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ACCRUED WORKERS' COMPENSATION AND PNEUMOCONIOSIS BENEFITS

12 Months Ended

Dec. 31, 2019

ACCRUED WORKERS' COMPENSATION AND PNEUMOCONIOSIS BENEFITS

ACCRUED WORKERS' COMPENSATION AND PNEUMOCONIOSIS BENEFITS

19.ACCRUED WORKERS' COMPENSATION AND PNEUMOCONIOSIS BENEFITS

We provide income replacement and medical treatment for work-related traumatic injury claims as required by applicable state laws. Workers' compensation laws also compensate survivors of workers who suffer employment related deaths. Certain of our mine operating entities are liable under state statutes and the Federal Coal Mine Health and Safety Act of 1969, as amended, to pay benefits for black lung disease (or pneumoconiosis) to eligible employees and former employees and their dependents. Both pneumoconiosis and traumatic claims are covered through our self-insured programs.

The following is a reconciliation of the changes in workers' compensation liability (including current and long-term liability balances):


	December 31,
	2019		2018
	(in thousands)
Beginning balance	$	49,539	$	54,439
Accruals increase		7,162		7,654
Payments		(11,320)		(10,837)
Interest accretion		1,606		1,454
Valuation loss (gain)		6,397		(3,171)
Ending balance	$	53,384	$	49,539

The discount rate used to calculate the estimated present value of future obligations for workers' compensation was 2.81% and 3.89% at December 31, 2019 and 2018, respectively.

The 2019 valuation loss was primarily attributable to a decrease in the discount rate used to calculate the estimated present value of future obligations as well as unfavorable changes in claims development. The 2018 valuation gain was primarily attributable to an increase in the discount rate used to calculate the estimated present value of future obligations as well as favorable changes in claims development.

As of December 31, 2019 and 2018, we had $90.2 million and $90.5 million, respectively, in surety bonds and letters of credit outstanding to secure workers' compensation obligations.

We limit our exposure to traumatic injury claims by purchasing a high deductible insurance policy that starts paying benefits after deductibles for the particular claim year have been met. Our workers' compensation liability above is presented on a gross basis and does not include our expected receivables on our insurance policy. Our receivables for traumatic injury claims under this policy as of December 31, 2019 and 2018 are $7.7 million and $8.1 million, respectively. Our receivables are included in Other long-term assets on our consolidated balance sheets.

The following is a reconciliation of the changes in pneumoconiosis benefit obligations:


	December 31,
	2019		2018
	(in thousands)

Benefit obligations at beginning of year	$	72,095	$	74,859
Service cost		2,593		2,525
Interest cost		3,044		2,542
Actuarial (gain) loss		23,298		(4,599)
Benefits and expenses paid		(3,347)		(3,232)
Benefit obligations at end of year	$	97,683	$	72,095

The following is a reconciliation of the changes in the pneumoconiosis benefit obligation recognized in accumulated other comprehensive loss:


	Year Ended December 31,
	2019		2018		2017
	(in thousands)

Net actuarial gain (loss)	$	(23,298)	$	4,599	$	(7,938)
Reversal of amortization item:
Net actuarial (gain) loss		(4,582)		2		(2,092)
Total recognized in accumulated other comprehensive loss	$	(27,880)	$	4,601	$	(10,030)

The discount rate used to calculate the estimated present value of future obligations for pneumoconiosis benefits was 3.12%, 4.13% and 3.49% at December 31, 2019, 2018 and 2017, respectively.


	Year Ended December 31,
	2019		2018		2017
	(in thousands)
Amount recognized in accumulated other comprehensive loss consists of:
Net actuarial loss	$	31,927	$	4,047	$	8,648

The actuarial loss component of the change in benefit obligations in 2019 was primarily attributable to a) a decrease in the discount rate used to calculate the estimated present value of the future obligations and b) an increase in Federal and State benefit levels. These components were offset in part by favorable demographic changes in the at-risk population. The actuarial gain component of the change in benefit obligations in 2018 was primarily attributable to a) an increase in the discount rate used to calculate the estimated present value of the future obligations, b) a decrease in the assumed future medical benefit and expense levels and c) demographic changes in the at-risk population.

Summarized below is information about the amounts recognized in the accompanying consolidated balance sheets for pneumoconiosis and workers' compensation benefits:


	December 31,
	2019		2018
	(in thousands)

Workers’ compensation claims	$	53,384	$	49,539
Pneumoconiosis benefit claims		97,683		72,095
Total obligations		151,067		121,634
Less current portion		(11,175)		(11,137)
Non-current obligations	$	139,892	$	110,497

Both the pneumoconiosis benefit and workers' compensation obligations were unfunded at December 31, 2019 and 2018.

The pneumoconiosis benefit and workers' compensation expense consists of the following components:


	Year Ended December 31,
	2019		2018		2017
	(in thousands)
Black lung benefits:
Service cost	$	2,593	$	2,525	$	2,255
Interest cost (1)		3,044		2,542		2,555
Net amortization (1)		(4,582)		2		(2,092)
Total pneumoconiosis expense		1,055		5,069		2,718
Workers' compensation expense		17,541		11,270		12,215
Net periodic benefit cost	$	18,596	$	16,339	$	14,933

________________________________________

(1)

Interest cost and net amortization is included in the Other income (expense) line item within our consolidated statements of income (see Note 2 – Summary of Significant Accounting Policies).

See Note 2 – Summary of Significant Accounting Policies for more information on our accounting policy for workers' compensation and pneumoconiosis benefits.