Nonunion Defined Benefit Pension, Supplemental Benefit, and Postretirement Health Benefit Plans

(1)	The presentation of net periodic pension cost for the three and nine months ended September 30, 2019 excludes a $4.0 million noncash pension termination expense which is further described within this Note.

(2)	The Company amortizes actuarial losses over the average remaining active service period of the plan participants and does not use a corridor approach.

Nonunion Defined Benefit Pension Plan

In November 2017, an amendment was executed to terminate the nonunion defined benefit pension plan with a termination date of December 31, 2017. In September 2018, the plan received a favorable determination letter from the IRS regarding qualification of the plan termination. Benefit election forms were provided to plan participants during the fourth quarter of 2018 and participants could elect any form of payment allowed by the plan for immediate commencement of payment or defer payment until a later date. The plan began distributing immediate lump sum benefit payments related to the plan termination in fourth quarter 2018 and continued making these distributions through third quarter 2019. The plan received an extension from the Pension Benefit Guaranty Corporation (the “PBGC”) to allow additional time for the plan to administer the settlement of the remaining obligation for deferred benefits through the purchase of a nonparticipating annuity contract from an insurance company.

The benefit obligations of the nonunion defined benefit pension plan were settled in third quarter 2019. The plan purchased a nonparticipating annuity contract from an insurance company to settle the pension obligation related to the vested benefits of approximately 120 plan participants and beneficiaries who were either receiving monthly benefit payments at the time of the contract purchase or who did not elect to receive a lump sum benefit upon plan termination. The remaining benefit obligation for the vested benefits of 30 plan participants who could not be located for payment was transferred to the PBGC.

The Company recognized pension settlement expense as a component of net periodic benefit cost of the nonunion defined benefit pension plan for the three and nine months ended September 30, 2019 of $2.5 million (pre-tax), or $1.9 million (after-tax), and $4.2 million (pre-tax), or $3.1 million (after-tax), respectively. Pension settlement expense for the three and nine months ended September 30, 2019 was related to lump-sum benefit distributions from the plan of $16.0 million and $33.9 million, respectively, which included third quarter 2019 payments of $14.0 million to purchase the annuity contract and $1.5 million to transfer the remaining benefit obligation to the PBGC. During the three and nine months ended September 30, 2019, an additional $4.0 million pension termination expense (with no tax benefit) was recorded with pension settlement expense in the “Other, net” line of other income (costs) in the consolidated statements of operations. This noncash charge was related to an amount which was stranded in accumulated other comprehensive loss until the nonunion defined benefit pension obligation was settled upon plan termination. The stranded amount originally related to a previous valuation allowance on deferred tax assets for nonunion defined benefit pension liabilities. For the three and nine months ended September 30, 2018, pension settlement expense of $0.5 million (pre-tax), or $0.4 million (after-tax), and $1.6 million (pre-tax), or $1.2 million (after-tax), respectively, was recognized related to $3.1 million and $11.6 million of lump-sum distributions from the plan for the three and nine months ended September 30, 2018, respectively.

The Company made $7.7 million of tax-deductible cash contributions to the plan in third quarter 2019 to fund the plan benefit and expense distributions in excess of plan assets. The nonunion defined benefit plan was substantially liquidated as of September 30, 2019 and liquidation is expected to be completed in 2019.

The Company’s short-term rate of return assumption, net of estimated expenses expected to be paid from plan assets, utilized in determining nonunion defined benefit pension expense was lowered from 1.4% for first quarter 2019 to 0.0% for the second and third quarters of 2019, as estimated expenses expected to be paid from plan assets were expected to offset investment returns on plan assets which were held in money market mutual funds during 2019.

The following table discloses the changes in benefit obligations and plan assets of the nonunion defined benefit pension plan for the nine months ended September 30, 2019:


	Nonunion Defined
	Benefit Pension Plan
	(in thousands)
Change in benefit obligations
Benefit obligations at December 31, 2018	$	33,373
Interest cost		624
Actuarial loss⁽¹⁾		300
Benefits paid		(34,297)
Benefit obligations at September 30, 2019		—
Change in plan assets
Fair value of plan assets at December 31, 2018		26,646
Actual return on plan assets		(30)
Employer contributions		7,710
Benefits paid		(34,297)
Fair value of plan assets at September 30, 2019		29
Funded status at period end⁽²⁾	$	29

Accumulated benefit obligation	$	—

(1)

The plan recognized an actuarial loss related to the settlement of benefit obligations for missing participants which were transferred to the PBGC, partially offset by an actuarial gain related to the difference between the actual amounts distributed for lump-sum benefits and the annuity contract purchase versus the actuarial estimates made for these obligations as of the December 31, 2018 measurement date.

