Note 10 – Associate Retirement Plans

The Company’s retirement programs include pension plans providing non-contributory benefits and salary reduction defined contribution plans providing contributory benefits. Substantially all of the Company’s associates not covered by collective bargaining agreements are covered by a frozen non-contributory pension plan, a defined contribution plan, or both. Associates covered by collective bargaining agreements are included in multi-employer pension plans.

Defined Contribution Plans

Expense for employer matching and profit sharing contributions made to defined contribution plans totaled $21.1 million, $13.6 million and $4.8 million in fiscal years ended January 2, 2016 and January 3, 2015 and for the 39-week period ended December 28, 2013, respectively.

Executive Compensation Plans

The Company has a deferred compensation plan for a select group of management personnel or highly compensated associates. The plan is unfunded and permits participants to defer receipt of a portion of their base salary, annual bonus, or long-term incentive compensation which would otherwise be paid to them. The deferred amounts, plus earnings, are distributed following the associate’s termination of employment. Earnings are based on the performance of phantom investments elected by the participant from a portfolio of investment options.

The Company had two separate trusts established for the protection of cash balances owed to participants in its deferred compensation plans. The Company was required, as specified by the plan documents, to fund these trusts with 125% of its pre-merger liability to plan participants. These trusts were terminated in 2015 and the Company received cash proceeds from the liquidation of corporate owned life insurance policies of $5.0 million.

The Company also holds additional variable universal life insurance policies on certain key associates intended to fund distributions under the deferred compensation plan referenced above. The net cash surrender value of approximately $4.2 million at both January 2, 2016 and January 3, 2015, is recorded in “Other assets, net” in the consolidated balance sheets. These policies have an aggregate amount of life insurance coverage of approximately $15.0 million.

Defined Benefit Plans

The Company sponsors defined benefit pension plans for certain associates. The pension benefits are primarily based on years of service and compensation, with some differences resulting from the nature of how benefits were calculated under the Company’s legacy defined benefit plans, as described below.

The Spartan Stores, Inc. Cash Balance Pension Plan (“Cash Balance Pension Plan”), a non-contributory cash balance pension plan, was frozen effective January 1, 2011. As a result of the freeze, no additional associates were eligible to participate in the plan after January 1, 2011, and additional service credits were no longer added to each participant’s account; however, interest credits continue to accrue. Prior to the plan freeze, the plan benefit formula utilized a cash balance approach whereby credits were added annually to a participant’s account based on compensation and years of vested service, with interest credits also added to the participant’s account at the Company’s discretion.

The Retirement Plan for Employees of Super Food Services, Inc. (“Super Foods Plan”), a qualified non-contributory pension plan offered by one of the Company’s subsidiaries, provides retirement income for certain eligible full-time associates who are not covered by a union retirement plan. Pension benefits under the plan are based on length of service and compensation, and contributions meet the minimum funding requirements. This plan has been curtailed and no new associates can enter the plan. This plan is also frozen for additional service credits.

On December 31, 2014, the Super Foods Plan was merged into the Cash Balance Pension Plan and renamed the SpartanNash Company Pension Plan. The merging of the plans resulted in lower administrative fees and reduced cash funding. Annual payments to the pension trust fund are determined in compliance with the Employee Retirement Income Security Act of 1976 (“ERISA”). Plan assets consist principally of U.S. government and corporate obligations and common stocks. The plan does not hold any SpartanNash stock.

During the fiscal year ended January 3, 2015, terminated vested participants of the Cash Balance Pension Plan and the Super Foods Plan were offered a temporary opportunity to elect to receive a lump sum distribution. As a result, distributions of $10.6 million were made and a resulting pension settlement charge of $1.6 million was incurred in fiscal 2014.

