13. Employee Retirement Plans

Pension benefits

The Company sponsored qualified defined-benefit plans, including the Douglas Dynamics, L.L.C Pension Plan for Hourly Employees (“hourly plan”) and the Douglas Dynamics, L.L.C Salaried Pension Plan (“salaried plan”). The salaried plan generally provided pension benefits that were based on the employee’s average earnings and credited service. Such plan was partially frozen as of December 31, 2011 and subsequently was completely frozen as of December 31, 2018. The hourly plan generally provided benefits of stated amounts for each year of service. Such plan was frozen as of December 31, 2011. Consistent with its long term plans, the Company terminated its hourly plan and salaried plan during the fourth quarter of 2019. In October of 2019, lump-sum settlement payments of $3,245 and $12,476 were made from the hourly plan and salaried plan, respectively, in conjunction with the termination of these plans. In satisfaction of its obligations, in November of 2019 the Company

purchased annuities of $4,767 and $20,044 for hourly plan and salaried plan participants, respectively. The Company recognized a non-cash charge within the Consolidated Statements of Income related to unrecognized actuarial losses in AOCL of $6,380.

The reconciliation of the beginning and ending balances of the fair value of plan assets, funded status of plans, and amounts recognized in the consolidated balance sheets consisted of the following:

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The components of net periodic pension cost consisted of the following for the years ended December 31,

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The accumulated benefit obligation for all pension plans as of December 31, 2019 and 2018, was $0 and $40,182, respectively.

The Company used December 31 as its measurement date for all periods presented. Assumptions used in determining net periodic pension cost for the plans consisted of the following:

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The discount rate used to determine the benefit obligation at December 31, 2018 was 4.2% for both the hourly and salaried pension plans.

The Company made required minimum pension funding contributions of $0 to the pension plans in 2019 as a result of the $7,000 in voluntary contributions in 2018. In conjunction with the termination of the plans, the Company made payments of $464 in the fourth quarter of 2019.

Historically, the Company maintained target allocation percentages among various asset classes based on an investment policy established for the pension plans, which was designed to achieve long-term objectives of return, while mitigating downside risk and considering expected cash flows. The weighted-average target asset allocations were reflective of actual investments at December 31, 2018. The investment policy was reviewed periodically in order to achieve overall objectives in light of current circumstances. In the year ended December 31, 2018, the Company rebalanced its investments to fixed income and cash equivalents in conjunction with the changes in funding status resulting from the $7.0 million voluntary contribution.

The Company’s weighted-average asset allocation and actual allocation for the qualified hourly pension plan by asset category at December 31, 2018 is as follows:

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The Company’s weighted-average asset allocation and actual allocation for the qualified salaried pension plan by asset category at December 31 is as follows:

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Historically, the investment strategy was to build an efficient, well-diversified portfolio based on a long-term, strategic outlook of the investment markets. The investment market outlook utilized both historical-based and forward-looking return forecasts to establish future return expectations for various asset classes. These return expectations are used to develop a core asset allocation based on the needs of the plan. The core asset allocation utilizes investment portfolios of various asset classes and multiple investment managers in order to help maximize the plan’s return while providing multiple layers of diversification to help minimize risk. As a result of the change in funding status in the year ended 2018, the Company rebalanced its investments to minimize market risk.

Postretirement benefits

The Company provides postretirement healthcare benefits for certain employee groups. The postretirement healthcare plans are contributory and contain certain other cost-sharing features such as deductibles and coinsurance. The plans are unfunded. Employees do not vest until they retire from active employment with the Company and have at least twelve years of service. These benefits can be amended or terminated at any time and are subject to the same ongoing changes as the Company’s healthcare benefits for employees with respect to deductible, co-insurance and participant contributions. Postretirement benefits of $6,486 and $6,338 as of December 31, 2020 and December 31, 2019, respectively, are included in Retiree benefits and deferred compensation in the Consolidated Balance Sheets. Postretirement benefits of $250 and $200 as of December 31, 2020 and December 31, 2019, respectively, are included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Effective January 1, 2004, the postretirement healthcare benefits were extended to all active employees of the Company as of December 31, 2003. The period of coverage was reduced and the retiree contribution percentage was increased in order to keep the cost of the plan equivalent to the previous plan design.

Maximum coverage under the plan is limited to ten years. All benefits terminate upon the death of the retiree. Employees who began working for the Company after December 31, 2003, are not eligible for postretirement healthcare benefits.

The reconciliation of the beginning and ending balances of the projected benefit obligation for the Company consisted of the following:

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The components of postretirement healthcare benefit cost consisted of the following for the year ended December 31,

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The assumed discount and healthcare cost trend rates are summarized as follows:

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The discount rate used to determine the benefit obligation at December 31, 2020 and 2019 is 2.1% and 3.0%, respectively. For December 31, 2020, the health care cost trend rate is assumed to be 7.0% beginning in 2020 gradually reducing to an ultimate rate of 4.5% in 2029. For December 31, 2019, the health care cost trend rate is assumed to be 6.8% beginning in 2019 gradually reducing to an ultimate rate of 4.5% in 2028. For December 31, 2018, the health care cost trend rate is assumed to be 6.8%  beginning in 2018 gradually reducing to an ultimate rate of 4.5% in 2027.

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No actuarial gains (losses) remain in accumulated other comprehensive loss related to pension due to the termination of the plans. The amount included in accumulated other comprehensive loss, net of tax, at December 31, 2020, which has not yet been recognized in net periodic OPEB cost was a net actuarial gain of $2,113.

Defined contribution plan

The Company has a defined contribution plan, which qualifies under Section 401(k) of the Internal Revenue Code and provides substantially all employees an opportunity to accumulate personal funds for their retirement. Contributions are made on a before-tax basis to the plan and are invested, at the employees’ direction, among a variety of investment alternatives including, commencing January 1, 2013, a Company common stock fund designated as an employee stock ownership plan.

As determined by the provisions of the plan, the Company matches a portion of the employees’ basic voluntary contributions. There were certain plan design changes in the year ended December 31, 2019 which changed the nature of the Company match. The Company matching contributions to the plan were approximately $3,899, $3,627 and $1,700 for the years ended December 31, 2020, 2019 and 2018, respectively. Beginning January 1, 2012, the Company amended its defined contribution plan to permit non-discretionary employer contributions. The Company made non-discretionary employer contributions of $0, $0 and $1,237 in the years ended December 31, 2020, 2019 and 2018, respectively. The Company merged the separate Henderson plan into the Douglas Dynamics, L.L.C. 401(k) plan in 2016.  The Company merged the separate Dejana plan into the Douglas Dynamics, L.L.C. 401(k) plan in 2018.

Non-qualified plan

The Company also maintains a supplemental non-qualified plan for certain officers and other key employees. Expense for this plan was $523, $553 and $542 for the years ended December 31, 2020, 2019 and 2018, respectively. The amount accrued was $9,318, $7,679 and $5,243 as of December 31, 2020, 2019 and 2018, respectively and is included in Retiree benefits and deferred compensation on the Consolidated Balance Sheets. Amounts were determined based on the fair value of the liability at December 31, 2020, 2019 and 2018, respectively.  The Company holds assets that are substantially equivalent to the liability and are intended to fund the liability. Non-qualified plan assets of $9,041 and $7,270 at December 31, 2020 and December 31, 2019, respectively, are included as Non-qualified benefit plan assets on the Consolidated Balance Sheets.