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Pensions and Other Post-retirement Benefits
 12 Months Ended
Dec. 31, 2019
Retirement Benefits [Abstract]  
Pensions and Other Post-retirement Benefits Pensions and Other Post-retirement Benefits
We maintain various defined benefit and defined contribution plans covering the majority of our employees. Our principal U.S. plan is funded in compliance with the Employee Retirement Income Security Act (ERISA). It is our general policy to fund current costs for the international plans, except in Germany and Mexico, where it is common practice and permissible under tax laws to accrue book reserves.
We provide health care benefits and limited life insurance for certain retired employees who are covered by our principal U.S. defined benefit pension plan until they become Medicare-eligible.
Information pertaining to defined benefit pension plans and other post-retirement benefits plans is provided in the following tables:
 
Pension Benefits
 
Other Benefits
(In thousands)
2019
 
2018
 
2019
 
2018
Change in Benefit Obligations
 
 
 
 
 
 
 
Benefit obligations at January 1
$
525,520

 
$
560,385

 
$
28,477

 
$
22,027

Service cost
10,342

 
11,125

 
354

 
369

Interest cost
18,803

 
17,214

 
996

 
793

Participant contributions
470

 
97

 
380

 
302

Actuarial losses (gains)
81,132

 
(29,181
)
 
1,319

 
7,841

Benefits paid
(24,452
)
 
(23,724
)
 
(3,375
)
 
(2,855
)
Curtailments
—

 
(2,151
)
 
—

 
—

Settlements
(7,265
)
 
(726
)
 
—

 
—

Currency translation
(999
)
 
(7,519
)
 
—

 
—

Benefit obligations at December 31
603,551

 
525,520

 
28,151

 
28,477

Change in Plan Assets
 
 
 
 
 
 
 
Fair value of plan assets at January 1
443,112

 
492,677

 
—

 
—

Actual return on plan assets
98,210

 
(26,804
)
 
—

 
—

Employer contributions
5,537

 
4,718

 
2,995

 
2,553

Participant contributions
470

 
97

 
380

 
302

Settlements
(7,265
)
 
(726
)
 
—

 
—

Benefits paid
(24,452
)
 
(23,724
)
 
(3,375
)
 
(2,855
)
Administrative Expenses Paid
(297
)
 
(704
)
 
—

 
—

Currency translation
543

 
(2,422
)
 
—

 
—

Fair value of plan assets at December 31
515,858

 
443,112

 
—

 
—

Funded Status
 
 
 
 
 
 
 
Funded status at December 31
(87,693
)
 
(82,408
)
 
(28,151
)
 
(28,477
)
Unrecognized transition losses
4

 
5

 
—

 
—

Unrecognized prior service credit
1,572

 
(687
)
 
(1,519
)
 
(1,924
)
Unrecognized net actuarial losses
183,733

 
178,640

 
12,547

 
12,096

Net amount recognized
97,616

 
95,550

 
(17,123
)
 
(18,305
)
Amounts Recognized in the Balance Sheet
 
 
 
 
 
 
 
Noncurrent assets
75,066

 
57,568

 
—

 
—

Current liabilities
(5,944
)
 
(5,741
)
 
(2,406
)
 
(2,736
)
Noncurrent liabilities
(156,815
)
 
(134,231
)
 
(25,745
)
 
(25,741
)
Net amount recognized
(87,693
)
 
(82,404
)
 
(28,151
)
 
(28,477
)
Amounts Recognized in Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
Net actuarial losses
183,733

 
178,640

 
12,547

 
12,096

Prior service credit
1,572

 
(687
)
 
(1,519
)
 
(1,924
)
Unrecognized net initial obligation
4

 
5

 
—

 
—

Total (before tax effects)
185,309

 
177,958

 
11,028

 
10,172

Accumulated Benefit Obligations for all Defined Benefit Plans
558,183

 
489,159

 
—

 
—


 
Pension Benefits
 
Other Benefits
(In thousands)
2019
 
2018
 
2017
 
2019
 
2018
 
2017
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
10,342

 
$
11,125

 
$
11,023

 
$
354

 
$
369

 
$
403

Interest cost
18,803

 
17,214

 
18,450

 
996

 
793

 
882

Expected return on plan assets
(38,644
)
 
(36,352
)
 
(35,417
)
 
—

 
—

 
—

Amortization of transition amounts
2

 
1

 
2

 
—

 
—

 
—

Amortization of prior service cost (credit)
223

 
(21
)
 
(19
)
 
(405
)
 
(405
)
 
