Defined Contribution and Defined Benefit Retirement

12 Months Ended

Dec. 31, 2018

Compensation And Retirement Disclosure [Abstract]

Defined Contribution and Defined Benefit Retirement

Note 11—Defined contribution and defined benefit retirement:

Defined contribution plans. Certain of our subsidiaries maintain various defined contribution pension plans for our employees worldwide. Defined contribution plan expense approximated $5.6 million in 2016, $5.5 million in 2017 and $6.6 million in 2018.

Defined benefit plans. Kronos and NL sponsor various defined benefit pension plans worldwide. The benefits under our defined benefit plans are based upon years of service and employee compensation. Our funding policy is to contribute annually the minimum amount required under ERISA (or equivalent foreign) regulations plus additional amounts as we deem appropriate. We recognize an asset or liability for the over or under funded status of each of our individual defined benefit pension plans on our Consolidated Balance Sheets.  Changes in the funded status of these plans are recognized either in net income, to the extent they are reflected in periodic benefit cost, or through other comprehensive income (loss).

We expect to contribute the equivalent of $18.2 million to all of our defined benefit pension plans during 2019. Benefit payments to plan participants out of plan assets are expected to be the equivalent of:

2019	$	26.7 million
2020		28.0 million
2021		28.1 million
2022		29.4 million
2023		29.2 million
Next 5 years		165.8 million

The funded status of our U.S. defined benefit pension plans is presented in the table below.

	Years ended December 31,
	2017			2018
	(In millions)
Change in projected benefit obligations (“PBO”):
Balance at beginning of the year	$	62.8		$	63.0
Interest cost		2.5			2.2
Actuarial  losses (gains)		1.9			(3.4	)
Benefits paid		(4.2	)		(4.2	)
Balance at end of the year	$	63.0		$	57.6
Change in plan assets:
Fair value at beginning of the year	$	45.6		$	46.5
Actual return on plan assets		4.0			(2.5	)
Employer contributions		1.1			3.4
Benefits paid		(4.2	)		(4.2	)
Fair value at end of year	$	46.5		$	43.2
Funded status	$	(16.5	)	$	(14.4	)
Amounts recognized in the Consolidated Balance Sheets:
Accrued pension costs:
Current	$	(.3	)	$	(.2	)
Noncurrent		(16.2	)		(14.2	)
Total		(16.5	)		(14.4	)
Accumulated other comprehensive loss—
Actuarial loss		37.2			39.0
Total	$	20.7		$	24.6
Accumulated benefit obligations (“ABO”)	$	63.0		$	57.6

The components of our net periodic defined benefit pension benefit cost for U.S. plans are presented in the table below. The amounts shown below for the amortization of unrecognized actuarial losses for 2016, 2017 and 2018 were recognized as components of our accumulated other comprehensive income (loss) at December 31, 2015, 2016 and 2017, respectively, net of deferred income taxes and noncontrolling interest.

	Years ended December 31,
	2016			2017			2018
	(In millions)
Net periodic pension benefit cost (credit) for U.S. plans:
Interest cost	$	2.7		$	2.5		$	2.2
Expected return on plan assets		(3.4	)		(3.3	)		(3.4	)
Amortization of unrecognized net actuarial loss		1.9			2.0			2.0
Total	$	1.2		$	1.2		$	.8

Information concerning our U.S. defined benefit pension plans (for which the ABO of all of the plans exceeds the fair value of plan assets as of the indicated date) is presented in the table below.

.

	December 31,
	2017		2018
	(In millions)
Plans for which the ABO exceeds plan assets:
Projected benefit obligations	$	63.0	$	57.6
Accumulated benefit obligations		63.0		57.6
Fair value of plan assets		46.5		43.2

The discount rate assumptions used in determining the actuarial present value of the benefit obligation for our U.S. defined benefit pension plans as of December 31, 2017 and 2018 are 3.5% and 4.1%, respectively. The impact of assumed increases in future compensation levels does not have an effect on the benefit obligation as the plans are frozen with regards to compensation.

The weighted-average rate assumptions used in determining the net periodic pension cost for our U.S. defined benefit pension plans for 2016, 2017 and 2018 are presented in the table below. The impact of assumed increases in future compensation levels does not have an effect on the periodic pension cost as the plans are frozen with regards to compensation.

	Years ended December 31,
Rate	2016			2017			2018
Discount rate		4.1	%		3.9	%		3.5	%
Long-term return on plan assets		7.5	%		7.5	%		7.5	%

Variances from actuarially assumed rates will result in increases or decreases in accumulated pension obligations, pension expense and funding requirements in future periods.

