Pension and Other Postretirement Plans

12 Months Ended

Dec. 31, 2020

Retirement Benefits [Abstract]

Pension and Other Postretirement Plans

PENSION AND OTHER POSTRETIREMENT PLANS

(A)  Defined Benefit Pension Plans

National Western sponsors a qualified defined benefit pension plan covering employees enrolled prior to 2008. The plan provides benefits based on the participants' years of service and compensation. The company makes annual contributions to the plan that comply with the minimum funding provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). On October 19, 2007, National Western’s Board of Directors approved an amendment to freeze the pension plan as of December 31, 2007. The freeze ceased future benefit accruals to all participants and closed the plan to any new participants. In addition, all participants became immediately 100% vested in their accrued benefits as of that date. As participants are no longer earning credit for service, future qualified defined benefit plan expense is projected to be minimal. The plan was amended in 2018 to increase the maximum pension value that may be distributed in a lump sum and to decrease the commencement age for in-service distributions by participants. Fair values of plan assets and liabilities are measured as of December 31 for each year. A detail of plan disclosures is provided below.

Obligations and Funded Status

	December 31,
	2020		2019
	(In thousands)
Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	22,689	21,938
Service cost	107		96
Interest cost	674		839
Plan amendments	—		—
Actuarial (gain) loss	2,153		1,398
Benefits paid	(1,696)		(1,582)
Projected benefit obligations at end of year	23,927		22,689
Changes in plan assets:
Fair value of plan assets at beginning of year	18,512		16,169
Actual return on plan assets	2,910		3,356
Contributions	1,107		569
Benefits paid	(1,696)		(1,582)
Fair value of plan assets at end of year	20,833		18,512
Funded status at end of year	$	(3,094)	(4,177)

The service cost shown above for each year represents plan expenses expected to be paid out of plan assets. Under the clarified rules of the Pension Protection Act, plan expenses paid from plan assets are to be included in the plan's service cost component.

The Projected Benefit Obligation changed in 2020 due to the following:

•An experience loss of approximately $587,000 due to census demographics.

•An experience gain of approximately $317,000 due to the change in mortality.

•An experience loss of approximately $45,000 due to the difference in expected and actual benefit payments.

•An experience loss of approximately $1,838,000 due to the decrease in the discount rate from 3.00% to 2.25%.

The Projected Benefit Obligation changed in 2019 due to the following:

•An experience gain of approximately $157,000 due to census demographics.

•An experience gain of approximately $610,000 due to the change in mortality.

•An experience gain of approximately $16,000 due to the difference in expected and actual benefit payments.

•An experience loss of approximately $2,181,000 due to the decrease in the discount rate from 4.00% to 3.00%.

	December 31,
	2020		2019
	(In thousands)
Amounts recognized in the Company's Consolidated Financial Statements:
Assets	$	—	—
Liabilities	(3,094)		(4,177)
Net amount recognized	$	(3,094)	(4,177)
Amounts recognized in accumulated other comprehensive income:
Net (gain) loss	$	6,826	6,903
Prior service cost	—		—
Net amount recognized	$	6,826	6,903

The accumulated benefit obligation was $23.9 million and $22.7 million at December 31, 2020 and 2019, respectively.

Components of Net Periodic Benefit Cost

	Years Ended December 31,
	2020		2019	2018
	(In thousands)
Components of net periodic benefit costs:
Interest cost	$	674	839	899
Service cost	107		96	111
Expected return on plan assets	(1,261)		(1,086)	(1,300)
Amortization of net loss (gain)	580		660	524
Net periodic benefit cost	100		509	234
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net loss (gain)	503		(872)
Amortization of net loss (gain)	(580)		(660)
Total recognized in other comprehensive income	(77)		(1,532)
Total recognized in net periodic benefit cost and other comprehensive income	$	23	(1,023)

The components of net periodic benefit cost including service cost are reported in Other operating expenses in the Consolidated Statement of Earnings.

