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Pension Plans | 12 Months Ended
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Sep. 30, 2023
Retirement Benefits [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:
|  | 2023 |  |  | 2022 |  |  | 2021 |
Weighted average assumptions used to determine benefit obligations at September 30 measurement date: |  |  |  |  |  |  |  |  |
Discount rate |  |  | 4.2 | % |  |  | 3.7 | % |  |  | 1.0 | %
Rate of increase in future compensation |  |  | 3.0 | % |  |  | 3.6 | % |  |  | 2.8 | %
Weighted average assumptions used to determine net periodic pension cost for fiscal years ended September 30: |  |  |  |  |  |  |  |  |
Discount rate |  |  | 3.7 | % |  |  | 1.0 | % |  |  | 1.1 | %
Rate of increase in future compensation |  |  | 3.6 | % |  |  | 2.8 | % |  |  | 2.8 | %
Rate of return on plan assets |  |  | 4.8 | % |  |  | 5.0 | % |  |  | 5.0 | %
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, 2023 in the table above, will be used to determine our 2024 net periodic pension cost, which we expect to be approximately $0.1 million. As of September 30, 2023, the weighted average interest credit rate used in our two cash balance pension plans is 4.2%. 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, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Interest cost of projected benefit obligation |  | $ | 2,126 |  |  | $ | 550 |  |  | $ | 692 |
Service cost |  |  | 690 |  |  |  | 1,016 |  |  |  | 1,127 |
Expected return on plan assets |  |  | (3,541 | ) |  |  | (3,712 | ) |  |  | (3,643 | )
Amortization of prior service cost |  |  | — |  |  |  | (4 | ) |  |  | (5 | )
Recognized actuarial loss |  |  | 241 |  |  |  | 1,425 |  |  |  | 4,139 |
Settlement gain |  |  | — |  |  |  | (82 | ) |  |  | — |
Net periodic pension (benefit) cost |  | $ | (484 | ) |  | $ | (807 | ) |  | $ | 2,310 |
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, |
|  | 2023 |  |  | 2022 |
Change in benefit obligation: |  |  |  |  |  |
Projected benefit obligation, beginning of year |  | $ | 58,129 |  |  | $ | 96,512 |
Service cost |  |  | 690 |  |  |  | 1,016 |
Interest cost |  |  | 2,126 |  |  |  | 550 |
Actuarial gain |  |  | (1,589 | ) |  |  | (22,616 | )
Foreign exchange impact |  |  | 3,714 |  |  |  | (12,949 | )
Participant contributions |  |  | 96 |  |  |  | 96 |
Benefits paid |  |  | (2,968 | ) |  |  | (2,343 | )
Plan amendments |  |  | 235 |  |  |  | — |
Divestiture of business |  |  | — |  |  |  | (1,184 | )
Settlements |  |  | — |  |  |  | (953 | )
Projected benefit obligation, end of year |  | $ | 60,433 |  |  | $ | 58,129 |
Change in plan assets and funded status: |  |  |  |  |  |
Plan assets at fair value, beginning of year |  | $ | 67,581 |  |  | $ | 78,385 |
Actual return (loss) on plan assets |  |  | (1,919 | ) |  |  | 2,348 |
Employer contributions |  |  | 1,343 |  |  |  | 3,007 |
Participant contributions |  |  | 96 |  |  |  | 96 |
Foreign exchange impact |  |  | 4,593 |  |  |  | (12,959 | )
Settlements |  |  | — |  |  |  | (953 | )
Benefits paid |  |  | (2,968 | ) |  |  | (2,343 | )
Plan amendments |  |  | 149 |  |  |  | — |
Plan assets at fair value, end of year |  |  | 68,875 |  |  |  | 67,581 |
Projected benefit obligation, end of year |  |  | 60,433 |  |  |  | 58,129 |
Underfunded status |  | $ | (10,693 | ) |  | $ | (9,782 | )
Overfunded status |  | $ | 19,135 |  |  | $ | 19,234 |
Accumulated benefit obligation, end of year |  | $ | 59,602 |  |  | $ | 57,310 |
Amounts recognized in the balance sheet: |  |  |  |  |  |
Non-current asset |  | $ | 19,135 |  |  | $ | 19,234 |
Non-current liability |  | $ | (10,419 | ) |  | $ | (9,434 | )
Current liability |  | $ | (274 | ) |  | $ | (348 | )
Amounts in accumulated other comprehensive loss: |  |  |  |  |  |
Unrecognized actuarial loss |  | $ | 9,573 |  |  | $ | 5,408 |
