BENEFIT PLANS

401(k) Plan. We have a contributory 401(k) savings plan (“401(k) Plan”) generally available to full and part-time employees with 60 days of service, who are age 21 or older. Under the 401(k) Plan, participants may contribute up to 50% of their qualifying earnings on a pre-tax basis, and up to 10% of their qualifying earnings on a post-tax basis, subject to certain restrictions. We currently match 50% of each participant’s pre-tax contributions, limited up to 6% of each participant’s compensation under the Plan. We may make discretionary matching contributions during the year. Our matching contributions expense for the 401(k) Plan were approximately $2.0 million and $1.7 million in 2018 and 2017, respectively.

Deferred Compensation Plans. We have two nonqualified deferred compensation plans (“DC Plans”) which provide executives and other key employees with the opportunity to participate in unfunded, deferred compensation programs that are not qualified under the Internal Revenue Code of 1986, as amended, (“Code”). Generally, the Code and ERISA restrict contributions to a 401(k) plan by highly compensated employees. The DC Plans are intended to allow participants to defer income on a pre-tax basis. Under the DC Plans, participants may defer up to 50% of their base salary and up to 100% of their bonus and earn a rate of return based on actual investments chosen by each participant. We have established grantor trusts for the purposes of holding assets to provide benefits to the participants. For the plan covering executives, we will match 100% of each participant’s contributions, up to 10% of the sum of their base salary and bonus. For the plan covering other key employees, we may make a bi-weekly discretionary matching contribution. We currently match 50% of each participant’s contributions, up to 3% of the participant’s compensation. For both DC Plans, our contributions are vested 100%. In addition, we may, with approval by our Board, make an additional employer contribution in any amount with respect to any participant as is determined in our sole discretion. Our matching contribution expense for the DC Plans was approximately $0.7 million and $0.9 million for 2018 and 2017, respectively.

Non-Employee Director Equity Compensation Plan. In 2003, we adopted, and our shareholders approved, and in 2004 we amended and restated, the Stage Stores, Inc. Amended and Restated 2003 Non-Employee Director Equity Compensation Plan. We reserved 225,000 shares of our common stock to fund this plan. Under this plan, non-employee directors had the option to defer all or a portion of their annual compensation fees and to receive such deferred fees in the form of restricted stock or deferred stock units as defined in this plan. At February 3, 2018 and February 2, 2019 there were no participants in or amounts deferred under this plan. The plan was terminated effective March 22, 2019.

Frozen Defined Benefit Plan. We sponsor a defined benefit plan (“DB Plan”), which covers substantially all employees who had met eligibility requirements and were enrolled prior to June 30, 1998. The DB Plan was frozen effective June 30, 1998.

Benefits for the DB Plan are administered through a trust arrangement, which provides monthly payments or lump sum distributions. Benefits under the DB Plan were based upon a percentage of the participant’s earnings during each year of credited service. Any service after the date the DB Plan was frozen will continue to count toward vesting and eligibility for normal and early retirement for existing participants. The measurement dates used to determine pension benefit obligations were February 2, 2019 and February 3, 2018.

Information regarding the DB Plan is as follows (in thousands):



	Fiscal Year
	2018			2017
Change in benefit obligation:
Benefit obligation at beginning of year	$	34,749		$	34,962
Employer service cost	510			490
Interest cost	1,367			1,430
Actuarial (gain) loss	(906		)	1,835
Settlements	(2,379		)	(1,989		)
Plan disbursements	(2,122		)	(1,979		)
Projected benefit obligation at end of year	31,219			34,749

Change in plan assets:
Fair value of plan assets at beginning of year	27,502			26,161
Actual return on plan assets	(1,077		)	4,456
Employer contributions	1,335			853
Settlements	(2,379		)	(1,989		)
Plan disbursements	(2,122		)	(1,979		)
Fair value of plan assets at end of year	23,259			27,502

Underfunded status	$	(7,960	)	$	(7,247	)

Amounts recognized in the consolidated balance sheet consist of:
Accrued benefit liability - included in other long-term liabilities	$	(7,960	)	$	(7,247	)
Amount recognized in accumulated other comprehensive loss, pre-tax ^(a)	7,502			6,822

^(a) Consists solely of net actuarial losses as there are no prior service costs.

