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PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS | 9 Months Ended
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Sep. 30, 2014
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS |
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS | NOTE F — PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS Nonunion Defined Benefit Pension, Supplemental Benefit, and Postretirement Health Benefit Plans The following is a summary of the components of net periodic benefit cost:
|  | Three Months Ended September 30 |
|  | Nonunion Defined |  | Supplemental |  | Postretirement |
|  | Benefit Pension Plan |  | Benefit Plan |  | Health Benefit Plan |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |  | 2014 |  | 2013 |
|  | (in thousands) |
Service cost |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 70 |  | $ | 82 |
Interest cost |  | 1,401 |  | 2,039 |  | 49 |  | 37 |  | 197 |  | 188 |
Expected return on plan assets |  | (2,544 | ) | (3,438 | ) | — |  | — |  | — |  | — |
Amortization of prior service credit |  | — |  | — |  | — |  | — |  | (47 | ) | (47 | )
Pension settlement expense |  | 805 |  | 1,834 |  | — |  | — |  | — |  | — |
Amortization of net actuarial loss |  | 595 |  | 961 |  | 57 |  | 65 |  | 23 |  | 134 |
Net periodic benefit cost |  | $ | 257 |  | $ | 1,396 |  | $ | 106 |  | $ | 102 |  | $ | 243 |  | $ | 357 |
|  | Nine Months Ended September 30 |
|  | Nonunion Defined |  | Supplemental |  | Postretirement |
|  | Benefit Pension Plan |  | Benefit Plan |  | Health Benefit Plan |
|  | 2014 |  | 2013 |  | 2014 |  | 2013 |  | 2014 |  | 2013 |
|  | (in thousands) |
Service cost |  | $ | — |  | $ | 4,734 |  | $ | — |  | $ | — |  | $ | 210 |  | $ | 248 |
Interest cost |  | 4,643 |  | 5,884 |  | 147 |  | 112 |  | 591 |  | 563 |
Expected return on plan assets |  | (7,980 | ) | (9,747 | ) | — |  | — |  | — |  | — |
Amortization of prior service credit |  | — |  | — |  | — |  | — |  | (142 | ) | (142 | )
Pension settlement expense |  | 5,405 |  | 1,834 |  | — |  | — |  | — |  | — |
Amortization of net actuarial loss |  | 1,729 |  | 6,388 |  | 170 |  | 195 |  | 69 |  | 401 |
Net periodic benefit cost |  | $ | 3,797 |  | $ | 9,093 |  | $ | 317 |  | $ | 307 |  | $ | 728 |  | $ | 1,070 |
Nonunion Defined Benefit Pension Plan The Company’s nonunion defined benefit pension plan covers substantially all noncontractual employees hired before January 1, 2006. In June 2013, the Company amended the nonunion defined benefit pension plan to freeze the participants’ final average compensation and years of credited service as of July 1, 2013. The plan amendment did not impact the vested benefits of retirees or former employees whose benefits have not yet been paid from the plan. Effective July 1, 2013, participants of the nonunion defined benefit pension plan who are active employees of the Company became eligible for the discretionary defined contribution feature of the Company’s nonunion defined contribution plan in which all eligible noncontractual employees hired subsequent to December 31, 2005 also participate. The June 2013 amendment to the nonunion defined benefit pension plan resulted in a plan curtailment which was recorded as of June 30, 2013. The freeze of the accrual of benefits effective as of July 1, 2013 and the reduction of the projected benefit obligation (“PBO”) upon plan curtailment eliminated the service cost of the plan and reduced the interest cost of the plan for periods subsequent to the curtailment. Because lump-sum benefit distributions year-to-date through September 30, 2013 exceeded the total annual service and interest costs that were estimated for the plan, the Company recognized pension settlement expense for the three and nine months ended September 30, 2013 of $1.8 million (pre-tax) related to the year-to-date lump-sum benefit distributions. In consideration of the freeze of the accrual of benefits under the nonunion defined benefit pension plan effective July 1, 2013, the plan’s investment strategy has become more focused on reducing investment, interest rate, and longevity risks in the plan. As part of this strategy, in January 2014, the plan purchased a nonparticipating annuity contract from an insurance company to settle the pension obligation related to the vested benefits of 375 plan participants and beneficiaries currently receiving monthly benefit payments. Upon payment of the $25.4 million premium for the annuity contract, pension benefit obligations totaling $23.3 million were irrevocably transferred to the insurance company. Because the total lump-sum distributions plus the nonparticipating annuity contract purchase amount will exceed the annual interest costs of the plan in 2014, the Company recognized total settlement expense as a component of net periodic benefit cost for the nine months ended September 30, 2014 related to the $25.4 million nonparticipating annuity contract purchase and lump-sum distributions which amounted to $6.3 million and $28.8 million for the three and nine months ended September 30, 2014, respectively. Pension settlement expense which totaled $0.8 million (pre-tax), or $0.5 million (after-tax), and $5.4 million (pre-tax), or $3.3 million (after-tax), was recognized for the three and nine months ended September 30, 2014, respectively, with a corresponding reduction of the net actuarial loss of the plan, which is reported within accumulated other comprehensive loss. The remaining pre-tax unrecognized net actuarial loss of $22.1 million will continue to be amortized over the average remaining future years of service of the plan participants, which is approximately eight years. The Company will incur additional quarterly settlement expense related to lump-sum distributions from the nonunion defined benefit pension plan during the remainder of 2014. The following table discloses the changes in the PBO and plan assets of the nonunion defined benefit pension plan for the nine months ended September 30, 2014:
|  | Nonunion Defined |
|  | Benefit Pension Plan |
|  | (in thousands) |
Change in projected benefit obligation |  |  |
Projected benefit obligation at December 31, 2013 |  | $ | 211,660 |
Interest cost |  | 4,643 |
Actuarial loss(1) |  | 10,413 |
Benefits paid(2) |  | (54,593 | )
Projected benefit obligation at September 30, 2014 |  | 172,123 |
Change in plan assets |  |  |
Fair value of plan assets at December 31, 2013 |  | 207,613 |
Actual return on plan assets |  | 5,182 |
Benefits paid(2) |  | (54,593 | )
Fair value of plan assets at September 30, 2014 |  | 158,202 |
Funded status at September 30, 2014(3) |  | $ | (13,921 | )
Accumulated benefit obligation |  | $ | 172,123 |
| (1) |  | Net actuarial loss from remeasurement upon settlements was primarily impacted by changes in the discount rate at each remeasurement date. The discount rate used to remeasure the PBO upon settlement at the September 30, 2014 measurement date was 3.4%, compared to 3.8% at the December 31, 2013 measurement date.
