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Pension and Other Post-Employment Plans

12 Months Ended

Dec. 31, 2019

PENSION AND OTHER POST-EMPLOYMENT PLANS

Defined Benefit Pension Plans

The Company and its subsidiaries sponsor two defined benefit pension plans covering certain salaried and hourly employees. These plans have been closed to new participants for a number of years. Benefits under these plans are primarily based on final average compensation and years of service as defined within the provisions of the individual plans. As a result of plan amendments, the latest of which was in 2008, the only new benefits that were being accrued through the end of 2016 were salary increases for a limited group of participants. Those benefits ceased at the end of 2016, at which point all existing plans became fully frozen.

In October 2018, the U.K. High Court ruled that certain formulas used to calculate guaranteed minimum pension (“GMP”) benefits violated gender-pay equality laws. The Company is currently evaluating the impact of the ruling on its non-U.S. benefit plan’s GMP benefit formulas and monitoring for additional regulatory and interpretive developments. While the non-U.S. benefit plan has not yet been amended to address the ruling, the Company has recognized the estimated impact, resulting in a $2.6 million increase to the benefit obligation with a corresponding adjustment to Prior service costs within Accumulated other comprehensive loss as of December 31, 2018. The prior service costs will be amortized into net periodic benefit cost over the remaining average life expectancy of plan participants.

In September 2017, the Company executed an amendment to its U.S. defined benefit pension plan, which enabled the Company to announce a limited-time voluntary lump-sum pension offering to eligible, terminated, vested plan participants. In connection with the offering, 516 individuals elected to receive a lump-sum settlement payment. In the aggregate, the Company paid a total of $13.7 million in lump-sum benefit payments during the year ended December 31, 2017, using assets of the plan. As total benefit payments during the year ended December 31, 2017 exceeded the sum of the service and interest cost, the Company was required to measure the liabilities of the benefit plans and recognize a settlement charge of $6.1 million, in accordance with ASC 715, Compensation – Retirement Benefits.

The following table summarizes net periodic pension expense (benefit) for the U.S. and non-U.S. benefit plans:



	U.S. Benefit Plan									Non-U.S. Benefit Plan
(in millions)	2019			2018			2017			2019			2018			2017
Company-sponsored plans:
Service cost	$	—		$	—		$	—		$	0.2		$	0.2		$	0.2
Interest cost	6.8			6.4			7.6			1.4			1.3			1.4
Expected return on plan assets	(8.7		)	(8.7		)	(9.6		)	(2.0		)	(2.2		)	(2.1		)
Amortization of prior service costs	—			—			—			0.1			—			—
Amortization of actuarial losses	2.6			3.0			2.5			0.7			0.6			0.6
Settlement charge recognized	—			—			6.1			—			—			—
Net periodic pension expense (benefit)	$	0.7		$	0.7		$	6.6		$	0.4		$	(0.1	)	$	0.1

The items that comprise Net periodic pension expense (benefit), other than service cost, are included as a component of Other expense (income), net or Pension settlement charges, as applicable, on the Consolidated Statements of Operations.

The following table summarizes the weighted-average assumptions used in determining pension costs:



	U.S. Benefit Plan						Non-U.S. Benefit Plan
	2019		2018		2017		2019		2018		2017
Discount rate	4.4	%	3.7	%	4.3	%	2.8	%	2.5	%	2.6	%
Expected long-term rate of return on plan assets	7.0	%	7.0	%	7.1	%	4.2	%	4.2	%	4.2	%

The following table summarizes the changes in the projected benefit obligation and plan assets:



	U.S. Benefit Plan						Non-U.S. Benefit Plan
(in millions)	2019			2018			2019			2018
Benefit obligation, beginning of year	$	161.6		$	179.0		$	49.8		$	54.7
Service cost	—			—			0.2			0.2
Interest cost	6.8			6.4			1.4			1.3
Actuarial loss (gain)	10.8			(13.9		)	2.0			(2.2		)
Benefits and expenses paid	(9.8		)	(9.9		)	(3.1		)	(3.8		)
Amendments^(a)	—			—			—			2.6
Foreign currency translation	—			—			2.0			(3.0		)
Benefit obligation, end of year	$	169.4		$	161.6		$	52.3		$	49.8
Accumulated benefit obligation, end of year	$	169.4		$	161.6		$	52.3		$	49.8


(a)	While the non-U.S. benefit plan has not yet been amended, this component of the change to the benefit obligation of the non-U.S. benefit plan during the year ended December 31, 2018 represents the estimated impact of the U.K. High Court ruling, as described above.

