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Pensions and Other Employee Benefit Plans
 12 Months Ended
Dec. 31, 2016
Pensions and Other Employee Benefit Plans [Abstract]  
Pensions and Other Employee Benefit Plans

12. Pensions and Other Employee Benefit Plans



Pensions



We maintain a qualified defined benefit pension plan, to which members may contribute in order to receive enhanced pension benefits. Employees hired after June 30, 2006 do not participate in the defined benefit pension plan, but participate in our defined contribution savings plan with an additional Company contribution. Benefits are based primarily on members’ compensation and/or years of service. Our funding policy is to fund the qualified pension plan in accordance with the Internal Revenue Code and regulations thereon. Plan assets are generally invested in equity, fixed income and real asset investments. Pension plan assets are managed primarily by Russell Investment Corp. (“Russell”), which allocates the assets into funds as we direct.



Other Benefits



In addition to providing pension benefits, we provide certain health care and life insurance benefits for retired employees and dependents. For the years ended December 31, 2016, 2015 and 2014, such benefits were provided through plans sponsored by Telesat. Participants are eligible for these benefits generally when they retire from active service and meet the eligibility requirements for our pension plan. These benefits are funded primarily on a pay-as-you-go basis, with the retiree generally paying a portion of the cost through contributions, deductibles and coinsurance provisions. Effective January 1, 2015, retiree medical coverage for retirees age 65 or over and their dependents was discontinued. In 2015, the Company made discretionary lump sum payments to participants affected to assist them in purchasing alternate coverage. The effects on the consolidated financial statements of discontinuing this coverage and the lump sum payments were not significant.



Funded Status



The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets for 2016 and 2015, and a statement of the funded status as of December 31, 2016 and 2015. We use a December 31 measurement date for the pension plan and other post-retirement benefits (in thousands).







 

 

 

 

 

 

 

 

 

 

 



Pension Benefits

 

Other Benefits

 

Year Ended December 31,

 

Year Ended December 31,

 

2016

 

2015

 

2016

 

2015

Reconciliation of benefit obligation:

 

 

 

 

 

 

 

 

 

 

 

Obligation at beginning of period

$

 46,976 

 

$

 48,172 

 

$

 559 

 

$

 1,623 

Service cost

 

 668 

 

 

 511 

 

 

 1 

 

 

 2 

Interest cost

 

 1,982 

 

 

 1,896 

 

 

 22 

 

 

 38 

Participant contributions

 

 45 

 

 

 22 

 

 

 20 

 

 

 38 

Actuarial loss (gain)

 

 1,537 

 

 

 (1,930)

 

 

 (6)

 

 

 (1)

Benefit payments

 

 (1,745)

 

 

 (1,695)

 

 

 (52)

 

 

 (92)

Curtailment and settlement

 

         —

 

 

         —

 

 

         —

 

 

 (1,049)

Obligation at December 31,

 

 49,463 

 

 

 46,976 

 

 

 544 

 

 

 559 

Reconciliation of fair value of plan assets:

 

 

 

 

 

 

 

 

 

 

 

Fair value of plan assets at beginning of period

 

 29,296 

 

 

 28,476 

 

 

         —

 

 

         —

Actual return on plan assets

 

 1,709 

 

 

 (248)

 

 

         —

 

 

         —

Employer contributions

 

 2,161 

 

 

 2,741 

 

 

 32 

 

 

 54 

Participant contributions

 

 45 

 

 

 22 

 

 

 20 

 

 

 38 

Benefit payments

 

 (1,745)

 

 

 (1,695)

 

 

 (52)

 

 

 (92)

Fair value of plan assets at December 31,

 

 31,466 

 

 

 29,296 

 

 

         —

 

 

         —

Funded status at end of period

$

 (17,997)

 

$

 (17,680)

 

$

 (544)

 

$

 (559)



The benefit obligations for pensions and other employee benefits exceeded the fair value of plan assets by $18.5 million at December 31, 2016 (the “unfunded benefit obligations”). The unfunded benefit obligations were measured using a discount rate of 4.00% and 4.25% at December 31, 2016 and 2015, respectively. Lowering the discount rate by 0.5% would have increased the unfunded benefit obligations by approximately $3.6 million as of December 31, 2016 and 2015. Market conditions and interest rates will significantly affect future assets and liabilities of Loral’s pension plan and other post-retirement benefits.



