NOTE 16. PENSION BENEFITS

The Company sponsors a qualified defined benefit pension plan (the “Pension Plan”). The Pension Plan covers approximately 9,000 participants and beneficiaries, of which 2,400 are active employees. The Pension Plan is generally non-contributory, but participation requires or required some employees to contribute 3% of pay, as defined, per year. Benefits for participants who are or were required to contribute to the Pension Plan are based on compensation during plan participation and the number of years of participation. Benefits for the vast majority of participants who are not required to contribute to the Pension Plan are based on years of service and final average pay, as defined. The Company funds the Pension Plan in accordance with the requirements of ERISA.

Changes in Fair Value of Plan Assets and Changes in Projected Benefit Obligation for the years ended December 31, 2013 and 2012 were:



DOLLARS IN MILLIONS
DOLLARS IN MILLIONS	2013			2012
Fair Value of Plan Assets at Beginning of Year	$	457.6		$	441.3
Actual Return on Plan Assets	34.5			38.0
Employer Contributions	55.0			—
Benefits Paid	(22.6		)	(21.5		)
Settlement Benefits	—			(0.2		)
Fair Value of Plan Assets at End of Year	524.5			457.6
Projected Benefit Obligation at Beginning of Year	553.9			499.2
Service Cost	10.8			10.8
Interest Cost	22.4			22.4
Benefits Paid	(22.6		)	(21.5		)
Settlement Benefits	—			(0.2		)
Actuarial Losses (Gains)	(49.0		)	43.2
Projected Benefit Obligation at End of Year	515.5			553.9
Funded Status—Plan Assets in Excess (Deficit) of Projected Benefit Obligation	$	9.0		$	(96.3	)
Amount Recognized in Accumulated Other Comprehensive Income:
Accumulated Actuarial Loss	$	(86.3	)	$	(166.4	)
Prior Service Cost	—			0.1
Amount Recognized in Accumulated Other Comprehensive Income	$	(86.3	)	$	(166.3	)

Accumulated Benefit Obligation	$	496.2		$	531.3

The measurement dates of the assets and liabilities at end of year presented in the preceding table under the headings, “2013” and “2012” were December 31, 2013 and December 31, 2012, respectively.

NOTE 16. PENSION BENEFITS (Continued)

The weighted-average discount rate and rate of increase in future compensation levels used to estimate the components of the Projected Benefit Obligation at December 31, 2013 and 2012 were:

Weighted-average asset allocations at December 31, 2013 and 2012 by asset category were:



ASSET CATEGORY	2013		2012
Cash and Short-term Investments	8	%	12	%
Corporate Bonds and Notes	27		33
Common and Preferred Stocks	34		31
Exchange Traded Funds	22		17
Other Assets	9		7
Total	100	%	100	%

The investment objective of the Pension Plan is to produce current income and long-term capital growth through a combination of equity and fixed income investments which, together with appropriate employer contributions and any required employee contributions, is adequate to provide for the payment of the benefit obligations of the Pension Plan. The assets of the Pension Plan may be invested in fixed income and equity investments or any other investment vehicle or financial instrument deemed appropriate. Fixed income investments may include cash and short-term instruments, U.S. Government securities, corporate bonds, mortgages and other fixed income investments. Equity investments may include various types of stock, such as large-cap, mid-cap and small-cap stocks, and may also include investments in investment companies and Kemper common stock (subject to Section 407 and other requirements of ERISA). The Pension Plan has not invested in Kemper common stock.

The trust investment committee for the Pension Plan, along with its third party fiduciary advisor, periodically reviews the performance of the Pension Plan’s investments and asset allocation. Several external investment managers, one of which is Fayez Sarofim & Co. (“FS&C”) (see Note 24, “Related Parties,” to the Consolidated Financial Statements), manage the equity investments of the trust for the Pension Plan. Each manager is allowed to exercise investment discretion, subject to limitations, if any, established by the trust investment committee for the Pension Plan. An independent fiduciary had sole investment discretion with respect to shares of Intermec common stock contributed by the Company to the Pension Plan in 2011 until such shares were fully disposed of in 2012. All other investment decisions are made by the Company, subject to general guidelines as set by the trust investment committee for the Pension Plan.

