18. Retirement Plans

Defined Contribution Plans

The Company and its subsidiaries sponsor several retirement plans that are primarily 401(k) defined contribution plans covering nonunion associates and certain union associates. The Company does not contribute to all of the plans. In accordance with those plan provisions, the Company matches 100% of a participant’s pretax payroll contributions, up to a maximum of 3% of such participant’s pretax annual compensation. Thereafter, the Company will match 50% of the participant’s additional pretax payroll contributions, up to a maximum of 2% of such participant’s additional pretax annual compensation. Total expense recognized for the above plans was $44,564 in fiscal 2019, $67,949 in fiscal 2018 and $68,393 in fiscal 2017.

The Company sponsors a Supplemental Executive Retirement Plan (“SERP”) for its officers, based on an account-based plan design, that is subject to a five year graduated vesting schedule. The expense recognized for the SERP was $4,913 in fiscal 2019, $12,426 in fiscal 2018 and $16,921 in fiscal 2017.

The Company elected on February 25, 2019 to eliminate the SERP. In conjunction with this action, all plan participants will be 100% vested in their benefits and no additional allocations will be made to participant accounts in the future. Participant benefits under this program will be paid out in full on or after February 24, 2020 in accordance with applicable government regulations regarding these programs.

Defined Benefit Plans

The Company and its subsidiaries also sponsor a qualified defined benefit pension plan that requires benefits to be paid to eligible associates based upon years of service and, in some cases, eligible compensation. The Company’s funding policy for The Rite Aid Pension Plan (the “Defined Benefit Pension Plan”) is to contribute the minimum amount required by the Employee Retirement Income Security Act of 1974. However, the Company may, at its sole discretion, contribute additional funds to the plan. The Company made contributions of $2,715 in fiscal 2019, $9,023 in fiscal 2018 and $0 in fiscal 2017.

Net periodic pension expense and other changes recognized in other comprehensive income for the defined benefit pension plans included the following components:


	Defined Benefit Pension Plan
	2019		2018		2017
Service cost	$	597	$	1,212	$	1,291
Interest cost		6,159		6,340		6,634
Expected return on plan assets		(5,673)		(4,525)		(4,512)
Amortization of unrecognized prior service cost		—		—		—
Amortization of unrecognized net loss (gain)		1,769		3,393		5,085
Net pension expense	$	2,852	$	6,420	$	8,498
Other changes recognized in other comprehensive loss:
Unrecognized net (gain) loss arising during period	$	(3,486)	$	(8,704)	$	(3,979)
Prior service cost arising during period		—		—		—
Amortization of unrecognized prior service costs		—		—		—
Amortization of unrecognized net (loss) gain		(1,769)		(3,393)		(5,085)
Net amount recognized in other comprehensive loss		(5,255)		(12,097)		(9,064)
Net amount recognized in pension expense and other comprehensive loss	$	(2,403)	$	(5,677)	$	(566)

The table below sets forth reconciliation from the beginning of the year for both the benefit obligation and plan assets of the Company’s defined benefit plans, as well as the funded status and amounts recognized in the Company’s balance sheet as of March 2, 2019 and March 3, 2018:


	Defined Benefit
	Pension Plan
	2019		2018
Change in benefit obligations:
Benefit obligation at end of prior year	$	161,851	$	164,349
Service cost		597		1,212
Interest cost		6,159		6,340
Distributions		(8,816)		(7,963)
Change due to change in assumptions		—		—
Actuarial loss (gain)		(9,086)		(2,087)
Benefit obligation at end of year	$	150,705	$	161,851
Change in plan assets:
Fair value of plan assets at beginning of year	$	130,860	$	118,658
Employer contributions		2,715		9,023
Actual return on plan assets		72		11,142
Distributions (including expenses paid by the plan)		(8,815)		(7,963)
Fair value of plan assets at end of year	$	124,832	$	130,860
Funded status	$	(25,873)	$	(30,991)
Net amount recognized	$	(25,873)	$	(30,991)
Amounts recognized in consolidated balance sheets consisted of:
Prepaid pension cost	$	—	$	—
Accrued pension liability		(25,873)		(30,991)
Net amount recognized	$	(25,873)	$	(30,991)
Amounts recognized in accumulated other comprehensive loss consist of:
Net actuarial loss	$	(27,409)	$	(32,664)
Prior service cost		—		—
Amount recognized	$	(27,409)	$	(32,664)

The estimated net actuarial loss and prior service cost amounts that will be amortized from accumulated other comprehensive loss into net periodic pension expense in fiscal 2020 are $1,661 and $0, respectively.

The accumulated benefit obligation for the defined benefit pension plan was $150,705 and $161,851 as of March 2, 2019 and March 3, 2018, respectively.

