6. Deferred Compensation and Retirement Plans

The Company has several deferred compensation and retirement plans for eligible consultants and vice presidents that provide defined benefits to participants based on the deferral of current compensation or contributions made by the Company subject to vesting and retirement or termination provisions.

The total benefit obligations for these plans were as follows:

 

		Year Ended April 30,
		2017				2016
		(in thousands)
Deferred compensation and pension plans		$	95,596			$	99,699
Medical and Life Insurance plan			12,147				13,006
International retirement plans			12,021				15,678
Executive Capital Accumulation Plan			111,584				105,676
Total benefit obligation			231,348				234,059
Less: current portion of benefit obligation			(11,443	)			(17,946	)
Non-current benefit obligation		$	219,905			$	216,113

 

Deferred Compensation and Pension Plans

The Enhanced Wealth Accumulation Plan (“EWAP”) was established in fiscal 1994, which replaced the Wealth Accumulation Plan (“WAP”). Certain vice presidents elected to participate in a “deferral unit” that required the participant to contribute a portion of their compensation for an eight year period, or in some cases, make an after tax contribution, in return for defined benefit payments from the Company over a fifteen year period at retirement age of 65 or later. Participants were able to acquire additional “deferral units” every five years. Vice presidents who did not choose to roll over their WAP units into the EWAP continue to be covered under the earlier version in which participants generally vest and commence receipt of benefit payments at retirement age of 65. In June 2003, the Company amended the EWAP and WAP, so as not to allow new participants or the purchase of additional deferral units by existing participants.

The Company also maintains a Senior Executive Incentive Plan (“SEIP”) for participants approved by the Board. Generally, to be eligible, the vice president must be participating in the EWAP. Participation in the SEIP required the participant to contribute a portion of their compensation during a four-year period, or in some cases make an after tax contribution, in return for a defined benefit paid by the Company generally over a fifteen year period after ten years of participation in the plan or such later date as elected by the participant. In June 2003, the Company amended the SEIP, so as not to allow new participants or the purchase of additional deferral units by existing participants.

The Company has a defined benefit pension plan, referred to as the Worldwide Executive Benefit (“WEB”), covering certain executives in the U.S. and foreign countries. The WEB is designed to integrate with government sponsored and local benefits and provide a monthly benefit to vice presidents upon retirement from the Company. Each year a plan participant accrued and was fully vested in one-twentieth of the targeted benefits expressed as a percentage set by the Company for that year. Upon retirement, a participant receives a monthly benefit payment equal to the sum of the percentages accrued over such participant’s term of employment, up to a maximum of 20 years, multiplied by the participant’s highest average monthly salary during the 36 consecutive months in the final 72 months of active full-time employment through June 2003. In June 2003, the Company froze the WEB, so as to not allow new participants, future accruals and future salary increases.

In conjunction with the acquisition of Legacy Hay on December 1, 2015, the Company acquired multiple pension and savings plans covering certain of its employees worldwide. Among these plans is a defined benefit pension plan for certain employees in the United States. The assets of this plan are held separately from the assets of the sponsors in self-administered funds. The plan is funded consistent with local statutory requirements.

On July 8, 2016, the Company established the Long Term Performance Unit Plan (“LTPU Plan”) in order to promote the success of the Company by providing a select group of management and highly compensated employees with nonqualified supplemental retirement benefits as an additional means to attract, motivate and retain such employee. A unit award has a base value of $50,000 for the purpose of determining the payment that would be made upon early termination for a partially vested unit awards. The units vest 25% on each anniversary date with the unit becoming fully vested on the fourth anniversary of the grant date, subject to the participant’s continued service as of each anniversary date. Each vested unit award will pay out an annual benefit of $25,000 for each of five years commencing on the seventh anniversary of the grant date.