The Company determines its Expected Long Term Rate of Return on Plan Assets based primarily on the Company’s expectations of future returns, with consideration to historical returns, for the Pension Plan’s investments, based on target allocations of the Pension Plan’s investments.

NOTE 16. PENSION BENEFITS (Continued)

Fair value measurements for the Pension Plan’s assets at December 31, 2013 are summarized below:



DOLLARS IN MILLIONS	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	12.1	$	—	$	—	$	12.1
States and Political Subdivisions	—		3.1		—		3.1
Corporate Bonds and Notes	—		127.0		—		127.0
Equity Securities:
Preferred Stocks:
Finance, Insurance and Real Estate	—		4.0		—		4.0
Common Stocks:
Manufacturing	97.5		7.8		—		105.3
Other Industries	67.2		1.8		—		69.0
Other Equity Interests:
Exchange Traded Funds	111.7		—		—		111.7
Limited Liability Companies and Limited Partnerships	—		—		46.9		46.9
Short-term Investments	42.6		—		—		42.6
Receivables and Other	2.3		—		0.5		2.8
Total	$	333.4	$	143.7	$	47.4	$	524.5

Additional information pertaining to the changes in the fair value of the Pension Plan’s assets classified as Level 3 for the year ended December 31, 2013 is presented below:



DOLLARS IN MILLIONS	Other Equity Interests		Receivables and Other			Total
Balance at Beginning of Year	$	26.9	$	0.6		$	27.5
Return on Plan Assets Held	3.5		—			3.5
Purchases, Sales and Settlements, Net	16.5		(0.1		)	16.4
Balance at December 31, 2013	$	46.9	$	0.5		$	47.4

NOTE 16. PENSION BENEFITS (Continued)

Fair value measurements for the Pension Plan’s assets at December 31, 2012 are summarized below:



DOLLARS IN MILLIONS	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	6.1	$	—	$	—	$	6.1
States and Political Subdivisions	—		3.3		—		3.3
Corporate Bonds and Notes	—		142.7		—		142.7
Equity Securities:
Preferred Stocks:
Finance, Insurance and Real Estate	—		3.4		—		3.4
Common Stocks:
Manufacturing	82.2		5.6		—		87.8
Other Industries	48.2		0.7		—		48.9
Other Equity Interests:
Exchange Traded Funds	79.6		—		—		79.6
Limited Liability Companies and Limited Partnerships	—		—		26.9		26.9
Short-term Investments	55.8		—		—		55.8
Receivables and Other	2.5		—		0.6		3.1
Total	$	274.4	$	155.7	$	27.5	$	457.6

Additional information pertaining to the changes in the fair value of the Pension Plan’s assets classified as Level 3 for the year ended December 31, 2012 is presented below:



DOLLARS IN MILLIONS	Corporate Bonds			Other Equity Interests			Receivables and Other			Total
Balance at Beginning of Year	$	1.0		$	37.2		$	3.2		$	41.4
Return on Plan Assets Held	—			1.7			0.1			1.8
Purchases, Sales and Settlements, Net	—			(12.0		)	(2.7		)	(14.7		)
Transfers out of Level 3	(1.0		)	—			—			(1.0		)
Balance at December 31, 2012	$	—		$	26.9		$	0.6		$	27.5

The components of Comprehensive Pension (Income) Expense for the years ended December 31, 2013, 2012 and 2011 were:



DOLLARS IN MILLIONS	2013			2012			2011
Service Cost Earned During the Year	$	10.8		$	10.8		$	10.2
Interest Cost on Projected Benefit Obligation	22.4			22.4			22.9
Expected Return on Plan Assets	(29.7		)	(29.8		)	(24.4		)
Amortization of Actuarial Loss	26.2			18.8			9.4
Settlements	—			0.3			—
Pension Expense Recognized in Consolidated Statements of Income	29.7			22.5			18.1
Unrecognized Pension (Gain) Loss Arising During the Year	(53.8		)	34.8			52.4
Amortization of Accumulated Unrecognized Pension Loss	(26.2		)	(18.8		)	(9.4		)
Comprehensive Pension (Income) Expense	$	(50.3	)	$	38.5		$	61.1

