Annual report pursuant to Section 13 and 15(d)

PENSION AND OTHER POSTRETIREMENT PLANS

v3.20.2
PENSION AND OTHER POSTRETIREMENT PLANS
 12 Months Ended
Sep. 30, 2020
Retirement Benefits [Abstract]  
PENSION AND OTHER POSTRETIREMENT PLANS PENSION AND OTHER POSTRETIREMENT PLANS:
The Company provides defined benefit pension and other postretirement plans to certain employees. Effective January 1, 2014, the Company's principal retirement plan was closed to new participants.  The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans as of the Company's actuarial valuation as of September 30, 2020 and 2019:

  Pension Other Postretirement
  2020 2019 2020 2019
Change in benefit obligation:
Benefit obligation, beginning of year $ 289,957  $ 241,553  $ 20,952  $ 18,826 
Service cost 8,679  7,998  227  244 
Interest cost 7,735  9,202  501  718 
Actuarial loss (gain) 23,827  43,198  (1,402) 2,212 
Exchange loss (gain) 799  (581) —  — 
Benefit payments (12,110) (11,413) (847) (1,048)
Benefit obligation, end of year 318,887  289,957  19,431  20,952 
Change in plan assets:        
Fair value, beginning of year (1)
155,313  158,662  —  — 
Actual return 8,705  6,852  —  — 
Benefit payments (12,110) (11,413) (847) (1,048)
Employer contributions 16,226  1,212  847  1,048 
Fair value, end of year (1)
168,134  155,313  —  — 
Funded status (1)
(150,753) (134,644) (19,431) (20,952)
Unrecognized actuarial loss (gain) 110,971  95,741  676  (106)
Unrecognized prior service cost 343  (367) (2,048) (330)
Net amount recognized $ (39,439) $ (39,270) $ (20,803) $ (21,388)
Amounts recognized in the consolidated balance sheet:        
Current liability $ (905) $ (882) $ (831) $ (989)
Noncurrent benefit liability (149,848) (133,762) (18,600) (19,963)
Accumulated other comprehensive loss (income) 111,314  95,374  (1,372) (436)
Net amount recognized $ (39,439) $ (39,270) $ (20,803) $ (21,388)
Amounts recognized in accumulated        
       other comprehensive loss (income):
       
Net actuarial loss (income) $ 110,971  $ 95,741  $ 676  $ (106)
Prior service cost 343  (367) (2,048) (330)
Net amount recognized $ 111,314  $ 95,374  $ (1,372) $ (436)

(1) The fair value of plan assets and funded status do not include the value of investments held in trust for the Company's non-qualified supplemental retirement plan. These investments totaled $24,610 and $22,986 as of September 30, 2020 and 2019, respectively. Refer to Note 7, "Investments" for further details.
Based upon actuarial valuations performed as of September 30, 2020 and 2019, the accumulated benefit obligation for the Company's defined benefit pension plans was $295,674 and $270,140 at September 30, 2020 and 2019, respectively, and the projected benefit obligation for the Company's defined benefit pension plans was $318,887 and $289,957 at September 30, 2020 and 2019, respectively.

Net periodic pension and other postretirement benefit cost for the plans included the following:
  Pension Other Postretirement
  2020 2019 2018 2020 2019 2018
Service cost $ 8,679  $ 7,998  $ 8,159  $ 227  $ 244  $ 335 
Interest cost * 7,735  9,202  8,210  501  718  631 
Expected return on plan assets * (10,214) (10,304) (10,136) —  —  — 
Amortization:            
Prior service cost (186) (186) (138) (464) (195) (195)
Net actuarial loss * 9,767  4,245  7,018  —  (59) — 
Net benefit cost $ 15,781  $ 10,955  $ 13,113  $ 264  $ 708  $ 771 
* Non-service components of pension and postretirement expense are included in other income (deductions), net.

Matthews has elected to utilize a full yield curve approach in the estimation of the service and interest cost components of net periodic benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.

