| EMPLOYEE BENEFIT PLANS | NOTE I – EMPLOYEE BENEFIT PLANS
Nonunion Defined Benefit Pension, Supplemental Benefit, and Postretirement Health Benefit Plans
The Company has a noncontributory defined benefit pension plan covering substantially all noncontractual employees hired before January 1, 2006. Benefits under the defined benefit pension plan are generally based on years of service and employee compensation. In June 2013, the Company amended the nonunion defined benefit pension plan to freeze the participants’ final average compensation and years of credited service as of July 1, 2013. The amendment resulted in a plan curtailment and eliminated the service cost of the plan. The plan amendment did not impact the vested benefits of retirees or former employees whose benefits have not yet been paid from the plan. Effective July 1, 2013, participants of the nonunion defined benefit pension plan who were active employees of the Company became eligible for the discretionary defined contribution feature of the Company’s nonunion 401(k) and defined contribution plan in which all eligible noncontractual employees hired subsequent to December 31, 2005 also participate (see Defined Contribution Plans section within this Note).
Since the 2013 freeze of the accrual of benefits of the nonunion defined benefit plan, the investment strategy became more focused on reducing investment, interest rate, and longevity risks in the plan. As part of this strategy, the plan purchased a $7.6 million nonparticipating annuity contract from an insurance company during the first quarter 2017 to settle the pension obligation related to the vested benefits of approximately 50 plan participants and beneficiaries receiving monthly benefit payments at the time of the contract purchase. The Company recognized pension settlement expense as a component of net periodic benefit cost related to the first quarter 2017 nonparticipating annuity contract purchase and recognized pension settlement expense in 2017, 2016, and 2015 related to lump-sum benefit distributions from the plan. The pension settlement expense amounts are presented in the tables within this Note. The remaining pre ‑ tax unrecognized net actuarial loss of $22.6 million will continue to be amortized over the average remaining future years of service of the plan participants, which is approximately eight years. The Company will continue to incur additional quarterly pension settlement expense related to lump ‑ sum distributions from the nonunion defined benefit pension plan.
In October 2017, the ArcBest Board of Directors adopted a resolution authorizing the execution of an amendment to terminate the nonunion defined benefit pension plan with a termination date of December 31, 2017, and such amendment was executed in November 2017. The plan has filed for a determination letter from the IRS regarding the qualification of the plan termination. Following receipt of a favorable determination letter, benefit election forms will be provided to plan participants and they will have an election window in which they can choose any form of payment allowed by the plan for immediate commencement of payment or defer payment until a later date. Until a favorable determination letter is received and the benefit election forms are distributed to participants, the methodologies for establishing plan assumptions will continue to be consistent with those used prior to the amendment to terminate the plan. Pension settlement charges related to the plan termination, including settlements for lump sum benefit distributions and the cost to purchase an annuity contract to settle the pension obligation related to benefits for which participants elect to defer payment until a later date, are likely to occur primarily in the second half of 2018. However, the timing of recognizing these settlements in our financial statements is highly dependent on when and if we receive the favorable determination letter from the IRS.
The Company also has an unfunded supplemental benefit plan (“SBP”) for the purpose of supplementing benefits under the Company’s nonunion defined benefit pension plan for executive officers designated as participants in the SBP by the Company’s Board of Directors. The Compensation Committee of the Company’s Board of Directors (“Compensation Committee”) elected to close the SBP to new entrants and to place a cap on the maximum payment per participant to existing participants in the SBP effective January 1, 2006. In place of the SBP, eligible officers of the Company appointed after 2005 participate in a long‑term cash incentive plan (see Cash Long‑Term Incentive Compensation Plan section within this Note). Effective December 31, 2009, the Compensation Committee elected to freeze the accrual of benefits for remaining participants under the SBP. With the exception of early retirement penalties that may apply in certain cases, the valuation inputs for calculating the frozen SBP benefits to be paid to participants, including final average salary and the interest rate, were frozen at December 31, 2009. As presented in the tables within this Note, pension settlement expense and a corresponding reduction in the net actuarial loss was recorded in 2016 related to lump-sum SBP benefit distributions. The SBP did not incur pension settlement expense related to lump ‑ sum distributions in 2017 or 2015.
