Retirement Benefit Plans

Defined Benefit Plans: The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. Prior to 2014, the Company amended the Combined Defined Benefit Plan for NACCO Industries, Inc. and its subsidiaries (the “Combined Plan”) to freeze pension benefits for all employees, including those for certain Unconsolidated Mines' employees. The Company also amended the Supplemental Retirement Benefit Plan (the “SERP”) to freeze all pension benefits. Certain executive officers also maintain accounts under various deferred compensation plans that were frozen prior to 2014.

All eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans.

The assumptions used in accounting for the defined benefit plans were as follows for the years ended December 31:



	2016		2015		2014
U.S. Plans
Weighted average discount rates for pension benefit obligation	3.60% - 4.00%		3.70% - 4.20%		3.45% - 3.95%
Weighted average discount rates for net periodic benefit cost	3.70% - 4.20%		3.45% - 3.95%		4.00% - 4.75%
Expected long-term rate of return on assets for net periodic benefit cost	7.50	%	7.75	%	7.75	%
Non-U.S. Plan
Weighted average discount rates for pension benefit obligation	3.75	%	4.00	%	3.75	%
Weighted average discount rates for net periodic benefit cost	4.00	%	3.75	%	4.50	%
Rate of increase in compensation levels	3.50	%	3.50	%	3.50	%
Expected long-term rate of return on assets for net periodic benefit cost	5.50	%	5.75	%	6.00	%

Set forth below is a detail of the net periodic pension expense (income) for the defined benefit plans for the years ended December 31:



	2016			2015			2014
U.S. Plans
Interest cost	$	2,632		$	2,627		$	2,754
Expected return on plan assets	(4,860		)	(4,892		)	(4,689		)
Amortization of actuarial loss	910			1,059			837
Amortization of prior service cost	58			50			32
Settlements	90			—			—
Net periodic pension income	$	(1,170	)	$	(1,156	)	$	(1,066	)

Non-U.S. Plan
Interest cost	$	144		$	152		$	196
Expected return on plan assets	(248		)	(272		)	(296		)
Amortization of actuarial loss	13			146			112
Settlements	—			37			—
Net periodic pension (income) expense	$	(91	)	$	63		$	12

Set forth below is detail of other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended December 31:



	2016			2015			2014
U.S. Plans
Current year actuarial loss	$	2,816		$	2,181		$	8,896
Amortization of actuarial loss	(910		)	(1,059		)	(837		)
Current year prior service cost	—			147			360
Amortization of prior service cost	(58		)	(50		)	(32		)
Settlements	(90		)	—			—
Total recognized in other comprehensive loss	$	1,758		$	1,219		$	8,387
Non-U.S. Plan
Current year actuarial loss (gain)	$	318		$	(128	)	$	(94	)
Amortization of actuarial loss	(13		)	(146		)	(112		)
Settlements	—			(37		)	—
Total recognized in other comprehensive loss (income)	$	305		$	(311	)	$	(206	)

The following table sets forth the changes in the benefit obligation and the plan assets during the year and the funded status of the defined benefit plans at December 31:



	2016						2015
	U.S. Plans			Non-U.S. Plan			U.S. Plans			Non-U.S. Plan
Change in benefit obligation
Projected benefit obligation at beginning of year	$	68,490		$	3,519		$	72,839		$	4,549
Interest cost	2,632			144			2,627			152
Actuarial loss (gain)	2,145			430			(2,884		)	(146		)
Benefits paid	(3,978		)	(176		)	(4,393		)	(146		)
Foreign currency exchange rate changes	—			104			—			(712		)
Settlements	(18		)	—			—			(178		)
Intercompany transfers	(303		)	—			301			—
Projected benefit obligation at end of year	$	68,968		$	4,021		$	68,490		$	3,519
Accumulated benefit obligation at end of year	$	68,968		$	4,021		$	68,490		$	3,519
Change in plan assets
Fair value of plan assets at beginning of year	$	64,893		$	4,383		$	68,675		$	5,286
Actual return on plan assets	682			356			110			256
Employer contributions	755			17			424			17
Benefits paid	(3,978		)	(176		)	(4,393		)	(146		)
Foreign currency exchange rate changes	—			132			—			(852		)
Settlements	(18		)	—			—			(178		)
Intercompany transfers	(304		)	—			77			—
Fair value of plan assets at end of year	$	62,030		$	4,712		$	64,893		$	4,383
Funded status at end of year	$	(6,938	)	$	691		$	(3,597	)	$	864
Amounts recognized in the balance sheets consist of:
Noncurrent assets	$	5,140		$	691		$	4,261		$	864
Current liabilities	(721		)	—			(1,016		)	—
Non-current liabilities	(11,357		)	—			(6,842		)	—
	$	(6,938	)	$	691		$	(3,597	)	$	864
Components of accumulated other comprehensive loss (income) consist of:
Actuarial loss	$	29,857		$	1,029		$	28,041		$	737
Prior service cost	996			—			1,054			—
Deferred taxes	(11,957		)	(327		)	(11,324		)	(250		)
Currency differences	—			(89		)	—			(102		)
	$	18,896		$	613		$	17,771		$	385

