Retirement Plans

Pension Plans

The Company maintains three defined benefit pension plans, the Virco Employees Retirement Plan (“Employee Plan”), the Virco Important Performers Retirement Plan (“VIP Plan”), and the Non-Employee Directors Retirement Plan (“Directors Plan”). The Company and its subsidiaries cover all employees under the Employee Plan, which is a qualified noncontributory defined benefit retirement plan. Benefits under the Employee Plan are based on years of service and career average earnings. Benefit accruals under the Employee Plan were frozen effective December 31, 2003.

The Company also provides a supplementary retirement plan for certain key employees, the VIP Plan. The VIP Plan provides a benefit up to 50% of average compensation for the last five years in the VIP Plan, offset by benefits earned under the Employee Plan. The VIP Plan benefits are secured by a life insurance program. The cash surrender values of the policies securing the VIP Plan were $3,008,000 and $2,973,000 at January 31, 2013 and 2012, respectively. These cash surrender values are included in other assets in the consolidated balance sheets. The Company maintains a rabbi trust to hold assets related to the VIP Retirement Plan and a Split $ Life Insurance Plan. Substantially all assets securing the VIP Plan are held in the rabbi trust. Benefit accruals under the VIP Plan were frozen effective December 31, 2003.

In April 2001, the board of directors established the Directors Plan, a non-qualified plan for non-employee directors of the Company. The Directors Plan provides a lifetime annual retirement benefit equal to the director’s annual retainer fee for the fiscal year in which the director terminates his or her position with the board, subject to the director providing 10 years of service to the Company. At January 31, 2013, the Directors Plan did not hold any assets. Benefit accruals under the Directors Plan were frozen effective December 31, 2003.

The annual measurement date for all plans for the fiscal years ended January 31, 2013, 2012, and 2011 is January 31. Effective December 31, 2003, the Company froze all future benefit accruals under the plans. Employees can continue to vest under the benefits earned to date, but no covered participants will earn additional benefits under the plan freeze.

Accounting policy regarding pensions requires management to make complex and subjective estimates and assumptions relating to amounts which are inherently uncertain. Three primary economic assumptions influence the reported values of plan liabilities and pension costs. The Company takes the following factors into consideration: discount rate, assumed rate of return and rate of increase in compensation.

The discount rate represents an estimate of the rate of return on a portfolio of high-quality fixed-income securities that would provide cash flows that match the expected benefit payment stream from the plans. When setting the discount rate, the Company utilizes a spot-rate yield curve developed from high-quality bonds currently available which reflects changes in rates that have occurred over the past year. This assumption is sensitive to movements in market rates that have occurred since the preceding valuation date, and therefore, may change from year to year.

Because the Company froze future benefit accruals for all three defined benefit plans, the compensation increase assumption had no impact on pension expense, accumulated benefit obligation or projected benefit obligation for the period ended January 31, 2013 , 2012 or 2011.

The assumed rate of return on plan assets represents an estimate of long-term returns available to investors who hold a mixture of stocks, bonds, and cash equivalent securities. When setting its expected return on plan asset assumptions, the Company considers long-term rates of return on various asset classes (both historical and forecasted, using data collected from various sources generally regarded as authoritative) in the context of expected long-term average asset allocations for its defined benefit pension plan. Two of the Company's defined benefit pension plans (the VIP Plan and the Directors Plan) are executive benefit plans that are not funded and are subject to the Company's creditors. Because these plans are not funded, the assumed rate of return has no impact on pension expense or the funded status of the plans.

The Company maintains a trust for and funds the pension obligations for the Employee Plan. The board of directors appoints a Retirement Plan Committee that establishes a policy for investment and funding strategies. Approximately 70% of the trust assets are managed by investment advisors and held in common trust funds with the balance managed by the Retirement Plan Committee. The Retirement Plan Committee has established target asset allocations for its investment advisors, who invest the trust assets in a variety of institutional collective trust funds. The long-term asset allocation target provided to the investment advisors is 80% stock and 20% bond, with maximum allocations of 80% large cap stocks, 30% small cap stocks, and 30% international stock. The Company has established a custom benchmark derived from a variety of stock and bond indices that are weighted to approximate the asset allocation provided to the investment advisors. The investment advisors' performance is compared to the custom index as part of the evaluation of the investment advisors' performance. The Retirement Plan Committee receives monthly reports from the investment advisors and meets periodically with them to discuss investment performance.

At January 31, 2013 and 2012, the amount of the plan assets invested in bond or short-term investment funds was 8% and 6%, respectively, and the balance of the trust was held in equity funds or investments. The trust does not hold any Company stock.

