Benefit Plans

We have various pension and other defined benefit as well as defined contribution plans in which substantially all employees may participate. We also have non-qualified supplemental executive and Board retirement plans.

Financial information on changes in benefit obligation, plan assets funded and balance sheet status as of August 31, 2018, and 2017, is as follows:



	Qualified Pension Benefits						Non-Qualified Pension Benefits						Other Benefits
	2018			2017			2018			2017			2018			2017
	(Dollars in thousands)
Change in benefit obligation:
Benefit obligation at beginning of period	$	806,174		$	812,749		$	25,599		$	32,696		$	31,836		$	36,779
Service cost	39,677			42,149			548			1,206			943			1,160
Interest cost	24,007			22,999			711			843			908			930
Actuarial (gain) loss	3,146			(10,054		)	205			(5,692		)	(623		)	(4,650		)
Assumption change	(36,515		)	(17,750		)	(783		)	(655		)	(1,612		)	(775		)
Plan amendments	244			—			—			—			—			—
Settlements	—			—			(4,824		)	(2,131		)	—			—
Benefits paid	(69,549		)	(43,919		)	(701		)	(668		)	(1,662		)	(1,608		)
Benefit obligation at end of period	$	767,184		$	806,174		$	20,755		$	25,599		$	29,790		$	31,836
Change in plan assets:
Fair value of plan assets at beginning of period	$	875,820		$	883,265		$	—		$	—		$	—		$	—
Actual gain (loss) on plan assets	23,345			36,474			—			—			—			—
Company contributions	—			—			5,525			2,799			1,662			1,608
Settlements	—			—			(4,824		)	(2,131		)	—			—
Benefits paid	(69,549		)	(43,919		)	(701		)	(668		)	(1,662		)	(1,608		)
Fair value of plan assets at end of period	$	829,616		$	875,820		$	—		$	—		$	—		$	—
Funded status at end of period	$	62,432		$	69,646		$	(20,755	)	$	(25,599	)	$	(29,790	)	$	(31,836	)
Amounts recognized on balance sheet:
Non-current assets	$	62,432		$	70,019		$	—		$	—		$	—		$	—
Accrued benefit cost:
Current liabilities	—			—			(1,780		)	(2,270		)	(2,040		)	(2,140		)
Non-current liabilities	—			(373		)	(18,975		)	(23,329		)	(27,750		)	(29,696		)
Ending balance	$	62,432		$	69,646		$	(20,755	)	$	(25,599	)	$	(29,790	)	$	(31,836	)
Amounts recognized in accumulated other comprehensive loss (pretax):
Prior service cost (credit)	$	1,288		$	2,481		$	(691	)	$	(660	)	$	(3,716	)	$	(4,281	)
Net (gain) loss	209,606			236,232			427			953			(17,875		)	(16,864		)
Ending balance	$	210,894		$	238,713		$	(264	)	$	293		$	(21,591	)	$	(21,145	)

The accumulated benefit obligation of the qualified pension plans was $736.2 million and $743.5 million at August 31, 2018, and 2017, respectively. The accumulated benefit obligation of the non-qualified pension plans was $18.6 million and $20.6 million at August 31, 2018, and 2017, respectively.

Information for the pension plans with an accumulated benefit obligation in excess of plan assets is set forth below:



	For the Years Ended August 31,
	2018		2017
	(Dollars in thousands)
Projected benefit obligation	$	20,755	$	28,177
Accumulated benefit obligation	18,586		23,221
Fair value of plan assets	—		2,203

A significant assumption for pension plan accounting is the discount rate. Historically, we have selected a discount rate each year (as of our fiscal year-end measurement date) for our plans based upon a high-quality corporate bond yield curve for which the cash flows from coupons and maturities match the year-by-year projected benefit cash flows for our pension plans. The corporate bond yield curve is comprised of high-quality fixed income debt instruments available at the measurement date. At August 31, 2016, we made the determination to use an individual spot-rate approach, discussed below. This alternative approach focuses on measuring the service cost and interest cost components of net periodic benefit cost by using individual spot rates derived from a high-quality corporate bond yield curve and matched with separate cash flows for each future year instead of a single weighted-average discount rate approach.

