Annual report pursuant to Section 13 and 15(d)

Retirement Benefits

v3.21.2
Retirement Benefits
12 Months Ended
Sep. 30, 2021
Defined Benefit Plan [Abstract] (Deprecated 2020-01-31)  
Retirement Benefits Retirement Benefits
 
Defined Benefit Retirement Plans — Approximately 21% of the Company’s employees participate in one of seven defined benefit retirement programs, including the master defined benefit retirement plan in the U.S., the defined benefit retirement plans of certain of the Company’s German and Swiss subsidiaries, the supplemental executive defined benefit retirement plan, and the three defined benefit retirement plans assumed in connection with the Milacron acquisition.  The Company funds the retirement plan trusts in compliance with the Employment Retirement Income Security Act (ERISA) or local funding requirements and as necessary to provide for current service and for any unfunded projected future benefit obligations over a reasonable period. The benefits for these plans are based primarily on years of service and the employee’s level of compensation during specific periods of employment.  All defined benefit retirement plans have a September 30 measurement date.
 
Effect on the Consolidated Statements of Operations — The components of net pension costs under defined benefit retirement plans were:
 
U.S. Pension Benefits
Year Ended September 30,
Non-U.S. Pension Benefits
Year Ended September 30,
  2021 2020 2019 2021 2020 2019
Service cost $ 0.7  $ 1.4  $ 2.3  $ 2.0  $ 1.9  $ 1.2 
Interest cost 5.8  8.0  9.8  0.7  0.6  1.2 
Expected return on plan assets (10.9) (12.8) (13.3) (0.9) (0.8) (0.5)
Amortization of unrecognized prior service cost, net —  —  0.1  0.1  0.1  0.1 
Amortization of actuarial loss 2.2  4.8  1.2  2.9  2.5  0.9 
Settlement expense —  —  0.2  0.3  1.0  0.4 
Net pension costs (1)
$ (2.2) $ 1.4  $ 0.3  $ 5.1  $ 5.3  $ 3.3 
(1)  Excluding service cost, the components of net pension costs are recorded within other income (expense), net on the Consolidated Statements of Operations.

The Company uses a full yield curve approach in the estimation of the service and interest cost components of our defined benefit retirement plans. Under this approach, the Company applies discounting using individual spot rates from a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date. These spot rates align to each of the projected benefit obligations and service cost cash flows. The service cost component relates to the active participants in the plan, so the relevant cash flows on which to apply the yield curve are considerably longer in duration on average than the total projected benefit obligation cash flows, which also include benefit payments to retirees. Interest cost is computed by multiplying each spot rate by the corresponding discounted projected benefit obligation cash flows. The full yield curve approach reduces any actuarial gains and losses based upon interest rate expectations (e.g. built-in gains in interest cost in an upward sloping yield curve scenario), or gains and losses merely resulting from the timing and magnitude of cash outflows associated with the Company’s benefit obligations. The Company uses the full yield curve approach to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest rate costs.
During 2019, the Company completed all negotiations to transition all employees at U.S. facilities from a defined benefit-based model to a defined contribution structure over three-year sunset periods, the latest of which ends January 1, 2023.  These changes caused remeasurements for the U.S. defined benefit retirement plan for the affected populations as they were implemented. The remeasurements did not cause material changes, as the assumptions did not materially differ from the assumptions prior to the remeasurements.
Obligations and Funded Status The change in benefit obligation and funded status of the Company’s defined benefit retirement plans were:
U.S. Pension Benefits
September 30,
Non-U.S. Pension Benefits
September 30,
  2021 2020 2021 2020
Change in benefit obligation:        
Projected benefit obligation at beginning of year $ 316.6  $ 300.4  $ 184.8  $ 137.8 
Projected benefit obligation attributable to acquisitions —  —  —  37.7 
Service cost 0.7  1.4  2.0  1.9 
Interest cost 5.8  8.0  0.7  0.6 
Actuarial (gain) loss (5.5) 20.6  (7.0) 2.3 
Benefits paid (15.3) (13.8) (5.4) (3.4)
Gain due to settlement —  —  (4.1) (4.7)
Employee contributions —  —  1.0  1.0 
Effect of exchange rates on projected benefit obligation —  —  (0.3) 11.6 
Projected benefit obligation at end of year 302.3  316.6  171.7  184.8 
Change in plan assets:        
Fair value of plan assets at beginning of year 297.9  280.6  43.8  33.5 
Fair value of pension assets attributable to acquisitions —  —  —  7.6 
Actual return (loss) on plan assets 18.8  29.3  3.2  (1.1)
Employee and employer contributions 1.9  1.8  10.1  9.2 
Benefits paid (15.4) (13.8) (5.4) (3.4)
Settlements —  —  (4.1) (4.7)
Effect of exchange rates on plan assets —  —  —  2.7 
Fair value of plan assets at end of year 303.2  297.9  47.6  43.8 
Funded status:        
Plan assets less than benefit obligations $ 0.9  $ (18.7) $ (124.1) $ (141.0)
Amounts recorded in the Consolidated Balance Sheets:        
Prepaid pension costs, non-current $ 28.0  $ 9.0  $ 1.6  $ 0.5 
Accrued pension costs, current portion (2.0) (2.0) (7.2) (8.1)
Accrued pension costs, long-term portion (25.1) (25.7) (118.5) (133.3)
Plan assets less than benefit obligations $ 0.9  $ (18.7) $ (124.1) $ (140.9)
 
