RETIREMENT PLANS (Dollars in Thousands)

Arrow sponsors qualified and nonqualified defined benefit pension plans and other postretirement benefit plans for its employees. Arrow maintains a non-contributory pension plan, which covers substantially all employees. Effective December 1, 2002, all active participants in the qualified defined benefit pension plan were given a one-time irrevocable election to continue participating in the traditional plan design, for which benefits were based on years of service and the participant’s final compensation (as defined), or to begin participating in the new cash balance plan design. All employees who participate in the plan after December 1, 2002 automatically participate in the cash balance plan design. The interest credits under the cash balance plan are based on the 30-year U.S. Treasury rate in effect for November of the prior year. The service credits under the cash balance plan are equal to 6.0% of eligible salaries for employees who become participants on or after January 1, 2003. For employees in the plan prior to January 1, 2003, the service credits are scaled based on the age of the participant, and range from 6.0% to 12.0%. The funding policy is to contribute up to the maximum amount that can be deducted for federal income tax purposes and to make all payments required under ERISA. Arrow also maintains a supplemental non-qualified unfunded retirement plan to provide eligible employees of Arrow and its subsidiaries with benefits in excess of qualified plan limits imposed by federal tax law.

Arrow has multiple non-pension postretirement benefit plans. The health care, dental and life insurance plans are contributory, with participants’ contributions adjusted annually. Arrow’s policy is to fund the cost of postretirement benefits based on the current cost of the underlying policies. However, the health care plan provision for automatic increases of Company contributions each year is based on the increase in inflation and is limited to a maximum of 5%.

The following tables set forth changes in the plans’ benefit obligations (projected benefit obligation for pension benefits and accumulated benefit obligation for postretirement benefits) and changes in the plans’ assets and the funded status of the pension plans and other postretirement benefit plan at December 31:



Pension Plans:	2011									2010
	Employees' Pension Plan			Select Executive Retirement Plan			Total Pension Plan			Employees' Pension Plan			Select Executive Retirement Plan			Total Pension Plan
Change in Benefit Obligation:
Benefit Obligation at January 1	$	32,337		$	4,319		$	36,656		$	28,687		$	4,003		$	32,690
Service Cost	1,353			81			1,434			1,185			56			1,241
Interest Cost	1,598			222			1,820			1,667			235			1,902
Amendments	191			75			266			—			—			—
Actuarial Loss	1,616			151			1,767			2,458			338			2,796
Benefits Paid	(2,048		)	(319		)	(2,367		)	(1,660		)	(313		)	(1,973		)
Benefit Obligation at December 31¹	35,047			4,529			39,576			32,337			4,319			36,656
Change in Plan Assets:
Fair Value of Plan Assets at January 1	37,319			—			37,319			33,585			—			33,585
Actual Return on Plan Assets	(1,065		)	—			(1,065		)	3,893			—			3,893
Employer Contributions	5,000			319			5,319			1,500			313			1,813
Benefits Paid	(2,048		)	(319		)	(2,367		)	(1,660		)	(313		)	(1,973		)
Fair Value of Plan Assets at December 31	39,206			—			39,206			37,318			—			37,318
Funded Status	$	4,159		$	(4,529	)	$	(370	)	$	4,981		$	(4,319	)	$	662

Supplemental Information:
Accumulated Benefit Obligation ²	$	34,410		$	4,529		$	38,939		$	31,533		$	4,319		$	35,852




Postretirement Benefits:	2011			2010
Change in Benefit Obligation:
Benefit Obligation at January 1	$	7,873		$	7,442
Service Cost	174			163
Interest Cost	373			421
Plan Participants’ Contributions	382			330
Amendments	—			(241		)
Actuarial (Gain) Loss	503			454
Medicare Part D Prescription Drug Federal Subsidy	—			6
Benefits Paid	(749		)	(702		)
Benefit Obligation at December 31¹	8,556			7,873
Change in Plan Assets:
Employer Contributions	367			366
Plan Participants’ Contributions	382			330
Medicare Part D Prescription Drug Federal Subsidy	—			6
Benefits Paid	(749		)	(702		)
Fair Value of Plan Assets at December 31	—			—
Funded Status	$	(8,556	)	$	(7,873	)

¹ Represents the projected benefit obligation for pension benefits and the accumulated benefit obligation for postretirement benefits.

