Pension and Other Postretirement Benefits

12 Months Ended

Jun. 30, 2021

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 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 2021 and 2020, 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)	2021		2020		2021		2020
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	1,343.1	$	1,339.3	$	264.2	$	255.8
Service cost	9.6		9.9		2.7		2.6
Interest cost	39.4		46.9		7.7		9.0
Benefits paid	(92.5)		(80.6)		(12.9)		(12.6)
Actuarial (gain) loss	(25.3)		71.1		(12.4)		9.4
Plan settlements	(48.8)		(47.1)		—		—
Special termination benefits	—		3.6		—		—
Projected benefit obligation at end of year	1,225.5		1,343.1		249.3		264.2
Change in plan assets:
Fair value of plan assets at beginning of year	923.4		964.7		112.8		119.0
Actual return	193.7		76.2		33.6		2.9
Benefits paid	(92.6)		(80.9)		(12.8)		(12.4)
Contributions	23.7		9.9		2.7		3.3
Plan settlements	(48.8)		(46.5)		—		—
Fair value of plan assets at end of year	999.4		923.4		136.3		112.8
Funded status of the plans	$	(226.1)	$	(419.7)	$	(113.0)	$	(151.4)
Amounts recognized in the consolidated balance sheets:
Accrued liabilities - current	(3.5)		(20.2)		(14.4)		(14.0)
Accrued pension liabilities - noncurrent	(222.6)		(399.5)		—		—
Accrued postretirement benefits - noncurrent	—		—		(98.6)		(137.4)
Funded status of the plans	$	(226.1)	$	(419.7)	$	(113.0)	$	(151.4)

	Pension Plans				Other Postretirement Plans
($ in millions)	2021		2020		2021		2020
Amounts recognized in accumulated other comprehensive loss (income):
Net actuarial loss	$	298.0	$	487.2	$	10.3	$	53.3
Prior service cost (credit)	10.0		12.0		(10.1)		(14.0)
Total	$	308.0	$	499.2	$	0.2	$	39.3
Other changes in plan assets and benefit obligations recognized in other comprehensive loss consist of:
Net actuarial (gain) loss	$	(162.6)	$	56.9	$	(39.4)	$	13.5
Amortization of net loss	(15.3)		(15.5)		(3.6)		(2.5)
Amortization of prior service (cost) benefit	(2.1)		(2.1)		3.9		3.9
Settlement charge	(11.4)		—		—		—
Total, before tax effect	$	(191.4)	$	39.3	$	(39.1)	$	14.9
Additional information:
Accumulated benefit obligation for all pension plans	$	1,217.6	$	1,335.2	N/A		N/A

For the year ended June 30, 2021, actuarial gains in pension plans were significantly impacted by a mortality update of $13.1 million and a change in discount rate of $7.1 million and actuarial gains in other postretirement plans were significantly impacted by a mortality update of $6.8 million and a change in plan experience of $4.2 million. For the year ended June 30, 2020, net actuarial losses in pension plans were significantly impacted by losses from the change in discount rate of $91.6 million and by gains from a mortality update of $15.2 million and net actuarial losses in other postretirement plans were significantly impacted by losses from the change in discount rate of $16.6 million and by gains from a mortality update of $2.1 million.

The following is additional information related to plans with projected benefit obligations in excess of plan assets as of June 30, 2021 and 2020:

	Pension Plans				Other Postretirement Plans
($ in millions)	2021		2020		2021		2020
Projected benefit obligation	$	1,225.5	$	1,343.0	$	249.3	$	264.2
Fair value of plan assets	$	999.4	$	923.3	$	136.3	$	112.8

The following additional information is for plans with accumulated benefit obligations in excess of plan assets as of June 30, 2021 and 2020:

	Pension Plans				Other Postretirement Plans
($ in millions)	2021		2020		2021		2020
Accumulated benefit obligation	$	1,217.6	$	1,335.1	$	249.3	$	264.2
Fair value of plan assets	$	999.4	$	923.3	$	136.3	$	112.8

The components of the net periodic benefit cost related to the Company's pension and other postretirement benefits for the years ended June 30, 2021, 2020 and 2019 are as follows:

	Pension Plans						Other Postretirement Plans
($ in millions)	2021		2020		2019		2021		2020		2019
Service cost	$	9.6	$	9.9	$	9.2	$	2.7	$	2.6	$	2.3
Interest cost	39.4		46.9		53.0		7.7		9.0		10.1
Expected return on plan assets	(56.5)		(62.2)		(64.9)		(6.8)		(7.1)		(7.0)
Amortization of net loss	15.3		15.5		10.4		3.6		2.5		1.6
Amortization of prior service cost (benefit)	2.1		2.1		2.1		(3.9)		(3.9)		(5.2)
Settlement charge	11.4		—		—		—		—		—
Net periodic benefit costs	$	21.3	$	12.2	$	9.8	$	3.3	$	3.1	$	1.8

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 Expense (Income), Net". See Note 19 to our consolidated financial statements included in Item 8. "Financial Statements and Supplementary Data".

