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Pensions and Other Post-Employment Benefits
12 Months Ended
Dec. 31, 2016
Compensation and Retirement Disclosure [Abstract]  
Pensions and Other Post-Employment Benefits
Pensions and Other Post-Employment Benefits
The obligation and funded status of the Company’s pension and other post-employment benefit plans are shown below. The Pension Benefits column aggregates defined benefit pension plans in the U.S., Germany, and England, and the U.S. supplemental retirement plans. The Other Benefits column includes the domestic retiree medical and life insurance plan.
  
 
Pension Benefits
 
Other Benefits
(Thousands)
 
2016
 
2015
 
2016
 
2015
Change in benefit obligation
 
 
 
 
 
 
 
 
Benefit obligation at beginning of year
 
$
259,957

 
$
271,785

 
$
15,200

 
$
16,540

Service cost
 
8,060

 
9,195

 
105

 
115

Interest cost
 
10,820

 
10,446

 
562

 
554

Actuarial (gain) loss
 
11,833

 
(19,978
)
 
(191
)
 
(504
)
Benefit payments from fund
 
(10,509
)
 
(9,317
)
 

 

Benefit payments directly by Company
 
(1,116
)
 
(236
)
 
(1,362
)
 
(1,542
)
Expenses paid from assets
 
(611
)
 
(492
)
 

 

Foreign currency exchange rate changes
 
(1,633
)
 
(1,446
)
 
20

 
37

Benefit obligation at end of year
 
276,801

 
259,957

 
14,334

 
15,200

Change in plan assets
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
 
184,750

 
187,186

 

 

Actual return on plan assets
 
11,575

 
(4,657
)
 

 

Employer contributions
 
16,136

 
12,366

 

 

Benefit payments from fund
 
(10,509
)
 
(9,317
)
 

 

Expenses paid from assets
 
(611
)
 
(492
)
 

 

Foreign currency exchange rate changes
 
(1,349
)
 
(336
)
 

 

Fair value of plan assets at end of year
 
199,992

 
184,750

 

 

Funded status at end of year
 
$
(76,809
)
 
$
(75,207
)
 
$
(14,334
)
 
$
(15,200
)
Amounts recognized in the Consolidated
Balance Sheets consist of:
 
 
 
 
 
 
 
 
Other assets
 
$
1,148

 
$
1,428

 
$

 
$

Other liabilities and accrued items
 
(2,538
)
 
(960
)
 
(1,392
)
 
(1,433
)
Retirement and post-employment benefits
 
(75,419
)
 
(75,675
)
 
(12,942
)
 
(13,767
)
 
 
$
(76,809
)
 
$
(75,207
)
 
$
(14,334
)
 
$
(15,200
)
Amounts recognized in other comprehensive income (before tax) consist of:
 
 
 
 
 
 
 
 
Net actuarial loss
 
$
121,718

 
$
113,368

 
$
(420
)
 
$
(229
)
Net prior service (credit) cost
 
(390
)
 
(850
)
 
(9,541
)
 
(11,038
)
 
 
$
121,328

 
$
112,518

 
$
(9,961
)
 
$
(11,267
)
Amortizations expected to be recognized during next fiscal year (before tax):
 
 
 
 
 
 
 
 
Amortization of net loss
 
$
6,591

 
$
6,012

 
$

 
$

Amortization of prior service credit
 
(485
)
 
(460
)
 
(1,497
)
 
(1,497
)
 
 
$
6,106

 
$
5,552

 
$
(1,497
)
 
$
(1,497
)
Additional information
 
 
 
 
 
 
 
 
Accumulated benefit obligation for all defined benefit pension plans
 
$
265,159

 
$
251,956

 
$

 
$

For defined benefit pension plans with benefit obligations in excess of plan assets:
 

 
 
 
 
 
 
Aggregate benefit obligation
 
271,199

 
254,178

 

 

Aggregate fair value of plan assets
 
193,242

 
177,543

 

 

For defined benefit pension plans with accumulated benefit obligations in excess of plan assets:
 

 
 
 
 
 
 
Aggregate accumulated benefit obligation
 
259,982

 
243,139

 