During 2011, two events significantly impacted the pension plans. The first event was a reduction in the discount rate utilized to calculate pension plan obligations. The reduction in discount rate caused the liability for pension obligations to increase by approximately $3.7 million, $1.4 million, and $26,000 for the Employee Plan, the VIP Plan, and the Directors Plan, respectively. The increase in liability resulted in a comparable increase to Accumulated Other Comprehensive Income (“AOCI”). The second event was a $2.0 million settlement charge for the Employee Plan. As part of a restructuring plan, the Company offered early retirement benefits to all employees who voluntarily severed their employment with the Company. Although the early retirement benefit was paid in cash and did not include any additional benefits payable from a retirement plan, the benefit formula was structured to reward employees with significant years of service, the same employees who would have earned retirement benefits prior to the Employee Plan freeze in 2003. The pension trust made significant lump sum distributions to participants in the latter part of the year, resulting in settlement charges in the third and fourth quarters. Because the VIP Plan and Director Plan do not allow lump sum payments, there was no similar settlement charge required.

During 2012 the pension plans were impacted by the same events of 2011, but to a lesser extent. A reduction in the discount rate caused the liability for pension obligations to increase by approximately $2.0 million, $0.3 million, and $10,000 for the Employee Plan, the VIP Plan, and the Directors Plan, respectively. The increase in liability resulted in a comparable increase to AOCI. As a result of large distributions paid from the Employee Plan, a $760,000 settlement charge for the Employee Plan was recorded in the fourth quarter.

It is the Company's policy to contribute adequate funds to the trust accounts to cover benefit payments under the VIP Plan and Directors Plan and to maintain the funded status of the Employee Plan at a level which is adequate to avoid significant restrictions to the Employee Plan under the Pension Protection Act of 2006. The Company contributed $2.0 million, $1.9 million, and $0.7 million, to the trust in 2012, 2011, and 2010, respectively. Contributions during 2013 will depend upon actual investment results and benefit payments, but are anticipated to be approximately $1.6 million. During 2012, 2011, and 2010, the Company paid approximately $561,000, $451,000 and $458,000 respectively, in benefits per year under the non-qualified plans. It is anticipated that contributions to non-qualified plans will be approximately $691,000 for 2013. At January 31, 2013, accumulated other comprehensive loss of approximately $19.5 million ($16.0 million net of tax) is attributable to the pension plans.

The following tables sets forth (in thousands) the funded status of the Company’s pension plans at January 31, 2013, and 2012:



	Employee Plan						VIP Plan						Directors Plan
	1/31/2013			1/31/2012			1/31/2013			1/31/2012			1/31/2013			1/31/2012
Change in Benefit Obligation
Benefit obligation at beg. of year	$	29,583		$	27,080		$	8,079		$	6,529		$	480		$	450
Service cost	—			—			—			—			—			—
Interest cost	1,299			1,370			352			379			20			23
Participant contributions	—			—			—			—			—			—
Amendments	—			—			—			—			—			—
Actuarial losses (gains)	3,951			5,537			175			1,622			(23		)	7
Plan settlement	(1,477		)	(3,791		)	—			—			—			—
Benefits paid	(516		)	(613		)	(552		)	(451		)	(9		)	—
Benefit obligation at end of year	$	32,840		$	29,583		$	8,054		$	8,079		$	468		$	480
Change in Plan Assets
Fair value at beg. of year	$	14,808		$	17,737		$	—		$	—		$	—		$	—
Actual return on plan assets	2,035			(415		)	—			—			—			—
Company contributions	2,025			1,890			552			451			9			—
Settlements	(1,477		)	(3,791		)	—			—			—			—
Benefits paid	(516		)	(613		)	(552		)	(451		)	(9		)	—
Fair value at end of year	$	16,875		$	14,808		$	—		$	—		$	—		$	—
Funded Status
Unfunded status of the plan	$	(15,965	)	$	(14,775	)	$	(8,054	)	$	(8,079	)	$	(468	)	$	(480	)
Amounts Recognized in Statement of Financial Position
Current liabilities	—			—			(570		)	(495		)	(61		)	(67		)
Non-current liabilities	(15,965		)	(14,775		)	(7,484		)	(7,584		)	(407		)	(413		)
Accrued benefit cost	$	(15,965	)	$	(14,775	)	$	(8,054	)	$	(8,079	)	$	(468	)	$	(480	)
Amounts Recognized in Statement of Financial Position and Operations
Accrued benefit liability	$	(15,965	)	$	(14,775	)	$	(8,054	)	$	(8,079	)	$	(468	)	$	(480	)
Accumulated other comp. loss (gain)	16,906			16,195			2,656			1,571			(61		)	(38		)
Net amount recognized	$	941		$	1,420		$	(5,398	)	$	(6,508	)	$	(529	)	$	(518	)
Items not yet Recognized as a Component of Net Periodic Pension Expense, Included in AOCI
Unrecognized net actuarial loss (gain)	$	16,906		$	16,195		$	2,656		$	1,571		$	(61	)	$	(38	)
Unamortized prior service costs	—			—			—			—			—			—
Net initial asset recognition	—			—			—			—			—			—
	$	16,906		$	16,195		$	2,656		$	1,571		$	(61	)	$	(38	)



