Note 9—Benefits and Pension Plans

401(k) Plans

The Company has a defined contribution plan adopted pursuant to section 401(k) of the Internal Revenue Code of 1986. Any qualified employee who has attained age 21 and has been employed by the Company for at least six months may contribute a portion of his or her salary to the plan and the Company will match 100% of the first one percent of salary contributed and 50% thereafter, up to an amount equal to three and one-half percent of such employee’s annual salary.

Through our wholly-owned subsidiary NEPTCO, the Company has two additional 401(k) savings plans, one for union employees and one for nonunion employees. Under these plans, substantially all employees of NEPTCO are eligible to participate by making pre‑tax contributions to these plans. Participants may elect to defer between 1% and 10% of their annual compensation. The Company may contribute $0.75 for each $1.00 of participant deferrals up to 6% of the non‑union participant’s compensation. The Company may match union employee contributions by $0.50 for each $1.00 of participant deferrals up to 6% of the participant’s compensation.

The Company’s contribution expense for all 401(k) plans was $519, $571 and $394 for the years ended August 31, 2017, 2016 and 2015, respectively.

Non-Qualified Deferred Savings Plan

The Company has a non-qualified deferred savings plan covering the Board of Directors and a separate plan covering selected employees. Participants may elect to defer a portion of their compensation for future payment. The plans are funded by trusteed assets that are restricted to the payment of deferred compensation or satisfaction of the Company’s general creditors. The Company’s liability under the plans was $979 and $1,649 at August 31, 2017 and 2016, respectively.

Pension Plans

The Company has noncontributory defined benefit pension plans covering employees of certain divisions of the Company. The Company has a funded, qualified plan (“Qualified Plan”) and an unfunded supplemental plan (“Supplemental Plan”) designed to maintain benefits for certain employees at the plan formula level. The plans provide for pension benefits determined by a participant’s years of service and final average compensation. The Qualified Plan assets consist of separate pooled investment accounts with a trust company. The measurement date for the plans is August 31, 2017.

Effective December 1, 2008, a “soft freeze” in the Qualified Plan was adopted whereby no new employees hired will be admitted to the Qualified Plan, with the exception of employees who are members of the International Association of Machinists and Aerospace Workers Union whose contract was amended in June 2012 to include a soft freeze with an effective date of July 15, 2012. All eligible participants who were admitted to the plan prior to the applicable soft freeze dates will continue to accrue benefits as detailed in the plan agreements.

Through our wholly-owned subsidiary NEPTCO, the Company has a third defined benefit pension plan (“NEPTCO Pension Plan”) covering our union employees at our Pawtucket facility. This plan was frozen effective October 31, 2006, and as a result, no new participants can enter the plan and the benefits of current participants were frozen as of that date. The benefits are based on years of service and the employee’s average compensation during the earlier of five years before retirement, or October 31, 2006. The NEPTCO Pension Plan assets consist of separate pooled investment accounts with a trust company. The measurement date for the NEPTCO Pension Plan is August 31, 2017.

The following tables reflect the status of the Company’s pension plans for the years ended August 31, 2017, 2016 and 2015:


	Year Ended August 31,
	2017		2016		2015
Change in benefit obligation
Projected benefit obligation at beginning of year	$	23,636	$	20,401	$	18,279
Service cost		288		295		349
Interest cost		681		728		678
Assumption change		—		—		40
Actuarial (gain) loss		(533)		2,636		1,762
Settlements		(313)		(376)		(619)
Benefits paid		(1,086)		(48)		(89)
Projected benefit obligation at end of year	$	22,673	$	23,636	$	20,401

Change in plan assets
Fair value of plan assets at beginning of year	$	8,440	$	8,120	$	8,818
Actual return on plan assets		757		422		(296)
Employer contribution		1,205		322		306
Settlements		(313)		(376)		(619)
Benefits paid		(1,086)		(48)		(89)
Fair value of plan assets at end of year	$	9,003	$	8,440	$	8,120

Funded status at end of year	$	(13,670)	$	(15,196)	$	(12,281)


	Year Ended August 31,
	2017		2016		2015
Amounts recognized in consolidated balance sheets
Noncurrent assets	$	566	$	382	$	634
Current liabilities		(1,570)		(15)		(14)
Noncurrent liabilities		(12,666)		(15,563)		(12,901)
Net amount recognized in consolidated balance sheets	$	(13,670)	$	(15,196)	$	(12,281)

Actuarial present value of benefit obligation and funded status
Accumulated benefit obligations	$	21,007	$	22,023	$	18,784
Projected benefit obligations	$	22,673	$	23,636	$	20,401
Plan assets at fair value	$	9,003	$	8,440	$	8,120

Amounts recognized in accumulated other comprehensive income
Prior service cost	$	54	$	57	$	61
Net actuarial loss		9,890		11,561		9,417
Adjustment to pre-tax accumulated other comprehensive income	$	9,944	$	11,618	$	9,478


