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PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS | 9 Months Ended
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Sep. 30, 2018
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 |
|  | 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
|  | (in thousands) |
Service cost |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 92 |  | $ | 122 |
Interest cost |  |  | 1,136 |  |  | 1,073 |  |  | 27 |  |  | 26 |  |  | 209 |  |  | 265 |
Expected return on plan assets |  |  | (363) |  |  | (763) |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of prior service credit |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (23) |  |  | (47) |
Pension settlement expense |  |  | 518 |  |  | 943 |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of net actuarial loss(1) |  |  | 494 |  |  | 703 |  |  | 20 |  |  | 20 |  |  | 76 |  |  | 173 |
Net periodic benefit cost |  | $ | 1,785 |  | $ | 1,956 |  | $ | 47 |  | $ | 46 |  | $ | 354 |  | $ | 513 |
|  | Nine Months Ended September 30 |
|  | Nonunion Defined |  | Supplemental |  | Postretirement |
|  | Benefit Pension Plan |  | Benefit Plan |  | Health Benefit Plan |
|  | 2018 |  | 2017 |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
|  | (in thousands) |
Service cost |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 275 |  | $ | 366 |
Interest cost |  |  | 3,259 |  |  | 3,462 |  |  | 81 |  |  | 77 |  |  | 628 |  |  | 795 |
Expected return on plan assets |  |  | (1,142) |  |  | (4,984) |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of prior service credit |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (70) |  |  | (142) |
Pension settlement expense |  |  | 1,603 |  |  | 3,644 |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of net actuarial loss(1) |  |  | 1,864 |  |  | 2,346 |  |  | 60 |  |  | 61 |  |  | 228 |  |  | 520 |
Net periodic benefit cost |  | $ | 5,584 |  | $ | 4,468 |  | $ | 141 |  | $ | 138 |  | $ | 1,061 |  | $ | 1,539 |
| (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 November 2017, an amendment was executed to terminate the nonunion defined benefit pension plan with a termination date of December 31, 2017. In September 2018, the plan received a favorable determination letter from the IRS regarding qualification of the plan termination. Following receipt of the determination letter, the plan’s actuarial assumptions were updated to remeasure the benefit obligation on a plan termination basis as of September 30, 2018 in connection with recognition of the quarterly pension settlement charge. The Company made assumptions for participant benefit elections, rate of return, and discount rates, including the annuity contract interest rate. Following an election window in which participants may choose their form of benefit payment, the plan will distribute immediate lump sum benefit payments and then settle remaining plan liabilities for benefits with the purchase of nonparticipating annuity contracts from insurance companies. 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, 2018 of $0.5 million (pre-tax), or $0.4 million (after-tax), and $1.6 million (pre-tax), or $1.2 million (after-tax), respectively, related to $3.1 million and $11.6 million of lump-sum benefit distributions from the plan for the three and nine months ended September 30, 2018, respectively. For the three and nine months ended September 30, 2017, pension settlement expense 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, was recognized related to $5.8 million and $23.1 million of lump-sum distributions from the plan for the three and nine months ended September 30, 2017, respectively, which included a $7.6 million nonparticipating annuity contract purchased 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. 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. 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, will occur in fourth quarter 2018 and first quarter 2019. Based on currently available information provided by the plan’s actuary, the Company estimates that noncash pension settlement charges could total approximately $15.0 million to $21.0 million and are expected to be recognized partially in fourth quarter 2018 and partially in first quarter 2019, and cash funding could total approximately $13.0 million in first quarter 2019, although there can be no assurances in this regard. The final pension settlement charges and the actual amount the Company will be required to contribute to the plan to fund benefit distributions in excess of plan assets cannot be determined at this time, as the actual amounts are dependent on various factors, including final benefit calculations, the benefit elections made by plan participants, interest rates, the value of plan assets, 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. Liquidation of plan assets and settlement of plan obligations is expected to be complete in February 2019. 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, 2018:
|  | Nonunion Defined |
|  | Benefit Pension Plan |
|  | (in thousands) |
Change in benefit obligations |  |  |  |
Benefit obligations at December 31, 2017 |  | $ | 137,417 |
Interest cost |  |  | 3,259 |
Actuarial loss(1) |  |  | 3,562 |
Benefits paid |  |  | (11,781) |
Benefit obligations at September 30, 2018 |  |  | 132,457 |
Change in plan assets |  |  |  |
Fair value of plan assets at December 31, 2017 |  |  | 124,831 |
Actual return on plan assets |  |  | 2,028 |
Employer contributions |  |  | 5,500 |
Benefits paid |  |  | (11,781) |
Fair value of plan assets at September 30, 2018 |  |  | 120,578 |
Funded status at period end(2) |  | $ | (11,879) |
Accumulated benefit obligation |  | $ | 132,457 |
| (1) |  | Actuarial loss resulted from remeasurement of the benefit obligation for plan termination assumptions at September 30, 2018, partially offset an actuarial gain recognized as of June 30, 2018 related primarily to the impact of an increase in the discount rate at the June 30, 2018 remeasurement upon settlement compared to the discount rate at the December 31, 2017 measurement date.
