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Pension Plans and Other Postretirement Benefits
 12 Months Ended
Dec. 31, 2017
Retirement Benefits [Abstract]  
Pension Plans and Other Postretirement Benefits NOTE 11 - Pension Plans and Other Postretirement Benefits
 
The Company sponsors three qualified and two non-qualified retirement plans. Substantially all employees participate in the 401(k) plan and through December 31, 2014 participated in the non-contributory defined contribution plan. Both the qualified and the non-qualified defined benefit plans have been frozen since 2002. All participants in both frozen plans are 100% vested in their accrued benefit and all non-qualified defined benefit plan participants are receiving payments. Certain employees participate in a non-qualified defined contribution plan.
 
Qualified Plans
 
All employees participate in the 401(k) plan and receive a 100% vested 3% "safe harbor" company contribution based on employees' eligible earnings. Effective January 1, 2015, the Company began matching each dollar of employee contributions up to a 5% maximum — in addition to maintaining the automatic 3% "safe harbor" contribution. The new matching company contribution vests after 5 years of service. The 401(k) plan is fully funded.
 
Prior to 2015, employees participated in a defined contribution plan after one year of service; contributions were made based on eligible earnings and years of service and were credited to each employee's individual plan account. The majority of employees received a 5% contribution. Accounts vested after 3 years of service. The Company terminated this fully funded defined contribution plan on December 31, 2014 and all participant accounts became 100% vested. The majority of plan assets were distributed to participants in 2015, with a final settlement of all remaining participant accounts in 2016 through the purchase of qualified individual annuities under a HMLIC group annuity contract.
 
In 2002, participants ceased accruing benefits for earnings and years of service in the frozen defined benefit plan. A substantial number of those participants are former employees of the Company who are not eligible to receive an immediate annuity benefit until age 65 and/or are not eligible for a lump sum distribution. In August of 2016, the Company announced a cash-out election "window" ending in September 2016 for all vested terminated participants. During this window, 52 former employees elected to receive a total of approximately $1,400 thousand in lump sums distributions.
 
The Company's policy for the frozen defined benefit plan is to contribute to the plan amounts which are actuarially determined to provide sufficient funding to meet future benefit payments as defined by federal laws and regulations.
 
For the two qualified plans, all assets are held in their respective plan trusts.
 
Non-qualified Plans
 
The non-qualified plans were established for specific employees whose otherwise eligible earnings exceeded the statutory limits under the qualified plans. Benefit accruals under the non-qualified defined benefit plan were frozen in 2002 and all participants are currently in payment status. Both the non-qualified frozen defined benefit plan and the non-qualified contribution plan are unfunded plans with the Company's contributions made at the time payments are made to participants.

Total Expense and Contribution Plans' Information
 
Total expense recorded for the qualified and non-qualified defined contribution, 401(k), defined benefit and supplemental retirement plans was $9,114 thousand, $8,527 thousand and $8,899 thousand for the years ended December 31, 2017, 2016 and 2015, respectively.
 
Contributions to employees' accounts under the qualified defined contribution plan, the 401(k) plan and the non-qualified defined contribution plan, as well as total assets of the plans, were as follows: 
($ in thousands)
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
401(k) plan
 
 

 
 

 
 

Contributions to employees' accounts
 
$
7,637

 
$
6,918

 
$
6,466

Total assets at the end of the year
 
180,514

 
177,352

 
161,956

 
 
 
 
 
 
 
Qualified defined contribution plan
 
 
 
 
 
 
Contributions to employees' accounts
 
—

 
—

 
—

Total assets at the end of the year
 
—

 
—

 
9,118

 
 
 
 
 
 
 
Non-qualified defined contribution plan
 
 
 
 
 
