Note 8. Pension Plan and Retirement Benefits

Defined Contribution Plans

The Company sponsors a defined contribution plan (401(k)) for substantially all U.S. employees. The Company contributes an amount equal to 50% of an employee’s contribution to the plan up to a maximum contribution of 3% of the employee’s salary, except for all salaried employees and certain hourly employees (those hired after June 30, 2007 that are not eligible for the U.S. pension plan). The Company contributes an amount equal to 60% of an employee’s contribution to the plan up to a maximum contribution of 6% of the employee’s salary for these groups. Expenses associated with this plan for the years ended September 30, 2014, 2015 and 2016 totaled $1,436, $1,598 and $1,652, respectively.

The Company sponsors certain profit sharing plans for the benefit of employees meeting certain eligibility requirements. There were no contributions to these plans for the years ended September 30, 2014, 2015 and 2016.

Defined Benefit Plans

The Company has non-contributory defined benefit pension plans which cover most employees in the U.S. and certain foreign subsidiaries. In the U.S. salaried employees hired after December 31, 2005 and hourly employees hired after June 30, 2007 are not covered by the pension plan; however, they are eligible for an enhanced matching program of the defined contribution plan (401(k)). In fiscal 2008, the Company made amendments to the U.S. pension plan which included the freezing of benefit accruals for all non-union employees in the U.S. while increasing the matching contributions to its 401(k) plan for all participants. Effective September 30, 2009, the U.K. pension plan was amended to freeze benefit accruals for members of its plan.

Benefits provided under the Company’s U.S. defined benefit pension plan are based on years of service and the employee’s final compensation. The Company’s funding policy is to contribute annually an amount deductible for federal income tax purposes based upon an actuarial cost method using actuarial and economic assumptions designed to achieve adequate funding of benefit obligations.

The Company has non-qualified pensions for former executives of the Company. Non-qualified pension plan expense for the years ended September 30, 2014, 2015 and 2016 was $84, $140 and $91, respectively. Accrued liabilities in the amount of $858 and $854 for these benefits are included in accrued pension and postretirement benefits liability at September 30, 2015 and 2016, respectively.

In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for retired employees. Substantially all domestic employees become eligible for these benefits, if they reach normal retirement age while working for the Company. During March 2006, the Company communicated to employees and plan participants a negative plan amendment that caps the Company’s liability related to total retiree health care costs at $5,000 annually effective January 1, 2007. An updated actuarial valuation was performed at March 31, 2006, which reduced the accumulated postretirement benefit liability due to this plan amendment by $46,313 that was amortized as a reduction to expense over an eight year period. This amortization period began in April 2006 thus reducing the amount of expense recognized for the second half of fiscal 2006 and the respective future periods and, as of September 30, 2015 is fully amortized.

The Company made contributions of $1,500 and $6,000 to fund its domestic Company-sponsored pension plan for the year ended September 30, 2015 and 2016, respectively. The Company’s U.K. subsidiary made contributions of $909 and $778 for the years ended September 30, 2015 and 2016, respectively, to the U.K. pension plan.

During the fourth quarter of fiscal 2016, the Company offered a lump sum or annuity pension distribution option to terminated vested participants of the U.S. pension plan. This option was accepted by 146 participants who received distributions totaling $8,688. The individuals who accepted the lump sum option were no longer participants in the pension plan as of September 30, 2016.

The Company uses a September 30 measurement date for its plans. The status of employee pension benefit plans and other postretirement benefit plans is summarized below:


	Defined Benefit				Postretirement
	Pension Plans				Health Care Benefits
	Year Ended				Year Ended
	September 30,				September 30,
	2015		2016		2015		2016
Change in Benefit Obligation:
Projected benefit obligation at beginning of year	$	288,559	$	311,943	$	105,387	$	110,534
Service cost		3,898		4,080		337		232
Interest cost		11,203		12,050		4,385		4,595
Actuarial losses		21,861		32,370		5,097		15,283
Benefits paid		(13,578)		(23,105)		(4,672)		(5,527)
Projected benefit obligation at end of year	$	311,943	$	337,338	$	110,534	$	125,117
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	216,962	$	205,498	$	—	$	—
Actual return on assets		(295)		18,792		—		—
Employer contributions		2,409		6,778		4,672		5,527
Benefits paid		(13,578)		(23,105)		(4,672)		(5,527)
Fair value of plan assets at end of year	$	205,498	$	207,963	$	—	$	—
Funded Status of Plan:
Unfunded status	$	(106,445)	$	(129,375)	$	(110,534)	$	(125,117)

