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EMPLOYEES' RETIREMENT PLANS

12 Months Ended

Aug. 31, 2019

NOTE 16. EMPLOYEES' RETIREMENT PLANS

Substantially all employees in the U.S. are covered by a defined contribution 401(k) retirement plan. The tax qualified defined contribution plan is maintained, and contributions are made, in accordance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Company also provides certain eligible executives benefits pursuant to its BRP equal to amounts that would have been available under the tax qualified ERISA plan, but were subject to the limitations of ERISA, tax laws and regulations. Company expenses for these plans, a portion of which are discretionary, are primarily recorded in both cost of goods sold and selling, general and administrative expenses, with an immaterial portion included in earnings (loss) from discontinued operations before income taxes, and totaled $32.9 million, $27.3 million and $28.3 million for 2019, 2018 and 2017, respectively.

The deferred compensation liability under the BRP was $45.7 million and $49.3 million at August 31, 2019 and 2018, respectively, with $39.9 million and $42.8 million, respectively, included in other long-term liabilities on the Company's consolidated balance sheets. At August 31, 2019 and 2018, $5.8 million and $6.5 million, respectively, of the deferred compensation liability related to the BRP was included in accrued expenses and other payables on the Company's consolidated balance sheets. Though under no obligation to fund the BRP, the Company has segregated assets in a trust with a current value of $56.3 million and $56.2 million at August 31, 2019 and 2018, respectively, and such assets were included in other long-term assets on the Company's consolidated balance sheets. The net holding gain on these segregated assets was $3.3 million, $9.3 million, and $7.5 million for 2019, 2018 and 2017, respectively, and was included in net sales in the Company's consolidated statements of earnings.

In 2019, the Company acquired certain assets, including a partially funded defined benefit pension plan, from Gerdau S.A., (the "Plan") as part of the Acquisition. Upon acquisition, the excess of projected Plan benefit obligations over the Plan assets was recognized as a liability and previously existing deferred actuarial gains and losses and unrecognized service costs or benefits were eliminated. Pension benefits associated with the Plan are generally based on each participant’s years of service, compensation, and age at retirement or termination. The Plan was closed to new participants prior to acquisition. The following tables include a reconciliation of the beginning and ending balances of pension benefit obligation and the fair value of plan assets as well as a summary of the related amounts recognized in the Company’s consolidated balance sheet as of August 31, 2019. No information is presented for prior periods as the Plan was acquired in 2019.



(in thousands)	2019
Benefit obligation at beginning of year	$	—
Acquisition	26,336
Service cost	354
Interest cost	926
Actuarial loss	4,883
Benefits paid	(838		)
Benefit obligation at end of year	$	31,661

Fair value of plan assets at beginning of year	$	—
Acquisition	21,023
Actual return on plan assets	2,887
Administrative expenses	(69		)
Employer contributions	432
Benefits paid	(838		)
Fair value of plan assets at end of year	23,435
Funded status at end of year (net liability recognized in balance sheet as of August 31)	$	(8,226	)

Amounts recognized in accumulated other comprehensive income as of August 31
Net actuarial loss	$	2,823

The pension accumulated benefit obligation represents the actuarial present value of benefits based on employee service and compensation as of the measurement date and does not include an assumption about future compensation levels.

The service cost component of net periodic benefit cost is recorded in cost of goods sold. Components of net periodic benefit cost and other supplemental information are detailed below.



(in thousands)	2019
Service cost	$	354
Expected administrative expenses	250
Interest cost	926
Expected return on plan assets	(1,008		)
Total net periodic benefit cost	522
Other changes in plan assets and benefit obligations recognized in other comprehensive income
Net actuarial loss arising during measurement period	2,823
Total recognized in other comprehensive income	2,823
Total recognized in net periodic benefit cost and other comprehensive income	$	3,345

Weighted-average assumptions used to determine benefit obligations as of August 31, 2019 are detailed below.



	2019
Effective discount rate for benefit obligations	3.2	%

Weighted-average assumptions used to determine net periodic benefit cost for 2019 are detailed below.



	2019
Effective rate for interest on benefit obligations	4.3	%
Effective rate for service cost	4.7	%
Expected long-term rate of return	6.0	%

The Company determines the discount rate used to measure plan liabilities as of the August 31 measurement date for the Plan, which is also the date used for the related annual measurement assumptions. The discount rate reflects the current rate at which the associated liabilities could be effectively settled at the end of the year. The Company sets its rate to reflect the yield of a portfolio of high quality, corporate bonds that would produce cash flows sufficient in timing and amount to settle projected future benefits.

The Company measures service cost and interest cost separately using the full yield curve approach applied to each corresponding obligation. Service costs are determined based on duration-specific spot rates applied to the service cost cash flows. The interest cost calculation is determined by applying duration-specific spot rates to the year-by-year projected benefit payments. The full yield curve approach does not affect the measurement of the total benefit obligations.

The Company’s assumption for the expected return on plan assets was 6% in 2019. Projected returns are based primarily on broad, publicly traded equity and fixed-income indices and forward-looking estimates. As of August 31, 2019, the Company’s expected long-term rate of return on plan assets for 2020 is 6%. The expected return assumption is based on the strategic asset allocation of the plan and long term capital market return expectations.

The Company expects to contribute $1.0 million to meet minimum cash funding requirements in 2020. Future contributions will depend on market conditions, interest rates and other factors.

Plan Assets

Plan assets consist primarily of public equity and corporate bonds. The principal investment objectives are to maximize total return without assuming undue risk exposure. Each asset class has broadly diversified characteristics. Asset and benefit obligation forecasting studies are conducted periodically, generally every two to three years, or when significant changes have occurred in market conditions, benefits, participant demographics or funded status.

The plan's weighted-average asset targets and actual allocations as a percentage of plan assets, including the notional exposure of future contracts by asset categories, are detailed below.



	Pension Assets
	Target Percent			2019
Fixed income securities	50%	—	55%	50.1%
Equity securities:
Domestic	25.0	—	30.0	26.0
International	10.0	—	15.0	12.7
Mutual funds	5.0	—	10.0	9.5
Cash	—	—	5.0	1.7
Total				100.0%

Investment Valuation

Investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability at the measurement date.

Investments in securities traded on a national securities exchange are valued at the last reported sales price on the final business day of the year.

Fixed income securities are valued at the yields currently available on comparable securities of issues with similar credit ratings.

Purchases and sales of securities are recorded as of the trade date. Realized gains and losses on sales of securities are determined based on average cost. Interest income is recognized on the accrual basis. Dividend income is recognized on the ex-dividend date.

Non-interest bearing cash is valued at cost, which approximates fair value.

Fair Value Measurements

See Note 13, Fair Value, for a discussion of fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The following table sets forth the plan assets by asset class as of August 31, 2019. All securities are traded on a national securities exchange and therefore are Level 1 assets in the fair value hierarchy.



(in thousands)	Fair Value at Measurement Date
Asset Class	August 31, 2019
Fixed income securities	$	11,738
Equity securities:
Domestic	6,090
International	2,981
Mutual funds	2,232
Total equity securities	11,303
Cash	411
Total	23,452
Other	(17		)
Fair value of plan assets	$	23,435

Future Pension Benefit Payments

The table provides the estimated pension benefit payments that are payable from the plans to participants in the following years:



Year Ended August 31,	(in thousands)
2020	$	1,265
2021	1,343
2022	1,408
2023	1,464
2024	1,515
Next five years	8,146