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Employee Benefit Plans and Other Postretirement Benefits | 12 Months Ended
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Dec. 31, 2018
Retirement Benefits [Abstract] |
Employee Benefit Plans and Other Postretirement Benefits | Employee Benefit Plans and Other Postretirement Benefits The Company has a qualified defined benefit pension plan and postretirement healthcare benefit plans, which cover employees of the Motorcycles segment. The Company also has unfunded supplemental employee retirement plan agreements (SERPA) with certain employees which were instituted to replace benefits lost under the Tax Revenue Reconciliation Act of 1993. Pension benefits are based primarily on years of service and, for certain plans, levels of compensation. Employees are eligible to receive postretirement healthcare benefits upon attaining age 55 after rendering at least 10 years of service to the Company. Some of the plans require employee contributions to partially offset benefit costs. Obligations and Funded Status: The following table provides the changes in the benefit obligations, fair value of plan assets and funded status of the Company’s pension, SERPA and postretirement healthcare plans as of the Company’s December 31, 2018 and 2017 measurement dates (in thousands):
|  | Pension and SERPA Benefits |  | Postretirement Healthcare Benefits
|  | 2018 |  | 2017 |  | 2018 |  | 2017
Change in benefit obligation: |  |  |  |  |  |  |  |
Benefit obligation, beginning of period |  | $ | 2,201,021 |  |  | $ | 1,986,435 |  |  | $ | 338,488 |  |  | $ | 346,431 |
Service cost |  | 32,340 |  |  | 31,584 |  |  | 7,180 |  |  | 7,500 |
Interest cost |  | 82,778 |  |  | 85,076 |  |  | 11,556 |  |  | 13,648 |
Actuarial (gains) losses |  | (213,583 | ) |  | 195,444 |  |  | (42,039 | ) |  | (8,408 | )
Plan participant contributions |  | — |  |  | — |  |  | 2,492 |  |  | 2,525 |
Plan amendments |  | (12,926 | ) |  | (13,227 | ) |  | (4,710 | ) |  | — |
Benefits paid |  | (106,280 | ) |  | (84,291 | ) |  | (23,448 | ) |  | (23,208 | )
Net curtailments and settlements |  | 1,358 |  |  | — |  |  | (2,945 | ) |  | — |
Benefit obligation, end of period |  | 1,984,708 |  |  | 2,201,021 |  |  | 286,574 |  |  | 338,488 |
Change in plan assets: |  |  |  |  |  |  |  |
Fair value of plan assets, beginning of period |  | 2,162,885 |  |  | 1,899,889 |  |  | 217,537 |  |  | 170,092 |
Actual return on plan assets |  | (185,468 | ) |  | 320,144 |  |  | (13,287 | ) |  | 32,445 |
Company contributions |  | — |  |  | 25,000 |  |  | — |  |  | 15,000 |
Plan participant contributions |  | — |  |  | — |  |  | 2,492 |  |  | 2,525 |
Benefits paid |  | (102,799 | ) |  | (82,148 | ) |  | (16,385 | ) |  | (2,525 | )
Fair value of plan assets, end of period |  | 1,874,618 |  |  | 2,162,885 |  |  | 190,357 |  |  | 217,537 |
Funded status of the plans, December 31 |  | $ | (110,090 | ) |  | $ | (38,136 | ) |  | $ | (96,217 | ) |  | $ | (120,951 | )
Amounts recognized in the Consolidated Balance Sheets, December 31: |  |  |  |  |  |  |  |
Prepaid benefit costs (long-term assets) |  | $ | — |  |  | $ | 19,816 |  |  | $ | — |  |  | $ | — |
Accrued benefit liability (current liabilities) |  | (2,314 | ) |  | (3,346 | ) |  | (1,764 | ) |  | (2,198 | )
Accrued benefit liability (long-term liabilities) |  | (107,776 | ) |  | (54,606 | ) |  | (94,453 | ) |  | (118,753 | )
Net amount recognized |  | $ | (110,090 | ) |  | $ | (38,136 | ) |  | $ | (96,217 | ) |  | $ | (120,951 | )
