Retirement Plans and Postretirement Benefits

Retirement Plans

On February 26, 1991, we formed our own retirement plan covering substantially all our U.S. employees. Under our plan, covered employees earned benefit payments based primarily on their service credits and wages subsequent to February 26, 1991.

Prior to that date, substantially all our U.S. employees were participants in the U.S. retirement plan of Union Carbide Corporation (“Union Carbide”). While service credit was frozen, covered employees continued to earn benefits under the Union Carbide plan based on their final average wages through February 26, 1991, adjusted for salary increases (not to exceed six percent per annum) through January 26, 1995, the date Union Carbide ceased to own a minimum 50% of the equity of GTI. The Union Carbide plan is responsible for paying retirement and death benefits earned as of February 26, 1991.

Effective January 1, 2002, we established a defined contribution plan for U.S. employees. Certain employees had the option to remain in our defined benefit plan for an additional period of up to five years. Employees not covered by this option had their benefits under our defined benefit plan frozen as of December 31, 2001, and began participating in the defined contribution plan.

Effective March 31, 2003, we curtailed our qualified benefit plan and the benefits were frozen as of that date for the U.S. employees who had the option to remain in our defined benefit plan. We also closed our non-qualified U.S. defined benefit plan for the participating salaried workforce. The employees began participating in the defined contribution plan as of April 1, 2003.

Pension coverage for employees of foreign subsidiaries is provided, to the extent deemed appropriate, through separate plans. Obligations under such plans are systematically provided for by depositing funds with trustees, under insurance policies or by book reserves.

The components of our consolidated net pension costs are set forth in the following table:



	For the Year Ended December 31,
	2018						2017						2016
	U.S.			Foreign			U.S.			Foreign			U.S.			Foreign
							(Dollars in thousands)
Service cost	$	1,315		$	674		$	1,305		$	710		$	1,325		$	698
Interest cost	4,709			253			5,352			199			5,744			243
Expected return on assets	(5,679		)	(330		)	(5,268		)	(299		)	(4,940		)	(298		)
Mark-to-market loss (gain)	2,473			503			(4,140		)	(53		)	(2,322		)	(220		)
Pension costs	$	2,818		$	1,100		$	(2,751	)	$	557		$	(193	)	$	423

The mark-to-market loss in 2018 was the result of less than expected return on plan assets, partially offset by a favorable change to the discount rate. The mark-to-market gain in 2017 was the result of better than expected returns on assets, partially offset by an unfavorable change to the discount rate. The mark-to-market gain in 2016 was the result of better than expected returns on plan assets and favorable changes to the mortality tables, partially offset by unfavorable changes to the discount rate.

The reconciliation of the beginning and ending balances of our pension plans’ benefit obligations, fair value of assets, and funded status at December 31, 2018 and 2017 are:



	As of December 31, 2018						As of December 31, 2017
	U.S.			Foreign			U.S.				Foreign
	(Dollars in thousands)
Changes in Benefit Obligation:
Net Benefit Obligation at beginning of period	$	139,746		$	20,407		$	140,230			$	18,237
Service cost	1,315			674			1,305				710
Interest cost	4,709			253			5,352				199
Participant contributions	—			392			—				252
Foreign currency exchange changes	—			(339		)	—				1,069
Actuarial (gain) loss	(8,297		)	711			3,212				63
Benefits paid	(10,488		)	234			(10,353		)		(123		)
Net benefit obligation at end of period	$	126,985		$	22,332		$	139,746			$	20,407
Changes in Plan Assets:
Fair value of plan assets at beginning of period	$	109,845		$	13,618		$	100,905			$	11,871
Actual return on plan assets	(5,091		)	538			12,620				415
Foreign currency exchange rate changes				(154		)	—				545
Employer contributions	5,579			726			6,673				658
Participant contributions				392			—				252
Benefits paid	(10,488		)	234			(10,353		)		(123		)
Fair value of plan assets at end of period	$	99,845		$	15,354		$	109,845			$	13,618
Funded status (underfunded):	$	(27,140	)	$	(6,978	)	$	(29,901	)		$	(6,789	)
Amounts recognized in accumulated other comprehensive loss:
Prior service credit	$	—		$	—		$	—			$	—
Amounts recognized in the statement of financial position:
Non-current assets				$	147		$	—			$	—
Current liabilities	(430		)	(117		)	(433		)	—	(146		)
Non-current liabilities	(26,710		)	(7,008		)	(29,468		)	—	(6,643		)
Net amount recognized	$	(27,140	)	$	(6,978	)	$	(29,901	)		$	(6,789	)

The accumulated benefit obligation for all defined benefit pension plans was $147.6 million and $158.6 million as of December 31, 2018 and 2017, respectively.

