Pension | Pension We have pension plans covering the majority of our employees. Benefits generally are based on compensation and length of service for salaried employees and job grade and length of service for hourly employees. In addition, we have an unfunded supplemental employee retirement plan (SERP) that covers salaried U.S.-based employees of Libbey hired before January 1, 2006. The U.S. pension plans cover the salaried U.S.-based employees of Libbey hired before January 1, 2006, and most hourly U.S.-based employees (excluding employees hired at Shreveport after December 15, 2008, and at Toledo after September 30, 2010). Effective January 1, 2013, we ceased annual company contribution credits to the cash balance accounts in our Libbey U.S. Salaried Pension Plan and SERP. The non-U.S. pension plans cover the employees of our wholly owned subsidiary in Mexico and are unfunded. Effect on Operations The components of our net pension expense, including the SERP, are as follows: Year ended December 31, (dollars in thousands) U.S. Plans Non-U.S. Plans Total 2018 2017 2018 2017 2018 2017 Service cost (benefits earned during the period) $ 4,009 $ 3,916 $ 1,142 $ 1,085 $ 5,151 $ 5,001 Interest cost on projected benefit obligation 12,615 13,787 2,984 2,749 15,599 16,536 Expected return on plan assets (22,658 ) (22,479 ) — — (22,658 ) (22,479 ) Amortization of unrecognized: Prior service cost (credit) 1 236 (201 ) (204 ) (200 ) 32 Actuarial loss 6,472 5,232 622 594 7,094 5,826 Settlement charge — 245 92 — 92 245 Pension expense $ 439 $ 937 $ 4,639 $ 4,224 $ 5,078 $ 5,161 In 2018 and 2017, the pension settlement charges were triggered by excess lump sum distributions taken by employees, which required us to record unrecognized gains and losses in our pension plan accounts. The non-service cost components of pension expense are included in other income (expense) on the Consolidated Statements of Operations. See note 16 for additional information. Actuarial Assumptions The assumptions used to determine net periodic pension expense for each year and the benefit obligations at December 31 st were as follows: U.S. Plans Non-U.S. Plans 2018 2017 2018 2017 Net periodic pension expense: Discount rate 3.64% to 3.69% 4.18% to 4.23% 9.40% 9.30% Expected long-term rate of return on plan assets 7.00% 7.00% Not applicable Not applicable Rate of compensation increase Not applicable Not applicable 4.30% 4.30% Cash balance interest crediting rate 5.50% 5.50% Not applicable Not applicable Benefit obligations: Discount rate 4.31% to 4.33% 3.64% to 3.69% 10.60% 9.40% Rate of compensation increase Not applicable Not applicable 4.30% 4.30% Cash balance interest crediting rate 5.50% 5.50% Not applicable Not applicable The discount rate enables us to estimate the present value of expected future cash flows on the measurement date. The rate used reflects a rate of return on high-quality fixed income investments that match the duration of expected benefit payments at our December 31 measurement date. The discount rate at December 31 is used to measure the year-end benefit obligations and the earnings effects for the subsequent year. A higher discount rate decreases the present value of benefit obligations and decreases pension expense. To determine the expected long-term rate of return on plan assets for our funded plans, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets. At December 31, 2018, the expected long-term rate of return on plan assets is 6.50 percent , which will be used to measure the earnings effects for 2019. The cash balance interest crediting rate, which applies only to the U.S. Salaried Plan, enables us to calculate the benefit obligation through projecting future interest credits on cash balance accounts between the measurement date and a participant’s assumed retirement date. The rate adjusts annually and is the 30-year Treasury rate in effect as of October in the preceding plan year, subject to a minimum of 5 percent . A lower cash balance interest crediting rate assumption decreases the benefit obligation and decreases pension expense. Future benefits are assumed to increase in a manner consistent with past experience of the plans except for the Libbey U.S. Salaried Pension Plan and SERP as discussed above, which, to the extent benefits are based on compensation, includes assumed compensation increases as presented above. Amortization included in net pension expense is based on the average remaining service of employees. We account for our defined benefit pension plans on an expense basis that reflects actuarial funding methods. The actuarial valuations require significant estimates and assumptions to be made by management, primarily with respect to the discount rate and expected long-term return on plan assets. These assumptions are all susceptible to changes in market conditions. The discount rate is based on a selected settlement portfolio from a universe of high quality bonds. In determining the expected long-term rate of return on plan assets, we consider historical market and portfolio rates of