| BENEFIT PLANS |
(11) BENEFIT PLANS Pension plan The Company has a defined benefit pension plan for which accumulated benefits were frozen and future service credits were curtailed as of March 1, 2004. Under generally accepted accounting principles, the Company’s defined benefit pension plan was overfunded as of April 30, 2023 by $747,000, with $1,030,000 of assets and $283,000 of liabilities and as of April 30, 2022 by $90,000, with $18,054,000 of assets and $17,964,000 of liabilities. The pension plan liabilities were determined using a weighted average discount interest rate of 4.51% per year as of April 30, 2023 and 3.97% per year as of April 30, 2022, which are based on the FTSE Pension Discount Curve as of such dates as it corresponds to the projected liability requirements of the pension plan. The Company funds the pension plan in compliance with IRS funding requirements. The pension plan is subject to minimum IRS contribution requirements, but these requirements can be satisfied by the use of the pension plan’s existing credit balance. No cash contributions to the pension plan were required or made during 2023 or 2022. Pension assets and liabilities are measured at fair value (measured in accordance with the guidance described in Note 10) and are subject to fair value adjustment in certain circumstances (for example, when there is evidence of impairment). There were no impairments resulting in a change in fair value during 2023 or 2022. The Company recognized a non-cash pre-tax pension settlement general and administrative expense of $7,597,000 during 2023 due to (a) the Company’s defined benefit pension plan paying certain lump sum payouts of pension benefits to former employees and (b) the transfer of nearly all remaining pension benefit liabilities to an insurance company through an annuity purchase. There were no such charges in 2022. Net periodic pension cost for 2023 and 2022 was comprised of the following components (in thousands): | | | | | | | | | Year Ended April 30, | | | 2023 | | 2022 | Interest cost on projected benefit obligation | | $ | 603 | | $ | 503 | Expected return on assets | | | (1,123) | | | (1,535) | Plan expenses | | | 106 | | | 150 | Recognized net actuarial loss | | | 372 | | | 392 | Net periodic pension cost | | $ | (42) | | $ | (490) | Settlement | | | 7,597 | | | - | Net periodic pension cost after settlement | | | 7,555 | | | (490) |
Assumptions used in determining net periodic pension cost and the pension benefit obligation were: | | | | | | | | Year Ended April 30, | | | | 2023 | | 2022 | | Discount rate used to determine net periodic pension cost | | 3.97 | % | 2.48 | % | Discount rate used to determine pension benefit obligation | | N/A | | 3.97 | % | Expected long-term rate of return on assets used for pension cost on assets | | 7.75 | % | 7.75 | % |
The expected return on assets for the pension plan is based on management’s expectation of long-term average rates of return to be achieved by the underlying investment portfolio. In establishing this assumption, management considers historical and expected returns for the asset classes in which the pension plan is invested, as well as current economic and market conditions. The actuarial gain of $1,667,000 for 2023 is a plan experience gain. The actuarial gain of $2,414,000 for 2022 consists of a gain from a change in discount rate gain of $2,360,000, other assumption losses of $76,000 and plan experience gains of $130,000. The following table sets forth changes in the pension plan’s benefit obligation and assets, and summarizes components of amounts recognized in the Company’s balance sheet (in thousands): | | | | | | | | | April 30, | | | 2023 | | 2022 | Change in benefit obligation: | | | | | | | Benefit obligation at beginning of year | | $ | 17,964 | | $ | 21,578 | Service cost | | | 106 | | | 150 | Interest cost | | | 603 | | | 503 | Actuarial gain | | | (1,667) | | | (2,414) | Benefits paid | | | (1,366) | | | (1,853) | Settlement | | | (15,357) | | | - | Benefit obligation at end of year | | $ | 283 | | $ | 17,964 | Change in plan assets: | | | | | | | Fair value of plan assets at beginning of year | | $ | 18,054 | | $ | 21,102 | Actual return on plan assets | | | (103) | | | (1,239) | Company contributions | | | — | | | — | Benefits paid | | | (1,366) | | | (1,703) | Plan expenses | | | (198) | | | (106) | Settlement | | | (15,357) | | | — | Fair value of plan assets at end of year | | $ | 1,030 | | $ | 18,054 | Overfunded status | | $ | 747 | | $ | 90 |
The funded status of the pension plan is equal to the net liability recognized in the balance sheets. The following table summarizes the amounts recorded in accumulated other comprehensive income (loss), which have not yet been recognized as a component of net periodic pension costs (in thousands): | | | | | | | | | Year Ended April 30, | | | 2023 | | 2022 | Pretax accumulated comprehensive income (loss) | | $ | 138 | | $ | (8,350) |