Net actuarial losses ($67.5) and prior service costs ($0.2), less an aggregate tax effect ($17.9), are included as components of accumulated other comprehensive loss at September 30, 2021.  Net actuarial losses ($95.3) and prior service costs ($0.4), less an aggregate tax effect ($25.6), are included as components of accumulated other comprehensive loss at September 30, 2020.  The amount that will be amortized from accumulated other comprehensive loss into net pension costs in 2022 is expected to be $3.6.
 
Accumulated Benefit Obligation — The accumulated benefit obligation for all defined benefit retirement plans was $469.7 and $496.7 at September 30, 2021 and 2020, respectively.  Selected information for plans with accumulated benefit obligations in excess of plan assets was:
 
U.S. Pension Benefits
September 30,
Non-U.S. Pension Benefits
September 30,
  2021 2020 2021 2020
Projected benefit obligation $ 27.1  $ 27.7  $ 125.8  $ 184.8 
Accumulated benefit obligation 27.1  27.7  125.7  180.9 
Fair value of plan assets —  —  0.1  43.8 
The weighted-average assumptions used in accounting for defined benefit retirement plans were:
 
U.S. Pension Benefits
Year Ended September 30,
Non-U.S. Pension Benefits
Year Ended September 30,
  2021 2020 2019 2021 2020 2019
Discount rate for obligation, end of year 2.8  % 2.6  % 3.1  % 0.8  % 0.6  % 0.3  %
Discount rate for expense, during the year 3.9  % 3.0  % 4.1  % 0.7  % 0.3  % 1.5  %
Expected rate of return on plan assets 4.0  % 4.1  % 5.2  % 2.0  % 1.9  % 1.5  %
Rate of compensation increase 2.4  % 3.0  % 3.0  % 2.0  % 2.0  % 2.0  %
 
The discount rates are evaluated annually based on current market conditions.  In setting these rates, the Company utilizes long-term bond indices and yield curves as a preliminary indication of interest rate movements, then makes adjustments to the indices to reflect differences in the terms of the bonds covered under the indices in comparison to the projected outflow of pension obligations. The overall expected long-term rate of return is based on historical and expected future returns, which are inflation-adjusted and weighted for the expected return for each component of the investment portfolio.  The rate of assumed compensation increase is also based on the Company’s specific historical trends of past wage adjustments in recent years.
 