(307
)
Recognized net actuarial losses
10,159

 
13,755

 
12,955

 
869

 
752

 
100

Settlement/curtailment loss (credit)
2,497

(c) 
179

 
148

 
—

 
—

 
(562
)
Special termination charge
—

 
—

 
11,384

(b) 
—

 
—

 
—

Net periodic benefit cost(a)
$
3,382

 
$
5,901

 
$
18,526

 
$
1,814

 
$
1,509

 
$
516


(a) Components of net periodic benefit cost other than service cost are included in the line item "Other income, net" in the
income statement.
(b) Represents the charge for special termination benefits related to the VRIP which were paid from our overfunded North
America pension plan and recorded as restructuring charges on the Consolidated Statement of Income. See further
details in Note 2—Restructuring Charges.
(c) Related to a non-cash charge associated with the termination of our pension plan in the U.K. and included in "Restructuring charges" on the Consolidated Statement of Income.
Effective December 31, 2017, the Company changed the method it uses to estimate the service and interest cost components of net periodic benefit cost for pension and other post-retirement benefits for a majority of its U.S. and foreign plans. Historically, the service and interest cost components for these plans were estimated using a single weighted-average discount rate derived from the yield curve used to measure the projected benefit obligation at the beginning of the period. The Company has elected to utilize a spot rate approach, which discounts the individual plan specific expected cash flows underlying the service and interest cost using the applicable spot rates derived from a yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The Company made this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest costs. This change does not affect the measurement of total benefit obligations. Service and interest cost for the pension and OPEB plans were reduced by an estimated $1.8 million in 2018 as a result of this change. The Company has accounted for this change to the spot rate approach as a change in accounting estimate that is inseparable from a change in accounting principle, pursuant to Accounting Standards Codification (ASC) 250, Accounting Changes and Error Corrections, and accordingly, has accounted for it prospectively. For plans where the discount rate is not derived from plan specific expected cash flows, the Company will continue to employ the current approaches for measuring both the projected benefit obligations and the service and interest cost components of net periodic benefit cost for pension and other post-retirement benefits.
Amounts included in accumulated other comprehensive loss expected to be recognized in 2020 net periodic benefit costs:
(In thousands)
Pension Benefits
 
Other Benefits
Loss recognition
$
15,740

 
$
1,145

Prior service cost (credit) recognition
184

 
(394
)
Transition obligation recognition
—

 
—


Information for pension plans with an accumulated benefit obligation in excess of plan assets:
(In thousands)
2019
 
2018
Aggregate accumulated benefit obligations (ABO)
$
185,747

 
$
159,545

Aggregate projected benefit obligations (PBO)
198,633

 
168,819

Aggregate fair value of plan assets
35,882

 
28,876


 
Pension Benefits
 
Other Benefits
 
2019
 
2018
 
2019
 
2018
Assumptions used to determine benefit obligations
 
 
 
 
 
 
 
Average discount rate
2.86
%
 
3.79
%
 
3.05
%
 
4.21
%
Rate of compensation increase
2.93
%
 
3.00
%
 
—

 
—

Assumptions used to determine net periodic benefit cost
 
 
 
 
 
 
 
Average discount rate - Service cost
3.10
%
 
3.34
%
 
3.15
%
 
3.57
%
Average discount rate - Interest cost
2.52
%
 
3.34
%
 
2.61
%
 
3.57
%
Expected return on plan assets
7.09
%
 
7.99
%
 
—

 
—

Rate of compensation increase
2.93
%
 
3.00
%
 
—

 
—


Discount rates for a majority of our U.S. and foreign plans were determined using the aforementioned spot rate methodology for 2019 and 2018. All remaining plans' discount rates were determined using various corporate bond indexes as indicators of interest rate levels and movements and by matching our projected benefit obligation payment stream to current yields on high quality bonds.
The expected return on assets for the 2019 net periodic pension cost was determined by multiplying the expected returns of each asset class (based on historical returns) by the expected percentage of the total portfolio invested in that asset class. A total return was determined by summing the expected returns over all asset classes.
 
Pension Plan Assets at
December 31,
 
2019
 
2018
Equity securities
46
%
 
58
%
Fixed income securities
30

 
25

Pooled investment funds
19

 
11

Insurance contracts
4

 
4

Cash and cash equivalents
1

 
2

Total
100
%
 
100
%

The overall objective of our pension investment strategy is to earn a rate of return over time to satisfy the benefit obligations of the pension plans and to maintain sufficient liquidity to pay benefits and meet other cash requirements of our pension funds. Investment policies for our primary U.S. pension plan are determined by the plan’s Investment Committee and set forth in the plan’s investment policy. Asset managers are granted discretion for determining sector mix, selecting securities and timing transactions, subject to the guidelines of the investment policy. An aggressive, flexible management of the portfolio is permitted and encouraged, with shifts of emphasis among equities, fixed income securities and cash equivalents at the discretion of each manager. No target asset allocations are set forth in the investment policy. For our non-U.S. pension plans, our investment objective is generally met through the use of pooled investment funds and insurance contracts.
The fair values of the Company's pension plan assets are determined using net asset value (NAV) as a practical expedient, or by information categorized in the fair value hierarchy level based on the inputs used to determine fair value, as further discussed in Note 18—Fair Value Measurements. The fair values at December 31, 2019, were as follows:
 
