Pensions and Postretirement Benefits Other than Pensions

12 Months Ended

Dec. 31, 2019

Pensions and Postretirement Benefits Other than Pensions

The Company has a number of plans providing pension and retirement benefits. These plans include defined benefit and defined contribution plans. The plans cover substantially all U.S. domestic employees. There are also plans that cover employees in the U.K. and Germany. The Company has an unfunded, nonqualified supplemental retirement benefit plan in the U.S. covering certain employees whose participation in the qualified plan is limited by provisions of the Internal Revenue Code.

For defined benefit plans, benefits are generally based on compensation and length of service for salaried employees and length of service for hourly employees. In the U.S., the Company froze the pension benefits in its Spectrum (salaried employees) Plan in 2009. In 2012, the Company closed the U.S. pension plans for the bargaining units to new participants. Certain grandfathered participants in the bargaining unit plans continue to accrue pension benefits. Employees of certain of the Company’s foreign operations in the U.K. and Germany are covered by either contributory or non-contributory trusteed pension plans. In 2012, the Company froze the benefits in the U.K. pension plan.

Participation in the Company’s defined contribution plans is voluntary. The Company matches plan participants’ contributions up to various limits. Participants’ contributions are limited based on their compensation and, for certain supplemental contributions which are not eligible for Company matching, based on their age. Certain employees covered by collective bargaining units receive company contributions. Expense for the defined contribution plans was $13,370, $12,424 and $13,931 for 2019, 2018 and 2017, respectively.

The Company currently provides retiree health care and life insurance benefits to a portion of its U.S. salaried and hourly employees. U.S. salaried and non-bargained hourly employees hired on or after January 1, 2003 are not eligible for retiree health care or life insurance coverage. The Company has reserved the right to modify or terminate certain of these salaried benefits at any time.

The Company has implemented household caps on the amounts of retiree medical benefits it will provide to certain retirees in the U.S. The caps do not apply to individuals who retired prior to certain specified dates. Costs in excess of these caps will be paid by plan participants. The Company implemented increased cost sharing in 2004 in the retiree medical coverage provided to certain eligible current and future retirees. Since then, cost sharing has expanded such that nearly all covered retirees pay a charge to be enrolled.

In accordance with U.S. GAAP, the Company recognizes the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligation) of its pension and OPEB plans and the net unrecognized actuarial losses and unrecognized prior service costs in the consolidated balance sheets. The unrecognized actuarial losses and unrecognized prior service costs (components of Accumulated other comprehensive loss in the Equity section of the balance sheet) will be subsequently recognized as net periodic benefit costs pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit costs in the same periods will be recognized as a component of other comprehensive income.

The following table reflects changes in the projected obligations and fair market values of assets in all defined benefit pension and other postretirement benefit plans of the Company:



	2019 Pension Benefits									2018 Pension Benefits									Other Postretirement Benefits
	Domestic			International			Total			Domestic			International			Total			2019			2018
Change in benefit obligation:
Projected Benefit Obligation at beginning of year	$	1,004,751		$	404,629		$	1,409,380		$	1,088,633		$	461,426		$	1,550,059		$	251,798		$	271,726
Service cost - employer	8,906			—			8,906			10,363			—			10,363			1,573			1,948
Interest cost	39,499			11,061			50,560			36,840			11,161			48,001			9,887			9,251
Actuarial loss/(gain)	113,828			48,721			162,549			(67,543		)	(28,064		)	(95,607		)	(9,664		)	(19,909		)
Benefits paid	(63,176		)	(14,542		)	(77,718		)	(63,542		)	(17,889		)	(81,431		)	(12,044		)	(11,218		)
Plan amendment	3,069			—			3,069			—			3,704			3,704			—			—
Settlements	—			(18,196		)	(18,196		)	—			—			—			—			—
Foreign currency translation effect	—			15,013			15,013			—			(25,709		)	(25,709		)	—			—
Projected Benefit Obligation at December 31	$	1,106,877		$	446,686		$	1,553,563		$	1,004,751		$	404,629		$	1,409,380		$	241,550		$	251,798
Change in plans’ assets:
Fair value of plans’ assets at beginning of year	$	912,129		$	349,001		$	1,261,130		$	944,346		$	385,879		$	1,330,225		$	—		$	—
Actual return on plans’ assets	159,949			38,139			198,088			(33,063		)	(8,591		)	(41,654		)	—			—
Employer contribution	38,312			10,587			48,899			64,388			10,725			75,113			—			—
Benefits paid	(63,176		)	(14,542		)	(77,718		)	(63,542		)	(17,889		)	(81,431		)	—			—
Settlements	—			(18,196		)	(18,196		)	—			—			—			—			—
Foreign currency translation effect	—			14,353			14,353			—			(21,123		)	(21,123		)	—			—
Fair value of plans’ assets at December 31	$	1,047,214		$	379,342		$	1,426,556		$	912,129		$	349,001		$	1,261,130		$	—		$	—
Funded status	$	(59,663	)	$	(67,344	)	$	(127,007	)	$	(92,622	)	$	(55,628	)	$	(148,250	)	$	(241,550	)	$	(251,798	)
Amounts recognized in the balance sheets:
Accrued liabilities	$	(300	)	$	—		$	(300	)	$	(300	)	$	—		$	(300	)	$	(14,334	)	$	(15,344	)
Postretirement benefits other than pensions							—						—			—			$	(227,216	)	$	(236,454	)
Pension benefits	$	(59,363	)	$	(67,344	)	$	(126,707	)	$	(92,322	)	$	(55,628	)	$	(147,950	)	—			—