Postretirement Medical Plans

SpartanNash Company and certain subsidiaries provide healthcare benefits to retired associates who were not covered by collective bargaining arrangements during their employment (“covered associates”) under the SpartanNash Company Retiree Medical Plan (“SpartanNash Medical Plan”). Former Spartan Stores associates who have at least 30 years of service or 10 years of service and have attained age 55, and who were not covered by collective bargaining arrangements during their employment, qualify as covered associates. Qualified covered associates that retired prior to March 31, 1992 receive major medical insurance with deductible and coinsurance provisions until age 65 and Medicare supplemental benefits thereafter. Covered associates retiring after April 1, 1992 are eligible for monthly postretirement healthcare benefits of $5 multiplied by the associate’s years of service. This benefit is in the form of a credit against the monthly insurance premium. The retiree pays the balance of the premium. Associates hired after December 31, 2001 are not eligible for these benefits.

The following tables set forth the actuarial present value of benefit obligations, funded status, change in benefit obligation, change in plan assets, weighted average assumptions used in actuarial calculations and components of net periodic benefit costs for the Company’s significant pension and postretirement benefit plans, excluding multi-employer plans. The prepaid, current accrued, and noncurrent accrued benefit costs associated with pension and postretirement benefits are reported in “Other assets, net,” “Accrued payroll and benefits,” and “Postretirement benefits,” respectively, in the consolidated balance sheets.

	SpartanNash Company Pension Plan						SpartanNash Medical Plan
(In thousands, except percentages)	January 2, 2016			January 3, 2015 *			January 2, 2016			January 3, 2015
Funded Status
Projected/Accumulated benefit obligation:
Balance at beginning of year	$	93,034		$	102,501		$	9,905		$	7,967
Service cost		—			—			231			186
Interest cost		3,325			4,223			404			394
Actuarial (gain) loss		(4,985	)		5,959			(1,117	)		1,593
Benefits paid		(7,976	)		(19,649	)		(244	)		(235	)
Balance at end of year	$	83,398		$	93,034		$	9,179		$	9,905

Fair value of plan assets:
Balance at beginning of year	$	93,718		$	105,949		$	—		$	—
Actual return on plan assets		(1,639	)		5,093			—			—
Company contributions		650			2,325			244			235
Benefits paid		(7,976	)		(19,649	)		(244	)		(235	)
Balance at end of year	$	84,753		$	93,718		$	—		$	—
Funded (unfunded) status	$	1,355		$	684		$	(9,179	)	$	(9,905	)

Components of net amount recognized in financial position:
Noncurrent assets	$	1,355		$	7,220		$	—		$	—
Current liabilities		—			—			(340	)		(319	)
Noncurrent liabilities		—			(6,536	)		(8,839	)		(9,586	)
Net asset/(liability)	$	1,355		$	684		$	(9,179	)	$	(9,905	)

Amounts recognized in accumulated other comprehensive income:
Net actuarial loss	$	17,322		$	16,572		$	1,263		$	2,554
Prior service credit		—			—			(566	)		(724	)
	$	17,322		$	16,572		$	697		$	1,830

Weighted average assumptions at measurement date:
Discount rate	4.04%			3.60%/3.85%			4.55%			4.15%
Expected return on plan assets	5.05%			5.50%			N/A			N/A

* The amounts above reflect the combined values of the Cash Balance Pension Plan and the Super Foods Plan as of January 3, 2015. On December 31, 2014, the Super Foods Plan was merged into the Cash Balance Pension Plan and renamed the SpartanNash Company Pension Plan. At the time of merger, the accumulated benefit obligations of the Cash Balance Pension Plan and Super Foods Plan were $52.4 million and $40.6 million, respectively, and the fair value of the plan assets for the Cash Balance Pension Plan and Super Foods Plan were $59.7 million and $34.0 million, respectively.

The accumulated benefit obligation for the SpartanNash Company Pension Plan was $83.4 million and $93.0 million at January 2, 2016 and January 3, 2015, respectively.

