Pension and Other Post-Retirement Benefit Plans | PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS Defined Benefit and Post-retirement Healthcare Plans ABX sponsors a qualified defined benefit pension plan for ABX crewmembers and a qualified defined benefit pension plan for a major portion of its other ABX employees that meet minimum eligibility requirements. ABX also sponsors non-qualified defined benefit pension plans for certain employees. These non-qualified plans are unfunded. Employees are no longer accruing benefits under any of the defined benefit pension plans. ABX also sponsors a post-retirement healthcare plan for its ABX employees, which is unfunded. Benefits for covered individuals terminate upon reaching age 65 under the post-retirement healthcare plans. The accounting and valuation for these post-retirement obligations are determined by prescribed accounting and actuarial methods that consider a number of assumptions and estimates. The selection of appropriate assumptions and estimates is significant due to the long time period over which benefits will be accrued and paid. The long term nature of these benefit payouts increases the sensitivity of certain estimates of our post-retirement costs. The assumptions considered most sensitive in actuarially valuing ABX’s pension obligations and determining related expense amounts are discount rates and expected long term investment returns on plan assets. Additionally, other assumptions concerning retirement ages, mortality and employee turnover also affect the valuations. Actual results and future changes in these assumptions could result in future costs significantly higher than those recorded in our results of operations. ABX measures plan assets and benefit obligations as of December 31 of each year. Information regarding ABX’s sponsored defined benefit pension plans and post-retirement healthcare plans follow below. The accumulated benefit obligation reflects pension benefit obligations based on the actual earnings and service to-date of current employees. During 2014, ABX offered vested, former employee participants of the qualified pension plan and vested employee participants of the crewmembers qualified pension plan a one-time option to settle their pension benefit with the Company through a single payment or a nonparticipating annuity contract. As a result, ABX settled $98.7 million of pension obligations in December of 2014 from the pension plans assets. The settlement resulted in pre tax charges of $6.7 million to continued operations and $5.0 million to discontinued operations for 2014 due to the reclassification of $11.7 million of pre-tax losses from accumulated other comprehensive loss. Funded Status (in thousands): Pension Plans Post-retirement Healthcare Plans 2015 2014 2015 2014 Accumulated benefit obligation $ 777,320 $ 807,992 $ 4,999 $ 6,163 Change in benefit obligation Obligation as of January 1 $ 807,992 $ 761,774 $ 6,163 $ 7,482 Service cost — — 177 239 Interest cost 34,584 39,517 192 286 Plan transfers 2,558 2,659 — — Benefits paid (32,696 ) (29,961 ) (788 ) (1,623 ) Settlement payments — (98,738 ) — — Actuarial (gain) loss (35,118 ) 132,741 (745 ) (221 ) Obligation as of December 31 $ 777,320 $ 807,992 $ 4,999 $ 6,163 Change in plan assets Fair value as of January 1 $ 719,787 $ 751,246 $ — $ — Actual gain on plan assets (23,677 ) 88,453 — — Plan transfers 2,558 2,659 — — Employer contributions 6,181 6,128 788 1,623 Benefits paid (32,696 ) (29,961 ) (788 ) (1,623 ) Settlement payments $ — $ (98,738 ) $ — $ — Fair value as of December 31 $ 672,153 $ 719,787 $ — $ — Funded status Underfunded plans Current liabilities $ (1,346 ) $ (1,506 ) $ (626 ) $ (812 ) Non-current liabilities $ (103,821 ) $ (86,699 ) $ (4,373 ) $ (5,351 ) Components of Net Periodic Benefit Cost ABX’s net periodic benefit costs for its defined benefit pension plans and post-retirement healthcare plans for the years ended December 31, 2015, 2014 and 2013, are as follows (in thousands): Pension Plans Post-Retirement Healthcare Plan 2015 2014 2013 2015 2014 2013 Service cost $ — $ — $ — $ 177 $ 239 275 Interest cost 34,584 39,517 35,957 192 286 264 Expected return on plan assets (44,082 ) (46,111 ) (45,990 ) — — — Settlements — 11,660 — — — — Amortization of prior service cost — — — (542 ) (3,487 ) (5,654 ) Amortization of net (gain) loss 7,170 (2 ) 12,296 292 321 419 Net periodic benefit cost $ (2,328 ) $ 5,064 $ 2,263 $ 119 $ (2,641 ) $ (4,696 ) Unrecognized Net Periodic Benefit Expense The pre-tax amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit expense at December 31 are as follows (in thousands): Pension Plans Post-Retirement Healthcare Plans 2015 2014 2015 2014 Unrecognized prior service cost $ — $ — $ (153 ) $ (696 ) Unrecognized net actuarial loss 144,402 118,932 449 1,486 Accumulated other comprehensive (income) loss $ 144,402 $ 118,932 $ 296 $ 790 The following table sets forth the amounts of unrecognized net actuarial loss and (gain) recorded in accumulated other comprehensive loss that is expected to be recognized as components of net periodic benefit expense during 2016 (in thousands): Pension Plans Post- Retirement Healthcare Plans Amortization of actuarial loss $ 13,472 $ 160 Prior Service Cost — (102 ) Assumptions Assumptions used in determining the funded status of ABX’s pension plans at December 31 were as follows: Pension Plans 2015 2014 2013 Discount rate - crewmembers 4.70% 4.35% 5.25% Discount rate - non-crewmembers 4.75% 4.40% 5.35% Expected return on plan assets 6.25% 6.25% 6.25% Net periodic benefit cost was based on the discount rate assumptions at the end of the previous year. The discount rate used to determine post-retirement healthcare obligations was 3.65% for pilots and 3.35% for non-pilots at December 31, 2015. The discount rate used to determine post-retirement healthcare obligations was 3.35% for pilots and 3.30% for non-pilots at December 31, 2014. The discount rate used to determine post-retirement healthcare obligations was 4.15% for pilots and 3.85% for non-pilots at December 31, 2013. Post-retirement healthcare plan obligations have not been funded. The Company's retiree healthcare contributions have been fixed for each participant, accordingly, healthcare