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Note 9 - Postretirement and Postemployment Benefits | 12 Months Ended
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Sep. 26, 2021
Other Postretirement Benefits Plan [Member] |
Notes to Financial Statements |
Retirement Benefits [Text Block] | 9 POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS We provide retiree medical and life insurance benefits under postretirement plans at several of our operating locations. The level and adjustment of participant contributions vary depending on the specific plan. Our liability and related expense for benefits under the postretirement plans are recorded over the service period of active employees based upon annual actuarial calculations. We accrue postemployment disability benefits when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid. The net periodic postretirement benefit cost (benefit) components for our postretirement plans are as follows:
(Thousands of Dollars) |  | 2021 |  |  | 2020 |  |  | 2019 |
Service cost for benefits earned during the year |  |  | 207 |  |  |  | 500 |  |  |  | — |
Interest cost on projected benefit obligation |  |  | 429 |  |  |  | 869 |  |  |  | 412 |
Expected return on plan assets |  |  | (1,007 | ) |  |  | (1,060 | ) |  |  | (1,082 | )
Amortization of net actuarial gain |  |  | (685 | ) |  |  | (743 | ) |  |  | (976 | )
Amortization of prior service benefit |  |  | (647 | ) |  |  | (647 | ) |  |  | (723 | )
Curtailment gains |  |  | (23,830 | ) |  |  | — |  |  |  | — |
Net periodic postretirement benefit |  |  | (25,533 | ) |  |  | (1,081 | ) |  |  | (2,369 | )
Changes in benefit obligations and plan assets are as follows:
(Thousands of Dollars) |  | 2021 |  |  | 2020 |
Benefit obligation, beginning of year |  |  | 47,637 |  |  |  | 11,752 |
Business combination |  |  | — |  |  |  | 36,800 |
Service cost |  |  | 207 |  |  |  | 500 |
Interest cost |  |  | 429 |  |  |  | 869 |
Liability (gain) loss due to Curtailment |  |  | (23,830 | ) |  |  | — |
Actuarial loss (gain) |  |  | (4,285 | ) |  |  | (982 | )
Benefits paid, net of premiums received |  |  | (1,678 | ) |  |  | (1,374 | )
Medicare Part D subsidies |  |  | 58 |  |  |  | 72 |
Benefit obligation, end of year |  |  | 18,538 |  |  |  | 47,637 |
Fair value of plan assets, beginning of year |  |  | 25,706 |  |  |  | 24,135 |
Business combination |  |  | — |  |  |  | — |
Actual return on plan assets |  |  | 1,534 |  |  |  | 1,594 |
Employer contributions |  |  | 1,293 |  |  |  | 646 |
Benefits paid, net of premiums and Medicare Part D subsidies received |  |  | (1,795 | ) |  |  | (1,077 | )
Benefits paid for active employees |  |  | 64 |  |  |  | (438 | )
One time asset transfer |  |  | — |  |  |  | 846 |
Fair value of plan assets at measurement date |  |  | 26,802 |  |  |  | 25,706 |
Funded status |  |  | 8,264 |  |  |  | (21,931 | )
Disaggregated amounts recognized in the Consolidated Balance Sheets are as follows:
|  | September 26 |  |  | September 27 |
(Thousands of Dollars) |  | 2021 |  |  | 2020 |
Non-current assets |  | 17,664 |  |  | 15,241 |
Postretirement benefit obligations |  | (9,859 | ) |  | (37,172 | )
Accumulated other comprehensive income (before income tax benefit) |  | 17,747 |  |  | 14,269 |
Amounts recognized in accumulated other comprehensive income are as follows:
|  | September 26 |  |  | September 27 |
(Thousands of Dollars) |  | 2021 |  |  | 2020 |
Unrecognized net actuarial gain |  | 14,071 |  |  | 4,826 |
Unrecognized prior service benefit |  | 3,676 |  |  | 9,443 |
|  |  | 17,747 |  |  |  | 14,269 |
We expect to recognize $995,000 and $647,000 of unrecognized net actuarial gain and unrecognized prior service benefit, respectively, in net periodic postretirement benefit in 2022. Assumptions Weighted-average assumptions used to determine postretirement benefit obligations are as follows:
|  | September 26 |  |  | September 27 |
(Percent) |  | 2021 |  |  | 2020 |
Discount rate |  | 2.6 |  |  | 2.7 |
Expected long-term return on plan assets |  | 4.0 |  |  | 4.5 |
