) 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. The Company made contributions totaling $234,000, $240,000 and $307,000 to the Delaware Plan during 2015, 2014 and 2013, respectively, and expects to make contributions of $246,000 during 2016.

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

	Year Ended
	October 3,			September 27,			September 28,
(In thousands)	2015			2014			2013
Change in benefit obligation:
Benefit obligation at beginning of year	$	3,078		$	2,973		$	3,181
Interest cost		130			137			128
Actuarial loss (gain)		514			174			(134	)
Distributions		(259	)		(206	)		(202	)
Benefit obligation at end of year	$	3,463		$	3,078		$	2,973

Change in plan assets:
Fair value of plan assets at beginning of year	$	2,253		$	2,045		$	1,739
Actual return on plan assets		(27	)		178			201
Employer contributions		234			240			307
Distributions		(259	)		(210	)		(202	)
Fair value of plan assets at end of year	$	2,201		$	2,253		$	2,045

Reconciliation of funded status to net amount recognized:
Funded status	$	(1,263	)	$	(825	)	$	(928	)
Net amount recognized	$	(1,263	)	$	(825	)	$	(928	)

Amounts recognized on the consolidated balance sheet:
Accrued benefit liability	$	(1,263	)	$	(825	)	$	(928	)
Accumulated other comprehensive loss (net of tax)		1,197			782			706
Net amount recognized	$	(66	)	$	(43	)	$	(222	)

Amounts recognized in accumulated other comprehensive loss:
Unrecognized net loss	$	1,930		$	1,261		$	1,138
Net amount recognized	$	1,930		$	1,261		$	1,138

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
Net loss (gain)	$	723		$	165		$	(192	)
Amortization of net loss		(53	)		(43	)		(56	)
Total recognized in other comprehensive income (loss)	$	670		$	122		$	(248	)

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

	Year Ended
	October 3,			September 27,			September 28,
(In thousands)	2015			2014			2013
Interest cost	$	130		$	137		$	128
Expected return on plan assets		(181	)		(165	)		(142	)
Amortization of net loss		53			43			56
Net periodic pension cost	$	2		$	15		$	42

The estimated net loss that will be amortized from accumulated other comprehensive loss into net periodic pension cost during 2016 is $69,000.

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

Fiscal year(s)			In thousands
	2016		$	217
	2017			212
	2018			216
	2019			215
	2020			213
2021	-	2025		1,055

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

	Measurement Date
	October 3,			September 27,			September 28,
	2015			2014			2013
Assumptions at year-end:
Discount rate		4.25	%		4.25	%		4.75	%
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 assets 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 become 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 3,			October 3,			September 27,			September 28,
	2015			2015			2014			2013
Large-cap equities		35.0	%		37.6	%		36.6	%		37.7	%
Mid-cap equities		8.0	%		7.7	%		7.4	%		8.1	%
Small-cap equities		9.0	%		8.2	%		8.3	%		8.5	%
International equities		8.0	%		8.8	%		8.8	%		7.5	%
Fixed income securities		40.0	%		37.3	%		38.0	%		36.1	%
Cash and cash equivalents		0.0	%		0.4	%		0.9	%		2.1	%

As of October 3, 2015, the Delaware Plan’s assets include equity securities, fixed income securities and cash and cash equivalents, 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 3, 2015 and September 27, 2014 are as follows:

(In thousands)	Total at October 3, 2015		Quoted Prices in Active Markets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Large-cap equities	$	828	$	828	$	-	$	-
Mid-cap equities		169		169		-		-
Small-cap equities		181		181		-		-
International equities		195		195		-		-
Fixed income securities		820		820		-		-
Cash and cash equivalents		8		-		8		-
Total	$	2,201	$	2,193	$	8	$	-

(In thousands)	Total at September 27, 2014		Quoted Prices in Active Markets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Large-cap equities	$	825	$	825	$	-	$	-
Mid-cap equities		166		166		-		-
Small-cap equities		187		187		-		-
International equities		199		199		-		-
Fixed income securities		855		855		-		-
Cash and cash equivalents		21		-		21		-
Total	$	2,253	$	2,232	$	21	$	-

Equity securities are primarily direct investments 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. Fixed income securities are 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. Cash and cash equivalents are money market funds that are valued based on the net asset value as determined by the fund each business day.

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 and amounts recognized for the SERPs in the Company’s consolidated balance sheets is as follows:

	Year Ended
	October 3,			September 27,			September 28,
(In thousands)	2015			2014			2013
Change in benefit obligation:
Benefit obligation at beginning of year	$	7,480		$	6,938		$	7,461
Service cost		287			219			242
Interest cost		323			315			287
Actuarial loss (gain)		21			298			(807	)
Distributions		(290	)		(290	)		(245	)
Benefit obligation at end of year	$	7,821		$	7,480		$	6,938

Change in plan assets:
Actual employer contributions	$	290		$	290		$	245
Actual distributions		(290	)		(290	)		(245	)
Plan assets at fair value at end of year	$	-		$	-		$	-

Reconciliation of funded status to net amount recognized:
Funded status	$	(7,821	)	$	(7,480	)	$	(6,938	)
Net amount recognized	$	(7,821	)	$	(7,480	)	$	(6,938	)

Amounts recognized in accumulated other comprehensive loss:
Unrecognized net loss	$	1,531		$	1,627		$	1,380
Net amount recognized	$	1,531		$	1,627		$	1,380

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
Net loss (gain)	$	21		$	298		$	(807	)
Prior service costs		-			-			(227	)
Amortization of net loss		(117	)		(52	)		(136	)
Total recognized in other comprehensive income (loss)	$	(96	)	$	246		$	(1,170	)

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

	Year Ended
	October 3,		September 27,		September 28,
(In thousands)	2015		2014		2013
Service cost	$	287	$	219	$	242
Interest cost		323		315		287
Prior service cost		-		-		227
Amortization of net loss		117		52		136
Net periodic pension cost	$	727	$	586	$	892

The estimated net loss that will be amortized from accumulated other comprehensive loss into net periodic pension cost during 2016 is $85,000.

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

	Measurement Date
	October 3,			September 27,			September 28,
	2015			2014			2013
Assumptions at year-end:
Discount rate		4.25	%		4.25	%		4.75	%
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
	2016		$	290
	2017			290
	2018			358
	2019			320
	2020			240
2021	-	2025		2,645

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 policies on the Participants purchased and owned by the Company. The cash benefits paid under these SERPs were $25,000 in 2015 and in 2014, and $28,000 in 2013. The expense attributable to these SERPs was $23,000 in 2015, $16,000 in 2014 and $15,000 in 2013.

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 2013 to 2015, 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 2013 - 2015, 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 $967,000 in 2015, $862,000 in 2014 and $758,000 in 2013.

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 $6.3 million in 2015, $4.6 million in 2014 and $3.6 million in 2013. The Company is primarily self-insured for each employee’s healthcare costs, carrying stop-loss insurance coverage for individual claims in excess of $175,000 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.