8. Employee Benefit Plans

Defined Benefit Plans

Prior to January 1, 2000, the pension plan for domestic salaried and non-union hourly employees had a benefit formula based primarily on years of service and compensation. Effective January 1, 2000, we converted our defined benefit plan for substantially all domestic salaried and certain hourly employees to a cash balance pension plan. Under the cash balance pension plan, the retirement benefit is expressed as a dollar amount in an account that grows with annual pay‑based credits and interest on the account balance. The interest crediting rate under our cash balance plan is determined quarterly and is equal to 100% of the average 30‑year treasury rate for the second month preceding the applicable quarter published by the Internal Revenue Service. The average interest crediting rate under our cash balance plan for the fiscal year ended May 31, 2019 was 4.46%. Effective June 1, 2005, the existing cash balance plan was frozen and the annual pay‑based credits were discontinued. Also effective June 1, 2005, the defined contribution plan was modified to include increased employer contributions and an enhanced profit sharing formula. Defined pension benefits for certain union hourly employees are based primarily on a fixed amount per year of service and the plan was frozen in fiscal 2018.

We also have a defined benefit pension plan covering certain employees in the Netherlands. Benefit formulas are based generally on years of service and compensation.

We also have a benefit plan which provides benefits to certain retired outside directors. In fiscal 2001, we froze the plan for any new members of the Board of Directors and no current directors participate in this plan.

The change to our projected benefit obligation and the fair value of our plan assets for our pension plans was as follows:


	May 31,
	2019		2018
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	146.5	$	145.4
Service cost		2.3		2.4
Interest cost		4.3		4.3
Participant contributions		0.4		0.4
Net actuarial loss (gain)		6.5		(2.3)
Benefits and administrative payments		(6.9)		(6.5)
Settlements		(0.6)		—
Plan change		—		0.7
Foreign currency translation adjustment		(3.3)		2.1
Projected benefit obligation at end of year	$	149.2	$	146.5

Change in the fair value of plan assets:
Fair value of plan assets at beginning of year	$	134.5	$	118.8
Actual return on plan assets		2.8		11.6
Employer contributions		2.6		8.4
Participant contributions		0.4		0.4
Benefits and administrative payments, including settlements		(7.5)		(6.5)
Foreign currency translation adjustment		(2.9)		1.8
Fair value of plan assets at end of year	$	129.9	$	134.5
Funded status at end of year	$	(19.3)	$	(12.0)

Amounts recognized in the Consolidated Balance Sheets consisted of the following:


	May 31,
	2019		2018
Other non-current assets	$	—	$	0.5
Accrued liabilities		(0.4)		(1.2)
Other liabilities		(18.9)		(11.3)
Funded status at end of year	$	(19.3)	$	(12.0)

Amounts recognized in accumulated other comprehensive loss at May 31, 2019 and 2018, respectively, consisted of the following:


	May 31,
	2019		2018
Actuarial loss	$	58.7	$	50.5
Prior service credit		—		(0.1)
Total	$	58.7	$	50.4

For all of our pension plans, both the projected benefit obligation and the accumulated benefit obligation are in excess of the individual plans’ assets. The accumulated benefit obligation for all pension plans was $142.4 million and $140.2 million at May 31, 2019 and 2018, respectively.

Net Periodic Benefit Cost

Pension expense charged to the Consolidated Statements of Income includes the following components:


	For the Year Ended
	May 31,
	2019		2018		2017
Service cost	$	2.3	$	2.4	$	2.5
Interest cost		4.3		4.3		4.2
Expected return on plan assets		(7.1)		(7.3)		(6.5)
Curtailment		—		0.3		—
Settlements		0.1		—		—
Amortization of prior service credit		(0.1)		—		—
Recognized net actuarial loss		1.8		2.3		2.4
	$	1.3	$	2.0	$	2.6

The estimated amount of net actuarial loss to be amortized from accumulated other comprehensive loss into expense during fiscal 2020 is $2.0 million.