 

Aggregate fair value of plan assets
 
193,242

 
177,543

 

 


Components of net benefit cost and other amounts recognized in other comprehensive income (OCI)
  
 
Pension Benefits
 
Other Benefits
(Thousands)
 
2016

2015

2014

2016

2015

2014
Net benefit cost
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
 
$
8,060


$
9,195

 
$
7,963

 
$
105


$
115

 
$
138

Interest cost
 
10,820


10,446

 
10,339

 
562


554

 
675

Expected return on plan assets
 
(14,241
)

(13,611
)
 
(12,419
)
 



 

Amortization of prior service cost (benefit)
 
(460
)

(450
)
 
(434
)
 
(1,497
)

(1,497
)
 
(1,498
)
Recognized net actuarial loss
 
6,005


7,537

 
5,263

 



 

Net periodic cost
 
10,184

 
13,117

 
10,712

 
(830
)
 
(828
)
 
(685
)
Settlements
 
120

 

 
7

 

 

 

Total net benefit cost
 
$
10,304

 
$
13,117

 
$
10,719

 
$
(830
)
 
$
(828
)
 
$
(685
)

 
  
Pension Benefits
 
Other Benefits
(Thousands)
2016

2015

2014

2016

2015

2014
Change in other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
OCI at beginning of year
$
112,518


$
121,341

 
$
77,249

 
$
(11,267
)

$
(12,261
)
 
$
52

Increase (decrease) in OCI:


 
 
 
 


 
 
 
Recognized during year — prior service cost (credit)
460


450

 
434

 
1,497


1,497

 
1,498

Recognized during year — net actuarial (losses) gains
(6,005
)

(7,537
)
 
(5,263
)
 



 

Occurring during year — prior service cost



 

 



 
(14,034
)
Occurring during year — net actuarial losses (gains)
14,279


(1,697
)
 
49,037

 
(191
)

(503
)
 
223

Other adjustments
120



 

 



 

Foreign currency exchange rate changes
(43
)

(39
)
 
(116
)
 



 

OCI at end of year
$
121,329

 
$
112,518

 
$
121,341

 
$
(9,961
)
 
$
(11,267
)
 
$
(12,261
)

Summary of key valuation assumptions
In determining the projected benefit obligation and the net benefit cost, as of a December 31 measurement date, the Company used the following weighted-average assumptions:
 
 
Pension Benefits
 
Other Benefits
 
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Weighted-average assumptions used to determine benefit obligations at fiscal year end
 
 
 
 
 
 
 
 
 
 
 
 
Discount rate
 
4.02
%

4.27
%
 
4.00
%
 
3.68
%

3.88
%
 
3.50
%
Rate of compensation increase
 
4.04
%

4.05
%
 
3.96
%
 
4.00
%

4.00
%
 
4.00
%
Weighted-average assumptions used to determine net cost for the fiscal year
 


 
 
 
 


 
 
