Pension and Other Post-retirement Benefits

12 Months Ended

Oct. 30, 2022

Retirement Benefits [Abstract]

Pension and Other Post-retirement Benefits

Pension and Other Post-retirement Benefits

The Company has several defined benefit plans and defined contribution plans covering most employees. Benefits for defined benefit pension plans covering hourly employees are provided based on stated amounts for each year of service, while plan benefits covering salaried employees are based on final average compensation, age and years of service. In the fourth quarter of fiscal 2022, an amendment was enacted for the salaried pension plan which changed the design from a stable value benefit to a cash balance benefit effective January 1, 2023. The cash balance design establishes hypothetical accounts for employees that are credited with an amount equal to a specified percentage of their pay plus interest. Total costs associated with the Company’s defined contribution benefit plans in fiscal years 2022, 2021, and 2020 were $47.9 million, $46.7 million, and $44.5 million, respectively.

Certain groups of employees are eligible for post-retirement health or welfare benefits. Benefits for retired employees vary for each group depending on respective retirement dates and applicable plan coverage in effect. Contribution requirements for retired employees are governed by the Retiree Health Care Payment Program and may change each year as the cost to provide coverage is determined.

Net periodic cost of defined benefit plans included the following for fiscal years ending: 

	Pension Benefits						Post-retirement Benefits
In thousands	October 30, 2022		October 31, 2021		October 25, 2020		October 30, 2022		October 31, 2021		October 25, 2020
Service Cost	$	40,076	$	37,127	$	35,584	$	469	$	533	$	770
Interest Cost	50,558		50,399		53,642		7,684		7,945		9,306
Expected Return on Plan Assets	(108,248)		(102,693)		(101,283)		—		—		—
Amortization of Prior Service Cost	(1,496)		(1,496)		(2,168)		8		(669)		(2,651)
Recognized Actuarial Loss	12,530		22,742		22,383		2,439		2,020		1,045
Net Periodic Cost	$	(6,581)	$	6,080	$	8,158	$	10,600	$	9,830	$	8,470

Non-service cost components of net pension and post-retirement benefit cost are presented within Interest and Investment Income on the Consolidated Statements of Operations.

Actuarial gains and losses and any adjustments resulting from plan amendments are deferred and amortized over periods ranging from 8 to 21 years for pension benefits and 13 to 14 years for post-retirement benefits. The following amounts have not been recognized in net periodic pension cost and are included in Accumulated Other Comprehensive Loss: 

	Pension Benefits				Post-retirement Benefits
In thousands	October 30, 2022		October 31, 2021		October 30, 2022		October 31, 2021
Unrecognized Prior Service Credit	$	(2,399)	$	(3,624)	$	(146)	$	(154)
Unrecognized Actuarial (Losses) Gains	(272,401)		(305,433)		18,044		(35,616)

The following is a reconciliation of the beginning and ending balances of the benefit obligation, fair value of plan assets, and funded status of the plans as of the measurement dates: 

	Pension Benefits				Post-retirement Benefits
In thousands	October 30, 2022		October 31, 2021		October 30, 2022		October 31, 2021
Change in Benefit Obligation:
Benefit Obligation at Beginning of Year	$	1,711,958	$	1,666,886	$	274,666	$	285,293
Service Cost	40,076		37,127		469		533
Interest Cost	50,558		50,399		7,684		7,945
Actuarial (Gain) Loss(1)	(515,995)		34,247		(51,219)		1,539
Plan Amendments	(2,722)		—		—		—
Participant Contributions	—		—		1,808		2,113
Medicare Part D Subsidy	—		—		448		461
Benefits Paid	(83,862)		(76,702)		(21,868)		(23,218)
Benefit Obligation at End of Year	$	1,200,013	$	1,711,958	$	211,986	$	274,666

(1) Actuarial gains in fiscal 2022 were primarily due to the change in the discount rate assumptions utilized in measuring plan obligations.

