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Retirement Plans
 12 Months Ended
Dec. 31, 2019
Retirement Benefits [Abstract]  
Retirement Plans
NOTE 6 — Retirement Plans
We have a number of noncontributory defined benefit pension plans ("pension plans") covering approximately 3% of our active employees. Pension plans covering salaried employees provide pension benefits that are based on the employees´ years of service and compensation prior to retirement. Pension plans covering hourly employees generally provide benefits of stated amounts for each year of service.
We also provide post-retirement life insurance benefits for certain retired employees. Domestic employees who were hired prior to 1982 and certain former union employees are eligible for life insurance benefits upon retirement. We fund life insurance benefits through term life insurance policies and intend to continue funding all of the premiums on a pay-as-you-go basis.
We recognize the funded status of a benefit plan in our consolidated balance sheets. The funded status is measured as the difference between plan assets at fair value and the projected benefit obligation. We also recognize, as a component of other comprehensive earnings, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit/cost.
The measurement dates for the pension plans for our U.S. and non-U.S. locations were December 31, 2019, and 2018.
During 2017, we offered certain former vested employees in our U.S. pension plan a one-time option to receive a lump sum distribution of their benefits from pension plan assets. The pension plan made approximately $23,912 in lump sum payments to settle its obligation to these participants. These settlement payments decreased the projected benefit obligation and plan assets by $23,912, and resulted in a non-cash settlement charge of $13,476 related to unrecognized net actuarial losses that were previously included in accumulated other comprehensive loss. The measurement date of this settlement was December 31, 2017.
In February 2020, the CTS Board of Directors authorized and empowered management to explore termination of our U.S. based pension plans at management's discretion, subject to certain conditions. Management has not yet made a final decision on whether to pursue a plan termination and the potential timing thereof.
The following table provides a reconciliation of benefit obligation, plan assets, and the funded status of the pension plans for U.S. and non-U.S. locations at the measurement dates.
 
U.S.
Pension Plans
 
Non-U.S.
Pension Plans
 
2019
2018
 
2019
2018
Accumulated benefit obligation
$
220,339

$
205,319

 
$
1,854

$
1,936

Change in projected benefit obligation:
 

 

 
 

 

Projected benefit obligation at January 1
$
205,319

$
228,934

 
$
2,756

$
3,140

Service cost
—

—

 
37

43

Interest cost
7,724

7,123

 
31

42

Benefits paid
(14,834
)
(14,781
)
 
(408
)
(669
)
Actuarial loss (gain)
22,130

(15,957
)
 
153

287

Foreign exchange impact
—

—

 
64

(87
)
Projected benefit obligation at December 31
$
220,339

$
205,319

 
$
2,633

$
2,756

Change in plan assets:
 

 

 
 

 

Assets at fair value at January 1
$
258,327

$
284,762

 
$
1,425

$
1,777

Actual return on assets
37,680

(11,757
)
 
73

67

Company contributions
103

103

 
295

300

Benefits paid
(14,834
)
(14,781
)
 
(408
)
(669
)
Foreign exchange impact
—

—

 
34

(50
)
Assets at fair value at December 31
$
281,276

$
258,327

 
$
1,419

$
1,425

Funded status (plan assets less projected benefit obligations)
$
60,937

$
53,008

 
$
(1,214
)
$
(1,331
)
The measurement dates for the post-retirement life insurance plan were December 31, 2019, and 2018. The following table provides a reconciliation of benefit obligation, plan assets, and the funded status of the post-retirement life insurance plan at those measurement dates.
 
Post-Retirement
Life Insurance Plan
 
2019
2018
Accumulated benefit obligation
$
4,766

$
4,595

Change in projected benefit obligation:




Projected benefit obligation at January 1
$
4,595

$
5,134

Service cost
1

2

Interest cost
170

156

Benefits paid
(145
)
(157
)
Actuarial loss (gain)
145

(540
)
Projected benefit obligation at December 31
$
4,766

$
4,595

Change in plan assets:
 

 

Assets at fair value at January 1
$
—

$
—

Actual return on assets
—

—

Company contributions
145

157

Benefits paid
(145
)
(157
)
Other
—

—

Assets at fair value at December 31
$
—

$
—

Funded status (plan assets less projected benefit obligations)
$
(4,766
)
$
(4,595
)

