Benefit Plans
We have various pension and other defined benefit and defined contribution plans, in which substantially all employees may participate. We also have non-qualified supplemental executive and Board retirement plans.
Financial information on changes in benefit obligation and plan assets funded and balance sheets status as of August 31, 2013 and 2012 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Qualified Pension Benefits | | Non-Qualified Pension Benefits | | Other Benefits |
| 2013 | | 2012 | | 2013 | | 2012 | | 2013 | | 2012 |
| (Dollars in thousands) |
Change in benefit obligation: | |
| | |
| | |
| | |
| | |
| | |
|
Benefit obligation at beginning of period | $ | 671,066 |
| | $ | 501,053 |
| | $ | 34,470 |
| | $ | 29,728 |
| | $ | 64,189 |
| | $ | 56,864 |
|
Service cost | 31,387 |
| | 26,010 |
| | 721 |
| | 279 |
| | 2,936 |
| | 2,556 |
|
Interest cost | 25,445 |
| | 24,119 |
| | 1,316 |
| | 1,343 |
| | 2,275 |
| | 2,638 |
|
Transfers in from Agriliance Employee Retirement Plan |
|
| | 84,498 |
| | | | | | | | |
Actuarial loss (gain) | 12,819 |
| | 982 |
| | 3,455 |
| | 2,498 |
| | (5,243 | ) | | (1,997 | ) |
Assumption change | (64,483 | ) | | 62,755 |
| | (1,952 | ) | | 1,956 |
| | (16,693 | ) | | 6,437 |
|
Plan amendments |
|
| |
|
| |
|
| |
|
| |
|
| | (899 | ) |
Medicare D |
|
| |
|
| |
|
| |
|
| | 92 |
| | 625 |
|
Benefits paid | (34,950 | ) | | (28,351 | ) | | (1,785 | ) | | (1,334 | ) | | (2,014 | ) | | (2,035 | ) |
Benefit obligation at end of period | $ | 641,284 |
| | $ | 671,066 |
| | $ | 36,225 |
| | $ | 34,470 |
| | $ | 45,542 |
| | $ | 64,189 |
|
Change in plan assets: | |
| | |
| | |
| | |
| | |
| | |
|
Fair value of plan assets at beginning of period | $ | 688,196 |
| | $ | 540,822 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Actual gain on plan assets | 53,582 |
| | 50,515 |
| | | |
|
| |
|
| |
|
|
Company contributions | 23,800 |
| | 28,000 |
| | 1,785 |
| | 1,334 |
| | 2,014 |
| | 2,035 |
|
Transfers in from Agriliance Employee Retirement Plan |
|
| | 97,210 |
| | | | | | | | |
Benefits paid | (34,950 | ) | | (28,351 | ) | | (1,785 | ) | | (1,334 | ) | | (2,014 | ) | | (2,035 | ) |
Fair value of plan assets at end of period | $ | 730,628 |
| | $ | 688,196 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Funded status at end of period | $ | 89,344 |
| | $ | 17,130 |
| | $ | (36,225 | ) | | $ | (34,470 | ) | | $ | (45,542 | ) | | $ | (64,189 | ) |
Amounts recognized on balance sheet: | |
| | |
| | |
| | |
| | |
| | |
|
Non-current assets | $ | 89,930 |
| | $ | 17,695 |
| |
|
| |
|
| |
|
| |
|
|
Accrued benefit cost: |
|
| |
|
| | |
| | |
| | |
| | |
|
Current liabilities |
|
| |
|
| | $ | (3,051 | ) | | $ | (3,325 | ) | | $ | (2,919 | ) | | $ | (3,297 | ) |
Non-current liabilities | (586 | ) | | (565 | ) | | (33,174 | ) | | (31,145 | ) | | (42,623 | ) | | (60,892 | ) |
Ending balance | $ | 89,344 |
| | $ | 17,130 |
| | $ | (36,225 | ) | | $ | (34,470 | ) | | $ | (45,542 | ) | | $ | (64,189 | ) |
Amounts recognized in accumulated other comprehensive loss (pretax): | |
| | |
| | |
| | |
| | |
| | |
|
Net transition obligation |
|
| |
|
| |
|
| |
|
| |
|
| | $ | 563 |
|
Prior service cost (credit) | $ | 7,794 |
| | $ | 9,392 |
| | $ | 1,088 |
| | $ | 1,316 |
| | $ | (712 | ) | | (17 | ) |
Net loss (gain) | 253,288 |
| | 331,420 |
| | 10,685 |
| | 10,104 |
| | (5,415 | ) | | 683 |
|
Ending balance | $ | 261,082 |
| | $ | 340,812 |
| | $ | 11,773 |
| | $ | 11,420 |
| | $ | (6,127 | ) | | $ | 1,229 |
|
The accumulated benefit obligation of the qualified pension plans was $605.6 million and $628.5 million at August 31, 2013 and 2012, respectively. The accumulated benefit obligation of the non-qualified pension plans was $20.1 million and $19.7 million at August 31, 2013 and 2012, respectively.
