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Employee Benefit Plans
12 Months Ended
Oct. 31, 2013
Employee Benefit Plans

11. EMPLOYEE BENEFIT PLANS

As of October 31, 2013, we had the following defined benefit and other postretirement benefit plans, which provide benefits based primarily on years of service and employee earnings and which have been previously amended to preclude new participants.

Supplemental Executive Retirement Plan

We have unfunded retirement agreements for certain current and former senior executives. The retirement agreements provide for monthly benefits for ten years commencing at the later of the respective retirement dates of those executives or age 65. The benefits are accrued over the vesting period. Effective December 31, 2002, this plan was amended to preclude new participants.

Service Award Benefit Plan

We have an unfunded service award benefit plan that meets the definition of a “severance pay plan” as defined by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and covers certain qualified employees. The plan provides participants, upon termination, with a guaranteed seven days pay for each year of employment subsequent to November 1, 1989. Effective January 1, 2002, no new participants were permitted under this plan. We will continue to incur interest costs related to this plan as the value of the previously earned benefits continues to increase.

OneSource Employees’ Retirement Pension Plan (“OneSource Pension Plan”)

On November 14, 2007, we acquired OneSource, which sponsored a funded, qualified employee retirement plan. The plan was amended to preclude participation and benefit accruals several years prior to the acquisition.

Death Benefit Plan

Our unfunded Death Benefit Plan covers certain qualified employees upon retirement on or after the employee’s 62nd birthday. This plan provides 50% of the death benefit that the employee was entitled to prior to retirement, subject to a maximum of $150,000. Coverage commencing upon retirement or 62nd birthday continues until death for retired employees hired before September 2, 1980. On March 1, 2003, the postretirement death benefit for any active employees hired after September 1, 1980 was eliminated. Active employees hired before September 1, 1980 who retire on or after their 62nd birthday will continue to be covered between retirement and death. For certain plan participants who retired before March 1, 2003, the postretirement death benefit continues until the retired employee’s 70th birthday. An exemption to the “age 62” retirement rule has been made for certain employees who were terminated as a result of our restructuring to a corporate shared service center.

OneSource Postretirement Medical and Life Benefit Plan (“OneSource PRM Plan”)

OneSource sponsored a postretirement benefit plan that provides medical and life insurance benefits to certain OneSource retirees. Since the date of acquisition, new participants have been precluded from participation.

 

Benefit Obligation and Net Obligation Recognized in Financial Statements

The significant components of the above mentioned plans as of and for the years ended October 31, 2013 and 2012 are summarized as follows:

 

     Defined
Benefit Plans at
October 31,
     Postretirement
Benefit Plan at
October 31,
 
(in thousands)    2013      2012      2013      2012  

Change in benefit obligation

           

Benefit obligation at beginning of year

   $ 12,714         $ 12,075         $ 5,836         $ 5,595     

Service cost

     —           48           13           12     

Interest cost

     399           495           203           246     

Actuarial losses (gains)

     181           1,233           (508)          322     

Benefits and expenses paid

     (1,056)          (1,137)          (129)          (339)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Benefit obligation at end of year

   $ 12,238         $ 12,714         $ 5,415         $ 5,836     
  

 

 

    

 

 

    

 

 

    

 

 

 

Change in plan assets*

           

Fair value of plan assets at beginning of year

   $ 6,654         $ 5,917         $ —         $ —     

Actual return on plan assets

     758           384           —           —     

Employer contributions

     1,316           1,490           129           339     

Benefits and expenses paid

     (1,056)          (1,137)          (129)          (339)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Fair value of plan assets at end of year

   $ 7,672         $ 6,654         $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 
           
  

 

 

    

 

 

    

 

 

    

 

 

 

Unfunded status at end of year

   $ (4,566)        $ (6,060)        $ (5,415)        $ (5,836)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Current liabilities

   $ (791)        $ (1,288)        $ (435)        $ (250)    

Non-current liabilities

     (3,775)          (4,772)          (4,980)          (5,586)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net obligation

   $ (4,566)        $ (6,060)        $ (5,415)        $ (5,836)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total affecting retained earnings

   $ (1,385)        $ (2,535)        $ (5,350)        $ (5,232)    

Amount recognized in AOCL

     (3,181)          (3,525)          (65)          (604)    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net obligation

   $ (4,566)        $ (6,060)        $ (5,415)        $ (5,836)    
  

 

 

    

 

 

    

 

 

    

 

 

 

* Amounts relate to the OneSource Pension Plan, which is the only defined benefit pension plan funded by us.