During 2018, the actuarial gains related to the obligation for pension and SERPA benefits were due primarily to an increase in the discount rate. Conversely, during 2017, the actuarial losses related to this obligation were due primarily to a decrease in the discount rate. During 2018, the actuarial gains related to the obligation for postretirement healthcare benefits were due primarily to an increase in the discount rate, favorable claim cost experience and a change in the benefit delivery structure. During 2017, the actuarial gains related to this obligation were due primarily to favorable claim cost and census experience, partially offset by the impact of a decrease in the discount rate. The funded status of the qualified pension plan and the SERPA plans are combined above. Plan level information for plans with projected benefit obligations (PBO) or accumulated benefit obligations (ABO) in excess of the fair value of plan assets at December 31 is presented below (in millions):
|  | 2018 |  | 2017
Plans with PBOs in excess of fair value of plan assets: |  |  |  |
PBO |  | $ | 1,984.7 |  |  | $ | 58.0 |
Fair value of plan assets |  | $ | 1,874.6 |  |  | $ | — |
Plans with ABOs in excess of fair value of plan assets: |  |  |  |
ABO |  | $ | 40.1 |  |  | $ | 42.1 |
Fair value of plan assets |  | $ | — |  |  | $ | — |
The total ABO for all the Company's pension and SERPA plans combined was $1.90 billion and $2.10 billion as of December 31, 2018 and 2017, respectively. Benefit Costs: Components of net periodic benefit costs for the years ended December 31 (in thousands):
|  | Pension and SERPA Benefits |  | Postretirement Healthcare Benefits
|  | 2018 |  | 2017 |  | 2016 |  | 2018 |  | 2017 |  | 2016
Service cost |  | $ | 32,340 |  |  | $ | 31,584 |  |  | $ | 33,437 |  |  | $ | 7,180 |  |  | $ | 7,500 |  |  | $ | 7,478 |
Interest cost |  | 82,778 |  |  | 85,076 |  |  | 90,827 |  |  | 11,556 |  |  | 13,648 |  |  | 14,814 |
Expected return on plan assets |  | (147,671 | ) |  | (141,385 | ) |  | (145,781 | ) |  | (14,161 | ) |  | (12,623 | ) |  | (12,069 | )
Amortization of unrecognized: |  |  |  |  |  |  |  |  |  |  |  |
Prior service (credit) cost |  | (420 | ) |  | 1,018 |  |  | 1,019 |  |  | (1,842 | ) |  | (2,171 | ) |  | (2,803 | )
Net loss |  | 64,773 |  |  | 43,993 |  |  | 46,351 |  |  | 1,817 |  |  | 3,261 |  |  | 3,537 |
Net curtailment loss (gain) |  | 1,017 |  |  | — |  |  | — |  |  | (886 | ) |  | — |  |  | — |
Settlement loss |  | — |  |  | — |  |  | 1,463 |  |  | — |  |  | — |  |  | — |
Net periodic benefit cost |  | $ | 32,817 |  |  | $ | 20,286 |  |  | $ | 27,316 |  |  | $ | 3,664 |  |  | $ | 9,615 |  |  | $ | 10,957 |
Service costs are allocated among selling, administrative and engineering expense, cost of goods sold and inventory. Amounts capitalized in inventory are not significant. Non-service cost components of net periodic benefit cost are presented in other income (expense), net. Refer to Note 1 regarding the adoption of ASU 2017-07 for further discussion regarding the classification of net periodic benefit cost. The expected return on plan assets is calculated based on the market-related value of plan assets. The market-related value of plan assets is different from the fair value in that asset gains/losses are smoothed over a five-year period. U nrecognized gains and losses related to plan obligations and assets are initially recorded in other comprehensive income and result from actual experience that differs from assumed or expected results, and the impacts of changes in assumptions. Unrecognized plan asset gains and losses not yet reflected in the market-related value of plan assets are not subject to amortization. Remaining unrecognized gains and losses that exceed 10% of the greater of the projected benefit obligation or the market-related value of plan assets are amortized to earnings over the estimated future service period of active plan participants. The impacts of plan amendments, if any, are amortized over the estimated future service period of plan participants at the time of the amendment. Amounts included in accumulated other comprehensive loss, net of tax, at December 31, 2018 which have not yet been recognized in net periodic benefit cost are as follows (in thousands):
|  | Pension and SERPA Benefits |  | Postretirement Healthcare Benefits |  | Total
