Benefit Plans | 12 Months Ended |
Sep. 28, 2013 |
Benefit Plans | ' |
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11. Benefit Plans |
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The Company sponsors a cash balance plan (“Unified Cash Balance Plan”). The Unified Cash Balance Plan is a noncontributory defined benefit pension plan covering substantially all employees of the Company who are not subject to a collective bargaining agreement. Under the Unified Cash Balance Plan, participants are credited with an annual accrual based on years of service with the Company. The Unified Cash Balance Plan balance receives an annual interest credit, currently tied to the 30-year Treasury rate that is in effect the previous November, but in no event shall the rate be less than 5%. On retirement, participants will receive a lifetime annuity based on the total cash balance in their account. Benefits under the Unified Cash Balance Plan are provided through a trust. |
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The Company also sponsors an Executive Salary Protection Plan III (“ESPPIII”) that provides supplemental post-termination retirement income based on each participant’s salary and years of service as an officer of the Company. Depending on when the officer became a participant in the ESPPIII, final salary is defined as the highest compensation of the last three years preceding employment separation or the average of the highest five years of compensation out of the last ten years preceding employment separation. Funds are held in a rabbi trust for the ESPPIII consisting primarily of life insurance policies reported at cash surrender value and mutual fund assets consisting of various publicly-traded mutual funds reported at estimated fair value based on quoted market prices. In accordance with ASC Topic 710, “Compensation – General”, the assets and liabilities of a rabbi trust must be accounted for as if they are assets and liabilities of the Company. The assets held in the rabbi trust are not available for general corporate purposes. In addition, all earnings and expenses of the rabbi trust are reported in the Company’s consolidated statement of earnings. The cash surrender value of such life insurance policies aggregated $19.4 million and $16.8 million at September 28, 2013 and September 29, 2012, respectively, and are included in other assets in the Company’s consolidated balance sheets. Mutual funds reported at their estimated fair value of $15.5 million and $13.9 million at September 28, 2013 and September 29, 2012, respectively, are included in other assets in the Company’s consolidated balance sheets. The related accrued benefit cost (representing the Company’s benefit obligation to participants) of $43.3 million and $46.0 million at September 28, 2013 and September 29, 2012, respectively, is recorded in long-term liabilities, other in the Company’s consolidated balance sheets. The rabbi trust is subject to creditor claims in the event of insolvency. The ESPPIII accrued benefit cost is included in the pension tables below. However, the trust assets are excluded from ESPPIII plan assets as they do not qualify as plan assets under ASC Topic 715, “Compensation—Retirement Benefits”. |
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Pension expense for the Unified Cash Balance Plan and ESPPIII totaled $12.5 million, $13.0 million and $11.4 million for the fiscal years ended September 28, 2013, September 29, 2012 and October 1, 2011, respectively. |
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The components of net periodic cost for the Unified Cash Balance Plan and ESPPIII consist of the following (measured at September 30, 2013, 2012 and 2011 for fiscal 2013, 2012 and 2011, respectively): |
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(dollars in thousands) | | | | | | | | | | | | | | | | | | | |
| | Fiscal Years Ended | | | | | | | | | | | | | | | | | |
Unified Cash Balance Plan | | September 28, | | | September 29, | | | October 1, | | | | | | | | | | | | | | | | | |
2013 | 2012 | 2011 | | | | | | | | | | | | | | | | |
Service cost | | $ | 6,417 | | | $ | 5,527 | | | $ | 5,405 | | | | | | | | | | | | | | | | | |
Interest cost | | | 10,387 | | | | 10,927 | | | | 10,425 | | | | | | | | | | | | | | | | | |
Expected return on plan assets | | | (14,645 | ) | | | (12,671 | ) | | | (12,402 | ) | | | | | | | | | | | | | | | | |
Amortization of prior service cost | | | 10 | | | | 11 | | | | 11 | | | | | | | | | | | | | | | | | |
Actuarial loss | | | 6,196 | | | | 4,281 | | | | 2,913 | | | | | | | | | | | | | | | | | |
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Net periodic cost | | $ | 8,365 | | | $ | 8,075 | | | $ | 6,352 | | | | | | | | | | | | | | | | | |
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(dollars in thousands) | | | | | | | | | | | | | | | | | | | |
| | Fiscal Years Ended | | | | | | | | | | | | | | | | | |
ESPPIII | | September 28, | | | September 29, | | | October 1, | | | | | | | | | | | | | | | | | |
2013 | 2012 | 2011 | | | | | | | | | | | | | | | | |
Service cost | | $ | 1,878 | | | $ | 2,240 | | | $ | 2,295 | | | | | | | | | | | | | | | | | |
Interest cost | | | 1,318 | | | | 1,718 | | | | 1,464 | | | | | | | | | | | | | | | | | |
Amortization of prior service cost (credit) | | | (20 | ) | | | — | | | | 212 | | | | | | | | | | | | | | | | | |
Recognized actuarial loss | | | 930 | | | | 930 | | | | 1,069 | | | | | | | | | | | | | | | | | |
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Net periodic cost | | $ | 4,106 | | | $ | 4,888 | | | $ | 5,040 | | | | | | | | | | | | | | | | | |
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The Company’s fiscal 2013 pension expense includes an approximate $7.1 million charge for the Unified Cash Balance Plan and ESPPIII plan combined as a result of amortizing net prior service credits of $9 thousand and an actuarial loss of $7.1 million from accumulated other comprehensive income into pension expense over the 2013 fiscal year. |
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The Company’s projected fiscal 2014 pension expense includes an approximate $2.7 million charge for the Unified Cash Balance Plan and ESPPIII plan combined which are expected to be recognized as a result of amortizing projected net prior service credits of $16 thousand and a projected actuarial loss of $2.7 million from accumulated other comprehensive income into pension expense over the 2014 fiscal year. |
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The combined projected plan benefit obligation for the Unified Cash Balance Plan and ESPPIII is $282.3 million and $310.5 million at the end of the year for fiscal 2013 and 2012, respectively. |
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The following table sets forth the change in benefit obligation for the Unified Cash Balance Plan and ESPPIII (measured at September 30, 2013 and 2012 for fiscal 2013 and 2012, respectively): |