 

Components of Net Periodic Benefit Cost Recognized in the Accompanying Consolidated Statements of Income

The components of net periodic benefit cost of the defined benefit and other postretirement benefit plans for the years ended October 31, 2013, 2012, and 2011 were as follows:

 

(in thousands)            2013                      2012                      2011          

Defined Benefit Plans

        

Service cost

   $ —         $ 48         $ 46     

Interest

     399           495           569     

Expected return on assets

     (410)          (486)          (373)    

Amortization of actuarial loss

     134           97           114     

Settlement loss recognized

     43           107           126     
  

 

 

    

 

 

    

 

 

 

Net expense

   $ 166         $ 261         $ 482     
  

 

 

    

 

 

    

 

 

 

Postretirement Benefit Plans

        

Service cost

   $ 13         $ 12         $ 13     

Interest

     203           246           256     

Settlement loss recognized

     27           —           —     

Amortization of actuarial loss

     4           —           —     
  

 

 

    

 

 

    

 

 

 

Net expense

   $ 247         $ 258         $ 269     
  

 

 

    

 

 

    

 

 

 

Net actuarial losses of $0.1 million, on a pre-tax basis, are expected to be amortized from AOCL and recognized as a component of net periodic benefit cost in the year ending October 31, 2014.

Assumptions

The weighted average assumptions used to determine benefit obligations and net periodic benefit cost for the years ended October 31, 2013, 2012, and 2011 were as follows:

 

    Defined Benefit Plans   Postretirement Benefit Plan
    2013   2012   2011   2013   2012   2011

Assumptions to measure net

periodic benefit cost (1)

           

Discount rate

   2.84% – 3.50%     4.12% – 4.51%     4.50% – 4.98%     3.15% – 3.58%     4.04% – 4.56%     4.31% – 5.02% 

Rate of compensation increase

  3.50%   3.50%   3.50%   3.50%   3.50%   3.50%

Rate of return on plan assets**

  6.00%   6.00%   8.00%   N/A*   N/A*   N/A*

Assumptions used to

determine benefit obligations (2)

           

Discount rate

  3.58% – 4.28%   2.84% – 3.50%   4.12% – 4.51%   4.13% – 4.43%   3.15% – 3.58%   4.04% – 4.56%

Rate of compensation increase

  3.50%   3.50%   3.50%   3.50%   3.50%   3.50%

 

*

Not Applicable

 

**

Relates to the OneSource Pension Plan

 

(1)

Determined as of beginning of year

 

(2)

Determined as of end of year

The discount rate is used for determining future net periodic benefit cost. Our discount rates were determined, as of the October 31, 2013 measurement date, using the individual cash flows of each plan. In determining the long-term rate of return for a plan, we consider the nature of the plan’s investments, historical rates of return, and an expectation for the plan’s investment strategies.

 

The expected long-term rate of return on plan assets represents the rate of earnings expected in the funds invested to provide for anticipated benefit payments related to our OneSource Pension Plan. With input from our investment advisors and actuaries, we have analyzed the expected rates of return on assets and determined that an estimated long-term rate of return of 6.0% is reasonable based on: (1) the current and expected asset allocations; (2) the plan’s historical investment performance; and (3) best estimates for future investment performance.

We believe changes in assumptions would not have a material impact on our financial position and operating performance. We expect to fund payments required under the plans with cash flows from operating activities when due in accordance with the plans.

Assumed health care cost trend rates relating to our OneSource PRM Plan are as follows:

 

     Postretirement Benefit Plan
     2013    2012    2011

Health care trend rate assumed for next year

   7.40%    7.60%    7.80%

Rate to which the cost trend is assumed to decline (ultimate trend rate)

   4.50%    4.50%    4.50%

Year the rate reaches the ultimate trend rate

   2029    2029    2029

The obligation attributable to medical benefits is small, as is the future obligation that varies with changes in compensation. Accordingly, a one-percentage-point change in assumed health care cost trend rates in the health care trend assumption rate have an immaterial impact on measuring the obligation.

