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Employee Benefit Plans
12 Months Ended
Oct. 01, 2011
Employee Benefit Plans [Abstract] 
Employee Benefit Plans

(11) Employee Benefit Plans

Retirement plans. The Company has one defined benefit pension plan, the Insteel Wire Products Company Retirement Income Plan for Hourly Employees, Wilmington, Delaware (“the Delaware Plan”). The Delaware Plan provides benefits for eligible employees based primarily upon years of service and compensation levels. The Company’s funding policy is to contribute amounts at least equal to those required by law. The Delaware Plan was frozen effective September 30, 2008 whereby participants will no longer earn additional benefits. In February 2011, as part of the planned closure of the Wilmington, Delaware facility, the Company amended the Delaware Plan granting certain participants additional service credit. The amendment resulted in a one-time charge of $306,000 that was recorded during 2011 within restructuring charges on the consolidated statement of operations. The Company made contributions totaling $478,000 to the Delaware Plan during 2011 and expects to make contributions of $265,000 during 2012.

 

The reconciliation of the projected benefit obligation, plan assets, funded status of the plan and amounts recognized in the Company’s consolidated balance sheets for the Delaware Plan is as follows:

 

                         
    Year Ended  
(In thousands)   October 1,
2011		     October 2,
2010		     October 3,
2009		  

Change in benefit obligation:

                        

Benefit obligation at beginning of year

   $ 4,280     $ 4,289     $ 4,377  

Amendments

     306       —       —  

Interest cost

     193       211       250  

Actuarial loss

     69       182       150  

Settlement

     (1,423 )      —       —  

Distributions

     (194 )      (402 )      (488 ) 
   

 

 

    

 

 

    

 

 

  

Benefit obligation at end of year

   $ 3,231     $ 4,280     $ 4,289  
   

 

 

    

 

 

    

 

 

  
       

Change in plan assets:

                        

Fair value of plan assets at beginning of year

   $ 3,017     $ 3,053     $ 3,764  

Actual return on plan assets

     10       366       (223 ) 

Employer contributions

     477       —       —  

Settlement

     (1,651 )      —       —  

Distributions

     (193 )      (402 )      (488 ) 
   

 

 

    

 

 

    

 

 

  

Fair value of plan assets at end of year

   $ 1,660     $ 3,017     $ 3,053  
   

 

 

    

 

 

    

 

 

  
       

Reconciliation of funded status to net amount recognized:

                        

Funded status

   $ (1,571 )    $ (1,263 )    $ (1,236 ) 
   

 

 

    

 

 

    

 

 

  

Net amount recognized

   $ (1,571 )    $ (1,263 )    $ (1,236 ) 
   

 

 

    

 

 

    

 

 

  
       

Amounts recognized on the consolidated balance sheet:

                        

Accrued benefit liability

   $ (1,571 )    $ (1,263 )    $ (1,236 ) 

Accumulated other comprehensive loss (net of tax)

     909       1,225       1,336  
   

 

 

    

 

 

    

 

 

  

Net amount recognized

   $ (662 )    $ (38 )    $ 100  
   

 

 

    

 

 

    

 

 

  
       

Amounts recognized in accumulated other comprehensive loss:

                        

Unrecognized net loss

   $ 1,466     $ 1,975     $ 2,155  
   

 

 

    

 

 

    

 

 

  

Net amount recognized

   $ 1,466     $ 1,975     $ 2,155  
   

 

 

    

 

 

    

 

 

  
       

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):

                        

Net loss (gain)

   $ (206 )    $ 16     $ 509  

Amortization of net loss

     (304 )      (195 )      (113 ) 
   

 

 

    

 

 

    

 

 

  

Total recognized in other comprehensive income (loss)

   $ (510 )    $ (179 )    $ 396  
   

 

 

    

 

 

    

 

 

  

Net periodic pension cost for the Delaware Plan includes the following components:

 

                         
    Year Ended  
(In thousands)   October 1,
2011		     October 2,
2010		     October 3,
2009		  

Service cost

   $ —     $ —     $ —  

Interest cost

     193       211       250  

Expected return on plan assets

     (211 )      (200 )      (262 ) 

Recognized net actuarial loss

     304       195       113  
   

 

 

    

 

 

    

 

 

  

Net periodic pension cost

   $ 286     $ 206     $ 101  
   

 

 

    

 

 

    

 

 

  

The Company incurred settlement losses of $704,000 and $126,000 during 2011 and 2009, respectively, for lump-sum distributions to plan participants.

