Pensions and Other Post-Employment Benefits

The obligation and funded status of the Company’s pension and other post-employment benefit plans are shown below. The Pension Benefits column aggregates defined benefit pension plans in the U.S., Germany, and England, and the U.S. supplemental retirement plans. The Other Benefits column includes the domestic retiree medical and life insurance plan.



	Pension Benefits						Other Benefits
(Thousands)	2014			2013			2014			2013
Change in benefit obligation
Benefit obligation at beginning of year	$	221,748		$	253,839		$	31,398		$	34,294
Service cost	7,963			9,724			138			305
Interest cost	10,339			9,936			675			1,243
Plan amendments	—			—			(14,034		)	—
Actuarial (gain) loss	43,476			(28,581		)	223			(2,396		)
Benefit payments from fund	(8,387		)	(22,893		)	—			—
Benefit payments directly by Company	(1,236		)	(136		)	(1,968		)	(2,271		)
Expenses paid from assets	(570		)	(613		)	—			—
Medicare Part D subsidy	—			—			108			223
Foreign currency exchange rate changes	(1,548		)	472			—			—
Benefit obligation at end of year	271,785			221,748			16,540			31,398
Change in plan assets
Fair value of plan assets at beginning of year	173,494			163,436			—			—
Actual return on plan assets	6,852			23,824			—			—
Employer contributions	16,145			9,615			—			—
Benefit payments from fund	(8,387		)	(22,893		)	—			—
Expenses paid from assets	(569		)	(613		)	—			—
Foreign currency exchange rate changes	(349		)	125			—			—
Fair value of plan assets at end of year	187,186			173,494			—			—
Funded status at end of year	$	(84,599	)	$	(48,254	)	$	(16,540	)	$	(31,398	)
Amounts recognized in the Consolidated Balance Sheets consist of:
Other assets	$	1,703		$	1,321		$	—		$	—
Other liabilities and accrued items	(753		)	(1,138		)	(1,472		)	(2,663		)
Retirement and post-employment benefits	(85,549		)	(48,437		)	(15,068		)	(28,735		)
	$	(84,599	)	$	(48,254	)	$	(16,540	)	$	(31,398	)
Amounts recognized in other comprehensive income (before tax) consist of:
Net actuarial loss	$	122,641		$	78,983		$	275		$	52
Net prior service (credit) cost	(1,300		)	(1,734		)	—			—
	$	121,341		$	77,249		$	275		$	52
Amortizations expected to be recognized during next fiscal year (before tax):
Amortization of net loss	$	7,558		$	5,100		$	—		$	—
Amortization of prior service credit	(450		)	(434		)	—			—
	$	7,108		$	4,666		$	—		$	—
Additional information
Accumulated benefit obligation for all defined benefit pension plans	$	260,536		$	213,585		$	—		$	—
For defined benefit pension plans with benefit obligations in excess of plan assets:
Aggregate benefit obligation	266,377			216,567			—			—
Aggregate fair value of plan assets	180,075			166,992			—			—
For defined benefit pension plans with accumulated benefit obligations in excess of plan assets:
Aggregate accumulated benefit obligation	255,128			208,404			—			—
Aggregate fair value of plan assets	180,075			166,992			—			—

Components of net benefit cost and other amounts recognized in other comprehensive income (OCI)



	Pension Benefits									Other Benefits
(Thousands)	2014			2013			2012			2014			2013		2012
Net benefit cost
Service cost	$	7,963		$	9,724		$	7,915		$	138		$	305	$	285
Interest cost	10,339			9,936			9,912			675			1,243		1,439
Expected return on plan assets	(12,419		)	(12,261		)	(11,934		)	—			—		—
Amortization of prior service cost (benefit)	(434		)	(340		)	(335		)	(1,498		)	115		87
Recognized net actuarial loss	5,263			7,912			5,605			—			—		—
Net periodic cost	10,712			14,971			11,163			(685		)	1,663		1,811
Settlements	7			—			—			—			—		—
Total net benefit cost	$	10,719		$	14,971		$	11,163		$	(685	)	$	1,663	$	1,811



	Pension Benefits									Other Benefits
(Thousands)	2014			2013			2012			2014			2013			2012
Change in other comprehensive income
OCI at beginning of year	$	77,249		$	124,955		$	104,056		$	52		$	2,587		$	1,180
Increase (decrease) in OCI:
Recognized during year — prior service cost (credit)	434			340			335			1,498			(115		)	(87		)
Recognized during year — net actuarial (losses) gains	(5,263		)	(7,912		)	(5,605		)	—			—			—
Occurring during year — prior service cost	—			—			117			(14,034		)	—			—
Occurring during year — net actuarial losses (gains)	49,037			(40,143		)	25,995			223			(2,397		)	1,494
Other adjustments	—			(3		)	—			—			(23		)	—
Foreign currency exchange rate changes	(116		)	12			57			—			—			—
OCI at end of year	$	121,341		$	77,249		$	124,955		$	(12,261	)	$	52		$	2,587

