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Employee Retirement Plans | 12 Months Ended
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Dec. 31, 2016
Compensation and Retirement Disclosure [Abstract] |
Employee Retirement Plans | 17. Employee Retirement Plans HC2 The Company sponsors a 401(k) employee benefit plan (the “401(k) Plan”) that covers substantially all United States based employees. Employees may contribute amounts to the 401(k) Plan not to exceed statutory limitations. The 401(k) Plan provides an employer matching contribution in cash of 50% of the first 6% of employee annual salary contributions capped at $6,000. The matching contribution made during the years ended December 31, 2016, 2016 and 2015 was $0.1 million and $0.1 million, respectively.. DBMG Certain of DBMG’s fabrication and erection workforce are subject to collective bargaining agreements. DBMG contributes to union-sponsored, multi-employer pension plans. Contributions are made in accordance with negotiated labor contracts. The passage of the Multi-Employer Pension Plan Amendments Act of 1980 (the “Act”) may, under certain circumstances, cause DBMG to become subject to liabilities in excess of contributions made under collective bargaining agreements. Generally, liabilities are contingent upon the termination, withdrawal, or partial withdrawal from the plans. Under the Act, liabilities would be based upon DBMG’s proportionate share of each plan’s unfunded vested benefits. DBMG made contributions to the California Ironworkers Field Pension Trust (“Field Pension”) of $6.9 million and $6.1 million during the years ended December 31, 2016 and 2015, respectively. DBMG’s funding policy is to make monthly contributions to the plan. DBMG’s employees represent less than 5% of the participants in the Field Pension. As of December 31, 2016, DBMG has not undertaken to terminate, withdraw, or partially withdraw from the Field Pension. During 2015, DBMG negotiated with the Steelworkers Pension Trust and reduced the liability to approximately $2.4 million. DBMG made its final quarterly payment of approximately $0.2 million in September 2015. To replace DBMG's funding into the Steelworkers Pension Trust, DBMG agreed to make profit share contributions to the Union 401(k) defined contribution retirement savings plan (the “Union 401k”) beginning on April 1, 2012. Union steelworkers are eligible for the profit share contributions after completing a probationary period (640 hours of work) and are 100% vested in the profit share contributions three years from the date of hire. Union steelworkers are not required to make contributions to the Union 401(k) to receive the profit share contributions. Profit share contributions are made for each hour worked by each eligible union steelworker at a rate of $0.55 per hour. Profit share contributions amounted to approximately $0.1 million and $0.2 million for the years ended December 31, 2016 and 2015, respectively. DBMG maintains a 401(k) retirement savings plan which covers eligible employees and permits participants to contribute to the plan, subject to Internal Revenue Code restrictions and which features matching contributions. The matching contributions for the years ended December 31, 2016 and 2015 was $1.1 million and $1.1 million, respectively. GMSL GMSL has established a number of pension schemes and contribute to other pension schemes around the world covering many of its employees. The principal funds are those in the UK comprising The Global Marine Systems Pension Plan, The Global Marine Personal Pension Plan (established in 2008), and Global Marine Systems (Guernsey) Pension Plan. A small number of employees are members of the Merchant Navy Officers Pension Fund, a centralized defined benefit scheme to which the GMSL contributes. The Global Marine Systems Pension Plan, the Global Marine Systems (Guernsey) Pension Plan and the Merchant Navy Officers Pension Fund are defined benefit plans with assets held in separate trustee administered funds. However as the Global Marine Systems (Guernsey) Pension Plan, which operates both a Career Average Re-valued Earnings (“CARE”) defined benefit section and a defined contribution section is small with few members, the scheme is accounted for as defined contribution type plan. The Global Marine Personal Pension Plan is predominantly of the money purchase type. The Global Marine Systems Pension Plan was a hybrid, exempt approved, occupational pension scheme for the majority of staff, which provides pension and death in service benefits. The defined benefit section of the Plan provided final salary benefits up to December 31, 2003 and CARE benefits from January 