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Employee Benefit Plans | 12 Months Ended
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Dec. 31, 2019
Compensation And Retirement Disclosure [Abstract] |
Employee Benefit Plans | Note 14 – Employee Benefit Plans Pension Benefit Plan We maintain a defined benefit pension plan covering employees in certain foreign countries. The pension benefit plan obligations and funded status as of December 31, 2019 and 2018, were as follows:
(In thousands) |  | 2019 |  |  | 2018 |
Change in projected benefit obligation: |  |  |  |  |  |  |  |
Projected benefit obligation at beginning of period |  | $ | 37,245 |  |  | $ | 34,893 |
Service cost |  |  | 1,471 |  |  |  | 1,193 |
Interest cost |  |  | 634 |  |  |  | 727 |
Actuarial loss - experience |  |  | 453 |  |  |  | 38 |
Actuarial loss - assumptions |  |  | 5,091 |  |  |  | 2,139 |
Benefit payments |  |  | (166 | ) |  |  | (138 | )
Effects of foreign currency exchange rate changes |  |  | (826 | ) |  |  | (1,607 | )
Projected benefit obligation at end of period |  |  | 43,902 |  |  |  | 37,245 |
Change in plan assets: |  |  |  |  |  |  |  |
Fair value of plan assets at beginning of period |  |  | 24,159 |  |  |  | 26,624 |
Actual gain (loss) on plan assets |  |  | 4,392 |  |  |  | (2,024 | )
Contributions |  |  | — |  |  |  | 688 |
Effects of foreign currency exchange rate changes |  |  | (535 | ) |  |  | (1,129 | )
Fair value of plan assets at end of period |  |  | 28,016 |  |  |  | 24,159 |
Unfunded status at end of period |  | $ | (15,886 | ) |  | $ | (13,086 | )
The accumulated benefit obligation was $43.9 million and $37.2 million as of December 31, 2019 and 2018, respectively. The increase in the accumulated benefit obligation and the actuarial loss was primarily attributable to a decrease in the discount rate during 2019. The net amounts recognized in the balance sheet for the unfunded pension liability as of December 31, 2019 and 2018 were as follows:
(In thousands) |  | 2019 |  |  | 2018 |
Current liability |  | $ | — |  |  | $ | — |
Pension liability |  |  | 15,886 |  |  |  | 13,086 |
Total |  | $ | 15,886 |  |  | $ | 13,086 |
The components of net periodic pension cost, other than the service cost component, are included in other income (expense), net in the Consolidated Statements of Income (Loss). The components of net periodic pension cost and amounts recognized in other comprehensive income (loss) for the years ended December 31, 2019, 2018 and 2017 were as follows:
(In thousands) |  | 2019 |  |  | 2018 |  |  | 2017 |
Net periodic benefit cost: |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 1,471 |  |  | $ | 1,193 |  |  | $ | 1,260 |
Interest cost |  |  | 634 |  |  |  | 727 |  |  |  | 607 |
Expected return on plan assets |  |  | (1,392 | ) |  |  | (1,548 | ) |  |  | (1,267 | )
Amortization of actuarial losses |  |  | 795 |  |  |  | 247 |  |  |  | 309 |
Net periodic benefit cost |  |  | 1,508 |  |  |  | 619 |  |  |  | 909 |
Other changes in plan assets and benefit obligations recognized in other comprehensive income: |  |  |  |  |  |  |  |  |  |  |  |
Net actuarial (gain) loss |  |  | 2,488 |  |  |  | 5,638 |  |  |  | (654 | )
Amortization of actuarial losses |  |  | (771 | ) |  |  | (196 | ) |  |  | (406 | )
Amount recognized in other comprehensive income (loss) |  |  | 1,717 |  |  |  | 5,442 |  |  |  | (1,060 | )
