Employee Benefit Plans

Our pension and postretirement benefit liabilities represent the funded status of the present value of benefit obligations of our employee benefit plans. We develop pension, postretirement medical and life benefit costs from actuarial valuations. We establish actuarial assumptions to anticipate future events and use those assumptions when calculating the expense and liabilities related to these plans. These factors include assumptions management makes concerning expected investment return on plan assets, discount rates, health care costs trend rates, turnover rates and rates of future compensation increases, among others. In addition, we use subjective factors such as withdrawal and mortality rates to develop actuarial valuations. Management reviews and updates these assumptions on an annual basis. The actuarial assumptions that we use may differ from actual results due to changing market rates or other factors. These differences could affect the amount of pension and postretirement medical and life benefit expense we will recognize in future periods.

Defined Contribution Plan. We sponsor a defined contribution plan in which we match our employees’ qualifying contributions, resulting in additional expense to us. Expenses related to the defined contribution plan were $8.9 million, $9.6 million and $9.9 million in 2015, 2016 and 2017, respectively.

Defined Benefit Plans. We sponsor two union pension plans that cover certain union employees (“USW plan” and “IUOE plan,” collectively, the “Union plans”), a pension plan for all non-union employees (“Salaried plan”) and a postretirement benefit plan for certain employees. The annual measurement date of these plans is December 31.

The following table presents the changes in benefit obligations and plan assets for pension benefits and other postretirement benefits, as well as the end-of-period accumulated benefit obligation for the years ended December 31, 2016 and 2017 (in thousands):



	Pension Benefits						Other Postretirement Benefits
	2016			2017			2016			2017
Change in benefit obligations:
Benefit obligations at beginning of year	$	209,591		$	225,970		$	11,314		$	13,011
Service cost	18,179			20,497			235			243
Interest cost	7,950			9,865			489			475
Plan participants’ contributions	—			—			217			280
Actuarial loss (gain)	1,050			59,686			1,481			(535		)
Benefits paid	(10,053		)	(11,484		)	(725		)	(714		)
Settlement payments	(747		)	(6,678		)	—			—
Benefit obligations at end of year	225,970			297,856			13,011			12,760
Change in plan assets:
Fair value of plan assets at beginning of year	142,742			166,906			—			—
Employer contributions	25,972			26,533			508			434
Plan participants’ contributions	—			—			217			280
Actual return on plan assets	8,992			23,409			—			—
Benefits paid	(10,053		)	(11,484		)	(725		)	(714		)
Settlement payments	(747		)	(6,678		)	—			—
Fair value of plan assets at end of year	166,906			198,686			—			—
Funded status at end of year	$	(59,064	)	$	(99,170	)	$	(13,011	)	$	(12,760	)
Accumulated benefit obligations	$	160,642		$	206,480

The pension benefits in the previous table combine the Union plans with the Salaried plan. At December 31, 2016, the fair value of each of our plans’ assets exceeded the accumulated benefit obligations of the related benefit plans. At December 31, 2017, the Salaried and IUOE plans had combined accumulated benefit obligations of $154.4 million, which exceeded the combined fair value of plan assets of $145.9 million.

The pension benefit obligations experienced an actuarial loss of $59.7 million in 2017 primarily due to the impact of decreases in the discount rates used to calculate the benefit obligations and changes to mortality assumptions, as well as losses due to annual remeasurement of the plans.

Amounts recognized in the consolidated balance sheets included in these financial statements were as follows (in thousands):



	Pension Benefits						Other Postretirement Benefits
	2016			2017			2016			2017
Amounts recognized in consolidated balance sheets:
Current accrued benefit cost	$	—		$	—		$	614		$	625
Long-term pension and benefits	59,064			99,170			12,397			12,135
	59,064			99,170			13,011			12,760
Accumulated other comprehensive loss:
Net actuarial loss	(62,013		)	(100,474		)	(7,881		)	(6,597		)
Prior service credit	3,429			3,248			—			—
	(58,584		)	(97,226		)	(7,881		)	(6,597		)
Net amount of liabilities and accumulated other comprehensive loss recognized in consolidated balance sheets	$	480		$	1,944		$	5,130		$	6,163

Net periodic benefit expense for the years ended December 31, 2015, 2016 and 2017 was as follows (in thousands):



	Pension Benefits									Other Postretirement Benefits
	2015			2016			2017			2015			2016			2017
Components of net periodic pension and postretirement benefit expense:
Service cost	$	18,890		$	18,179		$	20,497		$	243		$	235		$	243
Interest cost⁽¹⁾	7,754			7,950			9,865			438			489			475
Expected return on plan assets⁽¹⁾	(8,037		)	(8,913		)	(10,266		)	—			—			—
Amortization of prior service credit⁽¹⁾	—			(181		)	(181		)	(3,713		)	(3,335		)	—
Amortization of actuarial loss⁽¹⁾	6,306			4,645			5,622			885			880			749
Settlement cost⁽¹⁾	—			202			2,460			—			—			—
Net periodic expense (credit)	$	24,913		$	21,882		$	27,997		$	(2,147	)	$	(1,731	)	$	1,467

⁽¹⁾Upon adoption of ASU 2017-07 Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost on January 1, 2017, these components of net periodic benefit expense (credit) are reported on the consolidated statements of income as other (income) expense. See Note 2 – Summary of Significant Accounting Policies - New Accounting Pronouncements for further details about this accounting change.