During fiscal year ended June 30, 2021, the Company evaluated the need for settlement accounting under ASC 715-30-35-82 based on the higher than normal lump-sum payments made during the current fiscal year in the Company's largest defined benefit plan. The Company determined that the lump-sum payments exceeded the threshold of service cost and interest cost components and settlement accounting was required. The Company recorded a settlement charge of $11.4 million in the year ended June 30, 2021 within other expense, net.

Weighted-average assumptions used to determine benefit obligations at fiscal year end	Pension Plans				Other Postretirement Plans
	2021		2020		2021		2020
Discount rate	3.06	%	3.02	%	3.04	%	3.00	%
Rate of compensation increase	3.29	%	3.31	%	N/A		N/A

Weighted-average assumptions used to determine net periodic benefit cost for the fiscal year
	Pension Plans						Other Postretirement Plans
	2021		2020		2019		2021		2020		2019
Discount rate	3.12	%	3.61	%	4.32	%	2.99	%	3.60	%	4.32	%
Expected long-term rate of return on plan assets	6.21	%	6.68	%	6.88	%	6.25	%	6.25	%	6.25	%
Long-term rate of compensation increase	3.29	%	3.31	%	3.39	%	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,
	2021		2020
Assumed health care cost trend rate	6.50	%	6.00	%
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	2027		2025

 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, 2022 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	8.4		(0.8)		7.6
Amortization of accumulated other comprehensive loss (gain)	$	10.5	$	(4.7)	$	5.8

The Company's U.S. pension plans' weighted-average asset allocations at June 30, 2021 and 2020, by asset category are as follows: 

	2021		2020
Equity securities	58.2	%	55.8	%
Fixed income securities	41.8		44.2
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 84 percent U.S. equities and 16 percent short term investments as of June 30, 2021. 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, 2021 and 2020, by asset category and by the levels of inputs used to determine fair value were as follows:

	June 30, 2021
	Fair Value Measurements Using Input Type
($ in millions)	Level 1		Level 2		Net Asset Value		Total
Short-term investments	$	—	$	21.6	$	—	$	21.6
Domestic and international equities	156.3		—		—		156.3
Commingled funds	—		—		404.9		404.9
Limited partnerships	—		—		52.4		52.4
Government agency bonds	—		176.2		—		176.2
Corporate bonds	7.6		175.5		—		183.1
Mutual funds	2.4		—		—		2.4
Mortgage/asset backed securities and other	—		2.5		—		2.5
	$	166.3	$	375.8	$	457.3	$	999.4

	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

The fair values of the Company's other postretirement benefit plans as of June 30, 2021 and 2020, by asset category and by the level of inputs used to determine fair value, were as follows:

	June 30, 2021
	Fair Value Measurements Using Input Type
($ in millions)	Level 1		Level 2		Net Asset Value		Total
Commingled fund	$	—	$	—	$	114.7	$	114.7
Short-term investments	—		21.6		—		21.6
	$	—	$	21.6	$	114.7	$	136.3

	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

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 $19.9 million, $6.5 million and $5.5 million during fiscal years 2021, 2020 and 2019, respectively. The Company currently expects to make no required cash pension contributions to the qualified defined benefit pension plans during fiscal year 2022. During the fiscal years ended June 30, 2021, 2020 and 2019, the Company made contributions of $3.8 million, $3.3 million and $3.2 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
2022	$	76.3	$	14.4
2023	$	74.9	$	14.8
2024	$	74.4	$	14.6
2025	$	73.8	$	14.4
2026	$	73.2	$	14.3
2027-2031	$	351.4	$	67.5

Other Benefit Plans

Carpenter also maintains defined contribution retirement and savings plans for substantially all domestic employees. Company contributions to the plans were $19.2 million in fiscal year 2021, $25.3 million in fiscal year 2020 and $24.8 million in fiscal year 2019.