² The actuarial present value of benefits, vested and non-vested, earned by employees based on current and past compensation levels

The following tables summarize the funded status of the pension and postretirement plans, reconciled to the amounts recognized in the consolidated balance sheets as of December 31, 2011 and 2010:



Pension Plans:	2011								2010
	Employee’s Pension Plan		Select Executive Retirement Plan			Total Pension Plan			Employee’s Pension Plan		Select Executive Retirement Plan			Total Pension Plan
Prepaid Benefit Cost	$	4,159	$	—		$	4,159		$	4,981	$	—		$	4,981
Accrued Benefit Liability	—		(4,529		)	(4,529		)	—		(4,319		)	(4,319		)
Net Benefit Cost Recognized	$	4,159	$	(4,529	)	$	(370	)	$	4,981	$	(4,319	)	$	662



Postretirement Benefits:	2011			2010
Accrued Benefit Liability	$	(8,556	)	$	(7,873	)
Net Benefit Cost Recognized	$	(8,556	)	$	(7,873	)

The components of accumulated other comprehensive income related to pension plans and other postretirement benefits, on a pre-tax basis, at December 31 are summarized below.



Pension Plans:	2011							2010
Change in Benefit Obligation:	Employee’s Pension Plan			Select Executive Retirement Plan		Total Pension Plan		Employee’s Pension Plan			Select Executive Retirement Plan		Total Pension Plan
Net Actuarial Loss	$	18,127		$	2,083	$	20,210	$	13,431		$	2,079	$	15,510
Prior Service (Credit) Cost	(177		)	369		192		(330		)	262		(68		)
Total Pre-tax Amounts Recognized in Accumulated Other Comprehensive Loss	$	17,950		$	2,452	$	20,402	$	13,101		$	2,341	$	15,442
Amount expected to be recognized as components of net periodic benefit cost in 2012:
Net Actuarial Loss	$	1,241		$	139
Prior Service Cost	41			43



Postretirement Benefits:	2011			2010
Net Actuarial Loss	$	2,493		$	2,060
Prior Service Credit	(533		)	(647		)
Total Pre-tax Amounts Recognized in Accumulated Other Comprehensive Loss	$	1,960		$	1,413

Amount expected to be recognized as components of net periodic benefit cost in 2012:
Net Actuarial Loss	$	133
Prior Service Credit	(114		)

The following table provides the components of net periodic benefit costs for the plans for the years ended December 31:



Pension Plans:	2011									2010									2009
	Employee’s Pension Plan			Select Executive Retirement Plan			Total Pension Plan			Employee’s Pension Plan			Select Executive Retirement Plan			Total Pension Plan			Employee’s Pension Plan			Select Executive Retirement Plan			Total Pension Plan
Net Periodic Benefit Cost
Service Cost	$	1,353		$	81		$	1,434		$	1,185		$	56		$	1,241		$	1,042		$	55		$	1,097
Interest Cost	1,598			222			1,820			1,667			235			1,902			1,532			218			1,750
Expected Return on Plan Assets	(2,793		)	—			(2,793		)	(2,454		)	—			(2,454		)	(2,072		)	—			(2,072		)
Amortization of Prior Service (Credit) Cost	38			(32		)	6			25			(105		)	(80		)	25			(108		)	(83		)
Amortization of Net Loss	778			147			925			899			128			1,027			1,195			112			1,307
Net Periodic Benefit Cost	974			418			1,392			1,322			314			1,636			1,722			277			1,999

Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss:
Net Loss (Gain)	5,474			151			5,625			1,018			339			1,357			(2,425		)	318			(2,107		)
Prior Service Cost	191			75			266			—			—			—			—			70			70
Amortization of Net Loss	(778		)	(147		)	(925		)	(899		)	(128		)	(1,027		)	(1,195		)	(112		)	(1,307		)
Amortization of Prior Service (Cost) Credit	(38		)	32			(6		)	(25		)	105			80			(25		)	108			83
Total Recognized in Other Comprehensive Loss (Income)	4,849			111			4,960			94			316			410			(3,645		)	384			(3,261		)
Total Recognized in Net Periodic Cost (Benefit) and Other Comprehensive Loss (Income)	$	5,823		$	529		$	6,352		$	1,416		$	630		$	2,046		$	(1,923	)	$	661		$	(1,262	)



