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Savings Plans, Pension Plans and Other Postretirement Employee Benefits
 12 Months Ended
Dec. 31, 2020
General Discussion Of Pension And Other Postretirement Benefits [Abstract]  
Savings Plans, Pension Plans and Other Postretirement Employee Benefits

NOTE 16. 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 2020, 2019 and 2018, we made matching 401(k) contributions on behalf of our employees of $3.6 million, $3.9 million and $3.7 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.  

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. Upon merger with Deltic in 2018, we assumed one qualified pension plan, one nonqualified pension plan and an other postretirement benefit (OPEB) plan. The acquired plans have been frozen to new participants since 2014.

Effective January 1, 2010, we restructured our OPEB plans. 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.

In February 2020, we purchased a group annuity contract from an insurance company to transfer $101.1 million of our outstanding pension benefit obligation related to our qualified pension plans to the insurance company. This transaction was funded with plan assets. As a result of the transaction, the insurance company assumed responsibility for annuity administration and benefit payments to select retirees, with no change to their monthly retirement benefit payment amounts. In connection with this transaction we recorded a non-cash pretax settlement charge of $43.0 million as a result of accelerating the recognition of actuarial losses included in accumulated other comprehensive loss that would have been recognized in future periods.

The settlement triggered a remeasurement of plan assets and liabilities. We updated the discount rate used to measure our projected benefit obligation for the qualified pension plans as of February 29, 2020 and to calculate the related net periodic benefit cost for the remainder of 2020 to 2.95% from 3.40%. All other pension assumptions were unchanged. The net effect of the remeasurement was a reduction in the funded status of our qualified pension plans in the first quarter of 2020 of approximately $26.2 million, primarily driven by the decrease in the discount rate.  

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 plans 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 Operations as net periodic cost (benefit).

Changes in benefit obligation, plan assets and funded status for our pension and OPEB plans are as follows: 

 

 

 

Pension Plans

 

 

OPEB

 

(in thousands)

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Benefit obligation at beginning of year

 

$

(474,237

)

 

$

(427,909

)

 

$

(46,395

)

 

$

(40,032

)

Service cost

 

 

(8,932

)

 

 

(7,767

)

 

 

(508

)

 

 

(371

)

Interest cost

 

 

(12,263

)

 

 

(18,465

)

 

 

(1,502

)

 

 

(1,588

)

Actuarial loss

 

 

(38,366

)

 

 

(53,446

)

 

 

(6,415

)

 

 

(7,997

)

Benefits paid

 

 

23,614

 

 

 

33,350

 

 

 

3,985

 

 

 

3,593

 

Plan settlements

 

 

101,755

 

 

 

—

 

 

 

—

 

 

 

—

 

Benefit obligation at end of year

 

$

(408,429

)

 

$

(474,237

)

 

$

(50,835

)

 

$

(46,395

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value of plan assets at beginning of year

 

$

398,468

 

 

$

351,285

 

 

$

—

 

 

$

—

 

Actual return on plan assets

 

 

46,672

 

 

 

78,448

 

 

 

—

 

 

 

—

 

Employer contributions and benefit payments

 

 

6,019

 

 

 

2,085

 

 

 

3,985

 

 

 

3,593

 

Benefits paid

 

 

(23,614

)

 

 

(33,350

)

 

 

(3,985

)

 

 

(3,593

)

Plan settlements

 

 

(101,755

)

 

 

—

 

 

 

—

 

 

 

—

 

Fair value of plan assets at end of year

 

$

325,790

 

 

$

398,468

 

 

$

—

 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts recognized in the consolidated balance sheets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

$

(2,363

)

 

$

(2,152

)

 

$

(4,211

)

 

$

(4,549

)

Noncurrent assets

 

 

1,907

 

 

 

—

 

 

 

—

 

 

 

—

 

Noncurrent liabilities

 

 

(82,183

)

 

 

(73,617

)

 

 

(46,624

)

 

 

(41,846

)

Funded status

 

$

(82,639

)

 

$

(75,769

)

 

$

(50,835

)

 

$

(46,395

)

 

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.  At December 31, 2020 and 2019, the accumulated benefit obligation for all defined benefit pension plans was $390.3 million and $458.1 million, respectively. During 2020 and 2019, funding of pension and other postretirement employee benefit plans was $10.0 million and $5.7 million, respectively.

Pension plans with projected benefit obligations greater than plan assets at December 31 are as follows:

 

 

 

 

2020

 

 

 

2019

 

Projected benefit obligations

 

$

350,091

 

 

$

474,237

 

Fair value of plan assets

 

$

265,546

 

 

$

398,468

 

 

Pension plans with accumulated benefit obligations greater than plan assets at December 31 are as follows:

 

 

 

 

2020

 

 

 

2019

 

Accumulated benefit obligations

 

$

332,012

 

 

$

458,106

 

Fair value of plan assets

 

$

265,546

 

 

$

398,468

 

 

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.

 

•

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 long-term targeted asset allocation ranges for the pension benefit plans’ asset categories are as follows:

 

Asset Category

 

Allocation Range

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%

 

The asset allocations of the pension benefit plans’ assets at December 31 by asset category are as follows:

 

 

 

Pension Plans

 

Asset Category

 

 

2020

 

 

 

2019

 

Global equities

 

 

32

%

 

 

32

%

Fixed income securities

 

 

53

 

 

 

54

 

Other (includes cash and cash equivalents and alternatives)

 

 

15

 

 

 

14

 

Total

 

 

100

%

 

 

100

%

 

The pension assets are stated at fair value. Refer to Note 1: Summary of Significant Accounting Policies 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 consist of thinly traded fixed income instruments of varying maturities representing corporate security investments.

