Employee Benefit Plans

12 Months Ended

Jun. 30, 2012

Employee Benefit Plans [Abstract]

Employee Benefit Plans

10. 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 30, 2012 and July 2, 2011 were $10.5 million and $10.3 million, 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. The portion of the amount by which the actuarial present value of benefits included in the projected benefit obligation exceeds the fair value of plan assets, payable in the next 12 months, is reflected in accrued liabilities. The measurement date of the plan assets coincides with our fiscal year end.

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 will be 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 2013 is $3.7 million which is related primarily to net actuarial losses.

Obligations and Funded Status at June 30, 2012 and July 2, 2011

	Pension Plan						SERP
	2012			2011			2012			2011
Change in benefit obligation:
Projected benefit obligation, beginning of year	$	67.8		$	66.9		$	14.4		$	13.3
Service cost		—			—			—			—
Interest cost		3.8			3.7			0.8			0.7
Actuarial loss/(gain)		18.5			(0.8	)		3.0			1.0
Benefits paid		(2.1	)		(2.0	)		(0.6	)		(0.6	)
Projected benefit obligation, end of year	$	88.0		$	67.8		$	17.6		$	14.4
Change in plan assets:
Fair value of plan assets, beginning of year	$	45.4		$	39.8		$	—		$	—
Actual return on plan assets		2.1			5.6			—			—
Employer contributions		8.4			2.0			0.6			0.6
Benefits paid		(2.1	)		(2.0	)		(0.6	)		(0.6	)
Fair value of plan assets, end of year	$	53.8		$	45.4		$	—		$	—
Funded status-net amount recognized	$	(34.2	)	$	(22.4	)	$	(17.6	)	$	(14.4	)

Amounts recognized in the Consolidated Balance Sheets consist of:

	Pension Plan						SERP
	2012			2011			2012			2011
Accrued benefit liability	$	(34.2	)	$	(22.4	)	$	(17.6	)	$	(14.4	)
Net amount recognized	$	(34.2	)	$	(22.4	)	$	(17.6	)	$	(14.4	)
	Pension Plan						SERP
	2012			2011			2012			2011
Accumulated other comprehensive loss/(gain) related to:
Unrecognized net actuarial losses/(gains)	$	18.8		$	(5.3	)	$	2.9		$	1.0

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 $88.0 million, $88.0 million and $53.8 million, respectively, as of June 30, 2012 and $67.8 million, $67.8 million and $45.4 million, respectively, as of July 2, 2011. No pension plans had plan assets in excess of accumulated benefit obligations at June 30, 2012 or July 2, 2011.

Components of Net Periodic Benefit Cost

	Pension Plan									SERP
	2012			2011			2010			2012		2011		2010
Service cost	$	—		$	—		$	—		$	—	$	—	$	—
Interest cost		3.8			3.7			3.5			0.8		0.7		0.7
Expected return on assets		(3.9	)		(3.1	)		(3.0	)		—		—		—
Amortization of net loss		1.5			2.0			1.0			0.1		—		—
Net periodic benefit cost	$	1.4		$	2.6		$	1.5		$	0.9	$	0.7	$	0.7

Assumptions

The following weighted average assumptions were used to determine benefit obligations for the plans at June 30, 2012 and July 2, 2011:

	Pension Plan						SERP
	2012			2011			2012			2011
Discount rate		4.30	%		5.70	%		4.00	%		5.50	%
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 30, 2012 and July 2, 2011:

	Pension Plan						SERP
	2012			2011			2012			2011
Discount rate		5.70	%		5.60	%		5.50	%		5.50	%
Expected return on plan assets		7.75			7.75			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 30, 2012 and July 2, 2011 are as follows:

	Target Asset			Actual Asset
	Allocations			Allocations
	2012			2012			2011
International equity		8 - 18	%		10.8	%		12.6	%
Large cap equity		20 - 40			31.7			30.0
Small cap equity		3 - 13			6.9			8.4
Absolute return strategy funds		10 - 20			13.7			14.3
Fixed income		20 - 30			27.4			25.4
Long/short equity fund		5 - 15			9.5			9.3
Total		100	%		100	%		100	%

