Postretirement and Other Employee Benefits

12 Months Ended

Aug. 31, 2017

Postretirement and Other Employee Benefits [Abstract]

Postretirement and Other Employee Benefits

10. Postretirement and Other Employee Benefits

Postretirement Benefits

The Company has a qualified defined benefit pension plan for employees of Jabil Circuit UK Limited (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.

As a result of acquiring various other operations in Europe and Asia, the Company assumed both qualified and unfunded nonqualified retirement benefits covering eligible employees who meet age and service requirements (the “other plans”).

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

Benefit Obligation and Plan Assets

The benefit obligations and plan assets, changes to the benefit obligation and plan assets and the funded status of the plans as of and for the fiscal years ended August 31 are as follows (in thousands):


		Pension
		2017		2016
Change in projected benefit obligation
Beginning projected benefit obligation		$	182,278	$	161,230
Service cost			1,068		883
Interest cost			2,942		4,844
Actuarial (gain) loss			(10,147)		40,170
Settlements paid from plan assets			(2,133)		―
Total benefits paid			(6,790)		(5,587)
Plan participants’ contributions			27		27
Terminations			(106)		―
Effect of conversion to U.S. dollars			575		(19,289)
Ending projected benefit obligation		$	167,714	$	182,278
Change in plan assets
Beginning fair value of plan assets			143,702		134,808
Actual return on plan assets			2,582		29,734
Settlements paid from plan assets			(2,133)		―
Employer contributions			6,981		3,391
Benefits paid from plan assets			(3,759)		(5,268)
Plan participants’ contributions			27		27
Effect of conversion to U.S. dollars			(702)		(18,990)
Ending fair value of plan assets		$	146,698	$	143,702
Unfunded status		$	(21,016)	$	(38,576)
Amounts recognized in the Consolidated Balance Sheets
Accrued benefit liability, current		$	182	$	383
Accrued benefit liability, noncurrent		$	20,834	$	38,193

Accumulated other comprehensive loss (income)⁽¹⁾
	Actuarial loss, net of tax	$	32,247	$	44,155
	Prior service credit, net of tax	$	(1,185)	$	(1,255)

⁽¹⁾ We anticipate amortizing $1.1 million and $(0.1) million, net of tax, of net actuarial loss and prior service credit balances, respectively, to net periodic cost in fiscal year 2018.

Net Periodic Benefit Cost

	The following table provides information about the net periodic benefit cost for the plans for fiscal years 2017, 2016 and 2015
(in thousands):

			Pension
			2017		2016		2015
		Service cost	$	1,068	$	883	$	1,054
		Interest cost		2,942		4,844		5,554
		Expected long-term return on plan assets		(4,206)		(5,560)		(5,778)
		Recognized actuarial loss		1,929		1,046		1,723
		Net curtailment gain		―		―		(2,542)
		Amortization of prior service credit		(138)		(139)		(147)
		Net settlement loss		1,472		―		―
		Net periodic benefit cost	$	3,067	$	1,074	$	(136)

Assumptions

	Weighted-average actuarial assumptions used to determine net periodic benefit cost and projected benefit obligation
for the plans for the fiscal years 2017, 2016 and 2015 were as follows:
			Pension
			2017		2016		2015
	Net periodic benefit cost:
		Expected long-term return on plan assets⁽¹⁾	3.3	%	4.3	%	4.4	%
		Rate of compensation increase	2.7	%	2.4	%	3.2	%
		Discount rate	1.9	%	2.9	%	1.8	%

	Projected benefit obligation:
		Expected long-term return on plan assets	4.0	%	3.3	%	4.4	%
		Rate of compensation increase	4.4	%	4.1	%	4.3	%
		Discount rate⁽²⁾	2.3	%	1.7	%	3.2	%

⁽¹⁾ The expected return on plan assets assumption used in calculating net periodic benefit cost is based on historical return experience and estimates of future long-term performance with consideration to the expected investment mix of the plan.

⁽²⁾ 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 outflow of retirement benefits. Other assumptions include demographic factors such as retirement, mortality and turnover

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. 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 a target mix of 35% equity and 65% debt securities in fiscal year 2018.

Fair Value

	The fair values of the plan assets held by the Company by asset category are as follows (in thousands):

				August 31, 2017					August 31, 2016
		Fair Value				Asset					Asset
		Hierarchy		Fair Value		Allocation			Fair Value		Allocation
Asset Category

Cash and cash equivalents⁽¹⁾			Level 1	$	5,760		4	%	$	3,565		3	%

Equity Securities:
Global equity securities⁽²⁾⁽³⁾			Level 2		41,971		29	%		41,515		29	%

Debt Securities:
Corporate bonds⁽³⁾			Level 2		41,987		29	%		41,993		29	%
Government bonds⁽³⁾			Level 2		41,738		28	%		40,495		28	%

Other Investments:
Insurance contracts⁽⁴⁾			Level 3		15,242		10	%		16,134		11	%
Fair value of plan assets				$	146,698		100	%	$	143,702		100	%

⁽¹⁾ Carrying value approximates fair value.

⁽²⁾ Investments in equity securities by companies incorporated, listed or domiciled in developed and/or emerging market countries.

⁽³⁾Investments in global equity securities, corporate bonds, government securities and government bonds are valued using the quoted prices of securities with similar characteristics.

⁽⁴⁾ 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 and 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.

Accumulated Benefit Obligation

	The following table provides information for the plans with an accumulated benefit obligation for fiscal years
2017 and 2016 (in thousands):

			August 31,
			2017		2016
		Projected benefit obligation	$	167,714	$	182,278
		Accumulated benefit obligation	$	158,971	$	171,589
		Fair value of plan assets	$	146,698	$	143,702

Cash Flows

The Company expects to make cash contributions between $2.7 million and $3.5 million to its funded pension plans during fiscal year 2018. The estimated future benefit payments, which reflect expected future service, are as follows (in thousands):


Fiscal Year Ended August 31,	Amount
2018	$	4,245
2019		4,438
2020		5,249
2021		4,759
2022		5,182
2023 through 2027		32,743

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

The Company provides retirement benefits to its domestic employees who have completed a 30-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. The Company contributed approximately $33.6 million, $33.3 million and $36.8 million for defined contribution plans for the fiscal years ended August 31, 2017, 2016 and 2015, respectively.