Retirement Plans

We sponsor and contribute to defined benefit and defined contribution retirement plans. During

2016,

our defined benefit pension plans were the Gray Television, Inc. Retirement Plan (the “Gray Pension Plan”) as well as

two

plans assumed (the “Assumed Plans”) when we acquired the related businesses in prior years, both of which were frozen plans. On

December

31,

2016,

the

two

Assumed Plans were merged into the Gray Pension Plan. Effective

December

31,

2016,

the Assumed Plans had combined plan assets of

$5.8

million and combined projected benefit obligations of

$8.3

million. Monthly plan benefits under the Gray Pension Plan are frozen and can no longer increase and no new participants can be added to the Gray Pension Plan.

The Gray Pension Plan’s funding policy is consistent with the funding requirements of existing federal laws and regulations under the Employee Retirement Income Security Act of

1974.

The measurement dates used to determine the benefit information for the Gray Pension Plan were

December

31,

2016

and

2015,

respectively. The following summarizes the Gray Pension Plan’s funded status and amounts recognized on our consolidated balance sheets at

December

31,

2016

and

2015,

respectively (dollars in thousands):

	December 31,
	2016			2015
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	103,199		$	108,006
Service cost		-			3,130
Interest cost		4,398			4,159
Actuarial losses		1,839			420
Benefits paid		(2,790	)		(1,683	)
Effect of pension curtailment		-			(10,833	)
Merger of the Assumed Plans		8,330			-
Projected benefit obligation at end of year	$	114,976		$	103,199

Change in plan assets:
Fair value of pension plan assets at beginning of year	$	69,246		$	66,813
Actual return on plan assets		5,918			(1,034	)
Company contributions		2,775			5,150
Benefits paid		(2,790	)		(1,683	)
Merger of the Assumed Plans		5,780			-
Fair value of pension plan assets at end of year		80,929			69,246
Funded status of pension plan	$	(34,047	)	$	(33,953	)

Amounts recognized in our balance sheets consist of:
Accrued benefit cost	$	(5,121	)	$	(8,994	)
Accumulated other comprehensive loss		(28,926	)		(24,959	)
Net liability recognized	$	(34,047	)	$	(33,953	)

The accumulated benefit obligation amounts of the Gray Pension Plan are frozen and were

$115.0

million and

$103.2

million at

December

31,

2016

and

2015,

respectively. The long-term rate of return on assets assumption was chosen from a best estimate range based upon the anticipated long-term returns for asset categories in which the Gray Pension Plan is invested. The estimated rate of increase in compensation levels used to calculate the net periodic benefit cost for the year ended

December

31,

2015

applied only to the period prior to the Gray Pension Plan becoming frozen. This factor was not applicable after that time in the determination of the benefit obligation as of

December

31,

2016

and

2015:

	Year Ended December 31,
	2016		2015
Weighted-average assumptions used to determine net periodic benefit cost for the Gray pension plan:
Discount rate		4.31%		4.00%
Expected long-term rate of return on pension plan assets		7.00%		7.00%
Estimated rate of increase in compensation levels		N/A		5.63%

	As of December 31,
	2016		2015
Weighted-average assumptions used to determine benefit obligations:
Discount rate		4.11%		4.31%

Pension expense is computed using the projected unit credit actuarial cost method. The net periodic pension cost for the Gray Pension Plan includes the following components (in thousands):

	Year Ended December 31,
	2016			2015			2014
Components of net periodic pension cost:
Service cost	$	-		$	3,130		$	5,162
Interest cost		4,398			4,159			4,106
Expected return on plan assets		(4,836	)		(4,782	)		(4,200	)
Recognized net actuarial loss		406			1,580			969
Net periodic pension (benefit) cost	$	(32	)	$	4,087		$	6,037

For the Gray Pension Plan, the estimated future benefit payments are as follows (in thousands):

Years			Amount
	2017		$	2,722
	2018			2,933
	2019			3,299
	2020			3,790
	2021			4,090
2022	-	2026		25,216

The Gray Pension Plan’s weighted-average asset allocations by asset category were as follows:

	As of December 31,
	2016		2015
Asset category:
Insurance general account		23%		26%
Cash management accounts		6%		2%
Equity accounts		39%		54%
Fixed income accounts		28%		14%
Real estate accounts		4%		4%
Total		100%		100%