Components of net periodic benefit cost (income)

	SpartanNash Company Pension Plan											SpartanNash Medical Plan
	January 2,			January 3,				December 28,				January 2,			January 3,			December 28,
	2016			2015				2013				2016			2015			2013
(In thousands, except percentages)	(52 Weeks)			(53 Weeks) (a)				(39 Weeks) (a)				(52 Weeks)			(53 Weeks)			(39 Weeks)
Service cost	$	—		$	—			$	—			$	231		$	186		$	194
Interest cost		3,325			4,223				1,916				404			394			287
Amortization of prior service cost		—			—				—				(158	)		(158	)		(42	)
Expected return on plan assets		(4,923	)		(5,737	)			(3,327	)			—			—			—
Recognized actuarial net loss		827			970				976				174			20			134
Net periodic benefit	$	(771	)	$	(544	)		$	(435	)		$	651		$	442		$	573
Settlement expense		—			2,588				621				—			—			—
Total expense (income)	$	(771	)	$	2,044			$	186			$	651		$	442		$	573

Weighted average assumptions at measurement date:
Discount rate	3.75%			4.35%/4.65%			(b)	3.90%/4.60%			(b)	4.15%			5.05%			3.90%
Expected return on plan assets	5.50%			5.95%/5.70%			(b)	6.55%/6.00%			(b)	N/A			N/A			N/A

On December 31, 2014, the Super Foods Plan was merged into the Cash Balance Pension Plan and renamed the SpartanNash Company Pension Plan.
(a) Amounts reflect the combined values of the Cash Balance Pension Plan and Super Foods Plan.
(b) Amounts reflect the assumptions used for the Cash Balance Pension Plan and the Super Foods Plan, respectively.

The net actuarial loss and prior service cost included in “Accumulated Other Comprehensive Income” and expected to be recognized in net periodic benefit cost during fiscal year 2016 are as follows:

	SpartanNash Company		SpartanNash
(In thousands)	Pension Plan		Medical Plan
Prior service credit	$	—	$	(158	)
Net actuarial loss		111		42

Prior service costs (credits) are amortized on a straight-line basis over the average remaining service period of active participants. Actuarial gains and losses for the SpartanNash Company Pension Plan are amortized over the average remaining service life of active participants when the accumulation of such gains and losses exceeds 10% of the greater of the projected benefit obligation and the fair value of plan assets.

Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement plan. Assumed healthcare cost trend rates were as follows:

	January 2, 2016	January 3, 2015	December 28, 2013
Pre-65	7.50%	7.75%	8.00%
Post-65	8.40%	6.85%	7.00%

The effect of a one-percentage point increase or decrease in assumed healthcare cost trend rates on the total service and interest components and the post-retirement benefit obligations would be less than $0.1 million.

Expected Return on Assets and Investment Strategy

The Company has assumed an average long-term expected return on the SpartanNash Company Pension Plan assets of 5.05% as of January 2, 2016. The expected return assumption was modeled by third-party investment portfolio managers, based on asset allocations and the expected return and risk components of the various asset classes in the portfolio. Determining projected stock and bond returns and then applying these returns to the target asset allocations of the plan assets developed the expected return. Equity returns were based primarily on historical returns of the S&P 500 Index. Fixed-income projected returns were based primarily on historical returns for the broad U.S. bond market. This overall return assumption is believed to be reasonable over a longer-term period that is consistent with the liabilities.

The Company has an investment policy for the SpartanNash Company Pension Plan with a long-term asset allocation mix designed to meet the long-term retirement obligations by investing in equity, fixed income and other securities to cover cash flow requirements of the plan and minimize long-term costs. The asset allocation mix is reviewed periodically and, on a regular basis, actual allocations are rebalanced to approximate the prevailing targets. The following table summarizes both the targeted allocation of the SpartanNash Company Pension Plan’s weighted-average asset allocation by asset category and actual allocations as of January 2, 2016 and January 3, 2015:

	Target *			Actual
Asset Category	January 2, 2016			January 2, 2016			January 3, 2015 **
Equity securities		20.0	%		30.6	%		30.9	%
Fixed income		80.0			68.5			68.7
Cash equivalents		—			0.9			0.4
Total		100.0	%		100.0	%		100.0	%

* At the end of fiscal 2015, the Company updated the target allocation of the SpartanNash Company Pension Plan investment portfolio to reduce its return-seeking equity securities to approximate a 20% allocation. The Company intends to continually evaluate financial market conditions and prudently transition the pension plan assets to the new target allocation.
** The amounts reflect the combined range of the Cash Balance Pension Plan and the Super Foods Plan as of January 3, 2015.

