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PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS | 9 Months Ended
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Sep. 30, 2016
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 |
|  | 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015 |
|  | (in thousands) |
Service cost |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 107 |  | $ | 101 |
Interest cost |  |  | 1,057 |  |  | 1,356 |  |  | 32 |  |  | 31 |  |  | 254 |  |  | 228 |
Expected return on plan assets |  |  | (2,242) |  |  | (2,297) |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of prior service credit |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (47) |  |  | (47) |
Pension settlement expense |  |  | 803 |  |  | 762 |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of net actuarial loss(1) |  |  | 1,106 |  |  | 640 |  |  | 38 |  |  | 40 |  |  | 177 |  |  | 213 |
Net periodic benefit cost |  | $ | 724 |  | $ | 461 |  | $ | 70 |  | $ | 71 |  | $ | 491 |  | $ | 495 |
|  | Nine Months Ended September 30 |
|  | Nonunion Defined |  | Supplemental |  | Postretirement |
|  | Benefit Pension Plan |  | Benefit Plan |  | Health Benefit Plan |
|  | 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015 |
|  | (in thousands) |
Service cost |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 321 |  | $ | 304 |
Interest cost |  |  | 3,520 |  |  | 3,899 |  |  | 97 |  |  | 92 |  |  | 763 |  |  | 685 |
Expected return on plan assets |  |  | (6,346) |  |  | (7,058) |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of prior service credit |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (142) |  |  | (142) |
Pension settlement expense |  |  | 2,267 |  |  | 2,478 |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of net actuarial loss(1) |  |  | 3,123 |  |  | 2,276 |  |  | 114 |  |  | 120 |  |  | 529 |  |  | 639 |
Net periodic benefit cost |  | $ | 2,564 |  | $ | 1,595 |  | $ | 211 |  | $ | 212 |  | $ | 1,471 |  | $ | 1,486 |
| (1) |  | The Company amortizes actuarial losses over the average remaining active service period of the plan participants and does not use a corridor approach.
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 were active employees of the Company became eligible for the discretionary defined contribution feature of the Company’s nonunion 401(k) and defined contribution plan in which all eligible noncontractual employees hired subsequent to December 31, 2005 also participate. The Company recognized pension settlement expense as a component of net periodic benefit cost for the three and nine months ended September 30, 2016 of $0.8 million (pre-tax), or $0.5 million (after-tax), and $2.3 million (pre-tax), or $1.4 million (after-tax), respectively, related to lump-sum distributions which amounted to $4.3 million and $11.6 million for the three and nine months ended September 30, 2016, respectively. Upon recognition of pension settlement expense, a corresponding reduction in the unrecognized net actuarial loss of the plan is recorded. The remaining pre-tax unrecognized net actuarial loss will continue to be amortized over the average remaining future years of service of the active plan participants. The Company will incur additional quarterly settlement expense related to lump-sum distributions from the nonunion defined benefit pension plan during the remainder of 2016. The Company recognized pension settlement expense as a component of net periodic benefit cost for the three and nine months ended September 30, 2015 of $0.8 million (pre-tax), or $0.5 million (after-tax), and $2.5 million (pre-tax), or $1.5 million (after-tax), respectively, related to the lump-sum distributions which amounted to $4.1 million and $16.6 million for the three and nine months ended September 30, 2015, respectively. The following table discloses the changes in the projected benefit obligation (the “PBO”) and plan assets of the nonunion defined benefit pension plan for the nine months ended September 30, 2016:
|  | Nonunion Defined |
|  | Benefit Pension Plan |
|  | (in thousands)
Change in benefit obligations |  |  |  |
Benefit obligations at December 31, 2015 |  | $ | 159,607 |
Interest cost |  |  | 3,520 |
Actuarial loss(1) |  |  | 10,068 |
Benefits paid |  |  | (11,860) |
Benefit obligations at September 30, 2016 |  |  | 161,335 |
Change in plan assets |  |  |  |
Fair value of plan assets at December 31, 2015 |  |  | 136,917 |
Actual return on plan assets |  |  | 9,637 |
Employer contributions |  |  | 13,400 |
Benefits paid |  |  | (11,860) |
Fair value of plan assets at September 30, 2016 |  |  | 148,094 |
Funded status at September 30, 2016(2) |  | $ | (13,241) |
Accumulated benefit obligation |  | $ | 161,335 |
| (1) |  | Actuarial loss from remeasurement upon settlement was primarily impacted by the change in the discount rate since the previous remeasurement date. The discount rates used to remeasure the PBO upon settlement were 2.7%, 2.7%, 3.0%, and 3.5% at the September 30, 2016, June 30, 2016, March 31, 2016, and December 31, 2015 measurement date, respectively.
| (2) |  | Noncurrent liability recognized within pension and postretirement liabilities in the accompanying consolidated balance sheet at September 30, 2016.