 
Discount rate
 
4.22
%

4.00
%
 
4.79
%
 
3.88
%

3.50
%
 
4.13
%
Expected long-term return on plan assets
 
6.90
%

7.15
%
 
7.15
%
 
N/A


N/A

 
N/A

Rate of compensation increase
 
3.93
%

3.95
%
 
4.42
%
 
4.00
%

4.00
%
 
4.50
%


Discount Rate. The discount rate used to determine the present value of the projected and accumulated benefit obligation at the end of each year is established based upon the available market rates for high quality, fixed income investments whose maturities match the plan’s projected cash flows.
Beginning in 2017, the Company has elected to use a spot-rate approach to estimate the service and interest cost components of net periodic benefit cost for its defined benefit pension plans. The spot-rate approach applies separate discount rates for each projected benefit payment in the calculation. Historically, the Company used a weighted-average approach to determine the service and interest cost components. The change will be accounted for as a change in estimate and, accordingly, will be accounted for prospectively starting in 2017. The reductions in service and interest costs for 2017 associated with this change in estimate are expected to total approximately $1.0 million.
Expected Long-Term Return on Plan Assets. Management establishes the domestic expected long-term rate of return assumption by reviewing historical trends and analyzing the current and projected market conditions in relation to the plan’s asset allocation and risk management objectives. Consideration is given to both recent plan asset performance as well as plan asset performance over various long-term periods of time, with an emphasis on the assumption being a prospective, long-term rate of return. Management consults with and considers the opinions of its outside investment advisers and actuaries when establishing the rate and reviews assumptions with the Audit Committee of the Board of Directors.
Rate of Compensation Increase. The rate of compensation increase assumption was 4.0% in both 2016 and 2015 for the domestic defined benefit pension plan and the domestic retiree medical plan.
Assumptions for the defined benefit pension plans in Germany and England are determined separately from the U.S. plan assumptions, based on historical trends and current and projected market conditions in Germany and England. The plan in Germany is unfunded.
Assumed health care trend rates at fiscal year end
 
2016
 
2015
Health care trend rate assumed for next year
 
7.00%
 
7.00%
Rate that the trend rate gradually declines to (ultimate trend rate)
 
5.00%
 
5.00%
Year that the rate reaches the ultimate trend rate
 
2025
 
2020

Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
 
 
 
1-Percentage-
Point Increase
 
1-Percentage-
Point Decrease
(Thousands)
 
2016

2015
 
2016
 
2015
Effect on total of service and interest cost components
 
$
13

 
$
15

 
$
(12
)
 
$
(14
)
Effect on post-employment benefit obligation
 
259

 
337

 
(241
)
 
(311
)


Plan Assets
The following tables present the fair values of the Company’s defined benefit pension plan assets as of December 31, 2016 and 2015 by asset category. The Company has some investments that are valued using NAV as the practical expedient and have not been classified in the fair value hierarchy. Refer to Note P of the Consolidated Financial Statements for definitions of the fair value hierarchy.
 
 
December 31, 2016
(Thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
Cash
 
$
10,124

 
$
10,124


$


$

Equity securities:
 
 
 





U.S. (a)
 
53,983

 
53,358


625



International (b)
 
30,732

 
27,304


3,428



Emerging markets (c)
 
11,792

 
11,562


230



Fixed-income securities:
 
 
 





Intermediate-term bonds (d)
 
48,138

 
29,429


18,709



Short-term bonds (e)
 
3,150

 


3,150



Global bonds (f)
 
2,121

 


2,121



Other types of investments:
 
 
 





Real estate fund (g)
 
5,929

 
5,639


290



Alternative strategies (h)
 
9,036

 
8,981

 
55

 

Accrued interest and dividends
 
107

 
107

 

 

Total
 
175,112

 
146,504

 
28,608

 

Investments measured at NAV:
 
 
 
 
 
 
 
 
Pooled investment fund (i)
 
20,418

 


 
 
 


Multi-strategy hedge funds (j)
 
4,320

 








Private equity funds
 
142

 








Total assets at fair value
 
$
199,992

 


 


 


 
 
 
 
 
 
 
 
 
 
 
December 31, 2015
(Thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
Cash
 
$
8,848

 
$
8,848

 
$

 
$

Equity securities:
 
 
 
 
 
 
 
 
U.S. (a)
 
51,732

 
40,476

 
11,256

 

International (b)
 
29,799

 
26,744

 
3,055

 

Emerging markets (c)
 
10,434

 
10,290

 
144

 

Fixed-income securities:
 
 
 
 
 
 
 
 
Intermediate-term bonds (d)
 
42,994

 
30,527

 
12,467

 

Short-term bonds (e)
 
3,875

 

 
3,875

 

Global bonds (f)
 
2,948

 

 
2,948

 

Other types of investments:
 
 
 
 
 
 
 
 
Real estate fund (g)
 
5,799

 
5,722

 
77

 

Alternative strategies (h)
 
8,819

 
8,722

 
97

 

Accrued interest and dividends
 
101

 
101

 

 

Total
 
165,349

 
131,430

 
33,919

 

Investments measured at NAV:
 
 
 
 
 
 
 
 
Pooled investment fund (i)
 
15,894

 
 
 
 
 


Multi-strategy hedge funds (j)
 
3,217

 
 
