NOTE 9 - Pension Plans and Other Postretirement Benefits

The Company has the following retirement plans: a defined contribution plan; a 401(k) plan; a frozen defined benefit plan for employees hired on or before December 31, 1998; and certain employees participate in a supplemental defined contribution plan or a frozen supplemental defined benefit plan or both.

After completing the first year of employment, all employees participate in the defined contribution plan. Under this plan, the Company makes contributions to each participant's account based on eligible compensation and years of service. As of the time of this Annual Report on Form 10-K, contribution percentages are as follows: (1) employees hired on or after April 1, 1997, 5% of eligible compensation and (2) employees hired prior to April 1, 1997 with 15 or more years of service, 7% of eligible compensation. Participants are 100% vested in this plan after 3 years of service.

All employees of the Company participate in a 401(k) plan. The Company automatically contributes 3% of eligible compensation to each employee's account, which is 100% vested at the time of the contribution. In addition, employees may voluntarily contribute up to 20% of their eligible compensation into their account. And, employees who are age 50 or over at the end of a calendar year may make additional elective deferral contributions (commonly referred to as catch-up contributions) up to the catch-up contribution limit specified by the IRS.

Effective April 1, 2002, participants stopped accruing benefits under the defined benefit and supplemental defined benefit plans but continue to retain the benefits they had accrued to date. Amounts earned under the defined benefit and supplemental defined benefit plans were frozen based on years of service and the highest 36 consecutive months of earnings while under the plan (through March 31, 2002). Participants are 100% vested in these defined benefit plans.

The Company's policy with respect to funding the defined benefit plan is to contribute to the plan trust amounts which are actuarially determined to provide the plan with sufficient assets to meet future benefit payments consistent with the funding requirements of federal laws and regulations. For the defined contribution, 401(k) and defined benefit plans, investments have been set aside in separate trust funds. The supplemental retirement plans are unfunded, non-qualified plans.

Employees whose compensation exceeds the limits covered under the qualified defined contribution plan participate in an unfunded, non-qualified defined contribution plan. The Company accrues an amount for each participant based on their compensation, years of service and account balance. Participants are 100% vested in this plan after 3 years of service.

Total expense recorded for the qualified and non-qualified defined contribution, 401(k), defined benefit and supplemental retirement plans was $10,295, $10,415 and $12,353 for the years ended December 31, 2013, 2012 and 2011, respectively.

Qualified Defined Contribution Plan, 401(k) Plan and Non-qualified Defined Contribution Plan

Pension benefits under the qualified defined contribution plan are fully funded. Contributions to employees’ accounts under this plan were expensed in the Company’s Consolidated Statements of Operations. Investments for this plan are set aside in a trust fund and none of the trust fund assets for the plan have been invested in shares of HMEC’s common stock.

The 401(k) plan is fully funded. The Company’s contributions to employees’ accounts under this plan were expensed in its Consolidated Statements of Operations. Investments for this plan are set aside through an annuity contract underwritten by the Company's principal life insurance subsidiary. The annuity contract includes a fixed return account option and several variable return account options, with the account options selected by the individual plan participants for both the Company and participant portions contributed. One of the variable return account options invests in shares of HMEC common stock.

The non-qualified defined contribution plan is an unfunded plan. Under this plan, distributions are funded at the time payments are made to retirees.

Contributions to employees' accounts under the qualified defined contribution plan, the 401(k) plan and the non-qualified defined contribution plan, as well as total assets of the plans, were as follows:

	Year Ended December 31,
	2013		2012		2011
Qualified defined contribution plan:
Contributions to employees’ accounts	$	4,701	$	4,148	$	4,864
Total assets at the end of the year		135,097		141,286		149,675
401(k) plan:
Contributions to employees’ accounts		2,781		2,753		2,856
Total assets at the end of the year		134,891		118,073		111,370
Non-qualified defined contribution plan:
Contributions to employees’ accounts		-		-		-
Total assets at the end of the year		-		-		-

Defined Benefit Plan and Supplemental Retirement Plans

The following tables summarize the funded status of the defined benefit and supplemental retirement pension plans as of December 31, 2013, 2012 and 2011 (the measurement dates) and identify (1) the assumptions used to determine the projected benefit obligation and (2) the components of net pension cost for the defined benefit plan and supplemental retirement plans for the following periods:

							Supplemental
	Defined Benefit Plan						Defined Benefit Plans
	December 31,						December 31,
	2013		2012		2011		2013		2012		2011
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	40,994	$	41,736	$	39,553	$	18,192	$	18,012	$	16,801
Service cost		-		-		-		-		-		-
Interest cost		1,369		1,427		1,658		616		676		799
Plan amendments		-		-		-		-		-		-
Actuarial loss (gain)		984		2,046		4,650		(783)		817		1,755
Benefits paid		(1,715)		(1,664)		(1,664)		(1,319)		(1,313)		(1,343)
Settlements		(2,149)		(2,551)		(2,461)		-		-		-
Projected benefit obligation at end of year	$	39,483	$	40,994	$	41,736	$	16,706	$	18,192	$	18,012
Change in plan assets:
Fair value of plan assets at beginning of year	$	32,757	$	31,653	$	29,273	$	-	$	-	$	-
Actual return on plan assets		4,396		3,168		911		-		-		-
Employer contributions		3,103		2,534		5,926		1,319		1,313		1,343
Benefits paid		(1,715)		(1,664)		(1,664)		(1,319)		(1,313)		(1,343)
Expenses paid		(513)		(383)		(332)		-		-		-
Settlements		(2,149)		(2,551)		(2,461)		-		-		-
Fair value of plan assets at end of year	$	35,879	$	32,757	$	31,653	$	-	$	-	$	-
Funded status	$	(3,604)	$	(8,237)	$	(10,083)	$	(16,706)	$	(18,192)	$	(18,012)

Prepaid (accrued) benefit expense	$	12,331	$	11,188	$	11,594	$	(12,479)	$	(12,855)	$	(13,197)

Total amount recognized in Consolidated Balance Sheets, all in Other Liabilities	$	(3,604)	$	(8,237)	$	(10,083)	$	(16,706)	$	(18,192)	$	(18,012)

Amounts recognized in accumulated other comprehensive income (loss) (“AOCI”):
Prior service cost	$	-	$	-	$	-	$	-	$	124	$	249
Net actuarial loss		15,935		19,425		21,677		4,227		5,213		4,566
Total amount recognized in AOCI	$	15,935	$	19,425	$	21,677	$	4,227	$	5,337	$	4,815

Information for pension plans with an accumulated benefit obligation greater than plan assets:
Projected benefit obligation	$	39,483	$	40,994	$	41,736	$	16,706	$	18,192	$	18,012
Accumulated benefit obligation		39,483		40,994		41,736		16,706		18,192		18,012
Fair value of plan assets		35,879		32,757		31,653		-		-		-

The change in the Company’s AOCI for the defined benefit plan for the year ended December 31, 2013 was primarily attributable to the performance of the plan assets and an increase in the discount rate, which was partially offset by a change in the mortality assumption. The change in the Company’s AOCI for the defined benefit plan for the year ended December 31, 2012 was primarily attributable to revisions of the discount rate assumption, partially offset by the performance of the plan assets. The change in the Company’s AOCI for the defined benefit plan for the year ended December 31, 2011 was primarily related to revisions of the discount rate assumption.

										Supplemental
	Defined Benefit Plan									Defined Benefit Plans
	Year Ended December 31,									Year Ended December 31,
	2013			2012			2011			2013			2012			2011
Components of net periodic pension (income) expense:
Service cost:
Benefit accrual	$	-		$	-		$	-		$	-		$	-		$	-
Other expenses		360			360			250			-			-			-
Interest cost		1,369			1,427			1,658			616			676			799
Expected return on plan assets		(2,238)			(2,423)			(2,419)			-			-			-
Settlement loss		867			1,209			1,290			-			-			-
Amortization of:
Prior service cost		-			-			-			124			124			125
Actuarial loss		1,602			2,367			1,824			203			171			698
Net periodic pension expense	$	1,960		$	2,940		$	2,603		$	943		$	971		$	1,622

