Employee Benefit Plans

12 Months Ended

May 31, 2023

Employee Benefit Plans

Employee Benefit Plans

8. Employee Benefit Plans

Defined Benefit Plans

Prior to January 1, 2000, the pension plan for substantially all domestic salaried and non-union hourly employees (“U.S. Retirement Plan”) had a benefit formula based primarily on years of service and compensation. Effective January 1, 2000, we converted the U.S. Retirement Plan to a cash balance pension plan with the retirement benefit 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 the U.S. Retirement 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, 2023 was 4.46%. Effective June 1, 2005, the U.S. Retirement Plan was frozen and the annual pay-based credits were discontinued.

Prior to May 31, 2022, our domestic plans also include a defined benefit pension plan for certain union hourly employees in which benefits are based primarily on a fixed amount per year of service (“Union Plan”). The Union Plan was frozen in fiscal 2018.

Effective May 31, 2022, our Union and U.S. Retirement Plans were merged (collectively, the “Merged U.S. Plan”). We are planning to terminate the Merged U.S. Plan in the first half of fiscal 2024 upon the anticipated transfer of the Merged U.S. Plan’s obligations to a third-party. The Merged U.S. Plan is in an overfunded position of $8.7 million and we do not anticipate making any contributions to the Merged U.S. Plan in conjunction with the termination. We expect to recognize a non-cash pension settlement charge related to the actuarial losses in Accumulated other comprehensive loss, upon settlement of the obligations of the Merged U.S. Plan. This charge is expected to occur in fiscal 2024, with the specific timing and final amounts dependent upon several factors.

We also have a defined benefit pension plan covering certain employees in the Netherlands (“Netherlands Plan”). Benefit formulas are generally based on years of service and compensation. Effective January 1, 2022, the Netherlands Plan was frozen and any benefits subsequent to that date are earned by participants in a multi-employer defined contribution plan with the premiums charged to us determined by the third-party pension fund who administers the multi-employer plan. Pension expense in fiscal 2023 and 2022 for this defined contribution plan was $1.2 million and $0.5 million, respectively.

The change to our projected benefit obligation and the fair value of our plan assets for our pension plans for the year ended May 31, 2023 was as follows:

	Merged		Other U.S.		Netherlands
	U.S. Plan		Plans		Plan		Total
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	60.1	$	3.7	$	56.4	$	120.2
Service cost		0.3		—		0.2		0.5
Interest cost		1.7		0.1		1.5		3.3
Net actuarial gain		(4.4)		(0.5)		(4.6)		(9.5)
Benefits and administrative payments		(4.0)		(0.3)		(1.5)		(5.8)
Foreign currency translation adjustment		—		—		(0.7)		(0.7)
Projected benefit obligation at end of year	$	53.7	$	3.0	$	51.3	$	108.0
Change in the fair value of plan assets:
Fair value of plan assets at beginning of year	$	69.0	$	—	$	57.2	$	126.2
Actual return on plan assets		(2.6)		—		(4.8)		(7.4)
Employer contributions		—		0.3		—		0.3
Benefits and administrative payments		(4.0)		(0.3)		(1.5)		(5.8)
Foreign currency translation adjustment		—		—		(0.7)		(0.7)
Fair value of plan assets at end of year	$	62.4	$	—	$	50.2	$	112.6
Funded status at end of year	$	8.7	$	(3.0)	$	(1.1)	$	4.6
Accumulated other comprehensive loss	$	25.7	$	0.1	$	6.3	$	32.1

The change to our projected benefit obligation and the fair value of our plan assets for our pension plans for the year ended May 31, 2022 was as follows:

	Merged		Other U.S.		Netherlands
	U.S. Plan		Plans		Plan		Total
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	70.9	$	4.4	$	83.7	$	159.0
Service cost		0.3		—		1.2		1.5
Interest cost		2.0		0.1		1.0		3.1
Participant contributions		—		—		0.1		0.1
Net actuarial loss		(7.6)		(0.4)		(17.0)		(25.0)
Benefits and administrative payments		(3.0)		(0.4)		(1.7)		(5.1)
Settlements		(2.5)		—		—		(2.5)
Curtailment		—		—		(2.0)		(2.0)
Foreign currency translation adjustment		—		—		(8.9)		(8.9)
Projected benefit obligation at end of year	$	60.1	$	3.7	$	56.4	$	120.2
Change in the fair value of plan assets:
Fair value of plan assets at beginning of year	$	81.3	$	—	$	77.1	$	158.4
Actual return on plan assets		(6.8)		—		(9.9)		(16.7)
Employer contributions		—		0.4		0.1		0.5
Participant contributions		—		—		0.1		0.1
Benefits and administrative payments, including settlements		(5.5)		(0.4)		(1.7)		(7.6)
Foreign currency translation adjustment		—		—		(8.5)		(8.5)
Fair value of plan assets at end of year	$	69.0	$	—	$	57.2	$	126.2
Funded status at end of year	$	8.9	$	(3.7)	$	0.8	$	6.0
Accumulated other comprehensive loss	$	26.2	$	0.7	$	3.9	$	30.9

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

	May 31,
	2023		2022
Other non-current assets	$	8.7	$	9.7
Accrued liabilities		(0.2)		(0.3)
Other liabilities		(3.9)		(3.4)
Funded status at end of year	$	4.6	$	6.0

The following tables provide the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for all pension plans with a projected benefit obligation or accumulated benefit obligation in excess of plan assets:

	May 31,
	2023		2022
Projected benefit obligation in excess of plan assets
Projected benefit obligation	$	54.3	$	3.7
Fair value of plan assets		50.2		—

	May 31,
	2023		2022
Accumulated benefit obligation in excess of plan assets
Projected benefit obligation	$	54.3	$	3.7
Accumulated benefit obligation		51.6		3.7
Fair value of plan assets		50.2		—

The accumulated benefit obligation for all pension plans was $105.3 million and $116.5 million at May 31, 2023 and 2022, respectively.

Net Periodic Benefit Cost

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

	For the Year Ended May 31, 2023
	Merged		Other U.S.		Netherlands
	U.S. Plan		Plans		Plan		Total
Service cost	$	0.3	$	—	$	0.2	$	0.5
Interest cost		1.7		0.1		1.5		3.3
Expected return on plan assets		(2.0)		—		(2.1)		(4.1)
Recognized net actuarial loss		0.8		—		—		0.8
	$	0.8	$	0.1	$	(0.4)	$	0.5

	For the Year Ended May 31, 2022
	Merged		Other U.S.		Netherlands
	U.S. Plan		Plans		Plan		Total
Service cost	$	0.3	$	—	$	1.2	$	1.5
Interest cost		2.0		0.1		1.0		3.1
Expected return on plan assets		(5.0)		—		(2.5)		(7.5)
Settlements		1.4		—		—		1.4
Recognized net actuarial loss		1.2		0.1		0.2		1.5
	$	(0.1)	$	0.2	$	(0.1)	$	—

	For the Year Ended May 31, 2021
	Merged		Other U.S.		Netherlands
	U.S. Plan		Plans		Plan		Total
Service cost	$	0.3	$	—	$	2.2	$	2.5
Interest cost		2.1		0.1		0.9		3.1
Expected return on plan assets		(4.8)		—		(1.8)		(6.6)
Settlements		0.9		—		—		0.9
Recognized net actuarial loss		1.5		0.1		0.7		2.3
	$	—	$	0.2	$	2.0	$	2.2

The non-service cost components above are classified in Other income (expense), net on the Statements of Income.

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 weighted-average discount rate assumptions used in the measurement of our projected benefit obligations:

	May 31,
	2023		2022
U.S. plans	5.59	%	2.96	%
Netherlands plan	3.70		2.80

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

	For the Year Ended
	May 31,
	2023		2022		2021
Discount rate:
U.S. plans	2.96	%	2.87	%	2.83	%
Netherlands plan	2.80		1.20		1.20
Expected long-term rate on plan assets:
U.S. plans	2.91	%	7.25	%	7.25	%
Netherlands plan	3.90		3.30		2.50

The discount rate was determined by discounting the expected future benefit payments and settlements 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 assets of U.S pension plans are invested in compliance with the Employee Retirement Income Security Act of 1974. Prior to the decision to terminate the Merged U.S. Plan, the investment goals were 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. The assets of the U.S. pension plans were invested primarily in equity and fixed income mutual funds, individual common stocks, and fund-of-funds hedge funds.

