NOTE H - PENSION PLANS

As described more fully under Benefit Plans in NOTE A – ACCOUNTING POLICIES, the Company sponsors the Frisch's Restaurants, Inc. Pension Plan, a defined benefit pension plan (DB plan) that was created on May 29, 2012 when two previously sponsored DB plans were merged. The Company also sponsors an unfunded non-qualified

NOTE H - PENSION PLANS (continued)

Supplemental Executive Retirement Plan (SERP) for “highly compensated employees” (HCEs). The accounting for the merged DB plan and the SERP is summarized in the tables that follow.

Recognition of the overfunded or underfunded status of the DB plan is recorded as an asset or liability in the Consolidated Balance Sheet. Funded status is measured as the difference between plan assets at fair value and projected benefit obligations, which includes projections for future salary increases. Actuarial gains and losses, prior service costs or credits and transition obligations, if any, which have not yet been recognized, are recorded in equity as Accumulated Other Comprehensive Income or Loss (AOCI). Such items are amortized on a straight-line basis over the projected average remaining employment service period of active participants expected to benefit under the plan.

The measurement dates in the following tables are May 31, 2015 and May 31, 2014.


	Fiscal Year
	2015		2014

	(in thousands)
Change In Benefit Obligation
Projected benefit obligation at beginning of year	$	39,706	$	41,906
Service cost		1,404		1,622
Interest cost		1,487		1,815
Benefits paid from the plans (including expenses)		(2,344)		(2,261)
Actuarial loss (gain)		777		(3,376)
Projected benefit obligation at end of year	$	41,030	$	39,706
Accumulated benefit obligation at end of year	$	39,532	$	38,057


	Fiscal Year
	2015		2014

	(in thousands)
Change in Plan Assets
Fair value of plan assets at beginning of year (a)	$	37,835	$	33,376
Actual return on plan assets		3,512		4,720
Employer contributions		2,004		2,000
Benefits paid from the plans (including expenses)		(2,344)		(2,261)
Fair value of plan assets at end of year (a)	$	41,007	$	37,835

(a) No portion of plan assets has been invested in shares of the Company’s common stock.

NOTE H - PENSION PLANS (continued)


	Fiscal Year
	2015		2014

	(in thousands)
Reconciliation of Funded Status
Fair value of plan assets	$	41,007	$	37,835
Projected benefit obligations		(41,030)		(39,706)
Funded status at end of year	$	(23)	$	(1,871)
Amount of asset or (liability) recognized at end of year	$	(23)	$	(1,871)


	Fiscal Year
	2015		2014

	(in thousands)
Funded Status Recognized in Consolidated Balance Sheet
Non-current asset (c)	$	293	$	—
Current liability (d)		(316)		(4)
Non-current liability (d)		—		(1,867)
Net amount (asset (obligation)) recognized in the Consolidated Balance Sheet	$	(23)	$	(1,871)

of the DB Plan.

(d) Current liability for Fiscal Year 2015 consists of the unfunded SERP. Fiscal Year 2014 non-current liability

consists of $1,575 in underfunding of the DB plan plus $292 for the unfunded SERP.


	Fiscal Year
	2015		2014

	(in thousands)
Pretax Amounts Recognized In Accumulated Other Comprehensive Income Or Loss (AOCI)
Unrecognized net actuarial loss	$	238	$	353
Unrecognized prior service cost / (credit)		(73)		(80)
Accumulated other comprehensive (income) loss (e)	$	165	$	273

(e) Accumulated contributions were in excess of net periodic benefit cost by $143 as of June 2, 2015. As of June 3, 2014, accumulated net periodic pension cost exceed accumulated contributions by $1,599.

