Pensions and Other Postretirement Benefit Plans

12 Months Ended

Dec. 31, 2016

Compensation and Retirement Disclosure [Abstract]

Pensions and Other Postretirement Benefit Plans

4. Pensions and Other Postretirement Benefit Plans

Pension Plans

The Company has defined benefit pension plans covering certain U.S. and non-U.S. employees. The U.S. qualified defined benefit pension plan has been closed to new participants since October 1998 and, as of February 2009, benefits accrued under this plan were frozen. As a result of the freeze, employees covered by the pension plan will receive, at retirement, benefits already accrued through February 2009, but no new benefits accrue after that date. Benefit accruals under the U.S. Supplemental Executive Retirement Plan ("SERP") were similarly frozen. The U.S. pension plan accounts for 43 percent of consolidated pension plan assets, and 44 percent of consolidated pension plan obligations. The eligibility, benefit formulas, and contribution requirements for plans outside of the U.S. vary by location.

The December 31, 2016 and 2015 benefit obligations for the U.S. pension and postretirement plans were calculated using the RP-2014 with generational projection using scale BB-2D from the 2006 mortality basis. For U.S. pension funding purposes, the Company uses the plan’s IRS-basis current liability as its funding target, which is determined based on mandated assumptions. Weak investment returns and low interest rates could result in higher than expected contributions to pension plans in future years.

Other Postretirement Benefits

In addition to providing pension benefits, the Company provides various medical, dental, and life insurance benefits for certain retired United States employees. U.S. employees hired prior to 2005 may become eligible for these benefits if they reach normal retirement age while working for the Company. Benefits provided under this plan are subject to change. Retirees share in the cost of these benefits. Effective January 2005, any new employees who wish to be covered under this plan will be responsible for the full cost of such benefits. In September 2008, we changed the cost-sharing arrangement under this program such that increases in health care costs are the responsibility of plan participants. In August 2013, we reduced the life insurance benefit for retirees and eliminated the benefit for active employees.

The Company also provides certain postretirement life insurance benefits to retired employees in Canada. As of December 31, 2016, the accrued postretirement liability was $56.5 million in the U.S. and $1.0 million in Canada. The Company accrues the cost of providing postretirement benefits during the active service period of the employees. The Company currently funds the plans as claims are paid.

Accounting guidance requires the recognition of the funded status of each defined benefit and other postretirement benefit plan. Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability. Company pension plan data for U.S. and non-U.S. plans has been combined for both 2016 and 2015, except where indicated below.

The Company’s pension and postretirement benefit costs and benefit obligations are based on actuarial valuations that are affected by many assumptions, the most significant of which are the assumed discount rate, expected rate of return on pension plan assets, and mortality. Each of the assumptions is reviewed and updated annually, as appropriate. The assumed rates of return for pension plan assets are determined for each major asset category based on historical rates of return for assets in that category and expectations of future rates of return based, in part, on simulated future capital market performance. The assumed discount rate is based on yields from a portfolio of currently available high-quality fixed-income investments with durations matching the expected future payments, based on the demographics of the plan participants and the plan provisions.

Gains and losses arise from changes in the assumptions used to measure the benefit obligations, and experience different from what had been assumed, including asset returns different than what had been expected. The Company amortizes gains and losses in excess of a “corridor” over the average future service of the plan’s current participants. The corridor is defined as 10 percent of the greater of the plan’s projected benefit obligation or market-related value of plan assets. The market-related value of plan assets is also used to determine the expected return on plan assets component of net periodic cost. The Company’s market-related value for its U.S. plan is measured by first determining the absolute difference between the actual and the expected return on the plan assets. The absolute difference in excess of 5 percent of the expected return is added to the market-related value over two years; the remainder is added to the market-related value immediately.

To the extent the Company’s unrecognized net losses and unrecognized prior service costs, including the amount recognized through accumulated other comprehensive income, are not reduced by future favorable plan experience, they will be recognized as a component of the net periodic cost in future years.

