Pension and Other Postretirement Benefits

12 Months Ended

Dec. 31, 2011

Pension and Other Postretirement Benefits

Pension and Other Postretirement Benefits

Note 7.  Pension and Other Postretirement Benefits

Pension Plans

Substantially all active employees of the Company's U.S. operations participate in defined benefit pension plans and/or defined contribution retirement plans. Neenah Germany has defined benefit plans designed to provide a monthly pension upon retirement for substantially all its employees in Germany. In addition, the Company maintains a SERP which is a non-qualified defined benefit plan. The Company provides benefits under the SERP to the extent necessary to fulfill the intent of its defined benefit retirement plans without regard to the limitations set by the Internal Revenue Code on qualified defined benefit plans.

For the year ended December 31, 2010, benefit payments under the SERP exceeded the sum of expected service cost and interest costs for the plan for calendar 2010. In accordance with ASC Topic 715, Compensation — Retirement Benefits ("ASC Topic 715"), the Company measured the liabilities of the SERP as of September 30, 2010 and recognized a settlement loss of $0.3 million.

The closure of the Ripon Mill resulted in the elimination of expected years of future service for mill employees eligible to participate in the Company's defined benefit pension plans and postretirement medical plan. In accordance with ASC Topic 715, the Company measured the assets and liabilities of the affected postretirement plans as of May 31, 2009 and recognized an aggregate curtailment loss of approximately $0.8 million for the year ended December 31, 2009.

The Company's funding policy for qualified defined benefit plans for its U.S. operations is to contribute assets to fully fund the accumulated benefit obligation. Subject to regulatory and tax deductibility limits, any funding shortfall is to be eliminated over a reasonable number of years. Nonqualified plans providing pension benefits in excess of limitations imposed by taxing authorities are not funded. There is no legal or governmental obligation to fund Neenah Germany's benefit plans and as such the Neenah Germany defined benefit plans are currently unfunded.

The Company uses the fair value of pension plan assets to determine pension expense, rather than averaging gains and losses over a period of years. Investment gains or losses represent the difference between the expected return calculated using the fair value of the assets and the actual return based on the fair value of assets. The Company's pension obligations are measured annually as of December 31. As of December 31, 2011, the Company's pension plans had cumulative unrecognized investment losses and other actuarial losses of approximately $60.4 million recorded in accumulated other comprehensive income.

Other Postretirement Benefit Plans

The Company maintains postretirement health care and life insurance benefit plans for active employees of the Company and former employees of the Canadian pulp operations. The plans are generally noncontributory for employees who were eligible to retire on or before December 31, 1992 and contributory for most employees who became eligible to retire on or after January 1, 1993. The Company does not provide a subsidized benefit to most employees hired after 2003.

The Company's obligations for postretirement benefits other than pensions are measured annually as of December 31. At December 31, 2011, the assumed inflationary health care cost trend rates used to determine obligations at December 31, 2011 and costs for the year ended December 31, 2012 were 7.9 percent gradually decreasing to an ultimate rate of 4.5 percent in 2027. The assumed inflationary health care cost trend rates used to determine obligations at December 31, 2010 and costs for the year ended December 31, 2011 were 8.4 percent gradually decreasing to an ultimate rate of 4.5 percent in 2027.

The following table reconciles the benefit obligations, plan assets, funded status and net liability information of the Company's pension and other postretirement benefit plans.

