Retirement Plans

Pension Plans

The Company maintains three defined benefit pension plans, the Virco Employees Retirement Plan (“Employee Plan”), the Virco Important Performers Retirement Plan (“VIP Plan”), and the Non-Employee Directors Retirement Plan (“Directors Plan”). The Company and its subsidiaries cover all employees hired prior to December 31, 2003 under the Employee Plan, which is a qualified noncontributory defined benefit retirement plan. Benefits under the Employee Plan are based on years of service and career average earnings. Benefit accruals under the Employee Plan were frozen effective December 31, 2003.

The Company also provides a supplementary retirement plan for certain key employees, the VIP Plan. The VIP Plan provides a benefit up to 50% of average compensation for the last five years in the VIP Plan, offset by benefits earned under the Employee Plan. Benefit accruals under the VIP Plan were frozen effective December 31, 2003. The VIP Plan benefits are secured by a life insurance program. Substantially all assets securing the VIP Plan are held in a rabbi trust. These cash surrender values are included in other assets in the consolidated balance sheets. The cash surrender values of the policies securing the VIP Plan were $3,311,000 and $3,238,000 at January 31, 2015 and 2014, respectively. Death benefits payable under life insurance policies held by the Plan were approximately $9,486,000 and $9,462,000 at January 31, 2015 and 2014, respectively. The Company maintains a rabbi trust to hold assets related to the VIP Retirement Plan and a Split $ Life Insurance Plan.

In April 2001, the Board of Directors established the Directors Plan, a non-qualified plan for non-employee directors of the Company. The Directors Plan provides a lifetime annual retirement benefit equal to the director’s annual retainer fee for the

fiscal year in which the director terminates his or her position with the board, subject to the director providing 10 years of service to the Company. Benefit accruals under the Directors Plan were frozen effective December 31, 2003. At January 31, 2015, the Directors Plan did not hold any assets.

The annual measurement date for all plans for the fiscal years ended January 31, 2015, 2014, and 2013 is January 31. Effective December 31, 2003, the Company froze all future benefit accruals under the plans. Employees can continue to vest under the benefits earned to date, but no covered participants will earn additional benefits under the plan freeze.

Accounting policy regarding pensions requires management to make complex and subjective estimates and assumptions relating to amounts which are inherently uncertain. Three primary economic assumptions influence the reported values of plan liabilities and pension costs. The Company takes the following factors into consideration: discount rate, assumed rate of return and rate of increase in compensation.

The discount rate represents an estimate of the rate of return on a portfolio of high-quality fixed-income securities that would provide cash flows that match the expected benefit payment stream from the plans. When setting the discount rate, the Company utilizes a spot-rate yield curve developed from high-quality bonds currently available which reflects changes in rates that have occurred over the past year. This assumption is sensitive to movements in market rates that have occurred since the preceding valuation date, and therefore, may change from year to year.

Because the Company froze future benefit accruals for all three defined benefit plans, the compensation increase assumption had no impact on pension expense, accumulated benefit obligation or projected benefit obligation for the period ended January 31, 2015, 2014 or 2013.

The assumed rate of return on plan assets represents an estimate of long-term returns available to investors who hold a mixture of stocks, bonds, and cash equivalent securities. When setting its expected return on plan asset assumptions, the Company considers long-term rates of return on various asset classes (both historical and forecasted, using data collected from various sources generally regarded as authoritative) in the context of expected long-term average asset allocations for its defined benefit pension plan. Two of the Company's defined benefit pension plans (the VIP Plan and the Directors Plan) are executive benefit plans that are not funded and are subject to the Company's creditors. Because these plans are not funded, the assumed rate of return has no impact on pension expense or the funded status of the plans.

The Company maintains a trust for and funds the pension obligations for the Employee Plan. The board of directors appoints a Retirement Plan Committee that establishes a policy for investment and funding strategies. Approximately 70% of the trust assets are managed by investment advisors and held in common trust funds with the balance managed by the Retirement Plan Committee. The Retirement Plan Committee has established target asset allocations for its investment advisors, who invest the trust assets in a variety of institutional collective trust funds. The long-term asset allocation target provided to the investment advisors is 80% stock and 20% bond, with maximum allocations of 80% large cap stocks, 30% small cap stocks, and 30% international stock. The Company has established a custom benchmark derived from a variety of stock and bond indices that are weighted to approximate the asset allocation provided to the investment advisors. The investment advisors' performance is compared to the custom index as part of the evaluation of the investment advisors' performance. The Retirement Plan Committee receives monthly reports from the investment advisors and meets periodically with them to discuss investment performance.

At January 31, 2015 and 2014, the amount of the plan assets invested in bond or short-term investment funds was 14% and 12%, respectively, and the balance of the trust was held in equity funds or investments. The trust does not hold any Company stock.

