Retirement, Pension and Other Postretirement Plans | Retirement, pension and other postretirement plans Retirement plans — We have funded contributory retirement plans covering certain employees. Our contributions are primarily determined by the terms of the plans, subject to the limitation that they shall not exceed the amounts deductible for income tax purposes. We also sponsor unfunded contributory supplemental retirement plans for certain employees. Generally, benefits under these plans vest gradually over a period of approximately three years from date of employment, and are based on the employee’s contribution. The expense applicable to retirement plans for 2020, 2019 and 2018 was approximately $20,265, $22,573 and $22,634, respectively. Pension plans — We have various pension plans covering a portion of our United States and international employees. Pension plan benefits are generally based on years of employment and, for salaried employees, the level of compensation. Actuarially determined amounts are contributed to United States plans to provide sufficient assets to meet future benefit payment requirements. We also sponsor an unfunded supplemental pension plan for certain employees. International subsidiaries fund their pension plans according to local requirements. A reconciliation of the benefit obligations, plan assets, accrued benefit cost and the amount recognized in financial statements for pension plans is as follows: United States International 2020 2019 2020 2019 Change in benefit obligation: Benefit obligation at beginning of year $ 551,997 $ 425,605 $ 97,990 $ 87,227 Service cost 20,635 14,587 2,099 1,933 Interest cost 15,824 18,304 1,025 1,670 Participant contributions — — 83 83 Plan amendments — — — 186 Settlements (4,992) — — (3,018) Foreign currency exchange rate change — — 2,814 106 Actuarial loss 47,788 107,662 2,729 11,852 Benefits paid (15,484) (14,161) (1,891) (2,049) Benefit obligation at end of year $ 615,768 $ 551,997 $ 104,849 $ 97,990 Change in plan assets: Beginning fair value of plan assets $ 448,931 $ 361,073 $ 39,640 $ 39,617 Actual return on plan assets 41,712 76,700 3,697 707 Company contributions 40,083 25,319 3,365 3,696 Participant contributions — — 83 83 Settlements (4,992) — — (3,018) Foreign currency exchange rate change — — 582 604 Benefits paid (15,484) (14,161) (1,891) (2,049) Ending fair value of plan assets $ 510,250 $ 448,931 $ 45,476 $ 39,640 Funded status at end of year $ (105,518) $ (103,066) $ (59,373) $ (58,350) Amounts recognized in financial statements: Noncurrent asset $ 3,162 $ 2,171 $ 3,321 $ 1,375 Accrued benefit liability (5,211) (6,435) (634) (21) Long-term pension obligations (103,469) (98,802) (62,060) (59,704) Total amount recognized in financial statements $ (105,518) $ (103,066) $ (59,373) $ (58,350) United States International 2020 2019 2020 2019 Amounts recognized in accumulated other comprehensive (gain) loss: Net actuarial loss $ 192,593 $ 178,390 $ 32,097 $ 33,826 Prior service credit (16) (100) (2,137) (2,342) Accumulated other comprehensive loss $ 192,577 $ 178,290 $ 29,960 $ 31,484 Amounts expected to be recognized during next fiscal year: Amortization of net actuarial loss $ 14,297 $ 13,591 $ 3,049 $ 2,945 Amortization of prior service credit (81) (84) (299) (288) Total $ 14,216 $ 13,507 $ 2,750 $ 2,657 The following table summarizes the changes in accumulated other comprehensive loss: United States International 2020 2019 2020 2019 Balance at beginning of year $ 178,290 $ 130,627 $ 31,484 $ 20,460 Net loss arising during the year 30,743 54,304 305 12,737 Prior service cost arising during the year — — — 186 Net gain recognized during the year (14,032) (6,702) (2,972) (1,696) Prior service credit recognized during the year 84 61 290 303 Settlement loss (2,508) — — (470) Exchange rate effect during the year — — 853 (36) Balance at end of year $ 192,577 $ 178,290 $ 29,960 $ 31,484 Information regarding the accumulated benefit obligation is as follows: United States International 2020 2019 2020 2019 