17. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The Corporation maintains seventeen separate and distinct pension and other postretirement defined benefit plans, consisting of seven domestic pensions and other postretirement benefit plans and ten separate foreign pension plans. The Corporation maintains the following domestic plans: a qualified pension plan, a non-qualified pension plan, and a postretirement health-benefits plan (the “Curtiss-Wright Plans”), a postretirement health benefits plan for EMD employees and two qualified plans and one postretirement health benefit plan for Williams Controls. The foreign plans consist of three defined benefit pension plans in the United Kingdom, three in Germany, two in Mexico, and one plan each in Canada and Switzerland. The German plans were added during 2013 as part of our February 28, 2013 acquisition of Phönix Holding GmbH.

Domestic Plans

The Curtiss-Wright Plans

The Corporation maintains a defined benefit pension plan (the "CW Pension Plan") covering all employees under four benefit formulas: a non-contributory non-union and union formula for all Curtiss-Wright (CW) employees and a contributory union and non-union benefit formula for employees at the EMD business unit.

CW non-union employees hired prior to February 1, 2010 receive a “traditional” benefit based on years of credited service, the five highest consecutive years’ compensation during the last ten years of service, and a “cash balance” benefit. These employees became participants under the CW Pension Plan after one year of service and were vested after three years of service. CW non-union employees hired on or after the effective date are eligible for the cash balance benefit only. CW union employees who have negotiated a benefit under the CW Pension Plan are entitled to a benefit based on years of service multiplied by a monthly pension rate.

The formula for EMD employees covers both union and non-union employees and is designed to satisfy the requirements of relevant collective bargaining agreements. Employee contributions are withheld each pay period and are equal to 1.5% of salary. The benefits for the EMD employees are based on years of service and compensation. On December 31, 2012, the Corporation amended the CW Pension Plan to close the benefit to EMD employees hired after January 1, 2014.

In May 2013, the Company’s Board of Directors approved an amendment to the CW Pension Plan. Effective January 1, 2014, all active non-union employees participating in the final and career average pay formulas in the defined benefit plan will cease accruals 15 years from the effective date of the amendment. In addition to the sunset provision, the “cash balance” benefit for non-union participants will be eliminated as of the effective date. Non-Union employees who are not currently receiving final or career average pay benefits become eligible to participate in a new defined contribution plan which provides both employer match and non-elective contribution components, up to a maximum employer contribution of 6%. The amendment does not affect CW employees that are subject to collective bargaining agreements.

At December 31, 2013 and 2012, the Corporation had a noncurrent pension liability of $79.5 million and $195.9 million, respectively. This reduction was primarily driven by favorable asset performance, which exceeded 19% for 2013, and a 75 basis point increase in the discount rate which was 4.75% as of December 31, 2013. The May 2013 amendment, which is effective January 1, 2014, resulted in a $3 million reduction to the projected benefit obligation of the plan and a second quarter 2013 curtailment charge of $2 million.

The Corporation made $40.5 million of contributions to the CW Pension Plan in 2013 and expects to make a contribution of approximately $40.0 million in 2014. The Corporation expects to make cumulative contributions of approximately $101 million from 2014 through 2018. The reduction in the Corporation's projections is primarily due to favorable changes in the discount rate and asset performance. The Corporation expects to make cash contributions of approximately $14.0 million in 2014 for the new defined contribution plan, effective January 1, 2014, and cumulative contributions of approximately $74.0 million from 2014 through 2018.

The Corporation also maintains a non-qualified restoration plan (the "CW Restoration Plan") covering those employees of CW and EMD whose compensation or benefits exceed the IRS limitation for pension benefits. Benefits under the CW Restoration Plan are not funded, and, as such, the Corporation had an accrued pension liability of $31.7 million and $34.4 million as of December 31, 2013 and 2012, respectively. The Corporation’s contributions to the CW Restoration Plan are expected to be $2.1 million in 2014.

