Employee Pension and Profit Sharing Plans

12 Months Ended

Sep. 27, 2019

Employee Pension and Profit Sharing Plans

EMPLOYEE PENSION AND PROFIT SHARING PLANS:

In the United States, the Company maintains qualified contributory and non-contributory defined contribution retirement plans for eligible employees, with Company contributions to the plans based on earnings performance or salary level. The Company also has a non-qualified retirement savings plan for certain employees. The total expense of the above plans for fiscal 2019, fiscal 2018 and fiscal 2017 was $41.5 million, $22.5 million and $27.5 million, respectively. The increase in the expense in fiscal 2019 compared to fiscal 2018 is due to the additional employer matching contributions as a result of the cash tax savings from U.S. tax reform. The Company also maintains similar contributory and non-contributory defined contribution retirement plans at several of its international operations, primarily in Canada and the United Kingdom. The total expense of these international plans for fiscal 2019, fiscal 2018 and fiscal 2017 was $11.7 million, $8.6 million and $6.9 million, respectively.

The following table sets forth the components of net periodic pension cost for the Company's single-employer defined benefit pension plans for fiscal 2019, fiscal 2018 and fiscal 2017 (in thousands):



	Fiscal Year Ended
	September 27, 2019			September 28, 2018			September 29, 2017
Service cost	$	6,391		$	7,121		$	8,834
Interest cost	11,287			10,579			8,398
Expected return on plan assets	(22,970		)	(22,864		)	(18,350		)
Settlements and curtailments	283			3,312			—
Amortization of prior service cost	104			116			122
Recognized net loss	1,094			1,646			3,400
Net periodic pension cost (income)	$	(3,811	)	$	(90	)	$	2,404

The following table sets forth changes in the projected benefit obligation and the fair value of plan assets for these plans (in thousands):



Change in benefit obligation:	September 27, 2019			September 28, 2018
Benefit obligation, beginning	$	366,426		$	333,672
Impact of AmeriPride acquisition	—			79,605
Foreign currency translation	(13,097		)	(11,312		)
Service cost	6,391			7,121
Interest cost	11,287			10,579
Employee contributions	2,249			2,571
Actuarial loss (gain)	49,707			(10,869		)
Benefits paid	(16,681		)	(16,862		)
Settlements and curtailments⁽¹⁾	(5,075		)	(22,662		)
Change in control payment	—			(5,417		)
Benefit obligation, ending	$	401,207		$	366,426
Change in plan assets:
Fair value of plan assets, beginning	$	409,826		$	341,538
Impact of AmeriPride acquisition	—			73,273
Foreign currency translation	(14,360		)	(12,359		)
Employer contributions	10,520			13,988
Employee contributions	2,249			2,571
Actual return on plan assets	39,280			23,971
Benefits paid	(16,681		)	(16,862		)
Settlements⁽¹⁾	(4,867		)	(10,877		)
Change in control payment	—			(5,417		)
Fair value of plan assets, end	425,967			409,826
Funded Status at end of year	$	24,760		$	43,400



(1)	Fiscal 2019 includes the impact of closing two of the AmeriPride plans. Fiscal 2018 includes the impact of the Canadian pension plan freeze and the UK pension plan settlement resulting from the transfer of members out of the plan.

Amounts recognized in the Consolidated Balance Sheets consist of the following (in thousands):



	September 27, 2019			September 28, 2018
Noncurrent benefit asset (included in Other Assets)	$	35,459		$	59,481
Noncurrent benefit liability (included in Other Noncurrent Liabilities)	(10,699		)	(16,081		)
Net actuarial loss (included in Accumulated other comprehensive loss before taxes)	77,204			48,067

The following weighted average assumptions were used to determine pension expense of the respective fiscal years:



	September 27, 2019		September 28, 2018
Discount rate	3.3	%	3.2	%
Rate of compensation increase	2.1	%	2.0	%
Long-term rate of return on assets	5.7	%	5.8	%

The following weighted average assumptions were used to determine the funded status of the respective fiscal years:



	September 27, 2019		September 28, 2018
Discount rate	2.5	%	3.3	%
Rate of compensation increase	2.1	%	2.1	%

Assumptions, including discount rate, expected return on assets, compensation increases and health care trends, are adjusted annually, as necessary, based on prevailing market conditions and actual experience. The Company applies a spot-rate approach for the discount rate used in the calculation of pension interest and service cost. The spot-rate approach applies separate discount rates for each projected benefit payment in the calculation.

