NOTE 5 – EMPLOYEE BENEFIT PLANS

The Company offers a qualified defined contribution employee retirement plan to all of its full- and part-time personnel who are at least 18 years old and have been employed for a minimum of 60 days. During fiscal 2018, 2017 and 2016, employees received a matching Company contribution on the first 5% of eligible compensation contributed, for a total Company contribution of up to 3%. Company contributions to the plan were $3,164,000, $2,958,000 and $2,823,000 in fiscal 2018, 2017 and 2016, respectively.

In addition, the Company offers non-qualified deferred compensation plans (“Non-Qualified Plans”) for the purpose of providing deferred compensation for certain employees. The Company's expense for the Non-Qualified Plans was $1,915,000, $2,347,000 and $13,000 for fiscal 2018, 2017 and 2016, respectively. The fiscal 2017 increase compared to fiscal 2016 was a result of higher earnings on deferrals. The Company has trusts established for the purpose of setting aside funds to settle certain obligations of the Non-Qualified Plans, and contributed $2,429,000 and used $3,909,000 to satisfy a portion of retirement obligations during fiscal 2018. The Company also contributed $1,375,000 and used $2,474,000 to satisfy a portion of retirement obligations during fiscal 2017. The trusts’ assets included investments and life insurance policies on the lives of former key executives. As of March 3, 2018 and February 25, 2017, the trusts’ investments had an aggregate value of $9,825,000 and $10,236,000, respectively. The investments were held primarily in mutual funds and are classified as other noncurrent assets. All investments held in the trusts are valued at fair value using Level 1 Inputs, which are unadjusted quoted prices in active markets for identical assets or liabilities. The Company has accounted for the restricted investments as trading securities. The life insurance policies held in the trusts are carried at fair value and were classified as other noncurrent assets. The policies had cash surrender values of $6,209,000 and $6,060,000, and death benefits of $11,392,000 and $11,373,000 as of March 3, 2018 and February 25, 2017, respectively. The trusts’ assets are restricted and may only be used to satisfy obligations to the Non-Qualified Plans’ participants.

The Company also owns and is the beneficiary of a number of life insurance policies on the lives of former key executives that are unrestricted as to use. At the discretion of the Company’s Board of Directors, such policies could be contributed to the trusts described above or to the trusts established for the purpose of setting aside funds to be used to satisfy obligations arising from supplemental retirement plans described below. The cash surrender value of the unrestricted policies was $14,077,000 and $13,739,000, and the death benefit was $20,388,000 and $20,246,000 as of March 3, 2018 and February 25, 2017, respectively. The cash surrender value of these policies is included in other noncurrent assets.

The Company maintains supplemental retirement plans for certain of its former executive officers. These plans provide that upon death, disability, reaching retirement age or certain termination events, a participant will receive benefits based on highest compensation, years of service and years of plan participation. The Company recorded expenses related to the plans of $1,214,000, $6,990,000 and $3,555,000 in fiscal 2018, 2017 and 2016, respectively. Fiscal 2017 included a curtailment charge related to revised defined benefit plan assumptions of $1,562,000 and a settlement expense of $1,868,000 as a result of the departure of the Company’s former Chief Executive Officer (“former CEO”).

These supplemental retirement plans are not funded and thus have no plan assets. However, a trust has been established for the purpose of setting aside funds to settle the plans’ obligations upon retirement or death of certain participants. The trust assets are consolidated in the Company’s financial statements and consist of interest bearing investments in the amount of $98,000 and $97,000 as of March 3, 2018 and February 25, 2017, respectively, which are included in other noncurrent assets. The investments are restricted and may only be used to satisfy retirement obligations to certain participants. The Company has accounted for the restricted investments as available-for-sale securities. During fiscal 2018, the Company contributed and used $23,653,000 to fund obligations for retirement benefits related to the departure of Company’s former CEO, who retired during fiscal 2017 and received payment during fiscal 2018. During fiscal 2017, the Company contributed $1,000,000 and used $935,000 to fund tax obligations for retirement benefits related to the departure of the Company’s former CEO. Any future contributions will be made at the discretion of the Company’s Board of Directors. Funds from the trust will be used to fund or partially fund benefit payments. The Company expects to pay $5,052,000 during fiscal 2019, $172,000 during fiscal 2020, $247,000 during fiscal 2021, $246,000 during fiscal 2022, $245,000 during fiscal 2023, and $1,200,000 during fiscal years 2024 through 2028 under the plans.