Changes in plan assets and benefit obligations included in other comprehensive income (loss):
Prior service cost	$	-		$	-		$	-		$	-		$	-		$	-
Net actuarial loss		(1,888)			115			4,951			(783)			817			1,755
Amortization of:
Prior service cost		-			-			-			(124)			(124)			(125)
Actuarial loss		(1,602)			(2,367)			(1,824)			(203)			(171)			(698)
Total recognized in other comprehensive income (loss)	$	(3,490)		$	(2,252)		$	3,127		$	(1,110)		$	522		$	932

Weighted-average assumptions used to determine expense:
Discount rate		3.51	%		3.66	%		4.58	%		3.51	%		3.86	%		4.92	%
Expected return on plan assets		7.50	%		7.50	%		7.50	%		*			*			*
Annual rate of salary increase		*			*			*			*			*			*

Weighted-average assumptions used to determine benefit obligations as of December 31:
Discount rate		4.46	%		3.51	%		3.66	%		4.46	%		3.51	%		3.86	%
Expected return on plan assets		7.50	%		7.50	%		7.50	%		*			*			*
Annual rate of salary increase		*			*			*			*			*			*

______________

Not applicable.

The discount rates at December 31, 2013 were based on the average yield for long-term, high-grade securities available during the benefit payout period. To set its discount rate, the Company looks to leading indicators, including the Mercer Above Mean Yield Curve.

The assumption for the long-term rate of return on plan assets was determined by considering actual investment experience during the lifetime of the plan, balanced with reasonable expectations of future growth considering the various classes of assets and percentage allocation for each asset class.

The Company has an investment policy for the defined benefit pension plan that aligns the assets within the plan’s trust to an approximate allocation of 50% equity and 50% fixed income funds. Management believes this allocation will produce the targeted long-term rate of return on assets necessary for payment of future benefit obligations, while providing adequate liquidity for payments to current beneficiaries. Assets are reviewed against the defined benefit pension plan’s investment policy and the trustee has been directed to adjust invested assets at least quarterly to maintain the target allocation percentages.

Fair values of the equity security funds and fixed income funds have been determined from public quotations. The following table presents the fair value hierarchy for the Company’s defined benefit pension plan assets, excluding cash held.

				Fair Value Measurements at
				Reporting Date Using
	Total			Level 1			Level 2			Level 3
December 31, 2013
Asset category
Equity security funds (1)
United States		$	14,730		$	-		$	14,730		$	-
International			3,579			-			3,579			-
Fixed income funds			17,413			-			17,413			-
Total		$	35,722		$	-		$	35,722		$	-

December 31, 2012
Asset category
Equity security funds (1)
United States		$	13,199		$	-		$	13,199		$	-
International			3,290			-			3,290			-
Fixed income funds			16,125			-			16,125			-
Total		$	32,614		$	-		$	32,614		$	-

_____________________________

(1)

None of the trust fund assets for the defined benefit pension plan have been invested in shares of HMEC’s common stock.

There were no Level 3 assets held during the years ended December 31, 2013 and 2012.

In 2014, the Company expects amortization of net losses of $1,371 and $158 for the defined benefit plan and the supplemental retirement plans, respectively, and expects no amortization of prior service cost for the supplemental retirement plans to be included in net periodic pension expense.

Postretirement Benefits Other than Pensions

In addition to providing pension benefits, the Company also provides certain health care and life insurance benefits to a closed group of eligible employees. Postretirement benefits other than pensions of active and retired employees are accrued as expense over the employees' service years. As of December 31, 2006, Health Reimbursement Accounts (“HRAs”) were established for eligible participants and totaled $7,310.

In December 2013, the Company announced the elimination of postretirement medical coverage for all remaining eligible participants effective March 31, 2014. As result of this plan change, prior service cost will be amortized over the average working lifetime of active eligible participants.

As a result of the changes in the plan for other postretirement benefits, the Company recorded a reduction in its expenses of $144, $431 and $379 for the years ended December 31, 2013, 2012 and 2011, respectively.

As of December 31, 2013, the balance of the previously established HRAs was $2,746. Funding of HRAs was $181, $168 and $184 for the years ended December 31, 2013, 2012 and 2011, respectively.