Summary of key valuation assumptions



	Pension Benefits						Other Benefits
	2014		2013		2012		2014		2013		2012
Weighted-average assumptions used to determine benefit obligations at fiscal year end
Discount rate	4.00	%	4.80	%	3.99	%	3.50	%	4.50	%	3.75	%
Rate of compensation increase	3.96	%	4.43	%	4.44	%	4.00	%	4.50	%	4.50	%
Weighted-average assumptions used to determine net cost for the fiscal year
Discount rate	4.79	%	3.97	%	4.81	%	4.13	%	3.75	%	4.50	%
Expected long-term return on plan assets	7.15	%	7.44	%	7.65	%	N/A		N/A		N/A
Rate of compensation increase	4.42	%	4.42	%	4.43	%	4.50	%	4.50	%	4.50	%

The Company used a December 31 measurement date for the above plans.

Effective January 1, 2014, the Company revised the expected long-term rate of return assumption used in calculating the annual expense for its domestic defined benefit pension plan, decreasing it to 7.25% from 7.50%. Effective January 1, 2013, the Company revised the expected long-term rate of return assumption used in calculating the annual expense for its domestic defined benefit pension plan, decreasing it to 7.50% from 7.75%. In each instance, the impact was accounted for as a change in estimate.

Management establishes the domestic expected long-term rate of return assumption by reviewing historical trends and analyzing the current and projected market conditions in relation to the plan’s asset allocation and risk management objectives. Consideration is given to both recent plan asset performance as well as plan asset performance over various long-term periods of time, with an emphasis on the assumption being a prospective, long-term rate of return. Management consults with and considers the opinions of its outside investment advisors and actuaries when establishing the rate and reviews assumptions with the Audit Committee of the Board of Directors. Management believes that the 7.25% domestic expected long-term rate of return assumption is achievable and reasonable given current market conditions and forecasts, asset allocations, investment policies, and investment risk objectives.

The rate of compensation increase assumption was changed to 4.0% for 2014 and years after in the domestic defined benefit pension plan and the domestic retiree medical plan.

The Company also updated mortality rate assumptions based on new guidance issued from the Society of Actuaries, which increased the domestic defined benefit plan liability.

In the second quarter of 2012, the Company closed its domestic defined benefit pension plan to new entrants. Current plan participants will continue to accrue benefits under the existing formulas, while new hires will be offered an enhanced defined contribution plan.

Assumptions for the defined benefit pension plans in Germany and England are determined separately from the U.S. plan assumptions, based on historical trends and current and projected market conditions in Germany and England. The plan in Germany is unfunded and the plan in England has assets that are approximately 4.0% of the Company’s aggregated total fair value of plan assets as of December 31, 2014.

The Company has notified participants of changes to the domestic retiree medical plan, including changing the benefit formula for participants covered by the plan. The revised benefit formula is designed to lower costs for the Company and the majority of plan participants. As a result of this change, the plan liability on the Company's Consolidated Balance Sheet was reduced by $14.0 million in the first quarter of 2014, with the offset increasing other comprehensive income, a component of shareholders' equity. The liability reduction will be recognized in earnings over the average remaining service life of participants.



Assumed health care trend rates at fiscal year end	2014	2013
Health care trend rate assumed for next year	7.00%	7.50%
Rate that the trend rate gradually declines to (ultimate trend rate)	5.00%	5.00%
Year that the rate reaches the ultimate trend rate	2019	2019

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



	1-Percentage- Point Increase				1-Percentage- Point Decrease
(Thousands)	2014		2013		2014			2013
Effect on total of service and interest cost components	$	15	$	30	$	(14	)	$	(26	)
Effect on post-employment benefit obligation	427		602		(392		)	(567		)

Plan Assets

The following tables present the fair values of the Company’s defined benefit pension plan assets as of December 31, 2014 and 2013 by asset category. Refer to Note H to the Consolidated Financial Statements for definitions of fair value hierarchy.



	December 31, 2014
	Total		Level 1		Level 2		Level 3
(Thousands)
Cash	$	6,173	$	6,173	$	—	$	—
Equity securities:
U.S. (a)	60,028		49,625		10,403		—
International (b)	28,372		25,361		3,011		—
Emerging markets (c)	13,498		13,300		198		—
Fixed-income securities:
Intermediate-term bonds (d)	18,635		14,755		3,880		—
Short-term bonds (e)	3,631		—		3,631		—
Global bonds (f)	30,030		26,795		3,235		—
Other types of investments:
Real estate fund (g)	6,513		6,433		80		—
Alternative strategies (h)	8,477		8,382		95		—
Pooled investment fund (i)	6,613		—		—		6,613
Multi-strategy hedge funds (j)	4,962		—		—		4,962
Private equity funds	254		—		—		254
Total	$	187,186	$	150,824	$	24,533	$	11,829

	December 31, 2013
	Total		Level 1		Level 2		Level 3
(Thousands)
Cash	$	6,568	$	6,568	$	—	$	—
Equity securities:
U.S. (a)	63,321		54,095		9,226		—
International (b)	27,403		23,911		3,492		—
Emerging markets (c)	14,165		13,908		257		—
Fixed income securities:
Intermediate-term bonds (d)	21,874		14,482		7,392		—
Short-term bonds (e)	11,608		11,608		—		—
Global bonds (f)	12,728		10,879		1,849		—
Other types of investments:
Real estate fund (g)	9,943		9,882		61		—
Multi-strategy hedge funds (j)	5,467		—		—		5,467
Private equity funds	417		—		—		417
Total	$	173,494	$	145,333	$	22,277	$	5,884


(a)	Mutual funds that invest in various sectors of the U.S. market.