	Pension Benefits						Postretirement Benefits Other than Pensions
	Year Ended December 31,
	2011			2010			2011			2010
Change in Benefit Obligation:
Benefit obligation at beginning of year	$	252.7		$	234.7		$	42.0		$	37.9
Service cost		4.1			4.4			1.7			1.6
Interest cost		14.5			14.0			2.3			2.2
Currency		(1.1	)		(2.6	)		(0.1	)		(0.2	)
Actuarial loss		28.9			13.0			0.2			3.7
Benefit payments from plans		(11.8	)		(10.8	)		(2.8	)		(3.2	)
Plan amendments		—			0.9			(0.8	)		—
Gain on plan curtailment		—			(0.2	)		—			—
Gain on plan settlement		—			(0.7	)		—			—
Benefit obligation at end of year	$	287.4		$	252.7		$	42.5		$	42.0
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	192.2		$	168.2		$	—		$	—
Actual gain on plan assets		15.2			20.5			—			—
Employer contributions		12.9			12.6			—			—
Benefit payments		(9.7	)		(8.4	)		(0.2	)		—
Other		—			—			0.2			—
Fair value of plan assets at end of year	$	210.6		$	192.2		$	—		$	—
Reconciliation of Funded Status
Fair value of plan assets	$	210.6		$	192.2		$	—		$	—
Projected benefit obligation		287.4			252.7			42.5			42.0
Net liability recognized in statement of financial position	$	(76.8	)	$	(60.5	)	$	(42.5	)	$	(42.0	)
Amounts recognized in statement of financial position consist of:
Current liabilities	$	(9.2	)	$	(2.1	)	$	(3.4	)	$	(2.9	)
Noncurrent liabilities		(67.6	)		(58.4	)		(39.1	)		(39.1	)
Net amount recognized	$	(76.8	)	$	(60.5	)	$	(42.5	)	$	(42.0	)

Amounts recognized in accumulated other comprehensive income consist of:

	Pension Benefits				Postretirement Benefits Other than Pensions
	December 31,
	2011		2010		2011		2010
Accumulated actuarial loss	$	60.4	$	33.3	$	7.1	$	7.0
Prior service cost		1.2		1.3		0.6		2.0
Total recognized in accumulated other comprehensive income	$	61.6	$	34.6	$	7.7	$	9.0

Summary disaggregated information about the pension plans follows:

	December 31,
	Assets Exceed ABO				ABO Exceed Assets				Total
	2011		2010		2011		2010		2011		2010
Projected benefit obligation	$	—	$	101.4	$	287.4	$	151.3	$	287.4	$	252.7
Accumulated benefit obligation		—		91.1		274.0		149.3		274.0		240.4
Fair value of plan assets		—		95.2		210.6		97.0		210.6		192.2

Components of Net Periodic Benefit Cost

	Pension Benefits									Postretirement Benefits Other than Pensions
	Year Ended December 31,
	2011			2010			2009			2011		2010		2009
Service cost	$	4.1		$	4.4		$	4.5		$	1.7	$	1.6	$	1.9
Interest cost		14.5			14.0			14.3			2.3		2.2		2.5
Expected return on plan assets (a)		(15.0	)		(13.8	)		(11.3	)		—		—		—
Recognized net actuarial loss		1.6			1.3			1.4			0.2		0.1		0.3
Amortization of prior service cost		0.2			0.1			0.1			0.5		0.4		0.4
Amount of curtailment loss recognized		—			—			0.2			—		—		0.6
Amount of settlement loss recognized		—			0.3			—			—		—		—
Net periodic benefit cost related to continuing operations	$	5.4		$	6.3		$	9.2		$	4.7	$	4.3	$	5.7

(a)

The expected return on plan assets is determined by multiplying the fair value of plan assets at the prior year-end (adjusted for estimated current year cash benefit payments and contributions) by the expected long-term rate of return.

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income

	Pension Benefits								Postretirement Benefits Other than Pensions
	Year Ended December 31,
	2011			2010		2009			2011			2010			2009
Net periodic benefit expense	$	5.4		$	6.3	$	9.2		$	4.7		$	4.3		$	5.7
Accumulated actuarial gain (loss)		27.1			5.0		(2.6	)		0.1			3.7			(1.7	)
Prior service cost (credit)		(0.1	)		0.7		(0.3	)		(1.4	)		(0.4	)		(0.7	)
Total recognized in other comprehensive income		27.0			5.7		(2.9	)		(1.3	)		3.3			(2.4	)
Total recognized in net periodic benefit cost and other comprehensive income	$	32.4		$	12.0	$	6.3		$	3.4		$	7.6		$	3.3

The estimated net actuarial loss and prior service cost for the defined benefit pension plans expected to be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $4.1 million and $0.2 million, respectively. The estimated net actuarial loss and prior service cost for postretirement benefits other than pensions expected to be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $0.3 million and $0.2 million, respectively.

