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Pension Plans
 12 Months Ended
Sep. 30, 2021
Compensation And Retirement Disclosure [Abstract]  
Pension Plans

14. Pension Plans

We maintain several international defined benefit pension plans primarily covering certain employees of Computervision, which we acquired in 1998, and CoCreate, which we acquired in 2008, and covering employees in Japan. Benefits are based upon length of service and average compensation with vesting after one to five years of service. The pension cost was actuarially computed using assumptions applicable to each subsidiary plan and economic environment. We adjust our pension liability related to our plans due to changes in actuarial assumptions and performance of plan investments, as shown below. Effective in 1998, benefits under one of the international plans were frozen indefinitely.

The following table presents the actuarial assumptions used in accounting for the pension plans:

 

 

 

2021

 

 

2020

 

 

2019

 

Weighted average assumptions used to determine benefit obligations at September 30 measurement date:

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

 

1.0

%

 

 

1.1

%

 

 

0.9

%

Rate of increase in future compensation

 

 

2.8

%

 

 

2.8

%

 

 

2.8

%

Weighted average assumptions used to determine net periodic pension cost for fiscal years ended September 30:

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

 

1.1

%

 

 

0.9

%

 

 

1.9

%

Rate of increase in future compensation

 

 

2.8

%

 

 

2.8

%

 

 

3.0

%

Rate of return on plan assets

 

 

5.0

%

 

 

5.4

%

 

 

5.4

%

 

In selecting the expected long-term rate of return on assets, we considered the current investment portfolio, and the investment return goals in the plans’ investment policy statements. We, with input from the plans’ professional investment managers and actuaries, also considered the average rate of earnings expected on the funds invested or to be invested to provide plan benefits. This process included determining expected returns for the various asset classes that comprise the plans’ target asset allocation. This basis for selecting the long-term asset return assumptions is consistent with the prior year. Using generally accepted diversification techniques, the plans’ assets, in aggregate and at the individual portfolio level, are invested so that the total portfolio risk exposure and risk-adjusted returns best meet the plans’ long-term liabilities to employees. Plan asset allocations are reviewed periodically and rebalanced to achieve target allocation among the asset categories when necessary. The discount rate is based on yield curves for highly rated corporate fixed income securities matched against cash flows for each future year.

The weighted long-term rate of return assumption, together with the assumptions used to determine the benefit obligations as of September 30, 2021 in the table above, will be used to determine our 2022 net periodic pension income, which we expect to be approximately $0.7 million.

As of September 30, 2021, the weighted average interest crediting rate used in our only cash balance pension plan is 6%.

All non-service net periodic pension costs are presented in other income, net on the Consolidated Statement of Operations. The actuarially computed components of net periodic pension cost recognized in our Consolidated Statements of Operations for each year are shown below:

 

(in thousands)

 

Year ended September 30,

 

 

 

2021

 

 

2020

 

 

2019

 

Interest cost of projected benefit obligation

 

$

692

 

 

$

527

 

 

$

1,199

 

Service cost

 

 

1,127

 

 

 

1,426

 

 

 

1,372

 

Expected return on plan assets

 

 

(3,643

)

 

 

(3,878

)

 

 

(3,728

)

Amortization of prior service cost

 

 

(5

)

 

 

(5

)

 

 

(5

)

Recognized actuarial loss

 

 

4,139

 

 

 

3,854

 

 

 

2,390

 

Settlement loss

 

 

—

 

 

 

—

 

 

 

(30

)

Net periodic pension cost

 

$

2,310

 

 

$

1,924

 

 

$

1,198

 

 

The following tables display the change in benefit obligation and the change in the plan assets and funded status of the plans as well as the amounts recognized in our Consolidated Balance Sheets:

 

(in thousands)

 

Year ended September 30,

 

 

 

2021

 

 

2020

 

Change in benefit obligation:

 

 

 

 

 

 

 

 

Projected benefit obligation, beginning of year

 

$

97,832

 

 

$

94,983

 

Service cost

 

 

1,127

 

 

 

1,426

 

Interest cost

 

 

692

 

 

 

527

 

Actuarial loss (gain)

 

 

1,100

 

 

 

(2,835

)

Foreign exchange impact

 

 

(1,562

)

 

 

6,452

 

Participant contributions

 

 

109

 

 

 

86

 

Benefits paid

 

 

(2,786

)

 

 

(2,234

)

Curtailments

 

 

—

 

 

 

(573

)

Projected benefit obligation, end of year

 

$

96,512

 

 

$

97,832

 

Change in plan assets and funded status:

 

 

 

 

 

 

 

 

Plan assets at fair value, beginning of year

 

$

72,063

 

 

$

69,879

 

Actual return on plan assets

 

 

7,383

 

 

 

(2,990

)

Employer contributions

 

 

3,049

 

 

 

2,622

 

Participant contributions

 

 

109

 

 

 

86

 

Foreign exchange impact

 

 

(1,433

)

 

 

4,700

 

Benefits paid

 

 

(2,786

)

 

 

(2,234

)

Plan assets at fair value—end of year

 

 

78,385

 

 

 

72,063

 

Projected benefit obligation, end of year

 

 

96,512

 

 

 

97,832

 

Underfunded status

 

$

(18,127

)

 

$

(25,769

)

Accumulated benefit obligation, end of year

 

$

95,090

 

 

$

96,270

 

Amounts recognized in the balance sheet:

 

 

 

 

 

 

 

 

Non-current asset

 

$

855

 

 

$

—

 

Non-current liability

 

$

(18,615

)

 

$

(25,437

)

Current liability

 

$

(367

)

 

$

(332

)

Amounts in accumulated other comprehensive loss:

 

 

 

 

 

 

 

 

Unrecognized actuarial loss

 

$

30,213

 

 

$

37,175

 

 

As of September 30, 2021 and 2020 all of our pension plans had project benefit obligations and accumulated benefit obligations in excess of plan assets.

