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Retirement Benefits
 12 Months Ended
Sep. 30, 2020
Retirement Benefits [Abstract]  
Retirement Benefits RETIREMENT BENEFITS
We and certain of our subsidiaries sponsor defined benefit pension plans and defined contribution plans that cover a substantial portion of our worldwide employees. The principal defined benefit pension plans are the U.S. salaried pension plan and the U.K. pension plan. These plans were closed to new participants in 2005, after which defined contribution plans were offered to new employees. The principal defined contribution plan is the Retirement Savings Plan, in which a substantial portion of the U.S. employees participate. A similar plan is offered to U.K. employees. We also provide other postretirement benefits consisting primarily of healthcare benefits to U.S. retirees who meet age and service requirements.
Defined Benefit Pension Plans
Pension benefits earned are generally based on years of service and compensation during active employment. The components of net periodic benefit cost for our defined benefit pension plans for fiscal years 2020, 2019, and 2018 were as follows:
202020192018
Year Ended 30 SeptemberU.S.InternationalU.S.InternationalU.S.International
Service cost$23.4 $23.3 $21.4 $19.3 $25.5 $25.5 
Interest cost91.2 24.8 113.4 35.8 107.2 37.3 
Expected return on plan assets(188.7)(77.4)(172.5)(75.1)(201.6)(81.7)
Prior service cost amortization1.2 — 1.1 — 1.6 — 
Actuarial loss amortization83.7 19.5 65.3 10.9 87.4 40.2 
Settlements5.0 0.2 6.2 0.2 45.0 3.5 
Special termination benefits— — 0.7 0.1 0.4 — 
Other— 0.8 — 0.8 — 1.5 
Net Periodic (Benefit) Cost$15.8 ($8.8)$35.6 ($8.0)$65.5 $26.3 

Our service costs are primarily included within "Cost of sales" and "Selling and administrative" on our consolidated income statements. The amount of service costs capitalized in fiscal years 2020, 2019 and 2018 were not material. The non-service related costs, including pension settlement losses, are presented outside operating income within "Other non-operating income (expense), net."
During the fourth quarter of fiscal year 2018, we recognized a pension settlement loss of $43.7 primarily in connection with the transfer of certain pension assets and payment obligations for our U.S. salaried and hourly plans to an insurer through the purchase of an irrevocable, nonparticipating group annuity contract. The transaction does not change the amount of the monthly pension benefits received by affected retirees.
Certain of our pension plans provide for a lump sum benefit payment option at the time of retirement, or for corporate officers, six months after their retirement date. A participant’s vested benefit is considered settled upon cash payment of the lump sum. We recognize pension settlement losses when cash payments exceed the sum of the service and interest cost components of net periodic benefit cost of the plan for the fiscal year. We recognized pension settlement losses of $5.0, $6.2 and $5.2 in fiscal years 2020, 2019 and 2018, respectively, to accelerate recognition of a portion of actuarial losses deferred in accumulated other comprehensive loss, primarily associated with the U.S. supplementary pension plan.
We calculate net periodic benefit cost for a given fiscal year based on assumptions developed at the end of the previous fiscal year. The following table sets forth the weighted average assumptions used in the calculation of net periodic benefit cost:
 202020192018
  U.S.InternationalU.S.InternationalU.S.International
Discount rate – Service cost3.3 %1.5 %4.3 %2.5 %3.9 %2.6 %
Discount rate – Interest cost2.9 %1.3 %4.0 %2.2 %3.3 %2.2 %
Expected return on plan assets7.0 %5.0 %7.0 %5.3 %7.5 %5.8 %
Rate of compensation increase3.5 %3.3 %3.5 %3.5 %3.5 %3.6 %

The projected benefit obligation ("PBO") is the actuarial present value of benefits attributable to employee service rendered to date, including the effects of estimated future salary increases. The following table sets forth the weighted average assumptions used in the calculation of the PBO:
20202019
U.S.InternationalU.S.International
Discount rate2.7 %1.5 %3.2 %1.5 %
Rate of compensation increase3.5 %3.3 %3.5 %3.3 %