As of August 31, 2016, we changed the method used to estimate the service and interest cost components of net periodic benefit cost for pension and other post-retirement benefits. This change in methodology has and is expected to continue to result in a decrease in the service and interest cost components for the pension and other post-retirement benefit costs. We historically estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Beginning in fiscal 2017, we elected to utilize a full-yield curve approach in the determination of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. We elected to make this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of our total benefit obligations at August 31, 2016, the net periodic cost recognized in fiscal 2016 or the ultimate benefit payment that must be made in the future. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis.

Components of net periodic benefit costs for the years ended August 31, 2018, 2017, and 2016 are as follows:



	Qualified Pension Benefits									Non-Qualified Pension Benefits									Other Benefits
	2018			2017			2016			2018			2017			2016			2018			2017			2016
	(Dollars in thousands)
Components of net periodic benefit costs:
Service cost	$	39,677		$	42,149		$	37,533		$	548		$	1,206		$	1,035		$	943		$	1,160		$	1,412
Interest cost	24,007			22,999			30,773			711			843			1,406			908			930			1,709
Expected return on assets	(48,159		)	(48,235		)	(48,055		)	—			—			—			—			—			—
Settlement of retiree obligations	—			—			—			(112		)	(30		)	—			—			—			—
Prior service cost (credit) amortization	1,437			1,540			1,606			30			19			228			(565		)	(565		)	(120		)
Actuarial loss (gain) amortization	18,073			22,869			19,016			61			546			692			(1,224		)	(798		)	(464		)
Net periodic benefit cost	$	35,035		$	41,322		$	40,873		$	1,238		$	2,584		$	3,361		$	62		$	727		$	2,537
Weighted-average assumptions to determine the net periodic benefit cost:
Discount rate	3.80		%	3.60		%	4.20		%	3.53		%	3.28		%	4.20		%	3.56		%	3.30		%	4.20		%
Expected return on plan assets	5.75		%	5.75		%	6.00		%	N/A			N/A			N/A			N/A			N/A			N/A
Rate of compensation increase	5.08		%	5.60		%	4.90		%	5.08		%	5.60		%	4.90		%	N/A			N/A			N/A
Weighted-average assumptions to determine the benefit obligations:
Discount rate	4.23		%	3.80		%	3.60		%	4.09		%	3.53		%	3.28		%	4.13		%	3.56		%	3.30		%
Rate of compensation increase	5.14		%	5.08		%	5.60		%	5.14		%	5.08		%	5.60		%	N/A			N/A			N/A

Components of net periodic benefit costs and amounts recognized in other comprehensive income (loss) for the years ended August 31, 2018, 2017, and 2016 are as follows:



	Qualified Pension Benefits									Non-Qualified Pension Benefits									Other Benefits
	2018			2017			2016			2018			2017			2016			2018			2017			2016
	(Dollars in thousands)
Other comprehensive income (loss)
Prior service cost (credit)	$	244		$	—		$	411		$	—		$	—		$	(1,044	)	$	—		$	—		$	(4,495	)
Net actuarial loss (gain)	(8,553		)	(16,044		)	17,712			(578		)	(6,345		)	(655		)	(2,234		)	(5,427		)	(2,290		)
Amortization of actuarial loss (gain)	(18,073		)	(22,869		)	(19,016		)	(61		)	(546		)	(692		)	1,224			798			464
Amortization of prior service costs (credit)	(1,437		)	(1,540		)	(1,606		)	(30		)	(19		)	(228		)	565			565			120
Settlement of retiree obligations (a)	—			—			—			112			30			—			—			—			—
Total recognized in other comprehensive income	$	(27,819	)	$	(40,453	)	$	(2,499	)	$	(557	)	$	(6,880	)	$	(2,619	)	$	(445	)	$	(4,064	)	$	(6,201	)

(a) Reflects amounts reclassified from accumulated other comprehensive income (loss) to net earnings

The estimated amortization in fiscal 2019 from accumulated other comprehensive loss into net periodic benefit cost is as follows:



	Qualified Pension Benefits		Non-Qualified Pension Benefits			Other Benefits
	(Dollars in thousands)
Amortization of prior service cost (credit)	$	190	$	(75	)	$	(556	)
Amortization of net actuarial (gain) loss	12,266		2			(1,629		)

For measurement purposes, a 7.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for the year ended August 31, 2018. The rate was assumed to decrease gradually to 4.5% by 2027 and remain at that level thereafter.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point change in the assumed health care cost trend rates would have the following effects:



	1% Increase		1% Decrease
	(Dollars in thousands)
Effect on total of service and interest cost components	$	230	$	(200	)
Effect on postretirement benefit obligation	2,400		(2,100		)

We provide defined life insurance and health care benefits for certain retired employees and Board of Directors participants. The plan is contributory based on years of service and family status, with retiree contributions adjusted annually.

