Pension Plans and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2018

Retirement Benefits [Abstract]

Pension Plans and Other Postretirement Benefits

The Company sponsors two qualified and three non-qualified retirement plans. Substantially all employees participate in the 401(k) plan. Both the qualified defined benefit plan and the two non-qualified supplemental defined benefit plans have been frozen since 2002. All participants in the frozen plans are 100% vested in their accrued benefit and all non-qualified supplemental defined benefit plan participants are receiving payments. Certain employees participate in a non-qualified defined contribution plan.

Qualified Plans

All employees participate in the 401(k) plan and receive a 100% vested 3% "safe harbor" company contribution based on employees' eligible earnings. The Company matches each dollar of employee contributions up to a 5% maximum — in addition to maintaining the automatic 3% "safe harbor" contribution. The matching company contribution vests after 5 years of service. The 401(k) plan is fully funded.

In 2002, participants ceased accruing benefits for earnings and years of service in the frozen defined benefit plan. A substantial number of those participants are former employees of the Company who are not eligible to receive an immediate annuity benefit until age 65 and/or are not eligible for a lump sum distribution. In August of 2016, the Company announced a cash-out election "window" ending in September 2016 for all vested terminated participants. During this window, 52 former employees elected to receive a total of approximately $1,400 thousand in lump sum distributions.

The Company's policy for the frozen defined benefit plan is to contribute to the plan amounts which are actuarially determined to provide sufficient funding to meet future benefit payments as defined by federal laws and regulations.

For the two qualified plans, all assets are held in their respective plan trusts.

Non-qualified Plans

The non-qualified plans were established for specific employees whose otherwise eligible earnings exceeded the statutory limits under the qualified plans. Benefit accruals under the non-qualified supplemental defined benefit plans were frozen in 2002 and all participants are currently in payment status. Both the non-qualified frozen supplemental defined benefit plans and the non-qualified contribution plan are unfunded plans with the Company's contributions made at the time payments are made to participants.

Total Expense and Contribution Plans' Information

Total expense recorded for the non-qualified defined contribution, 401(k), defined benefit and supplemental retirement plans was $8,851 thousand, $9,114 thousand and $8,527 thousand for the years ended December 31, 2018, 2017 and 2016, respectively.

Contributions to employees' accounts under the 401(k) plan and the non-qualified defined contribution plan, as well as total assets of the plans, were as follows: 

($ in thousands)	Year Ended December 31,
	2018		2017		2016
401(k) plan
Contributions to employees' accounts	$	7,655	$	7,637	$	6,918
Total assets at the end of the year	167,767		180,514		177,352
Non-qualified defined contribution plan
Contributions to employees' accounts	70		84		72
Total assets at the end of the year	—		—		—

Defined Benefit Plan and Supplemental Retirement Plans

The following tables summarize the funded status of the defined benefit and supplemental retirement pension plans as of December 31, 2018, 2017 and 2016 (the measurement dates) and identify (1) the assumptions used to determine the projected benefit obligation and (2) the components of net pension cost for the defined benefit plan and supplemental retirement plans for the following periods:

($ in thousands)	Defined Benefit Plan									Supplemental Defined Benefit Plans
	December 31,									December 31,
	2018			2017			2016			2018			2017			2016
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	28,432		$	29,407		$	31,233		$	16,832		$	16,847		$	17,004
Service cost	650			650			650			—			—			—
Interest cost	947			1,091			1,244			566			631			687
Plan amendments	—			—			—			—			—			—
Actuarial loss (gain)	(2,208		)	(721		)	(220		)	(789		)	805			488
Benefits paid	(2,746		)	(1,995		)	(3,500		)	(1,205		)	(1,451		)	(1,332		)
Settlements	—			—			—			—			—			—
Projected benefit obligation at end of year	$	25,075		$	28,432		$	29,407		$	15,404		$	16,832		$	16,847
Change in plan assets:
Fair value of plan assets at beginning of year	$	25,843		$	25,446		$	27,667		$	—		$	—		$	—
Actual return on plan assets	(640		)	2,909			1,766			—			—			—
Employer contributions	—			—			—			1,205			1,451			1,332
Benefits paid	(2,746		)	(1,995		)	(3,500		)	(1,205		)	(1,451		)	(1,332		)
Expenses paid	(367		)	(517		)	(487		)	—			—			—
Settlements	—			—			—			—			—			—
Fair value of plan assets at end of year	$	22,090		$	25,843		$	25,446		$	—		$	—		$	—
Funded status	$	(2,985	)	$	(2,589	)	$	(3,961	)	$	(15,404	)	$	(16,832	)	$	(16,847	)
Prepaid (accrued) benefit expense	$	7,425		$	8,016		$	8,653		$	(10,320	)	$	(10,648	)	$	(11,210	)
Total amount recognized in Consolidated Balance Sheets, all in Other liabilities	$	(2,985	)	$	(2,589	)	$	(3,961	)	$	(15,404	)	$	(16,832	)	$	(16,847	)
Amounts recognized in accumulated other comprehensive income (loss) (AOCI):
Prior service cost	$	—		$	—		$	—		$	—		$	—		$	—
Net actuarial loss	10,410			10,605			12,613			5,084			6,184			5,637
Total amount recognized in AOCI	$	10,410		$	10,605		$	12,613		$	5,084		$	6,184		$	5,637
Information for pension plans with an accumulated benefit obligation greater than plan assets:
Projected benefit obligation	$	25,075		$	28,432		$	29,407		$	15,404		$	16,832		$	16,847
Accumulated benefit obligation	25,075			28,432			29,407			15,404			16,832			16,847
Fair value of plan assets	22,090			25,843			25,446			—			—			—

 

The change in the Company's AOCI for the defined benefit plans for the year ended December 31, 2018 was primarily attributable to lower than expected asset returns and updates to mortality assumptions and an increase in the discount rate. The change in the Company's AOCI for the defined benefit plans for the year ended December 31, 2017 was primarily attributable to better than expected asset returns and updates to mortality assumptions partially offset by a decrease in the discount rate. The change in the Company's AOCI for the defined benefit plans for the year ended December 31, 2016 was primarily attributable to a decrease in the discount rate, partially offset by the performance of plan assets.

($ in thousands)	Defined Benefit Plan									Supplemental Defined Benefit Plans
	Year Ended December 31,									Year Ended December 31,
	2018			2017			2016			2018			2017			2016
Components of net periodic pension (income) expense:
Service cost:
Benefit accrual	$	—		$	—		$	—		$	—		$	—		$	—
Other expenses	650			650			650			—			—			—
Interest cost	947			1,091			1,244			566			631			687
Expected return on plan assets	(1,377		)	(1,493		)	(1,675		)	—			—			—
Settlement loss	—			—			—			—			—			—
Amortization of:
Prior service cost	—			—			—			—			—			—
Actuarial loss	371			389			393			310			258			233
Net periodic pension expense	$	591		$	637		$	612		$	876		$	889		$	920
Changes in plan assets and benefit obligations included in other comprehensive income (loss):
Prior service cost	$	—		$	—		$	—		$	—		$	—		$	—
Net actuarial loss (gain)	177			(1,619		)	175			(789		)	805			488
Amortization of:
Prior service cost	—			—			—			—			—			—
Actuarial loss	(371		)	(389		)	(393		)	(310		)	(258		)	(233		)
Total recognized in other comprehensive income (loss)	$	(194	)	$	(2,008	)	$	(218	)	$	(1,099	)	$	547		$	255
Weighted average assumptions used to determine expense:
Discount rate	3.50		%	3.90		%	4.20		%	3.50		%	3.90		%	4.20		%
Expected return on plan assets	5.90		%	6.25		%	6.50		%	*			*			*
Annual rate of salary increase	*			*			*			*			*			*
Weighted average assumptions used to determine benefit obligations as of December 31:
Discount rate	4.20		%	3.50		%	3.90		%	4.20		%	3.50		%	3.90		%
Expected return on plan assets	5.90		%	6.25		%	6.50		%	*			*			*
Annual rate of salary increase	*			*			*			*			*			*

____________________ 

*       Not applicable.

