Retirement and Post Retirement Health Care Plans

12 Months Ended

Jan. 02, 2021

Pension and Other Postretirement Benefits Cost (Reversal of Cost) [Abstract]

Retirement and Post Retirement Health Care Plans

Retirement and Post-Retirement Health Care Plans

Retirement Plans

The Company's domestic associates are participants in defined benefit pension plans and/or defined contribution plans. The majority of the Company's defined benefit pension plans covering the Company's domestic associates have been closed to new associates and frozen for existing associates. Most foreign associates are covered by government sponsored plans in the countries in which they are employed. The defined contribution plans provide for Company contributions based, depending on the plan, upon one or more of participant contributions, service and profits. Company contributions to domestic defined contribution plans totaled $7.6 million, $8.9 million and $10.1 million in fiscal 2020, fiscal 2019 and fiscal 2018, respectively. Company contributions to non-US defined contribution plans were $5.5 million, $10.6 million and $11.8 million in fiscal 2020, fiscal 2019 and fiscal 2018, respectively.

Benefits provided under defined benefit pension plans are based, depending on the plan, on associates' average earnings and years of credited service, or a benefit multiplier times years of service. Funding of these qualified defined benefit pension plans is in accordance with federal laws and regulations. The actuarial valuation measurement date for pension plans is the calendar year end of each year.

The Company's target allocation, target return and actual weighted-average asset allocation by asset category are as follows:

	Target		Actual Allocation
	Allocation	Return	2020	2019
Equity Investments	70.4%	6.2 - 7.8%	72.4%	70.0%
Fixed Income	24.8%	1.5 - 4.8%	26.8%	25.0%
Other	4.8%	5.6%	0.8%	5.0%
Total	100.0%	6.2%	100.0%	100.0%

The Company's investment strategy for its defined benefit pension plans is to achieve moderately aggressive growth, earning a long-term rate of return sufficient to allow the plans to reach fully funded status. Accordingly, allocation targets have been established to fit this strategy, with a heavier long-term weighting of investments in equity securities. The long-term rate of return assumptions consider historic returns and volatilities adjusted for changes in overall economic conditions that may affect future returns and a weighting of each investment class.

The following table presents a reconciliation of the funded status of the defined benefit pension plans (in millions):

	2020		2019
Change in Projected Benefit Obligation:
Obligation at Beginning of Period	$	282.8	$	265.1
Service Cost	2.0		6.2
Interest Cost	8.0		10.6
Actuarial Loss	21.2		34.9
Curtailment Gain (1)	—		(19.4)
Less: Benefits Paid	15.9		14.8
Foreign Currency Translation	0.3		0.2
Obligation at End of Period	$	298.4	$	282.8
Change in Fair Value of Plan Assets:
Fair Value of Plan Assets at Beginning of Period	$	203.4	$	174.0
Actual Return on Plan Assets	33.7		33.1
Employer Contributions	8.5		10.8
Less: Benefits Paid	15.9		14.8
Foreign Currency Translation	0.5		0.3
Fair Value of Plan Assets at End of Period	$	230.2	$	203.4
Funded Status	$	(68.2)	$	(79.4)
(1) The curtailment gain is the result of a plan freeze announced to associates during the fourth quarter of fiscal 2019.

The net actuarial losses for fiscal 2020 are attributable to a decrease in discount rates and census experience resulting in a loss of $24.1 million offset by $2.9 million of gains to the mortality assumption update. The net actuarial losses for fiscal 2019 are attributable to a decrease in discount rates and census experience resulting in a loss of $37.0 million offset by $2.1 million of gains to the mortality assumption update.

The funded status as of January 2, 2021 included domestic plans of $(62.6) million and international plans of $(5.6) million. The funded status as of December 28, 2019 included domestic plans of $(71.2) million and international plans of $(8.2) million.

Pension Assets

The Company classifies the pension plan investments into Level 1, which refers to securities valued using quoted prices from active markets for identical assets, Level 2, which refers to securities not traded on an active market but for which observable market inputs are readily available, and Level 3, which refers to securities valued based on significant unobservable inputs. Common stocks and mutual funds are valued at the unadjusted quoted market prices for the securities. Real estate fund values are determined using model-based techniques that include relative value analysis and discounted cash flow techniques. Certain common collective trust funds and limited partnership interests are valued based on the net asset value ("NAV") as provided by the administrator of the fund as a practical expedient to estimate fair value. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. Investments in units of short-term investment funds, comprised of cash and money market funds, are valued at their respective NAVs as reported by the funds daily.

