PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company sponsors programs that provide retirement benefits to most of its employees. These programs include qualified defined benefit pension plans, nonqualified defined benefit retirement plans, a defined benefit postretirement life insurance plan, and defined contribution retirement savings plans. Expenses recognized under all these retirement plans were as follows: Under all of our retirement plans, the Company’s expenses were $12.1 million, $10.8 million and $11.2 million in 2018, 2017 and 2016, respectively.

The Company used a year-end measurement date of December 30, 2018 for its pension and postretirement benefits plans. Certain disclosures are listed below. Other disclosures are not material to the financial statements.

Qualified Defined Benefit Pension Plans

The Company sponsors two qualified defined benefit pension plans named the Pilgrim’s Pride Retirement Plan for Union Employees (the “Union Plan”) and the Pilgrim’s Pride Pension Plan for Legacy Gold Kist Employees (the “GK Pension Plan”). The Union Plan covers certain locations or work groups within PPC. The GK Pension Plan covers certain eligible U.S. employees who were employed at locations that the Company purchased through its acquisition of Gold Kist in 2007. Participation in the GK Pension Plan was frozen as of February 8, 2007 for all participants with the exception of terminated vested participants who are or may become permanently and totally disabled. The plan was frozen for that group as of March 31, 2007.

Nonqualified Defined Benefit Pension Plans

The Company sponsors two nonqualified defined benefit retirement plans named the Former Gold Kist Inc. Supplemental Executive Retirement Plan (the “SERP Plan”) and the Former Gold Kist Inc. Directors’ Emeriti Retirement Plan (the “Directors’ Emeriti Plan”). Pilgrim’s Pride assumed sponsorship of the SERP Plan and Directors’ Emeriti Plan through its acquisition of Gold Kist in 2007. The SERP Plan provides benefits on compensation in excess of certain IRC limitations to certain former executives with whom Gold Kist negotiated individual agreements. Benefits under the SERP Plan were frozen as of February 8, 2007. The Directors’ Emeriti Plan provides benefits to former Gold Kist directors.

Defined Benefit Postretirement Life Insurance Plan

The Company sponsors one defined benefit postretirement life insurance plan named the Gold Kist Inc. Retiree Life Insurance Plan (the “Retiree Life Plan”). Pilgrim’s Pride assumed defined benefit postretirement medical and life insurance obligations, including the Retiree Life Plan, through its acquisition of Gold Kist in 2007. In January 2001, Gold Kist began to substantially curtail its programs for active employees. On July 1, 2003, Gold Kist terminated medical coverage for retirees age 65 or older, and only retired employees in the closed group between ages 55 and 65 could continue their coverage at rates above the average cost of the medical insurance plan for active employees. These retired employees all reached the age of 65 in 2012 and liabilities of the postretirement medical plan then ended.

Defined Benefit Plans Obligations and Assets

The change in benefit obligation, change in fair value of plan assets, funded status and amounts recognized in the Consolidated Balance Sheets for these plans were as follows:



	Pension Benefits						Other Benefits
	2018			2017			2018			2017
Change in projected benefit obligation:	(In thousands)
Projected benefit obligation, beginning of year	$	178,247		$	167,159		$	1,603		$	1,648
Interest cost	5,463			5,571			46			51
Actuarial losses (gains)	(15,635		)	15,745			(72		)	68
Benefits paid	(10,456		)	(10,228		)	—			—
Settlements^(a)	—			—			(115		)	(164		)
Projected benefit obligation, end of year	$	157,619		$	178,247		$	1,462		$	1,603

(a)

A settlement is a transaction that is an irrevocable action, relieves the employer or the plan of primary responsibility for a pension or postretirement obligation and eliminates significant risks related to the obligation and the assets used to affect the settlement. A settlement can be triggered when a plan pays lump sums totaling more than the sum of the plan’s interest cost and service cost. The Retiree Life Plan met this threshold in 2018 and 2017.