1, 2004. In 2008 the defined contribution section was closed to new contributions and all the accumulated funds attributable to the defined contribution members were transferred to a Contracted in Money Purchase Scheme (“CIMP”) set up by GMSL. These funds were held on behalf of the defined contribution members and were all transferred to the Global Marine Personal Pension plan of each member on or before June 30, 2009. From August 31, 2006 the defined benefit section of the Scheme closed to future accrual and active members were offered membership of the existing defined contribution section (with some enhanced benefits). Global Marine Systems Pension Plan—Defined Benefit Section The defined benefit section of the Global Marine Systems Plan (prior to its closure on August 31, 2006) was contributory, with employees contributing between 5% and 8% (depending on their age) and the employer contributing at a rate of 9.2% of pensionable salary plus deficit contributions of $1.4 million per year. The defined benefit section of the Global Marine Systems Pension Plan is funded by the payment of contributions determined with the advice of qualified independent actuaries on the basis of triennial valuations using the projected unit method. The most recent full actuarial valuation was conducted as of December 31, 2013 for the purpose of determining the funding requirements of the plan. The main assumptions used were that Retail Price Inflation would be 3.7% per year, Consumer Price Inflation would be 2.7% per year, the rate of return on investments (pre-retirement) would be would be 5.5% per year, the rate of return on investments (post-retirement) would be 4.5% per year, with pensions increasing by 3% per year. At the actuarial valuation date the market value of the defined benefit section’s assets amounted to $146.7 million. On a statutory funding objective basis the value of these assets covered the value of technical provisions by 74%. Following the 2013 actuarial valuation contributions are payable by GMSL as follows:
• | $0.5 million payable every month during calendar years 2015 to 2018;
• | $0.6 million payable every month during calendar years 2019 to May 2021;
• | $0.1 million payable in June 2021;
• | GMSL will pay 10% of profits after tax before dividends. This will be paid up to two years following the year end to enable budgeting and cash flow control; and
• | GMSL will pay a cash sum equal to 50% of any future dividend payments.
A more recent actuarial valuation was conducted (using an approximate methodology) as of December 31, 2016 for purposes of meeting U.S. GAAP annual disclosures. Global Marine Personal Pension Plan This is a defined contribution pension scheme and is contributory from the employee; the rate of contributions is split as follows:
• | ex-CARE employees contributing between 2.5% and 7.5% and the employer contributing at a matching rate plus an additional 5% fixed contributions; and
• | defined contribution employees contributing between 2% and 7.5% and the employer contributing at a matching rate.
For the years ended December 31, 2016 and 2015, GMSL made matching contributions of $1.4 million and $1.7 million, respectively. Merchant Navy Officers Pension Fund The Merchant Navy Officers Pension Fund is funded by the payment of contributions determined with the advice of qualified independent actuaries on the basis of triennial valuations using the projected unit method. The most recent available full actuarial valuation was conducted as at March 31, 2015 for the purpose of determining the funding requirements of the plan. The main assumptions used were that Retail Price Inflation would be 3.1% per year, Consumer Price Inflation would be 2.1% per year, the rate of return on investments (pre-retirement) would be 4.75% per year, the rate of return on investments (post-retirement) would be 2.6% per year and with pensions increasing (where relevant) by 2.9% per year. At the actuarial valuation date the market value of the total assets in the scheme amounted to $3.6 billion of which 0.08% ($2.8 million) relates to the Global Marine Systems Group. On an on-going basis the value of these assets, together with the deficit contributions receivable of $394 million, covered the value of pensioner liabilities, preserved pension liabilities for former employees and the value of benefits for active members based on accrued service and projected salaries, to the extent of 99.7%. Following the March 31, 2015 actuarial valuation, contributions are payable by the Group as follows:
• | Maintain employer contributions to 20% of pensionable salaries to September 30, 2016, and then no more contributions thereafter.
