8. Employee Benefit Plans

Defined Benefit Plans

Prior to January 1, 2000, the pension plan for domestic salaried and non-union hourly employees had a benefit formula based primarily on years of service and compensation. Effective January 1, 2000, we converted our defined benefit plan for substantially all domestic salaried and certain hourly employees to a cash balance pension plan. Under the cash balance pension plan, the retirement benefit is expressed as a dollar amount in an account that grows with annual pay-based credits and interest on the account balance. The interest crediting rate under our cash balance plan is determined quarterly and is equal to 100% of the average 30-year treasury rate for the second month preceding the applicable quarter published by the Internal Revenue Service. The average interest crediting rate under our cash balance plan for the fiscal year ended May 31, 2015 was 4.5%. Effective June 1, 2005, the existing cash balance plan was frozen and the annual pay-based credits were discontinued. Also effective June 1, 2005, the defined contribution plan was modified to include increased employer contributions and an enhanced profit sharing formula. Defined pension benefits for certain union hourly employees are based primarily on a fixed amount per year of service.

We also have a defined benefit pension plan covering certain employees in the Netherlands. Certain foreign subsidiaries of Telair Cargo Group also maintained defined benefit pension plans in Germany and Norway with the plans' assets and obligations transferred to the new owners upon the closing of the Telair Cargo Group sale. Benefit formulas are based generally on years of service and compensation. It is the policy of these subsidiaries to fund at least the minimum amounts required by local laws and regulations.

We provide eligible outside directors with benefits upon retirement on or after age 65 provided they have completed at least five years of service as a director. Benefits are paid quarterly in cash equal to 25% of the annual retainer fee payable to active outside directors. Payment of benefits commences upon retirement and continues for a period equal to the total number of years of the retired director's service up to a maximum of ten years, or death, whichever occurs first. In fiscal 2001, we terminated this plan for any new members of the Board of Directors first elected after May 31, 2001. No current directors participate in this plan.

The change to our projected benefit obligation and the fair value of our plan assets for our pension plans in the United States and other countries was as follows:

	May 31,
	2015			2014
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	141.9		$	130.2
Sale of Telair Cargo Group		(5.1	)		—
Service cost		2.0			2.2
Interest cost		4.8			5.1
Participant contributions		0.3			0.4
Net actuarial loss		21.7			5.7
Benefit payments		(6.4	)		(5.1	)
Plan change		(1.4	)		0.6
Foreign currency adjustment		(12.9	)		2.8

Projected benefit obligation at end of year	$	144.9		$	141.9

Change in the fair value of plan assets:
Fair value of plan assets at beginning of year	$	116.0		$	101.6
Actual return on plan assets		12.5			10.5
Employer contributions		4.6			6.2
Participant contributions		0.3			0.4
Benefit payments		(6.4	)		(5.1	)
Foreign currency adjustment		(11.2	)		2.4

Fair value of plan assets at end of year	$	115.8		$	116.0

Funded status at end of year	$	(29.1	)	$	(25.9	)

Amounts recognized in the Consolidated Balance Sheets consisted of the following:

	May 31,
	2015			2014
Accrued liabilities	$	(3.5	)	$	(3.4	)
Other liabilities and deferred income		(25.6	)		(22.5	)

Funded status at end of year	$	(29.1	)	$	(25.9	)

Amounts recognized in accumulated other comprehensive loss at May 31, 2015 and 2014, respectively, consisted of the following:

	May 31,
	2015			2014
Actuarial loss	$	60.2		$	51.2
Prior service cost (credit)		(0.3	)		1.4

Total	$	59.9		$	52.6

For all of our pension plans, both the projected benefit obligation and the accumulated benefit obligation are in excess of the individual plans' assets. The accumulated benefit obligation for all pension plans was $136.6 million and $134.4 million as of May 31, 2015 and 2014, respectively.

