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PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS | 9 Months Ended
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Sep. 30, 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 September 30 |
|  | 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 |  |  | 1,073 |  |  | 1,057 |  |  | 26 |  |  | 32 |  |  | 265 |  |  | 254 |
Expected return on plan assets |  |  | (763) |  |  | (2,242) |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of prior service credit |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (47) |  |  | (47) |
Pension settlement expense |  |  | 943 |  |  | 803 |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of net actuarial loss(1) |  |  | 703 |  |  | 1,106 |  |  | 20 |  |  | 38 |  |  | 173 |  |  | 177 |
Net periodic benefit cost |  | $ | 1,956 |  | $ | 724 |  | $ | 46 |  | $ | 70 |  | $ | 513 |  | $ | 491 |
|  | Nine Months Ended September 30 |
|  | Nonunion Defined |  | Supplemental |  | Postretirement |
|  | Benefit Pension Plan |  | Benefit Plan |  | Health Benefit Plan |
|  | 2017 |  | 2016 |  | 2017 |  | 2016 |  | 2017 |  | 2016 |
|  | (in thousands) |
Service cost |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 366 |  | $ | 321 |
Interest cost |  |  | 3,462 |  |  | 3,520 |  |  | 77 |  |  | 97 |  |  | 795 |  |  | 763 |
Expected return on plan assets |  |  | (4,984) |  |  | (6,346) |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of prior service credit |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (142) |  |  | (142) |
Pension settlement expense |  |  | 3,644 |  |  | 2,267 |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of net actuarial loss(1) |  |  | 2,346 |  |  | 3,123 |  |  | 61 |  |  | 114 |  |  | 520 |  |  | 529 |
Net periodic benefit cost |  | $ | 4,468 |  | $ | 2,564 |  | $ | 138 |  | $ | 211 |  | $ | 1,539 |  | $ | 1,471 |
| (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 October 2017, the ArcBest Board of Directors approved a resolution authorizing the execution of an amendment to terminate the nonunion defined benefit pension plan with a proposed termination date of December 31, 2017. Plan participants will have an election window in which they can choose any form of payment allowed by the plan for immediate commencement of payment or defer payment until a later date. Pension settlement charges related to the plan termination, including settlements for lump sum benefit distributions and the cost to purchase an annuity contract to settle the pension obligation related to benefits for which participants elect to defer payment until a later date, are likely to occur primarily in the second half of 2018. A more conservative approach has been taken to preserve asset values of the frozen nonunion defined benefit pension plan and to minimize the impact of market volatility by transferring the plan’s equity investments to short-duration debt instruments in recent months. As a result of the significant change to the plan’s asset allocation, the plan’s investment rate of return assumption was lowered for the second half of 2017, from 6.5% as of January 1, 2017 to 2.5% as of July 1, 2017. The Company recognized pension settlement expense as a component of net periodic benefit cost of the nonunion defined benefit pension plan for the three and nine months ended September 30, 2017 of $0.9 million (pre-tax), or $0.6 million (after-tax), and $3.6 million (pre-tax), or $2.2 million (after-tax), respectively, related to $5.8 million and $15.5 million of lump-sum benefit distributions from the plan for the three and nine months ended September 30, 2017, respectively, and for the nine months ended September 30, 2017, a $7.6 million purchase of a nonparticipating annuity contract from an insurance company during the first quarter 2017 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. For the three and nine months ended September 30, 2016, pension settlement expense 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, was recognized related to $4.3 million and $11.6 million of lump-sum distributions from the plan for the same respective periods. 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 and during 2018. The following table discloses the changes in benefit obligations and plan assets of the nonunion defined benefit pension plan for the nine months ended September 30, 2017:
|  | Nonunion Defined
|  | Benefit Pension Plan
|  | (in thousands)
Change in benefit obligations |  |  |  |
Benefit obligations at December 31, 2016 |  | $ | 152,006 |
Interest cost |  |  | 3,462 |
Actuarial loss(1) |  |  | 6,672 |
Benefits paid |  |  | (23,325) |
Benefit obligations at September 30, 2017 |  |  | 138,815 |
Change in plan assets |  |  |  |
Fair value of plan assets at December 31, 2016 |  |  | 144,805 |
Actual return on plan assets |  |  | 6,487 |
Benefits paid |  |  | (23,325) |
Fair value of plan assets at September 30, 2017 |  |  | 127,967 |
Funded status at September 30, 2017(2) |  | $ | (10,848) |
Accumulated benefit obligation |  | $ | 138,815 |
| (1) |  | Related to actuarial increases in the valuation of participant data as of January 1, 2017 and the actuarial loss from remeasurement upon settlement which was impacted by a decrease in the discount rate at September 30, 2017 compared to the December 31, 2016 measurement date.
| (2) |  | Noncurrent liability recognized within pension and postretirement liabilities in the accompanying consolidated balance sheet at September 30, 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. 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 generally 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% 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 Annual Report on 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. As certified by the plan's actuary, the New York State Teamsters Conference Pension and Retirement Fund (the “New York State Pension Fund”) was in critical and declining status for the plan years beginning January 1, 2017 and 2016. The New York State Pension Fund submitted an application for a reduction in benefits to the Treasury Department in May 2017. The Treasury Department reviewed the application for compliance with the applicable regulations and administered a vote of eligible participants and beneficiaries, of which a majority did not reject the benefit reduction during the voting period which ended on September 6, 2017. In September 2017, the Treasury Department issued an authorization to reduce benefits under the New York State Pension Fund effective October 1, 2017. After the benefit reduction goes into effect, the plan sponsor of the New York State Pension Fund must make an annual determination that, despite all reasonable measures to avoid insolvency, the fund is projected to become insolvent unless a benefit reduction continues. Approximately 2% of ABF Freight’s total multiemployer pension contributions for the year ended December 31, 2016 were made to the New York State Pension Fund. 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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