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Savings Plans, Pension Plans and Other Postretirement Employee Benefits | 12 Months Ended
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Dec. 31, 2019
General Discussion Of Pension And Other Postretirement Benefits [Abstract] |
Savings Plans, Pension Plans and Other Postretirement Employee Benefits | NOTE 19. SAVINGS PLANS, PENSION PLANS AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS SAVINGS PLANS Substantially all of our employees are eligible to participate in 401(k) savings plans. In 2019, 2018 and 2017, we made matching 401(k) contributions on behalf of our employees of $3.9 million, $3.7 million and $2.4 million, respectively. Certain eligible employees who earn awards under our annual incentive plan are permitted to defer receipt of those awards. These employees may defer receipt of a minimum of 50% and a maximum of 100% of the award pursuant to rules established under our Management Deferred Compensation Plan. Eligible employees may also defer up to 50% of their base salary under the Management Deferred Compensation Plan. At the employee's election, deferrals may be deemed invested in a company stock unit account, a directed investment account with certain deemed investments available under the 401(k) Plan or a combination of these investment vehicles. If company stock units are elected, dividend equivalents are credited to the units. Upon our merger with Deltic, we assumed three defined 401(k) savings plans. Effective January 1, 2019, these plans were merged with our legacy Potlatch 401(k) savings plans. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS On January 1, 2011, we froze the legacy Potlatch pension plans to any new salaried and hourly non-represented employees hired after that date. Effective January 1, 2010, we restructured our other postretirement benefit plans (OPEB). The level of health care subsidy was frozen for retirees so that all future increments in health care costs will be borne by the retirees. In addition, for retirees under age 65, a high deductible medical plan was created and all other existing health care plans were terminated. For retirees age 65 or over, the medical plan is divided into two components, with the company continuing to self-insure prescription drugs and providing a fully-insured medical supplemental plan through AARP/United Healthcare. Both health care plans require the retiree to contribute amounts in excess of the company subsidy in order to continue coverage. The Plan does not pay for vision, dental and life insurance for the retirees. The effect of these retiree plan changes was a reduction in the accumulated postretirement benefit obligation of $76.7 million, which was recognized in Accumulated Other Comprehensive Loss as of December 31, 2009 and was fully amortized as of December 31, 2019. We use a December 31 measurement date for our benefit plans and obligations. We recognize the underfunded status of our defined benefit pension plans and OPEB obligations on our Consolidated Balance Sheets. We recognize changes in the funded status in the year in which changes occur through accumulated other comprehensive loss and amortize actuarial gains and losses through the Consolidated Statements of Income as net periodic cost (benefit). Upon merger with Deltic in 2018, we assumed one qualified pension plan, one nonqualified pension plan and a postretirement plan. The acquired plans have been frozen to new participants since 2014. Consistent with accounting for the merger as the acquirer in a business combination, pension assets acquired, and benefit obligations assumed were remeasured to reflect their funded status at the date of acquisition. This included updating asset values and discount rates to reflect market conditions at the merger date. The fair value of these items at the date of merger are listed in the table below as “plan acquisitions.” The change in benefit obligation, change in plan assets and funded status for company-sponsored benefit plans and obligations are as follows:
|  | Pension Plans |  |  | OPEB |
(in thousands) |  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Benefit obligation at beginning of year |  | $ | (427,909 | ) |  | $ | (392,371 | ) |  | $ | (40,032 | ) |  | $ | (30,349 | )
Service cost |  |  | (7,767 | ) |  |  | (8,454 | ) |  |  | (371 | ) |  |  | (341 | )
Interest cost |  |  | (18,465 | ) |  |  | (16,992 | ) |  |  | (1,588 | ) |  |  | (1,482 | )
Actuarial (loss) gain |  |  | (53,446 | ) |  |  | 20,445 |  |  |  | (7,997 | ) |  |  | 2,100 |
Benefits paid |  |  | 33,350 |  |  |  | 31,530 |  |  |  | 3,593 |  |  |  | 3,582 |
Plan acquisitions |  |  | — |  |  |  | (62,067 | ) |  |  | — |  |  |  | (13,542 | )
Benefit obligation at end of year |  | $ | (474,237 | ) |  | $ | (427,909 | ) |  | $ | (46,395 | ) |  | $ | (40,032 | )
