SAVINGS PLANS, PENSION PLANS AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS

SAVINGS PLANS

Substantially all of our employees are eligible to participate in 401(k) savings plans. In 2014, 2013 and 2012, we made matching 401(k) contributions on behalf of employees of $2.0 million, $1.8 million and $1.6 million, respectively. Effective January 1, 2011, we closed our defined benefit pension plans to any new salaried and hourly non-represented entrants. In connection with these closures, additional company 401(k) contributions are made for employees hired after that date.

PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

We also provide benefits under company-sponsored defined benefit retiree health care plans, which cover certain salaried and hourly employees. Most of the retiree health care plans require retiree contributions and contain other cost-sharing features.

We recognize the underfunded status of our defined benefit pension plans and other postretirement employee benefit obligations on our Consolidated Balance Sheets. We recognize the changes in the funded status in the year in which changes occur through our Consolidated Statements of Comprehensive Income.

We use a December 31 measurement date for our benefit plans and obligations.

The change in benefit obligation, change in plan assets and funded status for company-sponsored benefit plans and obligations are as follows:



	PENSION PLANS						OTHER POSTRETIREMENT EMPLOYEE BENEFITS (OPEB)
(Dollars in thousands)	2014			2013			2014			2013
Benefit obligation at beginning of year	$	(393,565	)	$	(445,535	)	$	(47,343	)	$	(52,033	)
Service cost	(5,081		)	(5,318		)	(25		)	(94		)
Interest cost	(19,184		)	(17,826		)	(1,741		)	(1,810		)
Plan amendments	—			—			—			—
Actuarial loss (gain)	(49,990		)	41,178			3,229			2,692
Benefits paid	50,126			33,936			4,319			3,902
Benefit obligation at end of year	$	(417,694	)	$	(393,565	)	$	(41,561	)	$	(47,343	)

Fair value of plan assets at beginning of year	$	350,588		$	345,633		$	—		$	—
Actual return on plan assets	31,280			37,157			—			—
Employer contributions and benefit payments	5,317			1,734			4,319			3,902
Benefits paid	(50,126		)	(33,936		)	(4,319		)	(3,902		)
Fair value of plan assets at end of year	$	337,059		$	350,588		$	—		$	—

Amounts recognized in the consolidated balance sheets:
Current liabilities	$	(1,774	)	$	(1,772	)	$	(4,486	)	$	(4,929	)
Noncurrent liabilities	(78,861		)	(41,205		)	(37,075		)	(42,414		)
Funded status	$	(80,635	)	$	(42,977	)	$	(41,561	)	$	(47,343	)

Changes in actuarial assumptions, primarily the decrease in the discount rate, and adoption of updated mortality tables used to calculate our pension liabilities resulted in a decrease to the funded status of our pension plans at the end of 2014.

The accumulated benefit obligation for all defined benefit pension plans was $410.4 million and $387.4 million at December 31, 2014 and 2013, respectively.

On January 1, 2011 we froze our pension plans to any new salaried and hourly non-represented employees hired after that date.

In late 2009, we restructured our health care and life insurance plans for the majority of our retirees, with the changes effective January 1, 2010. The level of subsidy was frozen for retirees so that all future increments in heath care costs will be borne by the retirees. In addition, the retiree medical plans were redesigned for all retirees. For retirees under age 65, a high deductible medical plan was created and all other existing medical plans were terminated. These retirees were transferred to the new medical plan effective January 1, 2010. For retirees age 65 or over, the medical plan is divided into two components, with the company continuing to self-insure prescription drugs and providing a fully-insured medical supplemental plan through AARP/United Healthcare. Both medical plans require the retiree to contribute the amounts in excess of the company subsidy in order to continue coverage. Finally, vision, dental and life insurance coverage for these retirees were terminated. The effect of these retiree plan changes was a reduction in the accumulated postretirement benefit obligation of $76.7 million, which was recognized as of December 31, 2009. The retirees from our Arkansas wood products manufacturing facility are represented by a bargaining group and their retiree medical plan is covered by the collective bargaining agreement.

PENSION ASSETS

We utilize formal investment policy guidelines for our company-sponsored pension plan assets. These guidelines are periodically reviewed by the board of directors. The board of directors has delegated its authority to management to insure that the investment policy and guidelines are adhered to and the investment objectives are met.

