Annual report pursuant to Section 13 and 15(d)

PENSION AND OTHER POSTRETIREMENT PLANS

v3.22.2.2
PENSION AND OTHER POSTRETIREMENT PLANS
 12 Months Ended
Sep. 30, 2022
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 DB Plan was closed to new participants. As of September 30, 2022, all of the Company's defined benefit plans are unfunded.

In April 2021, the Committee approved resolutions to freeze all future benefit accruals for all participants in the Company's SERP and the defined benefit portion of the Officers Retirement Restoration Plan (“ORRP”), effective April 30, 2021. In August 2021, the Committee approved the termination of the SERP and the defined benefit portion of the ORRP. In September 2021, the Company notified SERP and ORRP participants of its intention to fully settle the obligations of the SERP and ORRP in early fiscal 2023.

In August 2021, the Company's Board of Directors approved the freeze of all future benefit accruals for the Company's DB Plan, effective September 30, 2021, and the planned termination of the DB Plan in early fiscal 2022. At such time, the Company notified all plan participants of the Company's intentions to terminate and fully settle the obligations of the DB Plan early in fiscal 2022.
The freezing of the DB Plan, SERP, and ORRP triggered curtailments, which resulted in the remeasurement of the projected benefit obligations and the immediate recognition of prior service costs in earnings in fiscal 2021, which were previously included within AOCI.

In the first quarter of fiscal 2022, the Company terminated its DB Plan and made plan contributions totaling $35,706 to fully fund the planned settlement of the DB Plan obligations. Also during the first quarter of fiscal 2022, lump sum distributions of $185,958 were made from the DB Plan to plan participants, and non-participating annuity contracts totaling $56,274 were purchased by the DB Plan for plan participants, resulting in the full settlement of the DB Plan obligations. The settlement of the DB Plan obligations resulted in the recognition of a non-cash charge of $30,856, which has been presented as a component of other income (deductions), net for the year ended September 30, 2022. This amount represents the immediate recognition of the remaining portion of the deferred AOCI balances related to the DB Plan.
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, 2022 and 2021:
  Pension Other Postretirement
  2022 2021 2022 2021
Change in benefit obligation:
Benefit obligation, beginning of year $ 293,926  $ 318,887  $ 18,841  $ 19,431 
Acquisitions (1)
9,829  —  —  — 
Service cost 392  7,919  165  201 
Interest cost 1,127  6,145  411  376 
Actuarial gain (19,978) (8,045) (5,989) (660)
Curtailment gain —  (17,324) —  — 
Special termination benefits —  315  —  — 
Settlement (242,232) —  —  — 
Exchange gain (3,093) (133) —  — 
Benefit payments (3,362) (13,838) (615) (507)
Benefit obligation, end of year (2)
36,609  293,926  12,813  18,841 
Change in plan assets:        
Fair value, beginning of year 208,344  168,134  —  — 
Actual return 368  37,789  —  — 
Benefit payments (3,362) (13,838) (615) (507)
Employer contributions 36,882  16,259  615  507 
Settlement (242,232) —  —  — 
Fair value, end of year —  208,344  —  — 
Funded status (36,609) (85,582) (12,813) (18,841)
Unrecognized actuarial loss (gain) 5,140  49,545  (5,973) 16 
Unrecognized prior service (credit) cost (4,815) (309) (1,320) (1,684)
Net amount recognized $ (36,284) $ (36,346) $ (20,106) $ (20,509)
Amounts recognized in the consolidated balance sheet:        
Current liability $ (24,172) $ (779) $ (830) $ (883)
Noncurrent benefit liability (12,437) (84,803) (11,983) (17,958)
Accumulated other comprehensive loss (income) 325  49,236  (7,293) (1,668)
Net amount recognized $ (36,284) $ (36,346) $ (20,106) $ (20,509)
Amounts recognized in accumulated        
       other comprehensive loss (income):
       
Net actuarial loss (gain) $ 5,140  $ 49,545  $ (5,973) $ 16 
Prior service (credit) cost (4,815) (309) (1,320) (1,684)
Net amount recognized $ 325  $ 49,236  $ (7,293) $ (1,668)
(1) Benefit obligations assumed in connection with the acquisition of OLBRICH and R+S Automotive. For additional information, see Note 21.
(2) Gains and losses related to changes in assumptions (e.g., discount rate, mortality, etc.), asset, salary and other experience, and curtailments impacted benefit obligations.
Based upon actuarial valuations performed as of September 30, 2022 and 2021, the accumulated benefit obligation for the Company's defined benefit pension plans was $36,609 and $293,926 at September 30, 2022 and 2021, respectively, and the projected benefit obligation for the Company's defined benefit pension plans was $36,609 and $293,926 at September 30, 2022 and 2021, respectively.

