EMPLOYEE BENEFIT PLANS

12 Months Ended

Sep. 30, 2020

Griffon offers defined contribution plans to most of its U.S. employees. In addition to employee contributions to the plans, Griffon makes contributions based upon various percentages of compensation and/or employee contributions, which were $11,956 in 2020, $11,788 in 2019 and $11,053 in 2018.

The Company also provides healthcare and life insurance benefits for certain groups of retirees through several plans. For certain employees, the benefits are at fixed amounts per retiree and are partially contributory by the retiree. The post-retirement benefit obligation was $1,833 and $1,852 as of September 30, 2020 and 2019. The accumulated other comprehensive income (loss) for these plans was $(196) and ($146) as of September 30, 2020 and 2019, respectively, and the 2020 and 2019 benefit expense was $46 and $50, respectively. It is the Company’s practice to fund these benefits as incurred.

Griffon also has qualified and non-qualified defined benefit plans covering certain employees with benefits based on years of service and employee compensation. Over time, these amounts will be recognized as part of net periodic pension costs in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Griffon is responsible for overseeing the management of the investments of the qualified defined benefit plan and uses the services of an investment manager to manage these assets based on agreed upon risk profiles. The primary objective of the qualified defined benefit plan is to secure participant retirement benefits. As such, the key objective in this plan’s financial management is to promote stability and, to the extent appropriate, growth in the funded status. Financial objectives are established in conjunction with a review of current and projected plan financial requirements. The fair values of a majority of the plan assets were determined by the plans’ trustee using quoted market prices for identical instruments (level 1 inputs) as of September 30, 2020 and 2019. The fair value of various other investments was determined by the plan’s trustee using direct observable market corroborated inputs, including quoted market prices for similar assets (level 2 inputs). A small amount of plan assets are invested in private equity which consist primarily of investments in private companies which are valued using the net asset values provided by the underlying private investment companies as a practical expedient (level 3 inputs).

The Clopay AMES Pension Plan and the AMES supplemental executive retirement plan are frozen to new entrants and participants in the plans no longer accrue benefits.

The Company’s non-service cost components of net periodic benefit plan cost was a benefit of $1,559, $3,148 and $3,649 during 2020, 2019, and 2018 respectively.

Griffon uses judgment to establish the assumptions used in determining the future liability of the plan, as well as the investment returns on the plan assets. The expected return on assets assumption used for pension expense was developed through analysis of historical market returns, current market conditions and past experience of plan investments. The long-term rate of return assumption represents the expected average rate of earnings on the funds invested, or to be invested, to provide for the benefits included in the benefit obligations. The assumption is based on several factors including historical market index returns, the anticipated long-term asset allocation of plan assets and the historical return. The discount rate assumption is determined by developing a yield curve based on high quality bonds with maturities matching the plans’ expected benefit payment stream. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. A 10% change in the discount rate or return on assets would not have a material effect on the financial statements of Griffon.

Net periodic costs (benefits) were as follows:



	Defined Benefits for the Years Ended September 30,									Supplemental Benefits for the Years Ended September 30,
	2020			2019			2018			2020		2019		2018
Net periodic (benefits) costs:
Interest cost	$	4,267		$	5,778		$	5,084		$	335	$	503	$	544
Expected return on plan assets	(10,343		)	(10,331		)	(10,736		)	—		—		—
Amortization of:
Prior service costs	—			—			—			14		14		14
Actuarial loss	3,769			630			755			399		258		628
Total net periodic (benefits) costs	$	(2,307	)	$	(3,923	)	$	(4,897	)	$	748	$	775	$	1,186

The tax benefits in 2020, 2019 and 2018 for the amortization of pension costs in Other comprehensive income (loss) were $878, $221 and $342, respectively.

The estimated net actuarial loss and prior service cost that will be amortized from AOCI into Net periodic pension cost during 2021 is $6,277 and $15, respectively.

