Employee Benefit Plans and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2020

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.

Pension benefits are based primarily on years of service and, for certain participants, 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
	2020		2019		2020		2019
Change in benefit obligation:
Benefit obligation, beginning of period	$	2,212,012	$	1,984,708	$	293,505	$	286,574
Service cost	27,224		25,408		11,761		4,449
Interest cost	76,447		85,483		9,391		11,753
Actuarial losses (gains)	228,081		236,719		18,824		9,590
Plan participant contributions	—		—		2,140		1,999
Plan amendments	—		8,371		—		—
Special early retirement benefits	—		1,583		—		—
Benefits paid	(137,381)		(126,079)		(19,703)		(20,860)
Net curtailments and settlements	(15,948)		(4,181)		(673)		—
Benefit obligation, end of period	2,390,435		2,212,012		315,245		293,505

	Pension and SERPA Benefits				Postretirement Healthcare Benefits
	2020		2019		2020		2019
Change in plan assets:
Fair value of plan assets, beginning of period	2,209,222		1,874,618		220,992		190,357
Return on plan assets	361,674		459,388		36,349		41,717
Plan participant contributions	—		—		2,140		1,999
Benefits paid	(136,921)		(124,784)		(15,446)		(13,081)
Fair value of plan assets, end of period	2,433,975		2,209,222		244,035		220,992
Funded status of the plan	$	43,540	$	(2,790)	$	(71,210)	$	(72,513)
Funded status as recognized on the Consolidated balance sheets:
Pension and postretirement assets	$	82,537	$	56,014	$	13,174	$	—
Accrued liabilities	(8,814)		(2,666)		(361)		—
Pension and postretirement liabilities	(30,183)		(56,138)		(84,023)		(72,513)
	$	43,540	$	(2,790)	$	(71,210)	$	(72,513)
Amounts included in Accumulated other comprehensive loss, net of tax:
Prior service credits	$	(5,712)	$	(6,489)	$	(5,438)	$	(7,559)
Actuarial losses (gains)	445,804		496,919		(4,942)		(1,321)
	$	440,092	$	490,430	$	(10,380)	$	(8,880)

During 2020, actuarial losses related to the obligation for pension and SERPA benefits were due primarily to a decrease in the discount rate, partially offset by changes in mortality assumptions, demographic assumptions and a reduction in plan participants. During 2019, actuarial losses were due primarily to a decrease in the discount rate partially offset by changes in mortality assumptions.

During 2020 and 2019, the actuarial losses related to the obligation for postretirement healthcare benefits were due primarily to decreases in the discount rate, partially offset by favorable claim cost adjustments.

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):

	2020		2019
Plans with PBO in excess of fair value of plan assets:
PBO	$	38,996	$	58,804
Fair value of plan assets	$	—	$	—
Plans with ABO in excess of fair value of plan assets:
ABO	$	30,598	$	44,232
Fair value of plan assets	$	—	$	—

The total ABO for all the Company's pension and SERPA plans combined was $2.30 billion and $2.12 billion as of December 31, 2020 and 2019, respectively.

Benefit Costs:

Service cost is 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 (expense) income, net. Components of net periodic benefit costs for the Company's defined benefit plans for the years ended December 31, were as follows (in thousands): 

	Pension and SERPA Benefits						Postretirement Healthcare Benefits
	2020		2019		2018		2020		2019		2018
Service cost	$	27,224	$	25,408	$	32,340	$	11,761	$	4,449	$	7,180
Interest cost	76,447		85,483		82,778		9,391		11,753		11,556
Expected return on plan assets	(135,056)		(142,323)		(147,671)		(13,870)		(14,030)		(14,161)
Amortization of unrecognized:
Prior service credit	(1,088)		(1,930)		(420)		(2,381)		(2,381)		(1,842)
Net loss	65,489		44,511		64,773		492		277		1,817
Special early retirement benefits	—		1,583		—		—		—		—
Curtailment loss (gain)	74		—		1,017		(392)		(960)		(886)
Settlement loss	2,742		1,503		—		—		—		—
Net periodic benefit cost	$	35,832	$	14,235	$	32,817	$	5,001	$	(892)	$	3,664

