16. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The Corporation maintains thirteen separate and distinct pension and other postretirement defined benefit plans, consisting of three domestic plans and ten separate foreign pension plans. Effective December 31, 2014, the Corporation executed the following plan mergers: the two Williams Controls defined benefit pension plans were merged with the CW Pension Plan, resulting in one surviving domestic qualified plan, and the three domestic postretirement health-benefits plans (CW, EMD, and Williams Controls) were merged into one. Post-merger, the Corporation maintains the following domestic plans: a qualified pension plan, a non-qualified pension plan, and a postretirement health-benefits plan. 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

Qualified Pension Plan

The Corporation maintains a defined benefit pension plan (the “CW Pension Plan”) covering all employees under six benefit formulas: a non-contributory non-union and union formula for certain Curtiss-Wright (CW) employees, a contributory union and non-union benefit formula for employees at the EMD business unit, and two benefit formulas providing annuity benefits for participants in the former Williams Controls salaried and union plans.

CW non-union employees hired prior to February 1, 2010 receive a “traditional” benefit based on years of credited service, using the five highest consecutive years’ compensation during the last ten years of service. 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 were eligible for a cash balance benefit through December 31, 2013, and were transitioned to the new defined contribution plan, further described below. 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.

Participants of the former Williams Controls Retirement Income Plan for salaried employees are either deferred vested participants or currently receiving benefits, as benefit accruals under the plan were frozen to future accruals effective January 1, 2003. Benefits in the salaried plan are based on average compensation and years of service.

Participants of the former Williams Controls UAW Local 492 Plan for union employees are entitled to a benefit based on years of service multiplied by a monthly pension rate, and may be eligible for supplemental benefits based upon attainment of certain age and service requirements.

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, 2014 and 2013, the Corporation had a noncurrent pension liability of $152.5 million and $79.5 million, respectively. This increase was primarily driven by a 75 basis point decrease in the discount rate, which was 4.00% as of December 31, 2014, and the adoption of updated mortality tables reflecting further increases in life expectancy. The merger of the Williams plans also contributed $4.3 million of this increase.

The Corporation made $39.8 million of contributions to the CW Pension Plan in 2014, and made an additional elective contribution of $145.0 million in January 2015. Due to the large contribution in 2015, the Corporation does not expect to make any further contributions through 2019, but expects to make annual contributions to the new defined contribution plan, as further described below.

Nonqualified Pension Plan

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 $43.7 million and $31.7 million as of December 31, 2014 and 2013, respectively. The Corporation’s contributions to the CW Restoration Plan are expected to be $3.1 million in 2015.

Other Post-Employment Benefits (OPEB) Plan

Under the plan merger effective December 31, 2014, the Corporation provides post-employment benefits consisting of retiree health and life insurance to three distinct groups of employees/retirees: the CW Grandfathered plan, and plans assumed in the acquisition of EMD and Williams Controls.

In 2002, the Corporation restructured the postemployment medical benefits for then-active CW employees, effectively freezing the plan. The plan continues to be maintained for certain retired CW employees.

The Corporation also provides retiree health and life insurance benefits for substantially all of the Curtiss-Wright EMD employees. The plan provides basic health and welfare coverage for pre-65 participants 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 plan also provides retiree health and life insurance benefits for certain retirees of the Williams Controls salaried and union pension plans. Benefits are available to those employees who retired prior to December 31, 1993 in the salaried plan, and prior to October 1, 2003 in the union plan. Effective August 31, 2013, the Corporation modified the benefit design for post-65 retirees by introducing Retiree Reimbursement Accounts (RRA’s) to align with the EMD delivery model.

The Corporation had an accrued postretirement benefit liability at December 31, 2014 and 2013 of $23.2 million and $20.4 million, respectively. Pursuant to the EMD 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, 2014 and 2013, the discounted receivable included in other assets was $1.4 million and $1.8 million, respectively. The Corporation expects to contribute $1.6 million to the plan during 2015.

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, 2014 and 2013, the total projected benefit obligation related to all foreign plans is $90.1 million and $87.6 million, respectively. As of December 31, 2014 and 2013, the Corporation had an accrued pension liability of $5.3 million and $2.1 million, respectively. The Corporation's contributions to the foreign plans are expected to be $3.0 million in 2015.

