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Employee Retirement Plans
12 Months Ended
Jul. 03, 2021
Retirement Benefits [Abstract]  
Employee Retirement Plans
Note 18. Employee Retirement Plans
Defined Contribution Plans
In the United States, the Company sponsors the Lumentum 401(k) Retirement Plan (the “401(k) Plan”), a defined contribution plan under the Employee Retirement Income Security Act of 1974 (“ERISA”), which provides retirement benefits for its eligible employees through tax deferred salary deductions. The 401(k) Plan allows employees to contribute up to 50% of their annual compensation, with contributions limited to $19,500 (or $26,000 for employees over 50 years of age) in calendar year 2020 as set by the Internal Revenue Service. Employees are eligible for matching contributions after completing 180 days of service. The Company’s match is contributed on a per-pay-period basis and is based on employees’ before-tax contributions and compensation each pay period. All matching contributions are made in cash and vest immediately under the 401(k) Plan. In fiscal 2021, 2020, and 2019, our contribution expense to the 401(k) Plan was $3.5 million, $3.8 million, and $3.7 million, respectively.
We also have defined contribution plans in most of the other countries in which we operate, either as required by statutory law or as provided by the Company’s supplemental offering. Our contribution expense to all defined contribution plans outside the United States were $8.3 million, $6.7 million, and $4.8 million for fiscal years 2021, 2020, and 2019, respectively.
Defined Benefit Plans
The Company sponsors defined benefit pension plans covering employees in Japan, Switzerland, and Thailand. Pension plan benefits are based primarily on participants’ compensation and years of service credited as specified under the terms of each country’s plan. Employees are entitled to a lump sum benefit upon retirement or upon certain instances of termination. The funding policy is consistent with the local requirements of each country.
We account for our defined benefit obligations in accordance with the authoritative guidance which requires us to record our obligation to the participants, as well as the corresponding net periodic cost. We determine our obligation to the participants and our net periodic cost principally using actuarial valuations provided by third-party actuaries. As of July 3, 2021, our projected benefit obligations, net, in Japan, Switzerland, and Thailand were $2.9 million, $4.8 million, and $3.1 million,
respectively. They were recorded in our Consolidated Balance Sheets as other non-current liabilities and represent the total projected benefit obligation (“PBO”) less the fair value of plan assets.
As of July 3, 2021, the defined benefit plan in Switzerland was partially funded, while the defined benefit plans in Japan and Thailand were unfunded.
The change in the benefit obligations of pension plans in Japan, Switzerland, and Thailand, and the change in plan assets in Switzerland were as follows (in millions):
July 3, 2021June 27, 2020
Change in projected benefit obligation:
  Benefit obligation at beginning of year$20.9 $16.1 
     Service cost2.0 3.5 
     Interest cost0.1 0.2 
     Plan participants’ contributions0.5 0.5 
     Actuarial (gains) losses(1.2)0.9 
     Benefits paid(1.7)(0.7)
     Foreign exchange impact— 0.4 
  Benefit obligation at end of year$20.6 $20.9 
Change in plan assets:
  Fair value of plan assets at beginning of year$9.1 $8.3 
     Actual return on plan assets1.2 — 
     Employer contribution0.5 0.6 
     Plan participants’ contribution0.5 0.6 
     Benefits paid(1.5)(0.7)
     Foreign exchange impact— 0.3 
  Fair value of plan assets at end of year$9.8 $9.1 
Funded status (1)
$(10.8)$(11.8)
Changes in benefit obligations and plan assets recognized in other comprehensive income:
     Prior service cost$0.1 $— 
     Amortization of accumulated net actuarial gain (loss)(0.4)(0.3)
     Net actuarial (gain) loss(2.2)1.2 
     Loss recognized due to settlement(0.3)— 
$(2.8)$0.9 
Accumulated benefit obligation$16.5 $17.8 
(1) As of July 3, 2021 and June 27, 2020, $10.8 million and $11.8 million were recorded in other non-current liabilities on our Consolidated Balance Sheets, respectively, to account for the PBO. Refer to “Note 8. Balance Sheet Details” in the Notes to Consolidated Financial Statements.