NOTE H - PENSION PLANS (continued)

The estimated amounts that will be amortized from AOCI into net periodic pension cost in Fiscal Year 2016 are as follows:

	Fiscal Year 2016

	(in thousands)

Net actuarial loss	$	53
Prior service cost (credit)		(8)
	$	45

The projected benefit obligation and fair value of plan assets for pension plans with a projected benefit obligation in excess of plan assets at the measurement date were as follows:


	Fiscal Year
	2015		2014

	(in thousands)
Projected benefit obligation at end of year	$	41,030	$	39,706
Fair value of plan assets at end of year		41,007		37,834

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with an accumulated benefit obligation in excess of plan assets at the measurement date were as follows:


	Fiscal Year
	2015		2014

	(in thousands)
Projected benefit obligation at end of year	$	41,030	$	39,706
Accumulated benefit obligation at end of year (f)		39,532		38,057
Fair value of plan assets at end of year		41,007		37,834

(f) Accumulated benefit obligation consists of DB Plan obligations of $39,216 and unfunded SERP obligations of $316. At June 2, 2015, only the SERP had obligations in excess of fair value of plan assets.

NOTE H - PENSION PLANS (continued)


	Fiscal Year
	2015		2014		2013

	(in thousands)
Net Periodic Pension Cost Components
Service cost	$	1,404	$	1,622	$	1,803
Interest cost		1,487		1,815		1,734
Expected return on plan assets		(2,675)		(2,416)		(1,995)
Amortization of prior service cost		(8)		(8)		(8)
Amortization of net actuarial loss		55		850		1,713
Net periodic pension cost (g)	$	263	$	1,863	$	3,247

(g) Net periodic pension cost for Fiscal Year 2016 is expected to approximate $126.


	Fiscal Year
	2015		2014		2013

	(in thousands)
Changes In Other Comprehensive Income (Pretax)
Changes in plan assets and benefit obligations recognized in other comprehensive income:
Current year actuarial (gain)	$	(60)	$	(5,680)	$	(5,403)

Amounts recognized as a component of net periodic benefit cost:
Amortization of actuarial loss		(55)		(850)		(1,713)
Amortization of prior service costs		8		8		8
Total recognized in other comprehensive (income) loss	$	(107)	$	(6,522)	$	(7,108)

Total recognized in net periodic pension cost and other comprehensive loss (income)	$	156	$	(4,659)	$	(3,861)

NOTE H - PENSION PLANS (continued)


	Fiscal Year
	2015	2014	2013
Weighted Average Assumptions
Discount rate - net periodic pension cost	3.90%	4.40%	4.25%
Discount rate - projected benefit obligation	3.90%	3.90%	4.40%
Rate of compensation increase - net periodic pension cost	2.13%	4.00%	4.00%
Rate of compensation increase - projected benefit obligation	2.07%	2.13%	4.00%
Expected long-term rate of return on plan assets	7.25%	7.25%	7.50%

The discount rate is selected by matching the cash flows of the pension plan to that of a yield curve that provides the equivalent yields on zero-coupon corporate bonds for each maturity. Benefit cash flows due in a particular year can be "settled" theoretically by "investing" them in the zero-coupon bond that matures in the same year. The discount rate is the single rate that produces the same present value of cash flows. The selection of the discount rate represents the equivalent single rate under a broad market AA yield curve (Above Mean Yield Curve) as developed by the Company's actuarial consulting firm. The yield curve is used to set the discount rate assumption using cash flows on an aggregate basis, which is then rounded to the level of the nearest 10 basis points.

The assumption for the expected return on plan assets is selected by using a weighted average of the historical broad market return and the forward looking expected return. Returns are developed based on the plan's target asset allocation (see the table elsewhere in NOTE H - PENSION PLANS ). The historical broad market return assumes the widest period of historical data available for each asset class, as early as 1926 (in some cases) through 2014. Domestic equity securities are allocated equally between large cap and small cap funds, with fixed income securities

allocated equally between long-term corporate/government bonds and intermediate-term government bonds. The model for the forward looking expected return uses a range of expected outcomes over a number of years based on the plan's asset allocation as noted above and assumptions about the return, variance, and co-variance for each asset class. The historical and forward looking returns are adjusted to reflect a 0.20 percent investment expense assumption representative of passive investments. The weighted average of the historical broad market return and the forward looking expected return is rounded to the level of the nearest 25 basis points to determine the overall expected return on assets. The expected rate of return has been adjusted to reflect a 7.00 percent return for Fiscal Year 2016, down from 7.25 percent for Fiscal Year 2015.

