Annual report pursuant to Section 13 and 15(d)

Benefit Plans

v3.10.0.1
Benefit Plans
 12 Months Ended
Dec. 31, 2018
Retirement Benefits [Abstract]  
Benefit Plans
20. Benefit Plans:
The Company sponsors defined benefit pension plans covering employees in the United States and certain employees at its foreign subsidiaries. Benefits for a majority of the plans are based on average final pay and years of service. The Company’s funding policy is to fund the minimum required contribution under local statutory requirements.
The Company sponsors unfunded plans to provide certain health care benefits to retired employees in the United States and Canada. The plans pay a stated percentage of medical expenses reduced by deductibles and other coverage. The plans are unfunded and obligations are paid out of the Company’s operations.
The Company also has defined benefit supplementary retirement plans which provide benefits for certain U.S. employees in excess of qualified plan limitations. The obligations are paid out of the Company’s general assets, including assets held in a Rabbi trust, or restoration plan assets.
The Company uses a December 31 measurement date for all of its defined benefit pension, postretirement medical and supplementary retirement plans. The following discussion includes information for the Eco Services benefit plans for all periods presented, and the acquired PQ Holdings benefit plans beginning on the date of the Business Combination.
The Eco Services benefit plans include two defined benefit pension plans and one retiree health plan, all based in the U.S. The PQ Holdings benefit plans include a U.S. defined benefit pension plan as well as the defined benefit pension plans for all of the Company’s foreign subsidiaries, two retiree health plans (one each in the U.S and Canada), and the Company’s defined benefit supplementary retirement plans.
Of the Company’s three defined benefit pension plans covering employees in the U.S., only the Eco Services Hourly Pension Plan continues to accrue benefits for certain participants. All future accruals were frozen for the PQ Corporation Retirement Plan as of December 31, 2006 and for the Eco Services Pension Equity Plan as of December 31, 2016. With respect to the Company’s three retiree health plans, the PQ Holdings plans in the U.S. and Canada were closed to new retirees as of December 31, 2006. The Eco Services Postretirement Life and Dental Plan was closed to new retirees effective July 1, 2017. The Company’s defined benefit supplementary retirement plans were frozen to future accruals as of December 31, 2006.
Defined Benefit Pension Plans
The following tables summarize changes in the benefit obligation, plan assets and funded status of the Company’s significant defined benefit pension plans as well as the components of net periodic benefit cost, including key assumptions:
 
 
U.S.  
 
Foreign  
 
 
December 31,
 
December 31,
 
 
2018
 
2017
 
2018
 
2017
Change in benefit obligation:
 
 
 
 
 
 
 
 
Benefit obligation at beginning of period
 
$
261,102

 
$
247,418

 
$
119,710

 
$
106,025

Service cost
 
1,019

 
1,219

 
3,566

 
3,686

Interest cost
 
9,599

 
10,115

 
3,340

 
3,271

Participant contributions
 
—

 
—

 
570

 
493

Plan amendments
 
—

 
—

 
179

 
—

Plan curtailments
 
(952
)
 
—

 
(340
)
 
—

Plan settlements
 
—

 
(2,264
)
 
(1,071
)
 
—

Benefits paid
 
(11,453
)
 
(9,591
)
 
(2,569
)
 
(2,967
)
Expenses paid
 
—

 
—

 
(363
)
 
(319
)
Net transfer in
 
—

 
—

 
1,535

 
—

Actuarial (gains) losses
 
(13,004
)
 
14,205

 
(5,432
)
 
(2,169
)
Translation adjustment
 
—

 
—

 
(7,022
)
 
11,690

Benefit obligation at end of the period
 
$
246,311

 
$
261,102

 
$
112,103

 
$
119,710

 
 
 

 
 

 
 

 
 

Change in plan assets:
 
 

 
 

 
 

 
 

