Employee Benefit Plans

Pension Plans

In conjunction with the acquisition of G&K, Cintas assumed G&K's noncontributory defined benefit pension plan (the Pension Plan) that covers substantially all G&K employees who were employed as of July 1, 2005, except certain employees who were covered by union-administered plans. Benefits are based on the number of years of service and each employee’s compensation near retirement. We will make annual contributions to the Pension Plan consistent with federal funding requirements. The Pension Plan was frozen by G&K effective December 31, 2006. Future growth in benefits will not occur beyond this date. Applicable accounting standards require that the consolidated balance sheet reflect the funded status of the pension plan. The funded status of the Pension Plan is measured as the difference between the plan assets at fair value and the projected benefit obligation. The net pension liability at May 31, 2019 and 2018 is included in the long-term accrued liabilities on the consolidated balance sheet. Unrecognized differences between actual amounts and estimates based on actuarial assumptions are included in accumulated other comprehensive income in our consolidated balance sheet. The difference between actual amounts and estimates based on actuarial assumptions are recognized in other comprehensive income in the period in which they occur. The estimated amortization from accumulated other comprehensive income into net periodic benefit cost during fiscal year 2020 is immaterial.



Obligations and Funded Status at May 31:
(in thousands)	2019			2018

Change in benefit obligation:
Projected benefit obligation, beginning of year	$	86,341		$	87,387
Interest cost	3,124			2,818
Actuarial loss (gain)	5,455			(940		)
Benefits paid	(2,985		)	(2,924		)
Projected benefit obligation, end of year	$	91,935		$	86,341

Change in plan assets:
Fair value of plan assets, beginning of year	$	58,781		$	59,396
Actual return on plan assets	2,437			2,309
Employer contributions	4,034			—
Benefits paid	(2,985		)	(2,924		)
Fair value of plan assets, end of year	$	62,267		$	58,781

Funded status-net amount recognized	$	(29,668	)	$	(27,560	)

The accrued benefit liability of $29.7 million and $27.6 million was included in long-term accrued liabilities on the consolidated balance sheet as of May 31, 2019 and 2018, respectively. An unrecognized net actuarial loss of $6.7 million and $0.8 million related to the Pension Plan was included in "other" within in the accumulated other comprehensive income on the consolidated balance sheet at May 31, 2019 and 2018, respectively.



Components of Net Periodic Benefit Cost
(in thousands)	2019			2018

Interest cost	$	3,124		$	2,818
Expected return on assets	(2,882		)	(2,832		)
Net periodic benefit cost	$	242		$	(14	)

Assumptions

The following weighted average assumptions were used to determine benefit obligations for the Pension Plan for the fiscal years ended May 31 :



	2019		2018
Discount rate	3.54	%	3.95	%
Rate of compensation increase	N/A		N/A

The following weighted average assumptions were used to determine net periodic benefit cost for the Pension Plan for the fiscal years ended May 31:



	2019		2018
Discount rate	3.95	%	3.79	%
Expected return on plan assets	4.90	%	4.90	%
Rate of compensation increase	N/A		N/A

Plan Assets

The asset allocations in the Pension Plan at May 31, 2019 and 2018 are as follows:



	2019		2019		2018
	Target Asset Allocation		Actual Asset Allocation		Actual Asset Allocation

Large cap equity	26.0	%	26.4	%	26.5	%
Small cap equity	5.0	%	5.3	%	5.6	%
International equity	8.0	%	7.8	%	7.9	%
Fixed income	45.0	%	45.0	%	44.2	%
Absolute return strategy funds	16.0	%	13.3	%	15.8	%
Cash	—	%	2.2	%	—	%
Total	100.0	%	100.0	%	100.0	%

Our investment committee, assisted by outside consultants, evaluates the objectives and investment policies concerning our long-term investment goals and asset allocation strategies. Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. To develop the expected long-term rate of return on asset assumptions, we consider the historical returns and future expectations of returns for each asset class, as well as the target asset allocation, changes in investments expenses and investment goals of the pension portfolio. This resulted in the selection of 4.90% expected return on plan assets for fiscal year 2019 and 4.90% expected return on plan assets for fiscal year 2018. The investment goals are (1) to meet or exceed the assumed actuarial rate of return over the long term within reasonable and prudent levels of risk, and (2) to preserve the real purchasing power of assets to meet future obligations. The nature and duration of benefit obligations, along with assumptions concerning asset class returns and return correlations, are considered when determining an appropriate asset allocation to achieve the investment objectives. Pension plan assets for our qualified pension plans are held in a trust for the benefit of the plan participants and are invested in a diversified portfolio of equity investments, fixed income investments and cash. Risk targets are established and monitored against acceptable ranges. All investment policies and procedures are designed to ensure that the plans' investments are in compliance with the Employee Retirement Income Security Act. Guidelines are established defining permitted investments within each asset class.

