Employee Benefit Plans

The company maintains an unfunded Arrow supplemental executive retirement plan ("SERP") under which the company will pay supplemental pension benefits to certain employees upon retirement. As of December 31, 2017, there were 10 current and 22 former corporate officers participating in this plan. The Board determines those employees who are eligible to participate in the Arrow SERP.

The Arrow SERP, as amended, provides for the pension benefits to be based on a percentage of average final compensation, based on years of participation in the Arrow SERP. The Arrow SERP permits early retirement, with payments at a reduced rate, based on age and years of service subject to a minimum retirement age of 55. Participants whose accrued rights under the Arrow SERP, prior to the 2002 amendment, which were adversely affected by the amendment, will continue to be entitled to such greater rights.

Additionally, as part of the company's acquisition of Wyle in 2000, Wyle provided retirement benefits for certain employees under a defined benefit plan. Benefits under this plan were frozen as of December 31, 2000.

In 2016, the company adopted an amendment to its Wyle defined benefit plan that provided eligible plan participants with the option to receive an early distribution of their pension benefits. Lump sum payments of $26,063 were made during June 2016 and the company incurred a settlement expense of $12,211.

In 2017, the company entered into a settlement for a portion of its Wyle defined benefit plan. Participants will receive benefits through an insurance annuity contract. The settlement of $42,985 was completed during October 2017 and the company incurred a settlement expense of $16,706.

The company uses a December 31 measurement date for the Arrow SERP and the Wyle defined benefit plan. Pension information for the years ended December 31 is as follows:



	Arrow SERP						Wyle Defined Benefit Plan
	2017			2016			2017			2016
Accumulated benefit obligation	$	90,368		$	84,561		$	60,374		$	97,984
Changes in projected benefit obligation:
Projected benefit obligation at beginning of year	$	91,038		$	88,729		$	97,984		$	129,029
Service cost	2,310			1,689			—			—
Interest cost	3,552			3,475			3,860			4,485
Actuarial loss (gain)	4,929			1,021			7,595			(3,244		)
Benefits paid	(4,222		)	(3,876		)	(6,080		)	(6,223		)
Settlement	—			—			(42,985		)	(26,063		)
Projected benefit obligation at end of year	$	97,607		$	91,038		$	60,374		$	97,984
Changes in plan assets:
Fair value of plan assets at beginning of year	$	—		$	—		$	71,470		$	101,859
Actual return on plan assets	—			—			10,258			1,897
Company contributions	—			—			14,000			—
Benefits paid	—			—			(6,080		)	(6,223		)
Settlement	—			—			(42,985		)	(26,063		)
Fair value of plan assets at end of year	$	—		$	—		$	46,663		$	71,470
Funded status	$	(97,607	)	$	(91,038	)	$	(13,711	)	$	(26,514	)
Amounts recognized in the company's consolidated balance sheets:
Current liabilities	$	(4,535	)	$	(4,556	)	$	—		$	—
Noncurrent liabilities	(93,072		)	(86,482		)	(13,711		)	(26,514		)
Net liabilities at end of year	$	(97,607	)	$	(91,038	)	$	(13,711	)	$	(26,514	)
Components of net periodic pension cost:
Service cost	$	2,310		$	1,689		$	—		$	—
Interest cost	3,552			3,475			3,860			4,485
Expected return on plan assets	—			—			(3,449		)	(5,273		)
Amortization of net loss	1,216			3,208			1,666			1,827
Settlement charge	—			—			16,706			12,211
Net periodic pension cost	$	7,078		$	8,372		$	18,783		$	13,250
Weighted-average assumptions used to determine benefit obligation:
Discount rate	3.50		%	4.00		%	3.60		%	4.00		%
Rate of compensation increase	5.00		%	5.00		%	N/A			N/A
Expected return on plan assets	N/A			N/A			5.25		%	4.75		%
Weighted-average assumptions used to determine net periodic pension cost:
Discount rate	4.00		%	4.00		%	4.00		%	4.25		%
Rate of compensation increase	5.00		%	5.00		%	N/A			N/A
Expected return on plan assets	N/A			N/A			4.75		%	6.25		%

The amounts reported for net periodic pension cost and the respective benefit obligation amounts are dependent upon the actuarial assumptions used. The company reviews historical trends, future expectations, current market conditions, and external data to determine the assumptions. The discount rate represents the market rate for a high-quality corporate bond. The rate of compensation increase is determined by the company, based upon its long-term plans for such increases. The expected return on plan assets is based on current and expected asset allocations, historical trends, and projected returns on those assets. The actuarial assumptions used to determine the net periodic pension cost are based upon the prior year's assumptions used to determine the benefit obligation.

