Annual report pursuant to Section 13 and 15(d)

PENSION AND OTHER RETIREMENTS BENEFITS

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PENSION AND OTHER RETIREMENTS BENEFITS
12 Months Ended
Dec. 31, 2021
Retirement Benefits [Abstract]  
PENSION AND OTHER RETIREMENTS BENEFITS
NOTE 12: PENSION AND OTHER RETIREMENT BENEFITS
Certain current and former employees of the Company are covered under a funded qualified defined benefit retirement plan. Plan provisions covering certain of the Company’s salaried employees generally provide pension benefits based on years of service and compensation. Plan provisions covering certain of the Company’s union members generally provide stated benefits for each year of credited service. The Company’s funding policy is to contribute annually the statutory required amount as actuarially determined. The Company froze the pension plan on December 31, 2019. In addition, the Company has unfunded non-qualified plans covering certain salaried employees with additional retirement benefits in excess of qualified plan limits imposed by federal tax law. The Company uses December 31 as a measurement date for the plans.
In February 2021, the Compensation Committee approved the termination of the Company’s qualified defined benefit retirement plan at Flavors & Ingredients. During the fourth quarter of 2021, the Company offered the option of receiving a lump sum payment to certain participants with vested benefits in lieu of receiving monthly annuity payments. Approximately 125 participants elected to receive the settlement, and lump sum payments of approximately $16.8 million were paid from plan assets to these participants in December 2021. The benefit obligation settled approximated payments to plan participants and a pre-tax settlement gain of $0.5 million was recorded in the fourth quarter of 2021. On February 11, 2022, the Company purchased non-participating annuity contracts to settle the remaining liabilities of the plan for approximately $9.5 million which was fully funded by plan assets. The annuity contracts purchased will result in a settlement gain of approximately $0.9 million that will be recorded in the first quarter of 2022. The remaining surplus of the plan will be used, as prescribed in the applicable regulations, to fund future contributions to the defined contribution plan at Flavors & Ingredients.
The following table reconciles the funded status of the Company’s defined benefit pension plans (in thousands):
(Successor) From June 26, 2020 to (Predecessor)
Year Ended December 31, 2021 From June 26, 2020 to December 31, 2020 From January 1, 2020 to
June 25, 2020
Accumulated benefit obligations $ 20,314  $ 41,112  $ 39,792 
Changes in projected benefit obligations:
Projected benefit obligations at beginning of year $ 41,112  $ 39,879  $ 37,854 
Service cost 63  94  41 
Interest cost 1,047  545  593 
Actuarial (gain) loss (1,054) 1,568  1,826 
Benefits paid (20,854) (974) (435)
Projected benefit obligations at end of year 20,314  41,112  39,879 
Change in plans’ assets:
Fair value of plans’ assets at beginning of year 33,058  30,674  30,213 
Actual returns on plans’ assets 372  3,195  732 
Employee contributions 326  163  163 
Benefits paid (20,854) (974) (434)
Fair value of plans’ assets at end of year 12,902  33,058  30,674 
Net pension liability $ (7,412) $ (8,054) $ (9,205)
The projected benefit obligation at December 31, 2021 and December 31, 2020 included $9.8 million and $10.3 million, respectively, related to the Company’s unfunded non-qualified plans.
Amounts recognized in the Company’s consolidated and combined balance sheets consisted of (in thousands):
(Successor) (Predecessor)
Year Ended December 31, 2021 From June 26, 2020 to December 31, 2020 From January 1, 2020 to
June 25, 2020
Other assets $ 2,367  $ 2,238  $ 512 
Accrued expenses and other current liabilities (488) (374) (373)
Other liabilities (9,291) (9,918) (9,344)
Net amount recognized $ (7,412) $ (8,054) $ (9,205)
Amounts recognized in accumulated other comprehensive income (loss), net of tax, which have not yet been recognized as a component of net periodic pension expense for the Company’s funded defined benefit pension plans, are as follows (in thousands):
(Successor) (Predecessor)
Year Ended December 31, 2021 From June 26, 2020 to December 31, 2020 From January 1, 2020 to
June 25, 2020
Prior service cost $ —  $ —  $ 169 
Net actuarial (gain) loss (207) (620) 13,997 
$ (207) $ (620) $ 14,166 
As a result of the Business Combination on June 25, 2020, unamortized amounts previously charged to accumulated other comprehensive income (loss) were eliminated.