The components of the prepaid (accrued) cost of the domestic and foreign pension plans are classified in the following lines in the Consolidated Balance Sheets at December 31:
 
U.S.Pension Plans
 
Non-U.S. Pension Plans
 
2019
2018
 
2019
2018
Prepaid pension asset
$
62,082

$
54,100

 
$
—

$
—

Accrued expenses and other liabilities
(100
)
(100
)
 
—

—

Long-term pension obligations
(1,045
)
(992
)
 
(1,214
)
(1,331
)
Net prepaid (accrued) cost
$
60,937

$
53,008

 
$
(1,214
)
$
(1,331
)

The components of the accrued cost of the post-retirement life insurance plan are classified in the following lines in the Consolidated Balance Sheets at December 31:
 
Post-Retirement
Life Insurance Plan
 
2019
2018
Accrued expenses and other liabilities
$
(393
)
$
(407
)
Long-term pension obligations
(4,373
)
(4,188
)
Total accrued cost
$
(4,766
)
$
(4,595
)

We have also recorded the following amounts to accumulated other comprehensive loss for the U.S. and non-U.S. pension plans, net of tax:
 
U.S.Pension Plans
 
Non-U.S. Pension Plans
 
Unrecognized
Loss
 
Unrecognized
Loss
Balance at January 1, 2018
$
75,740

 
$
1,898

Amortization of retirement benefits, net of tax
(4,538
)
 
(126
)
Settlements
—

 
—

Net actuarial gain
6,732

 
196

Foreign exchange impact
—

 
(52
)
Tax impact due to implementation of ASU 2018-02
17,560

 
—

Balance at January 1, 2019
$
95,494

 
$
1,916

Amortization of retirement benefits, net of tax
(4,060
)
 
(138
)
Net actuarial (loss) gain
(2,604
)
 
78

Foreign exchange impact
—

 
44

Balance at December 31, 2019
$
88,830

 
$
1,900

We have recorded the following amounts to accumulated other comprehensive loss for the post-retirement life insurance plan, net of tax:
 
Unrecognized
Gain
Balance at January 1, 2018
$
(379
)
Amortization of retirement benefits, net of tax
36

Net actuarial loss
(418
)
Tax impact due to implementation of ASU No. 2018-02
(88
)
Balance at January 1, 2019
$
(849
)
Amortization of retirement benefits, net of tax
129

Net actuarial gain
112

Balance at December 31, 2019
$
(608
)


The accumulated actuarial gains and losses included in other comprehensive earnings are amortized in the following manner: 

The component of unamortized net gains or losses related to our qualified pension plans is amortized based on the expected future life expectancy of the plan participants (estimated to be approximately 17 years at December 31, 2019), because substantially all of the participants in those plans are inactive. The component of unamortized net gains or losses related to our post-retirement life insurance plan is amortized based on the estimated remaining future service period of the plan participants (estimated to be approximately 4 years at December 31, 2019). The Company uses a market-related approach to value plan assets, reflecting changes in the fair value of plan assets over a five-year period. The variance resulting from the difference between the expected and actual return on plan assets is included in the amortization calculation upon reflection in the market-related value of plan assets.
In 2020, we expect to recognize approximately $6,429 of pre-tax losses included in accumulated other comprehensive loss related to our pension plans and post-retirement life insurance plan, respectively.
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for those Pension Plans with accumulated benefit obligation in excess of fair value of plan assets is shown below:
 
As of December 31,
 
2019
2018
Projected benefit obligation
$
3,778

$
3,848

Accumulated benefit obligation
$
2,999

$
3,028

Fair value of plan assets
$
1,418

$
1,426


Net pension expense (income) includes the following components:
 
Years Ended
December 31,
 
Years Ended
December 31,
 
U.S. Pension Plans
 
Non-U.S. Pension Plans
 
2019
2018
2017
 
2019
2018
2017
Service cost
$
—

$
—

$
—

 
$
37

$
43

$
48

Interest cost
7,724

7,123

8,273

 
31

42

34

Expected return on plan assets(1)
(12,187
)
(12,898
)
(16,243
)
 
(17
)
(25
)
(20
)
Amortization of unrecognized loss
5,246

5,863

5,785

 
170

162

155

Settlement loss
—

—

13,476

 
—

—

—

Net expense (income)
$
783

$
88

$
11,291

 
$
221

$
222

$
217

Weighted-average actuarial assumptions(2)
 