A more recent actuarial valuation was conducted (using an approximate methodology) as of December 31, 2016 for the purpose of meeting U.S. GAAP annual disclosures. Global Marine Systems (Guernsey) Pension Plan The defined benefit section of the Guernsey Scheme is contributory, with employees contributing between 5% and 8% (depending on their age), the employer ceased contributing after July 2004. The defined contribution section is also contributory, with employees contributing between 2% and 7.5% (depending on their age and individual choice) and the employer contributing at a matching rate. The defined benefit section of the Guernsey Scheme is funded by the payment of contributions determined with the advice of qualified independent actuaries on the basis of triennial valuations using the projected unit method. The most recent full actuarial valuation was conducted as of December 31, 2013 for the purpose of determining the funding requirements of the plan. The principal actuarial assumptions used by the actuary were investment returns of 5.3% per year pre-retirement, 4.4% per year post-retirement, inflation of 3.7% per year and pension increases of 3.3% per year. At the valuation date the market value of the assets amounted to $3.0 million. The results show a past service shortfall of $0.2 million corresponding to a funding ratio of 93%. Following the actuarial valuation as at December 31, 2013, contributions are as follows:
• | Seven annual contributions of less than $0.1 million from December 31, 2014 to 2020.
Collectively hereafter, the defined benefit plans will be referred to as the “Plans”. Obligations and Funded Status For all company sponsored defined benefit plans and our portion of the Merchant Navy Officers Pension Fund, the benefit obligation is the “projected benefit obligation,” the actuarial present value, as of our December 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefit to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees/survivors and average years of service rendered. It is measured based on assumptions concerning future interest rates and future employee compensation levels. The following table presents this reconciliation and shows the change in the projected benefit obligation for the Plans for the period from December 31, 2014 through December 31, 2016 (in thousands):
Projected benefit obligation at December 31, 2014 |  | $ | 219,087 |
Service cost - benefits earning during the period |  | 61 |
Interest cost on projected benefit obligation |  | 7,330 |
Contributions |  | 32 |
Actuarial gain |  | (2,375 | )
Benefits paid |  | (7,499 | )
Foreign currency (gain) loss |  | (19,036 | )
Projected benefit obligation at December 31, 2015 |  | $ | 197,600 |
Service cost - benefits earning during the period |  | 15 |
Interest cost on projected benefit obligation |  | 6,659 |
Contributions |  | 8 |
Actuarial loss |  | 30,121 |
Benefits paid |  | (5,564 | )
Foreign currency (gain) loss |  | (36,240 | )
Projected benefit obligation at December 31, 2016 |  | $ | 192,599 |
The following table presents the change in the value of the assets of the Plans for the period from December 31, 2014 through December 31, 2016 and the plans’ funded status at December 31, 2016 (in thousands):
Fair value of plan assets at December 31, 2014 |  | $ | 181,877 |
Actual return on plan assets |  | 4,619 |
Benefits paid |  | (7,499 | )
Contributions |  | 11,136 |
Foreign currency gain (loss) |  | (17,622 | )
Fair value of plan assets at December 31, 2015 |  | 172,511 |
Actual return on plan assets |  | 34,354 |
Benefits paid |  | (5,564 | )
Contributions |  | 1,376 |
Foreign currency gain (loss) |  | (31,905 | )
Fair value of plan assets at December 31, 2016 |  | 170,772 |
Unfunded status at end of year |  | $ | 21,827 |
Amounts recognized in the consolidated balance sheets at December 31, 2016 and 2015 are listed below (in thousands):
|  | December 31,
|  | 2016 |  | 2015
Pension Asset |  | $ | 192 |  |  | $ | 68 |
Pension Liability |  | 22,019 |  |  | 25,157 |
Net liability amount recognized |  | $ | 21,827 |  |  | $ | 25,089 |