Postretirement Benefits:
Net Periodic Benefit Cost	2011			2010			2009
Service Cost	$	173		$	163		$	147
Interest Cost	372			421			415
Accretion of Prior Service Credit	(114		)	(105		)	(96		)
Amortization of Net Loss	71			85			62
Net Periodic Benefit Cost	502			564			528
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss (Income)
Net Loss (Gain)	504			454			(345		)
Prior Service Cost (Credit)	—			(242		)	185
Amortization of Net Loss	(71		)	(85		)	(62		)
Accretion of Prior Service Credit	114			106			96
Total Recognized in Other Comprehensive Loss (Income)	547			233			(126		)
Total Recognized in Net Periodic Benefit Cost and Other Comprehensive Loss (Income)	$	1,049		$	797		$	402

The prior service costs or credits are amortized on a straight-line basis over the average remaining service period of active participants. Gains and losses in excess of 10% of the greater of the benefit obligation or the fair value of assets are amortized over the average remaining service period of active participants.



Additional Information:	Employee Pension Plan and Select Executive Retirement Plan						Postretirement Benefits
	2011		2010		2009		2011		2010		2009
Weighted-Average Assumptions Used To Determine Benefit Obligation at December 31:
Discount Rate	4.05	%	5.15	%	5.80	%	4.05	%	5.15	%	5.80	%
Rate of Compensation Increase	3.50	%	3.50	%	3.50	%	3.50	%	3.50	%	3.50	%
Interest Rate Credit for Determining Projected Cash Balance Account	3.25	%	4.25	%	4.50	%	—		—		—
Interest Rate to Annuitize Cash Balance Account	5.00	%	5.50	%	6.00	%	—		—		—
Interest Rate to Convert Annuities To Actuarially Equivalent Lump Sum Amounts	5.00	%	5.50	%	6.00	%	—		—		—



	Employee Pension Plan and Select Executive Retirement Plan						Postretirement Benefits
	2011		2010		2009		2011		2010		2009
Weighted-Average Assumptions Used To Determine Net Periodic Benefit Cost for Years Ended December 31:
Discount Rate	5.15	%	5.80	%	6.15	%	5.15	%	5.80	%	6.15	%
Expected Long-Term Return on Plan Assets	7.50	%	7.50	%	7.50	%	—		—		—
Rate of Compensation Increase	3.50	%	3.50	%	3.50	%	3.50	%	3.50	%	3.50	%
Interest Rate Credit for Determining Projected Cash Balance Account	4.25	%	4.50	%	4.50	%	—		—		—
Interest Rate to Annuitize Cash Balance Account	5.50	%	6.00	%	6.00	%	—		—		—
Interest Rate to Convert Annuities To Actuarially Equivalent Lump Sum Amounts	5.50	%	6.00	%	6.00	%	—		—		—

The discount rate assumption is based on the Citigroup Pension Discount Curve as adjusted to provide the necessary cash flows for the payment of benefits when due.

The following table presents management’s estimated benefit payments for the next ten years:



	Employee		Select Executive		Postretirement
Payment Period	Pension Plan		Retirement Plan		Plan
2012	$	2,017	$	321	$	483
2013	1,955		404		495
2014	2,268		394		524
2015	2,284		384		534
2016	2,036		372		555
2017-2021	11,460		1,669		3,035



Assumed Health Care Cost Trend Rates at December 31,
	2011		2010
Health Care Cost Trend Rate Assumed for Next Year	8.50	%	9.00	%
Rate to which the Cost Trend Rate is Assumed to Decline (the Ultimate Trend Rate)	5.00	%	5.00	%
Year that the Rate Reaches the Ultimate Trend Rate	2019		2017

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:



	1-Percentage- Point Increase		1-Percentage- Point Decrease
Effect on Total Service and Interest Cost Components of Net Periodic Postretirement Benefit Cost For the Year Ended December 31, 2011	$	62	$	(51	)
Effect on the Accumulated Postretirement Benefit Obligation as of December 31, 2011	686		(580		)

Fair Value of Plan Assets (Defined Benefit Plan):

For information on fair value measurements, including descriptions of level 1, 2 and 3 of the fair value hierarchy and the valuation methods employed by Arrow, see Note 1 - “Summary of Significant Accounting Policies” and Note 21 - “Fair Value of Financial Instruments.”

The fair value of level 1 financial instruments in the table below are based on unadjusted, quoted market prices from exchanges in active markets. The fair value of level 2 financial instruments are determined utilizing an independent pricing service for identical assets or significantly similar securities. The pricing service uses a variety of techniques to arrive at fair value including market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads, actual and projected cash flows relative credit information, and perceived market movements. There were no Level 3 assets at December 31, 2011 or 2010 nor at any time during 2011 and 2010.

