NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) Retirement and Deferred Compensation Plans
Fleetwood has qualified defined contribution (DC) retirement plans covering most employees. There are no prior service costs associated with these plans. Fleetwood follows the policy of funding qualified retirement plan contributions as earned. Fleetwood also has maintained two non-qualified plans to accrue retirement benefits subject to Internal Revenue Code limitations. During fiscal 2003, Fleetwood terminated three DC plans that covered the majority of its employees: a 401(k) plan that previously included the employees at Fleetwood Retail Corp., a money purchase plan for workers at the manufacturing subsidiaries and a profit-sharing plan for employees at Fleetwood’s headquarters. All assets and participant accounts associated with the terminated plans were transferred to a single 401(k) plan, with no loss of benefits. In addition, Fleetwood established a non-qualified Deferred Compensation Alternative (DCA) plan that serves as a retirement vehicle for after-tax contributions in excess of IRS limitations. The costs associated with these retirement plans are summarized as follows:
| Qualified DC Plans |
Non-Qualified Plans |
Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||||
| 2007 | $ | 11,030 | $ | 4,588 | $ | 15,618 | |||||
| 2006 | 13,356 | 3,296 | 16,652 | ||||||||
| 2005 | 15,052 | 4,403 | 19,455 | ||||||||
In addition to the two non-qualified retirement plans, Fleetwood has provided a non-qualified deferred compensation plan that has allowed for the voluntary deferral of a portion of managers’ compensation. With the exception of the DCA plan, where returns are dictated by a portfolio of investments selected by the individual, participant balances in the various non-qualified plans are credited with interest at a rate set at the discretion of Fleetwood. For the three years ended April 2007, this interest rate was the prime rate as published by a major U.S. bank. To enhance security for the benefits payable under these plans, excluding the DCA plan, Fleetwood has established a “Rabbi Trust,” funded with company-owned life insurance (COLI) policies on the lives of participants. The assets of the trust are not generally available to Fleetwood or its creditors, except to pay benefits or in the event of Fleetwood’s insolvency. No premium payments were made in the last three fiscal years. In fiscal 2007 and 2006, respectively, $6.4 million and $6.5 million were borrowed from the trust in the form of policy loans to pay participant benefits. The liability for benefits accrued under the non-qualified plans at the end of fiscal 2007 and 2006 totaled $28.2 million and $33.6 million, respectively. The cash values of the related trust assets reflected in the accompanying balance sheets were $23.0 million and $29.9 million, respectively, at those same dates.
In response to Federal legislation that created Internal Revenue Code Section 409A, effective as of January 1, 2005, Fleetwood amended the two non-qualified retirement plans along with the non-qualified deferred compensation plan to prohibit any further contributions or deferrals. By virtue of this amendment, these plans will not be subject to rules established by the new law, relating primarily to the distribution of participant balances. In addition, on the same date, Fleetwood established a new 2005 Deferred Compensation Plan, primarily to accommodate retirement profit-sharing contributions in excess of IRS limitations. All contributions to the new plan are subject to the provisions of the new legislation. In conjunction with some cost-reduction measures taken by Fleetwood, all profit-sharing contributions, including any excess contributions to this plan, were suspended effective January 1, 2007.
Defined Benefit Pension Plan:
Fleetwood sponsors a defined benefit pension plan assumed in connection with the acquisition of Fleetwood Folding Trailers, Inc. in 1989 that covers over 500 participants. Plan assets are held in trust and are primarily invested in equity and fixed income securities. The plan provides benefits based primarily on participants’ salary and length of service. The funding policy is set to meet statutory minimum funding requirements plus such additional amounts as Fleetwood may determine to be appropriate, not to exceed the amounts permitted by the Internal Revenue Code.
In fiscal 2007, the Pension Protection Act of 2006 (PPA) was signed into U.S. law. While the PPA is expected to have some effect on specific plan provisions in Fleetwood’s retirement program, its primary effect will be to change the minimum funding requirements for plan years beginning in 2008. Until regulations are issued by the U.S. Treasury, the financial effect is uncertain. The PPA does not have an impact on Fleetwood’s reported periodic pension costs or obligations for the year ended April 29, 2007, but is expected to increase required contributions for fiscal 2008 and forward.