We did not contribute to the qualified pension plans in fiscal 2018. Based on the funded status of the qualified pension plans as of August 31, 2018, we do not believe we will be required to contribute to these plans in fiscal 2019, although we may voluntarily elect to do so. We expect to pay $3.8 million to participants of the non-qualified pension and postretirement benefit plans during fiscal 2019.

Our retiree benefit payments, which reflect expected future service, are anticipated to be paid as follows:



	Qualified Pension Benefits		Non-Qualified Pension Benefits		Other Benefits Gross
	(Dollars in thousands)
2019	$	66,528	$	1,780	$	2,040
2020	62,320		1,670		2,260
2021	61,279		1,750		2,400
2022	62,877		2,230		2,590
2023	64,573		1,840		2,720
2024-2028	328,313		9,270		12,690

We have trusts that hold the assets for the defined benefit plans. CHS has a qualified plan committee that sets investment guidelines with the assistance of external consultants. Investment objectives for the plans' assets are as follows:


•	optimization of the long-term returns on plan assets at an acceptable level of risk;


•	maintenance of a broad diversification across asset classes and among investment managers; and


•	focus on long-term return objectives.

Asset allocation targets promote optimal expected return and volatility characteristics given the long-term time horizon for fulfilling the obligations of the pension plans. Our pension plans' investment policy strategy is such that liabilities match assets. This is being accomplished through the asset portfolio mix by reducing volatility and de-risking the plans. The plans’ target allocation percentages range between 45% and 65% for fixed income securities, and range between 35% and 55% for equity securities. An annual analysis of the risk versus the return of the investment portfolio is conducted to justify the expected long-term rate of return assumption. We generally use long-term historical return information for the targeted asset mix identified in asset and liability studies. Adjustments are made to the expected long-term rate of return assumption, when deemed necessary, based upon revised expectations of future investment performance of the overall investment markets.

The discount rate reflects the rate at which the associated benefits could be effectively settled as of the measurement date. In estimating this rate, we look at rates of return on fixed-income investments of similar duration to the liabilities in the plans that receive high, investment-grade ratings by recognized ratings agencies.

The investment portfolio contains a diversified portfolio of investment categories, including domestic and international equities, fixed-income securities and real estate. Securities are also diversified in terms of domestic and international securities, short and long-term securities, growth and value equities, large and small cap stocks, as well as active and passive management styles.

The committee believes that with prudent risk tolerance and asset diversification, the plans should be able to meet pension obligations in the future.

Our pension plans’ recurring fair value measurements by asset category at August 31, 2018, and 2017, are presented in the tables below:



	2018
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Cash and cash equivalents	$	7,424	$	—	$	—	$	7,424
Equities:
Mutual funds	692		—		—		692
Common/collective trust at net asset value ⁽¹⁾	—		—		—		216,962
Fixed income securities:
Common/collective trust at net asset value ⁽¹⁾	—		—		—		500,637
Partnership and joint venture interests measured at net asset value ⁽¹⁾	—		—		—		101,954
Other assets measured at net asset value ⁽¹⁾	—		—		—		1,947
Total	$	8,116	$	—	$	—	$	829,616



	2017
	Level 1		Level 2		Level 3		Total
	(Dollars in thousands)
Cash and cash equivalents	$	9,988	$	—	$	—	$	9,988
Equities:
Mutual funds	459		—		—		459
Common/collective trust at net asset value ⁽¹⁾	—		—		—		231,228
Fixed income securities:
Common/collective trust at net asset value ⁽¹⁾	—		—		—		535,185
Partnership and joint venture interests measured at net asset value ⁽¹⁾	—		—		—		96,994
Other assets measured at net asset value ⁽¹⁾	—		—		—		1,966
Total	$	10,447	$	—	$	—	$	875,820

(1) In accordance with ASC Topic 820-10, Fair Value Measurements, certain assets that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the tables above are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of net assets.

