Annual report pursuant to Section 13 and 15(d)

PENSION AND OTHER POSTRETIREMENT PLANS

v3.2.0.727
PENSION AND OTHER POSTRETIREMENT PLANS
12 Months Ended
Sep. 30, 2014
PENSION AND OTHER POSTRETIREMENT PLANS [Abstract]  
PENSION AND OTHER POSTRETIREMENT PLANS
11. 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, 2014 and 2013:

   
Pension
   
Other Postretirement
 
   
2014
   
2013
   
2014
   
2013
 
Change in benefit obligation:
               
Benefit obligation, beginning of year
 
$
186,077
   
$
195,860
   
$
18,881
   
$
28,831
 
Acquisitions
   
-
     
9,437
     
-
     
-
 
Service cost
   
6,150
     
7,160
     
436
     
796
 
Interest cost
   
8,927
     
8,024
     
919
     
1,129
 
Actuarial (gain) loss
   
18,412
     
(27,179
)
   
1,929
     
(11,124
)
Exchange (gain) loss
   
(703
)
   
-
     
-
     
-
 
Benefit payments
   
(7,827
)
   
(7,225
)
   
(807
)
   
(751
)
Benefit obligation, end of year
   
211,036
     
186,077
     
21,358
     
18,881
 
                                 
Change in plan assets:
                               
Fair value, beginning of year
   
123,713
     
116,577
     
-
     
-
 
Actual return
   
10,792
     
10,838
     
-
     
-
 
Benefit payments
   
(7,827
)
   
(7,225
)
   
(807
)
   
(751
)
Employer contributions
   
5,075
     
3,523
     
807
     
751
 
Fair value, end of year
   
131,753
     
123,713
     
-
     
-
 
                                 
  Funded status
   
(79,283
)
   
(62,363
)
   
(21,358
)
   
(18,881
)
Unrecognized actuarial loss (gain)
   
69,153
     
56,148
     
(987
)
   
(3,001
)
Unrecognized prior service cost
   
(1,411
)
   
(1,935
)
   
(1,306
)
   
(1,502
)
Net amount recognized
 
$
(11,541
)
 
$
(8,150
)
 
$
(23,651
)
 
$
(23,384
)
                                 
Amounts recognized in the consolidated balance sheet:
                               
Current liability
 
$
(733
)
 
$
(721
)
 
$
(1,007
)
 
$
(925
)
Noncurrent benefit liability
   
(78,550
)
   
(61,642
)
   
(20,351
)
   
(17,956
)
Accumulated other comprehensive loss
   
67,742
     
54,213
     
(2,293
)
   
(4,503
)
Net amount recognized
 
$
(11,541
)
 
$
(8,150
)
 
$
(23,651
)
 
$
(23,384
)
                                 
Amounts recognized in accumulated
                               
       other comprehensive loss:
                               
Net actuarial loss (income)
 
$
69,153
   
$
56,148
   
$
(987
)
 
$
(3,001
)
Prior service cost
   
(1,411
)
   
(1,935
)
   
(1,306
)
   
(1,502
)
Net amount recognized
 
$
67,742
   
$
54,213
   
$
(2,293
)
 
$
(4,503
)
                                 
 
Based upon actuarial valuations performed as of September 30, 2014 and 2013, the accumulated benefit obligation for the Company's defined benefit pension plans was $180,265 and $156,661 at September 30, 2014 and 2013, respectively, and the projected benefit obligation for the Company's defined benefit pension plans was $211,036 and $186,077 at September 30, 2014 and 2013, respectively.

Net periodic pension and other postretirement benefit cost for the plans included the following:

   
Pension
   
Other Postretirement
 
   
2014
   
2013
   
2012
   
2014
   
2013
   
2012
 
                         
Service cost
 
$
6,150
   
$
7,160
   
$
5,852
   
$
436
   
$
796
   
$
730
 
Interest cost
   
8,927
     
8,024
     
7,842
     
919
     
1,129
     
1,283
 
Expected return on plan assets
   
(9,666
)
   
(9,071
)
   
(7,836
)
   
-
     
-
     
-
 
Amortization:
                                               
Prior service cost
   
(206
)
   
(206
)
   
(45
)
   
(195
)
   
(272
)
   
(451
)
Net actuarial loss
   
3,927
     
7,903
     
6,814
     
(87
)
   
439
     
535
 
Net benefit cost
 
$
9,132
   
$
13,810
   
$
12,627
   
$
1,073
   
$
2,092
   
$
2,097
 

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 made from the Company's operating cash.  Under I.R.S. regulations, the Company was not required to make any significant contributions to its principal retirement plan in fiscal 2014. The Company is not required to make any significant contributions to its principal retirement plan in fiscal 2015.