Assumptions

	December 31,
	2020		2019
Weighted-average assumptions used to determine benefit obligations:
Discount rate	2.25	%	3.00	%
Rate of compensation increase	n/a		n/a

	December 31,
	2020		2019		2018
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate	3.00	%	4.00	%	3.75	%
Expected long-term return on plan assets	7.00	%	7.00	%	7.00	%
Rate of compensation increase	n/a		n/a		n/a

The assumed long-term rate of return on plan assets is generally set at the rate expected to be earned based on the long-term investment policy of the plan and the various classes of invested funds, based on the input of the plan’s investment advisors and consulting actuary and the plan’s historic rate of return. As of December 31, 2020, the plan’s average 10-year returns were 9.54%.

In setting the annual discount rate assumption, the Pension Committee designated by National Western's Board of Directors reviews current 10 year and 30 year corporate bond yields, the current spread to treasuries, and their relative change during the past twelve months. It also considers the present value of the projected benefit payment stream based on the Citigroup Pension Discount Curve and market data observations provided by independent consultants.

In setting the annual portfolio rate of return assumption, the Pension Committee considers the Plan’s actual long-term performance, the portfolio’s current allocation and individual investment holdings, the Committee’s and the investment manager’s expectations for future long term investment strategy and expected performance, and the advice of consultants knowledgeable about overall market expectations and benchmark rates of return used by comparable companies.

Plan Assets

As discussed in Note (4) Fair Values of Financial Instruments, GAAP defines fair value and establishes a framework for measuring fair value of financial assets. Using this guidance, the Company has categorized its pension plan assets into a three level hierarchy, based on the priority of inputs to the valuation process. The fair value hierarchy classifications are reviewed annually. Reclassification of certain financial assets and liabilities may result based on changes in the observability of valuation attributes. The following tables set forth the Company’s pension plan assets within the fair value hierarchy as of December 31, 2020 and 2019.

	December 31, 2020
	Total		Level 1	Level 2	Level 3
	(In thousands)
Cash and cash equivalents	$	1,050	1,050	—	—
Equity securities
Domestic	13,853		13,853	—	—
International	170		170	—	—
Debt securities
Corporate bonds	5,759		—	5,759	—
Other invested assets	1		1	—	—
Total	$	20,833	15,074	5,759	—

	December 31, 2019
	Total		Level 1	Level 2	Level 3
	(In thousands)
Cash and cash equivalents	$	756	756	—	—
Equity securities
Domestic	11,853		11,853	—	—
International	172		172	—	—
Debt securities
Corporate bonds	5,729		—	5,729	—
Other invested assets	2		2	—	—
Total	$	18,512	12,783	5,729	—

Investment securities. Fair values for investments in debt and equity securities are based on quoted market prices, where available. For securities not actively traded, fair values are estimated using values obtained from various independent pricing services. In cases where prices are unavailable from these sources, values are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments.

Cash and cash equivalents. Carrying amounts for these instruments approximate their fair values.

The plan’s weighted-average asset allocations by asset category have been as follows:

	December 31,
	2020	2019	2018
Asset Category:
Equity securities	67%	65%	63%
Debt securities	28%	31%	36%
Cash and cash equivalents	5%	4%	1%
Total	100%	100%	100%

The Company has established and maintains an investment policy statement for the assets held in the plan's trust. The investment strategies are of a long-term nature and are designed to meet the following objectives:

Ensure that funds are available to pay benefits as they become due

Set forth an investment structure detailing permitted assets and expected allocation ranges among classes

Ensure that plan assets are managed in accordance with ERISA

The pension plan is a highly diversified portfolio. The 95% of pension assets not invested in cash is allocated among 231 different investments, with no single issuer representing more than 4.8% of the fair value of the portfolio. The investment policy statement sets forth the following acceptable ranges for each asset's class.