The investment policy emphasizes the following key objectives: (1) provide benefit security to participants by maximizing the return on plan assets at an acceptable risk level (2) maintain adequate liquidity for current benefit payments (3) avoid unexpected increases in pension expense and (4) within the scope of the above objectives, minimize long term funding to the plan.

Upon the merger of the Cash Balance Pension Plan and the Super Foods Plan on December 31, 2014, a third-party fiduciary manages the plan assets under a pre-determined glide path based on funded status, interest rates, mortality tables and expected return on assets.

The fair values of the pension plan assets at January 2, 2016 and January 3, 2015, by asset category, are as follows:

	Fair Value of Assets as of January 2, 2016
(In thousands)	Total		Level 1		Level 2		Level 3
Mutual funds	$	9,401	$	—	$	9,401	$	—
Pooled funds		58,355		—		58,355		—
Money market fund		799		—		799		—
Guaranteed annuity contract		16,198		—		—		16,198
Total fair value	$	84,753	$	—	$	68,555	$	16,198

	Fair Value of Assets as of January 3, 2015
(In thousands)	Total		Level 1		Level 2		Level 3
Mutual funds	$	29,851	$	29,851	$	—	$	—
Pooled funds		45,737		—		45,737		—
Money market fund		381		—		381		—
Guaranteed annuity contract		17,749		—		—		17,749
Total fair value	$	93,718	$	29,851	$	46,118	$	17,749

Level 3 assets consisted of the guaranteed annuity contracts. A reconciliation of the beginning and ending balances for Level 3 assets is as follows:

(In thousands)	January 2, 2016			January 3, 2015
Balance at beginning of year	$	17,749		$	18,071
Purchases, sales, issuances and settlements, net		(2,227	)		(1,402	)
Interest income		680			799
Unrealized (losses) gains		(4	)		281
Balance at end of year	$	16,198		$	17,749

See Note 7 for a discussion of the levels of the fair value hierarchy. The assets’ fair value measurement level above is based on the lowest level of any input that is significant to the fair value measurement.

The following is a description of the valuation methods used for the plans’ assets measured at fair value in the above tables:

Cash & money market funds: The carrying value approximates fair value. Money market funds are valued on a daily basis at the net asset value (“NAV”) using the amortized cost of the securities held in the fund. Because amortized cost does not meet the criteria for an active market, money market funds are classified within Level 2 of the fair value hierarchy of ASC 820.

Mutual Funds: These investments are valued using the NAV, which is determined once a day after the closing of the exchange based upon the underlying assets in the fund, less the fund’s liabilities, expressed on a per-share basis. Funds for which the NAV is a quoted price in an active market are classified within Level 1 of the fair value hierarchy of ASC 820. Funds which are not publicly traded in an active market are classified within Level 2 of the fair value hierarchy of ASC 820.

Pooled Funds: The plan holds units of various Aon Hewitt Group Trust Funds offered through a private placement. The units are valued daily using the NAV. The NAV’s are based on the fair value of each fund’s underlying investments. Level 1 assets are priced using quotes for trades occurring in active markets for the identical asset. Level 2 assets are priced using observable inputs for the asset (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). Level 3 assets are priced using unobservable inputs.

Guaranteed Annuity Contracts: The guaranteed annuity contracts are immediate participation contracts held with insurance companies that act as custodian of the pension plans’ assets. The guaranteed annuity contracts are stated at contract value as determined by the custodians, which approximate fair values. The Company evaluates the general financial condition of the custodians as a component of validating whether the calculated contract value is an accurate approximation of fair value. The review of the general financial condition of the custodians is considered obtainable/observable through the review of readily available financial information the custodians are required to file with the SEC. The group annuity contracts are classified within Level 3 of the valuation hierarchy of ASC 820.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuations methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.