Total recognized in net periodic benefit cost and other comprehensive income (loss) |  | $ | 3,225 |  |  | $ | 6,061 |  |  | $ | (151 | )
The amounts recognized in accumulated other comprehensive income (loss) as of December 31, 2019 and 2018 were as follows:
(In thousands) |  | 2019 |  |  | 2018 |
Net actuarial loss |  | $ | (12,973 | ) |  | $ | (11,256 | )
The defined benefit pension plan is accounted for on an actuarial basis, which requires the use of various assumptions, including an expected rate of return on plan assets and a discount rate. The expected return on our German plan assets that is utilized in determining the benefit obligation and net periodic benefit cost is derived from periodic studies, which include a review of asset allocation strategies, anticipated future long-term performance of individual asset classes, risks using standard deviations, and correlations of returns among the asset classes that comprise the plans' asset mix. While the studies give appropriate consideration to recent plan performance and historical returns, the assumptions are primarily long-term, prospective rates of return. The discount rate has been derived from the returns of high-quality, corporate bonds denominated in Euro currency with durations close to the duration of our pension obligations. The weighted-average assumptions that were used to determine the net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 were as follows:
|  | 2019 |  |  | 2018 |  |  | 2017 |
Discount rate |  |  | 1.75 | % |  |  | 2.13 | % |  |  | 1.90 | %
Rate of compensation increase |  |  | 2.00 | % |  |  | 2.00 | % |  |  | 2.00 | %
Expected long-term rates of return |  |  | 5.90 | % |  |  | 5.90 | % |  |  | 5.90 | %
The weighted-average assumptions that were used to determine the benefit obligation as of December 31, 2019 and 2018:
|  | 2019 |  |  | 2018 |
Discount rate |  |  | 1.00 | % |  |  | 1.75 | %
Rate of compensation increase |  |  | 2.00 | % |  |  | 2.00 | %
Actuarial gains and losses are recorded in accumulated other comprehensive income (loss). To the extent unamortized gains and losses exceed 10% of the higher of the market-related value of assets or the projected benefit obligation, the excess is amortized as a component of net periodic pension cost over the remaining service period of active participants. We estimate that $0.8 million will be amortized from accumulated other comprehensive income (loss) into net periodic pension cost in 2020 for the net actuarial loss. We do not anticipate making any contributions to the pension plan in 2020. The following pension benefit payments, which reflect expected future service, as appropriate, are expected to be paid to participants:
(In thousands) |  |  |  |
2020 |  | $ | 515 |
2021 |  |  | 582 |
2022 |  |  | 619 |
2023 |  |  | 706 |
2024 |  |  | 789 |
Thereafter |  |  | 4,872 |
Total |  | $ | 8,083 |
U.S. GAAP establishes a three-level valuation hierarchy based upon observable and unobservable inputs for fair value measurement of financial instruments:
| • | Level 1 – Observable outputs; values based on unadjusted quoted prices for identical assets or liabilities in an active market;
| • | Level 2 – Significant inputs that are observable; values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly;
| • | Level 3 – Significant unobservable inputs; values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs could include information supplied by investees.