The pre-tax amounts recognized in accumulated other comprehensive loss as of December 31, 2016 and 2015 consist of (in thousands):







 

 

 

 

 

 

 

 

 

 

 

 

Pension Benefits

 

Other Benefits

 

December 31,

 

December 31,

 

2016

 

2015

 

2016

 

2015

Actuarial loss

$

 (17,816)

 

$

 (16,830)

 

$

 (80)

 

$

 (95)

Amendments-prior service cost

 

         —

 

 

         —

 

 

 (47)

 

 

 (69)



$

 (17,816)

 

$

 (16,830)

 

$

 (127)

 

$

 (164)



The amounts recognized in other comprehensive loss during the years ended December 31, 2016, 2015 and 2014 consist of (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Year Ended December 31,



2016

 

2015

 

2014

 

Pension Benefits

 

Other Benefits

 

Pension Benefits

 

Other Benefits

 

Pension Benefits

 

Other Benefits

Actuarial (loss) gain during the period

$

 (1,875)

 

$

 10 

 

$

 (425)

 

$

 1 

 

$

 (7,972)

 

$

 (145)

Amortization of actuarial loss

 

 889 

 

 

 5 

 

 

 795 

 

 

 26 

 

 

 408 

 

 

 39 

Amortization of prior service cost

 

         —

 

 

 22 

 

 

         —

 

 

 11 

 

 

         —

 

 

 9 

Recognition due to curtailment

 

         —

 

 

         —

 

 

         —

 

 

 428 

 

 

         —

 

 

         —

Total recognized in other comprehensive income (loss)

$

 (986)

 

$

 37 

 

$

 370 

 

$

 466 

 

$

 (7,564)

 

$

 (97)



Amounts recognized in the balance sheet consist of (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

Pension Benefits

 

Other Benefits

 

December 31,

 

December 31,

 

2016

 

2015

 

2016

 

2015

Current Liabilities

$

         —

 

$

         —

 

$

 108 

 

$

 120 

Long-Term Liabilities

 

 17,997 

 

 

 17,680 

 

 

 436 

 

 

 439 



$

 17,997 

 

$

 17,680 

 

$

 544 

 

$

 559 



The estimated actuarial loss for pension benefits that will be amortized from accumulated other comprehensive income into net periodic cost over the next fiscal year is $0.9 million.



The accumulated pension benefit obligation was $48.5 million and $46.0 million at December 31, 2016 and 2015, respectively.



During 2016, we contributed $2.2 million to the qualified pension plan and our contributions for the other employee post-retirement benefits were not significant. During 2017, based on current estimates, our minimum required contributions to the qualified pension plan will be approximately $2.4 million. We expect that our funding of other employee post-retirement benefits during 2017 will not be significant.

The following table provides the components of net periodic cost included in income from continuing operations for the plans for the years ended December 31, 2016, 2015 and 2014 (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Benefits

 

Other Benefits

 

 

Year Ended December 31,

 

 

Year Ended December 31,

 

2016

 

2015

 

2014

 

2016

 

2015

 

2014

Service cost

$

 668 

 

$

 511 

 

$

 188 

 

$

 1 

 

$

 2 

 

$

 1 

Interest cost

 

 1,982 

 

 

 1,896 

 

 

 1,882 

 

 

 22 

 

 

 38 

 

 

 71 

Expected return on plan assets

 

 (2,047)

 

 

 (2,107)

 

 

 (1,882)

 

 

         —

 

 

         —

 

 

         —

Recognition due to curtailment

 

         —

 

 

         —

 

 

         —

 

 

         —

 

 

 428 

 

 

         —

Amortization of prior service cost

 

         —

 

 

         —

 

 

         —

 

 

 22 

 

 

 11 

 

 

 9 

Amortization of net actuarial loss

 

 889 

 

 

 795 

 

 

 408 

 

 

 5 

 

 

 26 

 

 

 39 

Net periodic cost

$

 1,492 

 

$

 1,095 

 

$

 596 

 

$

 50 

 

$

 505 

 

$

 120 



Assumptions



Assumptions used to determine net periodic cost:





 

 

 

 

 

 

For the Year Ended December 31,

 

2016

 

2015

 

2014

Discount rate

4.25%

 

4.00%

 

4.75%

Expected return on plan assets

7.00%

 

7.25%

 

7.25%

Rate of compensation increase

4.25%

 

4.25%

 

4.25%



Assumptions used to determine the benefit obligation:





 

 

 

 

 

 

December 31,

 

2016

 

2015

 

2014

Discount rate

4.00%

 

4.25%

 

4.00%

Rate of compensation increase

4.25%

 

4.25%

 

4.25%



The expected long-term rate of return on pension plan assets is selected by taking into account the expected duration of the projected benefit obligation for the plans, the asset mix of the plans and the fact that the plan assets are actively managed to mitigate risk. Our expected long-term rate of return on plan assets for 2017 is 6.75%.



