Employee Benefits

Single-Employer Defined Benefit Pension Plan

Some of our hourly employees participate in a noncontributory defined benefit pension plan administered solely by us (the “pension plan”). Our funding policy for the pension plan is based on actuarial calculations and the applicable requirements of federal law. Benefits under the pension plan primarily are related to years of service.

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



	January 3, 2015			January 4, 2014
	(In thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of period	$	104,924		$	114,330
Service cost	1,056			2,193
Interest cost	5,123			4,750
Actuarial (gain) loss	15,797			(10,710		)
Curtailment	—			(910		)
Benefits paid	(4,945		)	(4,729		)
Projected benefit obligation at end of period	121,955			104,924
Change in plan assets:
Fair value of assets at beginning of period	77,039			67,760
Actual return on plan assets	3,422			13,536
Employer contributions	4,676			472
Benefits paid	(4,945		)	(4,729		)
Fair value of assets at end of period	80,192			77,039
Net (unfunded) status of plan	$	(41,763	)	$	(27,885	)

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 income (loss), net of tax. On January 3, 2015, we measured the fair value of our plan assets and benefit obligations. As of January 3, 2015, and January 4, 2014, the net unfunded status of our benefit plan was $41.8 million and $27.9 million, respectively. These amounts were included in “Other non-current liabilities” on our Consolidated Balance Sheets.

Actuarial gains and losses occur when actual experience differs from the estimates used to determine the components of net periodic pension cost, and when certain assumptions used to determine the fair value of the plan assets or projected benefit obligation are updated; including but not limited to, changes in the discount rate, plan amendments, differences between actual and expected returns on plan assets, mortality assumptions, and plan remeasurement.

We amortize a portion of unrecognized actuarial gains and losses for the pension plan into our Consolidated Statements of Operations and Comprehensive Income (Loss). The amount recognized in the current year’s operations is based on amortizing the unrecognized gains or losses for the pension plan that exceed the larger of 10% of the projected benefit obligation or the fair value of plan assets, also known as the corridor. In the current fiscal year, the amount representing the unrecognized gain or loss that exceeds the corridor is amortized over the average future service of the active plan participants.

The net adjustment to other comprehensive income (loss) for fiscal 2014, fiscal 2013, and fiscal 2012 was a $17.7 million loss; $13.9 million gain ($22.8 million gain, net of tax of $8.9 million); and a $8.2 million loss, primarily from the net recognized and unrecognized actuarial gain (loss) for those fiscal periods. Refer to footnote 16 for further discussion.

The increase in the unfunded obligation for the period was approximately $13.9 million and was comprised of $15.8 million of actuarial losses, $3.4 million of asset returns, $4.7 million of pension contributions, and a charge of $6.2 million due to current year service and interest cost. The main driver of the increase in the liability related to the actuarial loss was the change in the underlying discount rate assumption which decreased to 4.19% in fiscal 2014 from 5.00% in fiscal 2013. The net periodic pension cost also decreased to $0.9 million in fiscal 2014 from $4.6 million in fiscal 2013 and primarily was driven by amortization of actuarial losses and an increase in the discount rate.

In fiscal 2013, a freeze of non-union participants in the pension plan resulted in a reduction in future years of service for the active participants in the plan, which triggered a curtailment. As a result, there was a curtailment gain from the event which resulted in a decrease to the projected benefit obligation of $0.9 million in fiscal 2013.

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



	January 3, 2015			January 4, 2014
	(In thousands)
Unfunded status	$	(41,763	)	$	(27,885	)
Unrecognized prior service cost	1			1
Unrecognized actuarial loss	32,309			14,656
Net amount recognized	$	(9,453	)	$	(13,228	)
Amounts recognized on the balance sheet consist of:
Accrued pension liability	(41,763		)	(27,885		)
Accumulated other comprehensive loss (pre-tax)	32,310			14,657
Net amount recognized	$	(9,453	)	$	(13,228	)

As of January 3, 2015, the amortization of unrecognized actuarial gains and losses will be recognized over the average remaining life expectancy of inactive plan participants, as almost all of the plan participants are inactive. The portion of estimated net loss for the pension plan that is expected to be amortized from accumulated other comprehensive income (loss) into net periodic cost over the next fiscal year is approximately $1.0 million.

