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SEC Filings

10-Q
GRAHAM HOLDINGS CO filed this Form 10-Q on 11/01/2017
Entire Document
 


8. PENSION AND POSTRETIREMENT PLANS
Defined Benefit Plans. The total benefit arising from the Company’s defined benefit pension plans consists of the following components:
  
Three Months Ended September 30
 
Nine Months Ended September 30
(in thousands)
2017
 
2016
 
2017
 
2016
Service cost
$
4,591

 
$
5,040

 
$
14,096

 
$
15,422

Interest cost
11,980

 
12,845

 
35,945

 
38,763

Expected return on assets
(30,338
)
 
(30,348
)
 
(91,078
)
 
(91,122
)
Amortization of prior service cost
42

 
74

 
128

 
223

Recognized actuarial gain
(1,039
)
 

 
(3,372
)
 

Net Periodic Benefit
(14,764
)
 
(12,389
)
 
(44,281
)
 
(36,714
)
Special separation benefit expense
932

 

 
932

 

Total Benefit
$
(13,832
)
 
$
(12,389
)
 
$
(43,349
)
 
$
(36,714
)
In the third quarter of 2017, the Company recorded $0.9 million related to a Separation Incentive Program for certain Forney employees, which will be funded from the assets of the Company's pension plan.
The total cost arising from the Company’s Supplemental Executive Retirement Plan (SERP) consists of the following components:
  
Three Months Ended September 30
 
Nine Months Ended September 30
(in thousands)
2017
 
2016
 
2017
 
2016
Service cost
$
214

 
$
246

 
$
643

 
$
738

Interest cost
1,059

 
1,096

 
3,175

 
3,288

Amortization of prior service cost
114

 
114

 
342

 
342

Recognized actuarial loss
444

 
665

 
1,331

 
1,995

Net Periodic Cost
$
1,831

 
$
2,121

 
$
5,491

 
$
6,363

Defined Benefit Plan Assets. The Company’s defined benefit pension obligations are funded by a portfolio made up of a U.S. stock index fund, a relatively small number of stocks and high-quality fixed-income securities that are held by a third-party trustee. The assets of the Company’s pension plan were allocated as follows:
  
As of
  
September 30,
2017
 
December 31,
2016
  
 
U.S. equities
51
%
 
53
%
U.S. stock index fund
32
%
 
30
%
U.S. fixed income
11
%
 
11
%
International equities
6
%
 
6
%
  
100
%
 
100
%
The Company manages approximately 45% of the pension assets internally, of which the majority is invested in a U.S. stock index fund with the remaining investments in Berkshire Hathaway stock and short-term fixed income securities. The remaining 55% of plan assets are managed by two investment companies. The goal for the investments is to produce moderate long-term growth in the value of these assets, while protecting them against large decreases in value. Both investment managers may invest in a combination of equity and fixed-income securities and cash. The managers are not permitted to invest in securities of the Company or in alternative investments. The investment managers cannot invest more than 20% of the assets at the time of purchase in the stock of Berkshire Hathaway or more than 10% of the assets in the securities of any other single issuer, except for obligations of the U.S. Government, without receiving prior approval from the Plan administrator. As of September 30, 2017, the investment managers can invest no more than 23% of the assets they manage in specified international exchanges, at the time the investment is made, and no less than 10% of the assets could be invested in fixed-income securities.
In determining the expected rate of return on plan assets, the Company considers the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance. In addition, the Company may consult with and consider the input of financial and other professionals in developing appropriate return benchmarks.
The Company evaluated its defined benefit pension plan asset portfolio for the existence of significant concentrations (defined as greater than 10% of plan assets) of credit risk as of September 30, 2017. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type

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