Retirement Plans

The Company has three retirement plans that cover its hourly and salaried employees in the United States: one defined benefit plan, which is frozen, and two defined contribution plans. On December 31, 2017, the Company consolidated its three United States defined benefit plans into one United States defined benefit plan and consolidated its prior four United States defined contribution plans into two United States defined contribution plans. Employees are eligible to participate in the appropriate plan based on employment classification. The Company’s contributions to the defined benefit and defined contribution plans are governed by the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Company’s policy and investment guidelines of the applicable plan. The Company’s policy is to contribute at least the minimum in accordance with the funding standards of ERISA.

Rail Technologies maintains two defined contribution plans for its employees in Canada, as well as a post-retirement benefit plan. In the United Kingdom, Rail Technologies maintains two defined contribution plans and a defined benefit plan, which is frozen. These plans are discussed in further detail below.

United States Defined Benefit Plan

The following tables present a reconciliation of the changes in the benefit obligation, the fair market value of the assets, and the funded status of the plan, as of December 31, 2017 and 2016:



	2017			2016
Changes in benefit obligation:
Benefit obligation at beginning of year	$	18,241		$	17,759
Service cost	—			36
Interest cost	684			746
Actuarial loss	775			534
Benefits paid	(917		)	(834		)
Benefit obligation at end of year	$	18,783		$	18,241
Change to plan assets:
Fair value of assets at beginning of year	$	14,180		$	14,235
Actual gain on plan assets	1,629			779
Benefits paid	(917		)	(834		)
Fair value of assets at end of year	14,892			14,180
Funded status at end of year	$	(3,891	)	$	(4,061	)
Amounts recognized in the consolidated balance sheet consist of:
Other long-term liabilities	$	(3,891	)	$	(4,061	)
Amounts recognized in accumulated other comprehensive income consist of:
Net loss	$	3,913		$	4,186

The actuarial loss included in accumulated other comprehensive loss that will be recognized in net periodic pension cost during 2018 is $96, before taxes.

Net periodic pension costs for the three years ended December 31, 2017 are as follows:



	2017			2016			2015
Components of net periodic benefit cost:
Service cost	$	—		$	36		$	38
Interest cost	684			746			742
Expected return on plan assets	(710		)	(717		)	(816		)
Amortization of prior service cost	—			—			3
Recognized net actuarial loss	130			276			275
Net periodic pension cost	$	104		$	341		$	242

The weighted average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed and also the net periodic benefit cost for the following year.



	2017		2016		2015
Discount rate	3.9	%	4.3	%	4.3	%
Expected rate of return on plan assets	5.9	%	5.2	%	5.2	%

The expected long-term rate of return is based on numerous factors including the target asset allocation for plan assets, historical rate of return, long-term inflation assumptions, and current and projected market conditions. The increase in the expected rate of return on plan assets reflects the expected increased corporate shareholder returns resulting from the Tax Cuts and Jobs Act of 2017.

Amounts applicable to the Company’s pension plan with accumulated benefit obligations in excess of plan assets are as follows at December 31:



	2017		2016
Projected benefit obligation	$	18,783	$	18,241
Accumulated benefit obligation	18,783		18,241
Fair value of plan assets	14,892		14,180

Plan assets consist primarily of various fixed income and equity investments. The Company’s primary investment objective is to provide long-term growth of capital while accepting a moderate level of risk. The investments are limited to cash and cash equivalents, bonds, preferred stocks, and common stocks. The investment target ranges and actual allocation of pension plan assets by major category at December 31, 2017 and 2016 are as follows:



	Target	2017		2016
Asset Category
Cash and cash equivalents	0 - 10%	2	%	5	%
Total fixed income funds	25 - 50	32		33
Total mutual funds and equities	50 - 70	66		62
Total		100	%	100	%

In accordance with the fair value disclosure requirements of FASB ASC 820, “Fair Value Measurements and Disclosures,” the following assets were measured at fair value on a recurring basis at December 31, 2017 and 2016. Additional information regarding FASB ASC 820 and the fair value hierarchy can be found in Note 18 Fair Value Measurements.



	2017		2016
Asset Category
Cash and cash equivalents	$	284	$	660
Fixed income funds
Corporate bonds	4,755		4,767
Total fixed income funds	4,755		4,767
Equity funds and equities
Mutual funds	712		8,753
Exchange-Traded Funds (“ETF”)	9,141		—
Total mutual funds and equities	9,853		8,753
Total	$	14,892	$	14,180

Cash equivalents. The Company uses quoted market prices to determine the fair value of these investments in interest-bearing cash accounts and they are classified in Level 1 of the fair value hierarchy. The carrying amounts approximate fair value because of the short maturity of the instruments.