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
	2020		2019		2018		2020		2019		2018
Assumptions for benefit obligations:
Discount rate	2.62	%	3.49	%	4.38	%	2.11	%	3.26	%	4.23	%
Rate of compensation increase	3.34	%	3.39	%	3.38	%	n/a		n/a		n/a
Assumptions for net periodic benefit cost:
Discount rate	3.49	%	4.38	%	3.71	%	3.26	%	4.23	%	3.52	%
Expected return on plan assets	6.70	%	7.10	%	7.25	%	7.00	%	7.25	%	7.25	%
Rate of compensation increase	3.39	%	3.38	%	3.43	%	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 53% equities and 47% 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, 2020 were as follows (in thousands): 

	Balance		Level 1		Level 2
Cash and cash equivalents	$	56,153	$	—	$	56,153
Equity holdings:
U.S. companies	785,227		769,583		15,644
Foreign companies	114,013		106,783		7,230
Harley-Davidson common stock	46,741		46,741		—
Pooled equity funds	381,538		381,538		—
Other	66		66		—
	1,327,585		1,304,711		22,874
Fixed-income holdings:
U.S. Treasuries	59,116		59,116		—
Federal agencies	15,230		—		15,230
Corporate bonds	691,003		—		691,003
Pooled fixed income funds	148,717		51,456		97,261
Foreign bonds	110,062		—		110,062
Municipal bonds	14,671		—		14,671
	1,038,799		110,572		928,227
Plan assets subject to fair value leveling	2,422,537		$	1,415,283	$	1,007,254
Plan assets measured at net asset value:
Limited partnership interests	537
Real estate investment trusts	10,901
	11,438
	$	2,433,975

Included in the pension plan assets are 1,273,592 shares of the Company’s common stock with a market value of $46.7 million at December 31, 2020.

The fair values of the Company’s postretirement healthcare plan assets at December 31, 2020 were as follows (in thousands): 

	Balance		Level 1		Level 2
Cash and cash equivalents	$	4,306	$	—	$	4,306
Equity holdings:
U.S. companies	115,272		115,272		—
Foreign companies	29,670		29,670		—
Pooled equity funds	27,207		27,207		—
Other	5		5		—
	172,154		172,154		—
Fixed-income holdings:
U.S. Treasuries	2,873		2,873		—
Federal agencies	6,970		—		6,970
Corporate bonds	12,460		—		12,460
Pooled fixed income funds	37,989		37,989		—
Foreign bonds	970		—		970
Municipal bonds	458		—		458
	61,720		40,862		20,858
Plan assets subject to fair value leveling	238,180		$	213,016	$	25,164
Plan assets measured at net asset value:
Real estate investment trusts	5,855
	$	244,035

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 trust	12,249
	16,367
	$	2,209,222

Included in the pension plan assets were 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 trust	6,638
	$	220,992

For 2021, the Company’s overall expected long-term rate of return is 6.20% for pension assets and 6.70% 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: 

	2020		2019
Healthcare cost trend rate for next year	7.00	%	7.25	%
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		2029

Future Contributions and Benefit Payments:

Based on the funded status of the qualified pension plan, there is no requirement for the Company to make contributions to the qualified pension plan assets in 2021. The Company expects that 2021 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, 2020 were as follows (in thousands): 

	Pension Benefits		SERPA Benefits		Postretirement Healthcare Benefits
2021	$	99,727	$	8,813	$	23,444
2022	$	102,183	$	1,684	$	23,707
2023	$	104,792	$	1,955	$	23,775
2024	$	107,078	$	1,919	$	23,465
2025	$	110,810	$	1,818	$	23,157
2026-2030	$	587,220	$	11,071	$	108,384

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 $21.7 million, $21.9 million and $20.1 million during 2020, 2019 and 2018, respectively related to the contributions.