Fair value of plan assets at beginning of year |  | $ | 351,285 |  |  | $ | 313,862 |  |  | $ | — |  |  | $ | — |
Actual return (loss) on plan assets |  |  | 78,448 |  |  |  | (23,745 | ) |  |  | — |  |  |  | — |
Employer contributions and benefit payments |  |  | 2,085 |  |  |  | 53,998 |  |  |  | 3,593 |  |  |  | 3,582 |
Benefits paid |  |  | (33,350 | ) |  |  | (31,530 | ) |  |  | (3,593 | ) |  |  | (3,582 | )
Plan acquisitions |  |  | — |  |  |  | 38,700 |  |  |  | — |  |  |  | — |
Fair value of plan assets at end of year |  | $ | 398,468 |  |  | $ | 351,285 |  |  | $ | — |  |  | $ | — |
Amounts recognized in the consolidated balance sheets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities |  | $ | (2,152 | ) |  | $ | (2,121 | ) |  | $ | (4,549 | ) |  | $ | (3,876 | )
Noncurrent liabilities |  |  | (73,617 | ) |  |  | (74,503 | ) |  |  | (41,846 | ) |  |  | (36,156 | )
Funded status |  | $ | (75,769 | ) |  | $ | (76,624 | ) |  | $ | (46,395 | ) |  | $ | (40,032 | )
The accumulated benefit obligation for all defined benefit pension plans is determined using the actuarial present value of the vested benefits to which the employee is currently entitled and the employee’s expected date of separation for retirement and was $458.1 million and $417.4 million at December 31, 2019 and 2018, respectively. During 2019 and 2018, funding of pension and other postretirement employee benefit plans was $5.7 million and $57.6 million, respectively. Our 2018 funding included a $44.0 million voluntary contribution allowing us to deduct the amount on our 2017 income tax return at higher tax rates. PENSION ASSETS We utilize formal investment policy guidelines for our company-sponsored pension plan assets. Management is responsible for ensuring the investment policy and guidelines are adhered to and the investment objectives are met. The general policy states that plan assets will be invested to seek the greatest return consistent with the fiduciary character of the pension funds and to allow the plans to meet the need for timely pension benefit payments. The specific investment guidelines stipulate that management will maintain adequate liquidity for meeting expected benefit payments by reviewing, on a timely basis, contribution and benefit payment levels and appropriately revise long-term and short-term asset allocations. Management takes reasonable and prudent steps to preserve the value of pension fund assets and to avoid the risk of large losses. Major steps taken to provide this protection include the following:
| • | Assets are diversified among various asset classes, such as global equities, fixed income, alternatives and liquid reserves. The long-term asset allocation ranges are as follows:
Global equities | 26% | - | 38%
Fixed income securities | 44% | - | 64%
Alternatives, which may include equities and fixed income securities | 10% | - | 16%
Cash and cash equivalents | 0% | - | 5%
| • | Periodic reviews of allocations within these ranges are made to determine what adjustments should be made based on changing economic and market conditions and specific liquidity requirements.
| • | Assets are managed by professional investment managers and may be invested in separately managed accounts or commingled funds.
| • | Assets are not invested in PotlatchDeltic stock.
The investment guidelines also provide that the individual investment managers are expected to achieve a reasonable rate of return over a market cycle. Emphasis will be placed on long-term performance versus short-term market aberrations. Factors to be considered in determining reasonable rates of return include performance achieved by a diverse cross section of other investment managers, performance of commonly used benchmarks (e.g., MSCI All-Country World Index, Barclays Long Credit Index), actuarial assumptions for return on plan investments and specific performance guidelines given to individual investment managers. The asset allocations of the pension benefit plans’ assets at December 31 by asset category are as follows:
|  | Pension Plans |
Asset Category |  |  | 2019 |  |  |  | 2018 |
Global equities |  |  | 32 | % |  |  | 30 | %
Fixed income securities |  |  | 54 |  |  |  | 58 |
Other (includes cash and cash equivalents and alternatives) |  |  | 14 |  |  |  | 12 |
Total |  |  | 100 | % |  |  | 100 | %
The pension assets are stated at fair value. Refer to Note 14: Fair Value Measurements for a discussion of the framework used to measure fair value. Following is a description of the valuation methodologies used for pension assets measured at fair value:
| • | Level 1 assets include cash and cash equivalents, corporate common and preferred stocks with quoted market prices on major securities markets, and investments in registered investment company funds for which market quotations are generally readily available on the primary market or exchange on which they are traded.