The Corporation provides postretirement health benefits to certain employees (the "CW Retirement Plan"). In 2002, the Corporation restructured the postretirement medical benefits for certain active employees, effectively freezing the plan. The plan continues to be maintained for retired employees. The Corporation had an accrued postretirement benefit liability of $0.5 million and $0.6 million as of December 31, 2013 and 2012, respectively. Benefits under the plan are not funded. The Corporation’s contributions to the CW Retirement Plan are not expected to be material in 2014.

EMD Plan

The Corporation, through an administration agreement with Westinghouse, maintains the Westinghouse Government Services Group Welfare Benefits Plan (the “EMD Retirement Plan”), a retiree health and life insurance plan for substantially all of the Curtiss-Wright EMD employees. The EMD Retirement Plan provides basic health and welfare coverage on a non-contributory basis. Benefits are based on years of service and are subject to certain caps. Effective January 1, 2011, the Corporation modified the benefit design for post-65 retirees by introducing Retiree Reimbursement Accounts (RRA’s) to participants in lieu of the traditional benefit delivery. Participant accounts are funded a set amount annually that can be used to purchase supplemental coverage on the open market, effectively capping the benefit.

The Corporation had an accrued postretirement benefit liability at December 31, 2013 and 2012 of $18.5 million and $20.7 million, respectively. Pursuant to the Asset Purchase Agreement, the Corporation has a discounted receivable from Washington Group International to reimburse the Corporation for a portion of these postretirement benefit costs. At December 31, 2013 and 2012, the discounted receivable included in other assets was $1.8 million and $2.0 million, respectively. The Corporation expects to contribute $1.4 million to the EMD Retirement Plan during 2014.

The Williams Plans

The Corporation acquired two defined benefit pension plans and a postretirement benefit plan with the acquisition of Williams Controls on December 14, 2012. The two defined benefit plans, an hourly employee plan and salaried employee plan, provide a fixed formula benefit to members upon retirement. The postretirement benefit plan provides health care and life insurance benefits for certain of its retired employees. No new employees are being admitted into these plans. As of December 31, 2013, the Corporation had an accrued pension liability of $2.4 million and an accrued postretirement benefit liability of $1.3 million related to these plans. The Corporation expects to contribute $0.8 million into these plans in 2014.

Foreign Plans

The foreign plans consist of three defined benefit pension plans in the United Kingdom, three in Germany, two in Mexico, and one plan each in Canada and Switzerland. As of December 31, 2013 and 2012, the total projected benefit obligation related to all foreign plans is $87.6 million and $83.0 million, respectively. As of December 31, 2013 and 2012, the Corporation had an accrued pension liability of $2.1 million and $8.4 million, respectively. The Corporation's contributions to the foreign plans are expected to be $3.4 million in 2014.

In September 2013, the Corporation amended the Metal Improvement Company - Salaried Staff pension Scheme (U.K.) and the Penny & Giles Pension Plan (U.K.) to cease the accrual of future benefits effective December 31, 2013. The amendments to the plans resulted in a $7 million reduction to the projected benefit obligations and a curtailment gain of $2.8 million.

Components of net periodic benefit expense

The net pension and net postretirement benefit costs (income) consisted of the following:



	Pension Benefits									Postretirement Benefits
(In thousands)	2013			2012			2011			2013			2012			2011
Service cost	$	40,170		$	40,274		$	36,276		$	373		$	448		$	388
Interest cost	27,777			26,303			26,361			839			939			1,009
Expected return on plan assets	(36,303		)	(33,585		)	(31,635		)	—			—			—
Amortization of prior service cost	883			1,201			1,210			(638		)	(629		)	(629		)
Recognized net actuarial loss	15,013			11,023			5,464			(614		)	(682		)	(901		)
Cost of settlements/curtailments	13			—			194			—			—			—
Net periodic benefit cost (income)	$	47,553		$	45,216		$	37,870		$	(40	)	$	76		$	(133	)

Net periodic benefit cost, specifically service and interest cost, has increased over the reported periods due to growth in headcount and service accruals related to existing employees under the age and service-based formula in the plan. The recognized actuarial loss has increased over the reported periods, due largely to prior period declines in the discount rate.

