Employee Benefit Plans

Our pension and postretirement benefit liabilities represent the funded status of the present value of benefit obligations of our employee benefit plans. We develop pension, postretirement medical and life benefit costs from actuarial valuations. We establish actuarial assumptions to anticipate future events and use those assumptions when calculating the expense and liabilities related to these plans. These factors include assumptions management makes concerning expected investment return on plan assets, discount rates, health care costs trend rates, turnover rates and rates of future compensation increases, among others. In addition, we use subjective factors such as withdrawal and mortality rates to develop actuarial valuations. Management reviews and updates these assumptions on an annual basis. The actuarial assumptions that we use may differ from actual results due to changing market rates or other factors. These differences could affect the amount of pension and postretirement medical and life benefit expense we will recognize in future periods.

Defined Contribution Plan. We sponsor a defined contribution plan in which we match our employees’ qualifying contributions, resulting in additional expense to us. Expenses related to the defined contribution plan were $9.6 million, $9.9 million and $11.0 million in 2016, 2017 and 2018, respectively.

Defined Benefit Plans. We sponsor two union pension plans that cover certain union employees (“USW plan” and “IUOE plan,” collectively, the “Union plans”), a pension plan for all non-union employees (“Salaried plan”) and a postretirement benefit plan for certain employees. The annual measurement date of these plans is December 31.

The following table presents the changes in benefit obligations and plan assets for pension benefits and other postretirement benefits, as well as the end-of-period accumulated benefit obligation for the years ended December 31, 2017 and 2018 (in thousands):



	Pension Benefits						Other Postretirement Benefits
	2017			2018			2017			2018
Change in benefit obligations:
Benefit obligations at beginning of year	$	225,970		$	297,856		$	13,011		$	12,760
Service cost	20,497			38,167			243			243
Interest cost	9,865			14,907			475			416
Plan participants’ contributions	—			—			280			357
Actuarial loss (gain)	59,686			(21,375		)	(535		)	(599		)
Benefits paid	(11,484		)	(14,356		)	(714		)	(1,097		)
Settlement payments	(6,678		)	(6,250		)	—			—
Benefit obligations at end of year	297,856			308,949			12,760			12,080
Change in plan assets:
Fair value of plan assets at beginning of year	166,906			198,686			—			—
Employer contributions	26,533			31,717			434			740
Plan participants’ contributions	—			—			280			357
Actual return (loss) on plan assets	23,409			(12,207		)	—			—
Benefits paid	(11,484		)	(14,356		)	(714		)	(1,097		)
Settlement payments	(6,678		)	(6,250		)	—			—
Fair value of plan assets at end of year	198,686			197,590			—			—
Funded status at end of year	$	(99,170	)	$	(111,359	)	$	(12,760	)	$	(12,080	)
Accumulated benefit obligations	$	206,480		$	208,840

The pension benefits in the previous table combine the Union plans with the Salaried plan. At December 31, 2017, the Salaried and IUOE plans had combined accumulated benefit obligations of $154.4 million, which exceeded the combined fair value of plan assets of $145.9 million. At December 31, 2018, the accumulated benefit obligations of each of our plans exceeded the fair value of the related plans’ assets.

The pension benefit obligations experienced an actuarial loss of $59.7 million in 2017 primarily due to the impact of decreases in the discount rates used to calculate the benefit obligations and changes to mortality assumptions, as well as losses due to annual remeasurement of the plans.

Amounts recognized in the consolidated balance sheets included in these financial statements were as follows (in thousands):



	Pension Benefits						Other Postretirement Benefits
	2017			2018			2017			2018
Amounts recognized in consolidated balance sheets:
Current accrued benefit cost	$	—		$	—		$	625		$	859
Long-term pension and benefits	99,170			111,359			12,135			11,221
	99,170			111,359			12,760			12,080
Accumulated other comprehensive loss:
Net actuarial loss	(100,474		)	(91,669		)	(6,597		)	(5,409		)
Prior service credit	3,248			3,067			—			—
	(97,226		)	(88,602		)	(6,597		)	(5,409		)
Net amount of liabilities and accumulated other comprehensive loss recognized in consolidated balance sheets	$	1,944		$	22,757		$	6,163		$	6,671

Net periodic benefit expense for the years ended December 31, 2016, 2017 and 2018 was as follows (in thousands):



	Pension Benefits									Other Postretirement Benefits
	2016			2017			2018			2016			2017		2018
Components of net periodic pension and postretirement benefit expense:
Service cost	$	18,179		$	20,497		$	38,167		$	235		$	243	$	243
Interest cost	7,950			9,865			14,907			489			475		416
Expected return on plan assets	(8,913		)	(10,266		)	(12,090		)	—			—		—
Amortization of prior service credit	(181		)	(181		)	(181		)	(3,335		)	—		—
Amortization of actuarial loss	4,645			5,622			9,763			880			749		589
Settlement cost	202			2,460			1,964			—			—		—
Net periodic expense (credit)	$	21,882		$	27,997		$	52,530		$	(1,731	)	$	1,467	$	1,248

The service component of our net periodic benefit expense (credit) is presented in operating expense and G&A expense, and the non-service components are presented in other (income) expense in our consolidated statements of income.