Amounts recognized in the consolidated balance sheets are as follows:


	Defined Benefit				Postretirement				Non-Qualified				All Plans
	Pension Plans				Health Care Benefits				Pension Plans				Combined
	September 30,				September 30,				September 30,				September 30,
	2015		2016		2015		2016		2015		2016		2015		2016
Accrued pension and postretirement benefits:
Current	$	—	$	—	$	(4,870)	$	(5,000)	$	(95)	$	(95)	$	(4,965)	$	(5,095)
Non-current		(106,445)		(129,375)		(105,664)		(120,117)		(763)		(759)		(212,872)		(250,251)
Accrued pension and postretirement benefits	$	(106,445)	$	(129,375)	$	(110,534)	$	(125,117)	$	(858)	$	(854)	$	(217,837)	$	(255,346)
Accumulated other comprehensive loss:
Net loss		97,268		116,388		35,177		47,636		—		—		132,445		164,024
Prior service cost		3,828		3,020		—		—		—		—		3,828		3,020
Total accumulated other comprehensive loss	$	101,096	$	119,408	$	35,177	$	47,636	$	—	$	—	$	136,273	$	167,044
Amounts expected to be recognized from AOCI into the statement of operations in the following year:
Amortization of net loss	$	8,838	$	11,268	$	2,825	$	4,278	$	—	$	—	$	11,663	$	15,546
Amortization of prior service cost		808		808		—		—		—		—		808		808
	$	9,646	$	12,076	$	2,825	$	4,278	$	—	$	—	$	12,471	$	16,354

The accumulated benefit obligation for the pension plans was $299,039 and $317,754 at September 30, 2015 and 2016, respectively.

The cost of the Company’s postretirement benefits are accrued over the years employees provide service to the date of their full eligibility for such benefits. The Company’s policy is to fund the cost of claims on an annual basis.

The components of net periodic pension cost and postretirement health care benefit cost are as follows:


	Defined Benefit Pension Plans
	Year Ended September 30,
	2014		2015		2016
Service cost	$	3,971	$	3,898	$	4,080
Interest cost		11,989		11,203		12,050
Expected return on assets		(15,033)		(15,117)		(14,380)
Amortization of prior service cost		808		808		808
Recognized actuarial loss		4,612		4,645		8,838
Net periodic cost	$	6,347	$	5,437	$	11,396


	Postretirement
	Health Care Benefits
	Year Ended September 30,
	2014		2015		2016
Service cost	$	267	$	337	$	232
Interest cost		4,578		4,385		4,595
Amortization of unrecognized prior service cost		(2,895)		—		—
Recognized actuarial loss		1,996		2,433		2,825
Net periodic cost	$	3,946	$	7,155	$	7,652

Assumptions

A 5.0% ( 5.0%-2015) annual rate of increase for the costs of covered health care benefits for ages under 65 and a 5.0% ( 5.0%-2015) annual rate of increase for ages over 65 were assumed for 2016, and remaining at 5.0% for the under 65 and over 65 age groups by the year 2016. A one percentage point change in assumed health care cost trend rates would have no effect on the total of service and interest cost components of pension expense in fiscal 2016 or on the accumulated postretirement benefit obligation as of September 30, 2016. The effect on total of service and interest cost components and the effect on accumulated postretirement benefit obligation is zero due to the plan amendment that caps the Company costs at $5,000 on an undiscounted basis per year.

The actuarial present value of the projected pension benefit obligation and postretirement health care benefit obligation for the plans at September 30, 2015 and 2016 were determined based on the following assumptions:


	September 30,		September 30,
	2015		2016
Discount rate (postretirement health care)	4.25	%	3.50	%
Discount rate (U.S. pension plan)	4.00	%	3.25	%
Discount rate (U.K. pension plan)	3.70	%	2.30	%
Rate of compensation increase (U.S. pension plan only)	3.50	%	3.50	%

The net periodic pension and postretirement health care benefit costs for the plans were determined using the following assumptions:


	Defined Benefit
	Pension and
	Postretirement Health
	Care Plans
	Year Ended
	September 30,
	2014		2015		2016
Discount rate (postretirement health care plan)	4.750	%	4.250	%	4.250	%
Discount rate (U.S. pension plan)	4.500	%	4.000	%	4.000	%
Discount rate (U.K. pension plan)	4.300	%	3.900	%	3.700	%
Expected return on plan assets (U.S. pension plan)	7.500	%	7.500	%	7.500	%
Expected return on plan assets (U.K. pension plan)	4.800	%	4.400	%	4.100	%
Rate of compensation increase (U.S. pension plan only)	3.500	%	3.500	%	3.500	%

In accordance with the Mortality Improvement Scale MP-2014, released by the Society of Actuaries in October 2014, the Company applied the new mortality assumptions which were used in the determination of the projected benefit obligation as of September 30, 2015. These new assumptions reflected a mortality improvement that was the primary determinant in realizing actuarial losses of $21.9 million and $5.1 million in pension and postretirement plans, respectively. These losses result in increases in the accrued pension liability, the accrued post-retirement liability and corresponding increases in accumulated other comprehensive income, during fiscal 2015.

