NOTE 11 – EMPLOYEE BENEFIT PLANS

Employee Savings Plans

We sponsor a tax-qualified 401(k) retirement plan covering substantially all employees. This plan assists employees in meeting their savings and retirement planning goals through employee salary deferrals and discretionary employer matching contributions. Our contributions to the plan amounted to $974,000 in fiscal 2018, $977,000 in fiscal 2017, and $666,000 in fiscal 2016.

Executive Benefits

Pension, SRIP and SERP Overview

We maintain three “frozen” retirement plans, which are paying benefits and may include active employees among the participants but we do not expect to add participants to these plans in the future. The three plans include:

§	a supplemental retirement income plan (“SRIP”) for certain former and current executives of Hooker Furniture Corporation;

§	the Pulaski Furniture Corporation Supplemental Executive Retirement Plan (“SERP”) for certain former executives; and

§	the Pulaski Furniture Corporation Pension Plan (“Pension Plan”) for former Pulaski Furniture Corporation employees.

SRIP and SERP

The SRIP provides monthly payments to participants or their designated beneficiaries based on a participant’s “final average monthly earnings” and “specified percentage” participation level as defined in the plan, subject to a vesting schedule that may vary for each participant. The benefit is payable for a 15-year period following the participant’s termination of employment due to retirement, disability or death. In addition, the monthly retirement benefit for each participant, regardless of age, becomes fully vested and the present value of that benefit is paid to each participant in a lump sum upon a change in control of the Company as defined in the plan. The SRIP is unfunded and all benefits are payable solely from our general assets. The plan liability is based on the aggregate actuarial present value of the vested benefits to which participating employees are currently entitled, but based on the employees’ expected dates of separation or retirement. No employees have been added to the plan since 2008 and we do not expect to add additional employees in the future, due to changes in our compensation philosophy, which emphasizes more performance-based compensation measures in total management compensation.

The SERP provides monthly payments to eight retirees or their designated beneficiaries based on a defined benefit formula as defined in the plan. The benefit is payable for the life of the retiree with the following forms available as a reduced monthly benefit: Ten-year Certain and Life; 50% or 100% Joint and Survivor Annuity. The SERP is unfunded and all benefits are payable solely from our general assets. The plan liability is based on the aggregate actuarial present value of the benefits to which retired employees are currently entitled. No employees have been added to the plan since 2006 and we do not expect to add additional employees in the future.

Summarized SRIP and SERP information as of each fiscal year-end (the measurement date) is as follows:

	SRIP (Supplemental Retirement Income Plan)						SERP (Supplemental Executive Retirement Plan)
	Fifty-Two			Fifty-Two			Fifty-Two			Fifty-Two
	Weeks Ended			Weeks Ended			Weeks Ended			Weeks Ended
	January 28,			January 29,			January 28,			January 29,
	2018			2017			2018			2017
Change in benefit obligation:
Beginning projected benefit obligation	$	8,845		$	8,153		$	2,302		$	2,413
Service cost		302			375
Interest cost		345			341			82			89
Benefits paid		(520	)		(354	)		(216	)		(204	)
Actuarial loss (gain)		393			330			(160	)		4
Ending projected benefit obligation (funded status)	$	9,365		$	8,845		$	2,008		$	2,302

Accumulated benefit obligation	$	8,727		$	8,344		$	2,008		$	2,302

Discount rate used to value the ending benefit obligations:		3.75	%		4.00	%		3.64	%		3.77	%

Amount recognized in the consolidated balance sheets:
Current liabilities (Accrued salaries, wages and benefits line)	$	511		$	473		$	188		$	221
Non-current liabilities (Deferred compensation line*)		8,854			8,372			1,820			2,081
Total	$	9,365		$	8,845		$	2,008		$	2,302