We have categorized our cash equivalents and our investments held at fair value into this hierarchy as follows:
|  | Fair Value Measurements at December 31, 2019 Using |
(In thousands) |  | Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Cash and cash equivalents |  | $ | 691 |  |  | $ | 691 |  |  | $ | — |  |  | $ | — |
Available-for-sale securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Bond funds: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government bonds |  |  | 6,645 |  |  |  | 6,645 |  |  |  | — |  |  |  | — |
Corporate bonds |  |  | 5,514 |  |  |  | 5,514 |  |  |  | — |  |  |  | — |
Emerging markets bonds |  |  | 531 |  |  |  | 531 |  |  |  | — |  |  |  | — |
Equity funds: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Global equity |  |  | 11,071 |  |  |  | 11,071 |  |  |  | — |  |  |  | — |
Emerging markets |  |  | 956 |  |  |  | 956 |  |  |  | — |  |  |  | — |
Balanced fund |  |  | 863 |  |  |  | 863 |  |  |  | — |  |  |  | — |
Large cap value |  |  | 312 |  |  |  | 312 |  |  |  | — |  |  |  | — |
Global real estate fund |  |  | 902 |  |  |  | 902 |  |  |  | — |  |  |  | — |
Managed futures fund |  |  | 531 |  |  |  | 531 |  |  |  | — |  |  |  | — |
Available-for-sale securities |  |  | 27,325 |  |  |  | 27,325 |  |  |  | — |  |  |  | — |
Total |  | $ | 28,016 |  |  | $ | 28,016 |  |  | $ | — |  |  | $ | — |
|  | Fair Value Measurements at December 31, 2018 Using |
(In thousands) |  | Fair Value |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |
Cash and cash equivalents |  | $ | 1,010 |  |  | $ | 1,010 |  |  | $ | — |  |  | $ | — |
Available-for-sale securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Bond funds: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Government bonds |  |  | 6,268 |  |  |  | 6,268 |  |  |  | — |  |  |  | — |
Corporate bonds |  |  | 4,840 |  |  |  | 4,840 |  |  |  | — |  |  |  | — |
Emerging markets bonds |  |  | 443 |  |  |  | 443 |  |  |  | — |  |  |  | — |
Equity funds: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Global equity |  |  | 7,743 |  |  |  | 7,743 |  |  |  | — |  |  |  | — |
Emerging markets |  |  | 1,188 |  |  |  | 1,188 |  |  |  | — |  |  |  | — |
Balanced fund |  |  | 815 |  |  |  | 815 |  |  |  | — |  |  |  | — |
Large cap value |  |  | 262 |  |  |  | 262 |  |  |  | — |  |  |  | — |
Global real estate fund |  |  | 926 |  |  |  | 926 |  |  |  | — |  |  |  | — |
Managed futures fund |  |  | 664 |  |  |  | 664 |  |  |  | — |  |  |  | — |
Available-for-sale securities |  |  | 23,149 |  |  |  | 23,149 |  |  |  | — |  |  |  | — |
Total |  | $ | 24,159 |  |  | $ | 24,159 |  |  | $ | — |  |  | $ | — |
Our investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner necessary to meet expected future benefits earned by participants and consider a broad range of economic conditions. Central to the policy are target allocation ranges by asset class, which is currently 50% for bond funds, 40% for equity funds and 10% cash, real estate and managed futures. The objectives of the target allocations are to maintain investment portfolios that diversify risk through prudent asset allocation parameters, achieve asset returns that meet or exceed the plans’ actuarial assumptions and achieve asset returns that are competitive with like institutions employing similar investment strategies. The investment policy is periodically reviewed by us and a designated third-party fiduciary for investment matters. The policy is established and administered in a manner that is compliant at all times with applicable government regulations. 401(k) Savings Plan We maintain the ADTRAN, Inc. 401(k) Retirement Plan (the “Savings Plan”) for the benefit of our eligible employees. The Savings Plan is intended to qualify under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”), and is intended to be a “safe harbor” 401(k) plan under Code Section 401(k)(12). The Savings Plan allows employees to save for retirement by contributing part of their compensation to the plan on a tax-deferred basis. The Savings Plan also requires us to contribute a “safe harbor” amount each year. We match up to 4% of employee contributions (100% of an employee’s first 3% of contributions and 50% of their next 2% of contributions), beginning on the employee’s one-year anniversary date. In calculating our matching contribution, we only use compensation up to the statutory maximum under the Code ($280,000 for 2019). All matching contributions under the Savings Plan vest immediately. Employer contribution expense and plan administration costs for the Savings Plan amounted to approximately $4.4 million, $4.4 million and $4.6 million in 2019, 2018 and 2017, respectively. Deferred