Note 7 — Retirement, pension and other postretirement plans

Retirement plans — We have funded contributory retirement plans covering certain employees. Our contributions are primarily determined by the terms of the plans, subject to the limitation that they shall not exceed the amounts deductible for income tax purposes. We also sponsor unfunded contributory supplemental retirement plans for certain employees. Generally, benefits under these plans vest gradually over a period of approximately three years from date of employment, and are based on the employee’s contribution. The expense applicable to retirement plans for 2017, 2016 and 2015 was approximately $19,259, $17,194 and $15,747, respectively.

Pension plans — We have various pension plans covering a portion of our United States and international employees. Pension plan benefits are generally based on years of employment and, for salaried employees, the level of compensation. Actuarially determined amounts are contributed to United States plans to provide sufficient assets to meet future benefit payment requirements. We also sponsor an unfunded supplemental pension plan for certain employees. International subsidiaries fund their pension plans according to local requirements.

A reconciliation of the benefit obligations, plan assets, accrued benefit cost and the amount recognized in financial statements for pension plans is as follows:

	United States						International
	2017			2016			2017			2016
Change in benefit obligation:
Benefit obligation at beginning of year	$	409,459		$	361,039		$	91,396		$	90,615
Service cost		12,456			11,490			2,378			2,448
Interest cost		12,844			15,932			1,537			2,294
Participant contributions		—			—			85			115
Plan amendments		—			173			—			(3,050	)
Settlements		(1,548	)		—			(1,309	)		—
Curtailments		—			—			—			(6,790	)
Foreign currency exchange rate change		—			—			4,896			(7,675	)
Actuarial loss		9,351			31,781			(7,602	)		15,749
Benefits paid		(11,746	)		(10,956	)		(2,620	)		(2,310	)
Benefit obligation at end of year	$	430,816		$	409,459		$	88,761		$	91,396
Change in plan assets:
Beginning fair value of plan assets	$	333,867		$	295,320		$	35,604		$	37,473
Actual return on plan assets		29,620			23,280			612			2,205
Company contributions		19,041			26,223			3,165			3,793
Participant contributions		—			—			85			115
Settlements		(1,548	)		—			(1,309	)		—
Other		—			—			—			(145	)
Foreign currency exchange rate change		—			—			1,967			(5,527	)
Benefits paid		(11,746	)		(10,956	)		(2,620	)		(2,310	)
Ending fair value of plan assets	$	369,234		$	333,867		$	37,504		$	35,604
Funded status at end of year	$	(61,582	)	$	(75,592	)	$	(51,257	)	$	(55,792	)
Amounts recognized in financial statements:
Noncurrent asset	$	—		$	—		$	64		$	—
Accrued benefit liability		(1,201	)		(1,000	)		(36	)		(8	)
Long-term pension and retirement obligations		(60,381	)		(74,592	)		(51,285	)		(55,784	)
Total amount recognized in financial statements	$	(61,582	)	$	(75,592	)	$	(51,257	)	$	(55,792	)

	United States						International
	2017			2016			2017			2016
Amounts recognized in accumulated other comprehensive (gain) loss:
Net actuarial loss	$	124,917		$	134,586		$	27,134		$	35,090
Prior service cost (credit)		(184	)		(139	)		(3,279	)		(3,445	)
Accumulated other comprehensive loss	$	124,733		$	134,447		$	23,855		$	31,645
Amounts expected to be recognized during next fiscal year:
Amortization of net actuarial loss	$	8,672		$	9,336		$	2,074		$	2,558
Amortization of prior service cost (credit)		(23	)		47			(313	)		(304	)
Total	$	8,649		$	9,383		$	1,761		$	2,254

The following table summarizes the changes in accumulated other comprehensive loss:

	United States						International
	2017			2016			2017			2016
Balance at beginning of year	$	134,447		$	114,663		$	31,645		$	29,726
Net (gain) loss arising during the year		515			28,167			(6,867	)		8,255
Prior service cost (credit) arising during the year		—			173			—			(3,050	)
Net loss recognized during the year		(9,537	)		(8,480	)		(2,605	)		(1,723	)
Prior service (cost) credit recognized during the year		(44	)		(76	)		302			203
Settlement loss		(648	)		—			(363	)		(160	)
Curtailment gain		—			—			—			1,526
Exchange rate effect during the year		—			—			1,743			(3,132	)
Balance at end of year	$	124,733		$	134,447		$	23,855		$	31,645

