EMPLOYEE BENEFITS

Pension and Postretirement Plans

The Company provides a qualified defined benefit pension plan covering all eligible domestic employees hired before March 1, 2004. The plan bases benefits upon both years of service and earnings through June 15, 2009. The policy is to fund at least an amount necessary to satisfy the minimum funding requirements of ERISA. For the foreign plans, contributions are made on a monthly basis and are governed by their governmental regulations. Each foreign plan requires employer contributions. Additionally, one of the Swiss plans requires employee contributions. In 2010, the accrual of benefits under the domestic plan and one of the foreign plans were permanently frozen.

Domestic employees hired on or after March 1, 2004 have retirement benefits under the 401(k) defined contribution plan. After the completion of one year of service, the Company will contribute 4% of an employee's pay and will further match 25% of the first 4% that the employee contributes. For employees participating in the domestic 401(k) plan, the Company made contributions of $1.8 million, $1.6 million, and $1.4 million in 2014, 2013, and 2012, respectively. In conjunction with the permanent freeze of benefit accruals under the domestic defined benefit pension plan, employees that were actively participating in the domestic defined benefit pension plan became eligible to receive company contributions in the 401(k) plan. Additionally, upon reaching age 50, employees who were age 40 or older as of January 1, 2011 and were participants in the domestic defined benefit pension plan are provided enhanced employer contributions in the 401(k) plan to compensate for the loss of future benefit accruals under the defined benefit pension plan. The Company recognized $2.0 million, $1.8 million, and $1.6 million of expense for the domestic defined contribution plan in 2014, 2013, and 2012, respectively. Employees may contribute additional funds to the plan for which there is no required company match. All employer and employee contributions are invested at the direction of the employees in a number of investment alternatives, one being Hardinge Inc. common stock.

In 2014, as a result of significant lump sum benefits paid out of the Switzerland Pensionskasse L. Kellenberger Plan, a $0.8 million settlement charge was recognized in the net periodic benefit cost. This was offset by a $0.4 million curtailment gain, which was recognized as a result of a significant portion of the active population terminating employment. In 2013, as a result of significant lump sum payments made in two of the foreign plans, a $0.2 million settlement charge was recognized and was reflected in the net periodic benefit cost. In 2012, a $3.2 million prior service credit in two of the foreign pension plans was recognized as a result of a plan amendment that changed the interest rates used to convert lump sums to annuity payments.

As a result of the acquisition of the Forkardt operations from Illinois Tool Works in May 2013, the benefit obligations of the Forkardt defined benefit and postretirement medical plans were assumed. These obligations included a Termination Indemnity Plan in France and a Postretirement Medical Plan in the U.S.

The Company provides a contributory retiree health plan covering all eligible domestic employees who retired at normal retirement age prior to January 1, 1993 and all retirees who have or will retire at normal retirement age after January 1, 1993 with at least 10 years of active service. Employees who elect early retirement on or after reaching age 55 are eligible for the plan benefits if they have 15 years of active service at retirement. Benefit obligations and funding policies are at the discretion of management. Increases in the cost of the retiree health plan are paid by the participants. The Company also provides a non-contributory life insurance plan to retirees who meet the same eligibility criteria as required for retiree health insurance. Because the amount of liability relative to this plan is insignificant, it is combined with the health plan for purposes of this disclosure.

The discount rate for determining benefit obligations in the postretirement benefits plans was 4.23% and 5.13% at December 31, 2014 and 2013, respectively. The change in the discount rate increased the accumulated postretirement benefit obligation as of December 31, 2014 by $0.2 million.

A summary of the pension and postretirement benefits plans' funded status and amounts recognized in the Consolidated Balance Sheets is as follows (in thousands):



	Pension Benefits						Postretirement Benefits
	December 31,						December 31,
	2014			2013			2014			2013
Change in benefit obligation :
Benefit obligation at beginning of year	$	216,306		$	223,780		$	1,769		$	2,312
Service cost	1,421			1,401			11			18
Interest cost	8,426			7,380			87			92
Plan participants' contributions	1,501			1,567			326			375
Actuarial loss (gain)	34,840			(12,208		)	10			(452		)
Foreign currency impact	(11,792		)	2,463			—			—
Benefits and administrative expenses paid	(11,985		)	(7,760		)	(397		)	(604		)
Settlements	(3,284		)	(628		)	—			—
Acquisitions	—			311			—			28
Benefit obligation at end of year	235,433			216,306			1,806			1,769

