Employee Benefit Plans

12 Months Ended

Dec. 31, 2021

Employee Benefit Plans

Employee Benefit Plans

Note 13: Employee Benefit Plans

Defined Benefit Pension Plan

The Company’s Retirement Income Plan, a trusteed defined benefit pension plan, provides monthly benefits upon normal retirement at age 65, or reduced early retirement benefits at age 591/2, or 55 or older with 15 or more years of service.to substantially all employees with at least one year of service prior to 2002. During 2001, the plan became a multiple employer plan, with Marine Products Corporation as an adopting employer.

During the fourth quarter of 2021, the Company initiated actions to terminate the defined benefit pension plan and as such, the year-end pension obligation has been valued on a termination basis. Specifically, the actuaries utilized an approach based on their experience with other plan terminations that (i) estimated a take rate for lump sums; (ii) for those participants electing a lump-sum, calculated the amount using the November 2021 IRS segment rates and (iii) for those participants with annuities purchased, calculated

the amount using estimated insurance settlement rates. The Company currently expects to make a final cash contribution of approximately $6.0 million to the benefit plan as part of the termination in early 2023.

The Company’s projected benefit obligation exceeds the fair value of the plan assets under its pension plan by $5.7 million as of December 31, 2021. The following table sets forth the funded status of the Retirement Income Plan and the amounts recognized in RPC’s consolidated balance sheets:

December 31,	2021		2020
(in thousands)
Accumulated benefit obligation at end of year	$	41,038	$	41,120
CHANGE IN PROJECTED BENEFIT OBLIGATION:
Benefit obligation at beginning of year	$	41,120	$	48,519
Service cost		—		—
Interest cost		988		1,645
Actuarial loss		1,365		3,066
Benefits paid		(2,435)		(2,581)
Settlement		—		(9,529)
Projected benefit obligation at end of year	$	41,038	$	41,120
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year	$	39,068	$	40,142
Actual return on plan assets		(1,294)		6,586
Employer contribution		—		4,450
Benefits paid		(2,435)		(2,581)
Settlement		—		(9,529)
Fair value of plan assets at end of year	$	35,339	$	39,068
Funded status at end of year	$	(5,699)	$	(2,052)

December 31,	2021		2020
(in thousands)
AMOUNTS (PRE-TAX) RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) CONSIST OF:
Net loss	$	23,468	$	20,108
Prior service cost (credit)		—		—
Net transition obligation (asset)		—		—
	$	23,468	$	20,108

The accumulated benefit obligation for the Retirement Income Plan at December 31, 2021 and 2020 has been disclosed above. The Company uses a December 31 measurement date for this qualified plan. As part of the plan termination, the Company expects to recognize a non-cash settlement charge of the remaining balance in the accumulated other comprehensive loss at the time.

Amounts recognized in the consolidated balance sheets consist of:

December 31,	2021		2020
(in thousands)
Funded status of the Retirement Income Plan	$	(5,699)	$	(2,052)
SERP liability		(29,677)		(31,028)
Long-term pension liabilities	$	(35,376)	$	(33,080)

RPC’s funding policy is to contribute to the defined benefit pension plan the amount required, if any, under the Employee Retirement Income Security Act of 1974. The Company made no cash contributions in 2021 and a cash contribution of $4,450,000 in 2020.

The components of net periodic benefit cost of the Retirement Income Plan are summarized as follows:

(in thousands)	2021		2020		2019
Service cost for benefits earned during the period	$	—	$	—	$	—
Interest cost		988		1,645		1,960
Expected return on plan assets		(1,509)		(1,581)		(2,598)
Amortization of net losses		808		986		919
Settlement loss		—		4,660		—
Net periodic benefit cost	$	287	$	5,710	$	281

The Company recognized pre-tax decreases (increases) to the funded status in accumulated other comprehensive loss of $3,361,000 in 2021, ($6,863,000) in 2020, and $3,043,000 in 2019. There were no previously unrecognized prior service costs as of December 31, 2021, 2020 and 2019. In 2020, the Company offered a limited lump-sum payment window for vested terminated participants who had terminated employment before July 1, 2020 and for active employees who reached age 59 ½ by December 1, 2020, with a vested balance. The participants at their election, could receive their vested balance either immediately as a lump-sum or as a monthly annuity payment. Non-cash settlement charges of $4.7 million recorded for the year ended December 31, 2020 and shown above represents the accelerated recognition of actuarial losses previously reflected in accumulated other comprehensive loss.

The pre-tax amounts recognized in accumulated other comprehensive loss for the years ended December 31, 2021, 2020 and 2019 are summarized as follows:

(in thousands)	2021		2020		2019
Net loss (gain)	$	4,169	$	(1,217)	$	3,962
Amortization of net loss		(808)		(986)		(919)
Net transition obligation (asset)		—		—		—
Settlement loss		—		(4,660)		—
Amount recognized in accumulated other comprehensive loss	$	3,361	$	(6,863)	$	3,043

The weighted average assumptions as of December 31 used to determine the projected benefit obligation and net benefit cost were as follows:

December 31,	2021		2020		2019
Projected Benefit Obligation:
Discount rate	Note (1)	%	2.50	%	3.60	%
Rate of compensation increase	N/A		N/A		N/A
Net Benefit Cost:
Discount rate	2.50	%	3.60	%	4.65	%
Expected return on plan assets	4.00	%	4.00	%	7.00	%
Rate of compensation increase	N/A		N/A		N/A

(1) Projected benefit obligation as of December 31, 2021 reflects proposed termination of the Plan and is calculated based on various assumptions in accordance with the Plan agreement.