The following table sets forth the plan benefit obligations:

	As of December 31, 2016				As of December 31, 2015
(in thousands)	Pension plans		Other postretirement benefits		Pension plans		Other postretirement benefits
Benefit obligation, beginning of year	$199,856		$59,970		$213,110		$64,987
Service cost	2,656		254		2,959		330
Interest cost	7,885		2,443		7,787		2,437
Plan participants' contributions	249		-		304		-
Actuarial (gain)/loss	17,676		(395	)	(4,209	)	(2,855	)
Benefits paid	(7,057	)	(4,812	)	(6,530	)	(4,758	)
Settlements and curtailments	(2,436	)	-		(321	)	-
Plan amendments and other	36		-		(37	)	-
Foreign currency changes	(8,009	)	28		(13,207	)	(171	)
Benefit obligation, end of year	$210,856		$57,488		$199,856		$59,970
Accumulated benefit obligation	$200,790		$-		$188,909		$-
Weighted average assumptions used to
determine benefit obligations, end of year:
Discount rate - U.S. plan	4.20%		4.00%		4.54%		4.24%
Discount rate - non-U.S. plans	2.98%		3.70%		3.67%		4.00%
Compensation increase - U.S. plan	-		-		-		-
Compensation increase - non-U.S. plans	3.29%		3.00%		3.24%		3.00%

The following sets forth information about plan assets:

	As of December 31, 2016				As of December 31, 2015
(in thousands)	Pension plans		Other postretirement benefits		Pension plans		Other postretirement benefits
Fair value of plan assets, beginning of year	$171,387		$-		$183,199		$-
Actual return on plan assets, net of expenses	19,740		-		730		-
Employer contributions	6,605		4,812		5,287		4,758
Plan participants' contributions	249		72		304		1,068
Benefits paid	(7,057	)	(4,884	)	(6,530	)	(5,826	)
Settlements	(2,308	)	-		(688	)	-
Foreign currency changes	(7,944	)	-		(10,915	)	-
Fair value of plan assets, end of year	$180,672		$-		$171,387		$-

The funded status of the plans was as follows:

	As of December 31, 2016				As of December 31, 2015
(in thousands)	Pension plans		Other postretirement benefits		Pension plans		Other postretirement benefits
Fair value of plan assets	$180,672		$-		$171,387		$-
Benefit obligation	210,856		57,488		199,856		59,970
Funded status	($30,184	)	($57,488	)	($28,469	)	($59,970	)
Accrued benefit cost, end of year	($30,184	)	($57,488	)	($28,469	)	($59,970	)
Amounts recognized in the consolidated balance sheet consist of the following:
Noncurrent asset	$7,794		$-		$10,423		$-
Current liability	(2,057	)	(4,195	)	(2,110	)	(4,660	)
Noncurrent liability	(35,921	)	(53,293	)	(36,782	)	(55,310	)
Net amount recognized	($30,184	)	($57,488	)	($28,469	)	($59,970	)
Amounts recognized in accumulated other comprehensive income consist of:
Net actuarial loss	$72,400		$34,782		$69,896		$37,997
Prior service cost/(credit)	597		(30,899	)	608		(35,387	)
Net amount recognized	$72,997		$3,883		$70,504		$2,610

The composition of the net pension plan funded status as of December 31, 2016 was as follows:

			Non-U.S.
(in thousands)	U.S. plan		plans		Total
Pension plans with pension assets	($5,197	)	$5,648		$451
Pension plans without pension assets	(7,761	)	(22,874	)	(30,635	)
Total	($12,958	)	($17,226	)	($30,184	)

The composition of the net periodic benefit plan cost for the years ended December 31, 2016, 2015, and 2014, was as follows:

	Pension plans						Other postretirement benefits
(in thousands)	2016		2015		2014		2016		2015		2014
Components of net periodic benefit cost:
Service cost	$2,656		$2,959		$3,269		$254		$330		$314
Interest cost	7,885		7,787		9,505		2,443		2,437		2,741
Expected return on assets	(8,675	)	(8,630	)	(9,577	)	-		-		-
Amortization of prior service cost/(credit)	38		48		53		(4,488	)	(4,488	)	(4,488	)
Amortization of transition obligation	-		-		-		-		-		-
Amortization of net actuarial loss	2,283		2,594		2,421		2,819		3,338		2,908
Settlement	162		103		8,331		-		-		-
Curtailment (gain)/loss	(111	)	-		(942	)	-		-		-
Special/contractual termination of benefits	-		44		-		-		-		-
Net periodic benefit cost	$4,238		$4,905		$13,060		$1,028		$1,617		$1,475
Weighted average assumptions used to determine net cost:
Discount rate - U.S. plan	4.54%		4.18%		5.22%		4.24%		3.90%		4.68%
Discount rate - non-U.S. plan	3.67%		3.58%		4.50%		4.00%		3.85%		4.75%
Expected return on plan assets - U.S. plan	4.74%		4.43%		5.40%		-		-		-
Expected return on plan assets - non-U.S. plans	5.39%		5.52%		5.65%		-		-		-
Rate of compensation increase - U.S. plan	-		-		-		-		-		-
Rate of compensation increase - non-U.S. plans	3.24%		3.23%		3.39%		3.00%		3.00%		3.00%
Health care cost trend rate (U.S. and non-U.S. plans):
Initial rate	-		-		-		-		-		-
Ultimate rate	-		-		-		-		-		-
Years to ultimate	-		-		-		-		-		-

Pretax (gains)/losses in plan assets and benefit obligations recognized in other comprehensive income during 2016 were as follows:

			Other
	Pension		postretirement
(in thousands)	plan		benefits
Settlements/curtailments	($51	)	$  -
Asset/liability loss/(gain)	6,519		(395	)
Amortization of actuarial (loss)	(2,283	)	(2,819	)
Amortization of prior service (cost)/credit	(38	)	4,488
Amortization of transition (obligation)	-		-
Currency impact	(1,655	)	(1	)
Cost in other comprehensive income	$2,492		$1,273
Total cost recognized in net periodic benefit cost and other comprehensive income	$6,730		$2,301

The estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2017 are as follows:

		Total
	Total	postretirement
(in thousands)	pension	benefits
Actuarial loss	$2,578	$2,811
Prior service cost/(benefit)	38	(4,488	)
Total	$2,616	($1,677	)

Investment Strategy

Our investment strategy for pension assets differs for the various countries in which we have defined benefit pension plans. Some of our defined benefit plans do not require funded trusts and, in those arrangements, the Company funds the plans on a “pay as you go” basis. The largest of the funded defined benefit plans is the United States plan.

United States plan:

During 2009, we changed our investment strategy for the United States pension plan by adopting a liability-driven investment strategy. Under this arrangement, the Company seeks to invest in assets that track closely to the discount rate that is used to measure the plan liabilities. Accordingly, the plan assets are primarily debt securities. The change in investment strategy is reflective of the Company’s 2008 decision to freeze benefit accruals under the plan.

Non-United States plans:

For the countries in which the Company has funded pension trusts, the investment strategy is to achieve a competitive, total investment return, achieving diversification between and within asset classes and managing other risks. Investment objectives for each asset class are determined based on specific risks and investment opportunities identified. Actual allocations to each asset class vary from target allocations due to periodic investment strategy changes, market value fluctuations, the length of time it takes to fully implement investment allocation positions, and the timing of benefit payments and contributions.

Fair-Value Measurements

The following tables present plan assets as of December 31, 2016, and 2015, using the fair-value hierarchy, which has three levels based on the reliability of inputs used, as described in Note 15. Certain investments that are measured at fair value using net asset value (NAV) as a practical expedient are not required to be categorized in the fair value hierarchy table. The total fair value of these investments is included in the table below to permit reconciliation of the fair value hierarchy to amounts presented in the funded status table above. As of December 31, 2016 and 2015, there were no investments expected to be sold at a value materially different than NAV.