For all plans: Accumulated benefit obligation $ 571,036 $ 513,861 $ 96,252 $ 83,439 For plans with benefit obligations in excess of plan assets: Projected benefit obligation 553,403 491,816 92,775 86,534 Accumulated benefit obligation 508,671 453,681 85,189 73,293 Fair value of plan assets 444,723 386,580 30,797 27,769 Net periodic pension costs include the following components: United States International 2020 2019 2018 2020 2019 2018 Service cost $ 20,635 $ 14,587 $ 13,052 $ 2,099 $ 1,933 $ 2,048 Interest cost 15,824 18,304 14,797 1,025 1,670 1,656 Expected return on plan assets (24,667) (23,341) (21,964) (1,273) (1,592) (1,512) Amortization of prior service cost (credit) (84) (61) (22) (290) (303) (316) Amortization of net actuarial loss 14,032 6,702 9,479 2,972 1,696 2,115 Settlement loss 2,508 — — — 470 252 Total benefit cost $ 28,248 $ 16,191 $ 15,342 $ 4,533 $ 3,874 $ 4,243 Net periodic pension cost for 2020, 2019 and 2018 included a settlement loss of $2,508, $470 and $252, respectively, due to lump sum retirement payments. The components of net periodic pension cost other than service cost are included in Other – net in our Consolidated Statements of Income. The weighted average assumptions used in the valuation of pension benefits were as follows: United States International 2020 2019 2018 2020 2019 2018 Assumptions used to determine benefit obligations at October 31: Discount rate 2.85 % 3.25 % 4.53 % 1.01 % 1.26 % 2.14 % Rate of compensation increase 4.00 4.00 3.90 2.69 3.12 3.12 Assumptions used to determine net benefit costs for the years ended October 31: Discount rate - benefit obligation 3.25 4.53 3.80 1.26 2.14 2.07 Discount rate - service cost 3.56 4.70 4.01 1.12 1.82 1.76 Discount rate - interest cost 2.78 4.15 3.31 1.05 1.90 1.83 Expected return on plan assets 5.75 6.00 6.00 3.22 3.96 3.91 Rate of compensation increase 4.00 3.90 3.61 3.12 3.12 3.13 The amortization of prior service cost is determined using a straight-line amortization of the cost over the average remaining service period of employees expected to receive benefits under the plans. The discount rate reflects the current rate at which pension liabilities could be effectively settled at the end of the year. The discount rate used considers a yield derived from matching projected pension payments with maturities of a portfolio of available bonds that receive the highest rating given from a recognized investments ratings agency. The changes in the discount rates in 2020, 2019, and 2018 are due to changes in yields for these types of investments as a result of the economic environment. In determining the expected return on plan assets using the calculated value of plan assets, we consider both historical performance and an estimate of future long-term rates of return on assets similar to those in our plans. We consult with and consider the opinions of financial and other professionals in developing appropriate return assumptions. The rate of compensation increase is based on management’s estimates using historical experience and expected increases in rates. Net actuarial gains or losses are amortized to expense on a plan-by-plan basis when they exceed the accounting corridor, which is set at 10 percent of the greater of the plan assets or benefit obligations. Gains or losses outside of the corridor are subject to amortization over an average employee future service period that differs by plan. If substantially all of the plan’s participants are no longer actively accruing benefits, the average life expectancy is used. The allocation of pension plan assets as of October 31, 2020 and 2019 is as follows: United States International 2020 2019 2020 2019 Asset Category Equity securities 11 % 11 % — % — % Debt securities 49 53 — — Insurance contracts — — 54 54 Pooled investment funds 39 35 44 45 Other 1 1 2 1 Total 100 % 100 % 100 % 100 % Our investment objective for defined benefit plan assets is to meet the plans’ benefit obligations, while minimizing the potential for future required plan