Pension and Other Postretirement Plans

12 Months Ended

Dec. 31, 2022

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 a credit for service, future qualified defined benefit plan expense is projected to be minimal. Fair values of plan assets and liabilities are measured as of the prior December 31 for each year. A detail of plan disclosures is provided below.

Obligations and Funded Status

	December 31,
	2022		2021
	(In thousands)
Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	22,056	23,927
Service cost	131		119
Interest cost	581		528
Actuarial (gain) loss	(4,217)		(805)
Benefits paid	(1,574)		(1,713)
Projected benefit obligations at end of year	16,977		22,056
Changes in plan assets:
Fair value of plan assets at beginning of year	23,241		20,833
Actual return on plan assets	(3,407)		3,265
Contributions	250		856
Benefits paid	(1,574)		(1,713)
Fair value of plan assets at end of year	18,510		23,241
Funded status at end of year	$	1,533	1,185

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 decreased in 2022 due to the following:

•An experience gain of approximately $177,000 due to census demographics.

•An experience loss of approximately $48,000 due to the difference in expected and actual benefit payments.

•An experience gain of approximately $4,088,000 due to the increase in the discount rate from 2.75% to 5.00%.

The Projected Benefit Obligation decreased in 2021 from the previous year due to the following:

•An experience loss of approximately $309,000 due to census demographics.

•An experience loss of approximately $78,000 due to the change in mortality.

•An experience loss of approximately $127,000 due to the difference in expected and actual benefit payments.

•An experience gain of approximately $1,319,000 due to the increase in the discount rate from 2.25% to 2.75%.

	December 31,
	2022		2021
	(In thousands)
Amounts recognized in the Company's Consolidated Financial Statements:
Assets	$	1,533	1,185
Liabilities	—		—
Net amount recognized	$	1,533	1,185
Amounts recognized in accumulated other comprehensive income (loss):
Net (gain) loss	$	4,273	3,642
Prior service cost	—		—
Net amount recognized	$	4,273	3,642

The accumulated benefit obligation was $17.0 million and $22.1 million at December 31, 2022 and 2021, respectively.

Components of Net Periodic Benefit Cost

	Years Ended December 31,
	2022		2021	2020
	(In thousands)
Components of net periodic benefit costs:
Interest cost	$	581	528	674
Service cost	131		119	107
Expected return on plan assets	(1,575)		(1,425)	(1,261)
Amortization of net loss (gain)	134		539	580
Net periodic benefit cost	(729)		(239)	100
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
Net loss (gain)	765		(2,645)	503
Amortization of net loss (gain)	(134)		(539)	(580)
Total recognized in other comprehensive income (loss)	631		(3,184)	(77)
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	(98)	(3,423)	23

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,
	2022		2021
Weighted-average assumptions used to determine benefit obligations:
Discount rate	5.00	%	2.75	%
Rate of compensation increase	n/a		n/a

	December 31,
	2022		2021		2020
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate	2.75	%	2.25	%	3.00	%
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, 2022, the plan’s average 5-year and inception-to-date returns were 6.91% and 6.23%, respectively.

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.

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, 2022 and 2021.

	December 31, 2022
	Total		Level 1	Level 2	Level 3
	(In thousands)
Cash and cash equivalents	$	787	787	—	—
Equity securities:
Domestic	11,533		11,533	—	—
International	117		117	—	—
Debt securities:
U.S. government agencies	601		—	601	—
Corporate bonds	5,471		—	5,471	—
Other invested assets	1		1	—	—
Total	$	18,510	12,438	6,072	—

	December 31, 2021
	Total		Level 1	Level 2	Level 3
	(In thousands)
Cash and cash equivalents	$	852	852	—	—
Equity securities:
Domestic	15,752		15,752	—	—
International	163		163	—	—
Debt securities:
Corporate bonds	6,474		—	6,474	—
Other invested assets	—		—	—	—
Total	$	23,241	16,767	6,474	—