cost trend rates do not effect the post-retirement healthcare obligations. Plan Assets The weighted-average asset allocations by asset category are as shown below: Composition of Plan Assets as of December 31 Asset category 2015 2014 Cash 1 % — % Equity securities 28 % 28 % Fixed income securities 67 % 68 % Real estate 4 % 4 % 100 % 100 % ABX uses an investment management firm to advise it in developing and executing an investment policy. The portfolio is managed with consideration for diversification, quality and marketability. The investment policy permits the following ranges of asset allocation: equities – 15% to 35% ; fixed income securities – 60% to 80% ; real estate – 0% to 5% ; cash – 0% to 5% . Except for U.S. Treasuries, no more than 10% of the fixed income portfolio and no more than 5% of the equity portfolio can be invested in securities of any single issuer. The overall expected long term rate of return was developed using various market assumptions in conjunction with the plans’ targeted asset allocation. The assumptions were based on historical market returns. Cash Flows In 2015 and 2014, the Company made contributions to its defined benefit plans of $6.2 million and $6.1 million , respectively and $98.7 million for settlement payments in 2014. The Company estimates that its contributions in 2016 will be approximately $6.3 million for its defined benefit pension plans and $0.6 million for its post-retirement healthcare plans. The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid out of the respective plans as follows (in thousands): Pension Benefits Post-retirement Healthcare Benefits 2016 $ 34,766 $ 626 2017 40,373 629 2018 40,064 592 2019 42,234 584 2020 44,237 573 Years 2021 to 2025 245,721 2,477 Fair Value Measurements The pension plan assets are valued at fair value. The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy. Common Trust Funds—Common trust funds are composed of shares or units in non-publicly traded funds whereby the underlying assets in these funds (cash, cash equivalents, fixed income securities and equity securities) are publicly traded on exchanges and price quotes for the assets held by these funds are readily available. Holdings of common trust funds are classified as Level 2 investments. Corporate Stock—This investment category consists of common and preferred stock issued by domestic and international corporations that are regularly traded on exchanges and price quotes for these shares are readily available. These investments are classified as Level 1 investments. Mutual Funds—Investments in this category include shares in registered mutual funds, unit trust and commingled funds. These funds consist of domestic equity, international equity and fixed income strategies. Investments in this category that are publicly traded on an exchange and have a share price published at the close of each business day are classified as Level 1 investments and holdings in the other mutual funds are classified as Level 2 investments. Fixed Income Investments—Securities in this category consist of U.S. Government or Agency securities, state and local government securities, corporate fixed income securities or pooled fixed income securities. Securities in this category that are valued utilizing published prices at the close of each business day are classified as Level 1 investments. Those investments valued by bid data prices provided by independent pricing sources are classified as Level 2 investments. Real Estate—The real estate investment in a commingled trust account consists of publicly traded real estate investment trusts and collateralized mortgage backed securities as well as private market direct property investments. The valuations for the holdings in these investments are not based on readily observable inputs and are classified as Level 3 investments. Hedge Funds and Private Equity—These investments are not readily tradeable and have valuations that are not based on readily observable data inputs. The fair value of these assets is estimated based on information provided by the fund managers or the general partners. Therefore, these assets are classified as Level 3. The pension plan assets measured at fair value on a recurring basis were as follows (in thousands): As of December 31, 2015 Fair Value Measurement Using Total Level 1 Level 2 Level 3 Plan assets Common trust funds $ — $ 4,354 $ — $ 4,354 Corporate stock 14,832 — — 14,832 Mutual funds 46,991 99,056 — 146,047 Fixed income investments 4,954 443,600 — 448,554 Real estate — — 29,717 29,717 Hedge funds and private equity — — 28,649 28,649 Total plan assets $ 66,777 $ 547,010 $ 58,366 $ 672,153 As of December 31, 2014 Fair Value Measurement Using Total Level 1 Level 2 Level 3 Plan assets Common trust funds $ — $ 4,238 $ — $ 4,238 Corporate stock 17,878 — — 17,878 Mutual funds 51,568 100,252 — 151,820 Fixed income investments 1,978 488,399 — 490,377 Real estate — — 26,057 26,057 Hedge funds and private equity — — 29,417 29,417 Total plan assets $ 71,424 $ 592,889 $ 55,474 $ 719,787 ABX’s pension investments include hedge funds, private equity and real estate funds whose fair values have been estimated in the absence of readily determinable fair values. Management’s estimates are based on information provided by the fund managers or general partners of those funds. The following table presents a reconciliation of the beginning and ending balances of the fair value measurements using significant Level 3 unobservable inputs (in thousands): Hedge Funds & Private Equity Real Estate Investments Total January 1, 2014 $ 29,339 $ 19,561 $ 48,900 Unrealized gains 2,376 6,496 8,872 Purchases & settlements (2,298 ) — (2,298 ) December 31, 2014 $ 29,417 $ 26,057 $ 55,474 Unrealized gains 1,418 3,660 5,078 Purchases & settlements (2,186 ) — (2,186 ) December 31, 2015 $ 28,649 $ 29,717 $ 58,366 Defined Contribution Plans The Company sponsors defined contribution capital accumulation plans (401k) that are funded by both voluntary employee salary deferrals and by employer contributions. Expenses for defined contribution retirement plans were $5.7 million , $5.4 million and $5.1 million for the years ended December 31, 2015, 2014 and 2013, respectively. |