The accumulated benefit obligation for the Plans represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does not include an assumption about future compensation levels. As of December 31, 2016 contributions of $0.2 million were due to be payable to the Plans. Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income Periodic Benefit Costs The aggregate net pension cost recognized in the consolidated statements of operations was a cost of $2.2 million for the year ended December 31, 2016 and cost of $0.4 million for the year ended December 31, 2015. The following table presents the components of net periodic benefit cost are as follows (in thousands):
|  | Year Ended December 31,
|  | 2016 |  | 2015
Service cost—benefits earning during the period |  | $ | 15 |  |  | $ | 61 |
Interest cost on projected benefit obligation |  | 6,659 |  |  | 7,330 |
Expected return on assets |  | (7,063 | ) |  | (7,507 | )
Actuarial loss |  | 2,830 |  |  | 512 |
Foreign currency gain (loss) |  | (225 | ) |  | (12 | )
Net pension cost |  | $ | 2,216 |  |  | $ | 384 |
Of the amounts presented above, income of $0.4 million has been included in cost of revenue and gain of $2.6 million included in other comprehensive income for the year ended December 31, 2016, and cost of $0.1 million has been included in cost of revenue and gain of $0.5 million included in other comprehensive income for the year ended December 31, 2015. In determining the net periodic pension cost for the Plans, GMSL used the following weighted average assumptions: the pension increase assumption is that for benefits increasing with RPI limited to 5% per year, to which the majority of the Plan’s liabilities relate. The Group employs a building block approach in determining the long-term rate of return of pension plan assets. Historical markets are studied and assets with higher volatility are assumed to generate higher returns consistent with widely accepted capital market principles. The overall expected rate of return on assets is then derived by aggregating the expected return for each asset class over the actual asset allocation for the Plans as of December 31, 2016.
|  | Year Ended December 31,
|  | 2016 |  | 2015
Discount rate |  | 2.85 | % |  | 3.75 | %
Rate of compensation increases (Merchant Navy Officers Pension Fund only) |  | N/A |  |  | 4.55 | %
Rate of future RPI inflation |  | 3.20 | % |  | 3.05 | %
Rate of future CPI inflation |  | 2.10 | % |  | 1.95 | %
Pension increases in payment |  | 3.05 | % |  | 2.90 | %
Long-term rate of return on assets |  | 3.17 | % |  | 4.50 | %
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income The following tables present the after-tax changes in benefit obligations recognized in comprehensive income and the after-tax prior service credits that were amortized from accumulated other comprehensive income into net periodic costs are as follows (in thousands):
|  | Year Ended December 31,
|  | 2016 |  | 2015
Net loss (gain) |  | $ | 2,216 |  |  | $ | 384 |
Total recognized in net periodic benefit cost and other comprehensive income (loss) |  | $ | 2,216 |  |  | $ | 384 |
|  | Year Ended December 31,
|  | 2016 |  | 2015
Actuarial (gain) loss |  | $ | 2,830 |  |  | $ | 512 |
Total recognized in other comprehensive (income) loss |  | $ | 2,830 |  |  | $ | 512 |
The estimated loss for pension benefits that will be amortized from accumulated other comprehensive income into net periodic benefit cost in fiscal year 2017 will be $2.0 million. Estimated Future Benefit Payments Expected benefit payments are estimated using the same assumptions used in determining the Plan’s benefit obligation at December 31, 2016. Because benefit payments will depend on future employment and compensation levels, average years employed, average life spans, and payment elections, among other factors, changes in any of these factors could significantly affect these expected amounts. The following table provides expected benefit payments under our pension and post-retirement plans (in thousands):
|  | Expected Benefit Payments
2017 |  | $ | 5,188 |
2018 |  | 5,330 |
2019 |  | 5,477 |
2020 |  | 5,624 |
2021 |  | 5,779 |
Thereafter |  | 31,357 |
Total |  | $ | 58,755 |