Prior service credit |  | $ | (14,371 | ) |  | $ | (9,381 | ) |  | $ | (23,752 | )
Net actuarial loss |  | 593,608 |  |  | 12,005 |  |  | 605,613 |
Total |  | $ | 579,237 |  |  | $ | 2,624 |  |  | $ | 581,861 |
Assumptions: Weighted-average assumptions used to determine benefit obligations and net periodic benefit cost at December 31 were as follows:
|  | Pension and SERPA Benefits |  | Postretirement Healthcare Benefits
|  | 2018 |  | 2017 |  | 2016 |  | 2018 |  | 2017 |  | 2016
Assumptions for benefit obligations: |  |  |  |  |  |  |  |  |  |  |  |
Discount rate |  | 4.38 | % |  | 3.71 | % |  | 4.30 | % |  | 4.23 | % |  | 3.52 | % |  | 4.03 | %
Rate of compensation increase |  | 3.38 | % |  | 3.43 | % |  | 3.50 | % |  | n/a |  |  | n/a |  |  | n/a |
Assumptions for net periodic benefit cost: |  |  |  |  |  |  |  |  |  |  |  |
Discount rate |  | 3.71 | % |  | 4.30 | % |  | 4.53 | % |  | 3.52 | % |  | 4.03 | % |  | 4.29 | %
Expected return on plan assets |  | 7.25 | % |  | 7.25 | % |  | 7.50 | % |  | 7.25 | % |  | 7.25 | % |  | 7.50 | %
Rate of compensation increase |  | 3.43 | % |  | 3.50 | % |  | 3.50 | % |  | n/a |  |  | n/a |  |  | n/a |
Plan Assets: Pension Plan Assets - The Company’s investment objective is to ensure assets are sufficient to pay benefits while mitigating the volatility of retirement plan assets or liabilities recorded in the balance sheet. The Company mitigates volatility through asset diversification and partial asset/liability matching. The investment portfolio for the Company's pension plan assets contains a diversified blend of equity and fixed-income investments. The Company’s current overall targeted asset allocation as a percentage of total market value was approximately 56% equities and 44% fixed-income and cash. Assets are rebalanced regularly to keep the actual allocation in line with targets. Equity holdings primarily include investments in small-, medium- and large-cap companies in the U.S. (including Company stock), investments in developed and emerging foreign markets and other investments such as private equity and real estate. Fixed-income holdings consist of U.S. government and agency securities, state and municipal bonds, corporate bonds from diversified industries and foreign obligations. In addition, cash equivalent balances are maintained at levels adequate to meet near-term plan expenses and benefit payments. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews. Postretirement Healthcare Plan Assets - The Company's investment objective is to maximize the return on assets to help pay benefits by prudently investing in equities, fixed income and alternative assets. The Company's current overall targeted asset allocation as a percentage of total market value was approximately 69% equities and 31% fixed-income and cash. Equity holdings primarily include investments in small-, medium- and large-cap companies in the U.S., investments in developed and emerging foreign markets and other investments such as private equity and real estate. Fixed-income holdings consist of U.S. government and agency securities, state and municipal bonds, corporate bonds from diversified industries and foreign obligations. In addition, cash equivalent balances are maintained at levels adequate to meet near-term plan expenses and benefit payments. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews. The following tables present the fair values of the plan assets related to the Company’s pension and postretirement healthcare plans within the fair value hierarchy as defined in Note 13. The fair values of the Company’s pension plan assets as of December 31, 2018 were as follows (in thousands):
|  | Balance as of December 31, 2018 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2)
Cash and cash equivalents |  | $ | 40,984 |  |  | $ | — |  |  | $ | 40,984 |
Equity holdings: |  |  |  |  |  |