The actuarial loss and prior service cost included in accumulated other comprehensive income (loss) expected to be recognized in net periodic benefit cost in 2017 are $0.9 million ($0.6 million net of tax) and less than $0.1 million, respectively.

The Company recognizes as a component of benefit cost (income), as of the measurement date, any unrecognized actuarial net gains or losses that exceed 10% of the larger of the projected benefit obligations or the plan assets, defined as the "corridor." Amounts outside the corridor are amortized over the average expected remaining service of active participants expected to benefit under the retiree medical plans or over the average expected remaining lifetime of inactive participants for the pension plans. The (gain) loss amounts recognized in AOCI are not expected to be fully recognized until the plan is terminated or as settlements occur, which would trigger accelerated recognition. Prior service costs resulting from plan changes are also in AOCI.

The Company's policy is to make contributions to fund its pension plans within the range allowed by applicable regulations. The Company expects to contribute less than $0.1 million to its non-U.S. pension plans in 2017.

The Company maintains one supplemental defined benefit plan that pays monthly benefits to participants directly out of corporate funds. All other pension benefit payments are made from assets of the pension plans.

Future pension benefit payments expected to be paid from assets of the pension plans are:



	U.S. Plans		Non-U.S. Plan
2017	$	4,761	$	172
2018	4,564		170
2019	4,552		177
2020	4,806		187
2021	4,694		199
2022 - 2026	22,831		1,187
	$	46,208	$	2,092

The expected long-term rate of return on defined benefit plan assets reflects management's expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. In establishing the expected long-term rate of return assumption for plan assets, the Company considers the historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans as well as a forward-looking rate of return. The historical and forward-looking rates of return for each of the asset classes used to determine the Company's estimated rate of return assumption were based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each of the asset classes.

Expected returns for U.S. pension plans are based on a calculated market-related value for U.S. pension plan assets. Under this methodology, asset gains and losses resulting from actual returns that differ from the Company's expected returns are recognized in the market-related value of assets ratably over three years. Expected returns for Non-U.S. pension plans are based on fair market value for Non-U.S. pension plan assets.

The pension plans maintain investment policies that, among other things, establish a portfolio asset allocation methodology with percentage allocation bands for individual asset classes. The investment policies provide that investments are reallocated between asset classes as balances exceed or fall below the appropriate allocation bands.

The following is the actual allocation percentage and target allocation percentage for the U.S. pension plan assets at December 31:



	2016 Actual Allocation		2015 Actual Allocation		Target Allocation Range
U.S. equity securities	45.8	%	52.1	%	36.0% - 54.0%
Non-U.S. equity securities	19.7	%	12.3	%	16.0% - 24.0%
Fixed income securities	33.7	%	35.1	%	30.0% - 40.0%
Money market	0.8	%	0.5	%	0.0% - 10.0%

The following is the actual allocation percentage and target allocation percentage for the Non-U.S. pension plan assets at December 31:



	2016 Actual Allocation		2015 Actual Allocation		Target Allocation Range
Canadian equity securities	32.7	%	28.9	%	25.0% - 35.0%
Non-Canadian equity securities	32.1	%	30.6	%	25.0% - 35.0%
Fixed income securities	35.2	%	40.5	%	30.0% - 50.0%
Cash and cash equivalents	—	%	—	%	0.0% - 5.0%

The defined benefit pension plans do not have any direct ownership of NACCO common stock.

