Pension Plans

We maintain several international defined benefit pension plans primarily covering certain employees of Computervision, which we acquired in 1998, CoCreate, which we acquired in 2008, and covering employees in Japan. Benefits are based upon length of service and average compensation with vesting after one to five years of service. The pension cost was actuarially computed using assumptions applicable to each subsidiary plan and economic environment. We adjust our pension liability related to our plans due to changes in actuarial assumptions and performance of plan investments, as shown below. Effective in 1998, benefits under one of the international plans were frozen indefinitely.

We maintained a U.S. defined benefit pension plan (the Plan) that covered certain persons who were employees of Computervision Corporation (acquired by us in 1998). Benefits under the Plan were frozen in 1990. In the second quarter of 2014, we began the process of terminating the Plan, which included settling Plan liabilities by offering lump sum distributions to plan participants and purchasing annuity contracts to cover vested benefits. We completed the termination in the fourth quarter of 2015. In connection with the termination, we contributed $25.5 million to the Plan and recorded a settlement loss of $66.3 million.

The following table presents the actuarial assumptions used in accounting for the pension plans:



	U.S. Plan						International Plans
	2017		2016		2015		2017		2016		2015
Weighted average assumptions used to determine benefit obligations at September 30 measurement date:
Discount rate	—	%	—	%	—	%	1.8	%	1.3	%	2.2	%
Rate of increase in future compensation	—	%	—	%	—	%	2.8	%	2.8	%	3.0	%
Weighted average assumptions used to determine net periodic pension cost for fiscal years ended September 30:
Discount rate	—	%	—	%	3.80	%	1.3	%	2.2	%	2.4	%
Rate of increase in future compensation	—	%	—	%	—	%	2.8	%	3.0	%	3.0	%
Rate of return on plan assets	—	%	—	%	1.35	%	5.4	%	5.7	%	5.8	%

In selecting the expected long-term rate of return on assets, we considered the current investment portfolio and the investment return goals in the plans’ investment policy statements. We, with input from the plans’ professional investment managers and actuaries, also considered the average rate of earnings expected on the funds invested or to be invested to provide plan benefits. This process included determining expected returns for the various asset classes that comprise the plans’ target asset allocation. This basis for selecting the long-term asset return assumptions is consistent with the prior year. Using generally accepted diversification techniques, the plans’ assets, in aggregate and at the individual portfolio level, are invested so that the total portfolio risk exposure and risk-adjusted returns best meet the plans’ long-term liabilities to employees. Plan asset allocations are reviewed periodically and rebalanced to achieve target allocation among the asset categories when necessary.

As of September 30, 2017, for the international plans, the weighted long-term rate of return assumption is 5.42%. These rates of return, together with the assumptions used to determine the benefit obligations as of September 30, 2017 in the table above, will be used to determine our 2018 net periodic pension cost, which we expect to be approximately $0.8 million.

The actuarially computed components of net periodic pension cost recognized in our Consolidated Statements of Operations for each year are shown below:



	U.S. Plan							International Plans
	2017		2016		2015			2017			2016			2015
	(in thousands)
Interest cost of projected benefit obligation	$	—	$	—	$	4,591		$	815		$	1,374		$	1,828
Service cost	—		—		—			1,696			1,599			1,466
Expected return on plan assets	—		—		(1,364		)	(3,327		)	(3,305		)	(3,364		)
Amortization of prior service cost	—		—		—			(5		)	(5		)	(4		)
Recognized actuarial loss	—		—		2,577			3,385			2,292			1,815
Settlement loss	—		—		66,332			—			—			—
Net periodic pension cost	$	—	$	—	$	72,136		$	2,564		$	1,955		$	1,741

The following tables display the change in benefit obligation and the change in the plan assets and funded status of the plans as well as the amounts recognized in our Consolidated Balance Sheets:



	International Plans
	Year ended September 30,
	2017			2016
	(in thousands)
Change in benefit obligation:
Projected benefit obligation—beginning of year	$	92,695		$	78,188
Service cost	1,696			1,599
Interest cost	815			1,374
Actuarial loss (gain)	(8,496		)	10,556
Foreign exchange impact	2,379			2,431
Participant contributions	183			147
Benefits paid	(2,104		)	(1,600		)
Settlements	—			—
Projected benefit obligation—end of year	$	87,168		$	92,695
Change in plan assets and funded status:
Plan assets at fair value—beginning of year	$	61,935		$	57,961
Actual return on plan assets	6,261			1,742
Employer contributions	2,036			1,978
Participant contributions	183			147
Foreign exchange impact	2,183			1,707
Settlements	—			—
Benefits paid	(2,104		)	(1,600		)
Plan assets at fair value—end of year	70,494			61,935
Projected benefit obligation—end of year	87,168			92,695
Underfunded status	$	(16,674	)	$	(30,760	)
Accumulated benefit obligation—end of year	$	84,298		$	88,768
Amounts recognized in the balance sheet:
Non-current liability	$	(16,674	)	$	(30,760	)
Current liability	$	—		$	—
Amounts in accumulated other comprehensive loss:
Unrecognized actuarial loss	$	24,738		$	38,667

