Pension and retirement plan

12 Months Ended

Jul. 01, 2023

Pension and retirement plan

Pension and retirement plans

10. Pension and retirement plans

Pension Plan

The Company has a noncontributory defined benefit pension plan that covers substantially all current or former U.S. Employees (the “Plan”).

The Plan meets the definition of a defined benefit plan and, as a result, the Company applies ASC 715 pension accounting to the Plan. The Plan is a cash balance plan that is similar in nature to a defined contribution plan in that a participant’s benefit is defined in terms of stated account balances. The Plan allows the Company to apply any earnings on the Plan’s investments, beyond the fixed return provided to participants, toward the Company’s future cash funding obligations. 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 following table outlines changes in benefit obligations, plan assets, and the funded status of the Plan as of the end of fiscal 2023 and 2022:

	July 1,		July 2,
	2023		2022
	(Thousands)
Changes in benefit obligations:
Benefit obligations at beginning of year	$	614,359	$	762,708
Service cost		12,015		15,007
Interest cost		26,730		15,787
Actuarial gain		(43,407)		(138,899)
Benefits paid		(21,785)		(40,244)
Settlements paid		(116,511)		—
Benefit obligations at end of year	$	471,401	$	614,359
Changes in plan assets:
Fair value of plan assets at beginning of year	$	638,894	$	772,279
Actual return on plan assets		(4,250)		(107,141)
Benefits paid		(21,785)		(40,244)
Settlements paid		(116,511)		—
Contributions		8,000		14,000
Fair value of plan assets at end of year	$	504,348	$	638,894
Funded status of the plan recognized as a non-current asset	$	32,947	$	24,535
Amounts recognized in accumulated other comprehensive loss:
Unrecognized net actuarial losses	$	148,867	$	178,984
Unamortized prior service cost		23		27
	$	148,890	$	179,011
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial loss	$	9,702	$	17,378
Amortization of net actuarial losses		(2,469)		(16,343)
Amortization of prior service costs		(4)		(4)
Net loss recognized due to benefit obligation settlement		(37,350)		—
	$	(30,121)	$	1,031

Included in “Accumulated other comprehensive loss” at July 1, 2023, is an expense of $148.9 million of net actuarial losses that have not yet been recognized in net periodic pension cost, of which $0.2 million is expected to be recognized as a component of net periodic pension cost during fiscal 2024.

In June 2023, the Company settled a portion of its pension liability related to certain retirees and terminated vested employees in the Company’s U.S. pension plan through the transfer of the benefit obligation to a third-party insurance company. This transfer of the benefit obligation triggered settlement accounting which required immediate recognition of a portion of the accumulated losses associated with the transferred benefit obligations. Consequently, the Company recognized non-cash settlement expense of $37.4 million in fiscal 2023, which is included in Gain on legal settlement and other on the Company’s consolidated statement of operations. The settlement resulted in a reduction to the projected benefit obligation and a corresponding decrease to plan assets.

Assumptions used to calculate actuarial present values of benefit obligations are as follows:

	2023		2022
Discount rate	5.4	%	4.8	%

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 July 1, 2023. The estimated discount rate in fiscal 2023 and fiscal 2022 was based on the spot yield curve approach, which applies the individual spot rates from a highly rated bond yield curve to each future year’s estimated cash flows.

The weighted-average assumptions used to determine net benefit costs are as follows:

	2023		2022
Discount rate	4.6	%	2.5	%
Expected return on plan assets	7.0	%	7.0	%
Rate of compensation increase	3.5	%	3.5	%
Interest crediting rate	4.0	%	4.0	%

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

	Years Ended
	July 1,		July 2,		July 3,
	2023		2022		2021
	(Thousands)
Service cost	$	12,015	$	15,007	$	15,751
Total net periodic pension cost within selling, general and administrative expenses		12,015		15,007		15,751
Interest cost		26,730		15,787		15,904
Expected return on plan assets		(48,860)		(49,135)		(49,681)
Amortization of prior service cost		4		4		301
Recognized net actuarial loss		2,469		16,343		20,604
Net loss recognized due to benefit obligation settlement		37,350		—		—
Total net periodic pension benefit within other income (expense), net and gain on legal settlements and other		17,693		(17,001)		(12,872)
Net periodic pension cost (benefit)	$	29,708	$	(1,994)	$	2,879

The Company made $8.0 million and $14.0 million of contributions in fiscal 2023 and fiscal 2022, respectively,

and expects to make approximately $8.0 million of contributions in fiscal 2024.

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):

2024	$	54,860
2025		39,951
2026		40,046
2027		39,698
2028		41,729
2029 through 2033		194,798

The Plan’s assets are held in trust and were allocated as follows as of the measurement date at the end of fiscal 2023 and 2022:

	2023		2022
Equity securities	67	%	75	%
Fixed income debt securities	30	%	24	%
Cash and cash equivalents	3	%	1	%

The general investment objectives of the Plan are to maximize returns through a diversified investment portfolio to earn annualized returns that exceed the long-term cost of funding the Plan’s pension obligations while maintaining reasonable and prudent levels of risk. The expected return on the Plan’s assets in fiscal 2024 is currently 7.0%, which is the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the benefit obligation based upon the targeted investment allocations. In making this assumption, the Company evaluated 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 return seeking and fixed income investments is typically diversified. The Plan’s assets do not include any investments in Avnet common stock. As of July 1, 2023, the Company’s target allocation for the Plan’s investment portfolio is for return seeking investments to represent approximately 65% of the investment portfolio. The majority of the remaining investment portfolio is invested in fixed income investments, which typically have lower risks, but also lower returns.

The following table sets forth the fair value of the Plan’s investments as of July 1, 2023:

	Level 1		Level 2		Level 3		Net Asset Value		Total
	(Thousands)
Cash and cash equivalents	$	15,389	$	—	$	—	$	—	$	15,389
Return Seeking Investments:
Common stocks		—		—		—		138,533		138,533
Real estate		—		—		—		108,936		108,936
High yield credit and bonds		—		—		—		90,767		90,767
Fixed Income Investments:
U.S. government		—		—		—		118,456		118,456
Corporate		—		—		—		32,267		32,267
Total	$	15,389	$	—	$	—	$	488,959	$	504,348

Certain investments included in the table above are measured at fair value using the net asset value per share (or its

equivalent) practical expedient and are not included in the three levels of the fair value hierarchy.

The following table sets forth the fair value of the Plan’s investments as of July 2, 2022:

	Level 1		Level 2		Level 3		Net Asset Value		Total
	(Thousands)
Cash and cash equivalents	$	5,283	$	—	$	—	$	—	$	5,283
Return Seeking Investments:
Common stocks		—		—		—		219,407		219,407
Real estate		—		—		—		149,975		149,975
High yield credit and bonds		—		—		—		109,253		109,253
Fixed Income Investments:
U.S. government		—		—		—		122,912		122,912
Corporate		—		—		—		32,064		32,064
Total	$	5,283	$	—	$	—	$	633,611	$	638,894

Each of these investments may be redeemed without restrictions in the normal course of business and there were no material unfunded commitments as of July 1, 2023.