Employee Benefit Plans | 17. Employee Benefit Plans The Company offers defined contribution retirement plans which cover the majority of its U.S. employees, as well as employees in certain other countries. The Company’s expense relating to defined contribution plans was $50,031, $46,030 and $43,447 for the years ended December 31, 2019, 2018 and 2017, respectively. The Company sponsors qualified defined benefit pension plans covering certain employees of the Company and its subsidiaries. The plans’ benefits are generally based on years of service and employee compensation. The Company also provides to certain management employees, through non-qualified plans, supplemental retirement benefits in excess of qualified plan limits imposed by federal tax law. In July 2013, the Company announced that, after December 31, 2013, the U.S. qualified and non-qualified defined benefit plans would be closed to new employees. All pension-eligible employees as of December 31, 2013 will continue to earn a pension benefit through December 31, 2023 as long as they remain employed by an operating company participating in the impacted plans. The Company also announced that effective January 1, 2024, the plans would be frozen to any future benefit accruals. In connection with the spin-off on May 9, 2018, assets and liabilities related to the Norris USW participants were moved to a new plan sponsored by Apergy. Assets and liabilities of several non-U.S. qualified and U.S. non-qualified plans were also transferred to Apergy. Apergy participants (other than Norris USW participants) in the Dover U.S. pension plan (the "Plan") fully vested in their benefits and ceased accruing future benefits. The separation of Apergy triggered a pension plan curtailment which required a re-measurement of the Plan's benefit obligation in the second quarter of 2018, assuming a discount rate of 4.2% and an expected return on assets of 6.8%. The Plan retained the obligation and participants were able to elect lump-sum payments from plan assets. In 2018, the Plan made total lump sum payments of $74,016. Based on the total lump sum payments made to both Apergy and other participants in the plan during the year and the second quarter re-measurement, the Company recorded non-cash settlement and curtailment charges of approximately $13,939 in 2018, of which $9,200 was classified within discontinued operations. The Company also maintains other post-retirement benefit plans which cover approximately 409 participants, approximately 386 of whom are eligible for medical benefits. These plans are closed to new entrants. The supplemental and other post-retirement benefit plans are supported by the general assets of the Company. Obligations and Funded Status The following tables summarize the Consolidated Balance Sheets impact, including the benefit obligations, assets and funded status associated with the Company's significant defined benefit and other post-retirement benefit plans at December 31, 2019 and 2018: Qualified Defined Benefits Non-Qualified Supplemental Benefits Other Post-Retirement Benefits U.S. Plan Non-U.S. Plans 2019 2018 2019 2018 2019 2018 2019 2018 Change in benefit obligation: Benefit obligation at beginning of year $ 447,173 $ 566,389 $ 270,329 $ 278,188 $ 66,836 $ 106,012 $ 7,849 $ 8,595 Service cost 7,016 9,019 5,665 5,359 1,942 2,624 19 30 Interest cost 19,026 20,756 5,101 4,962 2,670 3,204 312 290 Plan participants' contributions — — 1,681 1,279 — — — — Benefits paid (38,093) (18,172) (9,298) (8,161) (13,617) (19,352) (572) (620) Actuarial (gain) loss 55,105 (48,104) 24,791 (19,533) 2,352 (7,687) 462 (446) Amendments — 69 — 3,073 — — — — Settlements and curtailments — (78,896) (5,412) (1,813) — (2,289) — — Currency translation and other 1 — 3,677 21,554 — — — — Spin-off of Apergy — (3,888) — (14,579) — (15,676) — — Benefit obligation at end of year 490,228 447,173 296,534 270,329 60,183 66,836 8,070 7,849 Change in plan assets: Fair value of plan assets at beginning of year 488,900 617,840 162,589 175,534 — — — — Actual return (loss) on plan assets 99,431 (32,939) 23,812 (8,490) — — — — Company contributions — — 7,247 5,961 13,617 19,352 572 620 Plan participants' contributions — — 1,681 1,279 — — — — Benefits paid (38,093) (18,172) (9,298) (8,161) (13,617) (19,352) (572) (620) Settlements and curtailments — (74,016) (4,350) (1,472) — — — — Currency translation and other — — 3,909 11,223 — — — — Spin-off of Apergy — (3,813) — (13,285) — — — — Fair value of plan assets at end of year 550,238 488,900 185,590 162,589 — — — — Funded (Unfunded) status $ 60,010 $ 41,727 $ (110,944) $ (107,740) $ (60,183) $ (66,836) $ (8,070) $ (7,849) Amounts recognized in the consolidated balance sheets consist of: Assets and Liabilities: Other assets and deferred charges $ 60,010 $ 41,727 $ 671 $ 919 $ — $ — $ — $ — Accrued compensation and employee benefits — — (1,526) (1,493) (12,500) (13,219) (692) (702) Other liabilities (deferred compensation) — — (110,089) (107,166) (47,683) (53,617) (7,378) (7,147) Total assets and liabilities 60,010 41,727 (110,944) (107,740) (60,183) (66,836) (8,070) (7,849) Accumulated Other Comprehensive Loss (Earnings): Net actuarial losses (gains) 71,247 81,437 70,694 66,480 (20,556) (25,186) (632) (1,164) Prior service cost (credit) 549 852 (2,724) (72) 6,288 9,099 58 71 Deferred taxes (15,263) (17,597) (15,492) (14,861) 3,066 3,461 290 412 Total accumulated other comprehensive loss (earnings), net of tax 56,533 64,692 52,478 51,547 (11,202) (12,626) (284) (681) Net amount recognized at December 31, $ 116,543 $ 106,419 $ (58,466) $ (56,193) $ (71,385) $ (79,462) $ (8,354) $ (8,530) Accumulated benefit obligations $ 476,357 $ 438,005 $ 282,883 $ 258,109 $ 56,017 $ 60,080 The Company’s net unfunded status at December 31, 2019 and 2018 includes net liabilities of $110,944 and $107,740, respectively, relating to the Company’s significant international qualified plans, some in locations where it is not economically advantageous to pre-fund the plans due to local regulations. The majority of the international obligations relate to defined pension plans operated by the Company’s businesses in Germany, Switzerland, and the United Kingdom. The accumulated benefit obligation for all defined benefit pension plans was $815,257 and $756,194 at December 31, 2019 and 2018, respectively. Pension plans with accumulated benefit obligations in excess of plan assets consist of the following at December 31, 2019 and 2018: 2019 2018 Projected benefit obligation (PBO) $ 348,137 $ 330,168 Accumulated benefit obligation (ABO) 331,126 311,192 Fair value of plan assets 177,057 154,673 Net Periodic Benefit Cost The operating expense component of net periodic benefit cost (service cost) is reported with similar compensation costs in the Company's Consolidated Statement of Earnings. The non-operating components (all other components of net periodic benefit expense, including interest cost, amortization of prior service cost, curtailments and settlements, etc.) are reported outside of operating income in other income, net in the Consolidated Statement of Earnings. Components of the net periodic benefit cost were as follows: Defined Benefit Plans Qualified Defined Benefits Non-Qualified Supplemental Benefits U.S. Plan Non-U.S. Plans 2019 2018 2017 2019 2018 2017 2019 2018 2017 Service cost $ 7,016 $ 9,019 $ 12,083 $ 5,665 $ 5,359 $ 5,688 $ 1,942 $ 2,624 $ 2,473 Interest cost 19,026 20,756 21,718 5,101 4,962 5,263 2,670 3,204 4,076 Expected return on plan assets (34,136) (39,045) (39,812) (6,220) (7,675) (7,417) — — — Amortization of: Prior service cost (credit) 303 298 427 (398) (449) (425) 2,811 3,770 4,411 Recognized actuarial loss (gain) — 3,102 5,582 3,109 2,952 3,506 (2,280) (1,132) (1,192) Transition obligation — — — — 1 4 — — — Settlement and curtailment loss (gain) — 13,939 (1) 76 961 7 678 — (1,381) — Net periodic benefit expense $ (7,791) $ 8,069 $ 74 $ 8,218 $ 5,157 $ 7,297 $ 5,143 $ 7,085 $ 9,768 Less: Discontinued operations — 10,109 (1) 3,383 — 114 810 — 279 1,226 Net periodic (income) expense - Continuing operations $ (7,791) $ (2,040) $ (3,309) $ 8,218 $ 5,043 $ 6,487 $ 5,143 $ 6,806 $ 8,542 (1) $9.2 million of the total settlement and curtailment loss on the U.S. Plan is attributable to Apergy participants in the Dover Defined Benefit Plan and has therefore been reflected in the results of discontinued operations. Other Post-Retirement Benefits 2019 2018 2017 Service cost $ 19 $ 30 $ 68 Interest cost 312 290 783 Amortization of: Prior service cost 13 13 7 Recognized actuarial gain (70) (30) (161) Settlement and curtailment gain — — (4,598) Net periodic expense (benefit) $ 274 $ 303 $ (3,901) The curtailment gain in 2017 relates primarily to the impact of an amendment to the post-retirement plan in Brazil. Amounts expected to be amortized from accumulated other comprehensive earnings (loss) into net periodic benefit cost during 2020 are as follows: Qualified Defined Benefits Non-Qualified Supplemental Benefits Other Post-Retirement Benefits U.S. Plan Non-U.S. Plans Amortization of: Prior service cost (credit) $ 227 $ (473) $ 1,695 $ 13 Recognized actuarial loss (gain) 7,536 2,986 (1,858) (15) Total $ 7,763 $ 2,513 $ (163) $ (2) Assumptions The Company determines actuarial assumptions on an annual basis. The