The funded status of our foreign defined benefit pension plans is presented in the table below.

	Years ended December 31,
	2017			2018
	(In millions)
Change in PBO:
Balance at beginning of the year	$	603.4		$	691.2
Service cost		11.4			11.6
Interest cost		13.4			13.8
Participants’ contributions		1.5			1.5
Actuarial loss		9.3			5.8
Plan settlement		(.3	)		—
Change in currency exchange rates		73.7			(33.9	)
Benefits paid		(21.2	)		(22.8	)
Balance at end of the year	$	691.2		$	667.2
Change in plan assets:
Fair value at beginning of the year	$	381.8		$	445.2
Actual return on plan assets		24.1			(6.1	)
Employer contributions		16.0			16.5
Participants’ contributions		1.5			1.5
Change in currency exchange rates		43.0			(23.6	)
Benefits paid		(21.2	)		(22.8	)
Fair value at end of year	$	445.2		$	410.7
Funded status	$	(246.0	)	$	(256.5	)
Amounts recognized in the Consolidated Balance Sheets:
Pension asset	$	4.2		$	2.7
Accrued pension costs:
Noncurrent		(250.2	)		(259.2	)
Total		(246.0	)		(256.5	)
Accumulated other comprehensive loss:
Actuarial loss		242.8			254.1
Prior service cost		1.5			1.2
Total		244.3			255.3
Total	$	(1.7	)	$	(1.2	)
ABO	$	664.7		$	642.2

The components of our net periodic defined benefit pension benefit cost for our foreign plans are presented in the table below. The amounts shown below for the amortization of unrecognized prior service cost and actuarial losses for 2016, 2017 and 2018 were recognized as components of our accumulated other comprehensive income (loss) at December 31, 2015, 2016 and 2017, respectively, net of deferred income taxes and noncontrolling interest.

	Years ended December 31,
	2016			2017			2018
	(In millions)
Net periodic pension cost for foreign plans:
Service cost	$	9.9		$	11.4		$	11.6
Interest cost		15.1			13.4			13.8
Settlement loss		—			.1			—
Expected return on plan assets		(14.9	)		(9.7	)		(12.7	)
Amortization of unrecognized:
Prior service cost		.2			.3			.2
Net actuarial loss		11.4			13.2			13.2
Total	$	21.7		$	28.7		$	26.1

Information concerning certain of our non-U.S. defined benefit pension plans (for which the ABO exceeds the fair value of plan assets as of the indicated date) is presented in the table below.

	December 31,
	2017		2018
	(In millions)
Plans for which the ABO exceeds plan assets:
Projected benefit obligations	$	625.1	$	605.0
Accumulated benefit obligations		603.8		585.0
Fair value of plan assets		375.0		346.3

A summary of our key actuarial assumptions used to determine foreign benefit obligations as of December 31, 2017 and 2018 was:

	December 31,
Rate	2017			2018
Discount rate		2.1	%		2.1	%
Increase in future compensation levels		2.6	%		2.6	%

A summary of our key actuarial assumptions used to determine foreign net periodic benefit cost for 2016, 2017 and 2018 are as follows:

	Years ended December 31,
Rate	2016			2017			2018
Discount rate		2.6	%		2.1	%		2.1	%
Increase in future compensation levels		2.9	%		2.6	%		2.6	%
Long-term return on plan assets		3.9	%		2.5	%		3.0	%

Variances from actuarially assumed rates will result in increases or decreases in accumulated pension obligations, pension expense and funding requirements in future periods.

The amounts shown for all of our defined benefit plans for unrecognized actuarial losses and prior service cost at December 31, 2017 and 2018 have not been recognized as components of our periodic defined benefit pension cost as of those dates. These amounts will be recognized as components of our periodic defined benefit cost in future years. These amounts, net of deferred income taxes and noncontrolling interest, are recognized in our accumulated other comprehensive income (loss) at December 31, 2017 and 2018. We expect approximately $15.6 million and $.2 million of the unrecognized actuarial losses and prior service cost, respectively, will be recognized as components of our periodic defined benefit pension cost in 2019. The table below details the changes in other comprehensive income (loss) during 2016, 2017 and 2018.

