9. Postretirement and Other Employee Benefits

Postretirement Benefits

During the first quarter of fiscal year 2002, the Company established a defined benefit pension plan for all permanent employees of Jabil Circuit UK Limited. This plan was established in accordance with the terms of the business sale agreement with Marconi Communications plc (“Marconi”). The benefit obligations and plan assets from the terminated Marconi plan were transferred to the newly established defined benefit plan (the “UK plan”). The UK plan, which is closed to new participants, provides benefits based on average employee earnings over a three-year service period preceding retirement and length of employee service. The Company’s policy is to contribute amounts sufficient to meet minimum funding requirements as set forth in UK employee benefit and tax laws plus such additional amounts as are deemed appropriate by the Company. Plan assets are held in trust and consist of equity and debt securities as detailed below.

As a result of acquiring various other operations in Austria, France, Germany, The Netherlands, Poland and Taiwan, the Company assumed both funded and unfunded retirement benefits to be paid based upon years of service and compensation at retirement (the “other plans”). All permanent employees meeting the minimum service requirement are eligible to participate in the other plans.

The UK plan and other plans are collectively referred to herein as the “plans.”

There is no domestic pension or post-retirement benefit plan maintained by the Company.

The Company is required to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its Consolidated Balance Sheet, and to recognize changes in that funded status in the year in which the changes occur through comprehensive income.

a. Benefit Obligations

The following table provides a reconciliation of the change in the benefit obligations for the plans for fiscal years 2014 and 2013 (in thousands):


	Pension Benefits
	2014			2013
Beginning projected benefit obligation	$	164,294		$	158,008
Service cost		1,225			1,596
Interest cost		6,819			5,977
Actuarial loss		9,526			10,415
Curtailment gain		(899	)		(87	)
Total benefits paid		(5,597	)		(3,935	)
Plan participants’ contributions		56			12
Amendments		(97	)		(1,730	)
Effect of conversion to U.S. dollars		7,326			(5,962	)

Ending projected benefit obligation	$	182,653		$	164,294

Weighted-average actuarial assumptions used to determine the benefit obligations for the plans for fiscal years 2014 and 2013 were as follows:


	Pension Benefits
	2014			2013
Expected long-term return on plan assets		4.6	%		4.9	%
Rate of compensation increase		4.4	%		4.5	%
Discount rate		3.3	%		4.0	%

The Company evaluates these assumptions on a regular basis taking into consideration current market conditions and historical market data. The discount rate is used to state expected cash flows relating to future benefits at a present value on the measurement date. This rate represents the market rate for high-quality fixed income investments whose timing would match the cash out flow of retirement benefits. A lower discount rate would increase the present value of benefit obligations and vice versa. Other assumptions include demographic factors such as retirement, mortality and turnover.

b. Plan Assets

The Company has adopted an investment policy for a majority of plan assets which was set by plan trustees who have the responsibility for making investment decisions related to the plan assets. The plan trustees oversee the investment allocation, including selecting professional investment managers and setting strategic targets. The investment objectives for the assets are (1) to acquire suitable assets that hold the appropriate liquidity in order to generate income and capital growth that, along with new contributions, will meet the cost of current and future benefits under the plan, (2) to limit the risk of the plan assets from failing to meet the plan liabilities over the long-term and (3) to minimize the long-term costs under the plan by maximizing the return on the plan assets.

Investment policies and strategies governing the assets of the plans are designed to achieve investment objectives with prudent risk parameters. Risk management practices include the use of external investment managers; the maintenance of a portfolio diversified by asset class, investment approach and security holdings; and the maintenance of sufficient liquidity to meet benefit obligations as they come due. Within the equity securities class, the investment policy provides for investments in a broad range of publicly traded securities including both domestic and international stocks. The plans do not hold any of the Company’s stock. Within the debt securities class, the investment policy provides for investments in corporate bonds as well as fixed and variable interest debt instruments. The Company currently expects to achieve the target mix of 35% equity and 65% debt securities in fiscal year 2015.

