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Retirement Plans

12 Months Ended

Dec. 31, 2018

Defined Benefit Pension Plans

Retirement Plans

RETIREMENT PLANS

ASC 715

“

Compensation—Retirement Benefits,

” requires an employer with defined benefit plans or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans as defined by ASC 715. The pension asset or liability represents a difference between the fair value of the pension plan’s assets and the projected benefit obligation at December 31. Teradyne uses a December 31

measurement date for all of its plans.

Defined Benefit Pension Plans

Teradyne has defined benefit pension plans covering a portion of domestic employees and employees of certain

non-U.S.

subsidiaries. Benefits under these plans are based on employees’ years of service and compensation. Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of fixed income and equity securities. In addition, Teradyne has an unfunded supplemental executive defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (the “IRC”), as well as unfunded qualified foreign plans.

During 2018, Teradyne purchased a group annuity contract for its retiree participants in the U.S. qualified pension plan. Under the group annuity, the accrued pension obligations for approximately 1,700 retiree participants were transferred to an insurance company. The reduction in the pension benefit obligation and pension assets was $151.3 million. During 2018, Teradyne recorded a settlement loss of $0.3 million related to the retiree group annuity transaction.

The December 31 balances of these defined benefit pension plans assets and obligations are shown below:


	2018						2017
	United States			Foreign			United States			Foreign
	(in thousands)
Assets and Obligations
Change in benefit obligation:
Projected benefit obligation:
Beginning of year	$	363,026		$	39,353		$	353,616		$	60,738
Service cost		2,196			786			2,239			818
Interest cost		8,940			687			13,151			852
Actuarial (gain) loss		(30,136	)		773			12,702			262
Benefits paid		(14,793	)		(741	)		(18,682	)		(994	)
Retiree annuity purchase		(151,341	)		—			—			—
Liability loss due to settlement		345			—			—			—
Settlements		—			—			—			(28,560	)
Admin expenses paid		—			—			—			(40	)
Non-U.S. currency movement		—			(1,712	)		—			6,277
End of year		178,237			39,146			363,026			39,353
Change in plan assets:
Fair value of plan assets:
Beginning of year		324,506			1,307			307,304			27,571
Company contributions		2,587			822			4,462			883
Actual return on plan assets		(16,658	)		50			31,422			737
Benefits paid		(14,793	)		(741	)		(18,682	)		(994	)
Retiree annuity purchase		(151,341	)		—			—			—
Settlements		—			—			—			(28,560	)
Admin expenses paid		—			—			—			(40	)
Non-U.S. currency movement		—			(38	)		—			1,710
End of year		144,301			1,400			324,506			1,307
Funded status	$	(33,936	)	$	(37,746	)	$	(38,520	)	$	(38,046	)

The following table provides amounts recorded within the account line items of the statements of financial position as of December 31:


	2018						2017
	United States			Foreign			United States			Foreign
	(in thousands)
Retirement plans assets	$	16,883		$	—		$	17,491		$	—
Accrued employees’ compensation and withholdings		(2,676	)		(852	)		(2,524	)		(863	)
Retirement plans liabilities		(48,143	)		(36,894	)		(53,487	)		(37,183	)
Funded status	$	(33,936	)	$	(37,746	)	$	(38,520	)	$	(38,046	)

The following table provides amounts recognized in accumulated other comprehensive income as of December 31:


	2018				2017
	United States		Foreign		United States		Foreign
	(in thousands)
Prior service cost, before tax	$	—	$	—	$	58	$	—
Deferred taxes		560		—		539		—
Total recognized in other comprehensive income, net of tax	$	560	$	—	$	597	$	—

The accumulated benefit obligation for the United States defined benefit pension plans was $172.8 million and $354.3 million at December 31, 2018 and 2017, respectively. The accumulated benefit obligation for foreign defined benefit pension plans was $35.6 million and $34.7 million at December 31, 2018 and 2017, respectively.