The following table summarizes the weighted-average assumptions used in determining benefit obligations:



	U.S. Benefit Plan				Non-U.S. Benefit Plan
	2019		2018		2019		2018
Discount rate	3.5	%	4.4	%	2.0	%	2.8	%

The following summarizes the changes in the fair value of plan assets:



	U.S. Benefit Plan						Non-U.S. Benefit Plan
(in millions)	2019			2018			2019			2018
Fair value of plan assets, beginning of year	$	118.8		$	131.7		$	47.7		$	54.7
Actual return (loss) on plan assets^(a)	22.6			(10.0		)	7.2			(1.6		)
Company contribution	—			7.0			1.3			1.3
Benefits and expenses paid	(9.8		)	(9.9		)	(3.1		)	(3.8		)
Foreign currency translation	—			—			2.1			(2.9		)
Fair value of plan assets, end of year	$	131.6		$	118.8		$	55.2		$	47.7


(a)	Actual return (loss) on plan assets of the U.S. benefit plan for the years ended December 31, 2019 and 2018, was net of fees, commissions and other expenses paid from plan assets of $1.9 million and $1.8 million, respectively.

As more fully described within Note 18 – Fair Value Measurements, the Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value.

Following is a description of the valuation methodologies used for assets measured at fair value for the U.S. benefit plan:


•	Cash and cash equivalents are comprised of cash on deposit and a money market fund, that invests principally in short-term instruments. The money-market fund is valued at the net asset value (“NAV”) of the shares in the fund.

•

Equity investments represent domestic and foreign securities, including common stock, which are publicly traded on active exchanges and are valued based on quoted market prices. Certain equity securities, which are valued using a model that takes the underlying security’s “best” price, divides it by the applicable exchange rate and multiplies the result by a depository receipt factor, are categorized within Level 2 of the fair value hierarchy.

•

Fixed income investments include corporate bonds, asset-backed securities and treasury bonds. Corporate bonds are valued using pricing models that include bids provided by brokers or dealers, benchmark yields, base spreads and reported trades. Asset-backed securities are valued using models with readily observable data as inputs. Treasury bonds are valued based on quoted market prices in active markets.


•	Real estate investments include public real estate investment trusts (“REIT”) and exchange traded REIT funds, which are publicly traded on active exchanges and are valued based on quoted market prices.

Following is a description of the valuation methodologies used for assets measured at fair value for the non-U.S. benefit plan:


•	Diversified investment funds are valued based on a daily NAV per share measured by the fund sponsor and used as the basis for current transactions.


•	Fixed income investments include treasury securities, which are valued based on quoted market prices in active markets, and corporate bonds which are either valued based on quoted market prices in active markets or other readily observable market data.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following summarizes the Company’s pension assets in a three-tier fair value hierarchy for its benefit plans:



	U. S. Benefit Plan
	2019								2018
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	4.0	$	—	$	—	$	4.0	$	4.8	$	—	$	—	$	4.8
Equity investments:
U.S. Large Cap	46.1		—		—		46.1		36.0		—		—		36.0
U.S. Small and Mid Cap	23.8		—		—		23.8		19.6		—		—		19.6
Developed international	7.1		5.9		—		13.0		8.9		6.8		—		15.7
Emerging markets	10.2		0.5		—		10.7		10.1		0.8		—		10.9
Fixed income investments:
Government securities	10.5		—		—		10.5		8.2		—		—		8.2
Asset-backed securities	—		13.5		—		13.5		—		12.5		—		12.5
Corporate bonds	—		9.4		—		9.4		—		10.6		—		10.6
Other investments:
Real estate	0.4		—		—		0.4		0.3		—		—		0.3
Total assets at fair value ^(a)	$	102.1	$	29.3	$	—	$	131.4	$	87.9	$	30.7	$	—	$	118.6


(a)	Total assets at fair value in the table above exclude a net receivable of $0.2 million and $0.2 million at December 31, 2019 and 2018, respectively.



	Non-U. S. Benefit Plan
	2019								2018
(in millions)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	0.2	$	—	$	—	$	0.2	$	0.1	$	—	$	—	$	0.1
Diversified investment funds ^(a)	—		40.7		—		40.7		—		36.4		—		36.4
Fixed income investments:
Government securities	3.8		—		—		3.8		2.8		—		—		2.8
Corporate bonds	7.2		3.3		—		10.5		6.2		2.2		—		8.4
Total assets at fair value	$	11.2	$	44.0	$	—	$	55.2	$	9.1	$	38.6	$	—	$	47.7


(a)	These funds primarily invest in a diversified portfolio of equity securities and fixed income securities.

The Company maintains a structured investment strategy for the U.S. pension plan to improve alignment of assets and liabilities that includes: (i) maintaining a diversified portfolio that can provide a near-term weighted-average target return of approximately 7.0% or more, (ii) maintaining liquidity to meet obligations and (iii) prudently managing administrative and management costs. The target asset allocations for the U.S. pension plan are (i) between 53% and 73% in equity investments, (ii) between 25% and 35% in fixed income investments and (iii) between 0% and 20% in cash and cash equivalents. Other investments may include real estate investments and mutual funds investing in real estate, commodities or hedge funds.

The investment strategy for the non-U.S. pension plan is designed to achieve certain target asset allocations depending on the plan’s relative funded status. Plan assets for the non-U.S. benefit plan consist principally of a portfolio of diversified investment funds, U.K. government securities and corporate bonds. The target asset allocations for the non-U.S. benefit plan assets are generally between 65% and 75% in fixed income investments and between 25% and 35% in equity investments.