| • | Level 2 assets at December 31, 2019 consist of thinly traded fixed income instruments of varying maturities representing corporate security investments. Level 2 assets at December 31, 2018 consist of collective investment trust funds, which are valued at their respective net asset value (NAV) and fully redeemable in the near-term. The NAV fair value practical expedient was not used as these investments have readily determinable fair value.
| • | Investments in funds that may not be fully redeemed in the near-term are generally classified in Level 3. We had no Level 3 investments at December 31, 2019 or 2018.
Fair value measurements are as follows:
(in thousands) |  | December 31, 2019 |
Asset Category |  | Level 1 |  |  | Level 2 |  |  | Total |
Cash and cash equivalents |  | $ | 6,671 |  |  | $ | — |  |  | $ | 6,671 |
Global equity securities1 |  |  | 127,688 |  |  |  | — |  |  |  | 127,688 |
Fixed income securities5 |  |  | 173,464 |  |  |  | 40,554 |  |  |  | 214,018 |
Alternatives6 |  |  | 50,091 |  |  |  | — |  |  |  | 50,091 |
Total |  | $ | 357,914 |  |  | $ | 40,554 |  |  | $ | 398,468 |
(in thousands) |  | December 31, 2018 |
Asset Category |  | Level 1 |  |  | Level 2 |  |  | Total |
Cash and cash equivalents |  | $ | 4,120 |  |  | $ | — |  |  | $ | 4,120 |
Domestic equity securities2 |  |  | 31,315 |  |  |  | 23,384 |  |  |  | 54,699 |
International equity securities3 |  |  | — |  |  |  | 21,848 |  |  |  | 21,848 |
Emerging markets4 |  |  | 6,909 |  |  |  | 21,225 |  |  |  | 28,134 |
Fixed income securities5 |  |  | 204,072 |  |  |  | — |  |  |  | 204,072 |
Alternatives6 |  |  | — |  |  |  | 38,412 |  |  |  | 38,412 |
Total |  | $ | 246,416 |  |  | $ | 104,869 |  |  | $ | 351,285 |
1 | Level 1 assets are international and domestic managed investments that track the MSCI All-Country World Index.
2 | Level 1 assets are managed investments in the U.S., small/mid-cap equities that track the Russell 2500 Growth index or Russell 2500 Value index. Level 2 assets are collective investments, which are invested in U.S. large-cap equities that track the S&P 500.
3 | Level 2 assets are collective investments in equity funds of developed markets outside of the United States and Canada that track the MSCI EAFE Value index or MSCI EAFE Growth index.
4 | Level 1 assets are mutual funds which are invested in the common stock of companies located (or with primary operations) in emerging markets that track the MSCI Emerging Markets index. Level 2 assets are collective investments in the common stock of companies located (or with primary operations) in emerging markets that track the MSCI Emerging Markets index.
5 | Level 1 assets are investments in a diversified portfolio of fixed income instruments of varying maturities representing corporates, U.S. treasuries, municipals and futures. Level 2 assets are thinly traded investments in a diversified portfolio of fixed income instruments of varying maturities representing mostly corporates securities. Both Level 1 & Level 2 investments track the Bloomberg Barclay’s Long-term Credit Index.
6 | Level 1 assets are long-term investment funds which are invested in tangible assets and real asset companies such as, infrastructure, natural resources and timber. Level 2 assets are collective investments in inflation-indexed bonds, securities of real estate companies, commodity index-linked notes, fixed income securities, foreign currencies, securities of natural resource companies, master limited partnerships, publicly listed infrastructure companies, floating-rate debt, securities of global agriculture companies and securities of global timber companies.