	Fifty-Two			Fifty-Two			Fifty-Two			Fifty-Two			Fifty-Two
	Weeks Ended			Weeks Ended			Weeks Ended			Weeks Ended			Weeks Ended
	January 28,			January 29,			January 31,			January 28,			January 29,
	2018			2017			2016			2018			2017
Net periodic benefit cost
Service cost	$	302		$	375		$	406		$	-		$	-
Interest cost		345			341			289			83			89
Net loss (gain)		62			(72	)		178			-			-
Net periodic benefit cost	$	709		$	644		$	873		$	83		$	89


Other changes recognized in accumulated other comprehensive income
Net loss (gain) arising during period		393			330			(574	)		(160	)		4
Amortizations:
Gain (Loss)		(62	)		72			(178	)		-			-
Total recognized in other comprehensive loss (income)		331			402			(752	)		(160	)		4

Total recognized in net periodic benefit cost and accumulated other comprehensive income	$	1,040		$	1,046		$	121		$	(77	)	$	93

Assumptions used to determine net periodic benefit cost:
Discount rate		4.00	%		4.3	%		3.5	%		3.77	%		3.88	%
Increase in future compensation levels		4.00	%		4.0	%		4.0	%		N/A			N/A

Estimated Future Benefit Payments:
Fiscal 2019	$	511	188
Fiscal 2020		855	183
Fiscal 2021		855	178
Fiscal 2022		855	173
Fiscal 2023		855	167
Next 5 years		4,381	735

For the SRIP, the net periodic benefit cost recognized in other comprehensive income was due to a decreased discount rate from 4.25% at January 29, 2017 to 4.00% at January 28, 2018 as well as increase in projected bonus for executives. The discount rate utilized in each period was the Annualized Moody’s Composite Bond Rate rounded to the nearest 0.25%.

For the SERP, the discount rate assumption used to measure the postretirement benefit obligations is set by reference to a certain hypothetical AA-rated corporate bond spot-rate yield curve constructed by our actuary, Aon Hewitt (“Aon”). This yield curve was constructed from the underlying bond price and yield data collected as of the Plan’s measurement date and is represented by a series of annualized, individual discount rates with durations ranging from six months to seventy-five years. Aon then applies the yield curve to the actuarially projected cash flow patterns to derive the appropriate discount rate.

Increasing the SRIP discount rate by 1% would decrease the projected benefit obligation at January 31, 2018 by approximately $630,000. Similarly, decreasing the discount rate by 1% would increase the projected benefit obligation at January 31, 2018 by $705,000. Increasing the SERP discount rate by 1% would decrease the projected benefit obligation at January 28, 2018 by approximately $142,000. Similarly, decreasing the discount rate by 1% would increase the projected benefit obligation at January 28, 2018 by $162,000.

At January 28, 2018, the actuarial losses related to the SRIP amounted to $393,000, net of tax of $62,000. At January 29, 2017, the actuarial losses related to the SRIP amounted to $185,000, net of tax of $68,000. The estimated prior service (cost) credit and actuarial loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost over fiscal 2019 are $0 and $160,000, respectively.

At January 28, 2018, the actuarial gain related to the SERP was $160,000. The estimated net transition (asset)/obligation, prior service (cost) credit and actuarial loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost over fiscal 2019 are immaterial.

The Pension Plan

Pension Plan assets include a range of mutual fund asset classes and are measured at fair value using Level 1 inputs, which are quoted prices in active markets.

Our Pension Plan investment policy includes various guidelines and procedures designed to ensure assets are invested in a manner necessary to meet expected future benefits earned by participants. The investment guidelines consider a broad range of economic conditions. Central to the policy are target allocation ranges by asset class. The objectives of the target allocations are to maintain investment portfolios that diversify risk through prudent asset allocation parameters, achieve asset returns that meet or exceed the plan’s actuarial assumptions, and achieve asset returns that are competitive with like institutions employing similar investment strategies.

We and our third-party advisors periodically review the Pension Plan for investment matters. The same advisor assists in specific investment review and selection.

