Employee Benefit Plans

Mattel and certain of its subsidiaries have qualified and nonqualified retirement plans covering substantially all employees of these companies. These plans include defined benefit pension plans, defined contribution retirement plans, postretirement benefit plans, and deferred compensation and excess benefit plans. In addition, Mattel makes contributions to government-mandated retirement plans in countries outside the U.S. where its employees work.

A summary of retirement plan expense, net is as follows:



	For the Year Ended
	December 31, 2018			December 31, 2017		December 31, 2016
	(In thousands)
Defined benefit pension plans	$	12,366		$	7,428	$	13,999
Defined contribution retirement plans	35,318			38,508		37,661
Postretirement benefit plans	(2,148		)	963		1,343
Deferred compensation and excess benefit plans	(2,599		)	10,015		5,093
	$	42,937		$	56,914	$	58,096

In accordance with ASU 2017-07, which went into effect for interim and annual reporting periods beginning on January 1, 2018, Mattel's service cost component is recorded within operating (loss) income, presented in the same line items as other employee compensation costs arising from employee services rendered in the period, while other components of net periodic pension cost and postretirement benefit cost are recorded in other non-operating expense, net. Prior period amounts have been retrospectively adjusted, which resulted in a reclassification of $3.4 million and $8.4 million of expense, net from other selling and administrative expenses to other non-operating expense, net for the year ended December 31, 2017 and 2016, respectively.

Defined Benefit Pension and Postretirement Benefit Plans

Mattel provides defined benefit pension plans for eligible domestic employees, which are intended to comply with the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). Some of Mattel’s foreign subsidiaries have defined benefit pension plans covering substantially all of their eligible employees. Mattel funds these plans in accordance with the terms of the plans and local statutory requirements, which differ for each of the countries in which the subsidiaries are located. Mattel also has unfunded postretirement health insurance plans covering certain eligible domestic employees.

A summary of the components of Mattel’s net periodic benefit cost (credit) and other changes in plan assets and benefit obligations recognized in other comprehensive (loss) income for the years ended December 31 is as follows:



	Defined Benefit Pension Plans									Postretirement Benefit Plans
	2018			2017			2016			2018			2017			2016
	(In thousands)
Net periodic benefit cost (credit):
Service cost	$	4,223		$	4,045		$	5,557		$	1		$	2		$	52
Interest cost	18,117			17,961			24,526			208			812			1,143
Expected return on plan assets	(22,508		)	(23,072		)	(25,726		)	—			—			—
Amortization of prior service cost (credit)	29			29			461			(2,037		)	—			—
Recognized actuarial loss (gain)	8,518			8,362			6,994			(320		)	149			148
Settlement loss	3,248			—			1,772			—			—			—
Curtailment loss	739			103			415			—			—			—
Net periodic benefit cost (credit)	$	12,366		$	7,428		$	13,999		$	(2,148	)	$	963		$	1,343
Other changes in plan assets and benefit obligations recognized in other comprehensive (loss) income:
Net actuarial (gain) loss	$	(4,433	)	$	46		$	(1,531	)	$	(276	)	$	(2,746	)	$	(1,833	)
Prior service cost (credit)	114			—			505			—			(16,261		)	—
Amortization of prior service (cost) credit	(29		)	(29		)	(461		)	2,037			—			—
Total recognized in other comprehensive (loss) income (a)	$	(4,348	)	$	17		$	(1,487	)	$	1,761		$	(19,007	)	$	(1,833	)
Total recognized in net periodic benefit cost (credit) and other comprehensive (loss) income	$	8,018		$	7,445		$	12,512		$	(387	)	$	(18,044	)	$	(490	)


(a)	Amounts exclude related tax expense of $2.1 million, $4.5 million, and $1.2 million, during 2018, 2017, and 2016, respectively, which are also included in other comprehensive (loss) income.