U.S. companies |  | 636,308 |  |  | 621,459 |  |  | 14,849 |
Foreign companies |  | 66,143 |  |  | 66,143 |  |  | — |
Harley-Davidson common stock |  | 43,455 |  |  | 43,455 |  |  | — |
Pooled equity funds |  | 330,476 |  |  | 330,476 |  |  | — |
Other |  | 85 |  |  | 85 |  |  | — |
Total equity holdings |  | 1,076,467 |  |  | 1,061,618 |  |  | 14,849 |
Fixed-income holdings: |  |  |  |  |  |
U.S. Treasuries |  | 45,102 |  |  | 45,102 |  |  | — |
Federal agencies |  | 27,811 |  |  | — |  |  | 27,811 |
Corporate bonds |  | 434,070 |  |  | — |  |  | 434,070 |
Pooled fixed income funds |  | 140,630 |  |  | 42,400 |  |  | 98,230 |
Foreign bonds |  | 83,852 |  |  | 266 |  |  | 83,586 |
Municipal bonds |  | 9,276 |  |  | — |  |  | 9,276 |
Total fixed-income holdings |  | 740,741 |  |  | 87,768 |  |  | 652,973 |
Total assets in the fair value hierarchy |  | 1,858,192 |  |  | $ | 1,149,386 |  |  | $ | 708,806 |
Assets measured at net asset value as a practical expedient: |  |  |  |  |  |
Limited partnership interests |  | 5,918 |  |  |  |  |
Real estate investment trusts |  | 10,508 |  |  |  |  |
Total pension plan assets |  | $ | 1,874,618 |  |  |  |  |
Included in the pension plan assets are 1,273,592 shares of the Company’s common stock with a market value of $43.5 million at December 31, 2018. The fair values of the Company’s postretirement healthcare plan assets as of December 31, 2018 were as follows (in thousands):
|  | Balance as of December 31, 2018 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2)
Cash and cash equivalents |  | $ | 5,276 |  |  | $ | — |  |  | $ | 5,276 |
Equity holdings: |  |  |  |  |  |
U.S. companies |  | 86,975 |  |  | 86,949 |  |  | 26 |
Foreign companies |  | 16,342 |  |  | 16,342 |  |  | — |
Pooled equity funds |  | 20,747 |  |  | 20,747 |  |  | — |
Other |  | 9 |  |  | 9 |  |  | — |
Total equity holdings |  | 124,073 |  |  | 124,047 |  |  | 26 |
Fixed-income holdings: |  |  |  |  |  |
U.S. Treasuries |  | 8,707 |  |  | 8,707 |  |  | — |
Federal agencies |  | 5,445 |  |  | — |  |  | 5,445 |
Corporate bonds |  | 6,590 |  |  | — |  |  | 6,590 |
Pooled fixed income funds |  | 33,959 |  |  | 33,959 |  |  | — |
Foreign bonds |  | 538 |  |  | — |  |  | 538 |
Municipal bonds |  | 272 |  |  | — |  |  | 272 |
Total fixed-income holdings |  | 55,511 |  |  | 42,666 |  |  | 12,845 |
Total assets in the fair value hierarchy |  | 184,860 |  |  | $ | 166,713 |  |  | $ | 18,147 |
Assets measured at net asset value as a practical expedient: |  |  |  |  |  |
Real estate investment trusts |  | 5,497 |  |  |  |  |
Total postretirement healthcare plan assets |  | $ | 190,357 |  |  |  |  |
The fair values of the Company’s pension plan assets as of December 31, 2017 were as follows (in thousands):
|  | Balance as of December 31, 2017 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2)
Cash and cash equivalents |  | $ | 51,082 |  |  | $ | 1,057 |  |  | $ | 50,025 |
Equity holdings: |  |  |  |  |  |
U.S. companies |  | 722,527 |  |  | 705,111 |  |  | 17,416 |
Foreign companies |  | 78,765 |  |  | 78,765 |  |  | — |
Harley-Davidson common stock |  | 64,800 |  |  | 64,800 |  |  | — |
Pooled equity funds |  | 416,881 |  |  | 416,881 |  |  | — |
Other |  | 119 |  |  | 119 |  |  | — |
Total equity holdings |  | 1,283,092 |  |  | 1,265,676 |  |  | 17,416 |
Fixed-income holdings: |  |  |  |  |  |
U.S. Treasuries |  | 39,866 |  |  | 39,866 |  |  | — |
Federal agencies |  | 29,188 |  |  | — |  |  | 29,188 |
Corporate bonds |  | 462,563 |  |  | — |  |  | 462,563 |
Pooled fixed income funds |  | 189,361 |  |  | 61,875 |  |  | 127,486 |
Foreign bonds |  | 81,732 |  |  | — |  |  | 81,732 |
Municipal bonds |  | 11,800 |  |  | — |  |  | 11,800 |
Total fixed-income holdings |  | 814,510 |  |  | 101,741 |  |  | 712,769 |
Total assets in the fair value hierarchy |  | 2,148,684 |  |  | $ | 1,368,474 |  |  | $ | 780,210 |
Assets measured at net asset value as a practical expedient: |  |  |  |  |  |