NOTE 16. PENSION BENEFITS (Continued)

The Company estimates that Pension Expense for the year ended December 31, 2014 will include expense of $9.2 million resulting from the amortization of the related accumulated actuarial loss included in Accumulated Other Comprehensive Income at December 31, 2013.

Total Pension Expense Recognized in the Consolidated Statements of Income as presented in the preceding table includes service cost benefits earned and reported in discontinued operations of $0.5 million and $0.6 million for the years ended December 31, 2012 and 2011, respectively.

The weighted-average discount rate, rate of increase in future compensation levels and expected long-term rate of return on plan assets used to develop the components of the Pension Expense for the years ended December 31, 2013, 2012 and 2011 were:



	2013		2012		2011
Discount Rate	4.05	%	4.60	%	5.35	%
Rate of Increase in Future Compensation Levels	3.08		3.27		2.47
Expected Long Term Rate of Return on Plan Assets	7.00		7.00		7.00

On September 3, 2013, the Company made a voluntary cash contribution of $55.0 million to its defined benefit pension plan.

The Company does not expect that it will be required to contribute to its Pension Plan in 2014, but could make a voluntary contribution pursuant to the maximum funding limits under ERISA.

On September 14, 2011, the Company made a voluntary contribution of $83.7 million to its defined benefit pension plan. The contribution consisted of $32.2 million in cash and 7,309,764 shares of Intermec common stock with a fair value of $51.5 million on the date of contribution. On May 23, 2011, the Company requested a waiver from the U.S. Department of Labor (“DOL”) related to the prohibited transaction rules under ERISA and the Internal Revenue Code for the one-time in-kind contribution of the shares of Intermec common stock. On January 19, 2012, the DOL granted relief, from the prohibited transaction rules retroactive to September 1, 2011.

The following benefit payments (net of participant contributions), which consider expected future service, as appropriate, are expected to be paid:



DOLLARS IN MILLIONS	Years Ending December 31,
DOLLARS IN MILLIONS	2014		2015		2016		2017		2018		2019-2023
Pension Benefits	$	24.4	$	25.4	$	26.7	$	27.9	$	29.1	$	163.4

The Company also sponsors a non-qualified supplemental defined benefit pension plan (the “Supplemental Plan”). The unfunded liability related to the Supplemental Plan was $23.3 million and $24.0 million at December 31, 2013 and 2012, respectively. Pension expense for the Supplemental Plan was $1.8 million, $1.8 million and $3.3 million for the years ended December 31, 2013, 2012 and 2011, respectively. An actuarial gain of $1.5 million before tax, an actuarial loss of $1.3 million before tax and an actuarial gain of $2.9 million before tax is included Other Comprehensive Income for the years ended December 31, 2013, 2012 and 2011, respectively.

The Company also sponsors several defined contribution benefit plans covering most of its employees. The Company made contributions to those plans of $7.3 million, $7.8 million and $7.3 million in 2013, 2012 and 2011, respectively. Under these plans, the participants have several investment alternatives, including Kemper’s common stock held through the Kemper Employee Stock Ownership Plan (“ESOP”) Fund and the Dreyfus Appreciation Fund. FS&C (see Note 24, “Related Parties,” to the Consolidated Financial Statements) is a sub-investment advisor of the Dreyfus Appreciation Fund. The fair value of participants’ investments in Kemper’s ESOP Fund was $19.3 million, or 5.6% of the total investments in the defined contribution benefit plans at December 31, 2013. The fair value of participants’ investments in the Dreyfus Appreciation Fund was $22.5 million, or 6.5% of the total investments in the defined contribution benefit plans at December 31, 2013.

Discount Rate

Rate of Increase in Future Compensation Levels