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, 2015, 2016 and 2017 totaled $1,598, $1,652 and $1,590, 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, 2015, 2016 and 2017.

Defined Benefit Plans

The Company has non-contributory defined benefit pension plans which cover most employees in the U.S. and the U.K.

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, 2015, 2016 and 2017 was $140, $91 and $19, respectively. Accrued liabilities in the amount of $854 and $777 for these benefits are included in accrued pension and postretirement benefits liability at September 30, 2016 and 2017, 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. The Company’s liability related to total retiree health care costs is limited to $5,000 annually.

The Company made contributions of $1,500, $6,000, and $6,000 to fund its domestic Company-sponsored pension plan for the years ended September 30, 2015, 2016 and 2017, respectively. The Company’s U.K. subsidiary made contributions of $909, $778 and $804 for the years ended September 30, 2015, 2016 and 2017, 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,
	2016		2017		2016		2017
Change in Benefit Obligation:
Projected benefit obligation at beginning of year	$	311,943	$	337,338	$	110,534	$	125,117
Service cost		4,080		6,282		232		350
Interest cost		12,050		10,577		4,595		4,292
Actuarial losses		32,370		(27,246)		15,283		(8,072)
Benefits paid		(23,105)		(14,682)		(5,527)		(4,263)
Administrative expenses		—		(1,466)		—		—
Projected benefit obligation at end of year	$	337,338	$	310,803	$	125,117	$	117,424
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	205,498	$	207,963	$	—	$	—
Actual return on assets		18,792		25,475		—		—
Employer contributions		6,778		6,804		5,527		4,263
Benefits paid		(23,105)		(14,682)		(5,527)		(4,263)
Administrative expenses		-		(1,466)		—		—
Fair value of plan assets at end of year	$	207,963	$	224,094	$	—	$	—
Funded Status of Plan:
Unfunded status	$	(129,375)	$	(86,709)	$	(125,117)	$	(117,424)

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,
	2016		2017		2016		2017		2016		2017		2016		2017
Accrued pension and postretirement benefits:
Current	$	—	$	—	$	(5,000)	$	(5,000)	$	(95)	$	(95)	$	(5,095)	$	(5,095)
Non-current		(129,375)		(86,709)		(120,117)		(112,424)		(759)		(682)		(250,251)		(199,815)
Accrued pension and postretirement benefits	$	(129,375)	$	(86,709)	$	(125,117)	$	(117,424)	$	(854)	$	(777)	$	(255,346)	$	(204,910)
Accumulated other comprehensive loss:
Net loss		116,388		66,819		47,636		35,286		—		—		164,024		102,105
Prior service cost		3,020		2,213		—		—		—		—		3,020		2,213
Total accumulated other comprehensive loss	$	119,408	$	69,032	$	47,636	$	35,286	$	—	$	—	$	167,044	$	104,318
Amounts expected to be recognized from AOCI into the statement of operations in the following year:
Amortization of net loss	$	11,268	$	4,910	$	4,278	$	2,999	$	—	$	—	$	15,546	$	7,909
Amortization of prior service cost		808		374		—		—		—		—		808		374
	$	12,076	$	5,284	$	4,278	$	2,999	$	—	$	—	$	16,354	$	8,283

The non-current portion of the defined benefit pension plan portion of accrued pension and postretirement benefits amounts to $86,709 in fiscal 2017. This amount comprises the UK pension plan net pension asset of $3,566 and is included in Other assets on the consolidated balance sheet as well as the US pension plan accrued pension liability of $90,275 which is recorded in accrued pension benefit (less current portion) on the consolidated balance sheet.

The accumulated benefit obligation for the pension plans was $317,754 and $299,197 at September 30, 2016 and 2017, respectively.