Information for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31:


	2018				2017
	United States		Foreign		United States		Foreign
	(in millions)
Projected benefit obligation	$	50.8	$	39.1	$	56.0	$	39.4
Accumulated benefit obligation		48.6		35.6		51.6		34.7
Fair value of plan assets		—		1.4		—		1.3

Expense

For the years ended December 31, 2018, 2017, and 2016, Teradyne’s net periodic pension (income) cost was comprised of the following:

	2018						2017						2016
	United States			Foreign			United States			Foreign			United States			Foreign
	(in thousands)
Components of Net Periodic Pension (Income) Cost:
Service cost	$	2,196		$	786		$	2,239		$	818		$	2,302		$	761
Interest cost		8,940			687			13,151			852			13,630			1,185
Expected return on plan assets		(9,049	)		(19	)		(12,008	)		(165	)		(13,830	)		(443	)
Amortization of prior service cost		58			—			70			—			96			—
Net actuarial (gain) loss		(4,429	)		743			(6,712	)		(310	)		(4,013	)		815
Settlement loss		345			—			—			—			—			—
Total net periodic pension (income) cost	$	(1,939	)	$	2,197		$	(3,260	)	$	1,195		$	(1,815	)	$	2,318
Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Reversal of amortization items:
Prior service cost		(58	)		—			(70	)		—			(96	)		—
Total recognized in other comprehensive income		(58	)		—			(70	)		—			(96	)		—
Total recognized in net periodic pension (income) cost and other comprehensive income	$	(1,997	)	$	2,197		$	(3,330	)	$	1,195		$	(1,911	)	$	2,318

Weighted Average Assumptions to Determine Net Periodic Pension Cost at January 1:

	2018						2017						2016
	United States			Foreign			United States			Foreign			United States			Foreign
Discount rate		3.4	%		1.8	%		3.9	%		1.8	%		4.0	%		2.3	%
Expected return on plan assets		4.3			1.5			4.0			2.0			4.8			2.0
Salary progression rate		2.3			2.7			2.6			2.7			2.7			3.2

Weighted Average Assumptions to Determine Pension Obligations at December 31:

	2018						2017
	United States			Foreign			United States			Foreign
Discount rate		4.1	%		1.8	%		3.4	%		1.8	%
Salary progression rate		2.3			2.6			2.3			2.7

In developing the expected return on plan assets assumption, Teradyne evaluates input from its investment manager and pension consultants, including their forecast of asset class return expectations. Teradyne believes that 4.25% was an appropriate rate to use for fiscal 2018 for the U.S. Qualified Pension Plan (“U.S. Plan”).

Teradyne recognizes net actuarial gains and losses and the change in the fair value of the plan assets in its operating results in the year in which they occur or upon any interim remeasurement of the plans. Teradyne calculates the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of December 31 and, accordingly, recorded during the fourth quarter of each year or upon any interim remeasurement of the plans.

The discount rate utilized to determine future pension obligations for the U.S. Plan is based on FTSE Pension Index adjusted for the plan’s expected cash flows and was 4.15% at December 31, 2018, up from 3.4% at December 31, 2017.

Plan Assets

As of December 31, 2018, the fair value of Teradyne’s pension plans’ assets totaled $145.7 million of which $144.3 million was related to the U.S. Plan and $1.4 million was related to the Taiwan defined benefit pension plan. Substantially all of Teradyne’s pension plans’ assets are held in individual trusts, which were established for the investment of assets of Teradyne’s sponsored retirement plans.

The following table provides weighted average pension asset allocation by asset category at December 31, 2018 and 2017:


	2018						2017
	United States			Foreign			United States			Foreign
Fixed income securities		94.0	%		—	%		88.1	%		—	%
Equity securities		5.0			—			9.9			—
Other		1.0			100.0			2.0			100.0
		100.0	%		100.0	%		100.0	%		100.0	%

The assets of the U.S. Plan are overseen by the Teradyne Fiduciary Committee which is comprised of members of senior management drawn from appropriate diversified levels of the management team. The Fiduciary Committee is responsible for setting the policy that provides the framework for management of the U.S. Plan assets. In accordance with its responsibilities, the Fiduciary Committee meets on a regular basis to review the performance of the U.S. Plan assets and compliance with the investment policy. The policy sets forth an investment structure for managing U.S. Plan assets, including setting the asset allocation ranges, which are expected to provide an appropriate level of overall diversification required to maximize the long-term return on plan assets for a prudent and reasonable level of risk given prevailing market conditions, total investment return over the long term, and preservation of capital, while maintaining sufficient liquidity to pay the benefits of the U.S. Plan. The investment portfolio will not, at any time, have a direct investment in Teradyne stock. It may have indirect investment in Teradyne stock, if one of the funds selected by the investment manager invests in Teradyne stock. In developing the asset allocation ranges, third party asset allocation studies are periodically performed that consider the current and expected positions of the plan assets and funded status. Based on this study and other appropriate information, the Fiduciary Committee establishes asset allocation ranges taking into account acceptable risk targets and associated returns. The investment return objectives are to avoid excessive volatility and produce a rate of return that at least matches the Policy Index identified below. The manager’s investment performance is reviewed at least annually. Results for the total portfolio and for each major category of assets are evaluated in comparison with appropriate market indices and the Policy Index.