Included in Accumulated other comprehensive loss at December 31, 2019 are the following amounts that have not yet been recognized in net periodic benefit cost: unrecognized prior service costs of $5,780 ($4,338 net of tax) and unrecognized actuarial losses of $413,676 ($384,507 net of tax).

Included in Accumulated other comprehensive loss at December 31, 2018 are the following amounts that have not yet been recognized in net periodic benefit cost: unrecognized prior service credits of ($497) (($373) net of tax) and unrecognized actuarial losses of $438,176 ($401,979 net of tax).

The prior service cost and actuarial loss included in accumulated other comprehensive loss that are expected to be recognized in net periodic benefit cost during the fiscal year-ended December 31, 2020 are $620 and $33,169, respectively.

The accumulated benefit obligation for all defined benefit pension plans was $1,552,037 and $1,406,263 at December 31, 2019 and 2018, respectively.

In 2019, lump-sum distributions out of the U.K. pension plan of $18,196 were made from plan assets. The vested benefit obligation associated with these former employees was approximately four percent of the U.K. plan's benefit obligation. Due to

the size of the lump-sum distributions, in accordance with U.S. GAAP, the Company was required to recognize a non-cash settlement charge of $4,262 for all 2019 settlements out of the U.K. plan.

Additionally, in 2019, an amendment to a domestic pension plan resulted in a retroactive increase in benefit levels for plan participants and has been accounted for as a prior service cost deferred in Other comprehensive loss, to be amortized as a component of net periodic benefit cost in future periods. The domestic pension plan projected benefit obligation increased $3,069 as a result of the amendment.

On October 26, 2018, in Lloyds Banking Group Pensions Trustees Limited vs. Lloyds Bank plc and Others, the High Court of Justice in the United Kingdom issued a ruling ("Court Ruling") requiring Lloyds Bank plc to equalize benefits payable to men and women under its U.K. defined benefit pension plan. The Court Ruling noted that the formulas used to determine guaranteed minimum pension (GMP) benefits violated gender-pay equality laws due to differences in the way benefits were calculated for men and women. As a result of this ruling, the U.K. pension plan was required to amend its benefit formulas and account for the higher pension payments resulting from GMP equalization. In accordance with ASC 715, this Court Ruling represents a change to the U.K. pension plan resulting in a retroactive increase in benefit levels for plan participants and has been accounted for as a prior service cost deferred in Other comprehensive loss, to be amortized as a component of net periodic benefit cost in future periods. The U.K. pension plan projected benefit obligation increased $3,704 as a result of the amendment required due to the Court Ruling.

Weighted average assumptions used to determine benefit obligations at December 31:



	Pension Benefits				Other Postretirement Benefits
	2019		2018		2019		2018
All plans
Discount rate	2.78	%	3.70	%	3.12	%	4.05	%
Domestic plans
Discount rate	3.09	%	4.05	%	3.12	%	4.05	%
Foreign plans
Discount rate	1.99	%	2.80	%	—		—

At December 31, 2019, the weighted average assumed annual rate of increase in the cost of medical benefits was 6.75 percent trending linearly to 4.50 percent per annum in 2029.

The following tables disclose the amount of net periodic benefit costs for the twelve months ended December 31, 2019 and 2018, respectively, for the Company’s defined benefit plans and other postretirement benefits:



	Pension Benefits - Domestic
	Twelve Months Ended December 31,
	2019			2018			2017
Components of net periodic benefit cost:
Service cost	$	8,906		$	10,363		$	9,860
Interest cost	39,499			36,840			39,251
Expected return on plan assets	(48,034		)	(54,035		)	(54,058		)
Amortization of actuarial loss	32,432			32,939			37,122
Amortization of prior service cost	$	703		—			—
Net periodic benefit cost	$	33,506		$	26,107		$	32,175



