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,
	2019			2018			2019			2018			2019			2018
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year	$	9,164,000		$	9,633,000		$	2,039,000		$	1,605,000		$	2,382,000		$	2,029,000
Service cost	189,000			216,000			32,000			39,000			—			—
Interest cost	372,000			355,000			78,000			76,000			99,000			76,000
Actuarial loss (gain)	1,426,000			(576,000		)	236,000			323,000			161,000			290,000
Benefits paid	(180,000		)	(464,000		)	—			(4,000		)	(9,000		)	(13,000		)
Benefit obligation at end of year	10,971,000			9,164,000			2,385,000			2,039,000			2,633,000			2,382,000
Change in Plan Assets:
Fair value of plan assets at beginning of year	10,012,000			9,098,000			—			—			—			—
Actual return on plan assets	245,000			1,178,000			—			—			—			—
Employer contributions	115,000			200,000			—			4,000			9,000			13,000
Benefits paid	(180,000		)	(464,000		)	—			(4,000		)	(9,000		)	(13,000		)
Fair value of plan assets at end of year	10,192,000			10,012,000			—			—			—			—
Funded status	$	(779,000	)	$	848,000		$	(2,385,000	)	$	(2,039,000	)	$	(2,633,000	)	$	(2,382,000	)



	Pension					SERP						Postretirement Medical
	September 30,
	2019			2018		2019			2018			2019			2018
Amounts recognized in the Consolidated Balance Sheets:
Noncurrent assets	$	—		$	848,000	$	—		$	—		$	—		$	—
Current liabilities	—			—		(2,000		)	(4,000		)	(10,000		)	(7,000		)
Noncurrent liabilities	(779,000		)	—		(2,383,000		)	(2,035,000		)	(2,623,000		)	(2,375,000		)
Net amount	$	(779,000	)	$	848,000	$	(2,385,000	)	$	(2,039,000	)	$	(2,633,000	)	$	(2,382,000	)
Amounts recognized in accumulated other comprehensive loss (income) before income taxes:
Net actuarial loss	$	2,939,000		$	1,112,000	$	497,000		$	260,000		$	667,000		$	560,000
Prior service cost (credit)	54,000			59,000		(54,000		)	(59,000		)	—			—
Accumulated other comprehensive loss	$	2,993,000		$	1,171,000	$	443,000		$	201,000		$	667,000		$	560,000

No contributions will be made to the Pension Plan during fiscal 2020. 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 2020 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 losses in fiscal 2019 were primarily due to a decrease in the discount rate and actual investment returns that were lower than the assumed rate of return. The SERP actuarial losses in fiscal 2019 were primarily due to a decrease in the discount rate. The postretirement medical plan actuarial losses in fiscal 2019 were primarily due to a decrease in the discount rate and an increase in the medical insurance premium assumptions.

The pension plan actuarial gains in fiscal 2018 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 losses in fiscal 2018 were primarily due to an increase in the rate of compensation that was higher than expected. The postretirement medical plan actuarial losses in fiscal 2018 were primarily due to an increase in the medical insurance premium assumptions, partially offset by an increase in the discount rate.

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



	Pension		SERP		Postretirement Medical
	Year ended September 30,
	2019	2018	2019	2018	2019	2018
Assumptions used to determine fiscal year-end benefit obligations:
Discount rate	3.06%	4.15%	3.06%	4.15%	3.06%	4.15%
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	4.15%	3.75%	4.15%	3.75%	4.15%	3.75%
Expected return on plan assets	6.50%	6.50%	N/A	N/A	N/A	N/A
Rate of compensation increase	4.00%	4.00%	4.00%	4.00%	N/A	N/A

We select a discount rate by reference to yields available on the FTSE High Grade Credit Index at our consolidated balance sheet date. The expected return on plan assets is primarily based on historical rates of return.

The components of net periodic benefit (income) cost are as follows:



	Pension						SERP						Postretirement Medical
	Year ended September 30,
	2019			2018			2019			2018			2019		2018
Net periodic benefit (income) cost for the year:
Service cost	$	189,000		$	216,000		$	32,000		$	39,000		$	—	$	—
Interest cost	372,000			355,000			78,000			76,000			99,000		76,000
Expected return on plan assets	(648,000		)	(591,000		)	—			—			—		—
Amortization of prior service cost (credit)	6,000			6,000			(6,000		)	(6,000		)	—		—
Amortization of net actuarial loss	2,000			99,000			—			14,000			53,000		11,000
Net periodic benefit (income) cost	$	(79,000	)	$	85,000		$	104,000		$	123,000		$	152,000	$	87,000

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



	Pension		SERP			Postretirement Medical
Prior service cost (credit)	$	5,000	$	(5,000	)	$	—
Net actuarial loss	139,000		19,000			81,000
	$	144,000	$	14,000		$	81,000

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 $9,600,000 and $8,122,000 at September 30, 2019 and 2018, respectively. The accumulated benefit obligation for the SERP was $2,032,000 and $1,699,000 at September 30, 2019 and 2018, respectively.

The benefits expected to be paid under the retirement plans as of September 30, 2019 are as follows:



	Pension		SERP		Postretirement Medical
Expected Benefit Payments:
Fiscal year ending September 30, 2020	$	369,000	$	2,000	$	10,000
Fiscal year ending September 30, 2021	$	378,000	$	66,000	$	37,000
Fiscal year ending September 30, 2022	$	372,000	$	66,000	$	32,000
Fiscal year ending September 30, 2023	$	443,000	$	98,000	$	34,000
Fiscal year ending September 30, 2024	$	513,000	$	130,000	$	52,000
Fiscal years ending September 30, 2025 through 2029	$	2,675,000	$	683,000	$	378,000

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,
	2019	2018
Health care cost trend rates assumed for next year	7.00%	7.25%
Ultimate cost trend rate	5.00%	5.00%
Year that the rate reaches the ultimate trend rate	2028	2028

A 7.25% annual rate of increase in the per capita cost of covered health care benefits was assumed for fiscal 2019. 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	$	22,000	$	(18,000	)
Effect on accumulated postretirement benefit obligations	$	586,000	$	(458,000	)

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 $1,000 of Barnwell’s stock at September 30, 2019.

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



	Target	September 30,
Asset Category	Allocation	2019	2018
Cash and other	0% - 25%	—%	2%
Fixed income securities	15% - 40%	38%	24%
Equity securities	45% - 75%	62%	74%

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, 2019		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash	$	4,000	$	4,000	$	—	$	—
Corporate bonds	1,000		1,000		—		—
Fixed income exchange-traded funds	3,859,000		3,859,000		—		—
Equity securities exchange-traded funds	547,000		547,000		—		—
Equities	5,781,000		5,781,000		—		—
Total	$	10,192,000	$	10,192,000	$	—	$	—
			Fair Value Measurements Using:
	Carrying Amount as of September 30, 2018		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash	$	221,000	$	221,000	$	—	$	—
Certificates of deposit	230,000		230,000		—		—
Corporate bonds	3,000		3,000		—		—
Fixed income exchange-traded funds	2,135,000		2,135,000		—		—
Equity securities exchange-traded funds	567,000		567,000		—		—
Equities	6,856,000		6,856,000		—		—
Total	$	10,012,000	$	10,012,000	$	—	$	—