Annual report pursuant to Section 13 and 15(d)

Pension And Other Postretirement Benefit Programs

v3.20.4
Pension And Other Postretirement Benefit Programs
12 Months Ended
Dec. 31, 2020
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefit Programs PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS
We have defined-benefit pension and other postretirement benefit plans covering eligible employees in North America. Benefits from defined-benefit pension plans are based primarily on years of service. We fund our pension plans when appropriate. We fund postretirement benefits on a pay-as-you-go basis, with the retiree paying a portion of the cost for health care benefits by means of deductibles and contributions.

In recent months, our company approved two plan changes. One of our U.S. defined-benefit pension plans, the Retirement Income Plan ("RIP"), was amended as of December 31, 2020 to freeze the accrual of additional benefits for the company's non-union production employees and Lancaster International Association of Machinists and Aerospace Workers participants. Also, our U.S. postretirement plan’s life insurance benefit is no longer being offered for hourly participants at various locations (Beech Creek, Kankakee, South Gate and Stillwater) and for traditional salaried participants who retire on or after January 1, 2021.

We also have defined contribution plans providing for the Company to contribute a specified matching amount for participating employees’ contributions to the plan. The matching amount is dependent upon employee classification, but is generally either a 50% match on the first 6% of pay contributed with a maximum company matching contribution of 3% or a 100% match on the first 4% of pay contributed plus 50% match on the next 4% of pay contributed with a maximum company matching contribution of 6%. Participants become vested in the Company’s matching amount when they have completed three calendar years of company service and worked at least 1,000 hours in each year. Costs for defined-contribution plans were $3.6 million and $5.5 million in 2020 and 2019, respectively. The decrease during 2020 was due to the suspension of Company contributions from May 2020 through September 2020 as a countermeasure to the impact of the COVID 19 pandemic.
Defined-Benefit Pension Plans
The following tables summarize the balance sheet impact of the pension benefit plans, as well as the related benefit obligations, assets, funded status and rate assumptions. The pension benefits disclosures include both the qualified, funded RIP and the Retirement Benefit Equity Plan, which is a nonqualified, unfunded plan designed to provide pension benefits in excess of the limits defined under Sections 415 and 401(a)(17) of the Internal Revenue Code. The disclosures also include our two Canadian pension plans.
U.S. Pension Plans Canadian Pension Plans
2020 2019 2020 2019
Change in benefit obligation:
Projected benefit obligations as of January 1 $ 394.6  $ 346.4  $ 16.3  $ 15.6 
Service cost 2.6  2.7    — 
Interest cost 12.5  15.0  0.5  0.6 
Foreign currency translation adjustment   —  0.4  0.6 
   Effect of plan curtailment (0.9) —  —  — 
Actuarial loss 30.4  49.2  1.2  1.3 
Benefits paid (20.8) (18.7) (1.3) (1.8)
Projected benefit obligations as of December 31 418.4  394.6  17.1  16.3 
Change in plan assets:
Fair value of plan assets as of January 1 380.7  337.1  14.2  13.6 
Actual return on plan assets 57.2  62.2  1.4  1.7 
Employer contribution 0.1  0.1  0.1  0.1 
Foreign currency translation adjustment   —  0.4  0.6 
Benefits paid (20.8) (18.7) (1.3) (1.8)
Fair value of plan assets as of December 31 417.2  380.7  14.8  14.2 
Funded status of the plans $ (1.2) $ (13.9) $ (2.3) $ (2.1)
Accumulated benefit obligation as of December 31 $ 418.4  $ 393.2  $ 17.1  $ 16.3 

Changes in actuarial losses related to the change in the benefit obligation for the U.S. and Canadian pension plans for the years ended December 31, 2020 and 2019, respectively, were primarily due to the decrease in the discount rate each period.

The table below presents the weighted-average assumptions used in computing the benefit obligations and net periodic benefit cost for the defined-benefit pension plans:
U.S. Pension Plans Canadian Pension Plans
2020 2019 2020 2019
Weighted average assumptions used to determine benefit obligations as of December 31:
Discount rate 2.50  % 3.25  % 2.30  % 3.00  %
Rate of compensation increase 3.25  % 3.25  % n/a n/a
Weighted average assumptions used to determine net periodic benefit cost for the period:
Discount rate 3.25  % 4.40  % 3.00  % 3.80  %
Expected return on plan assets 5.70  % 6.30  % 4.00  % 4.90  %
Rate of compensation increase 3.25  % 3.25  % n/a n/a
Basis of Rate-of-Return Assumption
Long-term asset class return assumptions are determined based on the expected performance of the asset classes over 20 years. For the U.S. plans, these forecasted gross returns were reduced by estimated management fees and expenses, yielding a long-term return forecast of 5.70% and 6.30% for the years ended December 31, 2020 and 2019, respectively. For our Canadian plans, these forecasted gross returns were reduced by estimated management fees and expenses, yielding a long-term return forecast of 4.00% and 4.90% for the years ended December 31, 2020 and 2019, respectively.