	Pension Benefits - International
	Twelve Months Ended December 31,
	2019			2018			2017
Components of net periodic benefit cost:
Interest cost	$	11,061		$	11,161		$	11,525
Expected return on plan assets	(11,554		)	(12,073		)	(11,262		)
Amortization of actuarial loss	3,411			4,264			5,448
Amortization of prior service cost	309			—			—
Effect of settlements	4,262			—			—
Net periodic benefit cost	$	7,489		$	3,352		$	5,711



	Other Post Retirement Benefits
	Twelve Months Ended December 31,
	2019			2018			2017
Components of net periodic benefit cost:
Service cost	$	1,573		$	1,948		$	2,003
Interest cost	9,887			9,251			10,063
Amortization of prior service credit	(409		)	(541		)	(566		)
Net periodic benefit cost	$	11,051		$	10,658		11,500

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:



	Pension Benefits						Other Postretirement Benefits
	2019		2018		2017		2019		2018		2017
All plans
Discount rate	3.70	%	3.20	%	3.54	%	4.05	%	3.50	%	3.95	%
Expected return on plan assets	5.00	%	5.34	%	5.57	%	—	%	—	%	—	%
Domestic plans
Discount rate	4.05	%	3.50	%	3.90	%	4.05	%	3.50	%	3.95	%
Expected return on plan assets	5.66	%	6.25	%	6.50	%	—	%	—	%	—	%
Foreign plans
Discount rate	2.80	%	2.50	%	2.50	%	—	%	—	%	—	%
Expected return on plan assets	3.34	%	3.19	%	3.29	%	—	%	—	%	—	%

The following table lists the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets at December 31, 2019 and 2018. The Spectrum Plan is excluded from the December 31, 2019 amounts as the plan assets exceeded the projected benefit obligation and accumulated benefit obligation at that date.



	December 31,
	2019		2018 ^(a)
Projected benefit obligation	$	1,052,824	$	1,409,380
Accumulated benefit obligation	1,051,298		1,406,263
Fair value of plan assets	909,890		1,261,130
The following table lists the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the Spectrum Plan, which had plan assets in excess of projected benefit obligations and accumulated benefit obligations at December 31, 2019:
	December 31,
	2019		2018 ^(a)
Projected benefit obligation	$	500,739	$	—
Accumulated benefit obligation	$	500,739	$	—
Fair value of plan assets	$	516,666	$	—

^(a) - In 2018 all plans had projected and accumulated benefit obligations in excess of plan assets.

Assumed health care cost trend rates for other postretirement benefits have a significant effect on the amounts reported. A one-percentage-point change in assumed health care cost trend rates would have the following effects:



	Percentage Point
	Increase		Decrease
Increase (decrease) in total service and interest cost components	$	16	$	(17	)
Increase (decrease) in the other postretirement benefit obligation	514		(548		)

The table below presents the weighted average asset allocations for the domestic and U.K. pension plans’ assets at December 31, 2019 and December 31, 2018 by asset category.



	U.S. Plans				U.K. Plan
Asset Category	2019		2018		2019		2018
Fixed Income Collective Trust Funds and Securities	65	%	68	%	68	%	70	%
Equity Collective Trust Funds and Securities	30		26		19		17
Other Investment Collective Trust Funds and Securities	3		3		12		12
Cash	2		3		1		1
Total	100	%	100	%	100	%	100	%

The Company manages the plans' asset allocation relative to the liability profile and funded status of the plans. It is expected that as the plan’s funded status improves, the portfolio will take less risk as to preserve the funded status of the plan framework. The plans follow a glide path whereby a target return-seeking allocation is followed based upon a given funded ratio level. The plans' position with respect to the glide path is monitored and asset allocation and strategy changes to the plans' portfolio are made as appropriate. The plans' strategy is also monitored in relation to the capital markets, interest rates, and the regulatory environment. The assets of the Company’s pension plan in Germany consist of investments in German insurance contracts.

In 2018, the Company made a $25 million one-time additional discretionary contribution to the U.S. pension plans. This contribution improved the funding of the U.S. pension plans, while generating tax savings for the Company due to the deductibility of the contribution on the Company's 2017 tax return at a 35 percent federal corporate income tax rate, prior to the enactment of the Tax Act as of January 1, 2018.

The fair market value of U.S. plan assets was $1,047,214 and $912,129 at December 31, 2019 and 2018, respectively. The fair market value of the U.K. plan assets was $377,536 and $347,108 at December 31, 2019 and 2018, respectively. The fair market value of the German pension plan assets was $1,806 and $1,893 at December 31, 2019 and 2018, respectively.

The table below classifies the assets of the U.S. and U.K. plans using the Fair Value Hierarchy described in Note 9 - Fair Value Measurements.



