XML 31 R18.htm IDEA: XBRL DOCUMENT v3.10.0.1
Employee Benefit Plans (Notes)
 12 Months Ended
Dec. 31, 2018
Retirement Benefits [Abstract]  
Employee Benefit Plans 15. Employee Benefit Plans

Knowles sponsors its own defined contribution plan. The Company's expense relating to the defined contribution plan was $6.8 million, $6.4 million, and $6.1 million for the years ended December 31, 2018, 2017, and 2016, respectively.

Knowles sponsors four defined benefit pension plans to certain non-U.S. employees. The two plans in the U.K. and the plan in Taiwan are closed to new participants; however, all active participants in these plans continue to accrue benefits. The balance for the plan in the Philippines, which is open to new participants, has been included as of December 31, 2018. These plans are considered direct obligations of the Company and have been recorded within the accompanying Consolidated Financial Statements.

The Company does not have any other post-retirement employee benefit plans other than the plans mentioned above and the non-qualified supplemental retirement plan discussed below.

Non-U.S. Defined Benefit Pension Plans

Obligations and Funded Status

The following tables summarize the balance sheet impact, including the benefit obligations, assets, and funded status associated with the Company's four defined benefit plans for non-U.S. participants at December 31, 2018 and 2017.
 
December 31,
(in millions)
2018
 
2017
Change in benefit obligation:
 
 
 
Benefit obligation at beginning of year
$
57.9

 
$
52.4

Service cost
0.4

 
0.3

Interest cost
1.3

 
1.5

Benefits paid
(1.5
)
 
(1.5
)
Actuarial (gain) loss
(3.8
)
 
0.5

Plan amendments (1)
1.0

 
0.3

Currency translation and other (2)
(1.6
)
 
4.4

Benefit obligation at end of year
53.7

 
57.9

Change in plan assets:
 

 
 

Fair value of plan assets at beginning of year
51.8

 
43.8

Actual return on plan assets
(1.2
)
 
4.4

Company contributions
1.9

 
1.5

Benefits paid
(1.5
)
 
(1.5
)
Currency translation and other
(3.2
)
 
3.6

Fair value of plan assets at end of year
47.8

 
51.8

Funded status
$
(5.9
)
 
$
(6.1
)
 
 
 
 
Amounts recognized in the Consolidated Balance Sheets consist of:
 

 
 

Other assets and deferred charges
$
1.0

 
$
0.4

Other liabilities
(6.9
)
 
(6.5
)
Funded status
$
(5.9
)
 
$
(6.1
)
 
 
 
 
Accumulated other comprehensive loss:
 
 
 
Net actuarial losses
$
18.0

 
$
18.4

Prior service cost
1.3

 
0.3

Deferred taxes
(3.8
)
 
(3.6
)
Total accumulated other comprehensive loss, net of tax
15.5

 
15.1

Net amount recognized
$
9.6

 
$
9.0

 
 
 
 
Accumulated benefit obligation
$
52.6

 
$
57.0


(1) On October 26, 2018, the U.K. High Court of Justice issued a ruling in a case related to equalization of pension plan participant benefits for the gender effects of Guaranteed Minimum Pensions. As a result of this ruling, the Company recorded an estimated increase to benefit obligations for its U.K defined benefit pension plans of $1.0 million during the year ended December 31, 2018.
(2) The Company recorded an increase in liabilities of $1.3 million related to pre-spin-off pension obligations during the year ended December 31, 2018.

Pension plans with accumulated benefit obligations in excess of plan assets consisted of the following at December 31, 2018 and 2017:
 
December 31,
 (in millions)
2018
 
2017
Projected benefit obligation
$
31.2

 
$
35.3

Accumulated benefit obligation
31.0

 
34.8

Fair value of plan assets
24.7

 
28.8



Net Periodic Benefit Cost (Income)

Components of the net periodic benefit cost (income) were as follows:
 
Years Ended December 31,
(in millions)
2018
 
2017
 
2016
Service cost
$
0.4

 
$
0.3

 
$
0.2

Interest cost
1.3

 
1.5

 
1.6

Expected return on plan assets
(2.8
)
 
(2.7
)
 
(2.4
)
Amortization of recognized actuarial loss
0.5

 
0.5

 
0.3

Other (1)
1.3

 
—

 
—

Total net periodic benefit cost (income)
$
0.7


$
(0.4
)
 
$
(0.3
)

(1) The Company recorded an adjustment related to pre-spin-off pension obligations during the year ended December 31, 2018.

In accordance with ASU 2017-07, the components of net periodic benefit cost (income) other than service cost are presented in the Other expense (income), net line on the Consolidated Statements of Earnings. The service cost component is presented within the Cost of goods sold, Research and development expenses, and Selling and administrative expenses lines on the Consolidated Statements of Earnings based on the nature of services performed by the related employees. The Company expects to amortize an actuarial loss of $0.5 million from accumulated other comprehensive loss into net periodic benefit cost (income) during the year ended December 31, 2019.

Assumptions

The Company determines actuarial assumptions on an annual basis. The actuarial assumptions used for the Company’s four defined benefit plans for non-U.S. participants will vary depending on the applicable country and as such, the tables below include these assumptions by country, as well as in total.

