|12 Months Ended|
Dec. 31, 2016
|Defined Benefit Pension Plans and Defined Benefit Postretirement Plans Disclosure [Abstract]|
Overview. The Company has defined contribution plans, qualified and nonqualified defined benefit pension plans, and other postretirement benefit plans covering substantially all of its employees. The Company's contributions to its defined contribution plans include matching and annual discretionary contributions which are based on various percentages of compensation, and in some instances are based on the amount of the employees' contributions to the plans. The expense related to the defined contribution plans was $46.3 million, $46.3 million and $38.9 million in 2016, 2015 and 2014, respectively.
The Company's domestic pension and retiree health care and life insurance benefit plans, which are discussed below, provide benefits based on years of service and, for some plans, average compensation prior to retirement. Benefit accruals are frozen for all plan participants. The Company uses a December 31 measurement date for these plans. The Company's foreign postretirement benefit plans are not significant individually or in the aggregate.
Plan Developments. During 2016, total settlement payments of $125.2 million were made from the Brunswick Pension Plan For Hourly Bargaining Unit Employees (Hourly Bargaining Plan) and the Brunswick Pension Plan For Salaried Employees (Salaried Plan) to purchase group annuity contracts to cover future benefit payments. The annuity contract unconditionally and irrevocably guarantees the full payment of all future annuity payments to the affected participants. The insurance company assumed all risk associated with the assets and obligations that were transferred. The Company recognized a pretax settlement loss of $55.1 million in the fourth quarter of 2016 relating to this action.
The Company also took actions to terminate the Brunswick Pension Plan For Hourly Employees (Hourly Plan) and the Brunswick Pension Plan For Hourly Wage Employees (Muskegon Plan) at the Muskegon, Michigan Factory, effective as of December 31, 2016. All benefits are expected to be paid during 2017, either through a lump-sum payment or annuity offerings. As a result, the unfunded liabilities for both plans are currently recorded in Accrued expenses within the Company’s Consolidated Balance Sheets.
During 2015, total settlement payments of $191.8 million were made from the Brunswick Pension Plan For Selected Current And Former Employees and the Salaried Plan, consisting of lump-sum pension distributions of $61.7 million and the purchase of group annuity contracts totaling $130.1 million to cover future benefit payments. The annuity contract unconditionally and irrevocably guarantees the full payment of all future annuity payments to the affected participants. The insurance company assumed all risk associated with the assets and obligations that were transferred. The Company recognized a pretax settlement loss of $82.3 million in the fourth quarter of 2015 related to these actions.
During 2014, the Company offered a voluntary lump-sum pension payment opportunity to certain terminated vested Salaried Plan, Hourly Bargaining Plan and Muskegon Plan participants. Total lump-sum payments of $80.7 million, of which $71.9 million were considered settlement payments, for those participants electing to receive lump sums were made in 2014 using pension plan assets. The Company recognized pretax settlement losses of $27.9 million in the fourth quarter of 2014 for those plans where the settlement payment exceeded the sum of the plans' service and interest costs.
Costs. Pension and other postretirement benefit costs included the following components for 2016, 2015 and 2014:
Portions of Net pension and other benefit costs are recorded in Selling, general and administrative expenses as well as capitalized into inventory. Costs capitalized into inventory are eventually realized through Cost of sales in the Consolidated Statements of Operations.
Pension expense in 2016 includes the impact of a change in methodology used to calculate the interest cost component of pension expense. In 2015 and prior years, the Company used a single-weighted average discount rate to calculate pension and postretirement interest costs. Beginning in 2016, the Company is utilizing a "spot rate approach" in the calculation of pension and postretirement interest costs to provide a more accurate measurement of interest costs. The spot rate approach applies separate discount rates for each projected benefit payment in the calculation of pension and postretirement interest costs. This calculation change is considered to be a change in accounting estimate and is being applied prospectively in 2016. The discount rates used to measure the 2016 interest costs are 3.58% and 3.30% for pensions and other postretirement benefits, respectively. The previous method would have used a discount rate for interest costs of 4.40% for pensions and 4.23% for other postretirement benefits, respectively. The decreased interest costs for the 12 months ended December 31, 2016, for pension and other postretirement benefits, was approximately $8.2 million and $0.4 million, respectively, compared with the previous method.
Additionally, pension expense in 2016 includes the impact of a decline in the assumed rate of return on plan assets to 5.25% in 2016 compared with 6.00% in 2015, primarily due to shifts in asset allocations toward fixed income investments. For the year ended December 31, 2016, pension expense increased by $5.6 million as a result of the lower assumed rate of return on plan assets.
