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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.