The weighted-average assumptions used in determining the net periodic (benefits) costs were as follows:



	Defined Benefits for the Years Ended September 30,						Supplemental Benefits for the Years Ended September 30,
	2020		2019		2018		2020		2019		2018
Discount rate	2.92	%	4.10	%	3.64	%	2.64	%	3.99	%	3.18	%
Expected return on assets	7.00	%	7.00	%	7.25	%	—	%	—	%	—	%

Plan assets and benefit obligation of the defined and supplemental benefit plans were as follows:



	Defined Benefits at September 30,						Supplemental Benefits at September 30,
	2020			2019			2020			2019
Change in benefit obligation:
Benefit obligation at beginning of fiscal year	$	177,797		$	161,328		$	16,180		$	15,718
Interest cost	4,267			5,778			335			503
Benefits paid	(10,747		)	(10,790		)	(1,939		)	(1,942		)
Actuarial (gain) loss	11,686			21,481			1,494			1,901
Benefit obligation at end of fiscal year	183,003			177,797			16,070			16,180
Change in plan assets:
Fair value of plan assets at beginning of fiscal year	145,610			150,680			—			—
Actual return on plan assets	4,261			2,606			—			—
Company contributions	8,021			3,114			1,939			1,942
Benefits paid	(10,747		)	(10,790		)	(1,939		)	(1,942		)
Fair value of plan assets at end of fiscal year	147,145			145,610			—			—
Projected benefit obligation in excess of plan assets	$	(35,858	)	$	(32,187	)	$	(16,070	)	$	(16,180	)
Amounts recognized in the statement of financial position consist of:
Accrued liabilities	$	—		$	—		$	(1,891	)	$	(1,906	)
Other liabilities (long-term)	(35,858		)	(32,187		)	(14,179		)	(14,279		)
Total Liabilities	(35,858		)	(32,187		)	(16,070		)	(16,185		)
Net actuarial losses	61,666			47,663			7,700			6,609
Prior service cost	—			—			—			14
Deferred taxes	(12,950		)	(17,098		)	(1,617		)	(2,374		)
Total Accumulated other comprehensive loss, net of tax	48,716			30,565			6,083			4,249
Net amount recognized at September 30,	$	12,858		$	(1,622	)	$	(9,987	)	$	(11,936	)
Accumulated benefit obligations	$	183,003		$	177,797		$	16,070		$	16,180
Information for plans with accumulated benefit obligations in excess of plan assets:
ABO	$	183,003		$	177,797		$	16,070		$	16,180
PBO	183,003			177,797			16,070			16,180
Fair value of plan assets	147,145			145,610			—			—

The weighted-average assumptions used in determining the benefit obligations were as follows:



	Defined Benefits at September 30,				Supplemental Benefits at September 30,
	2020		2019		2020		2019
Weighted average discount rate	2.30	%	2.92	%	1.69	%	2.64	%

Estimated future benefit payments to retirees, which reflect expected future service, are as follows:



For the years ending September 30,	Defined Benefits		Supplemental Benefits
2021	$	11,006	$	1,891
2022	10,964		1,787
2023	10,945		1,679
2024	10,892		1,556
2025	10,809		1,437
2026 through 2030	52,390		5,354

During 2021, Griffon expects to contribute $1,891 in payments related to Supplemental Benefits that will be funded from the general assets of Griffon. Griffon expects to contribute $2,764 to the Defined Benefit plan in 2021.

The Clopay AMES Plan is covered by the Pension Protection Act of 2006. The Adjusted Funding Target Attainment Percent for the plan as of January 1, 2020 was 93.7%. Since the plan was in excess of the 80% funding threshold there were no plan restrictions. The expected level of 2021 catch up contributions is $2,107.

The actual and weighted-average asset allocation for qualified benefit plans were as follows:



	At September 30,
	2020		2019		Target
Cash and equivalents	0.4	%	1.9	%	—	%
Equity securities	48.5	%	49.9	%	63.0	%
Fixed income	31.9	%	29.4	%	37.0	%
Other	19.2	%	18.8	%	—	%
Total	100.0	%	100.0	%	100.0	%

The following is a description of the valuation methodologies used for plan assets measured at fair value:

Government and agency securities – When quoted market prices are available in an active market, the investments are classified as Level 1. When quoted market prices are not available in an active market, the investments are classified as Level 2.