As of September 30, 2023 and 2022, two of our pension plans had projected benefit obligations and accumulated benefit obligations in excess of plan assets. Three international plans were overfunded. The following table shows the change in Accumulated other comprehensive loss:
(in thousands) |  | Year ended September 30, |
|  | 2023 |  |  | 2022 |
Accumulated other comprehensive loss, beginning of year |  | $ | 5,408 |  |  | $ | 30,213 |
Recognized during year - net actuarial losses |  |  | (241 | ) |  |  | (1,421 | )
Occurring during year - settlement gain |  |  | — |  |  |  | 82 |
Occurring during year - net actuarial losses (gains) |  |  | 3,871 |  |  |  | (21,253 | )
Plan amendments |  |  | 91 |  |  |  | — |
Foreign exchange impact |  |  | 444 |  |  |  | (2,213 | )
Accumulated other comprehensive loss, end of year |  | $ | 9,573 |  |  | $ | 5,408 |
In 2023, our actuarial losses were impacted by volatility in capital markets and the impact of rising interest rates. In 2022, our actuarial gains were impacted by the change in discount rate from 1.0% in 2021 to 3.7% in 2022. The following table shows the percentage of total plan assets for each major category of plan assets:
|  | September 30, |
Asset category |  | 2023 |  |  | 2022 |
Equity securities |  |  | 31 | % |  |  | 33 | %
Fixed income securities |  |  | 42 | % |  |  | 33 | %
Commodities |  |  | 7 | % |  |  | 1 | %
Insurance company funds |  |  | 10 | % |  |  | 10 | %
Options |  |  | 0 | % |  |  | 2 | %
Cash |  |  | 10 | % |  |  | 21 | %
|  |  | 100 | % |  |  | 100 | %
We periodically review the pension plans’ investments in the various asset classes. For the CoCreate plans 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. Th e 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 2023, 2022 and 2021, our actual return (loss) on plan assets was $(1.9) million, $2.3 million and $7.4 million, respectively. Based on actuarial valuations and additional voluntary contributions, we contributed $1.3 million, $3.0 million and $3.0 million in 2023, 2022 and 2021, respectively, to the plans. In 2024, we expect to contribute $0.6 million to the plans and to directly pay $3.2 million in benefits. As of September 30, 2023, benefit payments expected to be paid over the next ten years are as follows:
(in thousands) |  | Future Benefit Payments |
2024 |  | $ | 4,158 |
2025 |  |  | 3,782 |
2026 |  |  | 3,898 |
2027 |  |  | 4,485 |
2028 |  |  | 4,694 |
2029 to 2033 |  |  | 23,443 |
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, 2023 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |
Government |  | $ | 27,322 |  |  | $ | — |  |  | $ | — |  |  | $ | 27,322 |
Corporate investment grade |  |  | 1,632 |  |  |  | — |  |  |  | — |  |  |  | 1,632 |
Large capitalization stocks |  |  | 20,864 |  |  |  | — |  |  |  | — |  |  |  | 20,864 |
Commodities |  |  | 4,977 |  |  |  | — |  |  |  | — |  |  |  | 4,977 |
Insurance company funds(1) |  |  | — |  |  |  | 7,102 |  |  |  | — |  |  |  | 7,102 |
Cash |  |  | 6,978 |  |  |  | — |  |  |  | — |  |  |  | 6,978 |
Total plan assets |  | $ | 61,773 |  |  | $ | 7,102 |  |  | $ | — |  |  | $ | 68,875 |
(in thousands) |  | September 30, 2022 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |
Government |  | $ | 20,430 |  |  | $ | — |  |  | $ | — |  |  | $ | 20,430 |
Corporate investment grade |  |  | 2,038 |  |  |  | — |  |  |  | — |  |  |  | 2,038 |
Large capitalization stocks |  |  | 22,379 |  |  |  | — |  |  |  | — |  |  |  | 22,379 |
Commodities |  |  | 599 |  |  |  | — |  |  |  | — |  |  |  | 599 |
Insurance company funds(1) |  |  | — |  |  |  | 6,823 |  |  |  | — |  |  |  | 6,823 |
Options |  |  | 1,430 |  |  |  | — |  |  |  | — |  |  |  | 1,430 |
Cash |  |  | 13,882 |  |  |  | — |  |  |  | — |  |  |  | 13,882 |
Total plan assets |  | $ | 60,758 |  |  | $ | 6,823 |  |  | $ | — |  |  | $ | 67,581 |
(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.

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