PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

Defined Benefit and Post-retirement Healthcare Plans

ABX sponsors a qualified defined benefit pension plan for ABX crewmembers and a qualified defined benefit pension plan for a major portion of its other ABX employees that meet minimum eligibility requirements. ABX also sponsors non-qualified defined benefit pension plans for certain employees. These non-qualified plans are unfunded. Employees are no longer accruing benefits under any of the defined benefit pension plans. ABX also sponsors a post-retirement healthcare plan for its ABX employees, which is unfunded. Benefits for covered individuals terminate upon reaching age 65 under the post-retirement healthcare plans.

The accounting and valuation for these post-retirement obligations are determined by prescribed accounting and actuarial methods that consider a number of assumptions and estimates. The selection of appropriate assumptions and estimates is significant due to the long time period over which benefits will be accrued and paid. The long term nature of these benefit payouts increases the sensitivity of certain estimates of our post-retirement costs. The assumptions considered most sensitive in actuarially valuing ABX’s pension obligations and determining related expense amounts are discount rates and expected long term investment returns on plan assets. Additionally, other assumptions concerning retirement ages, mortality and employee turnover also affect the valuations. Actual results and future changes in these assumptions could result in future costs significantly higher than those recorded in our results of operations.

ABX measures plan assets and benefit obligations as of December 31 of each year. Information regarding ABX’s sponsored defined benefit pension plans and post-retirement healthcare plans follow below. The accumulated benefit obligation reflects pension benefit obligations based on the actual earnings and service to-date of current employees.

Effective December 31, 2016, ABX modified its unfunded, non-pilot retiree medical plan to terminate benefits to all participants. Retired participants were directed to public healthcare exchanges for more flexible and lower cost alternatives. As a result, ABX settled $0.6 million of retiree medical obligations.

Funded Status (in thousands):



	Pension Plans						Post-retirement Healthcare Plans
	2016			2015			2016			2015
Accumulated benefit obligation	$	791,182		$	777,320		$	4,231		$	4,999
Change in benefit obligation
Obligation as of January 1	$	777,320		$	807,992		$	4,999		$	6,163
Service cost	—			—			123			177
Interest cost	35,872			34,584			170			192
Plan transfers	1,226			2,558			—			—
Benefits paid	(33,593		)	(32,696		)	(667		)	(788		)
Curtailments and settlement	—			—			(560		)	—
Actuarial (gain) loss	10,357			(35,118		)	166			(745		)
Obligation as of December 31	$	791,182		$	777,320		$	4,231		$	4,999
Change in plan assets
Fair value as of January 1	$	672,153		$	719,787		$	—		$	—
Actual gain on plan assets	69,836			(23,677		)	—			—
Plan transfers	1,226			2,558			—			—
Employer contributions	6,263			6,181			667			788
Benefits paid	(33,593		)	(32,696		)	(667		)	(788		)
Fair value as of December 31	$	715,885		$	672,153		$	—		$	—
Funded status
Underfunded plans
Current liabilities	$	(1,357	)	$	(1,346	)	$	(458	)	$	(626	)
Non-current liabilities	$	(73,940	)	$	(103,821	)	$	(3,773	)	$	(4,373	)

Components of Net Periodic Benefit Cost

ABX’s net periodic benefit costs for its defined benefit pension plans and post-retirement healthcare plans for the years ended December 31, 2016, 2015 and 2014, are as follows (in thousands):



	Pension Plans									Post-Retirement Healthcare Plan
	2016			2015			2014			2016			2015			2014
Service cost	$	—		$	—		$	—		$	123		$	177		239
Interest cost	35,872			34,584			39,517			170			192			286
Expected return on plan assets	(41,056		)	(44,082		)	(46,111		)	—			—			—
Curtailments and settlements	—			—			11,660			(1,997		)	—			—
Amortization of prior service cost	—			—			—			(103		)	(542		)	(3,487		)
Amortization of net (gain) loss	13,472			7,170			(2		)	160			292			321
Net periodic benefit cost (income)	$	8,288		$	(2,328	)	$	5,064		$	(1,647	)	$	119		$	(2,641	)