The assumptions used in determining the benefit obligations were as follows:
 
December 31,
 
2018
 
2017
Discount rate
 
 
 
Philippines
8.25
%
 
—

Taiwan
1.25
%
 
1.25
%
United Kingdom
2.80
%
 
2.44
%
Weighted-average
2.78
%
 
2.40
%
Average wage increase
 
 
 
Philippines
6.00
%
 
—

Taiwan
4.25
%
 
4.00
%
United Kingdom
4.40
%
 
4.50
%
Weighted-average
4.41
%
 
4.46
%

The assumptions used in determining the net periodic benefit cost (income) were as follows:
 
Years Ended December 31,
 
2018
 
2017
 
2016
Discount rate
 
 
 
 
 
Taiwan
1.25
%
 
1.50
%
 
1.10
%
United Kingdom
2.44
%
 
2.64
%
 
3.90
%
Weighted-average
2.40
%
 
2.60
%
 
3.72
%
Average wage increase
 
 
 
 
 
Taiwan
4.00
%
 
4.00
%
 
4.00
%
United Kingdom
4.50
%
 
4.60
%
 
4.25
%
Weighted-average
4.46
%
 
4.55
%
 
4.16
%
Expected return on plan assets
 
 
 
 
 
Taiwan
1.50
%
 
1.75
%
 
1.50
%
United Kingdom
5.75
%
 
5.90
%
 
6.50
%
Weighted-average
5.64
%
 
5.80
%
 
6.42
%


The Company’s discount rate assumption is determined by developing a yield curve based on high quality corporate bonds with maturities matching the plans’ expected benefit payment streams. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates.

Plan Assets

The primary financial objective of the plans is to secure participant retirement benefits. Accordingly, the key objective in the plans’ financial management is to promote stability and, to the extent appropriate, growth in the funded status. Related and supporting financial objectives are established in conjunction with a review of current and projected plan financial requirements.

As it relates to the funded defined benefit pension plans, the Company’s funding policy is consistent with the funding requirements of applicable local non-U.S. laws. The Company is responsible for overseeing the management of the investments of the plans’ assets and otherwise ensuring that the plans’ investment programs are in compliance with applicable local law, other relevant legislation, and related plan documents. Where relevant, the Company has retained professional investment managers to manage the plans’ assets and implement the investment process. The investment managers, in implementing their investment processes, have the authority and responsibility to select appropriate investments in the asset classes specified by the terms of their applicable prospectus or investment manager agreements with the plans.

The assets of the plans are invested to achieve an appropriate return for the plans consistent with a prudent level of risk. The asset return objective is to achieve, as a minimum over time, the passively managed return earned by market index funds, weighted in the proportions outlined by the asset class exposures identified in the plans’ strategic allocation. The expected return on assets assumption used for pension expense is developed through analysis of historical market returns, statistical analysis, current market conditions, and the past experience of plan asset investments.

Fair Value Measurements

The fair values of plan assets by asset category within the ASC 820 hierarchy were as follows at December 31, 2018 and 2017:
 
December 31, 2018
 
December 31, 2017
(in millions)
Level 1
 
Level 2
 
Level 3
 
Total Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total Fair Value
Asset category:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed income investments (1)
$
1.9

 
$
18.5

 
$
—

 
$
20.4

 
$
2.3

 
$
12.7

 
$
—

 
$
15.0

Common stock funds (1)
—

 
13.4

 
—

 
13.4

 
—

 
21.9

 
—

 
21.9

Real estate funds
—

 
3.6

 
—

 
3.6

 
—

 
3.5

 
—

 
3.5

Cash and equivalents
0.3

 
0.8

 
—

 
1.1

 
0.1

 
0.9

 
—

 
1.0

Other
5.7

 
3.6

 
—

 
9.3

 
6.8

 
3.6

 
—

 
10.4

Total
$
7.9

 
$
39.9

 
$
—

 
$
47.8

 
$
9.2

 
$
42.6

 
$
—

 
$
51.8


(1) During the year ended December 31, 2018, one of the Company's U.K. plans shifted its investment strategy from common stock funds to fixed income investments to align with participant risk profiles.

See Note 10. Hedging Transactions and Derivative Instruments for additional information on the fair value hierarchy. There were no significant transfers between Level 1 and Level 2 assets during the years ended December 31, 2018 and 2017.

Fixed income investments include government and municipal securities and corporate bonds, which are valued based on yields currently available on comparable securities of issuers with similar credit ratings.

Common stock funds consist of mutual funds and collective trusts. Mutual funds are valued by obtaining quoted prices from nationally recognized securities exchanges. Collective trusts are valued using Net Asset Value (the "NAV") as of the last business day of the year. The NAV is based on the underlying value of the assets owned by the fund minus its liabilities and then divided by the number of shares outstanding. The value of the underlying assets is based on quoted prices in active markets.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Future Estimates

Benefit Payments

Estimated future benefit payments to retirees, which reflect expected future service, are as follows:
(in millions)
 
2019
$
1.9

2020
1.7

2021
1.7

2022
1.8

2023
1.8

2024-2028
11.5



Contributions

Generally, annual contributions are made at such times and in such amounts as required by law and agreed with the trustees of the non-U.S. defined benefit plans. The Company estimates it will pay $3.1 million during the year ended December 31, 2019 related to contributions to these plans. This amount may vary based on updated funding agreements with the Trustees of these plans.

Non-qualified Supplemental Retirement Plan

Knowles provides to certain management employees, through non-qualified plans, supplemental retirement benefits in excess of qualified plan limits imposed by federal tax law. Effective December 31, 2013, the Company's participants no longer accrue benefits. The net amounts recognized on the balance sheet at December 31, 2018 and 2017 are shown in the table below:
 
December 31,
(in millions)
2018
 
2017
Accrued compensation and employee benefits
$
(0.9
)
 
$
(0.2
)
Other liabilities
(0.8
)
 
(1.6
)
Total accumulated other comprehensive loss, net of tax
—

 
0.2

Net amount recognized
$
(1.7
)
 
$
(1.6
)


The actuarial gain arising during the year ended December 31, 2018 was $0.1 million ($0.1 million net of tax). The amortization of prior service cost included in net periodic pension cost (income) during the year ended December 31, 2018 was $0.1 million ($0.1 million net of tax).