Retirement Benefits

6 Months Ended

Mar. 31, 2020

Note 20. Retirement benefits

Woodward provides various retirement benefits to eligible members of the Company, including contributions to various defined contribution plans, pension benefits associated with defined benefit plans, postretirement medical benefits and postretirement life insurance benefits. Eligibility requirements and benefit levels vary depending on employee location.

Defined contribution plans

Most of the Company’s U.S. employees are eligible to participate in the U.S. defined contribution plan. The U.S. defined contribution plan allows employees to defer part of their annual income for income tax purposes into their personal 401(k) accounts. The Company makes matching contributions to eligible employee accounts, which are also deferred for employee personal income tax purposes. Certain non-U.S. employees are also eligible to participate in similar non-U.S. plans.

Most of Woodward’s U.S. employees with at least two years of service receive an annual contribution of Woodward stock, equal to 5% of their eligible prior year wages, to their personal Woodward Retirement Savings Plan accounts. Woodward fulfilled its annual Woodward stock contribution obligation using shares held in treasury stock by issuing a total of 124 shares of common stock for a value of $14,748 in the second quarter of fiscal year 2020, compared to a total of 158 shares of common stock for a value of $14,846 in the second quarter of fiscal year 2019.

The amount of expense associated with defined contribution plans was as follows:



	Three-Months Ended				Six-Months Ended
	March 31,				March 31,
	2020		2019		2020		2019
Company costs	$	8,910	$	9,086	$	17,614	$	17,457

Defined benefit plans

Woodward has defined benefit plans that provide pension benefits for certain retired employees in the United States, the United Kingdom, Japan, and Germany. Woodward also provides other postretirement benefits to its employees including postretirement medical benefits and life insurance benefits. Postretirement medical benefits are provided to certain current and retired employees and their covered dependents and beneficiaries in the United States and the United Kingdom. Life insurance benefits are provided to certain retirees in the United States under frozen plans, which are no longer available to current employees. A September 30 measurement date is utilized to value plan assets and obligations for all of Woodward’s defined benefit pension and other postretirement benefit plans.

On October 26, 2018, the High Court of Justice in the United Kingdom (the “High Court”) issued a ruling (the “Court Ruling”) requiring defined benefit plan sponsors in the United Kingdom to equalize benefits payable to men and women under its United Kingdom defined benefit pension plans by amending those plans to increase the pension benefits payable to participants that accrued such benefits during the period from 1990 to 1997. In the Court Ruling, the High Court also provided details on acceptable alternative methods of amending plans to equalize the pension benefits. Although final guidance around the appropriate equalization methodology to be used has not yet been issued, Woodward has concluded that Court Ruling is applicable to its defined benefit pension plan in the United Kingdom and has made the necessary plan amendments. Woodward’s current estimate of the impact of the Court Ruling in the amount of $601 has been reflected in the United Kingdom defined benefit pension plan’s obligation and assets as of September 30, 2019 and is being amortized as a net prior service cost beginning in fiscal year 2020. Woodward does not expect that any changes to the estimate resulting from final guidance around the appropriate equalization methodology to be used will be material to the United Kingdom defined benefit pension plan’s obligation.

U.S. GAAP requires that, for obligations outstanding as of September 30, 2019, the funded status reported in interim periods shall be the same asset or liability recognized in the previous year end statement of financial position adjusted for (a) subsequent accruals of net periodic benefit cost that exclude the amortization of amounts previously recognized in other comprehensive income (for example, subsequent accruals of service cost, interest cost, and return on plan assets) and (b) contributions to a funded plan or benefit payments. However, U.S. GAAP further requires an interim re-measurement of plan assets and obligations when there are substantial plan amendments, settlements, or curtailments. Many variables, such as changes in interest rates, mortality rates, health care costs, investment returns and/or the market value of plan assets, can affect the funded status of our defined benefit pension and other postretirement benefit plans and cause volatility in the net periodic benefit cost and future funding requirements of the plans. Woodward has concluded that the changes in the market conditions as a result of the COVID-19 pandemic do not require an interim re-measurement as Woodward believes that the assumptions, such as the discount rate and expected return on plan assets, used to project the plans’ assets and pension benefit liabilities are conservative, therefore resulting in a proper projection of Woodward’s benefit obligations. Woodward further believes that as a result of the known impacts of the COVID-19 pandemic there are not any significant changes in plan assets, plan amendments, settlements, or curtailments that would result in an interim re–measurement.