As described in Note 4, Investments, during the year ended August 31, 2012, the Agriliance Plan assets and liabilities were proportionally transferred to CHS and Land O'Lakes. CHS received pension plan assets and liabilities of $97.2 million and $84.5 million, respectively, and recorded the net $12.7 million pension plan asset as a non-cash dividend. Our share of the Agriliance Plan's accumulated other comprehensive loss, or $44.8 million, was reflected in our pre-tax balance for accumulated other comprehensive loss as of August 31, 2012.
The assumption changes for the fiscal years ended August 31, 2013 and 2012 were related to increases in and reductions to the discount rates for both CHS and NCRA qualified pension plans, respectively. The changes in the discount rates were due to changes in the yield curves for investment grade corporate bonds that CHS and NCRA have historically used.
Components of net periodic benefit costs for the years ended August 31, 2013, 2012 and 2011 are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Qualified Pension Benefits | | Non-Qualified Pension Benefits | | Other Benefits |
| 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
| (Dollars in thousands) |
Components of net periodic benefit costs: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Service cost | $ | 31,387 |
| | $ | 26,010 |
| | $ | 25,232 |
| | $ | 721 |
| | $ | 279 |
| | $ | 1,246 |
| | $ | 2,936 |
| | $ | 2,556 |
| | $ | 1,771 |
|
Interest cost | 25,445 |
| | 24,119 |
| | 22,257 |
| | 1,316 |
| | 1,343 |
| | 1,933 |
| | 2,275 |
| | 2,638 |
| | 2,194 |
|
Expected return on assets | (49,728 | ) | | (40,904 | ) | | (41,770 | ) | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Settlement of retiree obligations |
|
| |
|
| |
|
| |
|
| |
|
| | 4,735 |
| |
|
| |
|
| |
|
|
Prior service cost (credit) amortization | 1,597 |
| | 1,831 |
| | 2,327 |
| | 228 |
| | 228 |
| | 141 |
| | (120 | ) | | (104 | ) | | (122 | ) |
Actuarial loss amortization | 22,615 |
| | 15,131 |
| | 16,090 |
| | 921 |
| | 428 |
| | 967 |
| | 1,104 |
| | 891 |
| | 513 |
|
Transition amount amortization |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | 562 |
| | 936 |
| | 935 |
|
Net periodic benefit cost | $ | 31,316 |
| | $ | 26,187 |
| | $ | 24,136 |
| | $ | 3,186 |
| | $ | 2,278 |
| | $ | 9,022 |
| | $ | 6,757 |
| | $ | 6,917 |
| | $ | 5,291 |
|
Weighted-average assumptions to determine the net periodic benefit cost: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Discount rate | 3.80 | % | | 5.00 | % | | 4.75 | % | | 4.25 | % | | 5.00 | % | | 4.75 | % | | 3.75 | % | | 4.75 | % | | 4.75 | % |
Expected return on plan assets | 7.25 | % | | 7.25 | % | | 7.75 | % | | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
|
Rate of compensation increase | 4.50 | % | | 4.50 | % | | 4.50 | % | | 4.75 | % | | 4.75 | % | | 4.75 | % | | 4.50 | % | | 4.50 | % | | 4.50 | % |
Weighted-average assumptions to determine the benefit obligations: | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Discount rate | 4.80 | % | | 3.80 | % | | 5.00 | % | | 4.50 | % | | 4.00 | % | | 5.00 | % | | 3.75 | % | | 3.75 | % | | 4.75 | % |
Rate of compensation increase | 4.85 | % | | 4.50 | % | | 4.50 | % | | 4.75 | % | | 4.75 | % | | 4.50 | % | | 4.50 | % | | 4.50 | % | | 4.50 | % |
The estimated amortization in fiscal 2014 from accumulated other comprehensive loss into net periodic benefit cost is as follows:
|
| | | | | | | | | | | |
| Qualified Pension Benefits | | Non-Qualified Pension Benefits | | Other Benefits |
| (Dollars in thousands) |
Amortization of prior service cost (benefit) | $ | 1,597 |
| | $ | 229 |
| | $ | (120 | ) |
Amortization of net actuarial loss (gain) | 18,576 |
