Employee Benefit Plans and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2022

Retirement Benefits [Abstract]

Employee Benefit Plans and Other Postretirement Benefits

Employee Benefit Plans and Other Postretirement Benefits

The Company has a qualified defined benefit pension plan and postretirement healthcare benefit plans. The plans cover certain eligible employees and retirees of the HDMC segment. The Company also has unfunded supplemental employee retirement plan agreements (SERPA) with certain employees.

Pension benefits are based primarily on years of service and, for certain participants, levels of compensation. Plan participants are generally eligible to receive postretirement healthcare benefits upon attaining age 55 after rendering at least 10 years of service to the Company. Some of the plans require participant contributions to partially offset benefit costs.

Obligations and Funded Status:

The changes in the benefit obligation, fair value of plan assets and the funded status of the Company’s pension and SERPA plans and the postretirement healthcare plans as of the Company’s measurement dates of December 31, were as follows (in thousands):

	Pension and SERPA Benefits				Postretirement Healthcare Benefits
	2022		2021		2022		2021
Change in benefit obligation:
Benefit obligation, beginning of period	$	2,174,595	$	2,390,435	$	286,301	$	315,245
Service cost	19,052		24,570		4,642		5,147
Interest cost	61,890		61,988		7,617		6,505
Actuarial gains	(561,142)		(92,157)		(67,903)		(24,190)
Plan participant contributions	—		—		2,029		2,337
Benefits paid	(137,645)		(138,043)		(16,657)		(18,743)
Net curtailments and settlements	(2,838)		(72,198)		(5,218)		—
Benefit obligation, end of period	1,553,912		2,174,595		210,811		286,301
Change in plan assets:
Fair value of plan assets, beginning of period	2,486,467		2,433,975		262,945		244,035
Return on plan assets	(539,800)		189,974		(48,257)		30,504
Plan participant contributions	—		—		2,029		2,337
Benefits paid	(137,124)		(137,482)		(10,914)		(13,931)
Fair value of plan assets, end of period	1,809,543		2,486,467		205,803		262,945
Funded status of the plan	$	255,631	$	311,872	$	(5,008)	$	(23,356)

	Pension and SERPA Benefits				Postretirement Healthcare Benefits
	2022		2021		2022		2021
Funded status as recognized on the Consolidated balance sheets:
Pension and postretirement assets	$	268,317	$	332,586	$	51,816	$	53,566
Accrued liabilities	(1,331)		(1,976)		(224)		(361)
Pension and postretirement liabilities	(11,355)		(18,738)		(56,600)		(76,561)
	$	255,631	$	311,872	$	(5,008)	$	(23,356)
Amounts included in Accumulated other comprehensive loss, net of tax:
Prior service credits	$	3,461	$	2,457	$	(1,884)	$	(3,661)
Actuarial losses (gains)	289,340		232,622		(39,699)		(36,905)
	$	292,801	$	235,079	$	(41,583)	$	(40,566)

During 2022, actuarial gains related to the obligation for pension and SERPA benefits were due primarily to an increase in the discount rate and experience study, partially offset by changes in other demographic assumptions. During 2021, actuarial gains related to the obligation for pension and SERPA benefits were due primarily to an increase in the discount rate and changes in demographic assumptions, partially offset by changes in mortality assumptions.

During 2022, the actuarial gains related to the obligation for postretirement healthcare benefits were due primarily to an increase in the discount rate in addition to favorable claim cost adjustments, experience study, and other demographic assumptions, partially offset by healthcare trends. During 2021, the actuarial gains related to the obligation for postretirement healthcare benefits were due primarily to an increase in the discount rate and favorable claim cost adjustments.

The funded status of the qualified pension plan and the SERPA plans are combined above. Plans with projected benefit obligations (PBO) or accumulated benefit obligations (ABO) in excess of the fair value of plan assets at December 31, is presented below (in thousands):

	2022		2021
Plans with PBO in excess of fair value of plan assets:
PBO	$	12,686	$	20,715
Fair value of plan assets	$	—	$	—
Plans with ABO in excess of fair value of plan assets:
ABO	$	12,643	$	18,165
Fair value of plan assets	$	—	$	—

The total ABO for all the Company's pension and SERPA plans combined was $1.55 billion and $2.16 billion as of December 31, 2022 and 2021, respectively.

