Pensions and Other Employee Benefit Plans

12 Months Ended

Dec. 31, 2020

Pensions and Other Employee Benefit Plans [Abstract]

Pensions and Other Employee Benefit Plans

11. 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, 2020 and 2019 certain of these benefits were provided through plans sponsored or managed 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. Medical coverage for retired employees and dependents ends when the retiree reaches age 65.

Funded Status

The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets for 2020 and 2019, and a statement of the funded status as of December 31, 2020 and 2019. 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,
	2020		2019		2020		2019
Reconciliation of benefit obligation:
Obligation at beginning of period	$	55,159	$	49,020	$	511	$	479
Service cost		703		722		—		—
Interest cost		1,765		2,018		17		21
Participant contributions		27		25		—		—
Actuarial loss		5,453		5,256		30		30
Benefit payments		(1,926)		(1,882)		(19)		(19)
Obligation at December 31,		61,181		55,159		539		511
Reconciliation of fair value of plan assets:
Fair value of plan assets at beginning of period		38,146		34,263		—		—
Actual return on plan assets		3,257		4,798		—		—
Employer contributions		1,953		942		19		19
Participant contributions		27		25		—		—
Benefit payments		(1,926)		(1,882)		(19)		(19)
Fair value of plan assets at December 31,		41,457		38,146		—		—
Funded status at end of period	$	(19,724)	$	(17,013)	$	(539)	$	(511)

The benefit obligations for pensions and other employee benefits exceeded the fair value of plan assets by $20.3 million at December 31, 2020 (the “unfunded benefit obligations”). The unfunded benefit obligations were measured using a discount rate of 2.5% and 3.25% at December 31, 2020 and 2019, respectively. For the year ended December 31, 2020, the actuarial loss component of the change in benefit obligation of $5.5 million for the pension plan comprises $5.8 million attributable to the change in the discount rate partially offset by $0.3 million attributable to other factors. For the year ended December 31, 2019, the actuarial loss component of the change in benefit obligation of $5.3 million for the pension plan comprises $6.7 million attributable to the change in the discount rate partially offset by $1.4 million attributable to other factors. Lowering the discount rate by 0.5% would have increased the unfunded benefit obligations for pension and other post-retirement benefits by approximately $4.4 million and $3.7 million as of December 31, 2020 and 2019, respectively. 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, 2020 and 2019 consist of (in thousands):

	Pension Benefits				Other Benefits
	December 31,				December 31,
	2020		2019		2020		2019
Actuarial loss	$	(22,172)	$	(18,613)	$	(51)	$	(32)

The amounts recognized in other comprehensive (loss) income during the years ended December 31, 2020 and 2019 consist of (in thousands):

	Pension Benefits				Other Benefits
	December 31,				December 31,
	2020		2019		2020		2019
Actuarial (loss) gain during the period	$	(4,847)	$	(2,891)	$	(30)	$	(30)
Amortization of actuarial loss		1,288		1,006		11		2
Total recognized in other comprehensive (loss) income	$	(3,559)	$	(1,885)	$	(19)	$	(28)

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

	Pension Benefits				Other Benefits
	December 31,				December 31,
	2020		2019		2020		2019
Current Liabilities	$	—	$	—	$	82	$	77
Long-Term Liabilities		19,724		17,013		457		434
	$	19,724	$	17,013	$	539	$	511

The accumulated pension benefit obligation was $60.3 million and $54.2 million at December 31, 2020 and 2019, respectively.

During 2020, we contributed $2.0 million to the qualified pension plan and our contributions for the other employee post-retirement benefits were not significant. During 2021, based on current estimates, we expect our contributions to the qualified pension plan will be approximately $1.3 million. We expect that our funding of other employee post-retirement benefits during 2021 will not be significant.