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,
	2022	2021	2020
Asset Category:
Equity securities	63%	68%	67%
Debt securities	33%	28%	28%
Cash and cash equivalents	4%	4%	5%
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 96% of pension assets not invested in cash is allocated among 244 different investments, with no single issuer representing more than 4.1% 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 $0 to the plan during 2023 which amount includes a $0 voluntary contribution for the 2022 plan year. 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):

2023	$	1,503
2024	1,455
2025	1,459
2026	1,405
2027	1,410
2028-2032	6,398

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"), previously a related party. In the second quarter of 2022, American National was acquired by Brookfield Asset Management Reinsurance Partners Ltd. and is therefore no longer a related party of National Western. 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 American National be unable to meet its obligations under the existing agreements. Also, NWLGI 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, NWLGI 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 Robert L. Moody, Sr., who was 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 Ross R. Moody (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 Robert L. Moody, Sr., who was 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 Ross R. Moody, who was 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,
	2022		2021
	(In thousands)
Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	44,448	51,571
Service cost	1,038		1,235
Interest cost	1,114		1,044
Actuarial (gain) loss	(13,096)		(7,420)
Benefits paid	(1,982)		(1,982)
Projected benefit obligations at end of year	31,522		44,448
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	$	(31,522)	(44,448)

The Projected Benefit Obligation decreased in 2022 due to the following:

•An experience gain of approximately $2,956,000 due to census demographics different than assumed including changes in compensation different than assumed.

•An experience gain of approximately $10,140,000 due to the increase in the discount rate from 2.75% to 5.00%.

The Projected Benefit Obligation decreased in 2021 from the prior year due to the following:

•An experience gain of approximately $4,208,000 due to census demographics different than assumed including changes in compensation different than assumed.

•An experience loss of approximately $80,000 due to the change in mortality.

•An experience gain of approximately $3,292,000 due to the increase in the discount rate from 2.25% to 2.75%.

	December 31,
	2022		2021
	(In thousands)
Amounts recognized in the Company's Consolidated Financial Statements:
Assets	$	—	—
Liabilities	(31,522)		(44,448)
Net amount recognized	$	(31,522)	(44,448)
Amounts recognized in accumulated other comprehensive income (loss):
Net (gain) loss	$	(1,509)	13,925
Prior service cost	286		345
Net amount recognized	$	(1,223)	14,270

The accumulated benefit obligation was $23.2 million and $26.4 million at December 31, 2022 and 2021, respectively.

Components of Net Periodic Benefit Cost

	Years Ended December 31,
	2022		2021	2020
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	1,038	1,235	1,209
Interest cost	1,114		1,044	1,350
Amortization of prior service cost	59		59	59
Amortization of net loss (gain)	2,338		5,131	5,781
Net periodic benefit cost	4,549		7,469	8,399
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
Net loss (gain)	(13,096)		(7,420)	21,736
Amortization of prior service cost	(59)		(59)	(59)
Amortization of net loss (gain)	(2,338)		(5,131)	(5,781)
Total recognized in other comprehensive income (loss)	(15,493)		(12,610)	15,896
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	(10,944)	(5,141)	24,295

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,
	2022		2021
Weighted-average assumptions used to determine benefit obligations:
Discount rate	5.00	%	2.75	%
Rate of compensation increase	8.00	%	8.00	%

	December 31,
	2022		2021		2020
Weighted-average assumptions used to determine net periodic benefit costs:
Discount rate	2.75	%	2.25	%	3.00	%
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, 2022 or 2021.

Contributions

National Western expects to contribute approximately $2.0 million to the plan in 2023.

Estimated Future Benefit Payments

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

2023	$	1,982
2024	1,982
2025	1,982
2026	1,982
2027	2,375
2028-2032	11,814

(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 2022, 2021, and 2020 of up to four percent of each employee's compensation, based on the employee's personal level of salary deferrals to the plan. Contributions prior to 2021 are subject to a vesting schedule based on the employee's years of service and those for 2021 and forward are not subject to a vesting schedule. For the years ended December 31, 2022, 2021, and 2020, NWLIC contributions totaled $703,000, $755,000, and $720,000, 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, 2022, 2021, and 2020, contributions totaled $128,000, $143,000, and $175,000, respectively.