Fair value of plan assets at beginning of period
 
$
218,374

 
$
198,915

 
$
96,518

 
$
86,145

Actual return on plan assets
 
(12,854
)
 
27,554

 
(540
)
 
217

Employer contributions
 
1,688

 
3,760

 
4,249

 
3,781

Employee contributions
 
—

 
—

 
570

 
493

Plan settlements
 
—

 
(2,264
)
 
(1,071
)
 
—

Benefits paid
 
(11,453
)
 
(9,591
)
 
(2,569
)
 
(2,967
)
Expenses paid
 
—

 
—

 
(363
)
 
(319
)
Acquisitions
 
—

 
—

 
1,013

 
—

Translation adjustment
 
—

 
—

 
(6,020
)
 
9,168

Fair value of plan assets at end of the period
 
$
195,755

 
$
218,374

 
$
91,787

 
$
96,518

 
 
 

 
 

 
 

 
 

Funded status of the plans (underfunded)
 
$
(50,556
)
 
$
(42,728
)
 
$
(20,316
)
 
$
(23,192
)
 
 
 

 
 

 
 

 
 


Amounts recognized in the consolidated balance sheets consist of:
 
 
U.S.  
 
Foreign  
 
 
December 31,
 
December 31,
 
 
2018
 
2017
 
2018
 
2017
Noncurrent asset
 
$
—

 
$
—

 
$
4,670

 
$
3,503

Current liability
 
—

 
—

 
(748
)
 
(673
)
Noncurrent liability
 
(50,556
)
 
(42,728
)
 
(24,238
)
 
(26,022
)
Accumulated other comprehensive income (loss)
 
1,218

 
10,499

 
(1,829
)
 
(2,871
)
Net amount recognized
 
$
(49,338
)
 
$
(32,229
)
 
$
(22,145
)
 
$
(26,063
)
 
 
 
 
 
 
 
 
 
Amounts recognized in accumulated other comprehensive income (loss) consist of:
 
 
U.S.  
 
Foreign  
 
 
December 31,
 
December 31,
 
 
2018
 
2017
 
2018
 
2017
Prior service cost
 
$
—

 
$
—

 
$
(170
)
 
$
—

Net gain (loss)
 
1,618

 
13,943

 
(2,133
)
 
(3,923
)
Gross amount recognized
 
1,618

 
13,943

 
(2,303
)
 
(3,923
)
Deferred income taxes
 
(400
)
 
(3,444
)
 
474

 
1,052

Net amount recognized
 
$
1,218

 
$
10,499

 
$
(1,829
)
 
$
(2,871
)
 
 
 
 
 
 
 
 
 
Components of net periodic benefit cost consist of:
 
 
U.S.  
 
Foreign  
 
 
Years ended
December 31,
 
Years ended
December 31,
 
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
Service cost
 
$
1,019

 
$
1,219

 
$
2,130

 
$
3,566

 
$
3,686

 
$
2,106

Interest cost
 
9,599

 
10,115

 
7,680

 
3,340

 
3,271

 
2,224

Expected return on plan assets
 
(12,851
)
 
(12,277
)
 
(9,293
)
 
(3,311
)
 
(3,208
)
 
(2,038
)
Amortization of net (gain) loss
 
—

 
—

 
—

 
49

 
(9
)
 
(10
)
Curtailment gain recognized
 
(576
)
 
—

 
(1,311
)
 
(340
)
 
—

 
(517
)
Settlement (gain) loss recognized
 
—

 
(48
)
 
152

 
(11
)
 
—

 
—

Net periodic expense (benefit)
 
$
(2,809
)
 
$
(991
)
 
$
(642
)
 
$
3,293

 
$
3,740

 
$
1,765

 
 
 
 
 
 
 
 
 
 
 
 
 
All components of net periodic benefit cost other than service cost are presented within other expense (income), net in the Company’s consolidated statements of operations. There is a nominal amount of estimated net actuarial gains and prior service costs for the Company’s defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in 2019.
The total accumulated benefit obligation as of December 31, 2018 and 2017 for the Company’s U.S. pension plans was $244,580 and $257,882, respectively. The total accumulated benefit obligation as of December 31, 2018 and 2017 for the Company’s foreign pension plans was $107,910 and $114,095, respectively.
The following table presents selected information about the Company’s pension plans with accumulated benefit obligations in excess of plan assets:
 
 
U.S.  
 