contributions. Our United States plans comprise 92 percent of the Company's worldwide pension assets. In general, the investment strategies focus on asset class diversification, liquidity to meet benefit payments and an appropriate balance of long-term investment return and risk. Target ranges for asset allocations are determined by dynamically matching the actuarial projections of the plans’ future liabilities and benefit payments with expected long-term rates of return on the assets, taking into account investment return volatility and correlations across asset classes. For 2020, the target in “return-seeking assets” is 30 percent and 70 percent in fixed income assets. Plan assets are diversified across several investment managers and are invested in liquid funds that are selected to track broad market indices. Investment risk is carefully controlled with plan assets rebalanced to target allocations on a periodic basis and continual monitoring of investment managers’ performance relative to the investment guidelines established with each investment manager. Our international plans comprise 8 percent of the Company's worldwide pension assets. Asset allocations are developed on a country-specific basis. Our investment strategy is to cover pension obligations with insurance contracts or to employ independent managers to invest the assets. The fair values of our pension plan assets at October 31, 2020 by asset category are in the table below: United States International Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Cash $ 1,331 $ 1,331 $ — $ — $ 759 $ 759 $ — $ — Money market funds 5,059 5,059 — — — — — — Equity securities: Basic materials 1,750 1,750 — — — — — — Consumer goods 5,024 5,024 — — — — — — Financial 4,745 4,745 — — — — — — Healthcare 4,518 4,518 — — — — — — Industrial goods 3,588 3,588 — — — — — — Technology 5,706 5,706 — — — — — — Utilities 685 685 — — — — — — Mutual funds 24,266 24,266 — — — — — — Fixed income securities: U.S. Government 71,855 8,267 63,588 — — — — — Corporate 173,046 — 173,046 — — — — — Other 6,673 — 6,673 — — — — — Other types of investments: Insurance contracts — — — — 24,496 — — 24,496 Other 845 845 — — — — — — Total investments in the fair value hierarchy $ 309,091 $ 65,784 $ 243,307 $ — $ 25,255 $ 759 $ — $ 24,496 Investments measured at Net Asset Value: Real estate collective funds 38,996 — Pooled investment funds 162,163 20,221 Total Investments at Fair Value $ 510,250 $ 45,476 The fair values of our pension plan assets at October 31, 2019 by asset category are in the table below: United States International Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Cash $ 1,208 $ 1,208 $ — $ — $ 441 $ 441 $ — $ — Money market funds 5,566 5,566 — — — — — — Equity securities: Basic materials 2,318 2,318 — — — — — — Consumer goods 4,412 4,412 — — — — — — Financial 6,120 6,120 — — — — — — Healthcare 4,460 4,460 — — — — — — Industrial goods 3,152 3,152 — — — — — — Technology 5,064 5,064 — — — — — — Utilities 937 937 — — — — — — Mutual funds 19,674 19,674 — — — — — — Fixed income securities: U.S. Government 83,025 13,094 69,931 — — — — — Corporate 151,607 — 151,607 — — — — — Other 5,051 — 5,051 — — — — — Other types of investments: Insurance contracts — — — — 21,245 — — 21,245 Other 1,101 1,101 — — — — — — Total investments in the fair value hierarchy $ 293,695 $ 67,106 $ 226,589 $ — $ 21,686 $ 441 $ — $ 21,245 Investments measured at Net Asset Value: Real estate collective funds 33,917 — Pooled investment funds 121,319 17,954 Total Investments at Fair Value $ 448,931 $ 39,640 These investment funds did not own a significant number of shares of Nordson Corporation common stock for any year presented. The inputs and methodology used to measure fair value of plan assets are consistent with those described in Note 12. Following are the valuation methodologies used to measure these assets: • Money market funds - Money market funds are public investment vehicles that are valued with a net asset value of one dollar. This is a quoted price in an active