Changes in plan assets and benefit obligations recognized in other comprehensive income (loss) during 2016, 2017 and 2018 were as follows (in thousands):



	Pension Benefits									Other Postretirement Benefits
	2016			2017			2018			2016			2017			2018
Beginning balance	$	(62,279	)	$	(58,584	)	$	(97,226	)	$	(3,945	)	$	(7,881	)	$	(6,597	)
Net actuarial gain (loss)	(971		)	(46,543		)	(2,922		)	(1,481		)	535			599
Amortization of prior service credit	(181		)	(181		)	(181		)	(3,335		)	—			—
Amortization of actuarial loss	4,645			5,622			9,763			880			749			589
Settlement cost	202			2,460			1,964			—			—			—
Amount recognized in other comprehensive loss	3,695			(38,642		)	8,624			(3,936		)	1,284			1,188
Ending balance	$	(58,584	)	$	(97,226	)	$	(88,602	)	$	(7,881	)	$	(6,597	)	$	(5,409	)

The net periodic benefit costs and AOCL presented in the tables above for the year ended December 31, 2018 include corrections resulting from an error in our third-party actuary’s valuation of our pension liabilities and net periodic pension expenses. See Note 2 – Summary of Significant Accounting Policies for more details regarding this error correction.

Actuarial gains and losses are amortized over the average future service period of current active plan participants expected to receive benefits. The corridor approach is used to determine when actuarial gains and losses are to be amortized and is equal to 10% of the greater of the projected benefit obligation or the market related value of plan assets. The amount of gain or loss in excess of the calculated corridor is subject to amortization. The estimated net actuarial loss and prior service credit for the defined benefit pension plans that will be amortized from AOCL into net periodic benefit cost in 2019 are $5.1 million and $0.2 million, respectively. The estimated net actuarial loss for the other defined benefit postretirement plan that will be amortized from AOCL into net periodic benefit cost in 2019 is $0.2 million.

The weighted-average rate assumptions used to determine benefit obligations were as follows:



	December 31,
	2017	2018
Discount rate—Salaried plan	3.70%	3.99%
Discount rate—USW plan	3.54%	3.94%
Discount rate—IUOE plan	3.79%	4.12%
Discount rate—Other Postretirement Benefits	3.43%	4.08%
Rate of compensation increase—Salaried plan⁽¹⁾	4% - 11%	4% - 11%
Rate of compensation increase—USW plan	3.50%	3.50%
Rate of compensation increase—IUOE plan	5.00%	5.00%

⁽¹⁾The rate of compensation increase assumption for the Salaried plan in 2017 and 2018 is calculated by 10-year age groupings beginning with ages 20-29 at 11% dropping to 4% by ages 70 and above.

The weighted-average rate assumptions used to determine net pension and other postretirement benefit expense were as follows:



	For the Year Ended December 31,
	2016	2017	2018
Discount rate—Salaried plan	3.95%	4.21%	3.70%
Discount rate—USW plan	3.82%	4.04%	3.63%
Discount rate—IUOE plan	3.78%	4.41%	3.79%
Discount rate—Other Postretirement Benefits	4%	3.85%	3.43%
Rate of compensation increase—Salaried plan⁽¹⁾	4% - 11%	4% - 11%	4% - 11%
Rate of compensation increase—USW plan	3.50%	3.50%	3.50%
Rate of compensation increase—IUOE plan	5.00%	5.00%	5.00%
Expected rate of return on plan assets—Salaried plan	6.00%	6.00%	6.00%
Expected rate of return on plan assets—USW plan	6.00%	6.00%	6.00%
Expected rate of return on plan assets—IUOE plan	6.00%	6.00%	6.00%

⁽¹⁾The rate of compensation increase assumption for the Salaried plan is calculated by 10-year age groupings beginning with ages 20-29 at 11% dropping to 4% by ages 70 and above.

The non-pension postretirement benefit plans provide for retiree contributions and contain other cost-sharing features such as deductibles and coinsurance. The accounting for these plans anticipates future cost sharing that is consistent with management’s expressed intent to increase the retiree contribution rate generally in line with health care cost increases.

The annual assumed rate of increase in the health care cost trend rate for 2019 is 5.8% decreasing systematically to 4.9% by 2066 for pre-65 year-old participants. As of December 31, 2018, a 1.0% change in assumed health care cost trend rates would have been immaterial to us.