PLAN ACTIVITY Pre-tax components of net periodic cost (benefit) recognized in our Consolidated Statements of Income were as follows for the years ended December 31:
|  | Pension Plans |  |  | OPEB |
(in thousands) |  |  | 2019 |  |  |  | 2018 |  |  |  | 2017 |  |  |  | 2019 |  |  |  | 2018 |  |  |  | 2017 |
Service cost |  | $ | 7,767 |  |  | $ | 8,454 |  |  | $ | 6,753 |  |  | $ | 371 |  |  | $ | 341 |  |  | $ | 14 |
Interest cost |  |  | 18,465 |  |  |  | 16,992 |  |  |  | 16,096 |  |  |  | 1,588 |  |  |  | 1,482 |  |  |  | 1,262 |
Expected return on plan assets |  |  | (22,190 | ) |  |  | (20,035 | ) |  |  | (18,406 | ) |  |  | — |  |  |  | — |  |  |  | — |
Amortization of prior service cost (credit) |  |  | 211 |  |  |  | 186 |  |  |  | 288 |  |  |  | (8,844 | ) |  |  | (8,877 | ) |  |  | (8,877 | )
Amortization of actuarial loss |  |  | 13,497 |  |  |  | 16,589 |  |  |  | 14,484 |  |  |  | 1,012 |  |  |  | 1,311 |  |  |  | 1,537 |
Net periodic cost (benefit) |  | $ | 17,750 |  |  | $ | 22,186 |  |  | $ | 19,215 |  |  | $ | (5,873 | ) |  | $ | (5,743 | ) |  | $ | (6,064 | )
The amounts recorded in Accumulated Other Comprehensive Loss on our Consolidated Balance Sheets, that have not yet been recognized as components of net periodic benefit costs at December 31, net of tax, consist of:
|  | Pension Plans |  |  | OPEB |
(in thousands) |  | 2019 |  |  | 2018 |  |  |  | 2019 |  |  |  | 2018 |
Net loss |  | $ | 116,780 |  |  | $ | 128,849 |  |  | $ | 12,437 |  |  | $ | 7,269 |
Prior service cost (credit) |  |  | 248 |  |  |  | 404 |  |  |  | (2,106 | ) |  |  | (8,651 | )
Net amount recognized |  | $ | 117,028 |  |  | $ | 129,253 |  |  | $ | 10,331 |  |  | $ | (1,382 | )
The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next year are $17.0 million and $0.1 million, respectively. The estimated net loss and prior service credit for OPEB obligations that will be amortized from accumulated other comprehensive loss into net periodic benefit over the next year are $1.7 million and $1.3 million, respectively. EXPECTED FUNDING AND BENEFIT PAYMENTS We are required to contribute $4.4 million to our qualified pension plans in 2020. Our non-qualified pension plan and other postretirement employee benefit plans are unfunded and benefit payments are paid from our general assets. We estimate that we will make non-qualified pension plan payments of $2.2 million and other postretirement employee benefit payments of $4.5 million in 2020, which are included below. Estimated future benefit payments, which reflect expected future service are as follows for the years indicated:
(in thousands) |  | Pension Plans |  |  | OPEB |
2020 |  | $ | 30,769 |  |  | $ | 4,548 |
2021 |  | $ | 30,756 |  |  | $ | 3,780 |
2022 |  | $ | 30,689 |  |  | $ | 3,595 |
2023 |  | $ | 30,589 |  |  | $ | 3,402 |
2024 |  | $ | 30,232 |  |  | $ | 3,148 |
2025–2029 |  | $ | 143,237 |  |  | $ | 12,966 |
ACTUARIAL ASSUMPTIONS The weighted average assumptions used to determine the benefit obligation for non-Deltic plans as of December 31 were:
|  | Pension Plans |  |  | OPEB |
|  |  | 2019 |  |  |  | 2018 |  |  |  | 2019 |  |  |  | 2018 |
Discount rate |  |  | 3.40 | % |  |  | 4.40 | % |  |  | 3.40 | % |  |  | 4.40 | %
Rate of salaried compensation increase |  |  | 3.00 | % |  |  | 3.00 | % |  |  | — |  |  |  | — |
The weighted average assumptions used for non-Deltic plans to determine the net periodic cost (benefit) for the years ended December 31 were:
|  | Pension Plans |  |  | OPEB |
|  |  | 2019 |  |  |  | 2018 |  |  |  | 2017 |  |  |  | 2019 |  |  |  | 2018 |  |  |  | 2017 |
Discount rate |  |  | 4.40 | % |  |  | 3.85 | % |  |  | 4.40 | % |  |  | 4.40 | % |  |  | 3.65 | % |  |  | 4.10 | %
Expected return on plan assets |  |  | 6.25 | % |  |  | 6.25 | % |  |  | 6.50 | % |  |  | — |  |  |  | — |  |  |  | — |