The fair values of the plan assets held by the Company by asset category for fiscal years 2014 and 2013 are as follows (in thousands):


						Fair Value Measurements Using Inputs Considered as:
	Fair Value at August 31, 2014		Asset Allocation			Level 1		Level 2		Level 3
Asset Category

Cash and cash equivalents	$	4,642		3	%	$	4,642	$	—		—

Equity Securities:
Global equity securities^(a)		23,726		18	%		—		23,726		—
U.K. equity securities^(b)		22,759		17	%		—		22,759		—

Debt Securities:
U.K. corporate bonds^(c)		54,595		40	%		—		54,595		—
U.K. government bonds^(d)		18,270		13	%		—		18,270		—

Other Investments:
Insurance contracts^(e)		12,459		9	%		—		—		12,459

Fair value of plan assets	$	136,451		100	%	$	4,642	$	119,350	$	12,459


						Fair Value Measurements Using Inputs Considered as:
	Fair Value at August 31, 2013		Asset Allocation			Level 1		Level 2		Level 3
Asset Category

Cash and cash equivalents	$	4,598		4	%	$	4,598	$	—		—

Equity Securities:
Global equity securities^(a)		21,637		18	%		—		21,637		—
U.K. equity securities^(b)		20,923		18	%		—		20,923		—

Debt Securities:
U.K. corporate bonds^(c)		43,949		38	%		—		43,949		—
U.K. government bonds^(d)		14,257		12	%		—		14,257		—

Insurance Contracts:
Insurance contracts^(e)		12,114		10	%		—		—		12,114

Fair value of plan assets	$	117,478		100	%	$	4,598	$	100,766	$	12,114

^(a)	Global equity securities are categorized as Level 2 and include investments that aim to capture global equity market returns by tracking the Financial Times (London) Stock Exchange (“FTSE”) AW-World (ex-UK) Index and other similar indexes in Canada.

^(b)	U.K. equity securities are categorized as Level 2 and include investments in a diversified portfolio that aims to capture the returns of the U.K. equity market. The portfolio tracks the FTSE All-Share Index and invests only in U.K. securities.

^(c)	U.K. corporate bonds are categorized as Level 2 and include U.K. corporate issued fixed income investments which are managed and tracked to the respective benchmark (AAA-AA-A Bonds-Over 15Y Index).

^(d)	U.K. government bonds are categorized as Level 2 and include U.K. government-issued fixed income investments which are managed and tracked to the respective benchmark (FTSE U.K. Over 15 Years Gilts Index and FTSE U.K. Over 5 Years Index-Linked).

^(e)

The assets related to The Netherlands plan consist of an insurance contract that guarantees the payment of the funded pension entitlements, as well as provides a profit share to the Company. The profit share in this contract is not based on actual investments, but, instead on a notional investment portfolio that is expected to return a pre-defined rate. Insurance contract assets are recorded at fair value, which is determined based on the cash surrender value of the insured benefits which is the present value of the guaranteed funded benefits. Insurance contracts are valued using unobservable inputs (Level 3 inputs), primarily by discounting expected future cash flows relating to benefits paid from a notional investment portfolio in order to determine the cash surrender value of the policy. The unobservable inputs consist of estimated future benefits to be paid throughout the duration of the policy and estimated discount rates, which both have an immaterial impact on the fair value estimate of the contract.

