Employee Benefit and Retirement Plans

Employee Stock Ownership Plan

In fiscal 1990, the Company instituted the American Woodmark Investment Savings Stock Ownership Plan. Effective January 1, 2016 the plan name was changed to the American Woodmark Corporation Retirement Savings Plan. Under this plan, all employees who are at least 18 years old and have been employed by the Company for at least six consecutive months are eligible to receive Company stock through a discretionary profit-sharing contribution and a 401(k) matching contribution based upon the employee's contribution to the plan.

Discretionary profit-sharing contributions ranging from 0-5%, based on predetermined net income levels of the Company, may be made annually in the form of Company stock. The Company recognized expenses for profit-sharing contributions of $2.9 million, $1.8 million and $0.8 million in fiscal years 2016, 2015 and 2014, respectively.

In fiscal 2013, as part of the realignment of its retirement plans, the Company increased the match on 401(k) contributions in the form of Company stock to 100% of an employee’s annual contribution to the plan up to 4% of annual compensation. Effective May 1, 2015, matching contributions are made in cash by the Company. The expense for 401(k) matching contributions for this plan was $6.6 million, $5.6 million and $4.1 million, in fiscal years 2016, 2015 and 2014, respectively.

Pension Benefits

The Company has two defined benefit pension plans covering many of the Company’s employees hired prior to April 30, 2012. These plans provide defined benefits based on years of service and final average earnings (for salaried employees) or benefit rate (for hourly employees).

Effective April 30, 2012, the Company froze all future benefit accruals under the Company’s hourly and salaried defined benefit pension plans.

Included in accumulated other comprehensive loss at April 30, 2016 is $77.5 million ($47.3 million net of tax) related to net unrecognized actuarial losses that have not yet been recognized in net periodic pension benefit costs. The Company expects to recognize $1.8 million ($1.1 million net of tax) in net actuarial losses in net periodic pension benefit costs during fiscal 2017. The Company uses an April 30 measurement date for its benefit plans.

The following provides a reconciliation of benefit obligations, plan assets and funded status of the Company’s non-contributory defined benefit pension plans as of April 30:



	APRIL 30
(in thousands)	2016			2015
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at beginning of year	$	169,986		$	144,142
Interest cost	7,014			6,466
Actuarial losses	1,921			24,168
Benefits paid	(4,825		)	(4,790		)
Projected benefit obligation at end of year	$	174,096		$	169,986

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$	108,661		$	102,599
Actual return on plan assets	(1,887		)	6,583
Company contributions	5,016			4,269
Benefits paid	(4,825		)	(4,790		)
Fair value of plan assets at end of year	$	106,965		$	108,661

Funded status of the plans	$	(67,131	)	$	(61,325	)
Unrecognized net actuarial loss	77,514			66,975
Prepaid benefit cost	$	10,383		$	5,650

The accumulated benefit obligation for both pension plans was $174.1 million and $170.0 million at April 30, 2016 and 2015, respectively.



	PENSION BENEFITS
(in thousands)	2016			2015			2014

COMPONENTS OF NET PERIODIC PENSION BENEFIT COST
Interest cost	$	7,014		$	6,466		$	6,203
Expected return on plan assets	(8,142		)	(7,666		)	(7,113		)
Recognized net actuarial loss	1,412			865			1,129
Pension benefit cost	$	284		$	(335	)	$	219

The components of net periodic pension benefit cost do not include service costs or prior service costs due to the plans being frozen.

Actuarial Assumptions: The discount rate at April 30 was used to measure the year-end benefit obligations and the earnings effects for the subsequent year. Actuarial assumptions used to determine benefit obligations and earnings effects for the pension plans follow:



	FISCAL YEARS ENDED APRIL 30
	2016	2015

WEIGHTED-AVERAGE ASSUMPTIONS TO DETERMINE BENEFIT OBLIGATIONS
Discount rate	4.06 %	4.19 %



	FISCAL YEARS ENDED APRIL 30
	2016	2015	2014

WEIGHTED-AVERAGE ASSUMPTIONS TO DETERMINE NET PERIODIC PENSION BENEFIT COST
Discount rate	4.19 %	4.56 %	4.21%
Expected return on plan assets	7.5 %	7.5 %	7.5 %

The Company bases the discount rate on a current yield curve developed from a portfolio of high-quality fixed-income investments with maturities consistent with the projected benefit payout period. The long-term rate of return on assets is determined based on consideration of historical and forward-looking returns and the current and expected asset allocation strategy.

