Note 17—Retirement Benefits

Plan Descriptions

Retirement savings plan

We provide a Retirement Savings Plan (the “Savings Plan”) for certain employees in the United States. Under the Savings Plan, and subject to certain limitations: (i) employees may contribute up to 50 percent of their pretax compensation; (ii) each business unit will make a safe harbor non-elective contribution in an amount equal to three percent of a participant’s pre-tax compensation; and (iii) each business unit may also make a matching contribution of 50 percent of an employee’s tax-deferred compensation, up to the first six percent of a participant’s pre-tax compensation. Matching contributions vest at a rate of 25 percent for each year of service with the employer, beginning with the second year of service. Expenses related to the Savings Plan for the fiscal years ended June 30, 2016, 2015 and 2014, were $14.6 million, $12.0 million and $9.3 million, respectively.

Pension benefits

We provide defined pension benefits to certain eligible employees. The measurement date used for determining pension benefits is the last day of our fiscal year, June 30th. We have certain business units in Europe and Asia that maintain defined benefit pension plans for many of our current and former employees. The coverage provided and the extent to which the retirees’ share in the cost of the program vary by business unit. Generally, plan benefits are based on age, years of service and average compensation during the final years of service. In the United States, we have a SERP that provides retirement, death and termination benefits, as defined in the SERP, to certain key executives designated by our Board of Directors. The majority of our defined benefit plans do not have contractual or statutory provisions which specify minimum funding requirements. We are in compliance with all existing contractual obligations and statutory provisions.

The SERP is an unfunded plan for tax purposes and under the Employee Retirement Income Security Act of 1974 (“ERISA”) all obligations arising under the SERP are payable from our general assets. To assist in the funding of the benefits under the SERP, we maintain assets in an irrevocable trust whereby the use of these assets is restricted to funding our future benefit obligations under the SERP. These assets are not plan assets of the SERP, therefore, in the event of bankruptcy, the assets become unrestricted and the SERP would become a general creditor of our Company. The assets and liabilities, and earnings and expenses, of the irrevocable trust are consolidated in our consolidated financial statements. As of June 30, 2016 and June 30, 2015, there were $92.7 million and $98.4 million, respectively, of total assets included in the irrevocable trust of which $0.1 million and $6.1 million, respectively, consisted of Cash and cash equivalents, $40.8 million and $40.0 million, respectively, consisted of the cash surrender value of life insurance policies and $51.8 million and $52.3 million, respectively, consisted of equity and fixed income mutual funds, which are classified as available-for-sale securities.

During fiscal year 2017, we expect to contribute amounts to the defined benefit pension plans necessary to cover required disbursements. The benefits that we expect to pay in each fiscal year from 2017 to 2021 are $10.4 million, $10.3 million, $9.8 million, $10.3 million and $11.2 million, respectively. The aggregate benefits we expect to pay in the five fiscal years from 2022 to 2026 are $66.6 million.

Plan Assets

For all but one of our Company’s plans, contributions are made from our current operating funds as required in the year of payout. For one foreign plan, with plan assets of $3.1 million, we made annual contributions into a fund managed by a trustee who invests such funds, administers the plan and makes payouts to eligible employees as required. Our primary objective in investing plan assets for this foreign plan is to achieve returns sufficient to meet future benefit obligations with minimal risk and to time the maturities of such investments to meet annual payout needs. Given this, fund assets are invested in a unitized publicly traded fund which invests 100 percent of such investments in government bonds. For purposes of fair value, this investment has been determined to meet the characteristics of a Level 1 investment as quoted prices in an active market exist for these assets. As of June 30, 2016, 100 percent of these assets are invested in this unitized fund. Refer to Note 11—Fair Value Measurements for more information.

For another one of our foreign plans, the plan assets of $0.2 million are invested in two separate insurance contracts. We have made no additional contributions to these contracts nor made any payouts from these contracts to employees.

Summary Plan Results

The following is a reconciliation of the benefit obligations, plan assets and funded status of the plans as well as the amounts recognized in our Consolidated Balance Sheets as of and for the fiscal years ended June 30, 2016 and 2015:

	Year Ended June 30,
	2016			2015
Change in benefit obligation:
Benefit obligation at beginning of year	$	200,203		$	202,893
Benefit obligation of plans not previously reported⁽¹⁾		-			6,148
Service cost		5,606			4,285
Interest cost		6,802			6,655
Actuarial loss		28,757			16,236
Settlements, curtailments and other contract benefits		(815	)		(5,975	)
Plan amendments		-			-
Benefits paid		(9,351	)		(8,905	)
Foreign currency translation		(1,722	)		(21,134	)
Benefit obligation at end of year	$	229,480		$	200,203