 

Deferred Compensation and Pension Plans

The following tables reconcile the benefit obligation for the deferred compensation plans:

 

		Year Ended April 30,
		2017				2016				2015
		(in thousands)
Change in benefit obligation:
Benefit obligation, beginning of year		$	124,566			$	89,138			$	86,577
Service cost			5,507				—				—
Interest cost			3,820				3,423				2,989
Actuarial (gain) loss			(4,791	)			4,393				5,864
Acquisitions			—				39,079				—
Settlements			—				(4,799	)			—
Benefits paid from plan assets			(1,884	)			(595	)			—
Benefits paid from cash			(6,176	)			(6,073	)			(6,292	)
Benefit obligation, end of year			121,042				124,566				89,138
Change in fair value of plan assets:
Fair value of plan assets, beginning of year			24,867				—				—
Actual return on plan assets			2,463				(78	)			—
Benefits paid from plan assets			(1,884	)			(595	)			—
Acquisitions			—				25,540				—
Fair value of plan assets, end of year			25,446				24,867				—
Funded status and balance, end of year (1)		$	(95,596	)		$	(99,699	)		$	(89,138	)
Current liability		$	6,182			$	5,845			$	5,832
Non-current liability			89,414				93,854				83,306
Total liability		$	95,596			$	99,699			$	89,138
Plan Assets - weighted-average asset allocation:
Equity securities			54	%			64	%			—	%
Debt securities			46	%			31	%			—	%
Other			—	%			5	%			—	%
Total			100	%			100	%			—	%

 

(1)

The Company purchased COLI contracts insuring the lives of certain employees eligible to participate in the deferred compensation and pension plans as a means of funding benefits under such plans. As of April 30, 2017, 2016 and 2015, the Company held contracts with gross CSV of $180.3 million, $175.7 million and $172.3 million, offset by outstanding policy loans of $67.2 million, $68.4 million and $69.6 million, respectively.

 

The fair value measurements of the defined benefit plan assets fall within the following levels of the fair value hierarchy as of April 30, 2017 and 2016:

 

		Level 1				Level 2				Level 3				Total
		(in thousands)
April 30, 2017:
Mutual funds		$	—			$	25,446			$	—			$	25,446
Common stock			—				—				—				—
Corporate and municipal bonds			—				—				—				—
U.S. Treasury and agency securities			—				—				—				—
Money market funds			—				—				—				—
Total		$	—			$	25,446			$	—			$	25,446
April 30, 2016:
Mutual funds		$	7,990			$	—			$	—			$	7,990
Common stock			7,910				—				—				7,910
Corporate and municipal bonds			—				5,597				—				5,597
U.S. Treasury and agency securities			—				2,055				—				2,055
Money market funds			1,315				—				—				1,315
Total		$	17,215			$	7,652			$	—			$	24,867

Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. The investment goal is a return on assets that is at least equal to the assumed actuarial rate of return over the long term within reasonable and prudent levels of risk. Investment policies reflect the unique circumstances of the respective plans and include requirements designed to mitigate risk including quality and diversification standards. Asset allocation targets are reviewed periodically with investment advisors to determine the appropriate investment strategies for acceptable risk levels. Our target allocation ranges are as follows: equity securities 50% to 70%, debt securities 30% to 50% and other assets of 0% to 10%. We establish our estimated long-term return on plan assets considering various factors including the targeted asset allocation percentages, historic returns and expected future returns. In fiscal 2017, the Company changed the method of achieving the target allocation by investing in mutual funds that are only available to institutional investors rather than owning specific equity and debt instruments as was done in previous years. The mutual funds are valued at fair value as determined by the net asset value of shares held at year-end.

The components of net periodic benefits costs are as follows:

 

		Year Ended April 30,
		2017				2016				2015
		(in thousands)
Service cost		$	5,507			$	—			$	—
Interest cost			3,820				3,423				2,989
Amortization of actuarial loss			3,051				2,924				3,050
Expected return on plan assets			(1,559	)			(682	)			—
Net periodic benefit cost		$	10,819			$	5,665			$	6,039

The weighted-average assumptions used in calculating the benefit obligations were as follows:

 