During 2012 the pension plans were impacted by a reduction in discount rates and by a reduction in force. A reduction in the discount rate caused the liability for pension obligations to increase by approximately $2.0 million, $0.3 million, and $10,000 for the Employee Plan, the VIP Plan, and the Directors Plan, respectively. The increase in liability resulted in a comparable increase to AOCI. As part of a cost reduction plan, the Company offered benefits to employees who severed their employment with the Company. The severance benefits were paid in cash and did not include any additional benefits payable from retirement plan, the benefit formula was structured to reward employees with significant years of service, the same employees who would have earned benefits prior to the Employee Plan freeze in 2003. As a result of large distributions paid from the Employee Plan, a $760,000 settlement charge for the Employee Plan was recorded in the fourth quarter.

During 2013 the pension plans were impacted by a reduction in force. Although the severance benefits were paid in cash and did not include any additional benefits payable from a retirement plan, the severance included employees with vested pension benefits. The pension trust made significant lump sum distributions to participants in the latter part of the year, resulting in settlement charges in the third and fourth quarters. During 2013, the pension liability decreased due to increased discount rates.

During 2014, the pension plans were impacted severely by a material decrease in discount rates and by application of a new mortality table. A reduction in the discount rate caused pension obligations to increase by $5.4 million, $1.7 million, and $0.02 million for the Employee Plan, VIP Plan, and Director Plan, respectively.

It is the Company's policy to contribute adequate funds to the trust accounts to cover benefit payments under the VIP Plan and Directors Plan and to maintain the funded status of the Employee Plan at a level which is adequate to avoid significant restrictions to the Employee Plan under the Pension Protection Act of 2006. The Company contributed $2.4 million, $1.8 million, and $2.0 million, to the trust in 2014, 2013, and 2012, respectively. Contributions during 2015 will depend upon actual investment results and benefit payments, but are anticipated to be approximately $2.3 million. During 2014, 2013, and 2012, the Company paid approximately $580,000, $564,000 and $561,000 respectively, in benefits per year under the non-qualified plans. It is anticipated that contributions to non-qualified plans will be approximately $664,000 for 2015. At January 31, 2015, accumulated other comprehensive loss of approximately $22.7 million ($20.2 million net of tax) is attributable to the pension plans.

The following tables set forth (in thousands) the funded status of the Company’s pension plans at January 31, 2015, and 2014:



	Employee Plan						VIP Plan						Directors Plan
	1/31/2015			1/31/2014			1/31/2015			1/31/2014			1/31/2015			1/31/2014
Change in Benefit Obligation
Benefit obligation at beg. of year	$	32,069		$	32,840		$	7,662		$	8,054		$	439		$	468
Service cost	—			—			—			—			—			—
Interest cost	1,260			1,312			350			330			17			18
Participant contributions				—						—			—			—
Amendments				—						—			—			—
Actuarial losses (gains)	5,962			596			2,636			(176		)	8			(29		)
Plan settlement	—			(2,148		)				—						—
Benefits paid	(1,583		)	(531		)	(544		)	(546		)	(36		)	(18		)
Benefit obligation at end of year	$	37,708		$	32,069		$	10,104		$	7,662		$	428		$	439
Change in Plan Assets
Fair value at beg. of year	$	18,168		$	16,875		$	—		$	—		$	—		$	—
Actual return on plan assets	2,172			2,122			—			—			—			—
Company contributions	2,430			1,850			544			546			36			18
Settlements	—			(2,148		)				—						—
Benefits paid	(1,583		)	(531		)	(544		)	(546		)	(36		)	(18		)
Fair value at end of year	$	21,187		$	18,168		$	—		$	—		$	—		$	—
Funded Status
Unfunded status of the plan	$	(16,521	)	$	(13,901	)	$	(10,104	)	$	(7,662	)	$	(428	)	$	(439	)
Amounts Recognized in Statement of Financial Position
Current liabilities	—			—			(613		)	(584		)	—			(66		)
Non-current liabilities	(16,521		)	(13,901		)	(9,491		)	(7,078		)	(428		)	(373		)
Accrued benefit cost	$	(16,521	)	$	(13,901	)	$	(10,104	)	$	(7,662	)	$	(428	)	$	(439	)
Amounts Recognized in Statement of Financial Position and Operations
Accrued benefit liability	$	(16,521	)	$	(13,901	)	$	(10,104	)	$	(7,662	)	$	(428	)	$	(439	)
Accumulated other comp. loss (gain)	—			14,235			4,716			2,259			—			(75		)
Net amount recognized	$	(16,521	)	$	334		$	(5,388	)	$	(5,403	)	$	(428	)	$	(514	)
Items not yet Recognized as a Component of Net Periodic Pension Expense, Included in AOCI
Unrecognized net actuarial loss (gain)	$	17,992		$	14,235		$	4,716		$	2,259		$	(37	)	$	(75	)
Unamortized prior service costs	—			—			—			—			—			—
Net initial asset recognition	—			—			—			—			—			—
	$	17,992		$	14,235		$	4,716		$	2,259		$	(37	)	$	(75	)



