Employee Benefit Plans

Pension Benefits

The Company has defined benefit pension retirement plans covering a substantial number of its employees. The defined benefits for salaried employees generally are based on years of service and the employee's level of compensation during specified periods of employment. Defined benefit plans covering hourly employees generally provide benefits of stated amounts for each year of service. The multiemployer plans in which the Company participates provide benefits to certain unionized employees. The Company's funding policy for qualified plans is consistent with statutory regulations and customarily equals the amount deducted for income tax purposes. The Company also makes periodic voluntary contributions as recommended by its pension committee. The Company's policy is to amortize prior service costs of defined benefit pension plans over the average future service period of active plan participants.

For most U.S. defined benefit pension plans and a majority of international defined benefit pension plans, accrued service is no longer granted. In place of these plans, the Company has established defined contribution pension plans providing for the Company to contribute a specified matching amount for participating employees' contributions to the plan. For U.S. employees, this match is made on employee contributions up to 4% of their eligible compensation. Additionally, the Company may provide a discretionary contribution of up to 2% of compensation for eligible employees. This discretionary amount has not been provided for the years 2012, 2011 and 2010. For non-U.S. employees, this match is up to 6% of eligible compensation with an additional 2% going towards insurance and administrative costs.

Net periodic pension cost for U.S. and international pension plans for 2012, 2011 and 2010 is as follows:



	U.S. Plans									International Plans
(In thousands)	2012			2011			2010			2012			2011			2010
Defined benefit plans:
Service cost	$	1,887		$	1,557		$	2,086		$	3,418		$	4,350		$	4,052
Interest cost	12,780			13,468			14,049			46,174			48,768			47,558
Expected return on plan assets	(15,617		)	(16,480		)	(16,632		)	(45,050		)	(52,735		)	(46,079		)
Recognized prior service costs	224			245			339			397			424			327
Recognized losses	4,637			2,982			2,537			15,194			11,332			12,077
Amortization of transition liability	—			—			—			8			43			45
Settlement/curtailment loss (gain)	1,510			—			179			(2,589		)	183			(210		)
Defined benefit plans pension cost	5,421			1,772			2,558			17,552			12,365			17,770
Multiemployer plans	10,186			13,264			10,924			5,539			6,547			6,396
Defined contribution plans	5,066			5,434			5,918			12,770			14,157			13,298
Net periodic pension cost	$	20,673		$	20,470		$	19,400		$	35,861		$	33,069		$	37,464

The change in the financial status of the pension plans and amounts recognized on the Consolidated Balance Sheets at December 31, 2012 and 2011 are as follows:



	U.S. Plans						International Plans
(In thousands)	2012			2011			2012			2011
Change in benefit obligation:
Benefit obligation at beginning of year	$	298,769		$	264,969		$	968,218		$	883,342
Service cost	1,887			1,557			3,418			4,350
Interest cost	12,780			13,468			46,174			48,768
Plan participants' contributions	—			—			830			986
Amendments	—			—			60			598
Actuarial loss	27,803			40,730			65,379			79,474
Settlements/curtailments	(3,029		)	—			(9,506		)	(1,886		)
Benefits paid	(21,762		)	(21,955		)	(44,968		)	(37,653		)
Effect of foreign currency	—			—			39,181			(10,332		)
Other	—			—			(36		)	571
Benefit obligation at end of year	$	316,448		$	298,769		$	1,068,750		$	968,218
Change in plan assets:
Fair value of plan assets at beginning of year	$	209,237		$	221,673		$	714,163		$	708,025
Actual return on plan assets	27,429			6,464			58,194			19,488
Employer contributions	6,254			3,055			29,713			29,300
Plan participants' contributions	—			—			830			986
Settlements/curtailments	(3,074		)	—			(3,885		)	(1,127		)
Benefits paid	(21,762		)	(21,955		)	(43,954		)	(36,631		)
Effect of foreign currency	—			—			27,998			(6,449		)
Other	—			—			—			571
Fair value of plan assets at end of year	$	218,084		$	209,237		$	783,059		$	714,163

Funded status at end of year	$	(98,364	)	$	(89,532	)	$	(285,691	)	$	(254,055	)

