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Pensions and Postretirement Benefits | 12 Months Ended
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Dec. 31, 2021
Retirement Benefits [Abstract] |
Pensions and Postretirement Benefits |
14. | Pensions and Postretirement Benefits
We have non-contributory defined benefit pension plans covering eligible employees in the United States, Mexico, Taiwan and several European countries. Salaried employees’ benefit payments are generally determined using a formula that is based on an employee’s compensation and length of service. We closed our defined benefit pension plan for new salaried employees in the United States who joined the Company after January 1, 2006, and, effective January 1, 2007, benefits were frozen for all salaried employees who were not age 40 or older as of December 31, 2006 and benefits for all remaining eligible salaried employees were frozen as of January 1, 2021. Hourly employees’ benefit payments are generally determined using stated amounts for each year of service. Our employees also participate in voluntary contributory retirement savings plans for salaried and hourly employees maintained by us. Under these plans, eligible employees can receive matching contributions up to the first 6% of their eligible earnings. Effective January 1, 2007, those employees whose defined benefit pension plan benefits were frozen receive an additional 2% company contribution each year. Beginning on August 1, 2016, this additional contribution ceased being provided to future hires at the company, but was retained for those employees already receiving it. We recorded $10.6 million, $9.3 million and $11.7 million in expenses in 2021, 2020 and 2019, respectively, for matching contributions under these plans. Our general funding policy for qualified defined benefit pension plans historically has been to contribute amounts that are at least sufficient to satisfy regulatory funding standards. No contributions were made in 2021 or 2019, and in 2020, we contributed $4.0 million, in cash to our U.S. pension plans. The contribution was made in this year in order to meet a funding level sufficient to avoid variable fees from the PBGC on the underfunded portion of our pension liability. We do not anticipate making contributions in 2022 to our U.S. defined benefit pension plans and we expect to make total contributions of approximately $0.7 million in 2022 to the foreign pension plans. The projected benefit obligation and fair value of plan assets for the defined benefit pension plans with projected benefit obligations in excess of plan assets were $13.9 million and $1.0 million at December 31, 2021, and $15.3 million and $1.2 million at December 31, 2020, respectively. The accumulated benefit obligation and fair value of plan assets for the defined benefit pension plans with accumulated benefit obligations in excess of plan assets were $10.1 million and $1.0 million at December 31, 2021, and $11.1 million and $1.2 million at December 31, 2020, respectively. We provide, through non-qualified plans, supplemental pension benefits to a limited number of employees. Certain of our subsidiaries also sponsor unfunded postretirement plans that provide certain health-care and life insurance benefits to eligible employees. The health-care plans are contributory, with retiree contributions adjusted periodically, and contain other cost-sharing features, such as deductibles and coinsurance. The life insurance plans are generally noncontributory. The amounts included in “Other Benefits” in the following tables include the non-qualified plans and the other postretirement plans discussed above. The following table sets forth the changes in projected benefit obligations and plan assets of our defined benefit pension and other non-qualified and postretirement plans as of and for the years ended December 31, 2021 and 2020.
| Pension Benefits |  | Other Benefits
| 2021 |  | 2020 |  | 2021 |  | 2020
| (in millions)
Change in Projected Benefit Obligations |  |  |  |  |  |  |
Projected benefit obligations at beginning of year | $ | 350.7 |  |  | $ | 329.5 |  |  | $ | 3.8 |  |  | $ | 4.0 |
Service cost | 1.5 |  |  | 4.5 |  |  | — |  |  | — |
Interest cost | 9.0 |  |  | 10.4 |  |  | 0.1 |  |  | 0.1 |
Actuarial loss (gain) | (10.7) |  |  | 30.5 |  |  | (0.6) |  |  | 0.4 |
Settlements | — |  |  | — |  |  | (0.1) |  |  | (0.6) |
Benefits paid | (14.4) |  |  | (13.0) |  |  | (0.3) |  |  | (0.5) |
Curtailments | — |  |  | (5.1) |  |  | — |  |  | — |
Plan combination (acquisitions/divestitures) | — |  |  | (6.8) |  |  | — |  |  | — |
