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Employee Benefit Plans
 12 Months Ended
Dec. 31, 2021
Retirement Benefits [Abstract]  
Employee Benefit Plans

Note 15 – 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, 2021 and 2020, were as follows:

 

(In thousands)

 

2021

 

 

2020

 

Change in projected benefit obligation:

 

 

 

 

 

 

Projected benefit obligation at beginning of period

 

$

50,927

 

 

$

43,902

 

Service cost

 

 

1,229

 

 

 

1,270

 

Interest cost

 

 

339

 

 

 

444

 

Actuarial gain - experience

 

 

(750

)

 

 

(744

)

Actuarial (gain) loss - assumptions

 

 

(3,327

)

 

 

2,458

 

Benefit payments

 

 

(756

)

 

 

(509

)

Effects of foreign currency exchange rate changes

 

 

(3,498

)

 

 

4,106

 

Projected benefit obligation at end of period

 

 

44,164

 

 

 

50,927

 

Change in plan assets:

 

 

 

 

 

 

Fair value of plan assets at beginning of period

 

 

32,263

 

 

 

28,016

 

Actual gain on plan assets

 

 

2,943

 

 

 

1,744

 

Contributions

 

 

—

 

 

 

24

 

Effects of foreign currency exchange rate changes

 

 

(2,444

)

 

 

2,479

 

Fair value of plan assets at end of period

 

 

32,762

 

 

 

32,263

 

Unfunded status at end of period

 

$

(11,402

)

 

$

(18,664

)

 

The accumulated benefit obligation was $44.2 million and $50.9 million as of December 31, 2021 and 2020, respectively. The decrease in the accumulated benefit obligation, projected benefit obligation and the actuarial loss was primarily attributable to an increase in the discount rate during 2021.

The net amounts recognized in the Consolidated Balance Sheets for the unfunded pension liability as of December 31, 2021 and 2020 were as follows:

 

(In thousands)

 

2021

 

 

2020

 

Current liability

 

$

—

 

 

$

—

 

Pension liability

 

 

11,402

 

 

 

18,664

 

Total

 

$

11,402

 

 

$

18,664

 

 

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 (Loss) Income. The components of net periodic pension cost and amounts recognized in other comprehensive (loss) income for the years ended December 31, 2021, 2020 and 2019 were as follows:

 

(In thousands)

 

2021

 

 

2020

 

 

2019

 

Net periodic benefit cost:

 

 

 

 

 

 

 

 

 

Service cost

 

$

1,229

 

 

$

1,270

 

 

$

1,471

 

Interest cost

 

 

339

 

 

 

444

 

 

 

634

 

Expected return on plan assets

 

 

(1,842

)

 

 

(1,679

)

 

 

(1,392

)

Amortization of actuarial losses

 

 

1,088

 

 

 

970

 

 

 

795

 

Net periodic benefit cost

 

 

814

 

 

 

1,005

 

 

 

1,508

 

Other changes in plan assets and benefit obligations
   recognized in other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

Net actuarial (gain) loss

 

 

(4,984

)

 

 

1,784

 

 

 

2,488

 

Amortization of actuarial losses

 

 

(825

)

 

 

(1,212

)

 

 

(771

)

Amount recognized in other comprehensive (loss) income

 

 

(5,809

)

 

 

572

 

 

 

1,717

 

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

 

$

(4,995

)

 

$

1,577

 

 

$

3,225

 

The amounts recognized in accumulated other comprehensive (loss) income as of December 31, 2021 and 2020 were as follows:

 

(In thousands)

 

2021

 

 

2020

 

Net actuarial loss

 

$

(7,736

)

 

$

(13,545

)

 

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, 2021, 2020 and 2019 were as follows:

 

 

 

2021

 

 

2020

 

 

2019

 

Discount rate

 

 

1.16

%

 

 

1.00

%

 

 

1.75

%

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, 2021 and 2020:

 

 

 

2021

 

 

2020

 

Discount rate

 

 

1.16

%

 

 

0.69

%

Rate of compensation increase

 

 

2.00

%

 

 

2.00

%

 

Actuarial gains and losses are recorded in accumulated other comprehensive (loss) income. 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 do not anticipate making any contributions to the pension plan in 2022.

