Employee Benefits

Single-Employer Defined Benefit Pension Plan

We sponsor a noncontributory defined benefit pension plan administered solely by us (the “pension plan”). Most of the participants in the plan are inactive, with the majority of the remaining active participants no longer accruing benefits; and the plan is closed to new entrants. 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:



	December 31, 2016			January 2, 2016
	(In thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of period	$	115,055		$	121,955
Service cost	996			1,104
Interest cost	4,901			5,099
Actuarial (gain) loss	2,094			(8,460		)
Curtailment gain	(181		)	(272		)
Benefits paid	(9,429		)	(4,371		)
Projected benefit obligation at end of period	113,436			115,055
Change in plan assets:
Fair value of assets at beginning of period	78,264			80,192
Actual return on plan assets	4,868			(2,820		)
Employer contributions	5,384			5,263
Benefits paid	(9,429		)	(4,371		)
Fair value of assets at end of period	79,087			78,264
Net unfunded status of plan	$	(34,349	)	$	(36,791	)

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. On December 31, 2016, we measured the fair value of our plan assets and benefit obligations. As of December 31, 2016, and January 2, 2016, the net unfunded status of our benefit plan was $34.3 million and $36.8 million, respectively.

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 re-measurement.

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 estimated average remaining life expectancy of participants, as almost all the participants in the plan are inactive.

The net adjustment to other comprehensive income (loss) for fiscal 2016, fiscal 2015, and fiscal 2014 was a $2.1 million loss, $0.4 million gain; and a $17.7 million loss, respectively, primarily from the net recognized and unrecognized actuarial gain (loss) for those fiscal periods.

The decrease in the unfunded obligation for the fiscal year was approximately $2.4 million and was comprised of $2.1 million of actuarial losses, $4.9 million of asset gains, $5.4 million of pension contributions, and a charge of $5.9 million due to current year service and interest cost. The net periodic pension cost increased slightly to $0.8 million in fiscal 2016 from $0.7 million in fiscal 2015, driven primarily by the lower discount rate at the mid-year fiscal 2016 curtailment.

In fiscal 2016, a freeze of certain unionized participants in the pension plan, due to renegotiation of union contracts, resulted in a reduction in future years of service for the remaining active participants in the plan, which triggered a curtailment. As a result, there was an immaterial curtailment gain from the event which resulted in an immaterial decrease to the projected benefit obligation in fiscal 2016.

In fiscal 2016, we offered a lump sum payment of accrued pension benefits to certain terminated vested participants who had accrued pension benefits under a certain threshold. In fiscal 2016, we paid approximately $4.3 million from pension plan assets to the participants who accepted the offer, which completed the fiscal 2016 lump sum offer. This offer did not result in a settlement of our benefit obligation. We may offer other or all terminated vested participants a lump sum offer in the future, and future lump sum amounts, when paid, may result in a settlement of our benefit obligation.

The unfunded status recorded as Pension Benefit Obligation on our Consolidated Balance Sheets for the pension plan is set forth in the following table, along with the unrecognized actuarial loss, which is presented as part of Accumulated Other Comprehensive Loss:



	December 31, 2016			January 2, 2016
	(In thousands)
Unfunded status	$	(34,349	)	$	(36,791	)
Unrecognized prior service cost	—			1
Unrecognized actuarial loss	34,014			31,871
Net amount recognized	$	(335	)	$	(4,919	)
Amounts recognized on the balance sheet consist of:
Accrued pension liability	$	(34,349	)	$	(36,791	)
Accumulated other comprehensive loss (pre-tax)	34,014			31,872
Net amount recognized	$	(335	)	$	(4,919	)

The portion of estimated net loss for the pension plan that is expected to be amortized from accumulated other comprehensive loss into net periodic cost over the next fiscal year is approximately $1.0 million.

The accumulated benefit obligation for the pension plan was $112.3 million and $114.0 million at December 31, 2016, and January 2, 2016, respectively.

