Employee Benefit Plans and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2019

Retirement Benefits [Abstract]

Employee Benefit Plans and Other Postretirement Benefits

Employee Benefit Plans and Other Postretirement Benefits

The Company has a qualified defined benefit pension plan and postretirement healthcare benefit plans. The plans cover certain eligible employees and retirees of the Motorcycles segment. The Company also has unfunded supplemental employee retirement plan agreements (SERPA) with certain employees which were instituted to replace benefits lost under the Tax Revenue Reconciliation Act of 1993.

Pension benefits are based primarily on years of service and, for certain plans, levels of compensation. Plan participants are eligible to receive postretirement healthcare benefits upon attaining age 55 after rendering at least 10 years of service to the Company. Some of the plans require participant contributions to partially offset benefit costs.

Obligations and Funded Status:

The changes in the benefit obligation, fair value of plan assets and the funded status of the Company’s pension and SERPA plans and the postretirement healthcare plans as of the Company’s measurement dates of December 31, were as follows (in thousands): 

	Pension and SERPA Benefits						Postretirement Healthcare Benefits
	2019			2018			2019			2018
Change in benefit obligation:
Benefit obligation, beginning of period	$	1,984,708		$	2,201,021		$	286,574		$	338,488
Service cost	25,408			32,340			4,449			7,180
Interest cost	85,483			82,778			11,753			11,556
Actuarial losses (gains)	236,719			(213,583		)	9,590			(42,039		)
Plan participant contributions	—			—			1,999			2,492
Plan amendments	8,371			(12,926		)	—			(4,710		)
Special early retirement benefits	1,583			—			—			—
Benefits paid	(126,079		)	(106,280		)	(20,860		)	(23,448		)
Net curtailments and settlements	(4,181		)	1,358			—			(2,945		)
Benefit obligation, end of period	2,212,012			1,984,708			293,505			286,574
Change in plan assets:
Fair value of plan assets, beginning of period	1,874,618			2,162,885			190,357			217,537
Return on plan assets	459,388			(185,468		)	41,717			(13,287		)
Plan participant contributions	—			—			1,999			2,492
Benefits paid	(124,784		)	(102,799		)	(13,081		)	(16,385		)
Fair value of plan assets, end of period	2,209,222			1,874,618			220,992			190,357
Funded status of the plan	$	(2,790	)	$	(110,090	)	$	(72,513	)	$	(96,217	)
Funded status as recognized on the Consolidated balance sheets:
Prepaid pension costs	$	56,014		$	—		$	—		$	—
Accrued liabilities	(2,666		)	(2,314		)	—			(1,764		)
Pension liabilities	(56,138		)	(107,776		)	—			—
Postretirement healthcare liabilities	—			—			(72,513		)	(94,453		)
	$	(2,790	)	$	(110,090	)	$	(72,513	)	$	(96,217	)
Amounts included in Accumulated other comprehensive loss, net of tax:
Prior service credits	$	(6,489	)	$	(14,371	)	$	(7,559	)	$	(9,381	)
Actuarial losses (gains)	496,919			593,608			(1,321		)	12,005
	$	490,430		$	579,237		$	(8,880	)	$	2,624

During 2019, the actuarial losses related to the obligation for pension and SERPA benefits were due primarily to a decrease in the discount rate. Conversely, during 2018, the actuarial gains related to this obligation were due primarily to an increase in the discount rate.

During 2019, the actuarial losses related to the obligation for postretirement healthcare benefits were due primarily to a decrease in the discount rate partially offset by favorable claim cost adjustments. During 2018, the actuarial gains related to this obligation were due primarily to an increase in the discount rate, favorable claim cost experience and a change in the benefit delivery structure.

The funded status of the qualified pension plan and the SERPA plans are combined above. Plans with projected benefit obligations (PBO) or accumulated benefit obligations (ABO) in excess of the fair value of plan assets at December 31, is presented below (in thousands):

	2019		2018
Plans with PBO in excess of fair value of plan assets:
PBO	$	58,804	$	1,984,708
Fair value of plan assets	$	—	$	1,874,618
Plans with ABO in excess of fair value of plan assets:
ABO	$	44,232	$	40,085
Fair value of plan assets	$	—	$	—

The total ABO for all the Company's pension and SERPA plans combined was $2.12 billion and $1.90 billion as of December 31, 2019 and 2018, respectively.