	Acceptable Range
Asset Category:
Equity securities	55-70%
Debt securities	30-40%
Cash and cash equivalents	0-15%

Deviations from these ranges are permitted if such deviations are consistent with the duty of prudence under ERISA. Investments in natural resources, venture capital, precious metals, futures and options, real estate, and other vehicles that do not have readily available objective valuations are not permitted. Short sales, use of margin or leverage, and investment in commodities and art objects are also prohibited.

The investment policy statement is reviewed annually to ensure that the objectives are met considering any changes in benefit plan design, market conditions, or other material considerations.

Contributions

National Western expects to contribute $856,000 to the plan during 2021 which amount includes a $856,000 voluntary contribution. Additional amounts may be contributed at NWLIC's discretion. The plan’s funding status is reviewed periodically throughout the year by National Western’s Pension Plan Committee. NWLIC intends to contribute at least the minimum amounts necessary for tax compliance and to maintain an Adjusted Funding Target Attainment Percentage ("AFTAP") of over 80% to meet the Pension Protection Act Plan’s threshold.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

2021	$	1,585
2022	1,561
2023	1,544
2024	1,459
2025	1,480
2026-2030	6,736

National Western also sponsors three non-qualified defined benefit pension plans. The first plan covers certain senior officers and provides benefits based on the participants' years of service and compensation. The primary pension obligations and administrative responsibilities of the plan are maintained by a pension administration firm, which is a subsidiary of American National Group, Inc. ("American National"), a related party. American National has guaranteed the payment of pension obligations under the plan. However, the Company has a contingent liability with respect to the plan should these entities be unable to meet their obligations under the existing agreements. Also, the Company has a contingent liability with respect to the plan in the event that a plan participant continues employment with National Western beyond age seventy, the aggregate average annual participant salary increases exceed 10% per year, or any additional employees become eligible to participate in the plan. If any of these conditions are met, the Company would be responsible for any additional pension obligations resulting from these items. Amendments were made to this plan to allow an additional employee to participate and to change the benefit formula for the then Chairman of the Company. As previously mentioned, these additional obligations are a liability to the Company. Effective December 31, 2004, this plan was frozen with respect to the continued accrual of benefits of the then Chairman and the then President of the Company in order to comply with law changes under the American Jobs Creation Act of 2004 ("Act").

Effective July 1, 2005, National Western established a second non-qualified defined benefit plan for the benefit of the then Chairman of the Company. This plan is intended to provide for post-2004 benefit accruals that mirror and supplement the pre-2005 benefit accruals under the previously discussed non-qualified plan, while complying with the requirements of the Act.

Effective November 1, 2005, National Western established a third non-qualified defined benefit plan for the benefit of the then President of the Company. This plan is intended to provide for post-2004 benefit accruals that supplement the pre-2005 benefit accruals under the first non-qualified plan as previously discussed, while complying with the requirements of the Act.

Ozark National and NIS have no defined benefit plans.

A detail of plan disclosures related to the amendments of the original plan and the additional two plans is provided below:

Obligations and Funded Status

	December 31,
	2020		2019
	(In thousands)
Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	29,258	22,275
Service cost	1,209		502
Interest cost	1,350		1,025
Actuarial (gain) loss	21,736		7,438
Benefits paid	(1,982)		(1,982)
Projected benefit obligations at end of year	51,571		29,258
Change in plan assets:
Fair value of plan assets at beginning of year	—		—
Contributions	1,982		1,982
Benefits paid	(1,982)		(1,982)
Fair value of plan assets at end of year	—		—
Funded status at end of year	$	(51,571)	(29,258)

The Projected Benefit Obligation changed in 2020 due to the following:

•An experience loss of approximately $16,720,000 due to census demographics different than assumed including increases in actual compensation more than the actuarial assumption.

•An experience gain of approximately $441,000 due to the change in mortality.

