Pension Benefits

12 Months Ended

Dec. 31, 2019

Note 8 – Pension Benefits

The Company has a non-contributory defined benefit pension plan covering employees who meet age and service requirements and who began employment with the Company prior to January 1, 2016 (the “Qualified Pension Plan”). The Company also has a supplemental non-contributory pension plan covering certain management employees (the “Nonqualified Pension Plan” and together with the Qualified Pension Plan, the “Pension Plans”). The Company froze the Pension Plans to new participants, effective as of January 1, 2016. Employees participating in the Pension Plans prior to the plans being frozen will continue to earn benefits.

Obligations and Funded Status for the Pension Plans

The Company recognizes the funded status (i.e. the difference between the fair value of plan assets and the projected benefit obligation) of the Company’s Pension Plans in the accompanying balance sheets as either an asset or a liability and recognizes a corresponding adjustment within the other comprehensive income (loss), net of tax, line item in the accompanying statements of comprehensive income (loss). The projected benefit obligation is the actuarial present value of the benefits earned to date by plan participants based on employee service and compensation including the effect of assumed future salary increases. The accumulated benefit obligation uses the same factors as the projected benefit obligation, but excludes the effects of assumed future salary increases. The Company’s measurement date for plan assets and obligations is December 31.



	For the Years Ended December 31,
	2019			2018
	(in thousands)
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	66,086		$	71,937
Service cost	5,582			6,730
Interest cost	2,791			2,622
Actuarial (gain) loss	2,035			(7,155		)
Benefits paid	(5,651		)	(8,048		)
Projected benefit obligation at end of year	70,843			66,086

Change in plan assets:
Fair value of plan assets at beginning of year	30,100			30,978
Actual return (loss) on plan assets	3,985			(964		)
Employer contribution	7,200			8,134
Benefits paid	(5,651		)	(8,048		)
Fair value of plan assets at end of year	35,634			30,100
Funded status at end of year	$	(35,209	)	$	(35,986	)

The Company’s underfunded status for the Pension Plans as of December 31, 2019, and 2018, was $35.2 million and $36.0 million, respectively, and is recognized in the accompanying balance sheets within the other noncurrent liabilities line item. There are no plan assets in the Nonqualified Pension Plan.

Accumulated Benefit Obligation in Excess of Plan Assets for the Pension Plans



	As of December 31,
	2019			2018
	(in thousands)
Projected benefit obligation	$	70,843		$	66,086

Accumulated benefit obligation	$	60,877		$	52,368
Less: fair value of plan assets	(35,634		)	(30,100		)
Underfunded accumulated benefit obligation	$	25,243		$	22,268

Pension expense is determined based upon the annual service cost of benefits (the actuarial cost of benefits earned during a period) and the interest cost on those liabilities, less the expected return on plan assets. The expected long-term rate of return on plan assets is applied to a calculated value of plan assets that recognizes changes in fair value over a five-year period. This practice is

intended to reduce year-to-year volatility in pension expense, but it can have the effect of delaying recognition of differences between actual returns on assets and expected returns based on long-term rate of return assumptions. Amortization of the unrecognized net gain or loss resulting from actual experience different from that assumed and from changes in assumptions (excluding asset gains and losses not yet reflected in market-related value) is included as a component of net periodic benefit cost for the year. If, as of the beginning of the year, the unrecognized net gain or loss exceeds 10 percent of the greater of the projected benefit obligation and the market-related value of plan assets, then the amortization is the excess divided by the average remaining service period of participating employees expected to receive benefits under the plan.

The pre-tax amounts not yet recognized in net periodic pension costs, but rather recognized in the accumulated other comprehensive loss line item within the accompanying balance sheets as of December 31, 2019, and 2018, were as follows:



	As of December 31,
	2019		2018
	(in thousands)
Unrecognized actuarial losses	$	14,406	$	15,741
Unrecognized prior service costs	31		48
Accumulated other comprehensive loss	$	14,437	$	15,789

The pension liability adjustments recognized in other comprehensive income (loss) during 2019, 2018, and 2017, were as follows:



	For the Years Ended December 31,
	2019			2018			2017
	(in thousands)
Net actuarial gain (loss)	$	377		$	4,329		$	(2,995	)
Amortization of prior service cost	17			18			17
Amortization of net actuarial loss	958			1,327			1,297
Settlements	—			—			3,009
Total pension liability adjustment, pre-tax	1,352			5,674			1,328
Tax expense	(291		)	(4,265		)	(561		)
Cumulative effect of accounting change ⁽¹⁾	—			2,969			—
Total pension liability adjustment, net	$	1,061		$	4,378		$	767

_________________________________________


⁽¹⁾	Please refer to Recently Issued Accounting Standards in Note 1 – Summary of Significant Accounting Policies and Statements of Stockholders’ Equity for additional information.

