Retirement Plans

12 Months Ended

Dec. 31, 2020

Compensation And Retirement Disclosure [Abstract]

Retirement Plans

NOTE 7 — Retirement Plans

We have a number of noncontributory defined benefit pension plans ("pension plans") covering approximately 2% 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. All benefits for the U.S. based pension plan were frozen in 2017 and 2013 for union and non-union employees, respectively.

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, 2020, and 2019.

In February 2020, the CTS Board of Directors authorized management to explore termination of the U.S. Pension Plan (“Plan”) at management's discretion, subject to certain conditions. On June 1, 2020, we amended the Plan whereby we set an effective termination date of July 31, 2020. In February 2021, we received the determination letter from the Internal Revenue Service that allows us to proceed with the termination process. The completion of the Plan termination process, including offering lump sum settlements and the final purchases of annuities, is expected to occur in 2021. We do not expect any cash contributions from the Company to the Plan as a result of this termination because plan assets significantly exceed estimated liabilities.

In connection with the decision to terminate the Plan, we remeasured the projected benefit obligation in the fourth quarter of 2020 based on the expected Plan termination costs. Upon settlement of the pension liability, we will reclassify the related pension losses, currently recorded to accumulated other comprehensive loss, to the consolidated statements of earnings. As of December 31, 2020, we had gross unrecognized losses related to the Plan of $125,005 in accumulated other comprehensive loss that are expected to be recognized in the income statement in 2021. Since the amount of the settlement depends on a number of factors determined as of the liquidation date, including lump sum payout estimates, the annuity pricing interest rate environment and asset experience, we are currently unable to determine the ultimate cost of the settlement. However, we estimate that non-cash settlement charges of approximately $10,000 to $20,000 to be recognized in the second or third quarter of 2021 with the remaining amount of the gross accumulated other comprehensive loss balance to be recognized by the end of 2021.

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. In connection with the Plan termination process, we remeasured the projected benefit obligation based on the expected Plan termination costs including estimates for the anticipated amount of lump sum payments as well as estimates for insurance company pricing on the portion of the obligation not distributed through lump sum payments. These changes as well as a reduction in the discount rate used to determine the benefit obligation were the primary drivers in the increase to the obligation.

	U.S. Pension Plans				Non-U.S. Pension Plans
	2020		2019		2020		2019
Accumulated benefit obligation	$	230,205	$	220,339	$	1,983	$	1,854
Change in projected benefit obligation:
Projected benefit obligation at January 1	$	220,339	$	205,319	$	2,633	$	2,756
Service cost		—		—		31		37
Interest cost		5,773		7,724		28		31
Benefits paid		(14,590)		(14,834)		(285)		(408)
Actuarial loss		18,683		22,130		95		153
Foreign exchange impact		—		—		184		64
Projected benefit obligation at December 31	$	230,205	$	220,339	$	2,686	$	2,633
Change in plan assets:
Assets at fair value at January 1	$	281,276	$	258,327	$	1,419	$	1,425
Actual return on assets		18,886		37,680		95		73
Company contributions		103		103		268		295
Benefits paid		(14,590)		(14,834)		(285)		(408)
Foreign exchange impact		—		—		98		34
Assets at fair value at December 31	$	285,675	$	281,276	$	1,595	$	1,419
Funded status (plan assets less projected benefit obligations)	$	55,470	$	60,937	$	(1,091)	$	(1,214)

The measurement dates for the post-retirement life insurance plan were December 31, 2020, and 2019. 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
	2020		2019
Accumulated benefit obligation	$	5,376	$	4,766
Change in projected benefit obligation:
Projected benefit obligation at January 1	$	4,766	$	4,595
Service cost		1		1
Interest cost		122		170
Benefits paid		(154)		(145)
Actuarial loss		641		145
Projected benefit obligation at December 31	$	5,376	$	4,766
Change in plan assets:
Assets at fair value at January 1	$	—	$	—
Actual return on assets		—		—
Company contributions		154		145
Benefits paid		(154)		(145)
Other		—		—
Assets at fair value at December 31	$	—	$	—
Funded status (plan assets less projected benefit obligations)	$	(5,376)	$	(4,766)

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
	2020		2019		2020		2019
Prepaid pension asset	$	56,642	$	62,082	$	—	$	—
Accrued expenses and other liabilities		(100)		(100)		—		—
Long-term pension obligations		(1,072)		(1,045)		(1,091)		(1,214)
Net prepaid (accrued) cost	$	55,470	$	60,937	$	(1,091)	$	(1,214)

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
	2020		2019
Accrued expenses and other liabilities	$	(451)	$	(393)
Long-term pension obligations		(4,924)		(4,373)
Total accrued cost	$	(5,375)	$	(4,766)

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, 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 January 1, 2020	$	88,830	$	1,900
Amortization of retirement benefits, net of tax		(4,995)		(146)
Net actuarial gain (loss)		7,402		14
Foreign exchange impact		—		133
Balance at December 31, 2020	$	91,237	$	1,901

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, 2019	$	(849)
Amortization of retirement benefits, net of tax		129
Net actuarial gain		112
Balance at January 1, 2020	$	(608)
Amortization of retirement benefits, net of tax		64
Net actuarial gain		493
Balance at December 31, 2020	$	(51)

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 16 years at December 31, 2020), 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 3 years at December 31, 2020). 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 2021, we expect to recognize approximately $125,214 of pre-tax losses included in accumulated other comprehensive loss related to our pension plans and post-retirement life insurance plan. This includes approximately $125,005 in pre-tax non-cash settlement charges expected from the U.S. Plan termination. The pre-tax non-cash settlement charge is an estimate and could be in the range of $110,000 and $135,000 based on changes in market conditions.