•An experience loss of approximately $5,457,000 due to the decrease in the discount rate from 3.00% to 2.25%.

The Projected Benefit Obligation changed in 2019 due to the following:

•An experience loss of approximately $4,332,000 due to increases in actual compensation more than the actuarial assumption.

•An experience gain of approximately $295,000 due to the change in mortality.

•An experience loss of approximately $3,401,000 due to the decrease in the discount rate from 4.00% to 3.00%.

	December 31,
	2020		2019
	(In thousands)
Amounts recognized in the Company's Consolidated Financial Statements:
Assets	$	—	—
Liabilities	(51,571)		(29,258)
Net amount recognized	$	(51,571)	(29,258)
Amounts recognized in accumulated other comprehensive income:
Net (gain) loss	$	26,476	10,521
Prior service cost	404		464
Net amount recognized	$	26,880	10,985

The accumulated benefit obligation was $27.0 million and $19.8 million at December 31, 2020 and 2019, respectively.

Components of Net Periodic Benefit Cost

	Years Ended December 31,
	2020		2019	2018
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	1,209	502	361
Interest cost	1,350		1,025	852
Amortization of prior service cost	59		59	59
Amortization of net loss (gain)	5,781		1,391	704
Net periodic benefit cost	8,399		2,977	1,976
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net loss (gain)	21,736		7,438
Amortization of prior service cost	(59)		(59)
Amortization of net loss (gain)	(5,781)		(1,391)
Total recognized in other comprehensive income	15,896		5,988
Total recognized in net periodic benefit cost and other comprehensive income	$	24,295	8,965

The components of net periodic benefit cost including service cost are reported in Other operating expenses in the Consolidated Statement of Earnings.

Assumptions

	December 31,
	2020		2019
Weighted-average assumptions used to determine benefit obligations:
Discount rate	2.25	%	3.00	%
Rate of compensation increase	8.00	%	8.00	%

	December 31,
	2020		2019		2018
Weighted-average assumptions used to determine net periodic benefit costs:
Discount rate	3.00	%	4.00	%	3.75	%
Expected long-term return on plan assets	n/a		n/a		n/a
Rate of compensation increase	8.00	%	8.00	%	8.00	%

The plan is unfunded and therefore no assumption has been made related to the expected long-term return on plan assets.

Plan Assets

The plan is unfunded and therefore had no assets at December 31, 2020 or 2019.

Contributions

National Western expects to contribute approximately $2.0 million to the plan in 2021.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

2021	$	1,982
2022	1,982
2023	1,982
2024	1,982
2025	1,982
2026-2030	11,617

(B)  Defined Contribution Pension Plans

In addition to the defined benefit pension plans, National Western sponsors a qualified 401(k) plan for substantially all employees and a non-qualified deferred compensation plan primarily for senior officers. National Western made annual contributions to the 401(k) plan in 2020, 2019, and 2018 of up to four percent of each employee's compensation, based on the employee's personal level of salary deferrals to the plan. All contributions are subject to a vesting schedule based on the employee's years of service. For the years ended December 31, 2020, 2019 and 2018, NWLIC contributions totaled $720,000, $664,000 and $615,000, respectively.

The non-qualified deferred compensation plan sponsored by National Western was established to allow eligible employees to defer the payment of a percentage of their compensation and to provide for additional company contributions. Contributions are subject to a vesting schedule based on the employee's years of service. For the years ended December 31, 2020, 2019 and 2018, contributions totaled $175,000, $97,000, and $127,000, respectively.

Ozark sponsors a qualified 401(k) plan for substantially all employees of Ozark and NIS. Employer match is discretionary, and contributions are subject to a graded vesting schedule. Expense related to this plan totaled $175,000 and $176,000 for Ozark and $17,000 and $30,000 for NIS for the year ended December 31, 2020 and the eleven months ended December 31, 2019, respectively. 