market and is classified as Level 1. • Equity securities - Common stocks and mutual funds are valued at the closing price reported on the active market on which the individual securities are traded and are classified as Level 1. • Fixed income securities - U.S. Treasury bills reflect the closing price on the active market in which the securities are traded and are classified as Level 1. Securities of U.S. agencies are valued using bid evaluations and are classified as Level 2. Corporate fixed income securities are valued using evaluated prices, such as dealer quotes, bids and offers and are therefore classified as Level 2. • Insurance contracts - Insurance contracts are investments with various insurance companies. The contract value represents the best estimate of fair value. These contracts do not hold any specific assets. These investments are classified as Level 3. • Real estate collective funds – These funds are valued using the net asset value of the underlying properties. Net asset value is calculated using a combination of key inputs, such as revenue and expense growth rates, terminal capitalization rates and discount rates. • Pooled investment funds - These are public investment vehicles valued using the net asset value. The net asset value is based on the value of the assets owned by the plan, less liabilities. These investments are not quoted on an active exchange. The following tables present an analysis of changes during the years ended October 31, 2020 and 2019 in Level 3 plan assets, by plan asset class, for U.S. and international pension plans using significant unobservable inputs to measure fair value: Fair Value Measurements Insurance Total Beginning balance at October 31, 2019 $ 21,245 $ 21,245 Actual return on plan assets: Assets held, end of year 1,739 1,739 Assets sold during the period — — Purchases 2,462 2,462 Sales (1,495) (1,495) Foreign currency translation 545 545 Ending balance at October 31, 2020 $ 24,496 $ 24,496 Fair Value Measurements Insurance Total Beginning balance at October 31, 2018 $ 21,645 $ 21,645 Actual return on plan assets: Assets held, end of year 913 913 Assets sold during the period — — Purchases 2,431 2,431 Sales (4,102) (4,102) Foreign currency translation 358 358 Ending balance at October 31, 2019 $ 21,245 $ 21,245 Contributions to pension plans in 2021 are estimated to be approximately $43,721. Retiree pension benefit payments, which reflect expected future service, are anticipated to be paid as follows: Year United States International 2021 $ 23,045 $ 3,488 2022 20,262 3,042 2023 21,686 3,069 2024 23,213 3,527 2025 25,209 3,721 2026-2030 150,280 19,949 Other postretirement plans - We sponsor an unfunded postretirement health care benefit plan covering certain of our United States employees. Employees hired after January 1, 2002, are not eligible to participate in this plan. For eligible retirees under the age of 65 who enroll in the plan, the plan is contributory in nature, with retiree contributions in the form of premiums that are adjusted annually. For eligible retirees age 65 and older who enroll in the plan, the plan delivers a benefit in the form of a Health Reimbursement Account (HRA), which retirees use for eligible reimbursable expenses, including premiums paid for purchase of a Medicare supplement plan or other out-of-pocket medical expenses such as deductibles or co-pays. A reconciliation of the benefit obligations, accrued benefit cost and the amount recognized in financial statements for other postretirement plans is as follows: United States International 2020 2019 2020 2019 Change in benefit obligation: Benefit obligation at beginning of year $ 88,660 $ 72,010 $ 454 $ 512 Service cost 666 545 15 16 Interest cost 2,345 2,984 13 19 Participant contributions 611 684 — — Foreign currency exchange rate change — — (5) (1) Actuarial (gain) loss (2,024) 15,101 (26) (86) Benefits paid (2,613) (2,664) (6) (6) Benefit obligation at end of year $ 87,645 $ 88,660 $ 445 $ 454 Change in plan assets: Beginning fair value of