Employee Retirement Plans

12 Months Ended

May 31, 2024

Retirement Benefits [Abstract]

Employee Retirement Plans

Note L – Employee Retirement Plans

Defined Contribution Retirement Plan

The Company provides retirement benefits to eligible employees primarily through a defined contribution retirement plan. Prior to the Separation, eligible employees of Worthington Steel had historically received benefits through the Former Parent’s defined contribution retirement plans. As a result of the Separation, the Worthington Steel, Inc. 401(k) Retirement Savings Plan (the “401(k) Plan”) was established, and new accounts within the 401(k) Plan were created for each of the qualifying plan participants of the Former Parent’s defined contribution retirement plan. As of the Separation date, all future qualifying plan participants’ contributions were attributed to the 401(k) Plan.

The 401(k) Plan is a defined contribution plan covering all non-union U.S. employees of Worthington Steel (and its subsidiaries who are participating employers under the 401(k) Plan) on U.S. payroll who meet the tenure, hour and age requirements specified in the 401(k) Plan. The 401(k) Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”). The trustee for the 401(k) Plan is Fidelity Management Trust Company. Worthington Steel is the sponsor of the 401(k) Plan.

Eligible participants make 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 employer matching contributions, annual or monthly employer contributions and discretionary contributions, based on individual plan provisions. The Company matches 50 cents per dollar of contributions of the first 4% of the 401(k) Plan participants’ compensation. The Company also makes an employer contribution of 3% of compensation on behalf of eligible participants irrespective of the amounts deferred by such participants. As a safe harbor plan, the Company guarantees a minimum contribution of at least 3% of participants’ eligible compensation.

The following table summarizes the defined contribution plan expense for the prior three fiscal years:

(In millions)	2024		2023		2022
Defined contribution plan expense	$	12.3	$	9.8	$	8.8

Defined Benefit Pension Plans

As a result of the Company’s acquisition of Tempel on December 1, 2021, it assumed approximately $40.2 million of net pension and other postretirement benefit obligations under Tempel’s defined benefit domestic funded pension plan, an unfunded supplemental executive retirement (SERP) plan, and a domestic unfunded postretirement plan. Effective December 31, 2010, Tempel froze its defined benefit domestic funded pension plan. Upon retirement, participants in this plan will receive the benefit they had accrued as of July 16, 2018. No further pension benefit will be earned by the participants of this plan after December 31, 2010.

As a result of the Company’s acquisition of Voestalpine Nagold on November 16, 2023, it assumed approximately $0.9 million of net pension benefit obligations under a pre-existing pension obligation of the former company that resulted from a previous contractual arrangement with a prior owner before our acquisition. No further pension benefit will be earned by the participant of this plan, and the participant will begin to receive benefits upon reaching age 65. See “Note O – Acquisitions” for additional information related to the acquisition of Voestalpine Nagold.

Defined benefit pension and OPEB plan obligations are remeasured at least annually as of May 31 based on the present value of projected future benefit payments for all participants for services rendered to date. The measurement of projected future benefits is dependent on the provisions of each specific plan, demographics of the group covered by the plan, and other key measurement assumptions.

Net periodic benefit costs, including service cost, interest cost, and expected return on assets, are determined using assumptions regarding the benefit obligation and the fair value of plan assets as of the beginning of each fiscal year. The funded status of the benefit plans, which represents the difference between the benefit obligation and the fair value of plan assets, is calculated on a plan-by-plan basis. The benefit obligation and related funded status are determined using assumptions as of the end of each fiscal year. Net periodic benefit cost is included in other income (expense) in our consolidated and combined statements of earnings, except for the service cost component, which is recorded in SG&A.

Net Periodic Pension Costs (Income)

The following table summarizes the components of net periodic pension income for the Company’s defined benefit pension plans for the prior three fiscal years:

(In millions)	2024			2023			2022
Defined benefit plans:
Interest cost	$	3.6		$	3.4		$	1.4
Return on plan assets		(4.0	)		(3.9	)		(2.1	)
Net amortization and deferral costs		(0.3	)		(0.1	)		-
Net periodic benefit income	$	(0.7	)	$	(0.6	)	$	(0.7	)

During fiscal 2024 and fiscal 2023, the Company also incurred less than $0.1 million and $0.1 million, respectively, in net periodic benefit cost related to the Tempel Steel Company Postretirement Benefit Plan.

Weighted Average Rates

The following weighted-average assumptions were used to determine the unfunded benefit obligation and net periodic benefit cost:

	2024			2023			2022
Benefit obligation:
Discount rate		5.52	%		4.80	%		4.32	%
Net periodic pension cost:
Discount rate		4.76	%		4.32	%		2.66	%
Expected long-term rate of return		6.50	%		6.50	%		6.50	%

The discount rates used to measure plan liabilities as of the measurement date are determined individually for each plan using actuarial developed yield curves. The discount rates are determined by matching the projected cash flows used to determine the plan liabilities to a projected yield curve of high-quality corporate bonds available at the measurement date. The expected return on plan assets assumption is determined by reviewing the investment returns, as well as longer-term historical returns of an asset mix approximating our asset allocation targets, and periodically comparing these returns to the expectations of investment advisors and actuaries to determine whether long-term future returns are expected to differ significantly from the past.

