Annual report pursuant to Section 13 and 15(d)

Postretirement Benefits

v3.6.0.2
Postretirement Benefits
12 Months Ended
Dec. 31, 2016
Compensation and Retirement Disclosure [Abstract]  
Postretirement Benefits
Postretirement Benefits
(a)
Retirement Plans
We have four defined benefit pension plans covering substantially all of our employees, excluding employees of our retail segment. The benefits are based on years of service and the employee’s final average monthly compensation. Our funding policy is to contribute annually no less than the minimum 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 benefits expected to be earned in the future.
Financial information related to our pension plans is presented below:
 
Pension Benefits
 
2016
 
2015
Change in projected benefit obligation:
 
 
 
Benefit obligation at beginning of year
$
128,829

 
$
129,053

Service cost
3,806

 
3,985

Interest cost
5,637

 
5,022

Actuarial (gain) loss
3,662

 
(5,959
)
Benefits paid
(5,145
)
 
(3,272
)
Projected benefit obligations at end of year
$
136,789

 
$
128,829

Change in plan assets:
 
 
 
Fair value of plan assets at beginning of year
$
86,828

 
$
84,893

Actual gain (loss) on plan assets
6,779

 
(468
)
Employer contribution
1,181

 
5,675

Benefits paid
(5,145
)
 
(3,272
)
Fair value of plan assets at end of year
$
89,643

 
$
86,828

Reconciliation of funded status:
 
 
 
Fair value of plan assets at end of year
$
89,643

 
$
86,828

Less projected benefit obligations at end of year
136,789

 
128,829

Under-funded status at end of year
$
(47,146
)
 
$
(42,001
)

The pre-tax amounts related to the defined benefit plans recognized in the consolidated balance sheets as of December 31, 2016 and 2015 were as follows:
 
Pension Benefits
 
2016
 
2015
Amounts recognized in the consolidated balance sheets:
 
 
 
Pension benefit liability
$
(47,146
)
 
$
(42,001
)

The pre-tax amounts in accumulated other comprehensive loss as of December 31, 2016 and 2015 that have not yet been recognized as components of net periodic benefit cost were as follows:
 
Pension Benefits
 
2016
 
2015
Net actuarial loss
$
(42,692
)
 
$
(42,091
)
Prior service credit
174

 
225

Total
$
(42,518
)
 
$
(41,866
)

The following amounts included in accumulated other comprehensive loss as of December 31, 2016 are expected to be recognized as components of net periodic benefit cost during the year ending December 31, 2017:
 
Pension
Benefits
Amortization of prior service credit
$
(51
)
Amortization of net actuarial loss
3,156

Total
$
3,105


As of December 31, 2016 and 2015, the accumulated benefit obligation for each of our pension plans was in excess of the fair value of plan assets. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans were as follows:
 
As of December 31,
 
2016
 
2015
Projected benefit obligation
$
136,789

 
$
128,829

Accumulated benefit obligation
129,292

 
119,031

Fair value of plan assets
89,643

 
86,828


The weighted-average assumptions used to determine benefit obligations at December 31, 2016, 2015 and 2014 were as follows:
 
Pension Benefits
 
2016
 
2015
 
2014
Discount rate
4.15
%
 
4.45
%
 
3.95
%
Rate of compensation increase
2.20
%
 
3.00
%
 
2.50
%
The discount rate used reflects the expected future cash flow based on our funding valuation assumptions and participant data as of the beginning of the plan year. The expected future cash flow is discounted by the Principal Pension Discount Yield Curve for the fiscal year end because it has been specifically designed to help pension funds comply with statutory funding guidelines.
The weighted-average assumptions used to determine net periodic benefit costs for the years ended December 31, 2016, 2015 and 2014 were as follows:
 
Pension Benefits
 
2016
 
2015
 
2014
Discount rate
4.45
%
 
3.95
%
 
4.75
%
Expected return on plan assets
8.50
%
 
8.50
%
 
8.60
%
Rate of compensation increase
3.00
%
 
2.50
%
 
3.00
%

Our overall expected long-term rate of return on assets is 7.60%. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The components of net periodic benefit cost for the years and periods were as follows:
 
Pension Benefits
 
Year Ended December 31,
 
2016
 
2015
 
2014
Components of net periodic benefit cost:
 
 
 
 
 
Service cost
$
3,806

 
$
3,985

 
$
3,424

Interest cost
5,637

 
5,022

 
4,952

Amortization of prior service credit
(51
)
 
