Employee Benefit Plans

Pension Plan and Supplemental Executive Retirement Plan

We have a noncontributory defined benefit pension plan (the "Pension Plan") covering substantially all employees who were employed as of July 1, 2005, except certain employees who are covered by union-administered plans. Benefits are based on the number of years of service and each employee’s compensation near retirement. We make annual contributions to the Pension Plan consistent with federal funding requirements.

Annual benefits under the Supplemental Executive Retirement Plan ("SERP") are based on years of service and individual compensation near retirement. We have purchased life insurance contracts and other investments that could be used to fund the retirement benefits under this plan. The value of these insurance contracts and investments as of June 28, 2014 and June 29, 2013 were $11,579 and $10,796, respectively, and are included in the "Other noncurrent assets" line item in the Consolidated Balance Sheets.

We froze our Pension Plan and SERP effective January 1, 2007. Future growth in benefits will not occur beyond this date.

Applicable accounting standards require that the Consolidated Balance Sheet reflect the funded status of the pension and postretirement plans. The funded status of the plan is measured as the difference between the plan assets at fair value and the projected benefit obligation. We have recognized the aggregate of all under-funded plans within other noncurrent liabilities. Expected contributions to the plan over the next 12 months that exceed the fair value of plan assets are reflected in accrued liabilities.

Unrecognized differences between actual amounts and estimates based on actuarial assumptions are included in "Accumulated other comprehensive income" in our Consolidated Balance Sheets. The difference between actual amounts and estimates based on actuarial assumptions are recognized in other comprehensive income in the period in which they occur.

The estimated amortization from accumulated other comprehensive income into net periodic benefit cost during fiscal year 2015 is $2,406 which is related primarily to net actuarial losses.

Obligations and Funded Status at June 28, 2014 and June 29, 2013



	Pension Plan						SERP
	2014			2013			2014			2013
Change in benefit obligation:
Projected benefit obligation, beginning of year	$	76,758		$	88,029		$	15,548		$	17,576
Interest cost	3,968			3,738			758			688
Actuarial loss/(gain)	12,799			(12,852		)	2,138			(2,057		)
Benefits paid	(2,274		)	(2,157		)	(834		)	(659		)
Projected benefit obligation, end of year	$	91,251		$	76,758		$	17,610		$	15,548
Change in plan assets:
Fair value of plan assets, beginning of year	$	64,599		$	53,792		$	—		$	—
Actual return on plan assets	11,240			4,881			—			—
Employer contributions	2,420			8,083			834			659
Benefits paid	(2,274		)	(2,157		)	(834		)	(659		)
Fair value of plan assets, end of year	$	75,985		$	64,599		$	—		$	—
Funded status-net amount recognized	$	(15,266	)	$	(12,159	)	$	(17,610	)	$	(15,548	)

Amounts recognized in the Consolidated Balance Sheets consist of:



	Pension Plan						SERP
	2014			2013			2014			2013
Accrued benefit liability	$	(15,266	)	$	(12,159	)	$	(17,610	)	$	(15,548	)
Net amount recognized	$	(15,266	)	$	(12,159	)	$	(17,610	)	$	(15,548	)

	Pension Plan						SERP
	2014			2013			2014			2013
Accumulated other comprehensive loss/(gain) related to:
Unrecognized net actuarial losses/(gains)	$	4,560		$	(16,817	)	$	1,995		$	(2,458	)

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with an accumulated benefit obligation in excess of plan assets were $91,251, $91,251 and $75,985, respectively, as of June 28, 2014 and $76,758, $76,758 and $64,599, respectively, as of June 29, 2013. No pension plans had plan assets in excess of accumulated benefit obligations at June 28, 2014 or June 29, 2013.

Components of Net Periodic Benefit Cost



	Pension Plan									SERP
	2014			2013			2012			2014		2013		2012
Interest cost	$	3,968		$	3,738		$	3,807		$	758	$	688	$	774
Expected return on assets	(4,638		)	(4,227		)	(3,905		)	—		—		—
Amortization of net loss	1,636			3,312			1,482			143		401		92
Net periodic benefit cost	$	966		$	2,823		$	1,384		$	901	$	1,089	$	866

Assumptions

The following weighted average assumptions were used to determine benefit obligations for the plans at June 28, 2014 and June 29, 2013:



	Pension Plan				SERP
	2014		2013		2014		2013
Discount rate	4.50	%	5.25	%	4.30	%	5.00	%
Rate of compensation increase	N/A		N/A		N/A		N/A

The following weighted average assumptions were used to determine net periodic benefit cost for the plans for the years ended June 28, 2014 and June 29, 2013:



	Pension Plan				SERP
	2014		2013		2014		2013
Discount rate	5.25	%	4.30	%	5.00	%	4.00	%
Expected return on plan assets	7.25		7.50		N/A		N/A
Rate of compensation increase	N/A		N/A		N/A		N/A

Plan Assets

The asset allocations in the pension plan at June 28, 2014 and June 29, 2013 are as follows:



	Target Asset Allocations		Actual Asset Allocations
	2014		2014		2013
International equity	8.0	%	6.8	%	13.6	%
Large cap equity	26.0		25.9		31.2
Small cap equity	5.0		4.8		8.1
Absolute return strategy funds	16.0		15.3		15.8
Fixed income	45.0		47.0		22.9
Long/short equity fund	—		0.2		8.4
Total	100	%	100	%	100	%

Our retirement committee, assisted by outside consultants, evaluates the objectives and investment policies concerning our long-term investment goals and asset allocation strategies. Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. To develop the expected long-term rate of return on asset assumptions, we consider the historical returns and future expectations of returns for each asset class, as well as the target asset allocation and investment goals of the pension portfolio. This resulted in the selection of 6.50% expected return on plan assets for fiscal year 2015 and 7.25% expected return on plan assets for fiscal year 2014. The investment goals are (1) to meet or exceed the assumed actuarial rate of return over the long term within reasonable and prudent levels of risk, and (2) to preserve the real purchasing power of assets to meet future obligations. The nature and duration of benefit obligations, along with assumptions concerning asset class returns and return correlations, are considered when determining an appropriate asset allocation to achieve the investment objectives. Pension plan assets for our qualified pension plans are held in a trust for the benefit of the plan participants and are invested in a diversified portfolio of equity investments, fixed income investments, hedge funds and cash. Risk targets are established and monitored against acceptable ranges. All investment policies and procedures are designed to ensure that the plans' investments are in compliance with the Employee Retirement Income Security Act. Guidelines are established defining permitted investments within each asset class.

During fiscal year 2012, we conducted a study to assess an asset-liability strategy. The results of this study emphasized the importance of managing the volatility of pension assets relative to pension liabilities while still achieving a competitive investment return, achieving diversification between and within various asset classes, and managing other risks. In order to reduce the volatility between the value of pension assets and liabilities, we have established a "glide path approach" whereby we will increase the allocation to fixed income investments as our funded status increases. We regularly review our actual asset allocation and periodically rebalance the investments to the targeted allocation when considered appropriate. Target allocation ranges are guidelines, not limitations, and occasionally due to market conditions and other factors actual asset allocation may vary above or below a target.

The implementation of the investment strategy discussed above is executed through a variety of investment structures such as: direct share, common/collective trusts, or registered investment companies. Valuation methodologies differ for each of these structures. The valuation methodologies used for these investment structures are as follows:

Common and Preferred Stock, U.S. Government Securities, Corporate Debt and Registered Investment Companies: Investments are valued at the closing price reported on the active market on which the individual securities are traded.

Common/Collective Trusts (CCT): Investments in a collective investment vehicle are valued at their daily or monthly net asset value (NAV) per share or the equivalent. NAV per share or the equivalent is used for fair value purposes as a practical expedient. NAVs are calculated by the investment manager or sponsor of the fund. Certain of the CCT's represent investments in hedge funds or funds of hedge funds as well as other commingled equity funds. The classification level of these CCT's within the fair value hierarchy is determined by our ability to redeem the investment at net asset value in the near term of the measurement date. Investments in the underlying CCT's are not valued using quoted prices in active markets. Therefore no investments are classified as Level 1. All investments in CCT's that are redeemable at the net asset value reported by the investment managers within 90 days of the fiscal year end are classified as Level 2. All investments in the underlying CCT's that are not redeemable at the net asset value reported by the investment managers of the CCT's within 90 days of the fiscal year end because of a lock-up period or gate, but may be redeemed at a future date, are classified as Level 3.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our 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 the reporting date.

The following table presents the pension plan investments using the fair value hierarchy discussed in Note 5, "Fair Value Measurements" of the Notes to the Consolidated Financial Statements, as of June 28, 2014:



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Interest-bearing cash	$	1,688	$	—	$	—	$	1,688
Receivables	243		—		—		243
Common/collective trusts	—		3,611		167		3,778
U.S. Government securities	5,465		1,435		—		6,900
Corporate debt	—		27,065		—		27,065
Registered investment companies	36,311		—		—		36,311
Total	$	43,707	$	32,111	$	167	$	75,985



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Interest-bearing cash	$	776	$	—	$	—	$	776
Receivable from common/collective trusts	1,744		—		—		1,744
Common stock	—		—		—		—
Common/collective trusts	—		5,244		4,093		9,337
Registered investment companies	52,742		—		—		52,742
Total	$	55,262	$	5,244	$	4,093	$	64,599

The following table presents a reconciliation of Level 3 assets held during the years ended June 28, 2014 and June 29, 2013:



	2014			2013
Balance at beginning of the year	$	4,093		$	12,132
Realized gains	(828		)	(708		)
Net unrealized gains	217			736
Net purchases, issuances and settlements	(3,315		)	(8,067		)
Balance at end of the year	$	167		$	4,093

We expect to contribute $1,660 to our pension plan and $796 to the SERP in fiscal year 2015.

