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Employee Benefit Plans | 12 Months Ended
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Dec. 31, 2020
Compensation And Retirement Disclosure [Abstract] |
Employee Benefit Plans | 11. Employee Benefit Plans Ceridian maintains numerous benefit plans for current and former employees. As of December 31, 2020, our current active benefit plans include defined contribution plans for substantially all employees. The majority of our defined benefit plans have been frozen. Defined Contribution Plans Ceridian maintains defined contribution plans that provide retirement benefits to substantially all of our employees. Contributions are based upon the contractual obligations of each respective plan. We recognized expense of $11.1 million, $9.8 million, and $8.4 million for the years ended December 31, 2020, 2019, and 2018, respectively, related to employer contributions to these plans. Defined Benefit Plans Ceridian maintains defined benefit pension plans covering certain of our current and former U.S. employees (the U.S. pension plan and nonqualified defined benefit plan, collectively referred to as our “defined benefit plans”), as well as other postretirement benefit plans for certain U.S. retired employees that include heath care and life insurance benefits. Pension Benefits The largest defined benefit pension plan (the “U.S. pension plan”) is a defined benefit plan for certain current and former U.S. employees that closed to new participants on January 2, 1995. In 2007, the U.S. pension plan was amended (1) to exclude from further participation any participant or former participant who was not employed by Ceridian or another participating employer on January 1, 2008, (2) to discontinue participant contributions, and (3) to freeze the accrual of additional benefits as of December 31, 2007. The measurement date for pension benefit plans is December 31. Assets of the U.S. pension plan are held in an irrevocable trust and do not include any Ceridian securities. Benefits under this plan are generally calculated on final or career average earnings and years of participation in the plan. Most participating employees were required to permit salary reduction contributions to the plan on their behalf by the employer as a condition of active participation. Retirees and other former employees are inactive participants in this plan and constitute approximately 99% of the plan participants. This plan is funded in accordance with funding requirements under the Employee Retirement Income Security Act of 1974, based on determinations of a third-party consulting actuary. Investment of the U.S. pension plan assets in Ceridian securities is prohibited by the investment policy. In 2020, we contributed $105.0 million to the U.S. defined benefit plan, which represented $17.0 million of required minimum contributions and $88.0 million of voluntary contributions. Ceridian also sponsors a nonqualified supplemental defined benefit plan (the “nonqualified defined benefit plan”), which is unfunded and provides benefits to selected U.S. employees in addition to the U.S. defined benefit plan. We made contributions to the nonqualified defined benefit plan amounting to $1.9 million in 2020 and expect to make contributions of $1.6 million during 2021. We account for our defined benefit plans using actuarial models. These models use an attribution approach that generally spreads the effect of individual events over the estimated life expectancy of the employees in such plans. These events include plan amendments and changes in actuarial assumptions such as the expected long-term rate of return on plan assets, discount rate related to the benefit obligation, and mortality rates. One of the principal components of the net periodic pension calculation is the expected long-term rate of return on plan assets. The required use of expected long-term rate of return on plan assets may result in recognized pension income that is greater or less than the actual returns of those plan assets in any given year. Over time, however, the expected long-term returns are designed to approximate the actual long-term returns that contribute to the settlement of the liability. Differences between actual and expected returns are recognized in the net periodic pension calculation over three years. We use long-term historical actual return information, the mix of investments that comprise plan assets, and future estimates of long-term investment returns by reference to external sources to develop our expected return on plan assets. The discount rate assumption is used to determine the benefit obligation and the interest portion of the net periodic pension cost (credit) for the following year. We utilize a full yield curve approach for our discount rate assumption by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. As of December 31, 2020, a 25 basis point decrease in the discount rate would result in a $0.3 million decrease to expense for all pension plans. At December 31, 2020, we updated our mortality assumptions utilizing a new improvement scale issued by the Society of Actuaries in October 2020, which resulted in a $6.0 million reduction in the projected benefit obligation. At December 31, 2019, we updated our mortality assumptions utilizing an improvement scale issued by the Society of Actuaries in October 2019, which resulted in a $8.5 million reduction in the projected benefit obligation. The funded status of defined benefit plans represents the difference between the projected benefit obligation (“PBO”) and the plan assets at fair value. The fair value of plan assets exceeded the PBO of defined benefit plans by $3.5 million at December 31, 2020; whereas the PBO exceeded the fair value of plan assets by $121.6 million at December 31, 2019. We are required to record the funded status as an asset or liability in our consolidated balance sheets and recognize the change in the funded status in comprehensive income, net of deferred income taxes. The projected future payments to participants from defined benefit plans are as follows:
Years Ending December 31, |  | Amount |
|  | (Dollars in millions) |
2021 |  | $ | 46.4 |
2022 |  |  | 44.4 |
2023 |  |  | 42.8 |
2024 |  |  | 41.2 |
2025 |  |  | 39.0 |
Next five years |  | $ | 166.9 |
The accompanying tables reflect the combined funded status and net periodic pension cost and combined supporting assumptions for the defined benefit elements of our defined benefit plans.
