Postretirement and Other Employee Benefits

12 Months Ended

Aug. 31, 2016

Postretirement and Other Employee Benefits [Abstract]

Postretirement and Other Employee Benefits

10. 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 2016 and 2015
(in thousands):
				Pension Benefits
				2016		2015
			Beginning projected benefit obligation	$	161,230	$	182,653
			Service cost		883		1,054
			Interest cost		4,844		5,554
			Actuarial loss (gain)		40,170		(5,252)
			Curtailment gain		―		(2,542)
			Total benefits paid		(5,587)		(5,238)
			Plan participants’ contributions		27		28
			Amendments		―		(198)
			Acquisitions		―		1,769
			Effect of conversion to U.S. dollars		(19,289)		(16,598)
			Ending projected benefit obligation	$	182,278	$	161,230

	Weighted-average actuarial assumptions used to determine the benefit obligations for the plans for fiscal years 2016 and 2015
were as follows:
			Pension Benefits
			2016		2015
		Expected long-term return on plan assets	3.3	%	4.4	%
		Rate of compensation increase	4.1	%	4.3	%
		Discount rate	1.7	%	3.2	%

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 2017.

	The fair values of the plan assets held by the Company by asset category for fiscal years 2016 and 2015 are as follows (in
thousands):
							Fair Value Measurements Using Inputs Considered as:
		Fair Value at
		August 31, 2016		Asset Allocation			Level 1		Level 2		Level 3
Asset Category
Cash and cash equivalents		$	3,565		3	%	$	3,565	$	―	$	―
Equity Securities:
Global equity securities(a)			41,515		29	%		―		41,515		―
Debt Securities:
U.K. corporate bonds(b)			27,268		19	%		―		27,268		―
U.K. government bonds(c)			34,359		24	%		―		34,359
Global government bonds(d)			6,136		4	%		―		6,136		―
Global corporate bonds(e)			14,725		10	%		―		14,725
Other Investments:
Insurance contracts(f)			16,134		11	%		―		―		16,134
Fair value of plan assets		$	143,702		100	%	$	3,565	$	124,003	$	16,134

						Fair Value Measurements Using Inputs Considered as:
	Fair Value at
	August 31, 2015		Asset Allocation			Level 1		Level 2		Level 3
Asset Category
Cash and cash equivalents	$	4,567		3	%	$	4,567	$	―	$	―
Equity Securities:
Global equity securities(g)		24,143		18	%		―		24,143		―
U.K. equity securities(h)		24,211		18	%		―		24,211		―
Debt Securities:
U.K. corporate bonds(i)		50,817		38	%		―		50,817		―
U.K. government bonds(j)		16,866		12	%		―		16,866		―
Other Investments:
Insurance contracts(f)		14,204		11	%		―		―		14,204
Fair value of plan assets	$	134,808		100	%	$	4,567	$	116,037	$	14,204

^(a)Global equity securities are categorized as Level 2 and include investments that aim to capture global equity market returns by tracking the Morgan Stanley Capital International (“MSCI”) World Index and other similar world stocks indexes.

^(b)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 (Bank of America Merrill Lynch ("BofAML") Sterling Corporate & Collateralised All-Stocks (Excluding Subordinated Financials)).

^(c)U.K. government bonds are categorized as Level 2 and include U.K. government issued inflation-linked income investments which are managed and tracked to the respective benchmarks (FTSE Actuaries UK Index-Linked Gilts Over 5 Years)and a custom benchmark based on the longest gilts in issue).

^(d)Global government bonds are categorized as Level 2 and include emerging market government issued fixed income investments which are managed and tracked to the respective benchmark (J.P.Morgan GBI-EM Global Diversified).

^(e)Global corporate bonds are categorized as Level 2 and include global corporate issued fixed income investments which are managed and tracked to the respective benchmarks (BofAML Developed Market BB/B Global High Yield Constrained Index; BofAML Global High Yield Constrained and Standard & Poor's ("S&P")/Loan Syndications & Trading Association ("LSTA") US Leveraged Loan Hedged).

