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)	2018			2017			2018			2017
Change in benefit obligation
Benefit obligation at beginning of year	$	313,728		$	276,801		$	14,166		$	14,334
Service cost	6,953			7,587			111			91
Interest cost	9,554			9,949			396			398
Settlements	(112,644		)	—			—			—
Acquisition	—			7,645			—			—
Plan amendments	—			3,804			—			—
Actuarial loss (gain)	(31,824		)	18,549			(2,453		)	444
Benefit payments	(13,700		)	(13,459		)	(876		)	(1,107		)
Foreign currency exchange rate changes and other	(1,931		)	2,852			31			6
Benefit obligation at end of year	170,136			313,728			11,375			14,166
Change in plan assets
Fair value of plan assets at beginning of year	234,976			199,992			—			—
Plan settlements	(111,542		)	—			—			—
Acquisition	—			2,353			—			—
Actual return on plan assets	(8,570		)	29,428			—			—
Employer contributions	42,227			16,338			—			—
Employee contributions	146			162			—			—
Benefit payments from fund	(10,826		)	(13,072		)	—			—
Expenses paid from assets	(890		)	(1,133		)	—			—
Foreign currency exchange rate changes and other	(475		)	908			—			—
Fair value of plan assets at end of year	145,046			234,976			—			—
Funded status at end of year	$	(25,090	)	$	(78,752	)	$	(11,375	)	$	(14,166	)
Amounts recognized in the Consolidated Balance Sheets consist of:
Other assets	$	1,948		$	1,797		$	—		$	—
Other liabilities and accrued items	(411		)	(2,490		)	(1,258		)	(1,412		)
Retirement and post-employment benefits	(26,627		)	(78,059		)	(10,117		)	(12,754		)
	$	(25,090	)	$	(78,752	)	$	(11,375	)	$	(14,166	)

During 2018, the Company completed a partial plan settlement transaction relating to its U.S. pension plan wherein plan assets amounting to $111.5 million were used to purchase a group annuity contract from Mutual of America. This transaction relieved the Company of responsibility for the pension benefit obligation and consequently transferred the obligation and payment responsibility to Mutual of America for retirement benefits owed to approximately 1,150 retirees, beneficiaries, and other participants. The annuity contract covered retirees who commenced receiving benefits on or before June 1, 2018. The monthly retirement benefit payment amounts currently received by retirees and their beneficiaries did not change as a result of this transaction. Those plan participants not included in the transaction remain in the Plan, and responsibility for payment of the retirement benefits remains with the Company.

The following amounts are included within accumulated other comprehensive loss at December 31, 2018 and are expected to be recognized as components of net periodic benefit cost during 2019:



	Pension Benefits					Other Benefits
(Thousands)	2018		2017			2018			2017
Amounts recognized in other comprehensive income (before tax) consist of:
Net actuarial loss (gain)	$	61,599	$	119,114		$	(2,429	)	$	24
Net prior service cost (credit)	3,810		3,688			(6,546		)	(8,044		)
	$	65,409	$	122,802		$	(8,975	)	$	(8,020	)
Amortizations expected to be recognized during next fiscal year (before tax):
Amortization of net loss	$	3,769	$	8,077		$	—		$	—
Net prior service cost (credit)	482		(123		)	(1,497		)	(1,497		)
	$	4,251	$	7,954		$	(1,497	)	$	(1,497	)

The following table provides information regarding the accumulated benefit obligation:



	Pension Benefits				Other Benefits
(Thousands)	2018		2017		2018		2017
Additional information
Accumulated benefit obligation for all defined benefit pension plans	$	161,169	$	302,942	$	—	$	—
For defined benefit pension plans with benefit obligations in excess of plan assets:
Aggregate benefit obligation	165,344		304,814		—		—
Aggregate fair value of plan assets	138,305		227,115		—		—
For defined benefit pension plans with accumulated benefit obligations in excess of plan assets:
Aggregate accumulated benefit obligation	156,639		296,878		—		—
Aggregate fair value of plan assets	138,305		227,115		—		—

The following table summarizes components of net benefit cost:



	Pension Benefits									Other Benefits
(Thousands)	2018			2017			2016			2018			2017			2016
Net benefit cost
Service cost	$	6,953		$	7,587		$	7,473		$	111		$	91		$	105
Interest cost	9,554			9,949			10,820			396			398			562
Expected return on plan assets	(14,231		)	(13,760		)	(13,654		)	—			—			—
Amortization of prior service credit	(123		)	(274		)	(460		)	(1,497		)	(1,497		)	(1,497		)
Recognized net actuarial loss	7,171			6,636			6,005			—			—			—
Net periodic cost	9,324			10,138			10,184			(990		)	(1,008		)	(830		)
Settlements	41,406			—			120			—			—			—
Total net benefit cost	$	50,730		$	10,138		$	10,304		$	(990	)	$	(1,008	)	$	(830	)

Beginning in 2018, the Company reports the service cost component of net benefit cost in the same line item as other compensation costs in operating expenses and the non-service cost components of net benefit cost in Other non-operating expenses. Additionally, Pension Benefit Guaranty Corporation premiums are reported within expected return on plan assets. In conjunction with the pension annuity and other lump-sum payments, the Company remeasured the periodic benefit obligation of its U.S. plans in the period payments were made and recorded settlement charges totaling $41.4 million during 2018.

