POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

We provide retiree medical and life insurance benefits under postretirement plans at several of our operating locations. The level and adjustment of participant contributions vary depending on the specific plan. In addition, PD LLC provides postemployment disability benefits to certain employee groups prior to retirement. Our liability and related expense for benefits under the postretirement plans are recorded over the service period of active employees based upon annual actuarial calculations. We accrue postemployment disability benefits when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid. Plan assets may also be used to fund medical costs of certain active employees.

The net periodic postretirement benefit cost (benefit) components for our postretirement plans are as follows:



(Thousands of Dollars)	2015		2014		2013

Service cost for benefits earned during the year	76		596		728
Interest cost on projected benefit obligation	922		911		1,125
Expected return on plan assets	(1,445	)	(1,483	)	(1,474	)
Amortization of net actuarial gain	(1,386	)	(1,819	)	(1,324	)
Amortization of prior service benefit	(1,459	)	(1,459	)	(1,459	)
Net periodic postretirement benefit	(3,292	)	(3,254	)	(2,404	)

Changes in benefit obligations and plan assets are as follows:



(Thousands of Dollars)	2015		2014

Benefit obligation, beginning of year	25,506		23,432
Service cost	76		596
Interest cost	922		911
Actuarial loss (gain)	(1,149	)	2,298
Benefits paid, net of premiums received	(1,541	)	(1,905	)
Medicare Part D subsidies	(2	)	174
Benefit obligation, end of year	23,812		25,506
Fair value of plan assets, beginning of year	32,881		33,920
Actual return on plan assets	(547	)	1,167
Employer contributions	745		597
Benefits paid, net of premiums and Medicare Part D subsidies received	(1,544	)	(1,731	)
Benefits paid for active employees	(1,412	)	(1,072	)
Fair value of plan assets at measurement date	30,123		32,881
Funded status - benefit obligation less than plan assets	(6,311	)	(7,375	)

The accumulated benefit obligation for plans with benefit obligations in excess of plan assets included in the table above was $7,109,000 at September 27, 2015. These plans are unfunded.

Disaggregated amounts recognized in the Consolidated Balance Sheets are as follows:



(Thousands of Dollars)	September 27 2015	September 28 2014

Non-current assets	13,420	14,136
Postretirement benefit obligations	7,109	6,761
Accumulated other comprehensive income (before income tax benefit)	22,551	27,250

Amounts recognized in accumulated other comprehensive income are as follows:



(Thousands of Dollars)	September 27 2015	September 28 2014

Unrecognized net actuarial gain	13,155	16,394
Unrecognized prior service benefit	9,396	10,856
	22,551	27,250

We expect to recognize $1,146,000 and $1,459,000 of unrecognized net actuarial gain and unrecognized prior service benefit, respectively, in net periodic postretirement benefit in 2016.

Assumptions

Weighted-average assumptions used to determine post retirement benefit obligations are as follows:



(Percent)	September 27 2015	September 28 2014

Discount rate	3.7	3.7
Expected long-term return on plan assets	4.5	4.5

The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns, current market conditions and composition of plan assets.

Weighted-average assumptions used to determine net periodic benefit cost are as follows:



(Percent)	2015	2014	2013

Discount rate	3.7	4.0	3.85
Expected long-term return on plan assets	4.5	4.5	4.5

Assumed health care cost trend rates are as follows:



(Percent)	September 27 2015	September 28 2014

Health care cost trend rates	9.0	7.5
Rate to which the cost trend rate is assumed to decline (the “Ultimate Trend Rate”)	4.5	5.0
Year in which the rate reaches the Ultimate Trend Rate	2025	2018

Administrative costs related to indemnity plans are assumed to increase at the health care cost trend rates noted above.

Assumed health care cost trend rates have an effect on the amounts reported for the postretirement plans. A one percentage point change in assumed health care cost trend rates would have the following annualized effects on reported amounts for 2015:



	One Percentage Point
(Thousands of Dollars)	Increase	Decrease

Effect on net periodic postretirement benefit	29	(26	)
Effect on postretirement benefit obligation	831	(748	)

Plan Assets

The primary objective of our investment strategy is to satisfy our postretirement obligations at a reasonable cost. Assets are actively invested to balance real growth of capital through appreciation and reinvestment of dividend and interest income and safety of invested funds.

Our investment policy outlines the governance structure for decision making, sets investment objectives and restrictions, and establishes criteria for selecting and evaluating investment managers. The use of derivatives is strictly prohibited, except on a case-by-case basis where the manager has a proven capability, and only to hedge quantifiable risks such as exposure to foreign currencies. An investment committee, consisting of certain of our executives and supported by independent consultants, is responsible for monitoring compliance with the investment policy. Assets are periodically redistributed to maintain the appropriate policy allocation.

The weighted-average asset allocation of our postretirement assets is as follows:



(Percent)	Policy Allocation	Actual Allocation
Asset Class	September 27 2015	September 27 2015	September 28 2014

Equity securities	20	19	22
Debt securities	70	68	74
Hedge fund investment	10	10
Cash and cash equivalents	—	3	4

Plan assets include no Company securities. Assets include cash and cash equivalents and receivables from time to time due to the need to reallocate assets within policy guidelines.

Fair Value Measurements

The fair value hierarchy of postretirement assets at September 27, 2015 is as follows:



(Thousands of Dollars)	Level 1	Level 2	Level 3

Cash and cash equivalents	790	—	—
Domestic equity securities	2,896	1,372	—
International equity securities	645	857	—
Debt securities	13,910	6,581	—
Hedge fund investment	—	3,072	—

There were no purchases, sales or transfers of assets classified as Level 3 in 2015, 2014 or 2013.

Cash Flows

Based on our forecast at September 27, 2015, we do not expect to contribute to our postretirement plans in 2016.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Modernization Act”) introduced a prescription drug benefit under Medicare (“Medicare Part D”) and a federal subsidy to sponsors of retiree health care benefit plans (“Subsidy”) that provide a benefit at least actuarially equivalent (as that term is defined in the Modernization Act) to Medicare Part D. We concluded we qualify for the Subsidy under the Modernization Act since the prescription drug benefits provided under our postretirement health care plans generally require lower premiums from covered retirees and have lower deductibles than the benefits provided in Medicare Part D and, accordingly, are actuarially equivalent to or better than, the benefits provided under the Modernization Act.

We anticipate future benefit payments to be paid either with future contributions to the plan or directly from plan assets, as follows:



(Thousands of Dollars)	Gross Payments	Less Medicare Part D Subsidy		Net Payments

2015	3,320	(260	)	3,060
2016	2,130	(260	)	1,870
2017	2,040	(260	)	1,780
2018	2,070	(260	)	1,810
2019	2,040	(260	)	1,780
2020-2024	9,180	(1,140	)	8,040

Postemployment Plan

Our postemployment benefit obligation, representing certain disability benefits, is $3,951,000 at September 27, 2015 and $3,597,000 at September 28, 2014.