Net periodic benefit cost (credit) for Mattel’s domestic defined benefit pension and postretirement benefit plans was calculated on January 1 of each year using the following assumptions:



	For the Year Ended
	December 31, 2018		December 31, 2017		December 31, 2016
Defined benefit pension plans:
Discount rate	3.4	%	3.9	%	4.2	%
Weighted-average rate of future compensation increases	N/A		N/A		N/A
Long-term rate of return on plan assets	6.0	%	6.3	%	6.5	%
Postretirement benefit plans:
Discount rate	3.4	%	3.9	%	4.2	%
Annual increase in Medicare Part B premium	6.0	%	6.0	%	6.0	%
Health care cost trend rate:
Pre-65	7.3	%	7.0	%	7.0	%
Post-65	7.3	%	7.8	%	8.3	%
Ultimate cost trend rate:
Pre-65	4.5	%	4.5	%	4.5	%
Post-65	4.5	%	4.5	%	4.5	%
Year that the rate reaches the ultimate cost trend rate:
Pre-65	2025		2024		2023
Post-65	2025		2024		2024

Discount rates, weighted-average rates of future compensation increases, and long-term rates of return on plan assets for Mattel’s foreign defined benefit pension plans differ from the assumptions used for Mattel’s domestic defined benefit pension plans due to differences in local economic conditions in the locations where the non-U.S. plans are based. The rates shown in the preceding table are indicative of the weighted-average rates of all of Mattel’s defined benefit pension plans given the relative insignificance of the foreign plans to the consolidated total.

The estimated net actuarial loss for the domestic defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2019 is $6.3 million. The estimated net actuarial gain and prior service credit for the domestic postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit credit in 2019 is $2.4 million.

Mattel used a measurement date of December 31, 2018 for its defined benefit pension and postretirement benefit plans. A summary of the changes in benefit obligation and plan assets is as follows:



	Defined Benefit Pension Plans						Postretirement Benefit Plans
	December 31, 2018			December 31, 2017			December 31, 2018			December 31, 2017
	(In thousands)
Change in Benefit Obligation:
Benefit obligation, beginning of year	$	639,319		$	605,851		$	7,752		$	27,614
Service cost	4,223			4,045			1			2
Interest cost	18,117			17,961			208			812
Impact of currency exchange rate changes	(7,793		)	12,932			—			—
Actuarial (gain) loss	(34,214		)	32,817			(596		)	(2,597		)
Benefits paid	(50,211		)	(34,314		)	(1,164		)	(1,818		)
Plan amendments	809			27			—			(16,261		)
Settlements	(2,748		)	—			—			—
Benefit obligation, end of year	$	567,502		$	639,319		$	6,201		$	7,752
Change in Plan Assets:
Plan assets at fair value, beginning of year	$	460,952		$	433,780		$	—		$	—
Actual return on plan assets	(18,162		)	47,727			—			—
Employer contributions	18,216			4,807			1,164			1,818
Impact of currency exchange rate changes	(5,554		)	8,952			—			—
Benefits paid	(50,211		)	(34,314		)	(1,164		)	(1,818		)
Settlements	(3,312		)	—			—			—
Plan assets at fair value, end of year	$	401,929		$	460,952		$	—		$	—
Net Amount Recognized in Consolidated Balance Sheets:
Funded status, end of year	$	(165,573	)	$	(178,367	)	$	(6,201	)	$	(7,752	)
Current accrued benefit liability	$	(4,395	)	$	(16,180	)	$	(1,090	)	$	(1,400	)
Noncurrent accrued benefit liability	(161,178		)	(162,187		)	(5,111		)	(6,352		)
Net amount recognized	$	(165,573	)	$	(178,367	)	$	(6,201	)	$	(7,752	)
Amounts Recognized in Accumulated Other Comprehensive Loss (a):
Net actuarial loss (gain)	$	238,862		$	243,295		$	(3,071	)	$	(2,795	)
Prior service cost (credit)	220			135			(14,224		)	(16,261		)
	$	239,082		$	243,430		$	(17,295	)	$	(19,056	)


(a)	Amounts exclude related tax benefits of $79.0 million and $81.2 million for December 31, 2018 and 2017, respectively, which are also included in accumulated other comprehensive loss.

The accumulated benefit obligation differs from the projected benefit obligation in that it assumes future compensation levels will remain unchanged. Mattel’s accumulated benefit obligation for its defined benefit pension plans as of 2018 and 2017 totaled $549.7 million and $618.5 million, respectively.

The assumptions used in determining the projected and accumulated benefit obligations of Mattel’s domestic defined benefit pension and postretirement benefit plans are as follows:



	December 31, 2018		December 31, 2017
Defined benefit pension plans:
Discount rate	4.1	%	3.4	%
Weighted-average rate of future compensation increases	N/A		N/A
Postretirement benefit plans:
Discount rate	4.1	%	3.4	%
Annual increase in Medicare Part B premium	6.0	%	6.0	%
Health care cost trend rate:
Pre-65	7.0	%	7.0	%
Post-65	6.8	%	7.8	%
Ultimate cost trend rate:
Pre-65	4.5	%	4.5	%
Post-65	4.5	%	4.5	%
Year that the rate reaches the ultimate cost trend rate:
Pre-65	2025		2024
Post-65	2025		2024

A one percentage point increase/(decrease) in the assumed health care cost trend rate for each future year would not materially impact the postretirement benefit obligation as of December 31, 2018, or the service and interest cost recognized for 2018.