Plan Assets

The accounting guidance on fair value measurements specifies a hierarchy based on the observability of inputs used in valuation techniques (Level 1, 2 and 3). See Note 9, “Fair Value Measurements and Derivative Instruments,” for a discussion of the fair value hierarchy.

The following describes the methods and significant assumptions used to estimate the fair value of the investments:

Cash and cash equivalents – Valued at cost. Cash equivalents are valued at net asset value as provided by the administrator of the fund.

Foreign government bonds – Valued by the trustees using various pricing services of financial institutions.

Debt securities – Valued by the trustee at year-end using various pricing services of financial institutions, including Interactive Data Corporation, Standard & Poor’s and Telekurs.

Equity securities – Valued at the closing price reported on the active market on which the security is traded.

Fixed insurance contract – Valued at the present value of the guaranteed payment streams.

Investment contracts – Valued at the total cost of annuity contracts purchased, adjusted for market differences from the date of purchase to year-end.

Collective trusts – Valued at the net asset value provided by the administrator of the fund (the practical expedient). The net asset value is primarily based on quoted market prices of the underlying securities for which quoted market prices of the underlying securities of the funds. Some of the underlying investments include securities for which quoted market prices are not available and are valued using data obtained by the trustee from the best available source or market value. This method may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although we believe its valuation method is appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The fair value of other plan assets by category is summarized below (dollars in thousands):



	As of December 31, 2018
	Level 1		Level 2		Level 3		Total
U.S. Plan Assets
Cash and cash equivalents	$	1,978	$	—	$	—	$	1,978
International Plan Assets
Foreign government bonds	$	—	$	958	$	—	$	958
Fixed insurance contracts	—		—		14,396		14,396
Total assets in the fair value hierarchy	$	—	$	958	$	14,396	$	15,354
Investments measured at net asset value							$	97,867
Total	$	1,978	$	958	$	14,396	$	115,199

	As of December 31, 2017
	Level 1		Level 2		Level 3		Total
U.S. Plan Assets
Cash and cash equivalents	$	2,094	$	—	$	—	$	2,094
International Plan Assets
Foreign government bonds	$	—	$	831	$	—	$	831
Fixed insurance contracts	—		—		12,787		12,787
Total assets in the fair value hierarchy	$	—	$	831	$	12,787	$	13,618
Investments measured at net asset value							$	107,751
Total	$	2,094	$	831	$	12,787	$	123,463

The following table presents the changes for those financial instruments classified within Level 3 of the valuation hierarchy for international plan pension assets for the years ended December 31, 2017 and 2018 (dollars in thousands):



	Fixed Insurance Contracts
Balance at December 31, 2016	$	11,142
Gain / contributions / currency impact	1,651
Distributions	(6		)
Balance at December 31, 2017	12,787
Gain / contributions / currency impact	1,619
Distributions	(10		)
Balance at December 31, 2018	$	14,396

We annually re-evaluate assumptions and estimates used in projecting pension assets, liabilities and expenses. These assumptions and estimates may affect the carrying value of pension assets, liabilities and expenses in our Consolidated Financial Statements. Assumptions used to determine net pension costs and projected benefit obligations are:



Pension Benefit Obligations Key Assumptions	As of December 31,
	2018		2017
Weighted average assumptions to determine benefit obligations:
Discount rate	3.71	%	3.20	%
Rate of compensation increase	1.74	%	1.57	%



Pension Cost Key Assumptions
Weighted average assumptions to determine net cost:
Discount rate	3.20	%	3.61	%
Expected return on plan assets	4.94	%	4.95	%
Rate of compensation increase	1.57	%	1.57	%

We adjust our discount rate annually in relation to the rate at which the benefits could be effectively settled. Discount rates are set for each plan in reference to the yields available on AA-rated corporate bonds of appropriate currency and duration. The appropriate discount rate is derived by developing an AA-rated corporate bond yield curve in each currency. The discount rate for a given plan is the rate implied by the yield curve for the duration of that plan’s liabilities. In certain countries, where little public information is available on which to base discount rate assumptions, the discount rate is based on government bond yields or other indices and approximate adjustments to allow for the differences in weighted durations for the specific plans and/or allowance for assumed credit spreads between government and AA rated corporate bonds.

