Pensions and Postretirement Benefits Other than Pensions | Pensions and Postretirement Benefits Other than Pensions The Company has a number of plans providing pension and retirement benefits. These plans include defined benefit and defined contribution plans. The plans cover substantially all U.S. domestic employees. There are also plans that cover employees in the U.K. and Germany. The Company has an unfunded, nonqualified supplemental retirement benefit plan in the U.S. covering certain employees whose participation in the qualified plan is limited by provisions of the Internal Revenue Code. For defined benefit plans, benefits are generally based on compensation and length of service for salaried employees and length of service for hourly employees. In the U.S., the Company froze the pension benefits in its Spectrum (salaried employees) Plan in 2009. In 2012, the Company closed the U.S. pension plans for the bargaining units to new participants. Certain grandfathered participants in the bargaining unit plans continue to accrue pension benefits. Employees of certain of the Company’s foreign operations in the U.K. and Germany are covered by either contributory or non-contributory trusteed pension plans. In 2012, the Company froze the benefits in the U.K. pension plan. Participation in the Company’s defined contribution plans is voluntary. The Company matches plan participants’ contributions up to various limits. Participants’ contributions are limited based on their compensation and, for certain supplemental contributions which are not eligible for Company matching, based on their age. Certain employees covered by collective bargaining units receive restricted access company contributions. Expense for those plans was $12,424 , $13,931 and $13,260 for 2018 , 2017 and 2016 , respectively. The Company currently provides retiree health care and life insurance benefits to a portion of its U.S. salaried and hourly employees. U.S. salaried and non-bargained hourly employees hired on or after January 1, 2003 are not eligible for retiree health care or life insurance coverage. The Company has reserved the right to modify or terminate certain of these salaried benefits at any time. The Company has implemented household caps on the amounts of retiree medical benefits it will provide to certain retirees in the U.S. The caps do not apply to individuals who retired prior to certain specified dates. Costs in excess of these caps will be paid by plan participants. The Company implemented increased cost sharing in 2004 in the retiree medical coverage provided to certain eligible current and future retirees. Since then, cost sharing has expanded such that nearly all covered retirees pay a charge to be enrolled. In accordance with U.S. GAAP, the Company recognizes the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligation) of its pension and OPEB plans and the net unrecognized actuarial losses and unrecognized prior service costs in the consolidated balance sheets. The unrecognized actuarial losses and unrecognized prior service costs (components of Accumulated other comprehensive loss in the Equity section of the balance sheet) will be subsequently recognized as net periodic benefit costs pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic benefit costs in the same periods will be recognized as a component of other comprehensive income. The following table reflects changes in the projected obligations and fair market values of assets in all defined benefit pension and other postretirement benefit plans of the Company: 2018 Pension Benefits 2017 Pension Benefits Other Postretirement Benefits Domestic International Total Domestic International Total 2018 2017 Change in benefit obligation: Projected Benefit Obligation at beginning of year $ 1,088,633 $ 461,426 $ 1,550,059 $ 1,040,498 $ 422,528 $ 1,463,026 $ 271,726 $ 262,275 Service cost - employer 10,363 — 10,363 9,860 — 9,860 1,948 2,003 Interest cost 36,840 11,161 48,001 39,251 11,525 50,776 9,251 10,063 Actuarial (gain)/loss (67,543 ) (28,064 ) (95,607 ) 59,137 2,567 61,704 (19,909 ) 8,190 Benefits paid (63,542 ) (17,889 ) (81,431 ) (60,113 ) (15,959 ) (76,072 ) (11,218 ) (10,805 ) Plan Amendment — 3,704 3,704 — — — — — Foreign currency translation effect — (25,709 ) (25,709 ) — 40,765 40,765 — — Projected Benefit Obligation at December 31 $ 1,004,751 $ 404,629 $ 1,409,380 $ 1,088,633 $ 461,426 $ 1,550,059 $ 251,798 $ 271,726 Change in plans’ assets: Fair value of plans’ assets at beginning of year $ 944,346 $ 385,879 $ 1,330,225 $ 848,341 $ 328,533 $ 1,176,874 $ — $ — Actual return on plans’ assets (33,063 ) (8,591 ) (41,654 ) 120,620 27,199 147,819 — — Employer contribution 64,388 10,725 75,113 35,498 13,080 48,578 Benefits paid (63,542 ) (17,889 ) (81,431 ) (60,113 ) (15,959 ) (76,072 ) Foreign currency translation effect — (21,123 ) (21,123 ) — 33,026 33,026 — — Fair value of plans’ assets at December 31 $ 912,129 $ 349,001 $ 1,261,130 $ 944,346 $ 385,879 $ 1,330,225 $ — $ — Funded status $ (92,622 ) $ (55,628 ) $ (148,250 ) $ (144,287 ) $ (75,547 ) $ (219,834 ) $ (251,798 ) $ (271,726 ) Amounts recognized in the balance sheets: Accrued liabilities $ (300 ) $ — $ (300 ) $ (300 ) $ — $ (300 ) $ (15,344 ) $ (14,838 ) Postretirement benefits other than pensions — — — — $ (236,454 ) $ (256,888 ) Pension benefits $ (92,322 ) $ (55,628 ) $ (147,950 ) $ (143,987 ) $ (75,547 ) $ (219,534 ) — — Included in Accumulated other comprehensive loss at December 31, 2018 are the following amounts that have not yet been recognized in net periodic benefit cost: unrecognized prior service credits of ($497) ( ($373) net of tax) and unrecognized actuarial losses of $438,176 ( $401,979 net of tax). Included in Accumulated other comprehensive loss at December 31, 2017 are the following amounts that have not yet been recognized in net periodic benefit cost: unrecognized prior service credits of ($1,038) ( ($779) net of tax) and unrecognized actuarial losses of $489,008 ( $439,666 net of tax). The prior service credit and actuarial loss included in accumulated other comprehensive loss that are expected to be recognized in net periodic benefit cost during the fiscal year-ended December 31, 2019 are ($409) and $36,783 , respectively. The accumulated benefit obligation for all defined benefit pension plans was $1,406,263 and $1,546,705 at December 31, 2018 and 2017 , respectively. On October 26, 2018, in Lloyds Banking Group Pensions Trustees Limited vs. Lloyds Bank plc and Others , the High Court of Justice in the United Kingdom issued a ruling ("Court Ruling") requiring Lloyds Bank plc to equalize benefits payable to men and women under its U.K. defined benefit pension plan. The Court Ruling noted that the formulas used to determine guaranteed minimum pension (GMP) benefits violated gender-pay equality laws due to differences in the way benefits were calculated for men and women. As a result of this ruling, the U.K. pension plan was required to amend its benefit formulas and account for the higher pension payments resulting from GMP equalization. In accordance with ASC 715, this Court Ruling represents a change to the U.K. pension plan resulting in a retroactive increase in benefit levels for plan participants and has been accounted for as a prior service cost deferred in Other comprehensive loss, to be amortized as a component of net periodic benefit cost in future periods. The U.K. pension plan projected benefit obligation increased $ 3,704 as a result of the amendment required due to the Court Ruling. In 2016, in order to reduce the size and potential future volatility of the Company’s domestic defined benefit pension plan obligations, the Company commenced an offer to approximately 1,200 former employees with deferred vested pension plan benefits. These former employees had the opportunity to make a one-time election to receive a lump-sum distribution of their benefits by the end of the third quarter of 2016. The vested benefit obligation associated with these former employees was approximately $42,000 , equivalent to about four percent of the Company’s benefit obligation for the domestic plans. Cash payments of $22,701 were made from plan assets in September 2016 to the former employees electing the lump-sum distribution. These payments