Assumptions

The assumptions used in accounting for our plans are estimates of factors including, among other things, the amount and timing of future benefit payments. The following table presents the key weighted‑average assumptions used in the measurement of our projected benefit obligations:


	May 31,
	2019		2018
Discount rate:
Domestic plans	3.67	%	4.05	%
International plan	1.50		1.90

Rate of compensation increase:
Domestic plans	n/a		n/a
International plans	3.00	%	3.00	%

A summary of the weighted‑average assumptions used to determine net periodic pension expense is as follows:


	For the Year Ended
	May 31,
	2019		2018		2017
Discount rate:
Domestic plans	4.05	%	3.82	%	3.83	%
International plan	1.90		2.00		1.90
Expected long-term rate on plan assets:
Domestic plans	7.25	%	7.25	%	7.25	%
International plan	3.60		4.00		4.00

The discount rate was determined by projecting the expected future benefit payments as defined for the projected benefit obligation, discounting those expected payments using a theoretical zero‑coupon spot yield curve derived from a universe of high‑quality bonds as of the measurement date, and solving for the single equivalent discount rate that resulted in the same projected benefit obligation.

Plan Assets

The following table sets forth the actual asset allocation and target allocations for our U.S. pension plans:


	May 31,				Target Asset
	2019		2018		Allocation
Equity securities	59	%	59	%	45 – 75	%
Fixed income securities	22		22		15 – 45	%
Other	19		19		0 – 25	%
	100	%	100	%

The assets of U.S pension plans are invested in compliance with the Employee Retirement Income Security Act of 1974. The investment goals are to provide a total return that, over the long term, optimizes the long‑term return on plan assets at an acceptable risk, and to maintain a broad diversification across asset classes and among investment managers. We believe that there are no significant concentrations of risk within our plan assets as of May 31, 2019. The use of derivatives for the purpose of speculation are not permitted. The assets of the U.S. pension plans are invested primarily in equity and fixed income mutual funds, individual common stocks, and fund‑of‑funds hedge funds. The assets of the non‑domestic plan are invested in funds‑of‑funds where each fund holds a portfolio of equity and fixed income mutual funds.

To develop our expected long‑term rate of return assumption on domestic plans, we use long‑term historical return information for our targeted asset mix and current market conditions. The expected return for each asset class is weighted based on the target asset allocation to develop the expected long-term rate of return on plan assets assumption. While consideration is given to recent performance, the assumption represents a long-term, prospective rate of return.

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair value as of May 31, 2019:


	Level 11		Level 22		Level 33		Total
Equity securities:
U.S. mutual funds	$	31.1	$	—	$	—	$	31.1
International mutual funds		8.4		—		—		8.4
Fixed income:
Government securities and corporate bond mutual funds		9.0		5.9		—		14.9
Funds-of-funds		—		53.0		7.9		60.9
Hedge funds		—		—		4.2		4.2
Insurance annuities		—		—		9.9		9.9
Cash and cash equivalents		0.5		—		—		0.5
Total investments	$	49.0	$	58.9	$	22.0	$	129.9

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair value as of May 31, 2018:


	Level 11		Level 22		Level 33		Total
Equity securities:
U.S. mutual funds	$	32.8	$	—	$	—	$	32.8
International mutual funds		10.4		—		—		10.4
Fixed income:
Government securities and corporate bond mutual funds		15.7		—		—		15.7
Funds-of-funds		—		53.6		7.7		61.3
Hedge funds		—		—		4.4		4.4
Insurance annuities		—		—		7.8		7.8
Cash and cash equivalents		2.1		—		—		2.1
Total investments	$	61.0	$	53.6	$	19.9	$	134.5

Quoted prices in active markets for identical assets that we have the ability to access as of the reporting date.

Inputs other than quoted prices included within Level 1 that are directly observable for the asset or indirectly observable through corroboration with observable market data.

Unobservable inputs, such as internally developed pricing models or third party valuations for the asset due to little or no market activity for the asset.