| (2) |  | Recognized within current portion of pension and postretirement liabilities in the accompanying consolidated balance sheet at September 30, 2018.
The Company did not have a minimum cash contribution requirement for the nonunion defined benefit pension plan for 2018; however, in anticipation of funding the nonunion pension plan for termination, the Company made a $5.5 million voluntary contribution to the plan in September 2018 which will be deductible for income tax purposes in the Company’s tax year ended February 28, 2018. The plan’s preliminary adjusted funding target attainment percentage (“AFTAP”) is 108.77% as of the January 1, 2018 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 2018 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 2018 ABF NMFA, which will remain in effect through June 30, 2023. The funding obligations to the pension plans are intended to satisfy the requirements imposed by the Pension Protection Act of 2006, 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 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 30, 2018, in which the plan’s actuary certified that, as of January 1, 2018, the plan is in critical and declining status, as defined by the Reform Act. 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%. On July 9, 2018, ABF Freight reached a tentative agreement with the Teamster bargaining representatives for the Northern and Southern New England Supplemental Agreements on terms for new supplemental agreements to the 2018 ABF NMFA for 2018-2023 (the “New England Supplemental Agreements”). The New England Supplemental Agreements were ratified by the local unions in the region covered by the supplements on July 25, 2018. In accordance with the New England Supplemental Agreements, ABF Freight’s multiemployer pension plan obligation with the New England Teamsters and Trucking Industry Pension Fund (the “New England Pension Fund”) was restructured under a transition agreement effective on August 1, 2018. The New England Pension Fund is a multiemployer pension plan in critical and declining status to which ABF Freight made approximately 3% of its total multiemployer pension contributions in 2017. The New England Pension Fund was previously restructured to utilize a “two pool approach,” which effectively subdivides the plan assets and liabilities between two groups of beneficiaries. In accordance with ABF Freight’s transition agreement with the New England Pension Fund, ABF Freight agreed to withdraw from the original pool to which it has historically been a participant (“Existing Employer Pool”) and transition to the direct attribution liability pool (“New Employer Pool”), which does not have an associated unfunded liability. The terms of the transition are pursuant to the Second Chance Policy on Retroactive Withdrawal Liability, as adopted by the New England Pension Fund. ABF Freight’s transition agreement with the New England Pension Fund triggered a withdrawal liability settlement which satisfies ABF Freight’s existing potential withdrawal liability obligations to the Existing Employer Pool and minimizes the potential for future increases in withdrawal liability under the New Employer Pool. ABF Freight transitioned to the New Employer Pool at a lower pension contribution rate than its previous contribution rate under the Existing Employer Pool, and the new contribution rate will be frozen for a period of 10 years. ABF Freight recognized a one-time charge of $37.9 million (pre-tax) to record the withdrawal liability as of June 30, 2018 when the transition agreement was determined to be probable. The withdrawal liability was partially settled through the initial lump sum cash payment of $15.1 million made in third quarter 2018, and the remainder will be settled with monthly payments to the New England Pension Fund over a period of 23 years with an initial aggregate present value of $22.8 million. In accordance with current tax law, these payments are deductible for income taxes when paid. As of September 30, 2018, the outstanding withdrawal liability totaled $22.7 million, of which $0.5 million and $22.2 million was recorded in accrued expenses and other long-term liabilities, respectively. The fair value of the obligation was $23.0 million at September 30, 2018, which is equal to the present value of the future withdrawal liability payments, discounted at a 4.4% interest rate determined using the 20-year U.S. Treasury rate plus a spread (Level 2 of the fair value hierarchy). 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 2017 Annual Report on Form 10-K.

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