Plan investment assets measured at fair value by level and in total at December 31, 2011 and 2010 are summarized in the following table:



	Fair Value Measurements Using:
Asset Category:	Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)	Total		Percent of Total
2011
Cash	$	7	—		—	$	7	—	%
Interest-Bearing Money Market Fund	1,857		—		—	1,857		4.7	%
Equity Securities	3,843		—		—	3,843		9.8	%
Mutual Funds - Equity	28,167		—		—	28,167		71.9	%
Mutual Funds – Fixed Income	5,332		—		—	5,332		13.6	%
Total	$	39,206	$	—	—	$	39,206	100.0	%
2010
Interest-Bearing Money Market Fund	$	2,670	—		—	$	2,670	7.2	%
Mortgage-Backed Securities	—		2		—	2		—	%
Equity Securities	3,438		—		—	3,438		9.2	%
Mutual Funds - Equity	24,590		—		—	24,590		65.9	%
Mutual Funds – Fixed Income	6,618		—		—	6,618		17.7	%
Total	$	37,316	2		—	$	37,318	100.0	%



Supplemental Information on Plan Assets
At December 31,
	2011		2010
Balance of shares of mutual funds advised by Arrow's subsidiary, North Country Investment Advisers, Inc., at market value	$	17,411	$	17,995
Market value of Arrow common stock held by the plan	3,843		3,438

In accordance with ERISA guidelines, the Board authorized the purchase of Arrow common stock up to 10% of the fair market value of the plan's assets at the time of acquisition.

Pension Plan Investment Policies and Strategies:

The Company maintains a non-contributory pension benefit plan covering substantially all employees for the purpose of rewarding long and loyal service to the Company. The pension assets are held in trust and are invested in a prudent manner for the exclusive purpose of providing benefits to participants. The investment objective is to achieve an inflation-protected rate of return that meets the actuarial assumption which is used for funding purposes. The investment strategy attempts to maximize the investment return on assets at a level of risk deemed appropriate by the Company while complying with ERISA and any applicable regulations and laws. The investment strategy utilizes asset allocation as a principal determinant for establishing the risk/reward profile of the assets. Asset allocation ranges are established, periodically reviewed, and adjusted as funding levels, and participant benefit characteristics change. Active and passive investment management is employed to help enhance the risk/return profile of the assets.

The Plan’s assets are invested in a diversified portfolio of equity securities comprised of companies with small, mid, and large capitalizations. Both domestic and international equities are allowed to provide further diversification and opportunity for return in potentially higher growth economies with lower correlation of returns. Growth and value styles of investment are employed to increase the diversification and offer varying opportunities for appreciation. The fixed income portion of the plan may be invested in U.S. dollar denominated debt securities that shall be rated within the top four ratings categories by nationally recognized ratings agencies. The fixed income portion will be invested without regard to industry or sector based on analysis of each target security’s structural and repayment features, current pricing and trading opportunities as well as credit quality of the issuer. Individual bonds with ratings that fall below the Plan’s rating requirements will be sold only when it is in the best interests of the Plan. Hybrid investments, such as convertible bonds, may be used to provide growth characteristics while offering some protection to declining equity markets by having a fixed income component. Alternative investments such as Treasury Inflation Protected Securities, commodities, and REITs may be used to further enhance diversification while offering opportunities for return. In accordance with ERISA guidelines, common stock of the Company may be purchased up to 10% of the fair market value of the Plan’s assets at the time of acquisition. Derivative investments are prohibited in the plan.

The return on assets assumption was developed through review of historical market returns, historical asset class volatility and correlations, current market conditions, the Plan’s past experience, and expectations on potential future market returns. The assumption represents a long-term average view of the performance of the assets in the Plan, a return that may or may not be achieved during any one calendar year. The assumption is based on the return of the Plan using the historical fifteen year return adjusted for the potential for lower than historical returns due to low interest rates, and an expected modest recovery in global economic growth as a result of the deep recession.

The range of plan asset allocations as of December 31, 2011 by asset category is as follows: Equity securities 65-85%; Fixed Income securities 10-30%; and Money market 0-5%.

Cash Flows - We were not required to make any contribution to our qualified pension plan in 2011. We contributed $5.0 million to the plan in 2011 and, although not required, expect to contribute in the range of $1 to $3 million during 2012. The expected 2012 contribution for the nonqualified plan is $321. Arrow makes contributions for its postretirement benefits in an amount equal to actual expenses for the year. The expected contribution is estimated to be $483 for 2012.