Retirement Benefit Plans

Defined Benefit Plans: The Company maintains defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. Prior to 2017, the Company amended the Combined Defined Benefit Plan for NACCO Industries, Inc. and its subsidiaries (the “Combined Plan”) to freeze pension benefits for all employees. The Company also amended the Supplemental Retirement Benefit Plan (the “SERP”) to freeze all pension benefits. Certain executive officers also maintain accounts under various deferred compensation plans that were frozen prior to 2017. All eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans.

The assumptions used in accounting for the defined benefit plans were as follows for the years ended December 31:



	2018		2017
Weighted average discount rates for pension benefit obligation	4.10% - 4.20%		3.40% - 3.55%
Weighted average discount rates for net periodic benefit cost	3.40% - 3.55%		3.40% - 4.00%
Expected long-term rate of return on assets for net periodic benefit cost	7.50	%	7.50	%

Set forth below is a detail of the net periodic pension expense (income) for the defined benefit plans for the years ended December 31:



	2018			2017
Interest cost	$	1,581		$	1,746
Expected return on plan assets	(2,852		)	(2,843		)
Amortization of actuarial loss	484			363
Amortization of prior service cost	58			58
Settlements	—			76
Net periodic pension income	$	(729	)	$	(600	)

Set forth below is detail of other changes in plan assets and benefit obligations recognized in other comprehensive (income) loss for the years ended December 31:



	2018			2017
Current year actuarial loss (gain)	$	1,397		$	(1,343	)
Amortization of actuarial loss	(484		)	(363		)
Amortization of prior service cost	(58		)	(58		)
Settlements	—			(76		)
Total recognized in other comprehensive loss (income)	$	855		$	(1,840	)

The following table sets forth the changes in the benefit obligation and the plan assets during the year and the funded status of the defined benefit plans at December 31:



	2018			2017
Change in benefit obligation
Projected benefit obligation at beginning of year	$	46,065		$	45,318
Interest cost	1,581			1,746
Actuarial (gain) loss	(3,286		)	1,275
Benefits paid	(2,334		)	(2,019		)
Settlements	—			(255		)
Projected benefit obligation at end of year	$	42,026		$	46,065
Accumulated benefit obligation at end of year	$	42,026		$	46,065
Change in plan assets
Fair value of plan assets at beginning of year	$	38,527		$	34,628
Actual (loss) return on plan assets	(1,832		)	5,461
Employer contributions	593			712
Benefits paid	(2,334		)	(2,019		)
Settlements	—			(255		)
Fair value of plan assets at end of year	$	34,954		$	38,527
Funded status at end of year	$	(7,072	)	$	(7,538	)
Amounts recognized in the balance sheets consist of:
Non-current assets	$	2,047		$	2,051
Current liabilities	(588		)	(700		)
Non-current liabilities	(8,531		)	(8,889		)
	$	(7,072	)	$	(7,538	)
Components of accumulated other comprehensive loss (income) consist of:
Actuarial loss	$	16,277		$	15,363
Prior service cost	878			937
Deferred taxes	(3,320		)	(6,481		)
	$	13,835		$	9,819

The Company recognizes as a component of benefit cost (income), as of the measurement date, any unrecognized actuarial net gains or losses that exceed 10% of the larger of the projected benefit obligations or the plan assets, defined as the "corridor." Amounts outside the corridor are amortized over the average expected remaining service of active participants expected to benefit under the retiree medical plans or over the average expected remaining lifetime of inactive participants for the pension plans. The (gain) loss amounts recognized in AOCI are not expected to be fully recognized until the plan is terminated or as settlements occur, which would trigger accelerated recognition. Prior service costs resulting from plan changes are also in AOCI.

The Company's policy is to make contributions to fund its pension plans within the range allowed by applicable regulations.

The Company maintains one supplemental defined benefit plan that pays monthly benefits to participants directly out of corporate funds. All other pension benefit payments are made from assets of the pension plans.

Future pension benefit payments expected to be paid from assets of the pension plans are:



2019	$	2,475
2020	2,560
2021	2,669
2022	2,760
2023	2,819
2024 - 2028	14,232
	$	27,515

The expected long-term rate of return on defined benefit plan assets reflects management's expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. In establishing the expected long-term rate of return assumption for plan assets, the Company considers the historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans as well as a forward-looking rate of return. The historical and forward-looking rates of return for each of the asset classes used to determine the Company's estimated rate of return assumption were based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each of the asset classes.

