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, St. Louis Post Dispatch LLC ("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.

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



(Thousands of Dollars)	2016		2015		2014

Service cost for benefits earned during the year	63		76		596
Interest cost on projected benefit obligation	623		922		911
Expected return on plan assets	(1,322	)	(1,445	)	(1,483	)
Amortization of net actuarial gain	(1,093	)	(1,386	)	(1,819	)
Amortization of prior service benefit	(1,459	)	(1,459	)	(1,459	)
Net periodic postretirement benefit	(3,188	)	(3,292	)	(3,254	)

Changes in benefit obligations and plan assets are as follows:



(Thousands of Dollars)	2016		2015

Benefit obligation, beginning of year	23,812		25,506
Service cost	63		76
Interest cost	623		922
Actuarial loss (gain)	(773	)	(1,149	)
Benefits paid, net of premiums received	(1,434	)	(1,541	)
Medicare Part D subsidies	220		(2	)
Benefit obligation, end of year	22,511		23,812
Fair value of plan assets, beginning of year	30,123		32,881
Actual return on plan assets	1,085		(547	)
Employer contributions	563		745
Benefits paid, net of premiums and Medicare Part D subsidies received	(1,213	)	(1,544	)
Benefits paid for active employees	(1,510	)	(1,412	)
Allocation to active medical plans	(4,925	)	—
Fair value of plan assets at measurement date	24,123		30,123
Funded status - benefit obligation less than plan assets	(1,612	)	(6,311	)

The accumulated benefit obligation for plans with benefit obligations in excess of plan assets included in the table above was $7,527,000 at September 25, 2016. These plans are unfunded.

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



(Thousands of Dollars)	September 25 2016	September 27 2015

Non-current assets	9,138	13,420
Postretirement benefit obligations	7,527	7,109
Accumulated other comprehensive income (before income tax benefit)	19,026	22,551

Amounts recognized in accumulated other comprehensive income are as follows:



(Thousands of Dollars)	September 25 2016	September 27 2015

Unrecognized net actuarial gain	11,089	13,155
Unrecognized prior service benefit	7,937	9,396
	19,026	22,551

We expect to recognize $1,016,000 and $1,459,000 of unrecognized net actuarial gain and unrecognized prior service benefit, respectively, in net periodic postretirement benefit in 2017.

Assumptions

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



(Percent)	September 25 2016	September 27 2015

Discount rate	3.1	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)	2016	2015	2014

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

Assumed health care cost trend rates are as follows:



(Percent)	September 25 2016	September 27 2015

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

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 2016:



	One Percentage Point
(Thousands of Dollars)	Increase	Decrease

Effect on net periodic postretirement benefit	20	(18	)
Effect on postretirement benefit obligation	697	(629	)

Plan Assets

Assets of the retiree medical plan are invested in a master trust. The master trust also pays benefits of active employee medical plans for the same union employees. In 2016, it was determined that the assets of the retiree medical plan should be allocated among all plans that it funds and as a result, we allocated $4,925,000 of the retiree medical plan assets to the active medical plans during the year. The fair value of master trust assets allocated to the retiree medical plan is $24,123,000 at September 25, 2016. The fair value of master trust assets allocated to the active employee medical plans at September 25, 2016 is $4,925,000.

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 25 2016	September 25 2016	September 27 2015

Equity securities	20	22	19
Debt securities	70	65	68
Hedge fund investment	10	11	10
Cash and cash equivalents	—	2	3

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 25, 2016 is as follows:



(Thousands of Dollars)	NAV	Level 1	Level 2

Cash and cash equivalents	—	518	—
Domestic equity securities	—	3,342	1,572
International equity securities	—	695	898
Debt securities	—	18,840	—
Hedge fund investment	3,182	—	—

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



(Thousands of Dollars)	NAV	Level 1	Level 2

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 2016 or 2015.

Cash Flows

Based on our forecast at September 25, 2016, we do not expect to contribute to our postretirement plans in 2017.

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

2017	3,600	(200	)	3,400
2018	1,870	(210	)	1,660
2019	1,910	(210	)	1,700
2020	1,880	(210	)	1,670
2021	1,790	(200	)	1,590
2022-2026	7,910	(870	)	7,040

Postemployment Plan

Our postemployment benefit obligation, representing certain disability benefits, is $3,190,000 at September 25, 2016 and $3,951,000 at September 27, 2015.