EMPLOYEE BENEFIT PLANS

12 Months Ended

Sep. 30, 2021

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 $8,576 in 2021, $6,855 in 2020 and $7,097 in 2019.

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 $1,678 and $1,833 as of September 30, 2021 and 2020. The accumulated other comprehensive income (loss) for these plans was $(118) and ($196) as of September 30, 2021 and 2020, respectively, and the 2021 and 2020 benefit expense was $35 and $46, 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, 2021 and 2020. 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 $907, $1,559 and $3,148 during 2021, 2020, and 2019 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,
	2021		2020		2019		2021		2020		2019
Net periodic (benefits) costs:

Interest cost	$	2,816	$	4,267	$	5,778	$	162	$	335	$	503
Expected return on plan assets	(10,177)		(10,343)		(10,331)		—		—		—

Amortization of:
Prior service costs	—		—		—		—		14		14
Actuarial loss	5,776		3,769		630		516		399		258
Total net periodic (benefits) costs	$	(1,585)	$	(2,307)	$	(3,923)	$	678	$	748	$	775

The tax benefits in 2021, 2020 and 2019 for the amortization of pension costs in Other comprehensive income (loss) were $270, $878 and $221, 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,
	2021		2020		2019		2021		2020		2019
Discount rate	2.30	%	2.92	%	4.10	%	1.69	%	2.64	%	3.99	%

Expected return on assets	6.75	%	7.00	%	7.00	%	—	%	—	%	—	%

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,
	2021		2020		2021		2020
Change in benefit obligation:
Benefit obligation at beginning of fiscal year	$	183,003	$	177,797	$	16,070	$	16,180

Interest cost	2,816		4,267		162		335

Benefits paid	(10,743)		(10,747)		(1,936)		(1,939)



Actuarial (gain) loss	(4,571)		11,686		479		1,494

Benefit obligation at end of fiscal year	170,505		183,003		14,775		16,070
Change in plan assets:
Fair value of plan assets at beginning of fiscal year	147,145		145,610		—		—
Actual return on plan assets	23,199		4,261		—		—

Company contributions	922		8,021		1,936		1,939

Benefits paid	(10,743)		(10,747)		(1,936)		(1,939)


Fair value of plan assets at end of fiscal year	160,523		147,145		—		—
Projected benefit obligation in excess of plan assets	$	(9,982)	$	(35,858)	$	(14,775)	$	(16,070)
Amounts recognized in the statement of financial position consist of:
Accrued liabilities	$	—	$	—	$	(1,884)	$	(1,891)
Other liabilities (long-term)	(9,982)		(35,858)		(12,890)		(14,179)
Total Liabilities	(9,982)		(35,858)		(14,774)		(16,070)
Net actuarial losses	38,296		61,666		7,662		7,700
Prior service cost	—		—		—		—
Deferred taxes	(8,042)		(12,950)		(1,609)		(1,617)
Total Accumulated other comprehensive loss, net of tax	30,254		48,716		6,053		6,083
Net amount recognized at September 30,	$	20,272	$	12,858	$	(8,721)	$	(9,987)
Accumulated benefit obligations	$	170,505	$	183,003	$	14,775	$	16,070
Information for plans with accumulated benefit obligations in excess of plan assets:
ABO	$	170,505	$	183,003	$	14,775	$	16,070
PBO	170,505		183,003		14,775		16,070
Fair value of plan assets	160,523		147,145		—		—

Actuarial gains as of September 30, 2021 were primarily the result of the actual return on assets versus the expected return on assets. Actuarial gains also resulted from the increase in the discount rate and the change in the mortality assumption for valuing the Projected Benefit Obligation. Actuarial losses as of September 30, 2020 were primarily the result of the decrease in the discount rate.

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


	Defined Benefits at September 30,				Supplemental Benefits at September 30,
	2021		2020		2021		2020
Weighted average discount rate	2.58	%	2.30	%	1.94	%	1.69	%

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


For the years ending September 30,	Defined Benefits		Supplemental Benefits
2022	$	10,909	$	1,884
2023	10,902		1,765
2024	10,876		1,641
2025	10,803		1,513
2026	10,789		1,383
2027 through 2031	51,669		4,965

During 2022, Griffon expects to contribute $1,884 in payments related to Supplemental Benefits that will be funded from the general assets of Griffon. Griffon expects to contribute $953 to the Defined Benefit plan in 2022.

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, 2021 was 98.7%. Since the plan was in excess of the 80% funding threshold there were no plan restrictions. The expected level of 2022 catch up contributions is $198.

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


	At September 30,
	2021		2020		Target
Cash and equivalents	1.2	%	0.4	%	—	%
Equity securities	52.5	%	48.5	%	63.0	%
Fixed income	26.9	%	31.9	%	37.0	%
Other	19.4	%	19.2	%	—	%
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, 2021	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	$	1,867	$	—	$	—	$	1,867

Government agency securities	32,217		4,608		—		36,825
Debt instruments	1,063		2,706		—		3,769
Equity securities	84,129		—		—		84,129
Commingled funds	—		—		11,286		11,286
Limited partnerships and hedge fund investments	—		19,823		—		19,823
Other Securities	2,379		160		—		2,539
Subtotal	$	121,655	$	27,297	$	11,286	$	160,238
Accrued income and plan receivables							285
Total							$	160,523


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 and 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

The following table represents level 3 significant unobservable inputs for the years ended September 30, 2021 and 2020:


	Significant Unobservable Inputs (Level 3)

As of October 1, 2020	$	8,776
Purchases, issuances and settlements	—
Gains and losses	586
As of September 30, 2020	9,362
Purchases, issuances and settlements	—
Gains and losses	1,924
As of September 30, 2021	$	11,286

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 1st 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 $290 for the plan year ended September 30, 2021), 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 $3,678 in 2021, $2,878 in 2020 and $2,629 in 2019. 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, 2021 and 2020 based on the closing stock price of Griffon’s stock was $45,571 and $40,217, respectively. The ESOP shares were as follows:


	At September 30,
	2021	2020
Allocated shares	3,322,355	3,301,448
Unallocated shares	1,852,492	2,058,187
Total	5,174,847	5,359,635