represented a reduction of approximately two percent of the Company’s benefit obligation for the domestic plans. Due to the size of the lump-sum distribution, in accordance with U.S. GAAP, the Company was required to recognize non-cash settlement charges for all 2016 settlements. Based on the lump-sum distributions that were paid through the third quarter, the Company incurred a non-cash settlement charge of $11,462 in the third quarter of 2016. Additionally, based on the lump-sum distributions that were paid in the fourth quarter, the Company incurred a non-cash settlement charge of $800 in the fourth quarter. In total, cash payments of $29,390 were made from plan assets as part of settlement activity in 2016. Weighted average assumptions used to determine benefit obligations at December 31: Pension Benefits Other Postretirement Benefits 2018 2017 2018 2017 All plans Discount rate 3.70 % 3.20 % 4.05 % 3.50 % Domestic plans Discount rate 4.05 % 3.50 % 4.05 % 3.50 % Foreign plans Discount rate 2.80 % 2.50 % — — At December 31, 2018 , the weighted average assumed annual rate of increase in the cost of medical benefits was 6.75 percent trending linearly to 4.50 percent per annum in 2028 . The following tables disclose the amount of net periodic benefit costs for the years ended December 31, 2018 , 2017 and 2016 , respectively, for the Company’s defined benefit plans and other postretirement benefits: Pension Benefits - Domestic Pension Benefits - International 2018 2017 2016 2018 2017 2016 Components of net periodic benefit cost: Service cost $ 10,363 $ 9,860 $ 9,613 $ — $ — $ 9 Interest cost 36,840 39,251 41,595 11,161 11,525 14,097 Expected return on plan assets (54,037 ) (54,058 ) (57,438 ) (12,073 ) (11,262 ) (11,322 ) Amortization of actuarial loss 32,941 37,122 38,490 4,264 5,448 5,134 Effect of settlements — — 12,262 — — — Net periodic benefit cost $ 26,107 $ 32,175 $ 44,522 $ 3,352 $ 5,711 $ 7,918 Other Post Retirement Benefits 2018 2017 2016 Components of net periodic benefit cost: Service cost $ 1,948 $ 2,003 $ 2,149 Interest cost 9,251 10,063 10,819 Amortization of prior service cost (541 ) (566 ) (566 ) Net periodic benefit cost $ 10,658 $ 11,500 $ 12,402 As discussed in Note 1 - Significant Accounting Policies, the Company retrospectively applied the adoption of ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” as of January 1, 2018. The effect of the retrospective presentation change related to the net periodic cost of the Company's defined benefit plans and other postretirement benefits on the Company's Consolidated Statement of Income for the years ended December 31, 2017 and 2016, respectively, is shown in the following tables: Effect of change December 31, 2017 As Adjusted Americas International Corporate Previously Reported Cost of products sold $ 2,303,261 $ 29,181 $ 5,711 $ — $ 2,338,153 Selling, general and administrative expense 242,148 1,185 1,446 244,779 Other pension and postretirement benefit expense $ (37,523 ) $ (30,366 ) $ (5,711 ) $ (1,446 ) $ — Effect of change December 31, 2016 As Adjusted Americas International Corporate Previously Reported Cost of products sold $ 2,234,786 $ 29,824 $ 7,909 $ — $ 2,272,519 Selling, general and administrative expense 252,625 1,848 1,228 255,701 Pension settlement charges — — — 12,262 12,262 Other pension and postretirement benefit expense $ (53,071 ) $ (31,672 ) $ (7,909 ) $ (13,490 ) $ — Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31: Pension Benefits Other Postretirement Benefits 2018 2017 2016 2018 2017 2016 All plans Discount rate 3.20 % 3.54 % 4.10 % 3.50 % 3.95 % 4.20 % Expected return on plan assets 5.34 % 5.57 % 6.16 % — % — % — % Domestic plans Discount rate 3.50 % 3.90 % 4.20 % 3.50 % 3.95 % 4.20 % Expected return on plan assets 6.25 % 6.50 % 7.00 % — % — % — % Foreign plans Discount rate 2.50 % 2.50 % 3.84 % — % — % — % Expected return on plan assets 3.19 % 3.29 % 3.99 % — % — % — % The following table lists the projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with projected benefit obligations and accumulated benefit obligations in excess of plan assets at December 31, 2018 and 2017 : 2018 