The target asset allocation and the index for each asset category for the U.S. Plan, per the investment policy, are as follows:

Asset Category:	Policy Index:	Target Allocation
U.S. corporate fixed income	Barclays U.S. Corporate A or Better Index		75	%
Global equity	MSCI World Minimum Volatility Index		5
U.S. government fixed income	Barclays U.S. 20+ Year Treasury Strips Index		14
High yield fixed income	Barclays U.S. Corporate High Yield 2% Issuer Cap Index		5
Cash	Citigroup Three Month U.S. Treasury Bill Index		1

Teradyne’s U.S. Plan invests primarily in common trust funds. Units held in the common trust funds are valued at the unit price as reported by the investment manager based on the asset value of the underlying investments; underlying investments in equity securities are valued at the last reported sales price, and underlying investments in fixed-income securities are generally valued using methods based upon market transactions for comparable securities.

In 2017, the U.K. defined benefit pension was terminated and the obligations and assets of the plan were transferred to an insurance company.

During the year ended December 31, 2018, $2.7 million of pension assets were transferred out of Level 3 to Level 2. During the year ended December 31, 2017, there were no transfers of pension assets in or out of Level 1, Level 2 or Level 3.

The fair value of pension plan assets by asset category and by level at December 31, 2018 and December 31, 2017 were as follows:

	December 31, 2018
	United States								Foreign
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)
Fixed income securities:
Corporate debt securities	$	—	$	115,424	$	—	$	115,424	$	—	$	—	$	—	$	—
U.S. government securities		—		20,176		—		20,176		—		—		—		—
Global equity		—		7,252		—		7,252		—		—		—		—
Other		—		—		—		—		—		1,400		—		1,400
Cash and cash equivalents		1,449		—		—		1,449		—		—		—		—
Total	$	1,449	$	142,852	$	—	$	144,301	$	—	$	1,400	$	—	$	1,400

	December 31, 2017
	United States								Foreign
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)
Fixed income securities:
Corporate debt securities	$	—	$	260,294	$	—	$	260,294	$	—	$	—	$	—	$	—
U.S. government securities		—		25,709		—		25,709		—		—		—		—
Global equity		—		32,120		—		32,120		—		—		—		—
Group annuity insurance contracts		—		—		3,166		3,166		—		—		—		—
Other		—		—		—		—		—		1,307		—		1,307
Cash and cash equivalents		3,217		—		—		3,217		—		—		—		—
Total	$	3,217	$	318,123	$	3,166	$	324,506	$	—	$	1,307	$	—	$	1,307

The pension plan assets identified as Level 3 above are related to group annuity insurance contracts held by the U.S. Plan.

Changes in the fair value of Level 3 group annuity insurance contracts for the years ended December 31, 2018 and 2017 were as follows:

	Group Annuity Insurance Contracts
	(in thousands)
Balance at December 31, 2016	$	29,456
Settlements		(28,560	)
Interest and market value adjustments		959
Benefits paid		(244	)
Other		(61	)
Non-U.S. currency movement		1,616
Balance at December 31, 2017		3,166
Transfer out of Level 3		(2,658	)
Purchases of retiree annuity insurance contracts		(512	)
Interest and market value adjustments		59
Benefits paid		(40	)
Other		(15	)
Balance at December 31, 2018	$	—

Contributions

Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. During 2018, Teradyne contributed $2.6 million to the U.S. supplemental executive defined benefit pension plan and $0.8 million to certain qualified plans for

non-U.S.

subsidiaries. During 2017, Teradyne contributed $1.9 million to the U.S. Plan, $2.6 million to the U.S. supplemental executive defined benefit pension plan and $0.9 million to certain qualified plans for

non-U.S.

subsidiaries. In 2019, contributions to the U.S. supplemental executive defined benefit pension plan and certain qualified plans from

non-U.S.

subsidiaries will be approximately $2.7 million and $0.9 million, respectively.