Pension assets by type and level are as follows (in millions):

	January 2, 2021
	Total		Level 1		Level 2		Level 3
Cash and Cash Equivalents	$	1.3	$	1.3	$	—	$	—
Mutual Funds:
US Equity Funds	1.6		1.6		—		—
International Equity Funds	3.5		3.5		—		—
Fixed Income Funds	3.0		3.0		—		—
Other	1.8		1.8		—		—
Real Estate Fund	10.0		—		—		10.0
	$	21.2	$	11.2	$	—	$	10.0
Investments Measured at Net Asset Value	209.0
Total	$	230.2

	December 28, 2019
	Total		Level 1		Level 2		Level 3
Cash and Cash Equivalents	$	5.1	$	5.1	$	—	$	—
Common Stocks:
Domestic Equities	26.4		26.4		—		—
International Equities	19.2		19.2		—		—
Mutual Funds:
US Equity Funds	30.1		30.1		—		—
International Equity Funds	3.1		3.1		—		—
Balanced Funds	9.5		9.5		—		—
Fixed Income Funds	18.0		18.0		—		—
Other	1.7		1.7		—		—
Limited Liability Company	8.3		—		8.3		—
Real Estate Fund	9.9		—		—		9.9
	$	131.3	$	113.1	$	8.3	$	9.9
Investments Measured at Net Asset Value	72.1
Total	$	203.4

The following table sets forth additional disclosures for the fair value measurement of the fair value of pension plan assets that calculate fair value based on NAV per share practical expedient as of January 2, 2021 and December 28, 2019 (in millions):

	2020		2019
Common Collective Trust Funds	$	209.0	$	72.1

The 2020 common collective trust funds are investments in the Mercer US Small/Midcap Equity Portfolio, the Mercer US Core Fixed Income Portfolio, the Mercer Non-US Core Equity Portfolio, the Mercer Global Low Volatility Equity Portfolio, the Mercer US Large Cap Passive Equity Portfolio, the Mercer Long Duration Passive Fixed Income Portfolio, the Mercer Emerging Markets Equity Portfolio, the Mercer Active Long Corporate Fixed Income Portfolio, and the Mercer Opportunistic Fixed Income Portfolio. The Mercer US Small/Midcap Equity Portfolio seeks to provide long term total returns comprised primarily of capital appreciation by investing in equity securities issued by small to medium capitalization US companies. The Mercer US Core Fixed Income Portfolio seeks to provide total return, consisting of both current income and capital appreciation, by investing in fixed income securities. The Mercer Non-US Core Equity Portfolio seeks to provide long term total return, which includes capital appreciation and income, by investing in equity securities of non-US companies. The Mercer Global Low Volatility Equity Portfolio seeks to provide long term total return, which includes capital appreciation and income, by investing in equity securities of US and foreign issuers. The Mercer US Large Cap Passive Equity Portfolio seeks to approximate, as closely as possible, the performance of the S&P 500 Index over the long term by investing in the equity securities comprising the index in approximately the same proportions as they are represented in the index. The Mercer Long Duration Passive Fixed Income Portfolio seeks to approximate as closely as practicable, before expenses, the performance of the Bloomberg Barclays Capital US Long Government Bond Index over the long term by investing in securities that comprise the index in the same proportions as they are represented in the index. The Mercer Emerging Markets Equity Portfolio seeks to provide long term total return, which includes capital appreciation and income, by investing equity securities of companies that are located in emerging markets, other investments that are tied economically to emerging markets, as well as in American, European and Global Depository Receipts. The Mercer Active Long Corporate Fixed Income Portfolio seeks to maximize long term total return by investing on high quality US corporate bonds. The Mercer Opportunistic Fixed Income Portfolio seeks to provide long term total return, which includes capital appreciation and income, by investing in high yield bonds and emerging markets debt. The 2020 common collective trust funds are available for immediate redemption.