The estimated future benefit payments for Mattel’s defined benefit pension and postretirement benefit plans are as follows:



	Defined Benefit Pension Plans		Postretirement Benefit Plans
	(In thousands)
2019	$	45,824	$	1,090
2020	36,654		880
2021	36,388		770
2022	37,293		660
2023	35,823		550
2024–2026	180,611		1,920

Mattel expects to make cash contributions totaling approximately $6 million to its defined benefit pension and postretirement benefit plans in 2019, substantially all of which will be for benefit payments for its unfunded plans.

Mattel periodically commissions a study of the plans’ assets and liabilities to determine an asset allocation that would best match expected cash flows from the plans’ assets to expected benefit payments. Mattel monitors the returns earned by the plans’ assets and reallocates investments as needed. Mattel’s overall investment strategy is to achieve an adequately diversified asset allocation mix of investments that provides for both near-term benefit payments as well as long-term growth. The assets are invested in a combination of indexed and actively managed funds. The target allocations for Mattel’s domestic plan assets, which comprise 77% of Mattel’s total plan assets, are 42% in U.S. equities, 28% in non-U.S. equities, 20% in fixed income securities, and 10% in real estate securities. The U.S. equities are benchmarked against the S&P 500, and the non-U.S. equities are benchmarked against a combination of developed and emerging markets indices. Fixed income securities are long-duration bonds intended to closely match the duration of the liabilities and include U.S. government treasuries and agencies, corporate bonds from various industries, and mortgage-backed and asset-backed securities.

Mattel’s defined benefit pension plan assets are measured and reported in the financial statements at fair value using inputs, which are more fully described in "Note 11 to the Consolidated Financial Statements—Fair Value Measurements," as follows:



	December 31, 2018
	Level 1		Level 2		Level 3		Total
	(In thousands)
U.S. government and U.S. government agency securities	$	—	$	8,803	$	—	$	8,803
U.S. corporate debt instruments	—		45,714		—		45,714
International corporate debt instruments	—		13,034		—		13,034
Mutual funds	610		—		—		610
Money market funds	303		—		—		303
Other investments	—		7,964		—		7,964
Insurance "buy-in" policy	—		—		29,857		29,857
Collective trust funds (a):
U.S. equity securities							69,699
International equity securities							176,103
International fixed income							14,752
Diversified funds							35,090
Total	$	913	$	75,515	$	29,857	$	401,929



	December 31, 2017
	Level 1		Level 2		Level 3		Total
	(In thousands)
U.S. government and U.S. government agency securities	$	—	$	5,101	$	—	$	5,101
U.S. corporate debt instruments	—		37,323		—		37,323
International corporate debt instruments	—		11,137		—		11,137
Mutual funds	611		—		—		611
Money market funds	1,975		—		—		1,975
Other investments	—		6,968		—		6,968
Insurance "buy-in" policy	—		—		33,553		33,553
Collective trust funds (a):
U.S. equity securities							73,727
International equity securities							234,472
International fixed income							16,179
Diversified funds							39,906
Total	$	2,586	$	60,529	$	33,553	$	460,952


(a)	These investments consist of privately placed funds that are valued based on net asset value per share. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position and its related disclosures.

The fair value of collective trust funds are determined based on the net asset value per share held at year-end. The fair value of mutual funds, money market funds, U.S. government securities, U.S. government agency securities, and corporate debt instruments are determined based on quoted market prices or are estimated using pricing models with observable inputs or quoted prices of securities with similar characteristics.

In December 2017, Mattel entered into an insurance buy-in policy contract with a private limited life insurance company to insure a portion of the U.K. pension plan, covering approximately 40% of the total membership in the plan. The assets and liabilities with respect to insured pensioners are assumed to match for the purposes of ASC 715, Pension - Retirement Benefits (i.e. the full benefits have been insured). The initial value of the asset associated with this policy was equal to the premium paid to secure the policy, and is adjusted each reporting period for changes in interest rates, discount rates, and benefits paid. As the valuation of this asset is judgmental, and there are no observable inputs associated with the valuation, the buy-in contract is classified as Level 3 on the fair value hierarchy.