The significant actuarial assumptions used for all defined benefit plans to determine the benefit obligation as of March 2, 2019, March 3, 2018 and March 4, 2017 were as follows:


	Defined Benefit
	Pension Plan
	2019		2018		2017
Discount rate	4.25	%	4.00	%	4.00	%
Rate of increase in future compensation levels	N/A		N/A		N/A
Expected long-term rate of return on plan assets	6.25	%	6.25	%	6.50	%

Weighted average assumptions used to determine net cost for the fiscal years ended March 2, 2019, March 3, 2018 and March 4, 2017 were:


	Defined Benefit
	Pension Plan
	2019		2018		2017
Discount rate	4.00	%	4.00	%	4.25	%
Rate of increase in future compensation levels	N/A		N/A		N/A
Expected long-term rate of return on plan assets	6.25	%	6.50	%	6.50	%

To develop the expected long‑term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 6.25% long‑term rate of return on plan assets assumption for fiscal 2019, 2018 and 2017.

The Company’s pension plan asset allocations at March 2, 2019 and March 3, 2018 by asset category were as follows:


	March 2,		March 3,
	2019		2018
Equity securities	52	%	53	%
Fixed income securities	48	%	47	%
Total	100	%	100	%

The investment objectives of the Defined Benefit Pension Plan, the only defined benefit plan with assets, are to:

Achieve a rate of return on investments that exceeds inflation over a full market cycle and is consistent with actuarial assumptions;

Balance the correlation between assets and liabilities by diversifying the portfolio among various asset classes to address return risk and interest rate risk;

Balance the allocation of assets between the investment managers to minimize concentration risk;

Maintain liquidity in the portfolio sufficient to meet plan obligations as they come due; and

Control administrative and management costs.

The asset allocation established for the pension investment program reflects the risk tolerance of the Company, as determined by:

the current and anticipated financial strength of the Company;

the funded status of the plan; and

plan liabilities.

Investments in both the equity and fixed income markets will be maintained, recognizing that historical results indicate that equities (primarily common stocks) have higher expected returns than fixed income investments. It is also recognized that the correlation between assets and liabilities must be balanced to address higher volatility of equity investments (return risk) and interest rate risk.

The following targets are to be applied to the allocation of plan assets.


	Target
Category	Allocation
U.S. equities	39	%
International equities	13	%
U.S. fixed income	48	%
Total	100	%

The Company expects to contribute $0 to the Defined Benefit Pension Plan during fiscal 2020.

Common and Collective Trusts

Common collective trust funds are stated at fair value as determined by the issuer of the common collective trust funds based on the net asset value (“NAV”) of the underlying investments in accordance with ASC 820. There are generally no restrictions on redemptions from these funds and no unfunded commitments to invest. In accordance with ASC subtopic 820-10, certain investments that were measured at NAV per shared (or its equivalent) have not been classified in the fair value hierarchy. The underlying investments mainly consist of equity and fixed income securities funds that are valued based on the daily closing price as reported by the fund.

The proceeding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at March 2, 2019.

The following table sets forth by level within the fair value hierarchy a summary of the plan’s investments measured at fair value on a recurring basis as of March 2, 2019 and March 3, 2018:


	Fair Value Measurements at March 2, 2019
	Quoted Prices in
	Active Markets		Significant		Significant
	for Identical		Observable		Unobservable
	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Equity Securities
International equity	$	—	$	—	$	—	$	15,396
Large Cap		—		—		—		34,058
Small-Mid Cap		—		—		—		14,534
Fixed Income
Long Term Credit Bond Index		—		—		—		44,103
Long Term US Government Bonds		—		—		—		8,383
20+ Year Treasury STRIPS		—		—		—		847
Intermediate Fixed Income		—		—		—		5,920
Other types of investments
Short Term Investments		—		—		—		1,591
Total	$	—	$	—	$	—	$	124,832


	Fair Value Measurements at March 3, 2018
	Quoted Prices in
	Active Markets		Significant		Significant
	for Identical		Observable		Unobservable
	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Equity Securities
International equity	$	—	$	—	$	—	$	18,043
Large Cap		—		—		—		35,491
Small-Mid Cap		—		—		—		15,510
Fixed Income
Long Term Credit Bond Index		—		—		—		46,222
Long Term US Government Bonds		—		—		—		8,070
20+ Year Treasury STRIPS		—		—		—		1,168
Intermediate Fixed Income		—		—		—		5,617
Other types of investments
Short Term Investments		—		—		—		739
Total	$	—	$	—	$	—	$	130,860

Following are the future benefit payments expected to be paid for the Defined Benefit Pension Plan during the years indicated:


	Defined Benefit
Fiscal Year	Pension Plan
2020	$	8,690
2021		8,844
2022		8,999
2023		9,005
2024		9,213
2025 - 2029		45,903
Total	$	90,654

Other Plans

The Company participates in various multi‑employer union pension plans that are not sponsored by the Company. Total expenses recognized for the multi‑employer plans were $23,499 in fiscal 2019, $20,979 in fiscal 2018 and $21,336 in fiscal 2017.