The fair values of the pension plan assets at December 31, 2017 were as follows (in thousands):



Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Domestic Equity Securities^(a):
Small-cap fund	$	5,122	$	5,122	$	—	$	—
Mid-cap fund	5,132		5,132		—		—
Large-cap fund	38,678		38,678		—		—
International equity fund	24,284		24,284		—		—
Fixed Income Securities^(a):
Short-term bond funds	5,110		5,110		—		—
Intermediate-term bond funds	25,875		25,875		—		—
Long-term investment grade bond funds	88,563		88,563		—		—
Other:
Short-term investment funds	5,722		5,722		—		—
Group annuity contract	200		—		—		200
Fair value of plan assets	$	198,686	$	198,486	$	—	$	200

(a) We hold equity and fixed income securities through investments in mutual funds, which are dedicated to each category as indicated.

The fair values of the pension plan assets at December 31, 2018 were as follows (in thousands):



Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Domestic Equity Securities^(a):
Small-cap fund	$	3,816	$	3,816	$	—	$	—
Mid-cap fund	3,811		3,811		—		—
Large-cap funds	30,595		30,595		—		—
International equity fund	19,471		19,471		—		—
Fixed Income Securities^(a):
Short-term bond funds	9,242		9,242		—		—
Intermediate-term bond funds	23,036		23,036		—		—
Long-term investment grade bond funds	99,118		99,118		—		—
Other:
Short-term investment fund	8,312		8,312		—		—
Group annuity contract	189		—		—		189
Fair value of plan assets	$	197,590	$	197,401	$	—	$	189

(a) We hold equity and fixed income securities through investments in mutual funds, which are dedicated to each category as indicated.

As reflected in the tables above, Level 3 activity was not material.

The investment strategies for the various funds held as pension plan assets by asset category are as follows:




Asset Category		Fund’s Investment Strategy
Domestic Equity Securities:
Small-cap fund		Seeks to track performance of the Center for Research in Security Prices (“CRSP”) US Small Cap Index
Mid-cap fund		Seeks to track performance of the CRSP US Mid Cap Index
Large-cap funds		Seek to track performance of the Standard & Poor’s 500 Index
International equity fund		Seeks long-term growth of capital by investing 65% or more of assets in international equities
Fixed Income Securities:
Short-term bond funds		Seek current income with limited price volatility through investment in primarily high quality bonds
Intermediate-term bond funds		Seek moderate and sustainable level of current income by investing primarily in high quality fixed income securities with maturities from five to ten years
Long-term investment grade bond funds		Seek high and sustainable current income through investment primarily in long-term high grade bonds
Other:
Short-term investment fund		Invests in high quality short-term money market instruments issued by the U.S. Treasury
Group annuity contract		Earns interest quarterly equal to the effective yield of the 91-day U.S. Treasury bill

The expected long-term rate of return on plan assets was determined by combining a review of projected returns, historical returns of portfolios with assets similar to the current portfolios of the union and non-union pension plans and target weightings of each asset classification. Our investment objective for the assets within the pension plans is to earn a return that meets or exceeds the growth of obligations that result from interest and changes in the discount rate, while avoiding excessive risk. Defined diversification goals are set in order to reduce the risk of wide swings in the market value from year to year, or of incurring large losses that may result from concentrated positions. As a result, our plan assets have no significant concentrations of credit risk. Additionally, liquidity risks are minimized because all of the funds that the plans have invested in are publicly traded. We evaluate risks based on the potential impact to the predictability of contribution requirements, probability of under-funding, expected risk-adjusted returns and investment return volatility. Funds are invested with multiple investment managers. Our liabilities are calculated using rates defined by the Pension Protection Act of 2006. Approximately 70% of the plan’s investments are allocated to fixed-income securities and invested to match the durations of the plan’s short, intermediate and long-term pension liabilities, with the amount invested in each duration reflecting that duration’s proportion of the plan’s liabilities. The remaining approximately 30% of the plan’s investments are allocated to equity securities.

The target allocation and actual weighted-average asset allocation percentages at December 31, 2017 and 2018 were as follows:



	2017		2018
	Actual	Target	Actual	Target
Equity securities	37%	30%	29%	30%
Fixed income securities	60%	67%	67%	67%
Other	3%	3%	4%	3%

As of December 31, 2018, the benefit amounts expected to be paid from plan assets through December 31, 2028 were as follows (in thousands):



	Pension Benefits		Other Postretirement Benefits
2019	$	14,734	$	859
2020	$	17,278	$	901
2021	$	19,576	$	915
2022	$	22,606	$	913
2023	$	24,381	$	878
2024 through 2028	$	147,022	$	3,787

Contributions estimated to be paid by us into the plans in 2019 are $32.1 million and $0.9 million for the pension and other postretirement benefit plans, respectively.