Net Periodic Benefit Cost

Pension expense charged to the Consolidated Statements of Income includes the following components:

	For the Year Ended May 31,
	2015			2014			2013
Service cost	$	2.0		$	2.1		$	1.9
Interest cost		4.8			4.9			4.8
Expected return on plan assets		(6.0	)		(5.8	)		(6.0	)
Curtailment		0.2			—			—
Amortization of prior service cost		0.2			0.1			0.2
Recognized net actuarial loss		1.8			1.9			1.8

	$	3.0		$	3.2		$	2.7

The estimated amounts to be amortized from accumulated other comprehensive loss into expense during fiscal 2016 are as follows:

Net actuarial loss	$	2.3
Prior service cost		0.1

Total	$	2.4

Assumptions

The assumptions used in accounting for our plans are estimates of factors including, among other things, the amount and timing of future benefit payments. The following table presents the key weighted-average assumptions used in the measurement of our projected benefit obligations:

	May 31,
	2015			2014
Discount rate:
Domestic plans		4.15	%		4.23	%
International plans		1.90			3.20
Rate of compensation increase:
Domestic plans		2.50	%		2.50	%
International plans		3.00			3.00

A summary of the weighted-average assumptions used to determine net periodic pension expense is as follows:

	For the Year Ended May 31,
	2015			2014			2013
Discount rate:
Domestic plans		4.23	%		4.29	%		4.14	%
International plans		1.90			3.70			4.20
Rate of compensation increase:
Domestic plans		2.50	%		2.50	%		2.50	%
International plans		3.00			3.00			3.00
Expected long-term rate on plan assets:
Domestic plans		7.50	%		7.50	%		8.00	%
International plans		4.00			3.70			4.20

The discount rate was determined by projecting the expected future benefit payments as defined for the projected benefit obligation, discounting those expected payments using a theoretical zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date, and solving for the single equivalent discount rate that resulted in the same projected benefit obligation.

Plan Assets

The following table sets forth the actual asset allocation and target allocations for our U.S. pension plans:

	May 31,
	May 31,						Target Asset Allocation
	2015			2014			Target Asset Allocation
Equity securities		60	%		64	%		45 - 75	%
Fixed income securities		16			17			15 - 25	%
Other		24			19			0 - 25	%

		100	%		100	%

The assets of U.S pension plans are invested in compliance with the Employee Retirement Income Security Act of 1974. The investment goals are to provide a total return that, over the long term, optimizes the long-term return on plan assets at an acceptable risk, and to maintain a broad diversification across asset classes and among investment managers. We believe that there are no significant concentrations of risk within our plan assets as of May 31, 2015. Direct investments in our securities and the use of derivatives for the purpose of speculation are not permitted. The assets of the U.S. pension plans are invested primarily in equity and fixed income mutual funds, individual common stocks, and fund-of-funds hedge funds. The assets of the non-domestic plan are invested in funds-of-funds where each fund holds a portfolio of equity and fixed income mutual funds.

To develop our expected long-term rate of return assumption on domestic plans, we use long-term historical return information for our targeted asset mix and current market conditions. The expected return for each asset class is weighted based on the target asset allocation to develop the expected long-term rate of return on plan assets assumption. The actual return on plan assets for the years ending May 31, 2015 and 2014 has exceeded our projected long-term rate of return on assets due to strong corporate bond and equity markets that generated asset returns in excess of historical trends and have exceeded the returns we expect these assets to achieve over the long-term.

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair value as of May 31, 2015:

	Level 11		Level 22		Level 33		Total
Equity securities:
U.S. common stock	$	3.3	$	—	$	—	$	3.3
U.S. mutual funds		26.8		—		—		26.8
International common stock		0.1		—		—		0.1
International mutual funds		9.1		—		—		9.1
Fixed income:
Government securities and corporate bond mutual funds		10.3		—		—		10.3
Funds-of-funds		—		49.1		8.0		57.1
Hedge funds		—		—		7.1		7.1
Cash and cash equivalents		2.0		—		—		2.0

Total investments	$	51.6	$	49.1	$	15.1	$	115.8

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair value as of May 31, 2014:

	Level 11		Level 22		Level 33		Total
Equity securities:
U.S. common stock	$	6.5	$	—	$	—	$	6.5
U.S. mutual funds		24.0		—		—		24.0
International common stock		0.6		—		—		0.6
International mutual funds		9.1		—		—		9.1
Fixed income:
Government securities and corporate bond mutual funds		11.0		—		—		11.0
Funds-of-funds		—		50.6		7.5		58.1
Hedge funds		—		—		3.6		3.6
Cash and cash equivalents		3.1		—		—		3.1

Total investments	$	54.3	$	50.6	$	11.1	$	116.0

Quoted prices in active markets for identical assets that we have the ability to access as of the reporting date.