Foreign  
 
 
December 31,
 
December 31,
 
 
2018
 
2017
 
2018
 
2017
Projected benefit obligation
 
$
246,311

 
$
261,102

 
$
82,656

 
67,750

Accumulated benefit obligation
 
244,580

 
257,882

 
78,862

 
64,526

Fair value of plan assets
 
195,755

 
218,374

 
57,670

 
42,632

 
 
 
 
 
 
 
 
 

Significant weighted average assumptions used in determining the pension obligations include the following:
 
 
U.S.  
 
Foreign 
 
 
December 31,
 
December 31,
 
 
2018
 
2017
 
2018
 
2017
Discount rate
 
4.32
%
 
3.74
%
 
3.01
%
 
2.91
%
Rate of compensation increase(1)
 
3.00
%
 
3.00
%
 
2.44
%
 
2.57
%
 
 
 
 
 
 
 
 
 

Significant weighted average assumptions used in determining net periodic benefit cost include the following:
 
 
U.S.  
 
Foreign  
 
 
Years ended
December 31,
 
Years ended
December 31,
 
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
Discount rate
 
3.74
%
 
4.24
%
 
4.02
%
 
2.91
%
 
2.99
%
 
5.16
%
Rate of compensation increase(1)
 
3.00
%
 
3.00
%
 
3.10
%
 
2.57
%
 
2.97
%
 
3.95
%
Expected return on assets
 
6.00
%
 
6.37
%
 
6.34
%
 
3.52
%
 
3.58
%
 
5.62
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) 
Includes only plans not frozen to benefit accruals for the respective periods.
The discount rate for each of the U.S. plans was determined by utilizing a yield curve model. The model develops a spot rate curve based on the yields available from a broad-based universe of high quality corporate bonds. The discount rate is then set as the weighted average spot rate, using the respective plan’s expected benefit cash flows as the weights.
In determining the expected return on U.S. plan assets, the Company considers the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes, and expected future performance. In addition, the Company may consult with and consider the opinions of our external advisors in developing appropriate return benchmarks.
The investment objective for the U.S. plans is to generate returns sufficient to meet future obligations. The strategy to meet the objective includes generating attractive returns using higher returning assets such as equity securities and balancing risk using less volatile assets such as fixed income securities. The U.S. plans invest in an allocation of assets across the two broadly-defined financial asset categories of equity and fixed income securities. The target allocations for the plan assets across the three U.S. plans are as follows: 45% equity securities and 55% fixed income investments for the PQ Corporation Retirement Plan; 40% equity securities and 60% fixed income investments for the Eco Services Pension Equity Plan; and 45% equity securities and 55% fixed income investments for the Eco Services Hourly Pension Plan.
Similar considerations are applied to the investment objectives of the non-U.S. plans as well as the asset classes available in each location and any legal restrictions on plan investments.
The Company classifies plan assets based upon a fair value hierarchy (see Note 5 to these consolidated financial statements for further information). The classification of each asset within the hierarchy is based on the lowest level input that is significant to its measurement. The fair value hierarchy consists of three levels as follows:
•
Level 1—Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. Active markets provide pricing data for trades occurring at least weekly and include exchanges and dealer markets. Level 1 assets primarily include investments in publicly traded equity securities and mutual funds. These securities (or the underlying investments of the funds) are actively traded and valued using quoted prices for identical securities from the market exchanges.
•
Level 2—Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads and yield curves. Level 2 assets primarily consist of fixed-income securities and comingled funds that are not actively traded or whose underlying investments are valued using observable marketplace inputs. The fair value of plan assets invested in fixed-income securities is generally determined using valuation models that use observable inputs such as interest rates, bond yields, low-volume market quotes and quoted prices for similar assets. Plan assets that are invested in comingled funds are valued using a unit price or net asset value (“NAV”) that is based on the underlying investments of the fund.
•
Level 3—Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Company’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date. Level 3 assets include investments covered by insurance contracts and real estate funds valued using significant unobservable inputs.
The following tables set forth by level, within the fair value hierarchy, plan assets at fair value:
 
