EMPLOYEE BENEFIT PLANS

Pension Plans

The Company has a cash balance retirement plan (the “Pension Plan”), which covers the majority of United States employees who meet certain eligibility requirements. The Company funds all of the contributions for the Pension Plan. Benefits generally are based on the Company’s contributions and interest credits allocated to participants’ accounts based on years of benefit service and annual pensionable earnings. The Pension Plan is a defined benefit plan. It is the Company’s policy to fund the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended. Effective June 1, 2009, no further benefits will accrue to employees under the Pension Plan.

Scholastic Ltd., an indirect subsidiary of Scholastic Corporation located in the United Kingdom, has a defined benefit pension plan (the “UK Pension Plan”) that covers its employees who meet various eligibility requirements. Benefits are based on years of service and on a percentage of compensation near retirement. The UK Pension Plan is funded by contributions from Scholastic Ltd. and its employees.

The Company’s pension plans have a measurement date of May 31.

Post-Retirement Benefits

The Company provides post-retirement benefits to eligible retired United States-based employees (the “Post-Retirement Benefits”) consisting of certain healthcare and life insurance benefits. Employees may become eligible for these benefits after completing certain minimum age and service requirements. Effective June 1, 2009, the Company modified the terms of the Post-Retirement Benefits, effectively excluding a large percentage of employees from the plan. At May 31, 2014, the unrecognized prior service credit remaining was $0.3.

The Medicare Prescription Drug, Improvement and Modernization Act (the “Medicare Act”) introduced a prescription drug benefit under Medicare (“Medicare Part D”) as well as a Federal subsidy of 28% to sponsors of retiree health care benefit plans providing a benefit that is at least actuarially equivalent to Medicare Part D. The Company has determined that the Post-Retirement Benefits provided to its retiree population are in aggregate the actuarial equivalent of the benefits under Medicare Part D. As a result, in fiscal 2014, 2013 and 2012, the Company recognized a cumulative reduction of its accumulated post-retirement benefit obligation of $3.1, $3.1 and $2.9, respectively, due to the Federal subsidy under the Medicare Act.

The following table sets forth the weighted average actuarial assumptions utilized to determine the benefit obligations for the Pension Plan and the UK Pension Plan (collectively the “Pension Plans”), including the Post-Retirement Benefits, at May 31:



	Pension Plans						Post-Retirement Benefits
	2014		2013		2012		2014		2013		2012
Weighted average assumptions used to determine benefit obligations:
Discount rate	4.1	%	4.0	%	4.0	%	4.0	%	3.9	%	3.9	%
Rate of compensation increase	4.2	%	4.4	%	3.3	%	—		—		—
Weighted average assumptions used to determine net periodic benefit cost:
Discount rate	4.0	%	4.0	%	5.1	%	3.9	%	3.9	%	5.0	%
Expected long-term return on plan assets	7.5	%	7.3	%	7.7	%	—		—		—
Rate of compensation increase	4.4	%	3.3	%	4.3	%	—		—		—

To develop the expected long-term rate of return on assets assumption for the Pension Plans, the Company considers historical returns and future expectations. Considering this information and the potential for lower future returns due to a generally lower interest rate environment, the Company selected an assumed weighted average long-term rate of return of 7.5%.

The following table sets forth the change in benefit obligation for the Pension Plans and Post-Retirement Benefits at May 31:



	Pension Plans						Post-Retirement Benefits
	2014			2013			2014			2013
Change in benefit obligation:
Benefit obligation at beginning of year	$	185.6		$	182.2		$	36.2		$	39.6
Service cost	—			—			0.0			0.0
Interest cost	7.2			6.9			1.3			1.4
Plan participants’ contributions	—			—			0.4			0.4
Actuarial losses (gains)	(2.5		)	7.4			(1.9		)	(2.8		)
Foreign currency translation	3.7			(0.8		)	—			—
Settlement	(6.4		)	—			—			—
Benefits paid, including expenses	(7.1		)	(10.1		)	(2.6		)	(2.4		)
Benefit obligation at end of year	$	180.5		$	185.6		$	33.4		$	36.2

The following table sets forth the change in plan assets for the Pension Plans and Post-Retirement Benefits at May 31:



	Pension Plans						Post-Retirement Benefits
	2014			2013			2014			2013
Change in plan assets:
Fair value of plan assets at beginning of year	$	173.8		$	145.8		$	—		$	—
Actual return on plan assets	21.1			29.9			—			—
Employer contributions	4.6			8.8			2.2			2.0
Settlement	(6.4		)	—			—			—
Benefits paid, including expenses	(7.1		)	(10.1		)	(2.6		)	(2.4		)
Plan participants’ contributions	—			—			0.4			0.4
Foreign currency translation	2.6			(0.6		)	—			—
Fair value of plan assets at end of year	$	188.6		$	173.8		$	—		$	—

In fiscal 2014, the Company recorded a pretax charge of $1.7 related to the lump sump settlement of certain US pension obligations.

