Employee Benefits

6 Months Ended

Jul. 05, 2014

5. Employee Benefits

Most of our hourly employees participate in noncontributory defined benefit pension plans. These 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. Benefits under the majority of plans for hourly employees (including multiemployer plans) primarily are related to years of service. We believe that our portion of 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; provided, however, for the Local 786 Lumber Employee Plan, we currently are the largest contributing employer.

Net periodic pension cost for our pension plans included the following (in thousands):


	Second Quarter
	Period from April 6, 2014 to July 5, 2014			Period from March 31, 2013 to June 29, 2013

Service cost	$	264		$	548
Interest cost on projected benefit obligation		1,280			1,188
Expected return on plan assets		(1,510	)		(1,306	)
Amortization of unrecognized loss		191			718
Net periodic pension cost	$	225		$	1,148


	Six Months Ended
	Period from January 5, 2014 to July 5, 2014			Period from December 30, 2012 to June 29, 2013

Service cost	$	528		$	1,096
Interest cost on projected benefit obligation		2,560			2,375
Expected return on plan assets		(3,020	)		(2,612	)
Amortization of unrecognized loss		382			1,436
Net periodic pension cost	$	450		$	2,295

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, and were granted, a waiver (the “waiver”) from the Internal Revenue Service (“IRS”) for our 2012 minimum required contribution. The Company finalized the waiver in the second quarter of fiscal 2014. As the Company was granted the requested waiver, our contributions for 2012 will be amortized over the following five years, increasing our future minimum required contributions during this period.

The Company’s minimum required contribution for plan year 2013 was estimated to be $6.0 million, including the impact of the 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 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. The property contribution was designated to required contributions for the 2013 plan year and the portion of the waiver amortization payable in the 2013 plan year.

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 are made on a monthly basis and recorded as contributions to the hourly pension plan. These rental payments reduce our unfunded obligation to the hourly pension plan.

The Company’s minimum required contribution for plan year 2014 is approximately $5.1 million. We are currently required to make three quarterly cash contributions during fiscal 2014 of $1.5 million each, of which $1.5 million has been recorded as of July 5, 2014. Additionally, we are required to make twelve monthly lease payments associated with the 2013 property contribution of less than $0.1 million each, of which $0.3 million was recorded during the first six months of fiscal 2014.