 
December 31, 2018
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Cash and cash equivalents(1)
 
$
57,000

 
$
56,925

 
$
75

 
$
—

Equity securities:
 
 

 
 

 
 

 
 

U.S. investment funds
 
35,103

 
35,103

 
—

 
—

International investment funds
 
44,508

 
24,040

 
20,468

 
—

Fixed income securities:
 
 

 
 

 
 

 
 

Government securities
 
10,121

 
—

 
10,121

 
—

Corporate bonds
 
77,229

 
72,216

 
5,013

 
—

Investment fund bonds
 
25,152

 
7,665

 
17,487

 
—

Other:
 
 

 
 

 
 

 
 

Insurance contracts
 
38,429

 
—

 
33,408

 
5,021

Total
 
$
287,542

 
$
195,949

 
$
86,572

 
$
5,021

 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
 
Total
 
Level 1
 
Level 2
 
Level 3
Cash and cash equivalents
 
$
1,072

 
$
934

 
$
138

 
$
—

Equity securities:
 
 

 
 

 
 

 
 

U.S. investment funds
 
56,309

 
43,625

 
12,684

 
—

International investment funds
 
70,308

 
28,827

 
41,481

 
—

Fixed income securities:
 
 

 
 

 
 

 
 

Government securities
 
11,433

 
—

 
11,433

 
—

Corporate bonds
 
82,585

 
77,685

 
4,900

 
—

Investment fund bonds
 
54,263

 
7,719

 
46,544

 
—

Other:
 
 
 
 
 
 
 
 
Insurance contracts
 
38,922

 
—

 
34,772

 
4,150

Total
 
$
314,892

 
$
158,790

 
$
151,952

 
$
4,150

 
 
 
 
 
 
 
 
 
 
(1) 
Level 1 balance includes $55,905 of cash and cash equivalents held by two of the Company’s U.S. defined benefit pension plans. The investments in equity securities and fixed income securities previously held by these plans were liquidated into cash and cash equivalents in December 2018 in preparation for a transfer of plan assets to a new custodian. This transfer was completed in January 2019.
The changes in the Level 3 pension plan assets are as follows for the years ended December 31:
 
 
Insurance Contracts
 
 
2018
 
2017
Beginning balance
 
$
4,150

 
$
3,286

Actual return on plan assets
 
10

 
(41
)
Benefits paid
 
(385
)
 
(48
)
Contributions
 
461

 
466

Exchange rate changes and other
 
785

 
487

Ending balance
 
$
5,021

 
$
4,150

 
 
 
 
 

The Company expects to contribute $972 to the U.S. pension plans and $4,334 to the foreign pension plans in 2019.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Year
 
U.S.
 