The following table provides a reconciliation of the changes in the pension plan assets for the year between measurement dates for fiscal years 2014 and 2013 (in thousands):


	Pension Benefits
	2014			2013
Beginning fair value of plan assets	$	117,478		$	109,120
Actual return on plan assets		14,327			9,010
Employer contributions		4,008			3,743
Benefits paid from plan assets		(4,421	)		(3,582	)
Plan participants’ contributions		56			12
Effect of conversion to U.S. dollars		5,003			(825	)

Ending fair value of plan assets	$	136,451		$	117,478

c. Funded Status

The following table provides a reconciliation of the funded status of the plans to the Consolidated Balance Sheets for fiscal years 2014 and 2013 (in thousands):


	Pension Benefits
	2014			2013
*Funded Status*
Ending fair value of plan assets	$	136,451		$	117,478
Ending projected benefit obligation		(182,653	)		(164,294	)

Under or unfunded status	$	(46,202	)	$	(46,816	)

*Consolidated Balance Sheet Information*
Accrued benefit liability, current	$	(146	)	$	(117	)
Accrued benefit liability, noncurrent		(46,056	)		(46,699	)

Net liability recorded at August 31	$	(46,202	)	$	(46,816	)

*Amounts recognized in accumulated other comprehensive loss consist of:*
Net actuarial loss	$	48,858		$	47,147
Prior service cost		(1,594	)		(1,698	)

Accumulated other comprehensive loss, before taxes	$	47,264		$	45,449

The following table provides the estimated amount that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in fiscal year 2015 (in thousands):


	Pension Benefits
Recognized net actuarial loss	$	2,129
Amortization of prior service cost		(169	)

Total	$	1,960

The accumulated benefit obligation for the plans was $171.9 million and $151.7 million at August 31, 2014 and 2013, respectively.

The following table provides information for the plans with an accumulated benefit obligation in excess of plan assets for fiscal years 2014 and 2013 (in thousands):


	August 31,
	2014		2013
Projected benefit obligation	$	182,653	$	164,294
Accumulated benefit obligation		171,865		151,705
Fair value of plan assets		136,451		117,478

d. Net Periodic Benefit Cost

The following table provides information about net periodic benefit cost for the plans for fiscal years 2014, 2013 and 2012 (in thousands):


	Pension Benefits
	2014			2013			2012
Service cost	$	1,225		$	1,596		$	1,039
Interest cost		6,819			5,977			6,513
Expected long-term return on plan assets		(6,167	)		(5,308	)		(4,900	)
Recognized actuarial loss		2,817			2,474			1,207
Net curtailment gain		(107	)		(3,401	)		—
Amortization of prior service cost		(198	)		(184	)		(26	)

Net periodic benefit cost	$	4,389		$	1,154		$	3,833

Weighted-average actuarial assumptions used to determine net periodic benefit cost for the plans for fiscal years 2014, 2013 and 2012 were as follows:


	Pension Benefits
	2014			2013			2012
Expected long-term return on plan assets		5.1	%		4.9	%		5.1	%
Rate of compensation increase		4.0	%		4.5	%		4.0	%
Discount rate		3.0	%		4.0	%		3.9	%

The expected return on plan assets assumption used in calculating net periodic pension cost is based on historical actual return experience and estimates of future long-term performance with consideration to the expected investment mix of the plan assets.

e. Cash Flows

The Company expects to make cash contributions of between $3.9 million and $4.3 million to its funded pension plans during fiscal year 2015. The Company does not anticipate the return of any plan assets during fiscal year 2015.

The estimated future benefit payments, which reflect expected future service, as appropriate, are as follows (in thousands):


Fiscal Year Ending August 31,	Pension Benefits
2015	$	4,869
2016		5,318
2017		5,466
2018		5,925
2019		7,072
Years 2020 through 2024		39,690

Profit Sharing, 401(k) Plan and Defined Contribution Plans

The Company provides retirement benefits to its domestic employees who have completed a 90-day period of service through a 401(k) plan that provides a matching contribution by the Company. Company contributions are at the discretion of the Company’s Board of Directors. The Company also has defined contribution benefit plans for certain of its international employees primarily dictated by the custom of the regions in which it operates. In relation to these plans, the Company contributed approximately $34.8 million, $26.7 million and $24.8 million for the fiscal years ended August 31, 2014, 2013 and 2012, respectively.