
12.	EMPLOYEE RETIREMENT PLANS

Employers Mutual has various employee benefit plans, including two defined benefit pension plans and two postretirement benefit plans that provide retiree healthcare and life insurance benefits.

Employers Mutual’s pension plans include a qualified defined benefit pension plan and a non-qualified defined benefit supplemental pension plan. The qualified defined benefit plan covers substantially all of its employees. This plan is funded by employer contributions and provides benefits under two different formulas, depending on an employee’s age and date of service. Benefits generally vest after three years of service or the attainment of 55 years of age. It is Employers Mutual’s funding policy to make contributions sufficient to be in compliance with minimum regulatory funding requirements plus additional amounts as determined by management.

Employers Mutual’s non-qualified defined benefit supplemental pension plan provides retirement benefits for a select group of management and highly-compensated employees. This plan enables select employees to receive retirement benefits without the limit on compensation imposed on qualified defined benefit pension plans by the Internal Revenue Service (IRS) and to recognize compensation that has been deferred in the determination of retirement benefits. The plan is unfunded and benefits generally vest after three years of service.

Employers Mutual also offers postretirement benefit plans which provide certain health care and life insurance benefits for retired employees. Substantially all of its employees may become eligible for those benefits if they reach normal retirement age and have attained the required length of service while working for Employers Mutual. Through 2014, the health care postretirement plan required contributions from participants and contained certain cost sharing provisions such as coinsurance and deductibles. On December 2, 2013, Employers Mutual notified its employees and retirees that effective January 1, 2015, the health care plan would be replaced with a new Employers Mutual - funded Health Reimbursement Arrangement (HRA). Under the HRA, Employers Mutual will reimburse participants for amounts expended to enroll in publicly available health care plans and/or pay for qualifying out-of-pocket health care costs, up to a pre-determined maximum per participant. The obligations of the HRA are based on the total amount of reimbursements expected to be made by Employers Mutual over the lives of the participants, rather than the total amount of medical benefits expected to be paid over the participants’ lives. Therefore, the obligations of the HRA are not impacted by changes in the cost of health care. As a result of this change, the postretirement benefit plans' benefit obligation decreased by $96,704 (the Company's share was $26,937) as of December 31, 2013. The life insurance plan is noncontributory. The benefits provided under both plans are subject to change.

Employers Mutual maintains a Voluntary Employee Beneficiary Association (VEBA) trust that has historically been used to accumulate funds for the payment of postretirement health care and life insurance benefits. Contributions to the VEBA trust have been used to fund the projected postretirement benefit obligation, as well as pay benefits. Due to the significant reduction in the projected benefit obligation that occurred at December 31, 2013 with the announcement of the conversion to the HRA, the funded status of the postretirement benefit plans moved from a large underfunded position to an overfunded position. Future contributions to the VEBA trust are not anticipated for the foreseeable future.

The following table sets forth the funded status of Employers Mutual’s pension and postretirement benefit plans as of December 31, 2014 and 2013, based upon measurement dates of December 31, 2014 and 2013, respectively.



	Pension plans						Postretirement benefit plans
	2014			2013			2014			2013
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	239,109		$	247,290		$	50,006		$	155,102
Service cost	12,863			13,213			1,260			6,300
Interest cost	9,664			7,656			2,254			6,172
Actuarial (gain) loss	19,257			(14,459		)	3,516			(18,582		)
Benefits paid	(13,764		)	(14,591		)	(2,533		)	(2,588		)
Medicare subsidy reimbursements	—			—			—			306
Plan amendments	—			—			—			(96,704		)
Projected benefit obligation at end of year	267,129			239,109			54,503			50,006

Change in plan assets:
Fair value of plan assets at beginning of year	288,750			240,034			67,276			57,815
Actual return on plan assets	15,029			48,623			4,547			11,549
Employer contributions	7,833			14,684			—			500
Benefits paid	(13,764		)	(14,591		)	(2,533		)	(2,588		)
Fair value of plan assets at end of year	297,848			288,750			69,290			67,276
Funded status	$	30,719		$	49,641		$	14,787		$	17,270