The expected return on assets assumption represents our best estimate of the long-term return on plan assets and generally was estimated by computing a weighted average return of the underlying long-term expected returns on the different asset classes, based on the target asset allocations. The expected return on assets assumption is a long-term assumption that is expected to remain the same from one year to the next unless there is a significant change in the target asset allocation, the fees and expenses paid by the plan or market conditions.

The rate of compensation increase assumption is generally based on salary increases.

Plan Assets. The following table presents our retirement plan weighted average asset allocations at December 31, 2018, by asset category:



	Percentage of Plan Assets as of December 31, 2018
	US		Foreign
Equity securities and return seeking assets	20	%	—	%
Fixed income, debt securities, or cash	80	%	100	%
Total	100	%	100	%

Investment Policy and Strategy. The investment policy and strategy of the U.S. plan is to invest approximately 20% in equities and return seeking assets and approximately 80% in fixed income securities. Rebalancing is undertaken monthly. To the extent we maintain plans in other countries, target asset allocation is 100% fixed income investments. For each plan, the investment policy is set within both asset return and local statutory requirements.

Information for our pension plans with an accumulated benefit obligation in excess of plan assets at December 31, 2017 and 2018 follows:



	2018				2017
	U.S.		Foreign		U.S.		Foreign
	(Dollars in thousands)
Accumulated benefit obligation	$	126,985	$	20,601	$	139,746	$	18,843
Fair value of plan assets	99,845		14,396		109,845		13,618

Information for our pension plans with a projected benefit obligation in excess of plan assets at December 31, 2017 and 2018 follows:



	2018				2017
	U.S.		Foreign		U.S.		Foreign
	(Dollars in thousands)
Projected benefit obligation	$	126,985	$	21,520	$	139,746	$	20,407
Fair value of plan assets	99,845		14,396		109,845		13,618

Following is our projected future pension plan cash flow by year:



	U.S.		Foreign
	(Dollars in thousands)
Expected contributions in 2019:
Expected employer contributions	$	684	$	744
Expected employee contributions	—		—
Estimated future benefit payments reflecting expected future service for the years ending December 31:
2019	9,240		858
2020	9,221		755
2021	9,221		824
2022	9,182		824
2023	9,136		955
2024-2028	43,993		8,223

Post-Employment Benefit Plans

We provide life insurance benefits for eligible retired employees. These benefits are provided through various insurance companies. We accrue the estimated net postretirement benefit costs during the employees’ credited service periods.

In July 2002, we amended our U.S. postretirement medical coverage. In 2003 and 2004, we discontinued the Medicare Supplement Plan (for retirees 65 years or older or those eligible for Medicare benefits). This change applied to all U.S. active employees and retirees. In June 2003, we announced the termination of the existing early retiree medical plan for retirees under age 65, effective December 31, 2005. In addition, we limited the amount of retiree’s life insurance after December 31, 2004. These modifications are accounted for prospectively. The impact of these changes is being amortized over the average remaining period to full eligibility of the related postretirement benefits.

During 2009, we amended one of our U.S. plans to eliminate the life insurance benefit for certain non-pooled participants.

The components of our consolidated net postretirement costs are set forth in the following table:



	For the Year Ended December 31,
	2018					2017					2016
	U.S.			Foreign		U.S.			Foreign		U.S.			Foreign
	(Dollars in thousands)
Service cost	$	—		$	1	$	—		$	2	$	—		$	4
Interest cost	264			700		333			653		360			764
Plan amendment / curtailment	—			—		—			—		—			(993		)
Mark-to-market (gain) loss	(1,028		)	47		(1,257		)	742		(191		)	(225		)
Post-employment benefits (benefit) cost	$	(764	)	$	748	$	(924	)	$	1,397	$	169		$	(450	)

The reconciliation of beginning and ending balances of benefit obligations under, fair value of assets of, and the funded status of, our postretirement plans is set forth in the following table:



Postretirement Benefits	As of December 31, 2018						As of December 31, 2017
	As of December 31, 2018						As of December 31, 2017
	U.S.			Foreign			U.S.			Foreign
	(Dollars in thousands)
Changes in Benefit Obligation:
Net benefit obligation at beginning of period	$	8,461		$	12,172		$	10,175		$	10,700
Service cost	—			1			—			2
Interest cost	264			700			333			653
Foreign currency exchange rates	—			(1,333		)	—			931
Actuarial (gain) loss	(1,028		)	47			(1,257		)	742
Gross benefits paid	(532		)	(926		)	(790		)	(856		)
Plan amendment	—			—			—			—
Net benefit obligation at end of period	$	7,165		$	10,661		$	8,461		$	12,172
Changes in Plan Assets:
Fair value of plan assets at beginning of period	$	—		$	—		$	—		$	—
Employer contributions	532			926			790			856
Gross benefits paid	(532		)	(926		)	(790		)	(856		)
Fair value of plan assets at end of period	$	—		$	—		$	—		$	—
Funded status:	$	(7,165	)	$	(10,661	)	$	(8,461	)	$	(12,172	)
Amounts recognized in accumulated other comprehensive loss:
Prior service credit	$	—		$	—		$	—		$	—
Amounts recognized in the statement of financial position:
Current liabilities	$	(783	)	$	(851	)	$	(855	)	$	(912	)
Non-current liabilities	(6,382		)	(9,810		)	(7,606		)	(11,260		)
Net amount recognized	$	(7,165	)	$	(10,661	)	$	(8,461	)	$	(12,172	)

We annually re-evaluate assumptions and estimates used in projecting the postretirement liabilities and expenses. These assumptions and estimates may affect the carrying value of postretirement plan liabilities and expenses in our Consolidated Financial Statements. Assumptions used to determine net postretirement benefit costs and postretirement projected benefit obligation are set forth in the following table:



Postretirement Benefit Obligations
	2018		2017
Weighted average assumptions to determine benefit obligations:
Discount rate	5.57	%	5.07	%
Health care cost trend on covered charges:
Initial	6.53	%	6.86	%
Ultimate	6.05	%	6.23	%
Years to ultimate	8		8



Postretirement Benefit Costs
	2018		2017
Weighted average assumptions to determine net cost:
Discount rate	5.07	%	4.80	%
Health care cost trend on covered charges:
Initial	6.86	%	6.80	%
Ultimate	6.23	%	5.96	%
Years to ultimate	7		7

Assumed health care cost trend rates have a significant effect on the amounts reported for our postretirement benefits. A one-percentage point change in assumed health care cost trend rates would have the following effects at December 31, 2018:



	One Percentage Point Increase				One Percentage Point Decrease
	U.S.		Foreign		U.S.			Foreign
	(Dollars in thousands)
Effect on total service cost and interest cost components	$	1	$	32	$	(1	)	$	(66	)
Effect on benefit obligations	$	14	$	506	$	(14	)	$	(442	)

Discount rates are set for each plan in reference to the yields available on AA-rated corporate bonds of appropriate currency and duration. The appropriate discount rate is derived by developing an AA-rated corporate bond yield curve in each currency. The discount rate for a given plan is the rate implied by the yield curve for the duration of that plan’s liabilities. In certain countries, where little public information is available on which to base discount rate assumptions, the discount rate is based on government bond yields or other indices and approximate adjustments to allow for the differences in weighted durations for the specific plans and/or allowance for assumed credit spreads between government and AA-rated corporate bonds.

The following table represents projected future postretirement cash flow by year:



	U.S.		Foreign
	(Dollars in thousands)
Expected contributions in 2019:
Expected employer contributions	$	783	$	851
Expected employee contributions	—		—
Estimated future benefit payments reflecting expected future service for the years ending December 31:
2019	783		851
2020	724		866
2021	663		891
2022	607		904
2023	554		899
2024-2025	2,174		4,769

Savings Plan

Our employee savings plan provides eligible employees the opportunity for long-term savings and investment. The plan allows employees to contribute up to 5% of pay as a basic contribution and an additional 45% of pay as supplemental contribution. In 2018, 2017 and 2016, the contributions to our Savings Plan were $1.3 million, $1.6 million and $2.5 million, respectively.