	Pension Benefits						Other Benefits
	2018			2017			2018			2017
Change in plan assets:	(In thousands)
Fair value of plan assets, beginning of year	$	112,570		$	97,526		$	—		$	—
Actual return on plan assets	(10,881		)	12,325			—			—
Contributions by employer	11,181			12,947			115			164
Benefits paid	(10,456		)	(10,228		)	—			—
Settlements	—			—			(115		)	(164		)
Fair value of plan assets, end of year	$	102,414		$	112,570		$	—		$	—



	Pension Benefits						Other Benefits
	2018			2017			2018			2017
Funded status:	(In thousands)
Unfunded benefit obligation, end of year	$	(55,205	)	$	(65,677	)	$	(1,462	)	$	(1,603	)



	Pension Benefits						Other Benefits
	2018			2017			2018			2017
Amounts recognized in the Consolidated Balance Sheets at end of year:	(In thousands)
Current liability	$	(8,267	)	$	(12,168	)	$	(149	)	$	(149	)
Long-term liability	(46,938		)	(53,509		)	(1,313		)	(1,454		)
Recognized liability	$	(55,205	)	$	(65,677	)	$	(1,462	)	$	(1,603	)



	Pension Benefits				Other Benefits
	2018		2017		2018			2017
Amounts recognized in accumulated other comprehensive loss at end of year:	(In thousands)
Net actuarial loss (gain)	$	54,343	$	54,235	$	(34	)	$	35

The accumulated benefit obligation for our defined benefit pension plans was $157.6 million and $178.2 million at December 30, 2018 and December 31, 2017, respectively. Each of our defined benefit pension plans had accumulated benefit obligations that exceeded the fair value of plan assets at December 30, 2018 and December 31, 2017. As of December 30, 2018, the weighted average duration of our defined benefit obligation is 29.95 years.

Net Benefit Costs

Net benefit costs include the following components:



	Pension Benefits									Other Benefits
	2018			2017			2016			2018			2017		2016
	(In thousands)
Interest cost	$	5,463		$	5,571		$	5,585		$	46		$	51	$	51
Estimated return on plan assets	(6,065		)	(5,254		)	(5,256		)	—			—		—
Settlement loss (gain)	—			—			2,064			(3		)	2		(2		)
Amortization of net loss	1,203			932			659			—			—		—
Net cost	$	601		$	1,249		$	3,052		$	43		$	53	$	49

For 2018, the Company reported net benefit costs in the line item Miscellaneous, net on its Consolidated and Combined Statements of Income. For 2017 and 2016, the Company reported net benefit costs in the line items Cost of sales and Selling, general and administrative expense on its Consolidated and Combined Statements of Income.

Economic Assumptions

The weighted average assumptions used in determining pension and other postretirement plan information were as follows:



	Pension Benefits						Other Benefits
	2018		2017		2016		2018		2017		2016
Benefit obligation:
Discount rate	4.40	%	3.69	%	4.31	%	4.07	%	3.39	%	3.81	%
Net pension and other postretirement cost:
Discount rate	3.69	%	4.32	%	4.47	%	3.39	%	3.81	%	4.47	%
Expected return on plan assets	5.50	%	5.50	%	5.50	%	NA		NA		NA

The discount rate represents the interest rate used to determine the present value of future cash flows currently expected to be required to settle the Company’s pension and other benefit obligations. The weighted average discount rate for each plan was established by comparing the projection of expected benefit payments to the AA Above Median yield curve. The expected benefit payments were discounted by each corresponding discount rate on the yield curve. For payments beyond 30 years, the Company extended the curve assuming the discount rate derived in year 30 is extended to the end of the plan’s payment expectations. Once the present value of the string of benefit payments was established, the Company determined the single rate on the yield curve, that when applied to all obligations of the plan, would exactly match the previously determined present value. As part of the evaluation of pension and other postretirement assumptions, the Company applied assumptions for mortality that incorporate generational white and blue collar mortality trends. In determining its benefit obligations, the Company used generational tables that take into consideration increases in plan participant longevity. As of December 30, 2018 and December 31, 2017, all defined benefit pension and other postretirement benefit plans used variations of the RP-2014 mortality table and the MP-2015 mortality improvement scale.

The sensitivity of the projected benefit obligation for pension benefits to changes in the discount rate is set out below. The impact of a change in the discount rate of 0.25% on the projected benefit obligation for other benefits is less than $1,000. This sensitivity analysis is based on changing one assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to variations in significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as that for calculating the liability recognized in the Consolidated Balance Sheet.



	Increase in Discount Rate of 0.25%			Decrease in Discount Rate of 0.25%
	(In thousands)
Impact on projected benefit obligation for pension benefits	$	(3,924	)	$	4,122

The expected rate of return on plan assets was primarily based on the determination of an expected return and behaviors for each plan’s current asset portfolio that the Company believes are likely to prevail over long periods. This determination was made using assumptions for return and volatility of the portfolio. Asset class assumptions were set using a combination of empirical and forward-looking analysis. To the extent historical results were affected by unsustainable trends or events, the effects of those trends or events were quantified and removed. The Company also considered anticipated asset allocations, investment strategies and the views of various investment professionals when developing this rate.

