Retirement Plans

12 Months Ended

May 26, 2019

RETIREMENT PLANS

Defined Benefit Plans and Postretirement Benefit Plan

We sponsor non-contributory defined benefit pension plans for a group of certain eligible employees in the United States under which benefits are based on various formulas, including a Final Average Pay formula and a Cash Balance formula. As of December 2014, the plans were frozen and no additional benefits will accrue for participants (except for continuing interest credits for eligible participants in the Cash Balance formula). Pension plan assets are invested in global fixed-income commingled funds. Our policy is to fund, at a minimum, the amount necessary on an actuarial basis to provide for benefits in accordance with the requirements of the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code (IRC), as amended by the Pension Protection Act of 2006. We also sponsor a non-contributory postretirement benefit plan that provides health care benefits to certain eligible salaried retirees as a subsidy credit to a health care reimbursement account. This benefit is not impacted by future changes in health care trend rates. In April 2018, our Benefit Plans Committee approved the termination of our primary non-contributory defined benefit pension plan (the Retirement Income Plan for Darden Restaurants, Inc.). The termination of the plan involves many steps, including filing information with the IRS and the Pension Benefit Guaranty Corporation and obtaining proper approvals. We anticipate the termination process will be completed during fiscal 2020. Plan participants will receive their full accrued benefits from plan assets by electing either lump sum distributions or annuity contracts with a qualifying third-party annuity provider. At this time, no additional contribution is needed by us to cover the lump-sum payments and annuity purchases. The amount of the final contribution is subject to a number of factors, including changes in interest rates and the exact proportion of the participants electing a lump-sum distribution versus an annuity. The plan termination is expected to result in non-cash pre-tax pension settlement expense in fiscal 2020 of approximately $130.0 million.

Fundings related to the defined benefit pension plans and postretirement benefit plan, which are funded on a pay-as-you-go basis, were as follows:



	Fiscal Year Ended
(in millions)	May 26, 2019		May 27, 2018		May 28, 2017
Defined benefit pension plans funding (1)	$	0.4	$	60.8	$	0.4
Postretirement benefit plan funding	1.3		1.2		1.2


(1)	Fundings for fiscal 2018 include voluntary funding contributions of $60.4 million.

We expect to contribute approximately $0.4 million to our defined benefit pension plans and approximately $1.4 million to our postretirement benefit plan during fiscal 2020.

We are required to recognize the over- or under-funded status of the plans as an asset or liability as measured by the difference between the fair value of the plan assets and the benefit obligation and any unrecognized prior service costs and actuarial gains and losses as a component of accumulated other comprehensive income (loss), net of tax. During the fourth quarter of fiscal 2017, the defined benefit pension plans recognized $19.9 million of previously unrecognized loss in net periodic benefit cost due to a settlement charge triggered by lump sum payouts.

The following provides a reconciliation of the changes in the plan benefit obligation, fair value of plan assets and the funded status of the plans as of May 26, 2019 and May 27, 2018:



	Defined Benefit Plans						Postretirement Benefit Plan
(in millions)	May 26, 2019			May 27, 2018			May 26, 2019			May 27, 2018
Change in Benefit Obligation:
Benefit obligation at beginning of period	$	237.2		$	252.3		$	19.9		$	20.8
Service cost	—			—			0.1			0.1
Interest cost	9.3			8.6			0.8			0.7
Benefits paid	(17.8		)	(15.6		)	(1.3		)	(1.2		)
Actuarial (gain) loss	23.3			(8.1		)	0.3			(0.5		)
Benefit obligation at end of period	$	252.0		$	237.2		$	19.8		$	19.9



Change in Plan Assets:
Fair value at beginning of period	$	253.8		$	207.7		$	—		$	—
Actual return on plan assets	12.1			0.9			—			—
Employer contributions	0.4			60.8			1.3			1.2
Benefits paid	(17.8		)	(15.6		)	(1.3		)	(1.2		)
Fair value at end of period	$	248.5		$	253.8		$	—		$	—



Funded (unfunded) status at end of period	$	(3.5	)	$	16.6	$	(19.8	)	$	(19.9	)

The following is a detail of the balance sheet components of each of our plans and a reconciliation of the amounts included in accumulated other comprehensive income (loss):



	Defined Benefit Plans						Postretirement Benefit Plan
(in millions)	May 26, 2019			May 27, 2018			May 26, 2019			May 27, 2018
Components of the Consolidated Balance Sheets:
Current liabilities	$	—		$	—		$	1.4		$	1.4
Noncurrent (assets) liabilities	3.5			(16.6		)	18.4			18.5
Net amounts recognized	$	3.5		$	(16.6	)	$	19.8		$	19.9
Amounts Recognized in Accumulated Other Comprehensive Income (Loss), net of tax:
Prior service credit	$	—		$	—		$	3.8		$	7.4
Net actuarial gain (loss)	(100.4		)	(85.4		)	(8.7		)	(9.6		)
Net amounts recognized	$	(100.4	)	$	(85.4	)	$	(4.9	)	$	(2.2	)