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(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unified Cash Balance Plan | | | ESPPIII | | | | | | | | | | | | | |
| | September 28, | | | September 29, | | | September 28, | | | September 29, | | | | | | | | | | | | | |
2013 | 2012 | 2013 | 2012 | | | | | | | | | | | | |
Benefit obligation at beginning of year | | $ | 264,473 | | | $ | 212,576 | | | $ | 45,996 | | | $ | 38,530 | | | | | | | | | | | | | |
Service cost | | | 6,417 | | | | 5,527 | | | | 1,878 | | | | 2,240 | | | | | | | | | | | | | |
Interest cost | | | 10,387 | | | | 10,927 | | | | 1,318 | | | | 1,718 | | | | | | | | | | | | | |
Plan amendments | | | — | | | | — | | | | (80 | ) | | | — | | | | | | | | | | | | | |
Actuarial (gain) loss(a) | | | (34,322 | ) | | | 42,537 | | | | (2,689 | ) | | | 4,220 | | | | | | | | | | | | | |
Benefits paid | | | (8,020 | ) | | | (7,094 | ) | | | (3,089 | ) | | | (712 | ) | | | | | | | | | | | | |
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Benefit obligation at end of year | | $ | 238,935 | | | $ | 264,473 | | | $ | 43,334 | | | $ | 45,996 | | | | | | | | | | | | | |
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(a) | | The actuarial gain in fiscal 2013 for the Unified Cash Balance Plan includes approximately $33.6 million due to the change in the discount rate (from 4.00% to 5.00%). The actuarial gain in fiscal 2013 for the ESPPIII includes gains of approximately $4.2 million resulting from a change to future benefits due to the plan amendment and $0.7 million due to the change in the discount rate (from 3.25% to 3.50%), partially offset by approximately $2.6 million in retirement losses (i.e., earlier than expected retirements). | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following table sets forth the change in plan assets for the Unified Cash Balance Plan and ESPPIII (measured at September 30, 2013 and 2012 for fiscal 2013 and 2012, respectively): |
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(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unified Cash Balance Plan | | | ESPPIII | | | | | | | | | | | | | |
| | September 28, | | | September 29, | | | September 28, | | | September 29, | | | | | | | | | | | | | |
2013 | 2012 | 2013 | 2012 | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | | $ | 178,915 | | | $ | 147,168 | | | $ | — | | | $ | — | | | | | | | | | | | | | |
Actual return on plan assets | | | 24,458 | | | | 27,900 | | | | — | | | | — | | | | | | | | | | | | | |
Employer contribution | | | 7,355 | | | | 10,941 | | | | 3,089 | | | | 712 | | | | | | | | | | | | | |
Benefits paid | | | (8,020 | ) | | | (7,094 | ) | | | (3,089 | ) | | | (712 | ) | | | | | | | | | | | | |
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Fair value of plan assets at end of year | | $ | 202,708 | | | $ | 178,915 | | | $ | — | | | $ | — | | | | | | | | | | | | | |
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The accrued pension and other benefit costs recognized for the Unified Cash Balance Plan and ESPPIII in the consolidated balance sheets are computed as follows: |
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(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unified Cash Balance Plan | | | ESPPIII | | | | | | | | | | | | | |
| | September 28, | | | September 29, | | | September 28, | | | September 29, | | | | | | | | | | | | | |
2013 | 2012 | 2013 | 2012 | | | | | | | | | | | | |
Funded status at September 30, 2013 and 2012, respectively (under-funded) | | $ | (36,227 | ) | | $ | (85,558 | ) | | $ | (43,334 | ) | | $ | (45,996 | ) | | | | | | | | | | | | |
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Net amount recognized | | $ | (36,227 | ) | | $ | (85,558 | ) | | $ | (43,334 | ) | | $ | (45,996 | ) | | | | | | | | | | | | |
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The following table sets forth the amounts recognized in the consolidated balance sheets for the Unified Cash Balance Plan and ESPPIII (measured at September 30, 2013 and 2012 for fiscal 2013 and 2012, respectively): |
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(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unified Cash Balance Plan | | | ESPPIII | | | | | | | | | | | | | |
| | September 28, | | | September 29, | | | September 28, | | | September 29, | | | | | | | | | | | | | |
2013 | 2012 | 2013 | 2012 | | | | | | | | | | | | |
Prepaid (accrued) benefit cost | | $ | 1,250 | | | $ | 2,260 | | | $ | (35,853 | ) | | $ | (34,836 | ) | | | | | | | | | | | | |
Accumulated other comprehensive loss | | | (37,477 | ) | | | (87,818 | ) | | | (7,481 | ) | | | (11,160 | ) | | | | | | | | | | | | |
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Net amount recognized | | $ | (36,227 | ) | | $ | (85,558 | ) | | $ | (43,334 | ) | | $ | (45,996 | ) | | | | | | | | | | | | |
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Total net accrued benefit costs of $79.5 million and $131.6 million at September 28, 2013 and September 29, 2012, respectively, are included in the consolidated balance sheets as follows: $76.1 million and $130.9 million are included in long-term liabilities, other and $3.4 million and $0.7 million are included in accrued liabilities at September 28, 2013 and September 29, 2012, respectively. |
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The following table reconciles the change in net periodic benefit cost, plan assets, benefit obligation and accumulated other comprehensive (income) loss (and components thereof) for the Unified Cash Balance Plan: |
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(dollars in thousands) | | | | | | | | | | | | |
Unified Cash Balance Plan | | | | | | | | | | | | | | | | | Accumulated Other | |
Comprehensive Income |
Components |
September 28, 2013 | | Annual | | | Fiscal 2009 | | | Plan | | | Benefit | | | Accumulated | | | Deferred Plan | | | Deferred | |
Cost | ASC 715-20 | Assets | Obligation | Other | Amendment | Actuarial |
| Measurement | | | Comprehensive | (Unrecognized | (Gains)/ |
| Date | | | (Income)/Loss | Prior Service | Losses |
| Adjustments | | | | Cost) | |
| to Retained | | | | | |
| Earnings | | | | | |
Beginning balance | | | | | | $ | 673 | | | $ | 178,915 | | | $ | (264,473 | ) | | $ | 87,818 | | | $ | 54 | | | $ | 87,764 | |
Service cost | | $ | 6,417 | | | | — | | | | — | | | | (6,417 | ) | | | — | | | | — | | | | — | |
Interest cost | | | 10,387 | | | | — | | | | — | | | | (10,387 | ) | | | — | | | | — | | | | — | |
Actual return loss/(gain) | | | (24,458 | ) | | | — | | | | 24,458 | | | | — | | | | — | | | | — | | | | — | |
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Basic annual cost | | | (7,654 | ) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Contributions | | | — | | | | — | | | | 7,355 | | | | — | | | | — | | | | — | | | | — | |
Benefits paid | | | — | | | | — | | | | (8,020 | ) | | | 8,020 | | | | — | | | | — | | | | — | |