The accumulated benefit obligation as of September 27, 2019 was $398.8 million. During fiscal 2019, settlement gains and actuarial losses of approximately $0.1 million and $32.9 million, respectively, were recognized in other comprehensive loss (before taxes) and $1.2 million of actuarial losses were recognized as net periodic pension cost during such period. The estimated portion of net actuarial loss included in accumulated other comprehensive loss as of September 27, 2019 expected to be recognized in net periodic pension cost during fiscal 2020 is approximately $1.8 million (before taxes).

The accumulated benefit obligation as of September 28, 2018 was $364.0 million. During fiscal 2018, settlement gains and actuarial losses of approximately $3.9 million and $22.2 million, respectively, were recognized in other comprehensive income (before taxes) and $1.6 million of amortization of actuarial losses was recognized as net periodic pension cost during such period.

The following table sets forth information for the Company's single-employer pension plans with an accumulated benefit obligation in excess of plan assets as of September 27, 2019 and September 28, 2018 (in thousands):



	September 27, 2019		September 28, 2018
Projected benefit obligation	$	10,699	$	16,081
Accumulated benefit obligation	10,506		15,935

Assets of the plans are invested with the goal of principal preservation and enhancement over the long-term. The primary goal is total return, consistent with prudent investment management. The Company's investment policies also require an appropriate level of diversification across the asset categories. The current overall capital structure and targeted ranges for asset classes are 0-20% invested in equity securities, 70-100% invested in debt securities and 0-10% in real estate investments and cash and cash equivalents. Performance of the plans is monitored on a regular basis and adjustments of the asset allocations are made when deemed necessary.

The weighted-average long-term rate of return on assets has been determined based on an estimated weighted-average of long-term returns of major asset classes, taking into account historical performance of plan assets, the current interest rate environment, plan demographics, acceptable risk levels and the estimated value of active asset management.

The fair value of plan assets for the Company's defined benefit pension plans as of September 27, 2019 and September 28, 2018 is as follows (see Note 16 for a description of the fair value levels) (in thousands):



	September 27, 2019		Quoted prices in active markets Level 1		Significant other observable inputs Level 2		Significant unobservable inputs Level 3
Cash and cash equivalents and other	$	19,396	$	19,396	$	—	$	—
Equity securities:
Investment trusts	4,677		4,677		—		—
Investment funds:
Equity funds	72,074		—		72,074		—
Fixed income funds	319,395		—		319,395		—
Real estate	10,425		—		—		10,425
Total	$	425,967	$	24,073	$	391,469	$	10,425

	September 28, 2018		Quoted prices in active markets Level 1		Significant other observable inputs Level 2		Significant unobservable inputs Level 3
Cash and cash equivalents and other	$	20,568	$	20,568	$	—	$	—
Equity securities:
Investment trusts	11,689		$	11,689	—		—
Investment funds:
Equity funds	220,853		—		220,853		—
Fixed income funds	146,271		—		146,271		—
Real estate	10,445		—		—		10,445
Total	$	409,826	$	32,257	$	367,124	$	10,445

The fair value of the investment funds is based on the value of the underlying assets, as reported to the Plan by the trustees. They are comprised of a portfolio of underlying securities that can be valued based on trading information on active markets. Fair value is calculated by applying the Plan's percentage ownership in the fund to the total market value of the account's underlying securities, and is therefore categorized as Level 2 as the Plan does not directly own shares in these underlying investments. Investments in equity securities include publicly-traded domestic companies (approximately 35%) and international companies (approximately 65%) that are diversified across industry, country and stock market capitalization. Investments in fixed income securities consist of international corporate bonds and government securities. Substantially all of the real estate investments are in international markets. Cash and cash equivalents include direct cash holdings, which are valued based on cost, and short-term deposits and investments in money market funds for which fair value measurements are all based on quoted prices for similar assets or liabilities in markets that are active.

