Note 9. 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, 2017, 2018 and 2019 totaled $1,590, $1,811 and $1,940, 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, 2017, 2018 and 2019.

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, 2017, 2018 and 2019 was $19, $34 and $98, respectively. Accrued liabilities in the amount of $716 and $719 for these benefits are included in accrued pension and postretirement benefits liability at September 30, 2018 and 2019, 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 $6,000, $8,000, and $4,500 to fund its domestic Company-sponsored pension plan for the years ended September 30, 2017, 2018 and 2019, respectively. The Company’s U.K. subsidiary made contributions of $804, $782 and $737 for the years ended September 30, 2017, 2018 and 2019, respectively, to the U.K. pension plan.

During the fourth quarter of fiscal 2018, the Company transferred assets of $13,576 to a third-party insurance company in exchange for the assumption of pension liability for approximately 397 retired participants. The pension liability for those retirees is not included in the projected benefit obligation as of September 30, 2018 or September 30, 2019.

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,
	2018		2019		2018		2019
Change in Benefit Obligation:
Projected benefit obligation at beginning of year	$	310,803	$	278,280	$	117,424	$	108,013
Service cost		5,536		5,239		336		318
Interest cost		10,801		10,652		4,311		4,353
Actuarial gains (losses)		(19,756)		42,130		(10,395)		4,245
Benefits paid		(14,178)		(13,734)		(3,663)		(3,095)
Transfer to third-party insurance company		(13,576)		—		—		—
Administrative expenses		(1,350)		(1,089)		—		—
Projected benefit obligation at end of year	$	278,280	$	321,478	$	108,013	$	113,834
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	224,094	$	222,273	$	—	$	—
Actual return on assets		18,501		13,230		—		—
Employer contributions		8,782		5,237		3,663		3,095
Benefits paid		(14,178)		(13,734)		(3,663)		(3,095)
Transfer to third-party insurance company		(13,576)		—		—		—
Administrative expenses		(1,350)		(1,089)		—		—
Fair value of plan assets at end of year	$	222,273	$	225,917	$	—	$	—
Funded Status of Plan:
Unfunded status	$	(56,007)	$	(95,561)	$	(108,013)	$	(113,834)

The actuarial gains incurred during the fiscal year ended September 30, 2018 were primarily driven from an increases in discount rates applied against future expected benefit payments and resulted in a decrease in the benefit obligation for both the Defined Benefit Pension Plan and Postretirement Health Care Plan. Conversely, the actuarial losses incurred during the fiscal year ended September 30, 2019 were primarily driven from a decrease in discount rates applied against future expected benefit payments and resulted in an increase in the benefit obligation for both the Defined Benefit Pension Plan and Postretirement Health Care Plan. The benefit obligation, as of September 30, 2018 was also reduced by the transfer of a portion of the benefit obligation to a third-party insurance company in the amount of $13,576.

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,
	2018		2019		2018		2019		2018		2019		2018		2019
Accrued pension and postretirement benefits:
Current	$	—	$	—	$	(5,000)	$	(4,155)	$	(95)	$	(95)	$	(5,095)	$	(4,250)
Non-current		(56,007)		(95,561)		(103,013)		(109,679)		(621)		(624)		(159,641)		(205,864)
Accrued pension and postretirement benefits	$	(56,007)	$	(95,561)	$	(108,013)	$	(113,834)	$	(716)	$	(719)	$	(164,736)	$	(210,114)
Accumulated other comprehensive loss:
Net loss		38,808		80,711		21,891		24,650		—		—		60,699		105,361
Prior service cost		1,839		2,066		—		—		—		—		1,839		2,066
Total accumulated other comprehensive loss	$	40,647	$	82,777	$	21,891	$	24,650	$	—	$	—	$	62,538	$	107,427

The non-current portion of the defined benefit pension plan portion of accrued pension and postretirement benefits amounts to $56,007 and $95,561 in fiscal 2018 and 2019, respectively. These amounts include the UK pension plan net pension asset of $5,444 and $5,627, respectively, which is included in Other assets on the consolidated balance sheets as well as the US pension plan accrued pension liability of $61,451 and $101,188, respectively, which are recorded in accrued pension benefit (less current portion) on the consolidated balance sheet.