The Company’s expected return on assets assumption is derived from a detailed periodic assessment conducted by its management and its investment advisor. It includes a review of anticipated future long-term performance of individual asset classes and consideration of the appropriate asset allocation strategy given the anticipated requirements of the plan to determine the average rate of earnings expected on the funds invested to provide for the pension plan benefits. While the study gives appropriate consideration to recent fund performance and historical returns, the rate of return assumption is derived primarily from a long-term, prospective view. Based on its recent assessment, the Company has concluded that its 2021 expected long-term return assumption of four percent is reasonable.

The plan’s weighted average asset allocation at December 31, 2021 and 2020 by asset category along with the target allocation for 2022 are as follows: 

	Target Allocation		Percentage of Plan Assets
December 31,	2022		2021		2020
Asset Category
Cash and cash equivalents	0% - 5	%	1.3	%	2.0	%
Fixed income securities	15% - 100	%	98.7	%	98.0	%
Total			100.0	%	100.0	%

The Company’s investments consist primarily of fixed-income securities that include corporate bonds, mortgage-backed securities, sovereign bonds, and U.S. Treasuries. For each of the asset categories in the pension plan, the investment strategy is identical – maximize the long-term rate of return on plan assets while minimizing the level of risk to minimize the cost of providing pension benefits. The investment policy establishes a target allocation for each asset class which is rebalanced as required. The plan utilizes a number of investment approaches, including but not limited to individual market securities, equity and fixed income funds in which the underlying securities are marketable, and debt funds to achieve this target allocation.

The following tables present our plan assets using the fair value hierarchy as of December 31, 2021 and 2020. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. See Note 11 for a brief description of the three levels under the fair value hierarchy.

Fair Value Hierarchy as of December 31, 2021:

Investments (in thousands)		Total		Level 1		Level 2
Cash and Cash Equivalents	(1)	$	444	$	444	$	—
Fixed Income Securities	(2)		34,895		—		34,895
Total Assets in the Fair Value Hierarchy		$	35,339	$	444	$	34,895
Investments measured at Net Asset Value			—
Investments at Fair Value		$	35,339

Fair Value Hierarchy as of December 31, 2020:

Investments (in thousands)		Total		Level 1		Level 2
Cash and Cash Equivalents	(1)	$	736	$	736	$	—
Fixed Income Securities	(2)		38,332		—		38,332
Total Assets in the Fair Value Hierarchy		$	39,068	$	736	$	38,332
Investments measured at Net Asset Value			—
Investments at Fair Value		$	39,068

(1) Cash and cash equivalents, which are used to pay benefits and plan administrative expenses, are held in Rule 2a-7 money market funds.

(2) Fixed income securities are primarily valued using a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported trades.

The Company estimates that the future benefits payable for the Retirement Income Plan over the next ten years are as follows:

(in thousands)
2022	$	9,026,000
2023		35,511,000
2024		—
2025		—
2026		—
2027‑2031	$	—

Supplemental Executive Retirement Plan (SERP)

The Company permits selected highly compensated employees to defer a portion of their compensation into the SERP. The SERP assets are invested primarily in company-owned life insurance (“COLI”) policies as a funding source to satisfy the obligations of the SERP. The assets are subject to claims by creditors, and the Company can designate them to another purpose at any time. Investments in COLI policies consisted of variable life insurance policies totaling $60.7 million as of December 31, 2021 and $58.0 million as of December 31, 2020. In the COLI policies, the Company is able to allocate the investment of the assets across a set of choices provided by the insurance underwriters, including fixed income securities and equity funds. The COLI policies are recorded at their net cash surrender values, which approximates fair value, as provided by the issuing insurance company, whose Standard & Poor’s credit rating was A+.

The Company classifies the SERP assets as trading securities as described in Note 1. The fair value of these assets totaled $31,738,000 as of December 31, 2021 and $32,039,000 as of December 31, 2020. The SERP assets are reported in other assets on the balance sheet. The changes in the fair value of these assets, and normal insurance expenses are recorded in the consolidated statement of operations as compensation cost within selling, general and administrative expenses. Trading gains (losses) related to the SERP assets totaled $2,624,000 in 2021, $2,620,000 in 2020, and $(5,524,000) in 2019. The SERP liability includes participant deferrals net of distributions and is recorded on the balance sheet in long-term pension liabilities with any change in the fair value of the liabilities recorded as compensation cost within selling, general and administrative expenses in the consolidated statements of operations.