| | 951 |
| | (374 | ) |
For measurement purposes, a 7.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for the year ended August 31, 2013. The rate was assumed to decrease gradually to 5.0% by 2022 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point change in the assumed health care cost trend rates would have the following effects:
|
| | | | | | | |
| 1% Increase | | 1% Decrease |
| (Dollars in thousands) |
Effect on total of service and interest cost components | $ | 700 |
| | $ | (580 | ) |
Effect on postretirement benefit obligation | 5,300 |
| | (4,700 | ) |
We provide defined life insurance and health care benefits for certain retired employees and Board of Directors participants. The plan is contributory based on years of service and family status, with retiree contributions adjusted annually.
We have other contributory defined contribution plans covering substantially all employees. Total contributions by us to these plans were $22.9 million, $20.6 million and $18.6 million, for the years ended August 31, 2013, 2012 and 2011, respectively.
We voluntarily contributed $23.8 million to qualified pension plans in fiscal 2013. Based on the funded status of the qualified pension plans as of August 31, 2013, we do not anticipate having to contribute to these plans in fiscal 2014, although we may voluntarily elect to do so. We expect to pay $6.0 million to participants of the non-qualified pension and postretirement benefit plans during fiscal 2014.
Our retiree benefit payments which reflect expected future service are anticipated to be paid as follows:
|
| | | | | | | | | | | | | | | |
| Qualified Pension Benefits | | Non-Qualified Pension Benefits | | Other Benefits |
| | | Gross | | Medicare D |
| (Dollars in thousands) |
2014 | $ | 33,704 |
| | $ | 3,051 |
| | $ | 2,919 |
| | $ | 200 |
|
2015 | 42,350 |
| | 896 |
| | 3,107 |
| | 200 |
|
2016 | 45,894 |
| | 799 |
| | 3,382 |
| | 200 |
|
2017 | 47,406 |
| | 4,609 |
| | 3,405 |
| | 200 |
|
2018 | 49,812 |
| | 2,628 |
| | 3,555 |
| | 200 |
|
2019-2023 | 282,842 |
| | 18,637 |
| | 19,329 |
| | 800 |
|
We have trusts that hold the assets for the defined benefit plans. CHS and NCRA have qualified plan committees that set investment guidelines with the assistance of external consultants. Investment objectives for the plans' assets are as follows:
| |
• | optimization of the long-term returns on plan assets at an acceptable level of risk |
| |
• | maintenance of a broad diversification across asset classes and among investment managers |
| |
• | focus on long-term return objectives |
Asset allocation targets promote optimal expected return and volatility characteristics given the long-term time horizon for fulfilling the obligations of the pension plans. During fiscal year 2013, the CHS pension plans' investment policy strategy was adjusted so that liabilities match assets, which was accomplished through changes to the asset portfolio mix to reduce volatility and de-risk the plan. Thus, the plans’ target allocation percentages were changed from 65% in fiscal 2012 to 50% in fiscal 2013 for fixed income securities, and from 35% in fiscal 2012 to 50% in fiscal 2013 for equity securities. An annual analysis of the risk versus the return of the investment portfolio is conducted to justify the expected long-term rate of return assumption. We generally use long-term historical return information for the targeted asset mix identified in asset and liability studies. Adjustments are made to the expected long-term rate of return assumption, when deemed necessary, based upon revised expectations of future investment performance of the overall investment markets.