The general policy states that plan assets will be invested to seek the greatest return consistent with the fiduciary character of the pension funds and to allow the plans to meet the need for timely pension benefit payments. The specific investment guidelines stipulate that management will maintain adequate liquidity for meeting expected benefit payments by reviewing, on a timely basis, contribution and benefit payment levels and appropriately revise long-term and short-term asset allocations. Management takes reasonable and prudent steps to preserve the value of pension fund assets and to avoid the risk of large losses. Major steps taken to provide this protection include the following:

•Assets are diversified among various asset classes, such as domestic equities, global equities, fixed income, convertible securities and liquid reserves. The long-term asset allocation ranges are as follows:



Domestic and international equities	24	%	-	48%
Fixed income securities	38	%	-	58%
Alternatives	12	%	-	18%
Cash	0	%	-	5%

Periodic reviews of allocations within these ranges are made to determine what adjustments should be made based on changing economic and market conditions and specific liquidity requirements.


•	Assets are managed by professional investment managers and may be invested in separately managed accounts or commingled funds. Assets are diversified by selecting different investment managers for each asset class and by limiting assets under each manager to no more than 25% of the total pension fund.


•	Assets are not invested in Potlatch stock.

The investment guidelines also provide that the individual investment managers are expected to achieve a reasonable rate of return over a market cycle. Emphasis will be placed on long-term performance versus short-term market aberrations. Factors to be considered in determining reasonable rates of return include performance achieved by a diverse cross section of other investment managers, performance of commonly used benchmarks (e.g., Russell 3000 Index, Barclays US Long Credit Index, Morgan Stanley Capital International All Country World Index ex US), actuarial assumptions for return on plan investments and specific performance guidelines given to individual investment managers.

The asset allocations of the pension benefit plans’ assets at December 31 by asset category are as follows:



	PENSION PLANS
ASSET CATEGORY	2014		2013
Domestic equity securities	14	%	20	%
Global/international equity securities	22		27
Fixed income securities	48		38
Other	16		15
Total	100	%	100	%

The pension assets are stated at fair value. Refer to Note 12. Financial Instruments and Concentration of Risk for discussion of the framework used to measure fair value.

Following is a description of the valuation methodologies used for assets measured at fair value:

•

Corporate common and preferred stocks are valued at quoted market prices reported on the major securities markets, and are classified in Level 1. Investments in registered investment company funds for which market quotations are generally readily available are valued at the last reported sale price, official closing price or publicly available net asset value, or NAV, (or its equivalent) on the primary market or exchange on which they are traded, and are classified in Level 1.

•

Investments in common and collective trust funds, hedge funds and liquidating trusts that maintain investments in mortgage-backed securities, are generally valued based on their respective NAV (or its equivalent), as a practical expedient to estimate fair value due to the absence of readily available market prices. Investments that may be fully redeemed at NAV in the near-term are generally classified in Level 2.


•	Investments in funds that may not be fully redeemed at NAV in the near-term are generally classified in Level 3.

Fair value measurements at December 31, 2014:



(Dollars in thousands)
ASSET CATEGORY	QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)		TOTAL
Cash and equivalents	$	6,586	$	—	$	—	$	6,586
Equity securities:
U.S. small/mid cap¹	1,136		—		—		1,136
International companies	13,782		—		—		13,782
Mutual funds²	226,710				—		226,710
Collective investments:
U.S. large cap³	—		30,005		—		30,005
Developed markets⁴	—		29,879		—		29,879
Emerging markets⁵	—		28,961		—		28,961
Total	$	248,214	$	88,845	$	—	$	337,059


¹	These are managed investments in US small/mid cap equities that track the Russell 2500 Growth index.

The mutual funds were 72% invested in high-quality intermediate and long-term investment grade securities, 22% invested in a diversified portfolio of fixed-income instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts or swap agreements and debt securities, and 6% invested in US small/mid cap equities that track the Russell 2500 Growth index.


³	These collective investments are invested in US large cap equities that track the S&P 500.


