Employee Benefit Plans

Defined Contribution Retirement Plans

The Company maintains defined contribution retirement plans for all U.S. and Canadian salaried employees.

On September 1, 2011, the Company amended the eligibility requirement from a completed 90 days of services with the Company to eligibility commencing on the first of the month following hire date. The Company currently makes a non-elective contribution equal to 4% of compensation for each employee who performed at least 1000 hours of service and is employed on the last day of the year. In addition, the Company currently matches 100% of the first 3% contributed and 50% of the next 2% contributed by each eligible employee as well as an additional contribution of up to 4% which can be made at the Company’s discretion. Employees vest in Company contributions after 3 years of service. Expenses related to this plan totaled $1.6 million, $1.6 million and $1.2 million for the years ended December 31, 2012, 2011 and 2010, respectively. Accrued expenses at December 31, 2012 and 2011 included $1.4 million and $1.1 million related to this plan, respectively.

Management Incentive Plan (“MIP”)

On April, 1 2009, the Company established the MIP, which is a nonqualified deferred compensation plan for the purpose of providing deferred compensation benefits for certain members of management. Under the MIP, participants can defer their base salary and other compensation that is supplemental to his or her base salary and is dependent upon achievement of individual or Company performance goals. It is intended that the MIP constitute an unfunded plan for purposes of the Employee Retirement Income Securities Act of 1974, as amended. The amount of compensation or awards deferred is deemed to be invested in a hypothetical investment as of the date of deferral. During the years ended December 31, 2012 and 2011, the Company funded discretionary contributions to the MIP totaling $0.4 million and $0.3 million, respectively. In addition, total accrued amount including employee deferrals, discretionary contributions and related earnings was approximately $0.9 million and $0.5 million as of December 31, 2012 and 2011, respectively.

Bonus Plan

On November 4, 2010, the Compensation Committee established an annual incentive (“bonus plan”) for all employees that is discretionary in nature. The bonus plan is performance based and includes both qualitative and quantitative criteria. For the years ended December 31, 2012 and 2011, the Company accrued $3.5 million and $4.8 million, respectively.

Defined Benefit Pension Plan and Other Post-Retirement Benefits

In accordance with the terms of the Arrangement Agreement, the Company maintained the terms of the benefit plans for Molycorp Canada’s current and former employees. Molycorp Canada's predecessor company had a defined benefit pension plan (“Pension Plan”), which covered all hourly employees employed as of September 30, 1995, and all hourly employees subsequently hired by Molycorp Canada's predecessor company up to 2003 at its former U.S. manufacturing facility in Anderson, Indiana. A December 31 measurement date is used for the Pension Plan.

The Company also maintained the terms of Molycorp Canada postretirement medical and life insurance benefits plan for certain employees from the Anderson, Indiana manufacturing facility. The measurement date for this postretirement benefit plan (“PBP”) is December 31. The actuarial valuation for funding purposes of the Pension Plan and PBP is January 1 of each year.

The following table sets forth the details of the change in the benefit obligation and plan assets for the Pension Plan and the PBP from June 12, 2012 (the beginning of the Molycorp Canada's reporting period) to December 31, 2012 (in thousands):



	Pension Plan			PBP			Total
Change in benefit obligation:
At June 12, 2012	$	7,975		$	238		$	8,213
Service cost	—			—			—
Interest cost	176			11			187
Net actuarial loss (gain)	820			(25		)	795
Benefits paid	(270		)	(7		)	(277		)
At December 31, 2012	$	8,701		$	217		$	8,918

Change in plan assets:
Fair value of plan assets at June 12, 2012	$	5,379		$	—		$	5,379
Actual return on plan assets	262			—			262
Employer contribution	255			7			262
Benefits paid	(270		)	(7		)	(277		)
Fair value of plan assets at December 31, 2012	$	5,626		$	—		$	5,626

Underfunded status at December 31, 2012	$	(3,075	)	$	(217	)	$	(3,292	)

The total unfunded status was recognized in the consolidated balance sheet at December 31, 2012 as a long-term "Pension liability". The accumulated benefit obligation for the Pension Plan equates the benefit obligation at December 31, 2012 because there are no new active service participants in the Pension Plan. The Company recognized an actuarial loss, net of income taxes, of $1.2 million in "Accumulated Other Comprehensive Loss" at December 31, 2012. The actuarial net loss for the Pension Plan that will be amortized from "Accumulated Other Comprehensive Loss" into net periodic benefit cost during 2013 is estimated to be $0.3 million. Prior service cost included in "Accumulated Other Comprehensive Loss" was nominal at December 31, 2012.