Future benefit payments are expected to be paid as follows:

	United States		Foreign
	(in thousands)
2019	$	6,903	$	874
2020		7,133		1,522
2021		8,026		905
2022		8,863		888
2023		9,584		1,199
2024-2028		57,120		5,921

Postretirement Benefit Plans

In addition to receiving pension benefits, U.S. Teradyne employees who meet early retirement eligibility requirements as of their termination dates may participate in Teradyne’s Welfare Plan, which includes medical and dental benefits up to age 65. Death benefits provide a fixed sum to retirees’ survivors and are available to all retirees. Substantially all of Teradyne’s current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees.

The December 31 balances of the postretirement assets and obligations are shown below:

	2018			2017
	(in thousands)
Assets and Obligations
Change in benefit obligation:
Projected benefit obligation:
Beginning of year	$	6,177		$	5,510
Service cost		39			34
Interest cost		196			201
Actuarial loss		25			398
Special termination benefits		3,708			591
Benefits paid		(889	)		(557	)
End of year		9,256			6,177
Change in plan assets:
Fair value of plan assets:
Beginning of year		—			—
Company contributions		889			557
Benefits paid		(889	)		(557	)
End of year		—			—
Funded status	$	(9,256	)	$	(6,177	)

The following table provides amounts recorded within the account line items of financial position as of December 31:

	2018			2017
	(in thousands)
Accrued employees’ compensation and withholdings	$	(1,310	)	$	(591	)
Retirement plans liability		(7,946	)		(5,586	)
Funded status	$	(9,256	)	$	(6,177	)

The following table provides amounts recognized in accumulated other comprehensive income as of December 31:

	2018			2017
	(in thousands)
Prior service credit, before tax	$	(249	)	$	(622	)
Deferred taxes		(1,641	)		(1,472	)
Total recognized in other comprehensive income, net of tax	$	(1,890	)	$	(2,094	)

The estimated portion of prior service credit remaining in accumulated other comprehensive income that is expected to be recognized as a component of net periodic postretirement benefit income in 2019 is $(0.2) million.

Expense

For the years ended December 31, 2018, 2017, and 2016, Teradyne’s net periodic postretirement benefit cost (income) was comprised of the following:

	2018			2017			2016
	(in thousands)
Components of Net Periodic Postretirement Benefit Cost (income):
Service cost	$	39		$	34		$	37
Interest cost		196			201			218
Amortization of prior service credit		(373	)		(496	)		(607	)
Net actuarial loss		25			398			5
Special termination benefits		3,708			591			—
Total net periodic postretirement benefit cost (income)		3,595			728			(347	)
Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
Prior service cost		—			—			(93	)
Reversal of amortization items:
Prior service credit		373			496			607
Total recognized in other comprehensive income		373			496			514
Total recognized in net periodic postretirement benefit cost (income) and other comprehensive income	$	3,968		$	1,224		$	167

Weighted Average Assumptions to Determine Net Periodic Postretirement Benefit Income as of January 1:

	2018			2017			2016
Discount rate		3.4	%		3.9	%		3.9	%
Initial health care cost trend rate		7.9			7.3			7.5
Ultimate health care cost trend rate		4.5			5.0			5.0
Year in which ultimate health care cost trend rate is reached		2026			2023			2023

Weighted Average Assumptions to Determine Postretirement Benefit Obligation as of December 31:

	2018			2017			2016
Discount rate		4.0	%		3.4	%		3.9	%
Initial medical trend		7.5			7.9			7.3
Ultimate health care trend		4.5			4.5			5.0
Medical cost trend rate decrease to ultimate rate in year		2026			2026			2023

Assumed health care trend rates could have a significant effect on the amounts reported for health care plans. A one percentage point change in the assumed health care cost trend rates for the year ended December 31, 2018 would have the following effects:

	1 Percentage Point Increase		1 Percentage Point Decrease
	(in thousands)
Effect on total service and interest cost components	$	7	$	(7	)
Effect on postretirement benefit obligations		181		(171	)

Expected Future Benefit Payments

Future benefit payments are expected to be paid as follows:

	Benefit Payments
	(in thousands)
2019	$	1,310
2020		1,234
2021		1,181
2022		984
2023		811
2024-2028		2,364