 
Contributions to employees' accounts
 
84

 
72

 
122

Total assets at the end of the year
 
—

 
—

 
—


 
Defined Benefit Plan and Supplemental Retirement Plans
 
The following tables summarize the funded status of the defined benefit and supplemental retirement pension plans as of December 31, 2017, 2016 and 2015 (the measurement dates) and identify (1) the assumptions used to determine the projected benefit obligation and (2) the components of net pension cost for the defined benefit plan and supplemental retirement plans for the following periods:
($ in thousands)
 
Defined Benefit Plan
 
Supplemental
Defined Benefit Plans
 
 
December 31,
 
December 31,
 
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Change in benefit obligation:
 
 

 
 

 
 

 
 

 
 

 
 

Projected benefit obligation
at beginning of year
 
$
29,407

 
$
31,233

 
$
34,279

 
$
16,847

 
$
17,004

 
$
18,524

Service cost
 
650

 
650

 
450

 
—

 
—

 
—

Interest cost
 
1,091

 
1,244

 
1,189

 
631

 
687

 
654

Plan amendments
 
—

 
—

 
—

 
—

 
—

 
—

Actuarial loss (gain)
 
(721
)
 
(220
)
 
(1,371
)
 
805

 
488

 
(845
)
Benefits paid
 
(1,995
)
 
(3,500
)
 
(3,314
)
 
(1,451
)
 
(1,332
)
 
(1,329
)
Settlements
 
—

 
—

 
—

 
—

 
—

 
—

Projected benefit obligation at end of year
 
$
28,432

 
$
29,407

 
$
31,233

 
$
16,832

 
$
16,847

 
$
17,004

Change in plan assets:
 
 

 
 

 
 

 
 

 
 

 
 

Fair value of plan assets
at beginning of year
 
$
25,446

 
$
27,667

 
$
31,408

 
$
—

 
$
—

 
$
—

Actual return on plan assets
 
2,909

 
1,766

 
200

 
—

 
—

 
—

Employer contributions
 
—

 
—

 
—

 
1,451

 
1,332

 
1,329

Benefits paid
 
(1,995
)
 
(3,500
)
 
(3,314
)
 
(1,451
)
 
(1,332
)
 
(1,329
)
Expenses paid
 
(517
)
 
(487
)
 
(627
)
 
—

 
—

 
—

Settlements
 
—

 
—

 
—

 
—

 
—

 
—

Fair value of plan assets at end of year
 
$
25,843

 
$
25,446

 
$
27,667

 
$
—

 
$
—

 
$
—

Funded status
 
$
(2,589
)
 
$
(3,961
)
 
$
(3,566
)
 
$
(16,832
)
 
$
(16,847
)
 
$
(17,004
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Prepaid (accrued) benefit expense
 
$
8,016

 
$
8,653

 
$
9,265

 
$
(10,648
)
 
$
(11,210
)
 
$
(11,622
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total amount recognized in Consolidated
Balance Sheets, all in Other liabilities
 
$
(2,589
)
 
$
(3,961
)
 
$
(3,566
)
 
$
(16,832
)
 
$
(16,847
)
 
$
(17,004
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts recognized in accumulated other
comprehensive income (loss) (AOCI):
 
 

 
 

 
 

 
 

 
 

 
 

Prior service cost
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Net actuarial loss
 
10,605

 
12,613

 
12,831

 
6,184

 
5,637

 
5,382

Total amount recognized in AOCI
 
$
10,605

 
$
12,613

 
$
12,831

 
$
6,184

 
$
5,637

 
$
5,382

 
 
 
 
 
 
 
 
 
 
 
 
 
Information for pension plans with an
accumulated benefit obligation greater
than plan assets:
 
 

 
 

 
 

 
 

 
 

 
 

Projected benefit obligation
 
$
28,432

 
$
29,407

 
$
31,233

 
$
16,832

 
$
16,847

 
$
17,004

Accumulated benefit obligation
 
28,432

 
29,407

 
31,233

 
16,832

 
16,847

 
17,004

Fair value of plan assets
 
25,843

 
25,446

 
27,667

 
—

 
—

 
—

 