weighted average assumptions used in determining the benefit obligations were as follows: Qualified Defined Benefits Non-Qualified Supplemental Benefits Other Post-Retirement Benefits U.S. Plan Non-U.S. Plans 2019 2018 2019 2018 2019 2018 2019 2018 Discount rate 3.40 % 4.35 % 1.18 % 1.83 % 3.20 % 4.30 % 3.10 % 4.15 % Average wage increase 4.00 % 4.50 % 1.80 % 2.10 % 4.50 % 4.50 % na na Ultimate medical trend rate na na na na na na 5.00 % 5.00 % The weighted average assumptions used in determining the net periodic benefit cost were as follows: Qualified Defined Benefits Non- Qualified Supplemental Benefits Other Post-Retirement Benefits U.S. Plan Non-U.S. Plans 2019 2018 2017 2019 2018 2017 2019 2018 2017 2019 2018 2017 Discount rate 4.35 % 4.2%/3.65% (1) 4.10 % 1.83 % 1.94 % 2.06 % 4.30 % 3.57 % 3.97 % 4.15 % 3.50 % 6.49 % Average wage increase 4.00 % 4.00 % 4.00 % 2.10 % 2.33 % 2.34 % 4.50 % 4.50 % 4.50 % na na na Expected return on plan assets 6.80 % 6.8%/7.25% (1) 7.25 % 3.67 % 4.66 % 4.73 % na na na na na na (1) The separation of Apergy triggered a pension plan curtailment which required a re-measurement of the Plan's benefit obligation in the second quarter 2018, assuming a discount rate of 4.2% and an expected return on assets of 6.8%. The Company’s discount rate assumption is determined by developing a yield curve based on high quality corporate bonds with maturities matching the plans’ expected benefit payment streams. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. The remeasurement in the second quarter of 2018, triggered by the Apergy spin-off, resulted in an increase to the discount rate used in determining net periodic benefit cost from 3.65% to 4.20% for the balance of 2018. For other post-retirement benefit measurement purposes, a 7.00% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rates) was assumed for 2020. The rate was assumed to decrease gradually to 5.00% by the year 2027 and remain at that level thereafter. The health care cost trend rate assumption can have an effect on the amounts reported. For example, increasing (decreasing) the assumed health care cost trend rates by one percentage point in each year would increase (decrease) the accumulated other post-retirement benefit obligation as of December 31, 2019 by $78 and $(76), respectively, and would have a negligible impact on the net post-retirement benefit cost for 2019. Plan Assets The primary financial objective of the plans is to secure participant retirement benefits. Accordingly, the key objective in the plans’ financial management is to promote stability and, to the extent appropriate, growth in the funded status. Related and supporting financial objectives are established in conjunction with a review of current and projected plan financial requirements. As it relates to the funded defined benefit pension plans, the Company’s funding policy is consistent with the funding requirements of the Employment Retirement Income Security Act ("ERISA") and applicable international laws. The Company is responsible for overseeing the management of the investments of the plans’ assets and otherwise ensuring that the plans’ investment programs are in compliance with ERISA, other relevant legislation and related plan documents. Where relevant, the Company has retained professional investment managers to manage the plans’ assets and implement the investment process. The investment managers, in implementing their investment processes, have the authority and responsibility to select appropriate investments in the asset classes specified by the terms of their applicable prospectus or investment manager agreements with the plans. The assets of the plans are invested to achieve an appropriate return for the plans consistent with a prudent level of risk. The plan's long-term investment objective is to generate investment returns that provide adequate assets to meet all benefit obligations in accordance with applicable regulations. The expected return on assets assumption used for pension expense is developed through analysis of historical and forecasted market returns, statistical analysis, current market conditions and the past experience of plan asset investments. Overall, it is projected that the investment of plan assets within Dover’s U.S. defined benefit plan will achieve a net return over time from the asset allocation strategy of 6.80%. The Company’s actual and target weighted average asset allocation for our U.S. Corporate Pension Plan was as follows: 2019 2018 Current Target Equity securities 34 % 36 % 34 % Fixed income 64 % 55 % 66 % Real estate and other 2 % 9 % — % Total 100 % 100 % 100 % While the