Deferrals | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Unexpected return adjustment | | | 9,813 | | | | — | | | | — | | | | — | | | | (9,813 | ) | | | — | | | | (9,813 | ) |
Unrecognized actuarial loss/(gain) | | | — | | | | — | | | | — | | | | 34,322 | | | | (34,322 | ) | | | — | | | | (34,322 | ) |
Amortization | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Prior service cost | | | 10 | | | | — | | | | — | | | | — | | | | (10 | ) | | | (10 | ) | | | — | |
Unrecognized actuarial loss/(gain) | | | 6,196 | | | | — | | | | — | | | | — | | | | (6,196 | ) | | | — | | | | (6,196 | ) |
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Ending balance | | $ | 8,365 | | | $ | 673 | | | $ | 202,708 | | | $ | (238,935 | ) | | $ | 37,477 | | | $ | 44 | | | $ | 37,433 | |
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The following table reconciles the change in net periodic benefit cost, plan assets, benefit obligation and accumulated other comprehensive (income) loss (and components thereof) for the ESPPIII: |
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(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | |
ESPPIII Plan | | | | | | | | | | | | | | | | | Accumulated Other | |
Comprehensive Income |
Components |
September 28, 2013 | | Annual | | | Fiscal 2009 | | | Plan | | | Benefit | | | Accumulated | | | Deferred | | | Deferred | |
Cost | ASC 715-20 | Assets | Obligation | Other | Prior | Actuarial |
| Measurement | | | Comprehensive | Service | (Gains)/ |
| Date | | | (Income)/Loss | (Credit)/ | Losses |
| Adjustments | | | | Cost | |
| to Retained | | | | | |
| Earnings | | | | | |
Beginning balance | | | | | | $ | 958 | | | $ | — | | | $ | (45,996 | ) | | $ | 11,160 | | | $ | — | | | $ | 11,160 | |
Service cost | | $ | 1,878 | | | | — | | | | — | | | | (1,878 | ) | | | — | | | | — | | | | — | |
Interest cost | | | 1,318 | | | | — | | | | — | | | | (1,318 | ) | | | — | | | | — | | | | — | |
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Basic annual cost | | | 3,196 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
Contributions | | | — | | | | — | | | | 3,089 | | | | — | | | | — | | | | — | | | | — | |
Benefits paid | | | — | | | | — | | | | (3,089 | ) | | | 3,089 | | | | — | | | | — | | | | — | |
Deferrals | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Plan amendments | | | — | | | | — | | | | — | | | | 80 | | | | (80 | ) | | | (80 | ) | | | — | |
Unrecognized actuarial loss/(gain) | | | — | | | | — | | | | — | | | | 2,689 | | | | (2,689 | ) | | | — | | | | (2,689 | ) |
Amortization | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Prior service (credit)/cost | | | (20 | ) | | | — | | | | — | | | | — | | | | 20 | | | | 20 | | | | — | |
Unrecognized actuarial loss/(gain) | | | 930 | | | | — | | | | — | | | | — | | | | (930 | ) | | | — | | | | (930 | ) |
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Ending balance | | $ | 4,106 | | | $ | 958 | | | $ | — | | | $ | (43,334 | ) | | $ | 7,481 | | | $ | (60 | ) | | $ | 7,541 | |
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The weighted-average assumptions used in computing the preceding information for the Unified Cash Balance Plan and the ESPPIII as of September 30, 2013, 2012 and 2011 (the annual plan measurement dates) were as follows: |
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Unified Cash Balance Plan | | 2013 | | | 2012 | | | 2011 | | | | | | | | | | | | | | | | | |
Benefit obligations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate for benefit obligation | | | 5 | % | | | 4 | % | | | 5.25 | % | | | | | | | | | | | | | | | | |
Rate of compensation increase | | | 3 | % | | | 3 | % | | | 3 | % | | | | | | | | | | | | | | | | |
Net periodic cost: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate for net periodic benefit cost | | | 4 | % | | | 5.25 | % | | | 5.25 | % | | | | | | | | | | | | | | | | |
Expected long-term return on plan assets | | | 8.25 | % | | | 8.5 | % | | | 8.5 | % | | | | | | | | | | | | | | | | |
Rate of compensation increase | | | 3 | % | | | 3 | % | | | 3 | % | | | | | | | | | | | | | | | | |
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ESPPIII | | 2013 | | | 2012 | | | 2011 | | | | | | | | | | | | | | | | | |
Benefit obligations: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate for benefit obligation | | | 3.5 | % | | | 3.25 | % | | | 4.5 | % | | | | | | | | | | | | | | | | |
Rate of compensation increase | | | N/A | | | | 2.25 | % | | | 2.25 | % | | | | | | | | | | | | | | | | |
Net periodic cost: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate for net periodic benefit cost | | | 3.25 | % | | | 4.5 | % | | | 4.25 | % | | | | | | | | | | | | | | | | |
Expected long-term return on plan assets | | | N/A | | | | N/A | | | | N/A | | | | | | | | | | | | | | | | | |
Rate of compensation increase(a) | | | 2.25 | % | | | 2.25 | % | | | 2 | % | | | | | | | | | | | | | | | | |
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(a) | | The rate of compensation increase for the ESPPIII was 2.25% at the beginning of fiscal year 2013. A remeasurement of this plan occurred as of December 31, 2012 using a discount rate of 3.00% and a 0% salary increase rate. | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The Company’s fiscal 2013 and fiscal 2012 pension expense was calculated based upon a number of actuarial assumptions, including an expected long-term rate of return on plan assets of 8.25% and 8.50%, respectively. In developing the long-term rate of return assumption, the Company evaluated historical asset class returns based on broad equity and bond indices. The expected long-term rate of return on plan assets for fiscal 2013 assumes an asset allocation of approximately 60% equity, 25% fixed income financial instruments, 12.5% alternative investments, and 2.5% real asset investments (see description under “Plan Assets” below). The Company regularly reviews with its third party advisors the asset allocation and periodically rebalances the investment mix to achieve certain investment goals when considered appropriate (see further discussion and related table under “Plan Assets” below). Actuarial assumptions, including the expected rate of return, are reviewed at least annually, and are adjusted as necessary. Lowering the expected long-term rate of return on the Company’s plan assets (for the Unified Cash Balance Plan in fiscal 2013 and fiscal 2012) by 0.50% (from 8.25% to 7.75% for fiscal 2013 and from 8.50% to 8.00% for fiscal 2012) would have increased its pension expense for fiscal 2013 and fiscal 2012 by approximately $0.9 million and $0.7 million, respectively. |
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The discount rate that was utilized for determining the Company’s fiscal 2013 pension obligation and projected fiscal 2014 net periodic benefit cost for the Unified Cash Balance Plan and the ESPPIII was selected to reflect the rates of return currently available on high quality fixed income securities whose cash flows (via coupons and maturities) match the timing and amount of future benefit payments of the plan. Bond information was provided by a recognized rating agency for all high quality bonds receiving one of the two highest ratings. As a result of this modeling process, the discount rate was 5.00% and 4.00% for the Unified Cash Balance Plan and 3.50% and 3.25% for the ESPPIII at September 30, 2013 and September 30, 2012, respectively. |
