Employee Retirement Plans

We sponsor defined benefit plans and defined contribution profit sharing plans that provide retirement income and death benefits for eligible employees. The annual measurement date of the benefit obligations, fair value of plan assets, and funded status is December 31.

Actuarial assumptions



	Year Ended December 31,
	2018	2017	2016
Assumptions used to determine benefit obligations at the annual measurement date were:
Obligation discount rate	4.45%	3.79%	4.34%
Compensation increase rate⁽¹⁾	n/a	4.00%	4.00%
Assumptions used to determine net periodic benefit costs were:
Obligation discount rate	3.79%	4.34%	4.79%
Long-term rate of return on plan assets	5.65%	6.25%	6.50%
Compensation increase rate⁽¹⁾	n/a	4.00%	4.00%

⁽¹⁾The compensation increase rate pertains to a plan associated with our Former Inland Barge Group. The Inland Barge Group was transferred to Arcosa in connection with the spin-off, but Trinity retained the pension plan. Effective as of November 1, 2018, all participants in this plan have been granted the maximum benefit allowed under the plan; therefore, the compensation increase rate is not applicable.

The obligation discount rate assumption is determined by deriving a single discount rate from a theoretical settlement portfolio of high quality corporate bonds sufficient to provide for the plans' projected benefit payments. The expected long-term rate of return on the plans' assets is an assumption reflecting the anticipated weighted average rate of earnings on the portfolio over the long-term. To arrive at this rate, estimates were developed based upon the anticipated performance of the plans' assets. The accrued benefits of our remaining pension plans were frozen in 2009.

Components of Net Periodic Benefit Cost and Other Retirement Expenses



	Year Ended December 31,
	2018			2017			2016
	(in millions)
Expense Components
Service cost	$	0.1		$	0.2		$	0.4
Interest	18.3			19.6			20.8
Expected return on plan assets	(27.4		)	(27.2		)	(27.2		)
Amortization of actuarial loss	4.8			4.9			5.1
Other	0.6			—			—
Net periodic benefit cost	(3.6		)	(2.5		)	(0.9		)
Profit sharing	11.1			7.7			7.2
Net expense	$	7.5		$	5.2		$	6.3

The expected return on plan assets is based on the plan assets' fair value. Amortization of actuarial loss is determined using the corridor method. Under the corridor method, unamortized actuarial gains or losses in excess of 10% of the greater of the projected benefit obligation or the fair value of plan assets as of the beginning of the plan year are amortized, for frozen plans, over the average expected remaining lifetime of frozen and inactive participants. Substantially all of our defined benefit plans were frozen as of December 31, 2018.

Obligations and funded status



	Year Ended December 31,
	2018			2017
	(in millions)
Accumulated Benefit Obligations	$	453.2		$	490.0
Projected Benefit Obligations:
Beginning of year	$	490.0		$	459.6
Service cost	0.1			0.2
Interest	18.3			19.6
Benefits paid	(20.2		)	(19.9		)
Actuarial loss	(35.6		)	30.5
Other	0.6			—
End of year	$	453.2		$	490.0
Plans' Assets:
Beginning of year	$	488.0		$	442.5
Actual return on assets	(20.7		)	62.9
Employer contributions	31.6			2.5
Benefits paid	(20.2		)	(19.9		)
End of year	$	478.7		$	488.0

Consolidated Balance Sheet Components:
Other assets	$	39.4		$	13.1
Accrued liabilities	(13.9		)	(15.1		)
Net funded status	$	25.5		$	(2.0	)
Percent of projected benefit obligations funded	105.6		%	99.6		%

None of the plans' assets are expected to be returned to us during the year ending December 31, 2019.

Amounts recognized in other comprehensive income (loss)



	Year Ended December 31,
	2018			2017		2016
	(in millions)
Actuarial (loss) gain	$	(12.5	)	$	5.2	$	(5.3	)
Amortization of actuarial loss	4.8			4.9		5.1
Total before income taxes	(7.7		)	10.1		(0.2		)
Income tax (benefit) expense	(1.8		)	3.1		(0.1		)
Net amount recognized in other comprehensive (loss) income	$	(5.9	)	$	7.0	$	(0.1	)

At December 31, 2018, AOCL included unrecognized actuarial losses of $140.4 million ($107.2 million net of related income taxes). Actuarial losses included in AOCL and expected to be recognized in net periodic pension cost for the year ended December 31, 2019 are $1.1 million ($0.8 million net of related income taxes).

Plan assets

Our pension plan investment strategies have been developed as part of a comprehensive asset/liability management process that considers the relationship between both the assets and liabilities of the plans for the purpose of providing the capital assets necessary to meet the financial obligations made to participants of our pension plans. These strategies consider not only the expected risk and returns on the plans' assets, but also the actuarial projections of liabilities, projected contributions, and funded status. Our investment policy statement allocates our pension plan assets into two portfolios as follows:

•Liability hedging portfolio - The objective of the liability hedging portfolio is to match the characteristics of the pension plans' liabilities. This portfolio consists of fixed income holdings which are generally investment grade.

