds	Invest in real estate properties among the four major property types (office, industrial, retail and multi-family)	Allowed quarterly with notice of between 45 and 60 days
Hedge funds	Invest in a variety of asset classes which aim to diversify sources of returns	Allowed quarterly with notice of 90 days
Common collective funds	Invest in U.S. large cap or small/medium cap public equities in actively traded managed equity portfolios	Allowed daily or with notice of 30 days

The following are estimates of future benefit payments, which reflect expected future service as appropriate, related to our pension plans (in thousands):

Year Ending December 31,	Pension Plans
2022	$	8,816
2023		8,765
2024		8,944
2025		9,135
2026		9,212
Years 2027-2031		45,880

During 2021, we contributed $16.8 million and $5.5 million in shares of our common stock to our SERP and our defined benefit pension plans, respectively. We do not expect to be required to contribute to our defined benefit plans in 2022, but we may choose to do so.

The following table indicates whether our pension plans had accumulated benefit obligations (“ABO”) in excess of plan assets, or plan assets exceeded ABO (amounts are in thousands).

	December 31, 2021				December 31, 2020
	ABO Exceeds Plan Assets		Plan Assets Exceed ABO		ABO Exceeds Plan Assets		Plan Assets Exceed ABO
Projected benefit obligation	$	195,862	$	—	$	192,954	$	—
Accumulated benefit obligation		191,597		—		189,931		—
Fair value of plan assets		189,873		—		148,051		—

For the pension plans, the following amounts are included in “Accumulated other comprehensive loss, net” on our balance sheet as of December 31, 2021, that have not yet been recognized as components of net periodic benefit cost (in thousands):

	Pension Benefits
Unamortized net (gain)/loss	$	28,386
Unamortized prior service cost		1,580

Non-U.S. employees are not eligible to participate in the defined benefit pension plans that we maintain for U.S. employees. Canadian employees participate in Canada's public retirement income system, which includes the following components: (i) the Canada (or Quebec) Pension Plan, which is an employee and employer contributory, earnings-related social insurance program, and (ii) the Old Age Security program. Mexican employees participate in Mexico's public retirement income system, which is based on contributions the employee, employer and the government submit to the retirement savings system. The system is administered through savings accounts managed by private fund managers selected by the participant.

Capital Accumulation Plans

Our Capital Accumulation Plan (“Hecla 401(k) Plan”) is available to all U.S. salaried and certain hourly employees upon employment. We make a matching contribution in the form of cash or stock of 100% of an employee’s contribution up to 6% of eligible earnings. Our matching contributions were approximately $4.3 million in 2021, $4.6 million in 2020, and $3.9 million in 2019 in Hecla common stock.

We also maintain a 401(k) plan that is available to all hourly employees at Lucky Friday after completion of six months of service. When an employee meets eligibility requirements we make a matching cash contribution of 55% of the employee’s contribution up to, but not exceeding, 5% of the employee’s eligible earnings.  Our matching contributions were approximately $0.5 million in 2021, $10,000 in 2020, and $10,000 in 2019.