non-U.S. investment policies are different for each country, the long-term objectives are generally the same as for the U.S. pension assets. The Company's non-U.S. plans were expected to achieve average rates of return on invested assets of 3.67% in 2019, 4.66% in 2018 and 4.73% in 2017. The fair values of both U.S. and non-U.S. pension plan assets by asset category within the fair value hierarchy (as defined in Note 13 — Financial Instruments) were as follows: U.S. Qualified Defined Benefits Plan 12/31/2019 12/31/2018 Level 1 Level 2 Total Fair Value Level 1 Level 2 Total Fair Value Corporate bonds $ — $ 216,981 $ 216,981 $ — $ 150,179 $ 150,179 Government securities 5,846 69,486 75,332 1,586 113,931 115,517 Interest-bearing cash and short-term investments 1,438 — 1,438 2,066 — 2,066 Total investments at fair value 7,284 286,467 293,751 3,652 264,110 267,762 Investments measured at net asset value* Collective funds — — 241,058 — — 175,963 Real estate investments — — — — — 32,686 Short-term investment funds — — 15,429 — — 12,489 Total investments $ 7,284 $ 286,467 $ 550,238 $ 3,652 $ 264,110 $ 488,900 Non-U.S. Plans 12/31/2019 12/31/2018 Level 1 Level 2 Level 3 Total Fair Value Level 1 Level 2 Level 3 Total Fair Value Common stocks $ 44,685 $ — $ — $ 44,685 $ 28,528 $ — $ — $ 28,528 Fixed income investments — 19,871 — 19,871 — 27,797 — 27,797 Mutual funds 26,799 — — 26,799 23,438 — — 23,438 Cash and cash equivalents 3,752 — — 3,752 470 — — 470 Other — 3,519 18,597 22,116 — 2,390 21,283 23,673 Total investments at fair value 75,236 23,390 18,597 117,223 52,436 30,187 21,283 103,906 Investments measured at net asset value* Collective funds — — — 64,000 — — — 54,505 Other — — — 4,367 — — — 4,178 Total $ 75,236 $ 23,390 $ 18,597 $ 185,590 $ 52,436 $ 30,187 $ 21,283 $ 162,589 * In accordance with Fair Value Measurement Topic 820 (Subtopic 820-10), certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient were not classified in the fair value hierarchy. These are included to permit reconciliation of the fair value hierarchy to the aggregate pension plan assets. Common stocks represent investments in domestic and foreign equities, which are publicly traded on active exchanges and are valued based on quoted market prices. Fixed income investments include U.S. Treasury bonds and notes, which are valued based on quoted market prices, as well as investments in other government and municipal securities and corporate bonds, which are valued based on yields currently available on comparable securities of issuers with similar credit ratings. Mutual funds are categorized as either Level 1, 2 or Net Asset Value ("NAV") as a practical expedient depending on the nature of the observable inputs. Collective funds and real estate investment funds are valued using NAV as a practical expedient as of the last business day of the year. The NAV is based on the underlying value of the assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The value of the underlying assets is based on quoted prices in active markets. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The availability of observable data is monitored by plan management to assess appropriate classification of financial instruments within the fair value hierarchy. Depending upon the availability of such inputs, specific securities may transfer between levels. In such instances, the transfer is reported at the end of the reporting period. The fair value measurement of plan assets using significant unobservable inputs (Level 3) changed during 2018 and 2019, due to the following: Level 3 Balance at December 31, 2017 $ 4,592 Actual return on plan assets: Relating to assets still held at December 31, 2018 (29) Insurance contracts added 16,975 Foreign currency translation (255) Balance at December 31, 2018 21,283 Actual return on plan assets: Relating to assets still held at December 31, 2019 319 Relating to assets sold during the period 14 Purchases 1,615 Sales and settlements (4,971) Foreign currency translation 337 Balance at December 31, 2019 $ 18,597 Future Estimates Benefit Payments Estimated future benefit payments to retirees, which reflect expected future service, are as follows: Qualified Defined Benefits Non-Qualified Supplemental Benefits Other Post-Retirement Benefits U.S. Plan Non-U.S. Plans 2020 $ 37,225 $ 8,592 $ 12,698 $ 704 2021 35,141 8,720 11,820 675 2022 35,407 9,205 4,428 658 2023 33,303 10,578 4,442 634 2024 34,510 11,618 3,808 608 2025 - 2029 149,224 60,816 14,453 2,626 Contributions In 2020, the Company expects to contribute approximately $4.6 million to its non-US plans and currently does not expect to contribute to its U.S. plans. |