13. Postretirement Benefit Plans

Defined Benefit Plans

The Company sponsors various funded qualified and unfunded non-qualified defined benefit pension plans, the most significant of which cover employees in the U.S. and U.K. locations. The various U.S. defined benefit pension plans were amended in 2005-2008 to freeze the plans by stopping the accrual of service benefits. The U.K. defined benefit pension plan was frozen in 2006. Benefits earned through the freeze dates are available to participants when they retire, in accordance with the terms of the plans. The Company established defined contribution plans to replace the frozen defined benefit pension plans.

Obligations and Funded Status at December 31

	United States						United Kingdom
(In thousands)	2017			2016			2017			2016
Change in benefit obligation
Benefit obligation at beginning of year	$	162,727		$	160,789		$	22,034		$	19,950
Interest cost		6,651			6,934			592			733
Actuarial (gain) loss		9,109			1,538			(156	)		5,614
Benefits paid		(7,129	)		(6,534	)		(516	)		(513	)
Foreign exchange impact		—			—			2,094			(3,750	)
Benefit obligation at end of year	$	171,358		$	162,727		$	24,048		$	22,034

	United States						United Kingdom
(In thousands)	2017			2016			2017			2016
Change in plan assets
Fair value of plan assets at beginning of year	$	137,092		$	121,835		$	20,336		$	21,425
Actual return on plan assets		15,533			21,612			1,957			2,758
Employer contributions		2,412			179			365			378
Benefits paid		(7,129	)		(6,534	)		(516	)		(513	)
Foreign exchange impact		—			—			2,026			(3,712	)
Fair value of plan assets at end of year	$	147,908		$	137,092		$	24,168		$	20,336

Over (Under) funded status at end of year	$	(23,450	)	$	(25,635	)	$	120		$	(1,698	)

The amounts recognized in the consolidated balance sheets at December 31 consisted of

	United States						United Kingdom
(In thousands)	2017			2016			2017		2016
Non-current asset	$	—		$	—		$	120		—
Current liability		(302	)		(166	)		—		—
Non-current liability		(23,148	)		(25,469	)		—		(1,698	)
Net amount recognized	$	(23,450	)	$	(25,635	)	$	120	$	(1,698	)

The amounts recognized in accumulated other comprehensive income at December 31 consisted of

	United States				United Kingdom
(In thousands)	2017		2016		2017		2016
Net actuarial loss	$	39,801	$	40,022	$	5,743	$	7,443

Below is information for pension plans with projected benefit obligations in excess of plan assets at December 31:

	United States				United Kingdom
(In thousands)	2017		2016		2017		2016
Projected benefit obligation	$	171,358	$	162,727	$	—	$	22,034
Accumulated benefit obligation		171,358		162,727		—		22,034
Fair value of plan assets		147,908		137,092		—		20,336

Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income

Net periodic benefit costs for the years ended December 31, 2017, 2016 and 2015, were as follows:

	United States									United Kingdom
(In thousands)	2017			2016			2015			2017			2016			2015
Interest cost	$	6,651		$	6,934		$	6,815		$	592		$	733		$	789
Expected return on plan assets		(9,288	)		(9,012	)		(9,579	)		(797	)		(900	)		(1,054	)
Amortization of net actuarial loss		3,085			3,386			4,534			382			77			179
Net periodic benefit cost	$	448		$	1,308		$	1,770		$	177		$	(90	)	$	(86	)

Other changes in plan assets and benefit obligations recognized in other comprehensive income for the years ended December 31, 2017, 2016 and 2015, were as follows:

	United States									United Kingdom
(In thousands)	2017			2016			2015			2017			2016			2015
Net actuarial (gain) loss	$	2,864		$	(11,062	)	$	(1,110	)	$	(1,318	)	$	3,756		$	(781	)
Amortization of net actuarial loss		(3,085	)		(3,386	)		(4,534	)		(382	)		(77	)		(179	)
Total recognized in other comprehensive income	$	(221	)	$	(14,448	)	$	(5,644	)	$	(1,700	)	$	3,679		$	(960	)
Total recognized in net periodic benefit cost and other comprehensive income	$	227		$	(13,140	)	$	(3,874	)	$	(1,523	)	$	3,589		$	(1,046	)

The estimated amounts that will be reclassified from accumulated other comprehensive income into net periodic benefit cost in 2018 are as follows:

(In thousands)

United

States

United

Kingdom

Net actuarial loss

3,746

222

Estimated Future Benefit Payments

(In thousands)	United States		United Kingdom
2018	$	7,560	$	504
2019		7,956		511
2020		8,438		516
2021		8,973		539
2022		9,448		585
2023-2027		51,168		3,548

Assumptions

The weighted-average assumptions used to determine benefit obligations at December 31 were as follows:

	United States						United Kingdom
	2017			2016			2017			2016
Discount rate		3.67	%		4.17	%		2.40	%		2.60	%

The weighted-average assumptions used to determine net periodic benefit costs for years ended December 31 were as follows:

	United States									United Kingdom
	2017			2016			2015			2017			2016			2015
Discount rate		4.17	%		4.39	%		4.09	%		2.60	%		4.00	%		3.50	%
Expected long-term return on plan assets		7.00	%		7.00	%		7.50	%		3.77	%		4.59	%		4.66	%

In addition to the above assumptions, the Company uses a market-related value of assets approach to calculate the expected return on plan assets component of U.S. net periodic benefit cost. The market-related value equals the fair value of plan assets with five-year smoothing of asset gains or losses. Asset gains are subtracted or losses added in the following way: 80 percent of the prior year’s gain or loss; 60 percent of the second preceding year’s gain or loss; 40 percent of the third preceding year’s gain or loss; and 20 percent of the fourth preceding year’s gain or loss. Gains or losses for the year are calculated as the difference between the expected fair value of assets and the actual fair value of assets.

Investment Strategies and Policies

U.S. Plans

Plan assets are predominantly invested using active investment strategies, as compared to passive or index investing. An investment management firm hires and monitors underlying investment management firms for each asset category. Equity managers within each category cover a range of investment styles and approaches, including both active and passive, and are combined in a way that controls for capitalization, style biases, and country exposure versus benchmark indexes, while active managers focus primarily on stock selection to improve returns. Fixed income managers seek to reduce the volatility of the plan’s funded status by matching the duration with the plan’s liability while seeking to improve returns through security selection, sector allocation and yield curve management. Real estate (REIT) exposure is now categorized within mid cap equity and uses public core real estate strategies, which provide stable and high levels of current income and enhanced core strategies, which seek slightly higher returns by emphasizing appreciation.

Risk is controlled through diversification among multiple asset categories, managers, styles, and securities. The investment management firm recommends asset allocations based on the time horizon available for investment, the nature of the plan cash flows and liabilities and other factors that affect risk tolerance. The asset allocation targets are approved by the Company’s Plan Committee. Risk is further controlled both at the manager and asset category level by assigning targets for risk versus investment returns.

Allowable investment categories include:

Equities: Common stocks of large, medium, and small companies, including both U.S. and non-U.S. based companies. The long-term target allocation for equities, excluding Company stock, is 50 percent.

Fixed Income (Debt): Bonds or notes issued or guaranteed by the U.S. government, and to a lesser extent, by non-U.S. governments, or by their agencies or branches, mortgage-backed securities, including collateralized mortgage obligations, corporate bonds, municipal bonds and dollar-denominated debt securities issued in the U.S. by non-U.S. banks and corporations. A small percentage of the fixed income assets may be in debt securities that are below investment grade. The target allocation for fixed income is 30 percent.

Real Estate: Public real estate funds using office, apartment, industrial, retail and other property types. In prior years Real Estate investments were reflected as a separate line item within the Mutual Funds category. Effective 2017, the majority of Real Estate assets have been removed from this category and are currently being captured within the Equities assets category. This change was made by the Global Industry Classification Standard (GICS) to better reflect the equity security features of Real Estate Investment Trusts (REITs).

Commodities: In previous years, the retirement plans invested in Commodity funds that match the index using commodity-linked derivative instruments while seeking to enhance overall returns through the use of fixed income securities. The retirement plan exited commodities in 2017 because of their high correlation to long term fixed income - they no longer provided the diversification benefit to the long term asset allocation optimization.

Employer Securities: The retirement plans also hold shares of the Company’s common stock, which are purchased or sold by the trustee from time to time, as directed by the Plan Committee. At the direction of the Plan Committee, the plans sold 40,837 common shares to the Company’s ESOP trust on February 21, 2017, 18,827 shares to the Company on November 20, 2017, and 56,894 shares to the Company’s ESOP trust on February 23, 2016. The target allocation for employer securities is 20 percent of plan assets.

In addition to these primary investment types, excess cash may be invested in futures in order to efficiently achieve more fully invested portfolio positions. Otherwise, a small number of investment managers make limited use of derivatives, including futures contracts, options on futures and interest rate swaps in place of direct investment in securities to efficiently achieve equivalent market positions. Derivatives are not used to leverage portfolios.