Plan Assets

The following table reflects the pension plans’ actual asset allocations:



	2018		2017
Cash and cash equivalents	—	%	5	%
Pooled separate accounts^(a):
Equity securities	4	%	5	%
Fixed income securities	5	%	4	%
Common collective trust funds^(a):
Equity securities	45	%	56	%
Fixed income securities	41	%	30	%
Real estate	5	%	—	%
Total assets	100	%	100	%

(a)

Pooled separate accounts (“PSAs”) and common collective trust funds (“CCTs”) are two of the most common types of alternative vehicles in which benefit plans invest. These investments are pooled funds that look like mutual funds, but they are not registered with the Securities and Exchange Commission. Often times, they will be invested in mutual funds or other marketable securities, but the unit price generally will be different from the value of the underlying securities because the fund may also hold cash for liquidity purposes, and the fees imposed by the fund are deducted from the fund value rather than charged separately to investors. Some PSAs and CCTs have no restrictions as to their investment strategy and can invest in riskier investments, such as derivatives, hedge funds, private equity funds, or similar investments.

Absent regulatory or statutory limitations, the target asset allocation for the investment of pension assets in the pooled separate accounts is 50% in each of fixed income securities and equity securities and the target asset allocation for the investment of pension assets in the common collective trust funds is 30% in fixed income securities and 70% in equity securities. The plans only invest in fixed income and equity instruments for which there is a ready public market. We develop our expected long-term rate of return assumptions based on the historical rates of returns for equity and fixed income securities of the type in which our plans invest.

The fair value measurements of plan assets fell into the following levels of the fair value hierarchy as of

December 30, 2018 and December 31, 2017:



	2018								2017
	Level 1^(a)		Level 2^(b)		Level 3^(c)		Total		Level 1^(a)		Level 2^(b)		Level 3^(c)		Total
	(In thousands)
Cash and cash equivalents	$	110	$	—	$	—	$	110	$	6,128	$	—	$	—	$	6,128
Pooled separate accounts:
Large U.S. equity funds^(d)	—		2,491		—		2,491		—		3,483		—		3,483
Small/Mid U.S. equity funds^(e)	—		292		—		292		—		420		—		420
International equity funds^(f)	—		1,489		—		1,489		—		1,665		—		1,665
Fixed income funds^(g)	—		4,763		—		4,763		—		4,799		—		4,799
Common collective trusts funds:
Large U.S. equity funds^(d)	—		17,351		—		17,351		—		22,695		—		22,695
Small/Mid U.S. equity funds^(e)	—		5,880		—		5,880		—		20,592		—		20,592
International equity funds^(f)	—		22,516		—		22,516		—		19,923		—		19,923
Fixed income funds^(g)	—		42,217		—		42,217		—		32,865		—		32,865
Real estate^(h)	—		5,305		—		5,305		—		—		—		—
Total assets	$	110	$	102,304	$	—	$	102,414	$	6,128	$	106,442	$	—	$	112,570


(a)	Unadjusted quoted prices in active markets for identical assets are used to determine fair value.


(b)	Quoted prices in active markets for similar assets and inputs that are observable for the asset are used to determine fair value.


(c)	Unobservable inputs, such as discounted cash flow models or valuations, are used to determine fair value.


(d)	This category is comprised of investment options that invest in stocks, or shares of ownership, in large, well-established U.S. companies. These investment options typically carry more risk than fixed income options but have the potential for higher returns over longer time periods.


(e)	This category is generally comprised of investment options that invest in stocks, or shares of ownership, in small to medium-sized U.S. companies. These investment options typically carry more risk than larger U.S. equity investment options but have the potential for higher returns.


(f)	This category is comprised of investment options that invest in stocks, or shares of ownership, in companies with their principal place of business or office outside of the U.S.

(g)

This category is comprised of investment options that invest in bonds, or debt of a company or government entity (including U.S. and non-U.S. entities). It may also include real estate investment options that directly own property. These investment options typically carry more risk than short-term fixed income investment options (including, for real estate investment options, liquidity risk), but less overall risk than equities.


(h)	This category is comprised of investment options that invest in real estate investment trusts or private equity pools that own real estate. These long-term investments are primarily in office buildings, industrial parks, apartments or retail complexes. These investment options typically carry more risk, including liquidity risk, than fixed income investment options.