The following table sets forth the net funded status of the Pension Plans and Post-Retirement Benefits and the related amounts

recognized on the Company’s Consolidated Balance Sheets at May 31:



	Pension Plans						Post-Retirement Benefits
	2014			2013			2014			2013
Non-current assets	$	19.4		$	—		$	—		$	—
Current liabilities	—			—			(2.6		)	(2.7		)
Non-current liabilities	(11.4		)	(11.8		)	(30.8		)	(33.5		)
Net funded balance	$	8.0		$	(11.8	)	$	(33.4	)	$	(36.2	)

The following amounts were recognized in Accumulated other comprehensive loss for the Pension Plans and Post-Retirement Benefits in the Company’s Consolidated Balance Sheets at May 31:



	2014									2013
	Pension Plans			Post - Retirement Benefits			Total			Pension Plans			Post - Retirement Benefits			Total
Net actuarial gain (loss)	$	(47.6	)	$	(9.3	)	$	(56.9	)	$	(62.1	)	$	(13.4	)	$	(75.5	)
Net prior service credit	—			0.3			0.3			—			0.5			0.5
Net amount recognized in Accumulated other comprehensive income (loss)	$	(47.6	)	$	(9.0	)	$	(56.6	)	$	(62.1	)	$	(12.9	)	$	(75.0	)

The estimated net loss for the Pension Plans that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost over the Company’s fiscal year ending May 31, 2015 is $1.4. The estimated net loss and prior service credit for the Post-Retirement Benefits that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost over the fiscal year ending May 31, 2015 are $1.6 and $0.2, respectively. Income tax expense of $5.0 and income tax expense of $8.4 were recognized in Accumulated other comprehensive loss at May 31, 2014 and 2013, respectively.

The following table sets forth information with respect to the Pension Plans with accumulated benefit obligations in excess of plan assets for the fiscal years ended May 31:



	2014		2013
Projected benefit obligations	$	180.5	$	185.6
Accumulated benefit obligations	179.5		184.6
Fair value of plan assets	188.6		173.8

The following table sets forth the net periodic (benefit) cost for the Pension Plans and Post-Retirement Benefits for the fiscal years ended May 31:



	Pension Plans									Post - Retirement Benefits
	2014			2013			2012			2014			2013			2012
Components of net periodic (benefit) cost:
Service cost	$	—		$	—		$	—		$	0.0		$	0.0		$	0.0
Interest cost	7.2			6.9			8.4			1.3			1.4			1.7
Expected return on assets	(12.7		)	(10.5		)	(10.8		)	—			—			—
Net amortization and deferrals	—			—			—			(0.2		)	(0.4		)	(0.6		)
Lump sum settlement charge	1.7			—			—			—			—			—
Recognized net actuarial loss	1.8			2.2			1.4			2.2			3.0			3.8
Net periodic (benefit) cost	$	(2.0	)	$	(1.4	)	$	(1.0	)	$	3.3		$	4.0		$	4.9

Plan Assets

The Company’s investment policy with regard to the assets in the Pension Plans is to actively manage, within acceptable risk parameters, certain asset classes where the potential exists to outperform the broader market.

The following table sets forth the total weighted average asset allocations for the Pension Plans by asset category at May 31:



	2014		2013
Equity securities	33.0	%	69.5	%
Debt securities	58.8	%	24.0	%
Real estate	1.1	%	1.0	%
Other	7.1	%	5.5	%
	100.0	%	100.0	%

The following table sets forth the targeted weighted average asset allocations for the Pension Plans included in the Company’s investment policy:



	US Pension Plan		UK Pension Plan
Equity	30	%	40	%
Debt and cash equivalents	70	%	30	%
Real estate and other	0	%	30	%
	100	%	100	%

The fair values of the Company’s Pension Plans’ assets are measured using Level 1, Level 2 and Level 3 fair value measurements. For a more complete description of fair value measurements see Note 18, “Fair Value Measurements.”