Contributions made in fiscal 2014 are as follows:

Contributions
 
Pension
   
Other Postretirement
 
         
   Principal retirement plan
 
$
3,000
   
$
-
 
   Supplemental retirement plan
   
725
     
-
 
   Other retirement plan
   
1,350
     
-
 
   Other postretirement plan
   
-
     
807
 

Amounts of AOCI expected to be recognized in net periodic benefit costs in fiscal 2015 include:

       
Other
 
   
Pension
   
Postretirement
 
   
Benefits
   
Benefits
 
         
Net actuarial loss
 
$
6,258
   
$
-
 
Prior service cost
   
(180
)
   
(195
)
 
The measurement date of annual actuarial valuations for the Company's principal retirement and other postretirement benefit plans was September 30 for fiscal 2014, 2013 and 2012.  The weighted-average assumptions for those plans were:

   
Pension
   
Other Postretirement
 
   
2014
   
2013
   
2012
   
2014
   
2013
   
2012
 
Discount rate
   
4.25
%
   
5.00
%
   
4.00
%
   
4.25
%
   
5.00
%
   
4.00
%
Return on plan assets
   
7.75
     
8.00
     
8.00
     
-
     
-
     
-
 
Compensation increase
   
3.50
     
3.50
     
3.50
     
-
     
-
     
-
 

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 primary defined benefit pension plan's weighted-average asset allocation at September 30, 2014 and 2013 and weighted-average target allocation were as follows:

   
Plan Assets at
   
Target
 
Asset Category
 
2014
   
2013
   
Allocation
 
Equity securities
 
$
66,984
   
$
67,954
     
55
%
Fixed income, cash and cash equivalents
   
44,341
     
36,817
     
30
%
Other investments
   
20,428
     
18,942
     
15
%
   
$
131,753
   
$
123,713
     
100
%

Plan assets in the fixed income, cash and cash equivalents category include cash of 2% of plan assets at September 30, 2014 and 2013, which reflects cash contributions to the Company's principal pension plan immediately prior to the end of each fiscal year.

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 these assets at 7.75% in 2014 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 3 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 net asset values 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 is 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, 2014 and 2013 were as follows:

   
September 30, 2014
 
Asset Category
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Equity securities - stocks
 
$
35,310
   
$
-
   
$
-
   
$
35,310
 
Equity securities - mutual funds
   
30,694
     
980
     
-
     
31,674
 
Fixed income securities
   
20,042
     
9,503
     
-
     
29,545
 
Cash and cash equivalents
   
14,796
     
-
     
-
     
14,796
 
Other investments
   
6,098
     
-
     
14,330
     
20,428
 
Total
 
$
106,940
   
$
10,483
   
$
14,330
   
$
131,753
 

   
September 30, 2013
 
Asset Category
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Equity securities - stocks
 
$
36,127
   
$
-
   
$
-
   
$
36,127
 
Equity securities - mutual funds
   
30,507
     
1,320
     
-
     
31,827
 
Fixed income securities
   
17,912
     
9,487
     
-
     
27,399
 
Cash and cash equivalents
   
9,418
     
-
     
-
     
9,418
 
Other investments
   
-
     
-
     
18,942
     
18,942
 
Total
 
$
93,964
   
$
10,807
   
$
18,942
   
$
123,713
 

Changes in the fair value of Level 3 assets at September 30, 2014 and 2013 are summarized as follows:

 
Fair Value,
         
Fair Value,
 
 
Beginning of
     
Realized
 
Unrealized
 
End of
 
Asset Category
Period
 
Acquisitions
 
Dispositions
 
Gains (Losses)
 
Gains
 
Period
 
Other investments:
           
Fiscal Year Ended:
           
September 30, 2014
 
$
18,942
   
$
-
   
$
(5,439
)
 
$
1,118
   
$
(291
)
 
$
14,330
 
September 30, 2013
   
18,173
     
-
     
-
     
48
     
721
     
18,942
 
 
Benefit payments expected to be paid are as follows:
       
Other
 
   
Pension
   
Postretirement
 
Years ending September 30:
 
Benefits
   
Benefits
 
         
2015
 
$
7,747
   
$
1,007
 
2016
   
8,116
     
1,098
 
2017
   
8,550
     
1,205
 
2018
   
9,039
     
1,282
 
2019
   
9,611
     
1,347
 
2020-2024
   
57,292
     
6,847
 
   
$
100,355
   
$
12,786
 

For measurement purposes, a rate of increase of 7.0% in the per capita cost of health care benefits was assumed for 2014; the rate was assumed to decrease gradually to 4.0% for 2069 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, 2014 by $1,053 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $71.  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, 2014 by $926 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by $62.

Prior to its acquisition by Matthews, Schawk participated in a multi-employer pension fund pursuant to certain collective bargaining agreements.  In 2012 Schawk bargained to withdraw from the fund, and recorded a withdrawal liability at the conclusion of the negotiations.  The withdrawal liability was included in the balance sheet as of the date of Matthews acquisition of Schawk at its discounted fair value, and as of September 30, 2014 the liability is $30,423.  Annual payments of this obligation are expected to be $1,973 through 2034.