Beginning with the April 30, 2016 measurement, the Company refined the method used to determine the service and interest cost components of its net periodic benefit cost. Previously, the cost was determined using a single weighted-average discount rate derived from the yield curve. Under the refined method, known as the spot rate approach, individual spot rates along the yield curve that correspond with the timing of each benefit payment will be used. The Company believes this change provides a more precise measurement of service and interest costs by improving the correlation between projected cash outflows and corresponding spot rates on the yield curve. Compared to the previous method, the spot rate approach will decrease the service and interest components of the benefit costs in fiscal 2017. There is no impact on the total benefit obligation. The Company will account for this change prospectively as a change in accounting estimate.

In developing the expected long-term rate of return assumption for the assets of the defined benefit pension plans, the Company evaluated input from its third party pension plan asset managers, including their review of asset class return expectations and long-term inflation assumptions.

The Company amortizes experience gains and losses, as well as the effects of changes in actuarial assumptions and plan provisions, over the average remaining lifetime of the active participants.

Contributions: The Company funds the pension plans in amounts sufficient to meet minimum funding requirements under applicable employee benefit and tax laws plus additional amounts the Company deems appropriate.

The Company expects to contribute $7.3 million to its pension plans in fiscal 2017. The Company made contributions of $5.0 million and $4.3 million to its pension plans in fiscal 2016 and 2015, respectively.

Estimated Future Benefit Payments: The following benefit payments, which reflect expected future service, are expected to be paid:



FISCAL YEAR	BENEFIT PAYMENTS (in thousands)

2017	$	5,547
2018	5,903
2019	6,334
2020	6,696
2021	7,147
Years 2022-2026	41,024

Plan Assets: Pension assets by major category and the type of fair value measurement as of April 30, 2016 and 2015 are presented in the following tables:



FAIR VALUE MEASUREMENTS AT APRIL 30, 2016
(in thousands)	TOTAL		QUOTED PRICES IN ACTIVE MARKETS (LEVEL 1)		SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Cash Equivalents	$	10	$	10	$	—	$	—
Equity Funds:
Mutual Fund Equity	61,338		61,338		—		—
Fixed Income Funds:
Mutual Fund Tax Income	27,681		27,681		—		—
Common and Collective Funds:¹
Capital Preservation Fund	17,936		—		17,936		—
Total	$	106,965	$	89,029	$	17,936	$	—



FAIR VALUE MEASUREMENTS AT APRIL 30, 2015
(in thousands)	TOTAL		QUOTED PRICES IN ACTIVE MARKETS (LEVEL 1)		SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Cash Equivalents	$	8	$	8	$	—	$	—
Equity Funds:
Mutual Fund Equity	62,533		62,533		—		—
Fixed Income Funds:
Mutual Fund Tax Income	28,408		28,408		—		—
Common Collective Funds:¹
Capital Preservation Fund	17,712		—		17,712		—
Total	$	108,661	$	90,949	$	17,712	$	—

¹The Collective Trust Funds are valued by applying each plan's ownership percentage in the fund to the fund's net assets at fair value at the valuation date.

Investment Strategy: The Company has established formal investment policies for the assets associated with its pension plans. The objectives of the investment strategies include preservation of capital and long-term growth of capital while avoiding excessive risk. Target allocation percentages are established at an asset class level by the Company’s Pension Committee. Target allocation ranges are guidelines, not limitations, and the Pension Committee may approve allocations above or below a target range.

During a period of uncertainty in the equity and fixed income markets, the Pension Committee may suspend the Target Asset Allocation and manage the investment mix as it sees reasonable, prudent and in the best interest of the plans to better protect the value of the plan assets.

The Company’s pension plans’ weighted-average asset allocations at April 30, 2016 and 2015, by asset category, were as follows:



	PLAN ASSET ALLOCATION
	2016	2016	2015
APRIL 30	TARGET	ACTUAL	ACTUAL

Equity Funds	50.0 %	57.0 %	58.0 %
Fixed Income Funds	50.0 %	43.0 %	42.0 %
Total	100.0 %	100.0 %	100.0 %

Within the broad categories outlined in the preceding table, the Company has the following specific allocations as a percentage of total funds invested: 17% Capital Preservation, 26% Bond and 57% Equity.