The following tables set forth the amounts recognized in the Company’s financial statements as a result of the property and casualty insurance subsidiaries’ aggregate 30 percent participation in the pooling agreement and amounts allocated to the reinsurance subsidiary as of December 31, 2014 and 2013:

Amounts recognized in the Company’s consolidated balance sheets:



	Pension plans						Postretirement benefit plans
	2014			2013			2014		2013
Assets:
Prepaid pension and postretirement benefits	$	13,267		$	18,310		$	4,093	$	4,811
Liability:
Pension and postretirement benefits	(4,162		)	(3,401		)	—		—
Net amount recognized	$	9,105		$	14,909		$	4,093	$	4,811

Amounts recognized in the Company’s consolidated balance sheets under the caption “accumulated other comprehensive income”, before deferred income taxes:



	Pension plans						Postretirement benefit plans
	2014			2013			2014			2013
Net actuarial loss	$	(15,097	)	$	(7,606	)	$	(7,258	)	$	(6,827	)
Prior service (cost) credit	(25		)	(34		)	27,458			30,828
Net amount recognized	$	(15,122	)	$	(7,640	)	$	20,200		$	24,001

During 2015, the Company will amortize $641 of net actuarial loss and $10 of prior service cost associated with the pension plans into net periodic benefit cost. In addition, the Company will amortize $494 of net actuarial loss and $3,317 of prior service credit associated with the postretirement benefit plans into net periodic postretirement benefit income in 2015.

Amounts recognized in the Company’s consolidated statements of comprehensive income, before deferred income taxes:



	Pension plans					Postretirement benefit plans
	2014			2013		2014			2013
Net actuarial gain (loss)	$	(7,492	)	$	15,694	$	(431	)	$	8,306
Prior service (cost) credit	10			15		(3,370		)	26,274
Net amount recognized	$	(7,482	)	$	15,709	$	(3,801	)	$	34,580

The following table sets forth the projected benefit obligation, accumulated benefit obligation and fair value of plan assets of Employers Mutual’s non-qualified pension plan. The amounts related to the qualified pension plan are not included since the plan assets exceeded the accumulated benefit obligation.



	Year ended December 31,
	2014		2013
Projected benefit obligation	$	13,057	$	10,856
Accumulated benefit obligation	12,121		10,485
Fair value of plan assets	—		—

The components of net periodic benefit cost (income) for Employers Mutual’s pension and postretirement benefit plans is as follows:



	Year ended December 31,
	2014			2013			2012
Pension plans:
Service cost	$	12,863		$	13,213		$	12,386
Interest cost	9,664			7,656			8,819
Expected return on plan assets	(20,733		)	(17,150		)	(14,926		)
Amortization of net actuarial loss	366			5,962			6,809
Amortization of prior service cost	31			50			291
Net periodic pension benefit cost	$	2,191		$	9,731		$	13,379

Postretirement benefit plans:
Service cost	$	1,260		$	6,300		$	6,150
Interest cost	2,254			6,172			6,537
Expected return on plan assets	(4,396		)	(3,631		)	(3,219		)
Amortization of net actuarial loss	1,651			3,694			4,008
Amortization of prior service credit	(11,466		)	(2,491		)	(2,131		)
Net periodic postretirement benefit cost (income)	$	(10,697	)	$	10,044		$	11,345

The net periodic postretirement benefit income recognized on Employers Mutual's postretirement benefit plans during 2014 is due to a plan amendment that was announced in the fourth quarter of 2013. This plan amendment generated a large prior service credit that is being amortized into net periodic benefit cost over a period of 10 years. In addition, the service cost and interest cost components of net periodic benefit cost of the revised plan declined significantly.

Net periodic pension benefit cost allocated to the Company amounted to $680, $3,013 and $4,115 in 2014, 2013 and 2012, respectively. Net periodic postretirement benefit cost (income) allocated to the Company for the years ended December 31, 2014, 2013 and 2012 amounted to $(3,083), $2,912, and $3,287, respectively.