The Company sponsors an insured postretirement health benefit plan that provides supplemental medical benefits and dental and vision benefits primarily to certain officers of the Company and certain subsidiaries. Effective January 1, 2011, retirees began paying a portion of the premiums under the plan according to age and coverage levels. The amendment to the plan to implement retiree premiums resulted in an unrecognized prior service credit which was recorded in accumulated other comprehensive loss and is being amortized over approximately nine years.
The following table discloses the changes in benefit obligations and plan assets of the Company’s nonunion defined benefit plans for years ended December 31, the measurement date of the plans:
Nonunion Defined
Supplemental
Postretirement
Benefit Pension Plan
Benefit Plan
Health Benefit Plan
2017
2016
2017
2016
2017
2016
(in thousands)
Change in benefit obligations
Benefit obligations at beginning of year
$
152,006
$
159,607
$
4,794
$
4,917
$
25,532
$
24,616
Service cost
—
—
—
—
489
429
Interest cost
4,514
4,572
102
130
1,060
1,017
Actuarial (gain) loss (1)
6,448
4,202
(10)
(7)
(2,251)
133
Benefits paid
(26,491)
(16,896)
(989)
(246)
(733)
(663)
Settlement loss
940
521
—
—
—
—
Benefit obligations at end of year
137,417
152,006
3,897
4,794
24,097
25,532
Change in plan assets
Fair value of plan assets at beginning of year
144,805
136,917
—
—
—
—
Actual return on plan assets
6,517
11,384
—
—
—
—
Employer contributions
—
13,400
989
246
733
663
Benefits paid
(26,491)
(16,896)
(989)
(246)
(733)
(663)
Fair value of plan assets at end of year
124,831
144,805
—
—
—
—
Funded status at end of year
$
(12,586)
$
(7,201)
$
(3,897)
$
(4,794)
$
(24,097)
$
(25,532)
Accumulated benefit obligation
$
137,417
$
152,006
$
3,897
$
4,794
$
24,097
$
25,532
(1)
The actuarial loss on the nonunion defined benefit pension plan was higher for 2017, primarily due to net changes in actuarial assumptions used to measure the plan obligation at December 31, 2017 versus December 31, 2016. The net actuarial gain on the postretirement health benefit plan for 2017, versus the net actuarial loss for 2016, is primarily related to changes in the medical trend rate assumption used to measure the plan obligation at each year-end measurement date.
Amounts recognized in the consolidated balance sheets at December 31 consisted of the following:
Nonunion Defined
Supplemental
Postretirement
Benefit Pension Plan
Benefit Plan
Health Benefit Plan
2017
2016
2017
2016
2017
2016
(in thousands)
Current liabilities (included in accrued expenses)
$
—
$
—
$
—
$
(989)
$
(753)
$
(690)
Noncurrent liabilities (included in pension and postretirement liabilities)
(12,586)
(7,201)
(3,897)
(3,805)
(23,344)
(24,842)
Liabilities recognized
$
(12,586)
$
(7,201)
$
(3,897)
$
(4,794)
$
(24,097)
$
(25,532)
The following is a summary of the components of net periodic benefit cost for the Company’s nonunion benefit plans for the years ended December 31:
Nonunion Defined
Supplemental
Postretirement
Benefit Pension Plan
Benefit Plan
Health Benefit Plan
2017
2016
2015
2017
2016
2015
2017
2016
2015
(in thousands)
Service cost
$
—
$
—
$
—
$
—
$
—
$
—
$
489
$
429
$
406
Interest cost
4,514
4,572
5,200
102
130
123
1,060
1,017
913
Expected return on plan assets
(5,712)
(8,607)
(9,180)
—
—
—
—
—
—
Amortization of prior service credit
—
—
—
—
—
—
(190)
(190)
(190)
Pension settlement expense
4,156
3,023
3,202
—
206
—
—
—
—
Amortization of net actuarial loss (1)
3,132
4,087
3,218
82
152
159
694
705
853
Net periodic benefit cost
$
6,090
$
3,075
$
2,440
$
184
$
488
$
282
$
2,053
$
1,961
$
1,982
(1)
The Company amortizes actuarial losses over the average remaining active service period of the plan participants and does not use a corridor approach.
