19. Retirement Plans

Defined Contribution Plans

The Company and its subsidiaries sponsor several retirement plans that are primarily 401(k) defined contribution plans covering nonunion associates and certain union associates. The Company does not contribute to all of the plans. In accordance with those plan provisions, the Company matches 100% of a participant's pretax payroll contributions, up to a maximum of 3% of such participant's pretax annual compensation. Thereafter, the Company will match 50% of the participant's additional pretax payroll contributions, up to a maximum of 2% of such participant's additional pretax annual compensation. Total expense recognized for the above plans was $67,949 in fiscal 2018, $68,393 in fiscal 2017 and $65,118 in fiscal 2016.

The Company sponsors a Supplemental Executive Retirement Plan ("SERP") for its officers, which is a defined contribution plan that is subject to a five year graduated vesting schedule. The expense recognized for the SERP was $12,426 in fiscal 2018, $16,921 in fiscal 2017 and $1,377 in fiscal 2016.

Defined Benefit Plans

The Company and its subsidiaries also sponsor a qualified defined benefit pension plan that requires benefits to be paid to eligible associates based upon years of service and, in some cases, eligible compensation. The Company's funding policy for The Rite Aid Pension Plan (The "Defined Benefit Pension Plan") is to contribute the minimum amount required by the Employee Retirement Income Security Act of 1974. However, the Company may, at its sole discretion, contribute additional funds to the plan. The Company made contributions of $9,023 in fiscal 2018, $0 in fiscal 2017 and $0 in fiscal 2016.

Net periodic pension expense and other changes recognized in other comprehensive income for the defined benefit pension plans included the following components:

	Defined Benefit Pension Plan
	2018			2017			2016
Service cost	$	1,212		$	1,291		$	1,498
Interest cost		6,340			6,634			6,398
Expected return on plan assets		(4,525	)		(4,512	)		(6,330	)
Amortization of unrecognized prior service cost		—			—			67
Amortization of unrecognized net loss (gain)		3,393			5,085			3,690

Net pension expense	$	6,420		$	8,498		$	5,323
Other changes recognized in other comprehensive loss:
Unrecognized net (gain) loss arising during period	$	(8,704	)	$	(3,979	)	$	7,369
Prior service cost arising during period		—			—			—
Amortization of unrecognized prior service costs		—			—			(67	)
Amortization of unrecognized net (loss) gain		(3,393	)		(5,085	)		(3,690	)

Net amount recognized in other comprehensive loss		(12,097	)		(9,064	)		3,612

Net amount recognized in pension expense and other comprehensive loss	$	(5,677	)	$	(566	)	$	8,935

The table below sets forth reconciliation from the beginning of the year for both the benefit obligation and plan assets of the Company's defined benefit plans, as well as the funded status and amounts recognized in the Company's balance sheet as of March 3, 2018 and March 4, 2017:

	Defined Benefit Pension Plan
	2018			2017
Change in benefit obligations:
Benefit obligation at end of prior year	$	164,349		$	156,474
Service cost		1,212			1,291
Interest cost		6,340			6,634
Distributions		(7,963	)		(7,449	)
Change due to change in assumptions		—			—
Actuarial loss (gain)		(2,087	)		7,399

Benefit obligation at end of year	$	161,851		$	164,349


Change in plan assets:
Fair value of plan assets at beginning of year	$	118,658		$	110,217
Employer contributions		9,023			—
Actual return on plan assets		11,142			15,890
Distributions (including expenses paid by the plan)		(7,963	)		(7,449	)

Fair value of plan assets at end of year	$	130,860		$	118,658


Funded status	$	(30,991	)	$	(45,691	)

Net amount recognized	$	(30,991	)	$	(45,691	)


Amounts recognized in consolidated balance sheets consisted of:
Prepaid pension cost	$	—		$	—
Accrued pension liability		(30,991	)		(45,691	)

Net amount recognized	$	(30,991	)	$	(45,691	)
Amounts recognized in accumulated other comprehensive loss consist of:
Net actuarial loss	$	(32,664	)	$	(44,761	)
Prior service cost		—			—

Amount recognized	$	(32,664	)	$	(44,761	)

The estimated net actuarial loss and prior service cost amounts that will be amortized from accumulated other comprehensive loss into net periodic pension expense in fiscal 2019 are $2,029 and $0, respectively.

The accumulated benefit obligation for the defined benefit pension plan was $161,851 and $164,349 as of March 3, 2018 and March 4, 2017, respectively.