Definitions for valuation levels are found in Note 14, Fair Value Measurements. We use the following valuation methodologies for assets measured at fair value.

Mutual funds: Valued at quoted market prices, which are based on the net asset value of shares held by the plan at year end. Mutual funds traded in active markets are classified within Level 1 of the fair value hierarchy. Mutual funds measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy in accordance with ASC Topic 820-10, Fair Value Measurement.

Common/Collective Trusts: Common/collective trusts primarily consist of equity and fixed income funds and are valued using other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, referenced indices, quoted prices in inactive markets, adjusted quoted prices in active markets, adjusted quoted prices on foreign equity securities that were adjusted in accordance with pricing procedures approved by the trust, etc.). Common/collective trust investments can be redeemed daily and without restriction. Redemption of the entire investment balance generally requires a 45- to 60-day notice period. The equity funds provide exposure to large, mid and small cap U.S. equities, international large and small cap equities and emerging market equities. The fixed income funds provide exposure to U.S., international and emerging market debt securities. Common/collective trusts measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy in accordance with ASC Topic 820-10, Fair Value Measurement.

Partnership and joint venture interests: Valued at the net asset value of shares held by the plan at year end as a practical expedient for fair value. The net asset value is based on the fair value of the underlying assets owned by the trust, minus its liabilities then divided by the number of units outstanding. Redemptions of these interests generally require a 45- to 60-day notice period. Partnerships and joint venture interests measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy in accordance with ASC Topic 820-10, Fair Value Measurement.

Other assets: Other assets primarily includes real estate funds and hedge funds held in the asset portfolio of our U.S. defined benefit pension plans. Other funds measured at fair value using the net asset value per share practical expedient have not been categorized in the fair value hierarchy in accordance with ASC Topic 820-10, Fair Value Measurement.

We are one of approximately 400 employers that contribute to the Co-op Retirement Plan ("Co-op Plan"), which is a defined benefit plan constituting a “multiple employer plan” under the Internal Revenue Code of 1986, as amended, and a “multiemployer plan” under the accounting standards. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:


•	Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers;


•	If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and


•	If we choose to stop participating in the multiemployer plan, we may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

Our participation in the Co-op Plan for the years ended August 31, 2018, 2017, and 2016 is outlined in the table below:



		Contributions of CHS
		(Dollars in thousands)
Plan Name	EIN/Plan Number	2018		2017		2016		Surcharge Imposed	Expiration Date of Collective Bargaining Agreement
Co-op Retirement Plan	01-0689331 / 001	$	1,662	$	1,653	$	1,862	N/A	N/A

Our contributions for the years stated above did not represent more than 5% of total contributions to the Co-op Plan as indicated in the Co-op Plan's most recently available annual report (Form 5500).

Provisions of the Pension Protection Act of 2006 ("PPA") do not apply to the Co-op Plan because there is a special exemption for cooperative plans if the plan is maintained by more than one employer and at least 85% of the employers are rural cooperatives or cooperative organizations owned by agricultural producers. In the Co-op Plan, a “zone status” determination is not required, and therefore not determined. In addition, the accumulated benefit obligations and plan assets are not determined or allocated separately by individual employers. The most recent financial statements available in 2018 and 2017 are for the Co-op Plan's year-end at March 31, 2018, and 2017, respectively. In total, the Co-op Plan was at least 80% funded on those dates based on the total plan assets and accumulated benefit obligations.

Because the provisions of the PPA do not apply to the Co-op Plan, funding improvement plans, and surcharges are not applicable. Future contribution requirements are determined each year as part of the actuarial valuation of the plan and may change as a result of plan experience.

In addition to the contributions to the Co-op Plan listed above, total contributions to individually insignificant multi-employer pension plans were immaterial in fiscal 2018, 2017, and 2016.

We have other contributory defined contribution plans covering substantially all employees. Total contributions by us to these plans were $24.7 million, $19.9 million and $29.5 million, for the years ended August 31, 2018, 2017, and 2016, respectively.