The following table provides a reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):



	Level 3
	(in thousands)
Balance at December 31, 2016	$	—
Purchases, sales, and settlements (a)	33,155
Change in fair value	398
Balance at December 31, 2017	33,553
Purchases, sales, and settlements (b)	—
Change in fair value	(3,696		)
Balance at December 31, 2018	$	29,857


(a)	There were no sales or settlements of Level 3 assets, or transfers in or out of Level 3, for the year ended December 31, 2017.


(b)	There were no purchases, sales, or settlements of Level 3 assets, or transfers in or out of Level 3, for the year ended December 31, 2018.

Mattel’s defined benefit pension plan assets are not directly invested in Mattel common stock. Mattel believes that the long-term rate of return on plan assets of 6.0% as of December 31, 2018 is reasonable based on historical returns.

Defined Contribution Retirement Plans

Domestic employees are eligible to participate in a 401(k) savings plan, the Mattel, Inc. Personal Investment Plan (the "Plan"), sponsored by Mattel, which is a funded defined contribution plan intended to comply with ERISA’s requirements. Contributions to the Plan include voluntary contributions by eligible employees and employer automatic and matching contributions by Mattel. The Plan allows employees to allocate both their voluntary contributions and their employer automatic and matching contributions to a variety of investment funds, including a fund that is invested in Mattel common stock (the "Mattel Stock Fund"). Employees are not required to allocate any of their Plan account balance to the Mattel Stock Fund, allowing employees to limit or eliminate their exposure to market changes in Mattel’s stock price. Furthermore, the Plan limits the percentage of the employee’s total account balance that may be allocated to the Mattel Stock Fund to 25%. Employees may generally reallocate their account balances on a daily basis. However, pursuant to Mattel’s insider trading policy, employees classified as insiders and restricted personnel under Mattel’s insider trading policy are limited to certain periods in which they may make allocations into or out of the Mattel Stock Fund.

Certain non-U.S. employees participate in other defined contribution retirement plans with varying vesting and contribution provisions.

Deferred Compensation and Excess Benefit Plans

Mattel maintains a deferred compensation plan that permits certain officers and key employees to elect to defer portions of their compensation. The deferred compensation plan, together with certain contributions made by Mattel and participating employees to an excess benefit plan, earns various rates of return. The liability for these plans as of December 31, 2018 and 2017 was $68.3 million and $76.6 million, respectively, and is primarily included in other noncurrent liabilities in the consolidated balance sheets. Changes in the market value of the participant-selected investment options are recorded as retirement plan expense within other selling and administrative expenses in the consolidated statements of operations. Separately, Mattel has purchased group trust-owned life insurance contracts designed to assist in funding these programs. The cash surrender value of these policies, valued at $65.8 million and $67.9 million as of December 31, 2018 and 2017, respectively, are held in an irrevocable grantor trust, the assets of which are subject to the claims of Mattel’s creditors and are included in other noncurrent assets in the consolidated balance sheets.

Annual Incentive Compensation

Mattel has annual incentive compensation plans under which officers and key employees may earn incentive compensation based on Mattel’s performance and are subject to certain approvals of the Compensation Committee of the Board of Directors. For 2018, 2017, and 2016, $84.1 million, $19.4 million, and $16.5 million, respectively, was charged to other selling and administrative expenses for awards under these plans.

Long-Term Incentive Compensation

Mattel had three long-term incentive program ("LTIP") performance cycles in place in 2018: (i) a January 1, 2016—December 31, 2018 performance cycle, which was established by the Compensation Committee of the Board of Directors ("the Committee") in March 2016, (ii) a January 1, 2017—December 31, 2019 performance cycle, which was established by the Committee in March 2017, and (iii) a January 1, 2018—December 31, 2020 performance cycle, which was established by the Committee in April 2018.

For the January 1, 2016—December 31, 2018 LTIP performance cycle, Mattel granted Performance RSUs under the Mattel, Inc. Amended and Restated 2010 Equity and Long-Term Compensation Plan ("Amended 2010 Plan") to senior executives providing services to Mattel. Performance RSUs granted under this program are earned based on an initial target number with the final number of Performance RSUs payable being determined based on the product of the initial target number of Performance RSUs multiplied by a performance factor based on measurements of Mattel's performance with respect to (i) a cumulative three-year EPS target for the performance cycle (the "2016-2018 performance-related component") and (ii) Mattel's TSR for the three-year performance cycle relative to the TSR realized by companies comprising the S&P 500 as of the first day of the performance cycle (the "2016-2018 market-related component"), adjusted for dividends declared during the three-year performance cycle. The Performance RSUs also have dividend equivalent rights that are converted to shares of Mattel common stock only when and to the extent the underlying Performance RSUs are earned and paid in shares of Mattel common stock. For the January 1, 2016—December 31, 2018 LTIP performance cycle, no shares were earned relating to the 2016-2018 performance-related component or market-related component.