 

	Pension Benefits				Post-retirement Benefits
In thousands	October 30, 2022		October 31, 2021		October 30, 2022		October 31, 2021
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Year	$	1,698,596	$	1,553,532	$	—	$	—
Actual Return on Plan Assets	(387,244)		211,054		—		—
Participant Contributions	—		—		1,808		2,113
Employer Contributions	12,711		10,712		20,060		21,105
Benefits Paid	(83,862)		(76,702)		(21,868)		(23,218)
Fair Value of Plan Assets at End of Year	$	1,240,200	$	1,698,596	$	—	$	—
Funded Status at End of Year	$	40,187	$	(13,362)	$	(211,986)	$	(274,666)

Amounts recognized in the Consolidated Statements of Financial Position are as follows:

	Pension Benefits				Post-retirement Benefits
In thousands	October 30, 2022		October 31, 2021		October 30, 2022		October 31, 2021
Pension Assets	$	245,566	$	289,096	$	—	$	—
Employee-related Expenses	(11,571)		(11,173)		(19,962)		(19,589)
Pension and Post-retirement Benefits	(193,808)		(291,285)		(192,024)		(255,077)
Net Amount Recognized	$	40,187	$	(13,362)	$	(211,986)	$	(274,666)

The accumulated benefit obligation for all pension plans was $1.2 billion and $1.7 billion as of October 30, 2022, and October 31, 2021, respectively. The following table provides information for pension plans with projected and accumulated benefit obligations in excess of plan assets: 

In thousands	October 30, 2022		October 31, 2021
Projected Benefit Obligation	$	205,379	$	302,458
Accumulated Benefit Obligation	204,302		292,877
Fair Value of Plan Assets	—		—

Weighted-average assumptions used to determine benefit obligations are as follows: 

	October 30, 2022		October 31, 2021
Discount Rate	5.92	%	3.00	%
Rate of Future Compensation Increase (For Plans that Base Benefits on     Final Compensation Level)	3.95	%	4.14	%
Interest Crediting Rate (For Cash Balance Plan)(1)	4.42	%	—

(1) Cash balance plan enacted in the fourth quarter of fiscal 2022.

Weighted-average assumptions used to determine net periodic benefit costs are as follows:

	October 30, 2022		October 31, 2021		October 25, 2020
Discount Rate	3.00	%	3.06	%	3.37	%
Rate of Future Compensation Increase (For Plans     that Base Benefits on Final Compensation Level)	4.14	%	4.09	%	4.06	%
Expected Long-term Return on Plan Assets	6.50	%	6.75	%	7.00	%

The expected long-term rate of return on plan assets is based on fair value and developed in consultation with outside advisors. A range is determined based on the composition of the asset portfolio, historical long-term rates of return, and estimates of future performance. The interest crediting rate is determined annually based on the U.S. 30-year Treasury rate with a floor of 2.65 percent.

For measurement purposes, an 8 percent annual rate of increase in the per capita cost of covered health care benefits for pre-Medicare and post-Medicare retirees’ coverage is assumed for 2023. The pre-Medicare and post-Medicare rate is assumed to decrease to 5 percent for 2028 and remain steady thereafter.

The Company’s funding policy is to make annual contributions of not less than the minimum required by applicable regulations. The Company expects to make contributions of $32.5 million during fiscal 2023 which represent benefit payments for unfunded plans.

Benefits expected to be paid over the next ten fiscal years are as follows: 

In thousands	Pension Benefits		Post-retirement Benefits
2023	$	81,447	$	20,548
2024	84,199		20,176
2025	87,441		19,640
2026	90,959		19,031
2027	95,094		18,370
2028-2032	501,359		80,186

Plan assets for certain defined benefit pension plans are held in the Hormel Foods Corporation Master Trust (Master Trust). The investment strategy for the Master Trust attempts to minimize the long-term cost of pension benefits, reduce the volatility of pension expense, and achieve a healthy funded status for the plans. The Company establishes target allocations in consultation with outside advisors through the use of asset-liability modeling in an effort to match the duration of the plan assets with the duration of the Company’s projected benefit liability.