Rate of salaried compensation increase |  |  | 3.00 | % |  |  | 3.00 | % |  |  | 3.00 | % |  |  | — |  |  |  | — |  |  |  | — |
The weighted average assumptions used to determine the benefit obligation for Deltic plans as of December 31 were:
|  | Pension Plans |  |  | OPEB |
|  |  | 2019 |  |  |  | 2018 |  |  |  | 2019 |  |  |  | 2018 |
Discount rate |  |  | 3.40 | % |  |  | 4.40 | % |  |  | 3.40 | % |  |  | 4.40 | %
Rate of salaried compensation increase |  |  | 4.00 | % |  |  | 4.00 | % |  |  | — |  |  |  | — |
The weighted average assumptions used for Deltic plans to determine the net periodic cost (benefit) for the years ended December 31 were:
|  | Pension Plans |  |  | OPEB |
|  |  | 2019 |  |  |  | 2018 |  |  |  | 2019 |  |  |  | 2018 |
Discount rate |  |  | 4.40 | % |  |  | 4.30 | % |  |  | 4.40 | % |  |  | 4.30 | %
Expected return on plan assets |  |  | 6.25 | % |  |  | 6.25 | % |  |  | — |  |  |  | — |
Rate of salaried compensation increase |  |  | 4.00 | % |  |  | 4.00 | % |  |  | — |  |  |  | — |
The discount rate used in the determination of pension and other postretirement employee benefit obligations was calculated using hypothetical bond portfolios to match the expected benefit payments under each of our pension plans and other postretirement employee benefit obligations based on bonds available at each year end with a rating of "AA" or better. The portfolios were well-diversified over corporate industrial, corporate financial, municipal, federal and foreign government issuers. The expected return on plan assets assumption is based upon an analysis of historical long-term returns for various investment categories, as measured by appropriate indices. These indices are weighted based upon the extent to which plan assets are invested in the particular categories in arriving at our determination of a composite expected return. The expected rate of return assumption on all plans that will be used to determine net periodic cost for 2020 is 5.75%. A decrease in the discount rate or the rate of expected return on plan assets, all other assumptions remaining the same, would increase net periodic cost. A 25 basis point decrease in the pension discount rate would increase net periodic cost by approximately $1.1 million in 2019 and increase the projected benefit obligation by approximately $13.6 million as of December 31, 2019. A 25 basis point decrease in the assumption for the expected return on plan assets would increase net periodic cost by approximately $0.9 million in 2019. The actual rates of return on plan assets may, and do, vary significantly from the assumption used. A 25 basis point decrease in the OPEB discount rate would be de minimis to the annual net periodic cost. The assumed health care cost trend rate used to calculate other postretirement employee benefit obligations for non-Deltic plans and Deltic plans as of December 31, 2019 was 7.51% and 7.18%, respectively, for a certain group of participants under age 65 in our hourly plan and our Arkansas participants covered by a collective bargaining agreement, grading ratably to an assumption of 4.50% in 2038. The actual rates of health care cost increases may vary significantly from the assumption used because of unanticipated changes in health care costs. A one percentage point change in the health care cost trend rates would have the following effects on our December 31, 2019 Consolidated Financial Statements:
(in thousands) |  | 1% Increase |  |  | 1% Decrease |
Effect on total service cost plus interest cost |  | $ | 165 |  |  | $ | (126 | )
Effect on accumulated postretirement benefit obligation |  | $ | 3,282 |  |  | $ | (2,582 | )

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