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Note 9 - Pensions and Other Postretirement Benefits
 12 Months Ended
Dec. 31, 2020
Notes to Financial Statements  
Retirement Benefits [Text Block]

Note 9 – Pensions and Other Postretirement Benefits

 

The Company sponsors a defined benefit pension plan (“Plan”) covering certain domestic employees. Benefits are based on each covered employee’s years of service and compensation. The Plan is funded in conformity with the funding requirements of applicable U.S. regulations. The Plan was closed to new participants effective January 1, 2008. Employees hired after this date, in eligible locations, participate in an enhanced 401(k) plan instead of the defined benefit pension plan. Employees hired prior to this date continue to accrue benefits.

 

Additionally, the Company sponsors defined contribution pension plans made available to all domestic and Canadian employees. Total contributions to the plans were $2.3 million for 2020 and 2019 and $2.2 million for 2018.

 

The Company also sponsors a non-contributory defined benefit postretirement health care plan that provides health benefits to certain domestic and Canadian retirees and eligible spouses and dependent children. The Company funds the cost of these benefits as incurred. For measurement purposes, and based on maximum benefits as defined by the plan, a 5% annual rate of increase in the per capita cost of covered health care benefits for all retirees was assumed in estimating the projected postretirement benefit obligation at December 31, 2020, which is expected to remain constant going forward. A 5% percent annual rate of increase was assumed in estimating the projected benefit obligation at December 31, 2019 and in calculating 2020 periodic benefit cost.

 

The Company recognizes the obligations associated with its defined benefit pension plan and defined benefit postretirement health care plan in its Consolidated Financial Statements. The following table presents the plans’ funded status as of the measurement date, December 31, reconciled with amounts recognized in the Company’s Consolidated Balance Sheets:

 

  

Pension Plan

  

Postretirement Plan

 
  

2020

  

2019

  

2020

  

2019

 

Accumulated benefit obligation at end of year

 $69,554  $66,900  $29,848  $26,055 
Change in projected benefit obligation:                

Benefit obligation at beginning of year

 $81,325  $67,578  $26,055  $23,679 

Service cost

  2,709   2,204   1,372   1,083 

Interest cost

  1,937   2,454   778   941 

Settlement

  1,854   -   -   - 

Benefits paid

  (12,872)  (3,735)  (1,305)  (2,311)

Effect of foreign exchange

     -   9   16 

Actual expenses

  (150)  -   -   - 

Actuarial loss

  11,496   12,824   2,939   2,647 

Benefit obligation at end of year

 $86,299  $81,325  $29,848  $26,055 
                 

Change in plan assets:

                

Plan assets at beginning of year

 $80,285  $72,395  $-  $- 

Actual return on plan assets

  7,804   11,625   -   - 

Employer contributions

  2,000   -   1,305   2,311 

Benefits paid

  (12,872)  (3,735)  (1,305)  (2,311)

Actual expenses

  (150)  -   -   - 

Plan assets at end of year

 $77,067  $80,285  $-  $- 

Funded status at end of year

 $(9,232) $(1,040) $(29,848) $(26,055)

 

  

Pension Plan

  

Postretirement Plan

 
  

2020

  

2019

  

2020

  

2019

 
Amounts recognized in the Consolidated Balance Sheets consist of:                

Current liabilities

 $-  $-  $(1,598) $(1,602)

Noncurrent liabilities

  (9,232)  (1,040)  (28,250)  (24,453)

Total assets (liabilities)

 $(9,232) $(1,040) $(29,848) $(26,055)
                 
Amounts recognized in Accumulated other comprehensive loss consist of:                

Net actuarial loss

 $28,896  $26,192  $7,834  $5,205 

Prior Service Cost

  -   -   (3,255)  (4,383)

Deferred tax (benefit) expense

  (7,130)  (6,499)  (1,012)  (132)

After tax actuarial loss (gain)

 $21,766  $19,693  $3,567  $690 

 

Components of net periodic benefit cost:

            
  

2020

  

2019

  

2018

 

Pension Plan

            

Service cost

 $2,709  $2,204  $2,408 

Interest cost

  1,937   2,454   2,552 

Expected return on plan assets

  (3,900)  (3,561)  (4,481)

Recognized actuarial loss

  2,160   1,726   1,577 

Settlement loss

  4,583   -   2,852 

Net periodic benefit cost

 $7,489  $2,823  $4,908 
             
Other changes in pension plan assets and benefit obligations recognized in other comprehensive loss:            

Net loss (gain)

  2,704  $3,034  $(1,413)

Total expense recognized in net periodic benefit cost and other comprehensive income

 $10,193  $5,857  $3,495 
             

Postretirement Plan

            

Service cost

 $1,372  $1,083  $775 

Interest cost

  778   941   561 

Prior service cost recognition

  (1,129)  (1,129)  (1,128)

Recognized actuarial loss (gain)

  306   27   (413)

Net periodic benefit (credit) cost

 $1,327  $922  $(205)
             
Other changes in postretirement plan assets and benefit obligations recognized in other comprehensive loss:            

Net loss (gain)

 $3,762  $3,749  $9,096 

Total expense (benefit) recognized in net periodic benefit cost and other comprehensive income

 $5,089  $4,671  $8,891 

 

The change in the benefit obligations for the pension and postretirement plans for 2019 and 2020 include an actuarial loss primarily related to a decline in discount rates. The pension benefit obligation actuarial loss was offset in part by plan asset returns.

