| Retirement Benefits | Retirement Benefits The company sponsors contributory and non-contributory defined contribution retirement and defined benefit pension plans for eligible employees worldwide. Defined Contribution Retirement Plans Domestic and international defined contribution retirement plans are available to eligible salaried and craft employees. Contributions to defined contribution retirement plans are based on a percentage of the employee's eligible compensation. The company recognized expense of $150 million , $165 million and $167 million associated with contributions to its defined contribution retirement plans during 2018 , 2017 and 2016 , respectively. Defined Benefit Pension Plans Certain defined benefit pension plans are available to eligible international salaried employees. Contributions to defined benefit pension plans are at least the minimum amounts required by applicable regulations. Benefit payments under these plans are generally based upon length of service and/or a percentage of qualifying compensation. The company's largest defined benefit pension plan in the Netherlands was closed to new participants on December 31, 2013. The company previously approved an amendment to freeze the accrual of future service-related benefits for eligible participants of the defined benefit pension plan in the United Kingdom as of April 1, 2011. In 2018, the company executed a buy-in policy contract (the "buy-in policy") with an insurance company to fully insure the benefits of the defined benefit pension plan in the U.K. The company does not anticipate any further material contributions to the U.K. plan. Net periodic pension expense for the company's defined benefit pension plans included the following components: Year Ended December 31, (in thousands) 2018 2017 2016 Service cost $ 17,999 $ 18,780 $ 19,507 Interest cost 21,820 22,525 26,435 Expected return on assets (38,064 ) (40,272 ) (39,535 ) Amortization of prior service credit (935 ) (828 ) (813 ) Recognized net actuarial loss 8,368 7,890 8,819 Loss on settlement 21,900 184 396 Net periodic pension expense $ 31,088 $ 8,279 $ 14,809 As a result of the adoption of ASU 2017-07 in 2018, the service cost component of net periodic pension expense has been presented in “Total cost of revenue” and the other components of net periodic pension expense have been presented in “Corporate general and administrative expense” on the Consolidated Statement of Earnings for the year ended December 31, 2018. Amounts in 2017 and 2016 have not been reclassified to conform to the new presentation as the impact to the results of operations was not material. During 2018, lump-sum distributions to participants of the defined benefit pension plan in the United Kingdom exceeded the sum of the service and interest cost components of net periodic pension cost. As a result, the company recorded a loss on partial pension settlement of $22 million during the year ended December 31, 2018 which was included in “Corporate general and administrative expense” in the Consolidated Statement of Earnings. The lump-sum distributions were funded by assets of the U.K. plan. The ranges of assumptions indicated below cover defined benefit pension plans in the Netherlands, the United Kingdom, Germany and the Philippines and are based on the economic environment in each host country at the end of each respective annual reporting period. The discount rates for the defined benefit pension plans were determined primarily based on a hypothetical yield curve developed from the yields on high quality corporate and government bonds with durations consistent with the pension obligations in those countries. As a result of the buy-in exercise in 2018 (discussed above), the discount rate for the U.K. plan was determined based on the value of the buy-in policy (and corresponding benefit obligation) as of December 31, 2018. The expected long-term rate of return on asset assumptions utilizing historical returns, correlations and investment manager forecasts are established for all relevant asset classes including public international equities and government, corporate and other debt securities. December 31, 2018 2017 2016 For determining projected benefit obligation at year-end: Discount rates 1.80-7.25% 1.90-5.50% 1.90-5.00% Rates of increase in compensation levels 2.25-7.00% 2.25-7.00% 2.25-7.00% For determining net periodic cost for the year: Discount rates 1.90-5.50% 1.90-5.00% 1.90-5.50% Rates of increase in compensation levels 2.25-7.00% 2.25-7.00% 2.25-7.00% Expected long-term rates of return on assets 1.90-7.00% 1.90-7.40% 4.30-7.00% The company evaluates the funded status of each of its retirement plans using the above assumptions and determines the appropriate funding level considering applicable regulatory requirements, tax deductibility, reporting considerations and other factors. The funding status of the plans is sensitive to changes in long-term interest rates and returns on plan assets, and funding obligations could increase substantially if interest rates fall dramatically or returns on plan assets are below expectations. Assuming no changes in current assumptions, the company expects to contribute up to $15 million to its defined benefit pension plans in 2019, which is expected to be in excess of the minimum funding required. If the discount rates were reduced by 25 basis points, plan liabilities for the defined benefit pension plans would increase by approximately $49 million . The following table sets forth the target allocations and the weighted average actual allocations of