The following is a summary of our accumulated and projected benefit obligations for our defined benefit plans:



(in millions)	May 26, 2019		May 27, 2018
Accumulated benefit obligation for all defined benefit plans	$	252.0	$	237.2
Pension plans with accumulated benefit obligations in excess of plan assets:
Accumulated benefit obligation	252.0		—
Fair value of plan assets	248.5		—
Projected benefit obligations for all plans with projected benefit obligations in excess of plan assets	252.0		—

The following table presents the weighted-average assumptions used to determine benefit obligations and net expense:



	Defined Benefit Plans				Postretirement Benefit Plan
	May 26, 2019		May 27, 2018		May 26, 2019		May 27, 2018
Weighted-average assumptions used to determine benefit obligations at May 26 and May 27 (1)
Discount rate	2.66	%	4.32	%	3.95	%	4.28	%
Rate of future compensation increases	N/A		N/A		N/A		N/A
Weighted-average assumptions used to determine net expense for fiscal years ended May 26 and May 27 (2)
Discount rate	4.32	%	4.06	%	4.28	%	3.98	%
Expected long-term rate of return on plan assets	4.25	%	5.75	%	N/A		N/A
Rate of future compensation increases	N/A		N/A		N/A		N/A


(1)	Determined as of the end of fiscal year.


(2)	Determined as of the beginning of fiscal year.

We set the discount rate assumption annually for each of the plans at their valuation dates to reflect the yield of high-quality fixed-income debt instruments, with lives that approximate the maturity of the plan benefits. Additionally, for our mortality assumption as of fiscal year end, we selected the most recent RP-2014 mortality tables and MP-2018 mortality improvement scale to measure the benefit obligations.

The expected long-term rate of return on plan assets is based upon several factors, including our historical assumptions compared with actual results, an analysis of current market conditions, asset fund allocations and the views of leading financial advisers and economists. Our expected long-term rate of return on plan assets for our defined benefit plans was 5.75 percent in fiscal 2018 and was reduced to 4.25 percent for fiscal 2019 in connection with our current expectations for long-term returns and target asset fund allocation. In developing our expected rate of return assumption, we have evaluated the actual historical performance and long-term return projections of the plan assets, which give consideration to the asset mix and the anticipated

timing of the pension plan outflows. We employ a total return investment approach to maximize the long-term return of plan assets for what we consider a prudent level of risk dependent on the level of funding. Our historical 10-year, 15-year and 20-year rates of return on plan assets, calculated using the geometric method average of returns, are approximately 9.6 percent, 7.9 percent and 7.6 percent, respectively, as of May 26, 2019. Our Benefit Plans Committee has delegated to the Benefit Plans Investment Committee the authority to set the investment policy for the defined benefit plans and oversees the investment allocation, which includes setting long-term strategic targets. The investment policy establishes a re-balancing band around the established targets within which the asset class weight is allowed to vary. We monitor our actual asset fund allocation to ensure that it approximates, based on the current funding level, our target allocation and believe that our long-term asset fund allocation will continue to approximate our target allocation. Our investment strategy is to invest 100.0 percent in liability matching high-quality, long-duration fixed-income investments. Investments are held in various global fixed income commingled funds representing approximately 66.0 percent of total plan assets. The remainder of the assets are held in cash and cash equivalents. These investments are the only significant concentration of risk related to a single entity, sector, country, commodity or investment fund.

Components of net periodic benefit cost included in earnings are as follows:



	Defined Benefit Plans									Postretirement Benefit Plan
	Fiscal Year Ended									Fiscal Year Ended
(in millions)	May 26, 2019			May 27, 2018			May 28, 2017			May 26, 2019			May 27, 2018			May 28, 2017
Service cost	$	—		$	—		$	—		$	0.1		$	0.1		$	0.2
Interest cost	9.3			8.6			10.1			0.8			0.7			0.6
Expected return on plan assets	(11.2		)	(12.0		)	(16.0		)	—			—			—
Amortization of unrecognized prior service cost	—			—			—			(4.8		)	(4.8		)	(4.8		)
Recognized net actuarial loss	2.5			2.8			3.3			1.5			1.7			1.7
Settlement loss recognized	—			—			19.9			—			—			—
Net pension and postretirement cost (benefit)	$	0.6		$	(0.6	)	$	17.3		$	(2.4	)	$	(2.3	)	$	(2.3	)

The amortization of the net actuarial gain (loss) component of our fiscal 2020 net periodic benefit cost for the defined benefit plans and postretirement benefit plan is expected to be approximately $(3.5) million and $3.3 million, respectively.