The components of the net periodic retirement pension costs recognized are as follows:



	Three-Months Ended March 31,
	United States				Other Countries				Total
	2020		2019		2020		2019		2020		2019
Service cost	$	415	$	362	$	708	$	512	$	1,123	$	874
Interest cost		1,397		1,596		319		485		1,716		2,081
Expected return on plan assets		(3,086)		(2,997)		(708)		(672)		(3,794)		(3,669)
Amortization of:
Net actuarial loss		357		155		260		73		617		228
Prior service cost		234		178		6		-		240		178
Net periodic retirement pension (benefit) cost	$	(683)	$	(706)	$	585	$	398	$	(98)	$	(308)
Contributions paid	$	-	$	-	$	601	$	509	$	601	$	509


	Six-Months Ended March 31,
	United States				Other Countries				Total
	2020		2019		2020		2019		2020		2019
Service cost	$	830	$	725	$	1,418	$	1,024	$	2,248	$	1,749
Interest cost		2,795		3,192		640		965		3,435		4,157
Expected return on plan assets		(6,173)		(5,993)		(1,540)		(1,334)		(7,713)		(7,327)
Amortization of:
Net actuarial loss		715		309		521		144		1,236		453
Prior service cost		468		355		12		-		480		355
Net periodic retirement pension (benefit) cost	$	(1,365)	$	(1,412)	$	1,051	$	799	$	(314)	$	(613)
Contributions paid	$	-	$	-	$	1,732	$	1,063	$	1,732	$	1,063

The components of net periodic retirement pension costs other than the service cost and interest cost components are included in the line item “Other (income) expense, net” in the Condensed Consolidated Statements of Earnings. The interest cost component is include in the line item “Interest expense” in the Condensed Consolidated Statements of Earnings.

The components of the net periodic other postretirement benefit costs recognized are as follows:



	Three-Months Ended				Six-Months Ended
	March 31,				March 31,
	2020		2019		2020		2019
Service cost	$	-	$	2	$	1	$	3
Interest cost		196		289		391		577
Amortization of:
Net actuarial loss		11		14		23		28
Prior service cost (benefit)		-		(2)		1		(3)
Net periodic other postretirement cost	$	207	$	303	$	416	$	605
Contributions paid	$	176	$	704	$	521	$	1,077

The components of net periodic other postretirement benefit costs other than the service cost and interest cost components are included in the line item “Other (income) expense, net” in the Condensed Consolidated Statements of Earnings. The interest cost component is included in the line item “Interest expense” in the Condensed Consolidated Statements of Earnings.

The amount of cash contributions made to these plans in any year is dependent upon a number of factors, including minimum funding requirements in the jurisdictions in which Woodward operates and arrangements made with trustees of certain foreign plans. As a result, the actual funding in fiscal year 2020 may differ from the current estimate. Woodward estimates its remaining cash contributions in fiscal year 2020 will be as follows:



Retirement pension benefits:
United States	$	-
United Kingdom		199
Japan		-
Germany		481
Other postretirement benefits		2,716

Multiemployer defined benefit plans

Woodward operates multiemployer defined benefit plans for certain employees in both the Netherlands and Japan. The amounts of contributions associated with the multiemployer defined benefit plans were as follows:



	Three-Months Ended				Six-Months Ended
	March 31,				March 31,
	2020		2019		2020		2019
Company contributions	$	128	$	61	$	198	$	138