Expected Future Contributions and Benefit Payments

We expect to contribute $0.9 million to the OneSource Pension Plan for the year ending October 31, 2014. Except for the OneSource Pension Plan, all of our other postretirement and defined benefit plans are unfunded. As a result, our expected contributions for these plans equal our expected future benefit payments for the year ended October 31, 2014.

The expected future benefit payments were calculated using the same assumptions used to measure our benefit obligation as of October 31, 2013. This expectation is based upon expected future service.

 

(in thousands)          Defined Benefit Plans              Postretirement Benefit Plan    

October 31, 2014

   $ 1,386         $ 435     

October 31, 2015

     988           248     

October 31, 2016

     787           265     

October 31, 2017

     770           282     

October 31, 2018

     788           297     

2019 through 2023

     4,079           1,696     

OneSource Pension Plan Investment Policies and Strategies

The investment objectives for the assets associated with the OneSource Pension Plan are to maintain acceptable levels of risk through the diversification of assets among asset classes and to optimize long-term returns. We are responsible for selecting investment managers, setting asset allocation targets, and monitoring asset allocations and investment performance. Our external investment professionals have the authority to manage assets within pre-established asset allocation ranges set by us.

 

At October 31, 2013, approximately 48% of the assets were invested in equities, 25% in cash, and 27% in fixed income. The target allocation ranges and asset allocations for the year ended October 31, 2013 were:

 

     Target Allocation    Percentage of Plan Assets

Asset Category

   2013    2013

U.S. Equity

   43%-63%    40%

Fixed Income

   27%-47%    27%

International Equity

   0%-20%    8%

Cash

   —%    25%

The following table presents the fair value hierarchy for the assets associated with the OneSource Pension Plan measured at fair value as of October 31, 2013 and 2012. These assets and liabilities are measured as Level 1.

 

     October 31,  
(in thousands)    2013      2012  

Cash and cash equivalents

   $ 1,909         $ 1,716     

Equity

     

Large-Cap Growth

     1,534           1,260     

Large-Cap Value

     803           727     

Small/Mid-Cap Growth

     495           334     

Small/Mid-Cap Value

     184           163     

International Equity

     631           558     

Equities Blend

     23           53     

Fixed Income

     

Long-Term Bond

     750           777     

Intermediate Bond

     660           503     

Short-Term Bond

     552           541     

Fixed Income Blend

     119           16     

Other

     12           6     
  

 

 

    

 

 

 
   $ 7,672         $ 6,654     
  

 

 

    

 

 

 

Deferred Compensation Plans

We account for deferred compensation and accrue interest thereon for employees who elect to participate in one of the following plans.

Employee Deferred Compensation Plan

This plan is available to executive, management, administrative, and sales employees who have an annualized base salary that equals or exceeds $140,000 for the year ended October 31, 2013. This plan allows such employees to defer 1% to 50% of their pre-tax compensation. The average rate of interest earned by the employees in this plan was 3.08%, 3.01%, and 3.25% for the years ending October 31, 2013, 2012, and 2011, respectively.

Director Deferred Compensation Plan

This plan allows directors to defer receipt of all or any portion of the compensation that he or she would otherwise receive from us. The average rate of interest earned by the directors in this plan was 3.08%, 3.01%, and 3.25% for the years ending October 31, 2013, 2012, and 2011, respectively.

The deferred compensation under both the Employee and Director Deferred Compensation Plans earns interest equal to the prime interest rate on the last day of the calendar quarter. If the prime rate exceeds 6%, the interest rate is equal to 6% plus one half of the excess over 6%. Interest earned under both deferred compensation plans is capped at 120% of the long-term applicable federal rate as discussed in the plans.

 

OneSource Deferred Compensation Plan

On November 14, 2007, we acquired OneSource, which sponsored a deferred compensation plan. Under this deferred compensation plan, a rabbi trust was created to fund the obligation. The plan requires us to contribute 50% of the participant’s deferred compensation contributions but only to the extent that the deferred contribution does not exceed 5% of the participant’s compensation for the contribution allocation period. This liability is adjusted, with a corresponding charge (or credit) to the deferred compensation cost, to reflect changes in the fair value. On December 31, 2008, the plan was amended to preclude new participants. The assets held in the rabbi trust are not available for general corporate purposes.