The implementation of the investment strategy discussed above is executed through a variety of investment types, including U.S. government securities, corporate debt and mutual funds. These investments are valued at the closing price reported on the active market on which the individual securities are traded.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Information on the Pension Plan investments as of May 31, 2019 and 2018, using the fair value hierarchy discussed in Note 1 entitled Significant Accounting Polices, is as follows:



	May 31, 2019
(in thousands)	Level 1		Level 2		Level 3		Total

Cash equivalents	$	1,379	$	—	$	—	$	1,379
U.S. government securities	2,113		3,974		—		6,087
Corporate debt	—		21,970		—		21,970
Mutual funds:
U.S. securities	27,984		—		—		27,984
International securities	4,847		—		—		4,847
Total	$	36,323	$	25,944	$	—	$	62,267



	May 31, 2018
(in thousands)	Level 1		Level 2		Level 3		Total

Cash equivalents	$	487	$	—	$	—	$	487
U.S. government securities	2,426		3,458		—		5,884
Corporate debt	—		19,826		—		19,826
Mutual funds:
U.S. securities	27,901		—		—		27,901
International securities	4,683		—		—		4,683
Total	$	35,497	$	23,284	$	—	$	58,781

We expect to make contributions of approximately $3.1 million to the Pension Plan during the next 12 months. The Pension Plan benefit payments expected to be paid for each of the next five years and thereafter are $3.7 million, $3.9 million, $4.0 million, $4.2 million, $4.3 million and $23.5 million, respectively.

Future changes in plan asset returns, assumed discount rates and various other factors related to the Pension Plan will impact future pension expense and liabilities. We cannot predict the impact of these changes in the future, and any changes may have a material impact on our results of operations and financial position.

Cintas administers a pension plan that was assumed in a previous acquisition and has historically been deemed immaterial for disclosure purposes. As of May 31, 2019 and 2018, the fair value of this pension plan's total assets was $7.3 million and $7.5 million, respectively, and the projected benefit obligation was $7.9 million and $7.4 million, respectively. For the years ended May 31, 2019 and 2018, the net periodic benefit cost recorded for this plan was expense of $0.6 million and income of $0.1 million, respectively.

Non-Contributory Retirement Plans

Cintas' Partners' Plan (the Plan) is a non-contributory profit sharing plan and Employee Stock Ownership Plan (ESOP) for the benefit of substantially all U.S. Cintas employee-partners who have completed one year of service. The Plan also includes a 401(k) savings feature covering substantially all U.S. employee-partners. The amounts of contributions to the Plan and ESOP, as well as the matching contribution to the 401(k), are made at the discretion of the Board of Directors. During fiscal 2018, the G&K 401(k) plan was merged into the Plan. There were no changes to the Plan as a result of the merger. Total contributions, including Cintas' matching contributions, which approximate cost, were $67.6 million, $56.7 million and $47.5 million for the fiscal years ended May 31, 2019, 2018 and 2017, respectively.

Cintas has a non-contributory deferred profit sharing plan (DPSP), which covers substantially all Canadian employee-partners. In addition, a registered retirement savings plan (RRSP) is offered to those employees. The amounts of contributions to the DPSP, as well as the matching contribution to the RRSP, are made at the discretion of the Board of Directors. Total contributions, which approximate cost, were $2.5 million, $2.8 million and $1.8 million for the fiscal years ended May 31, 2019, 2018 and 2017, respectively.

Cintas has a supplemental executive retirement plan (SERP) subject to Section 409A of the Internal Revenue Code for the benefit of certain highly compensated Cintas employee-partners. The SERP allows participants to defer the receipt of compensation which would otherwise become payable to them. Matching contributions are made at the discretion of the Board of Directors. Total matching contributions were $8.6 million, $8.2 million and $6.9 million for the fiscal years ended May 31, 2019, 2018 and 2017, respectively.