EMPLOYEE BENEFIT PLANS

Griffon offers defined contribution plans to most of its U.S. employees. In addition to employee contributions to the plans, Griffon makes contributions based upon various percentages of compensation and/or employee contributions, which were $8,301 in 2016, $7,988 in 2015 and $8,207 in 2014.

The Company also provides healthcare and life insurance benefits for certain groups of retirees through several plans. For certain employees, the benefits are at fixed amounts per retiree and are partially contributory by the retiree. The post-retirement benefit obligation was $2,081 and $2,035 as of September 30, 2016 and 2015. The accumulated other comprehensive income (loss) for these plans was $(140) and ($97) as of September 30, 2016 and 2015, respectively, and the 2016 and 2015 benefit expense was $57 and $58, respectively. It is the Company’s practice to fund these benefits as incurred.

Griffon also has qualified and non-qualified defined benefit plans covering certain employees with benefits based on years of service and employee compensation. Over time, these amounts will be recognized as part of net periodic pension costs in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Griffon is responsible for overseeing the management of the investments of the qualified defined benefit plan and uses the services of an investment manager to manage these assets based on agreed upon risk profiles. The primary objective of the qualified defined benefit plan is to secure participant retirement benefits. As such, the key objective in this plan’s financial management is to promote stability and, to the extent appropriate, growth in the funded status. Financial objectives are established in conjunction with a review of current and projected plan financial requirements. The fair values of a majority of the plan assets were determined by the plans’ trustee using quoted market prices for identical instruments (level 1 inputs) as of September 30, 2016 and 2015. The fair value of various other investments was determined by the plan’s trustee using direct observable market corroborated inputs, including quoted market prices for similar assets (level 2 inputs). There were no pension assets measured using level 3 inputs.

Effective January 1, 2012, the Clopay Pension Plan merged with the Ames True Temper Inc. Pension Plan. The merged qualified defined benefit plan was named the Clopay Ames Pension Plan (the “Clopay AMES Plan”).

The Clopay portion of the Clopay AMES Plan has been frozen to new entrants since December 2000. Certain employees who were part of the plan prior to December 2000 continued to accrue a service benefit through December 2010, at which time all plan participants stopped accruing service benefits.

The AMES portion of the Clopay AMES Plan has been frozen to all new entrants since November 2009 and stopped accruing benefits in December 2009.

The AMES supplemental executive retirement plan was frozen to new entrants and participants in the plan stopped accruing benefits in 2008.

In 2016, the Company changed the method used to estimate the service and interest components of net periodic benefit cost for pension and other post-retirement benefits from the single weighted-average discount rate to the spot rate method. There was no impact on the total benefit obligation.

In 2014, the company contributed €1,300 (U.S. $1,776), which equaled the net balance sheet liability, in settlement of all remaining obligations for a non-U.S. pension liability. There were no gains or losses recorded for this settlement.

Griffon uses judgment to establish the assumptions used in determining the future liability of the plan, as well as the investment returns on the plan assets. The expected return on assets assumption used for pension expense was developed through analysis of historical market returns, current market conditions and past experience of plan investments. The long-term rate of return assumption represents the expected average rate of earnings on the funds invested, or to be invested, to provide for the benefits included in the benefit obligations. The assumption is based on several factors including historical market index returns, the anticipated long-term asset allocation of plan assets and the historical return. The discount rate assumption is determined by developing a yield curve based on high quality bonds with maturities matching the plans’ expected benefit payment stream. The plans’ expected cash flows are then discounted by the resulting year-by-year spot rates. A 10% change in the discount rate, average wage increase or return on assets would not have a material effect on the financial statements of Griffon.

Net periodic costs (benefits) were as follows:



	Defined Benefits for the Years Ended September 30,									Supplemental Benefits for the Years Ended September 30,
	2016			2015			2014			2016		2015		2014
Net periodic (benefits) costs:
Service cost	$	—		$	—		$	22		$	—	$	—	$	—
Interest cost	5,465			7,526			8,205			1,243		1,302		1,497
Expected return on plan assets	(10,934		)	(11,728		)	(11,309		)	—		—		—
Amortization of:
Prior service costs	1			1			1			19		16		14
Actuarial loss	1,131			1,008			885			1,224		1,157		1,034
Total net periodic (benefits) costs	$	(4,337	)	$	(3,193	)	$	(2,196	)	$	2,486	$	2,475	$	2,545

The tax benefits in 2016, 2015 and 2014 for the amortization of pension costs in Other comprehensive income (loss) were $831, $764 and $677, respectively.