Defined-benefit pension plans with benefit obligations in excess of plan assets were as follows:
U.S. Pension Plans Canadian Pension Plans
2020 2019 2020 2019
Projected benefit obligation, December 31 $ 2.3  $ 394.6  $ 16.7  $ 15.8 
Accumulated benefit obligation, December 31 2.3  393.2  16.7  15.8 
Fair value of plan assets, December 31   380.7  14.4  13.7 

Changes in the above table related to U.S. pension plans are due to the one defined benefit pension plan that changed from an underfunded liability position at December 31, 2019 to prepaid asset position at December 31, 2020. This plan had a prepaid asset balance of $1.1 million at December 31, 2020 compared to an underfunded liability balance of $11.8 million at December 31, 2019.

The components of net periodic pension cost for the U.S. and Canadian defined-benefit pension plans were as follows:
Year Ended December 31,
U.S. Pension Plans Canadian Pension Plans
2020 2019 2018 2020 2019 2018
Service cost of benefits earned during the period $ 2.6  $ 2.7  $ 3.8  $ —  $ —  $ — 
Interest cost on projected benefit obligation 12.5  15.0  14.6  0.5  0.6  0.6 
Expected return on plan assets (21.3) (21.7) (22.2) (0.5) (0.7) (0.8)
Recognized net actuarial loss 10.1  9.7  10.7  0.3  0.4  0.2 
Net periodic pension cost $ 3.9  $ 5.7  $ 6.9  $ 0.3  $ 0.3  $ — 

Investment Policies
Our primary investment objective is to maintain the funded status of the plans such that the likelihood that we will be required to make significant contributions to the plan is limited. This objective is expected to be achieved by:

Investing a substantial portion of the plan assets in high quality corporate and treasury bonds whose duration is at least equal to that of the plan’s liabilities such that there is a relatively high correlation between the movements of the plan’s liability and asset values.
Investing in publicly traded equities in order to increase the ratio of plan assets to liabilities over time.
Limiting investment return volatility by diversifying among additional asset classes with differing expected rates of return and return correlations.
Each asset class used has a defined asset allocation target and allowable range. The tables below show the asset allocation targets and the December 31, 2020 and 2019 positions for each asset class:
Target Weight at Position at December 31,
December 31, 2020 2020 2019
U.S. Asset Class
Fixed income securities 60  % 54  % 55  %
Equities 40  % 46  % 45  %
Canadian Asset Class
Fixed income securities 50  % 50  % 50  %
Equities 48  % 48  % 48  %
Other 2  % 2  % %

Pension plan assets are required to be reported and disclosed at fair value in the financial statements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Three levels of inputs may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The following tables set forth by level within the fair value hierarchy a summary of the U.S. and Canadian defined-benefit pension plan assets, net of payables for administrative expenses, measured at fair value on a recurring basis:
Value at December 31, 2020
Level 1 Level 2 Level 3 Total
U.S. Plans
Fixed income securities $   $ 226.5  $   $ 226.5 
Equities   191.0    191.0 
Other (0.3)     (0.3)
Net assets measured at fair value $ (0.3) $ 417.5  $   $ 417.2 
Value at December 31, 2019
Level 1 Level 2 Level 3 Total
U.S. Plans
Fixed income securities $ —  $ 207.9  $ —  $ 207.9 
Equities —  173.2  —  173.2 
Other (0.4) —  —  (0.4)
Net assets measured at fair value $ (0.4) $ 381.1  $ —  380.7 
Value at December 31, 2020
Level 1 Level 2 Level 3 Total
Canadian Plans
Fixed income securities $   $ 7.5  $   $ 7.5 
Equities   7.1    7.1 
Other 0.2      0.2 
Net assets measured at fair value $ 0.2  $ 14.6  $   $ 14.8 
Value at December 31, 2019
Level 1 Level 2 Level 3 Total
Canadian Plans
Fixed income securities $ —  $ 7.0  $ —  $ 7.0 
Equities —  6.9  —  6.9 
Other 0.3  —  —  0.3 
Net assets measured at fair value $ 0.3  $ 13.9  $ —  $ 14.2 

Following is a description of the valuation methodologies used for assets.

Fixed income securities - Consists of registered investment funds, common trust funds, collective trust funds and segregated funds investing in fixed income securities tailored to institutional investors. The fair values of the investments in this class are based on the underlying securities in each fund’s portfolio, which is the amount the fund would receive for the security upon a current sale.