(b)	Mutual funds that invest in non-U.S. companies primarily in developed countries that are generally considered to be value stocks.


(c)	Mutual funds that invest in non-U.S. companies in emerging market countries.


(d)	Includes a mutual fund that employs a value-oriented approach to fixed income investment management and a mutual fund that invests primarily in investment-grade debt securities.


(e)	Includes a mutual fund that seeks a market rate of return for a fixed-income portfolio with low relative volatility of returns, investing generally in U.S. and foreign debt securities maturing in five years or less.


(f)	Mutual funds that invest in domestic and foreign sovereign securities, fixed income securities, mortgage-backed and asset-backed bonds, convertible bonds, high-yield bonds, and emerging market bonds.


(g)	Includes a mutual fund that typically invests at least 80% of its assets in equity and debt securities of companies in the real estate industry or related industries or in companies which own significant real estate assets at the time of investment.


(h)	Includes a mutual fund that tactically allocates assets to global equity, fixed income, and alternative strategies.


(i)	Includes a fund that invests in a broad portfolio of hedge funds.


(j)	Includes a hedge fund that employs multiple strategies to multiple asset classes with low correlations.

The following table summarizes changes in the fair value of the Company’s defined benefit pension plan Level 3 assets measured using significant unobservable inputs during 2014 and 2013:



(Thousands)	Total			Pooled Investment Fund		Multi-strategy Hedge Funds			Private Equity Funds
Balance as of January 1, 2013	$	4,836		$	—	$	4,191		$	645
Actual return:
On assets still held at reporting date	1,183			—		1,276			(93		)
On assets sold during the period	229			—		—			229
Purchases, sales, and settlements	(364		)	—		—			(364		)
Balance as of December 31, 2013	$	5,884		$	—	$	5,467		$	417
Actual return:
On assets still held at reporting date	(406		)	113		(505		)	(14		)
On assets sold during the period	(20		)	—		—			(20		)
Purchases, sales, and settlements	6,371			6,500		—			(129		)
Balance as of December 31, 2014	$	11,829		$	6,613	$	4,962		$	254

Capital may be withdrawn from the multi-strategy hedge fund partnership on a monthly basis with a ten-day notice period.

The Company’s domestic defined benefit pension plan investment strategy, as approved by the Governance and Organization Committee of the Board of Directors, is to employ an allocation of investments that will generate returns equal to or better than the projected long-term growth of pension liabilities so that the plan will be self-funding. The return objective is to maximize investment return to achieve and maintain a 100% funded status over time, taking into consideration required cash contributions. The allocation of investments is designed to maximize the advantages of diversification while mitigating the risk and overall portfolio volatility to achieve the return objective. Risk is defined as the annual variability in value and is measured in terms of the standard deviation of investment return. Under the Company’s investment policies, allowable investments include domestic equities, international equities, fixed income securities, cash equivalents, and alternative securities (which include real estate, private venture capital investments, hedge funds, and tactical asset allocation). Ranges, in terms of a percentage of the total assets, are established for each allowable class of security. Derivatives may be used to hedge an existing security or as a risk reduction strategy. Current asset allocation guidelines are to invest 30% to 70% in equity securities, 20% to 50% in fixed income securities and cash, and up to 20% in alternative securities. Management reviews the asset allocation on a quarterly or more frequent basis and makes revisions as deemed necessary.

None of the plan assets noted above are invested in the Company’s common stock.

Cash Flows

Employer Contributions

The Company expects to contribute $16.0 million to its domestic defined benefit pension plan and $1.5 million to its other benefit plans in 2015.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:



			Other Benefits
	Pension Benefits		Gross Benefit Payment		Net of Medicare Part D Subsidy
(Thousands)
2015	$	9,672	$	1,472	$	1,435
2016	9,894		1,483		1,447
2017	12,320		1,566		1,533
2018	11,202		1,597		1,565
2019	12,581		1,541		1,512
2020 through 2024	72,765		6,442		6,334

Other Benefit Plans

In addition to the plans shown above, the Company also has certain foreign subsidiaries with accrued unfunded pension and other post-employment arrangements. The liability for these arrangements was $2.1 million at December 31, 2014 and $2.3 million at December 31, 2013, and was included in retirement and post-employment benefits in the Consolidated Balance Sheets.

The Company also sponsors defined contribution plans available to substantially all U.S. employees. The Company’s annual defined contribution expense, including the expense for the enhanced defined contribution plan that was implemented in the second quarter of 2012, was $3.0 million in 2014, $2.8 million in 2013, and $2.5 million in 2012.