	Employee Plan						VIP Plan						Directors Plan
	1/31/2015			1/31/2014			1/31/2015			1/31/2014			1/31/2015			1/31/2014
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Net loss (gain)	$	4,893		$	(407	)	$	2,636		$	(176	)	$	8		$	(29	)
Prior service cost				—												—
Amortization of (loss) gain	(1,136		)	(2,264		)	(178		)	(222		)	31			14
Amortization of prior service cost (credit)	—			—			—			—			—			—
Amortization of initial asset	—			—			—			—			—			—
Total recognized in other comprehensive (loss) income	$	3,757		$	(2,671	)	$	2,458		$	(398	)	$	39		$	(15	)
Items to be Recognized as a Component of Periodic Pension Cost for next fiscal year
Prior service cost	$	—		$	—		$	—		$	—		$	—		$	—
Net actuarial loss (gain)	1,529			1,136			484			178			—			(31		)
	$	1,529		$	1,136		$	484		$	178		$	—		$	(31	)
Supplemental Data
Projected benefit obligation	$	37,708		$	32,069		$	10,104		$	7,662		$	428		$	439
Accumulated benefit obligation	37,708			32,069			10,104			7,662			428			439
Fair value of plan assets	21,187			18,168			—			—			—			—
Components of Net Cost
Service cost	$	—		$	—		$	—		$	—		$	—		$	—
Interest cost	1,260			1,312			350			330			17			18
Expected return on plan assets	(1,102		)	(1,119		)	—			—			—			—
Amortization of transition amount	—			—			—			—			—			—
Recognized (gain) loss due to curtailments	—			—			—			—			—			—
Amortization of prior service cost	—			—			—			—						—
Recognized net actuarial loss	1,136			2,264			178			222			(31		)	(14		)
Benefit cost	$	1,294		$	2,457		$	528		$	552		$	(14	)	$	4
Estimated Future Benefit Payments
FYE 01-31-2016	$	4,789					$	613					$	51
FYE 01-31-2017	2,686						339						48
FYE 01-31-2018	1,619						325						45
FYE 01-31-2019	2,045						350						42
FYE 01-31-2020	1,737						368						39
FYE 01-31-2021 to 2025	11,117						1,916						148
Total	$	23,993					$	3,911					$	373
Weighted Average Assumptions to Determine Benefit Obligations at Year-End
Discount rate	3.25		%	4.25		%	3.50		%	4.75		%	3.25		%	4.25		%
Rate of compensation increase	N/A			N/A			N/A			N/A			N/A			N/A
Weighted Average Assumptions to Determine Net Periodic Pension Cost
Discount rate	4.25		%	4.00		%	4.75		%	4.25		%	4.25		%	4.00		%
Expected return on plan assets	6.50		%	6.50		%	N/A			N/A			N/A			N/A
Rate of compensation increase	N/A			N/A			N/A			N/A			N/A			N/A

Fair Value Measurements of Plan Assets

Employee Plan



	1/31/2015		1/31/2014
Level 1 Measurement
Cash & Cash Equivalents	$	528	$	372
Common Stock	6,476		5,085
Total Level 1	$	7,004	$	5,457
Level 2 Measurement
Bond Index Fund	$	427	$	354
Core Bond CIT Fund	1,457		1,172
US Aggregate Bond Index Fund	627		355
Large Cap Growth Index Fund	3,610		3,758
Large Cap Value Index Fund	3,561		2,765
Russell 2000 Index Fund	1,499		1,602
International Equity Index Fund	1,653		1,359
Managed Investment Fund	1,075		938
Vanguard MSCI Emerging Markets Fund	274		408
Total Level 2	$	14,183	$	12,711
Level 3 Measurement
None	N/A		N/A

401(k) Retirement Plan

The Company’s retirement plan, which covers all U.S. employees, allows participants to defer from 1% to 50% of their eligible compensation through a 401(k) retirement program. Through December 31, 2001, the plan included an employee stock ownership component. The plan continues to include Virco stock as one of the investment options. At January 31, 2015 and 2014, the plan held 689,284 shares and 771,070 shares of Virco stock, respectively. For the fiscal years ended January 31, 2015, the Company made a small contribution to employees enrolled in the Plan in connection with an auto enrollment program. For the fiscal years ended January 31, 2015 and 2014, there was no employer match and therefore no compensation cost to the Company.

Life Insurance

The Company provided post-retirement life insurance to certain retired employees under the Dual Option Life Insurance Plan. Effective January 2004, the Company terminated this plan for active employees. The Company has purchased split-dollar life insurance on the lives of the covered participants. Death benefits due to participants are approximately $2,950,000. Cash surrender values of these policies, which are included in other assets in the consolidated balance sheets, were $2,924,000 and $3,076,000 at January 31, 2015 and 2014, respectively. Death benefits payable under the policies were approximately $5,696,000 and $5,990,000 at January 31, 2015 and 2014, respectively. Death benefits received under the Plan in excess of the benefit obligation will be retained in the trust and used to secure and fund benefits payable under the VIP Pension Plan. The Company maintains a rabbi trust to hold assets related to the Dual Option Life Insurance Plan. All assets securing this plan are held in the rabbi trust.

The following sets forth the Company's change in death benefits payable during the years ended January 31, 2015 and 2014:



	1/31/2015			1/31/2014
Liability beginning of year	$	2,401,000		$	2,316,000
Accretion expense	104,000			85,000
Present value of death benefits paid	(117,000		)	—
Liability end of year	$	2,388,000		$	2,401,000