Amounts recognized on the Consolidated Balance Sheets consist of the following at December 31, 2012 and 2011:



	U.S. Plans						International Plans
(In thousands)	December 31 2012			December 31 2011			December 31 2012			December 31 2011
Noncurrent assets	$	490		$	397		$	5,892		$	4,372
Current liabilities	(2,531		)	(2,076		)	(1,048		)	(1,011		)
Noncurrent liabilities	(96,323		)	(87,853		)	(290,535		)	(257,416		)
Accumulated other comprehensive loss before tax	159,094			149,429			469,949			417,406

Amounts recognized in Accumulated other comprehensive loss, before tax, consist of the following at December 31, 2012 and 2011:



	U.S. Plans				International Plans
(In thousands)	2012		2011		2012		2011
Net actuarial loss	$	158,579	$	148,690	$	467,438	$	414,203
Prior service cost	515		739		2,511		3,105
Transition obligation	—		—		—		98
Total	$	159,094	$	149,429	$	469,949	$	417,406

The estimated amounts that will be amortized from accumulated other comprehensive loss into defined benefit net periodic pension cost in 2013 are as follows:



(In thousands)	U.S. Plans		International Plans
Net actuarial loss	$	5,052	$	17,180
Prior service cost	143		367
Total	$	5,195	$	17,547

The Company's estimate of expected contributions to be paid in year 2013 for the U.S. defined benefit plans is $2.8 million and for the international defined benefit plans is $31.3 million.

Future Benefit Payments

The expected benefit payments for defined benefit plans over the next 10 years are as follows:



(In millions)	2013		2014		2015		2016		2017		2018-2022
U.S. Plans	$	19.7	$	18.7	$	18.5	$	18.8	$	18.5	$	92.7
International Plans	46.1		47.6		49.5		51.6		54.1		296.1

Net Periodic Pension Cost Assumptions

The weighted-average actuarial assumptions used to determine the net periodic pension cost for 2012, 2011 and 2010 were as follows:



	U.S. Plans December 31						International Plans December 31						Global Weighted-Average December 31
	2012		2011		2010		2012		2011		2010		2012		2011		2010
Discount rates	4.4	%	5.3	%	5.9	%	4.8	%	5.5	%	5.7	%	4.7	%	5.4	%	5.8	%
Expected long-term rates of return on plan assets	7.8	%	7.8	%	8.0	%	6.7	%	7.4	%	7.4	%	6.9	%	7.5	%	7.5	%
Rates of compensation increase	3.0	%	3.0	%	3.0	%	3.4	%	3.3	%	3.6	%	3.4	%	3.3	%	3.6	%

The expected long-term rates of return on plan assets for the 2013 net periodic pension cost are 7.5% for the U.S. plans and 6.6% for the international plans. The expected global long-term rate of return on assets for 2013 is 6.8%.

Defined Benefit Pension Obligation Assumptions

The weighted-average actuarial assumptions used to determine the defined benefit pension plan obligations at December 31, 2012 and 2011 were as follows:



	U.S. Plans				International Plans				Global Weighted-Average
	December 31				December 31				December 31
	2012		2011		2012		2011		2012		2011
Discount rates	3.8	%	4.4	%	4.3	%	4.8	%	4.2	%	4.7	%
Rates of compensation increase	3.0	%	3.0	%	2.8	%	3.4	%	2.8	%	3.4	%

The U.S. discount rate was determined using a yield curve that was produced from a universe containing approximately 650 U.S. dollar-denominated, AA-graded corporate bonds, all of which were noncallable (or callable with make-whole provisions), and excluding the 10% of the bonds with the highest yields and the 10% with the lowest yields within each maturity group. The discount rate was then developed as the level-equivalent rate that would produce the same present value as that using spot rates to discount the projected benefit payments. For international plans, the discount rate is aligned to corporate bond yields in the local markets, normally AA-rated corporations. The process and selection seeks to approximate the cash inflows with the timing and amounts of the expected benefit payments.

