Steelcase Inc.
Notes to Consolidated Financial Statements

Note 8

Employee Benefit Plan Obligations

Employee benefit plan obligations consist of:

Profit-Sharing and Pension Plans

Substantially all employees are covered under the Steelcase Inc. Employees’ Profit-Sharing Retirement Plan and the Steelcase Inc. Employees’ Money Purchase Plan or under similar subsidiary plans. Annual discretionary Company contributions under the Steelcase Inc. Employees’ Profit-Sharing Retirement Plan and similar subsidiary plans are declared by the Board at the end of each year. Under the Steelcase Inc. Employees’ Money Purchase Plan, annual Company contributions are required in the amount of 5% of eligible annual compensation. Total expense under these plans approximated $79.4 million, $67.2 million and $58.9 million for 1998, 1997 and 1996, respectively.

Postretirement Insurance Benefits

The Company and certain of its subsidiaries have postretirement benefit plans that provide medical and life insurance benefits to retirees and eligible dependents. The Company accrues the cost of postretirement insurance benefits during the service lives of employees based on actuarial calculations for each plan. The following table sets forth the plans’ combined accumulated postretirement benefit obligation:

Net postretirement benefit cost charged to income includes the following components:

The significant assumptions used in determining the accumulated postretirement benefit obligation were as follows:

The weighted average annual assumed rate of increase in the per capita cost of covered benefits for retirees below the age of 65 (estimate of medical inflation rate) is 8.0% for 1999, gradually declining to 5.5% in 2004 and thereafter. For retirees above the age of 65, the rate of increase is 6.5% for 1999, gradually declining to 5.5% in 2003 and thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, a 1.0% increase in the assumed medical inflation rate would increase the accumulated postretirement benefit obligation as of February 27, 1998 by approximately $22.6 million and the annual net postretirement benefit cost by approximately $1.7 million.

Management Incentive, Executive Supplemental Retirement and Deferred Compensation Plans

Management Incentive Plan

The Amended and Restated Steelcase Inc. Management Incentive Plan is an annual and long-term incentive compensation program that provides eligible key employees of the Company with cash payments based upon the achievement by the Company of specified financial performance goals as measured by Economic Value Added (“EVA”), as defined in the plan. Annual bonuses are payable after the end of the year and, therefore, are included in accrued compensation in the accompanying consolidated balance sheets, whereas long-term bonus amounts are paid out over a three-year period commencing after the end of the year following the year in which the incentive amount is earned. The long-term amounts are paid in substantially equal installments over the three-year payment period and unpaid long-term amounts are adjusted based on the Company’s return on equity as determined each year.

Executive Supplemental Retirement Plan

The Steelcase Inc. 1994 Executive Supplemental Retirement Plan (the “Supplemental Plan”) is a non-qualified deferred compensation and supplemental retirement plan that is limited to a select group of management or highly compensated employees. The Supplemental Plan is intended to attract and retain highly qualified corporate executives and to enable such executives to devote their full-time efforts to the Company by providing, in consideration of these efforts, supplemental retirement income.

In general, upon satisfying the requirements of the Supplemental Plan executives are entitled to receive five annual payments each equal to 70% of the participant’s average base salary for the three consecutive years prior to retirement or death and 15 annual payments each equal to $50,000 multiplied by the participant’s vested percentage. A participant’s vested percentage begins at 20% after three completed years of service following such participant’s eligibility under the Supplemental Plan and increases by 20% increments annually until it becomes fully vested upon seven completed years of service following such eligibility.

Deferred Compensation Agreements

The Company has future retirement obligations to certain employees in return for agreeing not to receive part of their compensation for a period of three to five years. Compensation withheld has been invested in corporate-owned life insurance, which is expected to be sufficient to cover such future obligations.

Long-term management incentive and total executive supplemental retirement and deferred compensation expense approximated $23.2 million, $9.7 million and $13.5 million for 1998, 1997 and 1996, respectively.