The 2019 common collective trust funds were investments in the Northern Trust Collective S&P 500 Index Fund, the Northern Trust Collective Aggregate Bond Index Fund and the American Century Non-US Growth Fund. The Northern Trust Collective S&P 500 Index Fund seeks to provide investment results that approximate the overall performance of the common stocks in that index. The Northern Trust Collective Aggregate Bond Index Fund seeks to provide investment results that approximate the overall performance of the Barclays Capital US Aggregate Index by investing primarily, but not exclusively, in securities that comprise that index. The American Century Non-US Growth Fund is broadly invested in a diversified portfolio of non-US stocks. The 2019 common collective trust funds were available for immediate redemption.

The Level 3 asset noted below represents an investment in a real estate fund. Estimated values provided by fund management approximate the cost of the investments. In determining the reasonableness of the methodology used to value the Level 3 investments, the Company evaluates a variety of factors including reviews of economic conditions, industry and market developments, and overall credit ratings. The real estate fund can be redeemed on a quarterly basis and paid within two weeks of the request for redemption.

The table below sets forth a summary of changes in the Company's Level 3 assets in its pension plan investments as of January 2, 2021 and December 28, 2019 (in millions):

	2020		2019
Beginning Balance	$	9.9	$	10.3
Net Purchases (Sales)	—		(1.6)
Net Gains	0.1		1.2
Ending Balance	$	10.0	$	9.9

The following table sets forth a summary of quantitative information about the significant unobservable inputs used in the fair value measurement of the Level 3 real estate fund as of January 2, 2021 (in millions):

Fair Value	Significant Unobservable Inputs
	Inputs	Range	Weighted Average
$10.0	Exit Capitalization Rate	4.5% to 7.0%	5.1%
	Discount Rate	5.8% to 8.5%	6.3%

The following table sets forth a summary of quantitative information about the significant unobservable inputs used in the fair value measurement of the Level 3 real estate fund as of December 28, 2019 (in millions):

Fair Value	Significant Unobservable Inputs
$9.9	Exit Capitalization Rate	5.0% to 7.0%
	Discount Rate	6.5% to 8.0%

Funded Status and Expense

The Company recognized the funded status of its defined benefit pension plans on the Consolidated Balance Sheets as follows (in millions):

	2020		2019
Accrued Compensation and Benefits	$	4.1	$	4.0
Pension and Other Post Retirement Benefits	64.1		75.4
Total	$	68.2	$	79.4
Amounts Recognized in Accumulated Other Comprehensive Loss
Net Actuarial Gain	$	43.7	$	45.2
Prior Service Cost	0.9		1.1
Total	$	44.6	$	46.3

The accumulated benefit obligation for all defined benefit pension plans was $292.8 million and $276.3 million as of January 2, 2021 and December 28, 2019, respectively.

The accumulated benefit obligation exceeded plan assets for all pension plans as of January 2, 2021 and December 28, 2019.

The following weighted average assumptions were used to determine the projected benefit obligation as of January 2, 2021 and December 28, 2019, respectively:

	2020	2019
Discount Rate	2.6%	3.3%

The objective of the discount rate assumption is to reflect the rate at which the pension benefits could be effectively settled. In making the determination, the Company takes into account the timing and amount of benefits that would be available under the plans. The methodology for selecting the discount rate was to match the plan's cash flows to that of a theoretical bond portfolio yield curve.

Certain of the Company's defined benefit pension plan obligations are based on years of service rather than on projected compensation percentage increases. For those plans that use compensation increases in the calculation of benefit obligations and net periodic pension cost, the Company used an assumed rate of compensation increase of 3.0% for the fiscal years ended January 2, 2021 and December 28, 2019.

Net periodic pension benefit costs and the net actuarial loss and prior service cost recognized in OCI for the defined benefit pension plans were as follows (in millions):

	2020		2019		2018
Service Cost	$	2.0	$	6.2	$	7.3
Interest Cost	8.0		10.6		9.3
Expected Return on Plan Assets	(13.3)		(12.5)		(11.9)
Amortization of Net Actuarial Loss	1.9		2.2		3.5
Amortization of Prior Service Cost	0.3		0.3		0.2
Net Periodic Benefit Cost	$	(1.1)	$	6.8	$	8.4
Change in Obligations Recognized in OCI, Net of Tax
Prior Service Cost	$	0.2	$	0.2	$	0.2
Net Actuarial Loss	1.5		1.7		2.7
Total Recognized in OCI	$	1.7	$	1.9	$	2.9

As permitted under relevant accounting guidance, the amortization of any prior service cost is determined using a straight-line amortization of the cost over the average remaining service period of associates expected to receive benefits under the plans.

