Pension Plans and Postretirement Benefits

Pension Plans

Teledyne has a defined benefit pension plan covering substantially all U.S. employees hired before January 1, 2004, or approximately 12% of Teledyne’s active employees. As of January 1, 2004, new hires participate in a defined contribution plan only. The Company also has several small domestic non-qualified and foreign-based defined benefit pension plans.

The Company’s U.S. domestic qualified pension plan purchased group annuity contracts from insurance companies and paid a total annuity premium of $17.8 million in 2018 and $19.0 million in 2017. These annuity contracts transfer the obligation to the insurance companies to guarantee the full payment of all annuity payments to existing retired pension plan participants or their surviving beneficiaries. These annuity contracts assume all investment risk associated with the assets that were delivered as the annuity contract premiums. These annuity contracts covered 321 and 412 existing retired pension plan participants for 2018 and 2017, respectively at the time of purchase.

The domestic qualified pension plan was amended in 2015 to allow participants at retirement to elect a lump-sum payment. In 2018, 2017 and 2016, the Company made lump sum payments of $18.6 million, $21.7 million and $14.6 million, respectively, from the domestic qualified pension plan assets to certain participants in the plan as a result of these lump sum offers. Each year beginning with 2014, the Society of Actuaries released revised mortality tables, which updated life expectancy assumptions. In consideration of these tables, each year the Company reviews the mortality assumptions used in determining our pension and post-retirement obligations.



	Domestic									Foreign
	2018			2017			2016			2018			2017			2016
Service cost - benefits earned during the period (in millions)	$	9.8		$	10.2		$	10.4		$	0.9		$	1.0		$	0.8

	Domestic									Foreign
Pension non-service income (in millions):	2018			2017			2016			2018			2017			2016
Interest cost on benefit obligation	31.5			35.6			38.9			1.3			1.2			1.6
Expected return on plan assets	(70.0		)	(71.3		)	(72.9		)	(1.7		)	(2.1		)	(2.2		)
Amortization of prior service cost	(6.0		)	(6.0		)	(6.0		)	(0.1		)	(0.1		)	—
Amortization of actuarial loss	31.1			28.6			26.6			0.4			0.6			0.6
Curtailment	—			—			—			(0.1		)	(0.4		)	—
Pension non-service income	$	(13.4	)	$	(13.1	)	$	(13.4	)	$	(0.2	)	$	(0.8	)	$	—

The expected long-term rate of return on plan assets is reviewed annually, taking into consideration the Company’s asset allocation, historical returns on the types of assets held, the current economic environment, and prospective expectations. We determined the discount rate based on a model which matches the timing and amount of expected benefit payments to maturities of high-quality corporate bonds priced as of the pension plan measurement date. The yields on the bonds are used to derive a discount rate for the obligation.

The following assumptions were used to measure the net benefit income/cost within each respective year for the domestic qualified plan and the foreign plans:



Pension Plan Assumptions:	Weighted average discount rate	Weighted average increase in future compensation levels	Expected weighted-average long-term rate of return

Domestic plan - 2018	4.02%	2.75%	8.00%
Domestic plan - 2017	4.54%	2.75%	8.00%
Domestic plan - 2016	4.91%	2.75%	8.00%

Foreign plans - 2018	0.70% - 2.40%	1.00% - 2.50%	1.00% - 4.50%
Foreign plans - 2017	0.60% - 2.50%	1.00% - 2.50%	1.00% - 5.90%
Foreign plans - 2016	0.90% - 3.60%	1.00% - 2.43%	1.40% - 6.50%

For its domestic pension plan the Company is projecting a long-term rate of return on plan assets of 7.80% in 2019. For its foreign based pension plans the Company is projecting a long-term rate of return on plan assets will range from 1.00% to 3.80% in 2019.