Other | (0.4) |  |  | 0.7 |  |  | 0.2 |  |  | 0.4 |
Projected benefit obligations at end of year | 335.7 |  |  | 350.7 |  |  | 3.1 |  |  | 3.8 |
Change in Plan Assets |  |  |  |  |  |  |
Fair value of plan assets at beginning of year | 353.4 |  |  | 313.5 |  |  |  |  |
Actual return on plan assets | 12.2 |  |  | 53.5 |  |  |  |  |
Administrative expenses | — |  |  | (0.7) |  |  |  |  |
Benefits paid | (14.4) |  |  | (13.0) |  |  |  |  |
Company contributions | 0.3 |  |  | 4.4 |  |  |  |  |
Plan combination (acquisitions/divestitures) | — |  |  | (4.1) |  |  |  |  |
Other | (0.1) |  |  | (0.2) |  |  |  |  |
Fair value of plan assets at end of year | 351.4 |  |  | 353.4 |  |  |  |  |
Funded Status at End of Year | $ | 15.7 |  |  | $ | 2.7 |  |  | $ | (3.1) |  |  | $ | (3.8) |
| Pension Benefits |  | Other Benefits
| 2021 |  | 2020 |  | 2021 |  | 2020
| (in millions)
Amounts Recognized in the Consolidated Balance Sheets |  |  |  |  |  |  |
Long-term assets | $ | 28.6 |  |  | $ | 16.8 |  |  | $ | — |  |  | $ | — |
Current liabilities | (0.9) |  |  | (0.5) |  |  | (0.1) |  |  | (0.3) |
Long-term liabilities | (12.0) |  |  | (13.6) |  |  | (3.0) |  |  | (3.5) |
| $ | 15.7 |  |  | $ | 2.7 |  |  | $ | (3.1) |  |  | $ | (3.8) |
Pre-tax charges recognized in accumulated other comprehensive income (loss) as of December 31, 2021 and 2020 consist of:
| Pension Benefits |  | Other Benefits
| 2021 |  | 2020 |  | 2021 |  | 2020
| (in millions)
Net actuarial (gain) loss | $ | 41.7 |  |  | $ | 47.1 |  |  | $ | (0.4) |  |  | $ | 0.2 |
Prior service cost | 0.9 |  |  | 0.6 |  |  | — |  |  | — |
| $ | 42.6 |  |  | $ | 47.7 |  |  | $ | (0.4) |  |  | $ | 0.2 |
The accumulated benefit obligation for all defined benefit pension plans was $331.9 million and $346.5 million at December 31, 2021 and 2020, respectively. The accumulated postretirement benefit obligation for all other postretirement benefit plans was $3.1 million and $3.8 million at December 31, 2021 and 2020, respectively. The following table sets forth the components of net periodic benefit cost and other changes in plan assets and benefit obligations recognized in other comprehensive income for our defined benefit pension and other non-qualified and postretirement plans for the years ended December 31, 2021, 2020 and 2019.
| Pension Benefits |  | Other Benefits
| 2021 |  | 2020 |  | 2019 |  | 2021 |  | 2020 |  | 2019
| (in millions)
Net Periodic Benefit Cost |  |  |  |  |  |  |  |  |  |  |
Service cost | $ | 1.5 |  |  | $ | 4.5 |  |  | $ | 4.4 |  |  | $ | — |  |  | $ | — |  |  | $ | 0.1 |
Interest cost | 9.0 |  |  | 10.4 |  |  | 12.2 |  |  | 0.1 |  |  | 0.1 |  |  | 0.1 |
Expected return on plan assets | (18.3) |  |  | (18.9) |  |  | (15.7) |  |  | — |  |  | — |  |  | — |
Amortization of prior service cost | 0.1 |  |  | 0.1 |  |  | 0.2 |  |  | — |  |  | — |  |  | 0.2 |
Amortization of net loss | 0.7 |  |  | 5.2 |  |  | 6.6 |  |  | 0.1 |  |  | 0.2 |  |  | — |
Settlements | — |  |  | — |  |  | — |  |  | — |  |  | (1.1) |  |  | — |
Curtailments | — |  |  | 0.3 |  |  | — |  |  | — |  |  | — |  |  | — |
Net periodic benefit cost | (7.0) |  |  | 1.6 |  |  | 7.7 |  |  | 0.2 |  |  | (0.8) |  |  | 0.4 |
| Pension Benefits |  | Other Benefits
| 2021 |  | 2020 |  | 2019 |  | 2021 |  | 2020 |  | 2019
| (in millions)
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income |  |  |  |  |  |  |  |  |  |  |
Net loss (gain) | (4.7) |  |  | (7.8) |  |  | 5.8 |  |  | (0.5) |  |  | 0.3 |  |  | (0.1) |
Prior service cost | 0.4 |  |  | (0.3) |  |  | 0.5 |  |  | — |  |  | — |  |  | — |
Amortization of net loss | (0.7) |  |  | (5.2) |  |  | (6.6) |  |  | (0.1) |  |  | (0.2) |  |  | — |
Amortization of prior service cost | (0.1) |  |  | (0.1) |  |  | (0.2) |  |  | — |  |  | — |  |  | (0.2) |
Settlements | — |  |  | — |  |  | — |  |  | — |  |  | 1.1 |  |  | — |
Curtailments | — |  |  | (0.3) |  |  | — |  |  | — |  |  | — |  |  | — |
Total recognized in other comprehensive income | (5.1) |  |  | (13.7) |  |  | (0.5) |  |  | (0.6) |  |  | 1.2 |  |  | (0.3) |
Total Recognized in Net Periodic Benefit Cost and Other Comprehensive Income | $ | (12.1) |  |  | $ | (12.1) |  |  | $ | 7.2 |  |  | $ | (0.4) |  |  | $ | 0.4 |  |  | $ | 0.1 |
Included in the net periodic benefit cost table above is $0.8 million for the year ended December 31, 2019 representing pension and other postretirement plan service cost related to our former Power Systems segment that is reported in income from discontinued operations in the accompanying Consolidated Statement of Operations for that year.