The Company's total contribution to the Pension Plan and PBP is expected to be approximately $0.1 million in 2013. The Company's estimate of future benefit payments related to both plans is as follows (in thousands):



2013	$	500
2014	500
2015	500
2016	500
2017	500
2018-2022	2,500

The components of the net periodic pension expense for the period from June 12, 2012 to December 31, 2012 for the Pension Plan and PBP are set forth below (in thousands):



	Pension Plan			PBP			Total
Components of net periodic benefit cost:
Service Cost	$	—		$	—		$	—
Interest cost	176			11			187
Expected return on plan assets	(267		)	—			(267		)
Amortization of transition obligation/(asset)	—			—			—
Amortization of prior service cost	—			(4		)	(4		)
Amortization of actuarial loss	228			(7		)	221
Net periodic benefit cost	$	137		$	—		$	137

Weighted average significant actuarial assumptions used in measuring the Company's benefit obligation and net periodic benefit cost for its Pension Plan and PBP were as follows at December 31, 2012:



	Pension Plan		PBP
Assumptions for benefit obligation:
Discount rate	3.7	%	3.5	%
Rate of compensation increase*	—	%	—	%
Initial medical trend rate (pre65/post65)	n/a		7.3	%
Ultimate medical trend rate (pre65/post65)	n/a		4.5	%
Year ultimate rate reached (pre65/post65)	n/a		2028
Assumptions for net periodic benefit cost:
Discount rate	4.5	%	4.55	%
Expected return on plan assets	5	%	n/a
Rate of compensation increase*	—	%	—	%
Initial medical trend rate (pre65/post65)	n/a		9.3%/7.4%
Ultimate medical trend rate (pre65/post65)	n/a		4.5	%
* No assumption was made with regard to the rate of expected compensation increase as there are no new active service participants in the plan.

The assumed discount rate is based on benchmark yields of high-quality corporate bonds denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the pension liability.

The effect of a one-percentage point increase or decrease in the assumed heath care cost trend rates for the PBP were as follows at December 31, 2012 (in thousands):



	PBP
Effect of 1% increase in assumed health care cost trend rates:
Total of service and interest cost components	$	1
Post-employment benefit obligation	$	16
Effect of 1% decrease in assumed health care cost trend rates:
Total of service and interest cost components	$	(1	)
Post-employment benefit obligation	$	(14	)

The expected rate of return on plan assets was based on a weighted average of expected returns of the various assets in the Pension Plan. Such returns were determined in part using a historical analysis and in part by predicting future returns in a study that looks at assets allocation, risk-free interest rates, yields on long-term high-quality bonds, price earnings ratios of major stock indexes and projected inflation rates.

The investment policies for the Pension Plan are established by a pension asset investment committee (the "Committee") that meets periodically to review the asset allocation percentages and investment goals of the Pension Plan. The most relevant investment theme set forth by the Committee is to reduce undue exposure to equity market fluctuations while providing for long-term appreciation of the funds invested. At December 31, 2012, the Committee established the following target asset allocation percentages for the Pension Plan:



	Pension Plan
	Min		Max
Interest-bearing cash	5	%	10	%
Fixed income securities	50	%	80	%
Equity securities	20	%	30	%

The Pension Plan's assets consisted of the following at December 31, 2012:



	Pension Plan
Interest-bearing cash	2.33	%
Fixed income securities	74.34	%
Equity securities	23.33	%

Fair Value Measurements of Pension Plan Assets

Interest-bearing cash consists of money market fund investments in interest-bearing cash are stated at cost, which approximate fair value. Fixed income securities include U.S. government bonds, domestic and foreign corporate bonds and fixed income mutual funds, which are valued using market inputs such as broker/dealer quotes, reported trades and benchmark yields. Equity securities of corporations are valued at the closing price reported on the active stock market where the selected securities are traded.

The fair value of the Pension Plan assets segregated by the input level within the fair value hierarchy established under GAAP, were as follows at December 31, 2012 (in thousands):



	Level 1		Level 2		Level 3		Total
Pension Plan assets, at fair value:
Interest-bearing cash	$	130	$	—	$	—	$	130
Fixed income securities	291		3,899		—		4,190
Equity securities	1,306		—		—		1,306
Total Pension Plan assets	$	1,727	$	3,899	$	—	$	5,626