Employee Benefit Plans

12 Months Ended

Dec. 31, 2022

Employee Benefit Plans

Employee Benefit Plans

Note 13: Employee Benefit Plans

Defined Benefit Pension Plan

The Company’s Plan provides monthly benefits upon normal retirement at age 65, or reduced early retirement benefits at age 59 and a half, 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 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. As part of the termination process, the Company offered a lump-sum window in the fourth quarter of 2022 and used the following assumptions to calculate the projected benefit obligation as of 2022; (i) updated census data and removed participants who elected to receive a lump-sum during the lump-sum window; (ii) annuities to be purchased for all remaining participants effective March 1, 2023 and (iii) using appropriate discount rates and mortality tables for participants depending on their pay status. A $2.9 million settlement loss representing the accelerated recognition of actuarial losses was recognized in the fourth quarter of 2022 and is reflected as part of Pension settlement charges. During the first quarter of 2023, the Company expects to recognize a pre-tax, non-cash settlement charge representing the unamortized net loss in the Plan which was approximately $22.5 million as of December 31, 2022. The final amount is subject to change based on the actual return on Plan assets and the periodic actuarial updates of the net losses in the Plan.  For the year ending December 31, 2022, the Company has utilized an

expected return on plan assets of zero percent based on the current short-term rates and investment horizon as a result of the expected Plan termination.

Subsequent to December 31, 2022, the Company completed an annuity purchase to transfer risk from the Plan to a commercial annuity provider for all of the remaining Plan participants through the liquidation of its investments in the Plan and a Company contribution of approximately $6.0 million to $10.0 million.

The Company’s projected benefit obligation exceeds the fair value of the Plan assets under its pension Plan by $9.6 million as of December 31, 2022. 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,	2022		2021
(in thousands)
Accumulated benefit obligation at end of year	$	29,651	$	41,038
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	41,038	$	41,120
Service cost		—		—
Interest cost		972		988
Actuarial (gain) loss		(5,258)		1,365
Benefits paid		(3,248)		(2,435)
Settlement		(3,853)		—
Projected benefit obligation at end of year	$	29,651	$	41,038
Change in Plan assets:
Fair value of Plan assets at beginning of year	$	35,339	$	39,068
Actual return on Plan assets		(8,197)		(1,294)
Employer contribution		—		—
Benefits paid		(3,248)		(2,435)
Settlement		(3,853)		—
Fair value of Plan assets at end of year	$	20,041	$	35,339
Funded status at end of year	$	(9,610)	$	(5,699)

December 31,	2022		2021
(in thousands)
Amounts (pre-tax) recognized in accumulated other comprehensive income (loss) consist of:
Net loss	$	22,476	$	23,468
Prior service cost (credit)		—		—
Net transition obligation (asset)		—		—
	$	22,476	$	23,468

The accumulated benefit obligation for the Retirement Income Plan at December 31, 2022 and 2021 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.

Funded status of the Plan as of December 31, 2022 was a deficit of $9.6 million and is disclosed as part of current liabilities on the consolidated balance sheets.  Long-term pension and retirement plan liabilities recognized in the consolidated balance sheets consist of:  

December 31,	2022		2021
(in thousands)
Funded status of the Retirement Income Plan	$	—	$	(5,699)
SERP liability		(23,106)		(29,677)
Long-term pension liabilities	$	(23,106)	$	(35,376)

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 2022 or 2021.

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

December 31,	2022		2021		2020
(in thousands)
Interest cost	$	972	$	988	$	1,645
Expected return on Plan assets		—		(1,509)		(1,581)
Amortization of net losses		1,010		808		986
Settlement loss		2,921		—		4,660
Net periodic benefit cost	$	4,903	$	287	$	5,710

The Company recognized pre-tax (increases) decreases to the funded status in accumulated other comprehensive loss of $(992 thousand) in 2022, $3.4 million in 2021, and $(6.9 million) in 2020. There were no previously unrecognized prior service costs as of December 31, 2022, 2021 and 2020. Non-cash settlement charges shown above represent the accelerated recognition of actuarial losses previously reflected in accumulated other comprehensive loss related to the lump-sum window offered in each of the years.