Aggregate expense recognized under these deferred compensation plans for the years ended October 31, 2013, 2012, and 2011 were $0.4 million, $0.4 million, and $0.4 million, respectively. The total long-term liability of all deferred compensation plans at October 31, 2013 and 2012 (excluding the fair value of the assets held in the rabbi trust) was $17.0 million and $16.4 million, respectively, and is included in “Retirement plans and other” on the accompanying consolidated balance sheets. The fair value of the assets held in the rabbi trust at October 31, 2013 and 2012 was $5.4 million and $5.0 million, respectively.

401(k) Plans

We sponsor six 401(k) savings plans covering certain employees, as set forth in the respective plan documents. These 401(k) plans are subject to the applicable provisions of ERISA and the Internal Revenue Code (“IRC”). Certain plans permit a company match of a portion of the participant’s contributions or a discretionary contribution after the participant has met the eligibility requirements set forth in the plan. We made matching 401(k) contributions required by the 401(k) plans during the years ended October 31, 2013, 2012, and 2011 in the amounts of $8.0 million, $7.9 million, and $8.3 million, respectively.

Multiemployer Pension and Postretirement Plans

Multiemployer Defined Benefit Pension Plans

Certain of our union-represented employees are covered by multiemployer defined benefit pension plans. Multiemployer pension plans are different from single-employer pension plans, in the following respects:

 

   

Contributions to multiemployer pension plans by one employer may be used to provide benefits to employees of other participating employers;

 

   

If a participating employer stops contributing to the plan, some or all of the unfunded obligations pertaining to the departing employer may be allocated to the remaining participating employers; and

 

   

Certain events could result in a requirement that we pay amounts to a plan based on the underfunded status of the plan, commonly referred to as a “withdrawal liability.”

The information in the following tables relates to multiemployer defined benefit pension plans that we have determined to be individually significant to us. To determine individually significant plans, we evaluated several factors, including our total contributions to the plan, our significance to the plan in terms of participating employees and contributions, and the funded status of the plan.

The following table provides information about the funded status of individually significant plans:

 

   

The “EIN/PN” column provides the Employee Identification Number and the three-digit plan number assigned to the plan by the Internal Revenue Service.

 

   

The most recent Pension Protection Act Zone Status available as of October 31, 2013 and 2012 is for plan years indicated in the table below. The zone status is based on information provided to us and other participating employers by each plan and is certified by the plan’s actuary. A plan in the “red” zone has been determined to be in “critical status,” based on criteria established under the IRC, and is generally less than 65% funded. A plan in the “yellow” zone has been determined to be in “endangered status,” based on criteria established under the IRC, and is generally less than 80% funded. A plan in the “green” zone has been determined to be neither in “critical status” nor in “endangered status,” and is generally at least 80% funded.

 

   

The “FIP/RP Status Pending/Implemented” column indicates whether a Financial Improvement Plan (“FIP”), as required under the IRC to be adopted by plans in the “yellow” zone, or a Rehabilitation Plan (“RP”), as required under the IRC to be adopted by plans in the “red” zone, is pending or has been implemented.

 

   

Contributions by the Company are the amounts contributed by us in the fiscal years ended October 31, 2013, 2012, and 2011.

 

   

The “Surcharge Imposed” column indicates whether our contribution rate in our fiscal year ended October 31, 2013 included an amount in addition to the contribution rate specified in the applicable collective bargaining agreement, as imposed by a plan in “critical status,” in accordance with the requirements of the IRC.

 

   

The last column lists the expiration dates of the collective bargaining agreements pursuant to which the Company contributes to the plans.

For plans that are not individually significant to us, the total amount of contributions is presented in the aggregate.