 
 
 


Private equity funds
 
290

 
 
 
 
 


Total assets at fair value
 
$
184,750

 


 


 




(a)
Mutual funds that invest in various sectors of the U.S. market.
(b)
Mutual funds that invest in non-U.S. companies primarily in developed countries that are generally considered to be value stocks.
(c)
Mutual funds that invest in non-U.S. companies in emerging market countries.
(d)
Includes a mutual fund that employs a value-oriented approach to fixed income investment management and a mutual fund that invests primarily in investment-grade debt securities.
(e)
Includes a mutual fund that seeks a market rate of return for a fixed-income portfolio with low relative volatility of returns, investing generally in U.S. and foreign debt securities maturing in five years or less.
(f)
Mutual funds that invest in domestic and foreign sovereign securities, fixed income securities, mortgage-backed and asset-backed bonds, convertible bonds, high-yield bonds, and emerging market bonds.
(g)
Includes a mutual fund that typically invests at least 80% of its assets in equity and debt securities of companies in the real estate industry or related industries or in companies which own significant real estate assets at the time of investment.
(h)
Includes a mutual fund that tactically allocates assets to global equity, fixed income, and alternative strategies.
(i)
Includes a fund that invests in a broad portfolio of hedge funds.
(j)
Includes a hedge fund that employs multiple strategies to multiple asset classes with low correlations. Capital may be withdrawn from the multi-strategy hedge fund partnership on a monthly basis with a ten-day notice period.
The Company’s domestic defined benefit pension plan investment strategy, as approved by the Governance and Organization Committee of the Board of Directors, is to employ an allocation of investments that will generate returns equal to or better than the projected long-term growth of pension liabilities so that the plan will be self-funding. The return objective is to maximize investment return to achieve and maintain a 100% funded status over time, taking into consideration required cash contributions. The allocation of investments is designed to maximize the advantages of diversification while mitigating the risk and overall portfolio volatility to achieve the return objective. Risk is defined as the annual variability in value and is measured in terms of the standard deviation of investment return. Under the Company’s investment policies, allowable investments include domestic equities, international equities, fixed income securities, cash equivalents, and alternative securities (which include real estate, private venture capital investments, hedge funds, and tactical asset allocation). Ranges, in terms of a percentage of the total assets, are established for each allowable class of security. Derivatives may be used to hedge an existing security or as a risk reduction strategy. Current asset allocation guidelines are to invest 30% to 60% in equity securities, 20% to 50% in fixed income securities and cash, and up to 25% in alternative securities. Management reviews the asset allocation on a quarterly or more frequent basis and makes revisions as deemed necessary.
None of the plan assets noted above are invested in the Company’s common stock.

Cash Flows

Employer Contributions. The Company expects to contribute $16.0 million to its domestic defined benefit pension plan and $1.4 million to its other benefit plans in 2017.

Effective in 2016, all plan participants with an accrued benefit may elect an immediate payout in lieu of their future monthly annuity if the lump sum amount does not exceed $100,000.
Estimated Future Benefit Payments. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
 
 
Other Benefits
(Thousands)
 
Pension Benefits
 
Gross Benefit
Payment
 
Net of
Medicare
Part D
Subsidy
2017
 
$
13,197

 
$
1,392

 
$
1,367

2018
 
11,372

 
1,508

 
1,485

2019
 
12,616

 
1,552

 
1,531

2020
 
12,872

 
1,510

 
1,491

2021
 
13,517

 
1,429

 
1,412

2022 through 2026
 
79,134

 
5,319

 
5,265


Other Benefit Plans
In addition to the plans shown above, the Company also has certain foreign subsidiaries with accrued unfunded pension and other post-employment arrangements. The liability for these arrangements was $2.4 million at December 31, 2016 and $2.3 million at December 31, 2015, and was included in retirement and post-employment benefits in the Consolidated Balance Sheets.
The Company also sponsors defined contribution plans available to substantially all U.S. employees. The Company’s annual defined contribution expense, including the expense for the enhanced defined contribution plan, was $3.6 million in 2016, $3.1 million in 2015, and $3.0 million in 2014.