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)	2014			2013			2012			2014			2013			2012
Service cost	$	25,262		$	40,170		$	40,274		$	246		$	373		$	448
Interest cost	30,403			27,777			26,303			877			839			939
Expected return on plan assets	(41,746		)	(36,303		)	(33,585		)	—			—			—
Amortization of prior service cost	662			883			1,201			(657		)	(638		)	(629		)
Recognized net actuarial loss	6,827			15,013			11,023			(811		)	(614		)	(682		)
Cost of settlements/curtailments	377			13			—			—			—			—
Net periodic benefit cost (income)	$	21,785		$	47,553		$	45,216		$	(345	)	$	(40	)	$	76

Net periodic benefit cost has declined over the reported periods, mainly due to the reduction in service cost, increase in the expected return on plan assets, and reduction of recognized net actuarial loss. The plan redesign reduced service cost by eliminating the cash balance benefit earned in the plan for all participants, with those not participating in the traditional benefit being moved to a new defined contribution plan. Expected returns increased due to favorable asset performance and the incremental return generated from higher required cash contributions in recent years, while the recognized actuarial loss declined in 2014, due largely to a prior period increase 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 2014, the charge was due to a settlement in the CWAT plan in Switzerland. 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.

The following table outlines the Corporation's consolidated disclosure of the pension benefits and postretirement benefits information described previously. The Corporation had no foreign postretirement plans. All plans were valued using a December 31, 2014 measurement date.



	Pension Benefits						Postretirement Benefits
(In thousands)	2014			2013			2014			2013
Change in benefit obligation:
Beginning of year	$	674,192		$	705,022		$	20,416		$	23,391
Service cost	25,262			40,170			246			373
Interest cost	30,403			27,777			877			839
Plan participants’ contributions	1,734			2,331			364			350
Amendments	178			—			—			(366		)
Actuarial loss (gain)	114,763			(62,534		)	3,276			(2,752		)
Benefits paid	(40,765		)	(34,253		)	(1,929		)	(1,419		)
Business combinations	—			5,809			—			—
Special termination benefits	—			533			—			—
Curtailments/ settlements	—			(9,713		)	—			—
Actual expenses	(1,299		)	(2,206		)	—			—
Currency translation adjustments	(7,108		)	1,256			—			—
End of year	$	797,360		$	674,192		$	23,250		$	20,416



Change in plan assets:
Beginning of year	$	558,567		$	460,202		$	—		$	—
Actual return on plan assets	37,574			82,863			—			—
Employer contribution	46,306			48,074			1,565			1,069
Plan participants’ contributions	1,734			2,331			364			350
Business combinations	—			—			—			—
Benefits paid	(40,765		)	(34,253		)	(1,929		)	(1,419		)
Settlements	(1,299		)	(2,206		)	—			—
Currency translation adjustments	(6,288		)	1,556			—			—
End of year	$	595,829		$	558,567		$	—		$	—

Funded status	$	(201,531	)	$	(115,625	)	$	(23,250	)	$	(20,416	)



	Pension Benefits						Postretirement Benefits
(In thousands)	2014			2013			2014			2013
Amounts recognized on the balance sheet
Noncurrent assets	$	6,041		$	7,142		$	—		$	—
Current liabilities	(3,523		)	(2,620		)	(1,603		)	(1,659		)
Noncurrent liabilities	(204,049		)	(120,147		)	(21,647		)	(18,757		)
Total	$	(201,531	)	$	(115,625	)	$	(23,250	)	$	(20,416	)
Amounts recognized in accumulated other comprehensive income (AOCI)
Net actuarial loss (gain)	$	180,640		$	69,355		$	(8,264	)	$	(12,350	)
Prior service cost	1,990			2,537			(4,686		)	(5,343		)
Total	$	182,630		$	71,892		$	(12,950	)	$	(17,693	)
Amounts in AOCI expected to be recognized in net periodic cost in the coming year:
Loss (gain) recognition	$	15,470		$	5,933		$	(551	)	$	(811	)
Prior service cost recognition	$	619		$	631		$	(657	)	$	(657	)
Accumulated benefit obligation	$	753,878		$	641,892		N/A			N/A
Information for pension plans with an accumulated benefit obligation in excess of plan assets:
Projected benefit obligation	$	770,241		$	604,515		N/A			N/A
Accumulated benefit obligation	726,760			528,148			N/A			N/A
Fair value of plan assets	562,669			473,078			N/A			N/A