The fair value of each major category of the Company's U.S. pension plan assets are valued using quoted market prices in active markets for identical assets, or Level 1 in the fair value hierarchy. The fair value of each major category of the Company's Non-U.S. pension plan assets are valued using observable inputs, either directly or indirectly, other than quoted market prices in active markets for identical assets, or Level 2 in the fair value hierarchy. Following are the values as of December 31:



	Level 1				Level 2
	2016		2015		2016		2015
U.S. equity securities	$	28,428	$	33,799	$	777	$	670
Non-U.S. equity securities	12,197		8,003		2,275		1,939
Fixed income securities	20,930		22,787		1,660		1,774
Money market	475		304		—		—
Total	$	62,030	$	64,893	$	4,712	$	4,383

Postretirement Health Care: The Company also maintains health care plans which provide benefits to grandfathered eligible retired employees in the U.S. All health care plans of the Company have a cap on the Company's share of the costs. These plans have no assets. Under the Company's current policy, plan benefits are funded at the time they are due to participants.

The assumptions used in accounting for the postretirement health care plans are set forth below for the years ended December 31:



	2016		2015		2014
Weighted average discount rates for benefit obligation	3.40	%	3.40	%	3.25	%
Weighted average discount rates for net periodic benefit cost	3.25	%	3.25	%	3.85	%
Health care cost trend rate assumed for next year	7.3	%	7.3	%	7.0	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)	5.0	%	5.0	%	5.0	%
Year that the rate reaches the ultimate trend rate	2025		2025		2022

Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effects at December 31, 2016:



	1-Percentage-Point Increase		1-Percentage-Point Decrease
Effect on total of service and interest cost	$	16	$	(14	)
Effect on postretirement benefit obligation	$	223	$	(208	)

Set forth below is a detail of the net periodic benefit expense for the postretirement health care plans for the years ended December 31:



	2016			2015			2014
Service cost	$	70		$	70		$	70
Interest cost	116			113			118
Amortization of actuarial loss	132			91			66
Amortization of prior service credit	(107		)	(107		)	(107		)
Net periodic benefit expense	$	211		$	167		$	147

Set forth below is a detail of other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended December 31:



	2016			2015			2014
Current year actuarial (gain) loss	$	(25	)	$	226		$	613
Amortization of actuarial loss	(132		)	(91		)	(66		)
Amortization of prior service credit	107			107			107
Total recognized in other comprehensive income	$	(50	)	$	242		$	654

The following sets forth the changes in benefit obligations during the year and the funded status of the postretirement health care at December 31:



	2016			2015
Change in benefit obligation
Benefit obligation at beginning of year	$	3,466		$	3,534
Service cost	70			70
Interest cost	116			113
Actuarial loss	(25		)	226
Benefits paid	(416		)	(477		)
Benefit obligation at end of year	$	3,211		$	3,466
Funded status at end of year	$	(3,211	)	$	(3,466	)
Amounts recognized in the balance sheets consist of:
Current liabilities	$	(294	)	$	(262	)
Noncurrent liabilities	(2,917		)	(3,204		)
	$	(3,211	)	$	(3,466	)
Components of accumulated other comprehensive loss (income) consist of:
Actuarial loss	$	983		$	1,140
Prior service credit	(95		)	(202		)
Deferred taxes	284			263
	$	1,172		$	1,201

The actuarial loss and prior service credit included in accumulated other comprehensive income (loss) expected to be recognized in net periodic benefit cost in 2017 is $0.1 million (less than $0.1 million net of tax) and less than $0.1 million, respectively.

Future postretirement health care benefit payments expected to be paid are:



2017	$	294
2018	306
2019	317
2020	370
2021	354
2022 - 2026	1,358
	$	2,999

Defined Contribution Plans: NACCO and its subsidiaries maintain defined contribution (401(k)) plans for substantially all U.S. employees and similar plans for employees outside of the United States. All companies provide employer matching (or safe harbor) contributions based on plan provisions. The defined contribution retirement plans also provide for an additional minimum employer contribution. Certain plans also permit additional contributions whereby the applicable company's contribution to participants is determined annually based on a formula that includes the effect of actual compared with targeted operating results and the age and/or compensation of the participants. Total costs, including Company contributions, for these plans were $10.0 million, $6.5 million and $7.6 million in 2016, 2015 and 2014, respectively.