Benefit Costs:

Service cost is allocated among Selling, administrative and engineering expense, Motorcycles and related products cost of goods sold and Inventories, net. Amounts capitalized in inventory are not significant. Non-service cost components of net periodic benefit cost are presented in Other income (expense), net. Components of net periodic benefit costs for the Company's defined benefit plans for the years ended December 31, were as follows (in thousands):

	Pension and SERPA Benefits						Postretirement Healthcare Benefits
	2022		2021		2020		2022		2021		2020
Service cost	$	19,052	$	24,570	$	27,224	$	4,642	$	5,147	$	11,761
Interest cost	61,890		61,988		76,447		7,617		6,505		9,391
Expected return on plan assets	(125,904)		(131,494)		(135,056)		(15,237)		(13,978)		(13,870)
Amortization of unrecognized:
Prior service credit	(1,312)		(1,247)		(1,088)		(2,323)		(2,323)		(2,381)
Net loss	31,912		67,933		65,489		488		1,056		492
Special early retirement benefits	—		—		—		—		—		—
Curtailment (gain) loss	—		(10,562)		74		—		—		(392)
Settlement (gain) loss	(1,471)		722		2,742		(1,244)		—		—
Net periodic benefit cost	$	(15,833)	$	11,910	$	35,832	$	(6,057)	$	(3,593)	$	5,001

The expected return on plan assets is calculated based on the market related value of plan assets. The market related value of plan assets is different from the fair value in that asset gains and losses are smoothed over a five-year period. 

Unrecognized gains and losses related to plan obligations and assets are initially recorded in other comprehensive income and result from actual experience that differs from assumed or expected results, and the impacts of changes in assumptions. Unrecognized plan asset gains and losses not yet reflected in the market related value of plan assets are not subject to amortization. Remaining unrecognized gains and losses that exceed 10% of the greater of the projected benefit obligation or the market related value of plan assets are amortized to earnings over the estimated future service period of active plan participants. The impacts of plan amendments, if any, are amortized over the estimated future service period of plan participants at the time of the amendment.

Assumptions:

Weighted-average assumptions used to determine benefit obligations and net periodic benefit cost at December 31, were as follows:

	Pension and SERPA Benefits						Postretirement Healthcare Benefits
	2022		2021		2020		2022		2021		2020
Assumptions for benefit obligations:
Discount rate	5.45	%	2.89	%	2.62	%	5.42	%	2.72	%	2.11	%
Rate of compensation increase	4.00	%	3.49	%	3.34	%	n/a		n/a		n/a
Assumptions for net periodic benefit cost:
Discount rate	2.89	%	2.67	%	3.49	%	2.72	%	2.11	%	3.26	%
Expected return on plan assets	5.60	%	6.20	%	6.70	%	6.77	%	6.69	%	7.00	%
Rate of compensation increase	3.49	%	3.34	%	3.39	%	n/a		n/a		n/a

Plan Assets:

Pension Plan Assets – The Company’s investment objective is to ensure assets are sufficient to pay benefits while mitigating the volatility of retirement plan assets or liabilities recorded in the balance sheet. The Company mitigates volatility through asset diversification and partial asset/liability matching. The investment portfolio for the Company's pension plan assets contains a diversified blend of equity and fixed-income investments. The Company’s current overall targeted asset allocation as a percentage of total market value was 47% equities and 53% fixed-income and cash. Assets are rebalanced regularly to keep the actual allocation in line with targets. Equity holdings primarily include investments in small-, medium- and large-cap companies in the U.S., investments in developed and emerging foreign markets and other investments such as private equity and real estate. Fixed-income holdings consist of U.S. government and agency securities, state and municipal

bonds, corporate bonds from diversified industries and foreign obligations. In addition, cash equivalent balances are maintained at levels adequate to meet near-term plan expenses and benefit payments. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews.

Postretirement Healthcare Plan Assets – The Company's investment objective is to maximize the return on assets to help pay benefits by prudently investing in equities, fixed income and alternative assets. The Company's current overall targeted asset allocation as a percentage of total market value was 69% equities and 31% fixed-income and cash. Equity holdings primarily include investments in small-, medium- and large-cap companies in the U.S., investments in developed and emerging foreign markets and other investments such as private equity and real estate. Fixed-income holdings consist of U.S. government and agency securities, state and municipal bonds, corporate bonds from diversified industries and foreign obligations. In addition, cash equivalent balances are maintained at levels adequate to meet near-term plan expenses and benefit payments. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews.

The following tables present the fair values of the plan assets related to the Company’s pension and postretirement healthcare plans within the fair value hierarchy as defined in Note 1. The fair values of the Company’s pension plan assets at December 31, 2022 were as follows (in thousands):

	Balance		Level 1		Level 2
Cash and cash equivalents	$	43,062	$	—	$	43,062
Equity holdings:
U.S. companies	537,587		537,548		39
Foreign companies	22,445		22,444		1
Pooled equity funds	241,412		241,412		—
Other	35		35		—
	801,479		801,439		40
Fixed-income holdings:
U.S. Treasuries	94,128		94,128		—
Federal agencies	11,054		—		11,054
Corporate bonds	640,875		—		640,875
Pooled fixed income funds	111,649		49,472		62,177
Foreign bonds	93,112		4		93,108
Municipal bonds	10,375		—		10,375
	961,193		143,604		817,589
Plan assets subject to fair value leveling	1,805,734		$	945,043	$	860,691
Plan assets measured at net asset value:
Private equity investments	799
Real estate investments	3,010
	3,809
	$	1,809,543

Included in the pension plan assets are 1,273,592 shares of the Company’s common stock with a market value of $53.0 million at December 31, 2022.