Aggregate expected contributions in the coming fiscal year are expected to be $8.8 million. Plan Assets—Description of plan assets and investment objectives The assets of the Plans consist primarily of private and public equity, government and corporate bonds, among others. The asset allocations of the Plans are maintained to meet regulatory requirements where applicable. Any contributions to the Plans are made to a pension trust for the benefit of plan participants. The principal investment objectives are to ensure the availability of funds to pay pension benefits as they become due under a broad range of future economic scenarios, to maximize long-term investment return with an acceptable level of risk based on our pension and post-retirement obligations, and to be broadly diversified across and within the capital markets to insulate asset values against adverse experience in any one market. Each asset class has broadly diversified characteristics. Substantial biases toward any particular investing style or type of security are sought to be avoided by managing the aggregation of all accounts with portfolio benchmarks. Asset and benefit obligation forecasting studies are conducted periodically, generally every two to three years, or when significant changes have occurred in market conditions, benefits, participant demographics or funded status. Decisions regarding investment policy are made with an understanding of the effect of asset allocation on funded status, future contributions and projected expenses. The plans’ weighted-average asset targets and actual allocations as a percentage of plan assets, including the notional exposure of future contracts by asset categories at December 31, 2016, are as follows:
|  | Target |  | December 31, 2016
Liability hedging |  | 24.7 | % |  | 25.5 | %
Equities |  | 27.7 | % |  | 32.1 | %
Hedge funds |  | 27.7 | % |  | 32.1 | %
Corporate bonds |  | 15.0 | % |  | 9.3 | %
Property |  | 4.9 | % |  | 1.0 | %
Other |  | — | % |  | — | %
Total |  | 100.0 | % |  | 100.0 | %
Investment Valuation GMSL’s plan investments related to the Global Marine Systems Pension Plan consist of the following (in thousands):
|  | December 31,
|  | 2016 |  | 2015
Equities |  | $ | 47,623 |  |  | $ | 49,535 |
Liability Hedging Assets |  | 40,635 |  |  | 41,649 |
Hedge Funds |  | 47,068 |  |  | 44,363 |
Corporate Bonds |  | 24,492 |  |  | 23,193 |
Property |  | 7,544 |  |  | 9,137 |
Other |  | 205 |  |  | 1,697 |
Total market value of assets |  | $ | 167,567 |  |  | $ | 169,574 |
Present value of liabilities |  | (189,586 | ) |  | (194,730 | )
Net pension liability |  | $ | (22,019 | ) |  | $ | (25,156 | )
GMSL’s plan investments related to the Merchant Navy Officers Pension Fund consist of the following (in thousands):
|  | December 31,
|  | 2016 |  | 2015
Equities |  | $ | 526 |  |  | $ | 660 |
Liability Hedging Assets |  | 1,641 |  |  | 1,190 |
Hedge Funds |  | 519 |  |  | 412 |
Corporate Bonds |  | 519 |  |  | 675 |
Total market value of assets |  | $ | 3,205 |  |  | $ | 2,937 |
Present value of liabilities |  | (3,013 | ) |  | (2,869 | )
Net pension asset (liability) |  | $ | 192 |  |  | $ | 68 |
Investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Generally, investments are valued based on information provided by fund managers to our trustee as reviewed by management and its investment advisers. Investments in securities traded on a national securities exchange are valued at the last reported sales price on the last business day of the year. If no sale was reported on that date, they are valued at the last reported bid price. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Over-the-counter (OTC) securities and government obligations are valued at the bid price or the average of the bid and asked price on the last business day of the year from published sources where available and, if not available, from other sources considered reliable. Depending on the types and contractual terms of OTC derivatives, fair value is measured using a series of techniques, such as Black-Scholes option pricing model, simulation models or a combination of various models. Alternative investments, including investments in private equities, private bonds, limited partnerships, hedge funds, real assets and natural resources, do