Employee Retirement Plans

12 Months Ended

Jun. 29, 2024

Retirement Benefits [Abstract]

Employee Retirement Plans

Note 15. Employee Retirement Plans

Defined Contribution Plans

In the United States, the Company sponsors the Lumentum 401(k) Retirement Plan (the “401(k) Plan”), a defined contribution plan under the Employee Retirement Income Security Act of 1974 (“ERISA”), which provides retirement benefits for its eligible employees through tax deferred salary deductions. The 401(k) Plan allows employees to contribute up to 50% of their annual compensation, with contributions limited to $23,000 (or $30,500 for employees over 50 years of age) in calendar year 2024 as set by the Internal Revenue Service. Employees are eligible for matching contributions after completing 180 days of service. The Company’s match is contributed on a per-pay-period basis and is based on employees’ before-tax contributions and compensation each pay period. All matching contributions are made in cash and vest immediately under the 401(k) Plan. In fiscal 2024, 2023 and 2022, our contribution expense to the 401(k) Plan was $3.8 million, $3.8 million, and $3.7 million, respectively.

We also have defined contribution plans in most of the other countries in which we operate, either as required by statutory law or as provided by the Company’s supplemental offering. Our contribution expense to all defined contribution plans outside the United States were $7.4 million, $8.1 million, and $7.7 million for fiscal 2024, 2023 and 2022, respectively.

Defined Benefit Plans

The Company sponsors defined benefit pension plans covering employees in Japan, Switzerland and Thailand. Pension plan benefits are based primarily on participants’ compensation and years of service credited as specified under the terms of each country’s plan. Employees are entitled to a lump sum benefit upon retirement or upon certain instances of termination. The funding policy is consistent with the local requirements of each country.

We account for our defined benefit obligations in accordance with the authoritative guidance which requires us to record our obligation to the participants, as well as the corresponding net periodic cost. We determine our obligation to the participants and our net periodic cost using actuarial valuations provided by third-party actuaries. As of June 29, 2024, our projected benefit obligations, net, in Japan, Switzerland and Thailand were $3.6 million, $2.4 million and $3.6 million, respectively. They were recorded in our consolidated balance sheets as accrued payroll and related expenses for the short-term portion while other non-current liabilities for the long-term portion, and represent the total projected benefit obligation (“PBO”) less the fair value of plan assets.

As of June 29, 2024, the defined benefit plans in Switzerland were partially funded, while the defined benefit plans in Japan and Thailand were unfunded.

The change in the benefit obligations of pension plans in Japan, Switzerland, and Thailand, and the change in plan assets in Switzerland were as follows (in millions):

	June 29, 2024		July 1, 2023
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	24.8	$	17.5
Assumed pension liability in Japan in connection with NeoPhotonics acquisition	—		2.2
Service cost	1.9		1.7
Interest cost	0.4		0.3
Plan participants’ contributions	1.1		0.8
Actuarial losses (1)	0.4		0.6
Net benefits payment	(3.3)		1.0
Plan amendments	(0.1)		(0.1)
Foreign exchange impact	(0.7)		0.8
Benefit obligation at end of year	$	24.5	$	24.8
Change in plan assets:
Fair value of plan assets at beginning of year	$	13.4	$	9.8
Actual return on plan assets	0.8		(0.5)
Employer contribution	3.1		1.5
Plan participants’ contribution	1.1		0.8
Net benefits payment	(3.3)		1.0
Foreign exchange impact	(0.2)		0.8
Fair value of plan assets at end of year	$	14.9	$	13.4
Funded status (2)	$	(9.6)	$	(11.4)
Changes in benefit obligations and plan assets recognized in other comprehensive income:
Prior service cost	$	—	$	—
Amortization of accumulated net actuarial loss	—		—
Settlement loss	(0.1)		—
Net actuarial loss (gain)	(0.1)		1.4
	$	(0.2)	$	1.4
Accumulated benefit obligation	$	19.6	$	20.0

(1) Actuarial losses are primarily driven by changes in discount rates.

(2) The current portion of the projected benefit obligation is $1.0 million and $1.2 million, respectively, as of June 29, 2024 and July 1, 2023, which was recorded under accrued payroll and related expenses in the consolidated balance sheets. The non-current portion of the projected benefit obligation is $8.6 million and $10.2 million, respectively, as of June 29, 2024 and July 1, 2023, which was recorded under other non-current liabilities in the consolidated balance sheets. Refer to “Note 7. Balance Sheet Details.”