The valuation of plan assets in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for substantially the full term of the financial instrument. Level 2 securities primarily include equity and fixed income securities funds.

Benefit Payments

The following table reflects the benefits as of December 30, 2018 expected to be paid in each of the next five years and in the aggregate for the five years thereafter from our pension and other postretirement plans. Because our pension plans are primarily funded plans, the anticipated benefits with respect to these plans will come primarily from the trusts established for these plans. Because our other postretirement plans are unfunded, the anticipated benefits with respect to these plans will come from our own assets.



	Pension Benefits		Other Benefits
	(In thousands)
2019	$	17,972	$	149
2020	11,526		147
2021	11,200		145
2022	10,891		141
2023	10,627		137
2024-2028	48,429		589
Total	$	110,645	$	1,308

We anticipate contributing $8.3 million and $0.1 million, as required by funding regulations or laws, to our pension and other postretirement plans, respectively, during 2019.

Unrecognized Benefit Amounts in Accumulated Other Comprehensive Loss (Income)

The amounts in accumulated other comprehensive income (loss) that were not recognized as components of net periodic benefits cost and the changes in those amounts are as follows:



	Pension Benefits									Other Benefits
	2018			2017			2016			2018			2017			2016
	(In thousands)
Net actuarial loss (gain), beginning of year	$	54,235		$	46,494		$	38,115		$	35		$	(31	)	$	(79	)
Amortization	(1,203		)	(932		)	(659		)	—			—			—
Settlement adjustments	—			—			(2,064		)	3			(2		)	2
Actuarial loss (gain)	(15,635		)	15,745			10,305			(72		)	68			46
Asset loss (gain)	16,946			(7,072		)	797			—			—			—
Net actuarial loss (gain), end of year	$	54,343		$	54,235		$	46,494		$	(34	)	$	35		$	(31	)

The Company expects to recognize in net pension cost throughout 2019 an actuarial loss of $1.3 million that was recorded in accumulated other comprehensive income at December 30, 2018.

Risk Management

Through its defined benefit plans, the Company is exposed to a number of risks, the most significant of which are detailed below:

Asset volatility. The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets under perform this yield, this will create a deficit. The pension plans hold a significant proportion of equities, which are expected to outperform corporate bonds in the long-term while contributing volatility and risk in the short-term. The Company monitors the level of investment risk but has no current plan to significantly modify the mixture of investments. The investment position is discussed more below.

Changes in bond yields. A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plans’ bond holdings.

The investment position is managed and monitored by a committee of individuals from various departments. This group actively monitors how the duration and the expected yield of the investments are matching the expected cash outflows arising from the pension obligations. The group has not changed the processes used to manage its risks from previous periods. The group does not use derivatives to manage its risk. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. The majority of equities are in U.S. large and small cap companies with some global diversification into international entities. The plans are not exposed to significant foreign currency risk.

Remeasurement

The Company remeasures both plan assets and obligations on a quarterly basis.

Defined Contribution Plans

The Company sponsors two defined contribution retirement savings plans in the U.S. segment named the Pilgrim’s Pride Retirement Savings Plan (the “RS Plan”) and the To-Ricos Employee Savings, Retirement Plan (the “To-Ricos Plan”). The RS Plan is an IRC Section 401(k) salary deferral plan maintained for certain eligible U.S. employees. Under the RS Plan, eligible U.S. employees may voluntarily contribute a percentage of their compensation. The Company matches up to 30.0% of the first 2.00% to 6.00% of salary based on the salary deferral and compensation levels up to $245,000. The To-Ricos Plan is an IRC Section 1165(e) salary deferral plan maintained for certain eligible Puerto Rico employees. Under the To-Ricos Plan, eligible employees may voluntarily contribute a percentage of their compensation and there are various company matching provisions. The Company maintains three postretirement plans for eligible Mexico employees, as required by Mexico law, which primarily cover termination benefits. The Company maintains two defined contribution retirement savings plans in the U.K. and Europe for eligible U.K. and Europe employees, as required by U.K. and Europe law. Salaried employees can contribute up to 3.0% of salary and the Company matches between 4.0% and 5.5%. Weekly employees can contribute up to 1.0% of wages with a 1.0% Company match.

The Company’s expenses related to its defined contribution plans totaled $11.4 million, $9.5 million and $8.1 million in 2018, 2017 and 2016, respectively.