(

) Employee Benefit Plans

Retirement plans

We had

one

defined benefit pension plan, the Insteel Wire Products Company Retirement Income Plan for Hourly Employees, Wilmington, Delaware (the “Delaware Plan”). The Delaware Plan provided benefits for eligible employees based primarily upon years of service and compensation levels. The Delaware Plan was frozen effective

September 30, 2008

whereby participants

longer earned additional benefits.

During

2016,

we terminated the Delaware Plan and settled plan liabilities through either lump sum distributions to plan participants or annuity contracts purchased from a

third

-party insurance company that provided for the payment of vested benefits to those participants that did

not

elect the lump sum option. As of

October 1, 2016,

there were

remaining plan assets. We made contributions totaling

$1.9

million and

$234,000

to the Delaware Plan during

2016

and

2015,

respectively.

As a result of the

pension termination, unrecognized losses, which previously were recorded in accumulated other comprehensive loss on our consolidated balance sheets, were recognized as expense and the pension plan settlement loss of

$2.5

million was recorded on our consolidated statements of operations for the year ended

October 1, 2016.

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

	Year Ended
	October 1,			October 3,
(In thousands)	2016			2015
Change in benefit obligation:
Benefit obligation at beginning of year	$	3,463		$	3,078
Interest cost		147			130
Actuarial loss		324			514
Plan settlement		290			-
Distributions		(4,224	)		(259	)
Benefit obligation at end of year	$	-		$	3,463

Change in plan assets:
Fair value of plan assets at beginning of year	$	2,201		$	2,253
Actual return on plan assets		104			(27	)
Employer contributions		1,919			234
Plan settlement		(4,003	)		-
Distributions		(221	)		(259	)
Fair value of plan assets at end of year	$	-		$	2,201

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

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

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

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
Net loss	$	685		$	723
Amortization of net loss		(76	)		(53	)
Settlement loss		(2,539	)		-
Total recognized in other comprehensive income (loss)	$	(1,930	)	$	670

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

	Year Ended
	October 1,			October 3,
(In thousands)	2016			2015
Interest cost	$	147		$	130
Expected return on plan assets		(175	)		(181	)
Settlement loss recognized		2,539			-
Amortization of net loss		76			53
Net periodic pension cost	$	2,587		$	2

The assumptions used

in the valuation of the Delaware Plan are as follows:

	Measurement Date
	October 1,			October 3,
	2016			2015
Assumptions at year-end:
Discount rate		3.75	%		4.25	%
Expected long-term rate of return on assets		N/A			8.00	%

The assumed discount rate is established as of our fiscal year-end measurement date. In establishing the discount rate, we reviewed 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 Delaware Plan. To develop the expected long-term rate of return on assets assumption, we considered the historical returns and future expectations of returns for each asset class, as well as the target asset allocation of the Delaware Plan portfolio.

Prior to the termination and settlement of the

Delaware Plan the fundamental goal underlying the investment policy was to ensure that its assets were invested in a prudent manner to meet its obligations as such obligations became due. The primary investment objectives included providing a total return that would 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 complied with applicable laws and regulations. The investment strategy for equities emphasized 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 was focused on maintaining an overall portfolio with a minimum credit rating of A-

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 had a long-term target asset mix of

60%

equities and

40%

fixed income. The asset allocations for the Delaware Plan as of

October 3, 2015

were as follows:

	Percentage of Plan Assets at Measurement Date
Large-cap equities		37.6	%
Mid-cap equities		7.7	%
Small-cap equities		8.2	%
International equities		8.8	%
Fixed income securities		37.3	%
Cash and cash equivalents		0.4	%

Supplemental employee retirement plan.

We have Retirement Security Agreements (each, a “SERP”) with certain of our employees (each, a “Participant”). Under the SERPs, if the Participant remains in continuous service with us for a period of at least

years, we will pay them a supplemental retirement benefit for the

-year period following their retirement equal to

50%

of their highest average annual base salary for

five

consecutive years in the

-year period preceding their retirement. If the Participant retires prior to the later of age

or the completion of

years of continuous service with us, but has completed at least

years of continuous service, the amount of their supplemental retirement benefit will be reduced by

1/360th

for each month short of

years that they were employed by us. In

2005,

we revised the SERPs to add Participants and increase benefits to certain existing Participants.