The components of the changes in unrecognized amounts included in pension obligation, net in other comprehensive income (loss) for the Company’s defined benefit pension plans were as follows (in thousands):
(Successor) (Predecessor)
Year Ended December 31, 2021 From June 26, 2020 to December 31, 2020 From January 1, 2020 to
June 25, 2020
Net actuarial loss $ 527  $ —  $ 1,912 
Amortization of prior service costs —  —  (33)
Amortization of actuarial loss (36) —  (276)
Total loss recognized in other comprehensive income $ 491  $ —  $ 1,603 
The components of net periodic benefit (credit) cost for the Company’s defined benefit pension plans for the Successor and Predecessor were as follows (in thousands):
(Successor) (Predecessor)
Year Ended December 31, 2021 From June 26, 2020 to December 31, 2020 From January 1, 2020 to
June 25, 2020
Year Ended December 31, 2019
Service cost $ 63  $ 94  $ 41  $ 692 
Interest cost 1,047  545  593  1,410 
Expected return on plan assets (1,310) (783) (817) (1,462)
Amortization of prior service cost —  —  33  149 
Amortization of net actuarial loss 36  —  276  1,332 
Settlement/curtailment (income) expense (644) (25) —  317 
Net periodic benefit (credit) cost $ (808) $ (169) $ 126  $ 2,438 
Net periodic benefit (credit) cost is reflected in the Company’s consolidated and combined financial statements as follows for the Successor and Predecessor periods presented (in thousands):
(Successor) (Predecessor)
Year Ended December 31, 2021 From June 26, 2020 to December 31, 2020 From January 1, 2020 to
June 25, 2020
Year Ended December 31, 2019
Cost of goods sold $ —  $ —  $ —  $ 614 
Selling, general and administrative expense 63  69  41  1,824 
Other income (expense), net (871) (238) 85  — 
Net periodic benefit (credit) cost $ (808) $ (169) $ 126  $ 2,438 
Assumptions—The following assumptions were used to determine the benefit obligation at year end and net periodic benefit (credit) cost during the year for the Company’s funded defined benefit pension plan:
(Successor) (Predecessor)
Year Ended December 31, 2021 From June 26, 2020 to December 31, 2020 From January 1, 2020 to
June 25, 2020
Weighted-average assumptions used to determine benefit obligation at year end:
Discount rate (1) 2.38  % 2.61  % 2.85  %
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate 2.61  % 2.85  % 3.25  %
Expected long-term rate of return on plan assets 4.90  % 5.25  % 5.50  %
(1) The discount rate assumption used to determine the benefit obligation at December 31, 2021 was based on blended 7 year and 15 year duration annuity purchase contracts.
The following assumptions were used to determine the benefit obligation at year end and net periodic benefit (credit) cost during the year for the Company’s unfunded supplemental defined benefit pension plan:
(Successor) (Predecessor)
Year Ended December 31, 2021 From June 26, 2020 to December 31, 2020 From January 1, 2020 to
June 25, 2020
Weighted-average assumptions used to determine benefit obligation at year end:
Discount rate 2.78  % 2.42  % 2.64  %
Rate of compensation increase 3.50  % 3.50  % 3.50  %
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate 2.42  % 2.64  % 3.25  %
Rate of compensation increase 3.50  % 3.50  % 3.50  %
The Company bases the discount rate assumption on current investment yields of high quality fixed income investments during the retirement benefits maturity period. The rate of increase in future compensation assumptions reflects the Company’s long-term actual experience and future and near-term outlook.
The Company considers a number of factors to determine its expected rates of return on the assets in its plan, including, without limitation, historical performance of the plan assets, investment style, asset allocations and other third-party studies and surveys. The Company considered the plan portfolio’s asset allocation over a variety of time periods and compared them with third-party studies and reviewed performance of the capital markets in recent years and other factors and advice from various third parties, such as the pension plan’s advisors, investment managers and actuaries. While the Company considered recent performance and the historical performance of its plan assets, the Company’s assumptions are based primarily on its estimates of long-term, prospective rates of return. Differences between actual and expected asset returns are recognized in the net periodic benefit cost over the remaining service period of the active participating employees.
Plan Assets—The investment committee for the Company’s plan adopted investment policies with the objective of meeting and exceeding over time, the expected long-term rate of return on plan assets assumptions, weighted against a reasonable risk level and considering the appropriate liquidity levels. In connection with this objective, in 2021 and 2020 the plan’s assets were mainly invested in mutual funds, common and collective funds, corporate bonds, government bonds, private equity funds, as well as a real estate fund, in order to achieve the Company’s goals to enhance the expected returns of its investments together with their liquidity and protect the plan’s funded status. As a result of the planned termination of the qualified pension plan, certain of the plan’s assets were liquidated during the fourth quarter of 2021 and used to satisfy lump sum benefit payments as further described above. Therefore, at December 31, 2021, the plan’s assets were primarily invested in cash and fixed income securities.