The estimated net actuarial loss and prior service cost that will be amortized from AOCI into Net periodic pension cost during 2017 is $3,320 and $23, respectively.

The weighted-average assumptions used in determining the net periodic (benefits) costs were as follows:



	Defined Benefits for the Years Ended September 30,						Supplemental Benefits for the Years Ended September 30,
	2016		2015		2014		2016		2015		2014
Discount rate	3.42	%	3.98	%	4.49	%	2.86	%	3.50	%	4.09	%
Average wage increase	—	%	—	%	0.15	%	—	%	—	%	—	%
Expected return on assets	7.50	%	8.00	%	8.00	%	—		—		—

Plan assets and benefit obligation of the defined and supplemental benefit plans were as follows:



	Defined Benefits at September 30,						Supplemental Benefits at September 30,
	2016			2015			2016			2015
Change in benefit obligation:
Benefit obligation at beginning of fiscal year	$	184,846		$	194,327		$	37,305		$	38,207
Interest cost	5,465			7,526			1,243			1,302
Benefits paid	(10,460		)	(10,300		)	(4,060		)	(4,082		)
Actuarial (gain) loss	9,305			(6,707		)	1,286			1,878
Benefit obligation at end of fiscal year	189,156			184,846			35,774			37,305
Change in plan assets:
Fair value of plan assets at beginning of fiscal year	144,625			154,966			—			—
Actual return on plan assets	10,151			(1,711		)	—			—
Company contributions	—			1,670			4,060			4,082
Benefits paid	(10,460		)	(10,300		)	(4,060		)	(4,082		)
Fair value of plan assets at end of fiscal year	144,316			144,625			—			—
Projected benefit obligation in excess of plan assets	$	(44,840	)	$	(40,221	)	$	(35,774	)	$	(37,305	)
Amounts recognized in the statement of financial position consist of:
Accrued liabilities	$	—		$	—		$	(4,030	)	$	(4,056	)
Other liabilities (long-term)	(44,840		)	(40,221		)	(31,744		)	(33,249		)
Total Liabilities	(44,840		)	(40,221		)	(35,774		)	(37,305		)
Net actuarial losses	38,115			29,158			21,195			21,139
Prior service cost	1			2			56			71
Deferred taxes	(13,341		)	(10,206		)	(7,438		)	(7,423		)
Total Accumulated other comprehensive loss, net of tax	24,775			18,954			13,813			13,787
Net amount recognized at September 30,	$	(20,065	)	$	(21,267	)	$	(21,961	)	$	(23,518	)
Accumulated benefit obligations	$	189,156		$	184,846		$	35,774		$	37,305
Information for plans with accumulated benefit obligations in excess of plan assets:
ABO	$	189,156		$	184,846		$	35,774		$	37,305
PBO	189,156			184,846			35,774			37,305
Fair value of plan assets	144,316			144,625			—			—

The weighted-average assumptions used in determining the benefit obligations were as follows:



	Defined Benefits at September 30,				Supplemental Benefits at September 30,
	2016		2015		2016		2015
Weighted average discount rate	3.42	%	3.94	%	2.86	%	3.52	%
Weighted average wage increase	—	%	—	%	—	%	—	%

The actual and weighted-average asset allocation for qualified benefit plans were as follows:



	At September 30,
	2016		2015		Target
Cash and equivalents	18.0	%	1.0	%	—	%
Equity securities	57.7	%	52.7	%	63.0	%
Fixed income	19.3	%	41.0	%	37.0	%
Other	5.0	%	5.3	%	—	%
Total	100.0	%	100.0	%	100.0	%

Estimated future benefit payments to retirees, which reflect expected future service, are as follows:



For the years ending September 30,	Defined Benefits		Supplemental Benefits
2017	$	10,735	$	4,060
2018	10,773		4,030
2019	10,861		3,821
2020	11,007		3,636
2021	11,141		3,442
2022 through 2026	55,439		12,927

During 2016, Griffon expects to contribute $4,060 in payments related to Supplemental Benefits that will be funded from the general assets of Griffon. Griffon does not expect to make any contributions to the Defined Benefit plan in 2017.