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, 2022, 2021 and 2020 are summarized as follows:

December 31,	2022		2021		2020
(in thousands)
Net loss (gain)	$	2,939	$	4,169	$	(1,217)
Amortization of net loss		(1,010)		(808)		(986)
Net transition obligation (asset)		—		—		—
Settlement loss		(2,921)		—		(4,660)
Amount recognized in accumulated other comprehensive loss	$	(992)	$	3,361	$	(6,863)

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

December 31,	2022		2021		2020
Projected Benefit Obligation:
Discount rate	Note (1)	%	Note (1)	%	2.50	%
Rate of compensation increase	N/A		N/A		N/A
Net Benefit Cost:
Discount rate	4.86	%	2.50	%	3.60	%
Expected return on Plan assets	0.0	%	4.00	%	4.00	%
Rate of compensation increase	N/A		N/A		N/A

(1) Projected benefit obligation as of December 31, 2022 and December 31, 2021 reflects proposed termination of the Plan and is calculated based on various assumptions in accordance with the Plan agreement.

The Plan’s weighted average asset allocation at December 31, 2022 and 2021 by asset category along with the target allocation for 2023 are as follows: 

	Target Allocation		Percentage of Plan Assets
December 31,	2023		2022		2020
Asset Category
Cash and cash equivalents	0% - 5	%	3.7	%	1.3	%
Fixed income securities	15% - 100	%	96.3	%	98.7	%
Total			100.0	%	100.0	%

The Company’s Plan 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 Plan, the investment strategy is intended to minimize the level of risk as compared to the Plan’s liability and to minimize the cost of providing pension benefits. The investment policy establishes a target allocation for each asset class which is rebalanced as required. While not limited in approach, the Plan utilizes fixed income funds in which the underlying securities are marketable, to achieve this target allocation.

The following tables present our Plan assets using the fair value hierarchy as of December 31, 2022 and 2021. 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, 2022:

Investments (in thousands)		Total		Level 1		Level 2
Cash and Cash Equivalents	(1)	$	740	$	740	$	—
Fixed Income Securities	(2)		19,301		—		19,301
Total Assets in the Fair Value Hierarchy		$	20,041	$	740	$	19,301
Investments measured at Net Asset Value			—
Investments at Fair Value		$	20,041

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

(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. Subsequent to December 31, 2022 these securities were liquidated to fund the annuity purchases.

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

(in thousands)
2023	$	29,888
2024		—
2025		—
2026		—
2027		—
2028‑2032	$	—

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 $45.4 million as of December 31, 2022 and $60.7 million as of December 31, 2021. 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 $24.2 million as of December 31, 2022 and $31.7 million as of December 31, 2021. 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 (losses) gains related to the SERP assets totaled ($4.4 million) in 2022, $2.6 million in 2021, and $2.6 million in 2020. 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 thousand 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 $1.6 million 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, 2019, 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. 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 $9.8 million in 2022, $6.9 million in 2021, and $5.6 million in 2020.

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 allows for a wide variety of stock-based awards such as stock options and restricted stock. In recent years, we have awarded time-based restricted stock in lieu of granting stock options. We have not issued any stock options since 2003 and have no immediate plans to issue additional stock options. As of December 31, 2022, 2,046,199 shares were available for grant. As of December 31, 2021, 3,194,060 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 included as part of selling, general and administrative expense was $6.4 million in 2022 $(4.9 million after tax), $6.6 million in 2021 $(5.1 million after tax) and $8.7 million in 2020 $(6.6 million after tax).

Restricted Stock

The Company has granted certain employees and directors time lapse restricted stock which vest after a stipulated number of years from the grant date, depending on the terms of the issue. The 2023 time-lapse restricted shares will vest ratably over a period of four years; the shares granted in 2022 vest ratably over a period of five years. Prior to 2022, the time lapse restricted shares vested one-fifth per year beginning on the second anniversary of the grant date. 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) or disability (partially vests based on pre-approved formula), 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, 2022:

		Weighted Average
	Shares	Grant-Date Fair Value
Non-vested shares at January 1, 2022	2,619,691	$	7.89
Granted	1,254,276		6.72
Vested	(510,084)		11.86
Forfeited	(115,155)		6.29
Non-vested shares at December 31, 2022	3,248,728	$	6.87

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 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 $6.72 for 2022, $3.87 for 2021 and $4.59 for 2020. The total fair value of shares vested was $2.9 million during 2022, $1.8 million during 2021 and $3.5 million during 2020.

The consolidated statements of cash flows reflect discrete income tax adjustments that resulted in $640,000 of detrimental impact in 2022 and $1,164,000 of detrimental impact in 2021 realized from tax compensation deductions and classified within operating activities as part of net income.

Other Information

As of December 31, 2022, total unrecognized compensation cost related to non-vested restricted shares was $13.8 million which is expected to be recognized over a weighted-average period of 3.3 years.