The following weighted average assumptions were used to determine net periodic pension cost for fiscal years 2020, 2019 and 2018, respectively.

	2020	2019	2018
Discount Rate	3.3%	4.4%	3.8%
Expected Long-Term Rate of Return on Assets	7.0%	7.0%	6.9%

The Company made contributions to its defined benefit plan of $8.5 million and $10.8 million for the fiscal years ended January 2, 2021 and December 28, 2019, respectively.

The Company estimates that in fiscal 2021 it will make contributions in the amount of $5.3 million to fund its defined benefit pension plans.

The following pension benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in millions):

Year	Expected Payments
2021	$	17.3
2022	16.0
2023	16.4
2024	16.6
2025	17.0
2026-2029	81.5

Post-Retirement Health Care Plan

In connection with the acquisition of the Power Transmission Solutions business from Emerson Electric Co. in 2015, the Company established an unfunded post-retirement health care plan for certain domestic retirees and their dependents.

The following table presents a reconciliation of the accumulated benefit obligation of the post-retirement health care plan (in millions):

Change in Accumulated Post Retirement Benefit Obligation	2020		2019
Obligation at Beginning of Period	$	5.9	$	9.2
Interest Cost	0.2		0.3
Actuarial (Gain) Loss	0.1		(0.7)
Amendments	—		(1.9)
Curtailment Gain	—		(0.5)
Participant Contributions	0.2		0.2
Less: Benefits Paid	0.5		0.7
Obligation at End of Period	$	5.9	$	5.9

The Company recognized the funded status of its post-retirement health care plan on the balance sheet as follows (in millions):

	2020		2019
Accrued Compensation and Benefits	$	0.5	$	0.5
Pension and Other Post Retirement Benefits	5.4		5.4
Total	$	5.9	$	5.9
Amounts Recognized in Accumulated Other Comprehensive Loss
Net Actuarial Gain	$	(3.2)	$	(4.1)
Prior Service Cost	(0.9)		(1.7)
Total	$	(4.1)	$	(5.8)

The following assumptions were used to determine the accumulated post-retirement benefit obligation as of January 2, 2021 and December 28, 2019, respectively.

	2020	2019
Discount Rate	2.5%	3.2%

Net periodic post retirement health care benefit costs for the post-retirement health care plan were as follows (in millions):

	2020		2019		2018
Service Cost	$	—	$	—	$	0.1
Interest Cost	0.2		0.3		0.4
Amortization of Net Actuarial Gain	(0.6)		(0.4)		—
Amortization of Prior Service Cost	(0.9)		(0.1)		—
Curtailment Gain	—		(0.5)		—
Net Periodic Post Retirement Health Care Benefit Cost	$	(1.3)	$	(0.7)	$	0.5
Change in Obligations Recognized in OCI, Net of Tax
Prior Service Gain	$	(0.7)	$	(0.1)	$	—
Net Actuarial Gain	(0.5)		(0.3)		—
Total Recognized in OCI	$	(1.2)	$	(0.4)	$	—

The following assumptions were used to determine net periodic post-retirement health care benefit cost for fiscal years 2020, 2019 and 2018, respectively.

	2020	2019	2018
Discount Rate	3.2%	4.2%	3.5%

The health care cost trend rate for fiscal 2020, 2019 and 2018, respectively, is 5.8%, 6.8% and 7.6% for pre-65 participants and 5.6%, 5.1% and 5.3% for post-65 participants, decreasing to 4.5% for all years in fiscal 2031, the year that the health care cost trend rate reaches the assumed ultimate rate.

The Company contributed $0.3 million and $0.4 million to the post-retirement health care plan in fiscal 2020 and fiscal 2019, respectively. The Company estimates that in fiscal 2021 it will make contributions of $0.5 million to the post retirement health care plan.

The following post-retirement benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in millions):

Year	Expected Payments
2021	$	0.5
2022	0.4
2023	0.4
2024	0.4
2025	0.4
2026-2029	1.6