		Year Ended April 30,
		2017				2016				2015
Discount rate, beginning of year			3.18	%			3.28	%			3.60	%
Discount rate, end of year			3.57	%			3.18	%			3.28	%
Rate of compensation increase			0.00	%			0.00	%			0.00	%
Expected long-term rates of return on plan assets			6.50	%			6.50	%			—	%

 

At April 30, 2017, the Company elected to change the method it uses to estimate the interest and service components of net periodic cost for its defined benefit pension and supplemental benefit plans, which will impact the estimate of net periodic cost beginning in fiscal 2018. The Company will utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. Previously, the Company estimated the interest and service cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. This change compared to the previous method will impact the interest and service components of net periodic cost in future periods. The Company made this change to provide a more precise measurement of interest and service costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of the total benefit obligation as the change in the interest and service costs is offset in net actuarial gains and losses. The impact to interest and service costs is not expected to be significant. The Company will account for this change prospectively as a change in accounting estimate.

Benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next ten years as follows:

 

Year Ending April 30,		Deferred Retirement Plans
		(in thousands)
2018		$	8,906
2019			9,148
2020			9,653
2021			9,163
2022			9,122
2023-2027			83,403

During fiscal 2018, the Company expects to recognize $2.3 million in net periodic benefit expense from deferred compensation and pension plans that will be transferred from accumulated other comprehensive income through the amortization of actuarial losses in the consolidated statements of income.

Medical and Life Insurance

In conjunction with the acquisition of Legacy Hay on December 1, 2015, the Company inherited a benefit plan which offers medical and life insurance coverage to approximately 190 participants. Medical and life insurance benefit plans are unfunded.

The following table reconciles the benefit obligation for the medical and life insurance plan:

 

		Year End April 30,
		2017				2016
		(in thousands)
Change in benefit obligation:
Benefit obligation, beginning of year		$	13,006			$	—
Acquisitions			—				12,322
Service cost			155				62
Interest cost			426				208
Actuarial (gain) loss			(833	)			816
Benefits paid			(607	)			(402	)
Benefit obligation, end of year		$	12,147			$	13,006
Current liability		$	765			$	673
Non-current liability			11,382				12,333
Total liability		$	12,147			$	13,006

 

The components of net periodic benefits costs are as follows:

 

		Year Ended April 30,
		2017				2016
		(in thousands)
Service cost		$	155			$	62
Interest cost			426				208
Net periodic benefit cost		$	581			$	270

The weighted-average assumptions used in calculating the Medical and Life Insurance plan were as follows:

 

		Year Ended April 30,
		2017				2016
Discount rate, beginning of year or acquisition date			3.36	%			4.10	%
Discount rate, end of year			3.75	%			3.36	%
Healthcare care cost trend rate			7.00	%			7.00	%

Benefit payments, which reflect expected future service, as appropriate, are expected to be paid over the next ten years as follows:

 

Year Ending April 30,		Medical and Life Insurance
		(in thousands)
2018		$	770
2019			781
2020			804
2021			820
2022			828
2023-2027			4,102

The current health care cost trend rate assumption is 7.0%. We anticipate that the health care cost trend rate assumption will be 5.0% by fiscal 2022. Increasing the assumed health care cost trend rate by one-percentage point would increase the accumulated postretirement benefit obligation for the medical and life insurance plan by less than $0.1 million. Decreasing the assumed health care cost trend rate by one-percentage point would decrease the accumulated postretirement benefit obligation for the medical and life insurance plan by less than $0.1 million.

International Retirement Plans

The Company also maintains various retirement plans and other miscellaneous deferred compensation arrangements in 21 foreign jurisdictions. The aggregate of the long-term benefit obligation accrued at April 30, 2017 and 2016 is $12.0 million for 1,710 participants and is $15.4 million for 1,450 participants, respectively. The Company’s contribution to these plans was $9.3 million and $5.1 million in fiscal 2017 and 2016, respectively.