Benefit Obligations and Funded Status. A reconciliation of the changes in the benefit obligations and fair value of assets over the two-year period ending December 31, 2016, and a statement of the funded status at December 31 for these years for the Company's pension and other postretirement benefit plans follow:
(A) As all of the Company's plans are frozen, the projected benefit obligation and the accumulated benefit obligation are equal. As of December 31, 2016 and 2015, the projected and accumulated benefit obligations for all of the Company's pension plans were in excess of plan assets.
The funded status of these pension plans includes the projected and accumulated benefit obligations for the Company's nonqualified pension plan of $34.5 million and $36.7 million at December 31, 2016 and 2015, respectively. The Company's nonqualified pension plan and other postretirement benefit plans are not funded.
The amounts included in the Company's Consolidated Balance Sheets as of December 31, 2016 and 2015, were as follows:
Accumulated Other Comprehensive Loss. The following pretax activity related to pensions and other postretirement benefits was recorded in Accumulated other comprehensive loss as of December 31:
The estimated pretax net actuarial loss in Accumulated other comprehensive loss at December 31, 2016, expected to be recognized as a component of net periodic benefit cost in 2017 for the Company's pension plans, is $14.4 million. The estimated pretax prior service credit and net actuarial loss in Accumulated other comprehensive loss at December 31, 2016, expected to be recognized as components of net periodic benefit cost in 2017 for the Company's other postretirement benefit plans, are $0.7 million and $0.0 million, respectively.
Prior service costs and credits associated with other postretirement benefits are being amortized on a straight-line basis over the average future working lifetime to full eligibility for active hourly plan participants and over the average remaining life expectancy for those plans' participants who are fully eligible for benefits. Actuarial gains and losses in excess of 10 percent of the greater of the benefit obligation or the market value of assets are amortized over the remaining service period of active plan participants and over the average remaining life expectancy of inactive plan participants.
Other Postretirement Benefits. Once participants eligible for other postretirement benefits turn 65 years old, the health care benefits become a flat dollar amount based on age and years of service. The assumed health care cost trend rate for other postretirement benefits for pre-age 65 benefits as of December 31 was as follows:
The health care cost trend rate assumption has an effect on the amounts reported. A one percent change in the assumed health care trend rate at December 31, 2016 would not have a material impact on the accumulated postretirement benefit obligation.
The Company monitors the cost of health care and life insurance benefit plans and reserves the right to make additional changes or terminate these benefits in the future.
Assumptions. In October 2014, the Society of Actuaries (SOA) issued updated mortality tables (RP-2014) and a mortality improvement scale (MP-2014), which reflect longer life expectancies than previously projected. Since then, the SOA has issued updated mortality improvement scales, (MP-2015 and MP-2016) which include actual mortality improvement data from the Social Security Administration for years 2011 through 2014. The actual mortality data showed higher rates of mortality than anticipated, and thus updated projections show a slight decrease in life expectancies compared to the original MP-2014 projection scale. This information was considered in developing the Company's updated mortality assumptions for pension and postretirement benefit obligations recorded at December 31, 2016. The updated mortality assumptions resulted in a decrease of approximately $10.5 million and $0.3 million in the Company's pension and postretirement benefit obligations, respectively, at December 31, 2016.
Weighted average assumptions used to determine pension and other postretirement benefit obligations at December 31 were as follows:
Weighted average assumptions used to determine net pension and other postretirement benefit costs for the years ended December 31 were as follows:
The Company utilizes a yield curve analysis to calculate the discount rates used to determine pension and other postretirement benefit obligations. The yield curve analysis matches the cash flows of the Company's benefit obligations. The yield curve consisted of spot interest rates at half year increments for each of the next 30 years and was developed based on pricing and yield information for high quality corporate bonds rated Aa by either Moody's or Standard & Poor's, private placement bonds that are traded in reliance with Rule 144A and are at least two years from date of issuance, bonds with make-whole provisions and bonds issued by foreign corporations that are denominated in U.S. dollars, excluding callable bonds and bonds less than a minimum size and other filtering criteria. Additionally, the Company's yield curve methodology includes bonds having a yield that is greater than the regression mean yield curve as the Company believes this methodology represents an appropriate estimate of the rates at which the Company could effectively settle its pension obligations.