Our 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 7.50% expected return on plan assets for fiscal 2013 and 7.75% expected return on plan assets for fiscal year 2012. 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 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, 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 4, “Fair Value Measurements” of the Notes to the Consolidated Financial Statements, as of June 30, 2012:

	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	$	0.6	$	—	$	—	$	0.6
Common stock		5.6		—		—		5.6
Common/collective trusts		—		4.0		12.2		16.2
Registered investment companies		31.4		—		—		31.4
Total	$	37.6	$	4.0	$	12.2	$	53.8

The following table presents the pension plan investments using the fair value hierarchy discussed in Note 4, “Fair Value Measurements” of the Notes to the Consolidated Financial Statements, as of July 2, 2011:

	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	$	0.4	$	—	$	—	$	0.4
Common stock		5.6		—		—		5.6
Common/collective trusts		3.8		10.7		—		14.5
Registered investment companies		24.9		—		—		24.9
Total	$	34.7	$	10.7	$	—	$	45.4

The following table presents a reconciliation of Level 3 assets held during the year ended June 30, 2012:

	Total
Balance at July 2, 2011	$	—
Net unrealized gains		0.3
Net purchases, issuances and settlements		7.7
Reclassifications		4.2
Balance at June 30, 2012	$	12.2

We expect to contribute $5.5 million to our pension plan and $0.7 million to the SERP in fiscal 2013.

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
2013	$	2.0	$	0.7
2014		2.1		0.7
2015		2.3		0.8
2016		2.4		0.8
2017		2.7		0.8
2018 and thereafter		17.4		4.9

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. multi-employer pension plans are different from single-employer pension plans in the following aspects:

• Assets contributed to the multi-employer plan 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 multi-employer pension plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

In fiscal year 2010, local union members at a facility voted to decertify their union, which triggered a $0.9 million charge for withdrawal liability from the Trucking Employees of North Jersey Pension Plan. We began paying monthly installments, which amount to $0.1 million per year. In fiscal year 2011, local union members at two locations voted to decertify their respective unions. The decertification resulted in a partial withdrawal from the Unite Here National Retirement Fund and we recorded a charge of $1.0 million. As of June 30, 2012, the National Retirement Fund has not assessed us any withdrawal liability for these events, and as such, we have not begun making payments.

In the third quarter of fiscal year 2012, we commenced negotiations with a union to discontinue our participation in the Central States Southeast and Southwest Areas Pension Fund (“Central States MEPP”) for two of our locations. On March 13, 2012, we successfully concluded our negotiations by gaining agreement to discontinue participation in the Central States MEPP at these locations. In addition, we also closed two redundant branch facilities that participated in the Central States MEPP. Subsequent to our year ended June 30, 2012, we successfully concluded negotiations by gaining agreement to discontinue participation at one other location. We continue to participate in the Central States MEPP at two additional locations, although, subject to our good faith bargaining obligations, we believe it is probable that we will also withdraw from the Central States MEPP at these locations, thus completely discontinuing our participation in the Central States MEPP.

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. As a result of the actions noted above, in the third quarter of fiscal year 2012, we recorded a pre-tax charge of $24.0 million, or $0.78 earnings per diluted share. This charge included the estimated discounted actuarial value of the total withdrawal liability, incentives for union participants, strike preparation costs incurred in the third quarter, exit costs associated with the closing of the two branch locations and other related costs that have been incurred. This charge is recorded in the “Pension withdrawal and associated expenses” line item of the Consolidated Statements of Operations. We expect to pay the withdrawal liability over a period of 20 years. The amount of the withdrawal liability recorded is based on the best information available and is subject to change and any change could have a material impact on our results of operations and financial condition.

