Defined Benefit Pension Plans

We have defined benefit pension plans covering certain current and retired U.S. employees. Plans include: (i) the Employee Retirement Plan (“ERP”) for employees hired prior to January 1, 2009; (ii) a Supplemental Executive Retirement Plan (“SERP”) for which future benefit accruals were frozen effective at the end of the second quarter 2015; and (iii) a Benefit Restoration Pension Plan (“Restoration Plan”) for certain key employees hired prior to January 1, 2009.

Both the SERP and the Restoration Plan are defined benefit plans under which nonqualified supplemental pension benefits will be paid in addition to amounts paid under our qualified retirement defined benefit pension plans, which are subject to Internal Revenue Service limitations on covered compensation.

Effective December 31, 2008, enhanced benefits were implemented to our defined contribution savings plan--The Davey 401KSOP and ESOP--at which time, the Board of Directors approved an amendment to freeze the ERP and the Restoration Plan. The ERP was closed to new participants after December 2008. In connection with the freeze of the ERP, the Restoration Plan and the SERP, (a) benefits currently being paid to retirees continue and (b) benefits accrued through December 31, 2008 for employees covered by the ERP were not affected. All ERP, Restoration Plan and SERP balances remain intact and participant account balances, as well as service credits for vesting and retirement eligibility, remain intact and continue in accordance with the terms of the plans. Only future accruals were eliminated with: (i) the 2008 freeze of the ERP and Restoration Plan and (ii) the 2015 freeze of the SERP.

The change in benefit obligations and the fair value of plans assets follows:



	December 31,
	2018			2017
Change in benefit obligation
Projected benefit obligation at beginning of year	$	19,403		$	24,833
Service cost	400			530
Interest cost	718			1,002
Actuarial (gains)/losses	(77		)	1,865
Amendments	—			—
Settlements	(13,118		)	(8,400		)
Benefits paid	(262		)	(427		)
Projected benefit obligation at end of year	$	7,064		$	19,403
Accumulated benefit obligation at end of year	$	7,064		$	19,403



	December 31,
	2018			2017
Change in fair value of plan assets
Fair value of plan assets at beginning of year	$	7,105		$	11,509
Actual return on plan assets	239			845
Plan expenses, including PBGC premiums	(364		)	(513		)
Employer contributions	10,158			4,091
Settlements	(13,118		)	(8,400		)
Benefits paid	(262		)	(427		)
Fair value of plan assets at end of year	$	3,758		$	7,105

The settlements in the change in benefit obligation and in the change in fair value of plan assets arise from: (i) lump sum offering to 905 participants in our ERP plan during the fourth quarter 2018 as part of our plan termination process; and (ii) a purchase of a guaranteed group annuity contract during the fourth quarter 2017 from a third-party insurance company which


P.	Defined Benefit Pension Plans (continued)

unconditionally and irrevocably guarantees the full payment of all annuity payments to a combination of participants currently receiving benefits or entitled to future benefits from the ERP plan.



	December 31,
	2018			2017
Funded status of the plans
Fair value of plan assets	$	3,758		$	7,105
Projected benefit obligation	7,064			19,403
Funded status of the plans	$	(3,306	)	$	(12,298	)


	December 31,
	2018			2017
Funded status by plan
ERP	$	(332	)	$	(9,084	)
SERP	(2,564		)	(2,759		)
Restoration Plan	(410		)	(455		)
	$	(3,306	)	$	(12,298	)



	December 31,
	2018			2017
Amounts reported in the consolidated balance sheets
Current liability	$	(187	)	$	(175	)
Noncurrent liability	(3,119		)	(12,123		)
Funded status of the plans	$	(3,306	)	$	(12,298	)

Amounts included in accumulated other comprehensive income (loss), related to our defined benefit pension plans follow:



	At December 31, 2018					At December 31, 2017
	Pretax		Net of Tax			Pretax		Net of Tax
Amounts reported in accumulated other comprehensive income
Unrecognized net actuarial loss	$	2,139	$	(714	)	$	8,086	$	4,919
Unrecognized prior service cost	214		(71		)	278		169
	$	2,353	$	(785	)	$	8,364	$	5,088

To the extent actuarial losses exceed the greater of 10% of the projected benefit obligation or market-related value of plan assets, the unrecognized actuarial losses will be amortized straight-line on a plan-by-plan basis, over the remaining expected future working lifetime of active participants, except for the SERP, which, after the plan freeze, is being amortized based on the remaining life expectancy of plan participants. The total amount of unrecognized prior service cost was amortized straight-line on a plan-by-plan basis.

