Pension Plans

12 Months Ended

Sep. 30, 2023

Retirement Benefits [Abstract]

Pension Plans

14. Pension Plans

We maintain several international defined benefit pension plans primarily covering certain employees of Computervision, which we acquired in 1998, and CoCreate, which we acquired in 2008, and covering employees in Japan. Benefits are based upon length of service and average compensation with vesting after one to five years of service. The pension cost was actuarially computed using assumptions applicable to each subsidiary plan and economic environment. We adjust our pension liability related to our plans due to changes in actuarial assumptions and performance of plan investments, as shown below. Effective in 1998, benefits under one of the international plans were frozen indefinitely.

The following table presents the actuarial assumptions used in accounting for the pension plans:

	2023			2022			2021
Weighted average assumptions used to determine benefit obligations at September 30 measurement date:
Discount rate		4.2	%		3.7	%		1.0	%
Rate of increase in future compensation		3.0	%		3.6	%		2.8	%
Weighted average assumptions used to determine net periodic pension cost for fiscal years ended September 30:
Discount rate		3.7	%		1.0	%		1.1	%
Rate of increase in future compensation		3.6	%		2.8	%		2.8	%
Rate of return on plan assets		4.8	%		5.0	%		5.0	%

In selecting the expected long-term rate of return on assets, we considered the current investment portfolio, and the investment return goals in the plans’ investment policy statements. We, with input from the plans’ professional investment managers and actuaries, also considered the average rate of earnings expected on the funds invested or to be invested to provide plan benefits. This process included determining expected returns for the various asset classes that comprise the plans’ target asset allocation. This basis for selecting the long-term asset return assumptions is consistent with the prior year. Using generally accepted diversification techniques, the plans’ assets, in aggregate and at the individual portfolio level, are invested so that the total portfolio risk exposure and risk-adjusted returns best meet the plans’ long-term liabilities to employees. Plan asset allocations are reviewed periodically and rebalanced to achieve target allocation among the asset categories when necessary. The discount rate is based on yield curves for highly rated corporate fixed income securities matched against cash flows for each future year.

The weighted long-term rate of return assumption, together with the assumptions used to determine the benefit obligations as of September 30, 2023 in the table above, will be used to determine our 2024 net periodic pension cost, which we expect to be approximately $0.1 million.

As of September 30, 2023, the weighted average interest credit rate used in our two cash balance pension plans is 4.2%.

All non-service net periodic pension costs are presented in Other income, net on the Consolidated Statement of Operations. The actuarially computed components of net periodic pension cost recognized in our Consolidated Statements of Operations for each year are shown below:

(in thousands)	Year ended September 30,
	2023			2022			2021
Interest cost of projected benefit obligation	$	2,126		$	550		$	692
Service cost		690			1,016			1,127
Expected return on plan assets		(3,541	)		(3,712	)		(3,643	)
Amortization of prior service cost		—			(4	)		(5	)
Recognized actuarial loss		241			1,425			4,139
Settlement gain		—			(82	)		—
Net periodic pension (benefit) cost	$	(484	)	$	(807	)	$	2,310

The following tables display the change in benefit obligation and the change in the plan assets and funded status of the plans as well as the amounts recognized in our Consolidated Balance Sheets:

(in thousands)	Year ended September 30,
	2023			2022
Change in benefit obligation:
Projected benefit obligation, beginning of year	$	58,129		$	96,512
Service cost		690			1,016
Interest cost		2,126			550
Actuarial gain		(1,589	)		(22,616	)
Foreign exchange impact		3,714			(12,949	)
Participant contributions		96			96
Benefits paid		(2,968	)		(2,343	)
Plan amendments		235			—
Divestiture of business		—			(1,184	)
Settlements		—			(953	)
Projected benefit obligation, end of year	$	60,433		$	58,129
Change in plan assets and funded status:
Plan assets at fair value, beginning of year	$	67,581		$	78,385
Actual return (loss) on plan assets		(1,919	)		2,348
Employer contributions		1,343			3,007
Participant contributions		96			96
Foreign exchange impact		4,593			(12,959	)
Settlements		—			(953	)
Benefits paid		(2,968	)		(2,343	)
Plan amendments		149			—
Plan assets at fair value, end of year		68,875			67,581
Projected benefit obligation, end of year		60,433			58,129
Underfunded status	$	(10,693	)	$	(9,782	)
Overfunded status	$	19,135		$	19,234
Accumulated benefit obligation, end of year	$	59,602		$	57,310
Amounts recognized in the balance sheet:
Non-current asset	$	19,135		$	19,234
Non-current liability	$	(10,419	)	$	(9,434	)
Current liability	$	(274	)	$	(348	)
Amounts in accumulated other comprehensive loss:
Unrecognized actuarial loss	$	9,573		$	5,408

As of September 30, 2023 and 2022, two of our pension plans had projected benefit obligations and accumulated benefit obligations in excess of plan assets. Three international plans were overfunded.