Compensation Plans We maintain four deferred compensation programs for certain executive management employees and our Board of Directors. For our executive management employees, the ADTRAN, Inc. Deferred Compensation Program for Employees is offered as a supplement to our tax-qualified 401(k) plan and is available to certain executive management employees who have been designated by our Board of Directors. This deferred compensation plan allows participants to defer all or a portion of certain specified bonuses and up to 25% of remaining cash compensation and permits us to make matching contributions on a discretionary basis without the limitations that apply to the 401(k) plan. To date, we have not made any matching contributions under this plan. We also maintain the ADTRAN, Inc. Equity Deferral Program for Employees. Under this plan, participants may elect to defer all or a portion of their vested PSUs and RSUs to the plan. Such deferrals shall continue to be held and deemed to be invested in shares of ADTRAN stock unless and until the amounts are distributed or such deferrals are moved to another deemed investment pursuant to an election made by the participant. For our Board of Directors, we maintain the ADTRAN, Inc. Deferred Compensation Program for Directors. This program allows our Board of Directors to defer all or a portion of monetary remuneration paid to the Director, including, but not limited to, meeting fees and annual retainers. We also maintain the ADTRAN, Inc. Equity Deferral Program for Directors. Under this plan, participants may elect to defer all or a portion of their vested restricted stock awards. Such deferrals shall continue to be held and deemed to be invested in shares of ADTRAN stock unless and until the amounts are distributed or such deferrals are moved to another deemed investment pursuant to an election made by the director. We have set aside the plan assets for all plans in a rabbi trust (the “Trust”) and all contributions are credited to bookkeeping accounts for the participants. The Trust assets are subject to the claims of our creditors in the event of bankruptcy or insolvency. The assets of the Trust are deemed to be invested in pre-approved mutual funds as directed by each participant and the participant’s bookkeeping account is credited with the earnings and losses attributable to those investments. Benefits are scheduled to be distributed six months after termination of employment in a single lump sum payment or annual installments paid over a three or ten-year term based on the participant’s election. Distributions will be made on a pro-rata basis from each of the hypothetical investments of the participant’s account in cash. Any whole shares of ADTRAN, Inc. common stock that are distributed will be distributed in-kind. Assets of the Trust are deemed invested in mutual funds that cover an investment spectrum ranging from equities to money market instruments. These mutual funds are publicly quoted and reported at fair value. The fair value of the assets held by the Trust and the amounts payable to the plan participants a s of December 31, 2019 and 2018 wer e as follows:
(In thousands) |  | 2019 |  |  | 2018 |
Fair Value of Plan Assets |  |  |  |  |  |  |  |
Long-term investments |  | $ | 21,698 |  |  | $ | 18,256 |
Total Fair Value of Plan Assets |  | $ | 21,698 |  |  | $ | 18,256 |
Amounts Payable to Plan Participants |  |  |  |  |  |  |  |
Deferred compensation liability |  | $ | 21,698 |  |  | $ | 18,256 |
Total Amounts Payable to Plan Participants |  | $ | 21,698 |  |  | $ | 18,256 |
Interest and dividend income of the Trust are included in interest and dividend income in the accompanying 2019, 2018 and 2017 Consolidated Statements of Income (Loss). Changes in the fair value of the plan assets held by the Trust have been included in other income (expense) in the accompanying 2019, 2018 and 2017 Consolidated Statements of Income (Loss). Changes in the fair value of the deferred compensation liability are included as selling, general and administrative expense in the accompanying 2019, 2018 and 2017 Consolidated Statements of Income (Loss). Based on the changes in the total fair value of the Trust’s assets, we recorded deferred compensation income (expense) in 2019, 2018 and 2017 of $3.6 million, $(2.1) million and $(2.6) million, respectively. Retiree Medical Coverage We provided medical, dental and prescription drug coverage to two spouses of retired former officers on the same terms as provided to our active officers for up to 30 years. As of December 31, 2019 and 2018, this liability totaled $0.1 million.

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