|  | Year Ended December 31, |
|  | 2020 |  |  | 2019 |
|  | (Dollars in millions) |
Funded Status of Defined Benefit Retirement Plans at Measurement Date |  |  |  |  |  |  |  |
Change in Projected Benefit Obligation During the Year: |  |  |  |  |  |  |  |
Projected benefit obligation at beginning of year |  | $ | 547.2 |  |  | $ | 527.4 |
Service cost |  |  | — |  |  |  | — |
Interest cost |  |  | 12.7 |  |  |  | 18.2 |
Actuarial loss |  |  | 42.4 |  |  |  | 49.4 |
Benefits paid and plan expenses |  |  | (47.1 | ) |  |  | (47.8 | )
Projected benefit obligation at end of year |  | $ | 555.2 |  |  | $ | 547.2 |
Change in Fair Value of Plan Assets During the Year: |  |  |  |  |  |  |  |
Plan assets at fair value at beginning of year |  |  | 425.6 |  |  |  | 381.6 |
Actual return on plan assets |  |  | 73.3 |  |  |  | 72.0 |
Employer contributions |  |  | 106.9 |  |  |  | 19.8 |
Benefits paid and plan expenses |  |  | (47.1 | ) |  |  | (47.8 | )
Plan assets at fair value at end of year |  |  | 558.7 |  |  |  | 425.6 |
Funded status of plans |  | $ | 3.5 |  |  | $ | (121.6 | )
|  | December 31, |
|  | 2020 |  |  | 2019 |
|  | (Dollars in millions) |
Amounts recognized in Consolidated Balance Sheets |  |  |  |  |  |  |  |
Noncurrent asset |  | $ | 15.8 |  |  | $ | — |
Current liability |  |  | 1.5 |  |  |  | 18.7 |
Noncurrent liability |  |  | 10.8 |  |  |  | 102.9 |
Amounts recognized in Accumulated Other Comprehensive Loss |  |  |  |  |  |  |  |
Accumulated other comprehensive loss, net of tax of $51.4 million and $57.8 million, respectively (a) |  | $ | 163.3 |  |  | $ | 180.6 |
(a) | A cumulative effect adjustment of $30.8 million related to the adoption of ASC 2018-02 was recorded within accumulated other comprehensive loss, net of tax during the year ended December 31, 2019.
A significant component of the overall increase in the Company’s benefit obligation for the year ended December 31, 2020 was primarily due to the change in discount rates, which decreased from 2.81% at December 31, 2019 to 1.87% at December 31, 2020. The other comprehensive (income) loss related to pension benefit plans was as follows:
|  | Year Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
|  | (Dollars in millions) |
Net actuarial (gain) loss |  | $ | (8.0 | ) |  | $ | 1.0 |  |  | $ | 21.4 |
Amortization of net actuarial loss |  |  | (15.7 | ) |  |  | (12.7 | ) |  |  | (14.2 | )
Tax expense |  |  | 6.4 |  |  |  | 2.9 |  |  |  | — |
Other comprehensive loss (income), net of tax |  | $ | (17.3 | ) |  | $ | (8.8 | ) |  | $ | 7.2 |
|  | Year Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Assumptions Used in Calculations |  |  |  |  |  |  |  |  |  |  |  |
Discount rate used to determine net benefit cost |  |  | 2.81 | % |  |  | 3.92 | % |  |  | 3.25 | %
Expected return on plan assets |  |  | 5.70 | % |  |  | 6.00 | % |  |  | 6.30 | %
Discount rate used to determine benefit obligations |  |  | 1.87 | % |  |  | 2.81 | % |  |  | 3.92 | %
|  | Year Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
|  | (Dollars in millions) |
Net Periodic Pension Cost |  |  |  |  |  |  |  |  |  |  |  |
Interest cost |  | $ | 12.7 |  |  | $ | 18.2 |  |  | $ | 16.3 |
Actuarial loss amortization |  |  | 15.7 |  |  |  | 12.7 |  |  |  | 14.2 |
Less: Expected return on plan assets |  |  | (22.9 | ) |  |  | (23.6 | ) |  |  | (25.8 | )
Net periodic pension cost |  | $ | 5.5 |  |  | $ | 7.3 |  |  | $ | 4.7 |
The accumulated benefit obligation of defined benefit plans was $555.2 million and $547.2 million as of December 31, 2020, and 2019, respectively. Our overall investment strategy for the U.S. pension plan is to achieve a mix of approximately 83% for liability hedging purposes, 15% of investments for long term growth, and 2% for near-term benefit payments. Target asset allocations are based upon actuarial and capital market studies performed by experienced outside consultants. The target allocations for the long term growth assets are 62% public equity, 25% fixed income, and 13% alternative investments. Specifically, the target allocation is managed through investments in fixed income securities, equity funds, collective investment funds, partnerships and other investment types. The underlying