Accumulated Benefit Obligation

The accumulated benefit obligation for all defined benefit pension plans at December 31, 2012 and 2011 was as follows:



	U.S. Plans				International Plans
	December 31				December 31
(In millions)	2012		2011		2012		2011
Accumulated benefit obligation	$	316.4	$	298.6	$	1,055.7	$	952.8

Plans with Accumulated Benefit Obligation in Excess of Plan Assets

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets at December 31, 2012 and 2011 were as follows:



	U.S. Plans				International Plans
(In millions)	December 31 2012		December 31 2011		December 31 2012		December 31 2011
Projected benefit obligation	$	306.5	$	288.7	$	1,040.4	$	929.1
Accumulated benefit obligation	306.5		288.7		1,029.4		921.0
Fair value of plan assets	207.7		198.8		749.6		673.9

The asset allocations attributable to the Company's U.S. defined benefit pension plans at December 31, 2012 and 2011, and the long-term target allocation of plan assets, by asset category, are as follows:



U.S. Plans	Target Long-Term Allocation	Percentage of Plan Assets at December 31
Asset Category	Target Long-Term Allocation	2012		2011
Domestic equity securities	34%-44%	38.0	%	38.0	%
International equity securities	14%-24%	19.7	%	18.0	%
Fixed income securities	27%-37%	30.5	%	32.8	%
Cash and cash equivalents	Less than 5%	2.3	%	1.9	%
Other	5%-15%	9.5	%	9.3	%

Plan assets are allocated among various categories of equities, fixed income securities and cash and cash equivalents with professional investment managers whose performance is actively monitored. The primary investment objective is long-term growth of assets in order to meet present and future benefit obligations. The Company periodically conducts an asset/liability modeling study and accordingly adjusts investments among and within asset categories to ensure the long-term investment strategy is aligned with the profile of benefit obligations.

The Company reviews the long-term expected return on asset assumption on a periodic basis taking into account a variety of factors including the historical investment returns achieved over a long-term period, the targeted allocation of plan assets and future expectations based on a model of asset returns for an actively managed portfolio, inflation and administrative/other expenses. The model simulates 600 different capital market results over 15 years. For 2013 and 2012, the expected return-on-asset assumption for U.S. plans was 7.5% and 7.8%, respectively.

The U.S. defined benefit pension plans assets include 450,000 shares of the Company's stock valued at $10.6 million at December 31, 2012 and 432,203 shares of the Company's common stock valued at $9.0 million at December 31, 2011. These shares represented 4.8% and 4.3% of total plan assets at December 31, 2012 and 2011, respectively. Dividends paid to the pension plans on the Company's stock amounted to $0.4 million in 2012, 2011 and 2010.

The asset allocations attributable to the Company's international defined benefit pension plans at December 31, 2012 and 2011 and the long-term target allocation of plan assets, by asset category, are as follows:



International Plans Asset Category	Target Long-Term Allocation		Percentage of Plan Assets at December 31
International Plans Asset Category	Target Long-Term Allocation		2012		2011
Equity securities	37.5	%	34.5	%	34.7	%
Fixed income securities	42.5	%	48.0	%	50.0	%
Cash and cash equivalents	—		0.2	%	0.4	%
Other	20.0	%	17.3	%	14.9	%

Plan assets at December 31, 2012 in the U.K. defined benefit pension plan amounted to 85% of the international pension assets. These assets are allocated among various categories of equities, fixed income securities and cash and cash equivalents with professional investment managers whose performance is actively monitored. The primary investment objective is long-term growth of assets in order to meet present and future benefit obligations. The Company periodically conducts asset/liability modeling studies and accordingly adjusts investment amounts within asset categories to ensure the long-term investment strategy is aligned with the profile of benefit obligations.

For the international long-term rate of return assumption, the Company considered the current level of expected returns in risk-free investments (primarily government bonds), the historical level of the risk premium associated with other asset classes in which the portfolio is invested and the expectations for future returns of each asset class and plan expenses. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets. For both 2013 and 2012, the expected return on asset assumption for the U.K. plan is 6.8%. The remaining international pension plans, with assets representing 15% of the international pension assets, are under the guidance of professional investment managers and have similar investment objectives.

