Retirement Benefits

12 Months Ended

Sep. 30, 2021

Retirement Benefits [Abstract]

Retirement Benefits

RETIREMENT BENEFITS

We and certain of our subsidiaries sponsor defined benefit pension plans and defined contribution plans that cover a substantial portion of our worldwide employees. The principal defined benefit pension plans are the U.S. salaried pension plan and the U.K. pension plan. These plans were closed to new participants in 2005, after which defined contribution plans were offered to new employees. The principal defined contribution plan is the Retirement Savings Plan, in which a substantial portion of the U.S. employees participate. A similar plan is offered to U.K. employees. We also provide other postretirement benefits consisting primarily of healthcare benefits to U.S. retirees who meet age and service requirements.

Defined Benefit Pension Plans

Pension benefits earned are generally based on years of service and compensation during active employment. The components of net periodic (benefit) cost for our defined benefit pension plans for fiscal years 2021, 2020, and 2019 were as follows:

	2021		2020		2019
Fiscal Year Ended 30 September	U.S.	International	U.S.	International	U.S.	International
Service cost	$21.3	$23.4	$23.4	$23.3	$21.4	$19.3
Interest cost	68.9	25.2	91.2	24.8	113.4	35.8
Expected return on plan assets	(194.5)	(83.4)	(188.7)	(77.4)	(172.5)	(75.1)
Prior service cost amortization	1.2	—	1.2	—	1.1	—
Actuarial loss amortization	78.5	19.3	83.7	19.5	65.3	10.9
Settlements	1.3	0.5	5.0	0.2	6.2	0.2
Special termination benefits	—	—	—	—	0.7	0.1
Other	—	1.0	—	0.8	—	0.8
Net Periodic (Benefit) Cost	($23.3)	($14.0)	$15.8	($8.8)	$35.6	($8.0)

Our service costs are primarily included within "Cost of sales" and "Selling and administrative" on our consolidated income statements. The amount of service costs capitalized in fiscal years 2021, 2020 and 2019 were not material. The non-service related costs, including pension settlement losses, are presented outside operating income within "Other non-operating income (expense), net."

Certain of our pension plans provide for a lump sum benefit payment option at the time of retirement, or for corporate officers, six months after their retirement date. A participant’s vested benefit is considered settled upon cash payment of the lump sum. We recognize pension settlement losses when cash payments exceed the sum of the service and interest cost components of net periodic benefit cost of the plan for the fiscal year. We recognized pension settlement losses of $1.3, $5.0 and $6.2 in fiscal years 2021, 2020 and 2019, respectively, to accelerate recognition of a portion of actuarial losses deferred in accumulated other comprehensive loss associated with the U.S. supplementary pension plan.

We calculate net periodic benefit cost for a given fiscal year based on assumptions developed at the end of the previous fiscal year. The following table sets forth the weighted average assumptions used in the calculation of net periodic benefit cost:

	2021				2020				2019
	U.S.		International		U.S.		International		U.S.		International
Discount rate – Service cost	3.0	%	1.6	%	3.3	%	1.5	%	4.3	%	2.5	%
Discount rate – Interest cost	2.1	%	1.2	%	2.9	%	1.3	%	4.0	%	2.2	%
Expected return on plan assets	6.8	%	4.7	%	7.0	%	5.0	%	7.0	%	5.3	%
Rate of compensation increase	3.5	%	3.3	%	3.5	%	3.3	%	3.5	%	3.5	%

The projected benefit obligation ("PBO") is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future salary increases. The following table sets forth the weighted average assumptions used in the calculation of the PBO:

	2021				2020
	U.S.		International		U.S.		International
Discount rate	2.9	%	1.8	%	2.7	%	1.5	%
Rate of compensation increase	3.5	%	3.3	%	3.5	%	3.3	%

The following tables reflect the change in the PBO and the change in the fair value of plan assets based on the plan year measurement date, as well as the amounts recognized in the consolidated balance sheets:

	2021		2020
	U.S.	International	U.S.	International
Change in Projected Benefit Obligation
Obligation at beginning of year	$3,423.8	$1,949.7	$3,281.6	$1,864.0
Service cost	21.3	23.4	23.4	23.3
Interest cost	68.9	25.2	91.2	24.8
Amendments	0.5	—	1.6	—
Actuarial (gain) loss	(17.7)	(30.9)	190.5	(11.6)
Settlements	(3.0)	(1.8)	(11.7)	(0.9)
Special termination benefits	—	—	—	—
Participant contributions	—	1.3	—	1.2
Benefits paid	(158.5)	(52.8)	(152.5)	(49.8)
Currency translation and other	—	55.5	(0.3)	98.7
Obligation at End of Year	$3,335.3	$1,969.6	$3,423.8	$1,949.7

