Note 12 – Pension, Other Postretirement Benefits and Employee Savings and Investment Plans

Pension and Other Postretirement Benefits

As of December 31, 2018, we had two qualified noncontributory defined benefit pension plans: 1) the Union Plan and 2) the Merged Plan. All qualified noncontributory defined benefit pension plans have been frozen and have ceased accruing benefits.

The Company also maintains the Rogers Corporation Amended and Restated Pension Restoration Plan effective as of January 1, 2004 and the Rogers Corporation Amended and Restated Pension Restoration Plan effective as of January 1, 2005 (collectively, the Nonqualified Plans). The Nonqualified Plans serve to restore certain retirement benefits that might otherwise be lost due to limitations imposed by federal law on qualified pension plans, as well as to provide supplemental retirement benefits, for certain senior executives of the Company. In addition, we sponsor multiple fully insured or self-funded medical plans and life insurance plans for certain retirees. The measurement date for all plans is December 31^st for each respective plan year.

We are required, as an employer, to: (a) recognize in our consolidated statements of financial position an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and our obligations that determine our funded status as of the end of the year; and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur and report these changes in accumulated other comprehensive loss. In addition, actuarial gains and losses that are not immediately recognized as net periodic pension cost are recognized as a component of accumulated other comprehensive loss and amortized into net periodic pension cost in future periods.

Pension Plan Merger and Proposed Termination

The Company currently intends to terminate the Merged Plan and has requested a determination letter from the IRS. The termination of the Merged Plan remains subject to final approval by both management and the IRS. The Company plans to provide for lump sum distributions or annuity payments in connection with the termination of the Merged Plan and we expect the settlement process to be completed in 2019. The Company lacked sufficient information as of December 31, 2018 to determine the financial impact of the proposed plan termination. At this time, there are no plans to terminate the Union Plan.



(Dollars in thousands)	Pension Benefits						Retirement Health and Life Insurance Benefits
Change in benefit obligation:	2018			2017			2018			2017
Benefit obligation at beginning of year	$	185,760		$	177,696		$	2,037		$	2,504
Service cost	—			—			73			80
Interest cost	6,758			7,356			62			71
Actuarial (gain) loss	(10,805		)	9,601			(5		)	460
Benefit payments	(9,105		)	(8,893		)	(364		)	(533		)
Plan amendment	—			—			—			(545		)
Benefit obligation at end of year	$	172,608		$	185,760		$	1,803		$	2,037



Change in plan assets:	2018			2017			2018			2017
Fair value of plan assets at the beginning of the year	$	180,056		$	171,778		$	—		$	—
Actual return on plan assets	(4,299		)	16,799			—			—
Employer contributions	25,000			372			364			533
Benefit payments	(9,105		)	(8,893		)	(364		)	(533		)
Fair value of plan assets at the end of the year	191,652			180,056			—			—
Funding status	$	19,044		$	(5,704	)	$	(1,803	)	$	(2,037	)

Amounts included in the consolidated statements of financial position consist of:



(Dollars in thousands)	Pension Benefits						Retirement Health and Life Insurance Benefits
	2018			2017			2018			2017
Noncurrent assets	$	19,273		$	3,021		$	—		$	—
Current liabilities	(4		)	(5		)	(334		)	(352		)
Noncurrent liabilities	(225		)	(8,720		)	(1,469		)	(1,685		)
Net amount recognized at end of year	$	19,044		$	(5,704	)	$	(1,803	)	$	(2,037	)



(Dollars in thousands)	Pension Benefits						Retirement Health and Life Insurance Benefits
	2018			2017			2018		2017
Net actuarial (loss) gain	$	(59,972	)	$	(59,645	)	$	68	$	63
Prior service benefit	—			—			1,220		2,821
Net amount recognized at end of year	$	(59,972	)	$	(59,645	)	$	1,288	$	2,884

The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with an accumulated benefit obligation in excess of plan assets were $0.2 million, $0.2 million and $0.0 million, respectively, as of December 31, 2018 and $155.8 million, $155.8 million and $147.1 million, respectively, as of December 31, 2017.

The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with plan assets in excess of an accumulated benefit obligation were $172.4 million, $172.4 million and $191.7 million, respectively, as of December 31, 2018. For 2017, the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with plan assets in excess of an accumulated benefit obligation were $30.0 million, $30.0 million and $33.0 million, respectively.