Measurement of obligations for the plans is calculated as of each fiscal year end. The following provides a reconciliation of benefit obligations and funded status of the plans as of March 3, 2018 and February 25, 2017 (in thousands):

	2018			2017
Change in projected benefit obligation:
Projected benefit obligation, beginning of year	$	7,671		$	28,191
Service cost		289			917
Interest cost		285			696
Actuarial loss		584			705
Benefits paid (including settlements)		(126	)		(24,355	)
Curtailment		81			1,517
Projected benefit obligation, end of year	$	8,784		$	7,671
Reconciliation of funded status:
Projected benefit obligation	$	8,784		$	7,671
Plan assets		—			—
Funded status	$	(8,784	)	$	(7,671	)
Accumulated benefit obligation	$	(8,784	)	$	(7,671	)
Amounts recognized in the balance sheets:
Current liability	$	(5,052	)	$	(127	)
Noncurrent liability		(3,732	)		(7,544	)
Accumulated other comprehensive loss, pre-tax		584			559
Net amount recognized	$	(8,200	)	$	(7,112	)
Cumulative other comprehensive income, net of taxes of $1,650 and $1,640 in fiscal 2018 and 2017, respectively	$	(1,066	)	$	(1,081	)
Weighted average assumptions used to determine:
Benefit obligation, end of year:
Discount rate		3.50	%		3.75	%
Lump-sum conversion discount rate		2.31	%		3.00	%
Rate of compensation increase		0.00	%		3.00	%
Net periodic benefit cost for years ended:
Discount rate		3.75	%		2.75	%
Lump-sum conversion discount rate		3.00	%		3.50	%
Rate of compensation increase		0.00	%		0.00	%

As of March 3, 2018, a lump sum retirement benefit of approximately $4,900,000 was payable under the Pier 1 Imports, Inc. Supplemental Retirement Plan. The lump sum distribution payment was included in the projected benefit obligation at fiscal 2018 year end and will be paid in fiscal 2019. The Company will record an estimated settlement expense of $326,000 during the first quarter of fiscal 2019 in connection with this benefit payment. At the end of fiscal 2017, the Company’s former CEO had earned an early retirement lump sum benefit of $24,228,000, which was included in other accrued liabilities at fiscal 2017 year end, and was paid in fiscal 2018.

Net periodic benefit cost included the following actuarially determined components during fiscal 2018, 2017 and 2016 as shown in the table below (in thousands). The amortization of amounts related to unrecognized prior service costs and net actuarial loss were reclassified out of other comprehensive income as a component of net periodic benefit cost.

	2018		2017		2016
Service cost	$	289	$	917	$	1,468
Interest cost		285		696		634
Amortization of unrecognized prior service cost		30		45		59
Amortization of net actuarial loss		529		1,902		1,394
Settlement		—		1,868		—
Curtailment		81		1,562		—
Net periodic benefit cost	$	1,214	$	6,990	$	3,555

As of March 3, 2018 and February 25, 2017, cumulative other comprehensive loss included amounts that had not been recognized as components of net periodic benefit cost related to prior service cost of zero and $30,000, and net actuarial loss of $584,000 and $529,000, respectively. During fiscal 2018, 2017 and 2016, $(584,000), $(705,000) and $(812,000), respectively, were recognized in other comprehensive income (loss) related to net actuarial loss for the period. The estimated net actuarial loss that will be amortized from cumulative other comprehensive loss into net periodic benefit cost in fiscal 2019 is $13,000.