The investment objective is to achieve a consistent total rate of return (income, appreciation, and reinvested funds) that will equal or exceed the actuarial assumption with aversion to significant volatility. The following is the target asset allocation:

	Target Range
Asset class:	Strategic Allocation		Lower Limit		Upper Limit
Equities:
Large cap value		5%		0%		50%
Large cap blend		5%		0%		50%
Large cap growth		5%		0%		50%
Mid cap blend		15%		0%		40%
Small cap core		5%		0%		25%
Foreign large blend		10%		0%		40%
Emerging markets		10%		0%		25%
Real estate		5%		0%		20%
Fixed Income:
U.S. Treasury inflation protected		5%		0%		25%
Intermediate term bond		10%		0%		50%
Long term government bond		5%		0%		40%
High yield bond		10%		0%		25%
Emerging markets bond		10%		0%		20%
Money market taxable		0%		0%		100%

Our equity portfolio contains securities of companies necessary to build a diversified portfolio, and that we believe are financially sound. Our fixed income portfolio contains obligations generally rated A or better with no maturity restrictions and an actively managed duration. The cash equivalents strategy uses securities of the highest credit quality.

Fair Value of Gray Pension Plan Assets

We calculate the fair value of the Gray Pension Plan’s assets based upon the observable and unobservable net asset value of its underlying investments. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized by the fair value hierarchy proscribed by Accounting Standards Codification Topic

820,

described in Note

“Fair Value Measurement.”

The following table presents the fair value of the Gray Pension Plan’s assets and classifies them by level within the fair value hierarchy as of

December

31,

2016

and

2015,

respectively (in thousands):

Gray Pension Plan Fair Value Measurements

	As of December 31, 2016
	Level 1		Level 2		Level 3		Total
Assets:
Insurance general account	$	-	$	18,357	$	-	$	18,357
Cash management accounts		5,089		-		-		5,089
Equity accounts		31,963		-		-		31,963
Fixed income accounts		22,544		-		-		22,544
Real estate accounts		2,976		-		-		2,976
Total	$	62,572	$	18,357	$	-	$	80,929

	As of December 31, 2015
	Level 1		Level 2		Level 3		Total
Assets:
Insurance general account	$	-	$	17,918	$	-	$	17,918
Cash management accounts		1,273		-		-		1,273
Equity accounts		37,621		-		-		37,621
Fixed income account		9,924		-		-		9,924
Real estate accounts		2,510		-		-		2,510
Total	$	51,328	$	17,918	$	-	$	69,246

Expected Pension

Contributions

We expect to contribute a combined total of approximately

$3.0

million to our frozen defined benefit pension plan during the year ending

December

31,

2017.

Capital Accumulation Plan

The Gray Television, Inc. Capital Accumulation Plan (the “Capital Accumulation Plan”) is a defined contribution plan intended to meet the requirements of Section

401(k)

of the Internal Revenue Code. Effective beginning on

July

2015,

employer contributions under the Capital Accumulation Plan include matching cash contributions at a rate of

100%

of the

first

of each employee’s salary deferral, and

50%

of the next

of each employee’s salary deferral. For the years ended

December

31,

2016

and

2015,

our matching cash contributions to our Capital Accumulation Plan were

$8.8

million and

$1.8

million, respectively. As of

February

21,

2017,

we estimate that our matching cash contributions to the Capital Accumulation Plan for year ending

December

31,

2017

will be approximately

$8.6

million.

In addition, the Company, at its discretion,

may

make an additional profit sharing contribution, based on annual Company performance, to those employees who meet certain criteria. In the years ended

December

31,

2016

and

2015,

the Company has accrued discretionary contributions of

$3.4

million and

$1.6

million, respectively, as profit sharing contributions. Also during the years ended

December

31,

2016,

2015

and

2014,

we made other matching contributions of our Common Stock to the Capital Accumulation Plan as follows (dollars in thousands):

	Year Ended December 31,
	2016				2015				2014
	Shares		Amount		Shares		Amount		Shares		Amount
Matching contributions to the Capital Accumulation Plan		2,571	$	29		1,898	$	26		2,341	$	25