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PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS | 3 Months Ended
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Mar. 31, 2017
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 March 31 |
|  | Nonunion Defined |  | Supplemental |  | Postretirement |
|  | Benefit Pension Plan |  | Benefit Plan |  | Health Benefit Plan |
|  | 2017 |  | 2016 |  | 2017 |  | 2016 |  | 2017 |  | 2016 |
|  | (in thousands) |
Service cost |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 122 |  | $ | 107 |
Interest cost |  |  | 1,240 |  |  | 1,305 |  |  | 26 |  |  | 32 |  |  | 265 |  |  | 254 |
Expected return on plan assets |  |  | (2,167) |  |  | (1,946) |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of prior service credit |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (47) |  |  | (47) |
Pension settlement expense |  |  | 1,957 |  |  | 900 |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of net actuarial loss(1) |  |  | 886 |  |  | 955 |  |  | 20 |  |  | 38 |  |  | 173 |  |  | 176 |
Net periodic benefit cost |  | $ | 1,916 |  | $ | 1,214 |  | $ | 46 |  | $ | 70 |  | $ | 513 |  | $ | 490 |
| (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. In first quarter 2017, the nonunion defined benefit pension plan purchased a nonparticipating annuity contract from an insurance company to settle the pension obligation related to the vested benefits of approximately 50 plan participants and beneficiaries receiving monthly benefit payments at the time of the contract purchase. The Company recognized pension settlement expense as a component of net periodic benefit cost for the three months ended March 31, 2017 of $2.0 million (pre-tax), or $1.2 million (after-tax), related to the $7.6 million premium paid by the plan for the annuity contract and $4.8 million of lump-sum benefit distributions from the plan. For the three months ended March 31, 2016, pension settlement expense of $0.9 million (pre-tax), or $0.6 million (after-tax), was recognized related to $4.5 million of lump-sum distributions from the plan. 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 2017. The following table discloses the changes in benefit obligations and plan assets of the nonunion defined benefit pension plan for the three months ended March 31, 2017:
|  | Nonunion Defined
|  | Benefit Pension Plan
|  | (in thousands)
Change in benefit obligations |  |  |  |
Benefit obligations at December 31, 2016 |  | $ | 152,006 |
Interest cost |  |  | 1,240 |
Actuarial loss(1) |  |  | 4,290 |
Benefits paid |  |  | (12,532) |
Benefit obligations at March 31, 2017 |  |  | 145,004 |
Change in plan assets |  |  |  |
Fair value of plan assets at December 31, 2016 |  |  | 144,805 |
Actual return on plan assets |  |  | 4,050 |
Benefits paid |  |  | (12,532) |
Fair value of plan assets at March 31, 2017 |  |  | 136,323 |
Funded status at March 31, 2017(2) |  | $ | (8,681) |
Accumulated benefit obligation |  | $ | 145,004 |
| (1) |  | Primarily impacted by actuarial increases in the valuation of participant data as of January 1, 2017. The actuarial loss from remeasurement upon settlement was also impacted by a decrease in the discount rate at March 31, 2017 compared to the previous remeasurement at December 31, 2016.
| (2) |  | Noncurrent liability recognized within pension and postretirement liabilities in the accompanying consolidated balance sheet at March 31, 2017.
Based upon current actuarial information, the Company does not have a minimum cash contribution requirement to its nonunion defined benefit pension plan for 2017; however, depending on relevant factors, the Company could make a contribution to the plan during 2017. The plan’s preliminary adjusted funding target attainment percentage (“AFTAP”) is projected to be 107.8% as of the January 1, 2017 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 System, Inc. and certain other subsidiaries reported in the Company’s Asset-Based operating segment (“ABF Freight”) contribute 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. Contribution obligations to these plans are specified in the ABF NMFA, which 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 Department”) for the reduction of certain accrued benefits. 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 ABF Freight’s contractual employees. If ABF Freight was to completely withdraw from certain multiemployer pension plans, under current law, ABF Freight 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 31, 2017, in which the plan’s actuary certified that, as of January 1, 2017, the plan is in critical and declining status, as defined by the Reform Act, with the funded percentage projected to be 40.0% as of the January 1, 2017 valuation date. Critical and declining status is applicable to critical status plans that are projected to become insolvent anytime within 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%. As previously disclosed in the Company’s 2016 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. On March 1, 2017, the Pension Benefit Guaranty Corporation (“PBGC”) announced that beginning February 1, 2017 benefits to retirees were reduced to PBGC guarantee limits for insolvent multiemployer plans. The PBGC provides financial assistance to insolvent multiemployer plans to pay retiree benefits not to exceed guaranteed limits. The 707 Pension Fund will continue to administer the fund as the PBGC provides financial assistance. 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 2016 Annual Report on Form 10-K.

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