Change in plan assets:
Fair value of plan assets at beginning of year	193,429			176,693			—			—
Actual return on plan assets	14,688			18,233			—			—
Employer contributions	2,644			2,732			71			229
Plan participants' contributions	1,501			1,567			326			375
Foreign currency impact	(11,012		)	2,592			—			—
Benefits and administrative expenses paid	(11,985		)	(7,760		)	(397		)	(604		)
Settlements	(3,284		)	(628		)	—			—
Fair value of plan assets at end of year	185,981			193,429			—			—
Funded status of plans	$	(49,452	)	$	(22,877	)	$	(1,806	)	$	(1,769	)

Amounts recognized in the Consolidated Balance Sheets consist of:
Non-current assets	$	2,318		$	4,023		$	—		$	—
Current liabilities	(253		)	(232		)	(112		)	(131		)
Non-current liabilities	(51,517		)	(26,668		)	(1,694		)	(1,638		)
Net amount recognized	$	(49,452	)	$	(22,877	)	$	(1,806	)	$	(1,769	)

Amounts recognized in Accumulated Other Comprehensive (Loss) consists of:
Net actuarial (loss) gain	$	(75,220	)	$	(50,580	)	$	657		$	724
Transition asset	500			850			—			—
Prior service credit	2,126			3,232			—			—
Accumulated other comprehensive (loss) income	(72,594		)	(46,498		)	657			724
Accumulated contributions in excess (deficit) of net periodic benefit cost	23,142			23,621			(2,463		)	(2,493		)
Net deficit recognized in Consolidated Balance Sheets	$	(49,452	)	$	(22,877	)	$	(1,806	)	$	(1,769	)

The projected benefit obligations for the foreign pension plans included in the amounts above were $114.1 million and $106.7 million at December 31, 2014 and 2013, respectively. The plan assets for the foreign pension plans included above were $102.6 million and $105.8 million at December 31, 2014 and 2013, respectively.

The accumulated benefit obligations for the foreign and domestic pension plans were $231.4 million and $212.2 million at December 31, 2014 and 2013, respectively.

The following information is presented for pension plans where the projected benefit obligations exceeded the fair value of plan assets (in thousands):



	Pension Benefits
	December 31,
	2014		2013
Projected benefit obligations	$	228,138	$	128,638
Fair value of plan assets	176,367		101,738
Excess of projected benefit obligations over plan assets	$	51,771	$	26,900

The following information is presented for pension plans where the accumulated benefit obligations exceeded the fair value of plan assets (in thousands):



	Pension Benefits
	December 31,
	2014		2013
Accumulated benefit obligations	$	223,921	$	127,692
Fair value of plan assets	175,766		101,145
Excess of accumulated benefit obligations over plan assets	$	48,155	$	26,547

A summary of the components of net periodic benefit cost for the Company, which includes an executive supplemental pension plan, is presented below (in thousands):



	Pension Benefits									Postretirement Benefits
	Year Ended December 31,									Year Ended December 31,
	2014			2013			2012			2014			2013			2012
Service cost	$	1,421		$	1,401		$	1,246		$	11		$	18		$	18
Interest cost	8,426			7,380			8,159			87			92			111
Expected return on plan assets	(9,892		)	(9,464		)	(9,495		)	—			—			—
Amortization of prior service credit	(399		)	(393		)	(54		)	—			(254		)	(353		)
Amortization of transition asset	(276		)	(272		)	(269		)	—			—			—
Settlement loss	810			229			—			—			—			—
Curtailment gain	(409		)	—			—			—			—			—
Amortization of loss (gain)	1,719			3,223			2,417			(57		)	(5		)	(7		)
Net periodic benefit cost (income)	$	1,400		$	2,104		$	2,004		$	41		$	(149	)	$	(231	)

A summary of the changes in pension and postretirement benefits recognized in other comprehensive (income) loss is presented below (in thousands):



	Pension Benefits									Postretirement Benefits
	Year Ended December 31,									Year Ended December 31,
	2014			2013			2012			2014		2013			2012
Net loss (gain) arising during year	$	30,044		$	(20,977	)	$	12,533		$	10	$	(452	)	$	30
Amortization of transition asset	286			272			269			—		—			—
Amortization of prior service credit	808			393			54			—		254			353
Other gain	—			—			(3,216		)	—		—			—
Amortization of (gain) loss	(2,539		)	(3,452		)	(2,417		)	57		5			7
Foreign currency exchange impact	(2,503		)	268			713			—		—			—
Total recognized in other comprehensive (income) loss	26,096			(23,496		)	7,936			67		(193		)	390
Net recognized in net periodic benefit cost and other comprehensive (income) loss	$	27,496		$	(21,392	)	$	9,940		$	108	$	(342	)	$	159

The net periodic benefit cost for the foreign pension plans included in the amounts above was $0.7 million, $1.4 million, and $1.9 million, for the years ended December 31, 2014, 2013, and 2012, respectively.