			Fair Value Hierarchy
	Total		Level 1		Level 2		Level 3		NAV⁽¹⁾
December 31, 2019
United States plans
Cash and cash equivalents	$	23,867	$	23,867	$	—	$	—	$	—
Collective Trust Funds - Equity	309,794		—		—		—		309,794
Collective Trust Funds - Fixed income	682,279		—		22,410		—		659,869
Collective Trust Funds - Real Estate	31,274		$	—	$	—	$	—	$	31,274
	$	1,047,214	$	23,867	$	22,410	$	—	$	1,000,937
United Kingdom plan
Cash and cash equivalents	$	1,802	$	1,802	$	—	$	—	$	—
Equity securities	72,503		72,503		—		—		—
Fixed income securities	259,192		259,192		—		—		—
Other investments	44,039		—		13,859		30,180		—
	$	377,536	$	333,497	$	13,859	$	30,180	$	—
December 31, 2018
United States plans
Cash & Cash Equivalents	$	23,896	$	23,896	$	—	$	—	$	—
Collective Trust Funds - Equity	238,795		—		—		—		238,795
Collective Trust Funds - Fixed Income	622,576		—		10,514		—		612,062
Collective Trust Funds - Real Estate	26,862		—		—		—		26,862
	$	912,129	$	23,896	$	10,514	$	—	$	877,719
United Kingdom plan
Cash & Cash Equivalents	$	1,644	$	1,644	$	—	$	—	$	—
Equity securities	58,848		58,848		—		—		—
Fixed income securities	244,262		244,262		—		—		—
Other investments	42,354		—		13,416		28,938		—
	$	347,108	$	304,754	$	13,416	$	28,938	$	—

(1) Investments in common/ collective trusts invest primarily in publicly traded securities and are valued using net asset value (NAV) of units of a bank collective trust. Therefore, these amounts have not been classified in the fair value hierarchy and are presented in the tables to reconcile the fair value hierarchy to the total fair value of plan assets.

Plan assets are measured at fair value. While the Company believes its valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The Company’s valuation methodologies used for the plan assets measured at fair value are as follows:

Cash and cash equivalents – Cash and cash equivalents include cash on deposit and investments in money market mutual funds that invest mainly in short-term instruments and cash, both of which are valued using a market approach.

Equity securities – Common, preferred, and foreign stocks are valued using a market approach at the closing price on their principal exchange and are included in Level 1 of the fair value hierarchy.

Fixed income securities – Corporate and foreign bonds are valued using a market approach at the closing price reported on the active market on which the individual securities are traded and are included in Level 1 of the fair value hierarchy.

Collective trust funds – Collective trust funds are valued at the net asset value of units held at year end and are excluded from the fair value hierarchy. The Collective trust funds fair value has been included within the table above based on the underlying investment strategy.

•Equity Funds – Collective trust funds classified as Equity primarily invest in U.S. and non-U.S. securities in both small and large capitalization markets.

•Fixed Income Funds – Collective trust funds classified as Fixed Income primarily invest in debt securities, U.S. treasury securities, and fixed income securities.

•Real Estate Funds - Collective trust funds classified as Real Estate Funds are invested in global real estate securities.

The fair market values of the Level 3 assets in the U.K. plan are determined by the fund manager using a discounted cash flow methodology. The future cash flows expected to be generated by the assets of the funds and made available to investors are estimated and then discounted back to the valuation date. The discount rate is derived by adding a risk premium to the risk-free interest rate applicable to the country in which the assets are located.

The following table details the activity in these investments for the years ended December 31, 2017, 2018 and 2019:



	U.K. Plan Level 3 Assets
Balance at December 31, 2016	$	33,796
Transfer into level 3	—
Disbursements	—
Change in fair value	969
Foreign currency translation effect	3,305
Balance at December 31, 2017	38,070
Transfer into level 3	—
Disbursements	—
Change in fair value	(7,294		)
Foreign currency translation effect	(1,838		)
Balance at December 31, 2018	28,938
Transfer into level 3	—
Disbursements	—
Change in fair value	97
Foreign currency translation effect	1,145
Balance at December 31, 2019	$	30,180

The Company determines the annual expected rates of return on pension assets by first analyzing the composition of its asset portfolio. Historical rates of return are applied to the portfolio. These computed rates of return are reviewed by the Company’s investment advisers and actuaries. Industry comparables and other outside guidance are also considered in the annual selection of the expected rates of return on pension assets.

During 2019, the Company contributed $48,899 to its domestic and foreign pension plans, and during 2020, the Company expects to contribute between $45,000 and $55,000 to its domestic and foreign pension plans.

The Company estimates its benefit payments for its domestic and foreign pension plans and other postretirement benefit plans during the next ten years to be as follows:



	Pension Benefits		Other Postretirement Benefits
2020	$	86,944	$	14,334
2021	86,886		14,557
2022	88,845		14,697
2023	88,431		14,748
2024	89,937		14,852
2025 through 2029	448,531		72,251