During fiscal 2018, the Company amended certain Canadian pension plans to freeze benefit accruals. The plan is closed to new participants and current participants no longer earn additional benefits. During fiscal 2019 in conjunction with the planned wind down of the Canadian plan, the Company reallocated the plan assets to be entirely invested in debt securities.

It is the Company's policy to fund at least the minimum required contributions as outlined in the required statutory actuarial valuation for each plan. The following table sets forth the benefits expected to be paid in the next five fiscal years and in aggregate for the five fiscal years thereafter by the Company's defined benefit pension plans (in thousands):



Fiscal 2020	$	13,601
Fiscal 2021	14,063
Fiscal 2022	14,448
Fiscal 2023	14,819
Fiscal 2024	15,121
Fiscal 2025 – 2029	81,559

The estimated benefit payments above are based on assumptions about future events. Actual benefit payments may vary significantly from these estimates.

The expected contributions to be paid to the Company's defined benefit pension plans during fiscal 2020 are approximately $4.1 million.

Multiemployer Defined Benefit Pension Plans

The Company contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements ("CBA") that cover its union-represented employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following respects:


a.	Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.


b.	If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.


c.	If the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Company's participation in these plans for fiscal 2019 is outlined in the table below. The "EIN/Pension Plan Number" column provides the Employee Identification Number (EIN) and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available in 2019 and 2018 is for the plans' two most recent fiscal year-ends. The zone status is based on information that the Company received from the plan and is certified by the plan's actuary. Among other factors, plans in the critical and declining zone are generally less than 65% funded and projected to become insolvent in the next 15 or 20 years depending on the ratio of active to inactive participants, plans in the critical zone are generally less than 65% funded, plans in the endangered zone are less than 80% funded, and plans in the green zone are at least 80% funded. The "FIP/RP Status Pending/Implemented" column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date(s) of the CBA(s) to which the plans are subject. There have been no significant changes that affect the comparability of fiscal 2019, fiscal 2018 and fiscal 2017 contributions.

Pension

Fund

EIN/Pension

Plan Number

Pension Protection

Act Zone Status

FIP/RP Status Pending/ Implemented

Contributions by the Company

(in thousands)

Range of Expiration Dates of CBAs

2019

2018

2019

2018

2017

Surcharge

Imposed

National Retirement Fund

13-6130178/ 001

Critical

Implemented

4,130

4,147

7,541

3/1/2019 - 4/1/2022

UNITE HERE Retirement Fund⁽¹⁾

82-0994119/ 001

Critical

Implemented

4,531

3,686

N/A

6/30/2019 - 6/30/2023

Local 1102 Retirement Trust

13-1847329/ 001

Endangered

Implemented

110

1,206

397

10/31/2020

Central States SE and SW Areas Pension Plan

36-6044243/ 001

Critical and Declining

Implemented

4,282

4,128

3,836

1/31/2007 - 3/31/2023

Pension Plan for Hospital & Health Care Employees Philadelphia & Vicinity

23-2627428/ 001

Critical

Implemented

361

319

336

1/31/2023

Local 731 Private Scavengers and Garage Attendants Pension Trust Fund

36-6513567/ 001

Green

N/A

973

907

898

4/26/2019

SEIU National Industry Pension Fund ⁽²⁾

52-6148540/ 001

Critical

Implemented

623

501

429

12/31/2019 - 4/14/2022

LIUNA National Industrial Pension Fund

52-6074345/ 001

Critical

Implemented

678

620

584

12/31/2020

Other funds

17,873

17,109

14,668

Total contributions

33,561

32,623

28,689

The Company provided more than 5 percent of the total contributions for the following plans and plan years:



Pension Fund		Contributions to the plan exceeded more than 5% of total contributions (as of the plan's year-end)
Local 1102 Retirement Trust		12/31/2018 and 12/31/2017
Service Employees Pension Fund of Upstate New York		12/31/2018 and 12/31/2017

At the date the Company's financial statements were issued, Forms 5500 were not available for the plan years ending in 2019.

Effective January 1, 2018, the UNITE HERE portion of the National Retirement Fund was spun off into the newly formed UNITE HERE Retirement Fund.

Over 75% of the Company's participants in this fund are covered by a single CBA that expires on 12/31/2019.