NOTE 18 —PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS:

In accordance with ASC 852, the pension and other postretirement benefit liabilities relating to plans associated with Debtor entities were classified as liabilities subject to compromise as of December 31, 2012.

Pension Plans

In connection with the November 2006 acquisition of Maritrans, the Company assumed the obligations under the defined benefit retirement plan of Maritrans Inc. (“the Maritrans Plan”). As of December 31, 2006, the Company froze the benefits under the Maritrans Plan. At December 31, 2012, the Maritrans Plan is the only domestic defined benefit pension plan in existence. The Maritrans Plan was noncontributory and covered substantially all shore-based employees and substantially all of the seagoing supervisors who were supervisors in 1984, or who were hired in, or promoted into, supervisory roles between 1984 and 1998 for that period of time. Beginning in 1999, the seagoing supervisors’ retirement benefits are provided through contributions to an industry-wide, multi-employer union sponsored pension plan. Upon retirement, those seagoing supervisors are entitled to retirement benefits from the Maritrans Plan for service periods between 1984 and 1998 and from the multiemployer union sponsored plan for other covered periods. Retirement benefits are based primarily on years of service and average compensation for the five consecutive plan years that produce the highest results.

The Company also has obligations outstanding under an unfunded, nonqualified supplemental defined benefit pension plan, which was terminated in December 2005, to five former employees entitled to deferred benefits. The Company’s obligations to pay benefits under the unfunded, nonqualified supplemental defined benefit pension plan were terminated in connection with the Company’s filing for bankruptcy. Accordingly, the obligation has been classified as Liabilities Subject to Compromise in the consolidated balance sheet as of December 31, 2012.

Certain of the Company’s foreign subsidiaries have pension plans that, in the aggregate, are not significant to the Company’s consolidated financial position. The liabilities for such pension plans are included in other liabilities in the consolidated balance sheets as of December 31, 2012 and 2011. On November 3, 2010, OSG provided a guarantee to the Trustees of the OSG Ship Management (UK) Ltd. Retirement Benefits Plan (the “Scheme”) in respect to the obligations of OSG Ship Management (UK) Ltd., the principal employer of the Scheme, in the amount not to exceed GBP 4,896.

Multiemployer Pension and Postretirement Benefit plans

Certain of the Company’s domestic subsidiaries are parties to collective-bargaining agreements that require them to make contributions to three jointly managed (Company and union) multiemployer pension plans covering seagoing personnel of U.S. Flag vessels. All three plans, the American Maritime Officers (“AMO”) Pension Plan, the Seafarers Pension Plan (“SIU”) and the Marine Engineers’ Beneficial Association (“MEBA”) Defined Benefit Pension Plan are individually significant (as such term is defined in the accounting standards). This is because of the potential withdrawal liabilities under the AMO Pension Plan and the MEBA Defined Benefit Pension Plan and because the Company’s contributions to the SIU plan constitutes more than 5% of total employer contributions to the plan during the pension plan year ending in 2012.

Plan level information is available in the public domain for each of the multiemployer pension plans the Company participates in. The table below provides additional information about the Company’s participation in the above multi-employer pension plans:

		Pension Protection Act				Contributions made
		Zone Status				by the Company
Pension Plan	EIN / Pension Plan Number	2012	2011		Rehabilitation Plan Status	2012		2011		2010

AMO Pension Plan	13-1936709	Yellow (1)		Red (1)	Implemented	$	890	$	805	$	773

MEBA Pension Plan	51-6029896	Green (1)		Green (1)	None		448		-		-

Seafarers Pension Plan	13-6100329	Green (1)		Green (1)	None		416		425		374
					Total contributions	$	1,754	$	1,230	$	1,147

(1) A “Red” Zone Status plan is a plan that is funded 65% or less and currently has a funding deficiency or a funding deficiency that is projected in the near term. A “Yellow” Zone Status plan is a plan that is greater than 65% but less than 80% funded. A “Green” Zone Status plan is a plan that is 80% funded or more.