Our overall investment strategy is to achieve a mix of approximately 75% of investments for long-term growth and 25% for near-term benefit payments with a diversification of asset types and fund strategies. The allocations for plan assets at January 28, 2018 were 81.3% equity and 18.7% corporate bonds and U.S. Treasury Securities.

Mutual funds primarily include investments in a range of asset classes, including: domestic and international equities (both large and small cap), fixed income securities such as corporate bonds, mortgage-backed securities, real estate investments and U.S. Treasuries.

The following are the major categories of plan assets measured at fair value on January 28, 2018, all using quoted prices in active markets for identical assets (Level 1), in thousands of dollars:

Money Market Funds	$	53
Mutual Funds:
Growth Funds	$	2,054
International Funds		1,243
Bond Funds		1,588
Value Funds		962
Small Blend Funds		1,000
Emerging Market Funds		1,021
Real Estate		836
Total Plan Assets	$	8,757

The Pension Plan discount rate assumption used to measure the postretirement benefit obligations is set by reference to a certain hypothetical AA-rated corporate bond spot-rate yield curve constructed by Aon. This yield curve was constructed from the underlying bond price and yield data collected as of the Pension Plan’s measurement date and is represented by a series of annualized, individual discount rates with durations ranging from six months to seventy-five years. Aon then applies the yield curve to the actuarially projected cash flow patterns to derive the appropriate discount rate.

The vested benefit obligation for the Pension Plan is the actuarial present value of the vested benefits to which the employee is currently entitled, but based on the employee’s expected date of separation or retirement.

Increasing the Pension Plan discount rate by 1% would decrease the projected benefit obligation at January 28, 2018 by approximately $1.1 million. Similarly, decreasing the discount rate by 1% would increase the projected benefit obligation at January 28, 2018 by $1.4 million.

The expected long-term rate of return on Pension Plan assets (“EROA”) is 6.9% as of the Plan’s most recent valuation date of January 31, 2018. We select the EROA to use based on input from Aon, our Pension Plan Investment Consultant and Actuary. Aon provides us with a statistical analysis of future expected returns based on the current investment policy target asset mix and Aon’s capital market assumptions. We then select the return from Aon’s reasonable range recommendation.

We contributed $511,000 in required contributions to reduce the underfunded balance of the Pension Plan during fiscal 2018. Expected minimum Pension Plan contributions in fiscal 2019 are $488,000.

In the fourth quarter of fiscal 2018, we used $6.4 million Pension Plan assets to partially settle Pension Plan liabilities through a “lift-out” transaction. The lift-out transaction removed approximately half of the participants from the Plan and fully replaced their benefits with annuities from a highly rated insurance company. We recognized a $560,000 gain from the transaction. We anticipate savings due to the elimination of variable Pension Benefit Guaranty Corporation fees and insurance premiums and the mitigation of the risk that these costs would continue to escalate.

Summarized Pension Plan information as of January 28, 2018 (the measurement date) is as follows:

Pulaski Furniture Pension Plan
	Fifty-Two			Fifty-Two
	Weeks Ended			Weeks Ended
	January 28,			January 29,
	2018			2017
Change in benefit obligation:
Beginning projected benefit obligation	$	17,380		$	-
Acquisition		-			17,828
Service cost		-			-
Interest cost		695			751
Benefits paid		(1,187	)		(1,099	)
Settlement		(5,923	)		-
Actuarial (gain) loss		233			(100	)
Ending projected benefit obligation	$	11,198		$	17,380

Change in Plan Assets:
Beginning fair value of plan assets	$	13,881		$	11,585
Actual return on plan assets		2,325			1,666
Employer contributions		511			2,011
Actual expenses paid		(371	)		(282	)
Settlement		(6,402	)		-
Actual benefits paid		(1,187	)		(1,099	)
Ending fair value of plan assets	$	8,757		$	13,881

Funded Status of the Plan	$	(2,441	)	$	(3,499	)