The accumulated benefit obligation for the pension plan was $120.5 million and $103.7 million at January 3, 2015, and January 4, 2014, respectively.

Net periodic pension cost for the pension plan included the following:



	Fiscal Year Ended January 3, 2015			Fiscal Year Ended January 4, 2014			Fiscal Year Ended December 29, 2012
	(In thousands)
Service cost	$	1,056		$	2,193		$	1,878
Interest cost on projected benefit obligation	5,123			4,750			4,885
Expected return on plan assets	(6,041		)	(5,225		)	(4,897		)
Amortization of unrecognized loss	763			2,873			2,077
Net periodic pension cost	$	901		$	4,591		$	3,943

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



	January 3, 2015		January 4, 2014
Projected benefit obligation:
Discount rate	4.19	%	5.00	%
Average rate of increase in future compensation levels	Graded 5.5-2.5%		Graded 5.5-2.5%
Net periodic pension cost:
Discount rate	5.00	%	4.24	%
Average rate of increase in future compensation levels	Graded 5.5-2.5%		3.00	%
Expected long-term rate of return on plan assets	7.54	%	7.85	%

Our estimates of the amount and timing of our future funding obligations for our defined benefit pension plan 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.

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 2.75%, the expected overall portfolio return is 8.29% offset by 0.75% expense estimate, resulting in a 7.54% net long term rate of return as of January 3, 2015.

Our percentage of fair value of total assets by asset category as of the applicable measurement dates are as follows:



Asset Category	January 3, 2015		January 4, 2014
Equity securities — domestic	57	%	55	%
Equity securities — international	15	%	16	%
Fixed income	24	%	24	%
Other	4	%	5	%
Total	100	%	100	%

The fair value of our plan assets are by asset category as of the applicable measurement dates are as follows:



Asset Category	January 3, 2015		January 4, 2014
	(In thousands)
Equity securities — domestic	$	45,950	$	42,710
Equity securities — international	11,924		12,067
Fixed income	19,161		18,836
Other	3,157		3,426
Total	$	80,192	$	77,039

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 8 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 is to maximize the long-term real growth of fund assets, while the role of fixed income investments is 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 is reviewed quarterly to determine the deviation from target weightings and is rebalanced as necessary. Target allocations for fiscal 2015 are 55% domestic and 10% 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 2, 2016	5,399
December 31, 2016	5,705
December 30, 2017	6,000
December 29, 2018	6,281
December 28, 2019	6,491
Thereafter	35,581

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 from the Internal Revenue Service for our 2012 minimum required contribution. Therefore, contributions waived for 2012 have been amortized over the succeeding five years, from 2013 to 2017, increasing our minimum required contributions in those years.

The Company’s minimum required contribution for plan year 2013 was $6.0 million. During fiscal 2013, we contributed certain qualifying employer real property located in Charleston, S.C. and Buffalo, N.Y. to the pension plan. The properties had a fair market value of approximately $6.8 million by independent appraisals prior to the contribution and were recorded by the pension plan at fair market value. 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. The pension plan engaged an independent fiduciary who evaluated the transaction, negotiated the terms of the property contribution and the leases, and also manages the properties on behalf of the pension plan. Portions of the property contribution were designated to the 2014 and 2013 plan years.

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, due to continuing involvement of the Company and the leaseback of the properties. 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. Therefore, these assets continue to be recorded as assets of the Company, and we depreciate the carrying value of the properties in our financial statements. No gain or loss was recognized at the contribution date for financial reporting purposes. Rent payments are made on a monthly basis and are recorded as contributions to the pension plan, of which $0.6 million and $0.5 million has been recorded for the years ended January 3, 2015, and January 4, 2014, respectively. These rental payments reduce our unfunded obligation to the pension plan.

We currently are required to make four quarterly cash contributions during fiscal 2015 and 2016 of approximately $1.5 million related to our 2015 minimum required contribution, which totals $6.1 million.