| Pension Benefits |  | Other Benefits
| 2021 |  | 2020 |  | 2019 |  | 2021 |  | 2020 |  | 2019
Weighted-Average Assumptions Used to Determine Benefit Obligations at December 31 |  |  |  |  |  |  |  |  |  |  |
Discount rate | 3.0 | % |  | 2.625 | % |  | 3.375 | % |  | 3.0 | % |  | 2.625 | % |  | 3.375 | %
Rate of compensation increase | N/A |  | 3.0 | % |  | 3.0 | % |  | N/A |  | 4.0 | % |  | 4.0 | %
Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31 |  |  |  |  |  |  |  |  |  |  |
Discount rate | 2.625 | % |  | 3.375 | % |  | 4.38 | % |  | 2.625 | % |  | 3.375 | % |  | 4.38 | %
Expected long-term return on plan assets | 5.3 | % |  | 6.0 | % |  | 6.0 | % |  | — |  |  | — |  |  | — |
Rate of compensation increase | 3.0 | % |  | 3.0 | % |  | 3.0 | % |  | 4.0 | % |  | 4.0 | % |  | 4.0 | %
The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. The discount rate was determined with a model that uses a theoretical portfolio of high quality corporate bonds specifically selected to produce cash flows closely related to how we would settle our retirement obligations. This produced a discount rate of 3.0% at December 31, 2021. As of the date of these financial statements, there are no known or anticipated changes in our discount rate assumption that will impact our pension expense in 2022. A 25 basis point decrease (increase) in our discount rate, holding constant our expected long-term return on plan assets and other assumptions, would decrease (increase) pension expense by approximately $0.2 million per year. The overall expected long-term rate of return on assets was determined based upon weighted-average historical returns over an extended period of time for the asset classes in which the plans invest according to our current investment policy. We use the Pri-2012 base mortality table with the MP-2021 projection scale to value our domestic pension liabilities.
Assumed Health Care Cost Trend Rates at December 31 | 2021 |  | 2020
Health care cost trend rate assumed for next year | 7.0 | % |  | 7.5 | %
Rate to which the cost trend rate is assumed to decline (the ultimate rate) | 4.5 | % |  | 4.5 | %
Year that the rate reaches the ultimate trend rate | 2027 |  | 2027
Plan Assets The asset allocation for pension plans at the end of 2021 and 2020, and the target allocation for 2022, by asset category are as follows:
| Target Allocation |  | Plan Assets at December 31,
| 2022 |  | 2021 |  | 2020
Asset Category |  |  |  |  |
Equity securities | 20 | % |  | 22 | % |  | 33 | %
Fixed income | 80 | % |  | 78 | % |  | 67 | %
| 100 | % |  | 100 | % |  | 100 | %
Our investment goal is to maximize the return on assets, over the long term, by investing in equities and fixed income investments while diversifying investments within each asset class to reduce the impact of losses in individual securities. Equity investments include a mix of U.S. large capitalization equities, U.S. small capitalization equities and non-U.S. equities. Fixed income investments include a mix of treasury obligations and high-quality money market instruments. The asset allocation policy is reviewed and any significant variation from the target asset allocation mix is rebalanced periodically. The plans have no direct investments in EnPro common stock. The plans invest exclusively in mutual funds whose holdings are marketable securities traded on recognized markets and, as a result, would be considered Level 1 assets. The investment portfolios of the various funds at December 31, 2021 and 2020 are summarized as follows:
| 2021 |  | 2020
| (in millions)
Mutual funds – U.S. equity | $ | 46.2 |  |  | $ | 68.3 |
Mutual funds – international equity | 30.6 |  |  | 46.9 |
Mutual funds - fixed income treasury and money market | 273.5 |  |  | 237.0 |
Cash equivalents | 1.1 |  |  | 1.2 |
| $ | 351.4 |  |  | $ | 353.4 |
Estimated Future Benefit Payments The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the following calendar years:
| Pension Benefits |  | Other Benefits
| (in millions)
2022 | $ | 15.2 |  |  | $ | 0.1 |
2023 | 15.8 |  |  | 1.8 |
2024 | 16.9 |  |  | 0.1 |
2025 | 18.1 |  |  | 0.1 |
2026 | 18.2 |  |  | 0.1 |
Years 2027 – 2031 | 98.1 |  |  | 0.5 |

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