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The Company and its subsidiaries have noncontributory defined benefit pension plans covering substantially all noncontractual employees. Benefits are based on years of service and employee compensation. Contributions are made based upon at least the minimum amounts required to be funded under provisions of the Employee Retirement Income Security Act of 1974, with the maximum amounts not to exceed the maximum amount deductible under the Internal Revenue Code. The plans’ assets are held in a common bank-administered trust fund and are primarily invested in government and equity securities. Additionally, the Company participates in several multiemployer plans, which provide defined benefits to the Company’s union employees. In the event of insolvency or reorganization, plan terminations or withdrawal by the Company from the multiemployer plans, the Company may be liable for a portion of the plan’s unfunded vested benefits, the amount of which, if any, has not been determined. A summary of the components of net periodic pension costs for the defined benefit plans for the periods indicated and the total contributions charged to pension expense for the multiemployer plans follows:
Year Ended December 31
1994 1993 1992
($ thousands)
Defined Benefit Plans
Service cost - benefits earned during
the year $ 4,492 $ 4,225 $ 3,683
Interest cost on projected benefit
obligations 5,249 5,675 5,162
Actual return on plan assets 220 (6,656) (3,601)
Net amortization and deferral (5,379) 1,542 (1,851)
Net pension cost of defined benefit plans 4,582 4,786 3,393
Multiemployer Plans 40,833 37,846 36,066
Total pension expense $ 45,415 $ 42,632 $ 39,459
Assumptions used in determining net periodic pension cost for the defined benefit plans were:
Year Ended December 31
1994 1993 1992
Weighted average discount rate 7.24% 8.49% 8.90%
Annual compensation increases 3.00% 5.00% 5.00%
Expected long-term rates of return on assets 9.00% 9.25% 9.75%
The following sets forth the funded status and amounts recognized in the consolidated balance sheets for the Company’s defined benefit pension plans at December 31:
1994 1993
($ thousands)
Actuarial present value of benefit obligations:
Vested benefit obligation $ (50,826) $ (56,798)
Accumulated benefit obligation $ (57,630) $ (65,303)
Projected benefit obligation $ (72,469) $ (79,195)
Plan assets at fair value 67,403 68,515
Projected benefit obligation in excess
of plan assets (5,066) (10,680)
Unrecognized net loss 9,159 15,095
Prior service benefit not yet recognized
in net periodic pension cost 206 218
Unrecognized net asset at January 1, 1987,
net of amortization (68) (73)
Adjustment required to recognize minimum liability (212) -
Net pension asset $ 4,019 $ 4,560
At December 31, 1994, the net pension asset is reflected in the accompanying financial statements as an accrued expense of $1,312,000 and a noncurrent asset of $5,331,000 included in other assets. At December 31, 1993, the net pension asset is reflected in the accompanying financial statements as an accrued expense of $989,000 and a noncurrent asset of $5,549,000 included in other assets. The following assumptions were used in determining the pension obligation:
December 31
1994 1993
Weighted average discount rate 8.73% 7.24%
Annual compensation increases 3.00% 3.00%
Expected long-term rates of return on assets 9.00% 9.25%
The Company has deferred compensation agreements with certain executives for which liabilities aggregating $1,309,000 and $975,000 as of December 31, 1994 and 1993, respectively, have been recorded. The Company also has a supplemental benefit plan for the purpose of supplementing benefits under the Company’s retirement plans. The plan will pay sums in addition to amounts payable under the retirement plans to eligible participants. Participation in the plan is limited to employees of the Company who are participants in the Company’s retirement plans and who are also either participants in the Company’s executive incentive plan or are designated as participants in the plan by the Company’s Board of Directors. As of December 31, 1994, the Company has a liability of $2,005,000 for future costs under this plan with $1,234,000 reflected in the accompanying consolidated financial statements as an accrued expense and $771,000 included in other liabilities. In July 1993, the Employee Stock Ownership Plan (the “ESOP”) was merged with another defined contribution plan to create a new plan known as the Arkansas Best Corporation Employees’ Investment Plan (the “Investment Plan”). Participant account balances were transferred from the ESOP to the Investment