Employee Benefits

12 Months Ended

Jan. 04, 2014

8. Employee Benefits

Defined Benefit Pension Plans

Most of our hourly employees participate in noncontributory defined benefit pension plans, which include a plan that is administered solely by us (the “hourly pension plan”) and union-administered multiemployer plans. Our funding policy for the hourly pension plan is based on actuarial calculations and the applicable requirements of federal law. We believe that each multiemployer pension plan is immaterial to our financial statements and that we represent an immaterial portion of the total contributions and future obligations of these plans. Contributions to multiemployer plans are generally based on negotiated labor contracts. We contributed $1.3 million, $1.3 million, and $1.2 million to union administered multiemployer pension plans for fiscal 2013, fiscal 2012, and fiscal 2011, respectively. Benefits under the majority of plans for hourly employees (including multiemployer plans) are primarily related to years of service.

The following tables set forth the change in projected benefit obligation and the change in plan assets for the hourly pension plan:


	January 4, 2014			December 29, 2012
	(In thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of period	$	114,330		$	99,425
Service cost		2,193			1,878
Interest cost		4,750			4,885
Actuarial (gain) loss		(10,710	)		12,183
Curtailment		(910	)		—
Benefits paid		(4,729	)		(4,041	)
Projected benefit obligation at end of period		104,924			114,330
Change in plan assets:
Fair value of assets at beginning of period		67,760			63,896
Actual return on plan assets		13,536			6,758
Employer contributions		472			1,147
Benefits paid		(4,729	)		(4,041	)
Fair value of assets at end of period		77,039			67,760
Net (unfunded) status of plan	$	(27,885	)	$	(46,570	)

We recognize the unfunded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of our pension plan in our Consolidated Balance Sheets, with a corresponding adjustment to accumulated other comprehensive loss, net of tax. During fiscal 2012 and fiscal 2011 this amount was offset by a valuation allowance. On January 4, 2014, we measured the fair value of our plan assets and benefit obligations. As of January 4, 2014, and December 29, 2012, the net unfunded status of our benefit plan was $27.9 million and $46.6 million, respectively. These amounts were included in “Other non-current liabilities” on our Consolidated Balance Sheets. The net adjustment to other comprehensive loss for fiscal 2013, fiscal 2012, and fiscal 2011 was a $13.9 million gain ($22.8 million gain, net of tax of $8.9 million), $8.2 million loss ($8.2 million loss, net of tax, offset by a valuation allowance), $15.0 million loss ($15.0 million loss, net of tax, offset by a valuation allowance), respectively, which represents the net unrecognized actuarial gain (loss) and unrecognized prior service cost.

The decrease in the unfunded obligation for the period was approximately $18.7 million and was comprised of $10.7 million of actuarial gains, $13.5 million of asset returns, a decrease of $0.9 million to the liability related to freezing our non-union pension plan and $0.5 million of pension contributions. These changes were offset by an increase in the projected benefit obligation of $6.9 million due to current year service and interest cost. The main driver of the decrease in the liability related to the actuarial (gain) loss was the change in the underlying discount rate assumption which increased from 4.24% in fiscal 2012 to 5.00% in fiscal 2013. The net periodic pension costs also increased to $4.6 million in fiscal 2013 from $3.9 million in fiscal 2012 and was primarily driven by an increase in the amortization of the actuarial loss attributable to the decrease in the discount rate from 5.02% in fiscal 2011 to 4.24% in 2012.

The freeze of the non-union pension plan resulted in a reduction in future years of service for the active participants in the plan, which triggered a curtailment. An immaterial amount of unrecognized prior service costs were recognized in the Consolidated Statements of Operations and Comprehensive Loss during fiscal 2013 as a result of this event. In addition, there was a curtailment gain from the event which resulted in a decrease to the projected benefit obligation of $0.9 million.

