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Retirement Plans and Other Post-Retirement Benefits | 12 Months Ended
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Dec. 31, 2016
Compensation And Retirement Disclosure [Abstract] |
Retirement Plans and Other Post-Retirement Benefits |
11. | RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS
We provide non-contributory retirement benefits under both funded and unfunded plans to all U.S. employees and to certain non-U.S. employees. Participation and benefits under the plans are based upon the employees’ date of hire and the covered group in which that employee falls. U.S. benefits are based on either a unit-benefit formula for bargained hourly employees, or a final average pay formula or cash balance formula for salaried employees. Non-U.S. benefits are based, in the case of certain plans, on average salary and years of service and, in the case of other plans, on a fixed amount for each year of service. U.S. plan provisions and funding meet the requirements of the Employee Retirement Income Security Act of 1974. We use a December 31-measurement date for all of our defined benefit plans. We also provide certain health care benefits to eligible U.S.-based retired employees and exclude all salaried employees hired after January 1, 2008. These benefits include a comprehensive medical plan for retirees prior to age 65 and fixed supplemental premium payments to certain retirees over age 65 to help defray the costs of Medicare. Claims are paid as reported.
|  | Pension Benefits |  |  |  | Other Benefits |
In millions |  | 2016 |  |  |  | 2015 |  |  |  | 2016 |  |  |  | 2015 |
Change in Benefit Obligation |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at beginning of year |  | $ | 541.9 |  |  |  | $ | 577.6 |  |  |  | $ | 51.0 |  |  |  | $ | 59.8 |
Service cost |  |  | 10.5 |  |  |  |  | 11.6 |  |  |  |  | 1.1 |  |  |  |  | 1.4 |
Interest cost |  |  | 24.5 |  |  |  |  | 23.3 |  |  |  |  | 2.0 |  |  |  |  | 2.0 |
Plan amendments |  |  | 5.5 |  |  |  |  | - |  |  |  |  | - |  |  |  |  | - |
Participant contributions |  |  | - |  |  |  |  | - |  |  |  |  | 1.0 |  |  |  |  | 1.2 |
Actuarial (gain)/loss |  |  | 17.0 |  |  |  |  | (34.8 | ) |  |  |  | (3.4 | ) |  |  |  | (10.1 | )
Benefits paid |  |  | (22.9 | ) |  |  |  | (34.8 | ) |  |  |  | (3.8 | ) |  |  |  | (3.3 | )
One-time settlement |  |  | (24.2 | ) |  |  |  | - |  |  |  |  | - |  |  |  |  | - |
Effect of currency rate changes |  |  | (0.3 | ) |  |  |  | (1.0 | ) |  |  |  | - |  |  |  |  | - |
Balance at end of year |  | $ | 552.0 |  |  |  | $ | 541.9 |  |  |  | $ | 47.9 |  |  |  | $ | 51.0 |
Change in Plan Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value of plan assets at beginning of year |  | $ | 594.9 |  |  |  | $ | 638.0 |  |  |  | $ | - |  |  |  | $ | - |
Actual return on plan assets |  |  | 60.8 |  |  |  |  | (10.3 | ) |  |  |  | - |  |  |  |  | - |
Total contributions |  |  | 2.1 |  |  |  |  | 2.0 |  |  |  |  | 3.8 |  |  |  |  | 3.3 |
Benefits paid |  |  | (22.9 | ) |  |  |  | (34.8 | ) |  |  |  | (3.8 | ) |  |  |  | (3.3 | )
One-time settlement |  |  | (24.2 | ) |  |  |  | - |  |  |  |  | - |  |  |  |  | - |
Fair value of plan assets at end of year |  | $ | 610.7 |  |  |  |  | 594.9 |  |  |  |  | - |  |  |  |  | - |
Funded status at end of year |  | $ | 58.7 |  |  |  | $ | 53.0 |  |  |  | $ | (47.9 | ) |  |  | $ | (51.0 | )
In 2016, the we recorded a pension settlement charge of $7.3 million and settled $24.2 million of benefits in connection with a voluntary program offered to deferred vested terminated participants. Amounts recognized in the consolidated balance sheets consist of the following as of December 31:
|  | Pension Benefits |  |  |  | Other Benefits |
In millions |  | 2016 |  |  |  | 2015 |  |  |  | 2016 |  |  |  | 2015 |
Other assets |  | $ | 96.7 |  |  |  | $ | 89.1 |  |  |  | $ | - |  |  |  | $ | - |
Current liabilities |  |  | (2.0 | ) |  |  |  | (2.1 | ) |  |  |  | (3.2 | ) |  |  |  | (3.2 | )
Other long-term liabilities |  |  | (36.0 | ) |  |  |  | (34.0 | ) |  |  |  | (44.7 | ) |  |  |  | (47.7 | )