return, asset allocations and expectations of future rates of return. We evaluate these critical assumptions on our annual measurement date of December 31 st . Other assumptions involving demographic factors such as retirement age, mortality and turnover are evaluated periodically and are updated to reflect our experience. Actual results in any given year often will differ from actuarial assumptions because of demographic, economic and other factors. For our U.S. pension plans, we use the RP 2014 Sex Distinct Mortality Tables, as released by the Society of Actuaries, to determine our projected benefit obligations. Beginning annually in 2015, the Society of Actuaries has published new generational projection scales reflecting additional years of mortality experience, and we have adopted these updates in each respective year. Projected Benefit Obligation (PBO) and Fair Value of Assets The changes in the projected benefit obligations and fair value of plan assets are as follows: Year ended December 31, (dollars in thousands) U.S. Plans Non-U.S. Plans Total 2018 2017 2018 2017 2018 2017 Change in projected benefit obligation: Projected benefit obligation, beginning of year $ 354,053 $ 336,648 $ 31,967 $ 28,161 $ 386,020 $ 364,809 Service cost 4,009 3,916 1,142 1,085 5,151 5,001 Interest cost 12,615 13,787 2,984 2,749 15,599 16,536 Exchange rate fluctuations — — 138 1,214 138 1,214 Actuarial (gain) loss (28,481 ) 22,991 (3,056 ) 1,409 (31,537 ) 24,400 Settlements paid — (281 ) — — — (281 ) Benefits paid (19,602 ) (23,008 ) (3,197 ) (2,651 ) (22,799 ) (25,659 ) Projected benefit obligation, end of year $ 322,594 $ 354,053 $ 29,978 $ 31,967 $ 352,572 $ 386,020 Change in fair value of plan assets: Fair value of plan assets, beginning of year $ 343,219 $ 318,414 $ — $ — $ 343,219 $ 318,414 Actual return on plan assets (19,533 ) 47,595 — — (19,533 ) 47,595 Employer contributions — 499 3,197 2,651 3,197 3,150 Settlements paid — (281 ) — — — (281 ) Benefits paid (19,602 ) (23,008 ) (3,197 ) (2,651 ) (22,799 ) (25,659 ) Fair value of plan assets, end of year $ 304,084 $ 343,219 $ — $ — $ 304,084 $ 343,219 Funded ratio 94.3 % 96.9 % — % — % 86.2 % 88.9 % Funded status and net accrued pension benefit cost $ (18,510 ) $ (10,834 ) $ (29,978 ) $ (31,967 ) $ (48,488 ) $ (42,801 ) The U.S. defined benefit pension plans experienced actuarial (gains) losses of $ (28.5) million and $ 23.0 million for the years ended December 31, 2018 and 2017, respectively, primarily driven by assumption changes in the discount rate used to determine the benefit obligations. The non-U.S. defined benefit pension plans experienced actuarial (gains) losses of $ (3.1) million and $ 1.4 million for the years ended December 31, 2018 and 2017, respectively, primarily driven by assumption changes in the discount rate and demographic experience used to determine the benefit obligations. The current portion of the pension liability reflects the amount of expected benefit payments that are greater than the plan assets on a plan-by-plan basis. The net accrued pension benefit liability at December 31 st represents underfunded (including unfunded) pension benefits, and is included in the Consolidated Balance Sheets as follows: December 31, (dollars in thousands) 2018 2017 Pension asset $ — $ 2,939 Pension liability (current portion) (3,282 ) (2,185 ) Pension liability (45,206 ) (43,555 ) Net accrued pension liability $ (48,488 ) $ (42,801 ) The cumulative pretax amounts recognized in accumulated other comprehensive loss (AOCI) as of December 31 are as follows : December 31, (dollars in thousands) U.S. Plans Non-U.S. Plans Total 2018 2017 2018 2017 2018 2017 Net actuarial loss $ 105,468 $ 98,228 $ 8,732 $ 12,378 $ 114,200 $ 110,606 Prior service cost (credit) — 1 (2,447 ) (2,636 ) (2,447 ) (2,635 ) Total cost in AOCI $ 105,468 $ 98,229 $ 6,285 $ 9,742 $ 111,753 $ 107,971 Estimated contributions for 2019, as well as, contributions made in 2018 and 2017 to the pension plans are as follows: (dollars in thousands) U.S. Plans Non-U.S. Plans Total Estimated contributions in 2019 $ 138 $ 3,310 $ 3,448 Contributions made in 2018 $ — $ 3,197 $ 3,197 Contributions made in 2017 $ 499 $ 2,651 $ 3,150 It is difficult to estimate future cash contributions to the pension plans, as such amounts are a function of actual investment returns, withdrawals from the plans, changes in interest rates and other factors uncertain at this time. It is possible that greater cash contributions may be required in 2019 than the amounts in the above table. Although a decline in market conditions, changes in current pension law and uncertainties regarding significant assumptions used in the actuarial valuations may have a material impact in future required contributions to our pension plans, we currently do not expect funding requirements to have a material adverse impact on current or future liquidity. Pension benefit payment amounts are anticipated to be paid from the plans (including the SERP) as follows: Year (dollars in thousands) U.S. Plans Non-U.S. Plans Total 2019 $ 19,836 $ 