The following is a summary of the pension settlement distributions and pension settlement expense for the years ended December 31:
Nonunion Defined
Supplemental
Benefit Pension Plan
Benefit Plan
2017 (1)
2016 (2)
2015 (2)
2017 (3)
2016
2015 (4)
(in thousands, except per share data)
Pension settlement distributions
$
26,261
$
16,515
$
20,622
$
989
$
246
$
1,941
Pension settlement expense, pre-tax
$
4,156
$
3,023
$
3,202
$
—
$
206
$
—
Pension settlement expense per diluted share, net of taxes
$
0.10
$
0.07
$
0.07
$
—
$
0.01
$
—
(1)
Pension settlement distributions represent $18.7 million of lump‑sum benefit distributions and a $7.6 million nonparticipating annuity contract purchase.
(2)
Pension settlement distributions represent lump‑sum benefit distributions paid.
(3)
The 2017 SBP distribution represents the portion of a benefit related to an officer retirement that occurred in 2016 which was delayed for six months after retirement in accordance with IRC Section 409A. The pension settlement expense related to this distribution was recognized in 2016.
(4)
The 2015 SBP distribution represents the portion of a benefit related to an officer retirement that occurred in 2014 which was delayed for six months after retirement in accordance with IRC Section 409A. The pension settlement expense related to this distribution was recognized in 2014.
Included in accumulated other comprehensive loss at December 31 were the following pre‑tax amounts that have not yet been recognized in net periodic benefit
cost:
Nonunion Defined
Supplemental
Postretirement
Benefit Pension Plan
Benefit Plan
Health Benefit Plan
2017
2016
2017
2016
2017
2016
(in thousands)
Unrecognized net actuarial loss
$
22,588
$
23,294
$
543
$
635
$
2,764
$
5,708
Unrecognized prior service credit
—
—
—
—
(127)
(317)
Total
$
22,588
$
23,294
$
543
$
635
$
2,637
$
5,391
The following amounts, which are reported within accumulated other comprehensive loss at December 31, 2017 are expected to be recognized as components of net periodic benefit cost in 2018 on a pre ‑ tax basis. (Amounts exclude the effect of pension settlements, which the Company will incur for the nonunion defined benefit pension plan.)
Nonunion
Supplemental
Postretirement
Defined Benefit
Benefit
Health
Pension Plan
Plan
Benefit Plan
(in thousands)
Unrecognized net actuarial loss
$
2,881
$
80
$
274
Unrecognized prior service credit
—
—
(93)
Total
$
2,881
$
80
$
181
The discount rate is determined by matching projected cash distributions with appropriate high‑quality corporate bond yields in a yield curve analysis. Weighted‑average assumptions used to determine nonunion benefit obligations at December 31 were as follows:
Nonunion Defined
Supplemental
Postretirement
Benefit Pension Plan
Benefit Plan
Health Benefit Plan
2017
2016
2017
2016
2017
2016
Discount rate
%
3.4
%
%
2.7
%
%
4.0
%
Weighted‑average assumptions used to determine net periodic benefit cost for the Company’s nonunion benefit plans for the years ended December 31 were as follows:
Nonunion Defined
Supplemental
Postretirement
Benefit Pension Plan
Benefit Plan
Health Benefit Plan
2017 (1)
2016 (2)
2015 (3)
2017
2016
2015
2017
2016
2015
Discount rate
3.4
%
3.5
%
3.2
%
2.7
%
2.6
%
2.5
%
4.0
%
4.2
%
3.9
%
Expected return on plan assets
6.5
%
6.5
%
6.5
%
N/A
N/A
N/A
N/A
N/A
N/A
(1)
The discount rate presented was used to determine the first quarter 2017 credit, and the interim discount rate established upon each quarterly settlement in 2017 of 3.4%, 3.2%, and 3.1% was used to calculate the expense/credit for the second, third, and fourth quarter of 2017, respectively. The expected return on plan assets presented was used to determine the pension credit for the first half of 2017, and a 2.5% expected return on plan assets was used to determine pension expense for the second half of 2017, as further discussed in the following Nonunion Defined Benefit Pension Plan Assets section within this Note.
