PENSION AND OTHER POSTRETIREMENT BENEFITS

Pension benefits under defined benefit pension plans are based on years of service and, for certain plans, on average compensation for specified years preceding retirement. We fund pension costs in accordance with the funding requirements of the Employee Retirement Income Security Act of 1974 (ERISA), as amended, for U.S. plans and in accordance with local regulations or customs for non-U.S. plans.

We have an Executive Retirement Plan for various executives and a Supplemental Executive Retirement Plan which was closed to future participation on July 26, 2006.

We presently provide varying levels of postretirement health care and life insurance benefits to certain employees and retirees. Postretirement health care benefits are available to employees and their spouses retiring on or after age 55 with 10 or more years of service. Beginning with retirements on or after January 1, 1998, our portion of the costs of postretirement health care benefits is capped at 1996 levels. Beginning with retirements on or after January 1, 2009, we have no obligation to provide a company subsidy for retiree medical costs.

We use a June 30 measurement date for all of our plans.

Defined Benefit Pension Plans

The funded status of our pension plans and amounts recognized in the consolidated balance sheets as of June 30 were as follows:



(in thousands)	2013			2012
Change in benefit obligation:
Benefit obligation, beginning of year	$	958,306		$	786,572
Service cost	7,797			6,982
Interest cost	38,183			42,107
Participant contributions	28			34
Actuarial (gains) losses	(71,974		)	153,680
Benefits and expenses paid	(40,898		)	(39,051		)
Currency translation adjustments	173			(16,437		)
Effect of acquired business/plan combinations	—			28,296
Plan curtailments/settlements	(784		)	(3,877		)
Benefit obligation, end of year	$	890,831		$	958,306
Change in plan assets:
Fair value of plan assets, beginning of year	$	783,843		$	725,466
Actual return on plan assets	47,660			68,082
Company contributions	9,788			9,683
Participant contributions	28			34
Benefits and expenses paid	(40,898		)	(39,051		)
Plan curtailments/settlements	(784		)	(3,877		)
Effect of acquired business/plan combinations	—			26,438
Currency translation adjustments	(3,558		)	(2,932		)
Fair value of plan assets, end of year	$	796,079		$	783,843
Funded status of plan	$	(94,752	)	$	(174,463	)
Amounts recognized in the balance sheet consist of:
Long-term prepaid benefit	$	57,385		$	2,803
Short-term accrued benefit obligation	(9,353		)	(9,285		)
Accrued pension benefits	(142,784		)	(167,981		)
Net amount recognized	$	(94,752	)	$	(174,463	)

The pre-tax amounts related to our defined benefit pension plans recognized in accumulated other comprehensive (loss) income were as follows at June 30:



(in thousands)	2013			2012
Unrecognized net actuarial losses	$	113,452		$	191,340
Unrecognized net prior service credits	(1,498		)	(1,379		)
Unrecognized transition obligations	1,101			1,193
Total	$	113,055		$	191,154

Prepaid pension benefits are included in other long-term assets. The assets of our U.S. and international defined benefit pension plans consist principally of capital stocks, corporate bonds and government securities.

To the best of our knowledge and belief, the asset portfolios of our defined benefit pension plans do not contain our capital stock. We do not issue insurance contracts to cover future annual benefits of defined benefit pension plan participants. Transactions between us and our defined benefit pension plans include the reimbursement of plan expenditures incurred by us on behalf of the plans. To the best of our knowledge and belief, the reimbursement of cost is permissible under current ERISA rules or local government law. The accumulated benefit obligation for all defined benefit pension plans was $0.9 million and $0.9 million as of June 30, 2013 and 2012, respectively.

Included in the above information are plans with accumulated benefit obligations exceeding the fair value of plan assets as of June 30 as follows:



(in thousands)	2013		2012
Projected benefit obligation	$	184,805	$	855,697
Accumulated benefit obligation	183,056		835,870
Fair value of plan assets	34,405		671,588

The components of net periodic pension cost include the following as of June 30:



(in thousands)	2013			2012			2011
Service cost	$	7,797		$	6,982		$	7,650
Interest cost	38,183			42,107			40,984
Expected return on plan assets	(56,111		)	(51,376		)	(48,203		)
Amortization of transition obligation	69			65			52
Amortization of prior service cost	(195		)	(186		)	(281		)
Settlement loss	158			1,253			18
Recognition of actuarial losses	14,961			8,259			12,277
Net periodic pension cost	$	4,862		$	7,104		$	12,497

Net periodic pension cost decreased $2.2 million to $4.9 million in 2013 from $7.1 million in 2012. This decrease was primarily the result of discount rate changes and the expected return on plan assets.

As of June 30, 2013, the projected benefit payments, including future service accruals for these plans for 2014 through 2018, are $45.6 million, $45.9 million, $47.5 million, $50.8 million and $51.7 million, respectively, and $294.6 million in 2019 through 2023.