U.S. Pension Plan Assets — Long-term strategic investment objectives utilize a diversified mix of equity and fixed income securities to preserve the funded status of the trusts and balance risk and return.  The primary investment strategy is a dynamic target allocation method that periodically rebalances among various investment categories depending on the current funded position.  This program is designed to actively move from return-seeking investments (such as equities) toward liability-hedging investments (such as long-duration fixed income) as funding levels improve.  The target investment in return-seeking assets may vary from 60% to 20% of total pension plan assets based on the plan’s funding level. Pension plan assets are invested by the plans’ fiduciaries, which direct investments according to specific policies.  Those policies subject investments to the following restrictions in the Company’s domestic plan: short-term securities must be rated A1/P1, liability-hedging fixed income securities must have an average quality credit rating of investment grade and investments in equities in any one company may not exceed 10% of the equity portfolio.

Non-U.S. Pension Plan Assets — Long-term strategic investment objectives utilize a diversified mix of suitable assets of appropriate liquidity to generate income and capital growth that, together with contributions from participants, the Company believes will meet the cost of the current and future benefits that the plan provides.  Long-term strategic investment objectives also seek to limit the risk of the assets failing to meet the liabilities over the long term.
 
None of Hillenbrand’s common stock was directly owned by the defined benefit retirement plan trusts at September 30, 2021 or 2020.
 
The tables below provide the fair value of the Company’s pension plan assets by asset category at September 30, 2021 and 2020.  The accounting guidance on fair value measurements specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques (Level 1, 2, and 3).  See Note 14 for definitions.
 
Fair values are determined as follows:
 
Cash equivalents are stated at the carrying amount, which approximates fair value, or at the fund’s net asset value.
Equity securities are stated at the last reported sales price on the day of valuation.
Government index funds are stated at the closing price reported in the active market in which the fund is traded.
Corporate bond funds and equity mutual funds are stated at the closing price in the active markets in which the underlying securities of the funds are traded.
Real estate is stated based on a discounted cash flow approach, which includes future rental receipts, expenses, and residual values as the highest and best use of the real estate from a market participant view as rental property.
U.S. Pension Plans

The pension plan assets of the Company’s U.S. pension plans consist of certain investments (common collective trusts) that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient. The underlying investments of the common collective trusts are generally composed of marketable debt and equity securities. The underlying investments are subject to various risks including interest rate, market and credit risks. Because the common collective trusts are not readily marketable, the estimated carrying values are subject to uncertainty and, therefore, may differ from the value that would have been used had a public market existed. There are no liquidity restrictions with respect to the common collective trusts after appropriate sale notification is provided. Accordingly, these assets are not required to be classified and reported under the fair value hierarchy. At September 30, 2021 and 2020, the fair values of these investments were $303.2 and $297.9, respectively.

Non-U.S. Pension Plans
Fair Value at September 30, 2021 Using Inputs Considered as:
  Total Level 1 Level 2 Level 3
Non-U.S. Pension Plans        
Cash equivalents $ 4.8  $ 4.8  $ —  $ — 
Equity securities 16.3  16.3  —  — 
Other types of investments:
Government index funds 4.8  4.8  —  — 
Corporate bond funds 13.7  13.7  —  — 
Real estate and real estate funds 4.5  —  —  4.5 
Other 3.5  —  3.5  — 
Total Non-U.S. pension plan assets $ 47.6  $ 39.6  $ 3.5  $ 4.5 
 
  Fair Value at September 30, 2020 Using Inputs Considered as:
  Total Level 1 Level 2 Level 3
Non-U.S. Pension Plans        
Cash equivalents $ 5.6  $ 5.6  $ —  $ — 
Equity securities 12.4  12.4  —  — 
Other types of investments: 0 0 0 0
Government index funds 6.0  6.0  —  — 
Corporate bond funds 12.7  12.7  —  — 
Real estate and real estate funds 3.8  —  —  3.8 
Other 3.3  —  3.3  — 
Total Non-U.S. pension plan assets $ 43.8  $ 36.7  $ 3.3  $ 3.8 
 
Cash Flows — During 2021, 2020, and 2019 the Company contributed cash of $11.0, $10.0, and $9.3, respectively, to defined benefit retirement plans.  The Company expects to make estimated contributions of $10.9 in 2022 to the defined benefit retirement plans. 