Benefit payments under the Company's principal retirement plan are made from plan assets, while benefit payments under the supplemental retirement plan and postretirement benefit plan are funded from the Company's operating cash. In response to COVID-19, the federal government passed a modified relief bill, which provides additional funding measures associated with IRS regulations. In accordance with this bill, the Company was not required to make contributions to its principal retirement plan in fiscal 2020. However, the Company contributed 668,000 shares of its Class A Common Stock to its principal retirement plan during the fourth quarter of fiscal 2020. The shares had a market value of approximately $14,983 at the time of the contribution. The Company is required to make contributions of approximately $4,191 to its principal retirement plan in fiscal 2021.

Contributions made in fiscal 2020 are as follows:
Contributions Pension Other Postretirement
Principal retirement plan * $ 14,983  $ — 
Supplemental retirement plan 821  — 
Other retirement plans 422  — 
Other postretirement plan —  847 
* Amount represents contribution of Matthews Class A Common Stock (see above).

Amounts of AOCI expected to be recognized in net periodic benefit costs in fiscal 2021 include:
Pension
Benefits		 Other
Postretirement
Benefits
Net actuarial loss $ 12,076  $ — 
Prior service cost (68) (364)
The weighted-average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed and also the net periodic benefit cost for the following year. The measurement date of annual actuarial valuations for the Company's principal retirement and other postretirement benefit plans was September 30, for fiscal 2020, 2019 and 2018.  The weighted-average assumptions for those plans were:
  Pension
  
Other Postretirement   
  2020 2019 2018 2020 2019 2018
Discount rate 2.62  % 3.13  % 4.21  % 2.63  % 3.10  % 4.19  %
Return on plan assets 6.75  % 6.75  % 6.75  % —  —  — 
Compensation increase 3.50  % 3.50  % 3.50  % —  —  — 

In October 2014, the Society of Actuaries' Retirement Plans Experience Committee ("RPEC") released new mortality tables known as RP 2014. Each year, RPEC releases an update to the mortality improvement assumption that was released with the RP 2014 tables. The Company considered the RPEC mortality and mortality improvement tables and performed a review of its own mortality history to assess the appropriateness of the RPEC tables for use in generating financial results.  In fiscal years 2020, 2019 and 2018, the Company elected to value its principal retirement and other postretirement benefit plan liabilities using the base RP 2014 mortality table and a slightly modified fully generational mortality improvement assumption. The revised assumption uses the most recent RPEC mortality improvement table for all years where the RPEC tables are based on finalized data, and the most recently published Social Security Administration Intermediate mortality improvement for subsequent years.

The underlying basis of the investment strategy of the Company's defined benefit plans is to ensure the assets are invested to achieve a positive rate of return over the long term sufficient to meet the plans' actuarial interest rate and provide for the payment of benefit obligations and expenses in perpetuity in a secure and prudent fashion, maintain a prudent risk level that balances growth with the need to preserve capital, diversify plan assets so as to minimize the risk of large losses or excessive fluctuations in market value from year to year, achieve investment results over the long term that compare favorably with other pension plans and appropriate indices.  The Company's investment policy, as established by the Company's pension board, specifies the types of investments appropriate for the plans, asset allocation guidelines, criteria for the selection of investment managers, procedures to monitor overall investment performance as well as investment manager performance.  It also provides guidelines enabling plan fiduciaries to fulfill their responsibilities.

The Company's defined benefit pension plans' weighted-average asset allocation at September 30, 2020 and 2019 and weighted-average target allocation were as follows:
  Plan Assets at Target
Asset Category 2020 2019
Allocation*
Equity securities $ 118,677  $ 105,297  65  %
Fixed income, cash and cash equivalents 34,184  39,156  25  %
Other investments 15,273  10,860  10  %
  $ 168,134  $ 155,313  100  %
* Target allocation relates to the Company's primary defined benefit pension plan as of September 30, 2020.

Based on an analysis of the historical and expected future performance of the plan's assets and information provided by its independent investment advisor, the Company set the long-term rate of return assumption for its primary defined benefit pension plans' assets at 6.75% in 2020 for purposes of determining pension cost and funded status under current guidance.  The Company's discount rate assumption used in determining the present value of the projected benefit obligation is based upon published indices.