Future changes in plan asset returns, assumed discount rates and various other factors related to our pension plan will impact our future pension expense and liabilities. We cannot predict the impact of these changes in the future and any changes may have a material impact on our results of operations and financial position.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:



	Pension Plan		SERP
2015	$	2,358	$	795
2016	2,515		820
2017	2,739		868
2018	3,022		940
2019	3,295		986
2020 to 2024	20,556		5,413

Multi-Employer Pension Plans

We participate in a number of union sponsored, collectively bargained multi-employer pension plans ("MEPPs"). Benefits generally are based on a fixed amount for each year of service, and, in many cases, are not negotiated with contributing employers or in some cases even known by contributing employers. None of our collective bargaining agreements require that a minimum contribution be made to the MEPPs. We record the required cash contributions to the MEPPs as an expense in the period incurred and a liability is recognized for any contributions due and unpaid, consistent with the accounting for defined contribution plans. In addition, we are responsible for our proportional share of any unfunded vested benefits related to the MEPPs. However, under the applicable accounting rules, we are not required to record a liability until we withdraw from the plan or when it becomes probable that a withdrawal will occur.

The risks of participating in U.S. MEPPs are different from single-employer pension plans in the following aspects:


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


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


•	If we stop participating in some of the MEPPs, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

Employer's accounting for MEPPs (ASC 715-80) provides that a withdrawal liability should be recorded if circumstances that give rise to an obligation become probable and estimable. The amount of the withdrawal liability recorded is based on the best information available and is subject to change based on revised MEPP information received periodically from the union sponsors and other factors.

Central States Southeast and Southwest Areas Pension Fund

Beginning in fiscal year 2012, we commenced negotiations to discontinue our participation in the Central States Fund. We were ultimately successful and withdrew our participation in the Central States Fund in stages as various union contracts expired. Specifically, we partially withdrew from the Central States Fund in calendar year 2012, and in the third quarter of fiscal year 2012, we recorded a pretax charge of $24,004. This charge included the discounted actuarial value of the total estimated withdrawal liability, incentives for union participants and other related costs that had been incurred. We finalized our withdrawal in calendar year 2013, which resulted in the union sending us updated information related to our withdrawal liability. As a result, we recorded an additional withdrawal liability of $1,000 in the fourth quarter of fiscal year 2013. As of June 29, 2013 we had recorded an aggregate discounted estimated withdrawal liability of $21,700. We intended to make total payments of $32,400 over a 20 year period.

On September 19, 2013 we received two demands for payment of withdrawal liability, or payment demands, from the Central States Fund relating to our partial and complete withdrawals. The payment demands calculate the aggregate withdrawal liability to be $56,000 payable over 20 years, or $35,100 on an estimated discounted present value basis.

We do not agree with the Central States Fund's payment demands and plan to vigorously contest this matter. Most importantly, we believe that, in calculating our withdrawal amount, the Central States Fund has not given us appropriate credit for our partial withdrawal payments as required by applicable law and regulations. Previously, we filed our Request for Review with the Central States Fund, to which we received no response. We subsequently filed our arbitration demand. As part of these arbitration proceedings, we plan to contest the payment demands. We cannot offer any assurance that we will be successful, and ultimate resolution of this matter may have a material adverse effect on our results of operations in the period of resolution, however it is not expected to have a material effect on our financial condition or liquidity because any increase in payments would be spread over a 20 year period.

Separately, based on information received, as of September 28, 2013, we updated our previously recorded estimated withdrawal liability, using the same methodology previously used by us. Specifically, we have assumed aggregate payments of $34,500 over 20 years, using a discount rate of 5.25%, resulting in an estimated discounted present value of $23,500. This amount represents our best estimate of our aggregate withdrawal liability as of June 28, 2014. We consider this appropriate based on our interpretation of the plan document and the related statutory requirements. As a result, in addition to $113 of accretion expense related to the previously recorded liability, we recorded an additional discounted estimated withdrawal liability of $1,687 in the first quarter of fiscal year 2014. Moving forward, we do not anticipate that our estimated discounted withdrawal liability will change, except, depending on the outcome, in connection with resolution of the payment demands received from the Central States Fund and reductions in the outstanding withdrawal liability as payments are made. In addition, except in the case of a mass withdrawal or failure of the Central States Plan, we are no longer subject to fluctuations in the unfunded status of the plan caused by such things as investment returns, discount or mortality rates and various other assumptions. During the fiscal year 2014, we made total payments related to our withdrawal liability of $2,334 to the Central States Fund.

