Retirement Benefit Obligations |
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Retirement Benefit Obligations | NOTE 18. RETIREMENT BENEFIT OBLIGATIONS The Company’s employees participate in various defined benefit pension and postretirement plans sponsored by the Company and its subsidiaries. Plans in the U.S., U.K., Australia, and other foreign plans are accounted for as defined benefit pension plans. Accordingly, the funded and unfunded position of each plan is recorded in the Balance Sheets. Actuarial gains and losses that have not yet been recognized through net income are recorded in Accumulated other comprehensive loss, net of taxes, until they are amortized as a component of net periodic benefit cost. The determination of benefit obligations and the recognition of expenses related to the plans are dependent on various assumptions. The major assumptions primarily relate to discount rates, expected long-term rates of return on plan assets and mortality rates. Management develops each assumption using relevant company experience in conjunction with market-related data for each individual country in which such plans exist. The funded status of the plans can change from year to year, but the assets of the funded plans have been sufficient to pay all benefits that came due in each of fiscal 2020, 2019 and 2018. Summary of Funded Status The Company uses a June 30 measurement date for all pension and postretirement benefit plans. The combined domestic and foreign pension and postretirement benefit plans resulted in a net pension and postretirement benefits liability of $194 million and $159 million at June 30, 2020 and 2019, respectively. The Company recognized these amounts in the Balance Sheets at June 30, 2020 and 2019 as follows:
The following table sets forth the change in the projected benefit obligation, change in the fair value of the Company’s plan assets and funded status:
________________________ (a)Amounts related to payments made to former employees of the Company in full settlement of their deferred pension benefits. The increase in U.S. plan settlements are primarily the result of the disposition of the Company's News America Marketing business in May 2020. (b)Fiscal 2020 and fiscal 2019 actuarial losses related to domestic and foreign pension plans primarily relate to the decrease in discount rates used in measuring plan obligations as of June 30, 2020 and 2019, respectively. Amounts recognized in Accumulated other comprehensive loss consist of:
Accumulated pension benefit obligations as of June 30, 2020 and 2019 were $1,397 million and $1,365 million, respectively. Below is information about funded and unfunded pension plans.
The accumulated benefit obligation exceeds the fair value of plan assets for all domestic pension plans. Below is information about foreign pension plans in which the accumulated benefit obligation exceeds the fair value of the plan assets.
Summary of Net Periodic Benefit Costs The Company recorded $7 million, $(2) million and $3 million in net periodic benefit costs (income) in the Statements of Operations for the fiscal years ended June 30, 2020, 2019 and 2018, respectively. The Company utilizes the full yield-curve approach to estimate the service and interest cost components of net periodic benefit (income) costs for its pension and other postretirement benefit plans. The amortization of amounts related to unrecognized prior service costs (credits), deferred losses and settlements, curtailments and other were reclassified out of Other comprehensive income as a component of net periodic benefit costs. The components of net periodic benefits costs (income) were as follows:
________________________ N/A—not applicable The following assumed health care cost trend rates as of June 30 were also used in accounting for postretirement benefits:
The following table sets forth the estimated benefit payments for the next five fiscal years, and in aggregate for the five fiscal years thereafter. The expected benefits are estimated based on the same assumptions used to measure the Company’s benefit obligation at the end of the fiscal year and include benefits attributable to estimated future employee service:
Plan Assets The Company applies the provisions of ASC 715, which requires disclosures including: (i) investment policies and strategies; (ii) the major categories of plan assets; (iii) the inputs and valuation techniques used to measure plan assets; (iv) the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period; and (v) significant concentrations of risk within plan assets. The table below presents the Company’s plan assets by level within the fair value hierarchy, as described in Note 2—Summary of Significant Accounting Policies, as of June 30, 2020 and 2019:
________________________ (a)Open-ended pooled funds that are registered and/or available to the general public are valued at the daily published net asset value (“NAV”). Other pooled funds are valued at the NAV provided by the fund issuer. The table below sets forth a summary of changes in the fair value of investments reflected as Level 3 assets as of June 30, 2020 and 2019:
The Company’s investment strategy for its pension plans is to maximize the long-term rate of return on plan assets within an acceptable level of risk in order to minimize the cost of providing pension benefits while maintaining adequate funding levels. The Company’s practice is to conduct a periodic strategic review of its asset allocation. The Company’s current broad strategic targets are to have a pension asset portfolio comprised of 20% equity securities, 71% fixed income securities and 9% in cash and other investments. In developing the expected long-term rate of return, the Company considered the pension asset portfolio’s past average rate of returns and future return expectations of the various asset classes. A portion of the other allocation is reserved in cash to provide for expected benefits to be paid in the short term. The Company’s equity portfolios are managed in such a way as to achieve optimal diversity. The Company’s fixed income portfolio is investment grade in the aggregate. The Company does not manage any assets internally. The Company’s benefit plan weighted-average asset allocations, by asset category, are as follows:
Required pension plan contributions for the next fiscal year are expected to be approximately $22 million; however, actual contributions may be affected by pension asset and liability valuation changes during the year. The Company will continue to make voluntary contributions as necessary to improve funded status.
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