On April 29, 2007, Fleetwood adopted the recognition and disclosure provisions of SFAS No. 158, which required Fleetwood to recognize the funded status (i.e. the difference between the fair value of plan assets and the projected benefit obligation) of its employee defined benefit plans in the April 29, 2007 consolidated balance sheet, with a corresponding adjustment to accumulated other comprehensive income, net of tax. The adjustment at adoption represents the net unamortized actuarial losses and unrecognized prior service costs, which were previously netted against the plans’ funded status in Fleetwood’s consolidated balance sheet pursuant to the provisions of SFAS No. 87. These amounts will be subsequently recognized as net periodic pension cost pursuant to Fleetwood’s historical accounting policy for amortizing such amounts. Actuarial gains and losses that arise in subsequent periods that are not recognized as net periodic pension cost in the same periods will be recognized as a component of other comprehensive income. Those costs will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated other comprehensive income at the adoption of SFAS No. 158.
The adoption of SFAS No. 158 had no effect on Fleetwood’s consolidated statement of income for the year ended April 29, 2007, or for any prior period presented. The primary effect of adoption was a transition adjustment that decreased other comprehensive income by approximately $1.9 million with a related increase to the pension liability.
Accumulated other comprehensive income at April 29, 2007 primarily consisted of unrecognized actuarial loss. The prior service cost and actuarial loss that are included in accumulated other comprehensive income and that are expected to be recognized in net periodic pension cost in fiscal 2008 are approximately $9,000 and $54,000, respectively.
The following table sets forth in aggregate a reconciliation of the changes in the defined benefit pension plan’s benefit obligations, assets, and funded status at April 29, 2007 and April 30, 2006. An annual measurement date of March 31, 2007 was used for the purpose of these disclosures.
| April 29, 2007 |
April 30, 2006 |
||||||
|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||
| Change in benefit obligations: Benefit obligation as of beginning of year |
$ | 9,902 | $ | 8,869 | |||
| Service cost | 572 | 668 | |||||
| Interest cost | 590 | 549 | |||||
| Actuarial (gain) loss, net | (423 | ) | 76 | ||||
| Benefits paid | (293 | ) | (260 | ) | |||
| Benefit obligation as of end of year | $ | 10,348 | $ | 9,902 | |||
| Change in plan assets: Fair value of plan assets as of beginning of year |
$ | 6,611 | $ | 5,726 | |||
| Actual return on plan assets | 612 | 680 | |||||
| Employer contributions | 925 | 465 | |||||
| Benefits paid | (293 | ) | (260 | ) | |||
| Fair value of plan assets as of end of year | $ | 7,855 | $ | 6,611 | |||
| Reconciliation of funded status: Funded status |
$ | (2,493 | ) | $ | (3,290 | ) | |
| Adjustment for post-measurement date contributions | 168 | 155 | |||||
| Unrecognized prior service cost | 80 | 89 | |||||
| Unrecognized experience loss | 1,774 | 2,388 | |||||
| Net amount recognized | $ | (471 | ) | $ | (658 | ) | |
The following table summarizes amounts recognized in shareholders’ equity:
| April 29, 2007 |
April 30, 2006 |
||||||
|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||
| Prior service cost | $ | 80 | $ | — | |||
| Net actuarial loss | 1,774 | — | |||||
| Total | $ | 1,854 | $ | — | |||
The disclosure above is not applicable to fiscal 2006 due to SFAS No. 158 being effective as of April 29, 2007.
The following table summarizes information relating to the accumulated benefit obligation in excess of plan assets:
| April 29, 2007 |
April 30, 2006 |
||||||
|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||
| Projected benefit obligation | $ | 10,348 | $ | 9,902 | |||
| Accumulated benefit obligation | 8,605 | 7,714 | |||||
| Fair value of plan assets | 7,855 | 6,611 | |||||