Executive Capital Accumulation Plan

The Company’s ECAP is intended to provide certain employees an opportunity to defer salary and/or bonus on a pre-tax basis or make an after-tax contribution. In addition, the Company, as part of its compensation philosophy, makes discretionary contributions into the ECAP and such contributions may be granted to key employees annually based on the employee’s performance. Certain key management may also receive Company ECAP contributions upon commencement of employment. The Company amortizes these contributions on a straight-line basis over the service period, generally a four to five year period. Participants have the ability to allocate their deferrals among a number of investment options and may receive their benefits at termination, retirement or ‘in service’ either in a lump sum or in quarterly installments over one to 15 years. The ECAP amounts that are expected to be paid to employees over the next 12 months are classified as a current liability included in compensation and benefits payable on the accompanying balance sheet.

 

The Company issued ECAP awards during fiscal 2017, 2016 and 2015, of $6.2 million, $23.2 million and $19.1 million, respectively.

The ECAP is accounted for whereby the changes in the fair value of the vested amounts owed to the participants are adjusted with a corresponding charge (or credit) to compensation and benefits costs. During fiscal 2017 and 2015, the deferred compensation liability increased; therefore, the Company recognized compensation expense of $10.6 million and $5.9 million, respectively. Offsetting the increases in compensation and benefits liability was an increase in the fair value of marketable securities classified as trading (held in trust to satisfy obligations of the ECAP liabilities) of $10.8 million and $8.8 million in fiscal 2017 and 2015, respectively, recorded in other income (loss), net on the consolidated statements of income. During fiscal 2016, the deferred compensation liability decreased; therefore, the Company recognized a credit to compensation expense of $1.7 million, offset by a decrease in the fair value of marketable securities classified as trading (held in trust to satisfy obligations of the ECAP liabilities) of $3.3 million, recorded in other income (loss), net on the consolidated statements of income.

Changes in the ECAP liability were as follows:

 

		Year Ended April 30,
		2017				2016
		(in thousands)
Balance, beginning of year		$	105,676			$	99,461
Employee contributions			5,349				7,015
Amortization of employer contributions			13,667				16,439
Gain (loss) on investment			10,565				(1,654	)
Employee distributions			(23,044	)			(15,201	)
Exchange rate fluctuations			(629	)			(384	)
Balance, end of year			111,584				105,676
Less: current portion			(4,496	)			(11,092	)
Non-current portion		$	107,088			$	94,584

As of April 30, 2017 and 2016, the unamortized portion of the Company contributions to the ECAP was $25.5 million and $33.2 million, respectively.

Defined Contribution Plan

The Company has a defined contribution plan (“401(k) plan”) for eligible employees. Participants may contribute up to 50% of their base compensation as defined in the plan agreement. In addition, the Company has the option to make matching contributions. The Company intends to make matching contributions related to fiscal 2017 in fiscal 2018. The Company made a $1.8 million matching contribution in fiscal 2017 related to contributions made by employees in fiscal 2016 and a $1.7 million matching contribution in fiscal 2016 related to contributions made by employees in fiscal 2015.

Company Owned Life Insurance

The Company purchased COLI contracts insuring the lives of certain employees eligible to participate in the deferred compensation and pension plans as a means of funding benefits under such plans. The gross CSV of these contracts of $180.3 million and $175.7 million as of April 30, 2017 and 2016, respectively, is offset by outstanding policy loans of $67.2 million and $68.4 million in the accompanying consolidated balance sheets as of April 30, 2017 and 2016, respectively. Total death benefits payable, net of loans under COLI contracts, were $220.6 million and $216.7 million at April 30, 2017 and 2016, respectively. Management intends to use the future death benefits from these insurance contracts to fund the deferred compensation and pension arrangements; however, there may not be a direct correlation between the timing of the future cash receipts and disbursements under these arrangements. The CSV value of the underlying COLI investments increased by $4.9 million, $4.0 million and $10.5 million during fiscal 2017, 2016 and 2015, respectively, recorded as a decrease in compensation and benefits expense. In addition, certain policies are held in trusts to provide additional benefit security for the deferred compensation and pension plans. As of April 30, 2017, COLI contracts with a net CSV of $59.5 million and death benefits, net of loans, of $99.9 million were held in trust for these purposes.