The fair values of the Company’s postretirement healthcare plan assets at December 31, 2022 were as follows (in thousands): 

	Balance		Level 1		Level 2
Cash and cash equivalents	$	7,998	$	—	$	7,998
Equity holdings:
U.S. companies	95,014		95,014		—
Foreign companies	20,784		20,784		—
Pooled equity funds	24,181		24,181		—
Other	5		5		—
	139,984		139,984		—
Fixed-income holdings:
U.S. Treasuries	287		287		—
Federal agencies	34		—		34
Corporate bonds	1,938		—		1,938
Pooled fixed income funds	40,043		39,855		188
Foreign bonds	282		—		282
Municipal bonds	31		—		31
	42,615		40,142		2,473
Plan assets subject to fair value leveling	190,597		$	180,126	$	10,471
Plan assets measured at net asset value:
Private equity investments	$	13,502
Real estate investments	1,704
	$	205,803

The fair values of the Company’s pension plan assets at December 31, 2021 were as follows (in thousands):

	Balance		Level 1		Level 2
Cash and cash equivalents	$	55,192	$	—	$	55,192
Equity holdings:
U.S. companies	949,787		942,297		7,490
Foreign companies	67,111		63,245		3,866
Pooled equity funds	350,356		350,356		—
Other	63		63		—
	1,367,317		1,355,961		11,356
Fixed-income holdings:
U.S. Treasuries	76,943		76,943		—
Federal agencies	14,680		—		14,680
Corporate bonds	690,319		—		690,319
Pooled fixed income funds	148,860		54,302		94,558
Foreign bonds	112,293		207		112,086
Municipal bonds	12,549		—		12,549
	1,055,644		131,452		924,192
Plan assets subject to fair value leveling	2,478,153		$	1,487,413	$	990,740
Plan assets measured at net asset value:
Private equity investments	509
Real estate investments	7,805
	8,314
	$	2,486,467

Included in the pension plan assets were 1,273,592 shares of the Company’s common stock with a market value of $48.0 million at December 31, 2021.

The fair values of the Company’s postretirement healthcare plan assets at December 31, 2021 were as follows (in thousands):

	Balance		Level 1		Level 2
Cash and cash equivalents	$	6,081	$	—	$	6,081
Equity holdings:
U.S. companies	132,812		132,790		22
Foreign companies	25,062		25,051		11
Pooled equity funds	30,302		30,302		—
Other	6		6		—
	188,182		188,149		33
Fixed-income holdings:
U.S. Treasuries	221		221		—
Federal agencies	42		—		42
Corporate bonds	1,967		—		1,967
Pooled fixed income funds	46,150		45,878		272
Foreign bonds	320		1		319
Municipal bonds	36		—		36
	48,736		46,100		2,636
Plan assets subject to fair value leveling	242,999		$	234,249	$	8,750
Plan assets measured at net asset value:
Limited partnership interests	$	15,593
Real estate investments	4,353
	$	262,945

For 2023, the Company’s overall expected long-term rate of return is 6.80% for pension assets and 7.50% for postretirement healthcare plan assets. 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 return is based on historical returns adjusted to reflect the current view of the long-term investment market.

Postretirement Healthcare Cost:

The weighted-average healthcare cost trend rates used in determining the accumulated postretirement benefit obligation of the healthcare plans were as follows:

	2022		2021
Healthcare cost trend rate for next year	7.00	%	6.75	%
Rate to which the cost trend rate is assumed to decline (the ultimate rate)	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2032		2029

Future Contributions and Benefit Payments:

Based on the funded status of the qualified pension plan, there is no requirement for the Company to make contributions to the qualified pension plan in 2023. The Company expects that 2023 postretirement healthcare plan benefits and benefits due under the SERPA plans will be paid by the Company or, in the case of postretirement healthcare plan benefits, partially funded with plan assets.

The Company's future expected benefit payments as of December 31, 2022 were as follows (in thousands):

	Pension Benefits		SERPA Benefits		Postretirement Healthcare Benefits
2023	$	111,175	$	1,368	$	19,152
2024	$	112,243	$	1,355	$	19,674
2025	$	112,042	$	1,299	$	20,141
2026	$	113,778	$	1,253	$	20,507
2027	$	114,354	$	1,105	$	20,886
2028-2032	$	572,258	$	4,727	$	103,202

Defined Contribution Plans:

The Company has various defined contribution benefit plans that in total cover substantially all full-time employees. Employees can make voluntary contributions in accordance with the provisions of their respective plan, which includes a 401(k) tax deferral option. The Company makes additional contributions to the plans on behalf of the employees and expensed $30.9 million, $19.4 million and $21.7 million during 2022, 2021 and 2020, respectively related to the contributions.