Components of Net Periodic Benefit Cost for the Pension Plans



	For the Years Ended December 31,
	2019			2018			2017
	(in thousands)
Components of net periodic benefit cost:
Service cost	$	5,582		$	6,730		$	6,638
Interest cost	2,791			2,622			2,689
Expected return on plan assets that reduces periodic pension benefit cost	(1,574		)	(1,862		)	(2,244		)
Amortization of prior service cost	17			18			17
Amortization of net actuarial loss	958			1,327			1,297
Settlements	—			—			3,009
Net periodic benefit cost	$	7,774		$	8,835		$	11,406

Pension Plan Assumptions

The weighted-average assumptions used to measure the Company’s projected benefit obligation are as follows:



	As of December 31,
	2019	2018
Projected benefit obligation:
Discount rate	3.6%	4.4%
Rate of compensation increase	4.5%	6.2%

The weighted-average assumptions used to measure the Company’s net periodic benefit cost are as follows:



	For the Years Ended December 31,
	2019	2018	2017
Net periodic benefit cost:
Discount rate	4.4%	3.8%	4.2%
Expected return on plan assets ⁽¹⁾	5.0%	5.5%	6.5%
Rate of compensation increase	6.2%	6.2%	6.2%

____________________________________________


⁽¹⁾	There is no assumed expected return on plan assets for the Nonqualified Pension Plan because there are no plan assets in the Nonqualified Pension Plan.

The Company’s pension investment policy includes various guidelines and procedures designed to ensure that assets are prudently invested in a manner necessary to meet the future benefit obligation of the Pension Plans. The policy prohibits the direct investment of plan assets in the Company’s securities. The Qualified Pension Plan’s investment horizon is long-term and accordingly the target asset allocations encompass a strategic, long-term perspective of capital markets, expected risk and return behavior and perceived future economic conditions. The key investment principles of diversification, assessment of risk, and targeting the optimal expected returns for given levels of risk are applied.

The Qualified Pension Plan’s investment portfolio contains a diversified blend of investments, which may reflect varying rates of return. The investments are further diversified within each asset classification. This portfolio diversification provides protection against a single security or class of securities having a disproportionate impact on aggregate investment performance. The actual asset allocations are reviewed and rebalanced on a periodic basis to maintain the target allocations.

The weighted-average asset allocation of the Qualified Pension Plan is as follows:



	Target		As of December 31,
Asset Category	2020		2019		2018
Equity securities	35.0	%	36.9	%	31.8	%
Fixed income securities	40.0	%	38.1	%	41.3	%
Other securities	25.0	%	25.0	%	26.9	%
Total	100.0	%	100.0	%	100.0	%

There is no asset allocation of the Nonqualified Pension Plan since there are no plan assets in the plan. An expected return on plan assets of 5.0 percent, 5.5 percent, and 6.5 percent was used to calculate the Company’s net periodic pension cost under the Qualified Pension Plan for the years ended December 31, 2019, 2018, and 2017 respectively. The expected long-term rate of return assumption of the Qualified Pension Plan is based upon the target asset allocation and is determined using forward-looking assumptions in the context of historical returns and volatilities for each asset class, as well as correlations among asset classes. The Company evaluates the expected rate of return on plan assets assumption on an annual basis.

Pension Plan Assets

The fair values of the Company’s Qualified Pension Plan assets as of December 31, 2019, and 2018, utilizing the fair value hierarchy discussed in Note 11 – Fair Value Measurements are as follows:



					Fair Value Measurements Using:
	Actual Asset Allocation ⁽¹⁾		Total		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
			(in thousands)
As of December 31, 2019
Equity securities:
Domestic ⁽²⁾	17.3	%	$	6,176	$	4,130	$	2,046	$	—
International ⁽³⁾	19.6	%	6,958		6,958		—		—
Total equity securities	36.9	%	13,134		11,088		2,046		—
Fixed income securities:
Core fixed income ⁽⁴⁾	31.4	%	11,199		11,199		—		—
Floating rate corporate loans ⁽⁵⁾	6.7	%	2,379		2,379		—		—
Total fixed income securities	38.1	%	13,578		13,578		—		—
Other securities:
Real estate ⁽⁶⁾	5.4	%	1,929		—		—		1,929
Collective investment trusts ⁽⁷⁾	3.3	%	1,168		—		1,168		—
Hedge fund ⁽⁸⁾	16.3	%	5,825		2,006		—		3,819
Total other securities	25.0	%	8,922		2,006		1,168		5,748
Total investments	100.0	%	$	35,634	$	26,672	$	3,214	$	5,748

As of December 31, 2018
Equity securities:
Domestic ⁽²⁾	15.4	%	$	4,639	$	3,197	$	1,442	$	—
International ⁽³⁾	16.4	%	4,941		3,642		1,299		—
Total equity securities	31.8	%	9,580		6,839		2,741		—
Fixed income securities:
Core fixed income ⁽⁴⁾	34.4	%	10,342		10,342		—		—
Floating rate corporate loans ⁽⁵⁾	6.9	%	2,078		2,078		—		—
Total fixed income securities	41.3	%	12,420		12,420		—		—
Other securities:
Real estate ⁽⁶⁾	6.0	%	1,820		—		—		1,820
Collective investment trusts ⁽⁷⁾	3.1	%	934		—		934		—
Hedge fund ⁽⁸⁾	17.8	%	5,346		—		1,659		3,687
Total other securities	26.9	%	8,100		—		2,593		5,507
Total investments	100.0	%	$	30,100	$	19,259	$	5,334	$	5,507

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⁽¹⁾	Percentages may not calculate due to rounding.

⁽²⁾

Level 1 equity securities consist of United States large and small capitalization companies, which are actively traded securities that can be sold upon demand. Level 2 equity securities are investments in a collective investment fund that is valued at net asset value based on the value of the underlying investments and total units outstanding on a daily basis. The objective of these funds is to approximate the S&P 500 by investing in one or more collective investment funds.


⁽³⁾	International equity securities consists of a well-diversified portfolio of holdings of mostly large issuers organized in developed countries with liquid markets, commingled with investments in equity securities of issuers located in emerging markets and believed to have strong sustainable financial productivity at attractive valuations.


⁽⁴⁾	The objective of core fixed income funds is to achieve value added from sector or issue selection by constructing a portfolio to approximate the investment results of the Barclay’s Capital Aggregate Bond Index with a modest amount of variability in duration around the index.


⁽⁵⁾	Investments consist of floating rate bank loans. The interest rates on these loans are typically reset on a periodic basis to account for changes in the level of interest rates.


⁽⁶⁾	The investment objective of direct real estate is to provide current income with the potential for long-term capital appreciation. Ownership in real estate entails a long-term time horizon, periodic valuations, and potentially low liquidity.


⁽⁷⁾	Collective investment trusts invest in short-term investments and are valued at the net asset value of the collective investment trust. The net asset value, as provided by the trustee, is used as a practical expedient to estimate fair value. The net asset value is based on the fair value of the underlying investments held by the fund less its liabilities.


⁽⁸⁾	The hedge fund portfolio includes investments in actively traded global mutual funds that focus on alternative investments and a hedge fund of funds that invests both long and short using a variety of investment strategies.

Included below is a summary of the changes in Level 3 plan assets (in thousands):



Balance at January 1, 2018	$	5,209
Purchases	—
Realized gain on assets	191
Unrealized gain on assets	152
Disposition	(45		)
Balance at December 31, 2018	$	5,507
Purchases	—
Realized gain on assets	190
Unrealized gain on assets	51
Disposition	—
Balance at December 31, 2019	$	5,748

Contributions

The Company contributed $7.2 million, $8.1 million, and $7.0 million to the Pension Plans for the years ended December 31, 2019, 2018, and 2017, respectively. The Company expects to make a $5.6 million contribution to the Pension Plans in 2020.

Benefit Payments

The Pension Plans made actual benefit payments of $5.7 million, $8.0 million, and $10.8 million in the years ended December 31, 2019, 2018, and 2017, respectively. Expected benefit payments over the next 10 years are as follows:



Years Ending December 31,	(in thousands)
2020	$	7,609
2021	$	3,914
2022	$	4,022
2023	$	6,308
2024	$	4,939
2025 through 2029	$	25,065