The fair values of the Company's U.S. pension plans' assets at December 31, 2012 by asset class are as follows:



(In thousands)	Total		Level 1		Level 2		Level 3
Domestic equities:
Common stocks	$	42,142	$	42,142	$	—	$	—
Mutual funds—equities	40,727		11,110		29,617		—
International equities—mutual funds	42,962		37,651		5,311		—
Fixed income investments:
U.S. Treasuries and collateralized securities	22,625		—		22,625		—
Corporate bonds and notes	7,539		7,539		—		—
Mutual funds—bonds	36,447		36,447		—		—
Other—mutual funds	20,667		20,667		—		—
Cash and money market accounts	4,975		4,975		—		—
Total	$	218,084	$	160,531	$	57,553	$	—

The fair values of the Company's international pension plans' assets at December 31, 2012 by asset class are as follows:



(In thousands)	Total		Level 1		Level 2		Level 3
Equity securities:
Mutual funds—equities	$	269,789	$	—	$	269,789	$	—
Fixed income investments:
Mutual funds—bonds	309,274		—		309,274		—
Insurance contracts	66,900		—		66,900		—
Other:
Real estate funds/limited partnerships	49,007		—		31,261		17,746
Other mutual funds	86,537		—		86,537		—
Cash and money market accounts	1,552		1,552		—		—
Total	$	783,059	$	1,552	$	763,761	$	17,746

The fair values of the Company's U.S. pension plans' assets at December 31, 2011 by asset class are as follows:



(In thousands)	Total		Level 1		Level 2		Level 3
Domestic equities:
Common stocks	$	39,295	$	39,295	$	—	$	—
Mutual funds—equities	40,107		19		40,088		—
International equities—mutual funds	37,740		33,198		4,542		—
Fixed income investments:
U.S. Treasuries and collateralized securities	23,054		—		23,054		—
Corporate bonds and notes	5,507		5,507		—		—
Mutual funds—bonds	40,110		40,110		—		—
Other—mutual funds	19,392		19,392		—		—
Cash and money market accounts	4,032		4,032		—		—
Total	$	209,237	$	141,553	$	67,684	$	—

The fair values of the Company's international pension plans' assets at December 31, 2011 by asset class are as follows:



(In thousands)	Total		Level 1		Level 2		Level 3
Equity securities:
Mutual funds—equities	$	247,629	$	—	$	247,629	$	—
Fixed income investments:
Corporate bonds and notes	—		—		—		—
Mutual funds—bonds	294,010		—		294,010		—
Insurance contracts	63,169		—		63,169		—
Other:
Real estate funds / limited partnerships	43,122		—		31,097		12,025
Other mutual funds	63,568		—		63,568		—
Cash and money market accounts	2,665		2,665		—		—
Total	$	714,163	$	2,665	$	699,473	$	12,025

The following table summarizes changes in the fair value of Level 3 assets for 2011 and 2012:



Level 3 Asset Changes for the Twelve Months Ended December 31
(In thousands)	2012			2011			2010
Real Estate Limited Partnership:
Balance at beginning of year	$	12,025		$	10,184		$	10,994
Contributions to partnership	2,535			5,697			2,344
Cash distributions received	(1,270		)	(333		)	(636		)
Actual return on plan assets:
Related to asset still held at end of year	4,456			(3,523		)	(2,518		)
Balance at end of year	$	17,746		$	12,025		$	10,184

Following is a description of the valuation methodologies used for the plans' investments measured at fair value:

•

Level 1 Fair Value Measurements—Investments in interest-bearing cash are stated at cost, which approximates fair value. The fair values of money market accounts and certain mutual funds are based on quoted net asset values of the shares held by the Plan at year-end. The fair values of domestic and international stocks and corporate bonds, notes and convertible debentures are valued at the closing price reported in the active market on which the individual securities are traded.

•

Level 2 Fair Value Measurements—The fair values of investments in mutual funds for which quoted net asset values in an active market are not available are valued by the investment advisor based on the current market values of the underlying assets of the mutual fund based on information reported by the investment consistent with audited financial statements of the mutual fund. Further information concerning these mutual funds may be obtained from their separate audited financial statements. Investments in U.S. Treasury notes and collateralized securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings.


•	Level 3 Fair Value Measurements—Real estate limited partnership interests are valued by the general partners based on the underlying assets. The limited partnership interests are valued using unobservable inputs and have been classified within Level 3 of the fair value hierarchy.

