NOTE 13 – 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 $1.3 million in fiscal 2019, $974,000 in fiscal 2018, and $977,000 in fiscal 2017.

We adopted ASU 2017-07 as of the beginning of our 2019 fiscal year on January 29, 2018. Components of net periodic benefit cost other than the service cost for the SRIP, SERP and the Pension Plan are included in the line item “Other income, net” in our condensed consolidated statements of income. Service cost is included in our condensed consolidated statements of income under “Selling and administrative expenses.” The adoption resulted in the reclassification of $30,000 gain and $581,000 expense from Selling and administrative expenses to Other income, net in our fiscal 2018 and 2017 condensed consolidated statements of income.

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-Three			Fifty-Two			Fifty-Three			Fifty-Two
	Weeks Ended			Weeks Ended			Weeks Ended			Weeks Ended
	February 3,			January 28,			February 3,			January 28,
	2019			2018			2019			2018
Change in benefit obligation:
Beginning projected benefit obligation	$	9,365		$	8,845		$	2,008		$	2,302
Service cost		326			302
Interest cost		341			345			70			83
Benefits paid		(511	)		(520	)		(185	)		(216	)
Actuarial loss (gain)		101			393			(88	)		(160	)
Ending projected benefit obligation (funded status)	$	9,622		$	9,365		$	1,805		$	2,008

Accumulated benefit obligation	$	9,182		$	8,727		$	1,805		$	2,008

Discount rate used to value the ending benefit obligations:		3.75	%		3.75	%		3.90	%		3.64	%

Amount recognized in the consolidated balance sheets:
Current liabilities (Accrued salaries, wages and benefits line)	$	511		$	511		$	173		$	188
Non-current liabilities (Deferred compensation line*)		9,111			8,854			1,632			1,820
Total	$	9,622		$	9,365		$	1,805		$	2,008

	Fifty-Three			Fifty-Two			Fifty-Two			Fifty-Three			Fifty-Two
	Weeks Ended			Weeks Ended			Weeks Ended			Weeks Ended			Weeks Ended
	February 3,			January 28,			January 29,			3-Feb			January 28,
	2019			2018			2017			2019			2018
Net periodic benefit cost
Service cost	$	326		$	302		$	375		$	-		$	-
Interest cost		341			345			341			70			83
Net loss (gain)		172			62			(72	)		-			-
Net periodic benefit cost	$	839		$	709		$	644		$	70		$	83


Other changes recognized in accumulated other comprehensive income
Net loss (gain) arising during period		101			393			330			(88	)		(160	)
Amortizations:
Gain (Loss)		(172	)		(62	)		72			-			-
Total recognized in other comprehensive loss (income)		(71	)		331			402			(88	)		(160	)

Total recognized in net periodic benefit cost and accumulated other comprehensive income	$	768		$	1,040		$	1,046		$	(18	)	$	(77	)

Assumptions used to determine net periodic benefit cost:
Discount rate		3.75	%		4.00	%		4.3	%		3.64	%		3.77	%
Increase in future compensation levels		4.00	%		4.00	%		4.0	%		N/A			N/A

Estimated Future Benefit Payments:

Fiscal 2020

511

173

Fiscal 2021

873

169

Fiscal 2022

873

165

Fiscal 2023

873

160

Fiscal 2024

960

155

Fiscal 2025 through fiscal 2029

4,340

683

For the SRIP, the discount rate used to determine the fiscal 2019 net periodic cost was 3.75% based on the Moody’s Composite Bond Rate as of January 31, 2018. 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 February 3, 2019 by approximately $640,000. Similarly, decreasing the discount rate by 1% would increase the projected benefit obligation at February 3, 2019 by $715,000. Increasing the SERP discount rate by 1% would decrease the projected benefit obligation at February 3, 2019 by approximately $124,000. Similarly, decreasing the discount rate by 1% would increase the projected benefit obligation at February 3, 2019 by $141,000.

At February 3, 2019, the actuarial losses related to the SRIP amounted to $101,000, net of tax of $23,000. At January 28, 2018, the actuarial losses related to the SRIP amounted to $393,000, net of tax of $62,000. 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 2020 are $0 and $149,000, respectively.

At February 3, 2019, the actuarial gain related to the SERP was $88,000. 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 2020 are immaterial.

The Pension Plan

No benefits have accrued under the Pension Plan since it was frozen in March 1995.