The Company evaluates its assumption regarding the estimated long-term rate of return on plan assets based on historical experience, future expectations of investment returns, asset allocations, investment strategies and views of investment professionals. The Company's long-term rate of return on assets assumptions of 5.25 percent for 2016, 6.00 percent for 2015, and 6.25 percent for 2014, reflect expectations of projected weighted average market returns for the plans' assets. These changes in expected returns also reflected adjustments to the Company's targeted asset allocation.
Master Trust Investments. Assets of the Company's Master Pension Trust (Trust) are invested solely in the interest of the plan participants for the purpose of providing benefits to participants and their beneficiaries. Investment decisions within the Trust are made after giving appropriate consideration to the prevailing facts and circumstances that a prudent person acting in a like capacity would use in a similar situation, and follow the guidelines and objectives established within the investment policy statement for the Trust. In general, the Trust's investment strategy is to invest in a diversified portfolio of assets that will generate returns equal to or in excess of the change in liabilities resulting from interest costs and discount rate fluctuations. The excess returns generated from this strategy will contribute to improving the funded position of the plan. In order for returns to achieve this objective, the Trust will invest in fixed income investments and equities. These asset classes have historically been reasonably correlated to changes in plan liabilities resulting from changes in the discount rate. All investments are continually monitored and reviewed, with a focus on asset allocation, investment vehicles and performance of the individual investment managers, as well as overall Trust performance. Over time, the Company has shifted a greater percentage of the Trust's assets into long-term fixed-income securities, with an objective of achieving an improved matching of asset returns with changes in liabilities. The Company will consider future changes in asset allocation based on a number of factors including improvements in the plans' funded position, performance of equity investments and changes in the discount rate used to measure plan liabilities.
The Trust asset allocation at December 31, 2016 and 2015, and target allocation for 2017 are as follows:
The fair values of the Trust's pension assets at December 31, 2016, by asset class were as follows:
The fair values of the Trust's pension assets at December 31, 2015, by asset class were as follows:
The following is a description of the valuation methodologies used for assets and liabilities measured at fair value. See Note 7 – Fair Value Measurements for further description of the procedures the Company performs with respect to its Level 2 measurements:
Equity securities: The indexed equity funds are valued at the net asset value (NAV) provided by the investment managers. The NAV is based on the quoted market value of the underlying assets owned by the fund, minus its liabilities, divided by the number of units outstanding. The indexed equity funds are invested in portfolios of equity securities with the goal of matching returns to specific indices. Investments in United States equity securities are invested in an index fund that tracks the Russell 3000 index, which is an all cap market index. International equities are invested in an index fund that tracks the MSCI EAFE index, which is an index that tracks international equity markets of developed countries worldwide. Withdrawal from the United States equity fund is permitted with a one-day notice prior to the trade date with subsequent settlement three days after the trade date. Withdrawal from the international equity fund is permitted daily with a two-day notice prior to the trade date with subsequent settlement three days after the trade date.
Corporate debt securities: Corporate debt securities are valued based on prices provided by third-party pricing sources, which are based on estimated prices at which a dealer would pay for or sell a security.
Government debt securities: U.S. Treasury bonds are valued using quoted market prices in active markets. Other agency securities are valued based on prices provided by third-party pricing sources, which are based on estimated prices at which a dealer would pay for or sell a security.
Short-term investments, commingled funds: Short-term investments and commingled funds are valued at the NAV provided by the investment managers. The NAV is based on the quoted market value of the underlying assets owned by the fund, minus its liabilities, divided by the number of units outstanding. Investments in fixed income commingled funds include long-duration corporate bonds and government-related securities with the goal of preserving capital and maximizing total return consistent with prudent investment management.
Other investments: Exchange-traded derivative instruments are valued using market indices. The fair value of derivatives that are not traded on an exchange are based on valuation models using observable market data as of the measurement date.
There were no pension plan assets using significant unobservable inputs (Level 3) for the years ended December 31, 2016 and December 31, 2015.
Expected Cash Flows. The expected cash flows for the Company's pension and other postretirement benefit plans follow:
(A) The Company anticipates contributing approximately $70.0 million to fund the qualified pension plans and approximately $3.8 million to cover benefit payments in the unfunded, nonqualified pension plan in 2017. Company contributions are subject to change based on market conditions or Company discretion.
(B) Expected benefit payments in 2017 include payments in connection with the Hourly Plan and Muskegon Plan terminations.
The entire disclosure for pension and other postretirement benefits.
Reference 1: http://www.xbrl.org/2003/role/presentationRef