The Clopay AMES Plan is covered by the Pension Protection Act of 2006. The Adjusted Funding Target Attainment Percent for the plan as of January 1, 2016 was 99.6%. Since the plan was in excess of the 80% funding threshold there were no plan restrictions. The expected level of 2017 catch up contributions is $0.

The following is a description of the valuation methodologies used for plan assets measured at fair value:

Short-term investment funds – The fair value is determined using the Net Asset Value (“NAV”) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. The NAV is a quoted price in a market that is not active and is primarily classified as Level 2. These investments can be liquidated on demand.

Government and agency securities – When quoted market prices are available in an active market, the investments are classified as Level 1. When quoted market prices are not available in an active market, the investments are classified as Level 2.

Equity securities – The fair values reflect the closing price reported on a major market where the individual mutual fund securities are traded in equity securities. These investments are classified within Level 1 of the valuation hierarchy.

Debt securities – The fair values are based on a compilation of primarily observable market information or a broker quote in a non-active market where the individual mutual fund securities are invested in debt securities. These investments are primarily classified within Level 2 of the valuation hierarchy.

Commingled funds – The fair values are determined using NAV provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the trust/entity, minus its liabilities, and then divided by the number of shares outstanding. These investments are generally classified within Level 2 of the valuation hierarchy and can be liquidated on demand.

Interest in limited partnerships and hedge funds - One limited partnership investment is a private equity fund and the fair value is determined by the fund managers based on the estimated value of the various holdings of the fund portfolio. These investments are classified within Level 2 of the valuation hierarchy.

The following table presents the fair values of Griffon’s pension and post-retirement plan assets by asset category:



At September 30, 2016	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and equivalents	$	26,008	$	—	$	—	$	26,008
Short-term investment funds	—		—		—		—
Government agency securities	—		—		—		—
Debt instruments	14,122		—		—		14,122
Equity securities	44,759		—		—		44,759
Commingled funds	—		53,703		—		53,703
Limited partnerships and hedge fund investments	—		5,724		—		5,724
Total	$	84,889	$	59,427	$	—	$	144,316



At September 30, 2015	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash and equivalents	$	1,370	$	—	$	—	$	1,370
Debt instruments	14,291		—		—		14,291
Equity securities	44,742		—		—		44,742
Commingled funds	—		78,490		—		78,490
Limited partnerships and hedge fund investments	—		5,732		—		5,732
Total	$	60,403	$	84,222	$	—	$	144,625

Griffon has an ESOP that covers substantially all domestic employees. All U.S. employees of Griffon, who are not members of a collective bargaining unit, automatically become eligible to participate in the plan on the October 1^st following completion of one year of service. Securities are allocated to participants’ individual accounts based on the proportion of each participant’s aggregate compensation (not to exceed $265 for the plan year ended September 30, 2016), to the total of all participants’ compensation. Shares of the ESOP which have been allocated to employee accounts are charged to expense based on the fair value of the shares transferred and are treated as outstanding in determining earnings per share. Dividends paid on shares held by the ESOP are used to offset debt service on ESOP Loans. Dividends paid on shares held in participant accounts are utilized to allocate shares from the aggregate number of shares to be released, equal in value to those dividends, based on the closing price of Griffon common stock on the dividend payment date. Compensation expense under the ESOP was $3,689 in 2016, $3,400 in 2015 and $2,447 in 2014. The cost of the shares held by the ESOP and not yet allocated to employees is reported as a reduction of Shareholders’ Equity. The fair value of the unallocated ESOP shares as of September 30, 2016 and 2015 based on the closing stock price of Griffon’s stock was $47,370 and $47,907, respectively. The ESOP shares were as follows:



	At September 30,
	2016	2015
Allocated shares	2,596,016	2,479,776
Unallocated shares	2,784,579	3,037,831
	5,380,595	5,517,607