P. Defined Benefit Pension Plans (continued)

The total amortization associated with these amounts that is expected to be recognized in net periodic benefit expense for 2019 follows:



	Year ending December 31, 2019
	Pretax		Net of Tax
Amortization of Costs Expected to be Recognized Next Year
Unrecognized net actuarial loss	$	175	$	131
Unrecognized prior service cost	64		48
	$	239	$	179

The aggregate projected benefit obligation, accumulated benefit obligation and fair value of plan assets for plans in which the fair value of plan assets is less than either the projected benefit obligation or accumulated benefit obligation follow:



	December 31,
	2018		2017
For pension plans with accumulated benefit obligations in excess of plan assets
Projected benefit obligation	$	7,064	$	19,403
Accumulated benefit obligation	7,064		19,403
Fair value of plan assets	3,758		7,105

The actuarial assumptions follow. The discount rates were used to measure the year-end benefit obligation and compute pension expense for the subsequent year.



	December 31,
	2018		2017		2016
Actuarial assumptions
Discount rate	4.35	%	3.70	%	4.20	%
Expected long-term rate of return on plan assets	2.50		2.50		5.00

Net periodic benefit expense (income) associated with the defined benefit pension plans included the following components:



	Year Ended December 31,
	2018			2017			2016
Components of pension expense (income)
Service costs--increase in benefit obligation earned	$	400		$	530		$	370
Interest cost on projected benefit obligation	718			1,002			1,243
Expected return on plan assets	(231		)	(638		)	(1,044		)
Curtailment loss	—			—			—
Settlement loss	5,499			3,849			2,346
Amortization of net actuarial loss	728			909			951
Amortization of prior service cost	64			64			—
Net pension expense of defined benefit pension plans	$	7,178		$	5,716		$	3,866


P.	Defined Benefit Pension Plans (continued)

Investment Strategy and Risk Management for Plan Assets--Our investment strategy is to manage the plan assets in order to pay retirement benefits to plan participants while minimizing our cash contributions over the life of the plans. This is accomplished by maintaining liquidity and preserving principal through diversification in high-quality investments through the use of investment managers and mutual funds. Performance of all investment managers and mutual funds is monitored quarterly and evaluated over rolling three-to-five year periods.

In December 2017, we revised our investment policy to reallocate 100% of our plan assets into the fixed income and cash asset class from the prior target allocations of: (a) equities of a minimum 20% to a maximum of 40%; (b) fixed income and cash of a minimum 50% to a maximum of 70%; and, (c) alternative investments of a minimum of zero to a maximum of 15%. The purpose of the fixed income asset class is to provide a deflation hedge, to reduce the overall volatility of plan assets and to produce current income in support of the needs of the plan.

Fixed income assets can be invested in U.S. government and prime money market funds, U.S. Treasuries, insured certificates of deposit and U.S. investment grade corporates of at least "A" or better quality and other high-quality debt securities. Other than investments in U.S. government or government agencies, no single debt issue will be allowed to exceed 5% market value of the debt portfolio. Short-selling, securities lending, financial futures, margins, options, and derivatives are not used. Investments in nonmarketable securities, commodities, or direct ownership of real estate are prohibited.

Rate-of-return-on-assets assumptions are made based on the mix of assets according to our investment policy. Given the reallocation of plan assets into the fixed income and cash asset class, the overall expected long-term rate-of-return-on-plan assets net of investment manager fees as at December 31, 2018, was 2.50%.