	Years ended December 31,
	2016			2017		2018
	(In millions)
Changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
Net actuarial gain (loss)	$	(38.0	)	$	4.0	$	(27.0	)
Amortization of unrecognized:
Prior service cost		.3			.3		.2
Net actuarial losses		13.3			15.2		15.2
Total	$	(24.4	)	$	19.5	$	(11.6	)

At December 31, 2017, substantially all of the assets attributable to our U.S. plan were invested in the Combined Master Retirement Trust (CMRT), a collective investment trust sponsored by Contran to permit the collective investment by certain master trusts that fund certain employee benefit plans sponsored by Contran and certain of its affiliates, including us. For 2016, 2017 and 2018, the long-term rate of return assumption for our U.S. plan assets was 7.5%, based on the long-term asset mix of the assets of the CMRT and the expected long-term rates of return for such asset components as well as advice from Contran’s actuaries.   During 2018, Contran and the other employer-sponsors (including us) implemented a restructuring of the CMRT, in which a substantial part of each plan’s units in the CMRT were redeemed in exchange for a pro-rata portion of a substantial part of the CMRT’s investments.  Following such restructuring, the plans held directly in the aggregate the investments previously held directly by the CMRT which had been exchanged for CMRT units as part of the restructuring.  Certain investments held directly by the CMRT were not part of such restructuring and remain investments of the CMRT.   Such restructuring was implemented in part so each plan could more easily align the composition of their plan asset portfolio with the plan’s benefit obligations.  

The CMRT unit value is determined semi-monthly, and prior to the 2018 restructuring the plans had the ability to redeem all or any portion of their investment in the CMRT at any time based on the most recent semi-monthly valuation. However, the plans do not have the right to individual assets held by the CMRT and the CMRT has the sole discretion in determining how to meet any redemption request.  For purposes of our plan asset disclosure, we consider the investment in the CMRT at December 31, 2017 as a Level 2 input because (i) the CMRT value is established semi-monthly and the plans have the right to redeem their investment in the CMRT, in part or in whole, at any time based on the most recent value and (ii) observable inputs from Level 1 or Level 2 (or assets not subject to classification in the fair value hierarchy) were used to value approximately 93% of the assets of the CMRT at December 31, 2017, as noted below.  CMRT assets not subject to classification in the fair value hierarchy consist principally of certain investments measured at net asset value per share in accordance with ASC 820-10.  The aggregate fair value of all of the CMRT assets at December 31, 2017, including funds of Contran and its other affiliates that also invest in the CMRT, and supplemental asset mix details of the CMRT are as follows:

	December 31, 2017
	(In millions)
CMRT asset value	$	672.4
CMRT assets comprised of:
Assets not subject to fair value hierarchy		31	%
Assets subject to fair value hierarchy:
Level 1		54
Level 2		8
Level 3		7
		100	%
CMRT asset mix:
Domestic equities, principally publicly traded		33	%
International equities, principally publicly traded		25
Fixed income securities, principally publicly traded		31
Privately managed limited partnerships		4
Hedge funds		5
Other, primarily cash		2
		100	%

The assets which remain in the CMRT are principally common stocks and limited partnerships which are not publicly traded, and most of which are categorized within Level 3 of the fair value hierarchy.  As monetizing events occur for these investments, we and the other plans which hold units in the CMRT will redeem a portion of our CMRT units for the cash generated from such events.  For purposes of our plan asset disclosure, we consider the investment in the CMRT at December 31, 2018 as a Level 3 input because (i) most of the remaining assets in the CMRT are categorized within Level 3 of the fair value hierarchy, and (ii) we do not expect to be able to redeem our remaining CMRT units until monetizing events occur with respect to the remaining CMRT assets.

In determining the expected long-term rate of return on non-U.S. plan asset assumptions, we consider the long-term asset mix (e.g. equity vs. fixed income) for the assets for each of our plans and the expected long-term rates of return for such asset components.  In addition, we receive third-party advice about appropriate long-term rates of return.  Such assumed asset mixes are summarized below:

• In Germany, the composition of our plan assets is established to satisfy the requirements of the German insurance commissioner.  Our German pension plan assets represent an investment in a large collective investment fund established and maintained by Bayer AG in which several pension plans, including our German pension plan and Bayer’s pension plans, have invested.  Our plan assets represent a very nominal portion of the total collective investment fund maintained by Bayer.  These plan assets are a Level 3 input because there is not an active market that approximates the value of our investment in the Bayer investment fund.  We determine the fair value of the Bayer plan assets based on periodic reports we receive from the managers of the Bayer plan.  These periodic reports are subject to audit by the German pension regulator.