For the January 1, 2016—December 31, 2018 LTIP performance cycle, the weighted-average grant-date fair value of the performance-related and market-related components of the Performance RSUs were $32.60 and $5.10 per share, respectively, for 2018, 2017, and 2016. During 2018, Mattel did not recognize any compensation expense related to the 2016-2018 performance-related component and recognized minimal expense related to the 2016-2018 market-related component. During 2017, Mattel recognized compensation expense of $0.4 million related to the 2016-2018 market-related component. Mattel also reversed $2.8 million of expense related to the 2016-2018 performance-related component that was previously recognized in 2016, as it was determined that it was unlikely that performance shares would be earned for the performance cycle. During 2016, Mattel recognized compensation expense of $2.8 million related to the 2016-2018 performance-related component and $0.4 million related to the 2016-2018 market-related component.

For the January 1, 2017—December 31, 2019 LTIP performance cycle, Mattel granted Performance RSUs under the Amended 2010 Plan to senior executives providing services to Mattel. Performance RSUs granted under this program are earned based on the product of the initial target number of Performance RSUs multiplied by a performance factor based on a three-year average of annual achievements of Mattel's performance with respect to annual EPS targets for the performance cycle (the "2017-2019 performance-related component") and then adjusted upward or downward based on Mattel's TSR for the three-year performance cycle relative to the TSR realized by companies comprising the S&P 500 as of the first day of the performance cycle (the "2017-2019 market-related component"). The Performance RSUs under the 2017-2019 LTIP performance cycle have dividend equivalent rights that are converted to shares of Mattel common stock only when and to the extent the underlying Performance RSUs are earned and paid. For the 2017-2019 performance-related component, the range of possible outcomes is that between 0.1 million and 0.2 million shares could be earned. For the 2017-2019 market-related component, the possible outcomes range from an upward adjustment of 0.1 million shares to a downward adjustment of 0.1 million shares to the result of the performance-related component.

For the January 1, 2017—December 31, 2019 LTIP performance cycle, the weighted-average grant-date fair value of the performance-related and market-related components of the Performance RSUs were $13.24 and $1.46 per share, respectively, for 2018, and $21.60 and $1.46 per share, respectively, for 2017. During 2018, Mattel recognized $0.3 million of compensation expense related to the 2017-2019 performance-related component and recognized minimal expense related to the 2017-2019 market-related component. During 2017, Mattel did not recognize any compensation expense related to the 2017-2019 performance-related component, and recognized compensation expense of $0.2 million related to the 2017-2019 market-related component.

For the January 1, 2018—December 31, 2020 performance cycle, Mattel granted Performance RSUs under the Amended 2010 Plan to senior executives providing services to Mattel. Performance RSUs granted under this program are earned based on an initial target number with the final number of Performance RSUs payable being determined based on the product of the initial target number of Performance RSUs multiplied by a performance factor based on measurements of Mattel's performance with respect to (i) a cumulative three-year free cash flow target for the performance cycle and (ii) a TSR multiplier, which is based on Mattel’s three-year TSR relative to the TSR realized by companies comprised of the S&P 500 as of the first day of the performance cycle. The Performance RSUs also have dividend equivalent rights that are converted to shares of Mattel common stock only when and to the extent the underlying Performance RSUs are earned and paid in shares of Mattel common stock. For the 2018-2020 performance cycle, the range of possible outcomes is that between zero and 1.7 million shares could be earned.

For the January 1, 2018—December 31, 2020 LTIP performance cycle, the weighted-average grant-date fair value of the Performance RSUs was $15.08 per share for 2018. During 2018, Mattel recognized $2.7 million of compensation expense in connection with the 2018-2020 performance cycle.

Mattel determines the fair value of the performance-related components of its performance RSUs based on the closing market price of Mattel's common stock on the date of grant. It determines the fair value of the market-related components of its performance RSUs based on a Monte Carlo valuation methodology.