 
 
 
 
Fair Value
(In thousands)
Total
 
NAV
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Equity securities
$
235,491

 
$
56,449

 
$
179,042

 
$
—

 
$
—

Fixed income securities
154,640

 
—

 
73,874

 
80,766

 
—

Pooled investment funds
97,373

 
97,373

 
—

 
—

 
—

Insurance contracts
21,502

 
—

 
—

 
—

 
21,502

Cash and cash equivalents
6,852

 
5,792

 
1,060

 
—

 
—

Total
$
515,858

 
$
159,614

 
$
253,976

 
$
80,766

 
$
21,502

The fair values of the Company's pension plan assets at December 31, 2018, were as follows:
 
 
 
 
 
Fair Value
(In thousands)
Total
 
NAV
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Equity securities
$
259,014

 
$
62,027

 
$
196,987

 
$
—

 
$
—

Fixed income securities
109,876

 
—

 
28,312

 
81,564

 
—

Pooled investment funds
49,823

 
49,823

 
—

 
—

 
—

Insurance contracts
17,033

 
—

 
—

 
—

 
17,033

Cash and cash equivalents
7,366

 
6,259

 
1,107

 
—

 
—

Total
$
443,112

 
$
118,109

 
$
226,406

 
$
81,564

 
$
17,033


Equity securities consist primarily of publicly traded U.S. and non-U.S. common stocks. Equities are valued at closing prices reported on the listing stock exchange.
Fixed income securities consist primarily of U.S. government and agency bonds and U.S. corporate bonds. Fixed income securities are valued at closing prices reported in active markets or based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar bonds, the bond is valued under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, and may include adjustments, for certain risks that may not be observable, such as credit and liquidity risks.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Pooled investment funds consist of mutual and collective investment funds that invest primarily in publicly traded equity and fixed income securities. Pooled investment funds are valued using the net asset value (NAV) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, divided by the number of shares outstanding. The underlying securities are generally valued at closing prices reported in active markets, quoted prices of similar securities, or discounted cash flows approach that maximizes observable inputs such as current value measurement at the reporting date. These investments are not classified in the fair value hierarchy in accordance with guidance in ASU 2015-07.
Insurance contracts are valued in accordance with the terms of the applicable collective pension contract. The fair value of the plan assets equals the discounted value of the expected cash flows of the accrued pensions which are guaranteed by the counterparty insurer.
Cash equivalents consist primarily of money market and similar temporary investment funds. Cash equivalents are valued at closing prices reported in active markets.
The preceding methods may produce fair value measurements that are not indicative of net realizable value or reflective of future fair values. Although we believe the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table presents a reconciliation of Level 3 assets:
(In thousands)
Insurance
Contracts
Balance January 1, 2018
$
17,834

Net realized and unrealized losses
(957
)
Net purchases, issuances and settlements
156

Balance December 31, 2018
17,033

Net realized and unrealized gains
5,602

Net purchases, issuances and settlements
(1,133
)
Balance December 31, 2019
$
21,502


We expect to make net contributions of $7.6 million to our pension plans in 2020, which are primarily associated with our International segment.
For the 2019 beginning of the year measurement purposes (net periodic benefit expense), a 6.5% increase in the costs of covered health care benefits was assumed, decreasing by 0.5% for each successive year to 4.5% in 2023 and thereafter. For the 2019 end of the year measurement purposes (benefit obligation), a 6.5% increase in the costs of covered health care benefits was assumed, decreasing by 0.5% for each successive year to 4.5% in 2024 and thereafter. A one-percentage-point change in assumed health care cost trend rates would have increased or decreased the other post-retirement benefit obligations and current year plan expense by approximately $1.0 million and $0.1 million, respectively.
Expense for defined contribution pension plans was $8.3 million in 2019, $9.0 million in 2018 and $8.1 million in 2017.
Estimated pension benefits to be paid under our defined benefit pension plans during the next five years are $25.0 million in 2020, $25.6 million in 2021, $26.5 million in 2022, $27.6 million in 2023 and $28.1 million in 2024, and an aggregated $151.0 million for the five years thereafter. Estimated other post-retirement benefits to be paid during the next five years are $2.4 million in 2020, $2.5 million in 2021, $2.3 million in 2022, $2.0 million in 2023, $2.1 million in 2024, and an aggregated $8.9 million for the five years thereafter.