Changes in plan assets and benefit obligations recognized in other comprehensive loss during 2015, 2016 and 2017 were as follows (in thousands):



	Pension Benefits									Other Postretirement Benefits
	2015			2016			2017			2015			2016			2017
Beginning balance	$	(63,257	)	$	(62,279	)	$	(58,584	)	$	(1,696	)	$	(3,945	)	$	(7,881	)
Net actuarial gain (loss)	(8,938		)	(971		)	(46,543		)	579			(1,481		)	535
Plan amendment	3,610			—			—			—			—			—
Amortization of prior service credit	—			(181		)	(181		)	(3,713		)	(3,335		)	—
Amortization of actuarial loss	6,306			4,645			5,622			885			880			749
Settlement cost	—			202			2,460			—			—			—
Amount recognized in other comprehensive loss	978			3,695			(38,642		)	(2,249		)	(3,936		)	1,284
Ending balance	$	(62,279	)	$	(58,584	)	$	(97,226	)	$	(3,945	)	$	(7,881	)	$	(6,597	)

Actuarial gains and losses are amortized over the average future service period of current active plan participants expected to receive benefits. The corridor approach is used to determine when actuarial gains and losses are to be amortized and is equal to 10% of the greater of the projected benefit obligation or the market related value of plan assets. The amount of gain or loss in excess of the calculated corridor is subject to amortization. The estimated net actuarial loss and prior service credit for the defined benefit pension plans that will be amortized from AOCL into net periodic benefit cost in 2018 are $7.0 million and $(0.2) million, respectively. The estimated net actuarial loss for the other defined benefit postretirement plan that will be amortized from AOCL into net periodic benefit cost in 2018 is $0.6 million.

The weighted-average rate assumptions used to determine benefit obligations were as follows:



	December 31,
	2016	2017
Discount rate—Salaried plan	4.21%	3.70%
Discount rate—USW plan	4.08%	3.54%
Discount rate—IUOE plan	4.41%	3.79%
Discount rate—Other Postretirement Benefits	3.85%	3.43%
Rate of compensation increase—Salaried plan⁽¹⁾	4% - 11%	4% - 11%
Rate of compensation increase—USW plan	3.50%	3.50%
Rate of compensation increase—IUOE plan	5.00%	5.00%

⁽¹⁾The rate of compensation increase assumption for the Salaried plan in 2016 and 2017 is calculated by 10-year age groupings beginning with ages 20-29 at 11% dropping to 4% by ages 70 and above.

The weighted-average rate assumptions used to determine net pension and other postretirement benefit expense were as follows:



	For the Year Ended December 31,
	2015	2016	2017
Discount rate—Salaried plan	3.91%	3.95%	4.21%
Discount rate—USW plan	3.56%	3.82%	4.04%
Discount rate—IUOE plan	3.93%	3.78%	4.41%
Discount rate—Other Postretirement Benefits	3.66%	4.00%	3.85%
Rate of compensation increase—Salaried plan⁽¹⁾	5.50%	4% - 11%	4% - 11%
Rate of compensation increase—USW plan	3.50%	3.50%	3.50%
Rate of compensation increase—IUOE plan	5.00%	5.00%	5.00%
Expected rate of return on plan assets—Salaried plan	6.00%	6.00%	6.00%
Expected rate of return on plan assets—USW plan	6.00%	6.00%	6.00%
Expected rate of return on plan assets—IUOE plan	6.00%	6.00%	6.00%

⁽¹⁾The rate of compensation increase assumption for the Salaried plan is calculated by 10-year age groupings beginning with ages 20-29 at 11% dropping to 4% by ages 70 and above.

The non-pension postretirement benefit plans provide for retiree contributions and contain other cost-sharing features such as deductibles and coinsurance. The accounting for these plans anticipates future cost sharing that is consistent with management’s expressed intent to increase the retiree contribution rate generally in line with health care cost increases.

The annual assumed rate of increase in the health care cost trend rate for 2018 is 5.4% decreasing systematically to 4.5% by 2083 for pre-65 year-old participants. As of December 31, 2017, a 1.0% change in assumed health care cost trend rates would have been immaterial to us.