Net periodic pension and other postretirement benefit cost for the plans included the following:
  Pension Other Postretirement
  2022 2021 2020 2022 2021 2020
Service cost $ 392  $ 7,919  $ 8,679  $ 165  $ 201  $ 227 
Interest cost * 1,127  6,145  7,735  411  376  501 
Expected return on plan assets * (1,040) (10,809) (10,214) —  —  — 
Amortization:            
Prior service cost (152) (127) (186) (364) (364) (464)
Net actuarial loss * 469  9,769  9,767  —  —  — 
Curtailment gain * —  (220) —  —  —  — 
Special termination benefits * —  315  —  —  —  — 
Prior-service cost write-offs * —  261  —  —  —  — 
Settlement* 30,856  —  —  —  —  — 
Net benefit cost $ 31,652  $ 13,253  $ 15,781  $ 212  $ 213  $ 264 
* 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 DB Plan were made from plan assets, while benefit payments under the SERP and postretirement benefit plan are made from the Company's operating funds.

Contributions made in fiscal 2022 are as follows:
Contributions Pension Other Postretirement
Principal defined benefit retirement plan $ 35,706  $ — 
Supplemental retirement plan 760  — 
Other retirement plans 416  — 
Other postretirement plan —  615 

In October 2022, subsequent to the date of the balance sheet, the Company made lump sum payments totaling $24,242 to fully settle the SERP and defined benefit portion of the ORRP obligations. The settlement of these plan obligations is expected to result in the recognition of a non-cash charge of approximately $1,271 in the first quarter of fiscal 2023. This amount represents the immediate recognition of the deferred AOCI balances related to the SERP and ORRP, and is based on current estimates as of September 30, 2022.
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 pension and other postretirement benefit plans was September 30, for fiscal 2022, 2021 and 2020.  The weighted-average assumptions for those plans were:
  Pension
  
Other Postretirement   
  2022 2021 2020 2022 2021 2020
Discount rate 4.01  % 2.79  % 2.62  % 5.37  % 2.83  % 2.63  %
Return on plan assets —  % 3.10  % 6.75  % —  —  — 
Compensation increase —  % 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 2022, 2021 and 2020, the Company elected to value its pension 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 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, 2021 was as follows:
  Plan Assets at
Asset Category 2021
Equity securities $ 4,075 
Fixed income, cash and cash equivalents 189,958 
Other investments 14,311 
  $ 208,344 

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, 2021 were as follows:

  September 30, 2021
Asset Category Level 1 Level 2 Level 3 Total
Equity securities - stocks (1)
$ 4,075  $ —  $ —  $ 4,075 
Fixed income securities 10,403  101,133  —  111,536 
Cash and cash equivalents 78,422  —  —  78,422 
Other investments —  —  14,311  14,311 
Total $ 92,900  $ 101,133  $ 14,311  $ 208,344 
(1) Includes $4,075 of of Matthews Class A Common Stock in Level 1.

Changes in the fair value of Level 3 assets at September 30, 2022 and 2021 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, 2022 $ 14,311  $ —  $ (14,700) $ 139  $ 250  $ — 
September 30, 2021 15,273  236  (2,144) 272  674  14,311 

Benefit payments expected to be paid are as follows:
Years ending September 30: Pension Benefits * Other Postretirement Benefits
2023 $ 24,790  $ 830 
2024 551  855 
2025 560  870 
2026 564  875 
2027 573  859 
2028-2032 3,067  4,206 
  $ 30,105  $ 8,495 
* Pension benefit amounts include the settlement of the SERP and ORRP in fiscal 2023 (see above for further details).

For measurement purposes, a rate of increase of 7.5% in the per capita cost of health care benefits was assumed for 2023; 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.

The Company sponsors defined contribution plans for hourly and salary employees. The expense associated with the contributions made to these plans was $12,442, $9,186, and $8,692 for the fiscal years ended September 30, 2022, 2021 and 2020, respectively.