The Company expects to recognize $3.2 million of net loss, $0.2 million of net transition assets and $0.3 million of net prior service credit as components of net periodic benefit cost in 2015 for the defined benefit pension plans. The Company expects to recognize $0.1 million of net gain as a component of net periodic benefit cost for the postretirement benefits plans in 2015.

Actuarial assumptions used to determine pension costs and other postretirement benefit costs include:



	Pension Benefits						Postretirement Benefits
	2014		2013		2012		2014		2013		2012
Assumptions at January 1
For the domestic plans:
Discount rate	5.24	%	4.31	%	5.11	%	5.13	%	4.21	%	4.92	%
Expected return on plan assets	7.50	%	7.75	%	7.75	%	N/A		N/A		N/A
For the foreign plans:
Weighted average discount rate	2.57	%	2.34	%	3.01	%
Weighted average expected return on plan assets	4.03	%	3.91	%	4.07	%
Weighted average rate of compensation increase	1.64	%	2.51	%	2.51	%

Actuarial assumptions used to determine pension obligations and other postretirement benefit obligations include:



	Pension Benefits				Postretirement Benefits
	2014		2013		2014		2013
Assumptions at December 31
For the domestic plans:
Discount rate	4.28	%	5.24	%	4.23	%	5.13	%
For the foreign pension plans:
Weighted average discount rate	1.43	%	2.75	%
Weighted average rate of compensation increase	1.76	%	1.76	%

For the domestic and foreign plans (except for the Taiwan plan), discount rates used to determine the benefit obligations are based on the yields on high grade corporate bonds in each market with maturities matching the projected benefit payments. The discount rate for the Taiwan plan is based on the yield on long-dated government bonds plus a spread. To develop the expected long-term rate of return on assets assumption, for the domestic and foreign plans, management considers the current level of expected returns on least risk investments (primarily government bonds) in each market, the historical level of the risk premium associated with the other asset classes in which the portfolio is invested, and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the asset allocation to develop the expected long-term rate of return on assets assumption. The market-related value of assets for the U.S. qualified defined benefit pension plan recognizes asset losses and gains over a five-year period, which the Company believes is consistent with the long-term nature of the pension obligations.

Investment Policies and Strategies

For the qualified domestic defined benefit pension plan, the plan targets an asset allocation of approximately 55% equity securities, 36% debt securities and 9% other. For the foreign defined benefit pension plans, the plans target blended asset allocation of 37% equity securities, 45% debt securities and 18% other.

Given the relatively long horizon of the aggregate obligation, the investment strategy is to improve and maintain the funded status of the domestic and foreign plans over time without exposure to excessive asset value volatility. This risk is managed primarily by maintaining actual asset allocations between equity and fixed income securities for the plans within a specified range of its target asset allocation. In addition, the Company ensures that diversification across various investment subcategories within each plan are also maintained within specified ranges.

The domestic and foreign pension assets are managed by outside investment managers and held in trust by third-party custodians. The selection and oversight of these outside service providers is the responsibility of management, investment committees, plan trustees and their advisors. The selection of specific securities is at the discretion of the investment manager and is subject to the provisions set forth by written investment management agreements, related policy guidelines and applicable governmental regulations regarding permissible investments and risk control practices.

Contributions

The Company's funding policy is to contribute to the defined benefit pension plans when pension laws and economics either require or encourage funding. The qualified domestic plan is the largest of all the Company's defined benefit pension plans. No contributions were made to this plan for the years ended December 31, 2014 and 2013.

During 2014, Congress enacted the Highway and Transportation Funding Act of 2014 ("HAFTA"). In the short-term, HAFTA will increase the discount rates used to determine funding liabilities for the domestic defined benefit pension plan, resulting in significantly lower pension contributions. As a result of HAFTA, minimal contributions are expected to be made to the domestic defined benefit pension plan during the year ending December 31, 2015.

The Company also provides defined benefit pension plans or defined contribution retirement plans for the foreign subsidiaries. Each of the foreign defined benefit pension plans requires employer contributions. Additionally, one of the Switzerland plans requires employee contributions. The expected Company contributions to be paid during the year ending December 31, 2015 to the foreign defined benefit pension plans are $2.4 million.

Estimated Future Benefit Payments

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



Year	Pension Benefits		Postretirement Benefits
2015	$	9,107	$	113
2016	9,264		118
2017	9,971		120
2018	10,725		124
2019	11,107		128
Thereafter	58,934		585

Foreign Operations

The Company has employees in certain foreign countries that are covered by defined contribution retirement plans and other employee benefit plans. Related obligations and costs charged to operations for these plans are not material. The foreign entities with defined benefit pension plans are included in the consolidated pension plans described earlier within this footnote.