 

•

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, 2020 or 2019.

Assets within our defined benefit pension plans were invested as follows:

 

(in thousands)

 

December 31, 2020

 

Asset Category

 

Level 1

 

 

Level 2

 

 

Total

 

Cash and cash equivalents

 

$

5,571

 

 

$

—

 

 

$

5,571

 

Global equity securities1

 

 

104,775

 

 

 

—

 

 

 

104,775

 

Fixed income securities2

 

 

143,415

 

 

 

29,494

 

 

 

172,909

 

Alternatives3

 

 

42,535

 

 

 

—

 

 

 

42,535

 

Total

 

$

296,296

 

 

$

29,494

 

 

$

325,790

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 securities2

 

 

173,464

 

 

 

40,554

 

 

 

214,018

 

Alternatives3

 

 

50,091

 

 

 

—

 

 

 

50,091

 

Total

 

$

357,914

 

 

$

40,554

 

 

$

398,468

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Level 1 assets are international and domestic managed investments that track the MSCI All-Country World Index.

2

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.

3

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.

PLAN ACTIVITY

Pre-tax components of net periodic cost (benefit) recognized in our Consolidated Statements of Operations were as follows for the years ended December 31:

 

 

 

Pension Plans

 

 

OPEB

 

(in thousands)

 

 

2020

 

 

 

2019

 

 

 

2018

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

Service cost

 

$

8,932

 

 

$

7,767

 

 

$

8,454

 

 

$

508

 

 

$

371

 

 

$

341

 

Interest cost

 

 

12,263

 

 

 

18,465

 

 

 

16,992

 

 

 

1,502

 

 

 

1,588

 

 

 

1,482

 

Expected return on plan assets

 

 

(15,474

)

 

 

(22,190

)

 

 

(20,035

)

 

 

—

 

 

 

—

 

 

 

—

 

Amortization of prior service cost (credit)

 

 

111

 

 

 

211

 

 

 

186

 

 

 

(1,274

)

 

 

(8,844

)

 

 

(8,877

)

Amortization of actuarial loss

 

 

15,426

 

 

 

13,497

 

 

 

16,589

 

 

 

1,672

 

 

 

1,012

 

 

 

1,311

 

Net periodic cost (benefit) before pension settlement charge

 

 

21,258

 

 

 

17,750

 

 

 

22,186

 

 

 

2,408

 

 

 

(5,873

)

 

 

(5,743

)

Pension settlement charge

 

 

42,988

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Net periodic cost (benefit)

 

$

64,246

 

 

$

17,750

 

 

$

22,186

 

 

$

2,408

 

 

$

(5,873

)

 

$

(5,743

)

 

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)

 

2020

 

 

2019

 

 

 

2020

 

 

 

2019

 

Net loss

 

$

78,859

 

 

$

116,780

 

 

$

15,947

 

 

$

12,437

 

Prior service cost (credit)

 

 

166

 

 

 

248

 

 

 

(1,164

)

 

 

(2,106

)

Total amount unrecognized

 

$

79,025

 

 

$

117,028

 

 

$

14,783

 

 

$

10,331

 

 

EXPECTED FUNDING AND BENEFIT PAYMENTS

We are required to contribute $1.8 million to our qualified pension plans in 2021. 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 $2.4 million and other postretirement employee benefit payments of $4.2 million in 2021, 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

 

2021

 

$

21,923

 

 

$

4,211

 

2022

 

$

22,386

 

 

$

3,730

 

2023

 

$

22,649

 

 

$

3,556

 

2024

 

$

22,638

 

 

$

3,274

 

2025

 

$

22,519

 

 

$

3,018

 

2026–2030

 

$

110,216

 

 

$

13,300

 

 

ACTUARIAL ASSUMPTIONS

The weighted average assumptions used to determine the benefit obligation for non-Deltic plans as of December 31 were:

 

 

 

Pension Plans

 

 

OPEB

 

 

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

Discount rate

 

 

2.65

%

 

 

3.40

%

 

 

2.60

%

 

 

3.40

%

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

 

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

Discount rate

 

 

3.40

%

 

 

4.40

%

 

 

3.85

%

 

 

3.40

%

 

 

4.40

%

 

 

3.65

%

Expected return on plan assets

 

 

5.75

%

 

 

6.25

%

 

 

6.25

%

 

 

—

 

 

 

—

 

 

 

—

 

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

 

 

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

Discount rate

 

 

2.65

%

 

 

3.40

%

 

 

2.60

%

 

 

3.40

%

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

 

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

 

 

2020

 

 

 

2019

 

 

 

2018

 

Discount rate

 

 

3.40

%

 

 

4.40

%

 

 

4.30

%

 

 

3.40

%

 

 

4.40

%

 

 

4.30

%

Expected return on plan assets

 

 

5.75

%

 

 

6.25

%

 

 

6.25

%

 

 

—

 

 

 

—

 

 

 

—

 

Rate of salaried compensation increase

 

 

4.00

%

 

 

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.

At December 31, 2020, the assumed health care cost trend rate used to calculate other postretirement employee benefit obligations for the non-Deltic plans was between 6.36% and 7.05%, depending on the plan participant make up, and for Deltic plans a rate of 6.78% was utilized, with both Deltic and non-Deltic plans 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.