 

 

 
 

 

 

Benefit obligation assumptions:
 

 

 

 
 

 

 

Discount rate
3.15
%
4.30
%
3.63
%
 
1.00
%
1.13
%
1.38
%
Rate of compensation increase
N/A

N/A

N/A

 
3.00
%
3.00
%
2.00
%
Pension income/expense assumptions:


 

 

 




 

Discount rate
4.30
%
3.63
%
4.16
%
 
1.13
%
1.38
%
1.13
%
Expected return on plan assets(1)
4.61
%
4.72
%
5.61
%
 
1.13
%
1.38
%
1.13
%
Rate of compensation increase
N/A

N/A

N/A

 
3.00
%
2.00
%
2.00
%
(1)
Expected return on plan assets is net of expected investment expenses and certain administrative expenses.
(2)
During the fourth quarter of each year, we review our actuarial assumptions in light of current economic factors to determine if the assumptions need to be adjusted.
Net post-retirement expense includes the following components:
 
Post-Retirement
Life Insurance Plan
 
Years Ended December 31,
 
2019
2018
2017
Service cost
$
1

$
2

$
2

Interest cost
170

156

161

Amortization of unrecognized gain
(166
)
(46
)
(101
)
Net expense
$
5

$
112

$
62

Weighted-average actuarial assumptions (1)
 

 

 

Benefit obligation assumptions:
 

 

 

Discount rate
3.09
%
4.26
%
3.59
%
Rate of compensation increase
N/A

N/A

N/A

Pension income/post-retirement expense assumptions:




 

Discount rate
4.26
%
3.59
%
4.10
%
Rate of compensation increase
N/A

N/A

N/A

(1)
During the fourth quarter of each year, we review our actuarial assumptions in light of current economic factors to determine if the assumptions need to be adjusted.





Our pension plan asset allocation at December 31, 2019, and 2018, and target allocation for 2020 by asset category are as follows:
 
Target Allocations
 
Percentage of Plan Assets
at December 31,
Asset Category
2020
 
2019
2018
Equity securities
13%
 
13%
12%
Debt securities
83%
 
83%
84%
Other
4%
 
4%
4%
Total
100%
 
100%
100%

We employ a liability-driven investment strategy whereby a mix of equity and fixed-income investments are used to pursue a de-risking strategy which over time seeks to reduce interest rate mismatch risk and other risks while achieving a return that matches or exceeds the growth in projected pension plan liabilities. Risk tolerance is established through careful consideration of plan liabilities and funded status. The investment portfolio primarily contains a diversified mix of equity and fixed-income investments.  Other assets such as private equity are used modestly to enhance long-term returns while improving portfolio diversification. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and asset/liability studies at regular intervals.
The following table summarizes the fair values of our pension plan assets:
 
As of December 31,
 
2019
2018
Equity securities - U.S. holdings(1)
$
24,586

$
20,469

Equity funds - U.S. holdings(1) (7)
—

54

Bond funds - government(4) (7)
33,991

19,146

Bond funds - other(5) (7)
207,901

202,393

Real estate(6) (7)
2,979

2,652

Cash and cash equivalents(2)
5,700

5,866

Partnerships(3)
7,539

9,172

Total fair value of plan assets
$
282,696

$
259,752


The fair values at December 31, 2019, are classified within the following categories in the fair value hierarchy:
 
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Not Leveled
Total
Equity securities - U.S. holdings(1)
$
24,586

$
—

$
—

$
—

$
24,586

Bond funds - government(4) (7)
—

—

—

33,991

33,991

Bond funds - other(5) (7)
—

—

—

207,901

207,901

Real estate(6) (7)
—

—

—

2,979

2,979

Cash and cash equivalents(2)
5,700

—

—

—

5,700

Partnerships(3)
—

—

7,539

—

7,539

Total
$
30,286

$
—

$
7,539

$
244,871

$
282,696

The fair values at December 31, 2018, are classified within the following categories in the fair value hierarchy:
 
Quoted Prices
in Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Not Leveled
Total
Equity securities - U.S. holdings(1)
$
20,469