⁴	These collective investments are invested in equity funds of developed markets outside of the US & Canada, that track the MSCI EAFE Value or MSCI EAFE Growth index.


⁵	These collective investments are invested in equity funds of emerging markets outside of the US & Canada, that track the MSCI Emerging Markets index.

Fair value measurements at December 31, 2013:



(Dollars in thousands)
ASSET CATEGORY	QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)		TOTAL
Cash and equivalents	$	9,673	$	—	$	—	$	9,673
Equity securities:
U.S. large cap¹	32,304		—		—		32,304
U.S. small/mid cap²	19,053		—		—		19,053
International companies	34,773		—		—		34,773
Mutual funds³	185,505		—		—		185,505
Collective investments:
Developed markets⁴	—		17,401		—		17,401
Emerging markets⁵	—		41,300		—		41,300
Hedge funds⁶	—		—		10,579		10,579
Total	$	281,308	$	58,701	$	10,579	$	350,588


¹	These are managed investments in US large cap equities that track the Russell 1000 Value index.


²	These are managed investments in US small/mid cap equities that track the Russell 2500 Growth index.


³	The mutual funds were 50% invested in high-quality intermediate and long-term investment grade securities and 50% invested in a diversified portfolio of fixed-income instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts or swap agreements and debt securities.


⁴	These collective investments are invested in equity funds of developed markets outside of the US & Canada, that track the MSCI EAFE index.


⁵	These collective investments are invested in equity funds of emerging markets outside of the US & Canada, that track the MSCI Emerging Markets index.


⁶	The hedge funds are 37% invested in long/short and event-driven equity, 24% invested in long and short credit, 11% in relative value, 10% invested in distressed debt, 6% invested in convertible bond hedging, with the remaining 13% in other investments.

The following table sets forth a summary of changes in the fair value of the plans’ Level 3 assets for the years ended December 31:



	Hedge Funds
(Dollars in thousands)	2014			2013
Balance, beginning of year	$	10,579		$	45,693
Sales and settlements	(10,579		)	(34,500		)
Unrealized losses relating to assets still held at the reporting date	—			(614		)
Balance, end of year	$	—		$	10,579

PLAN ACTIVITY

Pre-tax components of net periodic cost (benefit) recognized in our Consolidated Statements of Income were as follows:



	PENSION PLANS									OTHER POSTRETIREMENT EMPLOYEE BENEFITS
(Dollars in thousands)	2014			2013			2012			2014			2013			2012
Service cost	$	5,081		$	5,318		$	5,238		$	25		$	94		$	284
Interest cost	19,184			17,826			19,986			1,741			1,810			2,478
Expected return on plan assets	(24,512		)	(26,092		)	(28,755		)	—			—			—
Curtailment credit	—			—			—			—			—			(103		)
Amortization of prior service cost (credit)	748			779			770			(9,641		)	(9,708		)	(9,343		)
Amortization of actuarial loss	14,451			19,929			15,356			2,186			3,209			3,127
Net periodic cost (benefit)	$	14,952		$	17,760		$	12,595		$	(5,689	)	$	(4,595	)	$	(3,557	)

Other amounts recognized in our Consolidated Statements of Comprehensive Income were as follows:



	PENSION PLANS									OTHER POSTRETIREMENT EMPLOYEE BENEFITS
(Dollars in thousands)	2014			2013			2012			2014			2013			2012
Net amount at beginning of year	$	117,167		$	161,667		$	158,883		$	(18,447	)	$	(20,769	)	$	(18,001	)

Amounts arising during the period:
Net loss (gain)	43,223			(52,242		)	20,180			(3,229		)	(2,692		)	(4,878		)
Prior service cost (credit)	—			—			510			—			—			(5,942		)
Taxes	(16,857		)	20,374			(8,069		)	1,259			1,050			4,260
Net amount arising during the period	26,366			(31,868		)	12,621			(1,970		)	(1,642		)	(6,560		)

Amounts reclassified during the period:
Amortization of prior service (cost) credit	(748		)	(779		)	(770		)	9,641			9,708			9,343
Amortization of actuarial loss	(14,451		)	(19,929		)	(15,356		)	(2,186		)	(3,209		)	(3,127		)
Taxes	5,927			8,076			6,289			(2,907		)	(2,535		)	(2,424		)
Net reclassifications during the period	(9,272		)	(12,632		)	(9,837		)	4,548			3,964			3,792

