Note K – Employee Pension Plans

We provide retirement benefits to employees mainly through defined contribution retirement plans. Eligible participants make pre-tax contributions based on elected percentages of eligible compensation, subject to annual addition and other limitations imposed by the Internal Revenue Code and the various plans’ provisions. Company contributions consist of company matching contributions, annual or monthly employer contributions and discretionary contributions, based on individual plan provisions.

We also have one defined benefit plan, The Gerstenslager Company Bargaining Unit Employees’ Pension Plan (the “Gerstenslager Plan” or “defined benefit plan”). The Gerstenslager Plan is a non-contributory pension plan, which covers certain employees based on age and length of service. Our contributions have complied with ERISA’s minimum funding requirements. Effective May 9, 2011, in connection with the formation of the ArtiFlex joint venture, the Gerstenslager Plan was frozen, which qualified as a curtailment under the applicable accounting guidance. We did not recognize a gain or loss in connection with the curtailment of the Gerstenslager Plan.

The following table summarizes the components of net periodic pension cost for the defined benefit plan and the defined contribution plans for the years ended May 31:


(in thousands)	2017			2016			2015
Defined benefit plan:
Interest cost	$	1,527		$	1,621		$	1,541
Actuarial (return) loss on plan assets		(2,224	)		1,154			(1,846	)
Net amortization and deferral		1,025			(2,664	)		51

Net periodic pension cost (benefit) on defined benefit plan		328			111			(254	)
Defined contribution plans		14,542			13,300			13,270

Total retirement plan cost	$	14,870		$	13,411		$	13,016

The following actuarial assumptions were used for our defined benefit plan:


	2017			2016			2015
To determine benefit obligation:
Discount rate		3.94	%		3.75	%		4.07	%
To determine net periodic pension cost:
Discount rate		3.75	%		4.07	%		4.38	%
Expected long-term rate of return		7.00	%		7.00	%		7.00	%
Rate of compensation increase		n/a			n/a			n/a

To calculate the discount rate we used the expected cash flows of the benefit payments and the Citigroup Pension Index. The Gerstenslager Plan’s expected long-term rate of return in fiscal 2017, fiscal 2016 and fiscal 2015 was based on the actual historical returns adjusted for a change in the frequency of lump-sum settlements upon retirement. In determining our benefit obligation, we use the actuarial present value of the vested benefits to which each eligible employee is currently entitled, based on the employee’s expected date of separation or retirement.

The following tables provide a reconciliation of the changes in the projected benefit obligation and fair value of plan assets and the funded status of the Gerstenslager Plan as of, and for the fiscal years ended May 31:


(in thousands)	2017			2016
Change in benefit obligation
Benefit obligation, beginning of year	$	41,168		$	40,227
Interest cost		1,527			1,621
Actuarial (gain) loss		(2,459	)		759
Benefits paid		(1,062	)		(1,439	)

Benefit obligation, end of year	$	39,174		$	41,168

Change in plan assets
Fair value, beginning of year	$	25,566		$	28,159
Actual return (loss) on plan assets		2,224			(1,154	)
Company contributions		294			-
Benefits paid		(1,062	)		(1,439	)

Fair value, end of year	$	27,022		$	25,566

Funded status	$	(12,152	)	$	(15,602	)

Amounts recognized in the consolidated balance sheets consist of:
Other liabilities	$	(12,152	)	$	(15,602	)
Accumulated other comprehensive loss		17,839			21,324
Amounts recognized in accumulated other comprehensive loss consist of:
Net loss		17,839			21,324

Total	$	17,839		$	21,324

The following table shows other changes in plan assets and benefit obligations recognized in OCI during the fiscal years ended May 31:


(in thousands)	2017		2016
Net actuarial gain (loss)	$	2,926	$	(3,858	)
Amortization of net loss		559		434

Total recognized in other comprehensive income (loss)	$	3,485	$	(3,424	)

Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	3,157	$	(3,535	)

The estimated net loss for the defined benefit plan that will be amortized from AOCI into net periodic pension cost during fiscal 2018 is $473,000.

Pension plan assets are required to be disclosed at fair value in the consolidated financial statements. Fair value is defined in “Note Q – Fair Value Measurements.” The pension plan assets’ fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following table sets forth, by level within the fair value hierarchy, a summary of the defined benefit plan’s assets measured at fair value on a recurring basis at May 31, 2017:


(in thousands)	Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment:
Money Market Funds	$	294	$	294	$	-	$	-
Bond Funds		14,613		14,613		-		-
Equity Funds		12,115		12,115		-		-

Totals	$	27,022	$	27,022	$	-	$	-

The following table sets forth, by level within the fair value hierarchy, a summary of the defined benefit plan’s assets measured at fair value on a recurring basis at May 31, 2016:


(in thousands)	Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment:
Money Market Funds	$	340	$	340	$	-	$	-
Bond Funds		12,435		12,435		-		-
Equity Funds		12,791		12,791		-		-

Totals	$	25,566	$	25,566	$	-	$	-

Fair values of the money market, bond and equity funds held by the defined benefit plan were determined by quoted market prices.

Plan assets for the defined benefit plan consisted principally of the following as of the respective measurement dates:


	May 31, 2017			May 31, 2016
Asset category:
Equity securities		45	%		50	%
Debt securities		54	%		49	%
Other		1	%		1	%

Total		100	%		100	%

Equity securities include no employer stock. The investment policy and strategy for the defined benefit plan is: (i) long-term in nature with liquidity requirements that are anticipated to be minimal due to the projected normal retirement date of the average employee and the current average age of participants; (ii) to earn nominal returns, net of investment fees, equal to or in excess of the actuarial assumptions of the plan; and (iii) to include a strategic asset allocation of 60%-80% equities, including international, and 20%-40% fixed income investments. No employer contributions are expected to be made to the defined benefit plan during fiscal 2018.

The following estimated future benefits, which reflect expected future service, as appropriate, are expected to be paid during the fiscal years noted:


(in thousands)
2018	$	1,076
2019	$	1,145
2020	$	1,187
2021	$	1,268
2022	$	1,398
2023-2027	$	8,751

Commercial law requires us to pay severance and service benefits to employees at our Austrian Pressure Cylinders location. Severance benefits must be paid to all employees hired before December 31, 2002. Employees hired after that date are covered under a governmental plan that requires us to pay benefits as a percentage of compensation (included in payroll tax withholdings). Service benefits are based on a percentage of compensation and years of service. The accrued liability for these unfunded plans was $6,149,000 and $5,939,000 at May 31, 2017 and 2016, respectively, and was included in other liabilities on the consolidated balance sheets. Net periodic pension cost for these plans was $554,000, $617,000, and $718,000, for fiscal 2017, fiscal 2016 and fiscal 2015, respectively. The assumed salary rate increase was 2.75%, 2.75%, and 3.0% for fiscal 2017, fiscal 2016 and fiscal 2015, respectively. The discount rate at May 31, 2017, 2016 and 2015 was 1.60%, 1.75%, and 1.60%, respectively. Each discount rate was based on a published corporate bond rate with a term approximating the estimated benefit payment cash flows and is consistent with European and Austrian regulations.