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. Under all of our retirement plans, the Company’s expenses were $10.5 million, $5.9 million and $7.5 million in 2015, 2014 and 2013, respectively.

The Company used a year-end measurement date of December 27, 2015 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
	2015			2014			2015			2014
Change in projected benefit obligation:	(In thousands)
Projected benefit obligation, beginning of year	$	190,401		$	170,030		$	1,657		$	1,705
Interest cost	7,754			8,103			67			81
Actuarial losses (gains)	(10,944		)	24,670			44			(10		)
Benefits paid	(6,074		)	(12,154		)	—			—
Settlements^(a)	(15,185		)	(248		)	(96		)	(119		)
Projected benefit obligation, end of year	$	165,952		$	190,401		$	1,672		$	1,657

(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. Both the GK Pension Plan and the Retiree Life Plan met this threshold in 2015 and both the SERP Plan and the Retiree Life Plan met this threshold in 2014.



	Pension Benefits						Other Benefits
	2015			2014			2015			2014
Change in plan assets:	(In thousands)
Fair value of plan assets, beginning of year	$	113,552		$	108,496		$	—		$	—
Actual return on plan assets	(3,024		)	3,944			—			—
Contributions by employer	7,678			13,514			96			119
Benefits paid	(6,074		)	(12,154		)	—			—
Settlements	(15,185		)	(248		)	(96		)	(119		)
Fair value of plan assets, end of year	$	96,947		$	113,552		$	—		$	—



	Pension Benefits						Other Benefits
	2015			2014			2015			2014
Funded status:	(In thousands)
Unfunded benefit obligation, end of year	$	(69,005	)	$	(76,849	)	$	(1,672	)	$	(1,657	)



	Pension Benefits						Other Benefits
	2015			2014			2015			2014
Amounts recognized in the Consolidated Balance Sheets at end of year:	(In thousands)
Current liability	$	(10,779	)	$	(9,373	)	$	(138	)	$	(129	)
Long-term liability	(58,226		)	(67,476		)	(1,534		)	(1,528		)
Recognized liability	$	(69,005	)	$	(76,849	)	$	(1,672	)	$	(1,657	)



	Pension Benefits				Other Benefits
	2015		2014		2015			2014
Amounts recognized in accumulated other comprehensive loss at end of year:	(In thousands)
Net actuarial loss (gain)	$	38,115	$	43,907	$	(79	)	$	(127	)

The accumulated benefit obligation for our defined benefit pension plans was $166.0 million and $190.0 million at December 27, 2015 and December 28, 2014, respectively. Each of our defined benefit pension plans had accumulated benefit obligations that exceeded the fair value of plan assets at December 27, 2015 and December 28, 2014.

Net Periodic Benefit Cost (Income)

Net pension and other postretirement costs included the following components:



	Pension Benefits									Other Benefits
	2015			2014			2013			2015			2014			2013
	(In thousands)
Service cost	$	—		$	—		$	—		$	—		$	—		$	—
Interest cost	7,754			8,103			7,954			67			81			78
Estimated return on plan assets	(6,684		)	(6,373		)	(5,393		)	—			—			—
Settlement loss (gain)	3,843			93			—			(4		)	(9		)	(15		)
Amortization of net loss (gain)	714			56			1,001			—			—			—
Net cost	$	5,627		$	1,879		$	3,562		$	63		$	72		$	63

Economic Assumptions

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



	Pension Benefits						Other Benefits
	2015		2014		2013		2015		2014		2013
Benefit obligation:
Discount rate	4.47	%	4.22	%	4.95	%	4.47	%	4.22	%	4.95	%
Net pension and other postretirement cost:
Discount rate	4.22	%	4.95	%	4.22	%	4.22	%	4.95	%	4.22	%
Expected return on plan assets	5.50	%	6.00	%	6.00	%	NA		NA		NA

The expected rate of return on plan assets was determined based on the current interest rate environment and historical market premiums relative to the fixed income rates of equities and other asset classes. We also take into consideration 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:



	2015		2014
Cash and cash equivalents	—	%	—	%
Pooled separate accounts^(a):
Equity securities	7	%	6	%
Fixed income securities	7	%	6	%
Common collective trust funds^(a):
Equity securities	57	%	60	%
Fixed income securities	29	%	28	%
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 27, 2015 and December 28, 2014:



	2015								2014(a)
	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	$	147	$	—	$	—	$	147	$	33	$	—	$	—	$	33
Pooled separate accounts:
Large U.S. equity funds^(d)	—		3,816		—		3,816		—		4,147		—		4,147
Small/Mid U.S. equity funds^(e)	—		969		—		969		—		1,062		—		1,062
International equity funds^(f)	—		1,606		—		1,606		—		1,719		—		1,719
Fixed income funds^(g)	—		6,337		—		6,337		—		6,609		—		6,609
Common collective trusts funds:
Large U.S. equity funds^(d)	—		22,069		—		22,069		—		29,964		—		29,964
Small/Mid U.S. equity funds^(e)	—		16,843		—		16,843		—		18,411		—		18,411
International equity funds^(f)	—		16,629		—		16,629		—		19,730		—		19,730
Fixed income funds^(g)	—		28,531		—		28,531		—		31,877		—		31,877
Total assets	$	147	$	96,800	$	—	$	96,947	$	33	$	113,519	$	—	$	113,552


(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.

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 27, 2015 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)
2016	$	14,205	$	138
2017	11,660		139
2018	11,406		140
2019	11,063		139
2020	11,075		138
2021-2025	49,795		643
Total	$	109,204	$	1,337

We anticipate contributing $10.8 million and $0.1 million, as required by funding regulations or laws, to our pension and other postretirement plans, respectively, during 2016.

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
	2015			2014			2013			2015			2014			2013
	(In thousands)
Net actuarial loss (gain), beginning of year	$	43,907		$	16,957		$	53,368		$	(127	)	$	(126	)	$	(49	)
Amortization	(714		)	(56		)	(1,001		)	—			—			—
Settlement adjustments	(3,843		)	(93		)	—			4			9			15
Actuarial loss (gain)	(10,944		)	24,670			(24,315		)	44			(10		)	(92		)
Asset loss (gain)	9,709			2,429			(11,095		)	—			—			—
Net actuarial loss (gain), end of year	$	38,115		$	43,907		$	16,957		$	(79	)	$	(127	)	$	(126	)

The Company expects to recognize in net pension cost throughout 2016 an actuarial loss of $0.7 million that was recorded in accumulated other comprehensive income at December 27, 2015.

Defined Contribution Plans

The Company sponsors two defined contribution retirement savings plans named the Pilgrim’s Pride Retirement Savings Plan (the “RS Plan”) and the To-Ricos Employee Savings and 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 2.14% 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 also maintains three postretirement plans for eligible Mexico employees, as required by Mexico law, which primarily cover termination benefits.

The Company’s expenses related to its defined contribution plans totaled $4.8 million, $3.9 million and $3.9 million in 2015, 2014 and 2013, respectively.

Certain retirement plans that the Company sponsors invest in a variety of financial instruments. Certain postretirement funds in which the Company participates hold significant amounts of mortgage-backed securities. However, none of the mortgages collateralizing these securities are considered subprime.