Employee Retirement and Profit Sharing Plans

12 Months Ended

Dec. 31, 2019

Retirement Benefits [Abstract]

Employee Retirement and Profit Sharing Plans

EMPLOYEE RETIREMENT AND PROFIT SHARING PLANS

We sponsor various defined benefit and defined contribution retirement plans, including various employee savings and profit sharing plans, and contribute to various multiemployer pension plans on behalf of our employees. Substantially all full-time union and non-union employees who have completed one or more years of service and have met other requirements pursuant to the plans are eligible to participate in one or more of these plans. During 2019, 2018 and 2017, our retirement and profit sharing plan expenses were as follows:

	Year Ended December 31
	2019		2018		2017
	(In thousands)
Defined benefit plans	$	9,232	$	5,547	$	6,717
Defined contribution plans	18,239		18,968		19,562
Multiemployer pension and certain union plans	29,045		27,181		29,231
Total	$	56,516	$	51,696	$	55,510

Defined Benefit Plans — The benefits under our defined benefit plans are based on years of service and employee compensation. Our funding policy is to contribute annually the minimum amount required under Employee Retirement Income Security Act regulations plus additional amounts as we deem appropriate.

Included in accumulated other comprehensive loss at December 31, 2019 and 2018 are the following amounts that have not yet been recognized in net periodic pension cost: unrecognized prior service costs of $1.8 million ($1.3 million net of tax) and $2.2 million ($1.7 million net of tax), respectively, and unrecognized actuarial losses of $112.3 million ($79.8 million net of tax) and $128.2 million ($96.3 million net of tax), respectively. Prior service costs and actuarial losses included in accumulated other comprehensive loss and expected to be recognized in net periodic pension cost during the year ending December 31, 2020 are $0.4 million ($0.3 million net of tax) and $8.1 million ($6.0 million net of tax), respectively.

The reconciliation of the beginning and ending balances of the projected benefit obligation and the fair value of plan assets for the years ended December 31, 2019 and 2018, and the funded status of the plans at December 31, 2019 and 2018 are as follows:

	December 31
	2019			2018
	(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	314,098		$	349,784
Service cost	2,688			2,928
Interest cost	12,335			11,311
Plan amendments	—			—
Actuarial (gain) loss	43,455			(26,820		)
Benefits paid	(24,251		)	(23,105		)
Benefit obligation at end of year	348,325			314,098
Change in plan assets:
Fair value of plan assets at beginning of year	299,208			344,760
Actual return (loss) on plan assets	65,423			(23,276		)
Employer contributions	704			829
Benefits paid	(24,251		)	(23,105		)
Fair value of plan assets at end of year	341,084			299,208
Funded status at end of year	$	(7,241	)	$	(14,890	)

The underfunded status of the plans of $7.2 million at December 31, 2019 is recognized in our Consolidated Balance Sheet and includes $1.7 million classified as a noncurrent pension asset, $8.1 million classified as a noncurrent pension liability, and $0.9 million classified as a current accrued pension liability. We do not expect any plan assets to be returned to us during the year ending December 31, 2020. We do not currently expect to make any contributions to the pension plans in 2020.

A summary of our key actuarial assumptions used to determine benefit obligations as of December 31, 2019 and 2018 follows:

	December 31
	2019		2018
Weighted average discount rate	3.35	%	4.38	%
Rate of compensation increase	3.70	%	3.70	%

A summary of our key actuarial assumptions used to determine net periodic benefit cost for 2019, 2018 and 2017 follows:

	Year Ended December 31
	2019		2018		2017
Effective discount rate for benefit obligations	4.38	%	3.69	%	4.29	%
Effective rate for interest on benefit obligations	4.04	%	3.32	%	3.56	%
Effective discount rate for service cost	4.46	%	3.79	%	4.51	%
Effective rate for interest on service cost	4.18	%	3.51	%	3.91	%
Expected return on assets	5.50	%	5.25	%	6.25	%
Rate of compensation increase	3.70	%	3.70	%	3.70	%

	Year Ended December 31
	2019			2018			2017
	(In thousands)
Components of net periodic benefit cost:
Service cost	$	2,688		$	2,928		$	3,007
Interest cost	12,335			11,311			11,709
Expected return on plan assets	(15,984		)	(17,644		)	(19,030		)
Amortizations:
Prior service cost	431			431			706
Unrecognized net loss	9,762			8,521			10,325
Effect of settlement	—			—			—
Net periodic benefit cost	$	9,232		$	5,547		$	6,717

The overall expected long-term rate of return on plan assets is a weighted-average expectation based on the targeted and expected portfolio composition. We consider historical performance and current benchmarks to arrive at expected long-term rates of return in each asset category.