The accumulated benefit obligation for the pension plans was $269,386 and $309,410 at September 30, 2018 and 2019, 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,
	2017		2018		2019
Service cost	$	6,282	$	5,536	$	5,239
Interest cost		10,577		10,801		10,652
Expected return on assets		(14,419)		(15,157)		(14,907)
Amortization of prior service cost		808		374		228
Recognized actuarial loss		11,267		4,910		1,449
Net periodic cost	$	14,515	$	6,464	$	2,661


	Postretirement
	Health Care Benefits
	Year Ended September 30,
	2017		2018		2019
Service cost	$	350	$	336	$	318
Interest cost		4,292		4,311		4,353
Recognized actuarial loss		4,278		2,999		1,487
Net periodic cost	$	8,920	$	7,646	$	6,158

Assumptions

A 5.0% ( 5.0%-2018) annual rate of increase for the costs of covered health care benefits for ages under 65 and a 5.0% ( 5.0%-2018) annual rate of increase for ages over 65 were assumed for 2019 and remained at 5.0% for the under 65 and over 65 age groups in the years thereafter.

The actuarial present value of the projected pension benefit obligation and postretirement health care benefit obligation for the plans at September 30, 2018 and 2019 were determined based on the following assumptions:


	September 30,		September 30,
	2018		2019
Discount rate (postretirement health care)	4.13	%	3.13	%
Discount rate (U.S. pension plan)	4.00	%	2.88	%
Discount rate (U.K. pension plan)	2.80	%	1.70	%
Rate of compensation increase (U.S. pension plan only)	2.50	%	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,
	2017		2018		2019
Discount rate (postretirement health care plan)	3.50	%	3.75	%	4.13	%
Discount rate (U.S. pension plan)	3.25	%	3.63	%	4.00	%
Discount rate (U.K. pension plan)	2.30	%	2.50	%	2.80	%
Expected return on plan assets (U.S. pension plan)	7.50	%	7.25	%	7.25	%
Expected return on plan assets (U.K. pension plan)	2.70	%	3.30	%	3.20	%
Rate of compensation increase (U.S. pension plan only)	3.50	%	2.50	%	2.50	%

Plan Assets and Investment Strategy

The Company’s pension plan assets by level within the fair value hierarchy at September 30, 2018 and 2019, 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 17.


	September 30, 2018
	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	$	—	$	—	$	72,947	$	72,947
Common /collective funds
Bonds		—		—		80,250		80,250
U.S. common stock		—		—		32,547		32,547
International equity		—		—		16,152		16,152
Total U.S.	$	—	$	—	$	201,896	$	201,896
U.K. Plan Assets:
Equities	$	—	$	—	$	8,150	$	8,150
Bonds		—		—		9,781		9,781
Other		—		—		2,446		2,446
Total U.K.	$	—	$	—	$	20,377	$	20,377
Total pension plan assets	$	—	$	—	$	222,273	$	222,273


	September 30, 2019
	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	$	—	$	—	$	67,954	$	67,954
Common /collective funds
Bonds		—		—		81,871		81,871
U.S. common stock		—		—		30,292		30,292
International equity		—		—		24,561		24,561
Total U.S.	$	—	$	—	$	204,678	$	204,678
U.K. Plan Assets:
Equities	$	—	$	—	$	6,585	$	6,585
Bonds		—		—		12,106		12,106
Other		—		—		2,548		2,548
Total U.K.	$	—	$	—	$	21,239	$	21,239
Total pension plan assets	$	—	$	—	$	225,917	$	225,917

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, 2019 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 4.00% to 6.00%. Note that over very long historical periods, the realized risk premium has been higher. The Company believes that its assumption of a 7.25% 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 2020.

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
2020	$	14,858	$	4,155
2021		15,282		4,487
2022		15,830		4,794
2023		16,281		4,965
2024		16,682		4,894
2025 - 2029 (in total)		86,758		23,939