plan assets: December 31, 2018 Target Allocation 2018 2017 Asset category: Debt securities 40% - 50% 41 % 68 % Equity securities 10% - 20% 16 % 25 % Other 40% - 50% 43 % 7 % Total 100 % 100 % The company's investment strategy is to maintain asset allocations that appropriately address risk within the context of seeking adequate returns. Investment allocations are determined by each plan's governing body. Asset allocations may be affected by local regulations. Long-term allocation guidelines are set and expressed in terms of a target range allocation for each asset class to provide portfolio management flexibility. Short-term deviations from these allocations may exist from time to time for tactical investment or strategic implementation purposes. Investments in debt securities are used to provide stable investment returns while protecting the funding status of the plans. Investments in equity securities are utilized to generate long-term capital appreciation to mitigate the effects of increases in benefit obligations resulting from inflation, longer life expectancy and salary growth. While most of the company's plans are not prohibited from investing in the company's common stock or debt securities, there are no such direct investments at the present time. Plan assets included investments in common or collective trusts (or "CCTs"), which offer efficient access to diversified investments across various asset categories. The estimated fair value of the investments in the common or collective trusts represents the net asset value of the shares or units of such funds as determined by the issuer. A redemption notice period of no more than 30 days is required for the plans to redeem certain investments in common or collective trusts. At the present time, there are no other restrictions on how the plans may redeem their investments. Debt securities are comprised of corporate bonds, government securities, repurchase agreements and common or collective trusts with underlying investments in corporate bonds, government and asset backed securities and interest rate swaps. Corporate bonds primarily consist of investment-grade rated bonds and notes, of which no significant concentration exists in any one rating category or industry. Government securities include international government bonds, some of which are inflation-indexed. Corporate bonds and government securities are valued based on pricing models, which are determined from a compilation of primarily observable market information, broker quotes in non-active markets or similar assets. Equity securities are diversified across various industries and are comprised of common stocks of international companies as well as common or collective trusts with underlying investments in common and preferred stocks. Publicly traded corporate equity securities are valued based on the last trade or official close of an active market or exchange on the last business day of the plan's year. Securities not traded on the last business day are valued at the last reported bid price. As of both December 31, 2018 and 2017 , direct investments in equity securities were concentrated in international securities. Other is comprised of the buy-in policy discussed above, guaranteed investment contracts, foreign currency contracts, common or collective trusts and short-term investment funds. The initial fair value of the buy-in policy, which is a Level 3 asset, was equal to the premium paid to secure the policy (i.e., the fair value of the plan assets plus additional funding to execute the buy-in policy). The fair value of the buy-in policy mirrors the related benefit obligation, and is adjusted each reporting period based on changes in the prevailing market conditions that affect the benefit obligation (e.g., inflation, GILT yield), as well as benefits paid during the period. Guaranteed investment contracts are insurance contracts that guarantee a principal repayment and a stated rate of interest. The estimated fair value of these insurance contracts, which are also Level 3 assets, represents the discounted value of guaranteed benefit payments. The estimated fair value of foreign currency contracts is determined from broker quotes. Common or collective trusts hold underlying investments in a variety of asset classes including commodities and foreign currency contracts. The fair value hierarchy established by ASC 820, "Fair Value Measurement," prioritizes the use of inputs used in valuation techniques into the following three levels: • Level 1 — quoted prices in active markets for identical assets and liabilities • Level 2 — inputs other than quoted prices in active markets for identical assets and liabilities that are observable, either directly or indirectly • Level 3 — unobservable inputs The company measures and reports assets and liabilities at fair value utilizing pricing information received from third parties. The company performs procedures to verify the reasonableness of pricing information received and valuation inputs and assumptions for significant assets and liabilities classified as Level 2 and Level 3. The following table presents, for each of the fair value hierarchy levels required under ASC 820-10, the plan assets and liabilities of the company's defined benefit pension plans that are measured at fair value on a recurring basis as of December 31, 2018 and 2017 : December 31, 2018 December 31, 2017 Fair Value Hierarchy Fair Value Hierarchy (in thousands) Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Assets: Equity securities: Common stock $ 4,390 $ 4,390 $ — $ — $ 