Net amount recognized |  | $ | 58.7 |  |  |  | $ | 53.0 |  |  |  | $ | (47.9 | ) |  |  | $ | (50.9 | )
The components of amounts recognized as “Accumulated other comprehensive income” consist of the following on a pre-tax basis:
|  | Pension Benefits |  |  |  | Other Benefits |
In millions |  | 2016 |  |  |  | 2015 |  |  |  | 2016 |  |  |  | 2015 |
Prior service cost/(credit) |  | $ | 14.8 |  |  |  | $ | 12.0 |  |  |  | $ | (0.6 | ) |  |  | $ | (0.8 | )
Net actuarial loss |  |  | 165.9 |  |  |  |  | 185.0 |  |  |  |  | (7.4 | ) |  |  |  | (4.8 | )
The accumulated benefit obligation for all defined benefit pension plans was $537.6 million and $526.7 million at December 31, 2016 and 2015, respectively. The weighted-average assumptions used in computing the benefit obligations above were as follows:
|  | Pension Benefits |  |  |  | Other Benefits |
|  | 2016 |  |  |  | 2015 |  |  |  | 2016 |  |  |  | 2015 |
Discount rate – benefit obligation |  |  | 4.43 | % |  |  |  | 4.65 | % |  |  |  | 4.18 | % |  |  |  | 4.38 | %
Future compensation growth rate |  |  | 3.00 |  |  |  |  | 3.50 |  |  |  | – |  |  |  | – |
The discount rates set forth above were estimated based on the modeling of expected cash flows for each of our benefit plans and selecting a portfolio of high-quality debt instruments with maturities matching the respective cash flows of each plan. The resulting discount rates as of December 31, 2016 ranged from 1.90% to 4.55% for pension plans and from 4.02% to 4.21% for other benefit plans. Information for pension plans with an accumulated benefit obligation in excess of plan assets was as follows:
In millions |  | 2016 |  |  |  | 2015 |
Projected benefit obligation |  | $ | 37.9 |  |  |  | $ | 36.1 |
Accumulated benefit obligation |  |  | 34.6 |  |  |  |  | 33.1 |
Fair value of plan assets |  | – |  |  |  | – |
Net periodic benefit cost includes the following components:
|  | Year Ended December 31 |
In millions |  | 2016 |  |  |  | 2015 |  |  |  | 2014 |
Pension Benefits |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 10.5 |  |  |  | $ | 11.6 |  |  |  | $ | 10.4 |
Interest cost |  |  | 24.5 |  |  |  |  | 23.3 |  |  |  |  | 24.8 |
Expected return on plan assets |  |  | (45.4 | ) |  |  |  | (46.0 | ) |  |  |  | (43.9 | )
Amortization of prior service cost |  |  | 2.7 |  |  |  |  | 3.1 |  |  |  |  | 3.3 |
Amortization of actuarial loss |  |  | 13.2 |  |  |  |  | 17.1 |  |  |  |  | 12.1 |
One-time settlement charge |  |  | 7.3 |  |  |  |  | — |  |  |  |  | — |
Total net periodic benefit cost |  | $ | 12.8 |  |  |  | $ | 9.1 |  |  |  | $ | 6.7 |
Other Benefits |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 1.1 |  |  |  | $ | 1.4 |  |  |  | $ | 1.5 |
Interest cost |  |  | 2.0 |  |  |  |  | 2.0 |  |  |  |  | 2.5 |
Amortization of prior service cost/(credit) |  |  | (0.2 | ) |  |  |  | (0.3 | ) |  |  |  | (0.3 | )
Amortization of actuarial loss |  |  | (0.8 | ) |  |  |  | 0.2 |  |  |  |  | 0.4 |
Total net periodic benefit cost |  | $ | 2.1 |  |  |  | $ | 3.3 |  |  |  | $ | 4.1 |
The prior service cost and actuarial net loss for our defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into our results of operations as a component of net periodic benefit cost over the next fiscal year are $2.8 million and $11.3 million, respectively. The comparable amounts of expected amortization for other benefit plans are a credit of $0.2 million and $0.6 million, respectively. Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) were as follows:
|  |  | Year Ended December 31 |
In millions |  |  | 2016 |  |  |  | 2015 |
Pension Benefits |  |  |  |  |  |  |  |  |  |
Actuarial loss |  |  | $ | 1.4 |  |  |  | $ | 21.5 |
Plan amendments |  |  |  | 5.5 |  |  |  |  | — |
Recognized prior service cost |  |  |  | (2.7 | ) |  |  |  | (3.1 | )
Recognized actuarial losses |  |  |  | (20.5 | ) |  |  |  | (17.1 | )
Total recognized in other comprehensive loss |  |  |  | (16.3 | ) |  |  |  | 1.3 |
Total recognized in net periodic benefit cost and other comprehensive loss |  |  | $ | (3.5 | ) |  |  | $ | 10.4 |
Other Benefits |  |  |  |  |  |  |  |  |  |