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



	Fiscal Year Ended December 31, 2016			Fiscal Year Ended January 2, 2016			Fiscal Year Ended January 3, 2015
	(In thousands)
Service cost	$	996		$	1,104		$	1,056
Interest cost on projected benefit obligation	4,901			5,099			5,123
Expected return on plan assets	(6,224		)	(6,172		)	(6,041		)
Amortization of unrecognized loss	1,126			699			763
Net periodic pension cost	$	799		$	730		$	901

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



	December 31, 2016		January 2, 2016
Projected benefit obligation:
Discount rate	4.26	%	4.52	%
Average rate of increase in future compensation levels	Graded 5.5-2.5%		Graded 5.5-2.5%
Net periodic pension cost:
Discount rate	4.52	%	4.19	%
Average rate of increase in future compensation levels	Graded 5.5-2.5%		Graded 5.5-2.5%
Expected long-term rate of return on plan assets	7.82	%	7.54	%

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 (61% equities, 38% fixed income, and 1% other) with an assumed compound annualized risk free rate of 3.50%, the expected overall portfolio return is 8.87% offset by 0.39% expense estimate, resulting in a 8.48% net long term rate of return as of December 31, 2016, which is used to calculate 2017 pension expense.

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



Asset Category	December 31, 2016		January 2, 2016
Equity securities — domestic	49	%	59	%
Equity securities — international	12	%	14	%
Fixed income	38	%	24	%
Other	1	%	3	%
Total	100	%	100	%

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



Asset Category	December 31, 2016		January 2, 2016
	(In thousands)
Equity securities — domestic	$	38,417	$	46,087
Equity securities — international	9,717		10,912
Fixed income	30,493		18,792
Other	460		2,473
Total	$	79,087	$	78,264

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 2017 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:



Fiscal Year Ending	(In thousands)
2017	$	5,859
2018	6,132
2019	6,266
2020	6,500
2021	6,710
Thereafter	34,800

We currently are required to make four quarterly cash contributions totaling approximately $3.6 million for fiscal funding year 2017.

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 certain CBAs. 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.

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 plan’s unfunded vested benefits.

The following table lists our participation in our multiemployer plans which we deem significant. “Contributions” represent the amounts contributed to the plan during the fiscal years presented:



					Contributions (in millions)
Pension Fund:	EIN/Pension Plan Number	Pension Act Zone Status	FIP/RP Status	Surcharge	2016		2015		2014
Lumber Employees Local 786 Retirement Fund ⁽¹⁾	516067407	Green (September 1, 2015)	N/A	No	$	0.4	$	0.4	$	0.4
Central States, Southeast and Southwest Areas Pension Fund ⁽²⁾	366044243	Critical and Declining (January 1, 2016)	RP	No	0.6		0.7		0.6
Other					0.4		1.2		—
Total					$	1.4	$	2.3	$	1.0

⁽¹⁾ Our contributions for fiscal 2016 and 2015 exceeded 5% of total plan contributions, and we were deemed to be a significant contributor to this plan. The plan fiscal year began on September 1, 2016, and to date, we have likely contributed over 5% of the total plan’s contributions. The collective bargaining agreement requiring contributions to this plan expired on September 30, 2016, and we are currently negotiating a new agreement with the union.

⁽²⁾ We did not contribute more than 5% of total plan contributions to this plan; however, this plan is deemed significant as it is severely underfunded, and we may, in the future, record a liability if required by an event of our withdrawal from the plan or a mass withdrawal. Our contingent fiscal 2016 withdrawal liability was estimated at approximately $30.7 million.

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. Discretionary contributions to the plans are based on employee contributions and compensation; and, in certain cases, participants in the hourly savings plan also receive employer contributions based on union negotiated match amounts. Employer contributions to the hourly savings plan for fiscal 2016 were $0.2 million, and were $0.1 million each during fiscal 2015 and fiscal 2014.

Employer contributions totaling $0.9 million for the salaried savings plan for fiscal 2016 have been deferred until the first quarter of 2017. Employer contributions to the salaried savings plan for fiscal 2015 of $0.9 million were deferred and paid in the first quarter of fiscal 2016; and the fiscal 2014 employer contributions to this plan of $0.9 million were paid in fiscal 2014.