We expect to recognize approximately $2.1 million of the unrecognized actuarial loss as of September 30, 2017 as a component of net periodic pension cost in 2018.

The following table shows change in accumulated other comprehensive loss:



	International Plans
	Year ended September 30,
	2017			2016
	(in thousands)
Accumulated other comprehensive loss- beginning of year	$	38,667		$	28,339
Recognized during year - net actuarial (losses)	(3,380		)	(2,288		)
Occurring during year - settlement loss	—			—
Occurring during year - net actuarial losses (gains)	(11,430		)	12,119
Foreign exchange impact	881			497
Accumulated other comprehensive loss- end of year	$	24,738		$	38,667

The following table shows the percentage of total plan assets for each major category of plan assets:



	International Plans
	September 30,
	2017		2016
Asset category:
Equity securities	23	%	49	%
Fixed income securities	57	%	30	%
Commodities	6	%	4	%
Insurance company	12	%	16	%
Cash	2	%	1	%
	100	%	100	%

We periodically review the pension plans’ investments in the various asset classes. The current asset allocation target is 60% equity securities and 40% fixed income securities for the CoCreate plan in Germany, and 100% fixed income securities for the other international plans. The fixed income securities for the other international plans primarily include investments held with insurance companies with fixed returns. The plans’ investment managers are provided specific guidelines under which they are to invest the assets assigned to them. In general, investment managers are expected to remain fully invested in their asset class with further limitations on risk as related to investments in a single security, portfolio turnover and credit quality.

The German CoCreate plan's investment policy prohibits the use of derivatives associated with leverage and speculation or investments in securities issued by PTC, except through index-related strategies and/or commingled funds. An investment committee oversees management of the pension plans’ assets. Plan assets consist primarily of investments in mutual funds invested in equity and fixed income securities.

In 2017, 2016 and 2015 our actual return on plan assets was $6.3 million, $1.7 million and $1.9 million, respectively.

Based on actuarial valuations and additional voluntary contributions, we contributed $2.0 million, $2.0 million, and $46.7 million in 2017, 2016 and 2015, respectively, to the plans.

As of September 30, 2017, benefit payments expected to be paid over the next ten years are outlined in the following table:



	Future Benefit Payments
	(in thousands)
Year ending September 30,
2018	$	2,472
2019	2,627
2020	3,054
2021	3,315
2022	3,954
2023 to 2027	22,648

Fair Value of Plan Assets

The International Plan assets are comprised primarily of investments in a trust and an insurance company. The underlying investments in the trust are primarily publicly traded European DJ EuroStoxx50 equities and European governmental fixed income securities. They are classified as Level 1 because the underlying units of the trust are traded in open public markets. The fair value of the underlying investments in equity securities and fixed income are based upon publicly-traded exchange prices.



	September 30, 2017
	Level 1		Level 2		Level 3		Total
	(in thousands)
International plan assets:
Fixed income securities:
Government	$	29,445	$	—	$	—	$	29,445
European corporate investment grade	10,675		—		—		10,675
European large capitalization stocks	16,164		—		—		16,164
Commodities	3,966		—		—		3,966
Insurance company funds (1)	—		8,714		—		8,714
Cash	1,530		—		—		1,530
	$	61,780	$	8,714	$	—	$	70,494



	September 30, 2016
	Level 1		Level 2		Level 3		Total
	(in thousands)
International plan assets:
Fixed income securities:
Government	$	8,518	$	—	$	—	$	8,518
European corporate investment grade	10,218		—		—		10,218
European large capitalization stocks	30,615		—		—		30,615
Commodities	2,709		—				2,709
Insurance company funds (1)	—		9,578		—		9,578
Cash	297		—		—		297
	$	52,357	$	9,578	$	—	$	61,935

(1) These investments are comprised primarily of funds invested with an insurance company in Japan with a guaranteed rate of return. The insurance company invests these assets primarily in government and corporate bonds.