Pension Plans

12 Months Ended

Sep. 30, 2022

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:

	2022			2021			2020
Weighted average assumptions used to determine benefit obligations at September 30 measurement date:
Discount rate		3.7	%		1.0	%		1.1	%
Rate of increase in future compensation		3.6	%		2.8	%		2.8	%
Weighted average assumptions used to determine net periodic pension cost for fiscal years ended September 30:
Discount rate		1.0	%		1.1	%		0.9	%
Rate of increase in future compensation		2.8	%		2.8	%		2.8	%
Rate of return on plan assets		5.0	%		5.0	%		5.4	%

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, 2022 in the table above, will be used to determine our 2023 net periodic pension income, which we expect to be approximately $0.4 million.

As of September 30, 2022, the weighted average interest crediting rate used in our only cash balance pension plan is 4.1%.

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,
	2022			2021			2020
Interest cost of projected benefit obligation	$	550		$	692		$	527
Service cost		1,016			1,127			1,426
Expected return on plan assets		(3,712	)		(3,643	)		(3,878	)
Amortization of prior service cost		(4	)		(5	)		(5	)
Recognized actuarial loss		1,425			4,139			3,854
Settlement gain		(82	)		—			—
Net periodic pension (benefit) cost	$	(807	)	$	2,310		$	1,924

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,
	2022			2021
Change in benefit obligation:
Projected benefit obligation, beginning of year	$	96,512		$	97,832
Service cost		1,016			1,127
Interest cost		550			692
Actuarial loss (gain)		(22,616	)		1,100
Foreign exchange impact		(12,949	)		(1,562	)
Participant contributions		96			109
Benefits paid		(2,343	)		(2,786	)
Divestiture of business		(1,184	)		—
Settlements		(953	)		—
Projected benefit obligation, end of year	$	58,129		$	96,512
Change in plan assets and funded status:
Plan assets at fair value, beginning of year	$	78,385		$	72,063
Actual return on plan assets		2,348			7,383
Employer contributions		3,007			3,049
Participant contributions		96			109
Foreign exchange impact		(12,959	)		(1,433	)
Settlements		(953	)		—
Benefits paid		(2,343	)		(2,786	)
Plan assets at fair value—end of year		67,581			78,385
Projected benefit obligation, end of year		58,129			96,512
Underfunded status	$	(9,782	)	$	(18,982	)
Overfunded status	$	19,234		$	855
Accumulated benefit obligation, end of year	$	57,310		$	95,090
Amounts recognized in the balance sheet:
Non-current asset	$	19,234		$	855
Non-current liability	$	(9,434	)	$	(18,615	)
Current liability	$	(348	)	$	(367	)
Amounts in accumulated other comprehensive loss:
Unrecognized actuarial loss	$	5,408		$	30,213

As of September 30, 2022 and 2021, two of our pension plans had project 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,
	2022			2021
Accumulated other comprehensive loss, beginning of year	$	30,213		$	37,175
Recognized during year - net actuarial losses		(1,421	)		(4,135	)
Occurring during year - settlement gain		82			—
Occurring during year - net actuarial gains		(21,253	)		(2,640	)
Foreign exchange impact		(2,213	)		(187	)
Accumulated other comprehensive loss, end of year	$	5,408		$	30,213

In 2022 our actuarial gains were impacted by the change in discount rate from 1.0% in 2021 to 3.7% in 2022. In 2021, our net actuarial gains were driven by the asset performance.

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

	September 30,
Asset category	2022			2021
Equity securities		33	%		35	%
Fixed income securities		33	%		34	%
Commodities		1	%		11	%
Insurance company funds		10	%		12	%
Options		2	%		1	%
Cash		21	%		7	%
		100	%		100	%

We periodically review the pension plans’ investments in the various asset classes. For the CoCreate plan 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 2022, 2021 and 2020 our actual return on plan assets was $2.3 million, $7.4 million and $(3.0) million, respectively.

Based on actuarial valuations and additional voluntary contributions, we contributed $3.0 million, $3.0 million and $2.6 million in 2022, 2021 and 2020, respectively, to the plans. We expect to pay $3.1 million in contributions in 2023, of which $0.6 million will be paid directly to the plans.

As of September 30, 2022, benefit payments expected to be paid over the next ten years are as follows:

(in thousands)	Future Benefit Payments
2023	$	3,410
2024		4,068
2025		3,793
2026		3,830
2027		4,216
2028 to 2032		20,680

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, 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

(in thousands)	September 30, 2021
	Level 1		Level 2		Level 3		Total
Fixed income securities:
Government	$	24,013	$	—	$	—	$	24,013
Corporate investment grade		2,924		—		—		2,924
Large capitalization stocks		27,078		—		—		27,078
Commodities		8,558		—		—		8,558
Insurance company funds(1)		—		9,105		—		9,105
Options		1,122		—		—		1,122
Cash		5,585		—		—		5,585
Total plan assets	$	69,280	$	9,105	$	—	$	78,385

(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.