The estimated net loss that will be amortized from accumulated other comprehensive income into net periodic pension cost during 2012 is $58,000.

 

The projected benefit payments under the Delaware Plan are as follows:

 

           

Fiscal year(s)

       In thousands    

2012

       $    192  

2013

             195  

2014

             279  

2015

             193  

2016

             198  

2017 - 2021

             949  

The assumptions used in the valuation of the Delaware Plan are as follows:

 

                         
                     Measurement Date                  
        October 1,    
2011		         October 2,    
2010		         October 3,    
2009		  

Assumptions at year-end:

                        

Discount rate

     4.75%       5.25%       5.50%  

Rate of increase in compensation levels

     N/A          N/A          N/A     

Expected long-term rate of return on assets

     8.00%       8.00%       8.00%  

The assumed discount rate is established as of the Company’s fiscal year-end measurement date. In establishing the discount rate, the Company reviews published market indices of high-quality debt securities, adjusted as appropriate for duration, and high-quality bond yield curves applicable to the expected benefit payments of the plan. To develop the expected long-term rate of return on asset assumption, the Company considers the historical returns and the future expectations of returns for each asset class, as well as the target asset allocation of the Delaware Plan portfolio.

The fundamental goal underlying the investment policy for the Delaware Plan is to ensure that its assets are invested in a prudent manner to meet the obligations of the plan as such obligations come due. The primary investment objectives include providing a total return that will promote the goal of benefit security by attaining an appropriate ratio of plan assets to plan obligations, diversifying investments across and within asset classes, minimizing the impact of losses in single investments and adhering to investment practices that comply with applicable laws and regulations. The investment strategy for equities emphasizes U.S. large cap equities with the portfolio’s performance measured against the S&P 500 index or other applicable indices. The investment strategy for fixed income investments is focused on maintaining an overall portfolio with a minimum credit rating of A-1 as well as a minimum rating of any security at the time of purchase of Baa/BBB by Moody’s or Standard & Poor’s, if rated.

The Delaware Plan has a long-term target asset mix of 60% equities and 40% fixed income. The asset allocation for the Delaware Plan is as follows:

 

                                         
        Target Allocation       Percentage of Plan Assets at Measurement Date
    October 1,
2011		       October 1,    
2011		       October 2,    
2010		       October 3,    
2009
         

Large-cap equities

       35.0 %       38.6 %       26.1 %       26.1 %

Mid-cap equities

       8.0 %       9.1 %       9.0 %       10.3 %

Small-cap equities

       9.0 %       6.1 %       8.7 %       8.5 %

International equities

       8.0 %       6.0 %       16.8 %       16.8 %

Fixed income securities

       40.0 %       39.3 %       38.1 %       38.3 %

Cash and cash equivalents

       0.0 %       0.9 %       1.3 %       0.0 %

 

As of October 1, 2011, the Delaware Plan’s assets include cash and cash equivalents, equity securities and fixed income securities and were required to be measured at fair value. The Company uses a three-tier hierarchy, which prioritizes the inputs used in measuring fair value, defined as follows: Level 1 — observable inputs such as quoted prices in active markets for identical assets and liabilities; Level 2 — inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 — unobservable inputs in which little or no market data exists, thereby requiring the development of valuation assumptions. The fair values of the Delaware Plan’s assets as of October 1, 2011 are as follows:

 