During 2014, ABX offered vested, former employee participants of the qualified pension plan and vested employee participants of the crewmembers qualified pension plan a one-time option to settle their pension benefit with the Company through a single payment or a nonparticipating annuity contract. As a result, ABX settled $98.7 million of pension obligations in December of 2014 from the pension plans assets. The settlement resulted in pre tax charges of $6.7 million to continued operations and $5.0 million to discontinued operations for 2014 due to the reclassification of $11.7 million of pre-tax losses from accumulated other comprehensive loss.

Unrecognized Net Periodic Benefit Expense

The pre-tax amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit expense at December 31 are as follows (in thousands):



	Pension Plans				Post-Retirement Healthcare Plans
	2016		2015		2016			2015
Unrecognized prior service cost	$	—	$	—	$	(51	)	$	(153	)
Unrecognized net actuarial loss	112,506		144,402		1,893			449
Accumulated other comprehensive loss	$	112,506	$	144,402	$	1,842		$	296

The following table sets forth the amounts of unrecognized net actuarial loss and (gain) recorded in accumulated other comprehensive loss that is expected to be recognized as components of net periodic benefit expense during 2017 (in thousands):



	Pension Plans		Post- Retirement Healthcare Plans
Amortization of actuarial loss	$	7,746	$	283
Prior Service Cost	—		(51		)

Assumptions

Assumptions used in determining the funded status of ABX’s pension plans at December 31 were as follows:



	Pension Plans
	2016	2015	2014
Discount rate - crewmembers	4.50%	4.70%	4.35%
Discount rate - non-crewmembers	4.60%	4.75%	4.40%
Expected return on plan assets	6.25%	6.25%	6.25%

Net periodic benefit cost was based on the discount rate assumptions at the end of the previous year.

The discount rate used to determine post-retirement healthcare obligations was 3.55% for pilots at December 31, 2016. The discount rate used to determine post-retirement healthcare obligations was 3.65% for pilots and 3.35% for non-pilots at December 31, 2015. The discount rate used to determine post-retirement healthcare obligations was 3.35% for pilots and 3.30% for non-pilots at December 31, 2014. Post-retirement healthcare plan obligations have not been funded. The Company's retiree healthcare contributions have been fixed for each participant, accordingly, healthcare cost trend rates do not effect the post-retirement healthcare obligations.

Plan Assets

The weighted-average asset allocations by asset category are as shown below:



	Composition of Plan Assets as of December 31
Asset category	2016		2015
Cash	1	%	1	%
Equity securities	30	%	28	%
Fixed income securities	64	%	67	%
Real estate	5	%	4	%
	100	%	100	%

ABX uses an investment management firm to advise it in developing and executing an investment policy. The portfolio is managed with consideration for diversification, quality and marketability. The investment policy permits the following ranges of asset allocation: equities – 15% to 35%; fixed income securities – 60% to 80%; real estate – 0% to 5%; cash – 0% to 5%. Except for U.S. Treasuries, no more than 10% of the fixed income portfolio and no more than 5% of the equity portfolio can be invested in securities of any single issuer.

The overall expected long term rate of return was developed using various market assumptions in conjunction with the plans’ targeted asset allocation. The assumptions were based on historical market returns.

Cash Flows

In 2016 and 2015, the Company made contributions to its defined benefit plans of $6.3 million and $6.2 million, respectively. The Company estimates that its contributions in 2017 will be approximately $4.5 million for its defined benefit pension plans and $0.5 million for its post-retirement healthcare plans.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid out of the respective plans as follows (in thousands):



	Pension Benefits		Post-retirement Healthcare Benefits
2017	$	36,417	$	458
2018	42,206		476
2019	41,937		509
2020	44,190		523
2021	46,201		536
Years 2022 to 2026	253,444		2,128

Fair Value Measurements

The pension plan assets are valued at fair value. The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.