Net periodic pension costs in Japan, Switzerland, and Thailand include the following components for the periods presented (in millions):
Years Ended
July 3, 2021June 27, 2020June 29, 2019
Service cost$2.0 $3.5 $1.2 
Interest cost0.1 0.2 0.1 
Amortization of prior service cost(0.1)— — 
Expected return on plan assets(0.3)(0.3)(0.3)
Amortization of net loss0.3 0.3 0.1 
Settlement losses 0.3 — — 
Net periodic pension cost$2.3 $3.7 $1.1 
Assumptions
Underlying both the calculation of the PBO and net periodic cost are actuarial valuations. These valuations use participant-specific information such as salary, age and assumptions about interest rates, compensation increases and other factors. At a minimum, we evaluate these assumptions annually and make changes as necessary.
The discount rate reflects the estimated rate at which the pension benefits could be effectively settled. In developing the discount rate, we consider the yield available on an appropriate AA or AAA corporate bond index, adjusted to reflect the term of the plan’s liabilities.
The expected return on assets was estimated by using the weighted average of the real expected long-term return (net of inflation) on the relevant classes of assets based on the target asset mix and adding the chosen inflation assumption.
The following table summarizes the weighted-average assumptions used to determine net periodic cost and benefit obligation for our defined benefit plans in Japan, Switzerland, and Thailand:
Years Ended
July 3, 2021June 27, 2020
Assumptions used to determine net periodic cost:
Discount rate0.6 %0.8 %
Expected long-term return on plan assets2.7 %3.2 %
Salary increase rate3.4 %4.1 %
Assumptions used to determine benefit obligation at end of year:
Discount rate0.7 %0.4 %
Salary increase rate2.9 %2.7 %
Fair Value Measurement of Plan Assets
The following table sets forth the plan assets of our defined benefit plan in Switzerland at fair value and the percentage of assets allocations as of July 3, 2021 and June 27, 2020 (in millions, except percentage data):
Fair Value Measurement as of
July 3, 2021
Target AllocationTotal Percentage of Plan AssetQuoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Assets:
     Global equity31 %$3.0 30 %$— $3.0 
     Fixed income31 %3.0 29 %— 3.0 
     Alternative investment15 %1.5 18 %— 1.5 
     Cash%0.1 %0.1 — 
     Other assets22 %2.2 22 %— 2.2 
  Total Assets100 %$9.8 100 %$0.1 $9.7 
Fair Value Measurement as of
June 27, 2020
Target AllocationTotal Percentage of Plan AssetQuoted Prices in Active Markets for Identical Assets (Level 1)Significant Other Observable Inputs (Level 2)
Assets:
     Global equity29 %$2.6 28 %$— $2.6 
     Fixed income33 %3.0 30 %— 3.0 
     Alternative investment16 %1.5 21 %— 1.5 
     Cash%0.2 %0.2 — 
     Other assets20 %1.8 20 %— 1.8 
  Total Assets100 %$9.1 100 %$0.2 $8.9 
Our pension assets consist of multiple institutional funds (“pension funds”) of which the fair values are based on the quoted prices of the underlying funds. Pension funds are classified as Level 2 assets since such funds are not directly traded in active markets. Global equity consists of several funds that invest primarily in Swiss and foreign equities; fixed income consists of several funds that invest primarily in investment grade domestic and overseas bonds; other assets consist of several funds that primarily invest in hedge fund, private equity, global real estate and infrastructure funds.
Future Benefit Payments
We estimate our expected benefit payments to participants in the defined benefit pension plans based on the same assumptions used to measure our PBO at year-end which includes benefits attributable to estimated future compensation increases.
The following benefit payments are estimated to be paid from our defined benefit pension plans (in millions): 
Fiscal YearsTotal
2022$1.0 
20230.8 
20240.7 
20251.0 
20260.8 
Next five years6.0 
We expect to contribute $1.0 million to our defined benefit pension plans in fiscal 2022.