The Cost of settlements/curtailments indicated above represents events that are accounted for under guidance on employers’ accounting for settlements and curtailments of defined benefit pension plans. In 2013, the CW Pension Plan curtailment charge of $2.2 million and special termination benefits in the CW Restoration Plan were largely offset by the curtailment gain in the Penny & Giles Pension Plan.

In the following table, the pension benefits information is a consolidated disclosure of all domestic and foreign plans described earlier. The postretirement benefits information includes all domestic postretirement benefit plans, as there are no foreign postretirement benefit plans. All plans were valued using a December 31, 2013 measurement date to comply with the requirements of U.S. GAAP to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position.



	Pension Benefits						Postretirement Benefits
(In thousands)	2013			2012			2013			2012
Change in benefit obligation:
Beginning of year	$	705,022		$	597,146		$	23,391		$	21,467
Service cost	40,170			40,274			373			448
Interest cost	27,777			26,303			839			939
Plan participants’ contributions	2,331			2,381			350			91
Amendments	—			—			(366		)	—
Actuarial loss (gain)	(62,534		)	55,833			(2,752		)	(377		)
Benefits paid	(34,253		)	(37,180		)	(1,419		)	(1,286		)
Business combinations	5,809			17,218			—			2,109
Special termination benefits	533			—			—			—
Curtailments/ settlements	(9,713		)	—			—			—
Actual expenses	(2,206		)	—			—			—
Currency translation adjustments	1,256			3,047			—			—
End of year	$	674,192		$	705,022		$	20,416		$	23,391



Change in plan assets:
Beginning of year	$	460,202		$	383,149		$	—		$	—
Actual return on plan assets	82,863			52,975			—			—
Employer contribution	48,074			45,230			1,069			1,195
Plan participants’ contributions	2,331			2,381			350			91
Business combinations	—			10,983			—			—
Benefits paid	(34,253		)	(37,180		)	(1,419		)	(1,286		)
Settlements	(2,206		)	—			—			—
Currency translation adjustments	1,556			2,664			—			—
End of year	$	558,567		$	460,202		$	—		$	—

Funded status	$	(115,625	)	$	(244,820	)	$	(20,416	)	$	(23,391	)



	Pension Benefits						Postretirement Benefits
(In thousands)	2013			2012			2013			2012
Amounts recognized on the balance sheet
Noncurrent assets	$	7,142		$	—		$	—		$	—
Current liabilities	(2,620		)	(2,469		)	(1,659		)	(1,695		)
Noncurrent liabilities	(120,147		)	(242,351		)	(18,757		)	(21,696		)
Total	$	(115,625	)	$	(244,820	)	$	(20,416	)	$	(23,391	)
Amounts recognized in accumulated other comprehensive income (AOCI)
Net actuarial loss (gain)	$	69,355		$	201,218		$	(12,350	)	$	(10,212	)
Prior service cost	2,537			5,612			(5,343		)	(5,615		)
Total	$	71,892		$	206,830		$	(17,693	)	$	(15,827	)
Amounts in AOCI expected to be recognized in net periodic cost in the coming year:
Loss (gain) recognition	$	5,933		$	17,112		$	(811	)	$	(639	)
Prior service cost recognition	$	631		$	1,201		$	(657	)	$	(629	)
Accumulated benefit obligation	$	641,892		$	644,483		N/A			N/A
Information for pension plans with an accumulated benefit obligation in excess of plan assets:
Projected benefit obligation	$	604,515		$	639,745		N/A			N/A
Accumulated benefit obligation	528,148			592,660			N/A			N/A
Fair value of plan assets	473,078			398,687			N/A			N/A