	Year Ended August 31,
	2017		2016		2015
Other changes in plan assets and benefit obligations recognized in other comprehensive income
Net loss	$	1,277	$	511	$	4,371
Amortization of loss		(895)		(574)		(667)
Supplemental plan assumption change		(2,038)		2,219		(1,667)
Amortization of prior service cost		(3)		(3)		(3)
Effect of settlement on accumulated other comprehensive income		(14)		(13)		(188)
Total recognized in other comprehensive income		(1,673)		2,140		1,846

Net periodic pension cost		1,353		1,097		1,280

Total recognized in net periodic pension cost and other comprehensive income	$	(320)	$	3,237	$	3,126

Estimated amounts that will be amortized from accumulated comprehensive income over the next fiscal year
Prior service cost	$	3	$	3	$	3
Net actuarial loss		485		895		574

Prior service cost arose from the amendment of the plan’s benefit schedules to comply with the Tax Reform Act of 1986 and adoption of the unfunded supplemental pension plan.

Components of net periodic pension cost for the fiscal years ended August 31, 2017, 2016 and 2015 included the following:



	2017		2016		2015
Components of net periodic benefit cost
Service cost	$	288	$	295	$	349
Interest cost		681		728		678
Expected return on plan assets		(528)		(516)		(605)
Amortization of prior service cost		3		3		3
Amortization of accumulated loss		895		574		667
Settlement and curtailment loss		14		13		188
Net periodic benefit cost	$	1,353	$	1,097	$	1,280

Weighted average assumptions used to determine benefit obligations as of August 31, 2017, 2016 and 2015 are as follows:


	2017		2016		2015
Discount rate
Qualified plan	3.30	%	2.90	%	4.16	%
Supplemental plan	2.73	%	2.97	%	3.22	%
NEPTCO plan	2.95	%	2.55	%	4.30	%
Rate of compensation increase
Qualified and Supplemental plan	3.50	%	3.50	%	3.50	%
NEPTCO plan	—	%	—	%	—	%

Weighted average assumptions used to determine net periodic benefit cost for the years ended August 31, 2017, 2016 and 2015 are as follows:


	2017		2016		2015
Discount rate
Qualified plan	2.90	%	4.16	%	3.83	%
Supplemental plan	2.97	%	3.22	%	3.01	%
NEPTCO plan	2.55	%	4.30	%	4.06	%
Expected long-term return on plan assets
Qualified plan	6.50	%	6.50	%	7.00	%
Supplemental plan	—	%	—	%	—	%
NEPTCO plan	6.50	%	6.50	%	7.00	%
Rate of compensation increase
Qualified and Supplemental plan	3.50	%	3.50	%	3.50	%
NEPTCO plan	—	%	—	%	—	%

It is the Company’s policy to evaluate, on an annual basis, the discount rate used to determine the projected benefit obligation to approximate rates on high quality, long-term obligations. The Moody’s Corporate Aa Bond index has generally been used as a benchmark for this purpose, with adjustments made if the duration of the index differed from that of the plan. For periods since August 31, 2008, the discount rate has been determined by matching the expected payouts from the respective plans to the spot rates inherent in the Citigroup Pension Discount Curve. A single rate is then developed, that when applied to the expected cash flows, results in the same present value as determined using the various spot rates. The Company believes that this approach produces the most appropriate approximation of the plan liability.

The Company estimates that each 100-basis point reduction in the discount rate would result in additional net periodic pension cost, the Company’s primary pension obligation, of approximately $51 for the Qualified Plan and $39 for the Supplemental Plan. For the current fiscal year, the NEPTCO Pension Plan expense is insignificant so sensitivity disclosure is not presented. The expected return on plan assets is derived from a periodic study of long-term historical rates of return on the various asset classes included in the Company’s targeted pension plan asset allocation. The Company estimates that each 100-basis point reduction in the expected return on plan assets would result in additional net periodic pension cost of approximately $69 for the Qualified Plan. No rate of return is assumed for the Supplemental Plan since that plan is currently not funded. The rate of compensation increase is also evaluated and is adjusted by the Company, if necessary, periodically.

Qualified Plan Assets

The investment policy for the Qualified Plan is based on ERISA standards for prudent investing. The fundamental goal underlying the investment policy is to ensure that the assets of the plans are invested in a prudent manner to meet the obligations of the plans as these obligations come due. The primary investment objectives include providing a total return which will promote the goal of benefit security by attaining an appropriate ratio of plan assets to plan obligations, to provide for real asset growth while also tracking plan obligations, to diversify investments across and within asset classes, to reduce the impact of losses in single investments, and to follow investment practices that comply with applicable laws and regulations.