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Plan Assets |
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The Company’s Unified Cash Balance Plan weighted-average asset allocation at September 28, 2013 and September 29, 2012, by asset category is as follows: |
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(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 28, | | | September 29, | | | | | | | | | | | | | | | | | | | | | |
2013 | 2012 | | | | | | | | | | | | | | | | | | | | |
Asset Category: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities | | $ | 118,424 | | | $ | 99,433 | | | | | | | | | | | | | | | | | | | | | |
Debt securities (mutual funds comprised of investment grade bonds) | | | 43,742 | | | | 43,521 | | | | | | | | | | | | | | | | | | | | | |
Alternative investments | | | 37,893 | | | | 33,771 | | | | | | | | | | | | | | | | | | | | | |
Other | | | 2,649 | | | | 2,190 | | | | | | | | | | | | | | | | | | | | | |
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Total | | $ | 202,708 | | | $ | 178,915 | | | | | | | | | | | | | | | | | | | | | |
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The assets of the Unified Cash Balance Plan are invested to provide safety through diversification in a portfolio of common stocks, bonds, cash equivalents and other investments that may reflect varying rates of return. The overall return objective for the portfolio is a reasonable rate consistent with the risk levels established by the Company’s Benefits Committee. The investments are to be diversified within asset classes (e.g., equities should be diversified by economic sector, industry, quality and size). |
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The long-term target asset allocation for the investment portfolio at September 28, 2013 is divided into five asset classes as follows: |
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Asset Classes | | Maximum % | | | Minimum % | | | Target % | | | | | | | | | | | | | | | | | |
Equities | | | 80 | % | | | 40 | % | | | 60 | % | | | | | | | | | | | | | | | | |
Fixed Income | | | 40 | % | | | 20 | % | | | 25 | % | | | | | | | | | | | | | | | | |
Alternative Investments | | | 20 | % | | | 0 | % | | | 12.5 | % | | | | | | | | | | | | | | | | |
Real Assets | | | 10 | % | | | 0 | % | | | 2.5 | % | | | | | | | | | | | | | | | | |
Cash Equivalents | | | 30 | % | | | 0 | % | | | 0 | % | | | | | | | | | | | | | | | | |
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The equity segment is further diversified by exposure to domestic and international, small and large capitalization, and growth and value stocks. The fixed income segment is subject to quality and duration targets, and is invested in core fixed income and high yield sectors. The purpose of using alternative investments is to reduce the volatility of the overall portfolio and to provide an alternative source of return from that of the domestic capital markets. Alternative investment strategies are defined as investment programs that offer the portfolios access to strategies that have low relative correlation to the domestic equity and fixed income markets. They may include alternative asset classes such as real estate, venture or private capital as well as a variety of investment strategies using marketable securities that seek to generate absolute positive returns regardless of the direction of the capital markets. The purpose of the real asset segment is to provide a level of protection against inflation as well as capitalize on rising commodity prices. Real assets represent investments in items that have intrinsic value because they are consumable or used in production, such as commodities, real estate, infrastructure, precious metals and global natural resources. The percentage of total assets allocated to cash equivalents should be sufficient to assure liquidity to meet disbursements and general operational expenses. Cash equivalents may also be used as an alternative to other investments when the investment manager believes that other asset classes carry higher than normal risk. |
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The credit and liquidity crisis in the United States and throughout the global financial system triggered substantial volatility in the world financial markets and banking system. As a result, the investment portfolio of the Unified Cash Balance Plan incurred a significant decline in fair value during fiscal 2008. The value of the plan’s investment portfolio increased during fiscal 2009 and 2010, declined in fiscal 2011, and increased in fiscal 2012 and 2013. The values of the Unified Cash Balance Plan’s individual investments have and will fluctuate in response to changing market conditions, and the amount of gains or losses that will be recognized in subsequent periods, if any, cannot be determined. |
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The value of each plan’s investments has a direct impact on its funded status. The actual impact, if any, and future required contributions cannot be determined at this time. |
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The Unified Cash Balance Plan’s investments are recorded at fair value in accordance with ASC Topic 820. See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” and Note 16, “Fair Value of Financial Instruments” for further discussion of ASC Topic 820. |
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The Company, as the Unified Cash Balance Plan sponsor, determines the classification of financial asset groups within the fair value hierarchy based on the lowest level of input that is significant into each group’s asset valuation. |
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Equities (comprised of common and preferred stocks and mutual funds) are valued at their fair value and are determined by the quoted market price on the last business day of the fiscal year. |
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Cash equivalents are valued at cost, which approximates fair value. Cash equivalents include cash in bank and short-term investment funds. Interest income on short-term investment funds is recorded on an accrual basis as earned. |
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The Unified Cash Balance Plan’s alternative investments, which include limited partnership funds and closely held investments, are valued at their estimated fair value. Estimated fair value is based on the Unified Cash Balance Plan’s pro-rata share of the investment’s net asset value as reported by the investee. The investee’s strategies include maximization of returns for investors through investment in public and non-public securities with a goal of identifying mis-priced and value-priced securities. |