Benefit Costs:

Service costs are allocated among Selling, administrative and engineering expense, Motorcycles and Related Products cost of goods sold and Inventories, net. Amounts capitalized in inventory are not significant. Non-service cost components of net periodic benefit cost are presented in Other income (expense), net. Components of net periodic benefit costs for the years ended December 31, include the following (in thousands): 

	Pension and SERPA Benefits									Postretirement Healthcare Benefits
	2019			2018			2017			2019			2018			2017
Service cost	$	25,408		$	32,340		$	31,584		$	4,449		$	7,180		$	7,500
Interest cost	85,483			82,778			85,076			11,753			11,556			13,648
Expected return on plan assets	(142,323		)	(147,671		)	(141,385		)	(14,030		)	(14,161		)	(12,623		)
Amortization of unrecognized:
Prior service (credit) cost	(1,930		)	(420		)	1,018			(2,381		)	(1,842		)	(2,171		)
Net loss	44,511			64,773			43,993			277			1,817			3,261
Special early retirement benefits	1,583			—			—			—			—			—
Curtailment loss (gain)	—			1,017			—			(960		)	(886		)	—
Settlement loss	1,503			—			—			—			—			—
Net periodic benefit cost	$	14,235		$	32,817		$	20,286		$	(892	)	$	3,664		$	9,615

The expected return on plan assets is calculated based on the market related value of plan assets. The market related value of plan assets is different from the fair value in that asset gains and losses are smoothed over a five-year period. 

Unrecognized gains and losses related to plan obligations and assets are initially recorded in other comprehensive income and result from actual experience that differs from assumed or expected results, and the impacts of changes in assumptions. Unrecognized plan asset gains and losses not yet reflected in the market related value of plan assets are not subject to amortization. Remaining unrecognized gains and losses that exceed 10% of the greater of the projected benefit obligation or the market related value of plan assets are amortized to earnings over the estimated future service period of active plan participants. The impacts of plan amendments, if any, are amortized over the estimated future service period of plan participants at the time of the amendment.

Assumptions:

Weighted-average assumptions used to determine benefit obligations and net periodic benefit cost at December 31, were as follows: 

	Pension and SERPA Benefits						Postretirement Healthcare Benefits
	2019		2018		2017		2019		2018		2017
Assumptions for benefit obligations:
Discount rate	3.49	%	4.38	%	3.71	%	3.26	%	4.23	%	3.52	%
Rate of compensation increase	3.39	%	3.38	%	3.43	%	n/a		n/a		n/a
Assumptions for net periodic benefit cost:
Discount rate	4.38	%	3.71	%	4.30	%	4.23	%	3.52	%	4.03	%
Expected return on plan assets	7.10	%	7.25	%	7.25	%	7.25	%	7.25	%	7.25	%
Rate of compensation increase	3.38	%	3.43	%	3.50	%	n/a		n/a		n/a

Plan Assets:

Pension Plan Assets – The Company’s investment objective is to ensure assets are sufficient to pay benefits while mitigating the volatility of retirement plan assets or liabilities recorded in the balance sheet. The Company mitigates volatility through asset diversification and partial asset/liability matching. The investment portfolio for the Company's pension plan assets contains a diversified blend of equity and fixed-income investments. The Company’s current overall targeted asset allocation as a percentage of total market value was 56% equities and 44% fixed-income and cash. Assets are rebalanced regularly to keep the actual allocation in line with targets. Equity holdings primarily include investments in small-, medium- and large-cap companies in the U.S., including Company stock, investments in developed and emerging foreign markets and other investments such as private equity and real estate. Fixed-income holdings consist of U.S. government and agency securities, state and municipal bonds, corporate bonds from diversified industries and foreign obligations. In addition, cash equivalent balances are maintained at levels adequate to meet near-term plan expenses and benefit payments. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews.

Postretirement Healthcare Plan Assets – The Company's investment objective is to maximize the return on assets to help pay benefits by prudently investing in equities, fixed income and alternative assets. The Company's current overall targeted asset allocation as a percentage of total market value was 69% equities and 31% fixed-income and cash. Equity holdings primarily include investments in small-, medium- and large-cap companies in the U.S., investments in developed and emerging foreign markets and other investments such as private equity and real estate. Fixed-income holdings consist of U.S. government and agency securities, state and municipal bonds, corporate bonds from diversified industries and foreign obligations. In addition, cash equivalent balances are maintained at levels adequate to meet near-term plan expenses and benefit payments. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews.

The following tables present the fair values of the plan assets related to the Company’s pension and postretirement healthcare plans within the fair value hierarchy as defined in Note 13. The fair values of the Company’s pension plan assets at December 31, 2019 were as follows (in thousands): 

	Balance		Level 1		Level 2
Cash and cash equivalents	$	35,463	$	—	$	35,463
Equity holdings:
U.S. companies	728,892		707,276		21,616
Foreign companies	79,707		77,275		2,432
Harley-Davidson common stock	47,365		47,365		—
Pooled equity funds	377,301		377,301		—
Other	72		72		—
	1,233,337		1,209,289		24,048
Fixed-income holdings:
U.S. Treasuries	67,234		67,234		—
Federal agencies	15,434		—		15,434
Corporate bonds	583,475		—		583,475
Pooled fixed income funds	142,134		48,674		93,460
Foreign bonds	103,439		—		103,439
Municipal bonds	12,339		—		12,339
	924,055		115,908		808,147
Plan assets subject to fair value leveling	2,192,855		$	1,325,197	$	867,658
Plan assets measured at net asset value:
Limited partnership interests	4,118
Real estate investment trusts	12,249
	16,367
	$	2,209,222

Included in the pension plan assets are 1,273,592 shares of the Company’s common stock with a market value of $47.4 million at December 31, 2019.

