RETIREMENT PLANS

12 Months Ended

Sep. 30, 2011

RETIREMENT PLANS

RETIREMENT PLANS

9. RETIREMENT PLANS

Barnwell sponsors a noncontributory defined benefit pension plan (“Pension Plan”) covering substantially all of its U.S. employees, with benefits based on years of service and the employee’s highest consecutive five-year average earnings.  Barnwell’s funding policy is intended to provide for both benefits attributed to service to date and for those expected to be earned in the future.  In addition, Barnwell sponsors a Supplemental Employee Retirement Plan (“SERP”), a noncontributory supplemental retirement benefit plan which covers certain current and former employees of Barnwell for amounts exceeding the limits allowed under the defined benefit pension plan, and a postretirement medical insurance benefits plan (“Postretirement Medical”) covering U.S. employees who have attained at least 20 years of service with Barnwell and served at least 10 years at the position of Vice President or higher, their spouses and qualifying dependents.

The following tables detail the changes in benefit obligations, fair values of plan assets and reconciliations of the funded status of the retirement plans:

	Pension				SERP				Postretirement Medical
	September 30,
	2011		2010		2011		2010		2011		2010
Change in Projected Benefit Obligation:
Benefit obligation at beginning of year	$ 6,959,000		$ 6,342,000		$ 1,195,000		$ 1,019,000		$ 1,365,000		$ 1,180,000
Service cost	298,000		298,000		45,000		44,000		12,000		15,000
Interest cost	311,000		322,000		58,000		54,000		51,000		64,000
Actuarial (gain) loss	(342,000	)	180,000		18,000		83,000		(397,000	)	106,000
Benefits paid	(174,000	)	(178,000	)	(6,000	)	(5,000	)	-		-
Administrative expenses paid	(7,000	)	(5,000	)	-		-		-		-
Benefit obligation at end of year	7,045,000		6,959,000		1,310,000		1,195,000		1,031,000		1,365,000
Change in Plan Assets:
Fair value of plan assets at beginning of year	4,123,000		3,688,000		-		-		-		-
Actual return on plan assets	23,000		368,000		-		-		-		-
Employer contributions	250,000		250,000		6,000		5,000		-		-
Benefits paid	(174,000	)	(178,000	)	(6,000	)	(5,000	)	-		-
Administrative expenses paid	(8,000	)	(5,000	)	-		-		-		-
Fair value of plan assets at end of year	4,214,000		4,123,000		-		-		-		-
Funded status	$(2,831,000	)	$(2,836,000	)	$(1,310,000	)	$(1,195,000	)	$(1,031,000	)	$(1,365,000	)
	Pension				SERP				Postretirement Medical
	September 30,
	2011		2010		2011		2010		2011		2010
Amounts recognized in the Consolidated Balance Sheets:
Noncurrent assets	$         -		$         -		$         -		$         -		$         -		$         -
Current liabilities	-		-		(5,000	)	(5,000	)	-		-
Noncurrent liabilities	(2,831,000	)	(2,836,000	)	(1,305,000	)	(1,190,000	)	(1,031,000	)	(1,365,000	)
Net amount	$(2,831,000	)	$(2,836,000	)	$(1,310,000	)	$(1,195,000	)	$(1,031,000	)	$(1,365,000	)
Amounts recognized in accumulated other comprehensive loss:
Net actuarial loss (gain)	$  2,765,000		$  2,919,000		$    434,000		$    430,000		$    (191,000	)	$    201,000
Prior service cost (credit)	98,000		103,000		(93,000	)	(89,000	)	284,000		420,000
Accumulated other comprehensive loss	$  2,863,000		$  3,022,000		$    341,000		$    341,000		$      93,000		$    621,000

The following weighted-average assumptions were used to determine benefit obligations at September 30, 2011 and 2010:

	Pension		SERP		Postretirement Medical
	September 30,
	2011	2010	2011	2010	2011	2010
Assumptions used to determine the fiscal year-end benefit obligations:
Discount rate	4.75%	5.00%	4.75%	5.00%	4.75%	5.00%
Rate of compensation increase	5.00%	5.00%	5.00%	5.00%	N/A	N/A

Barnwell estimates that it will make approximately $650,000 in contributions to the pension plan during fiscal 2012.  The SERP and Postretirement Medical plans are unfunded and Barnwell will fund benefits when payments are made.  Barnwell does not expect to make any benefit payments under the Postretirement Medical plan during fiscal 2012 and expected payments under the SERP for fiscal 2012 are not significant.  Fluctuations in actual market returns as well as changes in general interest rates will result in changes in the market value of plan assets and may result in increased or decreased retirement benefits costs and contributions in future periods.

For the fiscal years ended September 30, 2011 and 2010, the following weighted-average assumptions were used to determine net periodic benefit cost for the fiscal years shown:

	Pension		SERP		Postretirement Medical
	Year ended September 30,
	2011	2010	2011	2010	2011	2010
Assumptions used to determine the net periodic benefit cost:
Discount rate	5.00%	5.25%	5.00%	5.25%	5.00%	5.25%
Expected return on plan assets	7.00%	7.00%	N/A	N/A	N/A	N/A
Rate of compensation increase	5.00%	5.00%	5.00%	5.00%	N/A	N/A

We select a discount rate by reference to yields available on the Citigroup Pension Liability Index at our balance sheet date.  The expected return on plan assets is primarily based on historical rates of return.

The components of net periodic benefit cost are as follows:

	Pension						SERP				Postretirement Medical
	Year ended September 30,
	2011			2010			2011		2010		2011			2010
Net periodic benefit cost for the year:
Service cost		$ 298,000			$ 298,000			$ 45,000		$  44,000		$ 12,000			$ 15,000
Interest cost		311,000			322,000			58,000		54,000		51,000			64,000
Expected return on plan assets		(296,000	)		(264,000	)		-		-		-			-
Amortization of prior service cost		5,000			5,000			4,000		5,000		136,000			136,000
Amortization of net actuarial loss (gain)		85,000			108,000			14,000		14,000		(5,000	)		1,000
Net periodic benefit cost		$ 403,000			$ 469,000			$ 121,000		$ 117,000		$194,000			$216,000

The amounts that are estimated to be amortized from accumulated other comprehensive income into net periodic benefit cost in the next fiscal year are as follows:

								Postretirement
	Pension			SERP				Medical
Prior service cost (credit)		$	5,000		$	(1,000	)		$	136,000
Net actuarial loss (gain)		108,000			16,000				(11,000		)
		$	113,000		$	15,000			$	125,000

The accumulated benefit obligation differs from the projected benefit obligation in that it assumes future compensation levels will remain unchanged.  The accumulated benefit obligation for the pension plan was $5,284,000 and $4,876,000 at September 30, 2011 and 2010, respectively.  The accumulated benefit obligation for the SERP was $879,000 and $772,000 at September 30, 2011 and 2010, respectively.

The benefits expected to be paid under the retirement plans as of September 30, 2011 are as follows:

					Postretirement
	Pension		SERP		Medical
Expected Benefit Payments:
Fiscal year ending September 30, 2012	$	158,000	$	5,000	$	-
Fiscal year ending September 30, 2013	$	147,000	$	4,000	$	-
Fiscal year ending September 30, 2014	$	198,000	$	4,000	$	-
Fiscal year ending September 30, 2015	$	187,000	$	3,000	$	-
Fiscal year ending September 30, 2016	$	176,000	$	3,000	$	-
Fiscal years ending September 30, 2017 through 2021	$	1,573,000	$	176,000	$	232,000

The following provides the assumed health care cost trend rates related to the measurement of Barnwell’s postretirement medical obligations for fiscal years ended September 30, 2011 and 2010.