The amortization of unrecognized net loss represents the amortization of investment losses incurred. The effect of settlement costs represents the recognition of net periodic benefit cost related to pension settlements reached as a result of plant closures.

Pension plans with an accumulated benefit obligation in excess of plan assets follows:

	December 31
	2019		2018
	(In millions)
Projected benefit obligation	$	348.3	$	314.1
Accumulated benefit obligation	345.9		311.7
Fair value of plan assets	341.1		299.2

The accumulated benefit obligation for all defined benefit plans was $345.9 million and $311.7 million at December 31, 2019 and 2018, respectively.

Almost 90% of our defined benefit plan obligations are frozen as to future participation or increases in projected benefit obligation. Many of these obligations were acquired in prior strategic transactions. As an alternative to defined benefit plans, we offer defined contribution plans for eligible employees.

At the end of 2015, we changed our approach used to measure service and interest costs for pension and other postretirement benefits. In 2015, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. In 2016, we elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. This change does not affect the measurement of our plan obligations but generally results in lower pension expense in

periods when the yield curve is upward sloping. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis starting in 2016.

Substantially all of our qualified pension plans are consolidated into one master trust. Our investment objectives are to minimize the volatility of the value of our pension assets relative to our pension liabilities and to ensure assets are sufficient to pay plan benefits. In 2014, we adopted a broad pension de-risking strategy intended to align the characteristics of our assets relative to our liabilities. The strategy targets investments depending on the funded status of the obligation. We anticipate this strategy will continue in future years and will be dependent upon market conditions and plan characteristics.

At December 31, 2019, our master trust was invested as follows: investments in equity securities were at 31%; investments in fixed income were at 69%; and cash equivalents were less than 1%. We believe the allocation of our master trust investments as of December 31, 2019 is generally consistent with the targets set forth by our Investment Committee.

Estimated pension plan benefit payments to participants for the next ten years are as follows:

2020	$	18.7	million
2021	19.2		million
2022	19.8		million
2023	19.9		million
2024	20.3		million
Next five years	102.7		million

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, we follow a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value of our defined benefit plans’ consolidated assets as follows:

• Level 1 — Quoted prices for identical instruments in active markets.

• Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets.

• Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The fair values by category of inputs as of December 31, 2019 were as follows (in thousands):

	Fair Value as of December 31, 2019		Level 1		Level 2		Level 3
Equity Securities:
Common Stock	$	426	$	426	$	—	$	—
Index Funds:
U.S. Equities(a)	100,762		—		100,762		—
Equity Funds(b)	6,701		—		6,701		—
Total Equity Securities	107,889		426		107,463		—
Fixed Income:
Bond Funds(c)	228,652		—		228,652		—
Diversified Funds(d)	2,620		—		—		2,620
Total Fixed Income	231,272		—		228,652		2,620
Cash Equivalents:
Short-term Investment Funds(e)	1,923		—		1,923		—
Total Cash Equivalents	1,923		—		1,923		—
Total	$	341,084	$	426	$	338,038	$	2,620

(a) Represents a pooled/separate account that tracks the Dow Jones U.S. Total Stock Market Index.

(b) Represents a pooled/separate account comprised of approximately 90% U.S. large-cap stocks and 10% international stocks.

(c) Represents investments primarily in U.S. dollar-denominated, investment grade bonds, including government securities, corporate bonds, and mortgage- and asset-backed securities.

(d) Represents a pooled/separate account investment in the General Investment Account of an investment manager. The account primarily invests in fixed income debt securities, such as high grade corporate bonds, government bonds and asset-backed securities.

(e) Investment is comprised of high grade money market instruments with short-term maturities and high liquidity.

