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.

Additionally, 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
	2018			2017
Change in projected benefit obligation
Beginning projected benefit obligation	$	167,714		$	182,278
Service cost	1,063			1,068
Interest cost	3,807			2,942
Actuarial (gain) loss	(6,019		)	(10,147		)
Curtailments gain	(998		)	—
Settlements paid from plan assets	—			(2,133		)
Total benefits paid	(6,211		)	(6,790		)
Plan participants’ contributions	31			27
Amendments	1,864			—
Terminations	—			(106		)
Effect of conversion to U.S. dollars	(147		)	575
Ending projected benefit obligation	$	161,104		$	167,714
Change in plan assets
Beginning fair value of plan assets	146,698			143,702
Actual return on plan assets	8,146			2,582
Settlements paid from plan assets	—			(2,133		)
Employer contributions	1,811			6,981
Benefits paid from plan assets	(4,758		)	(3,759		)
Plan participants’ contributions	31			27
Effect of conversion to U.S. dollars	(213		)	(702		)
Ending fair value of plan assets	$	151,715		$	146,698
Unfunded status	$	(9,389	)	$	(21,016	)
Amounts recognized in the Consolidated Balance Sheets
Accrued benefit liability, current	$	428		$	182
Accrued benefit liability, noncurrent	$	8,961		$	20,834
Accumulated other comprehensive loss (income)⁽¹⁾
Actuarial loss, before tax	$	22,387		$	32,247
Prior service cost (credit), before tax	$	719		$	(1,185	)


⁽¹⁾	The Company anticipates amortizing $0.8 million and $0.0 million, before tax, of net actuarial loss and prior service costs balances, respectively, to net periodic cost in fiscal year 2019.

Net Periodic Benefit Cost

The following table provides information about the net periodic benefit cost for the plans for fiscal years 2018, 2017 and 2016 (in thousands):



	Pension
	2018			2017			2016
Service cost	$	1,063		$	1,068		$	883
Interest cost	3,807			2,942			4,844
Expected long-term return on plan assets	(5,954		)	(4,206		)	(5,560		)
Recognized actuarial loss	1,127			1,929			1,046
Amortization of prior service credit	(88		)	(138		)	(139		)
Net settlement loss	116			1,472			—
Net periodic benefit cost	$	71		$	3,067		$	1,074

Beginning in the first quarter of fiscal year 2019, the Company will adopt a new accounting standard to improve the presentation of net periodic benefit cost. The Company expects the adoption of this standard to result in reclassifications for the service cost component of net periodic benefit cost from selling, general and administrative expense to cost of revenue and for the other components from selling, general and administrative expense to other expense.

Assumptions

Weighted-average actuarial assumptions used to determine net periodic benefit cost and projected benefit obligation for the plans for the fiscal years 2018, 2017 and 2016 were as follows:



	Pension
	2018		2017		2016
Net periodic benefit cost:
Expected long-term return on plan assets⁽¹⁾	3.8	%	3.3	%	4.3	%
Rate of compensation increase	3.3	%	2.7	%	2.4	%
Discount rate	2.1	%	1.9	%	2.9	%
Projected benefit obligation:
Expected long-term return on plan assets	3.6	%	4.0	%	3.3	%
Rate of compensation increase	4.4	%	4.4	%	4.1	%
Discount rate⁽²⁾	2.2	%	2.3	%	1.7	%


⁽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 2019.

Fair Value

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



		August 31, 2018				August 31, 2017
	Fair Value Hierarchy	Fair Value		Asset Allocation		Fair Value		Asset Allocation
Asset Category
Cash and cash equivalents⁽¹⁾	Level 1	$	6,682	4	%	$	5,760	4	%
Equity Securities:
Global equity securities⁽²⁾⁽³⁾	Level 2	35,932		24	%	41,971		29	%
Debt Securities:
Corporate bonds⁽³⁾	Level 2	41,088		27	%	41,987		29	%
Government bonds⁽³⁾	Level 2	51,597		34	%	41,738		28	%
Other Investments:
Insurance contracts⁽⁴⁾	Level 3	16,416		11	%	15,242		10	%
Fair value of plan assets		$	151,715	100	%	$	146,698	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 2018 and 2017 (in thousands):



	August 31,
	2018		2017
Projected benefit obligation	$	161,104	$	167,714
Accumulated benefit obligation	$	152,380	$	158,971
Fair value of plan assets	$	151,715	$	146,698

Cash Flows

The Company expects to make cash contributions between $0.2 million and $0.4 million to its funded pension plans during fiscal year 2019. The estimated future benefit payments, which reflect expected future service, are as follows (in thousands):



Fiscal Year Ended August 31,	Amount
2019	$	4,687
2020	5,502
2021	5,065
2022	5,390
2023	5,974
2024 through 2028	37,466

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. The Company also has defined contribution benefit plans for certain of its international employees. The Company contributed approximately $40.5 million, $33.6 million and $33.3 million for defined contribution plans for the fiscal years ended August 31, 2018, 2017 and 2016, respectively.