Employee Benefit and Retirement Plans

Retirement Savings Plans

American Woodmark

In fiscal 1990, the Company instituted the American Woodmark Investment Savings Stock Ownership Plan and 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% of net income, 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 $3.7 million, $3.6 million and $2.9 million in fiscal years 2018, 2017 and 2016, respectively.

The Company matches 100% of an employee’s annual 401(k) contributions to the plan up to 4% of annual compensation.

RSI

The Company has a defined-contribution 401(k) profit sharing plan (“401(k) plan”) for all non-union employees. Employees are eligible to contribute to the 401(k) plan 60 days after starting employment. Under the 401(k) plan, employees may contribute up to 60 percent of their compensation, subject to an annual contribution limit prescribed by the Internal Revenue Service. The Company has elected to make safe harbor matching contributions of up to four percent of each participant’s eligible compensation. The Company’s safe harbor contributions vest immediately.

The expense for 401(k) matching contributions for both plans was $8.0 million, $7.2 million and $6.6 million, in fiscal years 2018, 2017 and 2016, 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, 2018 is $66.1 million ($49.1 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 $1.6 million ($1.2 million net of tax) in net actuarial losses in net periodic pension benefit costs during fiscal 2019. 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)	2018		2017
CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation at beginning of year	$	165,173	$	174,096
Interest cost	5,727		5,772



	APRIL 30
(in thousands)	2018			2017
CHANGE IN PROJECTED BENEFIT OBLIGATION
Actuarial gains	(2,596		)	(4,672		)
Benefits paid	(4,881		)	(10,023		)
Projected benefit obligation at end of year	$	163,423		$	165,173

CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year	$	137,141		$	106,965
Actual return on plan assets	4,884			12,895
Company contributions	19,319			27,304
Benefits paid	(4,881		)	(10,023		)
Fair value of plan assets at end of year	$	156,463		$	137,141

Funded status of the plans	$	(6,960	)	$	(28,032	)

The accumulated benefit obligation for both pension plans was $163.4 million and $165.2 million at April 30, 2018 and 2017, respectively.



	APRIL 30
(in thousands)	2018			2017			2016

COMPONENTS OF NET PERIODIC PENSION BENEFIT COST
Interest cost	$	5,727		$	5,772		$	7,014
Expected return on plan assets	(8,936		)	(8,079		)	(8,142		)
Recognized net actuarial loss	1,601			1,771			1,412
Pension benefit cost	$	(1,608	)	$	(536	)	$	284

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
	2018	2017

WEIGHTED-AVERAGE ASSUMPTIONS TO DETERMINE BENEFIT OBLIGATIONS
Discount rate	4.18 %	4.12 %



	FISCAL YEARS ENDED APRIL 30
	2018	2017	2016

WEIGHTED-AVERAGE ASSUMPTIONS TO DETERMINE NET PERIODIC PENSION BENEFIT COST
Discount rate	4.12 %	4.06 %	4.19%
Expected return on plan assets	6.5 %	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 decreased the service and interest components of the benefit costs in fiscal 2017. There was no impact on the total benefit obligation. The Company accounted 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 $2.3 million to its pension plans in fiscal 2019. The Company made contributions of $19.3 million and $27.3 million to its pension plans in fiscal 2018 and 2017, respectively.

Estimated Future Benefit Payments: The following benefit payments are expected to be paid:



FISCAL YEAR	BENEFIT PAYMENTS (in thousands)

2019	$	6,251
2020	6,625
2021	7,037
2022	7,395
2023	7,768
Years 2024-2028	43,988

Plan Assets: Pension assets by major category and the type of fair value measurement as of April 30, 2018 and 2017 are presented in the following tables:



FAIR VALUE MEASUREMENTS AT APRIL 30, 2018

(in thousands)	TOTAL		QUOTED PRICES IN ACTIVE MARKETS (LEVEL 1)		SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)	SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Cash Equivalents	$	448	$	448	—	—
Equity Funds:
US Equity	37,421		37,421		—	—
International Equity	25,135		25,135		—
Fixed Income Funds:
Investment Grade Fixed Income	93,459		93,459		—	—
Total plan assets	$	156,463	$	156,463	—	—



FAIR VALUE MEASUREMENTS AT APRIL 30, 2017
FAIR VALUE MEASUREMENTS AT	FAIR VALUE MEASUREMENTS AT		FAIR VALUE MEASUREMENTS AT	FAIR VALUE MEASUREMENTS AT		FAIR VALUE MEASUREMENTS AT	FAIR VALUE MEASUREMENTS AT	FAIR VALUE MEASUREMENTS AT	FAIR VALUE MEASUREMENTS AT
(in thousands)	TOTAL			QUOTED PRICES IN ACTIVE MARKETS (LEVEL 1)			SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Cash Equivalents	$	295		$	295		—		—
Equity Funds:
Mutual Fund Equity	78,335			78,335			—		—
Fixed Income Funds:
Mutual Fund Tax Income	45,290			45,290			—		—
Plan assets at fair value	123,920			$	123,920		—		—

Common Collective Funds:
Capital Preservation Fund¹	13,221
Total plan assets	$	137,141

¹As discussed in Note A, investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have been removed from the total plan assets in the fair value hierarchy.

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, 2018 and 2017, by asset category, were as follows:



	PLAN ASSET ALLOCATION
	2018	2018	2017
APRIL 30	TARGET	ACTUAL	ACTUAL

Equity Funds	40.0 %	40.0 %	57.0 %
Fixed Income Funds	60.0 %	60.0 %	43.0 %
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: 60% Bond and 40% Equity.