	2021		2020
	U.S.	International	U.S.	International
Change in Plan Assets
Fair value at beginning of year	$3,048.3	$1,726.8	$2,832.4	$1,672.4
Actual return on plan assets	450.0	140.1	364.6	(3.1)
Company contributions	6.9	37.7	15.5	22.0
Participant contributions	—	1.3	—	1.2
Benefits paid	(158.5)	(52.8)	(152.5)	(49.8)
Settlements	(3.0)	(1.8)	(11.7)	(0.9)
Currency translation and other	—	53.7	—	85.0
Fair Value at End of Year	$3,343.7	$1,905.0	$3,048.3	$1,726.8
Funded Status at End of Year	$8.4	($64.6)	($375.5)	($222.9)

	2021		2020
	U.S.	International	U.S.	International
Amounts Recognized
Noncurrent assets	$90.5	$128.7	$26.5	$—
Accrued liabilities	19.6	0.5	10.5	0.2
Noncurrent liabilities	62.5	192.8	391.5	222.7
Net Asset (Liability) Recognized	$8.4	($64.6)	($375.5)	($222.9)

The changes in plan assets and benefit obligation that have been recognized in other comprehensive income on a pretax basis during fiscal years 2021 and 2020 consist of the following:

	2021		2020
	U.S.	International	U.S.	International
Net actuarial (gain)/loss arising during the period	($273.2)	($87.6)	$14.6	$68.9
Amortization of net actuarial loss	(79.8)	(19.8)	(88.7)	(19.7)
Prior service cost arising during the period	0.5	—	1.6	—
Amortization of prior service cost	(1.2)	—	(1.2)	—
Total	($353.7)	($107.4)	($73.7)	$49.2

The net actuarial gains and losses represent the actual changes in the estimated obligation and plan assets that have not yet been recognized in the consolidated income statements and are included in accumulated other comprehensive loss. Actuarial gains arising during fiscal year 2021 are primarily attributable to higher than expected return on plan assets and higher discount rates. Accumulated actuarial gains and losses that exceed a corridor are amortized over the average remaining service period of active U.S. participants, which was approximately seven years as of 30 September 2021. For U.K. participants, accumulated actuarial gains and losses that exceed a corridor are amortized over the average remaining life expectancy, which was approximately twenty-four years as of 30 September 2021.

The components recognized in accumulated other comprehensive loss on a pretax basis at 30 September consisted of the following:

	2021		2020
	U.S.	International	U.S.	International
Net actuarial loss	$444.7	$535.8	$797.7	$643.2
Prior service cost	6.3	3.6	7.0	3.6
Net transition liability	—	0.4	—	0.4
Total	$451.0	$539.8	$804.7	$647.2

The accumulated benefit obligation ("ABO") is the actuarial present value of benefits attributed to employee service rendered to a particular date, based on current salaries. The ABO for all defined benefit pension plans was $5,140.0 and $5,166.5 as of 30 September 2021 and 2020, respectively.

The following table provides information on pension plans where the benefit liability exceeds the value of plan assets:

	2021		2020
30 September	U.S.	International	U.S.	International
Pension Plans with PBO in Excess of Plan Assets:
PBO	$82.1	$456.6	$3,202.2	$1,949.7
Fair value of plan assets	—	263.4	2,800.3	1,726.7
PBO in excess of plan assets	$82.1	$193.2	$401.9	$223.0
Pension Plans with ABO in Excess of Plan Assets:
ABO	$79.2	$416.8	$3,081.4	$475.8
Fair value of plan assets	—	263.4	2,800.3	324.4
ABO in excess of plan assets	$79.2	$153.4	$281.1	$151.4

The tables above include several pension arrangements that are not funded because of jurisdictional practice. The ABO and PBO related to these plans as of 30 September 2021 were $86.2 and $91.7, respectively. As of 30 September 2021, the U.S. salaried and U.K. pension plans had plan assets in excess of both PBO and ABO resulting in a decrease to the U.S. and International balances presented above. As of 30 September 2020, the PBO of these plans exceeded the fair value of plan assets.