The fair values of the pension plan assets at December 31, 2016 were as follows (in thousands):



Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Domestic Equity Securities^(a):
Small-cap fund	$	3,465	$	3,465	$	—	$	—
Mid-cap fund	3,472		3,472		—		—
Large-cap fund	26,323		26,323		—		—
International equity fund	16,797		16,797		—		—
Fixed Income Securities^(a):
Short-term bond funds	4,414		4,414		—		—
Intermediate-term bond funds	23,629		23,629		—		—
Long-term investment grade bond funds	83,240		83,240		—		—
Other:
Short-term investment funds	5,346		5,346		—		—
Group annuity contract	220		—		—		220
Fair value of plan assets	$	166,906	$	166,686	$	—	$	220

(a) We hold equity and fixed income securities through investments in mutual funds, which are dedicated to each category as indicated.

The fair values of the pension plan assets at December 31, 2017 were as follows (in thousands):



Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Domestic Equity Securities^(a):
Small-cap fund	$	5,122	$	5,122	$	—	$	—
Mid-cap fund	5,132		5,132		—		—
Large-cap funds	38,678		38,678		—		—
International equity fund	24,284		24,284		—		—
Fixed Income Securities^(a):
Short-term bond funds	5,110		5,110		—		—
Intermediate-term bond funds	25,875		25,875		—		—
Long-term investment grade bond funds	88,563		88,563		—		—
Other:
Short-term investment fund	5,722		5,722		—		—
Group annuity contract	200		—		—		200
Fair value of plan assets	$	198,686	$	198,486	$	—	$	200

(a) We hold equity and fixed income securities through investments in mutual funds, which are dedicated to each category as indicated.

As reflected in the tables above, Level 3 activity was not material.

The investment strategies for the various funds held as pension plan assets by asset category are as follows:




Asset Category		Fund’s Investment Strategy
Domestic Equity Securities:
Small-cap fund		Seeks to track performance of the Center for Research in Security Prices (“CRSP”) US Small Cap Index
Mid-cap fund		Seeks to track performance of the CRSP US Mid Cap Index
Large-cap funds		Seek to track performance of the Standard & Poor’s 500 Index
International equity fund		Seeks long-term growth of capital by investing 65% or more of assets in international equities
Fixed Income Securities:
Short-term bond funds		Seek current income with limited price volatility through investment in primarily high quality bonds
Intermediate-term bond funds		Seek moderate and sustainable level of current income by investing primarily in high quality fixed income securities with maturities from five to ten years
Long-term investment grade bond funds		Seek high and sustainable current income through investment primarily in long-term high grade bonds
Other:
Short-term investment fund		Invests in high quality short-term money market instruments issued by the U.S. Treasury
Group annuity contract		Earns interest quarterly equal to the effective yield of the 91-day U.S. Treasury bill

The expected long-term rate of return on plan assets was determined by combining a review of projected returns, historical returns of portfolios with assets similar to the current portfolios of the union and non-union pension plans and target weightings of each asset classification. Our investment objective for the assets within the pension plans is to earn a return that meets or exceeds the growth of obligations that result from interest and changes in the discount rate, while avoiding excessive risk. Defined diversification goals are set in order to reduce the risk of wide swings in the market value from year to year, or of incurring large losses that may result from concentrated positions. As a result, our plan assets have no significant concentrations of credit risk. Additionally, liquidity risks are minimized because all of the funds that the plans have invested in are publicly traded. We evaluate risks based on the potential impact to the predictability of contribution requirements, probability of under-funding, expected risk-adjusted returns and investment return volatility. Funds are invested with multiple investment managers. Our liabilities are calculated using rates defined by the Pension Protection Act of 2006. Investments are made to match the durations of the short-term and intermediate-term pension liabilities. Additional investments are made to bring the overall investment allocation to 70% fixed income securities and 30% equity securities.

The target allocation and actual weighted-average asset allocation percentages at December 31, 2016 and 2017 were as follows:



	2016		2017
	Actual	Target	Actual	Target
Equity securities	30%	30%	37%	30%
Fixed income securities	67%	67%	60%	67%
Other	3%	3%	3%	3%

As of December 31, 2017, the benefit amounts expected to be paid from plan assets through December 31, 2027 were as follows (in thousands):



	Pension Benefits		Other Postretirement Benefits
2018	$	14,200	$	625
2019	$	13,854	$	678
2020	$	16,206	$	715
2021	$	16,556	$	785
2022	$	18,518	$	844
2023 through 2027	$	95,544	$	4,021

Contributions estimated to be paid by us into the plans in 2018 are $28.1 million and $0.5 million for the pension and other postretirement benefit plans, respectively.