The actual and target weighted-average asset allocations for the Company’s pension plan assets as of the plan measurement date are as follows: 

	October 30, 2022		October 31, 2021
Asset Category	Actual %	Target Range %	Actual %	Target Range %
Fixed Income	43.3	40-60	43.8	35-60
Global Stocks	36.9	20-55	40.7	20-55
Real Estate	8.6	0-10	5.3	0-10
Private Equity	7.1	0-10	6.4	0-10
Hedge Funds	2.1	0-10	2.6	0-10
Cash and Cash Equivalents	1.9	0-5	1.1	—

The following tables show the categories of defined benefit pension plan assets and the level under which fair values were determined pursuant to the provisions of ASC 820. Assets measured at fair value using the net asset value (NAV) per share practical expedient are not required to be classified in the fair value hierarchy. These amounts are provided to permit reconciliation to the total fair value of plan assets.    

	Fair Value Measurements as of October 30, 2022
In thousands	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Plan Assets in Fair Value Hierarchy
Cash Equivalents(1)	$	23,162	$	—	$	23,162	$	—
Private Equity(2)
Domestic	37,032		—		—		37,032
International	51,122		—		—		51,122
Fixed Income(3)
U.S. Government Issues	166,461		109,643		56,818		—
Municipal Issues	10,541		—		10,541		—
Corporate Issues – Domestic	244,044		—		244,044		—
Corporate Issues – Foreign	41,759		—		41,759		—
Global Stocks - Mutual Funds(4)	—		—		—		—
Plan Assets in Fair Value Hierarchy	$	574,121	$	109,643	$	376,324	$	88,154
Plan Assets at Net Asset Value
Real Estate – Domestic(5)	$	106,951
Global Stocks - Collective Investment Funds(6)	458,045
Hedge Funds(7)	26,273
Fixed Income - Hedge Funds(8)	62,025
Fixed Income - Collective Investment Funds(9)	12,785
Plan Assets at Net Asset Value	$	666,080
Total Plan Assets at Fair Value	$	1,240,200

	Fair Value Measurements as of October 31, 2021
In thousands	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Plan Assets in Fair Value Hierarchy
Cash Equivalents(1)	$	19,328	$	—	$	19,328	$	—
Private Equity(2)
Domestic	53,229		—		—		53,229
International	56,190		—		—		56,190
Fixed Income(3)
U.S. Government Issues	262,181		164,357		97,824		—
Municipal Issues	14,024		—		14,024		—
Corporate Issues – Domestic	321,639		—		321,639		—
Corporate Issues – Foreign	56,102		—		56,102		—
Global Stocks - Mutual Funds(4)	94,115		94,115		—		—
Plan Assets in Fair Value Hierarchy	$	876,808	$	258,472	$	508,917	$	109,419
Plan Assets at Net Asset Value
Real Estate – Domestic(5)	$	90,106
Global Stocks - Collective Investment Funds(6)	596,985
Hedge Funds(7)	44,848
Fixed Income - Hedge Funds(8)	62,609
Fixed Income - Collective Investment Funds(9)	27,239
Plan Assets at Net Asset Value	$	821,787
Total Plan Assets at Fair Value	$	1,698,596

The following is a description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments:

(1) Cash Equivalents: These Level 2 investments consist primarily of highly liquid money market mutual funds traded in active markets in addition to highly liquid futures and T-bills with an observable daily settlement price.

(2) Private Equity: These Level 3 investments consist of various collective investment funds, which are managed by a third party, invested in a well-diversified portfolio of equity investments from top performing, high quality firms focused on U.S. and foreign small to mid-markets, venture capitalists, and entrepreneurs with a concentration in areas of innovation. Investment strategies include buyouts, growth capital, buildups, and distressed, as well as early stages of company development mainly in the U.S. The fair value of these funds is based on the fair value of the underlying investments.