Pension Plan Assets

Our pension plan investment strategy is to invest in diversified portfolios to earn a long-term return consistent with acceptable risk in order to pay retirement benefits and meet regulatory funding requirements while minimizing company cash contributions over time. De-risking strategies are also employed for closed plans as funding improves, generally resulting in higher allocations to long duration bonds. The plans invest primarily in passive and actively managed equity and debt securities. Equity investments are diversified geographically and by investment style and market capitalization. Fixed income investments include sovereign, corporate and asset-backed securities generally denominated in the currency of the plan.

Asset allocation targets are established based on the long-term return, volatility and correlation characteristics of the asset classes, the profiles of the plans’ liabilities, and acceptable levels of risk. Assets are routinely rebalanced through contributions, benefit payments, and otherwise as deemed appropriate. The actual and target allocations at the measurement date are as follows:

	2021 Target Allocation				2021 Actual Allocation				2020 Actual Allocation
	U.S.		International		U.S.		International		U.S.		International
Asset Category
Equity securities	20 - 35%		29 - 38%		30	%	36	%	51	%	43	%
Debt securities	61 - 76%		62 - 71%		64	%	63	%	43	%	56	%
Real estate and other	— - 10%		—	%	6	%	—	%	5	%	—	%
Cash	—	%	2	%	—	%	1	%	1	%	1	%
Total					100	%	100	%	100	%	100	%

In fiscal year 2021, the 6.75% expected return for U.S. plan assets was based on a weighted average of estimated long-term returns of major asset classes and the historical performance of plan assets. In determining asset class returns, we take into account historical long-term returns and the value of active management, as well as other economic and market factors.

In fiscal year 2021, the 4.73% expected rate of return for international plan assets was based on a weighted average return for plans outside the U.S., which vary significantly in size, asset structure and expected returns. The expected asset return for the U.K. plan, which represents over 80% of the assets of our International plans, is 5.30% and was derived from expected equity and debt security returns.

The table below summarizes pension plan assets measured at fair value by asset class (see Note 13, Fair Value Measurements, for definition of the levels):

	2021				2020
30 September	Total	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3
U.S. Qualified Pension Plans
Cash and cash equivalents	$14.8	$14.8	$—	$—	$16.9	$16.9	$—	$—
Equity securities	325.3	325.3	—	—	573.9	573.9	—	—
Equity mutual funds	243.4	243.4	—	—	213.1	213.1	—	—
Equity pooled funds	448.7	—	448.7	—	762.0	—	762.0	—
Fixed income:
Bonds (government and corporate)	2,125.6	—	2,125.6	—	1,312.7	—	1,312.7	—
Total U.S. Qualified Pension Plans at Fair Value	$3,157.8	$583.5	$2,574.3	$—	$2,878.6	$803.9	$2,074.7	$—
Real estate pooled funds(A)	185.9				169.7
Total U.S. Qualified Pension Plans	$3,343.7				$3,048.3
International Pension Plans
Cash and cash equivalents	$16.8	$16.8	$—	$—	$13.9	$13.9	$—	$—
Equity pooled funds	676.4	—	676.4	—	746.8	—	746.8	—
Fixed income pooled funds	948.5	—	948.5	—	694.1	—	694.1	—
Other pooled funds	16.7	—	16.7	—	15.5	—	15.5	—
Insurance contracts	246.6	—	—	246.6	256.5	—	—	256.5
Total International Pension Plans	$1,905.0	$16.8	$1,641.6	$246.6	$1,726.8	$13.9	$1,456.4	$256.5

(A)Real estate pooled funds consist of funds that invest in properties. These funds generally allow for quarterly redemption with 30 days' notice. Timing for redemption could be delayed based on the priority of our request and the availability of funds. Interests in these funds are valued using the net asset value ("NAV") per share practical expedient and are not classified in the fair value hierarchy.

The table below summarizes changes in fair value of the pension plan assets classified as Level 3, which is comprised of investments in insurance contracts:

Balance at 30 September 2019	$254.1
Actual return on plan assets:
Assets held at end of year	2.4
Balance at 30 September 2020	$256.5
Actual return on plan assets:
Assets held at end of year	(7.9)
Purchases, sales, and settlements, net	(2.0)
Balance at 30 September 2021	$246.6

The descriptions and fair value methodologies for the U.S. and International pension plan assets are as follows:

Cash and Cash Equivalents

The carrying amounts of cash and cash equivalents approximate fair value due to the short-term maturity.

Equity Securities

Equity securities are valued at the closing market price reported on a U.S. or international exchange where the security is actively traded and are therefore classified as Level 1 assets.