Common Trust Funds—Common trust funds are composed of shares or units in non-publicly traded funds whereby the underlying assets in these funds (cash, cash equivalents, fixed income securities and equity securities) are publicly traded on exchanges and price quotes for the assets held by these funds are readily available. Holdings of common trust funds are classified as Level 2 investments.

Corporate Stock—This investment category consists of common and preferred stock issued by domestic and international corporations that are regularly traded on exchanges and price quotes for these shares are readily available. These investments are classified as Level 1 investments.

Mutual Funds—Investments in this category include shares in registered mutual funds, unit trust and commingled funds. These funds consist of domestic equity, international equity and fixed income strategies. Investments in this category that are publicly traded on an exchange and have a share price published at the close of each business day are classified as Level 1 investments and holdings in the other mutual funds are classified as Level 2 investments.

Fixed Income Investments—Securities in this category consist of U.S. Government or Agency securities, state and local government securities, corporate fixed income securities or pooled fixed income securities. Securities in this category that are valued utilizing published prices at the close of each business day are classified as Level 1 investments. Those investments valued by bid data prices provided by independent pricing sources are classified as Level 2 investments.

The pension plan assets measured at fair value on a recurring basis were as follows (in thousands):



As of December 31, 2016	Fair Value Measurement Using				Total
	Level 1		Level 2		Total
Plan assets
Common trust funds	$	—	$	3,469	$	3,469
Corporate stock	20,818		—		20,818
Mutual funds	59,370		114,940		174,310
Fixed income investments	777		457,237		458,014
Benefit Plan Assets	$	80,965	$	575,646	$	656,611

Investments measured at net asset value ("NAV")					59,273
Total benefit plan assets					$	715,884



As of December 31, 2015	Fair Value Measurement Using				Total
	Level 1		Level 2		Total
Plan assets
Common trust funds	$	—	$	4,354	$	4,354
Corporate stock	14,832		—		14,832
Mutual funds	46,991		99,056		146,047
Fixed income investments	4,954		443,600		448,554
Benefit Plan Assets	$	66,777	$	547,010	$	613,787

Investments measured at net asset value ("NAV")					58,366
Total benefit plan assets					$	672,153

Investments that were measured at NAV per share (or its equivalent) as a practical expedient have not been classified in the fair value hierarchy. These investments include hedge funds, private equity and real estate funds. Management’s estimates are based on information provided by the fund managers or general partners of those funds.

Real Estate—The real estate investment in a commingled trust account consists of publicly traded real estate investment trusts and collateralized mortgage backed securities as well as private market direct property investments. The valuations for the holdings in these investments are not based on readily observable inputs. These assets have been valued using NAV as a practical expedient.

Hedge Funds and Private Equity—These investments are not readily tradeable and have valuations that are not based on readily observable data inputs. The fair value of these assets is estimated based on information provided by the fund managers or the general partners. These assets have been valued using NAV as a practical expedient.

The following table presents investments measured at fair value based on NAV per share as a practical expedient:



	Fair Value		Redemption Frequency	Redemption Notice Period	Unfunded Commitments
As of December 31, 2016
Hedge Funds & Private Equity	$	25,831	(1) (2)	90 days	$	—
Real Estate	33,442		(3)	90 days	—
Total investments measured at NAV	$	59,273			$	—

As of December 31, 2015
Hedge Funds & Private Equity	$	28,649	(1) (2)	90 days	$	—
Real Estate	29,717		(3)	90 days	—
Total investments measured at NAV	$	58,366			$	—

(1) Quarterly - hedge funds

(2) None - private equity

(3) Monthly

Defined Contribution Plans

The Company sponsors defined contribution capital accumulation plans (401k) that are funded by both voluntary employee salary deferrals and by employer contributions. Expenses for defined contribution retirement plans were $7.1 million, $5.7 million and $5.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.