Inputs other than quoted prices included within Level 1 that are directly observable for the asset or indirectly observable through corroboration with observable market data.

Unobservable inputs, such as internally developed pricing models or third party valuations for the asset due to little or no market activity for the asset.

The following table presents the reconciliation of Level 3 pension assets measured at fair value for the fiscal years ended May 31, 2015 and 2014:

	Hedge Funds			Fund-of-funds			Total
Balance as of May 31, 2013	$	2.4		$	7.7		$	10.1
Sales		(2.4	)		(2.3	)		(4.7	)
Purchases		3.6			1.8			5.4
Return on plan assets related to:
Assets sold by May 31, 2014		—			(0.3	)		(0.3	)
Assets still held at May 31, 2014		—			0.6			0.6

Balance as of May 31, 2014		3.6			7.5			11.1
Purchases		3.2			—			3.2
Return on plan assets related to assets still held at May 31, 2015		0.3			0.5			0.8

Balance as of May 31, 2015	$	7.1		$	8.0		$	15.1

Valuation Techniques Used to Determine Fair Value

Cash equivalents are investments with maturities of three months or less when purchased. The fair values are based on observable market prices and categorized as Level 1.

With respect to individually held equity securities, including investments in U.S. and international securities, the trustees obtain prices from pricing services, whose prices are obtained from direct feeds from market exchanges, which we are able to independently corroborate. Equity securities held individually are primarily traded on exchanges that contain only actively traded securities, due to the volume trading requirements imposed by these exchanges. Equity securities are valued based on quoted prices in active markets and categorized as Level 1.

Equity and fixed income mutual funds are maintained by investment companies that hold certain investments in accordance with a stated set of fund objectives, which are consistent with our overall investment strategy. The values of some of these funds are publicly quoted. For equity and fixed income mutual funds which are publicly quoted, the funds are valued based on quoted prices in active markets and have been categorized as Level 1. For equity and fixed income mutual funds which are not publicly quoted, the fund administrators value the funds using the net asset value per fund share, derived from quoted prices in active markets of the underlying securities. These funds have been categorized as Level 2. As our funds-of-funds investments are also derived from quoted prices in active markets, we have categorized the funds-of-funds investments as Level 2.

Hedge fund investments include those seeking to maximize absolute returns using a broad range of strategies to enhance returns and provide additional diversification. The fair value of hedge funds is determined using net asset value or its equivalent subject to certain restrictions, such as a lock-up period. As we may be limited in our ability to redeem the investments at the measurement date or within a reasonable period of time, the hedge fund investments are categorized as Level 3.

Future Benefit Payments and Funding

The following table summarizes our estimated future pension payments by fiscal year:

	Fiscal Year
	2016		2017		2018		2019		2020		2021 to 2025
Estimated future pension payments	$	10.5	$	5.3	$	5.8	$	5.5	$	5.9	$	31.6

Our contribution policy for the domestic plans is to contribute annually, at a minimum, an amount which is deductible for federal income tax purposes and that is sufficient to meet actuarially computed pension benefits. We anticipate contributing approximately $3.5 million during fiscal 2016.

Postretirement Benefits Other Than Pensions

We provide health and life insurance benefits for certain eligible retirees. The postretirement plan is unfunded and in fiscal 1995, we completed termination of postretirement health and life insurance benefits attributable to future services of collective bargaining and other domestic employees. The unfunded projected benefit obligation for this plan was $1.0 million and $0.9 million as of May 31, 2015 and 2014, respectively. We have omitted substantially all of the required disclosures related to this plan because the plan is not material to our consolidated financial position or results of operations.

Defined Contribution Plan

The defined contribution plan is a profit sharing plan which is intended to qualify as a 401(k) plan under the Internal Revenue Code. Under the plan, employees may contribute up to 75% of their pretax compensation, subject to applicable regulatory limits. We may make matching contributions up to 5% of compensation as well as discretionary profit sharing contributions. Our contributions vest on a pro-rata basis during the first three years of employment. We also provide profit sharing benefits for certain executives and key employees to supplement the benefits provided by the defined contribution plan. Expense charged to the Consolidated Statements of Income for our matching contributions, including profit sharing contributions, was $11.9 million in fiscal 2015, $11.8 million in fiscal 2014 and $13.0 million in fiscal 2013 for these plans.