                                 
(In thousands)   Total     Quoted Prices
in Active
Markets
(Level 1)		     Observable
Inputs
(Level 2)		     Unobservable
Inputs (Level
3)		  

Large-cap equities

   $ 641     $ 641     $ —     $ —  

Mid-cap equities

     151       151       —       —  

Small-cap equities

     101       101       —       —  

International equities

     100       100       —       —  

Fixed income securities

     652       652       —       —  

Cash and cash equivalents

     15       15       —       —  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 1,660     $ 1,660     $ —     $ —  
   

 

 

    

 

 

    

 

 

    

 

 

  

Equity securities. Primarily consists of direct investment in the stock of publicly-traded companies that are valued based on the closing price reported in an active market on which the individual securities are traded. As such, the direct investments are classified as Level 1.

Fixed income securities. Government and corporate debt securities that are valued based on the closing price reported in an active market on which the individual securities are traded. As such, these securities are classified as Level 1.

Cash and cash equivalents. Direct cash holdings that are valued based on cost, which approximates fair value and as such, are classified as Level 1.

Supplemental employee retirement plan. The Company has Retirement Security Agreements (each, a “SERP”) with certain of its employees (each, a “Participant”). Under the SERPs, if the Participant remains in continuous service with the Company for a period of at least 30 years, the Company will pay to the Participant a supplemental retirement benefit for the 15-year period following the Participant’s retirement equal to 50% of the Participant’s highest average annual base salary for five consecutive years in the 10-year period preceding the Participant’s retirement. If the Participant retires prior to the later of age 65 or the completion of 30 years of continuous service with the Company, but has completed at least 10 years of continuous service with the Company, the amount of the supplemental retirement benefit will be reduced by 1/360th for each month short of 30 years that the Participant was employed by the Company. In 2005, the Company revised the SERPs to add Participants and increase benefits to existing Participants.

 

The reconciliation of the projected benefit obligation, plan assets, funded status of the plan and amounts recognized in the Company’s consolidated balance sheets for the SERPs is as follows:

 

                         
    Year Ended  
(In thousands)   October 1,
2011		     October 2,
2010		     October 3,
2009		  

Change in benefit obligation:

                        

Benefit obligation at beginning of year

   $ 5,590     $ 5,218     $ 4,121  

Service cost

     176       165       123  

Interest cost

     282       278       279  

Actuarial loss

     297       95       855  

Distributions

     (243 )      (166 )      (160 ) 
   

 

 

    

 

 

    

 

 

  

Benefit obligation at end of year

   $ 6,102     $ 5,590     $ 5,218  
   

 

 

    

 

 

    

 

 

  
       

Change in plan assets:

                        

Actual employer contributions

   $ 244     $ 166     $ 160  

Actual distributions

     (244 )      (166 )      (160 ) 
   

 

 

    

 

 

    

 

 

  

Plan assets at fair value at end of year

   $ —     $ —     $ —  
   

 

 

    

 

 

    

 

 

  
       

Reconciliation of funded status to net amount recognized:

                        

Funded status

   $ (6,102 )    $ (5,590 )    $ (5,218 ) 
   

 

 

    

 

 

    

 

 

  

Net amount recognized

   $ (6,102 )    $ (5,590 )    $ (5,218 ) 
   

 

 

    

 

 

    

 

 

  
       

Amounts recognized in accumulated other comprehensive loss:

                        

Unrecognized net loss

   $ 1,330     $ 1,067     $ 1,002  

Unrecognized prior service cost

     454       681       908  
   

 

 

    

 

 

    

 

 

  

Net amount recognized

   $ 1,784     $ 1,748     $ 1,910  
   

 

 

    

 

 

    

 

 

  
       

Other changes in plan assets and benefit obligations recognized in other
comprehensive income (loss):

                        

Net loss

   $ 297     $ 95     $ 855  

Prior service costs

   $ (227 )    $ (227 )    $ (227 ) 

Amortization of net loss

     (34 )      (30 )      —  
   

 