Information regarding the accumulated benefit obligation is as follows:

	United States				International
	2017		2016		2017		2016
For all plans:
Accumulated benefit obligation	$	420,035	$	397,350	$	76,032	$	77,166
For plans with benefit obligations in excess of plan assets:
Projected benefit obligation		430,816		409,459		83,289		90,852
Accumulated benefit obligation		420,035		397,350		70,985		77,121
Fair value of plan assets		369,234		333,867		32,325		35,533

Net pension benefit costs include the following components:

	United States									International
	2017			2016			2015			2017			2016			2015
Service cost	$	12,456		$	11,490		$	10,851		$	2,378		$	2,448		$	2,816
Interest cost		12,844			15,932			15,037			1,537			2,294			2,561
Expected return on plan assets		(20,784	)		(19,666	)		(18,316	)		(1,338	)		(1,501	)		(1,589	)
Amortization of prior service cost (credit)		44			76			121			(302	)		(203	)		(90	)
Amortization of net actuarial loss		9,537			8,480			9,742			2,605			1,723			2,285
Settlement loss		648			—			516			363			160			1,319
Curtailment (gain) loss		—			—			68			—			(1,526	)		—
Total benefit cost	$	14,745		$	16,312		$	18,019		$	5,243		$	3,395		$	7,302

Net periodic pension cost for 2017 included a settlement loss of $1,011 due to lump sum retirement payments.Net periodic pension cost for 2016 included a settlement loss of $160 due to lump sum retirement payments and a curtailment gain of $1,526 due to a plan amendment allowing participants to elect a new defined contribution plan or a new defined benefit plan.

The weighted average assumptions used in the valuation of pension benefits were as follows:

	United States									International
	2017			2016			2015			2017			2016			2015
Assumptions used to determine benefit obligations at October 31:
Discount rate		3.80	%		3.94	%		4.39	%		2.07	%		1.86	%		2.81	%
Rate of compensation increase		3.61			3.61			3.50			3.13			3.12			3.22
Assumptions used to determine net benefit costs for the years ended October 31:
Discount rate - benefit obligation		3.94			4.39			4.29			1.86			2.81			2.94
Discount rate - service cost		4.31			4.39			4.29			1.55			2.81			2.94
Discount rate - interest cost		3.20			4.39			4.29			1.66			2.81			2.94
Expected return on plan assets		6.25			6.72			6.76			3.51			4.22			4.39
Rate of compensation increase		3.61			3.50			3.49			3.12			3.22			3.19

The amortization of prior service cost is determined using a straight-line amortization of the cost over the average remaining service period of employees expected to receive benefits under the plans.

The discount rate reflects the current rate at which pension liabilities could be effectively settled at the end of the year. The discount rate used considers a yield derived from matching projected pension payments with maturities of a portfolio of available bonds that receive the highest rating given from a recognized investments ratings agency. The changes in the discount rates in 2017 and 2016 are due to changes in yields for these types of investments as a result of the economic environment.

In determining the expected return on plan assets using the calculated value of plan assets, we consider both historical performance and an estimate of future long-term rates of return on assets similar to those in our plans. We consult with and consider the opinions of financial and other professionals in developing appropriate return assumptions. The rate of compensation increase is based on managements’ estimates using historical experience and expected increases in rates.

Net actuarial gains or losses are amortized to expense on a plan-by-plan basis when they exceed the accounting corridor, which is set at 10% of the greater of the plan assets or benefit obligations. Gains or losses outside of the corridor are subject to amortization over an average employee future service period that differs by plan. If substantially all of the plan’s participants are no longer actively accruing benefits, the average life expectancy is used.

In the fourth quarter of 2016, we adopted a change in the method to be used to estimate the service and interest cost components of net periodic benefit cost for defined benefit pension plans. Historically, for the vast majority of our plans, the service and interest cost components were estimated using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Beginning in 2017, we used a spot rate approach by applying the specific spot rates along the yield curve to the relevant projected cash flows in the estimation of the service and interest components of benefit cost, resulting in a more precise measurement. This change did not affect the measurement of total benefit obligations. The change was accounted for as a change in estimate that is inseparable from a change in accounting principle and, accordingly, was accounted for prospectively starting in 2017. The reductions in service and interest costs for 2017 associated with this change in estimate were $1,200 and $3,100, respectively.