The weighted-average assumptions used to measure the benefit obligations are as follows:



	Year ended December 31,
	2014		2013
Pension plans:
Discount rate	3.57	%	4.17	%
Rate of compensation increase:
Qualified pension plan	4.73	%	4.73	%
Non-qualified pension plan	4.68	%	4.68	%

Postretirement benefit plans:
Discount rate	4.04	%	4.71	%

The weighted-average assumptions used to measure the net periodic benefit costs are as follows:



	Year ended December 31,
	2014		2013		2012
Pension plans:
Discount rate	4.17	%	3.24	%	4.13	%
Expected long-term rate of return on plan assets	7.25	%	7.25	%	7.25	%
Rate of compensation increase:
Qualified pension plan	4.73	%	4.73	%	4.73	%
Non-qualified pension plan	4.68	%	4.68	%	4.68	%

Postretirement benefit plans:
Discount rate	4.71	%	4.03	%	4.59	%
Expected long-term rate of return on plan assets	6.75	%	6.50	%	6.25	%

The expected long-term rates of return on plan assets were developed considering actual historical results, current and expected market conditions, plan asset mix and management’s investment strategy. Due to the planned conversion of the postretirement health care plan to an HRA effective January 1, 2015, an assumption for the health care cost trend rate is no longer necessary.



	Year ended December 31,
	2014	2013
Assumed health care cost trend rate:
Health care cost trend rate assumed for next year	N/A	7.50	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	N/A	5.00	%
Year that the rate reaches the ultimate trend rate	N/A	2024

The following benefit payments, which reflect expected future service, are expected to be paid from the plans over the next ten years:



	Pension benefits		Postretirement benefits
2015	$	23,982	$	2,698
2016	21,655		2,861
2017	21,601		2,966
2018	22,418		3,172
2019	23,668		3,259
2020 - 2024	119,109		16,966

The Company manages its VEBA trust assets internally. Assets contained in the VEBA trust to fund Employers Mutual’s postretirement benefit obligations are currently invested in universal life insurance policies (issued by EMC National Life Company, an affiliate of Employers Mutual), mutual funds and an exchange-traded fund (ETF). The mutual funds are fixed income, international equity and domestic equity funds. The ETF is an emerging markets fund.

See Note 8 for a discussion on fair value measurement. The following is a description of the fair value pricing techniques used for the asset classes of Employers Mutual’s VEBA trust.


•	Money Market Fund: Valued at amortized cost, which approximates fair value. Under this method, investments purchased at a discount or premium are valued by accreting or amortizing the difference between the original purchase price and maturity value of the issue over the period to maturity. The net asset value of each share held by the trust at year-end was $1.00.

•

Mutual Funds: Valued at the net asset value of shares held by the trust at year-end. For purposes of calculating the net asset value, portfolio securities and other assets for which market quotes are readily available are valued at fair value. Fair value is generally determined on the basis of last reported sales prices, or if no sales are reported, based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services.


•	ETF: Valued at the closing price from the applicable exchange.


•	Life Insurance Contract: Valued at the cash accumulation value, which approximates fair value.

The fair values of the assets held in Employers Mutual’s VEBA trust are as follows:



			Fair value measurements using
December 31, 2014	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Money market fund	$	4,644	$	4,644	$	—	$	—
Emerging markets ETF	4,187		4,187		—		—
Mutual funds:
Equity	36,451		36,451		—		—
Tax-exempt fixed income	3,425		3,425		—		—
International equity	7,175		7,175		—		—
Life insurance contracts	13,408		—		—		13,408
Total benefit plan assets	$	69,290	$	55,882	$	—	$	13,408



			Fair value measurements using
December 31, 2013	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Money market fund	$	575	$	575	$	—	$	—
Emerging markets ETF	3,224		3,224		—		—
Mutual funds:
Equity	39,710		39,710		—		—
Tax-exempt fixed income	2,865		2,865		—		—
International equity	7,675		7,675		—		—
Life insurance contracts	13,227		—		—		13,227
Total benefit plan assets	$	67,276	$	54,049	$	—	$	13,227

Presented below is a reconciliation of the assets measured at fair value using significant unobservable inputs (Level 3) for the years ended December 31, 2014 and 2013.