Based upon current actuarial information, the Company does not have a minimum cash contribution requirement to its nonunion defined benefit pension plan for 2016. However, the Company made a voluntary contribution to the plan during the second quarter of 2016. The contribution reduced the unfunded vested benefits of the plan and eliminated the variable-rate premiums which would have otherwise been due to the Pension Benefit Guaranty Corporation (the “PBGC”). The contribution and the lower PBGC premiums resulted in a decrease in net periodic benefit cost for the second and third quarters and will result in a net periodic pension credit, before settlement expense, to be recorded for the fourth quarter of 2016. The plan’s actuary has certified the adjusted funding target attainment percentage (“AFTAP”) to be 107.8% as of the January 1, 2016 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. 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 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. The 25 multiemployer pension plans to which ABF Freight contributes 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”), which was permanently extended by the Multiemployer Pension Reform Act (the “Reform Act”) included in the Consolidated and Further Continuing Appropriations Act of 2015. Provisions of the Reform Act include, among others, providing qualifying plans the ability to self-correct funding issues, subject to various requirements and restrictions, including applying to the U.S. Department of the Treasury (the “Treasury”) for the reduction of certain accrued benefits. Any actions taken by trustees of multiemployer pension plans under the Reform Act to improve funding will not reduce benefit rates ABF Freight is obligated to pay under the ABF NMFA. 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. If ABF Freight was 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. 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”). ABF Freight received an Actuarial Certification of Plan Status for the Central States Pension Plan dated March 30, 2016, in which the plan’s actuary certified that, as of January 1, 2016, the plan is in critical and declining status, as defined by the Reform Act, with the funded percentage projected to be 46.9% as of the January 1, 2016 valuation date. Critical and declining status is applicable to critical status plans that are projected to become insolvent anytime in the current plan year or during the next 14 plan years, or if the plan is projected to become insolvent within the next 19 plan years and either the plan’s ratio of inactive participants to active participants exceeds two to one or the plan’s funded percentage is less than 80%. In September 2015, the Central States Pension Plan filed an application with the Treasury seeking approval under the Reform Act for a pension rescue plan, which included benefit reductions for participants of the Central States Pension Plan in an attempt to avoid the insolvency of the plan that otherwise is projected by the plan to occur. In May 2016, the Treasury denied the Central States Pension Plan’s proposed rescue plan. The trustees of the Central States Pension Plan subsequently announced that a new rescue plan would not be submitted and stated that it is not possible to develop and implement a new rescue plan that complies with the final Reform Act regulations issued by the Treasury on April 26, 2016. Although the future of the Central States Pension Plan is impacted by a number of factors, without legislative action, the plan is currently projected to become insolvent within 10 years or less. ABF Freight’s current collective bargaining agreement with the IBT provides for contributions to the Central States Pension Plan through March 31, 2018, and it is ABF Freight’s understanding that its contribution rate is not expected to increase during this period. ABF Freight’s contribution rates are made in accordance with its collective bargaining agreements with the IBT and other related supplemental agreements. In consideration of high multiemployer contribution rates, several of the plans in addition to the Central States Pension Plan have frozen contribution rates at current levels under ABF Freight’s current collective bargaining agreement. Future contribution rates will be determined through the negotiation process for contract periods following the term of the current collective bargaining agreement. ABF Freight pays some of the highest benefit contribution rates in the industry and continues to address the effect of ABF Freight’s wage and benefit cost structure on its operating results in discussions with the IBT. As previously disclosed in the Company’s 2015 Form 10-K, ABF Freight received a Notice of Insolvency from the Road Carriers Local 707 Pension Fund (the “707 Pension Fund”) for the plan year beginning February 1, 2016. During the second quarter of 2016, the 707 Pension Fund received notice that the Treasury denied its proposal to reduce participant benefits in an effort to remain solvent. Approximately 1% of ABF Freight’s total multiemployer pension contributions are made to the 707 Pension Fund. Based on currently available information, it is the Company’s understanding that if the 707 Pension Fund becomes insolvent, ABF Freight’s benefit contribution rates under the ABF NMFA will be frozen and ABF Freight will be required to continue making contributions at the frozen rate throughout and after the current ABF NMFA contract period, which extends to March 31, 2018; however, there can be no assurance in this regard. 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 2015 Annual Report on Form 10-K.

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