not have readily available market values. These estimated fair values may differ significantly from the values that would have been used had a ready market for these investments existed, and such differences could be material. Private equity, private bonds, limited partnership interests, hedge funds and other investments not having an established market are valued at net asset values as determined by the investment managers, which management has determined approximates fair value. Private equity investments are often valued initially based upon cost; however, valuations are reviewed utilizing available market data to determine if the carrying value of these investments should be adjusted. Such market data primarily includes observations of the trading multiples of public companies considered comparable to the private companies being valued. Investments in real assets funds are stated at the aggregate net asset value of the units of these funds, which management has determined approximates fair value. Real assets and natural resource investments are valued either at amounts based upon appraisal reports prepared by appraisers or at amounts as determined by an internal appraisal performed by the investment manager, which management has determined approximates fair value. Purchases and sales of securities are recorded as of the trade date. Realized gains and losses on sales of securities are determined on the basis of average cost. Interest income is recognized on the accrual basis. Dividend income is recognized on the ex-dividend date. The following table sets forth by level, within the fair value hierarchy, the pension assets and liabilities at fair value for the Global Marine Systems Pension Plan (in thousands):
As of December 31, 2016 |  | Fair Value Measurement Using:
|  | Level 1 |  | Level 2 |  | Total
Equities |  | $ | — |  |  | $ | 47,623 |  |  | $ | 47,623 |
Liability Hedging Assets |  | — |  |  | 40,635 |  |  | 40,635 |
Hedge Funds |  | — |  |  | 47,068 |  |  | 47,068 |
Corporate Bonds |  | — |  |  | 24,492 |  |  | 24,492 |
Property |  | — |  |  | 7,544 |  |  | 7,544 |
Other |  | (37 | ) |  | 242 |  |  | 205 |
Total Plan Net Assets |  | $ | (37 | ) |  | $ | 167,604 |  |  | $ | 167,567 |
As of December 31, 2015 |  | Fair Value Measurement Using:
|  | Level 1 |  | Level 2 |  | Total
Equities |  | $ | — |  |  | $ | 49,535 |  |  | $ | 49,535 |
Liability Hedging Assets |  | — |  |  | 41,649 |  |  | 41,649 |
Hedge Funds |  | — |  |  | 44,363 |  |  | 44,363 |
Corporate Bonds |  | — |  |  | 23,193 |  |  | 23,193 |
Property |  | — |  |  | 9,137 |  |  | 9,137 |
Other |  | 1,697 |  |  | — |  |  | 1,697 |
Total Plan Net Assets |  | $ | 1,697 |  |  | $ | 167,877 |  |  | $ | 169,574 |
The following table sets forth by level, within the fair value hierarchy, the pension assets and liabilities at fair value for the Merchant Navy Officers Pension Fund (in thousands):
As of December 31, 2016 |  | Fair Value Measurement Using:
|  | Level 3 |  | Total
Equities |  | $ | 525 |  |  | $ | 525 |
Hedge Funds |  | 519 |  |  | 519 |
Corporate Bonds |  | 519 |  |  | 519 |
Liability Hedging Assets |  | 1,641 |  |  | 1,641 |
Total Plan Net Assets |  | $ | 3,204 |  |  | $ | 3,204 |
As of December 31, 2015 |  | Fair Value Measurement Using:
|  | Level 3 |  | Total
Equities |  | $ | 660 |  |  | $ | 660 |
Hedge Funds |  | 412 |  |  | 412 |
Corporate Bonds |  | 675 |  |  | 675 |
Liability Hedging Assets |  | 1,190 |  |  | 1,190 |
Total Plan Net Assets |  | $ | 2,937 |  |  | $ | 2,937 |
The table below set forth a summary of changes in the fair value of the Level 3 pension assets for the period from December 31, 2014 through December 31, 2016 for the Merchant Navy Officers Pension Fund (in thousands):
Balance at December 31, 2014 |  | $ | 3,104 |
Actual return on plan assets |  | 3 |
Contributions |  | 84 |
Benefits paid |  | (109 | )
Foreign currency gain (loss) |  | $ | (145 | )
Balance at December 31, 2015 |  | $ | 2,937 |
Actual return on plan assets |  | 972 |
Contributions |  | 20 |
Benefits paid |  | (150 | )
Foreign currency gain (loss) |  | (575 | )
Balance at December 31, 2016 |  | $ | 3,204 |

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