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The Unified Cash Balance Plan currently holds five limited partnership fund investments with funding commitments extending through 2016. One fund was started in 2008, and the remainder commenced in 2011. The Unified Cash Balance Plan’s remaining unfunded commitments to limited partnership fund investments as of September 28, 2013 was $5.4 million out of total original commitments of $10.5 million. While shares in the limited partnership fund investments are not redeemable, the Company expects to recover the Unified Cash Balance Plan’s investments in the limited partnership funds through investee distributions as the investee liquidates the underlying assets. The limited partnership fund investments have maturity dates through 2023. |
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The Unified Cash Balance Plan may redeem shares in its other closely held investments by submitting a request, generally 30 to 90 days prior to a period-end. There are no unfunded commitments for the other closely held investments. |
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The following table represents the Unified Cash Balance Plan’s financial instruments recorded at fair value and the hierarchy of those assets as of September 28, 2013: |
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(dollars in thousands) | | | | | | | | | | | | | | | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | | | | | | | | | | | |
Equities (including mutual funds): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment grade bonds | | $ | 43,742 | | | $ | — | | | $ | — | | | $ | 43,742 | | | | | | | | | | | | | |
Growth—foreign | | | 19,911 | | | | — | | | | — | | | | 19,911 | | | | | | | | | | | | | |
Growth—large cap | | | 13,199 | | | | — | | | | — | | | | 13,199 | | | | | | | | | | | | | |
Communication & technology | | | 16,612 | | | | — | | | | — | | | | 16,612 | | | | | | | | | | | | | |
Retail & industrial goods | | | 21,682 | | | | — | | | | — | | | | 21,682 | | | | | | | | | | | | | |
Financial & insurance | | | 12,437 | | | | — | | | | — | | | | 12,437 | | | | | | | | | | | | | |
Emerging markets | | | 9,219 | | | | — | | | | — | | | | 9,219 | | | | | | | | | | | | | |
Utilities, energy & extractive industries | | | 8,062 | | | | — | | | | — | | | | 8,062 | | | | | | | | | | | | | |
Medical & pharmaceutical | | | 10,712 | | | | — | | | | — | | | | 10,712 | | | | | | | | | | | | | |
Other | | | 6,590 | | | | — | | | | — | | | | 6,590 | | | | | | | | | | | | | |
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Total equities | | | 162,166 | | | | — | | | | — | | | | 162,166 | | | | | | | | | | | | | |
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Cash equivalents | | | 2,649 | | | | — | | | | — | | | | 2,649 | | | | | | | | | | | | | |
Alternative investments | | | — | | | | — | | | | 37,893 | | | | 37,893 | | | | | | | | | | | | | |
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Total | | $ | 164,815 | | | $ | — | | | $ | 37,893 | | | $ | 202,708 | | | | | | | | | | | | | |
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The table below sets forth a summary of changes in the fair value of the Unified Cash Balance Plan’s level 3 assets for the year ended September 28, 2013: |
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(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | | | | | | | | | | | | | | | | | | | | | | | | |
Alternative | | | | | | | | | | | | | | | | | | | | | | | | |
Investments | | | | | | | | | | | | | | | | | | | | | | | | |
Estimated fair value, beginning of year | | $ | 33,771 | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | | 6,273 | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment gain | | | 3,647 | | | | | | | | | | | | | | | | | | | | | | | | | |
Distributions | | | (5,798 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
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Estimated fair value, end of year | | $ | 37,893 | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following table represents the Unified Cash Balance Plan’s financial instruments recorded at fair value and the hierarchy of those assets as of September 29, 2012: |
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(dollars in thousands) | | | | | | | | | | | | | | | |
| | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | | | | | | | | | | | |
Equities (including mutual funds): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment grade bonds | | $ | 43,521 | | | $ | — | | | $ | — | | | $ | 43,521 | | | | | | | | | | | | | |
Growth – foreign | | | 18,544 | | | | — | | | | — | | | | 18,544 | | | | | | | | | | | | | |
Growth – large cap | | | 10,993 | | | | — | | | | — | | | | 10,993 | | | | | | | | | | | | | |
Communication & technology | | | 14,725 | | | | — | | | | — | | | | 14,725 | | | | | | | | | | | | | |
Retail & industrial goods | | | 13,612 | | | | — | | | | — | | | | 13,612 | | | | | | | | | | | | | |
Financial & insurance | | | 9,905 | | | | — | | | | — | | | | 9,905 | | | | | | | | | | | | | |
Emerging markets | | | 9,151 | | | | — | | | | — | | | | 9,151 | | | | | | | | | | | | | |
Utilities, energy & extractive industries | | | 7,699 | | | | — | | | | — | | | | 7,699 | | | | | | | | | | | | | |
Medical & pharmaceutical | | | 8,810 | | | | — | | | | — | | | | 8,810 | | | | | | | | | | | | | |
Other | | | 5,994 | | | | — | | | | — | | | | 5,994 | | | | | | | | | | | | | |
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Total equities | | | 142,954 | | | | — | | | | — | | | | 142,954 | | | | | | | | | | | | | |
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Cash equivalents | | | 2,190 | | | | — | | | | — | | | | 2,190 | | | | | | | | | | | | | |
Alternative investments | | | — | | | | — | | | | 33,771 | | | | 33,771 | | | | | | | | | | | | | |
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Total | | $ | 145,144 | | | $ | — | | | $ | 33,771 | | | $ | 178,915 | | | | | | | | | | | | | |
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The table below sets forth a summary of changes in the fair value of the Unified Cash Balance Plan’s level 3 assets for the year ended September 29, 2012: |
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(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | | | | | | | | | | | | | | | | | | | | | | | | |
Alternative | | | | | | | | | | | | | | | | | | | | | | | | |
Investments | | | | | | | | | | | | | | | | | | | | | | | | |
Estimated fair value, beginning of year | | $ | 20,471 | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases | | | 14,482 | | | | | | | | | | | | | | | | | | | | | | | | | |
Net investment gain | | | 745 | | | | | | | | | | | | | | | | | | | | | | | | | |
Distributions | | | (1,927 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