The following tables reflect the change in the PBO and the change in the fair value of plan assets based on the plan year measurement date, as well as the amounts recognized in the consolidated balance sheets:
20202019
U.S.InternationalU.S.International
Change in Projected Benefit Obligation
Obligation at beginning of year$3,281.6 $1,864.0 $2,922.8 $1,660.5 
Service cost23.4 23.3 21.4 19.3 
Interest cost91.2 24.8 113.4 35.8 
Amendments1.6 — 1.1 4.7 
Actuarial loss (gain)190.5 (11.6)380.3 300.2 
Settlements (11.7)(0.9)(12.2)(1.6)
Special termination benefits— — 0.7 0.1 
Participant contributions— 1.2 — 1.3 
Benefits paid(152.5)(49.8)(146.2)(47.7)
Currency translation and other(0.3)98.7 0.3 (108.6)
Obligation at End of Year$3,423.8 $1,949.7 $3,281.6 $1,864.0 
20202019
U.S.InternationalU.S.International
Change in Plan Assets
Fair value at beginning of year$2,832.4 $1,672.4 $2,684.9 $1,588.2 
Actual return on plan assets364.6 (3.1)289.9 208.0 
Company contributions15.5 22.0 16.0 24.2 
Participant contributions— 1.2 — 1.3 
Benefits paid(152.5)(49.8)(146.2)(47.7)
Settlements(11.7)(0.9)(12.2)(1.6)
Currency translation and other— 85.0 — (100.0)
Fair Value at End of Year$3,048.3 $1,726.8 $2,832.4 $1,672.4 
Funded Status at End of Year($375.5)($222.9)($449.2)($191.6)
20202019
U.S.InternationalU.S.International
Amounts Recognized
Noncurrent assets$26.5 $— $17.3 $11.4 
Accrued liabilities10.5 0.2 18.3 — 
Noncurrent liabilities391.5 222.7 448.2 203.0 
Net Liability Recognized$375.5 $222.9 $449.2 $191.6 

The changes in plan assets and benefit obligation that have been recognized in other comprehensive income on a pretax basis during fiscal years 2020 and 2019 consist of the following:
20202019
U.S.InternationalU.S.International
Net actuarial loss arising during the period$14.6 $68.9 $262.9 $161.5 
Amortization of net actuarial loss(88.7)(19.7)(71.5)(11.1)
Prior service cost arising during the period1.6 — 1.1 4.7 
Amortization of prior service cost(1.2)— (1.1)— 
Total($73.7)$49.2 $191.4 $155.1 

The net actuarial loss represents the actual changes in the estimated obligation and plan assets that have not yet been recognized in the consolidated income statements and are included in accumulated other comprehensive loss. Actuarial losses arising during fiscal year 2020 are primarily attributable to lower discount rates, partially offset by higher than expected return on plan assets. Accumulated actuarial gains and losses that exceed a corridor are amortized over the average remaining service period of U.S. participants, which was approximately seven years as of 30 September 2020. For U.K. participants, accumulated actuarial gains and losses that exceed a corridor are amortized over the average remaining life expectancy, which was approximately twenty-five years as of 30 September 2020.
The components recognized in accumulated other comprehensive loss on a pretax basis at 30 September consisted of the following:
20202019
U.S.InternationalU.S.International
Net actuarial loss$797.7 $643.2 $871.8 $594.0 
Prior service cost (credit)7.0 3.6 6.6 3.6 
Net transition liability— 0.4 — 0.4 
Total$804.7 $647.2 $878.4 $598.0 

The accumulated benefit obligation ("ABO") is the actuarial present value of benefits attributed to employee service rendered to a particular date, based on current salaries. The ABO for all defined benefit pension plans was $5,166.5 and $4,931.6 as of 30 September 2020 and 2019, respectively.
The following table provides information on pension plans where the benefit liability exceeds the value of plan assets:
20202019
30 SeptemberU.S.InternationalU.S.International
Pension Plans with PBO in Excess of Plan Assets:
PBO$3,202.2 $1,949.7 $3,069.2 $521.1 
Fair value of plan assets2,800.3 1,726.7 2,602.8 318.0 
PBO in excess of plan assets$401.9 $223.0 $466.4 $203.1 
Pension Plans with ABO in Excess of Plan Assets:
ABO$3,081.4 $475.8 $2,941.2 $413.3 
Fair value of plan assets2,800.3 324.4 2,602.8 266.5 
ABO in excess of plan assets$281.1 $151.4 $338.4 $146.8 