Plan. The Investment Plan covers substantially all full-time, noncontractual employees of the Company and its subsidiaries. The Investment Plan permits participants to defer up to 15% of their salary by salary reduction as provided in Section 401(k) of the Internal Revenue Code. The percentage of Company match is set annually. In 1994, 1993 and 1992 up to 4% of a participant’s compensation contributed to the Investment Plan was matched by a Company deposit of 25% of such contribution. The Company’s matching contribution can be made in cash or common stock of the Company. The matching contributions charged to operations under the investment plans totaled approximately $846,000 for 1994, $875,000 for 1993, and $805,000 for 1992. At December 31, 1993, the contribution payable was reflected as a component of shareholders’ equity. In 1994, 14,752 shares were issued in settlement of the 1993 contributions payable. TREADCO has an employee stock ownership plan (the “TREADCO ESOP”) and a related trust (the “TREADCO Trust”) covering substantially all employees of TREADCO. The cost of the TREADCO ESOP is borne by TREADCO through annual contributions to the TREADCO Trust in amounts determined by TREADCO’s Board of Directors. Contributions may be paid in cash or in shares of TREADCO Common Stock. Participants become 100% vested after five years of service from January 1, 1990. Distribution of balances normally would be made in TREADCO’s Common Stock. Charges to operations for contributions to the TREADCO ESOP totaled $250,000 for 1994, $250,000 for 1993 and $250,000 for 1992. The stock contributions to the ESOP and investment plans do not have a material effect on earnings per share. Clipper has a Retirement Benefit Plan that covers substantially all full-time employees. The Plan permits participants to defer up to 8% of their salary by salary reduction as provided in Section 401(k) of the Internal Revenue Code, with up to 4% of a participant’s compensation matched by the Company. Also, the Plan has a discretionary profit sharing contribution determined annually by its Board of Directors (6% of compensation paid to employees for 1994). For the three months ended December 31, 1994, the Company’s contributions under this Plan totaled $109,000. The Company sponsors plans that provide postretirement medical benefits, life insurance and accident and vision care to full-time officers of the Company. The plan is noncontributory, with the Company paying up to 80% of covered charges incurred by participants of the plan. In 1993, the Company adopted FAS 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions.” The effect of adopting the new rules increased net periodic postretirement benefit cost by $275,000 and decreased 1993 net income by $179,000. These costs are based on a 20-year amortization of the transition obligation. Postretirement benefit costs for prior years, which was recorded on a cash basis, have not been restated. The following table represents the amounts recognized in the Company’s consolidated balance sheets:
December 31
1994 1993
Accumulated postretirement benefit obligation:
Retirees $ (1,268) $ (1,354)
Fully eligible active plan participants (400) (489)
Other active plan participants (1,036) (1,159)
(2,704) (3,002)
Unrecognized net (gain) loss (315) 171
Unrecognized transition obligation 2,421 2,556
Accrued postretirement benefit cost $ (598) $ (275)
Net periodic postretirement benefit cost includes the following components:
1994 1993 1992
Service cost $ 59 $ 53
Interest cost 212 223
Amortization of transition obligation over 20 years 135 134
Net periodic postretirement benefit cost $ 406 $ 410 $ 72
The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (in health care cost trend) is 10.5% for 1995 (10.5% for 1994) and is assumed to decrease gradually to 4.5% in years 2006 and later. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by 1% in each year would increase the accumulated postretirement benefit obligation as of December 31, 1994, by $363,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1994 by $48,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 8.73% at December 31, 1994 and 7.24% at December 31, 1993. Additionally, the Company’s union employees are provided postretirement health care benefits through defined benefit multiemployer plans. The cost of such benefits cannot be readily separated between retirees and active employees. The aggregate contribution to the multiemployer health and welfare benefit plans totaled approximately $48,300,000 and $45,400,000 for the years ended December 31, 1994 and 1993, respectively. |
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