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Estimated fair value, end of year | | $ | 33,771 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Contributions |
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Unified Cash Balance Plan and ESPPIII |
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Contributions to the Unified Cash Balance Plan are made in amounts that are at least sufficient to meet the minimum funding requirements of applicable laws and regulations, but no more than amounts deductible for federal income tax purposes. During fiscal 2013, the Company made contributions to the Unified Cash Balance Plan totaling $7.3 million, comprised of $3.6 million and $3.7 million for the 2013 plan year and 2012 plan year, respectively. In addition, the Company also contributed $3.1 million in fiscal 2013 to the ESPPIII to fund benefit payments to participants. At this time, the Company expects to make estimated minimum contributions to the Unified Cash Balance Plan totaling $11.3 million in fiscal 2014, comprised of $4.8 million for the 2014 plan year and $6.5 million for the 2013 plan year. Additional contributions, if any, for the 2013 plan year will be due by September 15, 2014, while contributions for the 2014 plan year will be due by September 15, 2015. In addition, the Company expects to contribute $3.4 million to the ESPPIII to fund projected benefit payments to participants in fiscal 2014. |
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During July 2012, legislation to provide pension funding relief was enacted as part of the 2012 student loan and transportation legislation titled “Moving Ahead for Progress in the 21st Century” (“MAP-21”). Funding relief is to be achieved through changes in the methodology employed to determine interest rates used to calculate required funding contributions. The funding relief applies to Employee Retirement Income Security Act (“ERISA”) single-employer plans that base pension liability calculations on interest rates determined pursuant to the Pension Protection Act of 2006. As a result of MAP-21, we were able to reduce our fiscal year 2013 contributions to the Unified Cash Balance Plan by $7.9 million from our originally estimated amounts, and we reduced our contributions for fiscal year 2012 by $2.0 million. |
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Multiemployer Pension Plans |
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The Company also contributes to a number of multiemployer defined benefit pension plans that provide defined benefit payments for retired employees under terms of the Company’s collective bargaining agreements (“Union Participants”). These multiemployer plans generally provide retirement benefits to Union Participants based on their service to contributing employers. The plans’ benefits are paid from assets held in trusts for this purpose and are administered by trustees that are appointed by participating employers and union parties. |
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The risks of participating in these multiemployer plans are different from the risks associated with single-employer plans in the following respects: |
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| · | | Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. | | | | | | | | | | | | | | | | | | | | | | | | | |
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| · | | If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating companies. | | | | | | | | | | | | | | | | | | | | | | | | | |
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| · | | If the Company stops participating in some or all of its multiemployer plans, and continues in business, the Company could be required to pay an amount, referred to as a withdrawal liability, based on the funded status of the plan. The Company has no intention of stopping its participation in any multiemployer plans. | | | | | | | | | | | | | | | | | | | | | | | | | |
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The Company made contributions of $13.5 million, $13.8 million and $14.9 million for the fiscal years ended September 28, 2013, September 29, 2012 and October 1, 2011, respectively, to its participating multiemployer plans. The following table provides information regarding the Company’s participation in these multiemployer plans. The table provides the following information: |
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| · | | The EIN/Pension Plan Number column provides the Employee Identification Number (“EIN”) and the three-digit plan number, if applicable. | | | | | | | | | | | | | | | | | | | | | | | | | |
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| · | | Unless otherwise noted, the most recent Pension Protection Act (“PPA”) zone status available in 2013 and 2012 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 percent funded and are considered in critical status, plans in yellow zone or orange zone status are less than 80 percent funded and are considered endangered or seriously endangered status, and green zone plans are at least 80 percent funded. | | | | | | | | | | | | | | | | | | | | | | | | | |
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| · | | For plans that are in the red zone, it is indicated whether a Rehabilitation Plan (“RP”) is either pending or has been implemented by the trustees of each plan. Since none of the Company’s plans are considered to be in endangered (yellow zone) or seriously endangered (orange zone) status, disclosure of whether a Financial Improvement Plan (“FIP”) is either pending or has been implemented is not applicable and therefore is omitted from the table. | | | | | | | | | | | | | | | | | | | | | | | | | |
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| · | | The table also includes the current expiration date(s) for the collective bargaining agreement(s) under which the plans are associated and contributions to the plans for the last three years. | | | | | | | | | | | | | | | | | | | | | | | | | |
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(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | |
| | EIN | | Plan | | | PPA Zone Status | | RP Status | | Range of | | Contributions(d) | | | |
Month/Day | Pending/ | Agreement | | |
End Date | Implemented | Expiration | | |
Pension Fund | | | | | 2013 | | 2012 | | | | Dates | | 2013(e) | | | 2012 | | | 2011 | | | |
Western Conference of Teamsters Pension Trust | | 916145047 | | | 30-Nov | | | Green | | Green | | No | | 7/12/14 – | | $ | 12,520 | | | $ | 12,848 | | | $ | 13,908 | | | |
-1 | 4/23/16(c) | | |
Bakery & Confectionery Union and Industry International Pension Fund(b) | | 526118572 | | | 31-Jul | | | Red | | Red | | Implemented | | 7/6/13 | | | 743 | | | | 629 | | | | 656 | | | |
-1 | | |
Washington Meat Industry Pension Trust(b) | | 916134141 | | | 31-May | | | Red | | Red | | Implemented | | 9/27/14 | | | 74 | | | | 78 | | | | 78 | | | |
-1 | | |