The discount rate reflects the rate at which the associated benefits could be effectively settled as of the measurement date. In estimating this rate, we look at rates of return on fixed-income investments of similar duration to the liabilities in the plans that receive high, investment-grade ratings by recognized ratings agencies.
The investment portfolio contains a diversified portfolio of investment categories, including domestic and international equities, fixed-income securities and real estate. Securities are also diversified in terms of domestic and international securities, short and long-term securities, growth and value equities, large and small cap stocks, as well as active and passive management styles.
The committees believe that with prudent risk tolerance and asset diversification, the plans should be able to meet pension obligations in the future.
Our pension plans’ fair value measurements at August 31, 2013 and 2012 are as follows:
|
| | | | | | | | | | | | | | | |
| 2013 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (Dollars in thousands) |
Cash and cash equivalents | $ | 667 |
| |
|
| |
|
| | $ | 667 |
|
Equities: | |
| | |
| | |
| | |
|
Mutual funds | 113,982 |
| | 80,619 |
| |
|
| | 194,601 |
|
Fixed income securities: | |
| | |
| | |
| | |
|
Mutual funds | 75,729 |
| | 409,996 |
| | $ | 1,940 |
| | 487,665 |
|
Partnership and joint venture interests | | | 26,014 |
| | 3,403 |
| | 29,417 |
|
Real estate funds |
|
| |
|
| | 18,156 |
| | 18,156 |
|
Hedge funds |
|
| |
|
| | 122 |
| | 122 |
|
Total | $ | 190,378 |
| | $ | 516,629 |
| | $ | 23,621 |
| | $ | 730,628 |
|
|
| | | | | | | | | | | | | | | |
| 2012 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| (Dollars in thousands) |
Cash and cash equivalents | $ | 2,588 |
| | $ | 21,380 |
| |
|
| | $ | 23,968 |
|
Equities: | |
| | |
| | |
| | |
|
Mutual funds | 115,515 |
| | 289,286 |
| |
|
| | 404,801 |
|
Fixed income securities: | |
| | |
| | |
| | |
|
Mutual funds | 76,795 |
| | 164,380 |
| | $ | 1,868 |
| | 243,043 |
|
Real estate funds |
|
| |
|
| | 16,257 |
| | 16,257 |
|
Hedge funds |
|
| |
|
| | 127 |
| | 127 |
|
Total | $ | 194,898 |
| | $ | 475,046 |
| | $ | 18,252 |
| | $ | 688,196 |
|
Definitions for valuation levels are found in Note 12, Fair Value Measurements. We use the following valuation methodologies for assets measured at fair value.
Mutual funds: Valued at quoted market prices, which are based on the net asset value of shares held by the plan at year end. Mutual funds traded in active markets are classified within Level 1 of the fair value hierarchy. Certain of the mutual fund investments held by the plan have observable inputs other than Level 1 and are classified within Level 2 of the fair value hierarchy.
Partnership and joint venture interests: Valued at the net asset value of shares held by the plan at year end as a practical expedient for fair value. The net asset value is based on the fair value of the underlying assets owned by the trust, minus its liabilities then divided by the number of units outstanding. Certain of these investments have observable inputs other than Level 1 and are classified accordingly within Level 2 of the fair value hierarchy. Other investments in this category are valued using significant unobservable inputs and are classified within Level 3 of the fair value hierarchy.
Real Estate funds: Valued quarterly at estimated fair value based on the underlying investee funds in which the real estate fund invests. This information is compiled, in addition to any other assets and liabilities (accrued expenses and unit-holder transactions), to determine the fund’s unit value. The real estate fund is not traded on an active market and is classified within Level 3 of the fair value hierarchy.
Hedge funds: Valued at estimated fair value based on prices quoted by various national markets and publications and/or independent financial analysts. These investments are classified within Level 3 of the fair value hierarchy.