Ozark also sponsors a non-qualified, unfunded retirement plan covering certain members of executive staff. The plan is funded solely through discretionary employer contributions. Expense related to this plan totaled $247,000 and $45,000 for the year ended December 31, 2020 and the eleven months ended December 31, 2019, respectively.

(C)  Postretirement Employment Plans Other Than Pension

National Western sponsors two health care plans that were amended in 2004 to provide postretirement benefits to certain fully-vested individuals. The plan is unfunded. A December 31 measurement date is used for the plan. A detail of plan disclosures related to the plan is provided below:

Obligations and Funded Status

	December 31,
	2020		2019
	(In thousands)
Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	5,782	4,230
Interest cost	165		198
Actuarial (gain) loss	522		1,354
Benefits paid	—		—
Projected benefit obligations at end of year	6,469		5,782
Changes in plan assets:
Fair value of plan assets at beginning of year	—		—
Contributions	—		—
Benefits paid	—		—
Fair value of plan assets at end of year	—		—
Funded status at end of year	$	(6,469)	(5,782)

The Projected Benefit Obligation changed in 2020 due to the following:

•An experience loss of approximately $389,000 due to the claims/healthcare cost trend experience.

•An experience gain of approximately $656,000 due to the change in actuarial assumptions.

•An experience gain of approximately $104,000 due to the change in mortality.

•An experience loss of approximately $893,000 due to the decrease in the discount rate from 3.00% to 2.25%.

The Projected Benefit Obligation changed in 2019 due to the following:

•An experience loss of approximately $784,000 due to the claims/healthcare cost trend experience.

•An experience gain of approximately $283,000 due to the change in mortality.

•An experience gain of approximately $121,000 due to the difference in actual and expected benefit payments.

•An experience loss of approximately $974,000 due to the decrease in the discount rate from 4.00% to 3.00%.

	December 31,
	2020		2019
	(In thousands)
Amounts recognized in the Company's Consolidated Financial Statements:
Assets	$	—	—
Liabilities	(6,469)		(5,782)
Net amount recognized	$	(6,469)	(5,782)
Amounts recognized in accumulated other comprehensive income:
Net (gain) loss	$	2,288	1,925
Prior service cost	—		—
Net amount recognized	$	2,288	1,925

The accumulated benefit obligation was $6.5 million and $5.8 million at December 31, 2020 and 2019, respectively.

Components of Net Periodic Benefit Cost

	Years Ended December 31,
	2020		2019	2018
	(In thousands)
Components of net periodic benefit cost:
Interest cost	$	165	198	158
Amortization of prior service cost	—		52	103
Amortization of net loss	158		244	151
Net periodic benefit cost	323		494	412
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net loss	522		1,354
Amortization of prior service cost	—		(52)
Amortization of net loss (gain)	(158)		(244)
Total recognized in other comprehensive income	364		1,058
Total recognized in net periodic benefit cost and other comprehensive income	$	687	1,552

As the plans are not funded, there is no expected return on plan assets shown in the net periodic benefit cost table above. Ozark National and NIS do not offer postretirement employment benefits.

The components of net periodic benefit cost including service cost are reported in Other operating expenses in the Consolidated Statement of Earnings.

Assumptions

	December 31,
	2020		2019
Weighted-average assumptions used to determine benefit obligations:
Discount rate	2.25	%	3.00	%
Expected long-term return on plan assets	n/a		n/a

	December 31,
	2020		2019		2018
Weighted-average assumptions used to determine net periodic benefit costs:
Discount rate	3.00	%	4.00	%	3.75	%
Expected long-term return on plan assets	n/a		n/a		n/a

For measurement purposes, a 8.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2021, decreasing annually by 0.5% until reaching an ultimate rate of 5%.

Plan Assets

The plans are unfunded and therefore had no assets at December 31, 2020 and 2019.

Contributions

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):

2021	$	—
2022	—
2023	—
2024	—
2025	—
2026-2030	1,216