Pension and Other Postretirement Benefits

12 Months Ended

Jun. 30, 2020

Retirement Benefits [Abstract]

Pension and Other Postretirement Benefits

Pension and Other Postretirement Benefits

The Company provides several noncontributory defined benefit pension plans to certain employees. The plans provide defined benefits based on years of service and final average salary.

The Company made minimum required contributions of $6.5 million and $5.5 million during fiscal years 2020 and 2019, respectively, to its qualified defined benefit pension plans. 

The Company also provides other postretirement benefit plans to certain of its employees. The postretirement benefit plans consist of health care and life insurance plans. Plan assets are maintained in a Voluntary Employee Benefit Association (“VEBA”) Trust. During fiscal years 2020 and 2019, the Company funded benefit payments using assets in the VEBA Trust.

The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans:

	Pension Plans						Other Postretirement Plans
($ in millions)	2020			2019			2020			2019
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	1,339.3		$	1,264.5		$	255.8		$	241.5
Service cost	9.9			9.2			2.6			2.3
Interest cost	46.9			53.0			9.0			10.1
Benefits paid	(80.6		)	(88.7		)	(12.6		)	(12.6		)
Actuarial loss	71.1			101.3			9.4			14.5
Plan settlements	(47.1		)	—			—			—
Special termination benefits	3.6			—			—			—
Projected benefit obligation at end of year	1,343.1			1,339.3			264.2			255.8
Change in plan assets:
Fair value of plan assets at beginning of year	964.7			972.5			119.0			117.9
Actual return	76.2			72.2			2.9			10.5
Benefits paid	(80.9		)	(88.7		)	(12.4		)	(12.6		)
Contributions	9.9			8.7			3.3			3.2
Plan settlements	(46.5		)	—			—			—
Fair value of plan assets at end of year	923.4			964.7			112.8			119.0
Funded status of the plans	$	(419.7	)	$	(374.6	)	$	(151.4	)	$	(136.8	)
Amounts recognized in the consolidated balance sheets:
Accrued liabilities - current	(20.2		)	(3.4		)	(14.0		)	(14.7		)
Accrued pension liabilities - noncurrent	(399.5		)	(371.2		)	—			—
Accrued postretirement benefits - noncurrent	—			—			(137.4		)	(122.1		)
	$	(419.7	)	$	(374.6	)	$	(151.4	)	$	(136.8	)

	Pension Plans						Other Postretirement Plans
($ in millions)	2020			2019			2020			2019
Amounts recognized in accumulated other comprehensive loss:
Net actuarial loss	$	487.2		$	445.7		$	53.3		$	42.3
Prior service cost (credit)	12.0			14.1			(14.0		)	(17.9		)
Total	$	499.2		$	459.8		$	39.3		$	24.4
Other changes in plan assets and benefit obligations recognized in other comprehensive loss consist of:
Net actuarial loss	$	56.9		$	94.1		$	13.5		$	10.9
Amortization of net loss	(15.5		)	(10.4		)	(2.5		)	(1.6		)
Amortization of prior service (cost) benefit	(2.1		)	(2.1		)	3.9			5.2
Total, before tax effect	$	39.3		$	81.6		$	14.9		$	14.5
Additional information:
Accumulated benefit obligation for all pension plans	$	1,335.2		$	1,331.6		N/A			N/A

The following is additional information related to plans with projected benefit obligations in excess of plan assets as of June 30, 2020 and 2019:

	Pension Plans				Other Postretirement Plans
($ in millions)	2020		2019		2020		2019
Projected benefit obligation	$	1,343.0	$	1,339.3	$	264.2	$	255.9
Fair value of plan assets	$	923.3	$	964.7	$	112.8	$	119.0

The following additional information is for plans with accumulated benefit obligations in excess of plan assets as of June 30, 2020 and 2019:

	Pension Plans				Other Postretirement Plans
($ in millions)	2020		2019		2020		2019
Accumulated benefit obligation	$	1,335.1	$	1,331.5	$	264.2	$	255.9
Fair value of plan assets	$	923.3	$	964.7	$	112.8	$	119.0

The components of the net periodic benefit cost related to the Company’s pension and other postretirement benefits for the years ended June 30, 2020, 2019 and 2018 are as follows:

	Pension Plans									Other Postretirement Plans
($ in millions)	2020			2019			2018			2020			2019			2018
Service cost	$	9.9		$	9.2		$	9.5		$	2.6		$	2.3		$	2.6
Interest cost	46.9			53.0			52.1			9.0			10.1			9.5
Expected return on plan assets	(62.2		)	(64.9		)	(65.9		)	(7.1		)	(7.0		)	(6.9		)
Amortization of net loss	15.5			10.4			13.5			2.5			1.6			2.9
Amortization of prior service cost (benefit)	2.1			2.1			2.1			(3.9		)	(5.2		)	(5.2		)
Net periodic benefit costs	$	12.2		$	9.8		$	11.3		$	3.1		$	1.8		$	2.9

The service cost component of the Company’s net pension expense, which represents the estimated cost of future pension liabilities earned associated with active employees, is included in the operating income of the business segments. The residual net pension expense, which is comprised of the expected return on plan assets, interest costs on the projected benefit obligations of the plans, and amortization of actuarial gains and losses and prior service costs and (benefits), is presented in "Other Income (Expense), Net". See Note 19 to our consolidated financial statements included in Item 8. “Financial Statements and Supplementary Data”.

Weighted-average assumptions used to determine benefit obligations at fiscal year end	Pension Plans				Other Postretirement Plans
	2020		2019		2020		2019
Discount rate	3.02	%	3.61	%	3.00	%	3.60	%
Rate of compensation increase	3.31	%	3.39	%	N/A		N/A

Weighted-average assumptions used to determine net periodic benefit cost for the fiscal year
	Pension Plans						Other Postretirement Plans
	2020		2019		2018		2020		2019		2018
Discount rate	3.61	%	4.32	%	3.92	%	3.60	%	4.32	%	3.89	%
Expected long-term rate of return on plan assets	6.68	%	6.88	%	6.87	%	6.25	%	6.25	%	6.25	%
Long-term rate of compensation increase	3.31	%	3.39	%	3.44	%	N/A		N/A		N/A

The following table shows the expected health care rate increase and the future rate and time at which it is expected to remain constant:

	June 30,
	2020		2019
Assumed health care cost trend rate	6.00	%	6.25	%
Rate to which the cost trend rate is assumed to decline and remain (the ultimate trend rate)	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2025		2025

Assumed health care cost trend rates have an effect on the amounts reported for other postretirement benefits. A one percentage point increase in the assumed health care cost trend rate would increase service and interest cost by $0.1 million and increase the postretirement benefit obligation by $2.5 million. A one percentage point decrease in the assumed health care cost trend rate would decrease service and interest cost by $0.1 million and decrease the postretirement benefit obligation by $2.2 million.

Amounts in other comprehensive loss (gain) that are expected to be recognized as components of net periodic benefit cost in the year ended June 30, 2021 are:

($ in millions)	Pension Plans		Other Postretirement Plans			Total
Amortization of prior service cost (benefit)	$	2.1	$	(3.9	)	$	(1.8	)
Amortization of net actuarial loss	17.3		3.6			20.9
Amortization of accumulated other comprehensive loss (gain)	$	19.4	$	(0.3	)	$	19.1

The Company’s U.S. pension plans’ weighted-average asset allocations at June 30, 2020 and 2019, by asset category are as follows: 

	2020		2019
Equity securities	55.8	%	53.7	%
Fixed income securities	44.2		46.3
Total	100.0	%	100.0	%

The Company’s policy for developing a pension plan investment strategy includes the periodic development of an asset and liability study by an independent investment consultant. Management considers this study in establishing an asset allocation that is presented to and approved by the Company’s Retirement Plan Committee.

Based on the current funding level, the allocation policy for the Company’s largest pension plan assets is to have approximately 60 percent in return seeking assets and 40 percent in liability matching assets. Return seeking assets include domestic and international equities and diversified loan funds. Liability matching assets include long duration bond funds. As the funding level of the plan improves in increments of 5 percent, assets will be shifted from return seeking to liability matching in increments of 4 percent as a de-risking strategy. The assets related to the Company’s other postretirement benefit plans were invested in approximately 76 percent U.S. equities and 24 percent short term investments as of June 30, 2020. Management establishes the expected long-term rate of return assumption by reviewing historical trends and analyzing the current and projected market conditions in relation to the plan’s asset allocation and risk management objectives. In determining the expected long-term rate of return, the Company considered historical returns for individual asset classes and the impact of active portfolio management.