Plan Assumptions



	Pension Benefits				Postretirement Benefits
	2013		2012		2013		2012
Weighted-average assumptions in determination of benefit obligation:
Discount rate	4.62	%	3.95	%	4.47	%	3.70	%
Rate of compensation increase	3.94	%	3.94	%	N/A		N/A
Health care cost trends:
Rate assumed for subsequent year	N/A		N/A		8.00	%	8.00	%
Ultimate rate reached in 2019 and 2014, respectively	N/A		N/A		5.00	%	5.50	%
Weighted-average assumptions in determination of net periodic benefit cost:
Discount rate	3.95	%	4.46	%	3.70	%	4.48	%
Expected return on plan assets	7.91	%	8.02	%	N/A		N/A
Rate of compensation increase	3.94	%	3.96	%	N/A		N/A
Health care cost trends:
Rate assumed for subsequent year	N/A		N/A		8.00	%	8.00	%
Ultimate rate reached in 2019 and 2014, respectively	N/A		N/A		5.00	%	5.50	%

The discount rate for each plan is determined by discounting the plan’s expected future benefit payments using a yield curve developed from high quality bonds that are rated Aa or better by Moody’s as of the measurement date. The yield curve calculation matches the notional cash inflows of the hypothetical bond portfolio with the expected benefit payments to arrive at one effective rate for each plan.

The overall expected return on assets assumption is based on a combination of historical performance of the pension fund and expectations of future performance. Expected future performance is determined by weighting the expected returns for each asset class by the plan’s asset allocation. The expected returns are based on long-term capital market assumptions utilizing a ten-year time horizon through consultation with investment advisors. While consideration is given to recent performance and historical returns, the assumption represents a long-term prospective return.

The effect on the CW, EMD, and Williams Retirement Plans of a 1% change in the health care cost trend is as follows:



(In thousands)	1% Increase		1% Decrease
Total service and interest cost components	$	4	$	(3	)
Postretirement benefit obligation	$	93	$	(83	)

Pension Plan Assets

The overall objective for plan assets is to earn a rate of return over time to meet anticipated benefit payments in accordance with plan provisions. The long-term investment objective of the domestic retirement plans is to achieve a total rate of return, net of fees, which exceeds the actuarial overall expected return on asset assumptions used for funding purposes and which provides an appropriate premium over inflation. The intermediate-term objective of the domestic retirement plans, defined as three to five years, is to outperform each of the capital markets in which assets are invested, net of fees. During periods of extreme market volatility, preservation of capital takes a higher precedence than outperforming the capital markets.

The Corporation’s Finance Committee is responsible for formulating investment policies, developing investment manager guidelines and objectives, and approving and managing qualified advisors and investment managers. The guidelines established define permitted investments within each asset class and apply certain restrictions such as limits on concentrated holdings, and prohibits selling securities short, buying on margin, and the purchase of any securities issued by the Corporation.

The Corporation maintains the funds of the CW Pension Plan under a trust that is diversified across investment classes and among investment managers to achieve an optimal balance between risk and return. In accordance with this policy, the Corporation has established target allocations for each asset class and ranges of expected exposure. The Corporation’s domestic retirement assets are invested within this allocation structure in three major categories: domestic equity securities, international equity securities, and debt securities. Below are the Corporation’s actual and established target allocations for the CW Pension Plan, representing 82% of consolidated assets:



	As of December 31,		Target	Expected
	2013	2012	Exposure	Range
Asset class
Domestic equities	52%	50%	50%	40%-60%
International equities	15%	15%	15%	10%-20%
Total equity	67%	65%	65%	55%-75%
Fixed income	31%	33%	35%	25%-45%

As of December 31, 2013 and 2012, cash funds in the CW Pension Plan represented less than 3% of portfolio assets. The Williams Plans, which represent approximately 2% of domestic retirement assets, are more heavily weighted in fixed income resulting in a weighted expected return on assets assumption of 6.75%.

Foreign plan assets represent 15% of consolidated plan assets, with the majority of the assets supporting the U.K. plans. The U.K. foreign plans follow a similar asset allocation strategy, while other foreign plans are more heavily weighted in fixed income resulting in a weighted expected return on assets assumption of 5.20% for all foreign plans.