Weighted-Average Assumptions Used to Determine Benefit Obligations at December 31

	Pension Benefits						Postretirement Benefits Other than Pensions
	2011			2010			2011			2010
Discount rate		5.14	%		5.86	%		5.03	%		5.70	%
Rate of compensation increase		2.95	%		3.91	%		—			—

Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31

	Pension Benefits									Postretirement Benefits Other than Pensions
	Year Ended December 31,
	2011			2010			2009			2011			2010			2009
Discount rate		5.86	%		6.06	%		6.80	%		5.70	%		5.92	%		6.00	%
Expected long-term return on plan assets		7.75	%		8.00	%		7.92	%		—			—			—
Rate of compensation increase		3.91	%		3.91	%		3.43	%		—			—			—

Expected Long-Term Rate of Return and Investment Strategies

The expected long-term rate of return on pension fund assets held by the Company's pension trusts was determined based on several factors, including input from pension investment consultants and projected long-term returns of broad equity and bond indices. Also considered were the plans' historical 10-year and 15-year compounded annual returns. It is anticipated that, on average, actively managed U.S. pension plan assets will generate annual long-term rates of return of at least 7.25 percent. The expected long-term rate of return on the assets in the plans was based on an asset allocation assumption of approximately 45 percent with equity managers, with expected long-term rates of return of approximately 8 to10 percent, and 55 percent with fixed income managers, with an expected long-term rate of return of about 5 to 7 percent. The actual asset allocation is regularly reviewed and periodically rebalanced to the targeted allocation when considered appropriate.

Plan Assets

Fair Value Measurements

The Company measures the fair value of pension plan assets in accordance with ASC Topic 820, Fair Value Measurements and Disclosures ("ASC Topic 820") which establishes a framework for measuring fair value. ASC Topic 820 provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC Topic 820 are described below:

Level

1  Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the plan has the ability to access.

Level

2  Inputs to the valuation methodology include:

•

Quoted prices for similar assets or liabilities in active markets;

•

Quoted prices for identical or similar assets or liabilities in inactive markets;

•

Inputs other than quoted prices that are observable for the asset or liability;

•

Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level

3  Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques attempt to maximize the use of observable inputs and minimize the use of unobservable inputs.

The following table sets forth by level, within the fair value hierarchy, the fair value of the Company's pension plan assets:

	Assets at Fair Value at December 31,
	Level 1				Level 2(a)				Level 3				Total
	2011		2010		2011		2010		2011		2010		2011		2010
Equity securities
Domestic	$	—	$	—	$	61.3	$	84.3	$	—	$	—	$	61.3	$	84.3
International		—		—		29.4		34.3		—		—		29.4		34.3
Fixed income		—		—		116.1		71.7		—		—		116.1		71.7
Cash and equivalents		3.8		1.9		—		—		—		—		3.8		1.9
Total assets at fair value	$	3.8	$	1.9	$	206.8	$	190.3	$	—	$	—	$	210.6	$	192.2

(a)

Pension plan assets are invested in a master collective trust (the "Master Trust ") which holds mutual funds and common stock. Shares of mutual funds and common stock owned by the Master Trust are valued at quoted market prices. Pension plan assets invested in the Master Trust are presented at fair value, which has been determined based on the fair value of the underlying investments of the Master Trust.