Multiemployer Plans

The Company contributes to numerous multiemployer pension plans under the terms of collective-bargaining agreements that cover its union-represented employees, many of whom are temporary in nature. The risks of participating in multiemployer pension plans differ from traditional company-sponsored defined benefit plans as follows:


•	Assets contributed to a multiemployer pension plan by one employer may be used to provide benefits to the employees of other participating employers;


•	When a participating employer stops contributing to a multiemployer pension plan, the unfunded obligations of the plan become the responsibility of the remaining participating employers, subject to any exemptions that may apply; and


•	If the Company elects to stop participation in a multiemployer pension plan, the Company may be required to pay a withdraw liability which is based upon the underfunded status of the plan.

The Company's participation in multiemployer pension plans for the years ended December 31, 2012, 2011 and 2010 is outlined below. The Company considers significant plans to be those plans to which the Company contributed more than 5% of total contributions to the plan in a given plan year or for which the Company believes its share of the unfunded liability for the plan may be material to the Company. The most recent Pension Protection Act zone status available in 2012 and 2011 is for plan years ended in 2011 and 2010, respectively. The zone status is based on information that the Company received from the plan and is certified by the plan's actuary: Green represents a plan that is more than 80% funded; Yellow represents a plan that is between 65% and 80% funded; and Red represents a plan that is less than 65% funded.



(In thousands)
		Pension Protection Act Zone Status For Plan Years Ended
				Contributions By The Company For Plan Years Ended (b)								Expiration Date of Collective- Bargaining Agreement
										Subject to Financial Improvement Plan
	Identification Number										Surcharge Imposed
Pension Fund	Identification Number	2011	2010	2012		2011		2010			Surcharge Imposed
Significant multiemployer plans for which plan financial information is publicly available outside the Company's financial statements:
Cumberland MD Vicinity Building Construction Employees Trust Fund	52-6061646	Green	Green	$	472	$	477	$	556	No	No	2013
Greater Pennsylvania Carpenters' Pension Fund	25-6135570	Green	Yellow	1,176		1,542		1,412		Yes	No	2014
Ohio Carpenters' Pension Plan	34-6574360	Green	Green	768		953		777		Yes	No	2013
Significant multiemployer plans for which plan financial information is not publicly available outside the Company's financial statements:
New Zealand Steel Pension Fund	018-054-531	N/A	N/A	909		891		810		Yes	No	2013
Summary aggregate information for multiemployer plans which are not individually significant:
All other multiemployer plans				12,489		16,418		13,602
Total Contributions (a)				$	15,814	$	20,281	$	17,157

(a)

Contributions to multiemployer pension plans in 2010 do not include $8.3 million of plan withdrawal costs triggered as the Company has ceased, or expects to cease, contributing to ten multiemployer plans for certain locations as part of the Harsco Infrastructure Segment's restructuring initiatives. These restructuring initiatives are described in Note 18, Restructuring Programs. The $8.3 million of costs is included in the Other expenses line of the Consolidated Statements of Operations, as described in Note 16, Other Expenses.


(b)	These amounts represent either contributions for the plan year as confirmed by plan sponsors or the Company's estimates based on its fiscal year accounts payable records which will be updated as confirmation is received from plan sponsors.

For plan years ended 2012, 2011 and 2010, the Company contributed more than 5% of the total contributions to the Cumberland MD Vicinity Building Construction Employees Trust Fund. For plan years ended 2012, 2011 and 2010, the Company contributed more than 5% of the total contributions to the New Zealand Steel Pension Fund. At the date these financial statements were issued, financial information from plan sponsors was unavailable for plan years ended in 2012.

The New Zealand Steel Pension Fund is a defined benefit superannuation scheme registered in New Zealand under the Superannuation Schemes Act of 1989 to provide retirement benefits to the salaried employees of the New Zealand Steel United Group of companies. The New Zealand Steel Pension Fund financial statements for the years ended June 30, 2012 and 2011 indicated total assets of $252.5 million and $253.9 million, respectively; total actuarial present value of accumulated plan benefits of $283.7 million and $278.4 million, respectively; and total contributions for all participating employers of $10.6 million and $11.3 million, respectively.