 

(in thousands)       Pension Protection Act Zone Status    FIP/RP Status      Contributions by the Company       Surcharge
Imposed
   Expiration

Dates of

Collective
Bargaining
Agreements

Pension Fund

   EIN/PN    2013    2012    Pending/
Implemented
   2013      2012      2011        

Building Service 32BJ Pension

Fund

   13-1879376
/ 001
   Red

6/30/2014

   Red

6/30/2013

   Implemented    $ 13,755         $ 14,636         $ 13,840         Yes    4/20/2014

and

12/31/2015

Central Pension Fund of the

IUOE & Participating

Employers

   36-6052390
/001
   Green

1/31/2013

   Green

1/31/2012

   N/A*      9,663           9,176           8,339         N/A*    1/31/2014—

12/31/2016

Local 25 SEIU & Participating

Employers Pension Trust

   36-6486542
/ 001
   Green

9/30/2012

   Green

9/30/2011

   N/A*      7,398           7,453           7,059         N/A*    4/5/2015

S.E.I.U. National Industry

Pension Fund

   52-6148540
/ 001
   Red

12/31/2012

   Red

12/31/2011

   Implemented      5,343           4,275           3,943         Yes    12/31/2014—

6/30/2016

IUOE Stationary Engineers

Local 39 Pension Fund

   94-6118939
/ 001
   Green

12/31/2012

   Green
12/31/2011
   N/A*      5,226           5,342           6,972         N/A*    8/31/2017

Local 68 Engineers Union

Pension Plan

   51-0176618
/ 001
   Green

6/30/2012

   Green

6/30/2011

   N/A*      3,249           3,426           3,435         N/A*    4/30/2014—

4/30/2016

Service Employees

International Union Local 32BJ,

District 36 Building Operators

Pension Trust Fund

   23-6546776
/ 001
   Yellow

12/31/2013

   Yellow

12/31/2012

   Implemented      1,989           2,175           2,414         N/A*    10/15/2015

IUOE Local 30 Pension Fund

   51-6045848
/ 001
   Green 
12/31/2012
   Green
12/31/2011
   N/A*      1,521           1,632           1,495         N/A*    2/28/2014—

4/30/2016

Other Plans

                 11,597           11,439           10,383           
              

 

 

    

 

 

    

 

 

       

Total Contributions

               $ 59,741         $ 59,554         $ 57,880           
              

 

 

    

 

 

    

 

 

       

 

  *

Not applicable

We were listed in the Forms 5500 of the following plans as providing more than 5 percent of total contributions for the plan years presented below.

 

Pension Fund

  

Contributions to the plan exceeded more than 5% of total contributions

(as of the Plan’s year end)

Building Service 32BJ Pension Fund

   6/30/2012 and 6/30/2011

Local 25 SEIU & Participating Employers Pension Trust

   9/30/2012, 9/30/2011, and 9/30/2010

IUOE Stationary Engineers Local 39 Pension Fund

   12/31/2012, 12/31/2011, and 12/31/2010

S.E.I.U. National Industry Pension Fund

   12/31/2012

Service Employees International Union Local 32BJ, District 36

Building Operators Pension Trust Fund

   12/31/2012, 12/31/2011, and 12/31/2010

IUOE Local 30 Pension Fund

   12/31/2012, 12/31/2011, and 12/31/2010

Massachusetts Service Employees Pension Fund *

   12/31/2012, 12/31/2011, and 12/31/2010

Building Service Pension Plan *

   4/30/2012, 4/30/2011, and 4/30/2010

Local 210’s Pension Plan *

   12/31/2012

Contract Cleaners Service Employees’ Pension Plan *

   12/31/2012, 12/31/2011, and 12/31/2010

Local 1102 Amalgamated Pension Fund *

   12/31/2012 and 12/31/2011

Teamsters Local 617 Pension Fund *

   2/29/2012, 2/28/2011, and 2/28/2010

* These plans are not separately listed in our multiemployer table as they represent an insignificant portion of our total multiemployer pension plan contributions.

There have been no significant changes that affect the comparability of total contributions for any of the periods presented.

Other Postretirement Benefit Plans

In addition to contributions to the defined benefit pension plans described above, ABM also contributes to several multiemployer plans that provide other postretirement benefits based on obligations arising under collective bargaining agreements covering union-represented employees. These plans may provide medical, pharmacy, dental, vision, mental health, and other benefits to active employees as determined by the trustees of each plan. Our contributions to such plans were $204.7 million, $193.1 million, and $177.0 million in the years ended October 31, 2013, 2012, and 2011, respectively. There have been no significant changes that affect the comparability of total contributions for any of the periods presented.