	Fair value measurements using significant unobservable inputs (Level 3)
	Life insurance contracts
	2014			2013
Balance at beginning of year	$	13,227		$	12,872
Actual return on plan assets:
Increase in cash accumulation value of life insurance contracts	367			355
Gain on life insurance death benefit	89			—
Settlement of life insurance death benefit	(275		)	—
Balance at end of year	$	13,408		$	13,227

Employers Mutual uses Global Portfolio Strategies, Inc. to advise on the asset allocation strategy for its qualified pension plan. The asset allocation strategy and process of Global Portfolio Strategies, Inc. uses a diversified allocation of equity, debt and real estate exposures that is customized to the plan’s payment risk and return targets.

Global Portfolio Strategies, Inc. reviews the plan’s assets and liabilities in relation to expectations of long-term market performance and liability development to determine the appropriate asset allocation. The data for the contributions and emerging liabilities is provided from the plan’s actuarial valuation, while the current asset and monthly benefit payment data is provided by the plan record keeper.

The following is a description of the fair value pricing techniques used for the asset classes of Employers Mutual’s qualified pension plan.

•

Pooled Separate Accounts: Each of the funds held by the Plan is in a pooled or commingled investment vehicle that is maintained by the fund sponsor, each with many investors. The Plan asset is represented by a “unit of account” and a per unit value, much like a mutual fund, whose value is the accumulated value of the underlying investments. The sponsor of the fund specifies the source(s) used for the underlying investment asset prices and the protocol used to value each fund. These underlying investments are valued in the following ways:


◦	Short-Term Funds are comprised of short-term securities that are valued initially at cost and thereafter adjusted for amortization of any discount or premium.


◦	U.S. Stock Funds are comprised of domestic equity securities that are priced using the closing price from the applicable exchange.


◦	International Stock Funds are comprised of international equity securities that are priced using the closing price from the appropriate local stock exchange(s). An independent pricing service is also used to seek updated prices in the event there are material market movements between local stock exchange closing time and portfolio valuation time.


◦	U.S. Bond Funds are comprised of domestic fixed income securities. These securities are priced using inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Market indices and industry and economic events are monitored.

•

Real Estate Securities Fund: Valued at the net asset value of shares held by the Plan at year-end. For purposes of calculating the net asset value, portfolio securities and other assets for which market quotes are readily available are valued at fair value. Fair value is generally determined on the basis of last reported sales prices, or if no sales are reported, based on quotes obtained from a quotation reporting system, established market makers, or independent pricing services.

•

Bond and Mortgage Separate Account: Invests mainly in fixed income securities such as asset-backed securities, residential mortgage-backed securities, commercial mortgage-backed securities and corporate bonds. Securities are priced by an independent pricing service using inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. Market indices and industry and economic events are also monitored.

The fair values of the assets held in Employers Mutual’s defined benefit retirement plan are as follows:



			Fair value measurements using
December 31, 2014	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Bond and mortgage separate account	$	34,901	$	—	$	34,901	$	—
Pooled separate accounts:
U.S. stock funds	119,577		—		119,577		—
International stock funds	57,955		—		57,955		—
U.S. bond funds	63,443		—		63,443		—
Real estate fund	17,735		—		17,735		—
Short-term funds	4,237		—		4,237		—
Total benefit plan assets	$	297,848	$	—	$	297,848	$	—



			Fair value measurements using
December 31, 2013	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Bond and mortgage separate account	$	32,843	$	—	$	32,843	$	—
Pooled separate accounts:
U.S. stock funds	110,279		—		110,279		—
International stock funds	62,840		—		62,840		—
U.S. bond funds	60,200		—		60,200		—
Real estate fund	13,758		—		13,758		—
Short-term funds	7,672		—		7,672		—
Real estate securities fund	1,158		1,158		—		—
Total benefit plan assets	$	288,750	$	1,158	$	287,592	$	—

Employers Mutual plans to contribute approximately $7,000 to the pension plan in 2015. No contributions are expected to be made to the VEBA trust in 2015.

The Company participates in other benefit plans sponsored by Employers Mutual, including its 401(k) Plan, Board and Executive Non-Qualified Excess Plans and Defined Contribution Supplemental Executive Retirement Plan. The Company’s share of expenses for these plans amounted to $1,688, $1,457 and $1,823 in 2014, 2013 and 2012, respectively.