(2)
The discount rate presented was used to determine the first quarter 2016 expense, and the interim discount rate established upon each quarterly settlement in 2016 of 3.0%, 2.7%, and 2.7% was used to calculate the expense/credit for the second, third, and fourth quarter of 2016, respectively.
(3)
The discount rate presented was used to determine the first quarter 2015 expense/credit, and the interim discount rate established upon each quarterly settlement in 2015 of 3.0%, 3.5%, and 3.4% was used to calculate the expense/credit for the second, third, and fourth quarter of 2015, respectively.
The assumed health care cost trend rates for the Company’s postretirement health benefit plan at December 31 were as follows:
2017
2016
Pre-65
Post-65
Health care cost trend rate assumed for next year
8.3
%
5.5
%
8.0
%
Rate to which the cost trend rate is assumed to decline
4.0
%
4.0
%
4.5
%
Year that the rate reaches the cost trend assumed rate
The health care cost trend rates have a significant effect on the obligations reported for health care plans. A one‑percentage‑point change in assumed health care cost trend rates would have the following effects on the Company’s postretirement health benefit plan for the year ended December 31, 2017:
One Percentage Point
Increase
Decrease
(in thousands)
Effect on total of service and interest cost components
$
335
$
(262)
Effect on postretirement benefit obligation
$
4,820
$
(3,845)
Estimated future benefit payments from the Company’s nonunion defined benefit pension (paid from trust assets), SBP, and postretirement health benefit plans, which reflect expected future service as appropriate, as of December 31, 2017 are as follows:
Nonunion
Supplemental
Postretirement
Defined Benefit
Benefit
Health
Pension Plan
Plan
Benefit Plan
(in thousands)
2018
$
22,511
$
—
$
753
2019
$
11,244
$
3,107
$
827
2020
$
12,051
$
—
$
879
2021
$
10,843
$
—
$
952
2022
$
11,029
$
—
$
1,013
2023-2027
$
46,448
$
718
$
5,949
The Company’s contributions to the defined benefit pension plan are based upon the minimum funding levels required under provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Pension Protection Act of 2006 (the “PPA”), with the maximum contributions not to exceed deductible limits under the IRC. Based upon currently available actuarial information, which is subject to change upon completion of the 2018 actuarial valuation of the plan, and excluding the impact of funding for plan termination, the Company does not expect to have cash outlays for required minimum contributions to its nonunion defined benefit pension plan in 2018. The plan’s actuary certified the adjusted funding target attainment percentage (“AFTAP”) to be 107.8% as of the January 1, 2017 valuation date. The AFTAP is determined by measurements prescribed by the IRC, which differ from the funding measurements for financial statement reporting purposes.
As previously disclosed in this Note, an amendment was executed in November 2017 to terminate the nonunion defined benefit pension plan with an effective date of December 31, 2017. We may be required to fund the plan prior to the final distribution of benefits to plan participants, the amount of which will be determined by the plan’s actuary. The final pension settlement charges and the actual amount we will be required to contribute to the plan to fund benefit distributions in excess of plan assets cannot be determined at this time, as the actual amounts are dependent on various factors, including final benefit calculations, the benefit elections made by plan participants, interest rates, the value of plan assets, and the cost to purchase an annuity contract to settle the pension obligation related to benefits for which participants elect to defer payment until a later date. Based on currently available information provided by the plan’s actuary, the Company estimates a cash contribution of approximately $10.0 million for 2018, although there can be no assurances in this regard. Although the timing is not certain, cash contributions required to fund the plan upon termination are likely to be made by the Company in the second half of 2018.
Nonunion Defined Benefit Pension Plan Assets
The Company establishes the expected rate of return on nonunion defined benefit pension plan assets, which are held in trust, by considering the historical returns for the current mix of investments and the range of expected returns for the current pension plan investment mix provided by the plan’s investment advisor.
