Pension Plans

12 Months Ended

Sep. 30, 2019

We maintain several international defined benefit pension plans primarily covering certain employees of Computervision, which we acquired in 1998, and 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.

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



	2019		2018		2017
Weighted average assumptions used to determine benefit obligations at September 30 measurement date:
Discount rate	0.9	%	1.9	%	1.8	%
Rate of increase in future compensation	2.8	%	3.0	%	2.8	%
Weighted average assumptions used to determine net periodic pension cost for fiscal years ended September 30:
Discount rate	1.9	%	1.8	%	1.3	%
Rate of increase in future compensation	3.0	%	2.8	%	2.8	%
Rate of return on plan assets	5.4	%	5.4	%	5.4	%

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, 2019, the weighted long-term rate of return assumption is 5.4%. These rates of return, together with the assumptions used to determine the benefit obligations as of September 30, 2019 in the table above, will be used to determine our 2020 net periodic pension cost, which we expect to be approximately $1.9 million.

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



(in thousands)	Year ended September 30,
	2019			2018			2017
Interest cost of projected benefit obligation	$	1,199		$	1,260		$	815
Service cost	1,372			1,535			1,696
Expected return on plan assets	(3,728		)	(4,180		)	(3,327		)
Amortization of prior service cost	(5		)	(5		)	(5		)
Recognized actuarial loss	2,390			2,293			3,385
Settlement loss	(30		)	9			—
Net periodic pension cost	$	1,198		$	912		$	2,564

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:



(in thousands)	Year ended September 30,
	2019			2018
Change in benefit obligation:
Projected benefit obligation—beginning of year	$	87,864		$	87,168
Service cost	1,372			1,535
Interest cost	1,199			1,260
Actuarial loss	12,059			2,157
Foreign exchange impact	(4,674		)	(1,669		)
Participant contributions	154			212
Benefits paid	(1,836		)	(1,637		)
Settlements	(1,155		)	(1,162		)
Projected benefit obligation—end of year	$	94,983		$	87,864
Change in plan assets and funded status:
Plan assets at fair value—beginning of year	$	70,141		$	70,494
Actual return on plan assets	3,512			1,025
Employer contributions	2,576			2,459
Participant contributions	154			212
Foreign exchange impact	(3,513		)	(1,250		)
Settlements	(1,155		)	(1,162		)
Benefits paid	(1,836		)	(1,637		)
Plan assets at fair value—end of year	69,879			70,141
Projected benefit obligation—end of year	94,983			87,864
Underfunded status	$	(25,104	)	$	(17,723	)
Accumulated benefit obligation—end of year	$	92,280		$	85,103
Amounts recognized in the balance sheet:
Non-current liability	$	(24,868	)	$	(17,502	)
Current liability	$	(236	)	$	(221	)
Amounts in accumulated other comprehensive loss:
Unrecognized actuarial loss	$	34,920		$	27,027

We expect to recognize approximately $3.8 million of the unrecognized actuarial loss as of September 30, 2019 as a component of net periodic pension cost in 2020.

The following table shows change in accumulated other comprehensive loss:



(in thousands)	Year ended September 30,
	2019			2018
Accumulated other comprehensive loss- beginning of year	$	27,027		$	24,738
Recognized during year - net actuarial (losses)	(2,385		)	(2,288		)
Occurring during year - settlement loss	30			(9		)
Occurring during year - net actuarial losses (gains)	12,274			5,312
Foreign exchange impact	(2,026		)	(726		)
Accumulated other comprehensive loss- end of year	$	34,920		$	27,027

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



	September 30,
Asset category:	2019		2018
Equity securities	32	%	35	%
Fixed-income securities	46	%	46	%
Commodities	2	%	1	%
Insurance company funds	12	%	12	%
Cash	8	%	6	%
	100	%	100	%

We periodically review the pension plans’ investments in the various asset classes. For the CoCreate plan in Germany assets are actively allocated between equity and fixed income securities to achieve target return. For the other international plans assets are allocated 100% to fixed income securities. 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 2019, 2018 and 2017 our actual return on plan assets was $3.5 million, $1.0 million and $6.3 million, respectively.

Based on actuarial valuations and additional voluntary contributions, we contributed $2.6 million, $2.5 million, and $2.0 million in 2019, 2018 and 2017, respectively, to the plans.

As of September 30, 2019, benefit payments expected to be paid over the next ten years are outlined in the following table:



(in thousands)	Future Benefit Payments
Year ending September 30,
2020	$	2,918
2021	3,008
2022	3,648
2023	3,519
2024	4,401
2025 to 2029	22,173

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.



(in thousands)	September 30, 2019
Plan assets:	Level 1		Level 2		Level 3		Total
Fixed income securities:
Government	$	26,996	$	—	$	—	$	26,996
European corporate investment grade	4,816		—		—		4,816
European large capitalization stocks	22,648		—		—		22,648
Commodities	1,086		—		—		1,086
Insurance company funds ⁽¹⁾	—		8,494		—		8,494
Cash	5,839		—		—		5,839
	$	61,385	$	8,494	$	—	$	69,879



(in thousands)	September 30, 2018
Plan assets:	Level 1		Level 2		Level 3		Total
Fixed income securities:
Government	$	29,754	$	—	$	—	$	29,754
European corporate investment grade	2,499		—		—		2,499
European large capitalization stocks	24,502		—		—		24,502
Commodities	724		—		—		724
Insurance company funds ⁽¹⁾	—		8,413		—		8,413
Cash	4,249		—		—		4,249
	$	61,728	$	8,413	$	—	$	70,141

(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.