The allocation of pension plan assets as of October 31, 2017 and 2016 is as follows:

	United States						International
	2017			2016			2017			2016
Asset Category
Equity securities		13	%		15	%		—	%		—	%
Debt securities		48			31			—			—
Insurance contracts		—			—			56			59
Pooled investment funds		39			53			42			39
Other		—			1			2			2
Total		100	%		100	%		100	%		100	%

Our investment objective for defined benefit plan assets is to meet the plans’ benefit obligations, while minimizing the potential for future required plan contributions.

Our United States plans comprise 91 percent of the worldwide pension assets. In general, the investment strategies focus on asset class diversification, liquidity to meet benefit payments and an appropriate balance of long-term investment return and risk. Target ranges for asset allocations are determined by dynamically matching the actuarial projections of the plans’ future liabilities and benefit payments with expected long-term rates of return on the assets, taking into account investment return volatility and correlations across asset classes. For 2017, the target in “return-seeking assets” is 35 percent and 65 percent in fixed income. Plan assets are diversified across several investment managers and are invested in liquid funds that are selected to track broad market indices. Investment risk is carefully controlled with plan assets rebalanced to target allocations on a periodic basis and continual monitoring of investment managers’ performance relative to the investment guidelines established with each investment manager.

Our international plans comprise 9 percent of the worldwide pension assets. Asset allocations are developed on a country-specific basis. Our investment strategy is to cover pension obligations with insurance contracts or to employ independent managers to invest the assets.

In accordance with the adoption of a new accounting standard, as described in Note 2, certain investments that were measured at NAV (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the total pension plan assets.

The fair values of our pension plan assets at October 31, 2017 by asset category are in the table below:

	United States								International
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash	$	959	$	959	$	—	$	—	$	566	$	566	$	—	$	—
Money market funds		3,615		3,615		—		—		—		—		—		—
Equity securities:
Basic materials		2,129		2,129		—		—		—		—		—		—
Consumer goods		3,776		3,776		—		—		—		—		—		—
Financial		6,147		6,147		—		—		—		—		—		—
Healthcare		3,940		3,940		—		—		—		—		—		—
Industrial goods		2,459		2,459		—		—		—		—		—		—
Technology		3,815		3,815		—		—		—		—		—		—
Utilities		793		793		—		—		—		—		—		—
Mutual funds		20,698		20,698		—		—		—		—		—		—
Fixed income securities:
U.S. Government		57,789		9,372		48,417		—		—		—		—		—
Corporate		112,112		—		112,112		—		—		—		—		—
Other		6,566		—		6,566		—		—		—		—		—
Other types of investments:
Insurance contracts		—		—		—		—		21,037		—		—		21,037
Real estate collective funds at NAV		21,699		—		—		—		—		—		—		—
Pooled investment funds at NAV		121,724		—		—		—		15,901		—		—		—
Other		1,013		1,013		—		—		—		—		—		—
	$	369,234	$	58,716	$	167,095	$	—	$	37,504	$	566	$	—	$	21,037

The fair values of our pension plan assets at October 31, 2016 by asset category are in the table below:

	United States								International
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Cash	$	896	$	896	$	—	$	—	$	798	$	798	$	—	$	—
Money market funds		2,471		2,471		—		—		—		—		—		—
Equity securities:
Basic materials		2,144		2,144		—		—		—		—		—		—
Consumer goods		3,457		3,457		—		—		—		—		—		—
Financial		5,930		5,930		—		—		—		—		—		—
Healthcare		3,344		3,344		—		—		—		—		—		—
Industrial goods		2,671		2,671		—		—		—		—		—		—
Technology		3,490		3,490		—		—		—		—		—		—
Utilities		857		857		—		—		—		—		—		—
Mutual funds		27,220		27,220		—		—		—		—		—		—
Fixed income securities:
U.S. Government		38,466		6,888		31,578		—		—		—		—		—
Corporate		63,077		—		63,077		—		—		—		—		—
Other		3,403		—		3,403		—		—		—		—		—
Other types of investments:
Insurance contracts		—		—		—		—		20,927		—		—		20,927
Real estate collective funds at NAV		20,402		—		—		—		—		—		—		—
Pooled investment funds at NAV		155,247		—		—		—		13,879		—		—		—
Other		792		792		—		—		—		—		—		—
	$	333,867	$	60,160	$	98,058	$	—	$	35,604	$	798	$	—	$	20,927

These investment funds did not own a significant number of shares of Nordson Corporation common stock for any year presented.