In consideration of plan termination, the overall objectives of the investment strategy for the Company’s nonunion defined benefit pension plan have become more focused on asset preservation, while continuing to ensure the plan will provide for required benefits under the plan in a manner that satisfies the fiduciary requirements of ERISA and limit the possibility of experiencing a substantial investment loss over a one‑year period. A more conservative approach has been taken to minimize the impact of market volatility by transferring the plan’s equity investments to short-duration debt instruments during the second half of 2017. As a result of the significant change to the plan’s asset allocation, the plan’s investment rate of return assumption was lowered for the second half of 2017, from 6.5% as of January 1, 2017 to 2.5% as of July 1, 2017. In consideration of the plan’s current investment allocation and the expected termination of the plan in the near-term, the Company’s long‑term expected rate of return utilized in determining its 2018 nonunion defined benefit pension plan expense is 1.4%, net of estimated expenses expected to be paid from plan assets in 2018.
The weighted‑average target, acceptable ranges, and actual asset allocations of the Company’s nonunion defined benefit pension plan at December 31 are summarized in the following table:
2017
Target
Acceptable
Weighted-Average Allocation
Allocation
Range
2017
2016
Equity Securities
Large Cap U.S. Equity
%
%
-
20.0
%
%
14.0
%
Mid Cap U.S. Equity
%
-
11.0
%
9.4
Small Cap U.S. Equity
%
-
11.0
%
10.0
International Equity
%
-
18.0
%
14.4
Income Securities
Debt Instruments
70.0
20.0
%
-
100.0
%
73.6
25.0
Floating Rate Loan Fund
10.0
3.0
%
-
100.0
%
13.1
10.8
Cash Equivalents
Cash and Cash Equivalents
20.0
%
-
100.0
%
13.3
16.4
100.0
%
100.0
%
100.0
%
Investment balances and results are reviewed quarterly. Investment performance is generally compared to the three‑to‑five year performance of recognized market indices as well as analyzed for periods shorter than three years for each investment fund and over five years for the total fund. Although investment allocations which fall outside the acceptable range at the end of any quarter are usually rebalanced based on the target allocation, the Company has the discretion to maintain cash or other short‑term investments during periods of market volatility.
Certain types of investments and transactions are prohibited or restricted by the Company’s written pension investment policy, including, but not limited to, borrowing of money; purchase of securities on margin; short sales; pledging, mortgaging, or hypothecating securities except loans of securities that are fully ‑ collateralized; purchase or sale of futures, options, or derivatives for speculation or leverage; purchase or sale of commodities or illiquid interests in real estate or mortgages; or purchase of illiquid securities. In addition to mutual fund investments in cash equivalents and income securities, the plan also holds investments in 1-3 year and 1-5 year actively managed portfolios of short-term debt instruments, which are designed to match the scheduled cash flows of the Plan over a short-term, forward-looking time period while maintaining principal value and optimizing total returns. In addition to the requirements of the pension investment policy, certain investment restrictions apply to the actively managed portfolios, including: guidelines for permitted investments; minimum acceptable credit quality of securities; maximum maturity of investments; limitations on the concentration of certain types of investments; and/or acceptable effective duration period ranges.
The fair value of the Company’s nonunion defined benefit pension plan assets at December 31, 2017, by major asset category and fair value hierarchy level (see Fair Value Measurements accounting policy in Note B), were as follows:
Fair Value Measurements Using
Quoted Prices
Significant
Significant
In Active
Observable
Unobservable
Markets
Inputs
Inputs
Total
(Level 1)
(Level 2)
(Level 3)
(in thousands)
Cash and Cash Equivalents (1)
$
16,641
$
16,641
$
—
$
—
Debt Instruments (2)
91,778
10,087
81,691
—
Floating Rate Loans (3)
16,412
16,412
—
—
$
124,831
$
43,140
$
81,691
$
—
(1)
Consists primarily of money market mutual funds.
(2)
Includes corporate debt instruments (80%), asset-backed instruments (16%), and mortgage-backed instruments (4%). The fair value measurements are provided by a pricing service which uses the market approach with inputs derived from observable market data.
(3)
Consists of a floating rate loan mutual fund.