(51
)
 
(51
)
Expected return on plan assets
(6,997
)
 
(6,329
)
 
(5,478
)
Recognized net actuarial loss
3,278

 
3,408

 
2,432

Net periodic benefit cost
$
5,673

 
$
6,035

 
$
5,279


Plan Assets
The weighted-average asset allocation of our pension benefits at December 31, 2016 and 2015 was as follows:
 
Pension Benefits
 
Plan Assets
 
2016
 
2015
Asset Category:
 
 
 
Equity securities
78.1
%
 
76.9
%
Debt securities
12.6
%
 
12.5
%
Real estate investment trust
9.3
%
 
10.6
%
Total
100.0
%
 
100.0
%
The fair value of our pension assets by category as of December 31, 2016 and 2015 were as follows:
 
Quoted Prices in
Active Markets
For Identical
Assets or
Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Consolidated
Total
Year ended December 31, 2016
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
U.S. companies
$
56,959

 
$

 
$

 
$
56,959

International companies
13,045

 

 

 
13,045

Debt securities:
 
 
 
 
 
 


Preferred securities
4,000

 

 

 
4,000

Bond securities

 
7,272

 

 
7,272

Real estate securities
8,367

 

 

 
8,367

Total
$
82,371

 
$
7,272

 
$

 
$
89,643

Year ended December 31, 2015
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
U.S. companies
$
52,800

 
$

 
$

 
$
52,800

International companies
13,957

 

 

 
13,957

Debt securities:
 
 
 
 
 
 
 
Preferred securities
3,770

 

 

 
3,770

Bond securities

 
7,067

 

 
7,067

Real estate securities
9,234

 

 

 
9,234

Total
$
79,761

 
$
7,067

 
$

 
$
86,828


The investment policies and strategies for the assets of our pension benefits is to, over a five-year period, provide returns in excess of the benchmark. The portfolio is expected to earn long-term returns from capital appreciation and a stable stream of current income. This approach recognizes that assets are exposed to price risk and the market value of the plans’ assets may fluctuate from year to year. Risk tolerance is determined based on our specific risk management policies. In line with the investment return objective and risk parameters, the plans’ mix of assets includes a diversified portfolio of equity, fixed-income and real estate investments. Equity investments include domestic and international stocks of various sizes of capitalization. The asset allocation of the plan is reviewed on at least an annual basis.
Cash Flows
We contributed $1,181 and $5,675 to the pension plan for the years ended December 31, 2016 and 2015, respectively, and expect to contribute $2,625 to the pension plan in 2017. There were no employee contributions to the plans.
The benefits expected to be paid in each year 20172021 are $4,700; $5,793; $5,610; $6,060 and $6,450, respectively. The aggregate benefits expected to be paid in the five years from 20222026 are $37,700. The expected benefits are based on the same assumptions used to measure our benefit obligation at December 31, 2016 and include estimated future employee service.
401(k) Savings Plans
We sponsor a 401(k) savings plan that is available to all employees, excluding employees of our retail segment. We match 100% of individual non-unionized participant contributions up to 3% of compensation. For unionized employees at our Big Spring refinery, we match individual participant contributions up to 8% of compensation. For the years ended December 31, 2016 and 2015, our total contributions to the 401(k) savings plan were $3,215 and $3,340, respectively.
We also sponsor a 401(k) savings plan that is available to the employees of our retail segment. Retail employees may contribute up to 50% of their pay after completing three months of service. We match from 1% to 4.5% of employee compensation. For the years ended December 31, 2016 and 2015, our contributions were $1,214 and $1,100, respectively.
(b)
Postretirement Medical Plan
In addition to providing pension benefits, we adopted an unfunded postretirement medical plan covering certain health care and life insurance benefits (other benefits) for active and certain retired employees who met eligibility requirements in the plan documents. This plan is closed to new participants. During 2016, our postretirement medical plan was amended to allow participation only to those retired prior to January 2, 2017. The impact of this plan amendment reduced the accrued benefit liability and accumulated postretirement benefit obligation by $5,199. The health care benefits in excess of certain limits are insured. The accrued benefit liability related to this plan reflected in the consolidated balance sheets was $2,309 and $7,633 at December 31, 2016 and 2015, respectively.
As of December 31, 2016, the total accumulated postretirement benefit obligation under the postretirement medical plan was $2,309.