The reconciliation of the projected benefit obligation, plan assets, funded status and amounts recognized

for the SERPs in our consolidated balance sheets is as follows:

	Year Ended
	September 30,			October 1,			October 3,
(In thousands)	2017			2016			2015
Change in benefit obligation:
Benefit obligation at beginning of year	$	9,159		$	7,821		$	7,480
Service cost		344			263			287
Interest cost		338			326			323
Actuarial (gain) loss		(162	)		1,039			21
Distributions		(290	)		(290	)		(290	)
Benefit obligation at end of year	$	9,389		$	9,159		$	7,821

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

Reconciliation of funded status to net amount recognized:
Funded status	$	(9,389	)	$	(9,159	)	$	(7,821	)
Net amount recognized	$	(9,389	)	$	(9,159	)	$	(7,821	)

Amounts recognized in accumulated other comprehensive loss:
Unrecognized net loss	$	2,149		$	2,485		$	1,531
Net amount recognized	$	2,149		$	2,485		$	1,531

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
Net loss (gain)	$	(162	)	$	1,039		$	21
Amortization of net loss		(174	)		(85	)		(117	)
Total recognized in other comprehensive income (loss)	$	(336	)	$	954		$	(96	)

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

	Year Ended
	September 30,		October 1,		October 3,
(In thousands)	2017		2016		2015
Service cost	$	344	$	263	$	287
Interest cost		338		326		323
Amortization of net loss		174		85		117
Net periodic pension cost	$	856	$	674	$	727

The estimated net loss that will be amortized from accumulated other comprehensive loss into net periodic pension cost during

2018

$150,000.

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

	Measurement Date
	September 30,			October 1,			October 3,
	2017			2016			2015
Assumptions at year-end:
Discount rate		3.75	%		3.75	%		4.25	%
Rate of increase in compensation levels		3.00	%		3.00	%		3.00	%

The assumed discount rate is established as of our fiscal year-end measurement date. In establishing the discount rate, we review 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
2018	$	358
2019		320
2020		240
2021		240
2022		543
2023- 2027		3,652

As noted above, the SERPs were revised in

2005

to add Participants and increase benefits to certain existing Participants. However, for certain Participants we still maintain the benefits of the respective SERPs that were in effect prior to the

2005

changes, which entitle them to fixed cash benefits upon retirement at age

65,

payable annually for

years. These SERPs are supported by life insurance policies on the Participants that are purchased and owned by us. The cash benefits paid under these SERPs were

$40,000

2017

and

25,000

2016

and

2015.

The expense attributable to these SERPs was

$34,000

2017,

$26,000

2016

and

$23,000

2015.

Retirement savings plan.

1996,

we adopted the Retirement Savings Plan of Insteel Industries, Inc. (the “Plan”) to provide retirement benefits and stock ownership for our employees. The Plan is an amendment and restatement of our 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.

The Plan allows for discretionary contributions to be made by

us as determined by the Board of Directors, which are allocated among eligible participants based on their compensation relative to the total compensation of all participants

Employees are 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. During

2015

2017,

we matched employee contributions up to

100%

of the

first

and

50%

of the next

of eligible compensation that was contributed by employees. Our contributions to the Plan were

$1.1

million in

2017

and

$1.0

million in

2016

and

2015.

Voluntary Employee Beneficiary Associations (“

VEBA

”

)

. We have a VEBA which allows both us and our employees to make contributions to pay for medical costs. Our contributions to the VEBA were

$5.6

million in

2017,

$5.4

million in

2016

and

$6.3

million in

2015.

We are primarily self-insured for our employee’s healthcare costs, carrying stop-loss insurance coverage for individual claims in excess of

$175,000

per benefit plan year. Our 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. We review current and historical claims data in developing our estimates.