The fair value of the Company’s nonunion defined benefit pension plan assets at December 31, 2016, by major asset category and fair value hierarchy level (see Fair Value Measurements accounting policy in Note B), were as follows:
Fair Value Measurements Using
Quoted Prices
Significant
Significant
In Active
Observable
Unobservable
Markets
Inputs
Inputs
Total
(Level 1)
(Level 2)
(Level 3)
(in thousands)
Cash and Cash Equivalents (1)
$
23,696
$
23,696
$
—
$
—
Debt Instruments (2)
36,245
—
36,245
—
Floating Rate Loans (3)
15,687
15,687
—
—
Large Cap U.S. Equity
20,208
20,208
—
—
Mid Cap U.S. Equity
13,597
13,597
—
—
Small Cap U.S. Equity
14,561
14,561
—
—
International Equity
20,811
20,811
—
—
$
144,805
$
108,560
$
36,245
$
—
(1)
Consists primarily of money market mutual funds.
(2)
Includes corporate debt instruments (81%), mortgage‑backed instruments (10%), treasury instruments (7%), municipal debt instruments (1%), and agency debt instruments (1%) which are priced using daily bid prices. The fair value measurements are provided by a pricing service which uses the market approach with inputs derived from observable market data.
(3)
Consists of a floating rate loan mutual fund.
Deferred Compensation Plans
The Company has deferred salary agreements with certain executives for which liabilities of $2.9 million and $3.4 million were recorded as of December 31, 2017 and 2016, respectively. The deferred salary agreements include a provision that immediately vests all benefits and provides for a lump‑sum payment upon a change in control of the Company that is followed by a termination of the executive. The Compensation Committee elected to close the deferred salary agreement program to new entrants effective January 1, 2006. In place of the deferred salary agreement program, officers appointed after 2005 participate in the Cash Long‑Term Incentive Plan (see Cash Long‑Term Incentive Compensation Plan section within this Note).
The Company maintains a Voluntary Savings Plan (“VSP”), a nonqualified deferred compensation program for the benefit of certain executives of the Company and certain subsidiaries. Eligible employees may defer receipt of a portion of their salary and incentive compensation into the VSP by making an election prior to the beginning of the year in which the salary compensation is payable and, for incentive compensation, by making an election at least six months prior to the end of the performance period to which the incentive relates. The Company credits participants’ accounts with applicable rates of return based on a portfolio selected by the participants from the investments available in the plan. The Company match related to the VSP was suspended beginning January 1, 2010. All deferrals, Company match, and investment earnings are considered part of the general assets of the Company until paid. Accordingly, the consolidated balance sheets reflect the fair value of the aggregate participant balances, based on quoted prices of the mutual fund investments, as both an asset and a liability of the Company. As of December 31, 2017 and 2016, VSP balances of $2.4 million and $2.2 million, respectively, were included in other long‑term assets with a corresponding amount recorded in other long‑term liabilities.
Defined Contribution Plans
The Company and its subsidiaries have various defined contribution 401(k) plans that cover substantially all employees. The plans permit participants to defer a portion of their salary up to a maximum of 69% as determined under Section 401(k) of the IRC. For certain participating subsidiaries, the Company matches 50% of nonunion participant contributions up to the first 6% of annual compensation. The plans also allow for discretionary 401(k) Company contributions determined annually. The Company’s matching expense for the 401(k) plans totaled $5.6 million, $5.7 million, and $5.5 million for 2017, 2016, and 2015, respectively.
Effective July 1, 2013, participants in the nonunion defined benefit pension plan who were active employees of the Company became eligible for the discretionary defined contribution feature of Company’s nonunion 401(k) and defined contribution plan in which all eligible noncontractual employees hired subsequent to December 31, 2005 also participate. Participants are fully vested in their benefits under the defined contribution plan after three years of service. In 2017, 2016, and 2015, the Company recognized expense of $8.3 million, $5.0 million, and $9.5 million, respectively, related to its discretionary contributions to the defined contribution plan.
Cash Long‑Term Incentive Compensation Plan
The Company maintains a performance-based Cash Long-Term Incentive Compensation Plan (“LTIP”) for officers of the Company or its subsidiaries who are not active participants in the deferred salary agreement program. The LTIP incentive, which is earned over three years, is based, in part, upon a proportionate weighting of return on capital employed and shareholder returns compared to a peer group, as specifically defined in the plan document. As of December 31, 2017, 2016, and 2015, $6.6 million, $3.9 million, $6.7 million, respectively, were accrued for future payments under the plans.