^(f)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.

^(g)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 Germany.

^(h)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.

⁽ⁱ⁾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).

^(j)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).

	The following table provides a reconciliation of the changes in the pension plan assets for the year between measurement dates
for fiscal years 2016 and 2015 (in thousands):
			Pension Benefits
			2016		2015
		Beginning fair value of plan assets	$	134,808	$	136,451
		Actual return on plan assets		29,734		9,810
		Acquisitions		―		1,756
		Employer contributions		3,391		3,499
		Benefits paid from plan assets		(5,268)		(5,037)
		Plan participants’ contributions		27		28
		Effect of conversion to U.S. dollars		(18,990)		(11,699)
		Ending fair value of plan assets	$	143,702	$	134,808

	c. Funded Status
		The following table provides a reconciliation of the funded status of the plans to the Consolidated Balance Sheets for fiscal
years 2016 and 2015 (in thousands):
					Pension Benefits
					2016		2015
			Funded Status
			Ending fair value of plan assets		$	143,702	$	134,808
			Ending projected benefit obligation			(182,278)		(161,230)
			Under or unfunded status		$	(38,576)	$	(26,422)
			Consolidated Balance Sheet Information
			Accrued benefit liability, current		$	(383)	$	(140)
			Accrued benefit liability, noncurrent			(38,193)		(26,282)
			Net liability recorded at August 31		$	(38,576)	$	(26,422)
			Amounts recognized in accumulated other comprehensive loss
				consist of:
			Net actuarial loss		$	44,155	$	32,986
			Prior service credit			(1,255)		(1,405)
			Accumulated other comprehensive loss, before taxes		$	42,900	$	31,581

	The following table provides the estimated amount that will be amortized from accumulated other comprehensive loss into net
periodic benefit cost in fiscal year 2017 (in thousands):
			Pension Benefits
		Recognized net actuarial loss	$	1,919
		Amortization of prior service credit		(139)
		Total	$	1,780

	The accumulated benefit obligation for the plans was $171.6 million and $152.8 million at August 31, 2016 and 2015,
respectively.
	The following table provides information for the plans with an accumulated benefit obligation in excess of plan assets for fiscal
years 2016 and 2015 (in thousands):
			August 31,
			2016		2015
		Projected benefit obligation	$	182,278	$	161,230
		Accumulated benefit obligation	$	171,589	$	152,818
		Fair value of plan assets	$	143,702	$	134,808

	d. Net Periodic Benefit Cost
		The following table provides information about net periodic benefit cost for the plans for fiscal years 2016, 2015 and 2014 (in
thousands):
				Pension Benefits
				2016		2015		2014
			Service cost	$	883	$	1,054	$	1,225
			Interest cost		4,844		5,554		6,819
			Expected long-term return on plan assets		(5,560)		(5,778)		(6,167)
			Recognized actuarial loss		1,046		1,723		2,817
			Net curtailment gain		―		(2,542)		(107)
			Amortization of prior service credit		(139)		(147)		(198)
			Net periodic benefit cost	$	1,074	$	(136)	$	4,389

	Weighted-average actuarial assumptions used to determine net periodic benefit cost for the plans for fiscal years 2016, 2015 and
2014 were as follows:
			Pension Benefits
			2016		2015		2014
		Expected long-term return on plan assets	4.3	%	4.4	%	5.1	%
		Rate of compensation increase	2.4	%	3.2	%	4.0	%
		Discount rate	2.9	%	1.8	%	3.0	%
	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 $2.9 million and $3.3 million to its funded pension plans during fiscal year 2017. The Company does not anticipate the return of any plan assets during fiscal year 2017.

The estimated future benefit payments, which reflect expected future service, as appropriate, are as follows (in thousands):
	Fiscal Year Ending August 31,	Amount
	2017	$	4,669
	2018		4,605
	2019		5,656
	2020		5,765
	2021		5,309
	Years 2022 through 2026		35,745

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 $33.3 million, $36.8 million and $34.8 million for the fiscal years ended August 31,2016, 2015 and 2014, respectively.