Estimated Future Benefit Payments — The following represents estimated future benefit payments, including expected future service, which are expected to be paid from plan assets or Company contributions as necessary:
U.S. Pension Plans
Projected Pension
Benefits Payout
Non-U.S. Pension Plans
Projected Pension
Benefits Payout
2022 $ 16.1  $ 9.1 
2023 16.2  9.2 
2024 16.5  8.8 
2025 16.7  8.6 
2026 16.9  8.8 
2027-2031 84.6  41.1 
 
Defined Contribution Plans — The Company sponsors a number of defined contribution plans.  Depending on the plan, the Company may make contributions up to 4% of an employee’s eligible compensation and matching contributions up to 6% of eligible compensation.  Company contributions generally vest over a period of zero to three years.  Expenses related to the Company’s defined contribution plans were $15.7, $15.3, and $11.6 for 2021, 2020, and 2019, respectively. See comments above regarding the Company’s retirement strategy to transition its U.S. employees to a defined contribution structure over three-year sunset periods, the latest of which ends January 1, 2023.

In connection with the Milacron acquisition, the Company assumed a defined contribution plan (the “401(k) Plan”) for eligible U.S. employees and defined contribution plans for eligible employees at certain foreign subsidiaries. For the 401(k) Plan, eligible employees are permitted to contribute a percentage of their compensation and employees are immediately vested in their voluntary contributions. The Company’s contributions to the 401(k) Plan are based on matching a portion of the employee contributions and employees become vested in the Company contributions once they attain a year of credited service. For the assumed foreign plans as part of the Milacron acquisition, employees are immediately vested in both their voluntary and Company matching contributions.
 
Postretirement Healthcare Plan — The Company offers a domestic postretirement healthcare plan that provides healthcare benefits to eligible qualified retirees and their spouses.  The plan includes retiree cost-sharing provisions and generally extends retiree coverage for medical, prescription, and dental benefits beyond the COBRA continuation period to the date of Medicare eligibility.  The Company uses a measurement date of September 30.  The net postretirement healthcare cost for 2021 was $0.2, cost for 2020 was $0.1, and benefit for 2019 was $0.1.
 
  September 30,
  2021 2020
Benefit obligation at beginning of year $ 8.5  $ 8.2 
Interest cost 0.1  0.2 
Service cost 0.3  0.2 
Actuarial loss 0.2  2.0 
Benefits paid (0.6) (2.1)
Benefit obligation at end of year $ 8.5  $ 8.5 
Amounts recorded in the consolidated balance sheets:    
Accrued postretirement benefits, current portion $ 0.8  $ 0.7 
Accrued postretirement benefits, long-term portion 7.7  7.8 
Net amount recognized $ 8.5  $ 8.5 
 
The weighted-average assumptions used in revaluing the Company’s obligation under the postretirement healthcare plan were:
 
  Year Ended September 30,
  2021 2020 2019
Discount rate for obligation 2.4  % 2.1  % 2.8  %
Healthcare cost rate assumed for next year 6.4  % 6.6  % 6.9  %
Ultimate trend rate 4.5  % 4.5  % 4.5  %
 
Net actuarial gains of $0.2 and $0.3 and prior service costs of $0.2 and $0.4, less tax of $0.1 and $0.2, were included as a component of accumulated other comprehensive loss at September 30, 2021 and 2020, respectively. 
 
The Company funds the postretirement healthcare plan as benefits are paid. Current plan benefits are expected to require net Company contributions for retirees of $0.8 per year for the foreseeable future.