As of December 31, 2016 and 2015, the Company contributions remaining for other benefits were primarily for fixed amounts. Therefore, future health care cost trend rates will not affect Company costs and accumulated postretirement benefit obligation.





Plan Assets



The Company has established the pension plan as a retirement vehicle for participants and as a funding vehicle to secure promised benefits. The investment goal is to provide a total return that over time will earn a rate of return to satisfy the benefit obligations given investment risk levels, contribution amounts and expenses. The pension plan invests in compliance with the Employee Retirement Income Security Act 1974, as amended (“ERISA”), and any subsequent applicable regulations and laws.



The Company has adopted an investment policy for the management and oversight of the pension plan. It sets forth the objectives for the pension plan, the strategies to achieve these objectives, procedures for monitoring and control and the delegation of responsibilities for the oversight and management of pension plan assets.



The Company’s Board of Directors has delegated primary fiduciary responsibility for pension assets to an investment committee. In carrying out its responsibilities, the investment committee establishes investment policy, makes asset allocation decisions, determines asset class strategies and retains investment managers to implement asset allocation and asset class strategy decisions. It is responsible for the investment policy and may amend such policy from time to time.



Asset allocation policy is the principal method for achieving the pension plan’s investment objectives stated above. Asset allocation policy is reviewed regularly by the investment committee. In April 2016 the pension plan revised the asset allocation targets in its investment policy to introduce a liquid return-seeking portfolio consisting of global equities, marketable real assets and fixed income investments. Asset allocation policy is reviewed regularly.



Pension plan assets are invested in various asset classes in what we believe is a prudent manner for the exclusive purpose of providing benefits to participants. U.S. equities are held for their long-term expected return premium over fixed income investments and inflation. Non-U.S. equities are held for their expected return premium (along with U.S. equities), as well as diversification relative to U.S. equities and other asset classes. Fixed income investments are held for diversification relative to equities. Real assets are held for diversification relative to equities and fixed income. Alternative investments are held for both diversification and higher returns than those typically available in traditional asset classes.



The pension plan’s actual and targeted asset allocations, based on the revised policy as of December 31, 2016 were as follows:

 

 

 

 

 

 



 

 

 

 

December 31, 2016

 

Target Allocation

 

Actual Allocation

 

Target

 

Target Range

Liquid return-seeking investments

 61% 

 

 56.5% 

 

45-65%

Alternative investments

 9% 

 

 14.5% 

 

0-20%

Fixed income investments

 30% 

 

 29.0% 

 

20-40%



 100% 

 

 100% 

 

 100% 



The target allocation within the liquid return-seeking portfolio is 75% global equities, 15% marketable real assets and 10% fixed income. Allocations may vary by up to 3% from these targets. The pension plan’s actual asset allocations as of December 31, 2015, based on the previous investment policy, were 57% equities and 43% fixed income.



The pension plan’s assets are actively managed using a multi-asset, multi-style, multi-manager investment approach. Portfolio risk is controlled through this diversification process and monitoring of money managers. Consideration of such factors as differing rates of return, volatility and correlation are utilized in the asset and manager selection process. Diversification reduces the impact of losses in single investments. Performance results and fund accounting are provided to the Company by Russell on a monthly basis. Periodic reviews of the portfolio are performed by the investment committee with Russell. These reviews typically consist of a market and economic review, a performance review, an allocation review and a strategy review. Performance is judged by investment type against market indexes. Allocation adjustments or fund changes may occur after these reviews. Performance is reported to the Company’s Board of Directors at quarterly board meetings.



Fair Value Measurements



The values of the fund trusts are calculated using systems and procedures widely used across the investment industry. Generally, investments are valued based on information in financial publications of general circulation, statistical and valuation services, discounted cash flow methodology, records of security exchanges, appraisal by qualified persons, transactions and bona fide offers.

The table below provides the fair values of the Company’s pension plan assets at December 31, 2016 and 2015, by asset category. The table also identifies the level of inputs used to determine the fair value of assets in each category. The Company’s pension plan assets are mainly held in commingled employee benefit fund trusts.