• In Canada, we currently have a plan asset target allocation of 20% to 30% to equity securities and 70% to 80% to fixed income securities.  We expect the long-term rate of return for such investments to average approximately 125 basis points above the applicable equity or fixed income index.  The Canadian assets are Level 1 inputs because they are traded in active markets.

• In Norway, we currently have a plan asset target allocation of 11% to equity securities, 79% to fixed income securities, 7% to real estate and the remainder primarily to other investments and liquid investments such as money markets.  The expected long-term rate of return for such investments is approximately 7%, 3%, 5% and 8%, respectively.  The majority of Norwegian plan assets are Level 1 inputs because they are traded in active markets; however approximately 10% of our Norwegian plan assets are invested in real estate and other investments not actively traded and are therefore a Level 3 input.

• In the U.S. we currently have a plan asset target allocation of 40% to equity securities, 45% to fixed income securities, and the remainder is allocated to multi-asset strategies and the CMRT. The expected long-term rate of return for such investments is approximately 9%, 5% and 3%, respectively (before plan administrative expenses).   The majority of U.S. plan assets are Level 1 inputs because they are traded in active markets, approximately 29% of our U.S. plan assets are invested in funds that are valued at NAV and not subject to classification in the fair value hierarchy, and approximately 6% are invested in the CMRT which as noted above is a Level 3 input.

• We also have plan assets in Belgium and the United Kingdom.  The Belgian plan assets are invested in certain individualized fixed income insurance contracts for the benefit of each plan participant as required by the local regulators and are therefore a Level 3 input.  The United Kingdom plan assets consist of marketable securities which are Level 1 inputs because they trade in active markets.

We regularly review our actual asset allocation for each plan, and will periodically rebalance the investments in each plan to more accurately reflect the targeted allocation and/or maximize the overall long-term return when considered appropriate.

The composition of our pension plan assets by asset category and fair value level at December 31, 2017 and 2018 is shown in the table below. The amounts shown for plan assets invested in the CMRT include a nominal amount of cash held by our U.S. pension plan which is not part of the plan’s investment in the CMRT.

	Fair Value Measurements at December 31, 2017
	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In millions)
Germany	$	257.9	$	—	$	—	$	257.9
Canada:
Local currency equities		8.4		8.4		—		—
Foreign currency equities		16.4		16.4		—		—
Local currency fixed income		81.8		81.8		—		—
Cash and other		.3		.3		—		—
Norway:
Local currency equities		1.8		1.8		—		—
Foreign currency equities		4.6		4.6		—		—
Local currency fixed income		21.0		21.0		—		—
Foreign currency fixed income		6.8		6.8		—		—
Real estate		4.7		—		—		4.7
Cash and other		15.4		14.5		—		.9
US —  CMRT		46.5		—		46.5		—
Other		26.1		16.0		—		10.1
Total	$	491.7	$	171.6	$	46.5	$	273.6

	Fair Value Measurements at December 31, 2018
	Total		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Assets measured at NAV
	(In millions)
Germany	$	241.5	$	—	$	—	$	241.5	$	—
Canada:
Local currency equities		6.5		6.5		—		—		—
Non local currency equities		13.3		13.3		—		—		—
Local currency fixed income		74.1		74.1		—		—		—
Cash and other		.5		.5		—		—		—
Norway:						—		—		—
Local currency equities		1.7		1.7		—		—		—
Non local currency equities		4.3		4.3		—		—		—
Local currency fixed income		20.4		14.9		5.5		—		—
Non local currency fixed income		6.1		6.1		—		—		—
Real estate		4.5		—		—		4.5		—
Cash and other		13.5		12.7		—		.8		—
U.S.						—
Equities		16.3		4.9		—		—		11.4
Fixed income		19.9		19.9		—		—		—
Cash and other		4.7		3.4		—		—		1.3
CMRT		2.3		—		—		2.3		—
Other		24.4		13.9		—		10.5		—
Total	$	454.0	$	176.2	$	5.5	$	259.6	$	12.7

A rollforward of the change in fair value of Level 3 assets follows.

	Years ended December 31,
	2017			2018
	(In millions)
Fair value at beginning of year	$	230.5		$	273.6
Gain on assets held at end of year		11.0			(4.6	)
Gain on assets sold during the year		.2			—
Assets purchased		13.4			14.1
Assets sold		(13.8	)		(14.5	)
Transfer in		—			2.3
Currency exchange rate fluctuations		32.3			(11.3	)
Fair value at end of year	$	273.6		$	259.6