	Year Ended June 30,
	2016			2015
Change in plan assets:
Fair value of assets at beginning of year	$	3,764		$	6,641
Assets related to acquisitions		-			193
Actual return on plan assets		548			761
Employer contributions		10,277			10,415
Benefits paid		(9,351	)		(8,905	)
Settlement		(1,388	)		(4,799	)
Foreign currency translation		(564	)		(542	)
Fair value of assets at end of year	$	3,286		$	3,764
Reconciliation of funded status:
Funded status	$	(226,194	)	$	(196,439	)
Unrecognized prior service cost		2,261			4,332
Unrecognized net loss		83,248			61,460
Accrued pension cost	$	(140,685	)	$	(130,647	)
Non-current assets	$	-		$	-
Accrued liabilities		(10,178	)		(9,777	)
Other non-current liabilities		(216,016	)		(186,662	)
AOCI		85,509			65,792
Accrued pension cost	$	(140,685	)	$	(130,647	)

⁽¹⁾	In the prior year, these amounts are associated with certain of our acquisitions made during that fiscal year.

Amounts recognized in AOCI for the fiscal years ended June 30, 2016 and 2015 are presented below:

	Year Ended June 30,
	2016			2015
Amounts recorded in AOCI:
Prior service cost	$	2,261		$	4,332
Net actuarial loss		83,248			61,460
Total recognized in AOCI, before taxes		85,509			65,792
Income tax benefit		(27,064	)		(21,398	)
Total recognized in AOCI, net of income taxes	$	58,445		$	44,394

The estimated amount that will be amortized from AOCI into net periodic benefit cost in fiscal year 2017 is as follows:

Amounts expected to be recognized in net periodic benefit cost
Recognized net actuarial loss	$	4,196
Amortization of prior service cost		858
Total	$	5,054

A comparison of plans’ assets with plans’ projected benefit and accumulated benefit obligations for plans where obligations exceed plan assets as of June 30, 2016 and 2015 is presented below. There were no plan assets which exceed obligations as of June 30, 2016 and 2015.

	Plans Where Obligations Exceed Plan Assets Year Ended June 30,
	2016		2015
Projected benefit obligation	$	229,480	$	200,203
Accumulated benefit obligation		212,527		186,206
Fair value of plan assets		3,286		3,764

The components of net periodic benefit costs for the fiscal years ended June 30, 2016, 2015 and 2014 are presented below:

	Year Ended June 30,
	2016			2015			2014
Components of net periodic benefit cost:
Service cost	$	5,606		$	4,285		$	2,507
Interest cost		6,802			6,655			7,201
Expected return on plan assets		(122	)		(255	)		(259	)
Amortization of prior service cost		968			975			1,001
Amortization of net loss		4,874			3,767			3,038
Settlements, curtailments and other contract benefits		3,165			387			1,119
Net periodic benefit cost	$	21,293		$	15,814		$	14,607

Plan Assumptions

The assumptions used to determine our benefit obligations and net periodic pension and other postretirement benefit costs are presented below:

	Year Ended June 30,
	2016	2015	2014
Assumptions:
Weighted average rates used to determine benefit obligations at June 30:
Range of discount rates for pension plans	1.3%—8.6%	2.0%—8.3%	1.4%—8.8%
Range of rates of compensation increase for pension plans	2.0%—10.0%	2.0%—10.0%	0.0%—10.0%
Weighted average rates used to determine net periodic benefit cost at June 30:
Range of discount rates for pension plans	2.0%—8.3%	1.4%—8.8%	1.4%—4.4%
Range of rates of compensation increase for pension plans	2.0%—10.0%	2.0%—10.0%	2.0%—4.0%

We use a globally consistent method of setting the discount rates where yield curves are developed from yields on actual Aa-rated corporate bonds across the full maturity spectrum, referring to ratings provided by Moody’s, S&P, Fitch, and Dominion Bond Rating Service, supplemented with additional yield information where needed. We discount the expected future benefit payments of each plan using the appropriate yield curve based on the currency of payment of benefits, to develop a single-point discount rate matching each plan’s payout structure.

As of June 30, 2016, we changed the method utilized to estimate the service cost and interest cost components of net periodic benefit cost for certain defined benefit pension plans in the US and Germany. Prior to June 30, 2016, we estimated the service cost and interest cost components of net periodic benefit costs using a single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Subsequent to June 30, 2016, we will use a spot rate approach for certain defined benefit pension plans in the US and Germany in the estimation of the service cost and interest cost components of net periodic benefit cost by applying the specific spot rates along the yield curve to the relevant projected cash flows, as we believe this approach calculates a better estimate. We consider the spot rate approach a change in estimate and, accordingly, will account for this change prospectively beginning in fiscal year 2017. This change does not affect the measurement of our benefit obligation.