Our funding policy is to make contributions to maintain the minimum funding requirements for our pension obligation in accordance with ERISA. We may elect to contribute additional amounts to maintain a level of funding to minimize the Pension Benefit Guaranty Corporation premium costs or to cover short-term liquidity needs of the DB Plan in order to maintain current invested positions. We contributed $1.3 million in 2018, and we expect to contribute approximately $1.3 million in 2019.

The following benefit payments are expected to be paid (in thousands):



Fiscal Year	Payments
2019	$	2,275
2020	2,535
2021	2,705
2022	2,979
2023	2,703
Fiscal Years 2024 - 2028	12,562

The allocations of DB Plan assets by category are as follows:



		Fiscal Year
	2019 Target Allocation	2018	2017
Equity securities	50%	48%	51%
Fixed income securities	50	49	47
Other - primarily cash	—	3	2
Total	100%	100%	100%

We employ a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return on DB Plan assets for a prudent level of risk. The investment portfolio consists of actively managed and indexed mutual funds of domestic and international equities and investment-grade corporate bonds and U.S. government securities. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews and annual liability measurements.

The following tables present the DB Plan assets measured at fair value on a recurring basis in the consolidated financial statements (in thousands):



	February 2, 2019
	Balance		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual funds:
Equity securities	$	11,126	$	11,126	$	—	$	—
Fixed income securities	11,346		11,346		—		—
Other - primarily cash	787		787		—		—
Total	$	23,259	$	23,259	$	—	$	—



	February 3, 2018
	Balance		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Mutual funds:
Equity securities	$	14,162	$	14,162	$	—	$	—
Fixed income securities	12,833		12,833		—		—
Other - primarily cash	507		507		—		—
Total	$	27,502	$	27,502	$	—	$	—

Assumptions used in the actuarial calculations were as follows:



	Fiscal Year
Benefit Obligation Weighted Average Assumptions	2018		2017
Discount rate	4.35	%	3.98	%

	Fiscal Year
Net Periodic Benefit Expense Weighted Average Assumptions	2018		2017
Discount rate	3.98	%	4.33	%
Expected return on assets	6.50	%	6.50	%

The discount rate was determined using yields on a hypothetical bond portfolio that matches the approximated cash flows of the DB Plan. We develop our long-term rate of return assumptions using long-term historical actual return data considering the mix of investments that comprise plan assets and input from professional advisors.

The components of net periodic benefit cost for the DB Plan, which were recognized in selling, general and administrative expenses were as follows (in thousands):



	Fiscal Year
	2018			2017
Employer service cost	$	510		$	490
Interest cost on pension benefit obligation	1,367			1,430
Expected return on plan assets	(1,679		)	(1,654		)
Amortization of net loss	600			797
Settlement charges^(a)	569			438
Net periodic pension cost	$	1,367		$	1,501

^(a) Non-cash pension settlement charges were recognized as a result of lump sum distributions exceeding interest cost for the year.

Other changes in DB Plan assets and benefit obligations recognized in other comprehensive loss are as follows (in thousands):



	Fiscal Year
	2018			2017
Amortization of net loss	$	(600	)	$	(797	)
Settlement charges	(569		)	(438		)
Net loss (gain)	1,849			(966		)
Net change recognized in other comprehensive loss, pre-tax	$	680		$	(2,201	)

The actuarial net loss recognized in other comprehensive loss in 2018 is comprised of the following changes:



	(Gain) / Loss
Demographic experience, including assumption changes	$	(906	)	^(a)
Investment return different from assumed during the prior year	2,755			^(b)
Net loss	$	1,849

^(a)The discount rate increased compared to the prior year, which reduced the net periodic pension cost and improved the funded position.
^(b) The actual return on the fair value of plan assets since the prior measurement date was less than expected, which caused the funded rate to deteriorate.