As a result of Company-owned life insurance policy claims, the Company recorded tax-free gains of $891,000 during 2020; these gains were recorded as an adjustment to compensation cost within selling, general and administrative expenses in the consolidated statements of operations. Proceeds received totaling $1,566,000 were reinvested in mutual funds held as SERP assets.

401(k) Plan

RPC sponsors a defined contribution 401(k) Plan that is available to substantially all full-time employees with more than three months of service. This plan allows employees to make tax-deferred contributions from one to 25 percent of their annual compensation, not exceeding the permissible contribution imposed by the Internal Revenue Code. Effective January 1, 2020, the Company began making 100 percent matching contributions for each dollar $(1.00) of a participant’s contribution to the 401(k) Plan for the first three percent of his or her annual compensation and fifty cents $(0.50) for each dollar $(1.00) of a participant’s contribution to the 401(k) Plan for the next three percent of his or her annual compensation. During 2019, the Company made matching contributions of fifty cents $(0.50) for each dollar $(1.00) of a participant's contribution to the 401(k) Plan that did not exceed six percent of his or her annual compensation. Employees vest in the RPC contributions after two years of service. The charges to expense for the Company’s contributions to the 401(k) Plan were $6,910,000 in 2021, $5,641,000 in 2020, and $10,805,000 in 2019.

Stock Incentive Plans

The Company has issued stock options and restricted stock to employees under three 10-year stock incentive plans that were approved by stockholders in 1994, 2004 and 2014. The 1994 plan expired in 2004 and the 2004 Plan expired in 2014. In April 2014, the Company reserved 8,000,000 shares of common stock under the 2014 Stock Incentive Plan with a term of 10 years expiring in April 2024. This plan provides for the issuance of various forms of stock incentives, including, among others, incentive and non-qualified stock options and restricted shares. As of December 31, 2021, 3,194,060 shares were available for grant. As of December 31, 2020, 4,012,780 shares were available for grant.

The Company recognizes compensation expense for the unvested portion of awards outstanding over the remainder of the service period. The compensation cost recorded for these awards is based on their fair value at the grant date less the cost of estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods to reflect actual forfeitures.

Pre-tax stock-based employee compensation expense was $6,576,000 in 2021 $(5,064,000 after tax), $8,735,000 in 2020 $(6,595,000 after tax) and $8,630,000 in 2019 $(6,516,000 after tax).

Stock Options

Stock options are granted at an exercise price equal to the fair market value of the Company’s common stock at the date of grant except for grants of incentive stock options to owners of greater than 10 percent of the Company’s voting securities which must

be made at 110 percent of the fair market value of the Company’s common stock. Options generally vest ratably over a period of five years and expire in 10 years, except incentive stock options granted to owners of greater than 10 percent of the Company’s voting securities, which expire in five years.

The Company estimates the fair value of stock options as of the date of grant using the Black-Scholes option pricing model. The Company has not granted stock options to employees since 2003. There were no stock options exercised during 2021, 2020 or 2019 and there are no stock options outstanding as of December 31, 2021 and 2020.

Restricted Stock

The Company has granted certain employees time lapse restricted stock which vest after a stipulated number of years from the grant date, depending on the terms of the issue. Time lapse restricted shares issued to date vest in 20 percent increments annually starting with the second anniversary of the grant. Grantees receive dividends declared and retain voting rights for the granted shares. The agreement under which the restricted stock is issued provides that shares awarded may not be sold or otherwise transferred until restrictions established under the stock plans have lapsed. Upon termination of employment from RPC, with the exception of death (fully vests), disability or retirement (partially vests based on duration of service), shares with restrictions are forfeited in accordance with the plan.

The following is a summary of the changes in non-vested restricted shares for the year ended December 31, 2021:

		Weighted Average
	Shares	Grant-Date Fair Value
Non-vested shares at January 1, 2021	2,235,179	$	6.81
Granted	1,010,700		3.87
Vested	(434,208)		14.96
Forfeited	(191,980)		7.71
Non-vested shares at December 31, 2021	2,619,691	$	7.89

The following is a summary of the changes in non-vested restricted shares for the year ended December 31, 2020:

		Weighted Average
	Shares	Grant-Date Fair Value
Non-vested shares at January 1, 2020	2,393,557	$	13.23
Granted	1,085,875		4.59
Vested	(875,202)		14.96
Forfeited	(369,051)		13.60
Non-vested shares at December 31, 2020	2,235,179	$	6.81

The fair value of restricted share awards is based on the market price of the Company’s stock on the date of the grant and is amortized to compensation expense, net of estimated forfeitures, on a straight-line basis over the requisite service period. The weighted average grant date fair value per share of these restricted stock awards was $3.87 for 2021, $4.59 for 2020 and $11.39 for 2019. The total fair value of shares vested was $1,757,000 during 2021, $3,474,000 during 2020 and $7,026,000 during 2019.

The consolidated statements of cash flows reflect discrete income tax expense of $1,164,000 in 2021 and $0 in 2020 related to tax compensation deductions classified within operating activities as part of net income.

Other Information

As of December 31, 2021, total unrecognized compensation cost related to non-vested restricted shares was $38,227,000 which is expected to be recognized over a weighted-average period of 3.9 years.