The amounts of accumulated other comprehensive loss expected to be recognized in net periodic pension cost during 2014 related to net actuarial losses and transition obligations are $2.5 million and $0.1 million, respectively. The amount of accumulated other comprehensive income expected to be recognized in net periodic pension cost during 2014 related to prior service credit is $0.2 million.

We expect to contribute approximately $12.2 million to our pension plans in 2014.

Other Postretirement Benefit Plans

The funded status of our other postretirement benefit plans and the related amounts recognized in the consolidated balance sheets were as follows:



(in thousands)	2013			2012
Change in benefit obligation:
Benefit obligation, beginning of year	$	24,574		$	19,771
Service cost	72			75
Interest cost	938			1,029
Actuarial (gains) losses	(907		)	7,345
Benefits paid	(3,255		)	(3,408		)
Plan amendment	—			(238		)
Benefit obligation, end of year	$	21,422		$	24,574
Funded status of plan	$	(21,422	)	$	(24,574	)
Amounts recognized in the balance sheet consist of:
Short-term accrued benefit obligation	$	(1,961	)	$	(1,808	)
Accrued postretirement benefits	(19,461		)	(22,766		)
Net amount recognized	$	(21,422	)	$	(24,574	)

The pre-tax amounts related to our other postretirement benefit plans which were recognized in accumulated other comprehensive (loss) income were as follows at June 30:



(in thousands)	2013			2012
Unrecognized net actuarial losses	$	5,213		$	6,538
Unrecognized net prior service credits	(563		)	(674		)
Total	$	4,650		$	5,864

The components of net periodic other postretirement costs (benefit) include the following for the years ended June 30:



(in thousands)	2013			2012			2011
Service cost	$	72		$	75		$	77
Interest cost	938			1,029			1,037
Amortization of prior service cost	(111		)	(89		)	—
Recognition of actuarial loss (gains)	417			(56		)	(190		)
Net periodic other postretirement benefit cost	$	1,316		$	959		$	924

As of June 30, 2013, the projected benefit payments, including future service accruals for our other postretirement benefit plans for 2014 through 2018, are $2.2 million, $2.1 million, $2.1 million, $2.0 million, and $1.9 million, respectively, and $8.1 million in 2019 through 2023.

The amounts of accumulated other comprehensive loss expected to be recognized in net periodic pension cost during 2014 related to net actuarial losses are $0.3 million. The amount of accumulated other comprehensive income expected to be recognized in net periodic pension cost during 2014 related to prior service credit is $0.1 million.

We expect to contribute approximately $2.1 million to our postretirement benefit plans in 2014.

Assumptions

The significant actuarial assumptions used to determine the present value of net benefit obligations for our defined benefit pension plans and other postretirement benefit plans were as follows:



	2013		2012		2011
Discount Rate:
U.S. plans	4.9	%	4.0	%	5.5	%
International plans	3.5-4.8%		4.0-5.0%		5.5-5.8%
Rates of future salary increases:
U.S. plans	3.0-5.0%		3.0-5.0%		3.0-5.0%
International plans	2.5-3.0%		2.5-4.0%		2.0-3.5%

The significant assumptions used to determine the net periodic costs (benefits) for our pension and other postretirement benefit plans were as follows:



	2013		2012		2011
Discount Rate:
U.S. plans	4.0	%	5.5	%	5.5	%
International plans	4.0-5.0%		5.5-5.8%		5.0-5.5%
Rates of future salary increases:
U.S. plans	3.0-5.0%		3.0-5.0%		3.0-5.0%
International plans	2.5-4.0%		2.0-3.5%		3.5	%
Rate of return on plans assets:
U.S. plans	8.0	%	8.0	%	8.0	%
International plans	5.6	%	5.8	%	6.4	%

The rates of return on plan assets are based on historical performance, as well as future expected returns by asset class considering macroeconomic conditions, current portfolio mix, long-term investment strategy and other available relevant information.

The annual assumed rate of increase in the per capita cost of covered benefits (the health care cost trend rate) for our postretirement benefit plans was as follows:



	2013		2012		2011
Health care costs trend rate assumed for next year	7.8	%	8.1	%	8.3	%
Rate to which the cost trend rate gradually declines	4.5	%	4.5	%	4.5	%
Year that the rate reaches the rate at which it is assumed to remain	2029		2029		2029

Assumed health care cost trend rates have a significant effect on the cost components and obligation for the health care plans. A change of one percentage point in the assumed health care cost trend rates would have the following effects on the total service and interest cost components of our other postretirement cost and other postretirement benefit obligation at June 30, 2013:



(in thousands)	1% Increase		1% Decrease
Effect on total service and interest cost components	$	49	$	(42	)
Effect on other postretirement obligation	735		(652		)

Plan Assets

The primary objective of certain of our pension plans’ investment policies is to ensure that sufficient assets are available to provide the benefit obligations at the time the obligations come due. The overall investment strategy for the defined benefit pension plans’ assets combine considerations of preservation of principal and moderate risk-taking. The assumption of an acceptable level of risk is warranted in order to achieve satisfactory results consistent with the long-term objectives of the portfolio. Fixed income securities comprise a significant portion of the portfolio due to their plan-liability-matching characteristics and to address the plans’ cash flow requirements. Additionally, diversification of investments within each asset class is utilized to further reduce the impact of losses in single investments.