The preceding methods described may produce a fair value calculation that may not be indicative of the net realizable value or reflective of future fair values. Furthermore, although we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following tables set forth a summary of changes in the fair value of the plan’s Level 3 assets for the years ended August 31, 2013 and 2012:
|
| | | | | | | | | | | | | | | | | | | |
| 2013 |
| Mutual Funds | | Partnership and Joint Venture Interests | | Real Estate Funds | | Hedge Funds | | Total |
| (Dollars in thousands) |
Balances at beginning of period | $ | 1,868 |
| |
|
| | $ | 16,257 |
| | $ | 127 |
| | $ | 18,252 |
|
Unrealized gains (losses) | (4 | ) | |
|
| | 1,894 |
| | 7 |
| | 1,897 |
|
Realized gains (losses) | 82 |
| |
|
| | (10 | ) | |
|
| | 72 |
|
Sales | (12 | ) | |
|
| |
|
| | (12 | ) | | (24 | ) |
Purchases | | | $ | 3,403 |
| | 15 |
| |
|
| | 3,418 |
|
Transfers into level 3 | 6 |
| |
|
| | | | | | 6 |
|
Total | $ | 1,940 |
| | $ | 3,403 |
| | $ | 18,156 |
| | $ | 122 |
| | $ | 23,621 |
|
|
| | | | | | | | | | | | | | | |
| 2012 |
| Mutual Funds | | Real Estate Funds | | Hedge Funds | | Total |
| (Dollars in thousands) |
Balances at beginning of period |
|
| | $ | 14,522 |
| | $ | 191 |
| | $ | 14,713 |
|
Unrealized gains (losses) | $ | 48 |
| | 1,763 |
| | (68 | ) | | 1,743 |
|
Realized gains (losses) | 90 |
| | (48 | ) | | | | 42 |
|
Sales | (8 | ) | | (2 | ) | | | | (10 | ) |
Purchases | | | 22 |
| | 4 |
| | 26 |
|
Transfers into level 3 | 1,738 |
| | | | | | 1,738 |
|
Total | $ | 1,868 |
| | $ | 16,257 |
| | $ | 127 |
| | $ | 18,252 |
|
We are one of approximately 400 employers that contribute to the Co-op Retirement Plan (Co-op Plan), which is a defined benefit plan constituting a “multiple employer plan” under the Internal Revenue Code of 1986, as amended, and a “multiemployer plan” under the accounting standards. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:
| |
• | Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; |
| |
• | If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and |
| |
• | If we choose to stop participating in the multiemployer plan, we may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability. |
Our participation in the Co-op Plan for the years ended August 31, 2013, 2012, and 2011 is outlined in the table below:
|
| | | | | | | | | | | | | | | | | |
| |
| | Contributions of CHS | | | |
| | | | (Dollars in thousands) | | | |
Plan Name | | EIN/Plan Number | | 2013 | | 2012 | | 2011 | | Surcharge Imposed | Expiration Date of Collective Bargaining Agreement |
Co-op Retirement Plan | | 01-0689331 / 001 | | $ | 2,095 |
| | $ | 1,885 |
| | $ | 1,279 |
| | N/A | N/A |
Our contributions for the years stated above did not represent more than 5% of total contributions to the Co-op Plan as indicated in the Co-op Plan's most recently available annual report (Form 5500). Acquisitions during the years ended August 31, 2012 and 2011 increased the number of CHS covered participants in the Co-op Plan by approximately 70%, affecting the period-to-period comparability of the contributions for the years ending August 31, 2012 and 2011.
The Pension Protection Act (PPA) of 2006 does not apply to the Co-op Plan because it is covered and defined as a single-employer plan. There is a special exemption for cooperative plans defining them under the single-employer plan as long as the plan is maintained by more than one employer and at least 85% of the employers are rural cooperatives or cooperative organizations owned by agricultural producers. In the Co-op Plan, a “zone status” determination is not required, and therefore not determined. In addition, the accumulated benefit obligations and plan assets are not determined or allocated separately by individual employer. The most recent financial statements available in 2013 and 2012 are for the Co-op Plan's year-end at March 31, 2012 and 2011, respectively. In total, the Co-op Plan was at least 80% funded on those dates based on the total plan assets and accumulated benefit obligations.
Because the provisions of the PPA do not apply to the Co-op Plan, funding improvement plans and surcharges are not applicable. Future contribution requirements are determined each year as part of the actuarial valuation of the plan and may change as a result of plan experience.
In addition to the contributions to the Co-op Plan listed above, total contributions to individually insignificant multi-employer pension plans were immaterial in fiscal years 2013, 2012 and 2011.