The following table presents the reconciliation of Level 3 pension assets measured at fair value for the fiscal years ended May 31, 2019 and 2018:


	Hedge Funds		Fund-of-funds		Insurance Annuities		Total
Balance as of May 31, 2017	$	6.8	$	7.3	$	—	$	14.1
Purchases		—		—		7.8		7.8
Sales		(3.0)		—		—		(3.0)
Return on plan assets related to assets still held at May 31, 2018		0.6		0.4		—		1.0
Balance as of May 31, 2018		4.4		7.7		7.8		19.9
Purchases		—		—		2.1		2.1
Return on plan assets related to assets still held at May 31, 2019		(0.2)		0.2		—		—
Balance as of May 31, 2019	$	4.2	$	7.9	$	9.9	$	22.0

Valuation Techniques Used to Determine Fair Value

Cash equivalents are investments with maturities of three months or less when purchased. The fair values are based on observable market prices and categorized as Level 1.

With respect to individually held equity securities, including investments in U.S. and international securities, the trustees obtain prices from pricing services, whose prices are obtained from direct feeds from market exchanges, which we are able to independently corroborate. Equity securities held individually are primarily traded on exchanges that contain only actively traded securities, due to the volume trading requirements imposed by these exchanges. Equity securities are valued based on quoted prices in active markets and categorized as Level 1.

Equity and fixed income mutual funds are maintained by investment companies that hold certain investments in accordance with a stated set of fund objectives, which are consistent with our overall investment strategy. The values of some of these funds are publicly quoted. For equity and fixed income mutual funds which are publicly quoted, the funds are valued based on quoted prices in active markets and have been categorized as Level 1. As certain of our funds‑of‑funds investments are also derived from quoted prices in active markets, we have categorized certain funds-of-funds investments as Level 2.

Hedge fund investments include those seeking to maximize absolute returns using a broad range of strategies to enhance returns and provide additional diversification. The fair value of hedge funds is determined using net asset value or its equivalent subject to certain restrictions, such as a lock‑up period. As we may be limited in our ability to redeem the investments at the measurement date or within a reasonable period of time, the hedge fund investments are categorized as Level 3. Our other Level 3 investments require the utilization of unobservable inputs resulting in Level 3 treatment in the fair value hierarchy.

Future Benefit Payments and Funding

The following table summarizes our estimated future pension payments by fiscal year:


	Fiscal Year
											2025 to
	2020		2021		2022		2023		2024		2029
Estimated future pension payments	$	6.8	$	5.5	$	6.0	$	6.3	$	5.9	$	35.7

Our contribution policy for the domestic plans is to contribute annually, at a minimum, an amount which is deductible for federal income tax purposes and that is sufficient to meet actuarially computed pension benefits. For our Netherlands pension plan, our policy is to fund at least the minimum amount required by the local laws and regulations. We anticipate contributing approximately $1.6 million to our pension plans during fiscal 2020.

Postretirement Benefits Other Than Pensions

We provide health and life insurance benefits for certain eligible retirees. The postretirement plan is unfunded and in fiscal 1995, we completed termination of postretirement health and life insurance benefits attributable to future services of collective bargaining and other domestic employees. The unfunded projected benefit obligation for this plan was $0.4 million and $0.4 million as of May 31, 2019 and 2018, respectively. We have omitted substantially all of the required disclosures related to this plan because the plan is not material to our consolidated financial position or results of operations.

Defined Contribution Plan

The defined contribution plan is a profit sharing plan that is intended to qualify as a 401(k) plan under the Internal Revenue Code. Under the plan, employees may contribute up to 75% of their pretax compensation, subject to applicable regulatory limits. We may make matching contributions up to 5% of compensation as well as discretionary profit sharing contributions. Our contributions vest on a pro‑rata basis during the first three years of employment. We also provide profit sharing benefits for certain executives and key employees to supplement the benefits provided by the defined contribution plan. Expense charged to the Consolidated Statements of Income for our matching contributions, including profit sharing contributions, was $11.4 million in fiscal 2019, $9.2 million in fiscal 2018 and $11.6 million in fiscal 2017 for these plans.