4,806 $ 4,806 $ — $ — Debt securities: Corporate bonds 475 — 475 — 155,337 — 155,337 — Government securities 9,709 — 9,709 — 305,831 — 305,831 — Repurchase agreements 835 — 835 — — — — — Other: Guaranteed investment contracts 19,302 — — 19,302 21,030 — — 21,030 Buy-in insurance policy 355,422 — — 355,422 — — — — Foreign currency contracts and other — — — — 12,225 — 12,225 — Liabilities: Debt securities: Repurchase agreements — — — — (110,282 ) — (110,282 ) — Other: Foreign currency contracts and other — — — — (11,138 ) — (11,138 ) — Plan assets measured at fair value, net $ 390,133 $ 4,390 $ 11,019 $ 374,724 $ 377,809 $ 4,806 $ 351,973 $ 21,030 Plan assets measured at net asset value: CCTs — equity securities 152,663 265,647 CCTs — debt securities 386,212 380,419 CCTs — other 32,563 58,900 Plan assets not measured at fair value, net 2,718 3,431 Total plan assets, net $ 964,289 $ 1,086,206 The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3): (in thousands) 2018 2017 Balance at beginning of year $ 21,030 $ 19,075 Actual return on plan assets: Assets still held at reporting date (23,246 ) 3,388 Assets sold during the period — — Acquisitions — — Purchases 381,906 16 Sales — — Settlements (4,966 ) (1,449 ) Balance at end of year $ 374,724 $ 21,030 The following table presents expected benefit payments related to the company's defined benefit pension plans: (in thousands) Year Ended December 31, 2019 $ 28,741 2020 29,863 2021 40,383 2022 30,684 2023 30,911 2024 — 2028 169,839 Measurement dates for the company's defined benefit pension plans are December 31. The following table sets forth the change in projected benefit obligation, plan assets and funded status of the plans: December 31, (in thousands) 2018 2017 Change in projected benefit obligation Benefit obligation at beginning of year $ 1,098,093 $ 987,989 Service cost 17,999 18,780 Interest cost 21,820 22,525 Employee contributions 3,487 3,112 Currency translation (57,179 ) 118,411 Actuarial (gain) loss 23,077 (15,437 ) Plan amendments — (1,058 ) Benefits paid (27,051 ) (33,948 ) Settlements (59,613 ) (2,281 ) Projected benefit obligation at end of year 1,020,633 1,098,093 Change in plan assets Plan assets at beginning of year 1,086,206 950,947 Actual return on plan assets (28,742 ) 38,657 Company contributions 44,977 15,283 Employee contributions 3,487 3,112 Currency translation (54,975 ) 114,436 Benefits paid (27,051 ) (33,948 ) Settlements (59,613 ) (2,281 ) Plan assets at end of year 964,289 1,086,206 Funded Status — (Under)/overfunded $ (56,344 ) $ (11,887 ) Amounts recognized in the Consolidated Balance Sheet Pension assets included in other assets $ 2,409 $ 40,212 Pension liabilities included in other accrued liabilities (1,647 ) (2,208 ) Pension liabilities included in noncurrent liabilities (57,106 ) (49,891 ) Accumulated other comprehensive loss (pre-tax) $ 280,707 $ 235,495 During 2019, approximately $10 million of the amount of accumulated other comprehensive loss shown above is expected to be recognized as components of net periodic pension expense. Projected benefit obligations exceeded plan assets for all defined benefit pension plans as of December 31, 2018 and 2017, with the exception of the plan in the United Kingdom. In the aggregate, these plans had projected benefit obligations of $665 million and $702 million as of December 31, 2018 and 2017 , respectively, and plan assets with a fair value of $606 million and $650 million as of December 31, 2018 and 2017 , respectively. The total accumulated benefit obligation for all defined benefit pension plans as of December 31, 2018 and 2017 was $959 million and $1.0 billion , respectively. As of December 31, 2018 , the accumulated benefit obligation exceeded plan assets for certain defined benefit pension plans in the Netherlands, Germany and the Philippines. As of December 31, 2017 , the accumulated benefit obligation exceeded plan assets for certain defined benefit pension plans in the Netherlands and Germany. In the aggregate, these plans had accumulated benefit obligations of $70 million and $56 million as of December 31, 2018 and 2017 , respectively, and plan assets with a fair value of $36 million and $21 million as of December 31, 2018 and 2017 , respectively. Multiemployer Pension Plans In addition to the company's defined benefit pension plans discussed above, the company participates in multiemployer pension plans for its union construction and maintenance craft employees. Contributions are based on the hours worked by employees covered under various collective bargaining agreements. Company contributions to these multiemployer pension plans were $30 million , $118 million and $108 million during 2018 , 2017 and 2016 , respectively. The significant decrease in contributions during 2018 primarily resulted from the cancellation of two nuclear power plant projects in the United States in 2017 and the substantial completion of three Energy & Chemicals projects in Canada by the end of 2017, all of which had substantial craft employees. The company is not aware of any significant future obligations or funding requirements related to these plans other than the ongoing contributions that are paid as hours are worked by plan participants. None of these multiemployer pension plans are individually significant to the company. The preceding information does not include amounts related to benefit plans applicable to employees associated with certain contracts with the U.S. Department of Energy because the company is not responsible for the current or future funded status of these plans. |