The following table summarizes amounts recognized in other comprehensive income (OCI):



	Pension Benefits									Other Benefits
(Thousands)	2018			2017			2016			2018			2017			2016
Change in other comprehensive income
OCI at beginning of year	$	122,802		$	121,329		$	112,518		$	(8,020	)	$	(9,961	)	$	(11,267	)
Increase (decrease) in OCI:
Recognized during year — prior service cost (credit)	123			274			460			1,497			1,497			1,497
Recognized during year — net actuarial (losses) gains	(7,171		)	(6,636		)	(6,005		)	—			—			—
Occurring during year — prior service cost	—			3,804			—			—			—			—
Occurring during year — net actuarial losses (gains)	(8,997		)	4,055			14,279			(2,453		)	444			(191		)
Other adjustments	(41,406		)	—			120			—			—			—
Foreign currency exchange rate changes	58			(24		)	(43		)	—			—			—
OCI at end of year	$	65,409		$	122,802		$	121,329		$	(8,976	)	$	(8,020	)	$	(9,961	)

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
	2018		2017		2016		2018		2017		2016
Weighted-average assumptions used to determine benefit obligations at fiscal year end
Discount rate	4.07	%	3.53	%	4.02	%	4.11	%	3.43	%	3.68	%
Rate of compensation increase	3.87	%	3.93	%	4.04	%	4.00	%	4.00	%	4.00	%
Weighted-average assumptions used to determine net cost for the fiscal year
Discount rate	3.63	%	3.93	%	4.22	%	3.43	%	3.68	%	3.88	%
Expected long-term return on plan assets	6.63	%	6.89	%	6.90	%	N/A		N/A		N/A
Rate of compensation increase	3.98	%	3.91	%	3.93	%	4.00	%	4.00	%	4.00	%

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 was accounted for as a change in estimate and, accordingly, was accounted for prospectively starting in 2017. The reductions in service and interest costs for 2017 associated with this change in estimate totaled 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 2018 and 2017 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. One plan in Germany is unfunded.



Assumed health care trend rates at fiscal year end	2018	2017
Health care trend rate assumed for next year	6.50%	6.75%
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	2025

Assumed health care cost trend rates can have an 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)	2018		2017		2018			2017
Effect on total of service and interest cost components	$	6	$	8	$	(6	)	$	(8	)
Effect on post-employment benefit obligation	163		212		(152		)	(198		)

Plan Assets

The following tables present the fair values of the Company’s defined benefit pension plan assets as of December 31, 2018 and 2017 by asset category. The Company has some investments that are valued using net asset value (NAV) as the practical expedient and have not been classified in the fair value hierarchy. Refer to Note R for definitions of the fair value hierarchy.



	December 31, 2018
(Thousands)	Total		Level 1		Level 2		Level 3
Cash	$	21,881	$	21,881	$	—	$	—
Equity securities (a)	50,862		50,862		—		—
Fixed-income securities (b)	18,211		18,211		—		—
Other types of investments:
Real estate fund (c)	3,257		3,257		—		—
Alternative strategies (d)	—		—		—		—
Accrued interest and dividends	—		—		—		—
Total	94,211		94,211		—		—
Investments measured at NAV: (e)
Pooled investment fund (f)	24,947
Multi-strategy hedge funds (g)	4,113
Common/Collective trusts (h)	—
Intermediate-term bonds (i)	21,678
Private equity funds	97
Total assets at fair value	$	145,046

	December 31, 2017
(Thousands)	Total		Level 1		Level 2		Level 3
Cash	$	10,604	$	10,604	$	—	$	—
Equity securities (a)	109,229		104,261		4,968		—
Fixed-income securities (b)	42,291		30,639		11,652		—
Other types of investments:
Real estate fund (c)	6,617		6,284		333		—
Alternative strategies (d)	9,948		9,893		55		—
Accrued interest and dividends	114		114		—		—
Total	178,803		161,795		17,008		—
Investments measured at NAV: (e)
Pooled investment fund (f)	21,378
Multi-strategy hedge funds (g)	3,970
Common/Collective trusts (h)	8,942
Intermediate-term bonds (i)	21,771
Private equity funds	112
Total assets at fair value	$	234,976


(a)	Equity securities are primarily comprised of corporate stock and mutual funds directly held by the plans. Equity securities are valued using the closing price reported on the active market on which the individual securities are traded.


(b)	Fixed income securities are primarily comprised of governmental and corporate bonds directly held by the plans. Governmental and corporate bonds are valued using both market observable inputs for similar assets that are traded on an active market and the closing price on the active market on which the individual securities are traded.


(c)	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.


(d)	Includes a mutual fund that tactically allocates assets to global equity, fixed income, and alternative strategies.


(e)	Certain assets that are measured at fair value using the net asset value (NAV) practical expedient have not been classified in the fair value hierarchy.


(f)	Pooled investment fund consists of various investment types including equity investments covering a range of geographies and including investment managers that hold long and short positions, property investments, and other multi-strategy funds which combine a range of different credit, equity, and macro-orientated ideas and dynamically allocate funds across asset classes.


(g)	Includes a fund that invests in a broad portfolio of hedge funds.

(h)

The common/collective trusts are comprised of a number of investment funds that invest in a diverse portfolio of assets including equity securities, corporate and governmental bonds, equity and credit indexes, and money markets. Trusts are valued at the NAV as determined by their custodian. NAV represents the accumulation of the unadjusted quoted close prices on the reporting date for the underlying investments divided by the total shares outstanding at the reporting dates.


(i)	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.

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 20% to 50% in equity securities, 30% to 70% in fixed income securities and cash, and up to 20% 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 $6.0 million to its domestic defined benefit pension plan and $1.3 million to its other benefit plans in 2019.

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
2019	$	3,203	$	1,258	$	1,241
2020	3,619		1,367		1,352
2021	4,457		1,334		1,321
2022	6,051		1,203		1,192
2023	6,293		1,192		1,182
2024 through 2028	44,444		4,155		4,125

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 $1.6 million at December 31, 2018 and $2.1 million at December 31, 2017, 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 $5.2 million in 2018, $4.5 million in 2017, and $3.6 million in 2016.