Funded Status

The following tables provide a reconciliation of the changes in the projected benefit obligation and the fair value of plan assets and the funded status for the Company’s defined benefit plans:

	Pension Benefits						Other Benefits
(In millions)	2024			2023			2024			2023
Change in benefit obligation
Benefit obligation, beginning of year	$	76.9		$	82.3		$	3.4		$	4.1
Service cost		-			-			-			-
Interest cost		3.6			3.4			0.2			0.2
Plan amendments		-			-			-			(0.4	)
Actuarial gain		(5.0	)		(3.1	)		(0.2	)		(0.3	)
Benefits paid		(5.4	)		(5.7	)		(0.3	)		(0.2	)
Benefit obligations acquired		1.0			-			-			-
Benefits obligation, end of year	$	71.1		$	76.9		$	3.1		$	3.4
Change in plan assets
Fair value, beginning of year	$	54.9		$	56.2		$	-		$	-
Return on plan assets		2.3			(0.5	)		-			-
Company contributions		1.6			5.0			0.3			0.2
Benefits paid		(5.4	)		(5.8	)		(0.3	)		(0.2	)
Plan assets acquired		0.1			-			-			-
Fair value, end of year		53.5			54.9			-			-
Funded status	$	(17.6	)	$	(22.0	)	$	(3.1	)	$	(3.4	)
Amounts recognized in our consolidated and combined  balance sheets consist of:
Accrued compensation, contributions to employee benefit plans and related taxes	$	-		$	-		$	(0.3	)	$	(0.3	)
Other liabilities	$	(17.6	)	$	(22.0	)	$	(2.8	)	$	(3.1	)
AOCI		(9.3	)		(6.3	)		(1.6	)		(1.5	)
Amounts recognized in AOCI consist of:
Net income	$	(9.3	)	$	(6.3	)	$	(1.2	)	$	(1.1	)
Net prior service credit		-			-			(0.4	)		(0.4	)
Total	$	(9.3	)	$	(6.3	)	$	(1.6	)	$	(1.5	)

The following table shows other changes in plan assets and benefit obligations recognized in OCI during the prior two fiscal years:

	Pension Benefits					Other Benefits
(In millions)	2024			2023		2024			2023
Net (gain) loss	$	(3.4	)	$	1.3	$	(0.2	)	$	(0.3	)
Amortization of net (gain) loss		0.3			0.2		0.1			(0.4	)
Total recognized in other comprehensive income	$	(3.1	)	$	1.5	$	(0.1	)	$	(0.7	)
Total recognized in net periodic benefit cost (income) and OCI	$	(3.8	)	$	0.8	$	-		$	(0.5	)

Pension plan assets are required to be disclosed at fair value in our consolidated and combined 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.

Fair Value Hierarchy Categories

There are three measurement input levels for determining fair value: Level 1, Level 2, and Level 3. Valuations of Level 1 assets for all classes are based on quoted (unadjusted) closing market prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date. Cash is valued at cost, which approximates fair value. There were no valuations of Level 2 or Level 3 assets at May 31, 2024 or May 31, 2023, as shown in the tables below. See “Note Q – Fair Value Measurements.”

Fair Value of Plan Assets

The following table sets forth, by level within the fair value hierarchy, a summary of the defined benefit plans’ assets measured at fair value on a recurring basis at May 31, 2024:

			Quoted		Significant
			Prices		Other		Significant
			in Active		Observable		Unobservable
			Markets		Inputs		Inputs
(In millions)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Investment:
Cash and cash equivalents	$	4.3	$	4.3	$	-	$	-
Fixed-income funds		24.7		24.7		-		-
Equity funds		16.2		16.2		-		-
Commingled fund investments measured at net asset value (1):
Hedge funds		8.3		-		-		-
Total	$	53.5	$	45.2	$	-	$	-

(1)Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy.

The following table sets forth, by level within the fair value hierarchy, a summary of the defined benefit plans’ assets measured at fair value on a recurring basis at May 31, 2023:

			Quoted		Significant
			Prices		Other		Significant
			in Active		Observable		Unobservable
			Markets		Inputs		Inputs
(In millions)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Investment:
Cash and cash equivalents	$	3.9	$	3.9	$	-	$	-
Fixed-income funds		22.1		22.1		-		-
Equity funds		20.1		20.1		-		-
Commingled fund investments measured at net asset value (1):
Hedge funds		8.8		-		-		-
Total	$	54.9	$	46.1	$	-	$	-

(1)Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy.

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

	May 31,			May 31,
	2024			2023
Asset category:
Equity securities		30	%		37	%
Fixed-income funds		46	%		40	%
Hedge funds		16	%		16	%
Other		8	%		7	%
Total		100	%		100	%

Equity securities include no employer stock. The investment policy and strategy for the defined benefit plans 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 plans’ respective liability growth rate; and (iii) to include a diversified asset allocation of domestic and international equities and fixed income investments. We are expected to contribute approximately $1.8 million to the defined benefit and OPEB plans during fiscal 2025. However, we reserve the right to make additional contributions.

Estimated Future Benefits Payments

The following estimated future benefits, which reflect expected future service, as appropriate, are expected to be paid under the defined benefit and other postretirement plans during future fiscal years as follows:

(In millions)	Pension Benefits		Other Benefits
2025	$	6.4	$	0.3
2026	$	5.9	$	0.3
2027	$	6.1	$	0.3
2028	$	6.0	$	0.3
2029	$	5.6	$	0.3
2030-2034	$	26.8	$	1.2