The following table summarizes the changes in accumulated other comprehensive income (loss) related to the pension plan for the years ended April 30, 2023 and 2022 (in thousands): | | | | | | | | | Pension Benefits | | | Pretax | | Net of Tax | Accumulated comprehensive loss, May 1, 2021 | | $ | 8,426 | | $ | 4,623 | Net actuarial gain | | | 316 | | | 214 | Amortization of net loss | | | (392) | | | (264) | Accumulated comprehensive loss, April 30, 2022 | | $ | 8,350 | | $ | 4,573 | Net actuarial loss | | | (372) | | | (302) | Amortization of net loss | | | (243) | | | (198) | Settlement | | | (7,597) | | | (5,243) | Accumulated comprehensive income (loss), April 30, 2023 | | $ | 138 | | $ | (1,170) |
The Company recognizes the known changes in the funded status of the pension plan in the period in which the changes occur through other comprehensive income, net of the related income tax effect. The Company recorded, net of tax, other comprehensive income of $5,743,000 and $50,000 in 2023 and 2022 to account for the net effect of changes to the pension liability. The amount of benefit payments in future fiscal years to pension plan participants payable from plan assets is expected to be as follows: 2024 - $283,000. The asset allocation for the pension plan by asset category was as follows: | | | | | | | | April 30, | | | | 2023 | | 2022 | | Equity securities | | — | % | 57 | % | Fixed income securities | | — | | 38 | | Cash and cash equivalents | | 100 | | 5 | | Total | | 100 | % | 100 | % |
As of April 30, 2023, the pension plan assets are held in cash and cash equivalents due to the amount of pension plan liabilities. The pension plan holds no securities of the Company. The Company has adopted the disclosure requirements in ASC 715, which requires additional fair value disclosures consistent with those required by ASC 820. The following is a description of the valuation methodologies used for pension plan assets measured at fair value: common stock – valued at the closing price reported on a listed stock exchange; corporate bonds, debentures and government agency securities – valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flow; and U.S. Treasury securities – valued at the closing price reported in the active market in which the security is traded. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while 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 the reporting date. The following table sets forth by level within the fair value hierarchy the pension plan’s assets at fair value as of April 30, 2023 and 2022 (in thousands): 2023: | | | | | | | | | | | | | | | Total | | Level 1 | | Level 2 | | Level 3 | Cash and cash equivalents | | $ | 1,030 | | $ | 1,030 | | $ | — | | $ | — | Total assets at fair value | | $ | 1,030 | | $ | 1,030 | | $ | — | | $ | — |
2022: | | | | | | | | | | | | | | | Total | | Level 1 | | Level 2 | | Level 3 | Cash and cash equivalents | | $ | 791 | | $ | 791 | | $ | — | | $ | — | Investments at fair value: | | | | | | | | | | | | | Equity securities | | | 10,348 | | | 10,348 | | | — | | | — | Fixed income securities | | | 6,915 | | | 6,915 | | | — | | | — | Total assets at fair value | | $ | 18,054 | | $ | 18,054 | | $ | — | | $ | — |
Simple IRA The Company provides a Simple IRA plan as a retirement plan for eligible employees. Under the Simple IRA plan, eligible employees may contribute a portion of their pre-tax yearly salary, up to the maximum contribution limit for Simple IRA plans as set forth under the Internal Revenue Code of 1986, as amended, with the Company matching such contributions on a dollar-for-dollar basis up to 3% of each contributing employee’s annual pre-tax compensation. The Company’s employer contribution was $74,000 and $55,000 for 2023 and 2022. Equity compensation plan The AMREP Corporation 2016 Equity Compensation Plan (the “ Equity Plan”) authorizes stock-based awards of various kinds to non-employee directors and employees covering up to a total of 500,000 shares of common stock of the Company. The Equity Plan will expire by its terms on, and no award will be granted under the Equity Plan on or after, September 19, 2026. As of April 30, 2023, the Company has issued 108,961 shares of common stock of the Company under the Equity Plan and has reserved for issuance 110,266 shares of common stock of the Company under the Equity Plan upon exercise of issued and outstanding deferred common share units and an option to purchase shares, resulting in 280,773 shares of common stock of the Company available for issuance under the Equity Plan. Shares of restricted common stock that are issued under the Equity Plan (“restricted shares”) are considered to be issued and outstanding as of the grant date and have the same dividend and voting rights as other common stock. Compensation expense related to the restricted shares is recognized over the vesting period of each grant based on the fair value of the shares as of the date of grant. The fair value of each grant of restricted shares is determined based on the trading price of the Company’s common stock on the date of such grant, and this amount will be charged to expense over the vesting term of the grant. Forfeitures are recognized as reversals of compensation expense on the date of forfeiture. The restricted share award activity for 2023 and 2022 was as follows: | | | | | | | | | | Weighted Average | | | Number of | | Grant Date Fair Value | Restricted share awards | | Shares | | Per Share | Non-vested as of May 1, 2021 | | 29,000 | | $ | 6.18 | Granted during 2022 | | 13,000 | | | 11.50 | Vested during 2022 | | (20,500) | | | 6.61 | Forfeited during 2022 | | — | | | — | Non-vested as of April 30, 2022 | | 21,500 | | | 8.98 | Granted during 2023 | | 14,600 | | | 11.17 | Vested during 2023 | | (9,833) | | | 8.09 | Forfeited during 2023 | | — | | | — | Non-vested as of April 30, 2023 | | 26,267 | | | 10.53 |