Benefit payments are expected to be paid as follows:



	Arrow SERP		Wyle Defined Benefit Plan
2018	$	4,535	$	3,133
2019	5,902		3,216
2020	5,852		3,232
2021	5,797		3,273
2022	5,998		3,361
2023-2026	32,652		17,207

The company makes contributions to the Wyle defined benefit plan so that minimum contribution requirements, as determined by government regulations, are met. The company made contributions of $14,000 in 2017. The company did not make any contributions in 2016. The company is planning on contributing $15,000 to the plan in 2018, however, there is no requirement to make any contributions in 2018. The company has funded $86,587 of the Arrow SERP obligation for the former corporate officers in a rabbi trust comprised primarily of life insurance policies and mutual fund assets.

The fair values of the company's pension plan assets for the Wyle defined benefit plan at December 31, 2017, utilizing the fair value hierarchy discussed in Note 7, are as follows:



	Level 1		Level 2		Level 3		Total
Equities:
U.S. common stocks	$	17,039	$	—	$	—	$	17,039
International mutual funds	6,975		—		—		6,975
Index mutual funds	2,942		—		—		2,942
Fixed Income:
Mutual funds	19,707		—		—		19,707
Total	$	46,663	$	—	$	—	$	46,663

The fair values of the company's pension plan assets for the Wyle defined benefit plan at December 31, 2016, utilizing the fair value hierarchy discussed in Note 7, are as follows:



	Level 1		Level 2		Level 3		Total
Equities:
U.S. common stocks	$	29,020	$	—	$	—	$	29,020
International mutual funds	10,791		—		—		10,791
Index mutual funds	8,501		—		—		8,501
Fixed Income:
Mutual funds	21,047		—		—		21,047
Insurance contracts	—		2,111		—		2,111
Total	$	69,359	$	2,111	$	—	$	71,470

The investment portfolio contains a diversified blend of common stocks, bonds, cash equivalents, and other investments, which may reflect varying rates of return. The company accounts for common stock and mutual fund investments at fair value, using quoted market prices. The investments are further diversified within each asset classification. The portfolio diversification provides protection against a single security or class of securities having a disproportionate impact on aggregate performance. The long-term target allocations for plan assets are 58% in equities and 42% in fixed income, although the actual plan asset allocations may be within a range around these targets. The actual asset allocations are reviewed and rebalanced on a periodic basis to maintain the target allocations.

Comprehensive Income Items

In 2017, 2016, and 2015, actuarial losses of $3,795, $740, and $185, respectively, were recognized in comprehensive income, net of related taxes, related to the company's defined benefit plans. In 2017, 2016, and 2015, a reclassification adjustment of comprehensive income was recognized, net of related taxes, as a result of being recognized in net periodic pension cost for an actuarial loss of $12,070, $10,625, and $3,282, respectively.

Accumulated other comprehensive income (loss) at December 31, 2017 and 2016 includes unrecognized actuarial losses, net of related taxes, of $28,569 and $36,841, respectively, that have not yet been recognized in net periodic pension cost.

The actuarial loss included in accumulated other comprehensive income (loss), net of related taxes, which is expected to be recognized in net periodic pension cost is $1,439 as of December 31, 2018.

Defined Contribution Plan

The company has defined contribution plans for eligible employees, which qualify under Section 401(k) of the Internal Revenue Code. The company's contribution to the plans, which are based on a specified percentage of employee contributions, amounted to $13,627, $13,432, and $13,604 in 2017, 2016, and 2015, respectively. The company made discretionary contributions to the company's defined benefit 401(k) plan, which amounted to $7,574, $7,572, and $7,151 in 2017, 2016, and 2015, respectively. Certain international subsidiaries maintain separate defined contribution plans for their employees and made contributions thereunder, which amounted to $18,815, $12,882, and $11,465 in 2017, 2016, and 2015, respectively.