Plan Assets and Investment Strategy

The Company’s pension plan assets by level within the fair value hierarchy at September 30, 2015 and 2016, are presented in the table below. The pension plan assets were accounted for at fair value. For more information on a description of the fair value hierarchy, see Note 16.


	September 30, 2015
	Level 1
	Active		Level 2		Level 3
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Total
U.S. Pension Plan Assets:
U.S. common stock mutual funds	$	62,011	$	—	$	—	$	62,011
Common /collective funds
Bonds		—		78,064		—		78,064
U.S. common stock		—		37,323		—		37,323
International equity		9,040		—		—		9,040
Total U.S.	$	71,051	$	115,387	$	—	$	186,438
U.K. Plan Assets:
Equities	$	—	$	8,539	$	—	$	8,539
Bonds		—		3,071		—		3,071
Other		—		7,450		—		7,450
Total U.K.	$	—	$	19,060	$	—	$	19,060
Total pension plan assets	$	71,051	$	134,447	$	—	$	205,498


	September 30, 2016
	Level 1
	Active		Level 2		Level 3
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Total
U.S. Pension Plan Assets:
U.S. common stock mutual funds	$	64,333	$	—	$	—	$	64,333
Common /collective funds
Bonds		—		75,686		—		75,686
U.S. common stock		—		39,735		—		39,735
International equity		9,461		—		—		9,461
Total U.S.	$	73,794	$	115,421	$	—	$	189,215
U.K. Plan Assets:
Equities	$	—	$	7,499	$	—	$	7,499
Bonds		—		9,187		—		9,187
Other		—		2,062		—		2,062
Total U.K.	$	—	$	18,748	$	—	$	18,748
Total pension plan assets	$	73,794	$	134,169	$	—	$	207,963

The primary financial objectives of the plans are to minimize cash contributions over the long term and preserve capital while maintaining a high degree of liquidity. A secondary financial objective is, where possible, to avoid significant downside risk in the short run. The objective is based on a long-term investment horizon so that interim fluctuations should be viewed with appropriate perspective.

The selection of the U.S. plan’s assumption for the expected long-term rate of return on plan assets is based upon the Plan’s target allocation of 60% equities and 40% bonds, and the expected rate of return for each equity/bond asset class. Based upon the target allocation and each asset class’s expected return, the plan’s return on assets assumption is 7.50%, and it remains unchanged from last year’s assumption. The Company also realizes that historical performance is no guarantee of future performance.

In determining the expected rate of return on U.S. plan assets, the Company takes into account the plan’s allocation at September 30, 2016 of 60% equities and 40% fixed income. The Company assumes an approximately 3.00% to 4.00% equity risk premium above the broad bond market yields of 5.00% to 7.00%. Note that over very long historical periods, the realized risk premium has been higher. The Company believes that its assumption of a 7.5% long-term rate of return on plan assets is comparable to other companies, given the target allocation of the plan assets; however, there exists the potential for the use of a lower rate in the future.

It is the policy of the U.S. pension plan to invest assets with an allocation to equities as shown below. The balance of the assets are maintained in fixed income investments, and in cash holdings, to the extent permitted by the plan documents.

Asset classes as a percent of total assets:



Asset Class	Target(1)
Equity	60	%
Fixed Income	40	%
Real Estate and Other	—	%

⁽¹⁾

From time to time the Company may adjust the target allocation by an amount not to exceed 10%.

The U.K. pension plan assets use a similar strategy and investment objective.

Contributions and Benefit Payments

The Company has not yet determined the amounts to contribute to its domestic pension plans, domestic other postretirement benefit plans, and the U.K. pension plan in fiscal 2017.

Pension and postretirement health care benefits, which include expected future service, are expected to be paid out of the respective plans as follows:


			Postretirement
Fiscal Year Ending September 30	Pension		Health Care
2017	$	14,835	$	5,000
2018		15,132		5,000
2019		15,541		5,000
2020		16,132		5,000
2021		16,481		5,000
2022 - 2026 (in total)		90,492		25,000