The discount rates at December 31, 2018 were based on the average yield for long-term, high-grade securities available during the benefit payout period. To set its discount rate, the Company looks to leading indicators, including the Mercer Above Mean Yield Curve.

The assumption for the long-term rate of return on plan assets was determined by considering actual investment experience during the lifetime of the plan, balanced with reasonable expectations of future growth considering the various classes of assets and percentage allocation for each asset class.

The Company has an investment policy for the defined benefit pension plan that aligns the assets within the plan's trust to an approximate allocation of 50% equity and 50% fixed income funds. Management believes this allocation will produce the targeted long-term rate of return on assets necessary for payment of future benefit obligations, while providing adequate liquidity for payments to current beneficiaries. Assets are reviewed against the defined benefit pension plan's investment policy and the trustee has been directed to adjust invested assets at least quarterly to maintain the target allocation percentages.

Fair values of the equity security funds and fixed income funds have been determined from public quotations. The following table presents the fair value hierarchy for the Company's defined benefit pension plan assets, excluding cash held.

($ in thousands)			Fair Value Measurements at Reporting Date Using
	Total		Level 1		Level 2		Level 3
December 31, 2018
Asset category
Equity security funds (1)
United States	$	8,198	$	—	$	8,198	$	—
International	2,089		—		2,089		—
Fixed income funds	11,003		—		11,003		—
Short-term investment funds	800		800		—		—
Total	$	22,090	$	800	$	21,290	$	—
December 31, 2017
Asset category
Equity security funds (1)
United States	$	10,517	$	—	$	10,517	$	—
International	2,573		—		2,573		—
Fixed income funds	12,165		—		12,165		—
Short-term investments funds	588		588		—		—
Total	$	25,843	$	588	$	25,255	$	—

____________________ 

⁽¹⁾  None of the trust fund assets for the defined benefit pension plan have been invested in shares of HMEC's common stock.

There were no Level 3 assets held during the years ended December 31, 2018 and 2017.

In 2019, the Company expects amortization of net losses of $310 thousand and $256 thousand for the defined benefit plan and the supplemental retirement plans, respectively, and expects no amortization of prior service cost for the supplemental retirement plans to be included in net periodic pension expense.

Postretirement Benefits Other than Pensions

As of December 31, 2006, upon discontinuation of retiree medical benefits, Health Reimbursement Accounts (HRAs) were established for eligible participants and totaled $7,310 thousand. As of December 31, 2018, the balance of the previously established HRAs was $1,438 thousand. Funding of HRAs was $88 thousand, $133 thousand and $218 thousand for the years ended December 31, 2018, 2017 and 2016, respectively.

2019 Contributions

In 2019, there is no minimum funding requirement for the Company's defined benefit plan. The following table discloses that minimum funding requirement and the expected full year contributions for the Company's plans.

($ in thousands)	Defined Benefit Pension Plans
	Defined Benefit Plan		Supplemental Defined Benefit Plans
Minimum funding requirement for 2018	$	—	N/A
Expected contributions (approximations) for the year ended December 31, 2019 as of the time of this Form 10-K (1)	—		$	1,307

____________________ 

N/A - Not applicable.

⁽¹⁾       HMEC's Annual Report on Form 10-K for the year ended December 31, 2018.

Estimated Future Benefit Payments

The Company's defined benefit plan may be subject to settlement accounting. Assumptions for both the number of individuals retiring in a calendar year and their elections regarding lump sum distributions are significant factors impacting the payout patterns for each of the plans below. Therefore, actual results could vary from the estimates shown. Estimated future benefit payments as of December 31, 2018 were as follows:

($ in thousands)	2019		2020		2021		2022		2023		2024-2028
Pension plans
Defined benefit plan	$	2,668	$	2,482	$	2,225	$	2,346	$	1,971	$	8,700
Supplemental retirement plans	1,307		1,292		1,275		1,255		1,232		5,701