Foreign 
2019
 
$
15,369

 
$
3,115

2020
 
16,253

 
2,769

2021
 
16,966

 
2,952

2022
 
15,894

 
3,366

2023
 
15,823

 
3,630

Years 2024-2028
 
78,304

 
23,111

 
 
 
 
 

Certain of the Company’s foreign subsidiaries maintain other defined benefit plans that are consistent with statutory practices. These plans are not included in the disclosures above as they are not significant to the Company’s consolidated financial statements.
Supplemental Retirement Plans
The following tables summarize changes in the benefit obligation, plan assets and funded status of the Company’s defined benefit supplementary retirement plans, as well as the components of net periodic benefit cost, including key assumptions:
 
 
December 31,
 
 
2018
 
2017
Change in benefit obligation:
 
 
 
 
Benefit obligation at beginning of period
 
$
12,781

 
$
13,225

Interest cost
 
450

 
489

Benefits paid
 
(1,070
)
 
(1,179
)
Actuarial (gains) losses
 
(293
)
 
246

Benefit obligation at end of period
 
$
11,868

 
$
12,781

 
 
 

 
 

Change in plan assets:
 
 

 
 

Fair value of plan assets at beginning of period
 
$
—

 
$
—

Employer contributions
 
1,070

 
1,179

Benefits paid
 
(1,070
)
 
(1,179
)
Fair value of plan assets at end of period
 
$
—

 
$
—

 
 
 
 
 
Funded status of the plans (underfunded)
 
$
(11,868
)
 
$
(12,781
)
 
 
 
 
 

Amounts recognized in the consolidated balance sheets consist of:
 
 
December 31,
 
 
2018
 
2017
Current liability
 
$
(1,105
)
 
$
(1,115
)
Noncurrent liability
 
(10,763
)
 
(11,667
)
Accumulated other comprehensive income
 
795

 
573

Net amount recognized
 
$
(11,073
)
 
$
(12,209
)
 
 
 
 
 

Amounts recognized in accumulated other comprehensive income consist of:
 
 
December 31,
 
 
2018
 
2017
Net gain
 
$
1,055

 
$
761

Gross amount recognized
 
1,055

 
761

Deferred income taxes
 
(260
)
 
(188
)
Net amount recognized
 
$
795

 
$
573

 
 
 
 
 

Components of net periodic benefit cost consist of:
 
 
Years ended
December 31,
 
 
2018
 
2017
 
2016
Interest cost
 
$
450

 
$
489

 
$
328

Net periodic expense
 
$
450

 
$
489

 
$
328

 
 
 
 
 
 
 

Interest cost is presented within other expense (income), net in the Company’s consolidated statements of operations. There are no estimated net actuarial gains for the Company’s defined benefit supplementary retirement plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2019.
The accumulated benefit obligation of the Company’s defined benefit supplemental retirement plans as of December 31, 2018 and 2017 was $11,868 and $12,781, respectively.
The discount rate used in determining the defined benefit supplemental retirement plan obligation was 4.20% and 3.60% as of December 31, 2018 and 2017, respectively. The discount rate used in determining net periodic benefit cost was 3.60%, 3.90% and 3.40% for the years ended December 31, 2018, 2017 and 2016, respectively. There was no rate of compensation increase for any of the periods presented, as all future accruals were frozen for the defined benefit supplementary retirement plans as of December 31, 2006.
The Company expects to contribute $1,105 to the defined benefit supplementary retirement plans in 2019.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Year 
 
Amount
2019
 
$
1,105

2020
 
1,076

2021
 
1,045

2022
 
1,009

2023
 
970

Years 2024-2028
 
4,276

 
 
 

Other Postretirement Benefit Plans
The following tables summarize changes in the benefit obligation, plan assets and funded status of the Company’s other postretirement benefit plans as well as the components of net periodic benefit cost, including key assumptions:
 
 
December 31,
 
 
2018
 
2017
Change in benefit obligation:
 
 
 
 
Benefit obligation at beginning of period
 
$
4,612

 
$
4,620

Service cost
 
16

 
21

Interest cost
 
150

 
174

Employee contributions
 
251

 
251

Plan amendments
 
(271
)
 
—

Benefits paid
 
(1,061
)
 
(923
)
Medical subsidies received
 
74

 
—

Premiums paid
 
(66
)
 
(3
)
Actuarial (gains) losses
 
172

 
418

Translation adjustment
 
(63
)
 