Plan Assumptions



	Pension Benefits				Postretirement Benefits
	2014		2013		2014		2013
Weighted-average assumptions in determination of benefit obligation:
Discount rate	3.88	%	4.62	%	3.75	%	4.47	%
Rate of compensation increase	3.37	%	3.94	%	N/A		N/A
Health care cost trends:
Rate assumed for subsequent year	N/A		N/A		5.50	%	8.00	%
Ultimate rate reached in 2019 and 2015, respectively	N/A		N/A		4.59	%	5.00	%
Weighted-average assumptions in determination of net periodic benefit cost:
Discount rate	4.62	%	3.95	%	4.47	%	3.70	%
Expected return on plan assets	8.01	%	7.91	%	N/A		N/A
Rate of compensation increase	3.36	%	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 2015, respectively	N/A		N/A		5.00	%	5.00	%

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 Other Post-Employment Benefits plan 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	$	15	$	(13	)
Postretirement benefit obligation	$	364	$	(301	)

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 Finance Committee of the Corporation’s Board of Directors 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. As a part of its diversification strategy, the Corporation has established target allocations for each of the following assets classes: 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 86% of consolidated assets:



	As of December 31,		Target	Expected
	2014	2013	Exposure	Range
Asset class
Domestic equities	53%	52%	50%	40%-60%
International equities	14%	15%	15%	10%-20%
Total equity	67%	67%	65%	55%-75%
Fixed income	33%	31%	35%	25%-45%

As of December 31, 2014 and 2013, cash funds in the CW Pension Plan represented approximately 3% of portfolio assets.

Foreign plan assets represent 14% 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 5.65% 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, 2014:



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	$	17,951	$	1,638	$	16,313	$	—
Equity securities- Mutual funds⁽¹⁾	360,691		307,220		53,471		—
Bond funds ⁽²⁾	168,348		115,988		52,360		—
Insurance Contracts ⁽³⁾	10,795		—		—		10,795
Other ⁽⁴⁾	782		—		—		782
December 31, 2013	$	558,567	$	424,846	$	122,144	$	11,577
Cash and cash equivalents	$	24,354	$	871	$	23,483	$	—
Equity securities- Mutual funds ⁽¹⁾	379,467		330,619		48,848		—
Bond funds ⁽²⁾	183,068		122,790		60,278		—
Insurance Contracts⁽³⁾	8,169		—		—		8,169
Other ⁽⁴⁾	771		—		—		771
December 31, 2014	$	595,829	$	454,280	$	132,609	$	8,940

⁽¹⁾ 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.

⁽²⁾ 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.

⁽³⁾ 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.

⁽⁴⁾ 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, 2014 and 2013:



(In thousands)	Insurance Contracts			Other			Total
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
Actual return on plan assets:
Relating to assets still held at the reporting date	158			39			197
Relating to assets sold during the period	—			—			—
Purchases, sales, and settlements	(1,818		)	36			(1,782		)
Transfers in and/or out of Level 3	—			—			—
Foreign currency translation adjustment	(966		)	(86		)	(1,052		)
December 31, 2014	$	8,169		$	771		$	8,940

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
2015	$	45,126	$	1,603	$	46,729
2016	45,914		1,564		47,478
2017	47,534		1,529		49,063
2018	49,763		1,535		51,298
2019	52,630		1,506		54,136
2020 — 2024	270,769		7,342		278,111

Defined Contribution Retirement Plans

The Corporation offers all of its domestic employees the opportunity to participate in a defined contribution plan. Costs incurred by the Corporation in the administration and record keeping of the defined contribution plan are paid for by the Corporation and are not considered material.

Effective January 1, 2014, all non-union employees who were not currently receiving final or career average pay benefits became eligible to receive employer contributions in the Corporation's sponsored 401(k) plan. The employer contributions include both employer match and non-elective contribution components, up to a maximum employer contribution of 6% of eligible compensation. During the year ended December 31, 2014, the expense relating to the plan was $13.7 million. The Corporation funded $6.4 million in matching contributions to the plan in 2014, and $7.3 million in a non-elective contribution in January 2015. Cumulative contributions of approximately $65.0 million are expected to be made from 2015 through 2019.

In addition, the Corporation had foreign pension costs under various defined contribution plans of $5.7 million, $5.1 million, and $4.8 million in 2014, 2013, and 2012, respectively.