The tables above include several pension arrangements that are not funded because of jurisdictional practice. The ABO and PBO related to these plans as of 30 September 2020 were $86.6 and $91.7, respectively. As of 30 September 2019, the U.K. pension plan had plan assets in excess of both PBO and ABO and was therefore not included in the table above. As of 30 September 2020, the PBO of this plan exceeded the fair value of plan assets, resulting in an increase to the International balances.
Pension Plan Assets
Our pension plan investment strategy is to invest in diversified portfolios to earn a long-term return consistent with acceptable risk in order to pay retirement benefits and meet regulatory funding requirements while minimizing company cash contributions over time. De-risking strategies are also employed for closed plans as funding improves, generally resulting in higher allocations to long duration bonds. The plans invest primarily in passive and actively managed equity and debt securities. Equity investments are diversified geographically and by investment style and market capitalization. Fixed income investments include sovereign, corporate and asset-backed securities generally denominated in the currency of the plan.
Asset allocation targets are established based on the long-term return, volatility and correlation characteristics of the asset classes, the profiles of the plans’ liabilities, and acceptable levels of risk. Assets are routinely rebalanced through contributions, benefit payments, and otherwise as deemed appropriate. The actual and target allocations at the measurement date are as follows:
2020 Target Allocation2020 Actual Allocation2019 Actual Allocation
U.S.InternationalU.S.InternationalU.S.International
Asset Category
Equity securities
42 - 57%
40 - 49%
51 %43 %38 %42 %
Debt securities
35 - 50%
51 - 60%
43 %56 %56 %57 %
Real estate and other
— - 10%
— %5 %— %6 %— %
Cash— %— %1 %1 %— %1 %
Total100 %100 %100 %100 %

In fiscal year 2020, the 7.0% expected return for U.S. plan assets was based on a weighted average of estimated long-term returns of major asset classes and the historical performance of plan assets. The estimated long-term return for equity, debt securities, and real estate is 7.6%, 5.1%, and 6.5%, respectively. In determining asset class returns, we take into account historical long-term returns and the value of active management, as well as other economic and market factors.
In fiscal year 2020, the 5.0% expected rate of return for international plan assets was based on a weighted average return for plans outside the U.S., which vary significantly in size, asset structure and expected returns. The expected asset return for the U.K. plan, which represents over 80% of the assets of our International plans, is 5.7% and was derived from expected equity and debt security returns of 7.3% and 1.8%, respectively.
The following table summarizes pension plan assets measured at fair value by asset class (see Note 14, Fair Value Measurements, for definition of the levels):
20202019
30 SeptemberTotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3
U.S. Qualified Pension Plans
Cash and cash equivalents$16.9 $16.9 $— $— $13.7 $13.7 $— $— 
Equity securities573.9 573.9 — — 401.1 401.1 — — 
Equity mutual funds213.1 213.1 — — 152.9 152.9 — — 
Equity pooled funds762.0 — 762.0 — 524.8 — 524.8 — 
Fixed income:
Bonds (government
and corporate)
1,312.7 — 1,312.7 — 1,572.1 — 1,572.1 — 
Total U.S. Qualified Pension Plans at Fair Value$2,878.6 $803.9 $2,074.7 $— $2,664.6 $567.7 $2,096.9 $— 
Real estate pooled funds(A)
169.7 167.8 
Total U.S. Qualified Pension Plans$3,048.3 $2,832.4 
International Pension Plans
Cash and cash equivalents$13.9 $13.9 $— $— $13.4 $13.4 $— $— 
Equity pooled funds746.8 — 746.8 — 711.3 — 711.3 — 
Fixed income pooled funds694.1 — 694.1 — 679.9 — 679.9 — 
Other pooled funds15.5 — 15.5 — 13.7 — 13.7 — 
Insurance contracts256.5 — — 256.5 254.1 — — 254.1 
Total International Pension Plans$1,726.8 $13.9 $1,456.4 $256.5 $1,672.4 $13.4 $1,404.9 $254.1 
(A)Real estate pooled funds consist of funds that invest in properties. These funds generally allow for quarterly redemption with 30 days' notice. Timing for redemption could be delayed based on the priority of our request and the availability of funds. Interests in these funds are valued using the net asset value ("NAV") per share practical expedient and are not classified in the fair value hierarchy.
The following table summarizes changes in fair value of the pension plan assets classified as Level 3, which comprised of investments in insurance contracts:
Balance at 30 September 2018$217.7 
Actual return on plan assets:
Assets held at end of year38.1 
Purchases, sales, and settlements, net(1.7)
Balance at 30 September 2019$254.1 
Actual return on plan assets:
Assets held at end of year2.4 
Balance at 30 September 2020$256.5 
The descriptions and fair value methodologies for the U.S. and International pension plan assets are as follows:
Cash and Cash Equivalents
The carrying amounts of cash and cash equivalents approximate fair value due to the short-term maturity.
Equity Securities
Equity securities are valued at the closing market price reported on a U.S. or international exchange where the security is actively traded and are therefore classified as Level 1 assets.
Equity Mutual and Pooled Funds
Shares of mutual funds are valued at the NAV of the fund and are classified as Level 1 assets. Units of pooled funds are valued at the per unit NAV determined by the fund manager based on the value of the underlying traded holdings and are classified as Level 2 assets.
Corporate and Government Bonds
Corporate and government bonds are classified as Level 2 assets, as they are either valued at quoted market prices from observable pricing sources at the reporting date or valued based upon comparable securities with similar yields and credit ratings.
Other Pooled Funds
Other pooled funds classified as Level 2 assets are valued at the NAV of the shares held at year end, which is based on the fair value of the underlying investments.
Insurance Contracts
Insurance contracts are classified as Level 3 assets, as they are carried at contract value, which approximates the estimated fair value. The estimated fair value is based on the fair value of the underlying investment of the insurance company and discount rates that require inputs with limited observability.
Contributions and Projected Benefit Payments
Pension contributions to funded plans and benefit payments for unfunded plans for fiscal year 2020 were $37.5. Contributions for funded plans resulted primarily from contractual and regulatory requirements. Benefit payments to unfunded plans were due primarily to the timing of retirements. We anticipate contributing $45 to $55 to the defined benefit pension plans in fiscal year 2021. These contributions are anticipated to be driven primarily by contractual and regulatory requirements for funded plans and benefit payments for unfunded plans, which are dependent upon timing of retirements.
Projected benefit payments, which reflect expected future service, are as follows:
U.S.International
2021$163.7 $52.0 
2022165.2 52.8 
2023169.8 56.9 
2024174.0 60.2 
2025177.9 59.9 
2026-2030932.6 334.4 