The plan years for the three union plans end as follows: MEBA and SIU on December 31 and AMO on September 30. The Company has no future minimum contribution requirements under the three multiemployer pension plans shown above as of December 31, 2012 and any such contributions are subject to negotiations between the employers and the unions. In January 2012, MEBA and the employers agreed to reduce pension benefit accrual rates for future service. Additionally, MEBA and OSG agreed to contractual changes transferring pension contribution obligations to the union members through reallocation of amounts paid by OSG for wages and certain other compensation. In October 2009, the AMO plan filed with the Department of Labor as being in critical status as defined by the Pension Protection Act of 2006. The related rehabilitation plan, which was implemented in 2010, eliminated or reduced certain adjustable benefits, including cost of living adjustments, early retirement and disability pensions. In addition, AMO froze their plan effective January 1, 2010 for the future accrual of benefits and imposed a 5% surcharge during 2011 on the contribution rate per man day. The AMO plan shifted from critical to endangered status as of the end of the 2012 plan year. The MEBA and SIU plans utilized the special 29-year amortization rules under Pension Protection Act to amortize their investment losses from 2008, instead of 15 years. In order to take advantage of this extended amortization period, the plans are not permitted to increase benefits through the 2012 plan years unless the increases are funded by additional contributions and other conditions are met. The Employee Retirement Income Security Act of 1974 requires employers who are contributors to U.S. multiemployer plans to continue funding their allocable share of each plan’s unfunded vested benefits in the event of withdrawal from or termination of such plans. Based on information received from the trustees of the SIU Pension Plan, the Company is not subject to withdrawal liabilities under that plan. Based on the actuarial report received from the trustees of the MEBA Pension Plan, as of December 31, 2012, the Company’s estimated withdrawal liability was approximately $7,462. Based on the actuarial report received from the trustees of the AMO Pension Plan, as of September 30, 2012, the Company’s estimated withdrawal liability was approximately $30,842. The Company has no intentions of terminating its participation in any of the three multiemployer pension plans. Accordingly, no provisions have been made for the estimated withdrawal liability as of December 31, 2012.

The AMO, SIU and MEBA collective bargaining agreements expire in March 2015, June 2017 and June 2020, respectively. The collective bargaining agreements also require the Company to make contributions to certain other postretirement employee benefit plans the unions offer to their members. Such contributions were not material during the three years ended December 31, 2012.

Certain other seagoing personnel of U.S. Flag vessels are covered under a defined contribution plan, the cost of which is funded as accrued. The costs of all these plans were not material during the three years ended December 31, 2012.

Postretirement Benefit plans

The Company also provides certain postretirement health care and life insurance benefits to qualifying domestic retirees and their eligible dependents. The health care plan for shore-based employees and their dependents and seagoing licensed deck officers and their dependents is contributory, while the life insurance plan for all employees is noncontributory. In general, postretirement medical coverage is provided to employees hired prior to January 1, 2005 who retire and have met minimum age and service requirements under a formula related to total years of service. The Company no longer provides prescription drug coverage to its retirees or their beneficiaries once they reach age 65. The Company does not currently fund these benefit arrangements and has the right to amend or terminate the health care and life insurance benefits at any time.

Information with respect to the domestic pension and postretirement benefit plans for which the Company uses a December 31 measurement date, follow:

	Pension Benefits				Other Benefits
At December 31,	2012		2011		2012		2011
Change in benefit obligation:
Benefit obligation at beginning of year	$	46,854	$	42,460	$	6,395	$	5,402
Cost of benefits earned (service cost)		-		-		195		226
Interest cost on benefit obligation		2,032		2,171		237		292
Amendments		-		-		(3,012)		-
Actuarial losses		4,374		4,445		804		599
Benefits paid		(2,238)		(2,222)		(153)		(124)
Benefit obligation at year end		51,022		46,854		4,466		6,395
Change in plan assets:
Fair value of plan assets at beginning of year		28,897		30,329		-		-
Actual return on plan assets		3,161		(634)		-		-
Employer contributions		1,545		1,348		-		-
Benefits paid		(2,211)		(2,146)		-		-
Fair value of plan assets at year end		31,392		28,897		-		-
Unfunded status at December 31	$	(19,630)	$	(17,957)	$	(4,466)	$	(6,395)

The unfunded benefit obligations for the Domestic Debtor entities’ pension and postretirement benefit plans are included in Liabilities Subject to Compromise in the consolidated balance sheet as of December 31, 2012.

The unfunded benefit obligations for the Company’s pension and postretirement benefit plans are included in other liabilities in the consolidated balance sheet as of December 31, 2011.