The fair values of the defined benefit pension plans assets at their measurement dates of May 26, 2019 and May 27, 2018, are as follows:



		Items Measured at Fair Value at May 26, 2019
(in millions)		Fair Value of Assets (Liabilities)		Quoted Prices in Active Market for Identical Assets (Liabilities) (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Fixed-Income:
Global Fixed-Income Commingled Funds	(1)	$	163.8	$	—	$	163.8	$	—
Cash and Accruals		84.7		84.7		—		—
Total		$	248.5	$	84.7	$	163.8	$	—



		Items Measured at Fair Value at May 27, 2018
(in millions)		Fair Value of Assets (Liabilities)		Quoted Prices in Active Market for Identical Assets (Liabilities) (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Fixed-Income:
Global Fixed-Income Commingled Funds	(1)	$	253.5	$	—	$	253.5	$	—
Cash and Accruals		0.3		0.3		—		—
Total		$	253.8	$	0.3	$	253.5	$	—


(1)	Global fixed-income commingled funds are comprised of investments in U.S. and non-U.S. government fixed-income securities. Investments are valued using a unit price or net asset value (NAV) based on the fair value of the underlying investments of the fund. There are no redemption restrictions associated with this fund.

The following benefit payments are expected to be paid between fiscal 2020 and fiscal 2029:



(in millions)	Defined Benefit Plans		Postretirement Benefit Plan
2020	$	247.5	$	1.4
2021	0.4		1.4
2022	0.4		1.3
2023	0.4		1.3
2024	0.4		1.3
2025-2029	1.8		6.5

Defined Contribution Plan

We have a defined contribution (401(k)) plan (Darden Savings Plan) covering most employees age 21 and older. We match contributions for participants with at least one year of service up to 6 percent of compensation, based on our performance. The match ranges from a minimum of $0.25 to $1.20 for each dollar contributed by the participant. The Darden Savings Plan also provides for a profit sharing contribution for eligible participants equal to 1.5 percent of the participant’s compensation. The Darden Savings Plan had net assets of $947.9 million at May 26, 2019, and $829.0 million at May 27, 2018. Expense recognized in fiscal 2019, 2018 and 2017 was $26.1 million, $19.6 million and $3.7 million, respectively. Employees classified as “highly compensated” under the IRC are not eligible to participate in the Darden Savings Plan. Instead, highly compensated employees are eligible to participate in a separate non-qualified deferred compensation (FlexComp) plan. The FlexComp plan allows eligible employees to defer the payment of part of their annual salary and all or part of their annual bonus and provides for awards that approximate the matching contributions that participants would have received had they been eligible to participate in the Darden Savings Plan, as well as an additional retirement contribution amount. Amounts payable to highly compensated employees under the FlexComp plan totaled $237.9 million and $227.9 million at May 26, 2019 and May 27, 2018, respectively. These amounts are included in other current liabilities on our accompanying consolidated balance sheets.

The Darden Savings Plan includes a leveraged Employee Stock Ownership Plan (ESOP). The ESOP borrowed $16.9 million from us at a variable rate of interest in July 1996. At May 26, 2019, the ESOP’s original debt to us had a balance of $0.7 million with a variable rate of interest of 2.48 percent and is due to be repaid no later than December 2019. Compensation expense is recognized as contributions are accrued. Fluctuations in our stock price impact the amount of expense to be recognized. Contributions to the Darden Savings Plan, plus the dividends accumulated on unallocated shares held by the ESOP, are used to pay principal, interest and expenses of the Darden Savings Plan. As loan payments are made, common stock is allocated to ESOP participants. In each of the fiscal years 2019, 2018 and 2017, the ESOP used dividends received of $0.2 million, $0.5 million and $0.8 million, respectively, and contributions received from us of $1.0 million, $0.1 million and $0.1 million, respectively, to pay principal and interest on our debt.

ESOP shares are included in weighted-average common shares outstanding for purposes of calculating net earnings per share with the exception of those shares acquired under the Additional Loan, which are accounted for in accordance with FASB ASC Subtopic 718-40, Employee Stock Ownership Plans. Fluctuations in our stock price are recognized as adjustments to common stock and surplus when the shares are committed to be released. The ESOP shares acquired under the Additional Loan

are not considered outstanding until they are committed to be released and, therefore, unreleased shares have been excluded for purposes of calculating basic and diluted net earnings per share. As of May 26, 2019, the ESOP shares included in the basic and diluted net earnings per share calculation totaled 1.9 million shares, representing 1.8 million allocated shares and 0.1 million suspense shares.