	Year ended September 30,
	2011	2010
Health care cost trend rates assumed for next year	7.5%	8.0%
Ultimate cost trend rate	6.0%	6.0%
Year that the rate reaches the ultimate trend rate	2014	2014

The assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement medical obligations.  A one-percentage-point change in the assumed health care cost trend rates would have the following effects:

	1-Percentage	1-Percentage
	Point Increase	Point (Decrease)
Effect on total service and interest cost components	$   14,000	$   (11,000)
Effect on accumulated postretirement benefit obligations	$ 228,000	$ (179,000)

Plan assets

Management communicates periodically with its professional investment advisors to establish investment policies, direct investments and select investment options.  The overall investment objective of the Pension Plan is to attain a diversified combination of investments that provides long-term growth in the assets of the plan to fund future benefit obligations while managing risk in order to meet current benefit obligations.  Generally, principal repayments and interest received on government mortgage securities provide cash flows to fund current benefit obligations.  Longer-term obligations are generally estimated to be provided for by growth in equity securities.  The Company’s investment policy permits investments in a diversified mix of U.S. and international equities, debt securities and cash equivalents.

Barnwell’s investments in debt securities include corporate bonds, mortgage-backed securities, trust preferred securities and U.S. treasuries.  The Company’s investments in equity securities primarily include large, small, domestic, and international companies, as well as preferred stocks.  Plan assets include $8,000 of Barnwell’s stock at September 30, 2011.  We believe that there are no significant concentrations of risk within our plan assets as of September 30, 2011.

The Company’s year-end target allocation, by asset category, and the actual asset allocations at September 30, 2011 and 2010 were as follows:

	Target	September 30,
Asset Category	Allocation	2011	2010
Cash and other	0% - 30%	15%	3%
Debt securities	20% - 60%	16%	31%
Equity securities	30% - 70%	69%	66%

Actual investment allocations may vary from our target allocations from time to time due to prevailing market conditions.  Due to market turmoil in September 2011, management deferred the investment of a portion of cash into debt securities.  We periodically review our actual investment allocations and rebalance our investments to our target allocations as dictated by current and anticipated market conditions and required cash flows.

We categorize plan assets into three levels based upon the assumptions used to price the assets.  Level 1 provides the most reliable measure of fair value, whereas Level 3 requires significant management judgment in determining the fair value.  Equity securities are valued by obtaining quoted prices on recognized and highly liquid exchanges.  Debt securities are valued based upon the closing price reported in the active market in which the security is traded.  All of our plan assets are categorized as Level 1 assets, and as such, the actual market value is used to determine the fair value of assets.  The following table sets forth by level, within the fair value hierarchy, pension plan assets at their fair value as of September 30, 2011 and 2010:

				Fair Value Measurements Using:
	Carrying			Quoted			Significant
	Amount			Prices in			Other			Significant
	as of			Active			Observable			Unobservable
	September 30,			Markets			Inputs			Inputs
	2011			(Level 1)			(Level 2)			(Level 3)
Financial Assets:
Cash		$	625,000		$	625,000		$	-		$	-
U.S. government bonds			303,000			303,000			-			-
Corporate bonds			366,000			366,000			-			-
Preferred stocks			197,000			197,000			-			-
Equities			2,723,000			2,723,000			-			-
Total		$	4,214,000		$	4,214,000		$	-		$	-

				Fair Value Measurements Using:
	Carrying			Quoted			Significant
	Amount			Prices in			Other			Significant
	as of			Active			Observable			Unobservable
	September 30,			Markets			Inputs			Inputs
	2010			(Level 1)			(Level 2)			(Level 3)
Financial Assets:
Cash		$	106,000		$	106,000		$	-		$	-
U.S. government bonds			430,000			430,000			-			-
Corporate bonds			867,000			867,000			-			-
Preferred stocks			253,000			253,000			-			-
Equities			2,467,000			2,467,000			-			-
Total		$	4,123,000		$	4,123,000		$	-		$	-