The following table shows the estimated future benefit payments for the DB plans and the SERP:

Expected Benefit Payments	(in thousands)
Fiscal Year 2016	$	2,914
Fiscal Year 2017		2,780
Fiscal Year 2018		2,510
Fiscal Year 2019		2,854
Fiscal Year 2020		2,744
Next 5 Years 2021 - 2025		15,022

NOTE H - PENSION PLANS (continued)

Investment Policies and Asset Allocation

The objectives of the committee that sets investment policy for pension assets include holding, protecting and investing the assets prudently. The committee has determined that plan assets should be invested using long-term objectives, since the plan is intended to fund current and future benefits for participants and beneficiaries. Equity securities have provided the highest historical return to investors over extended time horizons. Thus, the bulk of the plan assets are targeted to be held in equity securities. Prudent investment strategies also call for a certain portion of the plan assets to be held in fixed return instruments. The committee does not use derivative instruments to re-balance exposures to certain asset classes. Although not prohibited from doing so, the committee has chosen not to invest the plan assets in the common stock of the Company.

Target and actual pension plan asset allocations are summarized as follows:


		Fiscal Year
		2015	2014

Asset Class	Target	(Actual Allocations)
Equity Securities	70%	71%	69%
Fixed income	25%	28%	30%
Cash equivalents	5%	1%	1%
Total	100%	100%	100%

Funding

The Company contributes amounts to the DB plan that are sufficient to satisfy legal funding requirements, plus discretionary tax-deductible amounts that may be deemed advisable. Contributions to the DB plan for Fiscal Year 2016 are currently anticipated at a level of $2,000, which includes amounts to meet minimum legal funding requirements, if any, and potential discretionary contributions. Obligations to participants in the SERP are satisfied in the form of a lump sum distribution upon the retirement of the participants. A payment of approximately $319 from the SERP is currently anticipated for Fiscal Year 2016.

Future funding of the DB plan largely depends upon the performance of investments that are held in the trust that has been established for the plan.

Plan Assets at Fair Value

Fair value measurements are used for recording the assets of the DB plan. Fair value is defined as the exchange price that would be received for an asset in its principal market in an orderly transaction between market participants on the measurement date. Assets of the plan are grouped into a three-level hierarchy for valuation techniques used to measure the fair values of the assets. These levels are:

Level 1 – Quoted prices in active markets for identical assets.

NOTE H - PENSION PLANS (continued)

Level 2 – Observable inputs other than Level I prices, such as quoted prices for similar assets; quotes prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets.

The assets of the defined benefit pension plan include investments in mutual funds whose fair values are determined based on quoted market prices and are classified within Level 1 of the fair value hierarchy. Plan assets also include investments that are based on other observable inputs, which are classified within Level 2 of the fair value hierarchy. The Level 2 assets for Fiscal Years 2015 and 2014 are money market funds, corporate and U.S. government bonds, and foreign obligations. The following table summarizes the plan assets measured at fair value as of May 31, 2015 and May 31, 2014:


	Fiscal Year
	2015				2014

	(in thousands)

	Level 1		Level 2		Level 1		Level 2

Money market funds	$		$	194	$	—	$	412
U.S. Treasury and agency obligations				1,940		—		1,840
Corporate obligations				7,715		—		7,193
Mutual funds		29,712				26,787		—
Foreign obligations and other				1,446		—		1,602
Total	$	29,712	$	11,295	$	26,787	$	11,047