Note 9 - Postretirement and Postemployment Benefits

12 Months Ended

Sep. 26, 2021

Other Postretirement Benefits Plan [Member]

Notes to Financial Statements

Retirement Benefits [Text Block]

9     POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

We provide retiree medical and life insurance benefits under postretirement plans at several of our operating locations. The level and adjustment of participant contributions vary depending on the specific plan. Our liability and related expense for benefits under the postretirement plans are recorded over the service period of active employees based upon annual actuarial calculations. We accrue postemployment disability benefits when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid.

The net periodic postretirement benefit cost (benefit) components for our postretirement plans are as follows:

(Thousands of Dollars)	2021			2020			2019
Service cost for benefits earned during the year		207			500			—
Interest cost on projected benefit obligation		429			869			412
Expected return on plan assets		(1,007	)		(1,060	)		(1,082	)
Amortization of net actuarial gain		(685	)		(743	)		(976	)
Amortization of prior service benefit		(647	)		(647	)		(723	)
Curtailment gains		(23,830	)		—			—
Net periodic postretirement benefit		(25,533	)		(1,081	)		(2,369	)

Changes in benefit obligations and plan assets are as follows:

(Thousands of Dollars)	2021			2020
Benefit obligation, beginning of year		47,637			11,752
Business combination		—			36,800
Service cost		207			500
Interest cost		429			869
Liability (gain) loss due to Curtailment		(23,830	)		—
Actuarial loss (gain)		(4,285	)		(982	)
Benefits paid, net of premiums received		(1,678	)		(1,374	)
Medicare Part D subsidies		58			72
Benefit obligation, end of year		18,538			47,637
Fair value of plan assets, beginning of year		25,706			24,135
Business combination		—			—
Actual return on plan assets		1,534			1,594
Employer contributions		1,293			646
Benefits paid, net of premiums and Medicare Part D subsidies received		(1,795	)		(1,077	)
Benefits paid for active employees		64			(438	)
One time asset transfer		—			846
Fair value of plan assets at measurement date		26,802			25,706
Funded status		8,264			(21,931	)

Disaggregated amounts recognized in the Consolidated Balance Sheets are as follows:

	September 26		September 27
(Thousands of Dollars)	2021		2020
Non-current assets	17,664		15,241
Postretirement benefit obligations	(9,859	)	(37,172	)
Accumulated other comprehensive income (before income tax benefit)	17,747		14,269

Amounts recognized in accumulated other comprehensive income are as follows:

	September 26		September 27
(Thousands of Dollars)	2021		2020
Unrecognized net actuarial gain	14,071		4,826
Unrecognized prior service benefit	3,676		9,443
		17,747		14,269

We expect to recognize $995,000 and $647,000 of unrecognized net actuarial gain and unrecognized prior service benefit, respectively, in net periodic postretirement benefit in 2022.

Assumptions

Weighted-average assumptions used to determine postretirement benefit obligations are as follows:

	September 26	September 27
(Percent)	2021	2020
Discount rate	2.6	2.7
Expected long-term return on plan assets	4.0	4.5

The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns, current market conditions and composition of plan assets.

Weighted-average assumptions used to determine net periodic benefit cost are as follows:

(Percent)	2021	2020	2019
Discount rate - service cost	2.5	3.4	4.0
Discount rate - interest cost	1.9	2.8	3.7
Expected long-term return on plan assets	4.0	4.5	4.5

For 2021, the expected long-term return on plan assets is 4.0%. The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns, current market conditions and composition of plan assets.

Assumed health care cost trend rates are as follows:

	September 26	September 27
(Percent)	2021	2020
Health care cost trend rates	6.2	6.4
Rate to which the cost trend rate is assumed to decline (the “Ultimate Trend Rate”)	4.5	4.5
Year in which the rate reaches the Ultimate Trend Rate	2030	2030

Administrative costs related to indemnity plans are assumed to increase at the health care cost trend rates noted above.

In 2021, we notified certain participants in one of our postemployment medical plans of changes to their plan, including elimination of coverage for certain participants. These changes resulted in a non-cash curtailment gain of $23,830,000 in 2021. The curtailment gain is recorded in Curtailment gain in the Consolidated Statements of Income (loss) and Comprehensive Income (loss). These charges also reduced the postemployment benefit obligation by $23,830,000 in 2021.

For the year ended September 26, 2021, the most significant driver of the decrease in benefit obligations for the plans was the higher actuarial gains experienced by all plans. The plans recognized actuarial gains due to small increases in bond yields that resulted in increases to the discount rates, actual return on assets exceeding expected returns for the year, and updated expected future claims costs. For the year ended September 27, 2020, the most significant driver of the increase in benefit obligations were the plans acquired in the Transactions, more than doubling the company's obligation and higher actuarial losses experienced by all plans. The plans incurred actuarial losses due to a fall in bond yields that resulted in decreases to the discount rates.  