The Company recognized non-cash compensation expense related to the vesting of restricted shares of common stock net of forfeitures of $144,000 and $102,000 for 2023 and 2022. As of April 30, 2023, there was $104,000 of unrecognized compensation expense related to restricted shares of common stock previously issued under the Equity Plan which had not vested, which is expected to be recognized over the remaining vesting term not to exceed three years. In November 2021, the Company granted Christopher V. Vitale, the President and Chief Executive Officer of the Company, an option to purchase 50,000 shares of common stock of the Company under the Equity Plan with an exercise price of $14.24 per share, which was the closing price on the New York Stock Exchange on the date of grant. The option will become exercisable for 100% of the option shares on November 1, 2026 if Mr. Vitale is employed by, or providing service to, the Company on such date. Subject to the definitions in the Equity Plan, in the event (a) Mr. Vitale has a termination of employment with the Company on account of death or disability, (b) the Company terminates Mr. Vitale’s employment with the Company for any reason other than cause or (c) of a change in control, then the option will become immediately exercisable for 100% of the option shares. The option has a term of ten years from the date of grant and terminates at the expiration of that period. The option automatically terminates upon: (i) the expiration of the three month period after Mr. Vitale ceases to be employed by the Company, if the termination of his employment by Mr. Vitale or the Company is for any reason other than as hereinafter set forth in clauses (ii), (iii) or (iv); (ii) the expiration of the one year period after Mr. Vitale ceases to be employed by the Company on account of Mr. Vitale’s disability; (iii) the expiration of the one year period after Mr. Vitale ceases to be employed by the Company, if Mr. Vitale dies while employed by the Company; or (iv) the date on which Mr. Vitale ceases to be employed by the Company, if the termination is for cause. If Mr. Vitale engages in conduct that constitutes cause after Mr. Vitale’s employment terminates, the option immediately terminates. Notwithstanding the foregoing, in no event may the option be exercised after the date that is immediately before the tenth anniversary of the date of grant. Except as described above, any portion of the option that is not exercisable at the time Mr. Vitale has a termination of employment with the Company immediately terminates. The fair value of the option was $252,000 as of the date of grant using the Black-Scholes fair value option valuation model. The following assumptions were used for determining the fair value of the option: expected volatility of 38.04%; average risk-free interest rate of 1.46%; dividend yield of 0%; and expected life of 7.5 years. As of April 30, 2023, the option has not been exercised, cancelled or forfeited. The Company recognized non-cash compensation expense related to the option of $51,000 and $25,000 during 2023 and 2022. As of April 30, 2023, the option was out-of-the-money and therefore was not included in “weighted average number of common shares outstanding – diluted” when calculating diluted earnings per share. The option could be dilutive to earnings per share in the future. As of April 30, 2022, the option was out-of-the-money and therefore was not included in “weighted average number of common shares outstanding – diluted” when calculating diluted earnings per share. On December 31, 2022 and 2021, each non-employee member of the Company’s Board of Directors was issued the number of deferred common share units of the Company under the Equity Plan equal to $30,000 divided by the closing price per share of Common Stock reported on the New York Stock Exchange on such date. Based on the closing price per share of $11.55 and $15.20 on December 31, 2022 and 2021, the Company issued a total of 7,791 and 5,919 deferred common share units to members of the Company’s Board of Directors. Each deferred common share unit represents the right to receive one share of Common Stock within 30 days after the first day of the month to follow such director’s termination of service as a director of the Company. Director compensation non-cash expense, which is recognized for the annual grant of deferred common share units ratably over the director’s service in office during the calendar year, was $90,000 for each of 2023 and 2022. At April 30, 2023 and 2022, there was $30,000 of accrued compensation expense related to the deferred stock units expected to be issued in December of the following fiscal year.
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