Pension Plans

12 Months Ended

Sep. 30, 2020

Compensation And Retirement Disclosure [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:

	2020			2019			2018
Weighted average assumptions used to determine benefit obligations at September 30 measurement date:
Discount rate		1.1	%		0.9	%		1.9	%
Rate of increase in future compensation		2.8	%		2.8	%		3.0	%
Weighted average assumptions used to determine net periodic pension cost for fiscal years ended September 30:
Discount rate		0.9	%		1.9	%		1.8	%
Rate of increase in future compensation		2.8	%		3.0	%		2.8	%
Rate of return on plan assets		5.4	%		5.4	%		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, 2020 in the table above, will be used to determine our 2021 net periodic pension cost, which we expect to be approximately $2.3 million.

As of September 30, 2020, the weighted average interest crediting rate used in our only cash balance pension plan is 6%.

All non-service net periodic pension costs are presented in other income (expense), 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,
	2020			2019			2018
Interest cost of projected benefit obligation	$	527		$	1,199		$	1,260
Service cost		1,426			1,372			1,535
Expected return on plan assets		(3,878	)		(3,728	)		(4,180	)
Amortization of prior service cost		(5	)		(5	)		(5	)
Recognized actuarial loss		3,854			2,390			2,293
Settlement loss		—			(30	)		9
Net periodic pension cost	$	1,924		$	1,198		$	912

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,
	2020			2019
Change in benefit obligation:
Projected benefit obligation, beginning of year	$	94,983		$	87,864
Service cost		1,426			1,372
Interest cost		527			1,199
Actuarial (gain) loss		(2,835	)		12,059
Foreign exchange impact		6,452			(4,674	)
Participant contributions		86			154
Benefits paid		(2,234	)		(1,836	)
Curtailments		(573	)		—
Settlements		—			(1,155	)
Projected benefit obligation, end of year	$	97,832		$	94,983
Change in plan assets and funded status:
Plan assets at fair value, beginning of year	$	69,879		$	70,141
Actual return on plan assets		(2,990	)		3,512
Employer contributions		2,622			2,576
Participant contributions		86			154
Foreign exchange impact		4,700			(3,513	)
Settlements		—			(1,155	)
Benefits paid		(2,234	)		(1,836	)
Plan assets at fair value—end of year		72,063			69,879
Projected benefit obligation, end of year		97,832			94,983
Underfunded status	$	(25,769	)	$	(25,104	)
Accumulated benefit obligation, end of year	$	96,270		$	92,280
Amounts recognized in the balance sheet:
Non-current liability	$	(25,437	)	$	(24,868	)
Current liability	$	(332	)	$	(236	)
Amounts in accumulated other comprehensive loss:
Unrecognized actuarial loss	$	37,175		$	34,920

As of September 30, 2020 and 2019 all of our pension plans had project benefit obligations and accumulated benefit obligations in excess of plan assets.

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

(in thousands)	Year ended September 30,
	2020			2019
Accumulated other comprehensive loss, beginning of year	$	34,920		$	27,027
Recognized during year - net actuarial losses		(3,850	)		(2,385	)
Occurring during year - settlement loss		—			30
Occurring during year - net actuarial losses		3,460			12,274
Foreign exchange impact		2,645			(2,026	)
Accumulated other comprehensive loss, end of year	$	37,175		$	34,920

In 2020 our net actuarial losses occurring during the year were primarily driven by poor asset performance due to COVID-19 pandemic, offset by favorable impact on liabilities due primarily to a higher assumed discount rate.

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

	September 30,
Asset category	2020			2019
Equity securities		33	%		32	%
Fixed income securities		34	%		46	%
Commodities		11	%		2	%
Insurance company funds		13	%		12	%
Options		1	%		—	%
Cash		8	%		8	%
		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 2020, 2019 and 2018 our actual return on plan assets was $(3.0) million, $3.5 million and $1.0 million, respectively.

Based on actuarial valuations and additional voluntary contributions, we contributed $2.6 million, $2.6 million, and $2.5 million in 2020, 2019 and 2018, respectively, to the plans. We expect to pay $3.5 million in contributions in 2021, of which $0.8 million will be paid directly to the plans.

As of September 30, 2020, benefit payments expected to be paid over the next ten years are as follows:

(in thousands)	Future Benefit Payments
2021	$	3,813
2022		4,321
2023		4,133
2024		4,822
2025		4,651
2026 to 2030		23,538

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, 2020
	Level 1		Level 2		Level 3		Total
Fixed income securities:
Government	$	20,663	$	—	$	—	$	20,663
Corporate investment grade		3,599		—		—		3,599
Large capitalization stocks		23,878		—		—		23,878
Commodities		7,750		—		—		7,750
Insurance company funds(1)		—		9,131		—		9,131
Options		1,126		—		—		1,126
Cash		5,916		—		—		5,916
Total plan assets	$	62,932	$	9,131	$	—	$	72,063

(in thousands)	September 30, 2019
	Level 1		Level 2		Level 3		Total
Fixed income securities:
Government	$	26,996	$	—	$	—	$	26,996
Corporate investment grade		4,816		—		—		4,816
Large capitalization stocks		22,648		—		—		22,648
Commodities		1,086		—		—		1,086
Insurance company funds(1)		—		8,494		—		8,494
Cash		5,839		—		—		5,839
Total plan assets	$	61,385	$	8,494	$	—	$	69,879

(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.