equity securities include exposure to large/mid-cap companies and small-cap companies. Fixed income securities include corporate debt, mortgage-backed securities, U.S. Treasury and U.S. agency debt, emerging market debt, and high yield debt securities. The alternative investment strategy is allocated to investments in hedge funds. The liability hedging portfolio fair value is intended to move in a direction that partially offsets the increase or decrease in the liabilities resulting from changes in interest rates. To achieve this objective, the portfolio will invest in corporate debt securities, U.S. Treasury strips and various interest rate derivatives contracts. We hire outside managers to manage all assets of the U.S. defined benefit plan. In determining the fair values of the defined benefit plan’s assets, we calculate the fair value of certain investments using net asset value ("NAV") per share. Collective investment funds are valued at the NAV, which is based on the readily determinable fair value of the underlying securities owned by the fund. The NAV unit price is quoted on a private market or one that is not active. Partnerships consist primarily of a bond fund partnership valued at the NAV as reported by the fund manager and an investment in a venture capital fund valued by an independent appraisal. The NAV represents the value at which the defined benefit plan initiates a transaction. These investments do not have any significant unfunded commitments, conditions or restrictions on redemption, or any other significant restriction on their sale. The hedge fund of funds investment has a quarterly redemption restriction with a 65 day notice period. The fair values of our defined benefit plan’s assets by asset category were as follows:
|  | December 31, 2020 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  | (Dollars in millions) |
Investments, at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short-term investments |  | $ | 83.5 |  |  | $ | — |  |  | $ | — |  |  | $ | 83.5 |
Government securities |  |  | — |  |  |  | 46.7 |  |  |  | — |  |  |  | 46.7 |
Corporate debt securities |  |  | — |  |  |  | 322.4 |  |  |  | — |  |  |  | 322.4 |
Collective investment funds |  |  | — |  |  | 106.1 |  |  |  | — |  |  |  | 106.1 |
Total investments, at fair value |  | $ | 83.5 |  |  | $ | 475.2 |  |  | $ | — |  |  | $ | 558.7 |
|  | December 31, 2019 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  | (Dollars in millions) |
Investments, at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short-term investments |  | $ | 17.5 |  |  | $ | — |  |  | $ | — |  |  | $ | 17.5 |
Government securities |  |  | — |  |  |  | 137.2 |  |  |  | — |  |  |  | 137.2 |
Corporate debt securities |  |  | — |  |  |  | 19.7 |  |  |  | — |  |  |  | 19.7 |
Collective investment funds |  |  | — |  |  | 251.2 |  |  |  | — |  |  |  | 251.2 |
Total investments, at fair value |  | $ | 17.5 |  |  | $ | 408.1 |  |  | $ | — |  |  | $ | 425.6 |
Postretirement Benefits Ceridian provides health care and life insurance benefits for eligible retired employees, including individuals who retired from operations we subsequently sold or discontinued. Ceridian sponsors several health care plans in the United States for both pre- and post-age 65 retirees. The contributions to these plans differ for various groups of retirees and future retirees. Most retirees outside of the United States are covered by governmental health care programs, and our cost is not significant. The measurement date for postretirement benefit plans is December 31. The discount rate assumption is used to determine the benefit obligation and the interest portion of the net periodic postretirement cost (credit) for the following year. We utilize a full yield curve approach for our discount rate assumption by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. As of December 31, 2020, a 25 basis point decrease in the discount rate would result in an immaterial impact on expense for the postretirement plan. The accompanying tables present the amounts and changes in the aggregate benefit obligation and the components of net periodic postretirement benefit cost for U.S. plans. We fund these costs as they become due.
