RETIREMENT PLANS

Barnwell sponsors a noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all of its U.S. employees, with benefits based on years of service and the employee’s highest consecutive 5 years average earnings. Barnwell’s funding policy is intended to provide for both benefits attributed to service to date and for those expected to be earned in the future. In addition, Barnwell sponsors a Supplemental Employee Retirement Plan (“SERP”), a noncontributory supplemental retirement benefit plan which covers certain current and former employees of Barnwell for amounts exceeding the limits allowed under the Pension Plan, and a postretirement medical insurance benefits plan (“Postretirement Medical”) covering officers of Barnwell Industries, Inc., the parent company, who have attained at least 20 years of service of which at least 10 years were at the position of Vice President or higher, their spouses and qualifying dependents.

The following tables detail the changes in benefit obligations, fair values of plan assets and reconciliations of the funded status of the retirement plans:



	Pension						SERP						Postretirement Medical
	September 30,
	2017			2016			2017			2016			2017			2016
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year	$	10,055,000		$	8,683,000		$	2,366,000		$	1,900,000		$	2,486,000		$	1,319,000
Service cost	237,000			261,000			34,000			68,000			—			—
Interest cost	336,000			364,000			56,000			86,000			87,000			56,000
Actuarial (gain) loss	(740,000		)	953,000			(847,000		)	318,000			(533,000		)	1,111,000
Benefits paid	(255,000		)	(206,000		)	(4,000		)	(6,000		)	(11,000		)	—
Benefit obligation at end of year	9,633,000			10,055,000			1,605,000			2,366,000			2,029,000			2,486,000
Change in Plan Assets:
Fair value of plan assets at beginning of year	8,195,000			6,488,000			—			—			—			—
Actual return on plan assets	808,000			813,000			—			—			—			—
Employer contributions	350,000			1,100,000			4,000			6,000			11,000			—
Benefits paid	(255,000		)	(206,000		)	(4,000		)	(6,000		)	(11,000		)	—
Fair value of plan assets at end of year	9,098,000			8,195,000			—			—			—			—
Funded status	$	(535,000	)	$	(1,860,000	)	$	(1,605,000	)	$	(2,366,000	)	$	(2,029,000	)	$	(2,486,000	)



	Pension						SERP						Postretirement Medical
	September 30,
	2017			2016			2017			2016			2017			2016
Amounts recognized in the Consolidated Balance Sheets:
Current liabilities	$	—		$	—		$	(4,000	)	$	(5,000	)	$	(15,000	)	$	—
Noncurrent liabilities	(535,000		)	(1,860,000		)	(1,601,000		)	(2,361,000		)	(2,014,000		)	(2,486,000		)
Net amount	$	(535,000	)	$	(1,860,000	)	$	(1,605,000	)	$	(2,366,000	)	$	(2,029,000	)	$	(2,486,000	)
Amounts recognized in accumulated other comprehensive loss (income) before income taxes:
Net actuarial loss (gain)	$	2,374,000		$	3,521,000		$	(50,000	)	$	797,000		$	280,000		$	1,001,000
Prior service cost (credit)	65,000			70,000			(65,000		)	(70,000		)	—			—
Accumulated other comprehensive loss (income)	$	2,439,000		$	3,591,000		$	(115,000	)	$	727,000		$	280,000		$	1,001,000

Barnwell estimates that it will make approximately $500,000 in contributions to the Pension Plan during fiscal 2018. In January 2017, the Postretirement Medical plan commenced payments for retiree medical insurance payments. The SERP and Postretirement Medical plans are unfunded and Barnwell funds benefits when payments are made. Expected payments under the Postretirement Medical plan and SERP for fiscal 2018 are not material. Fluctuations in actual market returns as well as changes in general interest rates will result in changes in the market value of plan assets and may result in increased or decreased retirement benefits costs and contributions in future periods.

The pension plan actuarial gains in fiscal 2017 were primarily due to an increase in the discount rate and actual investment returns that were greater than the assumed rate of return. The SERP actuarial gains in fiscal 2017 were primarily due to an increase in the discount rate and compensation increases that were lower than expected. The postretirement medical plan actuarial gains in fiscal 2017 were primarily due to an increase in the discount rate, an increase in the assumed retirement age, and decreases in the medical insurance premium assumptions. The pension plan actuarial losses in fiscal 2016 were primarily due to a decrease in the discount rate which was slightly offset by actual investment returns being greater than the assumed rate of return and an updated mortality projection scale. The SERP actuarial losses in fiscal 2016 were primarily due to a decrease in the discount rate which was slightly offset by an updated mortality projection scale. The postretirement medical plan actuarial losses in fiscal 2016 were primarily due to increases in the medical insurance premium assumptions and a decrease in the discount rate which were slightly offset by an updated mortality projection scale.

The following table presents the weighted-average assumptions used to determine benefit obligations and net benefit costs:



	Pension		SERP		Postretirement Medical
	Year ended September 30,
	2017	2016	2017	2016	2017	2016
Assumptions used to determine fiscal year-end benefit obligations:
Discount rate	3.75%	3.50%	3.75%	3.50%	3.75%	3.50%
Rate of compensation increase	4.00%	4.00%	4.00%	4.00%	N/A	N/A
Assumptions used to determine net benefit costs (years ended):
Discount rate	3.50%	4.25%	3.50%	4.25%	3.50%	4.25%
Expected return on plan assets	6.50%	7.00%	N/A	N/A	N/A	N/A
Rate of compensation increase	4.00%	4.00%	4.00%	4.00%	N/A	N/A

The components of net periodic benefit cost are as follows:



	Pension						SERP						Postretirement Medical
	Year ended September 30,
	2017			2016			2017			2016			2017		2016
Net periodic benefit cost for the year:
Service cost	$	237,000		$	261,000		$	34,000		$	68,000		$	—	$	—
Interest cost	336,000			364,000			56,000			86,000			87,000		56,000
Expected return on plan assets	(539,000		)	(484,000		)	—			—			—		—
Amortization of prior service cost (credit)	6,000			5,000			(6,000		)	(5,000		)	—		—
Amortization of net actuarial loss	138,000			141,000			—			27,000			188,000		—
Net periodic benefit cost	$	178,000		$	287,000		$	84,000		$	176,000		$	275,000	$	56,000

The amounts that are estimated to be amortized from accumulated other comprehensive loss into net periodic benefit cost in the next fiscal year are as follows:



	Pension		SERP			Postretirement Medical
Prior service cost (credit)	$	6,000	$	(5,000	)	$	—
Net actuarial loss	86,000		—			11,000
	$	92,000	$	(5,000	)	$	11,000

The accumulated benefit obligation differs from the projected benefit obligation in that it assumes future compensation levels will remain unchanged. The accumulated benefit obligation for the pension plan was $8,530,000 and $8,566,000 at September 30, 2017 and 2016, respectively. The accumulated benefit obligation for the SERP was $1,510,000 and $1,822,000 at September 30, 2017 and 2016, respectively.

The benefits expected to be paid under the retirement plans as of September 30, 2017 are as follows:



	Pension		SERP		Postretirement Medical
Expected Benefit Payments:
Fiscal year ending September 30, 2018	$	301,000	$	4,000	$	15,000
Fiscal year ending September 30, 2019	$	284,000	$	4,000	$	15,000
Fiscal year ending September 30, 2020	$	386,000	$	58,000	$	15,000
Fiscal year ending September 30, 2021	$	404,000	$	59,000	$	42,000
Fiscal year ending September 30, 2022	$	390,000	$	58,000	$	44,000
Fiscal years ending September 30, 2023 through 2027	$	2,521,000	$	531,000	$	315,000

The following table provides the assumed health care cost trend rates related to the measurement of Barnwell’s postretirement medical obligations.



	Year ended September 30,
	2017	2016
Health care cost trend rates assumed for next year	7.50%	7.75%
Ultimate cost trend rate	5.0%	5.0%
Year that the rate reaches the ultimate trend rate	2028	2028

A 7.75% annual rate of increase in the per capita cost of covered health care benefits was assumed for fiscal 2017. This assumption is based on the plans’ recent experience. It is assumed that the rate will decrease gradually to 5% for fiscal 2028 and remain level thereafter. The assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement medical obligations. A one-percentage-point change in the assumed health care cost trend rates would have the following effects:



	1-Percentage Point Increase		1-Percentage Point (Decrease)
Effect on total service and interest cost components	$	18,000	$	(15,000	)
Effect on accumulated postretirement benefit obligations	$	464,000	$	(361,000	)

Plan Assets

Management communicates periodically with its professional investment advisors to establish investment policies, direct investments and select investment options. The overall investment objective of the Pension Plan is to attain a diversified combination of investments that provides long-term growth in the assets of the plan to fund future benefit obligations while managing risk in order to meet current benefit obligations. Generally, interest and dividends received provide cash flows to fund current benefit obligations. Longer-term obligations are generally estimated to be provided for by growth in equity securities. The Company’s investment policy permits investments in a diversified mix of U.S. and international equities, fixed income securities and cash equivalents.

Barnwell’s investments in fixed income securities include corporate bonds, preferred securities, and fixed income exchange-traded funds. The Company’s investments in equity securities primarily include domestic and international large-cap companies, as well as, domestic and international equity securities exchange-traded funds. Plan assets include $4,000 of Barnwell’s stock at September 30, 2017.

The Company’s year-end target allocation, by asset category, and the actual asset allocations were as follows:



	Target	September 30,
Asset Category	Allocation	2017	2016
Cash and other	0% - 30%	1%	7%
Fixed income securities	20% - 60%	31%	23%
Equity securities	30% - 70%	68%	70%

Actual investment allocations may vary from our target allocations from time to time due to prevailing market conditions. We periodically review our actual investment allocations and rebalance our investments to our target allocations as dictated by current and anticipated market conditions and required cash flows.

We categorize plan assets into three levels based upon the assumptions used to price the assets. Level 1 provides the most reliable measure of fair value, whereas Level 3 requires significant management judgment in determining the fair value. Equity securities and exchange-traded funds are valued by obtaining quoted prices on recognized and highly liquid exchanges. Fixed income securities are valued based upon the closing price reported in the active market in which the security is traded. All of our plan assets are categorized as Level 1 assets, and as such, the actual market value is used to determine the fair value of assets.

The following tables set forth by level, within the fair value hierarchy, pension plan assets at their fair value:



			Fair Value Measurements Using:
	Carrying Amount as of September 30, 2017		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash	$	124,000	$	124,000	$	—	$	—
Certificates of deposit	496,000		496,000		—		—
Corporate bonds	210,000		210,000		—		—
Fixed income exchange-traded funds	2,036,000		2,036,000		—		—
Preferred securities	51,000		51,000		—		—
Equity securities exchange-traded funds	553,000		553,000		—		—
Equities	5,628,000		5,628,000		—		—
Total	$	9,098,000	$	9,098,000	$	—	$	—
			Fair Value Measurements Using:
	Carrying Amount as of September 30, 2016		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash	$	571,000	$	571,000	$	—	$	—
Corporate bonds	316,000		316,000		—		—
Fixed income exchange-traded funds	1,414,000		1,414,000		—		—
Preferred securities	184,000		184,000		—		—
Equity securities exchange-traded funds	818,000		818,000		—		—
Equities	4,892,000		4,892,000		—		—
Total	$	8,195,000	$	8,195,000	$	—	$	—