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ACCRUED WORKERS' COMPENSATION AND PNEUMOCONIOSIS BENEFITS

12 Months Ended

Dec. 31, 2020

ACCRUED WORKERS' COMPENSATION AND PNEUMOCONIOSIS BENEFITS

ACCRUED WORKERS' COMPENSATION AND PNEUMOCONIOSIS BENEFITS

20.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,
	2020		2019

	(in thousands)
Beginning balance	$	53,384	$	49,539
Accruals increase		5,146		7,162
Payments		(8,482)		(11,320)
Interest accretion		1,278		1,606
Valuation loss		3,413		6,397
Ending balance	$	54,739	$	53,384

The discount rate used to calculate the estimated present value of future obligations for workers' compensation was 1.95% and 2.81% at December 31, 2020 and 2019, respectively.

The valuation losses in both 2020 and 2019 were 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 in their respective years.

As of December 31, 2020 and 2019, we had $95.2 million and $90.2 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, 2020 and 2019 are $7.1 million and $7.7 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,
	2020		2019

	(in thousands)

Benefit obligations at beginning of year	$	97,683	$	72,095
Service cost		3,526		2,593
Interest cost		2,998		3,044
Actuarial (gain) loss		7,787		23,298
Benefits and expenses paid		(3,498)		(3,347)
Benefit obligations at end of year	$	108,496	$	97,683

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


	Year Ended December 31,
	2020		2019		2018

	(in thousands)

Net actuarial gain (loss)	$	(7,787)	$	(23,298)	$	4,599
Reversal of amortization item:
Net actuarial (gain) loss		(686)		(4,582)		2
Total recognized in accumulated other comprehensive loss	$	(8,473)	$	(27,880)	$	4,601

The discount rate used to calculate the estimated present value of future obligations for pneumoconiosis benefits was 2.38%, 3.12% and 4.13% at December 31, 2020, 2019 and 2018, respectively.


	Year Ended December 31,
	2020		2019		2018

	(in thousands)
Amount recognized in accumulated other comprehensive loss consists of:
Net actuarial loss	$	40,399	$	31,927	$	4,047

The actuarial loss component of the change in benefit obligations in 2020 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 the assumptions regarding future medical benefits and legal expenses. These components were partially offset in part by favorable demographic changes in the at-risk population. 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.

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


	December 31,
	2020		2019

	(in thousands)

Workers’ compensation claims	$	54,739	$	53,384
Pneumoconiosis benefit claims		108,496		97,683
Total obligations		163,235		151,067
Less current portion		(10,646)		(11,175)
Non-current obligations	$	152,589	$	139,892

Both the pneumoconiosis benefit and workers' compensation obligations were unfunded at December 31, 2020 and 2019.

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


	Year Ended December 31,
	2020		2019		2018

	(in thousands)
Black lung benefits:
Service cost	$	3,526	$	2,593	$	2,525
Interest cost (1)		2,998		3,044		2,542
Net amortization (1)		(686)		(4,582)		2
Total pneumoconiosis expense		5,838		1,055		5,069
Workers' compensation expense		12,305		17,541		11,270
Net periodic benefit cost	$	18,143	$	18,596	$	16,339

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(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.