The unfunded status and the amounts recognized on our Consolidated Balance Sheets for the hourly pension plan are set forth in the following table:


	January 4, 2014			December 29, 2012
	(In thousands)
Unfunded status	$	(27,885	)	$	(46,570	)
Unrecognized prior service cost		1			2
Unrecognized actuarial loss		14,656			37,459
Net amount recognized	$	(13,228	)	$	(9,109	)
Amounts recognized on the balance sheet consist of:
Accrued pension liability		(27,885	)		(46,570	)
Accumulated other comprehensive loss (pre-tax)		14,657			37,461
Net amount recognized	$	(13,228	)	$	(9,109	)

The portion of estimated net loss for the hourly pension plan that is expected to be amortized from accumulated other comprehensive loss into net periodic cost over the next fiscal year is $0.8 million. The expected amortization of prior service cost recognized into net periodic cost over the next fiscal year is immaterial.

The accumulated benefit obligation for the hourly pension plan was $103.7 million and $111.1 million at January 4, 2014, and December 29, 2012, respectively.

Net periodic pension cost for our pension plans included the following:


	Fiscal Year Ended January 4, 2014			Fiscal Year Ended December 29, 2012			Fiscal Year Ended December 31, 2011
	(In thousands)
Service cost	$	2,193		$	1,878		$	2,091
Interest cost on projected benefit obligation		4,750			4,885			4,609
Expected return on plan assets		(5,225	)		(4,897	)		(5,505	)
Amortization of unrecognized loss		2,873			2,077			579
Amortization of unrecognized prior service cost		—			—			—
Net periodic pension cost	$	4,591		$	3,943		$	1,774

The following assumptions were used to determine the projected benefit obligation at the measurement date and the net periodic pension cost:


	January 4, 2014			December 29, 2012
Projected benefit obligation:
Discount rate		5.00	%		4.24	%
Average rate of increase in future compensation levels	Graded 5.5%-2.5		%		3.00	%
Net periodic pension cost
Discount rate		4.24	%		5.02	%
Average rate of increase in future compensation levels		3.00	%		3.00	%
Expected long-term rate of return on plan assets		7.85	%		7.85	%

Our estimates of the amount and timing of our future funding obligations for our defined benefit pension plans are based upon various assumptions specified above. These assumptions include, but are not limited to, the discount rate, projected return on plan assets, compensation increase rates, mortality rates, retirement patterns, and turnover rates.

As indicated in the table above, we used a discount rate of 5.00% to compute the projected benefit obligation, which was determined by the matching of plan liability cash flows to a portfolio of bonds. A change in the discount rate of 25 basis points, from 5.00% to 5.25%, while holding all other assumptions constant, would have resulted in a reduction in the Company’s projected benefit obligation of approximately $3.1 million in 2013.

As indicated in the table above, we used an estimated rate of future compensation increases of graded 5.5% - 2.5% to compute the projected benefit obligation. A change in the rate of 25 basis points, from graded 5.5% - 2.5% to graded 5.75% - 2.75%, while holding all other assumptions constant, would have resulted in an increase in the Company’s projected benefit obligation of less than $0.1 million in 2013.

Determination of expected long-term rate of return

In developing expected return assumptions for our pension plan, the most influential decision affecting long-term portfolio performance is the determination of overall asset allocation. An asset class is a group of securities that exhibit similar characteristics and behave similarly in the marketplace. The three main asset classes are equities, fixed income, and cash equivalents.

Upon calculation of the historical risk premium for each asset class, an expected rate of return can be established based on assumed 90-day Treasury bill rates. Based on the normal asset allocation structure of the portfolio (65% equities, 30% fixed income, and 5% other) with historical compound annualized risk free rate of 3.78%, the expected overall portfolio return is 8.35% offset by 0.5% expense estimate resulting in a 7.85% net long term rate of return as of January 4, 2014.

Our percentage of fair value of total assets by asset category as of our measurement date is as follows:


Asset Category	January 4, 2014			December 29, 2012
Equity securities — domestic		55	%		56	%
Equity securities — international		16	%		9	%
Fixed income		24	%		31	%
Other		5	%		4	%
Total		100	%		100	%

The fair value of our plan assets by asset category as of January 4, 2014 was as follows (in thousands):


Asset Category	Level 1
Equity securities — domestic	$	42,710
Equity securities — international		12,067
Fixed income		18,836
Other		3,426
Total	$	77,039

The fair value of our plan assets by asset category as of December 29, 2012 was as follows (in thousands):


Asset Category	Level 1
Equity securities — domestic	$	37,623
Equity securities — international		6,304
Fixed income		20,848
Other		2,985
Total	$	67,760

The plan assets are valued using quoted market prices in active markets and we consider the investments to be Level 1 in the fair value hierarchy. See Note 13 for a discussion of the levels of inputs to determine fair value.