3,310 $ 23,146 2020 $ 20,046 $ 2,220 $ 22,266 2021 $ 20,211 $ 2,536 $ 22,747 2022 $ 20,465 $ 2,549 $ 23,014 2023 $ 20,750 $ 2,540 $ 23,290 2024-2028 $ 103,988 $ 14,431 $ 118,419 Projected and Accumulated Benefit Obligations in Excess of Plan Assets The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with a projected and accumulated benefit obligation in excess of plan assets at December 31, 2018 and 2017 were as follows: December 31, (dollars in thousands) U.S. Plans Non-U.S. Plans Total 2018 2017 2018 2017 2018 2017 Projected benefit obligation $ 322,594 $ 268,887 $ 29,978 $ 31,967 $ 352,572 $ 300,854 Accumulated benefit obligation $ 322,594 $ 268,887 $ 26,717 $ 27,055 $ 349,311 $ 295,942 Fair value of plan assets $ 304,084 $ 255,115 $ — $ — $ 304,084 $ 255,115 Plan Assets Our investment strategy is to control and manage investment risk through diversification across asset classes and investment styles, within established target asset allocation ranges. The investment risk of the assets is limited by appropriate diversification both within and between asset classes. Assets are diversified among a mix of traditional investments in equity and fixed income instruments, as well as alternative investments including real estate and hedge funds. It would be anticipated that a modest allocation to short-term investments would exist within the plans, since each investment manager is likely to hold some short-term investments in the portfolio with the goal of ensuring that sufficient liquidity will be available to meet expected cash flow requirements. Our investment valuation policy is to state the investments at fair value. Primarily all investments are valued at their respective net asset value (NAV) as a practical expedient and calculated by the Trustee. The real estate, equity securities and fixed income investments are held in a Group Trust which is valued at the unit prices established by the Trustee and are valued using NAV as a practical expedient. Underlying equity securities (including large and small cap domestic and international equities), for which market quotations are readily available, are valued at the last reported readily available sales price on their principal exchange on the valuation date or official close for certain markets. Fixed income investments are valued on a basis of valuations furnished by a trustee-approved pricing service, which determines valuations for normal institutional-size trading units of such securities which are generally recognized at fair value as determined in good faith by the Trustee. The fair value of investments in real estate funds is based on valuation of the fund as determined by periodic appraisals of the underlying investments owned by the respective fund. Investments in registered investment companies are valued at quoted market prices. Collective pooled funds, if any, are recorded using NAV practical expedients. Short-term investments are valued at their respective NAV and have no redemption restrictions. The hedge fund investments using NAV as a practical expedient are valued by using estimated month-end NAV and performance numbers provided by the fund administrator. The Plan is required to provide a month’s advance written notice to liquidate its entire share in the Group Trust. Certain investments in the hedge funds can only be liquidated on either a quarterly or semi-annual basis, require advance notification and are subject to audit holdback provisions. Investments measured at NAV as a practical expedient for fair value have been excluded from the fair value hierarchy, in accordance with U.S. GAAP. The table below presents our U.S. pension plan assets at fair value. December 31, (dollars in thousands) Measured at NAV as a practical expedient Target Allocation 2018 2017 2019 Short-term investments $ 9,796 $ 8,061 3 % Real estate 6,198 16,390 2 % Equity securities 108,952 156,434 40 % Debt securities 146,080 125,671 45 % Hedge funds 33,058 36,663 10 % Total $ 304,084 $ 343,219 100 % Other Retirement Plans We sponsor the Libbey Inc. Salary and Hourly 401(k) plans (the Plans) to provide retirement benefits for our U.S. employees. As allowed under Section 401(k) of the Internal Revenue Code, the Plans provide for tax-deferred wage contributions for eligible employees. For the Salary Plan, we match 100 percent on the first 6 percent of pretax contributions from eligible earnings on a per pay basis. For the Hourly Plan, we match 50 percent of the first 6 percent of pretax contributions from eligible earnings on a per pay basis. All matching contributions are invested according to the employees' deferral elections and vest immediately. Our matching contributions to all U.S. Plans totaled $3.8 million and $3.6 million in 2018 and 2017 , respectively. Libbey Holland makes cash contributions to the Pensioenfonds voor de Grafische Bedrijven (“PGB”), an industry wide pension fund, as participating employees earn pension benefits. These related costs are expensed as incurred and amounted to $2.0 million and $1.9 million in 2018 and 2017 , respectively. |