The cost of the Company’s postretirement benefits is 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,
	2015		2016		2017
Service cost	$	3,898	$	4,080	$	6,282
Interest cost		11,203		12,050		10,577
Expected return on assets		(15,117)		(14,380)		(14,419)
Amortization of prior service cost		808		808		808
Recognized actuarial loss		4,645		8,838		11,267
Net periodic cost	$	5,437	$	11,396	$	14,515


	Postretirement
	Health Care Benefits
	Year Ended September 30,
	2015		2016		2017
Service cost	$	337	$	232	$	350
Interest cost		4,385		4,595		4,292
Recognized actuarial loss		2,433		2,825		4,278
Net periodic cost	$	7,155	$	7,652	$	8,920

Assumptions

A 5.0% ( 5.0%-2016) annual rate of increase for the costs of covered health care benefits for ages under 65 and a 5.0% ( 5.0%-2016) annual rate of increase for ages over 65 were assumed for 2017 and remained at 5.0% for the under 65 and over 65 age groups in the years thereafter. 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 postretirement health care expense in fiscal 2017 or on the accumulated postretirement benefit obligation as of September 30, 2017. 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, 2016 and 2017 were determined based on the following assumptions:


	September 30,		September 30,
	2016		2017
Discount rate (postretirement health care)	3.50	%	3.75	%
Discount rate (U.S. pension plan)	3.25	%	3.63	%
Discount rate (U.K. pension plan)	2.30	%	2.50	%
Rate of compensation increase (U.S. pension plan only)	3.50	%	2.50	%

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,
	2015		2016		2017
Discount rate (postretirement health care plan)	4.25	%	4.25	%	3.50	%
Discount rate (U.S. pension plan)	4.00	%	4.00	%	3.25	%
Discount rate (U.K. pension plan)	3.90	%	3.70	%	2.30	%
Expected return on plan assets (U.S. pension plan)	7.50	%	7.50	%	7.50	%
Expected return on plan assets (U.K. pension plan)	4.40	%	4.10	%	2.70	%
Rate of compensation increase (U.S. pension plan only)	3.50	%	3.50	%	3.50	%

Plan Assets and Investment Strategy

The Company’s pension plan assets by level within the fair value hierarchy at September 30, 2016 and 2017, are presented in the table below. The pension plan assets were accounted for at fair value. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Investments in U.S and International equities, and Fixed Income are held in mutual funds and common / collective funds which are valued using net asset value (NAV) provided by the administrator of the fund. For more information on a description of the fair value hierarchy, see Note 16. The Company adopted the guidance included in ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) which requires entities to remove investments in which fair value is measured using net asset value from the fair value hierarchy table.


	September 30, 2016
	Level 1
	Active		Level 2
	Markets for		Other
	Identical		Observable
	Assets		Inputs		NAV		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.	$	—	$	—	$	189,215	$	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	$	—	$	—	$	207,963	$	207,963


	September 30, 2017
	Level 1
	Active		Level 2
	Markets for		Other
	Identical		Observable
	Assets		Inputs		NAV		Total
U.S. Pension Plan Assets:
U.S. common stock mutual funds	$	—	$	—	$	73,430	$	73,430
Common /collective funds
Bonds		—		—		81,702		81,702
U.S. common stock		—		—		32,784		32,784
International equity		—		—		16,341		16,341
Total U.S.	$	—	$	—	$	204,257	$	204,257
U.K. Plan Assets:
Equities	$	—	$	—	$	8,913	$	8,913
Bonds		—		—		7,750		7,750
Other		—		—		3,174		3,174
Total U.K.	$	—	$	—	$	19,837	$	19,837
Total pension plan assets	$	—	$	—	$	224,094	$	224,094

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.

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 is 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%.

In determining the expected rate of return on U.S. plan assets, the Company takes into account the target plan’s allocation at September 30, 2017 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.

The U.K. pension plan assets follow a more conservative investment objective due to the higher funding status of the plan.

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 2018.

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
2018	$	15,358	$	5,000
2019		15,649		5,000
2020		16,161		5,000
2021		16,564		5,000
2022		17,120		5,000
2023 - 2027 (in total)		90,470		25,000