The inputs and methodology used to measure fair value of plan assets are consistent with those described in Note 12. Following are the valuation methodologies used to measure these assets:

•

Money market funds - Money market funds are public investment vehicles that are valued with a net asset value of one dollar. This is a quoted price in an active market and is classified as Level 1.

•

Equity securities - Common stocks and mutual funds are valued at the closing price reported on the active market on which the individual securities are traded and are classified as Level 1.

•

Fixed income securities - U.S. Treasury bills reflect the closing price on the active market in which the securities are traded and are classified as Level 1. Securities of U.S. agencies are valued using bid evaluations and are classified as Level 2. Corporate fixed income securities are valued using evaluated prices, such as dealer quotes, bids and offers and are therefore classified as Level 2.

•

Insurance contracts - Insurance contracts are investments with various insurance companies. The contract value represents the best estimate of fair value. These contracts do not hold any specific assets. These investments are classified as Level 3.

•

Real estate collective funds – These funds are valued using the net asset value of the underlying properties. Net asset value is calculated using a combination of key inputs, such as revenue and expense growth rates, terminal capitalization rates and discount rates.

•

Pooled investment funds - These are public investment vehicles valued using the net asset value. The net asset value is based on the value of the assets owned by the plan, less liabilities. These investments are not quoted on an active exchange.

The following tables present an analysis of changes during the years ended October 31, 2017 and 2016 in Level 3 plan assets, by plan asset class, for U.S. and international pension plans using significant unobservable inputs to measure fair value:


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Insurance contracts			Total
Beginning balance at October 31, 2016	$	20,927		$	20,927
Actual return on plan assets:
Assets held, end of year		(412	)		(412	)
Assets sold during the period		—			-
Purchases		2,330			2,330
Sales		(2,502	)		(2,502	)
Foreign currency translation		694			694
Ending balance at October 31, 2017	$	21,037		$	21,037


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Insurance contracts			Total
Beginning balance at October 31, 2015		$	20,432		$	20,432
Actual return on plan assets:
Assets held, end of year			1,683			1,683
Assets sold during the period			—			-
Purchases			2,799			2,799
Sales			(2,140	)		(2,140	)
Foreign currency translation			(1,847	)		(1,847	)
Ending balance at October 31, 2016		$	20,927		$	20,927

Contributions to pension plans in 2018 are estimated to be approximately $22,800.

Retiree pension benefit payments, which reflect expected future service, are anticipated to be paid as follows:

Year	United States		International
2018	$	14,476	$	1,837
2019		15,604		2,861
2020		16,839		2,652
2021		18,061		3,035
2022		19,529		2,633
2023-2027		116,207		16,442

Other postretirement plans - We sponsor an unfunded postretirement health care benefit plan covering certain of our United States employees. Employees hired after January 1, 2002, are not eligible to participate in this plan. For eligible retirees under the age of 65 who enroll in the plan, the plan is contributory in nature, with retiree contributions in the form of premiums that are adjusted annually. For eligible retirees age 65 and older who enroll in the plan, the plan delivers a benefit in the form of a Health Reimbursement Account (HRA), which retirees use for eligible reimbursable expenses, including premiums paid for purchase of a Medicare supplement plan or other out-of-pocket medical expenses such as deductibles or co-pays.

A reconciliation of the benefit obligations, accrued benefit cost and the amount recognized in financial statements for other postretirement plans is as follows:

	United States						International
		2017			2016			2017			2016
Change in benefit obligation:
Benefit obligation at beginning of year	$	71,904		$	68,315		$	623		$	524
Service cost		752			849			20			16
Interest cost		2,307			2,923			20			23
Participant contributions		503			446			—			—
Foreign currency exchange rate change		—			—			24			(14	)
Actuarial (gain) loss		2,212			1,818			(81	)		81
Benefits paid		(2,532	)		(2,447	)		(7	)		(7	)
Benefit obligation at end of year	$	75,146		$	71,904		$	599		$	623
Change in plan assets:
Beginning fair value of plan assets	$	—		$	—		$	—		$	—
Company contributions		2,029			2,001			7			7
Participant contributions		503			446			—			—
Benefits paid		(2,532	)		(2,447	)		(7	)		(7	)
Ending fair value of plan assets	$	—		$	—		$	—		$	—
Funded status at end of year	$	(75,146	)	$	(71,904	)	$	(599	)	$	(623	)
Amounts recognized in financial statements:
Accrued benefit liability	$	(2,148	)	$	(2,123	)	$	(8	)	$	(7	)
Long-term postretirement obligations		(72,998	)		(69,781	)		(591	)		(616	)
Total amount recognized in financial statements	$	(75,146	)	$	(71,904	)	$	(599	)	$	(623	)