Equity Mutual and Pooled Funds

Shares of mutual funds are valued at the daily closing price as reported by the fund. The mutual funds are required to publish their daily NAV and to transact at that price. The mutual funds are deemed to be actively traded and are classified as Level 1 assets. Units of pooled funds are valued at the per unit NAV determined by the fund manager based on the value of the underlying traded holdings and are classified as Level 2 assets.

Corporate and Government Bonds

Corporate and government bonds are classified as Level 2 assets, as they are either valued at quoted market prices from observable pricing sources at the reporting date or valued based upon comparable securities with similar yields and credit ratings.

Fixed Income Pooled Funds

Fixed income pooled funds are classified as Level 2 assets, as they are valued at the NAV of the shares held at year end, which is determined by the fund manager based on quoted market pricing from observable pricing sources at the reporting date or valued based upon comparable securities with similar yields, credit ratings, or factors. Fixed income pooled funds may hold government bonds, index linked bonds, corporate bonds, cash and derivative instruments.

Other Pooled Funds

Other pooled funds are classified as Level 2 assets, as they are valued at the NAV of the shares held at year end, which is based on the fair value of the underlying investments.

Insurance Contracts

Insurance contracts are classified as Level 3 assets, as they are carried at contract value, which approximates the estimated fair value. The estimated fair value is based on the fair value of the underlying investment of the insurance company and discount rates that require inputs with limited observability.

Contributions and Projected Benefit Payments

Pension contributions to funded plans and benefit payments for unfunded plans for fiscal year 2021 were $44.6. Contributions for funded plans resulted primarily from contractual and regulatory requirements. Benefit payments to unfunded plans were due primarily to the timing of retirements. We anticipate contributing $40 to $50 to the defined benefit pension plans in fiscal year 2022. These contributions are anticipated to be driven primarily by contractual and regulatory requirements for funded plans and benefit payments for unfunded plans, which are dependent upon timing of retirements.

Projected benefit payments, which reflect expected future service, are as follows:

	U.S.	International
2022	$179.3	$56.8
2023	170.4	60.2
2024	174.3	64.0
2025	178.1	64.6
2026	180.7	68.3
2027-2031	936.5	375.9

These estimated benefit payments are based on assumptions about future events. Actual benefit payments may vary significantly from these estimates.

Defined Contribution Plans

We maintain a non-leveraged employee stock ownership plan ("ESOP") which forms part of the Air Products and Chemicals, Inc. Retirement Savings Plan ("RSP"). The ESOP was established in May of 2002. The balance of the RSP is a qualified defined contribution plan including a 401(k) elective deferral component. A substantial portion of U.S. employees are eligible and participate.

We treat dividends paid on ESOP shares as ordinary dividends. Under existing tax law, we may deduct dividends which are paid with respect to shares held by the plan. Shares of our common stock in the ESOP totaled 1,941,938 as of 30 September 2021.

Our contributions to the RSP include a Company core contribution for certain eligible employees who do not receive their primary retirement benefit from the defined benefit pension plans, with the core contribution based on a percentage of pay that is dependent on years of service. For the RSP, we also make matching contributions on overall employee contributions as a percentage of the employee contribution and include an enhanced contribution for certain eligible employees that do not participate in the defined benefit pension plans. Worldwide contributions expensed to income in fiscal years 2021, 2020, and 2019 were $53.3, $45.6, and $40.6, respectively.

Other Postretirement Benefits

We provide other postretirement benefits consisting primarily of healthcare benefits to certain U.S. retirees who meet age and service requirements. The healthcare benefit is a continued medical benefit until the retiree reaches age 65. Healthcare benefits are contributory, with contributions adjusted periodically. The retiree medical costs are capped at a specified dollar amount, with the retiree contributing the remainder. The cost of these benefits was not material in fiscal years 2021, 2020, and 2019. Accumulated postretirement benefit obligations as of the end of fiscal years 2021 and 2020 were $27.4 and $38.6, respectively, of which $5.5 and $7.2 were current obligations, respectively.

We recognize changes in other postretirement benefit plan obligations in other comprehensive income on a pretax basis. In fiscal years 2021 and 2020, we recognized gains that arose during the period of $5.4 and $1.3, respectively. There was $1.8 net actuarial gain amortization in fiscal year 2021 and no actuarial gain amortization in 2020 as the corridor for the plan was not exceeded.

The net actuarial gain recognized in accumulated other comprehensive loss on a pretax basis was $6.6 and $3.0 as of 30 September 2021 and 2020, respectively.