	Assets at Fair Value as of December 31, 2016
	Quoted prices	Significant other	Significant
	in active markets	observable inputs	unobservable inputs
(in thousands)	Level 1	Level 2	Level 3	Total
Common Stocks and equity funds	$309	$-	$-	$309
Debt securities	-	74,449	-	74,449
Insurance contracts	-	-	2,238	2,238
Cash and short-term investments	3,401	-	-	3,401
Total investments in the fair value hierarchy	$3,710	$74,449	$2,238	80,397
Investments at net asset value:
Common Stocks and equity funds				35,510
Fixed income funds				59,662
Limited partnerships				5,065
Hedge funds				38
Total plan assets				$180,672

	Assets at Fair Value as of December 31, 2015
	Quoted prices	Significant other	Significant
	in active markets	observable inputs	unobservable inputs
(in thousands)	Level 1	Level 2	Level 3	Total
Common Stocks and equity funds	$404	$-	$-	$404
Debt securities	-	71,886	-	71,886
Insurance contracts	-	-	2,403	2,403
Cash and short-term investments	2,501	-	-	2,501
Total investments in the fair value hierarchy	$2,905	$71,886	$2,403	77,194
Investments at net asset value:
Common Stocks and equity funds				34,709
Fixed income funds				53,616
Limited partnerships				5,676
Hedge funds				192
Total plan assets				$171,387

The following tables present a reconciliation of Level 3 assets held during the years ended December 31, 2016 and 2015:

(in thousands)	December 31, 2015	Net realized gains/(losses)	Net unrealized gains/(losses)	Net purchases, issuances and settlements	Net transfers (out of) Level 3	December 31, 2016
Insurance contracts	$2,403	$-	$26	$(191)	$-	$2,238
Total level 3 assets	$2,403	$-	$26	($191)	$-	$2,238

(in thousands)	December 31, 2014	Net realized gains/(losses)	Net unrealized gains/(losses)	Net purchases, issuances and settlements	Net transfers (out of) Level 3	December 31, 2015
Insurance contracts	$2,133	$-	$35	$235	$-	$2,403
Total level 3 assets	$2,133	$-	$35	$235	$-	$2,403

The asset allocation for the Company’s U.S. and non-U.S. pension plans for 2015 and 2016, and the target allocation for 2017, by asset category, are as follows:

		United States Plan			Non-U.S. Plans
	Target	Percentage of plan assets		Target	Percentage of plan assets
	Allocation	at plan measurement date		Allocation	at plan measurement date
Asset category	2017	2016	2015	2017	2016	2015
Equity securities	-	2%	3%	32%	33%	35%
Debt securities	100%	92%	92%	64%	61%	55%
Real estate	-	5%	5%	-	-	4%
Other  (1)	-	1%	-	4%	6%	6%
	100%	100%	100%	100%	100%	100%

(1) Other includes hedged equity and absolute return strategies, and private equity. The Company has procedures to closely monitor the performance of these investments and compares asset valuations to audited financial statements of the funds.

The targeted plan asset allocation is based on an analysis of the actuarial liabilities, a review of viable asset classes, and an analysis of the expected rate of return, risk, and other investment characteristics of various investment asset classes.

At the end of 2016 and 2015, the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with projected benefit obligation and an accumulated benefit obligation in excess of plan assets were as follows:

	Plans with projected benefit obligation
	in excess of plan assets
(in thousands)	2016	2015
Projected benefit obligation	$121,600	$120,312
Accumulated benefit obligation	119,753	117,447
Fair value of plan assets	83,622	81,421
	Plans with accumulated benefit obligation
	in excess of plan assets
(in thousands)	2016	2015
Projected benefit obligation	$121,511	$120,312
Accumulated benefit obligation	119,728	117,447
Fair value of plan assets	83,558	81,421

Information about expected cash flows for the pension and other benefit obligations are as follows:

(in thousands)	Pension plans	Other postretirement benefits
Expected employer contributions and direct employer payments in the next fiscal year	$3,727	$4,195
Expected benefit payments
2017	$6,625	$4,195
2018	7,013	4,047
2019	7,380	3,913
2020	7,873	3,804
2021	8,473	3,748
2022-2026	50,990	17,983