Other plans(a) | | | | | | | | | | | | | | | | | 219 | | | | 249 | | | | 265 | | | |
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Total | | | | | | | | | | | | | | | | $ | 13,556 | | | $ | 13,804 | | | $ | 14,907 | | | |
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(a) | | Other plans consist of two plans (each with a PPA zone status of green) that have been aggregated in the foregoing table, as the contributions to each of these plans are not individually material. | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(b) | | The Company is subject to critical status surcharge contributions that are imposed for plans that are in the red zone. | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(c) | | The Company has 15 collective bargaining agreements participating in the Western Conference of Teamsters Pension Trust. Approximately 69% of the participants covered by this plan are subject to collective bargaining agreements that expire on September 19, 2015. | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(d) | | None of the Company’s collective bargaining agreements require that a minimum contribution be made to these plans. None of the Company’s contributions exceed 5% of the total contributions to any of the plans. | | | | | | | | | | | | | | | | | | | | | | | | | | |
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(e) | | The decrease in contributions from fiscal 2012 to fiscal 2013 is due to reduction in headcount at various locations. | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Defined Contribution Retirement Plans |
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Supplemental Executive Retirement Plan |
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Effective June 1, 2013, the Company implemented a supplemental retirement plan for a “select group of management or highly compensated employees that are at the Vice President level and above” of the Company under the Unified Grocers, Inc. Supplemental Executive Retirement Plan (the “SERP”). This plan was established to replace the ESPPIII, which has been frozen. The SERP provides participating officers with supplemental retirement income in addition to the benefits provided under the Company’s Cash Balance and 401(k) plans. |
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The SERP is a non-qualified defined contribution type plan under which benefits are derived based on a notional account balance to be funded by the Company for each participating officer. The account balance will be credited each year with a Company contribution based on the officer’s compensation, calculated as base salary plus bonus, earned during a fiscal year and the officer’s executive level at the end of the fiscal year. Plan participants may select from a variety of investment options (referred to as “Measurement Funds” in the plan document) concerning how the contributions are hypothetically invested, similar to the Company’s non-qualified deferred compensation plan. Assets of the SERP (i.e., the participants’ account balances) will not be physically invested in the investments selected by the participants; rather, the Measurement Funds are utilized “for the purpose of debiting or crediting additional amounts” to each participant’s account. |
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Upon termination of employment or death, the participant’s vested account balance will be payable over a period of from 5 to 15 years, or immediately following a change in control, as elected by the participant upon entry into the SERP. Vesting is based on years of service as an officer at the rate of 20% per year. After 5 years of service as an officer or following a change in control, the account will be 100% vested. An account may be forfeited in the event a participant is terminated for cause or engages in activity in competition with the Company. For those participants active in the ESPPIII at September 29, 2012 who were selected to participate in the SERP, they will receive one year of vesting credit for each year of service credited in the ESPPIII plus an additional eight months for the period from September 30, 2012 to June 1, 2013. |
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The SERP is accounted for pursuant to FASB ASC section 715-70, Compensation – Retirement Benefits – Defined Contribution Plans (“ASC 715-70”). The SERP qualifies as a defined contribution plan, whereby participants are credited with a contribution to an account and will receive, upon separation, a benefit based upon the vested amount accrued in their account, which includes the Company’s contributions plus or minus the increase or decrease in the fair market value of the hypothetical investments (Measurement Funds) selected by the participant. ASC 715-70 requires companies to record, on a periodic basis, that portion of a company’s contribution earned during the period by the participants (the “Expense”). The Company will accrue the Expense under the assumption that all participants in the SERP will achieve full vesting (five years of service). As of September 28, 2013, the Company accrued $0.8 million in related benefit cost recorded in long-term liabilities, other in the Company’s consolidated balance sheets. |
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Sheltered Savings Plan |
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The Company has a Sheltered Savings Plan (“SSP”), which is a defined contribution plan, adopted pursuant to Section 401(k) of the Internal Revenue Code for substantially all of its nonunion employees. The Company matches, after an employee’s one year of service, each dollar deferred up to 4% of compensation and, at its discretion, matches 40% of amounts deferred between 4% and 8%. At the end of each plan year, the Company may also contribute an amount equal to 2% of the compensation of those participants employed at that date. Participants are immediately 100% vested in the Company’s contribution. |
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The Company contributed approximately $5.1 million, $5.3 million and $5.2 million related to its SSP in the fiscal years ended September 28, 2013, September 29, 2012 and October 1, 2011, respectively. |
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Deferred Compensation Plan II |