(2)	Recognized within other current assets in the accompanying consolidated balance sheet at September 30, 2019.

Multiemployer Plans

ABF Freight System, Inc. and certain other subsidiaries reported in the Company’s Asset-Based operating segment (“ABF Freight”) contribute to multiemployer pension and health and welfare plans, which have been established pursuant to the Taft-Hartley Act, to provide benefits for its contractual employees. ABF Freight’s contributions generally are based on the time worked by its contractual employees, in accordance with the 2018 ABF NMFA and other related supplemental agreements. ABF Freight recognizes as expense the contractually required contributions for each period and recognizes as a liability any contributions due and unpaid.

The 25 multiemployer pension plans to which ABF Freight contributes vary greatly in size and in funded status. Contribution obligations to these plans are generally specified in the 2018 ABF NMFA, which will remain in effect through June 30, 2023. The funding obligations to the pension plans are intended to satisfy the requirements imposed by the Pension Protection Act of 2006, which was permanently extended by the Multiemployer Pension Reform Act (the “Reform Act”) included in the Consolidated and Further Continuing Appropriations Act of 2015. Provisions of the Reform Act include, among others, providing qualifying plans the ability to self-correct funding issues, subject to various requirements and restrictions, including applying to the U.S. Department of the Treasury for the reduction of certain accrued benefits. Through the term of its current collective bargaining agreement, ABF Freight’s contribution obligations generally will be satisfied by making the specified contributions when due. However, the Company cannot determine with any certainty the contributions that will be required under future collective bargaining agreements for ABF Freight’s contractual employees. If ABF Freight was to completely withdraw from certain multiemployer pension plans, under current law, ABF Freight would have material liabilities for its share of the unfunded vested liabilities of each such plan.

Approximately one half of ABF Freight’s total contributions to multiemployer pension plans are made to the Central States, Southeast and Southwest Areas Pension Plan (the “Central States Pension Plan”). As set forth in the 2018 Annual Funding Notice for the Central States Pension Plan, the funded percentage of the plan was 27.2% as of January 1, 2018. ABF Freight received a Notice of Critical and Declining Status for the Central States Pension Plan dated March 29, 2019, in which the plan’s actuary certified that, as of January 1, 2019, the plan is in critical and declining status, as defined by the Reform Act. Critical and declining status is applicable to critical status plans that are projected to become insolvent anytime within the next 14 plan years, or if the plan is projected to become insolvent within the next 19 plan years and either the plan’s ratio of inactive participants to active participants exceeds two to one or the plan’s funded percentage is less than 80%.

As more fully described in Note I to the consolidated financial statements in Item 8 of the Company’s 2018 Annual Report on Form 10-K, ABF Freight’s multiemployer pension plan obligation with the New England Teamsters and Trucking Industry Pension Fund (the “New England Pension Fund”) was restructured under a transition agreement effective on August 1, 2018, which resulted in a related withdrawal liability for which ABF Freight recognized a one-time charge of $37.9 million (pre-tax) as of September 30, 2018. In accordance with the transition agreement, ABF Freight made an initial lump sum cash payment of $15.1 million in third quarter 2018 and the remainder of the withdrawal liability, which had an initial aggregate present value of $22.8 million, will be settled with monthly payments to the New England Pension Fund over a period of 23 years. In accordance with current tax law, these payments are deductible for income taxes when paid.

As of September 30, 2019, the outstanding withdrawal liability to the New England Pension Fund totaled $22.2 million, of which $0.6 million and $21.6 million was recorded in accrued expenses and other long-term liabilities, respectively. The fair value of the obligation was $25.4 million at September 30, 2019, which is equal to the present value of the future withdrawal liability payments, discounted at a 3.1% interest rate determined using the 20-year U.S. Treasury rate plus a spread (Level 2 of the fair value hierarchy).

The multiemployer plan administrators have provided to the Company no other significant changes in information related to multiemployer plans from the information disclosed in the Company’s 2018 Annual Report on Form 10-K.