Employee Benefits

12 Months Ended

Dec. 31, 2013

Employee Benefits

Employee Benefits

10. Employee Benefits

Pension and Postretirement Plans

        We provide 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. Our policy is to fund at least an amount necessary to satisfy the minimum funding requirements of ERISA. For our 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 our Swiss plans requires employee contributions. In 2010, we permanently froze the accrual of benefits under the domestic plan and one of our foreign plans.

        Domestic employees hired on or after March 1, 2004 have retirement benefits under our 401(k) defined contribution plan. After the completion of one year of service, we 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 our domestic 401(k) plan, we made contributions of $1.6 million and $1.4 million in 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. We recognized $1.8 million and $1.6 million of expense for the domestic defined contribution plan in 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 2013, as a result of significant lump sum payments made in two of our foreign plans, we recognized a $0.2 million settlement charge which is reflected in the net periodic benefit cost. In 2012, we recognized a $3.2 million prior service credit in two of our foreign pension plans as a result of a plan amendment that changed the interest rates used to convert lump sums to annuity payments.

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

        We provide 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. We also provide 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 5.13% and 4.21% at December 31, 2013 and 2012, respectively. The change in the discount rate decreased the accumulated postretirement benefit obligation as of December 31, 2013 by $0.2 million.

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

	Pension Benefits						Postretirement Benefits
	December 31,						December 31,
	2013			2012			2013			2012
	(in thousands)						(in thousands)
Change in benefit obligation:
Benefit obligation at beginning of period	$	223,780		$	201,168		$	2,312		$	2,429
Service cost		1,401			1,246			18			18
Interest cost		7,380			8,159			92			111
Plan participants' contributions		1,567			1,524			375			422
Actuarial loss (gain)		(12,208	)		18,917			(452	)		30
Foreign currency impact		2,463			2,931			—			—
Benefits and administrative expenses paid		(7,760	)		(6,949	)		(604	)		(698	)
Settlements		(628	)		—			—			—
Acquisitions		311			—			28			—
Plan amendment and other changes		—			(3,216	)		—			—
Benefit obligation at end of period	$	216,306		$	223,780		$	1,769		$	2,312
Change in plan assets:
Fair value of plan assets at beginning of period	$	176,693		$	155,840		$	—		$	—
Actual return on plan assets		18,233			15,879			—			—
Employer contribution		2,732			7,816			229			276
Plan participants' contributions		1,567			1,524			375			422
Foreign currency impact		2,592			2,583			—			—
Benefits and administrative expenses paid		(7,760	)		(6,949	)		(604	)		(698	)
Settlements		(628	)		—			—			—
Fair value of plan assets at end of period	$	193,429		$	176,693		$	—		$	—
Funded status of plans	$	(22,877	)	$	(47,087	)	$	(1,769	)	$	(2,312	)
Amounts recognized in the Consolidated Balance Sheets consist of:
Non-current assets	$	4,023		$	1,451		$	—		$	—
Current liabilities		(232	)		(232	)		(131	)		(306	)
Non-current liabilities		(26,668	)		(48,306	)		(1,638	)		(2,006	)
Net amount recognized	$	(22,877	)	$	(47,087	)	$	(1,769	)	$	(2,312	)
Amounts recognized in Accumulated Other Comprehensive Income (Loss) consist of:
Net actuarial (loss) gain	$	(50,580	)	$	(74,652	)	$	724		$	277
Transition asset		850			1,106			—			—
Prior service credit		3,232			3,552			—			254
Accumulated other comprehensive (loss) income	$	(46,498	)	$	(69,994	)	$	724		$	531
Accumulated contributions in excess of net periodic benefit cost		23,621			22,907			(2,493	)		(2,843	)
Net deficit recognized in Consolidated Balance Sheets	$	(22,877	)	$	(47,087	)	$	(1,769	)	$	(2,312	)

        The projected benefit obligations for the foreign pension plans included in the amounts above were $106.7 million and $104.3 million at December 31, 2013 and 2012, respectively. The plan assets for the foreign pension plans included above were $105.8 million and $94.8 million at December 31, 2013 and 2012, respectively.

        The accumulated benefit obligations for the foreign and domestic pension plans were $212.2 million and $218.6 million at December 31, 2013 and 2012, respectively.

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

	Pension Benefits
	December 31,
	2013		2012
	(in thousands)
Projected benefit obligations	$	128,638	$	216,861
Fair value of plan assets		101,738		168,322
Excess of projected benefit obligations over plan assets	$	26,900	$	48,539

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

	Pension Benefits
	December 31,
	2013		2012
	(in thousands)
Accumulated benefit obligations	$	127,692	$	211,047
Fair value of plan assets		101,145		167,241
Excess of accumulated benefit obligations over plan assets	$	26,547	$	43,806

        A summary of the components of net periodic benefit cost for the Company is presented below. The pension cost includes an executive supplemental pension plan.