As evidenced by the previous decertifications noted above, a partial or full withdrawal from a MEPP may be triggered by circumstances beyond our control. In addition, we could trigger the liability by successfully negotiating with the union to discontinue participation in the MEPP. If a future withdrawal from a plan occurs, we will record our proportional share of any unfunded vested benefits in the period in which the withdrawal occurs.

The ultimate amount of the withdrawal liability assessed by the MEPPs is impacted by a number of factors, including, among other things, investment returns, benefit levels, interest rates, financial difficulty of other participating employers in the plan and our continued participation with other employers in the MEPPs, each of which could impact the ultimate withdrawal liability.

Previously, we disclosed that our total estimated share of the undiscounted, unfunded vested benefits under all the MEPPs that we participate in, including Central States, was approximately $25.0 million to $31.0 million. As noted above, in the third quarter of fiscal year 2012, we recorded a withdrawal liability related to the Central States MEPP. As a result of this liability recognition and based upon the most recent plan data available from the trustees managing the remaining MEPPs, our estimated share of the undiscounted, unfunded vested benefits for the remaining MEPPs is estimated to be $3.0 million to $4.0 million as of June 30, 2012.

Our participation in these plans for the year ended June 30, 2012, is outlined in the following tables. All information in the tables is as of December 31 of the relevant year unless otherwise stated. The “EIN-PN” column provides the Employer Identification Number (“EIN”) and the Plan Number (“PN”), if applicable. Unless otherwise noted, the most recent Pension Protection Act (“PPA”) zone status available in 2011 and 2010 is for the plan’s year ending at December 31, 2011, and December 31, 2010, respectively. The zone status is based on information that we received from the plan. Among other factors, generally, plans in critical status (“red zone”) are less than 65 percent funded, plans in endangered or seriously endangered status (“yellow zone” or “orange zone”, respectively) are less than 80 percent funded, and plans at least 80 percent funded are said to be in the “green zone.” The “FIP/RP status pending/implemented” column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented by the trustees of each plan. Information related to the impact of utilization of extended amortization periods on zone status is either not available or not obtainable without undue cost and effort. There have been no significant changes that affect the comparability of 2012, 2011 or 2010 contributions.

The following two tables contain information about the material MEPPs we participate in.

	EIN - PN	Pension Protection Act zone status				G&K Services 5% of total plan contributions				FIP/RP  status pending/implemented
Pension fund		2011		2010		2011		2010
Central States Southeast and Southwest Areas Pension Fund	36-6044243 - 001		Red		Red		No		No		Implemented

	Contributions of G&K Services  for fiscal years						Surcharge imposed		Expiration date  of collective bargaining agreements			Total collective bargaining agreements
Pension fund	2012		2011		2010
Central States Southeast and Southwest Areas Pension Fund	$	0.9	$	1.0	$	1.0		No		8/3/2012 to 1/31/2013	3
Other Funds	$	0.4	$	0.4	$	0.4		No		8/31/2012 to 7/31/2014	6
Total G&K Services contributions to U.S. multi-employer pension plans	$	1.3	$	1.4	$	1.4

At the date the financial statements were issued, Forms 5500 were generally not available for the plan years ending in 2011.

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 $0.8 million, $0.8 million and $0.9 million in fiscal years 2012, 2011 and 2010, respectively.

401(k) Plan

All full-time non-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 $4.8 million in fiscal year 2012, $5.4 million in fiscal year 2011 and $5.5 million in fiscal year 2010.

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 $1.2 million, $1.1 million and $1.1 million in fiscal years 2012, 2011 and 2010, respectively. The accumulated benefit obligation of $22.1 million as of June 30, 2012 and $21.8 million as of July 2, 2011 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 included in “Other noncurrent assets” in the accompanying Consolidated Balance Sheets. Offsetting unrealized gains and losses are included in income on a current basis. At June 30, 2012 and July 2, 2011, the estimated fair value of the investments was $22.1 million and $21.8 million, respectively.