|  | Year Ended December 31, |
|  | 2020 |  |  | 2019 |
|  | (Dollars in millions) |
Funded Status of Postretirement Health Care and Life Insurance Plans |  |  |  |  |  |  |  |
Change in Benefit Obligation: |  |  |  |  |  |  |  |
At beginning of year |  | $ | 15.4 |  |  | $ | 16.8 |
Interest cost |  |  | 0.3 |  |  |  | 0.5 |
Participant contributions |  |  | 0.3 |  |  |  | 0.4 |
Actuarial gain |  |  | — |  |  |  | (0.7 | )
Benefits paid |  |  | (1.9 | ) |  |  | (1.6 | )
At end of year |  | $ | 14.1 |  |  | $ | 15.4 |
Change in Plan Assets: |  |  |  |  |  |  |  |
At beginning of year |  | $ | — |  |  | $ | — |
Company contributions |  |  | 1.6 |  |  |  | 1.2 |
Participant contributions |  |  | 0.3 |  |  |  | 0.4 |
Benefits paid |  |  | (1.9 | ) |  |  | (1.6 | )
At end of year |  |  | — |  |  |  | — |
Funded Status |  | $ | (14.1 | ) |  | $ | (15.4 | )
|  | December 31, |
|  | 2020 |  |  | 2019 |
|  | (Dollars in millions) |
Amounts recognized in Consolidated Balance Sheets |  |  |  |  |  |  |  |
Current liability |  | $ | 1.9 |  |  | $ | 2.1 |
Noncurrent liability |  |  | 12.2 |  |  |  | 13.3 |
Amounts recognized in Accumulated Other Comprehensive Loss |  |  |  |  |  |  |  |
Accumulated other comprehensive income, net of tax of $(5.4) million and $(6.1) million, respectively (a) |  | $ | (8.6 | ) |  | $ | (10.4 | )
(a) | A cumulative effect adjustment of $3.3 million related to the adoption of ASU 2018-02 was recorded within accumulated other comprehensive income, net of tax during the year ended December 31, 2019.
The other comprehensive (income) loss related to postretirement benefits was as follows:
|  | Year Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
|  | (Dollars in millions) |
Net actuarial gain |  | $ | — |  |  | $ | (0.7 | ) |  | $ | (2.1 | )
Amortization of net actuarial gain |  |  | 2.5 |  |  |  | 2.6 |  |  |  | 2.5 |
Tax benefit |  |  | (0.7 | ) |  |  | (0.5 | ) |  |  | — |
Other comprehensive loss, net of tax |  | $ | 1.8 |  |  | $ | 1.4 |  |  | $ | 0.4 |
|  | Year Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
|  | (Dollars in millions) |
Net Periodic Postretirement Benefit |  |  |  |  |  |  |  |  |  |  |  |
Interest cost |  | $ | 0.3 |  |  | $ | 0.5 |  |  | $ | 0.5 |
Actuarial gain amortization |  |  | (2.2 | ) |  |  | (2.3 | ) |  |  | (2.2 | )
Prior service credit amortization |  |  | (0.3 | ) |  |  | (0.3 | ) |  |  | (0.3 | )
Net periodic postretirement benefit gain |  | $ | (2.2 | ) |  | $ | (2.1 | ) |  | $ | (2.0 | )
The assumed health care cost trend rate represents the rate at which health care costs are assumed to increase. The assumed health care cost trend rate used in measuring the benefit obligation in 2020 is 6.4% for pre-age 65 retirees and 7.1% for post-age 65 retirees. These rates are assumed to decrease gradually to the ultimate health care cost trend rate of 4.5% in 2028 for both groups.
|  | Year Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Assumptions Used in Calculations |  |  |  |  |  |  |  |  |  |  |  |
Weighted average discount rate used to determine net periodic postretirement cost (credit) |  |  | 2.52 | % |  |  | 3.70 | % |  |  | 3.01 | %
Weighted average discount rate used to determine benefit obligation at measurement date |  |  | 1.42 | % |  |  | 2.52 | % |  |  | 3.70 | %
The projected future postretirement benefit payments and future receipts from the federal subsidy for each of the next five years and the five-year period following are as follows:
Years Ending December 31, |  | Payments |  |  | Receipts |
|  | (Dollars in millions) |
2021 |  | $ | 2.0 |  |  | $ | — |
2022 |  |  | 1.7 |  |  |  | — |
2023 |  |  | 1.5 |  |  |  | — |
2024 |  |  | 1.4 |  |  |  | — |
2025 |  |  | 1.3 |  |  |  | — |
Next five years |  | $ | 4.4 |  |  | $ | 0.1 |

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