Expected returns for pension plans are based on a calculated market-related value for pension plan assets. Under this methodology, asset gains and losses resulting from actual returns that differ from the Company's expected returns are recognized in the market-related value of assets ratably over three years.

The pension plans maintain investment policies that, among other things, establish a portfolio asset allocation methodology with percentage allocation bands for individual asset classes. The investment policies provide that investments are reallocated between asset classes as balances exceed or fall below the appropriate allocation bands.

The following is the actual allocation percentage and target allocation percentage for the pension plan assets at December 31:



	2018 Actual Allocation		2017 Actual Allocation		Target Allocation Range
U.S. equity securities	42.4	%	47.2	%	36.0% - 54.0%
Non-U.S. equity securities	19.4	%	21.1	%	16.0% - 24.0%
Fixed income securities	37.7	%	31.4	%	30.0% - 40.0%
Money market	0.5	%	0.3	%	0.0% - 10.0%

The defined benefit pension plans do not have any direct ownership of NACCO common stock.

The fair value of each major category of the Company's pension plan assets are valued using quoted market prices in active markets for identical assets, or Level 1 in the fair value hierarchy. Following are the values as of December 31:



	Level 1
	2018		2017
U.S. equity securities	$	14,834	$	18,175
Non-U.S. equity securities	6,790		8,120
Fixed income securities	13,169		12,097
Money market	161		135
Total	$	34,954	$	38,527

Postretirement Health Care: The Company also maintains health care plans which provide benefits to grandfathered eligible retired employees. All health care plans of the Company have a cap on the Company's share of the costs. The health care plans were amended effective January 1, 2019 to eliminate the open network structure. The move to network provided benefits will result in cost savings for the Company. These plans have no assets. Under the Company's current policy, plan benefits are funded at the time they are due to participants.

The assumptions used in accounting for the postretirement health care plans are set forth below for the years ended December 31:



	2018		2017
Weighted average discount rates for benefit obligation	3.80	%	3.10	%
Weighted average discount rates for net periodic benefit cost	3.10	%	3.25	%
Health care cost trend rate assumed for next year	6.75	%	7.00	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)	5.0	%	5.0	%
Year that the rate reaches the ultimate trend rate	2025		2025

Set forth below is a detail of the net periodic benefit expense for the postretirement health care plans for the years ended December 31:



	2018			2017
Service cost	$	50		$	50
Interest cost	98			101
Amortization of actuarial loss	96			97
Amortization of prior service credit	(64		)	(17		)
Net periodic benefit expense	$	180		$	231

Set forth below is a detail of other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended December 31:



	2018			2017
Current year actuarial (gain) loss	$	(756	)	$	154
Amortization of actuarial loss	(96		)	(97		)
Current year prior service credit	(325		)	—
Amortization of prior service credit	64			17
Total recognized in other comprehensive (loss) income	$	(1,113	)	$	74

The following sets forth the changes in benefit obligations during the year and the funded status of the postretirement health care at December 31:



	2018			2017
Change in benefit obligation
Benefit obligation at beginning of year	$	3,221		$	3,211
Service cost	50			50
Interest cost	98			101
Plan amendments	(326		)	—
Actuarial (gain) loss	(756		)	154
Benefits paid	(174		)	(295		)
Benefit obligation at end of year	$	2,113		$	3,221
Funded status at end of year	$	(2,113	)	$	(3,221	)
Amounts recognized in the balance sheets consist of:
Current liabilities	$	(215	)	$	(282	)
Noncurrent liabilities	(1,898		)	(2,939		)
	$	(2,113	)	$	(3,221	)
Components of accumulated other comprehensive loss (income) consist of:
Actuarial loss	$	189		$	1,040
Prior service credit	(339		)	(78		)
Deferred taxes	(74		)	287
	$	(224	)	$	1,249

Future postretirement health care benefit payments expected to be paid are:



2019	215
2020	234
2021	250
2022	238
2023	232
2024 - 2028	902
	$	2,071

Defined Contribution Plans: NACCO and its subsidiaries maintain defined contribution (401(k)) plans for substantially all employees and provide employer matching contributions based on plan provisions. The defined contribution retirement plans provide for a minimum employer contribution. Certain plans also permit additional contributions whereby the applicable company's contribution to participants is determined annually based on a formula that includes the effect of actual compared with targeted operating results and the age and/or compensation of the participants. Total costs, including Company contributions, for these plans were $2.6 million and $2.6 million in 2018 and 2017, respectively.