Retirement Benefits

12 Months Ended

Jun. 30, 2020

Retirement Benefits [Abstract]

Retirement Benefits

Retirement Benefits

Pensions - The Company has noncontributory defined benefit pension plans covering eligible employees, including certain employees in foreign countries. Plans for most salaried employees provide pay-related benefits based on years of service. Plans for hourly employees generally provide benefits based on flat-dollar amounts and years of service. We also have arrangements for certain key employees, which provide for supplemental retirement benefits. In general, the Company's policy is to fund these plans based on legal requirements, tax considerations, local practices and investment opportunities. We also sponsor defined contribution plans and participate in government-sponsored programs in certain foreign countries.

A summary of the Company's defined benefit pension plans follows:

	2020			2019			2018
Benefit cost
Service cost	$	82,743		$	76,647		$	82,993
Interest cost	142,479			160,542			144,339
Expected return on plan assets	(266,674		)	(251,072		)	(258,490		)
Amortization of prior service cost	5,633			6,655			6,570
Amortization of unrecognized actuarial loss	165,815			121,823			147,387
Amortization of transition obligation	18			18			18
Net periodic benefit cost	$	130,014		$	114,613		$	122,817

Components of net pension benefit cost, other than service cost, are included in other (income) expense, net in the Consolidated Statement of Income.

	2020			2019
Change in benefit obligation
Benefit obligation at beginning of year	$	5,487,574		$	5,033,997
Service cost	82,743			76,647
Interest cost	142,479			160,542
Acquisition	380,237			—
Plan amendments	3,286			7,719
Actuarial loss	569,306			491,792
Benefits paid	(232,048		)	(237,080		)
Foreign currency translation and other	(27,954		)	(46,043		)
Benefit obligation at end of year	$	6,405,623		$	5,487,574
Change in plan assets
Fair value of plan assets at beginning of year	$	4,244,969		$	3,915,889
Actual gain on plan assets	253,684			318,809
Acquisition	280,103			—
Employer contributions	72,753			284,965
Benefits paid	(232,048		)	(237,080		)
Foreign currency translation and other	(25,355		)	(37,614		)
Fair value of plan assets at end of year	$	4,594,106		$	4,244,969
Funded status	$	(1,811,517	)	$	(1,242,605	)

Amounts recognized on the Consolidated Balance Sheet
Other accrued liabilities	$	(1,423	)	$	(8,396	)
Pensions and other postretirement benefits	(1,810,094		)	(1,234,209		)
Net amount recognized	$	(1,811,517	)	$	(1,242,605	)
Amounts recognized in Accumulated Other Comprehensive (Loss)
Net actuarial loss	$	1,921,389		$	1,510,901
Prior service cost	17,184			19,602
Transition obligation	26			44
Net amount recognized	$	1,938,599		$	1,530,547

The presentation of the amounts recognized on the Consolidated Balance Sheet and in accumulated other comprehensive (loss) is on a debit (credit) basis and excludes the effect of income taxes.

The benefit obligation increased in 2020 upon acquisition of the Lord pension plans. Significant reductions in the discount rates also contributed to the increase in the benefit obligation, which was partially offset by a reduced salary scale and updated mortality assumptions for the domestic qualified defined benefit plan.

The increase in the benefit obligation in 2019, largely reflected in the net actuarial loss component, is primarily due to the decrease in the discount rate used to measure the obligation across all pension plans. Additionally, the benefit obligation increased slightly as a result of updated census data for the domestic qualified defined benefit plan due to delayed retirements and higher than anticipated compensation increases.

The increase in the plan assets' fair value in 2020 is attributable the acquisition of the Lord pension plans and investment gains. The increase in the plan assets' fair value in 2019 is attributable to a $200 million discretionary contribution to the domestic qualified defined benefit plan and investment gains.

The accumulated benefit obligation for all defined benefit plans was $6,102,038 and $5,184,637 at June 30, 2020 and 2019, respectively.

Information for pension plans with accumulated benefit obligations in excess of plan assets:

	2020		2019
Accumulated benefit obligation	$	6,028,952	$	5,094,129
Fair value of plan assets	4,503,316		4,140,395

Information for pension plans with projected benefit obligations in excess of plan assets:

	2020		2019
Projected benefit obligation	$	6,348,500	$	5,427,084
Fair value of plan assets	4,523,545		4,175,871

We expect to make cash contributions of approximately $71 million to our defined benefit pension plans in 2021, the majority of which relates to our unfunded non-U.S. plans. Estimated future benefit payments in the five years ending June 30, 2021 through 2025 are $266,011, $326,214, $284,379, $290,707 and $302,169, respectively, and $1,606,648 in the aggregate for the five years ending June 30, 2026 through June 30, 2030.