Components of Net Periodic (Benefit) Cost



(Dollars in thousands)	Pension Benefits									Retirement Health and Life Insurance Benefits
	2018			2017			2016			2018			2017			2016
Service cost	$	—		$	—		—			$	73		$	80		$	133
Interest cost	6,758			7,356			7,530			62			71			75
Expected return of plan assets	(8,662		)	(9,221		)	(10,808		)	—			—			—
Amortization of prior service cost (credit)	—			—			—			(1,602		)	(1,602		)	(1,489		)
Amortization of net loss	1,828			1,755			1,784			—			—			(47		)
Settlement charge	—			—			—			—			—			—
Net periodic benefit cost (benefit)	$	(76	)	$	(110	)	$	(1,494	)	$	(1,467	)	$	(1,451	)	$	(1,328	)

The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $1.8 million. The estimated net benefit for the defined benefit postretirement plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $1.0 million.

Weighted-average assumptions used to determine benefit obligations at December 31:



	Pension Benefits				Retirement Health and Life Insurance Benefits
	2018		2017		2018		2017
Discount rate	4.25	%	3.70	%	3.75	%	3.25	%

Weighted-average assumptions used to determine net benefit cost for the years ended December 31:



	Pension Benefits				Retirement Health and Life Insurance Benefits
	2018		2017		2018		2017
Discount rate	3.70	%	4.25	%	3.25	%	3.25	%
Expected long-term rate of return on plan assets	4.94	%	5.51	%	—	%	—	%

Rate of compensation increase - An expected rate of compensation increase was not included in the weighted average assumptions as there would be no impact to the net benefit cost, as the plans have been previously frozen.

Discount rate - To determine the discount rate, we review current market indices of high quality corporate bonds, particularly the PruCurve index, to ensure that the rate used in our calculations is consistent and within an acceptable range based on these indices, which reflect current market conditions. The market-based rates are modified to be Rogers-specific, which is done by applying our pension benefit cash flow projections to the generic index rate.

Long-term rate of return on assets - To determine the expected long-term rate of return on plan assets, we review historical and projected portfolio performance, the historical long-term rate of return, and we consider how any change in the allocation of the assets could affect the anticipated returns. Adjustments are made to the projected rate of return if it is deemed necessary based on those factors and other current market trends.

Health care cost trend rates - For measurement purposes as of December 31, 2018, we assumed an annual health care cost trend rates of 7.00% and 7.00% for covered health care benefits for retirees pre-age 65 and post-age 65, respectively. The rates were assumed to decrease gradually by 0.25% annually until reaching 4.50% and 4.50%, respectively, and remain at those levels thereafter. For measurement purposes as of December 31, 2017, we assumed annual health care cost trend rates of 7.25% and 7.25% for covered health care benefits for retirees pre-age 65 and post-age 65, respectively. Assumed health care cost trend rates may have a significant effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have been expected to have the following effects as of December 31, 2018:



(Dollars in thousands)	Increase		Decrease
Effect on total service and interest cost	$	8	$	(8	)
Effect on other postretirement benefit obligations	$	65	(60		)

Pension Plan Assets

Our defined benefit pension assets are invested with the objective of achieving a total rate of return over the long-term that is sufficient to fund future pension obligations. In managing these assets and our investment strategy, we take into consideration future cash contributions to the plans, as well as the potential of the portfolio underperforming the market, which is partially mitigated by maintaining a diversified portfolio of assets.

In order to meet our investment objectives, we set asset allocation target ranges based on current funding status and future projections in order to mitigate the risk in the plan while maintaining its funded status. In November 2014, we implemented a pension risk reduction strategy related to our investments, which included a change in our asset mix to hold a larger amount of fixed income securities. As of December 31, 2018, we held approximately 1% equity securities and 99% fixed income and short-term cash securities in our portfolio, compared to December 31, 2017 when we held approximately 4% equity securities and 96% fixed income securities.

In determining our investment strategy and calculating the net benefit cost, we utilized an expected long-term rate of return on plan assets. This rate is developed based on several factors, including the plans’ asset allocation targets, the historical and projected performance on those asset classes, and the plans’ current asset composition. To justify our assumptions, we analyze certain data points related to portfolio performance. For example, we analyze the actual historical performance of our total plan assets, which has generated a return of approximately 7.05% over the past 20 year period. Based on the historical returns and the projected future returns, we determined that a target return of 4.69% is appropriate for the current portfolio. Investments were stated at fair value as of the dates reported.

Securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the plan year. The fair value of the guaranteed deposit account was determined through discounting expected future investment cash flow from both investment income and repayment of principal for each investment purchased.

The estimated fair values of the participation units owned by the plan in pooled separate accounts were based on quoted redemption values and adjusted for management fees and asset charges, as determined by the recordkeeper, on the last business day of the relevant plan year. Pooled separate accounts are accounts established solely for the purpose of investing the assets of one or more plans. Funds in a separate account are not commingled with other Company assets for investment purposes.

The following table presents the fair value of the pension plan net assets by asset category and level, within the fair value hierarchy, as of December 31, 2018 and 2017.



	Assets at Fair Value as of December 31, 2018
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Pooled separate accounts	$	—	$	1,216	$	—	$	1,216
Fixed income bonds	—		186,385		—		186,385
Mutual funds	2,691		—		—		2,691
Guaranteed deposit account	—		—		1,360		1,360
Total assets at fair value	$	2,691	$	187,601	$	1,360	$	191,652



	Assets at Fair Value as of December 31, 2017
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Pooled separate accounts	$	—	$	4,610	$	—	$	4,610
Fixed income bonds	—		162,934		—		162,934
Mutual funds	6,223		—		—		6,223
Guaranteed deposit account	—		—		6,289		6,289
Total assets at fair value	$	6,223	$	167,544	$	6,289	$	180,056

The table below sets forth a summary of changes in the fair value of the guaranteed deposit account’s Level 3 assetsfor the year ended December 31, 2018:



(Dollars in thousands)	Guaranteed Deposit Account
Balance at beginning of year	$	6,289
Change in unrealized gain (loss)	(194		)
Purchases, sales, issuances and settlements (net)	(4,735		)
Balance at end of year	$	1,360

Cash Flows

Contributions

We made a voluntary contribution of $25.0 million to the Merged Plan during the third quarter of 2018 as part of the proposed plan termination process. We made required contributions of $0.4 million to our qualified defined benefit pension plans in 2017. As there is no funding requirement for the Nonqualified Plans or the Retiree Health and Life Insurance benefit plans, we fund the amount of benefit payments made during the year.

Estimated Future Payments

The following pension benefit payments are expected to be paid through the utilization of plan assets for the funded plans and from the Company’s operating cash flows for the unfunded plans. The Retiree Health and Life Insurance benefits, for which no funding has been made, are expected to be paid from the Company’s operating cash flows. The benefit payments are based on the same assumptions used to measure our benefit obligation at the end of fiscal 2018.



(Dollars in thousands)	Pension Benefits		Retiree Health and Life Insurance Benefits
2019	$	9,500	$	334
2020	$	9,597	$	265
2021	$	9,818	$	171
2022	$	10,038	$	134
2023	$	10,228	$	151
2024-2028	$	53,901	$	825

Employee Savings and Investment Plans

We sponsor the Rogers Employee Savings and Investment Plan (RESIP), a 401(k) plan for domestic employees. Employees can defer an amount they choose, up to the annual IRS limit of $18,500. Certain eligible participants are also allowed to contribute the maximum catch-up contribution per IRS regulations. Our matching contribution is 6% of an eligible employee’s annual pre-tax contribution at a rate of 100% for the first 1% and 50% for the next 5% for a total match of 3.5%. Unless otherwise indicated by the participant, the matching dollars are invested in the same funds as the participant’s contributions. RESIP related expense amounted to $5.6 million in 2018, $4.0 million in 2017 and $3.0 million in 2016, which related solely to our matching contributions.

We acquired Griswold in July 2018 and eligible Griswold employees were included in the Griswold LLC 401K Plan. As of January 2019, eligible Griswold employees are being included in the RESIP. Compensation expense related to the additional Griswold employees was de minimis in 2018. We acquired DSP in January 2017 and DeWAL in November 2016. Eligible DSP and DeWAL employees were included in the RESIP as of the third quarter of 2017 and the first quarter of 2018, respectively. Compensation expense related to the additional DSP and DeWAL employees was de minimis in 2017. DeWAL employees were initially included under the DeWAL Industries, Inc. 401k Profit Sharing Plan (DeWAL Plan) from the acquisition date through the end of 2017. The DeWAL Plan matching contribution was 100% of the first 3% of employee pre-tax contributions.