Limited partnership interests |  | 9,099 |  |  |  |  |
Real estate investment trust |  | 5,102 |  |  |  |  |
Total pension plan assets |  | $ | 2,162,885 |  |  |  |  |
Included in the pension plan assets were 1,273,592 shares of the Company’s common stock with a market value of $64.8 million at December 31, 2017. The fair values of the Company’s postretirement healthcare plan assets as of December 31, 2017 were as follows (in thousands):
|  | Balance as of December 31, 2017 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2)
Cash and cash equivalents |  | $ | 19,317 |  |  | $ | — |  |  | $ | 19,317 |
Equity holdings: |  |  |  |  |  |
U.S. companies |  | 101,720 |  |  | 101,720 |  |  | — |
Foreign companies |  | 19,498 |  |  | 19,495 |  |  | 3 |
Pooled equity funds |  | 23,563 |  |  | 23,563 |  |  | — |
Other |  | 14 |  |  | 14 |  |  | — |
Total equity holdings |  | 144,795 |  |  | 144,792 |  |  | 3 |
Fixed-income holdings: |  |  |  |  |  |
U.S. Treasuries |  | 6,803 |  |  | 6,803 |  |  | — |
Federal agencies |  | 5,060 |  |  | — |  |  | 5,060 |
Corporate bonds |  | 6,756 |  |  | — |  |  | 6,756 |
Pooled fixed income funds |  | 27,461 |  |  | 27,461 |  |  | — |
Foreign bonds |  | 311 |  |  | — |  |  | 311 |
Municipal bonds |  | 284 |  |  | — |  |  | 284 |
Total fixed-income holdings |  | 46,675 |  |  | 34,264 |  |  | 12,411 |
Total assets in the fair value hierarchy |  | 210,787 |  |  | $ | 179,056 |  |  | $ | 31,731 |
Assets measured at net asset value as a practical expedient: |  |  |  |  |  |
Real estate investment trust |  | 6,750 |  |  |  |  |
Total postretirement healthcare plan assets |  | $ | 217,537 |  |  |  |  |
For 2019, the Company’s overall expected long-term rate of return is 7.10% for pension assets and 7.25% for postretirement healthcare plan assets. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based on historical returns adjusted to reflect the current view of the long-term investment market. Postretirement Healthcare Cost: The weighted-average healthcare cost trend rate used in determining the accumulated postretirement benefit obligation of the healthcare plans was as follows:
|  | 2018 |  | 2017
Healthcare cost trend rate for next year |  | 6.75 | % |  | 7.00 | %
Rate to which the cost trend rate is assumed to decline (the ultimate rate) |  | 5.00 | % |  | 5.00 | %
Year that the rate reaches the ultimate trend rate |  | 2026 |  |  | 2026 |
Future Contributions and Benefit Payments: During 2018, the Company did not make any voluntary contributions to its qualified pension plan or postretirement healthcare plans. No pension plan contributions are required in 2019. The Company expects that 2019 postretirement healthcare plan benefits and benefits due under the SERPA plans will be paid by the Company or, in the case of postretirement healthcare plan benefits, funded partially with plan assets. The expected benefit payments for the next five years and thereafter were as follows (in thousands):
|  | Pension Benefits |  | SERPA Benefits |  | Postretirement Healthcare Benefits
2019 |  | $ | 111,980 |  |  | $ | 2,314 |  |  | $ | 25,934 |
2020 |  | $ | 93,580 |  |  | $ | 2,862 |  |  | $ | 27,328 |
2021 |  | $ | 95,690 |  |  | $ | 3,272 |  |  | $ | 26,660 |
2022 |  | $ | 99,118 |  |  | $ | 3,504 |  |  | $ | 25,378 |
2023 |  | $ | 102,190 |  |  | $ | 4,467 |  |  | $ | 23,815 |
2024-2028 |  | $ | 568,867 |  |  | $ | 28,663 |  |  | $ | 109,562 |
Defined Contribution Plans: The Company has various defined contribution benefit plans that in total cover substantially all full-time employees. Employees can make voluntary contributions in accordance with the provisions of their respective plan, which includes a 401(k) tax deferral option. The Company expensed $20.1 million, $19.0 million and $18.2 million for Company contributions during 2018, 2017 and 2016, respectively.

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