$
—

$
—

$
—

$
20,469

Equity funds - U.S.holdings(1) (7)
—

—

—

54

54

Bond funds - government(4) (7)
—

—

—

19,146

19,146

Bond funds - other(5) (7)
—

—

—

202,393

202,393

Real estate(6) (7)
—

—

—

2,652

2,652

Cash and cash equivalents(2)
5,866

—

—

—

5,866

Partnerships(3)
—

—

9,172

—

9,172

Total
$
26,335

$
—

$
9,172

$
224,245

$
259,752

(1)
Comprised of common stocks of companies in various industries. The Pension Plan fund manager may shift investments from value to growth strategies or vice-versa, from small cap to large cap stocks or vice-versa, in order to meet the Pension Plan's investment objectives, which are to provide for a reasonable amount of long-term growth of capital without undue exposure to volatility, and protect the assets from erosion of purchasing power.
(2)
Comprised of investment grade short-term investment and money-market funds.
(3)
Comprised of partnerships that invest in various U.S. and international industries.
(4)
Comprised of long-term government bonds with a minimum maturity of 10 years and zero-coupon Treasury securities ("Treasury Strips") with maturities greater than 20 years.
(5)
Comprised predominately of investment grade U.S. corporate bonds with maturities greater than 10 years and U.S. high-yield corporate bonds; emerging market debt (local currency sovereign bonds, U.S. dollar-denominated sovereign bonds and U.S. dollar-denominated corporate bonds); and U.S. bank loans.
(6)
Comprised of investments in securities of U.S. and non-U.S. real estate investment trusts (REITs), real estate operating companies and other companies that are principally engaged in the real estate industry and of investments in global private direct commercial real estate. Investments can be redeemed immediately following the valuation date with a notice of at least fifteen business days before valuation.
(7)
Comprised of investments that are measured at fair value using the NAV per share practical expedient. In accordance with the provisions of ASC 820-10, these investments have not been classified in the fair value hierarchy. The fair value amount not leveled is presented to allow reconciliation of the fair value hierarchy to total fund pension plan assets.
The pension plan assets recorded at fair value are measured and classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs available in the marketplace used to measure fair value as discussed below:
•
Level 1:  Fair value measurements that are based on quoted prices (unadjusted) in active markets that the pension plan trustees have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets.
•
Level 2:  Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset, either directly or indirectly. Level 2 inputs include quoted prices for similar assets in active or inactive markets, and inputs other than quoted prices that are observable for the asset, such as interest rates and yield curves that are observable at commonly quoted intervals.
•
Level 3:  Fair value measurements based on valuation techniques that use significant inputs that are unobservable.
The table below reconciles the Level 3 partnership assets within the fair value hierarchy:
 
Amount
Fair value of Level 3 partnership assets at January 1, 2018
$
10,787

Capital contributions
78

Realized and unrealized gain
1,154

Capital distributions
(2,847
)
Fair value of Level 3 partnership assets at December 31, 2018
$
9,172

Capital contributions
120

Realized and unrealized gain
(139
)
Capital distributions
(1,614
)
Fair value of Level 3 partnership assets at December 31, 2019
$
7,539


The partnership fund manager uses a market approach in estimating the fair value of the plan's Level 3 asset. The market approach estimates fair value by first determining the entity's earnings before interest, taxes, depreciation and amortization and then multiplying that value by an estimated multiple. When establishing an appropriate multiple, the fund manager considers recent comparable private company transactions and multiples paid. The entity's net debt is then subtracted from the calculated amount to arrive at an estimated fair value for the entity.
We expect to make $493 of contributions to the U.S. plans and $261 of contributions to the non-U.S. plans during 2020.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
 
U.S.
Pension
Plans
Non-U.S.
Pension
Plans
Post-Retirement
Life Insurance Plan
2020
$
15,514

$
46

$
393

2021
15,399

54

377

2022
15,218

82

362

2023
14,983

69

347

2024
14,706

84

332

2025-2029
68,594

715

1,468

Total
$
144,414

$
1,050

$
3,279


Defined Contribution Plans
We sponsor a 401(k) plan that covers substantially all of our U.S. employees. Contributions and costs are generally determined as a percentage of the covered employee's annual salary.
Expenses related to defined contribution plans include the following:
 
Years Ended December 31,
 
2019
2018
2017
401(k) and other defined contribution plan expense
$
3,125

$
3,256

$
3,141