The following pension benefit payments, which reflect expected future service, as appropriate, are expected to be paid to participants:

 

(In thousands)

 

 

 

2022

 

$

1,088

 

2023

 

 

1,002

 

2024

 

 

1,204

 

2025

 

 

1,244

 

2026

 

 

1,370

 

2027 - 2031

 

 

8,894

 

Total

 

$

14,802

 

 

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, 2021 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

 

$

801

 

 

$

801

 

 

$

—

 

 

$

—

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

Bond funds:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

7,528

 

 

 

7,528

 

 

 

—

 

 

 

—

 

Government bonds

 

 

5,721

 

 

 

5,721

 

 

 

—

 

 

 

—

 

Equity funds:

 

 

 

 

 

 

 

 

 

 

 

 

Global equity

 

 

12,170

 

 

 

12,170

 

 

 

—

 

 

 

—

 

Balanced fund

 

 

2,919

 

 

 

2,919

 

 

 

—

 

 

 

—

 

Emerging markets

 

 

2,259

 

 

 

2,259

 

 

 

—

 

 

 

—

 

Large cap value

 

 

235

 

 

 

235

 

 

 

—

 

 

 

—

 

Global real estate fund

 

 

1,129

 

 

 

1,129

 

 

 

—

 

 

 

—

 

Available-for-sale securities

 

 

31,961

 

 

 

31,961

 

 

 

—

 

 

 

—

 

Total

 

$

32,762

 

 

$

32,762

 

 

$

—

 

 

$

—

 

 

 

 

Fair Value Measurements at December 31, 2020 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

 

$

1,935

 

 

$

1,935

 

 

$

—

 

 

$

—

 

Available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

Bond funds:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 

6,746

 

 

 

6,746

 

 

 

—

 

 

 

—

 

Government bonds

 

 

5,971

 

 

 

5,971

 

 

 

—

 

 

 

—

 

Emerging markets bonds

 

 

307

 

 

 

307

 

 

 

—

 

 

 

—

 

Equity funds:

 

 

 

 

 

 

 

 

 

 

 

 

Global equity

 

 

11,638

 

 

 

11,638

 

 

 

—

 

 

 

—

 

Balanced fund

 

 

2,515

 

 

 

2,515

 

 

 

—

 

 

 

—

 

Emerging markets

 

 

1,848

 

 

 

1,848

 

 

 

—

 

 

 

—

 

Large cap value

 

 

198

 

 

 

198

 

 

 

—

 

 

 

—

 

Global real estate fund

 

 

799

 

 

 

799

 

 

 

—

 

 

 

—

 

Managed futures fund

 

 

306

 

 

 

306

 

 

 

—

 

 

 

—

 

Available-for-sale securities

 

 

30,328

 

 

 

30,328

 

 

 

—

 

 

 

—

 

Total

 

$

32,263

 

 

$

32,263

 

 

$

—

 

 

$

—

 

 

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. The current target allocation ranges by asset class are 50% for bond funds, 40% for equity funds and 10% for 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 the Company 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 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, compensation up to the statutory maximum under the Code is used ($290,000 for 2021). All matching contributions under the Savings Plan vest immediately. Employer contribution expense and plan administration costs for the Savings Plan amounted to approximately $3.9 million, $4.0 million and $4.4 million in 2021, 2020 and 2019, respectively.

Deferred Compensation Plans

We maintain four deferred compensation programs for certain executive management employees and our Board of Directors.

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 as of December 31, 2021 and 2020 were as follows:

 

(In thousands)

 

2021

 

 

2020

 

Fair Value of Plan Assets

 

 

 

 

 

 

Long-term investments

 

$

26,935

 

 

$

23,891

 

Total Fair Value of Plan Assets

 

$

26,935

 

 

$

23,891

 

Amounts Payable to Plan Participants

 

 

 

 

 

 

Deferred compensation liability

 

$

31,383

 

 

$

25,866

 

Total Amounts Payable to Plan Participants

 

$

31,383

 

 

$

25,866

 

The Trust held $4.1 million and $2.8 million of common stock in the Company as of December 31, 2021 and 2020, respectively. Shares of the Company held by the Trust are recorded at cost and classified as treasury stock on the Consolidated Balance Sheet.

Interest and dividend income of the Trust are included in interest and dividend income in the accompanying 2021, 2020 and 2019 Consolidated Statements of (Loss) Income. Changes in the fair value of the plan assets held by the Trust have been included in other income (expense) in the accompanying 2021, 2020 and 2019 Consolidated Statements of (Loss) Income. Changes in the fair value of the deferred compensation liability are included as selling, general and administrative expense in the accompanying 2021, 2020 and 2019 Consolidated Statements of (Loss) Income. Based on the changes in the total fair value of the Trust’s assets, we recorded deferred compensation income in 2021, 2020 and 2019 of $0.9 million, $4.3 million and $3.6 million, respectively.

Retiree Medical Coverage

Medical, dental and prescription drug coverage is provided to certain spouses and former spouses of current and former officers on the same terms as provided to our active officers for up to 30 years. As of December 31, 2021 and 2020, this liability totaled $0.3 million and $0.2 million, respectively.