The following table provides the components of net periodic cost included in our statements of operations for the plans for the years ended December 31, 2020 and 2019 (in thousands):

	Pension Benefits				Other Benefits
	Year Ended December 31,				Year Ended December 31,
	2020		2019		2020		2019
Service cost (1)	$	703	$	722	$	—	$	—
Interest cost (2)		1,765		2,018		17		21
Expected return on plan assets (2)		(2,651)		(2,432)		—		—
Amortization of net actuarial loss (2)		1,288		1,006		11		2
Net periodic cost	$	1,105	$	1,314	$	28	$	23

(1) Included in general and administrative expenses.

(2) Included in other expense.

Assumptions

Assumptions used to determine net periodic cost:

	Year Ended December 31,
	2020	2019
Discount rate	3.25%	4.25%
Expected return on plan assets	7.00%	7.25%
Rate of compensation increase	4.25%	4.25%

Assumptions used to determine the benefit obligation:

	December 31,
	2020	2019
Discount rate	2.50%	3.25%
Rate of compensation increase	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 2021 is 6.75%.

As of December 31, 2020 and 2019, 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 post-retirement 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.

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.

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. The pension plan’s actual and targeted asset allocations, are as follows:

	December 31, 2020	Target Allocation
	Actual Allocation	Target	Target Range
Liquid return-seeking investments	61%	56.5%	45-65%
Alternative investments	10%	14.5%	0-20%
Fixed income investments	29%	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 5% from these targets.

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, by asset category, at December 31, 2020 and 2019. The Company’s pension plan assets are mainly held in commingled employee benefit fund trusts.

	Fair Value Measurements
								Assets
								Measured
Asset Category	Total		Percentage	Level 1	Level 2	Level 3		at NAV(1)
		(Dollars in thousands)
At December 31, 2020
Liquid return-seeking:
Multi-asset fund(2)	$	25,196	61%					$	25,196
Fixed income securities:
Commingled funds(3)		11,881	29%						11,881
Alternative investments:
Equity long/short fund(4)		2,201	5%			$	2,201
Private equity fund(5)		22	0%				22
Distressed opportunity limited partnership(6)		433	1%				433
Multi-strategy limited partnership(7)		1,724	4%				1,724
		4,380	10%	—	—		4,380		—
	$	41,457	100%	—	—	$	4,380	$	37,077
At December 31, 2019
Liquid return-seeking:
Multi-asset fund(2)	$	23,127	61%					$	23,127
Fixed income securities:
Commingled funds(3)		11,463	30%						11,463
Alternative investments:
Equity long/short fund(4)		1,349	4%			$	1,349
Private equity fund(5)		48	0%				48
Distressed opportunity limited partnership(6)		463	1%				463
Multi-strategy limited partnership(7)		1,696	4%				1,696
		3,556	9%	—	—		3,556		—
	$	38,146	100%	—	—	$	3,556	$	34,590

(1) Assets measured using the net asset value (“NAV”) practical expedient have not been classified in the fair value hierarchy. The NAV practical expedient is based on the fair value of the underlying assets of the common/collective trust (“CCT”) minus its liabilities, and then divided by the number of units outstanding. The NAV practical expedient of a CCT is calculated based on a compilation of primarily observable market information.

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

(3) 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.

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

(5) 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 July 12, 2021, subject to extension for a one-year period. Earlier redemptions are not permitted.

(6) 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 with notice of 90 days and is reported on a one month lag.

(7) Investments in a partnership that has a multi-strategy investment program and does not rely on a single investment model. This partnership has quarterly redemption rights with notice of 65 days and is reported on a one month lag.

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, 2020 and 2019 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 Fund		Total
		(In thousands)
Balance, January 1, 2019	$	76	$	1,002	$	463	$	1,602	$	3,143
Unrealized (loss) gain		(23)		347		—		94		418
Sales		(5)		—		—		—		(5)
Balance, December 31, 2019		48		1,349		463		1,696		3,556
Unrealized (loss) gain		(26)		852		(30)		28		824
Balance, December 31, 2020	$	22	$	2,201	$	433	$	1,724	$	4,380

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.

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
2021	$	2,323	$	84
2022		2,421		71
2023		2,573		60
2024		2,814		49
2025		2,833		40
2026 to 2030		15,346		122

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, 2020 and 2019, 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.