(3) Fixed Income: The Level 1 investments include U.S. Treasury bonds and notes, which are valued at the closing price reported on the active market in which the individual securities are traded. The Level 2 investments consist principally of U.S. government securities, which are valued daily using institutional bond quote sources and mortgage-backed securities pricing sources, and municipal, domestic, and foreign securities, which are valued daily using institutional bond quote sources.

(4) Global Stocks - Mutual Funds: These Level 1 investments include open-ended mutual funds consisting of a mix of U.S. common stocks and foreign common stocks, which are valued at closing price reported on the active market in which the fund is traded. The investment strategy is to obtain long term capital appreciation by focusing on companies generating above average earnings growth and are leading growth businesses in the marketplace. There are no restrictions on redemptions.

(5) Real Estate - Domestic: These investments include ownership in open-ended real estate funds, which manage diversified portfolios of commercial properties within the office, residential, retail, and industrial property sectors. Investment strategies aim to acquire, own, hold, or dispose of investments with the goal of achieving current income and/or capital appreciation. The real estate investments are valued at the NAV of shares held by the Master Trust. Requests to redeem shares are granted on a quarterly basis with either 45 or 90 days advance notice, subject to availability of cash.

(6) Global Stocks - Collective Investment Funds: These investments include commingled funds consisting of a mix of U.S. common stocks and foreign common stocks. The collective investment funds are valued at the NAV of shares held by the Master Trust. The investment strategy is to obtain long term capital appreciation by focusing on companies generating above average earnings growth and are leading growth businesses in the marketplace. All funds are daily liquid with the exception of one that is available on the first business day of the month for subscriptions and withdrawals.

(7) Hedge Funds: These investments are designed to provide diversification to an overall institutional portfolio and, in particular, provide protection against equity market downturns. They are comprised of Commodity Trading Advisor Managed Futures, Global Macro (Discretionary and/or Quant) and Long Volatility/Tail Risk Hedging strategies. The hedge funds are valued at the NAV of shares held by the Master Trust. Requests to redeem shares are granted daily, monthly or quarterly.

(8) Fixed Income - Hedge Funds: These investments target absolute, risk-adjusted returns by taking advantage of price dislocations and inconsistencies within credit markets. Funds are comprised primarily of U.S. and European corporate credit and structured credit. The investments are valued at the NAV of shares held by the Master Trust. Requests to redeem shares are granted on a quarterly basis on the three year fund anniversary with a ninety day notice period.

(9) Fixed Income - Collective Investment Funds: These investments include commingled funds consisting of a mix of U.S. government and investment grade corporate bonds. The collective investment funds are valued at NAV of the shares held by the Master Trust. The investment strategy is to achieve an investment return that approximates as closely to the Bloomberg Barclays U.S. Aggregate Bond Index over the long term by investing in the securities that comprise the benchmark. There are no restrictions on redemptions.

A reconciliation of the beginning and ending balance of the investments measured at fair value using significant unobservable inputs (Level 3) is as follows:

In thousands	October 30, 2022		October 31, 2021
Fair Value at Beginning of Year	$	109,419	$	83,838
Purchases, Issuances, and Settlements (Net)	(29,188)		(23,151)
Unrealized Gains (Losses)(1)	(18,027)		26,879
Realized Gains	(604)		604
Interest and Dividend Income	26,554		21,248
Fair Value at End of Year	$	88,154	$	109,419

 (1) Included in Accumulated Other Comprehensive Loss in the Consolidated Statements of Financial Position.

During fiscal 2022, the value of the Level 3 investments ranged from $75.2 million to $109.4 million, with an average value of $91.8 million.

The Company has commitments totaling $131.5 million for the private equity investments within the pension plans. The unfunded private equity commitment balance for each investment category is as follows: 

In thousands	October 30, 2022		October 31, 2021
Domestic Equity	$	2,146	$	81
International Equity	10,466		9,794
Unfunded Commitment Balance	$	12,612	$	9,875

Funding for future private equity capital calls will come from existing pension plan assets and not from additional cash contributions by the Company.