Other United States MEPPs

In the third quarter of fiscal year 2014, we began negotiations to withdraw from four other MEPPs, for which we had not previously recorded any withdrawal liabilities. Based on progress in the negotiations and our intentions, we have determined that it is probable that we will withdraw from the plans. Accordingly, we have recorded a pretax charge of $8,167. This charge included the estimated actuarial value of the total withdrawal liability, incentives for union participants and other related costs that have been and will be incurred. The amount of the withdrawal liability recorded is based on the best information available and is subject to change based on revised information received periodically from the union sponsors and other factors. However, any potential changes are not expected to have a material impact on our results of operation or financial condition. As of June 28, 2014, we had concluded negotiations with two of the four MEPPs and expect to finalize negotiations with the remaining two in fiscal 2015. Upon conclusion of negotiations and exit from these plans, we will no longer participate in any United States MEPPs.

Contributions to all MEPPs totaled $509, $779 and $1,282 in fiscal years 2014, 2013 and 2012, respectively.

Canadian MEPPs

Our Canadian subsidiaries participate in three multi-employer retirement funds known as the Ontario United Food and Commercial Workers Pension Plan, the Ontario Teamsters Multi Local Pension Trust Fund and the Regime Complementaire de Retrait De L'Industry du Camionnage (Region de Montreal) (the Quebec plan), collectively referred to as the Canadian MEPPs. Plan information for the Canadian MEPPs is not publicly available. These plans provide monthly retirement payments on the basis of the credits earned by the participating employees. For the Ontario plans, in the event that the plans are underfunded, the monthly benefit amount can be reduced by the trustees of the plan and G&K Services is not responsible for the underfunded status of the plan, which operates in a jurisdiction that does not require withdrawing employers to pay a withdrawal liability or other penalty. For the Quebec plan, employers can be held liable for unfunded liabilities and solvency deficiencies and accrued benefits cannot be reduced if there is a deficit unless the employer is insolvent. With respect to G&K's exposure to the Quebec plan, the most recent actuarial valuation as of December 31, 2010 indicates a surplus of approximately 14.5%. The collective bargaining agreements require contributions on the basis of hours worked. Total contributions to the Canadian MEPPs were $805, $823 and $787 in fiscal years 2014, 2013 and 2012, respectively.

401(k) Plan

All full-time non-union and certain union, U.S. employees are eligible to participate in a 401(k) plan. Employee contributions are invested, at the employees' direction, among a variety of investment alternatives. Participants may transfer amounts into and out of the investment alternatives at any time. Participants receive a matching contribution of 100% of the first 3% of the participant's contributed pay plus 50% of the next 2% of the participant’s contributed pay. The matching contributions under the 401(k) plan vest immediately. We incurred matching contribution expense of $5,310, $5,236 and $4,844 in fiscal years 2014, 2013 and 2012, respectively.

Executive Deferred Compensation Plan

Under the Executive Deferred Compensation Plan ("DEFCO Plan"), we match a portion of designated employees' contributions. Employee contributions along with the company match are invested, at the employees' direction, among a variety of investment alternatives. Participants may transfer amounts into and out of the investment alternatives at any time. Eligible participants receive a matching contribution of 50% of the first 10% of the participant's contributed pay plus an additional 2.5% of the participant's eligible pay. Our expense associated with the DEFCO Plan was $1,167, $1,169 and $1,191 in fiscal years 2014, 2013 and 2012, respectively. The accumulated benefit obligation of $32,667 as of June 28, 2014 has been split between "Other noncurrent liabilities" and "Compensation and employee benefits" and $26,775 as of June 29, 2013 is included in "Other noncurrent liabilities" in the accompanying Consolidated Balance Sheets. We have purchased investments, including stable income and stock index managed funds, based on investment elections made by the employees, which may be used to fund the retirement benefits. The investments are recorded at estimated fair value based on quoted market prices and are split between "Other current assets" and "Other noncurrent assets" in the accompanying Consolidated Balance Sheets. Offsetting unrealized gains and losses are included in income on a current basis. At June 28, 2014 and June 29, 2013, the estimated fair value of the investments was $32,667 and $26,775, respectively.