Discount rate used to value the ending benefit obligations:		3.82	%		4.14	%

Amount recognized in the consolidated balance sheets:
Current liabilities (Accrued salaries, wages and benefits line)	$	-		$	-
Non-current liabilities (Deferred compensation line*)		(2,441	)		(3,499	)
Total	$	(2,441	)	$	(3,499	)

	Fifty-Two			Fifty-Two
	Weeks Ended			Weeks Ended
	January 28,			January 29,
	2018			2017
Net periodic benefit cost
Expected administrative expenses	$	280		$	280
Interest cost		695			751
Net loss (gain)		(933	)		(808	)
Net periodic benefit cost	$	42		$	223
Settlement/Curtailment expense (Income)		(562	)		-
Total net periodic benefit cost (Income)	$	(520	)	$	223

Other changes recognized in other comprehensive income
Net (gain) loss arising during period		(590	)		(957	)
Amortization:
(Loss) gain		562			-
Total recognized in other comprehensive (income) loss		(28	)		(957	)

Total recognized in net periodic benefit cost and accumulated other comprehensive income	$	(548	)	$	(734	)

Assumptions used to determine net periodic benefit cost:
Discount rate		4.14	%		4.36	%
Increase in future compensation levels		N/A			N/A

Estimated Future Benefit Payments:
Fiscal 2019	$	694
Fiscal 2020		687
Fiscal 2021		684
Fiscal 2022		686
Fiscal 2023		677
Fiscal 2024 through Fiscal 2028		3,464

Life Insurance

We also provide a life insurance program for certain executives. The life insurance program provides death benefit protection for these executives during employment up to age 65. Coverage under the program declines when a participating executive attains age 60 and automatically terminates when the executive attains age 65 or terminates employment with us for any reason, other than death, whichever occurs first. The life insurance policies funding this program are owned by the Company with a specified portion of the death benefits payable under those policies endorsed to the insured executives’ designated beneficiaries.

Performance Grants

The Compensation Committee of our Board of Directors annually awards performance grants to certain senior executives under the Company’s Stock Incentive Plan. Payments under these awards are based on our achieving specified performance targets during a designated performance period. Generally, each executive must remain continuously employed with the Company through the end of the performance period. Typically, performance grants can be paid in cash, shares of the Company’s common stock, or both, at the discretion of the Compensation Committee at the time payment is made.

Outstanding performance grants are classified as liabilities since the (i) settlement amount for each grant is not known until after the applicable performance period is completed and (ii) settlement of the grants may be made in common stock, cash or a combination of both. The estimated cost of each grant is recorded as compensation expense over its performance period when it becomes probable that the applicable performance targets will be achieved. The expected cost of the performance grants is revalued each reporting period. As assumptions change regarding the expected achievement of performance targets, a cumulative adjustment is recorded and future compensation expense will increase or decrease based on the currently projected performance levels. If we determine that it is not probable that the minimum performance thresholds for outstanding performance grants will be met, no further compensation cost will be recognized and any previously recognized compensation cost will be reversed.

During fiscal 2014, the Compensation Committee awarded performance grants for the 2015 fiscal year. The 2015 awards had a three-year performance period that ended on January 29, 2017. The performance criteria for these awards were met and were paid in April 2017. During fiscal 2016, fiscal 2017 and fiscal 2018, the Compensation Committee awarded performance grants that have three-year performance periods ending on January 28, 2018 February 3, 2019 and February 2, 2020, respectively. The following amounts were accrued in our consolidated balance sheets as of the fiscal period-end dates indicated:

	January 28,		January 29,
	2018		2017
Performance grants
Fiscal 2015 grant (Current liabilities, Accrued wages, salaries and benefits)	$	-	$	644
Fiscal 2016 grant (Current liabilities, Accrued wages, salaries and benefits)		193		215
Fiscal 2017 grant (Non-current liabilities, Deferred compensation)		186		93
Fiscal 2018 grant (Non-current liabilities, Deferred compensation)		274		-
Total performance grants accrued	$	653	$	952