The assumptions used to measure net periodic benefit cost for the Company's significant defined benefit plans are:

	2020		2019		2018
U.S. defined benefit plan
Discount rate	3.28	%	4.01	%	3.64	%
Average increase in compensation	3.60	%	3.65	%	3.89	%
Expected return on plan assets	7.00	%	7.00	%	7.50	%
Non-U.S. defined benefit plans
Discount rate	0.2 to 2.96%		0.3 to 3.37%		0.3 to 7.57%
Average increase in compensation	1.75 to 3.90%		1.75 to 5.50%		2.0 to 5.50%
Expected return on plan assets	1.0 to 5.75%		1.0 to 5.75%		1.0 to 5.75%

The assumptions used to measure the benefit obligation for the Company's significant defined benefit plans are:

	2020		2019
U.S. defined benefit plan
Discount rate	2.36	%	3.28	%
Average increase in compensation	2.98	%	3.60	%
Non-U.S. defined benefit plans
Discount rate	0.2 to 3.03%		0.2 to 2.96%
Average increase in compensation	1.75 to 4.50%		1.75 to 3.90%

The discount rate assumption is based on current rates of high-quality, long-term corporate bonds over the same estimated time period that benefit payments will be required to be made. The expected return on plan assets assumption is based on the weighted-average expected return of the various asset classes in the plans' portfolio. The asset class return is developed using historical asset return performance as well as current market conditions such as inflation, interest rates and equity market performance.

The weighted-average allocation of the majority of the assets related to defined benefit plans is as follows:

	2020		2019
Equity securities	41	%	43	%
Debt securities	49	%	54	%
Other investments	10	%	3	%
	100	%	100	%

The weighted-average target asset allocation as of June 30, 2020 is 39 percent equity securities, 43 percent debt securities and 18 percent other investments. The investment strategy for the Company's worldwide defined benefit pension plan assets focuses on achieving prudent actuarial funding ratios while maintaining acceptable levels of risk in order to provide adequate liquidity to meet immediate and future benefit requirements. This strategy requires investment portfolios that are broadly diversified across various asset classes and external investment managers. Assets held in the U.S. defined benefit plan account for approximately 75 percent of our total defined benefit plan assets. The overall investment strategy with respect to our U.S. defined benefit plan is to use a funding strategy more heavily weighted toward liability-hedging assets as the funded status improves. Over time, we will continue to add long duration fixed income investments to the portfolio. These securities are highly correlated with our pension liabilities and will be managed in a liability framework.

The fair values of pension plan assets at June 30, 2020 and at June 30, 2019, by asset class, are as follows:

	June 30, 2020			Quoted Prices In  Active Markets  (Level 1)		Significant Other  Observable Inputs  (Level 2)			Significant  Unobservable  Inputs  (Level 3)
Cash and cash equivalents	$	97,112		$	96,004	$	1,108		$	—
Equity securities
U.S. based companies	243,656			243,656		—			—
Non-U.S. based companies	9,152			9,152		—			—
Fixed income securities
Corporate debt securities	616,582			1,477		615,105			—
Government issued securities	471,059			379,128		91,931			—
Mutual funds
Equity funds	111,466			111,466		—			—
Fixed income funds	12,912			12,912		—			—
Mutual funds measured at net asset value	259,776
Common/Collective trusts measured at net asset value	2,711,736
Limited Partnerships measured at net asset value	104,760
Miscellaneous	(44,105		)	—		(44,105		)	—
Total at June 30, 2020	$	4,594,106		$	853,795	$	664,039		$	—

	June 30, 2019			Quoted Prices In  Active Markets  (Level 1)		Significant Other  Observable Inputs  (Level 2)			Significant  Unobservable  Inputs  (Level 3)
Cash and cash equivalents	$	111,520		$	117,823	$	(6,303	)	$	—
Equity securities
U.S. based companies	226,027			226,027		—			—
Non-U.S. based companies	16,385			16,385		—			—
Fixed income securities
Corporate debt securities	701,842			137,227		564,615			—
Government issued securities	528,394			367,518		160,876			—
Mutual funds
Equity funds	266,240			266,240		—			—
Fixed income funds	183,732			183,732		—			—
Mutual funds measured at net asset value	304,504
Common/Collective trusts
Equity funds	84,790			84,790		—			—
Common/Collective trusts measured at net asset value	1,872,473
Limited Partnerships measured at net asset value	240,803
Miscellaneous	(291,741		)	—		(291,741		)	—
Total at June 30, 2019	$	4,244,969		$	1,399,742	$	427,447		$	—

Cash and cash equivalents, including short-term investments, are valued at cost, which approximates fair value.