Other Plans
Other long‑term assets include $49.7 million and $47.4 million at December 31, 2017 and 2016, respectively, in the cash surrender value of life insurance policies. These policies are intended to provide funding for long‑term nonunion benefit arrangements such as the Company’s SBP and deferred compensation plans. A portion of the Company’s cash surrender value of variable life insurance policies have investments, through separate accounts, in equity and fixed income securities and, therefore, are subject to market volatility. The Company recognized gains associated with changes in the cash surrender value and proceeds from life insurance policies of $2.6 million, $2.9 million, and $0.3 million during 2017, 2016, and 2015, respectively.
Multiemployer Plans
ABF Freight System, Inc. and certain other subsidiaries reported in the Company’s Asset-Based operating segment (“ABF Freight”) contribute to multiemployer pension and health and welfare plans, which have been established pursuant to the Taft-Hartley Act, to provide benefits for its contractual employees. ABF Freight’s contributions generally are based on the time worked by its contractual employees, in accordance with the ABF NMFA and other related supplemental agreements. ABF Freight recognizes as expense the contractually required contributions for each period and recognizes as a liability any contributions due and unpaid. The ABF NMFA and the related supplemental agreements provide for continued contributions to various multiemployer health, welfare, and pension plans maintained for the benefit of ABF Freight employees who are members of the IBT. As of December 2017, approximately 83% of ABF Freight employees were covered under the ABF NMFA. Upon implementation of the ABF NMFA on November 3, 2013, contribution rate increases for the benefits under the collective bargaining agreement were applied retroactively to August 1, 2013. Under the ABF NMFA, the combined contribution rates for health, welfare, and pension benefits under the ABF NMFA were allowed to increase up to $1.00 per hour each August 1 if the plans provided evidence that an increase was actuarially necessary.
The multiemployer plans to which ABF Freight segment primarily contributes are jointly ‑ trusteed (half of the trustees of each plan are selected by the participating employers, the other half by the IBT) and cover collectively-bargained employees of multiple unrelated employers. Due to the inherent nature of multiemployer plans, there are risks associated with participation in these plans that differ from single ‑ employer plans. Assets received by the plans are not segregated by employer, and contributions made by one employer can be and are used to provide benefits to current and former employees of other employers. If a participating employer in a multiemployer plan no longer contributes to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. If a participating employer in a multiemployer pension plan completely withdraws from the plan, it owes to the plan its proportionate share of the plan’s unfunded vested benefits, referred to as a withdrawal liability. A complete withdrawal generally occurs when the employer permanently ceases to have an obligation to contribute to the plan. Withdrawal liability is also owed in the event the employer withdraws from a plan in connection with a mass withdrawal, which generally occurs when all or substantially all employers withdraw from the plan pursuant to an agreement in a relatively short period of time. Were ABF Freight to completely withdraw from certain multiemployer pension plans, whether in connection with a mass withdrawal or otherwise, under current law, ABF Freight would have material liabilities for its share of the unfunded vested liabilities of each such plan.
Pension Plans
The 25 multiemployer pension plans to which ABF Freight contributes vary greatly in size and in funded status. Contribution obligations to these plans are generally specified in the ABF NMFA, which will remain in effect through March 31, 2018. The funding obligations to the pension plans are intended to satisfy the requirements imposed by the PPA, which was permanently extended by the Multiemployer Pension Reform Act (the “Reform Act”) included in the Consolidated and Further Continuing Appropriations Act of 2015. Through the term of its current collective bargaining agreement, ABF Freight’s contribution obligations generally will be satisfied by making the specified contributions when due. However, the Company cannot determine with any certainty the contributions that will be required under future collective bargaining agreements for ABF Freight’s contractual employees.
The PPA requires that “endangered” (generally less than 80% funded and commonly called “yellow zone”) plans adopt “funding improvement plans” and that “critical” (generally less than 65% funded and commonly called “red zone”) plans adopt “rehabilitation plans” that are intended to improve the plan’s funded status over time. The Reform Act includes provisions to address the funding of multiemployer pension plans in “critical and declining” status, including certain of those in which ABF Freight parti |