The significant actuarial assumptions used for all defined benefit plans to determine the benefit obligation as of March 3, 2018, March 4, 2017 and February 27, 2016 were as follows:

	Defined Benefit Pension Plan
	2018			2017			2016
Discount rate		4.00	%		4.00	%		4.25	%
Rate of increase in future compensation levels		N/A			N/A			N/A
Expected long-term rate of return on plan assets		6.25	%		6.50	%		6.50	%

Weighted average assumptions used to determine net cost for the fiscal years ended March 3, 2018, March 4, 2017 and February 27, 2016 were:

	Defined Benefit Pension Plan
	2018			2017			2016
Discount rate		4.00	%		4.25	%		4.00	%
Rate of increase in future compensation levels		N/A			N/A			N/A
Expected long-term rate of return on plan assets		6.50	%		6.50	%		6.50	%

To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 6.25% long-term rate of return on plan assets assumption for fiscal 2018, 2017 and 2016.

The Company's pension plan asset allocations at March 3, 2018 and March 4, 2017 by asset category were as follows:

	March 3, 2018			March 4, 2017
Equity securities		53	%		52	%
Fixed income securities		47	%		48	%

Total		100	%		100	%

The investment objectives of the Defined Benefit Pension Plan, the only defined benefit plan with assets, are to:


	•	Achieve a rate of return on investments that exceeds inflation over a full market cycle and is consistent with actuarial assumptions;
	•	Balance the correlation between assets and liabilities by diversifying the portfolio among various asset classes to address return risk and interest rate risk;
	•	Balance the allocation of assets between the investment managers to minimize concentration risk;
	•	Maintain liquidity in the portfolio sufficient to meet plan obligations as they come due; and
	•	Control administrative and management costs.

The asset allocation established for the pension investment program reflects the risk tolerance of the Company, as determined by:


	•	the current and anticipated financial strength of the Company;
	•	the funded status of the plan; and
	•	plan liabilities.

Investments in both the equity and fixed income markets will be maintained, recognizing that historical results indicate that equities (primarily common stocks) have higher expected returns than fixed income investments. It is also recognized that the correlation between assets and liabilities must be balanced to address higher volatility of equity investments (return risk) and interest rate risk.

The following targets are to be applied to the allocation of plan assets.

Category	Target Allocation
U.S. equities		39	%
International equities		13	%
U.S. fixed income		48	%

Total		100	%

The Company expects to contribute $4,700 to the Defined Benefit Pension Plan during fiscal 2019.

Common and Collective Trusts

Common collective trust funds are stated at fair value as determined by the issuer of the common collective trust funds based on the net asset value ("NAV") of the underlying investments in accordance with ASC 820. There are generally no restrictions on redemptions from these funds and no unfunded commitments to invest. In accordance with ASC subtopic 820-10, certain investments that were measured at NAV per shared (or its equivalent) have not been classified in the fair value hierarchy. The underlying investments mainly consist of equity and fixed income securities funds that are valued based on the daily closing price as reported by the fund.

The proceeding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its 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 March 3, 2018.

The following table sets forth by level within the fair value hierarchy a summary of the plan's investments measured at fair value on a recurring basis as of March 3, 2018 and March 4, 2017:

	Fair Value Measurements at March 3, 2018
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Equity Securities
International equity	$	—	$	—	$	—	$	18,043
Large Cap		—		—		—		35,491
Small-Mid Cap		—		—		—		15,510
Fixed Income
Long Term Credit Bond Index		—		—		—		46,222
Long Term US Government Bonds		—		—		—		8,070
20+ Year Treasury STRIPS		—		—		—		1,168
Intermediate Fixed Income		—		—		—		5,617
Other types of investments
Short Term Investments		—		—		—		739

Total	$	—	$	—	$	—	$	130,860

	Fair Value Measurements at March 4, 2017
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Equity Securities
International equity	$	—	$	—	$	—	$	15,348
Large Cap		—		—		—		32,413
Small-Mid Cap		—		—		—		14,083
Fixed Income
Long Term Credit Bond Index		—		—		—		47,694
20+ Year Treasury STRIPS		—		—		—		7,563
Intermediate Fixed Income		—		—		—		639
Other types of investments
Short Term Investments		—		—		—		918

Total	$	—	$	—	$	—	$	118,658

The following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Following are the future benefit payments expected to be paid for the Defined Benefit Pension Plan during the years indicated:

Fiscal Year	Defined Benefit Pension Plan
2019	$	8,160
2020		8,383
2021		8,576
2022		8,736
2023		8,868
2024 - 2028		46,455

Total	$	89,178

Other Plans

The Company participates in various multi-employer union pension plans that are not sponsored by the Company. Total expenses recognized for the multi-employer plans were $20,979 in fiscal 2018, $21,336 in fiscal 2017 and $20,782 in fiscal 2016.