Annual report pursuant to Section 13 and 15(d)

PENSION AND OTHER POSTRETIREMENT PLANS

v3.21.2
PENSION AND OTHER POSTRETIREMENT PLANS
 12 Months Ended
Sep. 30, 2021
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. 

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, which were previously included within AOCI.
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, 2021 and 2020:
  Pension Other Postretirement
  2021 2020 2021 2020
Change in benefit obligation:
Benefit obligation, beginning of year $ 318,887  $ 289,957  $ 19,431  $ 20,952 
Service cost 7,919  8,679  201  227 
Interest cost 6,145  7,735  376  501 
Actuarial (gain) loss (8,045) 23,827  (660) (1,402)
Curtailment gain (17,324) —  —  — 
Special termination benefits 315  —  —  — 
Exchange (gain) loss (133) 799  —  — 
Benefit payments (13,838) (12,110) (507) (847)
Benefit obligation, end of year (1)
293,926  318,887  18,841  19,431 
Change in plan assets:        
Fair value, beginning of year (2)
168,134  155,313  —  — 
Actual return 37,789  8,705  —  — 
Benefit payments (13,838) (12,110) (507) (847)
Employer contributions 16,259  16,226  507  847 
Fair value, end of year (2)
208,344  168,134  —  — 
Funded status (2)
(85,582) (150,753) (18,841) (19,431)
Unrecognized actuarial loss 49,545  110,971  16  676 
Unrecognized prior service (credit) cost (309) 343  (1,684) (2,048)
Net amount recognized $ (36,346) $ (39,439) $ (20,509) $ (20,803)
Amounts recognized in the consolidated balance sheet:        
Current liability $ (779) $ (905) $ (883) $ (831)
Noncurrent benefit liability (84,803) (149,848) (17,958) (18,600)
Accumulated other comprehensive loss (income) 49,236  111,314  (1,668) (1,372)
Net amount recognized $ (36,346) $ (39,439) $ (20,509) $ (20,803)
Amounts recognized in accumulated        
       other comprehensive loss (income):
       
Net actuarial loss $ 49,545  $ 110,971  $ 16  $ 676 
Prior service (credit) cost (309) 343  (1,684) (2,048)
Net amount recognized $ 49,236  $ 111,314  $ (1,668) $ (1,372)
(1) Gains and losses related to changes in assumptions (e.g., discount rate, mortality, etc.), asset, salary and other experience, and curtailments impacted benefit obligations.

(2) The fair value of plan assets and funded status do not include the value of investments and restricted cash held in trust for the Company's non-qualified SERP. The combined value of these investments and restricted cash totaled $26,103 and $24,610 as of September 30, 2021 and 2020, respectively. Refer to Note 7, "Investments" for further details.
Based upon actuarial valuations performed as of September 30, 2021 and 2020, the accumulated benefit obligation for the Company's defined benefit pension plans was $293,926 and $295,674 at September 30, 2021 and 2020, respectively, and the projected benefit obligation for the Company's defined benefit pension plans was $293,926 and $318,887 at September 30, 2021 and 2020, respectively.

Net periodic pension and other postretirement benefit cost for the plans included the following:
  Pension Other Postretirement
  2021 2020 2019 2021 2020 2019
Service cost $ 7,919  $ 8,679  $ 7,998  $ 201  $ 227  $ 244 
Interest cost * 6,145  7,735  9,202  376  501  718 
Expected return on plan assets * (10,809) (10,214) (10,304) —  —  — 
Amortization:            
Prior service cost (127) (186) (186) (364) (464) (195)
Net actuarial loss * 9,769  9,767  4,245  —  —  (59)
Curtailment gain * (220) —  —  —  —  — 
Special termination benefits * 315  —  —  —  —  — 
Prior-service cost write-offs * 261  —  —  —  —  — 
Net benefit cost $ 13,253  $ 15,781  $ 10,955  $ 213  $ 264  $ 708 
* 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 are made from plan assets, while benefit payments under the SERP and postretirement benefit plan are funded from the Company's operating cash.

Contributions made in fiscal 2021 are as follows:
Contributions Pension Other Postretirement
Principal defined benefit retirement plan $ 15,000  $ — 
Supplemental retirement plan 806  — 
Other retirement plans 453  — 
Other postretirement plan —  507 

In November 2021, subsequent to the date of the balance sheet, the Company contributed $20,000 to the DB Plan. Also in November 2021, lump sum distributions of $178,230 from the DB Plan were made to plan participants, resulting in the settlement of a substantial portion of the DB Plan obligations. This settlement of the DB Plan obligations is expected to result in the recognition of a non-cash charge in excess of $30,000 in the first quarter of fiscal 2022. This amount represents the immediate recognition of a portion of the deferred AOCI balances related to the DB Plan, and is based on current estimates as of September 30, 2021.
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 DB Plan and other postretirement benefit plans was September 30, for fiscal 2021, 2020 and 2019.  The weighted-average assumptions for those plans were:
  Pension
  
Other Postretirement   
  2021 2020 2019 2021 2020 2019
Discount rate 2.79  % 2.62  % 3.13  % 2.83  % 2.63  % 3.10  %
Return on plan assets 3.10  % 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 2021, 2020 and 2019, the Company elected to value its DB Plan 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 and 2020 and weighted-average target allocation were as follows:
  Plan Assets at Target
Asset Category 2021 2020
Allocation*
Equity securities $ 4,075  $ 118,677  —  %
Fixed income, cash and cash equivalents 189,958  34,184  100  %
Other investments 14,311  15,273  —  %
  $ 208,344  $ 168,134  100  %
* Target allocation relates to the Company's DB Plan as of September 30, 2021. During fiscal 2021, the investment policy for the Company's DB Plan was updated to establish modified asset allocation targets. The updated investment objective is intended to reduce risk assets in favor of fixed income investments as a result of the planned termination and expected settlement of the DB Plan in fiscal 2022.

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 DB Plan's assets at 3.10% in 2021 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, 2021 and 2020 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.
  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.

Changes in the fair value of Level 3 assets at September 30, 2021 and 2020 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, 2021 $ 15,273  $ 236  $ (2,144) $ 272  $ 674  $ 14,311 
September 30, 2020 10,860  10,835  (6,326) 220  (316) 15,273 
Benefit payments expected to be paid are as follows:
Years ending September 30: Pension Benefits * Other Postretirement Benefits
2022 $ 12,152  $ 884 
2023 35,644  906 
2024 12,609  924 
2025 12,673  937 
2026 13,057  940 
2027-2031 67,218  4,546 
  $ 153,353  $ 9,137 
* Pension benefit amounts do not reflect the planned termination and expected settlement of the DB Plan in fiscal 2022 (see above for further details).

For measurement purposes, a rate of increase of 6.5% in the per capita cost of health care benefits was assumed for 2022; 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 $9,186, $8,692, and $8,176 for the fiscal years ended September 30, 2021, 2020 and 2019, respectively.