	Domestic						Foreign
	2018			2017			2018			2017
Changes in benefit obligation (in millions):
Benefit obligation - beginning of year	$	812.3		$	810.9		$	57.8		$	51.4
Service cost - benefits earned during the year	9.8			10.2			0.9			1.0
Interest cost on projected benefit obligation	31.5			35.6			1.3			1.2
Actuarial (gain) loss	(41.2		)	41.9			(1.7		)	(1.6		)
Benefits paid(a)	(80.7		)	(86.3		)	(1.9		)	(2.4		)
Plan amendments	—			—			1.1			—
Settlements/curtailments	—			—			(2.4		)	(3.0		)
Other - including foreign currency	—			—			(2.8		)	5.7
Business combinations	—			—			—			5.5
Benefit obligation - end of year	$	731.7		$	812.3		$	52.3		$	57.8

Accumulated benefit obligation - end of year	$	728.5		$	809.4		$	49.1		$	53.7


(a)	The 2018, 2017 and 2016 amounts include lump sum payments to certain participants of $18.6 million, $21.7 million and $14.6 million, respectively.

The key assumptions used to measure the benefit obligation at each respective year-end were:



Key assumptions:	Domestic Plan						Foreign Plans
	2018		2017		2016		2018	2017	2016
Discount rate	4.59	%	4.02	%	4.54	%	0.90% - 2.60%	0.70% - 2.40%	0.60% - 2.50%
Salary growth rate	2.75	%	2.75	%	2.75	%	1.00% - 2.50%	1.00% - 2.50%	1.00% - 2.30%



	Domestic						Foreign
	2018			2017			2018			2017
Changes in plan assets (in millions):
Fair value of net plan assets - beginning of year	$	896.0		$	857.1		$	46.7		$	42.1
Actual return on plan assets	(37.0		)	123.1			0.8			2.5
Employer contribution - other benefit plan	2.0			2.1			2.2			2.6
Foreign currency changes	—			—			(2.5		)	4.3
Benefits paid	(80.7		)	(86.3		)	(1.9		)	(2.4		)
Other	—			—			(1.9		)	(2.4		)
Fair value of net plan assets - end of year	$	780.3		$	896.0		$	43.4		$	46.7

The measurement date for the Company’s pension plans is December 31.

The following tables sets forth the funded status and amounts recognized in the consolidated balance sheets at year-end 2018 and 2017 for the domestic qualified and nonqualified pension plans and the foreign-based pension plans for benefits provided to certain employees (in millions):



	Domestic						Foreign
	2018			2017			2018			2017
Funded status	$	48.6		$	83.7		$	(8.9	)	$	(11.1	)

Amounts recognized in the consolidated balance sheets:
Prepaid pension asset long-term	$	88.2		$	127.2		$	—		$	—
Accrued pension obligation long-term	(31.8		)	(35.4		)	(8.6		)	(11.1		)
Accrued pension obligation short-term	(2.6		)	(2.6		)	(0.3		)	—
Other long-term liabilities	(5.2		)	(5.5		)	—			—
Net amount recognized	$	48.6		$	83.7		$	(8.9	)	$	(11.1	)

Amounts recognized in accumulated other comprehensive loss:
Net prior service cost (credit)	$	(18.6	)	$	(24.7	)	$	0.8		$	(0.2	)
Net loss	417.6			383.0			6.4			8.2
Net amount recognized, before tax effect	$	399.0		$	358.3		$	7.2		$	8.0

Amounts for pension plans with accumulated benefit obligations in excess of fair value of plan assets are as follows (in millions):



	2018		2017
Projected benefit obligation	$	91.9	$	101.3
Accumulated benefit obligation	$	88.8	$	97.3
Fair value of plan assets	$	43.4	$	46.7

At year-end 2018 and 2017 the Company had an accumulated non-cash reduction to stockholders’ equity of $306.8 million and $227.8 million, respectively, related to its pension and postretirement plans. The accumulated non-cash reductions to stockholders’ equity did not affect net income and were recorded net of accumulated deferred taxes of $96.9 million at year end 2018 and $135.8 million at year end 2017.