Equity securities – The fair values reflect the closing price reported on a major market where the individual mutual fund securities are traded in equity securities. These investments are classified within Level 1 of the valuation hierarchy.

Debt securities – The fair values are based on a compilation of primarily observable market information or a broker quote in a non-active market where the individual mutual fund securities are invested in debt securities. These investments are classified within Level 1 and Level 2 of the valuation hierarchy.

Commingled funds – The fair values are determined using NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the trust/entity, minus its liabilities, and then divided by the number of shares outstanding. These investments are generally classified within Level 2 or 3, as appropriate, of the valuation hierarchy and can be liquidated on demand.

Interest in limited partnerships and hedge funds - One limited partnership investment is a private equity fund and the fair value is determined by the fund managers based on the net asset values provided by the underlying private investment companies as a practical expedient. These investments are classified within Level 2 of the valuation hierarchy.

The following table presents the fair values of Griffon’s pension and post-retirement plan assets by asset category:



At September 30, 2020	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and equivalents	$	600	$	—	$	—	$	600
Government agency securities	33,675		6,136		—		39,811
Debt instruments	179		2,722		—		2,901
Equity securities	68,987		—		—		68,987
Commingled funds	—		—		9,362		9,362
Limited partnerships and hedge fund investments	—		17,867		—		17,867
Other Securities	2,488		163		—		2,651
Subtotal	$	105,929	$	26,888	$	9,362	$	142,179
Accrued income and plan receivables							4,966
Total							$	147,145



At September 30, 2019	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and equivalents	$	2,791	$	—	$	—	$	2,791
Government and agency securities	28,297		9,119		—		37,416
Debt instruments	182		2,996		—		3,178
Equity securities	72,517		—		—		72,517
Commingled funds	—		—		8,776		8,776
Limited partnerships and hedge fund investments	—		18,569		—		18,569
Other Securities	1,913		159		—		2,072
Subtotal	$	105,700	$	30,843	$	8,776	$	145,319
Accrued income and plan receivables							291
Total							$	145,610

The following table represents level 3 significant unobservable inputs for the years ended September 30, 2020 and 2019:



	Significant Unobservable Inputs (Level 3)

As of October 1, 2019	$	—
Purchases, issuances and settlements	7,695
Gains and losses	1,081
As of September 30, 2019	8,776
Purchases, issuances and settlements	—
Gains and losses	586
As of September 30, 2020	$	9,362

Griffon has an ESOP that covers substantially all domestic employees. All U.S. employees of Griffon, who are not members of a collective bargaining unit, automatically become eligible to participate in the plan on the October 1^st following completion of one qualifying year of service (as defined in the plan). Securities are allocated to participants’ individual accounts based on the proportion of each participant’s aggregate compensation (not to exceed $285 for the plan year ended September 30, 2020), to the total of all participants’ compensation. Shares of the ESOP which have been allocated to employee accounts are charged to expense based on the fair value of the shares transferred and are treated as outstanding in determining earnings per share. Dividends paid on shares held by the ESOP are used to offset debt service on ESOP Loans. Dividends paid on shares held in participant accounts are utilized to allocate shares from the aggregate number of shares to be released, equal in value to those dividends, based on the closing price of Griffon common stock on the dividend payment date. Compensation expense under the ESOP was $2,878 in 2020, $2,629 in 2019 and $9,532 in 2018, including an impact of $2,588 from the April 2018 special dividend. The cost of the shares held by the ESOP and not yet allocated to employees is reported as a reduction of Shareholders’ Equity. The fair value of the unallocated ESOP shares as of September 30, 2020 and 2019 based on the closing stock price of Griffon’s stock was $40,217 and $47,378, respectively. The ESOP shares were as follows:



	At September 30,
	2020	2019
Allocated shares	3,301,448	3,209,069
Unallocated shares	2,058,187	2,259,308
Total	5,359,635	5,468,377