Plan Assets

Assets of the retiree medical plan are invested in a master trust. The master trust also pays benefits of active employee medical plans for the same union employees. The fair value of master trust assets allocated to the active employee medical plans at  September 26, 2021 and  September 27, 2020 is $631,000 and $671,000, respectively, which are included within the tables below.

The primary objective of our investment strategy is to satisfy our postretirement obligations at a reasonable cost. Assets are actively invested to balance real growth of capital through appreciation and reinvestment of dividend and interest income and safety of invested funds.

Our investment policy outlines the governance structure for decision making, sets investment objectives and restrictions, and establishes criteria for selecting and evaluating investment managers. The use of derivatives is strictly prohibited, except on a case-by-case basis where the manager has a proven capability, and only to hedge quantifiable risks such as exposure to foreign currencies. An investment committee, consisting of certain of our executives and supported by independent consultants, is responsible for monitoring compliance with the investment policy. Assets are periodically redistributed to maintain the appropriate policy allocation.

The weighted-average asset allocation of our postretirement assets is as follows:

(Percent)	Policy Allocation	Actual Allocation
		September 26	September 27
Asset Class	September 26 2021	2021	2020
Equity securities	20	20	20
Debt securities	70	68	70
Hedge fund investment	10	12	10
Cash and cash equivalents	—	—	—

Plan assets include no Company securities. Assets include cash and cash equivalents and receivables from time to time due to the need to reallocate assets within policy guidelines. 

Fair Value Measurements

The fair value hierarchy of postretirement assets at  September 26, 2021 is as follows:

(Thousands of Dollars)	NAV	Level 1	Level 2	Level 3
Cash and cash equivalents	—	25	—	—
Domestic equity securities	904	2,643	—	—
Emerging equity securities	—	603	—	—
International equity securities	—	747	660	—
Debt securities	—	18,363	—	—
Hedge fund investment	3,235	—	—	—

The fair value hierarchy of postretirement assets at September 27, 2020 is as follows:

(Thousands of Dollars)	NAV		Level 1		Level 2		Level 3
Cash and cash equivalents		—		59		—		—
Domestic equity securities		590		2,868		—		—
Emerging equity securities		—		539		—		—
International equity securities		—		579		759		—
Debt securities		—		18,229		—		—
Hedge fund investment		2,754		—		—		—

There were no purchases, sales or transfers of assets classified as Level 3 in 2021 or 2020. Postretirement assets included in the fair value hierarchy at NAV, include two investments:

•   U.S. small cap value equity common/collective fund for which fund prices are not publicly available. The balance of this investment is $904,000 and $590,000 as of 9/26/2021 and 9/27/2020, respectively. We can redeem this fund on a monthly basis.  

•   Global equity long/short common/collective hedge fund-of-funds for which fund prices are established on a monthly basis. The balance of this investment is $3,235,000 and $2,754,000 as of 9/26/2021 and 9/27/2020, respectively. We can redeem up to 90% of our investment in this fund within 90-120 days of notice with the remaining distributed following completion of the audit of the Fund's financial statements for the year.

Cash Flows

Based on our forecast at September 26, 2021, we do not expect to contribute to our postretirement plans in 2022.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Modernization Act”) introduced a prescription drug benefit under Medicare (“Medicare Part D”) and a federal subsidy to sponsors of retiree health care benefit plans (“Subsidy”) that provide a benefit at least actuarially equivalent (as that term is defined in the Modernization Act) to Medicare Part D. We concluded we qualify for the Subsidy under the Modernization Act since the prescription drug benefits provided under our postretirement health care plans generally require lower premiums from covered retirees and have lower deductibles than the benefits provided in Medicare Part D and, accordingly, are actuarially equivalent to or better than, the benefits provided under the Modernization Act.

We anticipate future benefit payments to be paid either with future contributions to the plan or directly from plan assets, as follows:

			Less
			Medicare
	Gross		Part D			Net
(Thousands of Dollars)	Payments		Subsidy			Payments
2022		1,479		(58	)		1,421
2023		1,424		(55	)		1,369
2024		1,383		(51	)		1,332
2025		1,326		(47	)		1,279
2026		1,277		(43	)		1,234
2027-2031		5,439		(158	)		5,281

Postemployment Plan

Our postemployment benefit obligation, which represents certain disability benefits, is $2,233,000 at  September 26, 2021 and $2,371,000 at September 27, 2020.