Equity securities are valued at the closing price reported on the active market on which the individual securities are traded. U.S. based companies include Parker stock with a fair value of $243,656 and $226,027 as of June 30, 2020 and 2019, respectively.

Fixed income securities are valued using both market observable inputs for similar assets that are traded on an active market and the closing price on the active market on which the individual securities are traded.

Mutual funds are valued using the closing market price reported on the active market on which the fund is traded or at net asset value per share and primarily consist of equity and fixed income funds. The equity funds primarily provide exposure to U.S. and international equities, real estate and commodities. The fixed income funds primarily provide exposure to high-yield securities and emerging market fixed income instruments. Mutual funds measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are presented in the tables above to permit reconciliation of the fair value hierarchy to total pension plan assets.

Common/Collective trusts primarily consist of equity, fixed income and real estate funds and are valued using the closing market price reported on the active market on which the fund is traded or at net asset value per share. Common/Collective trust investments can be redeemed without restriction after giving appropriate notice to the issuer. Generally, redemption of the entire investment balance of all common/collective trusts requires no more than a 90-day notice period. However, a certain real estate common/collective trust has a lock-up period expiring December 2020. The equity funds provide exposure to large, mid and small cap U.S. equities, international large and small cap equities and emerging market equities. The fixed income funds provide exposure to U.S., international and emerging market debt securities. Common/Collective trusts measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are presented in the tables above to permit reconciliation of the fair value hierarchy to total pension plan assets.

Limited Partnerships' interest in venture capital investments are measured at fair value based on net asset value as determined by the respective fund investment. Hedge funds are also included in this category. The hedge funds provide exposure to a variety of hedging strategies, including long/short equity, relative value, event driven and global macro and are also measured at fair value using the net asset value per share. As of June 30, 2020, the only limited partnership investment, subject to a lock-up period of two years, is restricted to a maximum redemption of 20 percent of its account balance every six months upon a 90-day notification period. Hedge fund investments can be redeemed either monthly or quarterly and without restriction after giving appropriate notice to the issuer. Redemption of the entire hedge fund investment balance generally requires no more than a 95-day notice period. Limited Partnerships measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy and are presented in the tables above to permit reconciliation of the fair value hierarchy to total pension plan assets.

Miscellaneous primarily includes insurance contracts held in the asset portfolio of the Company's non-U.S. defined benefit pension plans and net payables for securities purchased but not settled in the asset portfolio of the Company's U.S. defined benefit pension plan. Insurance contracts are valued at the present value of future cash flows promised under the terms of the insurance contracts.

The primary investment objective of equity securities and equity funds, within both the mutual fund and common/collective trust asset class, is to obtain capital appreciation in an amount that at least equals various market-based benchmarks. The primary investment objective of fixed income securities and fixed income funds, within both the mutual fund and common/collective trust asset class, is to provide for a constant stream of income while preserving capital. The primary investment objective of limited partnerships is to achieve capital appreciation through an investment program focused on specialized investment strategies. The primary investment objective of the investments in the miscellaneous category is to provide a stable rate of return over a specified period of time.

Employee Savings Plan - We sponsor an employee stock ownership plan ("ESOP") as part of our legacy savings and investment 401(k) plan. The ESOP is available to eligible domestic employees. Company matching contributions, up to a maximum of four percent of an employee's annual compensation, are recorded as compensation expense. Participants may direct company matching contributions to any investment option within the savings and investment 401(k) plan.

	2020		2019		2018
Shares held by ESOP	5,306,643		6,134,280		6,476,154
Company matching contributions	$	69,434	$	72,032	$	65,262

In addition to shares within the ESOP, as of June 30, 2020, employees have elected to invest in 1,573,247 shares of common stock within a company stock fund of the savings and investment 401(k) plan.