Fixed income funds. Investments within the fixed income funds category consist of fixed income corporate debt. The Company uses quoted market prices to determine the fair values of these fixed income funds. These instruments consist of exchange-traded government and corporate bonds and are classified in Level 1 of the fair value hierarchy.

Equity funds and equities. The valuation of investments in registered investment companies is based on the underlying investments in securities. Securities traded on security exchanges are valued at the latest quoted sales price. Securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the average of the last reported bid and ask quotations. These investments are classified in Level 1 of the fair value hierarchy.

The Company currently does not anticipate contributions to its United States defined benefit plan in 2018.

The following benefit payments are expected to be paid:



	Pension
	Benefits
2018	$	927
2019	996
2020	1,003
2021	1,058
2022	1,071
Years 2023-2027	5,608

United Kingdom Defined Benefit Plan

The Portec Rail Products (UK) Limited Pension Plan covers certain current employees, former employees, and retirees. The plan has been frozen to new entrants since April 1, 1997 and also covers the former employees of a merged plan after January 2002. Benefits under the plan were based on years of service and eligible compensation during defined periods of service. Our funding policy for the plan is to make minimum annual contributions required by applicable regulations.

The funded status of the United Kingdom defined benefit plan at December 31, 2017 and 2016 is as follows:



	2017			2016
Changes in benefit obligation:
Benefit obligation at beginning of year	$	8,104		$	7,862
Interest cost	236			259
Actuarial (gain) loss	(451		)	1,532
Benefits paid	(322		)	(273		)
Foreign currency exchange rate changes	768			(1,276		)
Benefit obligation at end of year	$	8,335		$	8,104
Change to plan assets:
Fair value of assets at beginning of year	$	5,826		$	6,661
Actual gain on plan assets	573			265
Employer contribution	276			253
Benefits paid	(322		)	(273		)
Foreign currency exchange rate changes	551			(1,080		)
Fair value of assets at end of year	6,904			5,826
Funded status at end of year	$	(1,431	)	$	(2,278	)
Amounts recognized in the consolidated balance sheet consist of:
Other long-term liabilities	$	(1,431	)	$	(2,278	)
Amounts recognized in accumulated other comprehensive income consist of:
Net loss	$	1,161		$	2,015
Prior service cost	39			53
	$	1,200		$	2,068

Net periodic pension costs for the three years ended December 31 are as follows:



	2017			2016			2015
Components of net periodic benefit cost:
Interest cost	$	236		$	259		$	295
Expected return on plan assets	(280		)	(290		)	(324		)
Amortization of prior service cost	19			17			27
Recognized net actuarial loss	192			275			225
Net periodic pension cost	$	167		$	261		$	223



	2017		2016		2015
Discount rate	2.5	%	2.7	%	4.0	%
Expected rate of return on plan assets	4.1	%	4.4	%	5.2	%

Amounts applicable to the Company’s pension plans with accumulated benefit obligations in excess of plan assets are as follows at December 31:



	2017		2016
Projected benefit obligation	$	8,335	$	8,104
Accumulated benefit obligation	8,335		8,104
Fair value of plan assets	6,904		5,826

The Company has estimated the long-term rate of return on plan assets based primarily on historical returns on plan assets, adjusted for changes in target portfolio allocations, and recent changes in long-term interest rates based on publicly available information.

Plan assets are invested by the trustees in accordance with a written statement of investment principles. This statement permits investment in equities, corporate bonds, United Kingdom government securities, commercial property, and cash, based on certain target allocation percentages. Asset allocation is primarily based on a strategy to provide steady growth without undue fluctuations. The target asset allocation percentages for 2017 are as follows:



		Portec Rail
		Plan
Equity securities		Up to 100%
Commercial property		Not to exceed 50%
U.K. Government securities		Not to exceed 50%
Cash		Up to 100%

Plan assets held within the United Kingdom defined benefit plan consist of cash and marketable securities that have been classified as Level 1 of the fair value hierarchy. All other plan assets have been classified as Level 2 of the fair value hierarchy.

The plan assets by category for the two years ended December 31, 2017 and 2016 are as follows:



	2017		2016
Asset Category
Cash and cash equivalents	$	695	$	707
Equity securities	2,707		2,617
Bonds	2,276		1,347
Other	1,226		1,155
Total	$	6,904	$	5,826

United Kingdom regulations require trustees to adopt a prudent approach to funding required contributions to defined benefit pension plans. The Company anticipates making contributions of $253 to the United Kingdom defined benefit plan during 2018.

The following estimated future benefits payments are expected to be paid under the United Kingdom defined benefit plan:



	Pension
	Benefits
2018	$	259
2019	275
2020	291
2021	299
2022	317
Years 2023-2027	2,040