U.K. Plan

The objective of the U.K. defined benefit pension fund investment strategy is to maximize the long-term rate of return on plan assets within a medium level of risk in order to minimize the cost of providing pension benefits. To that end, the plan assets are invested in an actively managed pooled fund of funds that diversifies its holdings among equity securities, debt securities, property and cash. Essentially, the plan is to hold equity instruments to back the benefits of participants yet to retire and bonds and cash to back current pensioners. Although there are no formal target allocations for the plan assets, the fund will generally be heavily invested in equity securities. Equity securities are selected from U.K., European, U.S. and emerging market companies. Bonds include U.K. and other countries’ government notes and corporate debt of U.K and non-U.K. companies. There are no specific prohibited investments, but the current managed fund will not allocate assets to derivatives or other financial hedging instruments. Plan trustees meet regularly with the fund manager to assess the fund’s performance and to reassess investment strategy. At December 31, 2017, the pension asset allocation was 58 percent equities, 29 percent fixed income, seven percent insurance contracts, three percent real estate and three percent cash.

Included in plan assets are insurance contracts purchased by the plan trustees to provide pension payments for specific retirees. In past years, at the time a plan participant retired, the plan trustee would periodically purchase insurance contracts to cover the future payments due the retiree. This practice is no longer followed. The contracts are revocable, and the related plan obligations are not considered settled. Therefore, the plan assets and obligations include the insured amounts.

Plan Assets

U.S. Plans

The Company’s asset allocations for its U.S. pension plans at December 31, 2017 and 2016, by asset category, were as follows:

	December 31, 2017
(In thousands)	Level 1		Level 2		Level 3		Total
Cash and Cash Equivalents	$	4,903	$	—	$	—	$	4,903
Equity Securities
U.S. Equities		37,753		—		—		37,753
Non-U.S. Equities		31,581		47		—		31,628
Employer Securities		30,197		—		—		30,197
Total Equities		99,531		47		—		99,578
Fixed Income Securities
U.S. Corporate Bonds		—		28,744		—		28,744
U.S. Government and Agency Bonds		5,545		1,045		—		6,590
Other Bonds		—		8,093		—		8,093
Total Fixed Income		5,545		37,882		—		43,427
Total	$	109,979	$	37,929	$	—	$	147,908

	December 31, 2016
(In thousands)	Level 1		Level 2		Level 3		Total
Cash and Cash Equivalents	$	3,633	$	275	$	—	$	3,908
Equity Securities
U.S. Equities		29,390		—		—		29,390
Non-U.S. Equities		14,637		—		—		14,637
Employer Securities		36,018		—		—		36,018
Total Equities		80,045		—		—		80,045
Fixed Income Securities
U.S. Corporate Bonds		—		28,278		—		28,278
U.S. Government and Agency Bonds		8,309		971		—		9,280
Other Bonds		—		7,696		—		7,696
Total Fixed Income		8,309		36,945		—		45,254
Mutual Funds
Real Estate		5,362		—		—		5,362
Commodities		2,523		—		—		2,523
Other		—		—		—		—
Total Mutual Funds		7,885		—		—		7,885
Total	$	99,872	$	37,220	$	—	$	137,092

Plan Asset Valuation Methodology

Following is a description of the valuation methodologies used for plan assets measured at fair value.

Individual equity securities, including employer securities, are valued by Standard & Poor’s Securities Evaluations as determined by quoted market prices on the New York Stock Exchange or other active markets. Both market pricing and future cash flow analysis may be used in the pricing process as follows:

Level 1 – Equities represent the largest asset category and are valued according to the exchange-quoted market prices of the underlying investments. Level 1 fixed income securities are U.S. government securities and are valued according to quoted prices from active markets.

Level 2 – Fixed income investments without equivalent trading exchanges are valued primarily through a technique known as “future cash flow approach” which is based on what bondholders can reasonably expect to receive based upon an issuer’s current financial condition. Pricing analysts prepare cash-flow forecasts and utilize one or two pricing models to arrive at an evaluated price. Evaluated bid modeling includes factors such as the interest rate on the coupon, maturity, rating, cash flow projections and other factors.

Level 3 – no investments held during 2017 or 2016 were categorized as Level 3.

U.K. Plan

The Company’s asset allocations for its U.K. pension plans at December 31, 2017 and 2016, by asset category, were as follows:

	December 31, 2017
(In thousands)	Level 1		Level 2		Level 3		Total
Cash	$	745	$	—	$	—	$	745
Equity Securities
Pooled Pension Funds		—		14,127		—		14,127
Fixed Income
Pooled Pension Funds		—		6,952		—		6,952
Real Estate
Pooled Pension Funds		—		646		—		646
Insurance Contracts		—		—		1,698		1,698
Total	$	745	$	21,725	$	1,698	$	24,168

	December 31, 2016
(In thousands)	Level 1		Level 2		Level 3		Total
Cash	$	243	$	—	$	—	$	243
Equity Securities
Pooled Pension Funds		—		11,760		—		11,760
Fixed Income
Pooled Pension Funds		—		6,015		—		6,015
Real Estate
Pooled Pension Funds		—		559		—		559
Insurance Contracts		—		—		1,759		1,759
Total	$	243	$	18,334	$	1,759	$	20,336

Units of each of the pooled funds are valued by the trustee based on quoted market prices of the underlying investments (the underlying assets are either exchange traded or have readily available markets).