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The Company has a nonqualified Deferred Compensation Plan (“DCPII”), which allows eligible employees to defer and contribute to an account a percentage of compensation on a pre-tax basis, as defined in the plan, in excess of amounts contributed to the SSP pursuant to IRS limitations, the value of which is measured by the fair value of the underlying investments. The Company informally funds its deferred compensation liability with assets held in a rabbi trust consisting of life insurance policies reported at cash surrender value and mutual fund assets consisting of various publicly-traded mutual funds reported at estimated fair value based on quoted market prices. The assets held in the rabbi trust are not available for general corporate purposes. Participants can direct the investment of their deferred compensation plan accounts in several investment funds as permitted by the DCPII. Gains or losses on investments are fully allocable to the plan participants. The cash surrender value of life insurance policies and mutual funds reported at their estimated fair value are included in other assets in the Company’s consolidated balance sheets because they remain assets of the Company until paid out to the participants. The cash surrender value of the life insurance policies was $12.3 million and $14.5 million at September 28, 2013 and September 29, 2012, respectively. The estimated fair value of the mutual funds was $0.6 million and $0.3 at September 28, 2013 and September 29, 2012, respectively. The liability to participants ($12.2 million and $14.9 million at September 28, 2013 and September 29, 2012, respectively) is included in long-term liabilities, other in the Company’s consolidated balance sheets. The rabbi trust is subject to creditor claims in the event of insolvency. |
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Employee Savings Plan |
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The Company has an Employee Savings Plan, which is a defined contribution plan, adopted pursuant to Section 401(k) of the Internal Revenue Code for substantially all of its union employees. The Company does not match any employee deferrals into the plan, and therefore, there is no related vesting schedule. No expense was incurred in the periods presented. |
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Other Benefit Plans |
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Long-Term Incentive Plan |
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Effective June 1, 2013, the Company implemented the Unified Grocers, Inc. Long-Term Incentive Plan (“LTIP”) to align, motivate and reward executives for their contributions to the long-term financial success and growth of the Company. This long-term plan, in conjunction with the short-term focus of the Company’s annual bonus plan, is designed to link long-term value creation for the Company’s member shareholders with the short-term annual performance by the Company. The LTIP also serves as an additional component to a competitive total compensation package designed to attract and retain talented executives. |
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The LTIP is offered to a select group of officers of the Company, Vice-President and higher (the “Participants”), and participation may be further constrained or increased at the discretion of the Company’s Compensation Committee. Participants are awarded with a certain number of Appreciation Units (defined below) on an annual basis (the “Award”); however, an Award in one year does not ensure that a Participant will receive an Award in subsequent years. Each Award participates in a four-year cycle (“Performance Cycle”), which is based on consecutive fiscal years of the Company, and the amount paid to a Participant, if any, is determined at the end of the Award’s Performance Cycle and is payable prior to December 31st of the year in which the Performance Cycle ends. In fiscal 2013, LTIP Awards were offered to certain officers of the position of Vice-President or higher. The Participant’s Award is vested based on the Participant’s continuous employment with the Company during the Award’s Performance Cycle. |
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An “Appreciation Unit” refers to a notional unit that grants Participants the contractual right to receive the positive difference, if any, between the Maturity Value of the unit on its Maturity Date and the Base Value (capitalized terms defined below) assigned to the unit at the beginning of the Performance Cycle. The Maturity Date is the date on which a Participant’s vested Appreciation Unit is deemed to mature, which is the earlier of (a) the last day of the Performance Cycle or (b) a change in control of the Company. The Base Value is equal to the Exchange Value Per Share, as calculated from the Company’s financial statements (see Part I, Item 1. “Business – Capital Shares” for additional information), for the fiscal year ending immediately prior to the Performance Cycle. The Maturity Value is equal to the Exchange Value Per Share plus Cumulative Co-op Patronage Dividends (defined below), plus Cumulative Cash Dividends (the total of cash dividends paid, excluding patronage dividends, as reported in the Company’s fiscal year-end financial statements), plus Cumulative Non-allocated Retained Earnings (defined below), as calculated from the Company’s financial statements for the Performance Cycle assigned to the Appreciation Unit. The difference is then multiplied by the number of vested Appreciation Units awarded for the Performance Cycle that remain outstanding on the Maturity Date. Cumulative Co-op Patronage Dividends are the sum of the Cooperative Division’s patronage earnings divided by the number of Class A and B Shares used in the calculation of the Exchange Value Per Share for each year in the Performance Cycle. Cumulative Co-op Patronage Dividends do not include Dairy Division patronage dividend amounts. The Cumulative Non-allocated Retained Earnings amount is the sum of the total increase or decrease in non-allocated retained earnings for a fiscal year divided by the number of Class A and B Shares used in the calculation of the Exchange Value Per Share for each year in the Performance Cycle. |
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Based on the Company’s calculations relative to the 2013 Performance Cycle, the Company determined there was no LTIP compensation expense for the 2013 Performance Cycle to be recorded in fiscal 2013. |
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Estimated Future Benefit Payments |
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The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid in fiscal years: |
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(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unified Cash | | | ESPPIII | | | | | | | | | | | | | | | | | | | | | |
Balance Plan | | | | | | | | | | | | | | | | | | | | |
2014 | | $ | 10,301 | | | $ | 3,427 | | | | | | | | | | | | | | | | | | | | | |
2015 | | | 11,047 | | | | 4,508 | | | | | | | | | | | | | | | | | | | | | |
2016 | | | 11,845 | | | | 4,283 | | | | | | | | | | | | | | | | | | | | | |
2017 | | | 12,668 | | | | 4,860 | | | | | | | | | | | | | | | | | | | | | |
2018 | | | 13,378 | | | | 4,268 | | | | | | | | | | | | | | | | | | | | | |
2019 – 2023 | | | 77,803 | | | | 23,890 | | | | | | | | | | | | | | | | | | | | | |
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Total | | $ | 137,042 | | | $ | 45,236 | | | | | | | | | | | | | | | | | | | | | |
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