The Company categorizes plan assets within a three level fair value hierarchy (see Note 5, "Fair Value Measurements" for a further discussion of the fair value hierarchy). The valuation methodologies used to measure the fair value of pension assets, including the level in the fair value hierarchy in which each type of pension plan asset is classified as follows.
Equity securities consist of direct investments in the stocks of publicly traded companies.  Such investments are valued based on the closing price reported in an active market on which the individual securities are traded.  As such, the direct investments are classified as Level 1.

Mutual funds are valued at the closing price of shares held by the Plan at year end.  As such, these mutual fund investments are classified as Level 1.

Fixed income securities consist of publicly traded fixed interest obligations (primarily U.S. government notes and corporate and agency bonds).  Such investments are valued through consultation and evaluation with brokers in the institutional market using quoted prices and other observable market data.  As such, U.S. government notes are included in Level 1, and the remainder of the fixed income securities are included in Level 2.

Cash and cash equivalents consist of direct cash holdings and short-term money market mutual funds.  These values are valued based on cost, which approximates fair value, and as such, are classified as Level 1.

Other investments consist primarily of real estate, commodities, private equity holdings and hedge fund investments.  These holdings are valued by investment managers based on the most recent information available.  The valuation information used by investment managers may not be readily observable.  As such, these investments are classified as Level 3.

The Company's defined benefit pension plans' asset categories at September 30, 2020 and 2019 were as follows:
  September 30, 2020
Asset Category Level 1 Level 2 Level 3 Total
Equity securities - stocks (1)
$ 37,089  $ —  $ —  $ 37,089 
Equity securities - mutual funds 81,588  —  —  81,588 
Fixed income securities 11,738  20,086  —  31,824 
Cash and cash equivalents 2,360  —  —  2,360 
Other investments —  —  15,273  15,273 
Total $ 132,775  $ 20,086  $ 15,273  $ 168,134 
(1) Includes $14,936 of of Matthews Class A Common Stock in Level 1.

  September 30, 2019
Asset Category Level 1 Level 2 Level 3 Total
Equity securities - stocks $ 54,985  $ —  $ —  $ 54,985 
Equity securities - mutual funds 50,312  —  —  50,312 
Fixed income securities 15,829  18,968  —  34,797 
Cash and cash equivalents 4,359  —  —  4,359 
Other investments —  —  10,860  10,860 
Total $ 125,485  $ 18,968  $ 10,860  $ 155,313 

Changes in the fair value of Level 3 assets at September 30, 2020 and 2019 are summarized as follows:

Asset Category Fair Value, Beginning of Period Acquisitions Dispositions Realized Gains Unrealized Gains (Losses) Fair Value, End of Period
Other investments:
Fiscal Year Ended:
September 30, 2020 $ 10,860  $ 10,835  $ (6,326) $ 220  $ (316) $ 15,273 
September 30, 2019 10,115  4,162  (2,786) 685  (1,316) 10,860 
Benefit payments expected to be paid are as follows:
Years ending September 30: Pension Benefits Other Postretirement Benefits
2021 $ 11,363  $ 831 
2022 12,302  858 
2023 12,630  887 
2024 14,138  910 
2025 14,252  931 
2026-2030 78,163  4,557 
  $ 142,848  $ 8,974 

For measurement purposes, a rate of increase of 7.0% in the per capita cost of health care benefits was assumed for 2021; the rate was assumed to decrease gradually to 4.0% for 2070 and remain at that level thereafter.  Assumed health care cost trend rates have a significant effect on the amounts reported.  An increase in the assumed health care cost trend rates by one percentage point would have increased the accumulated postretirement benefit obligation as of September 30, 2020 by $50 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $3.  A decrease in the assumed health care cost trend rates by one percentage point would have decreased the accumulated postretirement benefit obligation as of September 30, 2020 by $46 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $3.

The Company sponsors defined contribution plans for hourly and salary employees. The expense associated with the contributions made to these plans was $8,692, $8,176, and $8,685 for the fiscal years ended September 30, 2020, 2019 and 2018, respectively.