The fair values of the Company’s postretirement healthcare plan assets at December 31, 2019 were as follows (in thousands): 

	Balance		Level 1		Level 2
Cash and cash equivalents	$	2,458	$	—	$	2,458
Equity holdings:
U.S. companies	104,399		104,399		—
Foreign companies	22,422		21,744		678
Pooled equity funds	25,029		25,029		—
Other	7		7		—
	151,857		151,179		678
Fixed-income holdings:
U.S. Treasuries	5,782		5,782		—
Federal agencies	7,986		—		7,986
Corporate bonds	8,425		—		8,425
Pooled fixed income funds	36,720		36,720		—
Foreign bonds	672		—		672
Municipal bonds	454		—		454
	60,039		42,502		17,537
Plan assets subject to fair value leveling	214,354		$	193,681	$	20,673
Plan assets measured at net asset value:
Real estate investment trusts	6,638
	$	220,992

The fair values of the Company’s pension plan assets at December 31, 2018 were as follows (in thousands): 

	Balance		Level 1		Level 2
Cash and cash equivalents	$	40,984	$	—	$	40,984
Equity holdings:
U.S. companies	636,308		621,459		14,849
Foreign companies	66,143		66,143		—
Harley-Davidson common stock	43,455		43,455		—
Pooled equity funds	330,476		330,476		—
Other	85		85		—
	1,076,467		1,061,618		14,849
Fixed-income holdings:
U.S. Treasuries	45,102		45,102		—
Federal agencies	27,811		—		27,811
Corporate bonds	434,070		—		434,070
Pooled fixed income funds	140,630		42,400		98,230
Foreign bonds	83,852		266		83,586
Municipal bonds	9,276		—		9,276
	740,741		87,768		652,973
Plan assets subject to fair value leveling	1,858,192		$	1,149,386	$	708,806
Plan assets measured at net asset value:
Limited partnership interests	5,918
Real estate investment trust	10,508
	16,426
	$	1,874,618

Included in the pension plan assets were 1,273,592 shares of the Company’s common stock with a market value of $43.5 million at December 31, 2018.

The fair values of the Company’s postretirement healthcare plan assets at December 31, 2018 were as follows (in thousands): 

	Balance		Level 1		Level 2
Cash and cash equivalents	$	5,276	$	—	$	5,276
Equity holdings:
U.S. companies	86,975		86,949		26
Foreign companies	16,342		16,342		—
Pooled equity funds	20,747		20,747		—
Other	9		9		—
	124,073		124,047		26
Fixed-income holdings:
U.S. Treasuries	8,707		8,707		—
Federal agencies	5,445		—		5,445
Corporate bonds	6,590		—		6,590
Pooled fixed income funds	33,959		33,959		—
Foreign bonds	538		—		538
Municipal bonds	272		—		272
	55,511		42,666		12,845
Plan assets subject to fair value leveling	184,860		$	166,713	$	18,147
Plan assets measured at net asset value:
Real estate investment trust	5,497
	$	190,357

For 2020, the Company’s overall expected long-term rate of return is 6.70% for pension assets and 7.00% for postretirement healthcare plan assets. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based on historical returns adjusted to reflect the current view of the long-term investment market.

Postretirement Healthcare Cost:

The weighted-average healthcare cost trend rates used in determining the accumulated postretirement benefit obligation of the healthcare plans were as follows: 

	2019		2018
Healthcare cost trend rate for next year	7.25	%	6.75	%
Rate to which the cost trend rate is assumed to decline (the ultimate rate)	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2029		2026

Future Contributions and Benefit Payments:

During 2019, the Company did not make any voluntary contributions to its qualified pension plan or postretirement healthcare plans. No pension plan contributions are required in 2020. The Company expects that 2020 postretirement healthcare plan benefits and benefits due under the SERPA plans will be paid by the Company or, in the case of postretirement healthcare plan benefits, partially funded with plan assets.

The Company's future expected benefit payments as of December 31, 2019 were as follows (in thousands): 

	Pension Benefits		SERPA Benefits		Postretirement Healthcare Benefits
2020	$	97,227	$	2,666	$	23,328
2021	$	98,376	$	3,000	$	23,501
2022	$	101,566	$	3,309	$	23,625
2023	$	104,864	$	4,176	$	23,307
2024	$	108,436	$	4,401	$	22,902
2025-2028	$	590,687	$	29,048	$	109,195

Defined Contribution Plans:

The Company has various defined contribution benefit plans that in total cover substantially all full-time employees. Employees can make voluntary contributions in accordance with the provisions of their respective plan, which includes a 401(k) tax deferral option. The Company makes additional contributions to the plans on behalf of the employees and expensed $21.9 million, $20.1 million and $19.0 million during 2019, 2018 and 2017, respectively related to the contributions.