The following table sets forth the measurement of the Company’s Pension Plans’ assets at fair value by asset category at the respective dates:



	Assets at Fair Value as of May 31, 2014
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	7.1	$	—	$	—	$	7.1
Equity securities:
U.S. ⁽¹⁾	39.8		101.3		—		141.1
International ⁽²⁾	10.3		12.1		—		22.4
Fixed Income ⁽³⁾	—		9.7		—		9.7
Annuities	—		—		6.2		6.2
Real estate ⁽⁴⁾	—		2.1		—		2.1
Total	$	57.2	$	125.2	$	6.2	$	188.6



	Assets at Fair Value as of May 31, 2013
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	3.5	$	—	$	—	$	3.5
Equity securities:
U.S. ⁽¹⁾	94.0		—		—		94.0
International ⁽²⁾	16.3		10.4		—		26.7
Fixed Income ⁽³⁾	34.4		7.4		—		41.8
Annuities	—		—		6.1		6.1
Real estate ⁽⁴⁾	—		1.7		—		1.7
Total	$	148.2	$	19.5	$	6.1	$	173.8


(1)	Funds which invest in a diversified portfolio of publicly traded U.S. common stocks of large-cap, medium-cap and small-cap companies. There are no restrictions on these investments.


(2)	Funds which invest in a diversified portfolio of publicly traded common stock of non-U.S. companies, primarily in Europe and Asia. There are no restrictions on these investments.


(3)	Funds which invest in a diversified portfolio of publicly traded government bonds, corporate bonds and mortgage-backed securities. There are no restrictions on these investments.


(4)	Represents assets of a non-U.S. entity plan invested in a fund whose underlying investments are comprised of properties. The fund has publicly available quoted market prices and there are no restrictions on these investments.

The Company has purchased annuities to service fixed payments to certain retired plan participants in the UK. These annuities are purchased from investment grade counterparties. These annuities are not traded on open markets, and are therefore valued based upon the actuarial determined valuation, and related assumptions, of the underlying projected benefit obligation, a Level 3 valuation technique. The fair value of these assets was $6.2 and $6.1 at May 31, 2014 and May 31, 2013, respectively.

The following table summarizes the changes in fair value of these Level 3 assets for the fiscal years ended May 31, 2014 and 2013:



Balance at May 31, 2012	$	5.8
Actual Return on Plan Assets:
Relating to assets still held at May 31, 2013	0.7
Relating to assets sold during the year	—
Purchases, sales and settlements, net	(0.3		)
Transfers in and/or out of Level 3	—
Foreign currency translation	(0.1		)
Balance at May 31, 2013	$	6.1
Actual Return on Plan Assets:
Relating to assets still held at May 31, 2014	(0.1		)
Relating to assets sold during the year	—
Purchases, sales and settlements, net	(0.3		)
Transfers in and/or out of Level 3	—
Foreign currency translation	0.5
Balance at May 31, 2014	$	6.2

Contributions

In fiscal 2015, the Company expects to contribute $1.4 to the Pension Plans.

Estimated future benefit payments

The following table sets forth the expected future benefit payments under the Pension Plans and the Post-Retirement Benefits by fiscal year:



			Post - Retirement
	Pension Benefits		Benefit Payments		Medicare Subsidy Receipts
2015	$	15.5	$	2.9	$	0.3
2016	11.8		2.8		0.3
2017	11.1		2.8		0.3
2018	10.8		2.7		0.3
2019	11.0		2.6		0.3
2020-2024	50.7		12.5		1.6

Assumed health care cost trend rates at May 31:



	2014		2013
Health care cost trend rate assumed for the next fiscal year	7.0	%	7.5	%
Rate to which the cost trend is assumed to decline (the ultimate trend rate)	5.0	%	5.0	%
Year that the rate reaches the ultimate trend rate	2021		2021

Assumed health care cost trend rates could have a significant effect on the amounts reported for the post-retirement health care plan. A one percentage point change in assumed health care cost trend rates would have the following effects:



	2014			2013
Total service and interest cost - 1% increase	$	0.1		$	0.2
Total service and interest cost - 1% decrease	(0.1		)	(0.1		)
Post-retirement benefit obligation - 1% increase	3.6			4.0
Post-retirement benefit obligation - 1% decrease	(3.1		)	(3.4		)

Defined contribution plans

The Company also provides defined contribution plans for certain eligible employees. In the United States, the Company sponsors a 401(k) retirement plan and has contributed $7.5, $8.0 and $7.4 for fiscal 2014, 2013 and 2012, respectively.