The change in the Company's AOCI for the defined benefit plans for the year ended December 31, 2017 was primarily attributable to better than expected asset returns and updates to mortality assumptions partially offset by a decrease in the discount rate. The change in the Company's AOCI for the defined benefit plans for the year ended December 31, 2016 was primarily attributable to a decrease in the discount rate, partially offset by the performance of plan assets. The change in the Company's AOCI for the defined benefit plans for the year ended December 31, 2015 was primarily attributable to an increase in the discount rate, partially offset by the performance of plan assets.
($ in thousands)
 
Defined Benefit Plan
 
Supplemental
Defined Benefit Plans
 
 
Year Ended December 31,
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Components of net periodic pension
(income) expense:
 
 

 
 

 
 

 
 

 
 

 
 

Service cost:
 
 

 
 

 
 

 
 

 
 

 
 

Benefit accrual
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Other expenses
 
650

 
650

 
450

 
—

 
—

 
—

Interest cost
 
1,091

 
1,244

 
1,189

 
631

 
687

 
654

Expected return on plan assets
 
(1,493
)
 
(1,675
)
 
(1,875
)
 
—

 
—

 
—

Settlement loss
 
—

 
—

 
—

 
—

 
—

 
—

Amortization of:
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
 
—

 
—

 
—

 
—

 
—

 
—

Actuarial loss
 
389

 
393

 
1,626

 
258

 
233

 
273

Net periodic pension expense
 
$
637

 
$
612

 
$
1,390

 
$
889

 
$
920

 
$
927

 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in plan assets and benefit
obligations included in other
comprehensive income (loss):
 
 

 
 

 
 

 
 

 
 

 
 

Prior service cost
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Net actuarial loss (gain)
 
(1,619
)
 
175

 
930

 
805

 
488

 
(845
)
Amortization of:
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
 
—

 
—

 
—

 
—

 
—

 
—

Actuarial loss
 
(389
)
 
(393
)
 
(1,626
)
 
(258
)
 
(233
)
 
(273
)
Total recognized in other
comprehensive income (loss)
 
$
(2,008
)
 
$
(218
)
 
$
(696
)
 
$
547

 
$
255

 
$
(1,118
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average assumptions used to
determine expense:
 
 

 
 

 
 

 
 

 
 

 
 

Discount rate
 
3.90
%
 
4.20
%
 
3.66
%
 
3.90
%
 
4.20
%
 
3.66
%
Expected return on plan assets
 
6.25
%
 
6.50
%
 
6.75
%
 
*

 
*

 
*

Annual rate of salary increase
 
*

 
*

 
*

 
*

 
*

 
*

 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average assumptions
used to determine benefit obligations
as of December 31:
 
 

 
 

 
 

 
 

 
 

 
 

Discount rate
 
3.50
%
 
3.90
%
 
4.20
%
 
3.50
%
 
3.90
%
 
4.20
%
Expected return on plan assets
 
6.25
%
 
6.50
%
 
6.75
%
 
*

 
*

 
*

Annual rate of salary increase
 
*

 
*

 
*

 
*

 
*

 
*

____________________ 
*       Not applicable.
 
The discount rates at December 31, 2017 were based on the average yield for long-term, high-grade securities available during the benefit payout period. To set its discount rate, the Company looks to leading indicators, including the Mercer Above Mean Yield Curve.
 
The assumption for the long-term rate of return on plan assets was determined by considering actual investment experience during the lifetime of the plan, balanced with reasonable expectations of future growth considering the various classes of assets and percentage allocation for each asset class.
 
The Company has an investment policy for the defined benefit pension plan that aligns the assets within the plan's trust to an approximate allocation of 50% equity and 50% fixed income funds. Management believes this allocation will produce the targeted long-term rate of return on assets necessary for payment of future benefit obligations, while providing adequate liquidity for payments to current beneficiaries. Assets are reviewed against the defined benefit pension plan's investment policy and the trustee has been directed to adjust invested assets at least quarterly to maintain the target allocation percentages.
 
