The Company recognizes the funded status of its defined benefit plans in its Consolidated Balance Sheets. The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation of the Company’s defined benefit plans. The Company provides information for its overfunded plan separate from its underfunded plan.

Prior to 2005, THG provided retirement benefits to substantially all of its employees under defined benefit pension plans. These plans were based on a defined benefit cash balance formula, whereby the Company annually provided an allocation to each covered employee based on a percentage of that employee’s eligible salary, similar to a defined contribution plan arrangement. In addition to the cash balance allocation, certain transition group employees who had met specified age and service requirements as of December 31, 1994 were eligible for a grandfathered benefit based primarily on each employee’s years of service and compensation during their highest five consecutive plan years of employment. The Company’s policy for the plans is to fund at least the minimum amount required by the Employee Retirement Income Security Act of 1974 (“ERISA”).

As of January 1, 2005, the defined benefit pension plans were frozen and since that date, no further cash balance allocations have been credited to participants. Participants’ accounts are credited with interest daily, based upon the General Agreement of Trades and Tariffs rate (the 30-year Treasury Bond interest rate). In addition, the grandfathered benefits for the transition group were also frozen at January 1, 2005 levels with an annual transition pension adjustment calculated at an interest rate equal to 5% per year up to 35 years of completed service, and 3% thereafter. As of December 31, 2020, based on current estimates of plan liabilities and other assumptions, the assets of the qualified defined benefit pension plan exceeded the projected benefit obligation by approximately $27.4 million.

In order to measure the expense associated with these plans, management must make various estimates and assumptions, including discount rates used to value liabilities, assumed rates of return on plan assets, employee turnover rates and anticipated mortality rates, for example. The estimates used by management are based on the Company’s historical experience, as well as current facts and circumstances. In addition, the Company uses outside actuaries to assist in measuring the expense and liability associated with these plans.

The Company measures the funded status of its plans as of the date of its year-end statement of financial position. The Company utilizes a measurement date of December 31^st to determine its benefit obligations, consistent with the date of its Consolidated Balance Sheets.

Weighted average assumptions used to determine pension benefit obligations are as follows:

DECEMBER 31	2020			2019			2018
Discount rate - qualified plan		3.00	%		3.75	%		4.50	%
Discount rate - non-qualified plan		2.88	%		4.00	%		4.50	%
Cash balance interest crediting rate		3.00	%		3.50	%		3.50	%

The Company utilizes a measurement date of January 1^st to determine its periodic pension costs. Weighted average assumptions used to determine net periodic pension costs for the defined benefit plans are as follows:

YEARS ENDED DECEMBER 31	2020			2019			2018
Qualified plan
Discount rate		3.75	%		4.50	%		3.88	%
Expected return on plan assets		4.75	%		5.50	%		4.75	%
Cash balance interest crediting rate		3.50	%		3.50	%		3.50	%
Non-qualified plan
Discount rate		4.00	%		4.50	%		3.88	%

The expected rates of return were determined by using historical mean returns for each asset class, adjusted for certain factors believed to have an impact on future returns. These returns are generally weighted to the plan’s actual asset allocation, and are net of administrative expenses. For the qualified defined benefit plan, the 2020 expected return on plan assets of 4.75% reflects long-term expectations and decreased modestly based upon long-term market expectations and expense management efforts. The Company reviews and updates, at least annually, its expected return on plan assets based on changes in the actual assets held by the plan and market conditions.

For the qualified defined benefit plan, a target allocation approach is utilized, which focuses on creating a mix of assets that will generate modest growth from equity securities while minimizing volatility from changes in the markets and economic environment. Various factors are taken into consideration in determining the appropriate asset mix, such as census data, actuarial valuation information and capital market assumptions. Target allocations are reviewed and updated at least annually. Changes are made periodically.

The following table provides its year-end 2020 target allocations and actual invested asset allocations at December 31, 2020 and 2019.

DECEMBER 31	2020 TARGET LEVELS			2020			2019
Fixed income securities:
Fixed maturities		88	%		87	%		88	%
Money market funds		2	%		3	%		2	%
Total fixed income securities		90	%		90	%		90	%
Equity securities		10	%		10	%		10	%
Total plan assets		100	%		100	%		100	%

The following table presents, for each hierarchy level, the qualified defined benefit plan’s investment assets that are measured at fair value at December 31, 2020 and 2019. Refer to Note 5 – “Fair Value” for a description of the different levels in the Fair Value Hierarchy.

DECEMBER 31	2020								2019
(in millions)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Fixed income securities:
Fixed maturities	$	29.5	$	10.4	$	—	$	19.1	$	33.6	$	10.7	$	—	$	22.9
Money market mutual funds		11.3		11.3		—		—		7.8		7.8		—		—
Total investments at fair value	$	40.8	$	21.7	$	—	$	19.1	$	41.4	$	18.5	$	—	$	22.9

Securities classified as Level 1 at December 31, 2020 and 2019 include actively traded mutual funds and publicly traded securities, which are valued at quoted market prices. Securities classified as Level 3 at December 31, 2020 and 2019 include assets held in a fixed account of an insurance company. The fair value of the investment is estimated using a comparable public market financial institution derived fair value curve that uses non-observable inputs for market liquidity and unique credit characteristics of its underlying securities.