Multiemployer Pension Plans

We participate in several multiemployer pension plans (“MEPPs”) administered by labor unions that provide retirement benefits to certain union employees in accordance with various collective bargaining agreements (“CBAs”). Approximately 34% of our employees are covered by CBAs, of which approximately 30% are covered by CBAs that expire within one year. As one of many participating employers in these MEPPs, we are generally responsible with the other participating employers for any plan underfunding. Our contributions to a particular MEPP are established by the applicable CBAs; however, our required contributions may increase based on the funded status of an MEPP and legal requirements such as those of the Pension Protection Act of 2006 (“Pension Act”), which requires substantially underfunded MEPPs to implement a funding improvement plan (“FIP”) or a rehabilitation plan (“RP”) to improve their funded status. Factors that could impact funded status of an MEPP include, without limitation, investment performance, changes in the participant demographics, decline in the number of contributing employers, changes in actuarial assumptions and the utilization of extended amortization provisions. A FIP or RP requires a particular MEPP to adopt measures to correct its underfunded status. These measures may include, but are not limited to: an increase in our contribution rate to the applicable CBA, a reallocation of the contributions already being made by participating employers for various benefits to individuals participating in the MEPP, and/or a reduction in the benefits to be paid to future and/or current retirees. In addition, the Pension Act requires that a 5% surcharge be levied on employer contributions for the first year commencing shortly after the date the employer receives notice that the MEPP is in critical status (also referred to as red status) and a 10% surcharge on each succeeding year until a CBA is in place with terms and conditions consistent with the RP. We have not been subject to any such surcharges, as the MEPP to which we are individually significant has not been considered in “critical” status.

We could also be obligated to make future payments to MEPPs if we either cease to have an obligation to contribute to the MEPP or significantly reduce our contributions to the MEPP because we reduce our number of employees who are covered by the relevant MEPP for various reasons, including, but not limited to, layoffs or closures, assuming the MEPP has unfunded vested benefits. The amount of such payments (known as a complete or partial withdrawal liability) generally would equal our proportionate share of the MEPPs' unfunded vested benefits. We believe that one of the MEPP's in which we participate has material unfunded vested benefits. Our share of the contributions in this plan exceeded 5% of total plan contributions for certain plan years. Due to uncertainty regarding future factors that could trigger a withdrawal liability, as well as the absence of specific information regarding matters such as the MEPP's current financial situation due in part to delays in reporting, the potential withdrawal or bankruptcy of other contributing employers, the impact of future plan performance or the success of current and future funding improvement or rehabilitation plans to restore solvency to the plan, we are unable to determine with certainty the amount and timing of any future withdrawal liability, changes in future funding obligations, or the impact of increased contributions, including those that could be triggered by a mass withdrawal of other employers from a MEPP. There can be no assurance that the impact of increased contributions, future funding obligations or future withdrawal liabilities will not be material to our results of operations, financial condition or cash flows. We believe that the probability of a withdrawal is remote, and therefore, we have not recorded a liability for the material MEPP on our Consolidated Balance Sheets. The following table lists our participation in our multiemployer plan that is individually significant, and other MEPP plans for the years ended, as follows:



				Contributions (in thousands)
Pension Fund:	EIN/Pension Plan Number	Pension Act Zone Status	FIP Status	2014		2013		2012
Lumber Employees Local 786 Retirement Fund	516067407	Yellow (2009 - 2014)	Implemented	$	0.4	$	0.4	$	0.4
Other				0.6		0.9		0.9
Total				$	1.0	$	1.3	$	1.3

Contributions represent the amounts contributed to the plan during the fiscal years presented. Our contributions for fiscal year 2014 exceeded 5% of total plan contributions. Although the plan data for fiscal 2015 is not yet available, we would expect to continue to exceed 5% of total plan contributions.

Defined Contribution Plans

Our employees also participate in two defined contribution plans: the “hourly savings plan” covering hourly employees, and the “salaried savings plan” covering salaried employees. Contributions to the plans are based on employee contributions and compensation. Employer contributions to the hourly savings plan totaled $0.1 million, $0.1 million, and $0.1 million for fiscal 2014, fiscal 2013, and fiscal 2012, respectively. Employer contributions to the salaried savings plan totaled $0.9 million, $1.1 million, and $1.0 million for fiscal 2014, fiscal 2013, and fiscal 2012, respectively.