Retirement and Other Benefit Plans

12 Months Ended

Sep. 30, 2019

Retirement and Other Benefit Plans

Retirement and Other Benefit Plans

11.      Retirement and Other Benefit Plans

Formerly, substantially all domestic employees were covered by a defined benefit pension plan maintained by the Company. Effective December 31, 2003, the Company’s defined benefit plan was frozen and no additional benefits have been accrued after that date. As a result, the accumulated benefit obligation and projected benefit obligation are equal. These frozen retirement income benefits are provided to employees under defined benefit pay-related and flat-dollar plans, which are noncontributory. The annual contributions to the defined benefit retirement plan equal or exceed the minimum funding requirements of the Employee Retirement Income Security Act. Subsequent to September 30, 2019, the Company announced that it plans to terminate and annuitize the defined benefit pension plan during fiscal 2020. In addition to providing retirement income benefits, the Company provides unfunded postretirement health and life insurance benefits to certain retirees. To qualify, an employee must retire at age 55 or later and the employee’s age plus service must equal or exceed 75. Retiree contributions are defined as a percentage of medical premiums. Consequently, retiree contributions increase with increases in the medical premiums. The life insurance plans are noncontributory and provide coverage of a flat dollar amount for qualifying retired employees. Effective December 31, 2004, no new retirees were eligible for life insurance benefits. In addition, substantially all domestic employees are covered by a defined contribution plan maintained by the Company.

The Company uses a measurement date of September 30 for its pension and other postretirement benefit plans. The Company has an accrued benefit liability of $0.6 million and $0.5 million at September 30, 2019 and 2018, respectively, related to its other postretirement benefit obligations. All other information related to its postretirement benefit plans is not considered material to the Company’s results of operations or financial condition.

The following tables provide a reconciliation of the changes in the pension plans and fair value of assets over the two-year period ended September 30, 2019, and a statement of the funded status as of September 30, 2019 and 2018:

(Dollars in millions)
Reconciliation of benefit obligation	2019		2018
Net benefit obligation at beginning of year	$	89.8	95.3
Interest cost		3.7	3.4
Actuarial loss (gain)		11.3	(4.3)
Gross benefits paid		(4.7)	(4.6)
Settlements		—	—
Net benefit obligation at end of year	$	100.1	89.8

(Dollars in millions)
Reconciliation of fair value of plan assets	2019		2018
Fair value of plan assets at beginning of year	$	73.3	65.0
Actual return on plan assets		5.9	2.7
Employer contributions		2.7	10.2
Gross benefits paid		(4.7)	(4.6)
Settlements		—	—
Fair value of plan assets at end of year	$	77.2	73.3

(Dollars in millions)
Funded Status	2019		2018
Funded status at end of year	$	(22.9)	(16.5)
Accrued benefit cost		(22.9)	(16.5)
Amounts recognized in the Balance Sheet consist of:
Current liability		(0.2)	(0.2)
Noncurrent liability		(22.7)	(16.3)
Accumulated other comprehensive (income)/loss (before tax effect)		49.6	41.9
Amounts recognized in accumulated other comprehensive (income)/loss consist of:
Net actuarial loss		49.6	41.9
Accumulated other comprehensive (income)/loss (before tax effect)	$	49.6	41.9

The estimated amount that will be amortized from accumulated other comprehensive (income) loss into net periodic benefit cost (income) in 2020 is $2.7 million.

The following table provides the components of net periodic benefit cost for the plans for 2019, 2018 and 2017:

(Dollars in millions)	2019		2018	2017
Service cost	$	—	—	—
Interest cost		3.7	3.4	3.2
Expected return on plan assets		(4.4)	(3.8)	(3.9)
Net actuarial loss		2.1	2.3	2.6
Net periodic benefit cost		1.4	1.9	1.9
Defined contribution plans		7.3	7.1	6.3
Total	$	8.7	9.0	8.2

The discount rate used in measuring the Company’s pension obligations was developed by matching yields of actual high-quality corporate bonds to expected future pension plan cash flows (benefit payments). Over 400 Aa-rated, non-callable bonds with a wide range of maturities were used in the analysis. After using the bond yields to determine the present value of the plan cash flows, a single representative rate that resulted in the same present value was developed. The expected long-term rate of return on plan assets assumption was determined by reviewing the actual investment return of the plans since inception and evaluating those returns in relation to expectations of various investment organizations to determine whether long-term future returns are expected to differ significantly from the past.

The following weighted-average assumptions were used to determine the net periodic benefit cost for the pension plans:

	2019		2018		2017
Discount rate	4.15	%	3.65	%	3.25	%
Rate of increase in compensation levels	N/A		N/A		N/A
Expected long-term rate of return on assets	6.00	%	6.00	%	6.25	%

The following weighted-average assumptions were used to determine the net periodic benefit obligations for the pension plans:

	2019		2018
Discount rate	3.05	%	4.15	%
Rate of increase in compensation levels	N/A		N/A

The assumed rate of increase in compensation levels is not applicable in 2019, 2018 and 2017 as the plan was frozen in earlier years.

The asset allocation for the Company’s pension plans at the end of 2019 and 2018, and the Company’s acceptable range and the target allocation for 2020, by asset category, are as follows:

	Target				Percentage of Plan Assets at
	Allocation		Acceptable		Year-end
Asset Category	2020		Range		2019		2018
Return seeking	53	%	48%-58	%	41	%	44	%
Liability hedging	47	%	42%-52	%	56	%	54	%
Cash/cash equivalents	0	%	0%-10	%	3	%	2	%

The Company’s pension plan assets are managed by outside investment managers and assets are rebalanced when the target ranges are exceeded. Pension plan assets consist principally of funds which invest in marketable securities including common stocks, bonds, and interest-bearing deposits. The Company’s investment strategy with respect to pension assets is to achieve a total rate of return (income and capital appreciation) that is sufficient to accomplish the purpose of providing retirement benefits to all eligible and future retirees of the pension plan. The Company regularly monitors performance and compliance with investment guidelines.

Fair Value of Financial Measurements

The fair values of the Company’s defined benefit plan investments as of September 30, 2019 and 2018, by asset category, were as follows:

(Dollars in millions)	2019		2018
Investments at fair value:
Cash and cash equivalents	$	2.1	2.1
Common and preferred stock funds:
Domestic large capitalization		8.8	8.7
Domestic small-/mid-capitalization		2.4	2.7
International funds		10.6	10.8
Fixed income funds		49.7	45.6
Real estate investment funds		3.6	3.4
Total investments at fair value	$	77.2	73.3

The following methods were used to estimate the fair value of each class of financial instrument:

Cash and cash equivalents: The carrying value of cash represents fair value as it consists of actual currency.

Investment Funds: The fair value of the investment funds, which offer daily redemptions, is determined based on the published net asset value of the funds as a practical expedient for fair value.

As of September 30, 2019, the fair values of the investments were classified within the valuation hierarchy under ASC 825 as follows: $44.9 million within Level 0, $13.0 million within Level 1 and $19.3 million within Level 2.

Expected Cash Flows

Information about the expected cash flows for the pension and other postretirement benefit plans follows:

	Pension		Other
(Dollars in millions)	Benefits		Benefits
Expected Employer Contributions — 2020	$	0.7	0.1
Expected Benefit Payments:
2020		5.8	0.1
2021		5.5	0.1
2022		5.7	0.1
2023		5.8	0.1
2024		5.9	0.1
2025‑2029	$	30.2	0.2