The plan had the following target ranges for the asset classes as shown below. The ranges were intended to allow flexibility for allocating assets and rebalancing as needed depending on changes in market values and the investment environment. The strategy utilized was regularly reviewed by the plan’s investment committee, which could have made adjustments to the allocations when allocations fell outside the asset class range.
Target Ranges
Asset classes:
Cash equivalents and other
0% - 17%
Fixed income securities
45% - 100%
Equity securities
0% - 28%
The following tables set forth, by category, the Company’s pension plan assets as of December 31, 2021 and December 31, 2020, using the fair value hierarchy established under ASC Topic 820 and as described in Note 9. The fair value hierarchy in the tables excludes certain investments which are valued using Net Asset Value (“NAV”) as a practical expedient (in thousands):
Pension Plan Assets as of December 31, 2021
Level 1 Level 2 Level 3 Total
Pension plan assets measured at fair value:
Cash and cash equivalents $ 325  $ —  $ —  $ 325 
U.S. Government securities —  6,283  —  6,283 
Corporate bonds —  6,283  —  6,283 
Total pension plan assets measured at fair value $ 325  $ 12,566  $ —  $ 12,891 
Pension plan assets measured at NAV as a practical expedient (1) 11 
Total pension plan assets $ 12,902 
(1)    Certain investments in real estate funds that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets.
Pension Plan Assets as of December 31, 2020
Level 1 Level 2 Level 3 Total
Pension plan assets measured at fair value:
Cash and cash equivalents $ 419  $ —  $ —  $ 419 
Mutual funds 5,374  442  —  5,816 
U.S. Government securities —  3,087  —  3,087 
Municipal/provincial bonds —  296  —  296 
Corporate bonds —  13,408  —  13,408 
Total pension plan assets measured at fair value $ 5,793  $ 17,233  $ —  $ 23,026 
Pension plan assets measured at NAV as a practical expedient (1) 10,032 
Total pension plan assets $ 33,058 
(1)    Certain common/collective trusts, investments in private equity funds and investments in real estate funds that are measured at fair value using the NAV per share practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the table above are intended to permit reconciliation of the fair value hierarchy to the total value of plan assets.
Cash and cash equivalents are stated at cost, which approximates fair market value. Mutual funds are valued at their net asset value quoted in active markets. Common and collective funds, as well as investments in private equity funds, are valued at net asset value as reported by the fund administrator. Within mutual funds and common and collective funds, the assets are invested in a broad range of publicly traded equity securities and publicly traded debt securities ranging from domestic and international treasury issues, corporate debt securities, government agencies debt securities and mortgage-backed and asset-backed issues, in accordance with the plan’s investment policies. Corporate and government bonds are generally valued on the basis of evaluated bids furnished by a pricing service, which determines valuations for normal, institutional size-trading units of such securities using market information, transactions for comparable securities and various relationships between securities. Exchange traded funds, which are investment portfolios that hold a collection of marketable securities designed to track the performance of a specific index (like the S&P 500), are valued at the market price quoted on the particular stock exchange where they are traded. There were no transfers between levels within the three-tier fair value hierarchy in 2021 and 2020.
Contributions—The Company currently does not expect to make further contributions to its funded defined benefit pension plan due to the funded status.
Expected Future Benefit Payments—The projected benefit payments for the funded qualified and unfunded non-qualified defined benefit pension plans are as follows (in thousands):
Qualified Pension Plan Non-qualified Pension Plans
2022 $ 535  $ 488 
2023 515  482 
2024 514  497 
2025 507  503 
2026 501  563 
2027-2031 2,572  2,922 
The Company also participates in certain state-sponsored defined benefit plans covering certain non-U.S. employees with total net liabilities of $3.6 million and $3.3 million as of December 31, 2021 and December 31, 2020, respectively. The primary state-sponsored plan relates to Merisant employees in Switzerland and France, which had pension benefit obligations of $6.9 million and plan assets of $3.4 million as of December 31, 2021 and a pension benefit obligation of $6.3 million and plan assets of $3.0 million as of December 31, 2020. Net periodic pension cost for 2021, for the period June 26, 2020 through December 31, 2020, January 1, 2020 through June 25, 2020, and 2019 was $0.4 million, $0.2 million, $0.3 million, and $0.3 million, respectively.
Defined Contribution Pension Plans—The Company has defined contribution 401(k) plans covering certain eligible domestic employees, as defined by the plans. The plans provide for certain employer matching contributions. The Company recorded compensation expense related to its defined contribution plans of $1.0 million for 2021, $0.2 million for the period from June 26, 2020 to December 31, 2020, and $0.3 million for both the period from January 1, 2020 to June 25 2020 and 2019.