Employee Retirement Benefit Plans

6 Months Ended

Jun. 28, 2013

Notes

Employee Retirement Benefit Plans

4.         EMPLOYEE RETIREMENT BENEFIT PLANS

Distress Termination of Pension Plan

On January 7, 2013, the Company submitted a PBGC Form 600 Distress Termination, Notice of Intent to Terminate, to the PBGC. The notice filing initiates an application process by the Company with the PBGC for the distress termination of the pension plan. The pension plan is a defined benefit pension plan sponsored by the Company whose benefits are guaranteed by the ERISA Title IV insurance fund, which is administered by the PBGC.  In the application process, the Company intends to demonstrate to the PBGC that it qualifies for a distress termination of the pension plan under either of two of the criteria of Section 4041(c)(2) of ERISA (inability to continue in business absent termination and unreasonably increased pension costs) and applicable PBGC regulations. To satisfy the criteria, the Company and its wholly owned subsidiary each must demonstrate to the satisfaction of the PBGC that, unless the termination occurs, the Company will be unable to pay its debts when they come due and will be unable to continue in business, or that the costs of the pension plan have become unreasonably burdensome solely as a result of a decline in the workforce covered by the Plan. A distress termination under Section 4041(c)(2) of ERISA would transfer the pension plan’s benefit obligations to the PBGC, up to ERISA guaranteed limits, without requiring reorganization under bankruptcy law. The pension plan’s actuary has informed the Company that following termination of the Plan and subject to the PBGC’s review of participant benefits, all of the benefits earned by participants as of the date of plan termination are expected to fall within ERISA guaranteed limits.

The unfunded pension and retirement obligation of the pension plan, as reported on the Company’s financial statements was $28,087 as of June 28, 2013. The Company believes business operations could produce adequate funds to meet the contributions to the pension plan trust in sufficient amounts to satisfy regulatory funding standards through the first six months of 2014 but has stopped making such contributions beginning in October 2012 in order to maintain adequate working capital levels for business operations through 2014. The Company also believes it will not be able to continue to meet the estimated contributions to the pension plan trust required to satisfy regulatory funding standards through the end of 2014, as well as the total contributions that will be required beyond 2014 to satisfy the total pension plan obligation.

If the distress termination application is approved by the PBGC, the PBGC will take possession of the assets in the pension plan trust and pay future pension plan benefits beginning upon trusteeship of the pension plan, up to ERISA guaranteed limits. In this event, the Company’s unfunded obligation of the pension plan would be replaced by a new pension plan termination liability to the PBGC, determined by the pension plan’s underfunding on a termination basis pursuant to ERISA, PBGC regulations, and other applicable legal authority, along with an ERISA special termination premium.  The Company would also be liable for any unpaid contributions to the pension plan (which in substance is a subset of plan termination liability) and annual insurance premiums for the pension plan, along with any interest and penalties. While the full pension plan termination and other pension related liabilities to the PBGC would likely be greater than the unfunded obligation of the pension plan as currently reported in the Company’s financial statements, the Company will seek to negotiate a settlement of such liabilities on terms that are feasible for the Company to continue in business as a going concern, which is consistent with the purposes of the statute.

The Company’s goal in seeking a distress termination of the pension plan is to ensure that the pension benefits of all pension plan participants are paid up to federally guaranteed limits and that the Company continues to operate as a going concern while avoiding the costly damage and disruption to the business which would result from bankruptcy reorganization. The Company has proposed a termination date of March 8, 2013 and intends to pursue a conclusion of the process and settlement with the PBGC of any resulting liabilities as quickly as feasible.  The proposed termination date that was selected was the earliest possible date that was legally available as determined by the date of notification provided to participants and beneficiaries and the PBGC that an application was being filed with the PBGC to terminate the Plan.  The proposed date of plan termination, if adopted by the PBGC, would be the effective date upon which the Plan ended. The Company is unable to determine the timing or the ultimate outcome as of the date of this filing.

Employer Contributions

Through September 15, 2012, the Company’s funding policy was to contribute to the pension plan trust amounts sufficient to satisfy regulatory funding standards, based upon independent actuarial valuations. Beginning in October 2012, the Company discontinued this policy in order to preserve the necessary liquidity to sustain the business through 2014.  Payments of future contributions to satisfy regulatory funding standards likely will be affected by the application process to the PBGC for the distress termination of the pension plan.

Independent actuarial valuations have determined that contributions before additional interest, totaling $2,077 are due through the end of 2013 in order to satisfy regulatory funding standards. By the Company’s not making the contributions to satisfy regulatory funding standards where periodically required unpaid contributions plus interest exceed $1,000, by operation of law a lien arises against the assets of the Company.   On July 15, 2013, the aggregate unpaid contributions with interest reached approximately $1,410, requiring a payment of over $410 as of that date for unpaid contributions to stay under the $1,000 threshold and avoid a lien. The Company chose not to make the payment in order to preserve liquidity for the operation of the business. As a result, the PBGC is entitled by law to enforce the lien that has arisen. The amounts secured by the lien increase and are subject to updated filings if there are additional future unpaid contributions. The Company’s legal counsel has advised that the PBGC typically files tax lien notices to perfect such liens and, in discussions with the Company’s legal counsel, the PBGC has indicated that it plans to perfect the lien that has arisen as of July 15, 2013. The Company’s legal counsel has also advised that the PBGC usually does not take any additional enforcement action while it is still considering the application for the distress termination; however, there can be no assurance that the PBGC will not take additional action to enforce the lien. 

The Company is not currently required to fund the Supplemental Executive Retirement Plan (SERP).  All benefit payments are made by the Company directly to those who receive benefits from the SERP.  As such, these payments are treated as both contributions and benefits paid for reporting purposes. The Company expects to contribute and pay SERP benefits of approximately $485 in the next 12 months.

Components of Net Periodic Benefit Expense

	Pension Plan		Supplemental Executive Retirement Plan
For the three months ended:	June 28, 2013	June 29, 2012	June 28, 2013	June 29, 2012
Service cost	-	-	-	-
Interest cost	398	467	41	52
Expected return on assets	(460)	(454)	-	-
Amortization of actuarial loss	177	170	17	14
Amortization of prior year service cost	-	-	(12)	(12)
Settlement charge	-	317	-	-
Net periodic benefit expense	$115	$500	$46	$54

	Pension Plan		Supplemental Executive Retirement Plan
For the six months ended:	June 28, 2013	June 29, 2012	June 28, 2013	June 29, 2012
Service cost	-	-	-	-
Interest cost	796	933	82	104
Expected return on assets	(920)	(907)	-	-
Amortization of actuarial loss	354	341	34	28
Amortization of prior year service cost	-	-	(24)	(24)
Settlement charge	-	634	-	-
Net periodic benefit expense	$230	$1,001	$92	$108

Pension expense for the six-month period ended June 28, 2013 included net periodic benefit expense of $230 for the pension, $92 for the SERP and an additional $47 of insurance premium due to the PBGC. For the three- and six- month periods ended June 28, 2013, the Company reclassified $182 and $364 of actuarial loss from accumulated other comprehensive loss, respectively, that was included in pension expense on the statement of comprehensive loss for the same periods.