Actuarial (gain) loss |  |  | $ | (3.4 | ) |  |  | $ | (10.1 | )
Amortization of prior service cost |  |  |  | 0.2 |  |  |  |  | 0.3 |
Amortization of actuarial losses |  |  |  | 0.8 |  |  |  |  | (0.2 | )
Total recognized in other comprehensive (income) loss |  |  |  | (2.4 | ) |  |  |  | (10.0 | )
Total recognized in net periodic benefit cost and other comprehensive (income) loss |  |  | $ | (0.3 | ) |  |  | $ | (6.7 | )
The weighted-average assumptions used in computing the net periodic benefit cost information above were as follows:
|  |  | Year Ended December 31 |
|  |  | 2016 |  |  |  | 2015 |  |  |  | 2014 |
Pension Benefits |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discount rate – benefit expense |  |  |  | 4.65 | % |  |  |  | 4.21 | % |  |  |  | 5.20 | %
Future compensation growth rate |  |  |  | 3.50 |  |  |  |  | 4.00 |  |  |  |  | 4.00 |
Expected long-term rate of return on plan assets |  |  |  | 7.75 |  |  |  |  | 8.00 |  |  |  |  | 8.00 |
Other Benefits |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discount rate – benefit expense |  |  |  | 4.38 | % |  |  |  | 3.89 | % |  |  |  | 4.52 | %
To develop the expected long-term rate of return assumption, we considered the historical returns and the future expected returns for each asset class, as well as the target asset allocation of the pension portfolio. Assumed health care cost trend rates used to determine benefit obligations at December 31 were as follows:
|  | 2016 |  |  |  | 2015 |
Health care cost trend rate assumed for next year |  |  | 6.50 | % |  |  |  | 6.80 | %
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) |  |  | 4.50 |  |  |  |  | 4.50 |
Year that the rate reaches the ultimate rate |  | 2037 |  |  |  | 2037 |
Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one percentage-point change in assumed health care cost trend rates would have the following effects:
|  | One Percentage Point |
In millions |  | Increase |  |  |  | Decrease |
Effect on: |  |  |  |  |  |  |  |  |
Post-retirement benefit obligation |  | $ | 3.8 |  |  |  | $ | (3.4 | )
Total of service and interest cost components |  |  | 0.3 |  |  |  |  | (0.3 | )
Plan Assets All pension plan assets in the U.S. are invested through a single master trust fund. The strategic asset allocation for this trust fund is selected by management, reflecting the results of comprehensive asset and liability modeling. The general principles guiding U.S. pension asset investment policies are those embodied in the Employee Retirement Income Security Act of 1974 (ERISA). These principles include discharging our investment responsibilities for the exclusive benefit of plan participants and in accordance with the “prudent expert” standard and other ERISA rules and regulations. We establish strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk. Investments and decisions will be made solely in the interest of the Plan’s participants and beneficiaries, and for the exclusive purpose of providing benefits accrued thereunder. The primary goal of the Plan is to ensure the solvency of the Plan over time and thereby meet its distribution objectives. All investments in the Plan will be made in accordance with ERISA and other applicable statutes. Risk is minimized by diversification by asset class, by style of each manager and by sector and industry limits when applicable. The targeted range of investment allocations of Plan assets is as follows:
|  | Range |
Domestic Equity |  |  | 35 | % |  | - |  | 45 | %
International equity |  | 8 |  |  | - | 14 |
Real Estate Investment Trusts (REIT) |  | 2 |  |  | - | 6 |
Fixed income, cash and cash equivalents |  | 55 |  |  | - | 35 |
Diversification of plan assets is achieved by:
| i. | placing restrictions on the percentage of equity investments in any one company, percentage of investment in any one industry, limiting the amount of assets placed with any one manager; and
| ii. | setting targets for duration of fixed income securities, maintaining a certain level of credit quality, and limiting the amount of investment in a single security and in non-investment grade paper.
