EMPLOYEE BENEFIT PLANS

Pension Plans

The Charles River Laboratories, Inc. Pension Plan (U.S. Pension Plan) is a qualified, non-contributory defined benefit plan covering certain U.S. employees. Effective 2002, the U.S. Pension Plan was amended to exclude new participants from joining and in 2008 the accrual of benefits was frozen. On January 31, 2019, the Company commenced the process to terminate the U.S. Pension Plan and expects to complete the termination process over the next two years. As part of the planned termination, the Company re-balanced assets to a target asset allocation of 100% fixed income investments. The change in U.S. Pension Plan investments is intended to provide for a better matching of assets to the characteristics of the liabilities. The Company intends to take further actions to reduce the volatility of the value of pension assets relative to pension liabilities and to settle remaining liabilities. This includes making such contributions to the U.S. Pension Plan as may be necessary to settle all liabilities, including making lump sum distributions to U.S. Pension Plan participants and purchasing annuity contracts to cover vested benefits for participants who decline to elect a lump sum distribution.

The Charles River Pension Plan is a defined contribution and defined benefit pension plan covering certain U.K. employees. Benefits are based on participants’ final pensionable salary and years of service. Participants’ rights vest immediately. Effective December 31, 2002, the plan was amended to exclude new participants from joining the defined benefit section of the plan and a defined contribution section was established for new entrants. Contributions under the defined contribution plan are determined as a percentage of gross salary. In the fourth quarter of 2015, the Charles River Pension Plan was amended such that the members of the defined benefit section of the plan ceased to accrue additional benefits; however, their benefits continue to be adjusted for changes in their final pensionable salary or a specified inflation index, as applicable.

In addition, the Company has several defined benefit plans in certain other countries in which it maintains an operating presence, including Canada, France, Germany, Japan, Italy, and the Netherlands.

Charles River Laboratories Deferred Compensation Plan and Executive Supplemental Life Insurance Retirement Plan

The Company maintains a non-qualified deferred compensation plan, known as the Charles River Laboratories Deferred Compensation Plan (DCP), which allows a select group of eligible employees to defer a portion of their compensation. At the present time, no contributions are credited to the DCP, except as set forth below. Participants must specify the distribution date for deferred amounts at the time of deferral, in accordance with applicable IRS regulations. Generally, amounts may be paid in lump sum or installments upon retirement or termination of employment, or later if the employee terminates employment after age 55 and before age 65. Amounts may also be distributed during employment, subject to a minimum deferral requirement of three years.

The Company provides certain active employees an annual contribution into their DCP account of 10% of the employee’s base salary plus the lesser of their target annual bonus or actual annual bonus.

In addition to the DCP, certain officers and key employees also participate, or in the past participated, in the Company’s Executive Supplemental Life Insurance Retirement Plan (ESLIRP), which is a non-funded, non-qualified arrangement. Annual benefits under this plan will equal a percentage of the highest five consecutive years of compensation, offset by amounts payable under the CRL Pension Plan and Social Security. In connection with the establishment of the DCP, certain active ESLIRP participants, who agreed to convert their accrued ESLIRP benefit to a comparable deferred compensation benefit, discontinued their direct participation in the ESLIRP. Instead, the present values of the accrued benefits of ESLIRP participants were credited to their DCP accounts, and future accruals are converted to present values and credited to their DCP accounts annually.

The net periodic benefit costs associated with these plans, including the ESLIRP, for fiscal years 2018, 2017 and 2016 totaled $2.9 million, $2.3 million and $2.2 million, respectively.

The Company has invested in several corporate-owned key-person life insurance policies with the intention of using these investments to fund the ESLIRP and the DCP. Participants have no interest in any such investments. As of December 29, 2018 and December 30, 2017, the cash surrender value of these life insurance policies were $32.3 million and $34.0 million, respectively.

The following table provides a reconciliation of benefit obligations and plan assets of the Company’s pension, DCP and ESLIRP plans:



	December 29, 2018			December 30, 2017
	(in thousands)
Change in projected benefit obligations:
Benefit obligation at beginning of year	$	392,964		$	379,942
Service cost	2,612			3,110
Interest cost	10,850			11,642
Other	1,499			—
Benefit payments	(8,886		)	(9,665		)
Plan amendments	104			(1		)
Actuarial gain	(21,168		)	(15,724		)
Administrative expenses paid	(195		)	(698		)
Effect of foreign exchange	(14,975		)	24,358
Benefit obligation at end of year	$	362,805		$	392,964
Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	304,325		$	256,903
Actual return on plan assets	(7,419		)	33,558
Employer contributions	31,174			5,165
Benefit payments	(8,886		)	(9,665		)
Administrative expenses paid	(195		)	(698		)
Effect of foreign exchange	(13,290		)	19,062
Fair value of plan assets at end of year	$	305,709		$	304,325

Net balance sheet liability	$	57,096		$	88,639

Amounts recognized in balance sheet:
Noncurrent assets	$	3,280		$	1,169
Current liabilities	1,095			1,228
Noncurrent liabilities	59,281			88,580

Amounts recognized in accumulated other comprehensive loss related to the Company’s pension, DCP and ESLIRP plans are as follows:



	Fiscal Year
	2018			2017
	(in thousands)
Net actuarial loss	$	93,483		$	94,705
Net prior service cost (credit)	(2,585		)	(3,203		)
Net amount recognized	$	90,898		$	91,502

The accumulated benefit obligation and fair value of plan assets for the Company’s pension, DCP and ESLIRP plans with accumulated benefit obligations in excess of plan assets are as follows:



	December 29, 2018		December 30, 2017
	(in thousands)
Accumulated benefit obligation	$	254,138	$	359,965
Fair value of plan assets	207,538		285,609

The projected benefit obligation and fair value of plan assets for the Company’s pension, DCP and ESLIRP plans with projected benefit obligations in excess of plan assets are as follows:



	December 29, 2018		December 30, 2017
	(in thousands)
Projected benefit obligation	$	273,625	$	381,960
Fair value of plan assets	213,249		292,152

The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year are as follows:



	December 29, 2018
	(in thousands)
Amortization of net actuarial loss	$	1,954
Amortization of net prior service credit	(486		)

Components of net periodic benefit cost for the Company’s pension, DCP and ESLIRP plans are as follows:



	Fiscal Year
	2018			2017			2016
	(in thousands)
Service cost	$	2,612		$	3,110		$	2,453
Interest cost	10,850			11,642			12,046
Expected return on plan assets	(15,516		)	(14,249		)	(14,164		)
Amortization of prior service cost (credit)	(514		)	(496		)	(292		)
Amortization of net loss (gain)	2,990			3,845			2,003
Curtailment	—			—			(279		)
Settlements	—			—			788
Other	910			—			—
Net periodic cost (benefit)	$	1,332		$	3,852		$	2,555

Assumptions

Weighted-average assumptions used to determine projected benefit obligations are as follows:



	December 29, 2018		December 30, 2017
Discount rate	3.21	%	2.82	%
Rate of compensation increase	3.23	%	3.16	%

Weighted-average assumptions used to determine net periodic benefit cost are as follows:



	December 29, 2018		December 30, 2017		December 31, 2016
Discount rate	2.82	%	3.01	%	3.89	%
Expected long-term return on plan assets	5.18	%	5.41	%	5.83	%
Rate of compensation increase	3.16	%	3.25	%	3.17	%

A 0.5% decrease in the expected rate of return would increase annual pension expense by $1.5 million.

Plan Assets

The Company invests its pension assets with the objective of achieving a total long-term rate of return sufficient to fund future pension obligations and to minimize future pension contributions. The Company is willing to tolerate a commensurate level of risk to achieve this objective. The Company controls its risk by maintaining a diversified portfolio of asset classes. Plan assets did not include any of the Company’s common stock as of December 29, 2018 or December 30, 2017. The weighted-average target asset allocations are 28.5% to equity securities, 35.8% to fixed income securities and 35.7% to other securities.

The fair value of the Company’s pension plan assets by asset category are as follows:



	December 29, 2018								December 30, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)
Cash	$	7,317	$	—	$	—	$	7,317	$	564	$	—	$	—	$	564
Equity securities ⁽¹⁾	72,237		—		—		72,237		88,854		—		—		88,854
Debt securities ⁽²⁾	17,147		4,100		—		21,247		18,485		4,117		—		22,602
Mutual funds ⁽³⁾	86,282		59,984		—		146,266		74,708		66,656		—		141,364
Other ⁽⁴⁾	718		56,283		1,641		58,642		472		48,713		1,756		50,941
Total	$	183,701	$	120,367	$	1,641	$	305,709	$	183,083	$	119,486	$	1,756	$	304,325
⁽¹⁾ This category comprises equity securities held by non-U.S. pension plans valued at the quoted closing price, and translated into U.S. dollars using a foreign currency exchange rate at year end.
⁽²⁾ This category comprises debt securities held by non-U.S. pension plans valued at the quoted closing price, and translated into U.S. dollars using a foreign currency exchange rate at year end.
⁽³⁾ This category comprises mutual funds valued at the net asset value of shares held at year end.
⁽⁴⁾ This category mainly comprises fixed income securities tied to various UK government bond yields held by non-US pension plans valued at the net asset value of shares held at year-end, and translated into U.S. dollars using a foreign currency exchange rate at year end.

The activity within the Level 3 pension plan assets was non-significant during the periods presented.

During fiscal year 2018, the Company contributed $29.9 million to the pension plans and $1.3 million directly to certain participants outside of plan assets. The Company expects to contribute approximately $0.9 million in fiscal year 2019.

Expected benefit payments are estimated using the same assumptions used in determining the Company’s benefit obligation as of December 29, 2018. Benefit payments will depend on future employment and compensation levels, among other factors, and changes in any of these factors could significantly affect these estimated future benefit payments. Estimated future benefit payments during the next five years and in the aggregate for fiscal years thereafter, are as follows:



Fiscal Year	Pension Plans
	(in thousands)
2019	$	9,311
2020	9,754
2021	10,374
2022	11,076
2023	35,599
Thereafter	73,903

Post-Retirement Health and Life Insurance Plans

The Company’s Canadian location offers post-retirement life insurance benefits to its employees and post-retirement medical and dental insurance coverage to certain executives. The plan is non-contributory and unfunded. As of December 29, 2018 and December 30, 2017, the accumulated benefit obligation related to the plan was $1.5 million and $1.4 million, respectively. The amounts included in other accumulated comprehensive income as well as expenses related to the plan were non-significant for fiscal years 2018, 2017 and 2016.

Charles River Laboratories Employee Savings Plan

The Charles River Laboratories Employee Savings Plan is a defined contribution plan in the form of a qualified 401(k) plan in which substantially all U.S. employees are eligible to participate upon employment. The plan contains a provision whereby the Company matches a percentage of employee contributions. During fiscal years 2018, 2017 and 2016, the costs associated with this defined contribution plan totaled $13.4 million, $11.6 million and $6.2 million, respectively.