The fair values by category of inputs as of December 31, 2018 were as follows (in thousands):

	Fair Value as of December 31, 2018		Level 1		Level 2		Level 3
Equity Securities:
Common Stock	$	299	$	299	$	—	$	—
Index Funds:
U.S. Equities(a)	84,693		—		84,693		—
Equity Funds(b)	5,924		—		5,924		—
Total Equity Securities	90,916		299		90,617		—
Fixed Income:
Bond Funds(c)	203,640		—		203,640		—
Diversified Funds(d)	2,712		—		—		2,712
Total Fixed Income	206,352		—		203,640		2,712
Cash Equivalents:
Short-term Investment Funds(e)	1,940		—		1,940		—
Total Cash Equivalents	1,940		—		1,940		—
Total	$	299,208	$	299	$	296,197	$	2,712

(a) Represents a pooled/separate account that tracks the Dow Jones U.S. Total Stock Market Index.

(b) Represents a pooled/separate account comprised of approximately 90% U.S. large-cap stocks and 10% international stocks.

(c) Represents investments primarily in U.S. dollar-denominated, investment grade bonds, including government securities, corporate bonds, and mortgage- and asset-backed securities.

(d) Represents a pooled/separate account investment in the General Investment Account of an investment manager. The account primarily invests in fixed income debt securities, such as high grade corporate bonds, government bonds and asset-backed securities.

(e) Investment is comprised of high grade money market instruments with short-term maturities and high liquidity.

Inputs and valuation techniques used to measure the fair value of plan assets vary according to the type of security being valued. The common stock investments held directly by the plans are actively traded and fair values are determined based on quoted prices in active markets and are therefore classified as Level 1 inputs in the fair value hierarchy.

Fair values of equity securities held through units of pooled or index funds are based on net asset value of the units of the funds as determined by the fund manager. These funds are similar in nature to retail mutual funds, but are typically more efficient for institutional investors than retail mutual funds. The fair value of pooled funds is determined by the value of the underlying assets held by the fund and the units outstanding. The values of the pooled funds are not directly observable, but are based on observable inputs and, accordingly, have been classified as Level 2 in the fair value hierarchy.

Fair values of fixed income bond funds are typically determined by reference to the values of similar securities traded in the marketplace and current interest rate levels. Multiple pricing services are typically employed to assist in determining these valuations. These investments are classified as Level 2 in the fair value hierarchy as all significant inputs into the valuation are readily observable in the marketplace. Investments in diversified funds and investments in partnerships/joint ventures are classified as Level 3 in the fair value hierarchy as their fair value is dependent on inputs and assumptions which are not readily observable in the marketplace.

A reconciliation of the change in the fair value measurement of the defined benefit plans’ consolidated assets using significant unobservable inputs (Level 3) during the years ended December 31, 2019 and 2018 is as follows (in thousands):

	Diversified Funds			Partnerships/ Joint Ventures		Total
Balance at December 31, 2017	$	2,700		$	—	$	2,700
Actual return on plan assets:
Relating to instruments still held at reporting date	76			—		76
Relating to instruments sold during the period	—			—		—
Purchases, sales and settlements (net)	(1,360		)	—		(1,360		)
Transfers in and/or out of Level 3	1,296			—		1,296
Balance at December 31, 2018	$	2,712		$	—	$	2,712
Actual return on plan assets:
Relating to instruments still held at reporting date	78			—		78
Purchases, sales and settlements (net)	(787		)	—		(787		)
Transfers in and/or out of Level 3	617			—		617
Balance at December 31, 2019	$	2,620		$	—	$	2,620

Defined Contribution Plans — Certain of our non-union personnel may elect to participate in savings and profit sharing plans sponsored by us. These plans generally provide for salary reduction contributions to the plans on behalf of the participants of between 1% and 50% of a participant’s annual compensation and provide for employer matching and profit sharing contributions as determined by the plan provisions and approved by our Board of Directors. In addition, certain union hourly employees are participants in company-sponsored defined contribution plans, which provide for salary reduction contributions according to several schedules, including as a percentage of salary and flat dollar amounts. Additionally, employer contributions are sometimes, although not always, provided according to various schedules ranging from flat dollar contributions to matching contributions as a percent of salary based on the employees deferral election and according to the terms of the relevant collective bargaining agreement.