Ozark National sponsors a qualified 401(k) plan for substantially all employees of Ozark National and NIS. The employer match was discretionary for deferral dates prior to 2021. In 2021, Ozark National contributions for employee deferrals increased to four percent of each employee's compensation, based on the employee's personal level of salary deferrals to the plan. Contributions for deferral dates prior to 2021 were subject to a graded vesting schedule while contributions for 2021 and after are not subject to a vesting schedule. Expense related to this plan totaled $112,000, $125,000, and $175,000 for Ozark National and $15,000, $10,000, and $17,000 for NIS for the years ended December 31, 2022, 2021, and 2020, respectively. 

Ozark National 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 $(75,000), $24,000, and $247,000 for the years ended December 31, 2022, 2021, and 2020, 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 plans are unfunded. The measurement date for the plans is December 31st. A detail of plan disclosures related to the plans is provided below:

Obligations and Funded Status

	December 31,
	2022		2021
	(In thousands)
Changes in projected benefit obligations:
Projected benefit obligations at beginning of year	$	6,160	6,469
Interest cost	173		148
Actuarial (gain) loss	(1,927)		(457)
Benefits paid	—		—
Projected benefit obligations at end of year	4,406		6,160
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	$	(4,406)	(6,160)

The Projected Benefit Obligation decreased in 2022 due to the following:

•An experience loss of approximately $129,000 due to the claims/healthcare cost trend experience.

•An experience gain of approximately $318,000 due to the death of a participant's spouse.

•An experience loss of $264,000 due to the change in the trend rate.

•An experience gain of approximately $2,002,000 due to the increase in the discount rate from 2.75% to 5.00%.

The Projected Benefit Obligation decreased in 2021 from the prior year due to the following:

•An experience loss of approximately $123,000 due to the claims/healthcare cost trend experience.

•An experience loss of approximately $30,000 due to the change in mortality.

•An experience gain of approximately $610,000 due to the increase in the discount rate from 2.25% to 2.75%.

	December 31,
	2022		2021
	(In thousands)
Amounts recognized in the Company's Consolidated Financial Statements:
Assets	$	—	—
Liabilities	(4,406)		(6,160)
Net amount recognized	$	(4,406)	(6,160)
Amounts recognized in accumulated other comprehensive income (loss):
Net (gain) loss	$	(596)	1,539
Prior service cost	—		—
Net amount recognized	$	(596)	1,539

The accumulated benefit obligation was $4.4 million and $6.2 million at December 31, 2022 and 2021, respectively.

Components of Net Periodic Benefit Cost

	Years Ended December 31,
	2022		2021	2020
	(In thousands)
Components of net periodic benefit cost:
Interest cost	$	173	148	165
Amortization of prior service cost	—		—	—
Amortization of net loss	208		292	158
Net periodic benefit cost	381		440	323
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
Net loss (gain)	(1,927)		(457)	522
Amortization of prior service cost	—		—	—
Amortization of net loss (gain)	(208)		(292)	(158)
Total recognized in other comprehensive income (loss)	(2,135)		(749)	364
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	(1,754)	(309)	687

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,
	2022		2021
Weighted-average assumptions used to determine benefit obligations:
Discount rate	5.00	%	2.75	%
Expected long-term return on plan assets	n/a		n/a

	December 31,
	2022		2021		2020
Weighted-average assumptions used to determine net periodic benefit costs:
Discount rate	2.75	%	2.25	%	3.00	%
Expected long-term return on plan assets	n/a		n/a		n/a

For measurement purposes, a 7.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2023, decreasing annually by 0.25% until reaching an ultimate rate of 5%.

Plan Assets

The plans are unfunded and therefore had no assets at December 31, 2022 and 2021.

Contributions

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

2023	$	—
2024	—
2025	—
2026	157
2027	119
2028-2032	1,416