These estimated benefit payments are based on assumptions about future events. Actual benefit payments may vary significantly from these estimates.
U.K. Lloyds Equalization Ruling
On 26 October 2018, the United Kingdom High Court issued a ruling related to the equalization of pension plan participants’ benefits for the gender effects of Guaranteed Minimum Pensions. As a result of this ruling, we estimated the impact of retroactively increasing benefits in our U.K. plan in accordance with the High Court ruling. We treated the additional benefits as a prior service cost, which resulted in an increase to our projected benefit obligation and accumulated other comprehensive loss of $4.7 during the first quarter of fiscal year 2019. We are amortizing this cost over the average remaining life expectancy of the U.K. participants.
Defined Contribution Plans
We maintain a non-leveraged employee stock ownership plan ("ESOP") which forms part of the Air Products and Chemicals, Inc. Retirement Savings Plan ("RSP"). The ESOP was established in May of 2002. The balance of the RSP is a qualified defined contribution plan including a 401(k) elective deferral component. A substantial portion of U.S. employees are eligible and participate.
We treat dividends paid on ESOP shares as ordinary dividends. Under existing tax law, we may deduct dividends which are paid with respect to shares held by the plan. Shares of our common stock in the ESOP totaled 2,001,152 as of 30 September 2020.
Our contributions to the RSP include a Company core contribution for certain eligible employees who do not receive their primary retirement benefit from the defined benefit pension plans, with the core contribution based on a percentage of pay that is dependent on years of service. For the RSP, we also make matching contributions on overall employee contributions as a percentage of the employee contribution and include an enhanced contribution for certain eligible employees that do not participate in the defined benefit pension plans. Worldwide contributions expensed to income in fiscal years 2020, 2019, and 2018 were $45.6, $40.6, and $34.2, respectively.
Other Postretirement Benefits
We provide other postretirement benefits consisting primarily of healthcare benefits to certain U.S. retirees who meet age and service requirements. The healthcare benefit is a continued medical benefit until the retiree reaches age 65. Healthcare benefits are contributory, with contributions adjusted periodically. The retiree medical costs are capped at a specified dollar amount, with the retiree contributing the remainder. The cost of these benefits were not material in fiscal years 2020, 2019, and 2018. Accumulated postretirement benefit obligations as of the end of fiscal years 2020 and 2019 were $38.6 and $43.7, respectively, of which $7.2 and $7.7 were current obligations, respectively.
We recognize changes in other postretirement benefit plan obligations in other comprehensive income on a pretax basis. In fiscal years 2020 and 2019, we recognized gains that arose during the period of $1.3 and $6.1, respectively. There was no net actuarial loss amortization in fiscal years 2020 and 2019 as the corridor for the plan was not exceeded.
The net actuarial gain/loss recognized in accumulated other comprehensive loss on a pretax basis was a net gain of $3.0 and $1.7 as of 30 September 2020 and 2019, respectively.