The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns, current market conditions and composition of plan assets. Weighted-average assumptions used to determine net periodic benefit cost are as follows:
(Percent) |  | 2021 |  |  | 2020 |  |  | 2019 |
Discount rate - service cost |  | 2.5 |  |  | 3.4 |  |  | 4.0 |
Discount rate - interest cost |  | 1.9 |  |  | 2.8 |  |  | 3.7 |
Expected long-term return on plan assets |  | 4.0 |  |  | 4.5 |  |  | 4.5 |
For 2021, the expected long-term return on plan assets is 4.0%. The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns, current market conditions and composition of plan assets. Assumed health care cost trend rates are as follows:
|  | September 26 |  |  | September 27 |
(Percent) |  | 2021 |  |  | 2020 |
Health care cost trend rates |  | 6.2 |  |  | 6.4 |
Rate to which the cost trend rate is assumed to decline (the “Ultimate Trend Rate”) |  | 4.5 |  |  | 4.5 |
Year in which the rate reaches the Ultimate Trend Rate |  | 2030 |  |  | 2030 |
Administrative costs related to indemnity plans are assumed to increase at the health care cost trend rates noted above. In 2021, we notified certain participants in one of our postemployment medical plans of changes to their plan, including elimination of coverage for certain participants. These changes resulted in a non-cash curtailment gain of $23,830,000 in 2021. The curtailment gain is recorded in Curtailment gain in the Consolidated Statements of Income (loss) and Comprehensive Income (loss). These charges also reduced the postemployment benefit obligation by $23,830,000 in 2021. For the year ended September 26, 2021, the most significant driver of the decrease in benefit obligations for the plans was the higher actuarial gains experienced by all plans. The plans recognized actuarial gains due to small increases in bond yields that resulted in increases to the discount rates, actual return on assets exceeding expected returns for the year, and updated expected future claims costs. For the year ended September 27, 2020, the most significant driver of the increase in benefit obligations were the plans acquired in the Transactions, more than doubling the company's obligation and higher actuarial losses experienced by all plans. The plans incurred actuarial losses due to a fall in bond yields that resulted in decreases to the discount rates. Plan Assets Assets of the retiree medical plan are invested in a master trust. The master trust also pays benefits of active employee medical plans for the same union employees. The fair value of master trust assets allocated to the active employee medical plans at September 26, 2021 and September 27, 2020 is $631,000 and $671,000, respectively, which are included within the tables below. The primary objective of our investment strategy is to satisfy our postretirement obligations at a reasonable cost. Assets are actively invested to balance real growth of capital through appreciation and reinvestment of dividend and interest income and safety of invested funds. Our investment policy outlines the governance structure for decision making, sets investment objectives and restrictions, and establishes criteria for selecting and evaluating investment managers. The use of derivatives is strictly prohibited, except on a case-by-case basis where the manager has a proven capability, and only to hedge quantifiable risks such as exposure to foreign currencies. An investment committee, consisting of certain of our executives and supported by independent consultants, is responsible for monitoring compliance with the investment policy. Assets are periodically redistributed to maintain the appropriate policy allocation. The weighted-average asset allocation of our postretirement assets is as follows:
(Percent) |  | Policy Allocation |  |  | Actual Allocation |
|  |  |  |  |  | September 26 |  |  | September 27 |
Asset Class |  | September 26 2021 |  |  | 2021 |  |  | 2020 |
Equity securities |  | 20 |  |  | 20 |  |  | 20 |
Debt securities |  | 70 |  |  | 68 |  |  | 70 |
Hedge fund investment |  | 10 |  |  | 12 |  |  | 10 |
Cash and cash equivalents |  | — |  |  | — |  |  | — |