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,
	2020		2019
Projected benefit obligation	$	3,859	$	3,778
Accumulated benefit obligation	$	3,155	$	2,999
Fair value of plan assets	$	1,595	$	1,419

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
	2020		2019		2018		2020		2019		2018
Service cost	$	—	$	—	$	—	$	31	$	37	$	43
Interest cost		5,773		7,724		7,123		28		31		42
Expected return on plan assets(1)		(9,817)		(12,187)		(12,898)		(16)		(17)		(25)
Amortization of unrecognized loss		6,488		5,246		5,863		174		170		162
Net expense	$	2,444	$	783	$	88	$	217	$	221	$	222
Weighted-average actuarial assumptions(2)
Benefit obligation assumptions:
Discount rate		2.26%		3.15%		4.30%		0.63%		1.00%		1.13%
Rate of compensation increase	N/A		N/A		N/A			3.00%		3.00%		3.00%
Pension income/expense assumptions:
Discount rate		3.15%		4.30%		3.63%		0.63%		1.13%		1.38%
Expected return on plan assets(1)		3.76%		4.61%		4.72%		0.63%		1.13%		1.38%
Rate of compensation increase	N/A		N/A		N/A			3.00%		3.00%		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. 2020 assumptions reflect termination basis accounting.

Net post-retirement expense includes the following components:

	Post-Retirement Life Insurance Plan
	Years Ended December 31,
	2020		2019		2018
Service cost	$	1	$	1	$	2
Interest cost		122		170		156
Amortization of unrecognized gain		(84)		(166)		(46)
Net expense	$	39	$	5	$	112
Weighted-average actuarial assumptions(1)
Benefit obligation assumptions:
Discount rate		2.27%		3.09%		4.26%
Rate of compensation increase	N/A		N/A		N/A
Pension income/post-retirement expense assumptions:
Discount rate		3.09%		4.26%		3.59%
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, 2020, and 2019, and target allocation for 2021 by asset category are as follows:

	Target Allocations		Percentage of Plan Assets at December 31,
Asset Category	2021		2020		2019
Equity securities		0%		13%		13%
Fixed income/Debt securities		100%		83%		83%
Other		0%		4%		4%
Total		100%		100%		100%

Historically, we employed 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 contained 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.

As part of the planned termination of the U.S. pension plan, a new investment allocation strategy was put in place to protect the funded status of the U.S. plan assets subsequent to Board approval of U.S. pension plan termination. The target allocation for U.S. plan assets for 2021 is 100% fixed income investments including cash and cash equivalents. 

The following table summarizes the fair values of our pension plan assets:

	As of December 31,
	2020		2019
Equity securities - U.S. holdings(1)	$	7	$	24,586
Bond funds - government(4) (7)		53,239		33,991
Bond funds - other(5) (7)		173,853		207,901
Real estate(6) (7)		—		2,979
Cash and cash equivalents(2)		53,379		5,700
Partnerships(3)		6,792		7,539
Total fair value of plan assets	$	287,270	$	282,696

The fair values at December 31, 2020, 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)	$	7	$	—	$	—	$	—	$	7
Bond funds - government(4) (7)		—		—		—		53,239		53,239
Bond funds - other(5) (7)		—		—		—		173,853		173,853
Cash and cash equivalents(2)		53,379		—		—		—		53,379
Partnerships(3)		—		—		6,792		—		6,792
Total	$	53,386	$	—	$	6,792	$	227,092	$	287,270

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

(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, 2019	$	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
Capital contributions		44
Realized and unrealized gain		(269)
Capital distributions		(522)
Fair value of Level 3 partnership assets at December 31, 2020	$	6,792

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 $551 of contributions to the U.S. plans and $253 of contributions to the non-U.S. plans during 2021.

Expected benefit payments under the defined benefit pension plans and the postretirement benefit plan, excluding the impact of the Plan termination process, for the next five years subsequent to 2020 and in the aggregate for the following five years are as follows:

	U.S. Pension Plans		Non-U.S. Pension Plans		Post- Retirement Life Insurance Plan
2021	$	15,514	$	54	$	451
2022		15,397		86		426
2023		15,215		71		402
2024		14,979		87		380
2025		14,703		98		360
2026-2029		68,579		734		1,545
Total	$	144,387	$	1,130	$	3,564

Defined Contribution Plans

We sponsor a 401(k) plan that covers substantially all of our U.S. employees as well as offer similar defined contribution plans at certain foreign locations. Contributions and costs are generally determined as a percentage of the covered employee's annual salary. We ceased matching employee contributions in Q2 2020 in light of COVID-19 concerns, and we have reimplemented the match in February 2021.

Expenses related to defined contribution plans include the following:

	Years Ended December 31,
	2020		2019		2018
401(k) and other defined contribution plan expense	$	1,636	$	3,125	$	3,256