 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements

 

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

 

In Active Markets

 

Significant

 

Significant

 

 

 

 

 

 

For Identical

 

Observable

 

Unobservable

 

 

 

 

 

 

Assets

 

Inputs

 

Inputs

 Asset Category

 

Total

 

Percentage

 

Level 1

 

Level 2

 

Level 3



 

(In thousands)

At December 31, 2016:

 

 

 

 

 

 

 

 

 

 

Liquid return-seeking:

 

 

 

 

 

 

 

 

 

 

Multi-asset fund(1)

 

$     19,142 

 

 61% 

 

 

 

$          19,142 

 

 

Fixed income securities:

 

 

 

 

 

 

 

 

 

 

Commingled funds(2)

 

 9,389 

 

 30% 

 

 

 

 9,389 

 

 

Alternative investments:

 

 

 

 

 

 

 

 

 

 

Equity long/short fund(3)

 

 835 

 

 3% 

 

 

 

 

 

$                  835 

Private equity fund(4)

 

 129 

 

 0% 

 

 

 

 

 

 129 

Distressed opportunity limited partnership(5)

 

 448 

 

 1% 

 

 

 

 

 

 448 

Multi-strategy limited partnerships(6)

 

 1,523 

 

 5% 

 

 

 

 

 

 1,523 



 

 2,935 

 

 9% 

 

         —

 

         —

 

 2,935 



 

$     31,466 

 

 100% 

 

         —

 

$          28,531 

 

$               2,935 



 

 

 

 

 

 

 

 

 

 

At December 31, 2015:

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

U.S. large-cap(7) 

 

$       7,159 

 

 24% 

 

 

 

$            7,159 

 

 

U.S. small-cap(8) 

 

 1,989 

 

 7% 

 

 

 

 1,989 

 

 

Global (9)          

 

 2,333 

 

 8% 

 

 

 

 2,333 

 

 

Non-U.S.(10) 

 

 3,704 

 

 13% 

 

 

 

 3,704 

 

 

Alternative investments:

 

 

 

 

 

 

 

 

 

 

Equity long/short fund(3) 

 

 847 

 

 3% 

 

 

 

 

 

$                  847 

Real Estate Securities(11) 

 

 614 

 

 2% 

 

 

 

 614 

 

 

Private equity fund(4) 

 

 174 

 

 0% 

 

 

 

 

 

 174 



 

 16,820 

 

 57% 

 

         —

 

 15,799 

 

 1,021 

Fixed income securities:

 

 

 

 

 

 

 

 

 

 

Commingled funds(2) 

 

 10,708 

 

 37% 

 

 

 

 10,708 

 

 

Alternative investments:

 

 

 

 

 

 

 

 

 

 

Distressed opportunity limited partnership(5) 

 

 313 

 

 1% 

 

 

 

 

 

 313 

Multi-strategy limited partnerships(6) 

 

 1,455 

 

 5% 

 

 

 

 

 

 1,455 



 

 12,476 

 

 43% 

 

         —

 

 10,708 

 

 1,768 



 

$     29,296 

 

 100% 

 

         —

 

$          26,507 

 

$               2,789 



(1)

A single fund that invests in global equities, marketable real assets and fixed income securities. The fund has no limitation on redemptions.



(2)

Investments in bonds representing many sectors of the broad bond market with both short-term and intermediate-term maturities. The fund has no limitation on redemptions.



(3)

Investments primarily in long and short positions in equity securities of U.S. and non-U.S. companies. The fund has semi-annual tender offer redemption periods on June 30 and December 31 and is reported on a one month lag. 



(4)

Fund invests in portfolios of secondary interest in established venture capital, buyout, mezzanine and special situation funds on a global basis. Fund is valued on a quarterly lag with adjustment for subsequent cash activity. The fund terminates on June 26, 2019, subject to extension for up to three one-year periods. Earlier redemptions are not permitted.  



(5)

Investments mainly in discounted debt securities, bank loans, trade claims and other debt and equity securities of financially troubled companies. This partnership has semi-annual withdrawal rights on June 30 and December 31. This fund is reported on a one month lag.



(6)

Investments mainly in partnerships that have multi-strategy investment programs and do not rely on a single investment model. As of December 31, 2016 and 2015, investments include a partnership that has monthly liquidation rights with notice of 33 days.



(7)

Investments in common stocks that rank among the largest 1,000 companies in the U.S. stock market.