In conjunction with the decision to terminate the Merged U.S. Plan, our investment policy was amended and the asset allocations was significantly changed and invested primarily in cash and fixed income investments to hedge changes in interest rates and maintain the positive funded status of the Merged U.S. Plan while we complete the necessary steps to terminate the Merged U.S. Plan.

To develop our expected rate of return assumption on the Merged U.S. Plan, we use long-term historical return information for our targeted asset mix and current market conditions as of the measurement date. 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.

The assets of the Netherlands Plan are primarily invested in funds-of-funds where each fund holds a portfolio of equity and fixed income mutual funds.

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair value as of May 31, 2023:

	Level 1(1)		Level 2(2)		Level 3(3)		Total
Fixed income:
Government securities and corporate bond mutual funds	$	—	$	60.0	$	—	$	60.0
Funds-of-funds		—		39.9		—		39.9
Insurance annuities		—		—		10.4		10.4
Cash and cash equivalents		2.3		—		—		2.3
	$	2.3	$	99.9	$	10.4	$	112.6

The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair value as of May 31, 2022:

	Level 1(1)		Level 2(2)		Level 3(3)		Total
Fixed income:
Government securities and corporate bond mutual funds	$	—	$	49.6	$	—	$	49.6
Funds-of-funds		—		45.9		—		45.9
Insurance annuities		—		—		11.3		11.3
Cash and cash equivalents		14.6		—		—		14.6
	$	14.6	$	95.5	$	11.3		121.4
Other investments measured at net asset value (4)								4.8
Total pension plan assets							$	126.2

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

(2) 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.

(3) 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.

(4) Other investments measured at net asset value included alternative investments, such as hedge funds, which are valued using the net asset value as a practical expedient.

The following table presents the reconciliation of Level 3 pension assets and other investments measured at net asset value for the fiscal years ended May 31, 2023 and 2022:

	Hedge		Fund-of-		Insurance
	Funds		funds		Annuities		Total
Balance as of May 31, 2021	$	5.1	$	11.0	$	15.6	$	31.7
Sales		—		(11.0)		(4.3)		(15.3)
Return on plan assets related to assets still held at May 31, 2022		(0.3)		—		—		(0.3)
Balance as of May 31, 2022		4.8		—		11.3		16.1
Sales		(4.8)		—		—		(4.8)
Return on plan assets related to assets still held at May 31, 2023		—		—		(0.9)		(0.9)
Balance as of May 31, 2023	$	—	$	—	$	10.4	$	10.4

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.

Insurance annuities require the utilization of unobservable inputs, including undiscounted cash flow techniques which results in Level 3 treatment in the fair value hierarchy.

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 was determined using net asset value or its equivalent subject to certain restrictions, such as a lock-up period and a redemption notice period.

Future Benefit Payments and Funding

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

	Fiscal Year
											2029 to
	2024		2025		2026		2027		2028		2033
Estimated future pension payments	$	57.3	$	2.7	$	2.7	$	2.7	$	2.8	$	12.3

The estimated payments in fiscal 2024 reflect the projected timing of the planned termination of the Merged U.S. Plan and transfer of its assets and obligations to a third party.

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 Plan, our policy is to fund at least the minimum amount required by the local laws and regulations. We anticipate contributing approximately $0.4 million to our pension plans during fiscal 2024.

U.S. Defined Contribution Plans

Our U.S. defined contribution plans are intended to qualify as a 401(k) plans under the Internal Revenue Code. Employees may contribute up to 75% of their pretax compensation, subject to applicable regulatory limits and we may make discretionary matching contributions up to 5% of employee compensation. Our contributions vest on a pro-rata basis during the first three years of employment. We also maintain a non-qualified retirement plan that makes up 401(k) benefits that would otherwise be lost as a result of Internal Revenue Code limits and provides additional employer contributions for certain executives and key employees to supplement the benefits provided by the defined contribution plans.

In response to the impact from COVID-19, we temporarily suspended our matching contributions to the defined contribution plans effective June 1, 2020 and reinstated the contributions effective December 1, 2020. Expense recognized in the Consolidated Statements of Income for our matching contributions during fiscal 2023, 2022, and 2021 was $7.5 million, $7.3 million, and $4.0 million, respectively.