 

    

 

 

    

 

 

  

Total recognized in other comprehensive income (loss)

   $ 36     $ (162 )    $ 628  
   

 

 

    

 

 

    

 

 

  

Net periodic pension cost for the SERPs includes the following components:

 

                         
   
    Year Ended  
(In thousands)   October 1,
2011		     October 2,
2010		     October 3,
2009		  

Service cost

   $ 176     $ 165     $ 123  

Interest cost

     282       278       278  

Prior service cost

     227       227       227  

Amortization of net loss

     34       31       —  
   

 

 

    

 

 

    

 

 

  

Net periodic pension cost

   $ 719     $ 701     $ 628  
   

 

 

    

 

 

    

 

 

  

The estimated net loss and prior service costs that will be amortized from accumulated other comprehensive income into net periodic pension cost during 2012 are $61,000 and $227,000, respectively.

 

The assumptions used in the valuation of the SERPs are as follows:

 

                         
    Measurement Date  
    October 1,
2011		     October 2,
2010		     October 3,
2009		  

Assumptions at year-end:

                        

Discount rate

     4.75%       5.25%       5.50%  

Rate of increase in compensation levels

     3.00%       3.00%       3.00%  

The assumed discount rate is established as of the Company’s fiscal year-end measurement date. In establishing the discount rate, the Company reviews published market indices of high-quality debt securities, adjusted as appropriate for duration, and high-quality bond yield curves applicable to the expected benefit payments of the plan. The SERPs expected rate of increase in compensation levels is based on the anticipated increases in annual compensation.

The projected benefit payments under the SERPs are as follows:

 

           

Fiscal year(s)

       (In thousands)    

2012

     $       244  

2013

               244  

2014

               244  

2015

               244  

2016

               292  

2017- 2021

             1,346  

As noted above, the SERPs were revised in 2005 to add Participants and increase benefits to certain existing Participants. However, for certain Participants the Company still maintains the benefits of the respective SERPs that were in effect prior to the 2005 changes, which entitles them to fixed cash benefits upon retirement at age 65, payable annually for 15 years. These SERPs are supported by life insurance polices on the Participants purchased and owned by the Company. The cash benefits paid under these SERPs were $74,000 in 2011, $74,000 in 2010 and $76,000 in 2009. The expense attributable to these SERPs was $14,000 in 2011, $13,000 in 2010 and $12,000 in 2009.

Retirement savings plan. In 1996, the Company adopted the Retirement Savings Plan of Insteel Industries, Inc. (“the Plan”) to provide retirement benefits and stock ownership for its employees. The Plan is an amendment and restatement of the Company’s Employee Stock Ownership Plan. As allowed under Sections 401(a) and 401(k) of the Internal Revenue Code, the Plan provides for tax-deferred salary deductions for eligible employees.

During 2009 - 2011, employees were permitted to contribute up to 75% of their annual compensation to the Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Code. The Plan allows for discretionary contributions to be made by the Company as determined by the Board of Directors. Such contributions to the Plan are allocated among eligible participants based on their compensation relative to the total compensation of all participants. During 2009 - 2011, the Company matched employee contributions up to 100% of the first 1% and 50% of the next 5% of eligible compensation that was contributed by employees. Company contributions to the Plan were $604,000 in 2011, $439,000 in 2010 and $465,000 in 2009.

Voluntary Employee Beneficiary Associations (“VEBA”). The Company has a VEBA under which both employees and the Company may make contributions to pay for medical costs. Company contributions to the VEBA were $3.3 million in 2011, $2.2 million in 2010 and $2.9 million in 2009. The Company is primarily self-insured for each employee’s healthcare costs, carrying stop-loss insurance coverage for individual claims in excess of $125,000 per benefit plan year. The Company’s self-insurance liabilities are based on the total estimated costs of claims filed and claims incurred but not reported, less amounts paid against such claims. Management reviews current and historical claims data in developing its estimates.