The Company has a retirement income account ("RIA") within our legacy savings and investment 401(k) plan. We make a cash contribution to the participant's RIA each year, the amount of which is based on the participant's age and years of service. Participants do not contribute to the RIA. The Company recognized $38,387, $30,603 and $29,023 in expense related to the RIA in 2020, 2019 and 2018, respectively.

During 2020, we acquired several defined contribution plans comprising similar company matching contributions and RIA features as our legacy plan. We recorded additional expense of $4,190 and $7,439 for company matching contributions and RIA, respectively, for these acquired plans in 2020. These acquired plans will be merged into our legacy savings and investment 401(k) plan as soon as administratively possible. We recorded additional expense of $4,481 for company matching contributions related to the acquired Clarcor defined contribution plans in 2018. The former employees of Clarcor became eligible to participate in our legacy savings and investment 401(k) plan during 2018.

Other Postretirement Benefits - The Company provides postretirement medical and life insurance benefits to certain retirees and eligible dependents. Most plans are contributory, with retiree contributions adjusted annually. The plans are unfunded and pay stated percentages of covered medically necessary expenses incurred by retirees after subtracting payments by Medicare or other providers and after stated deductibles have been met. For most plans, the Company has established cost maximums to more effectively control future medical costs. We have reserved the right to change these benefit plans.

The Company recognized $1,551, $1,838 and $2,755 in expense related to other postretirement benefits in 2020, 2019 and 2018, respectively. Components of net other postretirement benefit cost, other than service cost, are included in other (income) expense, net in the Consolidated Statement of Income.

	2020			2019
Change in benefit obligation
Benefit obligation at beginning of year	$	60,998		$	66,521
Service cost	250			205
Interest cost	1,686			2,043
Acquisition	12,638			—
Actuarial loss (gain)	1,276			(3,235		)
Benefits paid	(4,718		)	(4,536		)
Benefit obligation at end of year	$	72,130		$	60,998
Funded status	$	(72,130	)	$	(60,998	)

Amounts recognized on the Consolidated Balance Sheet
Other accrued liabilities	$	(6,374	)	$	(5,308	)
Pensions and other postretirement benefits	(65,756		)	(55,690		)
Net amount recognized	$	(72,130	)	$	(60,998	)
Amounts recognized in Accumulated Other Comprehensive (Loss)
Net actuarial gain	$	(173	)	$	(1,713	)
Prior service credit	(73		)	(194		)
Net amount recognized	$	(246	)	$	(1,907	)

The presentation of the amounts recognized on the Consolidated Balance Sheet and in accumulated other comprehensive (loss) is on a debit (credit) basis and is before the effect of income taxes.

The benefit obligation increased in 2020, primarily reflected in the acquisition component, is a result of assuming the Lord postretirement plans. The decrease in the benefit obligation in 2019, largely reflected in the net actuarial gain component, is primarily due to updated census data resulting from a different mix of benefit selections and actuarial assumptions reflecting lower benefit claims offset by decreases in the discount rates.

The assumptions used to measure the net periodic benefit cost for postretirement benefit obligations are:

	2020		2019		2018
Discount rate	3.15	%	3.92	%	3.46	%
Current medical cost trend rate (Pre-65 participants)	7.09	%	7.47	%	8.19	%
Current medical cost trend rate (Post-65 participants)	7.43	%	7.87	%	9.79	%
Ultimate medical cost trend rate	4.50	%	4.50	%	4.50	%
Medical cost trend rate decreases to ultimate in year	2028		2026		2025

The discount rate assumption used to measure the benefit obligation was 2.14 percent in 2020 and 3.15 percent in 2019.

Estimated future benefit payments for other postretirement benefits in the five years ending June 30, 2021 through 2025 are $6,373, $5,772, $5,256, $4,938 and $4,622, respectively, and $20,172 in the aggregate for the five years ending June 30, 2026 through June 30, 2030.

Other - The Company has established nonqualified deferred compensation programs, which permit officers, directors and certain management employees to annually elect to defer a portion of their compensation, on a pre-tax basis, until their retirement. The retirement benefit to be provided is based on the amount of compensation deferred, company matching contributions and earnings on the deferrals. In addition, we maintain a defined contribution nonqualified supplemental executive pension plan in which the Company is the only contributor. During 2020, 2019 and 2018, we recorded expense relating to these programs of $5,863, $5,916 and $13,420, respectively.

The Company has invested in corporate-owned life insurance policies to assist in meeting the obligations under these programs. The policies are held in a rabbi trust and are recorded as assets of the Company.