Net periodic pension costs in Japan, Switzerland and Thailand include the following components for the periods presented (in millions):

	Years Ended
	June 29, 2024		July 1, 2023		July 2, 2022
Service cost	$	1.9	$	1.7	$	1.8
Interest cost	0.4		0.3		0.1
Amortization of prior service cost	(0.1)		(0.1)		(0.1)
Expected return on plan assets	(0.4)		(0.3)		(0.2)
Amortization of net loss	—		—		0.2
Settlement losses	0.1		—		—
Net periodic pension cost	$	1.9	$	1.6	$	1.8

Assumptions

Underlying both the calculation of the projected benefit obligation and net periodic cost are actuarial valuations. These valuations use participant-specific information such as salary, age and assumptions about interest rates, compensation increases and other factors. At a minimum, we evaluate these assumptions annually and make changes as necessary.

The discount rate reflects the estimated rate at which the pension benefits could be effectively settled. In developing the discount rate, we consider the yield available on an appropriate AA or AAA corporate bond index, adjusted to reflect the term of the plan’s liabilities.

The expected return on assets was estimated by using the weighted average of the real expected long-term return (net of inflation) on the relevant classes of assets based on the target asset mix and adding the chosen inflation assumption.

The following table summarizes the weighted-average assumptions used to determine net periodic cost and benefit obligation for our defined benefit plans in Japan, Switzerland and Thailand:

	Years Ended
	June 29, 2024		July 1, 2023
Assumptions used to determine net periodic cost:
Discount rate	2.0	%	2.3	%
Expected long-term return on plan assets	3.0	%	2.5	%
Salary increase rate	3.8	%	4.1	%
Assumptions used to determine benefit obligation at end of year:
Discount rate	1.8	%	1.8	%
Salary increase rate	2.9	%	3.0	%

Fair Value Measurement of Plan Assets

The following table sets forth the plan assets of our defined benefit plan in Switzerland at fair value and the percentage of assets allocations as of June 29, 2024 and July 1, 2023 (in millions, except percentage data):

							Fair value measurement as of June 29, 2024
	Target allocation		Total		Percentage of plan asset		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)
Assets:
Global equity	33	%	$	5.1	32	%	$	—	$	5.1
Fixed income	30	%	4.2		30	%	—		4.2
Alternative investment	13	%	1.9		13	%	—		1.9
Cash	1	%	0.1		1	%	0.1		—
Other assets	23	%	3.6		24	%	—		3.6
Total Assets	100	%	$	14.9	100	%	$	0.1	$	14.8

							Fair value measurement as of July 1, 2023
	Target allocation		Total		Percentage of plan asset		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)
Assets:
Global equity	33	%	$	4.4	32	%	$	—	$	4.4
Fixed income	32	%	4.0		30	%	—		4.0
Alternative investment	12	%	1.7		13	%	—		1.7
Cash	1	%	0.1		1	%	0.1		—
Other assets	22	%	3.2		24	%	—		3.2
Total Assets	100	%	$	13.4	100	%	$	0.1	$	13.3

Our pension assets consist of multiple institutional funds (“pension funds”) of which the fair values are based on the quoted prices of the underlying funds. Pension funds are classified as Level 2 assets since such funds are not directly traded in active markets. Global equity consists of several funds that invest primarily in Swiss and foreign equities; fixed income consists of several funds that invest primarily in investment grade domestic and overseas bonds; alternative investment consists of several funds that invest primarily in hedge funds, infrastructure funds and private equity and debt; and other assets consist of several funds that invest primarily in real estate funds.

Future Benefit Payments

We estimate our expected benefit payments to participants in the defined benefit pension plans based on the same assumptions used to measure our PBO at year-end which includes benefits attributable to estimated future compensation increases.

The following benefit payments are estimated to be paid from our defined benefit pension plans (in millions): 

Fiscal Years	Total
2025	$	1.8
2026	1.3
2027	1.3
2028	1.7
2029	1.4
Next five years	11.4
Total expected benefit payments	$	18.9

We expect to contribute $1.6 million to our defined benefit pension plans in fiscal 2025.