At December 30, 2018, the estimated amounts of the minimum liability adjustment that are expected to be recognized as components of net periodic benefit cost during 2019 for the pension plans are: net loss $31.0 million and net prior service credit $6.0 million.



Estimated future pension plan benefit payments (in millions):	Domestic		Foreign
2019	$	53.4	$	2.8
2020	54.9		1.9
2021	54.8		2.0
2022	55.9		2.1
2023	55.7		2.4
2024-2028	271.8		11.8
Total	$	546.5	$	23.0

The following table sets forth the percentage of year-end market value by asset class for the pension plans:



Market value by asset class:	Domestic Plan Assets % to Total				Foreign Plan Assets % to Total
	2018		2017		2018		2017
Equity instruments	51	%	58	%	53	%	46	%
Fixed income instruments	34		29		27		30
Alternatives and other	15		13		20		24
Total	100	%	100	%	100	%	100	%

The Company has an active management policy for the pension assets in the qualified domestic pension plan. The long term asset allocation target for the domestic plan consists of approximately 66% in equity instruments a portion in alternatives and approximately 34% in fixed income instruments.

The pension plan’s investments are stated at fair value. Plan investments that are considered a level 1 fair value hierarchy and are valued at quoted market prices in active markets. Plan investments that are considered a level 2 fair value hierarchy and are valued based on observable market data. Plan investments that would be considered a level 3 fair value hierarchy are valued based on management’s own assumption about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

Certain investments measured at fair value using net asset values as a practical expedient are not required to be categorized in the fair value hierarchy table listed below. As such, the total fair value of these net asset values based investments has been included in the table below to permit reconciliation to the plan asset amounts previously disclosed.

The fair values of the Company’s net pension assets, by fair value hierarchy, for both the U.S. and foreign pension plans as of December 30, 2018, by asset category are as follows (in millions):



Asset category:(a)	Level 1		Level 2		Level 3		Total
Cash and cash equivalents (b)	$	—	$	53.0	$	—	$	53.0
Equity securities	56.3		233.6		—		289.9
U.S. government securities and futures	99.3		—		—		99.3
Corporate bonds	—		34.3		—		34.3
Insurance contracts related to foreign plans	—		12.0		—		12.0
Fair value of net plan assets at the end of the year	$	155.6	$	332.9	$	—	$	488.5

Investments measured at net asset value:
Alternatives							$	204.1
Mutual funds (c)							63.0
Senior secured loans							0.2
Mortgage-backed securities							42.8
High yield bonds							25.2
Fair value of net plan assets at the end of the year							$	335.3

a) There were no transfers of plan assets between the three levels of the fair value hierarchy during the year.

b) Reflects cash and cash equivalents held in overnight cash investments.

c) 53% of mutual funds invest in fixed income types of securities; 47% invest in equity securities.

The fair values of the Company’s net pension assets, by fair value hierarchy, for both the U.S. and foreign pension plans as of December 31, 2017, by asset category are as follows (in millions):



Asset category: (a)	Level 1		Level 2		Level 3		Total
Cash and cash equivalents (b)	$	—	$	40.9	$	—	$	40.9
Equity securities	131.8		253.5		—		385.3
U.S. government securities and futures	69.5		—		—		69.5
Corporate bonds	—		86.7		—		86.7
Insurance contracts related to foreign plans	—		12.3		—		12.3
Fair value of net plan assets at the end of the year	$	201.3	$	393.4	$	—	$	594.7

Investments measured at net asset value:
Alternatives							$	159.5
Mutual funds (c)							157.0
Senior secured loans							0.2
Mortgage-backed securities							17.3
High yield bonds							14.0
Fair value of net plan assets at the end of the year							$	348.0

(a) There were no of transfers of plan assets between the three levels of the fair value hierarchy during the year.

(b) Reflects cash and cash equivalents held in overnight cash investments.