A formal asset allocation review is done periodically to ensure that the Plan has an appropriate asset allocation based on the Plan’s projected benefit obligations. The target return for each equity and fixed income manager will be one that places the manager’s performance in the top 40% of its peers and, on a gross basis, exceeds that of the manager’s respective benchmark index. The target return for cash and cash equivalents is a return that at least equals that of the 90-day T-bills. The Investment Policy statement lists specific categories of securities or activities that are prohibited including options, futures, commodities, hedge funds, limited partnerships, and our stock. The table below presents the fair values of our benefit plan assets by level within the fair value hierarchy, as described in Note 2:
|  | December 31, 2016 |
In millions |  | Total |  |  |  | Level 1 |  |  |  | Level 2 |  |  |  | Level 3 |
Domestic Equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Large cap |  | $ | 201.9 |  |  |  | $ | 7.1 |  |  |  | $ | 194.8 |  |  |  | $ | - |
Small and mid cap |  |  | 50.9 |  |  |  |  | 50.9 |  |  |  |  | - |  |  |  |  | - |
International equity |  |  | 79.5 |  |  |  |  | 38.8 |  |  |  |  | 40.7 |  |  |  |  | - |
REIT |  |  | 27.9 |  |  |  |  | 27.9 |  |  |  |  | - |  |  |  |  | - |
Fixed income |  |  | 237.7 |  |  |  |  | 28.5 |  |  |  |  | 209.2 |  |  |  |  | - |
Cash and equivalents |  |  | 12.8 |  |  |  |  | - |  |  |  |  | 12.8 |  |  |  |  | - |
Total |  | $ | 610.7 |  |  |  | $ | 153.2 |  |  |  | $ | 457.5 |  |  |  | $ | - |
|  | December 31, 2015 |
In millions |  | Total |  |  |  | Level 1 |  |  |  | Level 2 |  |  |  | Level 3 |
Domestic Equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Large cap |  | $ | 175.1 |  |  |  | $ | 58.4 |  |  |  | $ | 116.7 |  |  |  | $ | - |
Small and mid cap |  |  | 68.7 |  |  |  |  | 68.7 |  |  |  |  | - |  |  |  |  | - |
International equity |  |  | 79.8 |  |  |  |  | 42.2 |  |  |  |  | 37.6 |  |  |  |  | - |
REIT |  |  | 31.9 |  |  |  |  | 31.9 |  |  |  |  | - |  |  |  |  | - |
Fixed income |  |  | 222.4 |  |  |  |  | 32.3 |  |  |  |  | 190.1 |  |  |  |  | - |
Cash and equivalents |  |  | 17.0 |  |  |  |  | - |  |  |  |  | 17.0 |  |  |  |  | - |
Total |  | $ | 594.9 |  |  |  | $ | 233.5 |  |  |  | $ | 361.4 |  |  |  | $ | - |
Cash Flow We were not required to make contributions to our qualified pension plan in 2016 nor do we expect to make any to this plan in 2017. Benefit payments expected to be made in 2017 under our non-qualified pension plans and other benefit plans are summarized below:
In thousands |  |  |  |  |  |  |
Nonqualified pension plans |  |  |  |  | $ | 1,991 |
Other benefit plans |  |  |  |  |  | 3,212 |
The following benefit payments under all pension and other benefit plans, and giving effect to expected future service, as appropriate, are expected to be paid:
In thousands |  | Pension Benefits |  |  |  | Other Benefits |
2017 |  | $ | 36,885 |  |  |  | $ | 3,212 |
2018 |  |  | 37,033 |  |  |  |  | 3,548 |
2019 |  |  | 36,520 |  |  |  |  | 4,013 |
2020 |  |  | 36,871 |  |  |  |  | 4,389 |
2021 |  |  | 36,871 |  |  |  |  | 4,488 |
2022 through 2026 |  |  | 184,679 |  |  |  |  | 21,009 |
Defined Contribution Plans We maintain 401(k) plans for certain hourly and salaried employees. Employees may contribute up to 50% of their earnings, subject to certain restrictions. Through November 2015, we matched a portion of the employee’s contribution, subject to certain limitations, in the form of shares of Glatfelter common stock out of treasury. Company matches are now made in cash. The expense associated with our 401(k) match was $2.0 million, $2.1 million and $2.0 million in 2016, 2015 and 2014, respectively.

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