54

Benefit obligation at end of period
 
$
3,814

 
$
4,612

 
 
 

 
 

Change in plan assets:
 
 

 
 

Fair value of plan assets at beginning of period
 
—

 
—

Employer contributions
 
802

 
675

Employee contributions
 
251

 
251

Benefits paid
 
(1,061
)
 
(923
)
Medical subsidies received
 
74

 
—

Premiums paid
 
(66
)
 
(3
)
Fair value of plan assets at end of period
 
$
—

 
$
—

 
 
 
 
 
Funded status of the plans (underfunded)
 
$
(3,814
)
 
$
(4,612
)
 
 
 
 
 

Amounts recognized in the consolidated balance sheets consist of:
 
 
December 31,
 
 
2018
 
2017
Current liability
 
$
(581
)
 
$
(561
)
Noncurrent liability
 
(3,233
)
 
(4,051
)
Accumulated other comprehensive income
 
830

 
885

Net amount recognized
 
$
(2,984
)
 
$
(3,727
)
 
 
 
 
 

Amounts recognized in accumulated other comprehensive income consist of:
 
 
December 31,
 
 
2018
 
2017
Prior service credit
 
$
525

 
$
366

Net gain
 
500

 
719

Gross amount recognized
 
1,025

 
1,085

Deferred income taxes
 
(195
)
 
(200
)
Net amount recognized
 
$
830

 
$
885

 
 
 
 
 

Components of net periodic benefit cost consist of:
 
 
Years ended
December 31,
 
 
2018
 
2017
 
2016
Service cost
 
$
16

 
$
21

 
$
37

Interest cost
 
150

 
174

 
151

Amortization of prior service credit
 
(112
)
 
(78
)
 
—

Amortization of net gain
 
(26
)
 
(45
)
 
(17
)
Net periodic expense
 
$
28

 
$
72

 
$
171

 
 
 
 
 
 
 

All components of net periodic benefit cost other than service cost are presented within other expense (income), net in the Company’s consolidated statements of operations. The estimated prior service credit for the Company’s retiree health plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2019 is $130. The estimated net actuarial gain for the Company’s retiree health plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2019 is $32.
The discount rate used in determining the other postretirement benefit plan obligation was 3.53% and 3.74% as of December 31, 2018 and 2017, respectively. The discount rate used in determining net periodic benefit cost was 3.53%, 3.74% and 3.92% for the years ended December 31, 2018, 2017 and 2016, respectively.
Assumed health care cost trend rates were as follows:
 
 
December 31,
 
 
2018
 
2017
Immediate trend rate
 
6.59%
 
6.84%
Ultimate trend rate
 
4.50%
 
4.50%
Year that the rate reaches ultimate trend rate
 
2035
 
2035
 
 
 
 
 

A 1% change in the assumed health care cost trend would have increased (decreased) the accumulated postretirement benefit obligation as of December 31, 2018 and the periodic postretirement benefit cost for the year then ended as follows:
 
 
1% Increase
 
1% Decrease
Accumulated postretirement benefit obligation
 
$
157

 
$
(138
)
Periodic postretirement benefit cost
 
6

 
(5
)
 
 
 
 
 

The Company expects to contribute $581 to the retiree health plans in 2019.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
Year 
 
Amount
2019
 
$
581

2020
 
514

2021
 
388

2022
 
313

2023
 
272

Years 2024-2028
 
915

 
 
 

There are no expected Medicare subsidy receipts expected in future periods.
Certain of the Company’s foreign subsidiaries maintain other postretirement benefit plans that are consistent with statutory practices. These plans are not included in the disclosures above as they are not significant to the Company’s consolidated financial statements.
Defined Contribution Plans
The Company also has defined contribution plans covering domestic employees of the Company and certain subsidiaries. The Company recorded expenses of $12,585, $13,103 and $6,864 related to these plans for the years ended December 31, 2018, 2017 and 2016, respectively.