The fair values of the Company’s pension plan assets as of June 30, 2020 and 2019, by asset category and by the levels of inputs used to determine fair value were as follows:

	June 30, 2020
	Fair Value Measurements Using Input Type
($ in millions)	Level 1		Level 2		Net Asset Value		Total
Short-term investments	$	—	$	6.6	$	—	$	6.6
Domestic and international equities	125.9		—		—		125.9
Commingled funds	—		—		378.8		378.8
Limited partnerships	—		—		45.6		45.6
Government agency bonds	7.5		179.9		—		187.4
Corporate bonds	—		176.1		—		176.1
Mutual funds	1.6		—		—		1.6
Mortgage/asset backed securities and other	—		1.4		—		1.4
	$	135.0	$	364.0	$	424.4	$	923.4

	June 30, 2019
	Fair Value Measurements Using Input Type
($ in millions)	Level 1		Level 2		Net Asset Value		Total
Short-term investments	$	5.4	$	9.5	$	—	$	14.9
Domestic and international equities	132.6		—		—		132.6
Commingled funds	—		—		371.4		371.4
Limited partnerships	—		—		45.4		45.4
Government agency bonds	4.8		172.0		—		176.8
Corporate bonds	—		220.2		—		220.2
Mutual funds	1.9		—		—		1.9
Mortgage/asset backed securities and other	—		1.5		—		1.5
	$	144.7	$	403.2	$	416.8	$	964.7

The fair values of the Company’s other postretirement benefit plans as of June 30, 2020 and 2019, by asset category and by the level of inputs used to determine fair value, were as follows:

	June 30, 2020
	Fair Value Measurements Using Input Type
($ in millions)	Level 1		Level 2		Net Asset Value		Total
Commingled fund	$	—	$	—	$	85.5	$	85.5
Short-term investments	—		27.1		—		27.1
Government agency bonds	—		0.2		—		0.2
	$	—	$	27.3	$	85.5	$	112.8

	June 30, 2019
	Fair Value Measurements Using Input Type
($ in millions)	Level 1		Level 2		Net Asset Value		Total
Commingled fund	$	—	$	—	$	83.7	$	83.7
Short-term investments	—		27.1		—		27.1
Government agency bonds	—		4.8		—		4.8
Corporate bonds and other	—		3.4		—		3.4
	$	—	$	35.3	$	83.7	$	119.0

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Investments in domestic and international equities are generally valued at the closing price reported on the active market on which they are traded. Commingled funds, limited partnerships and mutual funds are valued based on the net asset value (“NAV”) established for the fund at each valuation date. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of units/shares outstanding. Corporate and government agency bonds and other fixed income securities are valued using closing bid prices on an active market when possible, otherwise using evaluated bid prices.

Cash Flows — Employer Contributions

The Company made contributions to the qualified U.S. pension plans of $6.5 million, $5.5 million and $6.7 million during fiscal years 2020, 2019 and 2018, respectively. The Company currently expects to make $19.3 million in required cash pension contributions to the qualified defined benefit pension plans during fiscal year 2021. During the years ended June 30, 2020, 2019 and 2018, the Company made contributions of $3.3 million, $3.2 million and $3.3 million to other non-qualified pension plans, respectively.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid. Pension benefits are currently paid from plan assets and other benefits are currently paid from both corporate assets and the VEBA trust.

($ in millions)	Pension Benefits		Other Benefits
2021	$	79.7	$	14.0
2022	$	78.9	$	14.6
2023	$	78.9	$	14.6
2024	$	78.4	$	14.7
2025	$	77.7	$	14.6
2026-2030	$	373.4	$	70.6

Other Benefit Plans

Carpenter also maintains defined contribution retirement and savings plans for substantially all domestic employees. Company contributions to the plans were $25.3 million in fiscal year 2020, $24.8 million in fiscal year 2019 and $22.6 million in fiscal year 2018.