| (2) |  | Includes purchase of nonparticipating annuity contract, lump-sum distributions, and periodic payments made by the plan during the nine months ended September 30, 2014.
| (3) |  | Noncurrent liability recognized within pension and postretirement liabilities in the accompanying consolidated balance sheet at September 30, 2014.
The Company does not have a required minimum contribution to its nonunion defined benefit pension plan for 2014, based upon currently available actuarial information. The Highway and Transportation Funding Act of 2014 (the “HTFA”), which was signed into law on August 8, 2014, delayed the expansion of the corridor of interest rates used in the calculation of minimum funding requirements for defined benefit pension plans, which will produce higher actuarial valuation interest rates thus lowering liabilities and funding requirements. In accordance with the HTFA, the January 1, 2014 actuarial valuation of the Company’s nonunion defined benefit pension plan was reperformed, resulting in an adjusted funding target attainment percentage (“AFTAP”) of 112.3% as of the valuation date. The AFTAP is determined by measurements prescribed by the Internal Revenue Code, which differ from the funding measurements for financial statement reporting purposes. Supplemental Benefit Plan The Company also has an unfunded supplemental benefit plan (“SBP”) for the purpose of supplementing benefits under the Company’s nonunion defined benefit pension plan for executive officers designated as participants in the SBP by the Company’s Board of Directors. The SBP was closed to new entrants effective January 1, 2006, and the accrual of benefits for remaining participants under the SBP was frozen effective December 31, 2009. The lump-sum benefit to be paid to a participant of the SBP who retired subsequent to September 30, 2014 will exceed the annual interest cost of the plan and, therefore, the Company will record pension settlement expense related to the SBP in fourth quarter 2014. Multiemployer Plans ABF Freight contributes to multiemployer pension and health and welfare plans, which have been established pursuant to the Taft-Hartley Act, to provide benefits for its contractual employees. ABF Freight’s contributions generally are based on the time worked by its contractual employees, in accordance with the ABF NMFA, its collective bargaining agreement with the IBT, and other related supplemental agreements. ABF Freight recognizes as expense the contractually required contributions for each period and recognizes as a liability any contributions due and unpaid. ABF Freight contributes to 25 multiemployer pension plans, which vary greatly in size and in funded status. ABF Freight’s contribution obligations to these plans are specified in the ABF NMFA, which was implemented on November 3, 2013 and will remain in effect through March 31, 2018. The funding obligations to the pension plans are intended to satisfy the requirements imposed by the Pension Protection Act of 2006 (the “PPA”). Through the term of its current collective bargaining agreement, ABF Freight’s contribution obligations generally will be satisfied by making the specified contributions when due. However, the Company cannot determine with any certainty the contributions that will be required under future collective bargaining agreements for its contractual employees. In addition, notwithstanding any collective bargaining agreement, employer contribution obligations to multiemployer pension plans can be increased if the plan enters reorganization status or becomes insolvent. In those events, if additional contributions are required, the contribution increase generally cannot exceed 7% per year. As of the date hereof, to ABF Freight’s knowledge, no plan is in reorganization or insolvent such that ABF Freight’s contribution obligations would increase materially. Were ABF Freight to completely withdraw from certain multiemployer pension plans, under current law, the Company would have material liabilities for its share of the unfunded vested liabilities of each such plan. However, ABF Freight currently has no intention to withdraw from any such plan, which generally would be effected through collective bargaining. Approximately one half of ABF Freight’s total contributions to multiemployer pension plans are made to the Central States, Southeast and Southwest Areas Pension Plan (the “Central States Pension Plan”). The funded percentage of the Central States Pension Plan, as set forth in information provided by the Central States Plan, was 47.6% as of January 1, 2013. ABF Freight received a Notice of Critical Status for the Central States Pension Plan which reported that on March 31, 2014, the plan’s actuary certified that the plan remained in critical status, as defined by the PPA, for the plan year beginning January 1, 2014. The multiemployer plan administrators have provided to the Company no other significant changes in information related to multiemployer plans from the information disclosed in the Company’s 2013 Annual Report on Form 10-K.

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