Note 7: Employee Benefits

Pension

We maintain a defined benefit pension plan for eligible factory hourly employees at our La-Z-Boy operating units. We also maintain a non-qualified defined benefit retirement plan for certain former salaried employees. Net periodic pension costs for these plans were as follows:


	Quarter Ended				Nine Months Ended
(Unaudited, amounts in thousands)	1/26/2019		1/27/2018		1/26/2019		1/27/2018
Service cost	$	223	$	328	$	869	$	986
Interest cost		1,116		1,147		3,348		3,441
Expected return on plan assets		(1,136)		(1,204)		(3,408)		(3,612)
Net amortization		639		780		1,917		2,340
Net periodic pension cost	$	842	$	1,051	$	2,726	$	3,155

The components of net periodic pension cost other than the service cost are included in other income (expense), net in our consolidated statement of income. Service cost is recorded in cost of sales in our consolidated statement of income.

We intend to terminate our defined benefit pension plan for eligible factory hourly employees in our La-Z-Boy operating unit in the fourth quarter of fiscal 2019. The plan was previously closed to new participants, and as of December 31, 2018, active participants no longer continue to earn service credit. In connection with the termination, we anticipate making $9 - $11 million in additional contributions to the plan using operating cash on-hand. We expect to settle any future obligations under the plan through a combination of lump-sum payments to eligible participants who elect to receive them, and through the purchase of annuity contracts from one or more yet-to-be-identified highly rated insurance companies in the fourth quarter of fiscal 2019. We estimate that we will record an approximate $33 - $38 million total non-cash charge, net of tax, associated with the plan termination during the fourth quarter of fiscal 2019.

Employee Vacation Policy Changes

We enacted changes to our employee vacation policies that became effective on January 1, 2019. Our new vacation policies enhanced the amount of vacation time earned by our employees. Additionally, under these vacation policies, our salary and office hourly employees now accrue vacation in the current calendar year for use in the current calendar year, and any vacation time earned but not used will be forfeited at the end of each calendar year. These changes reduced our salary and office hourly vacation liability and resulted in a one-time non-cash gain of $5.1 million in our consolidated statement of income in the third quarter of fiscal 2019. Of the total $5.1 million gain recorded, $1.3 million was recorded in cost of sales with the remainder recorded in selling, general, and administrative expense. Our factory hourly vacation policies were only changed to enhance the amount of vacation time earned by our employees, with no change to accrual methodologies, and resulted in $0.3 million incremental expense in the third quarter of fiscal 2019, recorded in cost of sales.