Information for domestic defined benefit pension plans with accumulated benefit obligations in excess of plan assets follows:

At December 31,	2012		2011
Projected benefit obligation	$	51,022	$	46,854
Accumulated benefit obligation		51,022		46,854
Fair value of plan assets		31,392		28,897

	Pension benefits						Other benefits
For the year ended December 31,	2012		2011		2010		2012		2011		2010
Components of expense:
Cost of benefits earned	$	-	$	-	$	-	$	195	$	226	$	223
Interest cost on benefit obligation		2,032		2,171		2,212		237		292		295
Expected return on plan assets		(1,873)		(2,030)		(1,796)		-		-		-
Amortization of prior-service costs		-		-		-		(233)		(157)		(240)
Amortization of transition obligation		-		-		-		10		20		20
Recognized net actuarial loss		316		30		25		160		122		91
Net periodic benefit cost	$	475	$	171	$	441	$	369	$	503	$	389

The weighted-average assumptions used to determine benefit obligations follow:

	Pension benefits							Other benefits
At December 31,	2012			2011			2012				2011
Discount rate		3.75	%		4.50	%			4.00	%		4.50	%
Rate of future compensation increases		-			-				-			-

The selection of a discount rate for the Maritrans Plan was derived from bond yield curves, which the Company believed as of such dates to be appropriate for ongoing plans with a long duration, such as the Maritrans Plan, and that generally mirror the type of high yield bond portfolio the Company could acquire to offset its obligations under the Maritrans Plan.

The weighted-average assumptions used to determine net periodic benefit cost follow:

	Pension benefits									Other benefits
For the year ended December 31,	2012			2011			2010			2012			2011			2010
Discount rate		4.50	%		5.25	%		5.50	%		4.50	%		5.25	%		5.50	%
Expected (long-term) return on plan assets		6.50	%		6.75	%		6.75	%		-			-			-
Rate of future compensation increases		-			-			-			-			-			-

The assumed health care cost trend rate for measuring the benefit obligation included in Other Benefits above is an increase of 10% for 2013 over the actual 2012 rates, with the rate of increase declining steadily thereafter by 1% per annum to an ultimate trend rate of 5% per annum in 2018. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health care cost trend rates would have the following effects:

	1% increase		1% decrease
Effect on total of service and interest cost components in 2012	$	96	$	(71)
Effect on postretirement benefit obligation as of December 31, 2012	$	530	$	(421)

Expected benefit payments are as follows:

	Pension benefits		Other benefits
2013	$	2,232	$	181
2014		2,313		186
2015		2,405		189
2016		2,565		193
2017		2,586		203
Years 2018-2022		14,528		1,152
	$	26,629	$	2,104

The expected long-term rate of return on plan assets is based on the current and expected asset allocations. Additionally, the long-term rate of return is based on historical returns, investment strategy, inflation expectations and other economic factors. The expected long-term rate of return is then applied to the market value of plan assets.

The fair values of the Company’s pension plan assets at December 31, 2012, by asset category are as follows:

			Level 1:
			Quoted prices in active
			markets for identical
Description	Fair Value		assets or liabilities
Cash and cash equivalents	$	1,432	$	1,432
Equity securities:
U.S. companies		14,133		14,133
International companies		4,856		4,856
Corporate debt securities		1,992		1,992
Mutual funds⁽¹⁾		2,942		2,942
U.S. Treasury securities		3,534		3,534
Mortgage-backed securities		2,503		2,503
Total	$	31,392	$	31,392

⁽¹⁾ The mutual fund investments are invested in intermediate term bonds of government and government sponsored entities.

The Maritrans Plan has historically utilized a strategic asset allocation investment strategy that maintains a targeted allocation of 65% equity and 35% fixed income. The allocation is rebalanced periodically after considering anticipated benefit payments.

The Company contributed $1,545, $1,348 and $2,359 to the Maritrans Plan in 2012, 2011, and 2010, respectively. The Company expects that its contribution in 2013 to the Maritrans Plan will be approximately $1,318 which includes its required contribution and amounts necessary to prevent the plan from being subject to certain benefit restrictions.

Employee Savings Plans

The Company also has defined contribution plans covering all eligible U.S. employees. Contributions are limited to amounts allowable for income tax purposes. Commencing in 2006, employer contributions include both employer contributions made regardless of employee contributions and matching contributions to the plans. The Company’s contributions to the plan during each of the three years ended December 31, 2012 were not material. All contributions to the plans are at the discretion of the Company.

The Company also has an unfunded, nonqualified supplemental savings plan (“Supplemental Executive Savings Plan”) covering highly compensated U.S. shore-based employees of the Company. This plan provides for levels of hypothetical employer contributions that would otherwise have been made under the Company’s defined contribution plans in the absence of limitations imposed by income tax regulations. The Company’s unfunded obligations under this plan at December 31, 2012 and 2011 were $13,275 and $12,346, respectively, and are included in Liabilities Subject to Compromise in the consolidated balance sheet as of December 31, 2012 and in deferred income taxes and other liabilities as of December 31, 2011.