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Note 10. Employee Retirement Plans
 12 Months Ended
Dec. 31, 2020
Defined Benefit Plan Disclosure [Line Items]  
Pension and Other Postretirement Benefits Disclosure [Text Block]
Note 10. 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.
Pension Plan Termination
On September 4, 2019, our Board of Directors approved the termination of the Trinity Industries, Inc. Consolidated Pension Plan (the "Pension Plan"), effective December 31, 2019. The Pension Plan was settled in the fourth quarter of 2020 which resulted in the Company no longer having any remaining funded pension plan obligations. Except for retirees receiving payments under the Pension Plan, participants had the choice of receiving a single lump sum payment or an annuity from a highly-rated insurance company that will pay and administer future benefit payments.
Upon settlement, we recognized a pre-tax non-cash pension settlement charge of $151.5 million, which was inclusive of all unamortized losses previously recorded in AOCL. The settlement charge was recognized in our Statement of Operations during the fourth quarter when the payments were made to those participants electing to receive a lump sum distribution and when the annuity contracts were purchased to settle all remaining outstanding pension obligations. The surplus of the Pension Plan of $23.6 million will be used, as prescribed in the applicable regulations, to fund obligations associated with the Company's defined contribution profit sharing plan and final pension administrative expenses. We expect that any remaining surplus would be used for other corporate purposes, subject to applicable taxes.
Actuarial assumptions
Year Ended December 31,
202020192018
Assumptions used to determine benefit obligations at the annual measurement date were:
Obligation discount rateN/A2.73 %4.45 %
Assumptions used to determine net periodic benefit costs were:
Obligation discount rate2.71 %4.45 %3.79 %
Long-term rate of return on plan assets3.90 %4.90 %5.65 %
Prior to the settlement of our Pension Plan, the obligation discount rate assumption was determined by deriving a single discount rate from a theoretical settlement portfolio of high quality corporate bonds sufficient to provide for the plans' projected benefit payments. The expected long-term rate of return on the plans' assets was an assumption reflecting the anticipated weighted average rate of earnings on the portfolio over the long-term. To arrive at this rate, estimates were developed based upon the anticipated performance of the plans' assets. Substantially all of the accrued benefits of our remaining pension plans were frozen in 2009, with all qualified pension plans settled as of December 31, 2020.
Components of Net Periodic Benefit Cost and Other Retirement Expenses
Year Ended December 31,
202020192018
(in millions)
Expense Components
Service cost$— $0.1 $0.1 
Interest14.8 19.7 18.3 
Expected return on plan assets(20.9)(23.0)(27.4)
Amortization of actuarial loss6.0 4.6 4.8 
Amortization of prior service cost1.2 — — 
Settlement loss151.5 — — 
Other— — 0.6 
Net periodic benefit cost152.6 1.4 (3.6)
Profit sharing9.0 11.0 11.1 
Net expense$161.6 $12.4 $7.5 
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.
Obligations and funded status
Information regarding the terminated Pension Plan and the Supplemental Executive Retirement Plan ("SERP") based upon a December 31 measurement date is as follows:
Year Ended December 31,
20202019
(in millions)
Accumulated Benefit Obligations$15.5 $557.9 
Projected Benefit Obligations:
Beginning of year$557.9 $453.2 
Service cost— 0.1 
Interest14.8 19.7 
Benefits paid(23.0)(22.2)
Actuarial (gain) loss18.0 105.6 
Plan amendments— 1.5 
Settlements(552.2)— 
End of year$15.5 $557.9 
Plans' Assets:
Beginning of year$548.5 $478.7 
Actual return on assets49.3 90.9 
Employer contributions1.0 1.1 
Benefits paid(23.0)(22.2)
Settlements(552.2)— 
End of year$23.6 $548.5 
Consolidated Balance Sheet Components:
Pension Plan:
Other assets$23.6 $5.5 
Accrued liabilities— — 
Net funded status$23.6 $5.5 
SERP:
Other assets$— $— 
Accrued liabilities(15.5)(14.9)
Net funded status$(15.5)$(14.9)
Amounts recognized in other comprehensive income (loss)
Year Ended December 31,
202020192018
(in millions)
Settlement of pension plan$151.5 $— $— 
Actuarial gain (loss)10.4 (37.7)(12.5)
Amortization of actuarial loss6.0 4.6 4.8 
Amortization of prior service cost1.2 — — 
New prior service cost base— (1.5)— 
Total before income taxes169.1 (34.6)(7.7)
Income tax (benefit) expense39.2 (7.9)(1.8)
Net amount recognized in other comprehensive income (loss)$129.9 $(26.7)$(5.9)
At December 31, 2020, AOCL included unrecognized actuarial losses related to our SERP of $5.9 million ($4.0 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, 2021 are $0.3 million ($0.2 million net of related income taxes).
Plan assets
Upon settlement of our Pension Plan in the fourth quarter of 2020, the target and actual investment allocation strategy at December 31, 2020 is 100% cash and cash equivalents. The estimated fair value of the plans' assets at December 31, 2020 was $23.6 million of temporary cash investments (Level 1).
In anticipation of the planned settlement, we adjusted our target allocation at December 31, 2019 to a 100% liability hedging portfolio. Historically, our investment strategies were developed as part of a comprehensive asset/liability management process that considered 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 considered 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 allocated 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 varied based on the pension plans' percentage of projected benefit obligations funded status. The range of target asset allocations were 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 included asset allocation and active asset management within approved guidelines. These assets were managed by an investment advisor.
The estimated fair value of the plans' assets at December 31, 2019, indicating input levels used to determine fair value are as follows:
Fair Value Measurement as of December 31, 2019
(in millions)
Level 1Level 2Level 3Total
Temporary cash investments$13.5 $— $— $13.5 
Fixed Income – Government and agencies— 121.7 — 121.7 
Fixed Income – Corporate— 370.5 — 370.5 
Fixed Income – Asset-backed securities— 2.2 — 2.2 
Fixed Income – Collateralized mortgage-backed — 4.1 — 4.1 
Equity common trust funds— 29.1 — 29.1 
Debt common trust funds— — 7.4 7.4 
$13.5 $527.6 $7.4 $548.5 
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 – Asset-backed securities – Asset-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.
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.
Funding of Defined Contribution Plans
Based on the plan provisions that were in effect during the majority of 2020, participants in the 401(k) plan were 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 ranged 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. In August 2020, the Company amended the plan to replace the company-funded annual retirement contribution with a qualified automatic contribution arrangement safe harbor plan structure. The revised matching structure will provide for a dollar-for-dollar Company match on up to 6% of participants' eligible compensation, subject to a two-year cliff vesting period.
Employer contributions to the 401(k) plan and the Supplemental Profit Sharing Plan (effective as of January 1, 2021, the Trinity Industries, Inc. Deferred Compensation Plan) during 2020 totaled $11.4 million. Employer contributions to the 401(k) plan and the Trinity Industries, Inc. Deferred Compensation Plan for the year ending December 31, 2021 are expected to be $18.5 million, which includes the payment of the contributions accrued as of December 31, 2020, as well as the 2021 contributions pursuant to the plan design changes described above.