| EMPLOYEE BENEFIT PLANS | EMPLOYEE BENEFIT PLANS The Company has retirement and pension plans covering a substantial number of its domestic and foreign employees. Most retirement benefits are provided by the Company under separate final-pay noncontributory and contributory defined benefit and defined contribution plans for all salaried and hourly employees (excluding those covered by union-sponsored plans) who meet service and age requirements. Although various defined benefit formulas exist for employees, generally these are based on length of service and earnings patterns during employment. Effective January 1, 2012, the Company's Board of Directors authorized the Company to proceed with the restructuring of its domestic retirement benefit program to include the closing of Darling's domestic salaried and hourly defined benefit plans to new participants as well as the freezing of service and wage accruals thereunder effective December 31, 2011 (a curtailment of these plans for financial reporting purposes) and the enhancing of benefits under the Company's domestic defined contribution plans. The Company-sponsored domestic hourly union plan has not been curtailed; however, several locations of the Company-sponsored domestic hourly union plan have been curtailed as a result of collective bargaining renewals for those sites. The Company maintains defined contribution plans both domestically and at its foreign entities. The Company's matching portion and annual employer contributions to the Company's domestic defined contribution plans for fiscal 2021, 2020 and 2019 were approximately $10.9 million, $11.3 million and $10.6 million, respectively. The Company's matching portion and annual employer contributions to the Company's foreign defined contribution plans for fiscal 2021, 2020 and 2019 were approximately $9.6 million, $8.5 million and $8.4 million, respectively. The Company recognizes the over-funded or under-funded status of the Company's defined benefit post-retirement plans as an asset or liability in the Company's balance sheet, with changes in the funded status recognized through comprehensive income (loss) in the year in which they occur. The Company uses the month-end date of December 31 as the measurement date for all of the Company's defined benefit plans, which is the closest month-end to the Company's fiscal year-end. The following table sets forth the plans’ funded status for the Company's domestic and foreign defined benefit plans and amounts recognized in the Company's Consolidated Balance Sheets based on the measurement date (December 31, 2021 and December 31, 2020) (in thousands): January 1, January 2, Change in projected benefit obligation: Projected benefit obligation at beginning of period $ 235,977 $ 212,265 Service cost 3,127 3,060 Interest cost 4,816 5,721 Employee contributions 335 360 Plan combinations 5,783 5,362 Plan amendments 40 — Actuarial (gain) loss (9,031) 16,427 Benefits paid (9,801) (8,274) Effect of curtailment — (747) Effect of settlement (1,572) (2,208) Other (3,866) 4,011 Projected benefit obligation at end of period 225,808 235,977 Change in plan assets: Fair value of plan assets at beginning of period 178,978 155,702 Actual return on plan assets 13,139 16,029 Employer contributions 3,878 11,460 Employee contributions 335 360 Plan combinations 5,510 4,537 Benefits paid (9,801) (8,274) Effect of settlement (1,572) (2,208) Other (1,749) 1,372 Fair value of plan assets at end of period 188,718 178,978 Funded status (37,090) (56,999) Net amount recognized $ (37,090) $ (56,999) Amounts recognized in the consolidated balance Noncurrent assets $ 114 $ — Current liability (936) (1,242) Noncurrent liability (36,268) (55,757) Net amount recognized $ (37,090) $ (56,999) Amounts recognized in accumulated other Net actuarial loss $ 34,304 $ 51,145 Prior service cost 176 194 Net amount recognized (a) $ 34,480 $ 51,339 (a) Amounts do not include deferred taxes of $8.8 million and $13.0 million at January 1, 2022 and January 2, 2021, respectively. The amounts included in “Other” in the above table reflect the impact of foreign exchange translation for plans in Brazil, Belgium, Canada, France, Germany, Japan, Netherlands and United Kingdom. The Company's domestic pension plan benefits comprise approximately 70% and 71% of the projected benefit obligation for fiscal 2021 and fiscal 2020, respectively. Additionally, the Company has made required and tax deductible discretionary contributions to its domestic pension plans in fiscal 2021 and fiscal 2020 of approximately $0.2 million and $7.5 million, respectively. The Company made required and tax deductible discretionary contributions to its foreign pension plans in fiscal 2021 and fiscal 2020 of approximately $3.7 million and $4.0 million, respectively. A significant component of the overall decrease in the Company's benefit obligation for the fiscal year ended January 1, 2022 was from the change in the weighted-average discount rates at the measurement dates, which increased from 2.10% at December 31, 2020 to 2.40% at December 31, 2021. Information for pension plans with accumulated benefit obligations in excess of plan assets is as follows (in thousands): January 1, January 2, Projected benefit obligation $ 182,644 $ 235,977 Accumulated benefit obligation 180,303 221,238 Fair value of plan assets 147,663 178,978 The Company's service cost component of net periodic pension cost is included in compensation costs while all components of net periodic pension cost other than the service cost component are included in the line item “Other expense, net” in the Company's Consolidated Statements of Operations. Net pension cost includes the following components (in thousands): January 1, January 2, December 28, Service cost $ 3,127 $ 3,060 $ 2,696 Interest cost 4,816 5,721 6,828 Expected return on plan assets (9,287) (8,161) (7,270) Net amortization and deferral 4,253 3,438 4,605 Curtailment — (678) (33) Settlement 210 (22) 66 Net pension cost $ 3,119 $ 3,358 $ 6,892 Weighted average assumptions used to determine benefit obligations were: January 1, January 2, December 28, Discount rate 2.40% 2.10% 2.77% Rate of compensation increase 0.50% 0.45% 0.40% Weighted average assumptions used to determine net periodic benefit cost for the employee benefit pension plans were: January 1, January 2, December 28, Discount rate 1.32% 2.13% 3.33% Rate of increase in future compensation levels 0.52% 0.41% 0.42% Expected long-term rate of return on assets 5.40% 5.92% 6.13% Consideration was made to the long-term time horizon for the (U.S. and Canada's) plans' benefit obligations as well as the related asset class mix in determining the expected long-term rate of return. Historical returns are also considered, over the long-term time horizon, in determining the expected return. Considering the overall asset mix of approximately 50% equity and 50% fixed income with equity exposure on a declining trend since the implementation of the glide path for the U.S. plans, the Company believes it is reasonable to expect a long-term rate of return of 5.9% for the (U.S. and Canada's) plans' investments as a whole. The remaining foreign plans' assets are principally invested under insurance contracts arrangements which have weighted average expected long-term rate of returns of 1.9%. The investment objectives have been established in conjunction with a comprehensive review of the current and projected financial requirements. The primary investment objectives are: 1) to have the ability to pay all benefit and expense obligations when due; 2) to maximize investment returns within reasonable and prudent levels of risk in order to minimize contributions; and 3) to maintain flexibility in determining the future level of contributions. Investment results and changing discount rates are the most critical elements in achieving funding objectives; however, contributions are used as a supplemental source of funding as deemed appropriate. The investment guidelines are based upon an investment horizon of greater than ten years; therefore, interim fluctuations are viewed with this perspective. The strategic asset allocation is based on this long-term perspective and the plans' funded status. However, because the participants’ average age is somewhat older than the typical average plan age, consideration is given to retaining some short-term liquidity. Analysis of the cash flow projections of the plans indicates that benefit payments will continue to exceed contributions. The results of a thorough asset-liability study completed during 2012 established a dynamic asset allocation glide path (the “Glide Path”) by which the U.S. plans' asset allocations are determined. The Glide Path designates intervals based on funded status which contain a corresponding allocation to equities/real assets and fixed income. As the U.S. plans' funded status improves, the allocations become more conservative, and the opposite is true when the funded status declines. Fixed Income 35% - 80% Equities 20% - 65% The equity allocation is invested in stocks traded on one of the U.S. stock exchanges or in foreign companies whose stock is traded outside the U.S. and/or companies that conduct the major portion of their business outside the U.S. Securities convertible into such stocks, convertible bonds and preferred stock, may also be purchased. The portfolio may invest in American Depository Receipts (“ADR”). The majority of the equities are invested in mutual funds that are well-diversified among growth and value stocks, as well as large, mid, and small cap assets. This mix is balanced based on the understanding that large cap stocks are historically less volatile than small cap stocks: however, smaller cap stocks have historically outperformed larger cap stocks. The emerging markets portion of the equity allocation is held below 10% due to greater volatility in the asset class. Risk adjusted returns are the primary driver of allocation choices within these asset classes. The portfolio is well-diversified in terms of companies, industries and countries. The diversified asset portion of the allocation will invest in securities with a goal to outpace inflation and preserve their value. The securities in this allocation may consist of inflation-indexed bonds, securities of real estate companies, commodity index-linked notes, fixed-income securities, securities of natural resource companies, master limited partnerships, publicly-listed infrastructure companies, and floating rate debt. All investment objectives are expected to be achieved over a market cycle anticipated to be a period of five The following table presents fair value measurements for the Company's defined benefit plans’ assets as categorized using the fair value hierarchy under FASB authoritative guidance (in thousands): Total Quoted Prices in Significant Other Significant (In thousands of dollars) Fair Value (Level 1) (Level 2) (Level 3) Balances as of January 2, 2021 Fixed Income: Long Term $ 20,082 $ 20,082 $ — $ — Short Term 3,585 3,585 — — Equity Securities: Domestic equities 55,454 55,454 — — International equities 35,022 35,022 — — Insurance contracts 14,337 — 11,088 3,249 Total categorized in fair value hierarchy 128,480 114,143 11,088 3,249 Other investments measured at NAV 50,498 Totals $ 178,978 $ 114,143 $ 11,088 $ 3,249 Balances as of January 1, 2022 Fixed Income: Long Term $ 29,180 $ 29,180 $ — $ — Short Term 3,951 3,951 — — Equity Securities: Domestic equities 45,783 45,783 — — International equities 31,549 31,549 — — Insurance contracts 17,919 — 14,937 2,982 Total categorized in fair value hierarchy 128,382 110,463 14,937 2,982 Other investments measured at NAV 60,336 Totals $ 188,718 $ 110,463 $ 14,937 $ 2,982 The majority of the U.S. and Canada plan pension assets are invested in mutual funds; however, some assets are invested in pooled separate accounts (“PSA”) which have similar mutual fund counterparts. PSA accounts are generally used to access lower fund management expenses when compared to their mutual fund counterparts. The mutual funds are generally invested in institutional shares, retirement shares, or A-shares with no loads. The fair value of each mutual fund and PSA is based on the market value of the underlying investments. The U.S. pension plans PSA for fiscal 2021 and fiscal 2020 utilized net asset value (“NAV”) per share (or its equivalent) to measure its investments, as a practical expedient in accordance with ASC Topic 820, Fair Value Measurements and have not been classified in the fair value hierarchy in the above table. The majority of the foreign pension assets are held under insurance contracts where the investment risk for the accumulated benefit obligation rests with the insurer, which the Company has no specific detailed asset information. The fair value measurement of plan assets using significant unobservable inputs (level 3) changed due to the following: Insurance (in thousands of dollars) Contracts Balance as of December 28, 2019 $ 4,474 Unrealized gains (losses) relating to instruments still held in the reporting period. 400 Purchases, sales, and settlements (1,956) Exchange rate changes 331 Balance as of January 2, 2021 3,249 Unrealized gains (losses) relating to instruments still held in the reporting period. (16) Purchases, sales, and settlements — Exchange rate changes (251) Balance as of January 1, 2022 $ 2,982 Contributions The Company's funding policy for employee benefit pension plans is to contribute annually not less than the minimum amount required nor more than the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Based on current actuarial estimates, the Company expects to make payments of approximately $3.9 million to meet funding requirements for its domestic and foreign pension plans in fiscal 2022. Estimated Future Benefit Payments The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands): Year Ending Pension Benefits 2022 $ 11,219 2023 10,715 2024 11,797 2025 12,948 2026 12,634 Years 2027 – 2031 66,930 Multiemployer Pension Plans The Company participates in various multiemployer pension plans which provide defined benefits to certain employees covered by labor contracts in the United States. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts to meet their pension benefit obligations to their participants. The FASB issued guidance requiring companies to provide additional disclosures related to individually significant multiemployer pension plans. The Company's contributions to each individual multiemployer plan represent less than 5% of the total contributions to each such plan. Based on the most currently available information, the Company has determined that, if a withdrawal were to occur, withdrawal liabilities on two of the plans in which the Company currently participates could be material to the Company. The following table provides more detail on these significant multiemployer plans (contributions in thousands): Expiration Pension EIN Pension Pension Protection Act Zone Status FIP/RP Status Pending/ Contributions Date of Collective Bargaining Fund Plan Number 2021 2020 Implemented 2021 2020 2019 Agreement Western Conference of Teamsters Pension Plan 91-6145047 / 001 Green Green No $ 1,294 $ 1,429 $ 1,514 April 2025 (b) Central States, Southeast and Southwest Areas Pension Plan (a) 36-6044243 / 001 Red Red Yes 811 886 916 May 2023 (c) All other multiemployer plans 1,107 914 1,196 Total Company Contributions $ 3,212 $ 3,229 $ 3,626 (a) In July 2005 this plan received a 10 year extension from the IRS for amortizing unfunded liabilities. In April 2016 the IRS approved a modification of the amortization extension. (b) The Company has several plants that participate in the Western Conference of Teamsters Pension Plan under collective bargaining agreements that require minimum funding contributions. The agreements have expiration dates through April 1, 2025. (c) The Company has several processing plants that participate in the Central States, Southeast and Southwest Areas Pension Plan under collective bargaining agreements that require minimum funding contributions. Certain of these agreements have expired and are being renegotiated with others having expiration dates through May 1, 2023. With respect to the other multiemployer pension plans in which the Company participates and which are not individually significant, five plans have certified as critical or red zone and two plans have certified as endangered or yellow zone, as defined by the Pension Protection Act of 2006. The Company's portion of contributions to all plans amounted to $3.2 million, $3.2 million and $3.6 million for the years ended January 1, 2022, January 2, 2021 and December 28, 2019, respectively. The Company has withdrawal liabilities recorded on four U.S. multiemployer plans in which it participated. During fiscal 2021, the Company was notified by one of these multiemployer plans that the Company's withdrawal liability has increased and as a result the Company recorded an additional liability of approximately $1.3 million. As of January 1, 2022, the Company has an aggregate accrued liability of approximately $3.8 million representing the present value of scheduled withdrawal liability payments on the remaining multiemployer plans that have given notices of withdrawals. While the Company has no ability to calculate a possible current liability for under-funded multiemployer plans that could terminate or could require additional funding under the Pension Protection Act of 2006, the amounts could be material. |
