NOTE 12—EMPLOYEE BENEFITS

National Rural Electric Cooperative Association (“NRECA”) Retirement Security Plan

CFC is a participant in the NRECA Retirement Security Plan (“the Plan”), a noncontributory, defined benefit multiple-employer master pension plan. The employer identification number of the Plan is 53-0116145 and the Plan number is 333. Plan information is available publicly through the annual Form 5500, including attachments. The Plan is available to all qualified CFC employees. Under the Plan, participating employees are entitled to receive annually, under a 50% joint and surviving spouse annuity, 1.70% of the average of their five highest base salaries during their last 10 years of employment, multiplied by the number of years of participation in the Plan. As a multiple-employer plan, there is no funding liability for CFC related to the Plan. CFC’s expense is limited to the annual premium to participate in the Plan.

The risks of participating in CFC’s multiple-employer plan are different from single-employer plans based on the following characteristics of the Plan:


•	Assets contributed to the multiple-employer plan by one participating 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 CFC chooses to stop participating in the Plan, CFC may be required to pay a withdrawal liability representing an amount based on the underfunded status of the Plan.

In the Plan, a certified zone status determination is not required and, therefore, not determined under the Pension Protection Act of 2006. In total, the Plan was more than 80% funded at January 1, 2017, 2016 and 2015, based on the Pension Protection Act (“PPA”) funding target and PPA actuarial value of assets on those dates. We made contributions of $4 million, $4 million and $3 million during fiscal year 2017, 2016 and 2015, respectively. In each of these years, these contributions represented less than 5% of total contributions made to the plan by all participating employers. There are no collective bargaining agreements in place that cover CFC’s employees. Our contribution rate did not include a surcharge and there were no funding improvement plans or rehabilitation plans implemented or pending and no required minimum contributions.

Pension Restoration Plan

The Economic Growth and Tax Relief Act of 2001 set a limit of $270,000 for calendar year 2017 on the compensation to be used in the calculation of pension benefits. To restore potential lost benefits, we adopted a Pension Restoration Plan administered by NRECA. Under the Plan, the amount that NRECA invoices CFC for the Retirement Security Plan will continue to be based on the full compensation paid to each employee. Upon the retirement of a covered employee, NRECA will calculate the retirement and security benefit to be paid with consideration of the compensation limits and will pay the maximum benefit thereunder. NRECA will also calculate the retirement and security benefit that would have been available without consideration of the compensation limits and CFC will pay the difference. NRECA will then give CFC a credit against future retirement and security contribution liabilities in the amount paid by CFC to the covered employee.

The Pension Restoration Plan, which is frozen, is an unfunded, unsecured deferred compensation plan. The benefit and payout formula under the restoration component of the Retirement Security Plan is similar to that under the qualified plan component. The three participating executive officers have satisfied the provisions established to receive the benefit from this plan. Since there is no longer a risk of forfeiture of the benefit under the Pension Restoration Plan, we will make annual distributions from the plan to each of the named executive officers included in the plan. These distributions will be credited back to us by NRECA. Therefore, the distributions will have no impact on our consolidated financial statements.

Executive Benefit Restoration Plan

NRECA restricted additional participation in the Pension Restoration Plan in December 2014. We therefore adopted a top-hat Executive Benefit Restoration Plan, effective January 1, 2015. The Executive Benefit Restoration Plan is a nonqualified, unfunded plan maintained by CFC to provide retirement benefits to a select group of executive officers whose compensation exceeds Internal Revenue Service (“IRS”) limits for qualified defined benefit plans. There is a risk of forfeiture if participants leave the company prior to becoming fully vested in the Executive Benefit Restoration Plan. There were seven plan participants as of May 31, 2017. Upon adoption of the plan on January 1, 2015, we recorded an unfunded projected pension obligation of $1 million and a corresponding adjustment to AOCI. The actuarially determined unfunded projected benefit obligation of the plan, which is included on our consolidated balance sheet as a component of other liabilities, increased to $4 million as of May 31, 2017 from $1 million as of May 31, 2016. Of the $3 million increase in the unfunded projected benefit obligation, approximately $2 million was attributable to plan amendments for new participants in the plan and recorded in AOCI. The remaining $1 million was recognized as pension expense as a component of salaries and benefits in our consolidated statements of operations for fiscal year 2017.

Defined Contribution Plan

CFC offers a 401(k) defined contribution savings program, the 401(k) Pension Plan, to all employees who have completed a minimum of 1,000 hours of service in either the first 12 consecutive months or first full calendar year of employment. We contribute an amount up to 2% of an employee’s salary each year for all employees participating in the program with a minimum 2% employee contribution. We contributed $0.5 million to the plan in each of the fiscal years 2017, 2016 and 2015.