U.S. equities are valued at the closing price reported in an active market on which the individual securities are traded. U.S. equities and non-U.S. equities are also valued at the net asset value provided by the independent administrator or custodian of the commingled fund. The net asset value is based on the value of the underlying equities, which are traded on an active market. Corporate bonds are valued using inputs such as the closing price reported, if traded on an active market, values derived from comparable securities of issuers with similar credit ratings, or under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar instruments. Fixed income investments are also valued at the net asset value provided by the independent administrator or custodian of the fund. The net asset value is based on the underlying assets, which are valued using inputs such as the closing price reported, if traded on an active market, values derived from comparable securities of issuers with similar credit ratings, or under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar instruments. Alternative investments are primarily valued at the net asset value as determined by the independent administrator or custodian of the fund. The net asset value is based on the underlying investments, which are valued using inputs such as quoted market prices of identical instruments or values derived from comparable securities of issuers with similar credit ratings, or under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar instruments.

The Company’s contributions associated with its 401(k) plans were $11.9 million, $9.8 million and $9.3 million, for 2018, 2017 and 2016, respectively.

Postretirement Plans

The Company sponsors several postretirement defined benefit plans covering certain salaried and hourly employees. The plans provide health care and life insurance benefits for certain eligible retirees. No service cost was incurred for these plans in 2018 or in 2017. In 2016, service cost was less than $0.1 million.



Postretirement benefits non-service income (in millions):	2018			2017			2016
Interest cost on benefit obligation	0.4			0.4			0.5
Amortization of actuarial gain	(0.3		)	(0.4		)	(0.4		)
Postretirement benefits non-service income	$	0.1		$	—		$	0.1



Changes in benefit obligation (in millions):	2018			2017
Benefit obligation - beginning of year	$	9.7		$	9.8
Interest cost on projected benefit obligation	0.4			0.4
Actuarial loss	(0.1		)	0.8
Benefits paid	(1.3		)	(1.3		)
Benefit obligation - end of year	$	8.7		$	9.7

The measurement date for the Company’s postretirement plans is December 31.



Future postretirement plan benefit payments (in millions):
2019	$	1.0
2020	0.9
2021	0.9
2022	0.8
2023	0.8
2024-2028	3.3
Total	$	7.7

The following table sets forth the funded status and amounts recognized in Teledyne’s consolidated balance sheets for the postretirement plans at year-end 2018 and 2017 (in millions):



	2018			2017
Funded status:
Funded status	$	(8.7	)	$	(9.7	)
Unrecognized net gain	(2.5		)	(2.7		)
Accrued benefit cost	$	(11.2	)	$	(12.4	)

Amounts recognized in the consolidated balance sheets:
Accrued postretirement benefits (long-term)	$	(7.7	)	$	(8.7	)
Accrued postretirement benefits (short-term)	(1.0		)	(1.0		)
Accumulated other comprehensive income	(2.5		)	(2.7		)
Net amount recognized	$	(11.2	)	$	(12.4	)

At December 30, 2018, the amount in AOCI that has not yet been recognized as a component of net periodic benefit income for the retiree medical plans is a: net gain $2.5 million and no net prior service credit. At December 30, 2018, the estimated amortization from AOCI expected to be recognized as components of net periodic benefit income during 2019 for the retiree medical plans is a: net gain of $0.2 million and no net prior service cost.

The annual assumed rate of increase in the per capita cost of covered benefits (the health care cost trend rate) for health care plans is 6.25% in 2019 and was assumed to decrease to 5.0% by the year 2024 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point increase in the assumed health care cost trend rates would result in an increase in the annual service and interest costs by less than $0.1 million for 2018 and would result in an increase in the postretirement benefit obligation by $0.2 million at December 30, 2018. A one percentage point decrease in the assumed health care cost trend rates would result in a decrease in the annual service and interest costs by less than $0.1 million for 2018 and would result in a decrease in the postretirement benefit obligation by $0.2 million at December 30, 2018.