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)	2018			2017			2016
Defined benefit plan:
Interest cost	$	1,522		$	1,527		$	1,621
Actuarial (return) loss on plan assets		(1,361	)		(2,224	)		1,154
Net amortization and deferral		(20	)		1,025			(2,664	)
Net periodic pension cost on defined benefit plan		141			328			111
Defined contribution plans		14,972			14,542			13,300
Total retirement plan cost	$	15,113		$	14,870		$	13,411

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

	2018			2017			2016
To determine benefit obligation:
Discount rate		4.02	%		3.94	%		3.75	%
To determine net periodic pension cost:
Discount rate		3.94	%		3.75	%		4.07	%
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 2018, fiscal 2017 and fiscal 2016 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)	2018			2017
Change in benefit obligation
Benefit obligation, beginning of year	$	39,174		$	41,168
Interest cost		1,522			1,527
Actuarial gain		(1,516	)		(2,459	)
Benefits paid		(1,170	)		(1,062	)
Benefits obligation, end of year	$	38,010		$	39,174

Change in plan assets
Fair value, beginning of year	$	27,022		$	25,566
Actuarial return on plan assets		1,361			2,224
Company contributions		-			294
Benefits paid		(1,171	)		(1,062	)
Fair value, end of year		27,212			27,022
Funded status	$	(10,798	)	$	(12,152	)

Amounts recognized in the consolidated balance sheets consist of:
Other liabilities	$	(10,798	)	$	(12,152	)
Accumulated other comprehensive loss		16,343			17,839

Amounts recognized in accumulated other comprehensive loss consist of:
Net loss		16,343			17,839
Total	$	16,343		$	17,839

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

(in thousands)	2018		2017
Net actuarial gain	$	1,023	$	2,926
Amortization of net loss		473		559
Total recognized in other comprehensive income	$	1,496	$	3,485
Total recognized in net periodic benefit cost and other comprehensive income	$	1,355	$	3,157

The estimated net loss for the defined benefit plan that will be amortized from AOCI into net periodic pension cost during fiscal 2019 is $441,000.

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, 2018:

			Quoted		Significant
			Prices		Other		Significant
			in Active		Observable		Unobservable
			Markets		Inputs		Inputs
(in thousands)	Fair Value		(Level 1)		(Level 2)		(level 3)
Investment:
Money market funds	$	291	$	291	$	-	$	-
Bond funds		14,887		14,887		-		-
Equity funds		12,034		12,034		-		-
Total	$	27,212	$	27,212	$	-	$	-

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:

			Quoted		Significant
			Prices		Other		Significant
			in Active		Observable		Unobservable
			Markets		Inputs		Inputs
(in thousands)	Fair Value		(Level 1)		(Level 2)		(level 3)
Investment:
Money market funds	$	294	$	294	$	-	$	-
Bond funds		14,613		14,613		-		-
Equity funds		12,115		12,115		-		-
Total	$	27,022	$	27,022	$	-	$	-

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,			May 31,
	2018			2017
Asset category:
Equity securities		44	%		45	%
Debt securities		55	%		54	%
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 defined benefit plan’s liability growth rate; and (iii) to include a diversified asset allocation of domestic and international equities and fixed income investments. We have already contributed $104,000 in fiscal 2019 and have five contributions planned for fiscal 2019 totaling $876,000.

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

(in thousands)
2019	$	1,223
2020	$	1,237
2021	$	1,275
2022	$	1,382
2023	$	1,476
2024-2028	$	9,066

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 $6,561,000 and $6,149,000 at May 31, 2018 and 2017, respectively, and was included in other liabilities on the consolidated balance sheets. Net periodic pension cost for these plans was $601,000, $554,000, and $617,000, for fiscal 2018, fiscal 2017 and fiscal 2016, respectively. The assumed salary rate increase was 2.75%, 2.75%, and 2.75% for fiscal 2018, fiscal 2017 and fiscal 2016, respectively. The discount rate at May 31, 2018, 2017 and 2016 was 1.80%, 1.60%, and 1.75%, 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.