Investment policy and strategy

Plan assets are managed as a balanced portfolio comprised of two major components: an equity portion and a fixed income portion. The expected role of plan equity investments will be to maximize the long-term real growth of fund assets, while the role of fixed income investments will be to generate current income, provide for more stable periodic returns, and provide some downside protection against the possibility of a prolonged decline in the market value of equity investments. We review this investment policy statement at least once per year. In addition, the portfolio will be reviewed quarterly to determine the deviation from target weightings and will be rebalanced as necessary. Target allocations for fiscal 2014 are 50% domestic and 15% international equity investments, 30% fixed income investments, and 5% cash. The expected long-term rate of return for the plan’s total assets is based on the expected return of each of the above categories, weighted based on the target allocation for each class.

Our estimated future benefit payments reflecting expected future service are as follows (in thousands):


Fiscal Year Ending	(In thousands)
January 3, 2015		4,998
January 2, 2016		5,332
December 31, 2016		5,641
December 30, 2017		5,914
December 29, 2018		6,206
Thereafter		34,372

The Company’s minimum required contribution for plan year 2012 was $3.2 million. In an effort to preserve additional cash for operations, we applied for a waiver from the Internal Revenue Service (“IRS”) for our 2012 minimum required contribution. Although the Company’s outside counsel has been notified by the IRS that its waiver request has been preliminarily approved and that the IRS is in the process of finalizing the waiver request, no assurances can be provided that the waiver request will be granted until the Company receives final approval from the IRS. If we are granted the requested waiver, our contributions for 2012 will be amortized over the following five years, increasing our future minimum required contributions.

The Company’s minimum required contribution for plan year 2013 was estimated to be $6.0 million, assuming we receive the requested waiver. During the second quarter of fiscal 2013, we contributed certain qualifying employer real property to the hourly pension plan. The properties, including certain land and buildings, are located in Charleston, S.C. and Buffalo, N.Y., and were valued at approximately $6.8 million by independent appraisals prior to the contribution. The contribution was recorded by the hourly pension plan at the fair market value of $6.8 million. We are leasing back the contributed properties for an initial term of twenty years with two five-year extension options and continue to use the properties in our distribution operations. Each lease provides us a right of first refusal on any subsequent sale by the hourly pension plan and a repurchase option. The hourly pension plan engaged an independent fiduciary who evaluated the transaction on behalf of the hourly pension plan, negotiated the terms of the property contribution and the leases, and also manages the properties on behalf of the hourly pension plan. Depending on whether the 2012 waiver is granted, portions of the property contribution may be designated to either the 2012 or 2013 plan year. If the waiver is not granted, it may be necessary to contribute an additional $2.2 million on or before September 15, 2014 to fully satisfy the 2012 and 2013 minimum required contributions.

We determined that the contribution of the properties does not meet the accounting definition of a plan asset within the scope of relevant accounting guidance. Accordingly, the contributed properties are not considered a contribution for financial reporting purposes and, as a result, are not included in plan assets and have no impact on the net pension liability recorded on our Consolidated Balance Sheets. We continue to depreciate the carrying value of the properties in our financial statements, and no gain or loss was recognized at the contribution date for financial reporting purposes. Rent payments will be made on a monthly basis and will be recorded as contributions to the hourly pension plan, of which $0.5 million has been recorded as of January 4, 2014. These rental payments will reduce our unfunded obligation to the hourly pension plan.

We currently are required to make three quarterly cash contributions during fiscal 2014 of $1.5 million each related to our 2014 minimum required contribution.

Defined Contribution Plans

Our employees also participate in several defined contribution plans. Contributions to the plans are based on employee contributions and compensation. Contributions to the hourly defined contribution plan totaled $0.1 million, $0.1 million, and $0.1 million for fiscal 2013, fiscal 2012, and fiscal 2011, respectively. During fiscal 2009, we suspended the Company matching contributions to our defined salaried contribution plan as part of our cost reduction initiatives. The Company match was reinstated on January 1, 2012. Contributions to the salaried defined contribution plan totaled $1.1 million and $1.0 million for fiscal 2013 and fiscal 2012, respectively.