We contributed $110,000 in required contributions to the Pension Plan in the fiscal 2019 first quarter. During the fiscal 2019 third quarter, we transferred $3 million to the Pension Plan to reduce the underfunded balance and engaged in a “de-risking” strategy by moving Plan assets into fixed income securities, in order to reduce the volatility of the Plan Assets.

On January 30, 2019, our Board of Directors voted to terminate the Pension Plan. Pension Plan termination is an eighteen to twenty-four-month process, that involves seeking certain approvals from both the IRS and PBGC. Once we receive the appropriate approvals, an insurance company will be selected to provide annuities for participants at an amount equal to their current monthly pension benefit. Upon settlement of the pension liability, we will reclassify the related pension losses currently recorded in accumulated other comprehensive loss, to the consolidated statements of operations. We expect to record pension settlement expenses against earnings which could adversely affect our earnings. Additionally, there could be excess costs to terminate the plan.

As of February 3, 2019, current Pension Plan assets are invested in bond funds and are measured at fair value using Level 1 inputs, which are quoted prices in active markets.

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 February 3, 2019 by approximately $1.1 million. Similarly, decreasing the discount rate by 1% would increase the projected benefit obligation at February 3, 2019 by $1.3 million.

The expected long-term rate of return on Pension Plan assets (“EROA”) is 3.8% as of the Plan’s most recent valuation date of February 3, 2019. 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.

Summarized Pension Plan information as of February 3, 2019 (the measurement date) is as follows:

Pulaski Furniture Pension Plan

	Fifty-Three			Fifty-Two
	Weeks Ended			Weeks Ended
	February 3,			January 28,
	2019			2018
Change in benefit obligation:
Beginning projected benefit obligation	$	11,198		$	17,380
Acquisition
Service cost		-			-
Interest cost		415			695
Benefits paid		(708	)		(1,187	)
Settlement		-			(5,923	)
Actuarial loss		1			233
Ending projected benefit obligation	$	10,906		$	11,198

Change in Plan Assets:
Beginning fair value of plan assets	$	8,757		$	13,881
Actual return on plan assets		23			2,325
Employer contributions		3,110			511
Actual expenses paid		(190	)		(371	)
Settlement		-			(6,402	)
Actual benefits paid		(708	)		(1,187	)
Ending fair value of plan assets	$	10,992		$	8,757

Funded Status of the Plan	$	86		$	(2,441	)

Discount rate used to value the ending benefit obligations:		3.80	%		3.82	%

Amount recognized in the consolidated balance sheets:
Current liabilities (Accrued salaries, wages and benefits line)	$	86		$	-
Non-current liabilities (Deferred compensation line*)		-			(2,441	)
Net Asset/(Liability)	$	86		$	(2,441	)

	Fifty-Three			Fifty-Two
	Weeks Ended			Weeks Ended
	February 3,			January 28,
	2019			2018
Net periodic benefit cost
Expected administrative expenses	$	280		$	280
Interest cost		415			695
Net loss (gain)		(575	)		(933	)
Net periodic benefit cost	$	120		$	42
Settlement/Curtailment expense (Income)					(562	)
Total net periodic benefit cost (Income)	$	120		$	(520	)

Other changes recognized in other comprehensive income
Net (gain) loss arising during period		464			(590	)
Amortization:
(Loss) gain		-			562
Total recognized in other comprehensive (income) loss		464			(28	)

Total recognized in net periodic benefit cost and accumulated other comprehensive income	$	584		$	(548	)

Assumptions used to determine net periodic benefit cost:
Discount rate		3.82	%		4.14	%
Increase in future compensation levels		N/A			N/A

Estimated Future Benefit Payments:
Fiscal 2020	$	681
Fiscal 2021		681
Fiscal 2022		683
Fiscal 2023		674
Fiscal 2024		693
Fiscal 2025 through Fiscal 2029		3,461

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 2016, the Compensation Committee awarded performance grants for the 2017 fiscal year. The 2016 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 2017, fiscal 2018 and fiscal 2019, 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:

	February 3,		January 28,
	2019		2018
Performance grants
Fiscal 2016 grant (Current liabilities, Accrued wages, salaries and benefits)	$	-	$	193
Fiscal 2017 grant (Current liabilities, Accrued wages, salaries and benefits)		621		186
Fiscal 2018 grant (Non-current liabilities, Deferred compensation)		468		274
Fiscal 2019 grant (Non-current liabilities, Deferred compensation)		268		-
Total performance grants accrued	$	1,357	$	653