Pension and retirement plans

12 Months Ended

Jul. 02, 2011

Pension and retirement plans [Abstract]

Pension and retirement plans

10. Pension and retirement plans

Pension Plan

The Company’s noncontributory defined benefit pension plan (the “Plan”) covers substantially all domestic employees. Employees are eligible to participate in the Plan following the first year of service during which they worked at least 1,000 hours. The Plan provides defined benefits pursuant to a cash balance feature whereby a participant accumulates a benefit based upon a percentage of current salary, which varies with age, and interest credits. The Company uses June 30 as the measurement date for determining pension expense and benefit obligations for each fiscal year. Not included in the tabulations and discussions that follow are pension plans of certain non-U.S. subsidiaries, which are not material.

The following tables outline changes in benefit obligations, plan assets and the funded status of the Plan as of the end of fiscal 2011 and 2010:

	July 2,			July 3,
	2011			2010
	(Thousands)
Changes in benefit obligations:
Benefit obligations at beginning of year	$	276,938		$	263,324
Service cost		23,874			—
Interest cost		13,918			15,748
Plan amendments		—			34,000
Actuarial loss		5,168			19,591
Benefits paid		(22,371	)		(55,725	)
Benefit obligations at end of year	$	297,527		$	276,938
Change in plan assets:
Fair value of plan assets at beginning of year	$	278,964		$	258,931
Actual return on plan assets		67,659			34,008
Benefits paid		(22,371	)		(55,725	)
Contributions		500			41,750
Fair value of plan assets at end of year	$	324,752		$	278,964
Funded status of the plan recognized as a non-current asset	$	27,225		$	2,026
Amounts recognized in accumulated other comprehensive income:
Unrecognized net actuarial loss	$	147,311		$	191,180
Unamortized prior service credit		(14,431	)		(16,306	)
	$	132,880		$	174,874
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial (gain) loss	$	(34,931	)	$	15,720
Prior service cost		—			34,000
Amortization of net actuarial loss		(8,938	)		(5,687	)
Amortization of prior service credit		1,875			4,884
	$	(41,994	)	$	48,917

The Plan was amended effective July 1, 2010 to resume future accruals for compensation paid by the Company on or after July 1, 2010. The pension accrual formula was similar in structure to the formula that was frozen as of July 1, 2009. The Plan changes effected by this amendment were as follows:

• an age-related contribution crediting schedule ranging from 4% to 16% of pension-eligible compensation

• interest credits on post-July 1, 2010 pension accruals of 4% per year

• inclusion of overtime pay in pension-eligible compensation

• increase of the cap on pension-eligible compensation from $100,000 to the statutory limit

• change in the actuarial factor basis used to convert account balances to annuity payment forms.

In October 2009, the Company agreed to settle a pension litigation matter, which was approved by the court in April 2010. As a result, the Plan was amended to increase benefits to certain former employees. This amendment, effective May 21, 2010, increased the benefit obligation by $34,000,000 and results in a prior service cost base which will be amortized over 11 years. To fund this additional liability, the Company made a voluntary contribution of $34,000,000 in June 2010. The impacts of the amendment described above are reflected in the preceding table.

Included in “accumulated other comprehensive income” at July 2, 2011 is a pre-tax charge of $147,311,000 of net actuarial losses which have not yet been recognized in net periodic pension cost, of which $9,680,000 is expected to be recognized as a component of net periodic benefit cost during fiscal 2012. Also included is a pre-tax credit of $14,431,000 of prior service credit which has not yet been recognized in net periodic pension costs, of which $1,875,000 is expected to be recognized as a component of net periodic benefit costs during fiscal 2012.

Weighted average assumptions used to calculate actuarial present values of benefit obligations are as follows:

	2011			2010
Discount rate		5.25	%		5.25	%

Weighted average assumptions used to determine net benefit costs are as follows:

	2011			2010
Discount rate		5.25	%		6.25	%
Expected return on plan assets		8.50	%		9.00	%

The Company bases its discount rate on a hypothetical portfolio of bonds rated Aa by Moody’s Investor Services or AA by Standard & Poors. The bonds selected for this determination are based upon the estimated amount and timing of services of the pension plan.

Components of net periodic pension costs during the last three fiscal years are as follows:

	Years Ended
	July 2,			July 3,			June 27,
	2011			2010			2009
	(Thousands)
Service cost	$	23,874		$	—		$	16,205
Interest cost		13,918			15,748			18,175
Expected return on plan assets		(27,560	)		(30,137	)		(26,539	)
Recognized net actuarial loss		8,938			5,687			2,325
Amortization of prior service credit		(1,875	)		(4,884	)		—
Net periodic pension cost	$	17,295		$	(13,586	)	$	10,166

The Company made contributions of $500,000 and $41,750,000 in fiscal 2011 and 2010, respectively.

Benefit payments are expected to be paid to participants as follows for the next five fiscal years and the aggregate for the five years thereafter (in thousands):

2012	$	26,463
2013		20,405
2014		20,619
2015		19,258
2016		20,625
2016 through 2021		112,041

The Plan’s assets are held in trust and were allocated as follows as of the June 30 measurement date for fiscal 2011 and 2010:

	2011			2010
Equity securities		76	%		74	%
Debt securities		24			25
Cash and receivables		—			1

The general investment objectives of the Plan are to maximize returns through a diversified investment portfolio in order to earn annualized returns that meet the long-term cost of funding the Plan’s pension obligations while maintaining reasonable and prudent levels of risk. The target rate of return on Plan assets is currently 8.5%, which represents the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the benefit obligation. This assumption has been determined by combining expectations regarding future rates of return for the investment portfolio along with the historical and expected distribution of investments by asset class and the historical rates of return for each of those asset classes. The mix of equity securities is typically diversified to obtain a blend of domestic and international investments covering multiple industries. The Plan assets do not include any material investments in Avnet common stock. The Plan’s investments in debt securities are also diversified across both public and private fixed income securities. The Company’s current target allocation for the investment portfolio is for equity securities, both domestic and international, to represent approximately 76% of the portfolio with a policy for minimum investment in equity securities of 60% of the portfolio and a maximum of 92%. The majority of the remaining portfolio of investments is to be invested in fixed income securities.

As of June 30, 2011, the market value of plan assets by investment category was: U.S. Equity ($194.3 million); U.S. Bonds ($76.5 million); International Equity ($51.9 million) and cash and receivables ($2.0 million). Asset values are Level 1 for all asset categories as the fair values are based upon quoted market prices for identical assets. The pension assets were highly diversified to reduce the potential risk of significant concentrations of credit risk.