Note 10 - Retirement plans

Pension plan

The defined benefit plan that covered Winchester filtration hourly rated employees was frozen on June 30, 2013 per the third Amendment to the Plan dated May 15, 2013. The accrued benefit of each participant was frozen as of the freeze date, and no further benefits shall accrue with respect to any service or hours of service after the freeze date. The benefits are based on fixed amounts multiplied by years of service of participants. The Company engages outside actuaries to calculate its obligations and costs. The funding policy is to contribute such amounts as are necessary to provide for benefits attributed to service to date. The amounts contributed to the plan are sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974.

Asset allocation

The plans hold no securities of Perma-Pipe International Holdings, Inc.; 100% of the assets are held for benefits under the plan. The fair value of the major categories of the pension plans' investments are presented below. The FASB has established a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 - Inputs that are both significant to the fair value measurement and unobservable.



Level 1 market value of plan assets	2016	2015
Equity securities	$3,000	$3,062
U.S. bond market	2,188	2,168
Real estate securities	214	—
Subtotal	5,402	5,230
Level 2 significant other observable inputs
Money market fund	$306	$351
Equity securities	520	302
Subtotal	826	653
Total	$6,228	$5,883

On January 31, 2017, plan assets were held 64% in equity, 33% in debt and 3% in other. The investment policy is to invest all funds not needed to pay benefits and investment expenses for the year, with target asset allocations of 55% equities (with a range of 40% - 65%), 25% fixed income (with a range of 20% - 35%) and 20% Alternative Investments (with a range of 15% - 25%), diversified across a variety of sub-asset classes and investment styles, following a flexible asset allocation approach that will allow the plan to participate in market opportunities as they become available. The expected long-term rate of return on assets is based on historical long-term rates of equity and fixed income investments and the asset mix objective of the funds.

Investment market conditions in 2016 resulted in $0.7 million actual gain on plan assets as presented below, which increased the fair value of plan assets at year end. The Company did not change its 8% expected return on plan assets used in determining cost and benefit obligations, which is the return that the Company has assumed during every profitable and unprofitable investment year since 1991. The plan's investments are intended to earn long-term returns to fund long-term obligations, and investment portfolios with asset allocations similar to those of the plan's investment policy have attained such returns over several decades. Future contributions that may be necessary to maintain funding requirements are not expected to materially affect the Company's liquidity.



Reconciliation of benefit obligations, plan assets and funded status of plan	2016		2015
Accumulated benefit obligations
Vested benefits	$6,500		$6,587
Accumulated benefits	$6,500		$7,020

Change in benefit obligation
Benefit obligation - beginning of year	$7,020		$8,129
Interest cost	278		266
Actuarial gain	(493	)	(1,115	)
Benefits paid	(305	)	(260	)
Benefit obligation - end of year	$6,500		$7,020

Change in plan assets
Fair value of plan assets - beginning of year	$5,883		$6,168
Actual gain (loss) on plan assets	650		(25	)
Benefits paid	(305	)	(260	)
Fair value of plan assets - end of year	$6,228		$5,883

Unfunded status	$(272)		$(1,137)

Balance sheet classification
Prepaid expenses and other current assets	$348		$326
Other assets	1,201		1,166
Deferred compensation liabilities	(1,821	)	(2,629	)
Net amount recognized	$(272)		$(1,137)

Amounts recognized in accumulated other comprehensive loss
Unrecognized actuarial loss	$1,472		$2,303
Net amount recognized	$1,472		$2,303



Weighted-average assumptions used to determine net cost and benefit obligations	2016		2015
End of year benefit obligation discount rate	4.00	%	4.05	%
Service cost discount rate	4.05	%	3.35	%
Expected return on plan assets	8.00	%	8.00	%

The discount rate was based on a Citigroup pension discount curve of high quality fixed income investments with cash flows matching the plans' expected benefit payments. The Company determines the expected long-term rate of return on plan assets by performing a detailed analysis of historical and expected returns based on the strategic asset allocation approved by the Board of Directors and the underlying return fundamentals of each asset class. The Company's historical experience with the pension fund asset performance is also considered.



Components of net periodic benefit cost	2016	2015
Interest cost	$278	$266
Expected return on plan assets	(458)	(479)
Recognized actuarial loss	146	210
Net periodic benefit income	($34)	($3)



Amounts recognized in other comprehensive income
Actuarial loss on obligation	$493	$1,115
Actual loss (gain) on plan assets	338	(294	)
Total in other comprehensive income	$831	$821
Other comprehensive income is also affected by the tax effect of the valuation allowance recorded on the domestic deferred tax assets.



Cash flows
Expected employer contributions for the fiscal year ending January 31, 2018		$—
Expected employee contributions for the fiscal year ending January 31, 2018	—
Estimated future benefit payments reflecting expected future service for the fiscal year(s) ending January 31,:
2018	348
2019	345
2020	347
2021	342
2022	347
2023 - 2027	$1,733

401(k) plan

The domestic employees of the Company participate in the MFRI 401(k) Employee Savings Plan, which is applicable to all employees except employees covered by collective bargaining agreement benefits. The plan allows employee pretax payroll contributions of up to 16% of total compensation. The Company matches 50% of each participant's contribution, up to a maximum of 3.5% of each participant's salary.

Contributions to the 401(k) plan were $0.4 million and $0.6 million for the years ended January 31, 2017 and 2016, respectively.

Multi-employer plans

The Company contributes to a multi-employer plan for certain collective bargaining U.S. employees. The risks of participating in this multi-employer plan are different from a single employer plan in the following aspects:


•	Assets contributed to the multi-employer plans by one employer may be used to provide benefits to employees of other participating employers.


•	If a participating employer ceases contributing to the plan, the unfunded obligations of the plan may be inherited by the remaining participating employers.


•	If the Company chooses to stop participating in the multi-employer plan, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Company has assessed and determined that the multi-employer plans to which it contributes are not significant to the Company's consolidated financial statements. The Company does not expect to incur a withdrawal liability or expect to significantly increase its contribution over the remainder of the contract period. The Company made contributions to the bargaining unit supported multi-employer pension plans.



			Funded Zone Status	FIP/RP Status Pending/Implemented	Contribution
Plan Name	EIN	Plan #	Funded Zone Status	FIP/RP Status Pending/Implemented	2016	2015	Surcharge Imposed	Collective Bargaining Expiration Date
Plumbers & Pipefitters Local 572 Pension Fund	626102837	001	Green	No	257	233	No	3/31/2019