 

The components of net periodic benefit cost other than the service cost component are included in Other income (expense), net in the Consolidated Statements of Income.

 

During 2020 and 2018 the Company recorded a settlement loss relating to retirees that received lump-sum distributions from the Company’s defined benefit pension plan totaling $4.6 million and $2.9 million respectively. No settlement loss was incurred in 2019. These charges were the result of lump-sum payments to retirees which exceeded the Plan’s actuarial service and interest cost thresholds.

 

The prior service cost is amortized on a straight-line basis over the average estimated remaining service period of active participants. The unrecognized actuarial gain or loss in excess of the greater of 10% of the benefit obligation or the market value of plan assets is also amortized on a straight-line basis over the average estimated remaining service period of active participants.

 

  

Pension Plan

  

Postretirement Plan

 
  

2020

  

2019

  

2020

  

2019

 
Weighted-average assumptions used to determine benefit obligations at December 31:                

Discount rate

  1.97%  2.83%  2.25%  3.08%

Rate of compensation increase

  3.50%  3.50%  –   – 
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31:                

Discount rate

  2.40%  3.94%  3.08%  4.13%

Expected long-term rate of return on plan assets

  5.36%  5.37%  –   – 

Rate of compensation increase

  3.50%  3.50%  –   – 

 

To enhance the Company’s efforts to mitigate the impact of the defined benefit pension plan on its financial statements, in 2014 the Company moved towards a liability driven investing model to more closely align assets with liabilities based on when the liabilities are expected to come due. Currently, based on 2020 funding levels, equities may comprise between 22% and 42% of the Plan’s market value. Fixed income investments may comprise between 50% and 70% of the Plan’s market value. Alternative investments may comprise between 3% and 13% of the Plan’s market value. Cash and cash equivalents (including all senior debt securities with less than one year to maturity) may comprise between 0% and 10% of the Plan’s market value.

 

Financial instruments included in pension plan assets are categorized into a fair value hierarchy of three levels, based on the degree of subjectivity inherent in the valuation methodology. Level 1 assets are based on unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets. Level 2 assets are valued at inputs other than quoted prices in active markets for identical assets that are observable either directly or indirectly for substantially the full term of the assets. Level 3 assets are valued based on unobservable inputs for the asset (i.e., supported by little or no market activity). These inputs include management’s own assessments about the assumptions that market participants would use in pricing assets (including assumptions about risk). The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

 

The following tables set forth by asset class the Plan’s fair value of assets for the years ended December 31, 2020 and 2019:

 

  

Quoted Prices in Active Markets for Identical Assets

(Level 1)

  

Significant Observable Inputs

(Level 2)

  

Significant Unobservable Inputs

(Level 3)

  

Plan Assets at December 31, 2020

 

Equity

 $12,619  $-  $20  $12,639 

Fixed income

  9,582   45,463   -   55,045 

Mutual funds

  2,108   -   -   2,108 

Money funds and cash

  2,089   5,186   -   7,275 

Total fair value of Plan assets

 $26,398  $50,649  $20  $77,067 

 

  

Quoted Prices in Active Markets for Identical Assets

(Level 1)

  

Significant Observable Inputs

(Level 2)

  

Significant Unobservable Inputs

(Level 3)

  

Plan Assets at December 31, 2019

 

Equity

 $12,986  $-  $-  $12,986 

Fixed income

  11,671   46,145   -   57,816 

Mutual funds

  1,992   -   -   1,992 

Money funds and cash

  3,103   4,388   -   7,491 

Total fair value of Plan assets

 $29,752  $50,533  $-  $80,285 

 

Contributions

 

The Company expects to contribute up to $2.0 million to its defined benefit pension plan in 2021. 

 

Expected future benefit payments

 

The following benefit payments are expected to be paid as follows based on actuarial calculations:

 

  

2021

  

2022

  

2023

  

2024

  

2025

  

Thereafter

 

Pension

 $12,540  $5,233  $3,829  $4,942  $5,059  $27,198 

Postretirement

  1,616   1,548   1,495   1,525   1,510   8,898 

 

For measurement purposes, and based on maximum benefits as defined by the plan, a 5% annual rate of increase in the per capita cost of covered health care benefits for all retirees was assumed as of December 31, 2020 and 2019 and is expected to remain constant going forward.

 

A one percentage point change in the assumed rate of return on the defined benefit pension plan assets is estimated to have an approximate $0.7 million effect on net periodic benefit cost. Additionally, a one percentage point increase in the discount rate is estimated to have a $1.6 million decrease in net periodic benefit cost, while a one percentage point decrease in the discount rate is estimated to have a $1.8 million increase in net periodic benefit cost.