The following table presents the funded status of postretirement benefits other than pensions of active and retired employees (including employees on disability more than 2 years) as of December 31, 2013, 2012 and 2011 (the measurement dates) reconciled with amounts recognized in the Company's Consolidated Balance Sheets:

	December 31,
	2013		2012		2011
Change in accumulated postretirement benefit obligations:
Accumulated postretirement benefit
obligations at beginning of year	$	2,862	$	3,326	$	3,489
Changes during fiscal year
Service cost		-		-		-
Interest cost		92		91		122
Plan amendment		(1,393)		-		-
Medicare prescription reimbursements		-		-		-
Employer payments net of participant contributions		(491)		(488)		(526)
Actuarial (gain) loss		60		(67)		241
Accumulated postretirement benefit obligations at end of year	$	1,130	$	2,862	$	3,326
Unfunded status	$	(1,130)	$	(2,862)	$	(3,326)

Total amount recognized in Consolidated Balance Sheets,
all in other liabilities	$	(1,130)	$	(2,862)	$	(3,326)

Amounts recognized in accumulated
other comprehensive income (loss) (“AOCI”):
Prior service credit	$	(1,341)	$	-	$	-
Net actuarial gain		(604)		(900)		(1,355)
Total amount recognized in AOCI	$	(1,945)	$	(900)	$	(1,355)

	Year Ended December 31,
	2013		2012		2011
Components of net periodic benefit:
Service cost	$	-	$	-	$	-
Interest cost		92		91		122
Amortization of prior service cost		(52)		-		-
Amortization of prior gain		(236)		(522)		(501)
Net periodic income	$	(196)	$	(431)	$	(379)

In 2014, the Company expects amortization of net gains of $246 to be included in net periodic pension expense.

Sensitivity Analysis and Assumptions for Postretirement Benefits Other than Pensions

A one percentage point change in the assumed health care cost trend rate for each year would change the accumulated postretirement benefit obligations as follows:

	December 31,
	2013			2012			2011
Accumulated postretirement benefit obligations
Effect of a one percentage point increase	$	-		$	45		$	53
Effect of a one percentage point decrease		-			(43)			(50)

Service and interest cost components of the net
periodic postretirement benefit expense
Effect of a one percentage point increase	$	2		$	1		$	2
Effect of a one percentage point decrease		(2)			(1)			(1)

Weighted-average assumptions used to determine
benefit obligations as of December 31:
Discount rate		4.46	%		3.51	%		2.95	%
Healthcare cost trend rate		*			7.50	%		8.00	%
Rate to which the cost trend rate is assumed to decline
(ultimate trend rate)		*			5.00	%		5.00	%
Year the rate is assumed to reach the ultimate trend rate		*			2022			2022
Expected return on plan assets		*			*			*

Weighted-average assumptions used to determine net periodic
benefit cost for the years ended December 31:
Discount rate		3.51	%		2.95	%		3.68	%
Healthcare cost trend rate		7.50	%		8.00	%		8.00	%
Rate to which the cost trend rate is assumed to decline
(ultimate trend rate)		5.00	%		5.00	%		5.00	%
Year the rate is assumed to reach the ultimate trend rate		2022			2022			2021
Expected return on plan assets		*			*			*

___________________________

* Not applicable.

2014 Contributions

In 2014, there is no minimum funding requirement for the Company’s defined benefit plan. The following table discloses that minimum funding requirement and the expected full year contributions for the Company’s plans.

Defined Benefit Pension Plans

Defined

Supplemental

Other

Benefit

Defined Benefit

Postretirement

Plan

Plans

Benefits

Minimum funding requirement for 2014

N/A

Expected contributions (approximations)

for the year ended December 31, 2014

as of the time of this Form 10-K (1)

2,000

1,320

217

_________________________

N/A - Not applicable.

(1)

HMEC’s Annual Report on Form 10-K for the year ended December 31, 2013.

Estimated Future Benefit Payments

The Company’s defined benefit plan may be subject to settlement accounting. Assumptions for both the number of individuals retiring in a calendar year and their elections regarding lump sum distributions are significant factors impacting the payout patterns for each of the plans below. Therefore, actual results could vary from the estimates shown. Estimated future benefit payments as of December 31, 2013 were as follows:

	2014		2015		2016		2017		2018		2019-2023
Pension plans:
Defined benefit plan	$	3,696	$	3,415	$	3,270	$	2,827	$	2,670	$	13,393
Supplemental retirement plans		1,320		1,310		1,300		1,287		1,272		6,050
Other postretirement benefits		216		122		120		117		112		450