Equities - Consists of investments in funds investing in equities tailored to institutional investors. The fair value of each fund is based on the underlying securities in each fund’s portfolio, which is the amount the fund would receive for the security upon a current sale.

Other - Consists of cash and cash equivalents and other payables and receivables (net). The carrying amounts of cash and cash equivalents approximate fair value due to the short-term maturity of these instruments. The carrying amounts of payables and receivables approximate fair value due to the short-term nature of these instruments.
Defined-Benefit Postretirement Benefit Plans
The following tables summarize the balance sheet impact of the postretirement benefit plans, as well as the related benefit obligations, assets, funded status and rate assumptions.
2020 2019
Change in benefit obligation:
Projected benefit obligations as January 1 $ 65.3  $ 62.2 
Service cost   0.2 
Interest cost 1.9  2.5 
Plan participants' contributions 1.2  2.2 
   Plan amendments (6.4) (2.6)
Actuarial loss 4.5  10.0 
Benefits paid (6.9) (9.2)
Projected benefit obligation as of December 31 59.6  65.3 
Change in plan assets:
Fair value of plan assets as January 1   — 
Employer contribution 5.7  7.0 
Plan participants' contribution 1.2  2.2 
Benefits paid (6.9) (9.2)
Fair value of plan assets as of December 31   — 
Funded status of the plans $ (59.6) $ (65.3)

The change in actuarial loss related to the change in the benefit obligation for the postretirement benefit plans for the year ended December 31, 2020 was primarily due to the decrease in the discount rate and new claim costs being higher than assumed, partially offset by a gain from the census data updates. The change in actuarial loss related to the change in the benefit obligation for the postretirement benefit plans for the year ended December 31, 2019 was primarily due to the decrease in the discount rate, medical trend assumption changes and new claim costs being higher than assumed.

The table below presents the weighted-average assumptions used in computing the benefit obligations and net periodic benefit cost for the U.S. defined-benefit postretirement benefit plans:
2020 2019
Weighted average discount rate used to determine benefit obligations as of December 31 2.45  % 3.20  %
Weighted average discount rate used to determine net periodic benefit cost 3.20  % 4.30  %

The components of net periodic postretirement (benefit) cost were as follows:
Year Ended December 31,
2020 2019 2018
Service cost of benefits earned during the period $   $ 0.2  $ 0.4 
Interest cost on accumulated postretirement benefit obligations 1.9  2.5  2.6 
Amortization of prior service (credit) (0.2) —  — 
Amortization of net actuarial (gain) (4.8) (3.1) (2.5)
Net periodic postretirement (benefit) cost $ (3.1) $ (0.4) $ 0.5 

As a result of the elimination of future life insurance benefits for certain employees, we recorded a curtailment gain of $1.8 million in 2020 in other income. This gain is not reflected in the above table.
For measurement purposes, an average rate of annual increase in the per capita cost of covered health care benefits of 6.7% for pre-65 retirees was assumed for 2021, decreasing ratably to an ultimate rate of 4.5% by 2027.

Financial Statement Impacts
Amounts recognized in assets and (liabilities) on the Consolidated Balance Sheets at year end consist of:
U.S. Pension Benefits Canadian Pension Benefits Postretirement Benefits
2020 2019 2020 2019 2020 2019
Other noncurrent assets $ 1.1  $ —  $ —  $ —  $ —  $ — 
Accounts payable and accrued expenses   —    —  (4.0) (5.6)
Postretirement benefit liabilities   —    —  (55.6) (59.7)
Pension benefit liabilities (2.3) (13.9) (2.3) (2.1) —  — 
Net amount recognized $ (1.2) $ (13.9) $ (2.3) $ (2.1) $ (59.6) $ (65.3)

Pre-tax amounts recognized in AOCI at year end for our pension and postretirement benefit plans consist of:
U.S. Pension Benefits Canadian Pension Benefits Postretirement Benefits
2020 2019 2020 2019 2020 2019
Net actuarial gain (loss) $ (106.7) $ (123.1) $ (4.9) $ (4.8) $ 25.6  $ 30.5 

We expect to contribute $0.1 million each to our U.S. and Canadian defined-benefit pension plans and $4.1 million to our U.S. postretirement benefit plans in 2021.

Future Benefit Payments
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next ten years for our U.S. and Canadian plans:
U.S. Pension Benefits Canadian Pension Benefits Postretirement Benefits
2021 $ 19.9  $ 1.3  $ 4.1 
2022 20.9  1.3  3.8 
2023 21.6  1.2  3.6 
2024 21.7  1.2  3.5 
2025 22.1  1.1  3.4 
2026-2030 114.1  5.3  15.7 

These estimated benefit payments are based on assumptions about future events. Actual benefit payments may vary significantly from these estimates.