	United States						International
		2017			2016			2017			2016
Amounts recognized in accumulated other comprehensive (gain) loss:
Net actuarial (gain) loss	$	20,124		$	18,786		$	(342	)	$	(265	)
Prior service credit		(142	)		(306	)		—			—
Accumulated other comprehensive (gain) loss	$	19,982		$	18,480		$	(342	)	$	(265	)
Amounts expected to be recognized during next fiscal year:
Amortization of net actuarial (gain) loss	$	995		$	917		$	(20	)	$	(17	)
Amortization of prior service cost (credit)		(99	)		(164	)		—			—
Total	$	896		$	753		$	(20	)	$	(17	)

The following table summarizes the changes in accumulated other comprehensive (gain) loss:

	United States						International
		2017			2016			2017			2016
Balance at beginning of year	$	18,480		$	17,079		$	(265	)	$	(379	)
Net (gain) loss arising during the year		2,212			1,818			(82	)		81
Net gain (loss) recognized during the year		(874	)		(684	)		17			25
Prior service credit recognized during the year		164			267			—			—
Exchange rate effect during the year		—			—			(12	)		8
Balance at end of year	$	19,982		$	18,480		$	(342	)	$	(265	)

Net postretirement benefit costs include the following components:

	United States									International
		2017			2016			2015			2017			2016			2015
Service cost	$	752		$	849		$	979		$	20		$	16		$	29
Interest cost		2,307			2,923			2,946			20			23			35
Amortization of prior service credit		(164	)		(267	)		(438	)		—			—			—
Amortization of net actuarial (gain) loss		874			684			1,104			(17	)		(24	)		—
Total benefit cost	$	3,769		$	4,189		$	4,591		$	23		$	15		$	64

The weighted average assumptions used in the valuation of postretirement benefits were as follows:

	United States									International
	2017			2016			2015			2017			2016			2015
Assumptions used to determine benefit obligations at October 31:
Discount rate		3.86	%		4.05	%		4.50	%		3.52	%		3.40	%		4.35	%
Health care cost trend rate		3.70			3.63			3.72			6.50			6.13			6.31
Rate to which health care cost trend rate is assumed to decline (ultimate trend rate)		3.23			3.24			3.27			3.50			3.50			3.50
Year the rate reaches the ultimate trend rate		2026			2026			2025			2037			2031			2031
Assumption used to determine net benefit costs for the years ended October 31:
Discount rate - benefit obligation		4.03	%		4.50	%		4.40	%		3.40	%		4.35	%		4.25	%
Discount rate - service cost	4.48				4.50			4.40		3.56			4.35			4.25
Discount rate - interest cost	3.27				4.50			4.40			3.20		4.35			4.25

The weighted average health care trend rates reflect expected increases in the Company’s portion of the obligation.

Similar to the changes in the discount rate approach discussed for the pension plans above, beginning in 2017 we elected to use an approach that discounts the individual expected cash flows underlying interest and service costs using the applicable spot rates derived from the yield curve used to determine the benefit obligation to the relevant projected cash flows.The Company has accounted for this change in estimate that is inseparable from a change in accounting principle on a prospective basis starting in fiscal year 2017. The reductions in service and interest costs for 2017 associated with this change in estimate were $100 and $500, respectively.

A one-percentage point change in the assumed health care cost trend rate would have the following effects. Bracketed numbers represent decreases in expense and obligation amounts.

	United States					International
	1% Point Increase		1% Point Decrease			1% Point Increase		1% Point Decrease
Health care trend rate:
Effect on total service and interest cost components in 2017	$	562	$	(446	)	$	10	$	(8	)
Effect on postretirement obligation as of October 31, 2017	$	10,637	$	(8,650	)	$	150	$	(115	)

Contributions to postretirement plans in 2018 are estimated to be approximately $2,200.

Retiree postretirement benefit payments are anticipated to be paid as follows:

Year	United States		International
2018	$	2,148	$	8
2019		2,397		8
2020		2,592		9
2021		2,827		9
2022		3,066		9
2023-2027		18,330		59