Plan Assets--The fair values of our pension plan assets at December 31, 2018 by asset category, using the three-level hierarchy of fair value inputs, were as follows:



			Fair Value Measurements at December 31, 2018 Using:
Description	Total Carrying Value at December 31, 2018		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Asset Category
Money market funds	$	3,758			$	3,758	$	—
U.S. large-cap equities
Growth	—				—		—
Value	—				—		—
U.S. small/mid-cap equities
Growth	—				—		—
Value	—				—		—
International equities
Growth	—				—		—
Value	—				—		—
Fixed income	—				—		—
Multiclass world-allocation mutual funds	—				—		—
	$	3,758	$	—	$	3,758	$	—


P.	Defined Benefit Pension Plans (continued)

The fair values of our pension plan assets at December 31, 2017 by asset category, using the three-level hierarchy of fair value inputs, were as follows:



			Fair Value Measurements at December 31, 2017 Using:
Description	Total Carrying Value at December 31, 2017		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Asset Category
Money market funds	$	897	$	—	$	897	$	—
U.S. large-cap equities
Growth	576		576		—		—
Value	542		542		—		—
U.S. small/mid-cap equities
Growth	246		246		—		—
Value	247		247		—		—
International equities
Growth	376		376		—		—
Value	366		366		—		—
Fixed income	3,070		3,070		—		—
Multiclass world-allocation mutual funds	785		785		—		—
	$	7,105	$	6,208	$	897	$	—

Within the pension plan asset categories, the Level 1 investments are publicly traded in active markets and are valued using the net asset value or closing price of the investment at the measurement date. Securities held by a money market fund are generally high quality and liquid; however, they are reflected as Level 2 because the inputs used to determine fair value are not quoted prices in an active market.

Expected Benefit Plan Contributions--It is our practice to make contributions to comply with the minimum funding requirements of ERISA. In accordance with such practice, contributions totaling $191 are required for 2019; however, we may make additional discretionary contributions.

Expected Benefit Plan Payments--The benefits, as of December 31, 2018, expected to be paid to defined-benefit plan participants in each of the next five years, and in the aggregate for the five years thereafter, follows:



	Participants Benefits
Estimated future payments
Year ending December 31, 2019	$	356
2020	379
2021	384
2022	386
2023	389
Years 2024 to 2028	1,986

Multiemployer Defined Benefit Pension Plans--In providing services to our utility services customers, we contribute to multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover certain of our union-represented employees.


P.	Defined Benefit Pension Plans (continued)

These plans generally provide retirement benefits to participants based on their service to contributing employers. We do not administer these multiemployer plans. In general, these plans are managed by a board of trustees with the unions appointing certain trustees and other contributing employers of the plan appointing certain members. We generally are not represented on the board of trustees.

The risks of participating in these multiemployer plans are different from single-employer plans in that: (a) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; (b) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be assumed by the remaining participating employers; and, (c) if we choose to stop participating in a multiemployer plan, we may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

Our participation in the multiemployer defined benefit pension plans is summarized in the table below. The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three-digit plan number. The most recent Pension Protection Act of 2006 (the “PPA”) zone status is from the Form 5500, “Annual Return/Report of Employee Benefit Plan,” filed by the plan and certified by the plan's actuary. The PPA zone status describes plans that are underfunded. Among other factors, plans in the “critical” red zone are generally less than 65% funded; plans in the “endangered” yellow zone are less than 80% funded; and, plans in the “safe” green zone are at least 80% funded.



Pension Fund	EIN/Pension Plan Number	Pension Protection Act Zone Status		FIP/RP Status Pending Implemented	Davey Tree Contributions						Surcharge Imposed	Expiration Dates of Bargaining Agreement
Pension Fund	EIN/Pension Plan Number	2018	2017	FIP/RP Status Pending Implemented	2018		2017		2016		Surcharge Imposed	Expiration Dates of Bargaining Agreement
National Electric Benefit Fund	53-0181657/001	Green	Green	No	$	768	$	785	$	712	No	Ranging from December 31, 2018 to December 31, 2022
Eighth District Electrical Pension Fund	84-6100393/001	Green	Green	No	142		102		90		No	December 26, 2020
					$	910	$	887	$	802

We were not listed in the Form 5500 for either plan as having provided more than 5% of the total contributions.

Both the National Electric Benefit Fund and the Eighth District Electrical Pension Fund are green zone status--safe--which represents at least 80% funded and does not require a “financial improvement plan” (“FIP”) or a “rehabilitation plan” (“RP”).

We are party to ten collective-bargaining agreements with the National Electric Benefit Fund, with expiration dates ranging from December 31, 2018 to December 31, 2022, and one collective-bargaining agreement with Eighth District Electrical Pension Fund which expires on December 26, 2020. Expired agreements are currently being renegotiated.