Investment management practices must comply with ERISA and all applicable regulations and rulings thereof. The use of derivative instruments is permitted where appropriate and necessary for achieving overall investment policy objectives. Currently, the use of derivative instruments is not significant when compared to the overall investment portfolio.

The Company utilizes a liability driven investment strategy (LDI) for the assets of its U.S. defined benefit pension plans in order to reduce the volatility of the funded status of these plans and to meet the obligations at an acceptable cost over the long term. This LDI strategy entails modifying the asset allocation and duration of the assets of the plans to more closely match the liability profile of these plans. The asset reallocation involves increasing the fixed income allocation, reducing the equity component and adding alternative investments. Longer duration interest rate swaps have been added in order to increase the overall duration of the asset portfolio to more closely match the liabilities.

Our defined benefit pension plans’ asset allocations as of June 30, 2013 and 2012 and target allocations for 2014, by asset class, were as follows:



	2013		2012		Target %
Equity	34	%	30	%	30	%
Fixed Income	61	%	65	%	70	%
Other	5	%	5	%	—	%

The following sections describe the valuation methodologies used by the trustee to measure the fair value of the defined benefit pension plan assets, including an indication of the level in the fair value hierarchy in which each type of asset is generally classified (see Note 5 for the definition of fair value and a description of the fair value hierarchy).

Corporate fixed income securities Investments in corporate fixed income securities consist of corporate debt and asset backed securities. These investments are classified as level two and are valued using independent observable market inputs such as the treasury curve, swap curve and yield curve.

Common / collective trusts Investments in common / collective trusts invest primarily in publicly traded securities and are classified as level two and valued based on observable market data.

Common stock Common stocks are classified as level one and are valued at their quoted market price.

Government securities Investments in government securities consist of fixed income securities such as U.S. government and agency obligations and foreign government bonds and asset and mortgage backed securities such as obligations issued by government sponsored organizations. These investments are classified as level two and are valued using independent observable market inputs such as the treasury curve, credit spreads and interest rates.

Other fixed income securities Investments in other fixed income securities are classified as level two and valued based on observable market data.

Other Other investments consist primarily of state and local obligations and short term instruments including money market funds, certificates of deposit and state and local obligations. These investments are primarily classified as level two and are valued using independent observable market inputs.

The fair value methods described may not be reflective of future fair values. Additionally, while the Company believes the valuation methods used by the plans’ trustee are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in different fair value measurement at the reporting date.

The following table presents the fair value of the benefit plan assets classified under the appropriate level of the fair value hierarchy as of June 30, 2013:



(in thousands)	Level 1		Level 2		Level 3		Total
Corporate fixed income securities	$	—	$	363,027	$	—	$	363,027
Common / collective trusts:
Value funds	—		105,903		—		105,903
Growth funds	—		57,477		—		57,477
Balanced funds	—		19,370		—		19,370
Common stock	89,420		—		—		89,420
Government securities:
U.S. Government securities	—		54,857		—		54,857
Foreign government securities	—		29,115		—		29,115
Other fixed income securities	—		36,750		—		36,750
Other	1,625		38,535		—		40,160
Total investments	$	91,045	$	705,034	$	—	$	796,079

The following table presents the fair value of the benefit plan assets classified under the appropriate level of the fair value hierarchy as of June 30, 2012:



(in thousands)	Level 1		Level 2		Level 3		Total
Corporate fixed income securities	$	—	$	391,868	$	—	$	391,868
Common / collective trusts:
Value funds	—		96,216		—		96,216
Growth funds	—		52,011		—		52,011
Balanced funds	—		14,039		—		14,039
Common stock	76,685		—		—		76,685
Government securities:
U.S. Government securities	—		50,273		—		50,273
Foreign government securities	—		25,969		—		25,969
Other fixed income securities	—		36,165		—		36,165
Other	2,120		38,497		—		40,617
Total investments	$	78,805	$	705,038	$	—	$	783,843

Defined Contribution Plans

We sponsor several defined contribution retirement plans. Costs for defined contribution plans were $11.6 million, $15.4 million and $17.0 million in 2013, 2012 and 2011, respectively.