The Company does not expect to make any contributions to the SpartanNash Company Pension Plan in the fiscal year ending December 31, 2016.

The following estimated benefit payments are expected to be paid in the following fiscal years:

(In thousands)	Pension Benefits		Post-retirement Benefits
2016	$	8,884	$	340
2017		8,545		385
2018		7,780		431
2019		7,336		476
2020		6,933		518
2021 to 2025		29,704		3,092

Multi-Employer Plans

In addition to the plans described above, the Company participates in the Central States Southeast and Southwest Areas Pension Plan (“Central States Plan” or “the Plan”), the Michigan Conference of Teamsters and Ohio Conference of Teamsters Health and Welfare plans (collectively referred to as “multi-employer plans”), and other company-sponsored defined contribution plans for most associates covered by collective bargaining agreements.

The Company contributes to these multi-employer plans under the terms contained in existing collective bargaining agreements and in the amounts set forth within these agreements. The health and welfare plans provide medical, dental, pharmacy, vision, and other ancillary benefits to active associates and retirees, as determined by the trustees of the plan. The vast majority of the Company’s contributions benefits active associates, and as such, may not constitute contributions to a postretirement benefit plan. However, the Company is unable to separate contribution amounts to postretirement benefit plans from contribution amounts paid for active participants in the plan.

With respect to the Company’s participation in the Central States Plan, expense is recognized as contributions are funded. The Company contributed $12.9 million, $12.9 million and $6.8 million to this plan for fiscal years ended January 2, 2016 and January 3, 2015 and for the 39-week period ended December 28, 2013, respectively. The risk of participating in a multi-employer pension plan is different from the risk associated with single-employer plans in the following respects:

Assets contributed to the multi-employer plan by one employer may be used to provide benefits to associates of other participating employers.

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

If a company chooses to stop participating in some multi-employer plans, or makes market exits or otherwise has participation in the plan drop below certain levels, the company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Company’s participation in the Central States Plan is outlined in the tables below, which provide additional information about the collective bargaining agreements associated with this multi-employer plan in which the Company participates. The EIN/Pension Plan Number column provides the Employee Identification Number (“EIN”) and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act (“PPA”) zone status available in 2015 and 2014 relates to the Plans’ two most recent fiscal year-ends. The zone status is based on information that the Company received from the Plan and is certified by each plan’s actuary. Among other factors, red zone status plans are generally less than 65% funded and are considered in critical status. The FIP/RP Status Pending/Implemented column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented by the trustees of each plan. On December 13, 2014, Congress passed the Multi-employer Pension Reform Act of 2014 (“MPRA”). The MPRA is intended to address funding shortfalls in both multi-employer pension plans and the Pension Benefit Guaranty Corporation. Because the MPRA is a complex piece of legislation, its effects on the plan and potential implications for the Company are not known at this time. See Note 8 for further information regarding the Company’s participation in the Central States Plan.

Percentage of

Plan

Pension

FIP / RP

Associates under

Month /

Protection Act

Status

Collective

Over 5%

EIN - Pension

Day End

Zone Status

Pending /

Bargaining

Contribution

Plan Number

Date

2015

2014

Implemented

Expiration Dates

Agreement

2015

36-6044243-001 (a)

12/31

Red

Implemented

2/2017 to 10/2017

(a)

SpartanNash is party to four collective-bargaining agreements that require contributions to the Central States Plan. These agreements cover warehouse personnel and drivers in Grand Rapids, Michigan, Bellefontaine, Ohio and Lima, Ohio distribution centers. In the last contract negotiation, the Agreement covering the Bellefontaine facility warehouse associates was consolidated into the General Merchandise Services (“GMS”) Agreement. The collective-bargaining agreement that covers warehouse personnel and drivers in the Grand Rapids, Michigan distribution center has no surcharges imposed or amortization provisions while the agreements that cover warehouse personnel and drivers in the Bellefontaine, Ohio and Lima, Ohio distribution centers do have surcharges imposed or amortization provisions.

As of the date the financial statements were issued, Form 5500 was generally not available for the plan year ended in 2015.