Plan assets include no Company securities. Assets include cash and cash equivalents and receivables from time to time due to the need to reallocate assets within policy guidelines. Fair Value Measurements The fair value hierarchy of postretirement assets at September 26, 2021 is as follows:
(Thousands of Dollars) |  | NAV |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Cash and cash equivalents |  | — |  |  | 25 |  |  | — |  |  | — |
Domestic equity securities |  | 904 |  |  | 2,643 |  |  | — |  |  | — |
Emerging equity securities |  | — |  |  | 603 |  |  | — |  |  | — |
International equity securities |  | — |  |  | 747 |  |  | 660 |  |  | — |
Debt securities |  | — |  |  | 18,363 |  |  | — |  |  | — |
Hedge fund investment |  | 3,235 |  |  | — |  |  | — |  |  | — |
The fair value hierarchy of postretirement assets at September 27, 2020 is as follows:
(Thousands of Dollars) |  | NAV |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Cash and cash equivalents |  |  | — |  |  |  | 59 |  |  |  | — |  |  |  | — |
Domestic equity securities |  |  | 590 |  |  |  | 2,868 |  |  |  | — |  |  |  | — |
Emerging equity securities |  |  | — |  |  |  | 539 |  |  |  | — |  |  |  | — |
International equity securities |  |  | — |  |  |  | 579 |  |  |  | 759 |  |  |  | — |
Debt securities |  |  | — |  |  |  | 18,229 |  |  |  | — |  |  |  | — |
Hedge fund investment |  |  | 2,754 |  |  |  | — |  |  |  | — |  |  |  | — |
There were no purchases, sales or transfers of assets classified as Level 3 in 2021 or 2020. Postretirement assets included in the fair value hierarchy at NAV, include two investments:
| • | U.S. small cap value equity common/collective fund for which fund prices are not publicly available. The balance of this investment is $904,000 and $590,000 as of 9/26/2021 and 9/27/2020, respectively. We can redeem this fund on a monthly basis.
| • | Global equity long/short common/collective hedge fund-of-funds for which fund prices are established on a monthly basis. The balance of this investment is $3,235,000 and $2,754,000 as of 9/26/2021 and 9/27/2020, respectively. We can redeem up to 90% of our investment in this fund within 90-120 days of notice with the remaining distributed following completion of the audit of the Fund's financial statements for the year.
Cash Flows Based on our forecast at September 26, 2021, we do not expect to contribute to our postretirement plans in 2022. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Modernization Act”) introduced a prescription drug benefit under Medicare (“Medicare Part D”) and a federal subsidy to sponsors of retiree health care benefit plans (“Subsidy”) that provide a benefit at least actuarially equivalent (as that term is defined in the Modernization Act) to Medicare Part D. We concluded we qualify for the Subsidy under the Modernization Act since the prescription drug benefits provided under our postretirement health care plans generally require lower premiums from covered retirees and have lower deductibles than the benefits provided in Medicare Part D and, accordingly, are actuarially equivalent to or better than, the benefits provided under the Modernization Act. We anticipate future benefit payments to be paid either with future contributions to the plan or directly from plan assets, as follows:
|  |  |  |  |  |  | Less |  |  |  |  |
|  |  |  |  |  |  | Medicare |  |  |  |  |
|  |  | Gross |  |  | Part D |  |  | Net |
(Thousands of Dollars) |  |  | Payments |  |  | Subsidy |  |  | Payments |
2022 |  |  |  | 1,479 |  |  |  | (58 | ) |  |  | 1,421 |
2023 |  |  |  | 1,424 |  |  |  | (55 | ) |  |  | 1,369 |
2024 |  |  |  | 1,383 |  |  |  | (51 | ) |  |  | 1,332 |
2025 |  |  |  | 1,326 |  |  |  | (47 | ) |  |  | 1,279 |
2026 |  |  |  | 1,277 |  |  |  | (43 | ) |  |  | 1,234 |
2027-2031 |  |  |  | 5,439 |  |  |  | (158 | ) |  |  | 5,281 |
Postemployment Plan Our postemployment benefit obligation, which represents certain disability benefits, is $2,233,000 at September 26, 2021 and $2,371,000 at September 27, 2020.

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