2017 Projected benefit obligation exceeds plan assets Accumulated benefit obligation exceeds plan assets Projected benefit obligation exceeds plan assets Accumulated benefit obligation exceeds plan assets Projected benefit obligation $ 1,409,380 $ 1,409,380 $ 1,550,059 $ 1,550,059 Accumulated benefit obligation 1,406,263 1,406,263 1,546,705 1,546,705 Fair value of plan assets 1,261,130 1,261,130 1,330,225 1,330,225 Assumed health care cost trend rates for other postretirement benefits have a significant effect on the amounts reported. A one-percentage-point change in assumed health care cost trend rates would have the following effects: Percentage Point Increase Decrease Increase (decrease) in total service and interest cost components $ 44 $ 38 Increase (decrease) in the other postretirement benefit obligation 1,078 (950 ) The table below presents the Company’s weighted average asset allocations for its domestic and U.K. pension plans’ assets at December 31, 2018 and December 31, 2017 by asset category. U.S. Plans U.K. Plan Asset Category 2018 2017 2018 2017 Fixed Income Collective Trust Funds and Securities 68 % 52 % 70 % 68 % Equity Collective Trust Funds and Securities 26 40 17 18 Other Investment Collective Trust Funds and Securities 3 6 12 13 Cash 3 2 1 1 Total 100 % 100 % 100 % 100 % The Company manages the plans' asset allocation relative to the liability profile and funded status of the plans. It is expected that as the plan’s funded status improves, the portfolio will take less risk as to preserve the funded status of the plan framework. The plans follow a glide path whereby a target return-seeking allocation is followed based upon a given funded ratio level. The plans' position with respect to the glide path is monitored and asset allocation and strategy changes to the plans' portfolio are made as appropriate. The plans' strategy is also monitored in relation to the capital markets, interest rates, and the regulatory environment. The assets of the Company’s pension plan in Germany consist of investments in German insurance contracts. In 2018, the Company made a $25 million one-time additional discretionary contribution to the U.S. pension plans. This contribution improved the funding of the U.S. pension plans, while generating tax savings for the Company due to the deductibility of the contribution on the Company's 2017 tax return at a 35 percent federal corporate income tax rate, prior to the enactment of the Tax Act as of January 1, 2018. The fair market value of U.S. plan assets was $912,129 and $944,346 at December 31, 2018 and 2017 , respectively. The fair market value of the U.K. plan assets was $347,108 and $383,831 at December 31, 2018 and 2017 , respectively. The fair market value of the German pension plan assets was $1,893 and $2,048 at December 31, 2018 and 2017 , respectively. The table below classifies the assets of the U.S. and U.K. plans using the Fair Value Hierarchy described in Note 9 - Fair Value Measurements. Fair Value Hierarchy Total Level 1 Level 2 Level 3 NAV (1) December 31, 2018 United States plans Cash and cash equivalents $ 23,896 $ 23,896 $ — $ — $ — Collective Trust Funds - Equity 238,795 — — — 238,795 Collective Trust Funds - Fixed income 622,576 — 10,514 — 612,062 Collective Trust Funds - Real Estate 26,862 $ — $ — $ — $ 26,862 $ 912,129 $ 23,896 $ 10,514 $ — $ 877,719 United Kingdom plan Cash and cash equivalents $ 1,644 $ 1,644 $ — $ — $ — Equity securities 58,848 58,848 — — — Fixed income securities 244,262 244,262 — — — Other investments 42,354 — 13,416 28,938 — $ 347,108 $ 304,754 $ 13,416 $ 28,938 $ — December 31, 2017 United States plans Cash & Cash Equivalents $ 18,819 $ 18,819 $ — $ — $ — Collective Trust Funds - Equity 381,696 — — — 381,696 Collective Trust Funds - Fixed Income 490,955 — 1,075 — 489,880 Collective Trust Funds - Real Estate 52,876 — — — 52,876 $ 944,346 $ 18,819 $ 1,075 $ — $ 924,452 United Kingdom plan Cash & Cash Equivalents $ 1,578 $ 1,578 $ — $ — $ — Equity securities 69,547 69,547 — — — Fixed income securities 261,260 261,260 — — Other investments 51,446 — 13,376 38,070 $ 383,831 $ 332,385 $ 13,376 $ 38,070 $ — (1) Investments in common/ collective trusts invest primarily in publicly traded securities and are valued using net asset value (NAV) of units of a bank collective trust. Therefore, these amounts have not been classified in the fair value hierarchy and are presented in the tables to reconcile the fair value hierarchy to the total fair value of plan assets. The prior year presentation of the investment classification has been modified to align with the current year presentation. Plan assets are measured at fair value. While the Company believes its valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The Company’s valuation methodologies used for the plan assets measured at fair value are as follows: Cash and cash equivalents – Cash and cash equivalents include cash on deposit and investments in money market mutual funds that invest mainly in short-term instruments and cash, both of which are valued using a market approach. Equity securities – Common, preferred, and foreign stocks are valued using a market approach at the closing price on their principal exchange and are included in Level 1 of the fair value hierarchy. Fixed income securities – Corporate and foreign bonds are valued using a market approach at the closing price reported on the active market on which the individual securities are traded and are included in Level 1 of the fair value hierarchy. Collective trust funds – Collective trust funds are valued at the net asset value of units held at year end and are excluded from the fair value hierarchy. The Collective trust funds fair value has been included within the table above based on the underlying investment strategy. Equity Funds – Collective trust funds classified as Equity primarily invest in U.S. and non-U.S. securities in both small and large capitalization markets. Fixed Income Funds – Collective trust funds classified as Fixed Income primarily invest in debt securities, U.S. treasury securities, and fixed income securities. Real Estate Funds - Collective trust funds classified as Real Estate Funds are invested in global real estate securities. The fair market values of the Level 3 assets in the U.K. plan are determined by the fund manager using a discounted cash flow methodology. The future cash flows expected to be generated by the assets of the funds and made available to investors are estimated and then discounted back to the valuation date. The discount rate is derived by adding a risk premium to the risk-free interest rate applicable to the country in which the assets are located. The following table details the activity in these investments for the years ended December 31, 2016, 2017 and 2018 : U.K. Plan Balance at December 31, 2015 $ 27,062 Transfer into level 3 9,489 Disbursements — Change in fair value 3,545 Foreign currency translation effect (6,300 ) Balance at December 31, 2016 33,796 Transfer into level 3 — Disbursements — Change in fair value 969 Foreign currency translation effect 3,305 Balance at December 31, 2017 38,070 Transfer into level 3 — Disbursements — Change in fair value (7,294 ) Foreign currency translation effect (1,838 ) Balance at December 31, 2018 $ 28,938 The Company determines the annual expected rates of return on pension assets by first analyzing the composition of its asset portfolio. Historical rates of return are applied to the portfolio. These computed rates of return are reviewed by the Company’s investment advisers and actuaries. Industry comparables and other outside guidance are also considered in the annual selection of the expected rates of return on pension assets. During 2018 , the Company contributed $75,113 to its domestic and foreign pension plans, and during 2019 , the Company expects to contribute between $45,000 and $55,000 to its domestic and foreign pension plans. The Company estimates its benefit payments for its domestic and foreign pension plans and other postretirement benefit plans during the next ten years to be as follows: Pension Benefits Other Postretirement Benefits 2019 $ 83,902 $ 15,344 2020 84,330 15,927 2021 85,273 16,238 2022 86,832 16,446 2023 87,019 16,557 2024 through 2028 442,081 82,022 |