The following table shows the change in Accumulated other comprehensive loss:

(in thousands)	Year ended September 30,
	2023			2022
Accumulated other comprehensive loss, beginning of year	$	5,408		$	30,213
Recognized during year - net actuarial losses		(241	)		(1,421	)
Occurring during year - settlement gain		—			82
Occurring during year - net actuarial losses (gains)		3,871			(21,253	)
Plan amendments		91			—
Foreign exchange impact		444			(2,213	)
Accumulated other comprehensive loss, end of year	$	9,573		$	5,408

In 2023, our actuarial losses were impacted by volatility in capital markets and the impact of rising interest rates. In 2022, our actuarial gains were impacted by the change in discount rate from 1.0% in 2021 to 3.7% in 2022.

The following table shows the percentage of total plan assets for each major category of plan assets:

	September 30,
Asset category	2023			2022
Equity securities		31	%		33	%
Fixed income securities		42	%		33	%
Commodities		7	%		1	%
Insurance company funds		10	%		10	%
Options		0	%		2	%
Cash		10	%		21	%
		100	%		100	%

We periodically review the pension plans’ investments in the various asset classes. For the CoCreate plans in Germany, assets are actively allocated between equity and fixed income securities to achieve target return. For the other international plans, assets are allocated 100% to fixed income securities. The fixed income securities for the other international plans primarily include investments held with insurance companies with fixed returns. The plans’ investment managers are provided specific guidelines under which they are to invest the assets assigned to them. In general, investment managers are expected to remain fully invested in their asset class with further limitations on risk as related to investments in a single security, portfolio turnover and credit quality.

The German CoCreate plan's investment policy prohibits the use of derivatives associated with leverage and speculation or investments in securities issued by PTC, except through index-related strategies and/or commingled funds. An investment committee oversees management of the pension plans’ assets. Plan assets consist primarily of investments in equity and fixed income securities.

In 2023, 2022 and 2021, our actual return (loss) on plan assets was $(1.9) million, $2.3 million and $7.4 million, respectively.

Based on actuarial valuations and additional voluntary contributions, we contributed $1.3 million, $3.0 million and $3.0 million in 2023, 2022 and 2021, respectively, to the plans. In 2024, we expect to contribute $0.6 million to the plans and to directly pay $3.2 million in benefits.

As of September 30, 2023, benefit payments expected to be paid over the next ten years are as follows:

(in thousands)	Future Benefit Payments
2024	$	4,158
2025		3,782
2026		3,898
2027		4,485
2028		4,694
2029 to 2033		23,443

Fair Value of Plan Assets

The international plan assets are comprised primarily of investments in a trust and an insurance company. The underlying investments in the trust are primarily publicly-traded equities and governmental fixed income securities. They are classified as Level 1 because the underlying units of the trust are traded in open public markets. The fair value of the underlying investments in equity securities and fixed income are based upon publicly-traded exchange prices.

(in thousands)	September 30, 2023
	Level 1		Level 2		Level 3		Total
Fixed income securities:
Government	$	27,322	$	—	$	—	$	27,322
Corporate investment grade		1,632		—		—		1,632
Large capitalization stocks		20,864		—		—		20,864
Commodities		4,977		—		—		4,977
Insurance company funds(1)		—		7,102		—		7,102
Cash		6,978		—		—		6,978
Total plan assets	$	61,773	$	7,102	$	—	$	68,875

(in thousands)	September 30, 2022
	Level 1		Level 2		Level 3		Total
Fixed income securities:
Government	$	20,430	$	—	$	—	$	20,430
Corporate investment grade		2,038		—		—		2,038
Large capitalization stocks		22,379		—		—		22,379
Commodities		599		—		—		599
Insurance company funds(1)		—		6,823		—		6,823
Options		1,430		—		—		1,430
Cash		13,882		—		—		13,882
Total plan assets	$	60,758	$	6,823	$	—	$	67,581

(1)These investments are comprised primarily of funds invested with an insurance company in Japan with a guaranteed rate of return. The insurance company invests these assets primarily in government and corporate bonds.