(8)

Investments in common stocks that rank among the small capitalization stocks in the U.S. stock market.





(9)

Investments in common stocks across the world without being limited by national borders or to specific regions.



(10)

Investments in common stocks of companies from developed and emerging countries outside the United States.



(11)

Investments in real estate through a fund of funds which invests in global public real estate securities (REITs).



The significant amount of Level 2 investments in the table results from including in this category investments in commingled funds that contain investments with values based on quoted market prices, but for which the funds are not valued on a quoted market basis. These commingled funds are valued at their net asset values (NAVs) that are calculated by the investment manager or sponsor. Equity investments in both U.S and non-U.S. stocks as well as public real estate investment trusts are primarily valued using a market approach based on the quoted market prices of identical securities. Fixed income investments are primarily valued using a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported trades.



Additional information pertaining to the changes in the fair value of the pension plan assets classified as Level 3 for the years ended December 31, 2016 and 2015 is presented below:







 

 

 

 

 

 

 

 

 

 

 

 

 



Fair Value Measurements Using Significant
Unobservable Inputs (Level 3)

 

Private
Equity
Fund

 

 

Equity
Long/Short
Fund

 

 

Distressed
Opportunity
Ltd. Partnership

 

 

 Multi
Strategy
Funds

 

 

Total  



(In thousands)

Balance at January 1, 2015

$          249

 

 

$          801

 

 

$                368

 

 

$       1,370

 

 

$       2,788

Unrealized gain (loss)

2 

 

 

 46 

 

 

 (55)

 

 

 26 

 

 

 19 

Realized gain/(loss)

       —

 

 

       —

 

 

            —

 

 

 59 

 

 

 59 

Purchases

       —

 

 

       —

 

 

            —

 

 

 639 

 

 

 639 

Sales

(77)

 

 

       —

 

 

            —

 

 

 (639)

 

 

 (716)

Balance at December 31, 2015

 174 

 

 

 847 

 

 

 313 

 

 

 1,455 

 

 

 2,789 

Unrealized gain (loss)

(2)

 

 

 (12)

 

 

 135 

 

 

 68 

 

 

 189 

Sales

(43)

 

 

       —

 

 

            —

 

 

       —

 

 

 (43)

Balance at December 31, 2016

$          129

 

 

$          835

 

 

$                448

 

 

$       1,523

 

 

$       2,935



Both the Equity Long/Short Fund and the Distressed Opportunity Limited Partnership are valued at each month-end based upon quoted market prices by the investment managers. They are included in Level 3 due to their restrictions on redemption to semi-annual periods on June 30 and December 31.



The Multi-Strategy Fund invests in various underlying securities. The fund’s net asset value is calculated by the fund manager and is not publicly available. The fund manager accumulates all the underlying security values and uses them in determining the fund’s net asset value.  



The private equity fund and limited partnership valuations are primarily based on cost/price of recent investments, earnings/performance multiples, net assets, discounted cash flows, comparable transactions and industry benchmarks.



The annual audited financial statements of all funds are reviewed by the Company.



Benefit Payments



The following benefit payments, which reflect future services, as appropriate, are expected to be paid (in thousands):



 

 

 

 

 

 

 

 

 

 

 

 

 

Pension
Benefits

 

Other
Benefits

 

2017

$

 1,778 

 

$

 110 

 

2018

 

 1,943 

 

 

 61 

 

2019

 

 1,935 

 

 

 53 

 

2020

 

 2,100 

 

 

 48 

 

2021

 

 2,226 

 

 

 43 

 

2022 to 2026

 

 13,291 

 

 

 150 

 



Employee Savings (401k) Plan



We have an employee savings (401k) plan, to which the Company provides contributions which match up to 6% of a participant’s base salary at a rate of 66⅔%. The Company also makes retirement contributions to the savings (401k) plan, which provide added retirement benefits to employees hired on or after July 1, 2006, as they are not eligible to participate in our defined benefit pension plan. Retirement contributions are provided regardless of an employee’s contribution to the savings (401k) plan. Matching contributions and retirement contributions are collectively known as Company contributions. Company contributions are made in cash and placed in each participant’s age appropriate “life cycle” fund. For each of the years ended December 31, 2016, 2015 and 2014, Company contributions were $0.1 million. Participants of the savings (401k) plan are able to redirect Company contributions to any available fund within the plan. Participants are also able to direct their contributions to any available fund.