	Pension Benefits									Postretirement Benefits
	Year Ended December 31,									Year Ended December 31,
	2013			2012			2011			2013			2012			2011
	(in thousands)									(in thousands)
Service cost	$	1,401		$	1,246		$	1,449		$	18		$	18		$	18
Interest cost		7,380			8,159			8,583			92			111			138
Expected return on plan assets		(9,464	)		(9,495	)		(10,089	)		—			—			—
Amortization of prior service credit		(393	)		(54	)		(58	)		(254	)		(353	)		(353	)
Amortization of transition asset		(272	)		(269	)		(284	)		—			—			—
Settlement loss		229			—			—			—			—			—
Amortization of (gain) loss		3,223			2,417			1,794			(5	)		(7	)		—
Net periodic benefit cost	$	2,104		$	2,004		$	1,395		$	(149	)	$	(231	)	$	(197	)

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

	Pension Benefits									Postretirement Benefits
	Year Ended December 31,									Year Ended December 31,
	2013			2012			2011			2013			2012		2011
	(in thousands)									(in thousands)
Net (gain) loss arising during period	$	(20,977	)	$	12,533		$	23,082		$	(452	)	$	30	$	(94	)
Amortization of transition asset		272			269			284			—			—		—
Amortization of prior service credit		393			54			58			254			353		353
Other (gain) loss		—			(3,216	)		184			—			—		—
Amortization of (loss)		(3,452	)		(2,417	)		(1,794	)		5			7		—
Foreign currency exchange impact		268			713			(321	)		—			—		—
Total recognized in other Comprehensive (income) loss	$	(23,496	)	$	7,936		$	21,493		$	(193	)		390		259
Net recognized in net periodic benefit cost and other comprehensive (income) loss	$	(21,392	)	$	9,940		$	22,888		$	(342	)	$	159	$	62

        The net periodic benefit cost for the foreign pension plans included in the amounts above was $1.4 million, $1.9 million, and $1.8 million, for the years ended December 31, 2013, 2012, and 2011, respectively.

        We expect to recognize $1.7 million of net loss, $0.3 million of net transition assets and $0.4 million of net prior service credit as components of net periodic benefit cost in 2014 for our defined benefit pension plans. We expect to recognize $0.1 million of net gain as a component of net periodic benefit cost for our postretirement benefits plans in 2014.

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

	Pension Benefits									Postretirement Benefits
	2013			2012			2011			2013			2012			2011
Assumptions at January 1
For the domestic plans:
Discount rate		4.31	%		5.11	%		5.93	%		4.21	%		4.92	%		5.50	%
Expected return on plan assets		7.75	%		7.75	%		8.00	%		N/A			N/A			N/A
For the foreign plans:
Weighted average discount rate		2.34	%		3.01	%		3.09	%
Weighted average expected return on plan assets		3.91	%		4.07	%		4.24	%
Weighted average rate of compensation increase		2.51	%		2.51	%		2.51	%

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

	Pension Benefits						Postretirement Benefits
	2013			2012			2013			2012
Assumptions at December 31
For the domestic plans:
Discount rate		5.24	%		4.31	%		5.13	%		4.21	%
For the foreign pension plans:
Weighted average discount rate		2.75	%		2.34	%
Weighted average rate of compensation increase		1.76	%		2.51	%

        For our 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 our domestic and foreign plans, we considered the current level of expected returns on risk free 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.

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 our aggregate obligation, our investment strategy is to improve and maintain the funded status of our domestic and foreign plans over time without exposure to excessive asset value volatility. We manage this risk 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, we ensure that diversification across various investment subcategories within each plan are also maintained within specified ranges.

        Our 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.

Cash flows

Contributions

        Our funding policy is to contribute to our defined benefit pension plans when pension laws and economics either require or encourage funding. The qualified domestic plan is the largest of all our defined benefit pension plans. No contributions were made to this plan for the year ended December 31, 2013 and $5.3 million was contributed for the year ended December 31, 2012.

        During 2012, Congress enacted the Moving Ahead for Progress in the 21st Century Act ("MAP-21"). In the short-term, MAP-21 will increase the discount rates used to determine funding liabilities for our domestic defined benefit pension plan, resulting in significantly lower pension contributions. As a result of MAP-21, minimal contributions are expected to be made to our domestic defined benefit pension plan during the year ending December 31, 2014.

        We also provide defined benefit pension plans or defined contribution retirement plans for our foreign subsidiaries. Each of our foreign defined benefit pension plans requires employer contributions. Additionally, one of our Switzerland plans requires employee contributions. The expected Company contributions to be paid during the year ending December 31, 2014 to the foreign defined benefit pension plans are $2.6 million.

Estimated Future Benefit Payments

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

	Pension Benefits		Postretirement Benefits
	(in thousands)
2014	$	9,130	$	131
2015		9,797		125
2016		9,738		127
2017		10,413		130
2018		11,077		131
Years 2019 - 2023		61,125		646

Foreign Operations

        We also have 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.