•Growth portfolio - The objective of the growth portfolio is to focus upon total return with an acceptable level of risk. This portfolio is heavily weighted toward U.S. equities with a lesser exposure to international equities, domestic real estate investment trusts, U.S. high yield and emerging market sovereign debt.

The target allocation between these two portfolios varies based on the pension plans' percentage of projected benefit obligations funded status. The range of target asset allocations has been determined after giving consideration to the expected returns of each asset category within the two portfolios, the expected performance of each asset category, the volatility of asset returns over time, and the complementary nature of the asset mix within the portfolio. The principal pension investment strategies include asset allocation and active asset management within approved guidelines. These assets are managed by an investment advisor.

The target and actual allocations of the plans' assets at December 31, 2018 are as follows:



	Target Allocation		December 31, 2018
Cash and cash equivalents	—	%	3	%
Liability hedging portfolio	90	%	82	%
Growth portfolio	10	%	15	%
Total	100	%	100	%

The estimated fair value of the plans' assets at December 31, 2018 and 2017, indicating input levels used to determine fair value are as follows:



	Fair Value Measurement as of December 31, 2018
	(in millions)
	Level 1		Level 2		Level 3		Total
Temporary cash investments	$	14.0	$	—	$	—	$	14.0
Fixed Income - Government and agencies	—		77.1		—		77.1
Fixed Income - Corporate	—		309.1		—		309.1
Fixed Income - Collateralized mortgage backed	—		2.1		—		2.1
Equity common trust funds	—		69.7		—		69.7
Debt common trust funds	—		—		6.7		6.7
	$	14.0	$	458.0	$	6.7	$	478.7



	Fair Value Measurement as of December 31, 2017
	(in millions)
	Level 1		Level 2		Level 3		Total
Temporary cash investments	$	7.3	$	—	$	—	$	7.3
Debt common trust funds	—		292.8		—		292.8
Equity common trust funds	—		187.9		—		187.9
	$	7.3	$	480.7	$	—	$	488.0

The pension plans' assets are valued at fair value. The following is a description of the valuation methodologies used in determining fair value, including the general classification of such instruments pursuant to the valuation hierarchy as described further in Note 3:

Temporary cash investments - These investments consist of U.S. dollars held in master trust accounts with the trustee. These temporary cash investments are classified as Level 1 instruments.

Fixed Income - Government and agencies - These investments consist primarily of U.S. treasury bonds and notes, U.S. treasury inflation protected securities, U.S. government agency debt, municipal bonds, and other global government bonds. The fair value of these securities is based on quoted market prices when available or is based on yields currently available on comparable securities or on an industry valuation model, which maximizes observable inputs. These securities are categorized as Level 2 instruments.

Fixed Income - Corporate - These investments consist of U.S. and global corporate bonds and notes. The fair value of these securities is based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar debt instruments, the fair value is based upon an industry valuation model, which maximizes observable inputs. These securities are categorized as Level 2 instruments.

Fixed Income - Collateralized mortgage backed - Mortgage backed securities are valued using quotes from independent pricing vendors based on recent trading activity and other relevant information, including market interest rate curves, referenced credit spreads, and estimated prepayment rates, where applicable. These securities are categorized as Level 2 instruments.

Common trust funds - Common trust funds are comprised of shares or units in commingled funds that are not publicly traded. The underlying assets in these funds 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 a combination of Level 2 and Level 3 instruments.

Cash flows

Employer contributions for the year ending December 31, 2019 are expected to be $1.1 million for the defined benefit plans compared to $31.6 million contributed during 2018. Contributions to the defined benefit plans in 2018 included a one-time discretionary contribution of $25.0 million. Employer contributions to the 401(k) plan and the Supplemental Profit Sharing Plan for the year ending December 31, 2019 are expected to be $10.8 million compared to $15.4 million contributed during 2018. Contributions to the 401(k) plan and the Supplemental Profit Sharing Plan in 2018 included $5.9 million attributable to employees who transferred to Arcosa in connection with the spin-off transaction.

Benefit payments for our defined benefit plans expected to be paid during the next ten years are as follows:



	Year Ending December 31,
	(in millions)
2019	$	23.7
2020	24.5
2021	25.4
2022	26.4
2023	27.2
2024-2028	144.7

Participants in the 401(k) plan are eligible to receive future retirement benefits through a company-funded annual retirement contribution provided through the Profit Sharing Plan for Employees of Trinity Industries, Inc. and Certain Affiliates. The contribution ranges from one to three percent of eligible compensation based on service. Both the annual retirement contribution and the company matching contribution are discretionary, requiring board approval, and are made annually with the investment of the funds directed by the participants.