plan assets $ — $ — $ — $ — Company contributions 2,002 1,980 6 6 Participant contributions 611 684 — — Benefits paid (2,613) (2,664) (6) (6) Ending fair value of plan assets $ — $ — $ — $ — Funded status at end of year $ (87,645) $ (88,660) $ (445) $ (454) Amounts recognized in financial statements: Accrued benefit liability $ (2,835) $ (2,740) $ (6) $ (6) Long-term postretirement obligations (84,810) (85,920) (439) (448) Total amount recognized in financial statements $ (87,645) $ (88,660) $ (445) $ (454) United States International 2020 2019 2020 2019 Amounts recognized in accumulated other comprehensive (gain) loss: Net actuarial (gain) loss $ 25,614 $ 28,992 $ (466) $ (482) Prior service credit — (16) — — Accumulated other comprehensive (gain) loss $ 25,614 $ 28,976 $ (466) $ (482) Amounts expected to be recognized during next fiscal year: Amortization of net actuarial (gain) loss $ 1,388 $ 1,674 $ (39) $ (37) Amortization of prior service credit — (16) — — Total $ 1,388 $ 1,658 $ (39) $ (37) The following table summarizes the changes in accumulated other comprehensive (gain) loss: United States International 2020 2019 2020 2019 Balance at beginning of year $ 28,976 $ 14,483 $ (482) $ (423) Net (gain) loss arising during the year (2,024) 15,101 (26) (86) Net gain (loss) recognized during the year (1,355) (634) 36 28 Prior service credit recognized during the year 17 26 — — Exchange rate effect during the year — — 6 (1) Balance at end of year $ 25,614 $ 28,976 $ (466) $ (482) Net postretirement benefit costs include the following components: United States International 2020 2019 2018 2020 2019 2018 Service cost $ 666 $ 545 $ 709 $ 15 $ 16 $ 20 Interest cost 2,345 2,984 2,557 13 19 20 Amortization of prior service credit (17) (26) (99) — — — Amortization of net actuarial (gain) loss 1,355 634 1,079 (36) (28) (20) Total benefit cost (credit) $ 4,349 $ 4,137 $ 4,246 $ (8) $ 7 $ 20 The weighted average assumptions used in the valuation of postretirement benefits were as follows: United States International 2020 2019 2018 2020 2019 2018 Assumptions used to determine benefit obligations at October 31: Discount rate 2.84 % 3.27 % 4.56 % 2.94 % 3.03 % 3.88 % Health care cost trend rate 3.40 3.62 3.75 4.22 4.00 6.35 Rate to which health care cost trend rate is assumed to incline/decline (ultimate trend rate) 3.17 3.24 3.27 4.05 4.05 3.50 Year the rate reaches the ultimate trend rate 2026 2026 2026 2040 2040 2037 Assumption used to determine net benefit costs for the years ended October 31: Discount rate benefit obligation 3.27 % 4.56 % 3.86 % 3.03 % 3.88 % 3.52 % Discount rate service cost 3.61 4.77 4.11 3.05 3.90 3.54 Discount rate interest cost 2.79 4.18 3.39 2.88 3.80 3.40 The weighted average health care trend rates reflect expected increases in the Company’s portion of the obligation. Net actuarial gains or losses are amortized to expense on a plan-by-plan basis when they exceed the accounting corridor, which is set at 10 percent of the greater of the plan assets or benefit obligations. Gains or losses outside of the corridor are subject to amortization over an average employee future service period that differs by plan. If substantially all of the plan’s participants are no longer actively accruing benefits, the average life expectancy is used. A one-percentage point change in the assumed health care cost trend rate would have the following effects. Bracketed numbers represent decreases in expense and obligation amounts. United States International 1% Point 1% Point 1% Point 1% Point Health care trend rate: Effect on total net postretirement benefit cost components in 2020 $ 431 $ (345) $ 7 $ (5) Effect on postretirement obligation as of October 31, 2020 $ 11,019 $ (9,100) $ 103 $ (80) Contributions to postretirement plans in 2021 are estimated to be approximately $2,800. Retiree postretirement benefit payments are anticipated to be paid as follows: Year United States International 2021 $ 2,835 $ 6 2022 3,047 6 2023 3,238 6 2024 3,444 6 2025 3,623 6 2026-2030 20,133 46 |