The following summarizes the funded status of the Company-sponsored plans:



	U.S. Benefit Plan						Non-U.S. Benefit Plan
(in millions)	2019			2018			2019		2018
Fair value of plan assets, end of year	$	131.6		$	118.8		$	55.2	$	47.7
Benefit obligation, end of year	169.4			161.6			52.3		49.8
Funded status, end of year	$	(37.8	)	$	(42.8	)	$	2.9	$	(2.1	)

The following summarizes the amounts recognized within our Consolidated Balance Sheets:



	U.S. Benefit Plan						Non-U.S. Benefit Plan
(in millions)	2019			2018			2019		2018
Amounts recognized in our Consolidated Balance Sheets include:
Deferred charges and other long-term assets	$	—		$	—		$	2.9	$	—
Long-term pension and other post-retirement benefit liabilities	(37.8		)	(42.8		)	—		(2.1		)
Net (liability) asset recorded	$	(37.8	)	$	(42.8	)	$	2.9	$	(2.1	)
Amounts recognized in Accumulated other comprehensive loss include:
Actuarial losses	$	76.2		$	81.9		$	14.6	$	17.8
Prior service costs	—			—			2.4		2.5
Net amount recognized, pre-tax	$	76.2		$	81.9		$	17.0	$	20.3

As the Company’s benefit plans are fully frozen, all plan participants are now considered to be inactive. As a result, the associated actuarial losses and prior service costs that are included in Accumulated other comprehensive loss are being amortized into net periodic benefit cost over the remaining average life expectancy of plan participants. The Company expects $3.7 million of the actuarial losses and $0.1 million of the prior service costs to be amortized from Accumulated other comprehensive loss into net periodic benefit cost in 2020.

In 2020, the Company currently expects to contribute up to $6.9 million to the U.S. benefit plan and up to $1.3 million to the non-U.S. benefit plan. Future contributions to the plans will be based on such factors as annual service cost, the financial return on plan assets, interest rate movements that affect discount rates applied to plan liabilities and the value of benefit payments made.

The following summarizes the benefits expected to be paid under the Company’s defined benefit plans in each of the next five years, and in aggregate for the five years thereafter:



(in millions)	U.S. Benefit Plan		Non-U.S. Benefit Plan
2020	$	9.7	$	2.6
2021	9.8		2.7
2022	10.0		2.8
2023	10.2		2.9
2024	10.5		3.0
2025-2029	52.6		16.5

Defined Contribution Retirement Plan

The Company also sponsors a defined contribution retirement plan (the “401(k) plan”) covering a majority of its employees. Participation is via automatic enrollment and employees may elect to opt out of the 401(k) plan. Company contributions to the 401(k) plan are based on an employee’s years of service, as well as the percentage of employee contributions. The Company’s cost of the 401(k) plan was $7.9 million in 2019, $7.2 million in 2018 and $6.9 million in 2017.

Deferred Compensation Plan

The Company also provides a deferred compensation plan to certain employees. The deferred compensation plan is a non-qualified, unfunded defined contribution plan, which provides participants with benefits that would have been provided under the 401(k) plan, but could not be provided due to compensation limits for qualified plans under the Internal Revenue Code. At December 31, 2019 and 2018, deferred compensation liabilities of $11.1 million and $7.5 million, respectively, were included on the Consolidated Balance Sheets, primarily within Long-term pension and other post-retirement benefit liabilities.

Multi-Employer Pension Plans

The Company also participates in two multi-employer pension plans that provide defined benefits to employees under U.S. collective bargaining agreements, as follows:

Pension Fund

EIN/Pension Plan Number

Pension Protection Act Zone Status

FIP/RP Status Pending/ Implemented ^(a)

Surcharge Imposed

Expiration of Collective Bargaining Agreement

2019

2018

IAM National Pension Fund ^(b)

51-6031295/002

Red

Green

RP Implemented ^(c)

Yes ^(c)

5/31/2021

Sheet Metal Workers’ National Pension Fund ^(b)

52-6112463/001

Yellow

FIP Implemented

6/27/2020


(a)	Indicates whether the plan has a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) which is either pending or has been implemented.


(b)	The plans’ year-end to which the zone status relates is December 31, 2019 and 2018.


(c)	The IAM National Pension Fund was initially certified in the Yellow Zone for 2019. In April 2019, the Trustees of the IAM National Pension Fund voluntarily elected to place the IAM National Pension Fund in the Red Zone, adopted a Rehabilitation Plan, and imposed a surcharge.

Contributions to these plans totaled $0.2 million, $0.2 million and $0.2 million for 2019, 2018 and 2017, respectively. The Company’s contributions do not represent more than 5% of the total contributions to the plans as indicated in their most recently available annual reports dated December 31, 2018.

The risks of participating in a multi-employer pension plan are different from a single-employer plan in that (i) assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers; (ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (iii) if the Company chooses to stop participating in the multi-employer pension plan, the Company may be required to pay the plan an amount based on the unfunded status of the plan, referred to as a withdrawal liability.