Fair values of the equity security funds and fixed income funds have been determined from public quotations. The following table presents the fair value hierarchy for the Company's defined benefit pension plan assets, excluding cash held.
($ in thousands)
 
 
 
Fair Value Measurements at
Reporting Date Using
 
 
Total
 
Level 1
 
Level 2
 
Level 3
December 31, 2017
 
 

 
 

 
 

 
 

Asset category
 
 

 
 

 
 

 
 

Equity security funds (1)
 
 

 
 

 
 

 
 

United States
 
$
10,517

 
$
—

 
$
10,517

 
$
—

International
 
2,573

 
—

 
2,573

 
—

Fixed income funds
 
12,165

 
—

 
12,165

 
—

Short-term investment funds
 
588

 
588

 
—

 
—

Total
 
$
25,843

 
$
588

 
$
25,255

 
$
—

 
 
 
 
 
 
 
 
 
December 31, 2016
 
 

 
 

 
 

 
 

Asset category
 
 

 
 

 
 

 
 

Equity security funds (1)
 
 

 
 

 
 

 
 

United States
 
$
9,836

 
$
—

 
$
9,836

 
$
—

International
 
2,492

 
—

 
2,492

 
—

Fixed income funds
 
12,402

 
—

 
12,402

 
—

Short-term investments funds
 
716

 
716

 
—

 
—

Total
 
$
25,446

 
$
716

 
$
24,730

 
$
—

____________________ 
(1)
None of the trust fund assets for the defined benefit pension plan have been invested in shares of HMEC's common stock.

There were no Level 3 assets held during the years ended December 31, 2017 and 2016.
 
In 2018, the Company expects amortization of net losses of $371 thousand and $310 thousand for the defined benefit plan and the supplemental retirement plans, respectively, and expects no amortization of prior service cost for the supplemental retirement plans to be included in net periodic pension expense.
 
Postretirement Benefits Other than Pensions
 
As of December 31, 2006, upon discontinuation of retiree medical benefits, Health Reimbursement Accounts (HRAs) were established for eligible participants and totaled $7,310 thousand. As of December 31, 2017, the balance of the previously established HRAs was $1,526 thousand. Funding of HRAs was $133 thousand, $218 thousand and $523 thousand for the years ended December 31, 2017, 2016 and 2015, respectively.

2018 Contributions
 
In 2018, there is no minimum funding requirement for the Company's defined benefit plan. The following table discloses that minimum funding requirement and the expected full year contributions for the Company's plans.
($ in thousands)
 
Defined Benefit Pension Plans
 
 
Defined
Benefit Plan
 
Supplemental
Defined Benefit Plans
 
 
 
 
 
Minimum funding requirement for 2018
 
$
—

 
N/A

Expected contributions (approximations) for the year ended
December 31, 2018 as of the time of this Form 10-K (1)
 
—

 
$
1,317

____________________ 
N/A - Not applicable.
(1)       HMEC's Annual Report on Form 10-K for the year ended December 31, 2017.

Estimated Future Benefit Payments

The Company's defined benefit plan may be subject to settlement accounting. Assumptions for both the number of individuals retiring in a calendar year and their elections regarding lump sum distributions are significant factors impacting the payout patterns for each of the plans below. Therefore, actual results could vary from the estimates shown. Estimated future benefit payments as of December 31, 2017 were as follows:
($ in thousands)
 
2018
 
2019
 
2020
 
2021
 
2022
 
2023-2027
Pension plans
 
 
 
 

 
 

 
 

 
 

 
 

Defined benefit plan
 
$
2,726

 
$
2,576

 
$
2,443

 
$
2,207

 
$
2,216

 
$
9,140

Supplemental retirement plans
 
1,317

 
1,303

 
1,287

 
1,269

 
1,248

 
5,820