The Plan also holds investments measured at fair value using NAV based on the value of the underlying investments, which is determined independently by the investment manager and have not been included in the table above. These include investments in commingled pools and investment-grade fixed income securities held in a custom fund, and other commingled pools that primarily invest in publicly traded common stocks. The daily NAV, which is not published as a quoted market price for these investments, is used as the basis for transactions. Redemption of these funds is not subject to restriction. The fair values of these investments are as follows:

The table below provides a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

YEARS ENDED DECEMBER 31	2020			2019
(in millions)
Balance at beginning of period	$	22.9		$	25.8
Less: Assets transferred to Level 1 investments		(4.3	)		(3.5	)
Actual return on plan assets related to assets still held		0.5			0.6
Balance at end of year	$	19.1		$	22.9

The Company recognizes the current funded status of its plans in its Consolidated Balance Sheets. Changes in the funded status of the plans are reflected as components of either net income or accumulated other comprehensive income or loss. The components of accumulated other comprehensive income or loss are reflected as a net actuarial gain or loss.

The following table reflects the benefit obligations, fair value of plan assets and funded status of the plans at December 31, 2020 and 2019.

DECEMBER 31	Qualified Pension Plan						Non-Qualified Pension Plan
(in millions)	2020			2019			2020			2019
Change in benefit obligation:
Benefit obligation, beginning of period⁽¹⁾	$	472.5		$	469.5		$	31.7		$	33.8
Interest cost		17.1			19.9			1.2			1.4
Actuarial losses (gains)		25.9			20.4			3.0			(0.6	)
Benefits paid		(32.2	)		(37.3	)		(2.9	)		(2.9	)
Benefit obligation, end of year⁽¹⁾		483.3			472.5			33.0			31.7
Change in plan assets:
Fair value of plan assets, beginning of period		487.6			450.7			—			—
Actual return on plan assets		55.3			64.2			—			—
Contributions		—			10.0			2.9			2.9
Benefits paid		(32.2	)		(37.3	)		(2.9	)		(2.9	)
Fair value of plan assets, end of year		510.7			487.6			—			—
Funded status of the plans	$	27.4		$	15.1		$	(33.0	)	$	(31.7	)

(1) The accumulated benefit obligation for these plans is equal to the projected benefit obligation.

Actuarial losses related to the change in the benefit obligation for the Company’s qualified benefit plan were $25.9 million and $20.4 million for the years ended December 31, 2020 and 2019, respectively. Actuarial losses related to the change in the benefit obligation for the Company’s non-qualified benefit plan were $3.0 million for the year ended December 31, 2020, compared to actuarial gains of $0.6 million for the year ended December 31, 2019. For both plans, the actuarial losses in 2020 primarily reflect reductions in the discount rate driven by decreases in corporate bond interest rates, partially offset by favorable mortality experience. In 2019, the actuarial gains or losses in both plans also reflect the effect of lower discount rates and favorable mortality experience. The non-qualified plan also had favorable demographic experience ultimately producing actuarial gains in 2019.

YEARS ENDED DECEMBER 31	2020			2019			2018
(in millions)
Interest cost	$	18.3		$	21.3		$	19.8
Expected return on plan assets		(22.2	)		(23.4	)		(20.6	)
Recognized net actuarial loss		5.8			11.3			9.6
Net periodic pension cost	$	1.9		$	9.2		$	8.8

The following table reflects the total amounts recognized in accumulated other comprehensive income relating to the defined benefit pension plans as of December 31, 2020 and 2019.

The unrecognized net actuarial gains or losses which exceed 10% of the greater of the projected benefit obligations or the fair value of plan assets are amortized as a component of net periodic pension cost over the next five years.

In accordance with ERISA guidelines, the Company is not required to fund its qualified benefit plan in 2021. The Company expects to contribute $2.9 million to its non-qualified pension plan to fund 2021 benefit payments. During 2019, the Company made a discretionary contribution of $10.0 million to its qualified benefit plan. At this time, no additional discretionary contributions are expected to be made into any of the plans during 2021.

YEARS ENDED DECEMBER 31	2021		2022		2023		2024		2025		2026-2030
(in millions)
Qualified pension plan	$	39.4	$	38.1	$	37.5	$	35.8	$	34.2	$	152.4
Non-qualified pension plan	$	2.9	$	2.9	$	2.7	$	2.6	$	2.5	$	11.1

The benefit payments are based on the same assumptions used to measure the Company’s benefit obligations at the end of 2020. Benefit payments related to the qualified plan will be made from plan assets held in trust and not included with Company assets, whereas those payments related to the non-qualified plan will be provided for by the Company.

In addition to the defined benefit plans, THG provides a qualified defined contribution 401(k) plan for all of its employees, whereby the Company matches employee elective 401(k) contributions, up to a maximum of 6% of eligible compensation in 2020, 2019 and 2018. The Company’s expense for this matching provision was $24.1 million, $22.2 million and $21.7 million for 2020, 2019 and 2018, respectively. In addition to this matching provision, the Company can elect to make an annual contribution to employees’ accounts.