The Corporation may from time to time require the reallocation of assets in order to bring the retirement plans into conformity with these ranges. The Corporation may also authorize alterations or deviations from these ranges where appropriate for achieving the objectives of the retirement plans.

Fair Value Measurements

The following table presents consolidated plan assets using the fair value hierarchy as of December 31, 2013:



Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	17,657	$	1,887	$	15,770	$	—
Equity securities- Mutual funds (a)	282,772		238,746		44,026		—
Bond funds (b)	148,128		101,050		47,078		—
Insurance Contracts (c)	10,917		—		—		10,917
Other (d)	728		—		—		728
December 31, 2012	$	460,202	$	341,683	$	106,874	$	11,645
Cash and cash equivalents	$	17,951	$	1,638	$	16,313	$	—
Equity securities- Mutual funds (a)	360,691		307,220		53,471		—
Bond funds (b)	168,348		115,988		52,360		—
Insurance Contracts (c)	10,795		—		—		10,795
Other (d)	782		—		—		782
December 31, 2013	$	558,567	$	424,846	$	122,144	$	11,577

(a) This category consists of domestic and international equity securities. It is comprised of U.S. securities benchmarked against the S&P 500 index and Russell 2000 index, international mutual funds benchmarked against the MSCI EAFE index, global equity index mutual funds associated with our U.K. based pension plans and balanced funds associated with the U.K. and Canadian based pension plans.

(b) This category consists of domestic and international bonds. The domestic fixed income securities are benchmarked against the Barclays Capital Aggregate Bond index, actively-managed bond mutual funds comprised of domestic investment grade debt, fixed income derivatives, and below investment-grade issues, U.S. mortgage backed securities, asset backed securities, municipal bonds, and convertible debt. International bonds consist of bond mutual funds for institutional investors associated with the CW Pension Plan, Switzerland, and U.K. based pension plans.

(c) This category consists of a guaranteed investment contract (GIC) in Switzerland. Amounts contributed to the plan are guaranteed by a foundation for occupational benefits that in turn entered into a group insurance contract and the foundation pays a guaranteed rate of interest that is reset annually.

(d) This category consists primarily of real estate investment trusts in Switzerland.

Valuation

Equity securities and exchange-traded equity and bond mutual funds are valued using a market approach based on the quoted market prices of identical instruments. Pooled institutional funds are valued at their net asset values and are calculated by the sponsor of the fund.

Fixed income securities are primarily valued using a market approach utilizing various underlying pricing sources and methodologies. Real estate investment trusts are priced at net asset value based on valuations of the underlying real estate holdings using inputs such as discounted cash flows, independent appraisals, and market-based comparable data.

Cash balances in the United States are held in a pooled fund and classified as a Level 2 asset. Non-U.S. cash is valued using a market approach based on quoted market prices of identical instruments.

The following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2013 and 2012:



	Insurance Contracts			Other		Total
December 31, 2011	$	10,081		$	612	$	10,693
Actual return on plan assets:
Relating to assets still held at the reporting date	151			42		193
Relating to assets sold during the period	—			—		—
Purchases, sales, and settlements	429			57		486
Transfers in and/or out of Level 3	—			—		—
Foreign currency translation adjustment	256			17		273
December 31, 2012	$	10,917		$	728	$	11,645
Actual return on plan assets:
Relating to assets still held at the reporting date	162			35		197
Relating to assets sold during the period	—			—		—
Purchases, sales, and settlements	(542		)	—		(542		)
Transfers in and/or out of Level 3	—			—		—
Foreign currency translation adjustment	258			19		277
December 31, 2013	$	10,795		$	782	$	11,577

Benefit Payments

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



(In thousands)	Pension Plans		Postretirement Plans		Total
2014	$	43,128	$	1,660	$	44,788
2015	44,257		1,625		45,882
2016	46,498		1,572		48,070
2017	47,386		1,541		48,927
2018	49,570		1,531		51,101
2019 — 2023	274,227		7,188		281,415