Pension and retirement plans

Pension Plan

The Company’s noncontributory defined benefit pension plan (the “Plan”) covers substantially all domestic employees. Employees are eligible to participate in the Plan following the first year of service during which they worked at least 1,000 hours. The Plan provides defined benefits pursuant to a cash balance feature whereby a participant accumulates a benefit based upon a percentage of current salary, which varies with age, and interest credits. The Company uses its fiscal year end as the measurement date for determining pension expense and benefit obligations for each fiscal year. The disclosures below do not include the pension plans of certain non-U.S. subsidiaries and other defined benefit plans, which are not considered material.

The following table outlines changes in benefit obligations, plan assets and the funded status of the Plan as of the end of fiscal 2014 and 2013:



	June 28, 2014			June 29, 2013
	(Thousands)
Changes in benefit obligations:
Benefit obligations at beginning of year	$	391,880		$	375,156
Service cost	36,733			36,920
Interest cost	17,155			14,653
Actuarial loss (gain)	34,726			(13,545		)
Benefits paid	(23,327		)	(21,304		)
Benefit obligations at end of year	$	457,167		$	391,880
Changes in plan assets:
Fair value of plan assets at beginning of year	$	365,373		$	301,449
Actual return on plan assets	67,914			45,228
Benefits paid	(23,327		)	(21,304		)
Contributions	40,000			40,000
Fair value of plan assets at end of year	$	449,960		$	365,373
Funded status of the plan recognized as a non-current liability	$	(7,207	)	$	(26,507	)
Amounts recognized in accumulated other comprehensive income:
Unrecognized net actuarial losses	$	158,103		$	173,069
Unamortized prior service credits	(6,050		)	(7,623		)
	$	152,053		$	165,446
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial gain	$	(2,280	)	$	(30,870	)
Amortization of net actuarial losses	(12,686		)	(14,898		)
Amortization of prior service credits	1,573			1,573
	$	(13,393	)	$	(44,195	)

The Plan was amended effective June 1, 2012 to improve pre-retirement death benefits so that the pre-retirement death benefits will be payable without regard to marital status, and will be based on 100% of the participant's vested cash account. The increase in liability was recognized as a prior service cost and amortization began in fiscal year 2013.

Included in accumulated other comprehensive income at June 28, 2014 is pre-tax expense of $158.1 million of net actuarial losses which have not yet been recognized in net periodic pension cost, of which $13.0 million is expected to be recognized as a component of net periodic pension cost during fiscal 2015. Also included is a pre-tax benefit of $6.1 million of prior service credits which have not yet been recognized in net periodic pension costs, of which $1.6 million is expected to be recognized as a component of net periodic pension costs during fiscal 2015.

Weighted average assumptions used to calculate actuarial present values of benefit obligations are as follows:



	2014	2013
Discount rate	4.00%	4.50%

The discount rate selected by the Company for the Plan reflects the current rate at which the underlying liability could be settled at the measurement date as of June 28, 2014. The selected discount rate is based primarily upon an average rate determined by matching the expected cash outflows of the Plan to a yield curve constructed from a portfolio of highly rated (minimum AA rating) fixed-income debt instruments with maturities consistent with the expected cash outflows.

Weighted average assumptions used to determine net benefit costs are as follows:



	2014	2013
Discount rate	4.50%	4.00%
Expected return on plan assets	8.50%	8.50%

Components of net periodic pension cost during the last three fiscal years are as follows:



	Years Ended
	June 28, 2014			June 29, 2013			June 30, 2012
	(Thousands)
Service costs	$	36,733		$	36,920		$	28,380
Interest costs	17,155			14,653			14,925
Expected return on plan assets	(30,908		)	(27,905		)	(26,938		)
Recognized net actuarial losses	12,686			14,898			9,680
Amortization of prior service credits	(1,573		)	(1,573		)	(1,875		)
Net periodic pension cost	$	34,093		$	36,993		$	24,172

The Company made $40.0 million of contributions in fiscal 2014 and fiscal 2013 and expects to make approximately $40.0 million of contributions in fiscal 2015.

Benefit payments are expected to be paid to Plan participants as follows for the next five fiscal years and the aggregate for the five years thereafter (in thousands):



2015	$	31,997
2016	26,982
2017	30,786
2018	34,646
2019	39,082
2020 through 2024	273,509

The Plan’s assets are held in trust and were allocated as follows as of the measurement date at the end of fiscal 2014 and 2013:



	2014		2013
Equity securities	75	%	75	%
Fixed income debt securities	24	%	24	%
Cash and cash equivalents	1	%	1	%

The general investment objectives of the Plan are to maximize returns through a diversified investment portfolio in order to earn annualized returns that meet the long-term cost of funding the Plan’s pension obligations while maintaining reasonable and prudent levels of risk. The target rate of return on Plan assets is currently 8.5%, which represents the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the benefit obligation. This assumption has been determined by combining expectations regarding future rates of return for the investment portfolio along with the historical and expected distribution of investments by asset class and the historical rates of return for each of those asset classes. The mix of equity securities is typically diversified to obtain a blend of domestic and international investments covering multiple industries. The Plan assets do not include any material investments in Avnet common stock. The Plan’s investments in debt securities are also diversified across both public and private fixed income securities. The Company’s current target allocation for the investment portfolio is for equity securities, both domestic and international, to represent approximately 76.0% of the portfolio with a policy for minimum investment in equity securities of approximately 60.0% of the portfolio and a maximum of approximately 92.0%. The majority of the remaining portfolio of investments is to be invested in fixed income debt securities.

The following table sets forth the fair value of the Plan's investments as of June 28, 2014:



	Level 1		Level 2		Level 3		Total
	(Thousands)
Cash and cash equivalents	$	3,025	$	—	$	—	$	3,025
Equities:
U.S. common stocks	—		267,741		—		267,741
International common stocks	—		71,273		—		71,273
Fixed Income:
U.S. government agencies	—		10,439		—		10,439
U.S. corporate bonds	—		97,482		—		97,482
Total	$	3,025	$	446,935	$	—	$	449,960

The following table sets forth the fair value of the Plan's investments as of June 29, 2013:



	Level 1		Level 2		Level 3		Total
	(Thousands)
Cash and cash equivalents	$	3,032	$	—	$	—	$	3,032
Equities:
U.S. common stocks	—		219,225		—		219,225
International common stocks	—		56,458		—		56,458
Fixed Income:
U.S. government agencies	—		10,004		—		10,004
U.S. corporate bonds	—		76,654		—		76,654
Total	$	3,032	$	362,341	$	—	$	365,373

The fair value of Plan’s investments in equity and fixed income investments are stated at unit value, or the equivalent of net asset value, which is a practical expedient for estimating the fair values of those investments. Each of these investments may be redeemed daily without notice and there were no material unfunded commitments as of June 28, 2014.

The fixed income investments provide a steady return with medium volatility and assist with capital preservation and income generation. The equity investments have higher expected volatility and return than the fixed income investments.