Multiemployer Pension Plans — Certain of our subsidiaries contribute to various multiemployer pension and other postretirement benefit plans which cover a majority of our full-time union employees and certain of our part-time union employees. Such plans are usually administered by a board of trustees composed of labor representatives and the management of the participating companies. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:

• Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers;

• If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and

• If we choose to stop participating in one or more of our multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

Our participation in these multiemployer plans for the year ended December 31, 2019 is outlined in the table below. Unless otherwise noted, the most recent Pension Protection Act (“PPA”) Zone Status available in 2019 and 2018 is for the plans’ year-end at December 31, 2018 and December 31, 2017, respectively. The zone status is based on information that we obtained from each plan’s Form 5500, which is available in the public domain and is certified by the plan’s actuary. Among other factors, plans in the red zone are in "critical" or "critical and declining" status and generally less than 65% funded, plans in the yellow zone are in "endangered" status and less than 80% funded, and plans in the green zone are in "healthy" status and at least 80% funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. Federal law requires that plans classified in the yellow zone or red zone adopt a funding improvement plan or rehabilitation plan, respectively, in order to improve the financial health of the plan. The “Extended Amortization Provisions” column indicates plans which have elected to utilize the special 30-year amortization rules provided by the Pension Relief Act of 2010 to amortize its losses from 2008 as a result of turmoil in the financial markets. The last column in the table lists the expiration date(s) of the collective-bargaining agreement(s) to which the plans are subject.

Pension Fund	Employer Identification Number	Pension Plan Number	PPA Zone Status		FIP / RP Status Pending/ Implemented	Extended Amortization Provisions	Expiration Date of Associated Collective- Bargaining Agreement(s)
			2019	2018
Western Conference of Teamsters Pension Plan(1)	91-6145047	001	Green	Green	N/A	No	May 31, 2020 - June 30, 2022
Central States, Southeast and Southwest Areas Pension Plan(2)	36-6044243	001	Red	Red	Implemented	No	February 1, 2020 - July 31, 2022
Retail, Wholesale & Department Store International Union and Industry Pension Fund(3)	63-0708442	001	Red	Red	Implemented	Yes	January 29, 2020 - September 8, 2022
Dairy Industry – Union Pension Plan for Philadelphia Vicinity(4)	23-6283288	001	Red	Red	Implemented	Yes	August 31, 2020 - September 30, 2022

(1) We are party to approximately 12 collective bargaining agreements that require contributions to this plan. These agreements cover a large number of employee participants and expire on various dates between 2020 and 2022. The agreement expiring in March 2021 is the most significant as 40% of our employee participants in this plan are covered by that agreement.

(2) There are approximately 16 collective bargaining agreements that govern our participation in this plan. The agreements expire on various dates between 2020 and 2022. Approximately 43%, 32%, and 25% of our employee participants in this plan are covered by the agreements expiring in 2020, 2021, and 2022 respectively.

(3) We are subject to approximately eight collective bargaining agreements with respect to this plan. Approximately 45%, 54%, and 1% of our employee participants in this plan are covered by the agreements expiring in 2020, 2021, and 2022 respectively.

(4) We are party to six collective bargaining agreements with respect to this plan. The agreement expiring in September 2020 is the most significant as approximately 59% of our employee participants in this plan are covered by that agreement.

Information regarding our contributions to our multiemployer pension plans is shown in the table below. There are no changes that materially affected the comparability of our contributions to each of these plans during the years ended December 31, 2019, 2018 and 2017.

Pension Fund	Employer Identification Number	Pension Plan Number	Dean Foods Company Contributions (in millions)
			2019		2018		2017		Surcharge Imposed(3)
Western Conference of Teamsters Pension Plan	91-6145047	001	$	14.1	$	14.0	$	13.2	No
Central States, Southeast and Southwest Areas Pension Plan	36-6044243	001	9.2		9.5		9.5		No
Retail, Wholesale & Department Store International Union and Industry Pension Fund(1)	63-0708442	001	1.5		1.3		1.3		No
Dairy Industry – Union Pension Plan for Philadelphia Vicinity(1)	23-6283288	001	2.2		2.1		2.1		No
Other Funds(2)			2.0		0.3		3.1
Total Contributions			$	29.0	$	27.2	$	29.2

(1) During the 2018 and 2017 plan years, our contributions to these plans exceeded 5% of total plan contributions. At the date of filing of this Annual Report on Form 10-K, Forms 5500 were not available for the plan years ending in 2019.

(2) Amounts shown represent our contributions to all other multiemployer pension and other postretirement benefit plans, which are immaterial both individually and in the aggregate to our Consolidated Financial Statements.

(3)

Federal law requires that contributing employers to a plan in Critical status pay to the plan a surcharge to help correct the plan’s financial situation. The amount of the surcharge is equal to a percentage of the amount we would otherwise be required to contribute to the plan and ceases once our related collective bargaining agreements are amended to comply with the provisions of the rehabilitation plan.