The primary policy objectives will be met by investing assets to achieve a reasonable tradeoff between return and risk relative to the plan’s obligations. This includes investing a portion of the assets in funds selected in part to hedge the interest rate sensitivity to plan obligations.

The Qualified Plan assets are invested in a diversified mix of both domestic and foreign equity investments and fixed income securities. Asset manager performance is reviewed at least annually and benchmarked against the peer universe for the given investment style. The Company’s expected return for the Qualified Plan is 6.5%. To determine the expected long‑term rate of return on the assets for the Qualified Plan, the Company considered the historical and expected return on the plan assets, as well as the current and expected allocation of the plan assets.

Asset allocation is monitored on an ongoing basis relative to the established asset class targets. The interaction between plan assets and benefit obligations is periodically studied to assist in the establishment of strategic asset allocation targets. The investment policy permits variances from the targets within certain parameters. Asset rebalancing occurs when the underlying asset class allocations move outside these parameters, at which time the asset allocation is rebalanced back to the policy target weight.

The Qualified Plan has the following target allocation and weighted average asset allocations as of August 31, 2017, 2016 and 2015:


	Target
	Allocation		Percentage of Plan Assets as of August 31,
Asset Category	Range		2017		2016		2015
Equity securities	10-80	%	39	%	46	%	44	%
Debt securities	20-70	%	61	%	54	%	56	%
Other	0-100	%	—	%	—	%	—	%
Total	100	%	100	%	100	%	100	%

NEPTCO Pension Plan Assets

The investment policy for the NEPTCO Pension Plan is based on ERISA standards for prudent investing. The fundamental goal underlying the investment policy is to ensure that the assets of the plans are invested in a prudent manner to meet the obligations of the plan as these obligations come due. The primary investment objectives include maximization of return within reasonable and prudent levels of risk, provision of returns comparable to returns for similar investment options, provision of exposure to a wide range of investment opportunities in various asset classes and vehicles, control administrative and management costs, provision of appropriate diversification within investment vehicles, and govern investment manager’s adherence to stated investment objectives and style.

The NEPTCO Pension Plan assets are invested in a diversified mix of fixed income, and both domestic and foreign equity investments. The ongoing monitoring of investments is a regular and disciplined process and confirms that the criteria remain satisfied. The process of monitoring investment performance relative to specified guidelines is consistently applied.

The Company’s expected return for the NEPTCO Pension Plan is 6.5%. To determine the expected long‑term rate of return on the assets for the NEPTCO Pension Plan, the Company considered the historical and expected return on the plan assets, as well as the current and expected allocation of the plan assets.

The NEPTCO Pension Plan has the following target allocation and weighted average asset allocations as of August 31, 2017, 2016 and 2015:


	Target
	Allocation		Percentage of Plan Assets as of August 31,
Asset Category	Range		2017		2016		2015
Equity securities	10-80	%	43	%	43	%	41	%
Debt securities	20-70	%	51	%	50	%	53	%
Other	0-100	%	6	%	7	%	6	%
Total	100	%	100	%	100	%	100	%

Fair Market Value of Pension Plan Assets

The Company is required to categorize pension plan assets using a three‑tier fair value hierarchy, which classifies the inputs used in measuring fair values. These tiers include: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following table presents the Company’s pension plan assets at August 31, 2017 and 2016 by asset category:


			Fair value measurements at								Fair value measurements at
			August 31, 2017								August 31, 2016
					Significant								Significant
			Quoted prices		other		Significant				Quoted prices		other		Significant
			in active		observable		unobservable				in active		observable		unobservable
	August 31,		markets		inputs		inputs		August 31,		markets		inputs		inputs
	2017		(Level 1)		(Level 2)		(Level 3)		2016		(Level 1)		(Level 2)		(Level 3)
Asset Category
Equity securities	$	3,589	$	3,589	$	—	$	—	$	3,866	$	3,866	$	—	$	—
Debt securities		5,336		5,336		—		—		4,499		4,499		—		—
Other		78		78		—		—		75		75		—		—

Total	$	9,003	$	9,003	$	—	$	—	$	8,440	$	8,440	$	—	$	—

Level 1 Assets: The fair values of the common stocks, corporate bonds and U.S. Government securities included in this tier are based on the closing price reported on the active market where the individual securities are traded.

Estimated Future Benefit Payments

The following pension benefit payments (which include expected future service) are assumed to be paid in each of the following fiscal years based on the participants’ normal retirement age:


Year ending August 31,	Pension Benefits
2018	$	2,395
2019		1,970
2020		1,998
2021		1,916
2022		2,299
2023-2027	$	9,345

The Company contributed $1,205, $322 and $306 to fund its obligations under the pension plans for the years ended August 31, 2017, 2016 and 2015, respectively. The Company plans to make the necessary contributions during fiscal 2018 to ensure its pension plans continue to be adequately funded given the current market conditions, and estimates approximately $1,800 in contributions during fiscal 2018.