Fair value changes within asset categories for which fair value measurements use significant unobservable inputs (Level 3) were as follows during 2016 and 2017:

(In thousands)	Insurance Contracts
Fair value, December 31, 2015	$	1,969
Sale proceeds (benefit payments)		(144	)
Change in unrealized gain		265
Foreign exchange impact		(331	)
Fair value, December 31, 2016	$	1,759
Sale proceeds (benefit payments)		(134	)
Change in unrealized gain		(84	)
Foreign exchange impact		157
Fair value, December 31, 2017	$	1,698

Long-term Rate of Return for Plan Assets

U.S. Plans

The overall expected long-term rate of return on assets of 7.00 percent that was used to develop the 2017 pension expense is based on plan asset allocation, capital markets forecasts and expected benefits of active investment management. For fixed income, the expected return is 4.69 percent. This assumption includes the yield on the five-year zero-coupon U.S. Treasury bond as the base rate along with historical data from the U.S. Treasury yield curve. For equities, the expected return is 6.31 percent for U.S. and international equities. This return is based on a blended average of three different statistical models that each incorporates multiple factors including, for example, inflation, Gross Domestic Product and the Fed Funds Target Rate.

The overall investment return forecast reflects the target allocations and the capital markets forecasts for each asset category, plus a premium for active asset management expected over the long-term.

U.K. Plan

The overall expected long-term return on plan assets is a weighted-average of the expected long-term returns for equity securities, debt securities and other assets. The redemption yield at the measurement date on U.K. government fixed interest bonds and the yield on corporate bonds are used as proxies for the return on the debt portfolio. The returns for equities and property are estimated as a premium of 3.0 percent added to the risk-free rate. Cash is assumed to have a long-term return of 4.0 percent.

Other Defined Benefit Plans

The Company maintains funded and unfunded defined benefit plans in other foreign locations. The liabilities and expenses associated with these plans, individually and collectively, are not material to the Company’s consolidated financial statements. Discount rates for these plans are determined based on local interest rates and plan participant data.

Cash Flows

As a result of pension funding relief included in the Highway and Transportation Funding Act of 2014, the Company does not expect to make any 2018 contributions to the funded U.S. qualified defined benefit plans. The Company expects to contribute $302,000 in 2018 to the unfunded non-qualified U.S. pension plans. The Company expects to contribute $461,000 to the U.K. defined benefit plan in 2018.

Defined Contribution Plans

The Company sponsors retirement savings defined contribution retirement plans that cover eligible U.S. and U.K. employees. The Company’s U.S retirement plans include two qualified plans, one of which is a 401(k) plan and one of which is an employee stock ownership plan, and one non-qualified supplemental executive plan. Historically, the Company has made profit sharing contributions into the qualified retirement plans for its U.S. employees. Profit sharing contributions were determined each year using a formula that was applied to Company earnings. The contributions, which were made partly in cash paid to the 401(k) plan and partly in Company common stock, are allocated to participant accounts on the basis of participant base earnings.

Defined contribution expenses for the Company’s qualified defined contribution plans were as follows:

(In thousands)	2017		2016		2015
Retirement contributions	$	4,998	$	4,902	$	4,644
Profit sharing contributions		7,002		6,230		4,972
Total	$	12,000	$	11,132	$	9,616

The Company has a rabbi trust to fund the obligations of its non-qualified supplemental executive defined contribution plans (supplemental plans). The trust comprises various mutual fund investments selected by the participants of the supplemental plans. In accordance with the accounting guidance for rabbi trust arrangements, the assets of the trust and the obligations of the supplemental plans are reported on the Company’s consolidated balance sheet. The Company elected the fair value option for the mutual fund investment assets so that offsetting changes in the mutual fund values and defined contribution plan obligations would be recorded in earnings in the same period. Therefore, the mutual funds are reported at fair value with any subsequent changes in fair value recorded in the income statement. The supplemental plan liabilities increase (i.e., supplemental plan expense is recognized) when the value of the trust assets appreciates and decrease (i.e., supplemental plan income is recognized) when the value of the trust assets declines. At December 31, 2017 and 2016, the trust asset balances were $1,587,000 and $1,692,000, respectively, and the supplemental plan liability balances were $1,661,000 and $1,767,000, respectively. The differences between the trust asset balances and the supplemental liability balances were due to estimated liabilities that were not funded until after the end of the year when the actual liabilities were determined.

In addition to the contributions described above, certain foreign locations are required by law to make profit sharing contributions to employees based on statutory formulas. For the years ended December 31, 2017, 2016 and 2015, the Company recognized $398,000, $290,000 and $1,375,000, respectively, of statutory profit sharing expense.