Net amount at end of year	$	134,261		$	117,167		$	161,667		$	(15,869	)	$	(18,447	)	$	(20,769	)

Amounts recognized in accumulated other comprehensive loss on our Consolidated Balance Sheets, net of tax, consist of:



	PENSION PLANS					OTHER POSTRETIREMENT EMPLOYEE BENEFITS
(Dollars in thousands)	2014			2013		2014			2013
Net loss	$	134,717		$	115,404	$	(21,750	)	$	16,490
Prior service cost (credit)	(456		)	1,763		5,881			(34,937		)
Net amount recognized	$	134,261		$	117,167	$	(15,869	)	$	(18,447	)

The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are $17.6 million and $0.6 million, respectively. The estimated net loss and prior service credit for OPEB obligations that will be amortized from accumulated other comprehensive loss into net periodic benefit over the next fiscal year are $2.2 million and $9.3 million, respectively.

EXPECTED FUNDING AND BENEFIT PAYMENTS

We are not required to make a contribution to our qualified pension plan in 2015. Our non-qualified pension plan is unfunded and benefit payments are paid from our general assets. We estimate approximately $1.8 million in supplemental pension plan payments in 2015.

Our other postretirement employee benefit plans are unfunded and benefit payments are paid from our general assets they come due. Estimated future benefit payments represent benefit costs incurred during the year by eligible participants.

Estimated future benefit payments, which reflect expected future service are as follows for the years indicated:



(Dollars in thousands)	PENSION PLANS		OTHER POSTRETIREMENT EMPLOYEE BENEFITS
2015	$	29,566	$	4,486
2016		29,342		4,293
2017		29,167		4,044
2018		29,049		3,789
2019		29,031		3,541
2020 – 2024		143,681		14,600

ACTUARIAL ASSUMPTIONS

The weighted average assumptions used to determine the benefit obligation as of December 31 were:



	PENSION PLANS						OTHER POSTRETIREMENT EMPLOYEE BENEFITS
	2014		2013		2012		2014		2013		2012
Discount rate	4.25	%	5.10	%	4.15	%	3.90	%	4.45	%	3.70	%
Rate of salaried compensation increase	3.00	%	3.00	%	3.50	%	—		—		—

The weighted average assumptions used to determine the net periodic benefit (cost) for the years ended December 31 were:



	PENSION PLANS						OTHER POSTRETIREMENT EMPLOYEE BENEFITS
	2014		2013		2012		2014		2013		2012
Discount rate	5.10	%	4.15	%	4.95	%	4.45	%	3.70	%	4.85	%
Expected return on plan assets	7.50	%	8.00	%	8.00	%	—		—		—
Rate of salaried compensation increase	3.00	%	3.50	%	3.50	%	—		—		—

The discount rate used in the determination of pension and other postretirement employee benefit obligations in 2014 and 2013 was calculated using hypothetical bond portfolios to match the expected benefit payments under each of our pension plans and other postretirement employee benefit obligations based on bonds available on December 31, 2014 with a rating of "AA" or better. The portfolios were well-diversified over corporate industrial, corporate financial, municipal, federal and foreign government issuers.

The expected return on plan assets assumption is based upon an analysis of historical long-term returns for various investment categories, as measured by appropriate indices. These indices are weighted based upon the extent to which plan assets are invested in the particular categories in arriving at our determination of a composite expected return. The expected rate of return assumption that will be used to determine net periodic cost for 2015 is 6.75%.

The assumed health care cost trend rate used to calculate other postretirement employee benefit obligations as of December 31, 2014 was 5.7% for a certain group of participants under age 65 in our hourly plan and our Arkansas participants covered by a collective bargaining agreement, grading ratably to an assumption of 4.3% in 2094.

A one percentage point change in the health care cost trend rates would have the following effects on our December 31, 2014 Consolidated Financial Statements:



(Dollars in thousands)	1% INCREASE		1% DECREASE
Effect on total service cost plus interest cost	$	5	$	(5	)
Effect on accumulated postretirement benefit obligation	112		(112		)