The following table shows the change in accumulated other comprehensive loss:

 

(in thousands)

 

Year ended September 30,

 

 

 

2021

 

 

2020

 

Accumulated other comprehensive loss, beginning of year

 

$

37,175

 

 

$

34,920

 

Recognized during year - net actuarial losses

 

 

(4,135

)

 

 

(3,850

)

Occurring during year - net actuarial losses

 

 

(2,640

)

 

 

3,460

 

Foreign exchange impact

 

 

(187

)

 

 

2,645

 

Accumulated other comprehensive loss, end of year

 

$

30,213

 

 

$

37,175

 

 

In 2021, our net actuarial gains were driven by the asset performance. In 2020 our net actuarial losses occurring during the year were primarily driven by poor asset performance due to COVID-19 pandemic, offset by favorable impact on liabilities due primarily to a higher assumed discount rate.

The following table shows the percentage of total plan assets for each major category of plan assets:

 

 

 

September 30,

 

Asset category

 

2021

 

 

2020

 

Equity securities

 

 

35

%

 

 

33

%

Fixed income securities

 

 

34

%

 

 

34

%

Commodities

 

 

11

%

 

 

11

%

Insurance company funds

 

 

12

%

 

 

13

%

Options

 

 

1

%

 

 

1

%

Cash

 

 

7

%

 

 

8

%

 

 

 

100

%

 

 

100

%

 

We periodically review the pension plans’ investments in the various asset classes. For the CoCreate plan in Germany, assets are actively allocated between equity and fixed income securities to achieve target return. For the other international plans, assets are allocated 100% to fixed income securities. The fixed income securities for the other international plans primarily include investments held with insurance companies with fixed returns. The plans’ investment managers are provided specific guidelines under which they are to invest the assets assigned to them. In general, investment managers are expected to remain fully invested in their asset class with further limitations on risk as related to investments in a single security, portfolio turnover and credit quality.

The German CoCreate plan's investment policy prohibits the use of derivatives associated with leverage and speculation or investments in securities issued by PTC, except through index-related strategies and/or commingled funds. An investment committee oversees management of the pension plans’ assets. Plan assets consist primarily of investments in equity and fixed income securities.

In 2021, 2020 and 2019 our actual return on plan assets was $7.4 million, $(3.0) million and $3.5 million, respectively.

Based on actuarial valuations and additional voluntary contributions, we contributed $3.0 million, $2.6 million, and $2.6 million in 2021, 2020 and 2019, respectively, to the plans. We expect to pay $3.8 million in contributions in 2022, of which $0.8 million will be paid directly to the plans.

As of September 30, 2021, benefit payments expected to be paid over the next ten years are as follows:

 

(in thousands)

 

Future Benefit Payments

 

2022

 

$

4,297

 

2023

 

 

4,216

 

2024

 

 

4,860

 

2025

 

 

4,558

 

2026

 

 

4,638

 

2027 to 2031

 

 

24,407

 

 

Fair Value of Plan Assets

The international plan assets are comprised primarily of investments in a trust and an insurance company. The underlying investments in the trust are primarily publicly-traded equities and governmental fixed income securities. They are classified as Level 1 because the underlying units of the trust are traded in open public markets. The fair value of the underlying investments in equity securities and fixed income are based upon publicly-traded exchange prices.

 

(in thousands)

 

September 30, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Fixed income securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government

 

$

24,013

 

 

$

—

 

 

$

—

 

 

$

24,013

 

Corporate investment grade

 

 

2,924

 

 

 

—

 

 

 

—

 

 

 

2,924

 

Large capitalization stocks

 

 

27,078

 

 

 

—

 

 

 

—

 

 

 

27,078

 

Commodities

 

 

8,558

 

 

 

—

 

 

 

—

 

 

 

8,558

 

Insurance company funds(1)

 

 

—

 

 

 

9,105

 

 

 

—

 

 

 

9,105

 

Options

 

 

1,122

 

 

 

—

 

 

 

—

 

 

 

1,122

 

Cash

 

 

5,585

 

 

 

—

 

 

 

—

 

 

 

5,585

 

Total plan assets

 

$

69,280

 

 

$

9,105

 

 

$

—

 

 

$

78,385

 

 

(in thousands)

 

September 30, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Fixed income securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government

 

$

20,663

 

 

$

—

 

 

$

—

 

 

$

20,663

 

Corporate investment grade

 

 

3,599

 

 

 

—

 

 

 

—

 

 

 

3,599

 

Large capitalization stocks

 

 

23,878

 

 

 

—

 

 

 

—

 

 

 

23,878

 

Commodities

 

 

7,750

 

 

 

—

 

 

 

—

 

 

 

7,750

 

Insurance company funds(1)

 

 

—

 

 

 

9,131

 

 

 

—

 

 

 

9,131

 

Options

 

 

1,126

 

 

 

—

 

 

 

—

 

 

 

1,126

 

Cash

 

 

5,916

 

 

 

—

 

 

 

—

 

 

 

5,916

 

Total plan assets

 

$

62,932

 

 

$

9,131

 

 

$

—

 

 

$

72,063

 

 

(1)

These investments are comprised primarily of funds invested with an insurance company in Japan with a guaranteed rate of return. The insurance company invests these assets primarily in government and corporate bonds.