	Employee Plan						VIP Plan						Directors Plan
	1/31/2013			1/31/2012			1/31/2013			1/31/2012			1/31/2013			1/31/2012
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income
Net loss (gain)	$	2,895		$	7,060		$	175		$	1,622		$	(23	)	$	7
Prior service cost	—			—			—			—			—			—
Amortization of (loss) gain	(2,184		)	(3,091		)	(205		)	(51		)	—			39
Amortization of prior service cost (credit)	—			—			—			—			—			—
Amortization of initial asset	—			—			—			—			—			—
Total recognized in other comprehensive income	$	711		$	3,969		$	(30	)	$	1,571		$	(23	)	$	46
Items to be Recognized as a Component of 2013 Periodic Pension Cost
Prior service cost	$	—		$	—		$	—		$	—		$	—		$	—
Net actuarial loss (gain)	1,397			1,423			222			205			(14		)	—
	$	1,397		$	1,423		$	222		$	205		$	(14	)	$	—
Supplemental Data
Projected benefit obligation	$	32,840		$	29,583		$	8,054		$	8,079		$	468		$	480
Accumulated benefit obligation	32,840			29,583			8,054			8,079			468			480
Fair value of plan assets	16,875			14,808			—			—			—			—
Components of Net Cost
Service cost	$	—		$	—		$	—		$	—		$	—		$	—
Interest cost	1,299			1,370			352			379			20			23
Expected return on plan assets	(979		)	(1,107		)	—			—			—			—
Amortization of transition amount	—			—			—			—			—			—
Recognized (gain) loss due to curtailments	—			—			—			—			—			—
Amortization of prior service cost	—			—			—			—
Recognized net actuarial loss	2,184			3,091			205			51			—			(39		)
Benefit cost	$	2,504		$	3,354		$	557		$	430		$	20		$	(16	)
Estimated Future Benefit Payments
FYE 01-31-2014	$	1,358					$	570					$	61
FYE 01-31-2015	1,949						345						56
FYE 01-31-2016	1,951						344						51
FYE 01-31-2017	2,632						330						46
FYE 01-31-2018	1,435						315						41
FYE 01-31-2019 to 2023	9,022						1,786						139
Total	$	18,347					$	3,690					$	394
Weighted Average Assumptions to Determine Benefit Obligations at Year-End
Discount rate	4.00		%	4.50		%	4.25		%	4.50		%	4.00		%	4.50		%
Rate of compensation increase	N/A			N/A			N/A			N/A			N/A			N/A
Weighted Average Assumptions to Determine Net Periodic Pension Cost
Discount rate	4.50		%	5.50		%	4.50		%	6.00		%	4.50		%	5.50		%
Expected return on plan assets	6.50		%	6.50		%	N/A			N/A			N/A			N/A
Rate of compensation increase	N/A			N/A			N/A			N/A			N/A			N/A

Fair Value Measurements of Plan Assets

Employee Plan



	1/31/2013		1/31/2012
Level 1 Measurement
Cash & Cash Equivalents	$	268	$	334
Common Stock	4,376		3,538
Total Level 1	$	4,644	$	3,872
Level 2 Measurement
Bond Index Fund	$	162	$	223
Total Return Bond Fund	—		306
Core Bond CIT Fund	973		—
US Aggregate Bond Index Fund	229		288
Large Cap Growth Index Fund	3,809		3,652
Large Cap Value Index Fund	3,039		2,776
Russell 2000 Index Fund	1,461		1,380
International Equity Index Fund	1,179		1,111
Managed Investment Fund	773		632
Vanguard MSCI Emerging Markets Fund	606		568
Total Level 2	$	12,231	$	10,936
Level 3 Measurement
None	N/A		N/A

401(k) Retirement Plan

The Company’s retirement plan, which covers all U.S. employees, allows participants to defer from 1% to 50% of their eligible compensation through a 401(k) retirement program. Through December 31, 2001, the plan included an employee stock ownership component. The plan continues to include Virco stock as one of the investment options. At January 31, 2013 and 2012, the plan held 783,154 shares and 754,241 shares of Virco stock, respectively. For the fiscal years ended January 31, 2013, 2012 and 2011, there was no employer match and therefore no compensation cost to the Company.

Life Insurance

The Company provided current and post-retirement life insurance to certain salaried employees with split-dollar life insurance policies under the Dual Option Life Insurance Plan. Effective January 2004, the Company terminated this plan for active employees. Cash surrender values of these policies, which are included in other assets in the consolidated balance sheets, were $3,069,000 and $3,134,000 at January 31, 2013 and 2012, respectively. The Company maintains a rabbi trust to hold assets related to the Dual Option Life Insurance Plan. Substantially all assets securing this plan are held in the rabbi trust. As of January 31, 2013 and 2012, the Company has purchased life insurance on the lives of the participants that will pay death benefits of approximately $5,870,000 and $5,978,000 respectively.

The following sets forth the Company's change in death benefits payable during the years ended January 31, 2013 and 2012:



	1/31/2013			1/31/2012
Liability beginning of year	$	2,074,000		$	1,964,000
Accretion expense	292,000			110,000
Present value of death benefits paid	(50,000		)	—
Liability end of year	$	2,316,000		$	2,074,000