Pension plan asset allocations are as follows:

	Percentage of Plan Assets At December 31,
	2011			2010			2009
Asset Category
Equity securities		43	%		62	%		59	%
Debt securities		55	%		37	%		37	%
Cash and money-market funds		2	%		1	%		4	%
Total		100	%		100	%		100	%

The Company's investment objectives for pension plan assets is to ensure, over the long-term life of the pension plans, an adequate pool of assets to support the benefit obligations to participants, retirees, and beneficiaries. Specifically, these objectives include the desire to: (a) invest assets in a manner such that future assets are available to fund liabilities, (b) maintain liquidity sufficient to pay current benefits when due and (c) diversify, over time, among asset classes so assets earn a reasonable return with acceptable risk to capital.

The target investment allocation and permissible allocation range for plan assets by category are as follows:

	Strategic Target			Permitted Range
Asset Category
Equity securities		45	%		40-50	%
Debt securities / Fixed Income		55	%		50-60	%

As of December 31, 2011, no company or group of companies in a single industry represented more than five percent of plan assets.

The Company's investment assumptions are established by an investment committee composed of members of senior management and are validated periodically against actual investment returns. As of December 31, 2011, the Company's investment assumptions are as follows:

• (a)

  the plan should be substantially fully invested in debt and equity securities at all times because substantial cash holdings will reduce long-term rates of return;
  
  

  (b)

  equity investments will provide greater long-term returns than fixed income investments, although with greater short-term volatility;
  
  

  (c)

  it is prudent to diversify plan investments across major asset classes;
  
  

  (d)

  allocating a portion of plan assets to foreign equities will increase portfolio diversification, decrease portfolio risk and provide the potential for long-term returns;

• (e)

  investment managers with active mandates can reduce portfolio risk below market risk and potentially add value through security selection strategies, and a portion of plan assets should be allocated to such active mandates;
  
  

  (f)

  a component of passive, indexed management can benefit the plans through greater diversification and lower cost, and a portion of the plan assets should be allocated to such passive mandates, and
  
  

  (g)

  it is appropriate to retain more than one investment manager, given the size of the plans, provided that such managers offer asset class or style diversification.

For the years ended December 31, 2011, 2010 and 2009, no plan assets were invested in the Company's securities.

Cash Flows

At December 31, 2011, the Company expects to make aggregate contributions to qualified pension trusts and payments of pension benefits for unfunded pension plans in 2012 of approximately $19.8 million (based on exchange rates at December 31, 2011).

Future Benefit Payments

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

	Pension Plans		Postretirement Benefits Other than Pensions
2012	$	19.7	$	3.4
2013		13.6		3.0
2014		13.8		3.5
2015		14.6		3.8
2016		15.2		4.0
Years 2017-2021		92.5		20.3

Health Care Cost Trends

Assumed health care cost trend rates affect the amounts reported for postretirement health care benefit plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

	One Percentage-Point
	Increase		Decrease
Effect on total of service and interest cost components	$	0.6	$	(0.7	)
Effect on post-retirement benefit obligation		1.5		(2.4	)

Defined Contribution Retirement Plans

Company contributions to defined contribution retirement plans are primarily based on the age and compensation of covered employees. Contributions to these plans, all of which were charged to expense, were $1.6 million in 2011, $1.5 million in 2010 and $1.4 million in 2009. In addition, the Company maintains a supplemental retirement contribution plan (the "SRCP") which is a non-qualified, unfunded defined contribution plan. The Company provides benefits under the SRCP to the extent necessary to fulfill the intent of its defined contribution retirement plans without regard to the limitations set by the Internal Revenue Code on qualified defined contribution plans. For the year ended December 31, 2011, the Company recognized expense related to the SRCP of approximately $0.1 million. For each of the years ended December 31, 2010 and 2009, the Company recognized expense related to the SRCP of less than $0.1 million.

Investment Plans

The Company provides voluntary contribution investment plans to substantially all North American employees. Under the plans, the Company matches a portion of employee contributions. For the years ended December 31, 2011, 2010 and 2009, costs charged to expense for company matching contributions under these plans were $1.5 million, $1.3 million and $1.5 million, respectively.