
11.	Retirement Benefit Plans

Substantially all U.S. employees are covered by various retirement benefit plans, including defined benefit pension plans, post-retirement medical plans and defined contribution savings plans. Retirement benefits for eligible employees in foreign locations are funded principally through defined benefit plans, annuity or government programs. The total cost of benefits for our plans was $11,078, $11,131 and $11,231 in 2012, 2011 and 2010, respectively.

We have a qualified, funded defined benefit retirement plan (the “U.S. Pension Plan”) in the U.S. covering certain current and retired employees. Plan benefits are based on the years of service and compensation during the highest five consecutive years of service in the final ten years of employment. No new participants have entered the plan since 2000. The plan has approximately 447 participants including 102 active employees as of December 31, 2012.

We have a U.S. postretirement medical benefit plan (the “U.S. Retiree Plan”) to provide certain healthcare benefits for U.S. employees hired before January 1, 1999. Eligibility for those benefits is based upon a combination of years of service with Tennant and age upon retirement.

Our defined contribution savings plan (“401(k)”) covers substantially all U.S. employees. Under this plan, we match up to 3% of the employee’s compensation in stock or cash to be invested per their election. Historically, matching contributions have been primarily funded by our ESOP Plan. However, as of December 31, 2009, all shares have been allocated. Starting in 2010, the matching contributions to the 401(k) are funded with cash. We also make a profit sharing contribution to the 401(k) plan for employees with more than one year of service in accordance with our Profit Sharing Plan. This contribution is based upon our financial performance and can be funded in the form of Tennant stock, cash or a combination of both. Expenses for the 401(k) plan were $6,226, $6,864 and $7,073 during 2012, 2011 and 2010, respectively.

We have a U.S. nonqualified supplemental benefit plan (the “U.S. Nonqualified Plan”) to provide additional retirement benefits for certain employees whose benefits under our 401(k) plan or U.S. Pension Plan are limited by either the Employee Retirement Income Security Act or the Internal Revenue Code.

We also have defined pension benefit plans in the United Kingdom and Germany (the “U.K. Pension Plan” and the “German Pension Plan”). The U.K. Pension Plan and German Pension Plan cover certain current and retired employees and both plans are closed to new participants.

On March 23, 2010, the Patient Protection and Affordable Care Act (the “PPACA”) was signed into law, and, on March 30, 2010, the Health Care and Education Reconciliation Act of 2010 (the “HCERA” and, together with PPACA, the “Acts”), which makes various amendments to certain aspects of the PPACA, was signed into law. The Acts effectively change the tax treatment of federal subsidies paid to sponsors of retiree health benefit plans that provide prescription drug benefits that are at least actuarially equivalent to the corresponding benefits provided under Medicare Part D. Under the Acts, an employer’s income tax deduction for the costs of providing Medicare Part D-equivalent prescription drug benefits to retirees will be reduced by the amount of the federal subsidy beginning in 2013. Under U.S. GAAP, any impact from a change in tax law must be recognized in earnings in the period enacted regardless of the effective date. The Acts did not have a material impact on our financial position or results of operations.

During 2012 we made a $15,000 discretionary contribution to the U.S. Pension Plan in addition to the minimum funding requirements for 2011 and 2012. We expect to contribute approximately $145 to our U.S. Nonqualified Plan, $904 to our U.S. Retiree Plan, $234 to our U.K. Pension Plan and $39 to our German Pension Plan in 2013. No contributions to the U.S. Pension Plan are expected to be required during 2013.

Weighted-average asset allocations by asset category of the U.S. and U.K. Pension Plans as of December 31, 2012 are as follows:



Asset Category	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and Cash Equivalents	$	701	$	701	$	—	$	—
Equity Securities:
U.S. Small-Cap ⁽¹⁾	1,438		1,438		—		—
U.S. Mid-Cap ⁽¹⁾	2,266		2,266		—		—
International Small-Cap ⁽²⁾	63		63		—		—
Mutual Funds:
Corporate Bonds	18,671		18,671		—		—
U.S. Large-Cap ⁽³⁾	18,141		18,141		—		—
International Large-Cap ⁽⁴⁾	5,662		5,662		—		—
Investment Account held by Pension Plan ⁽⁵⁾	8,855		—		8,855		—
Total	$	55,797	$	46,942	$	8,855	$	—


(1)	This category is comprised of actively managed domestic common stocks.


(2)	This category is comprised of actively managed international common stocks.


(3)	This category is comprised of funds not actively managed that track the S&P 500.


(4)	This category is comprised of funds not actively managed that are invested in foreign and domestic equities.


(5)	This category is comprised of foreign and domestic equities and foreign and domestic fixed interest assets.

The primary objective of our U.S. and U.K. Pension Plans is to meet retirement income commitments to plan participants at a reasonable cost to Tennant and to maintain a sound actuarially funded status. This objective is accomplished through growth of capital and safety of funds invested. The pension plan assets are invested in securities to achieve growth of capital over inflation through appreciation and accumulation and reinvestment of dividend and interest income. Investments are diversified to control risk. The target allocation for the U.S. Pension Plan is 60% equity and 40% debt securities. Equity securities within the U.S. Pension Plan do not include any direct investments in Tennant Company Common Stock. The U.K. Pension Plan is invested in an insurance contract with underlying investments primarily in equity and fixed income securities. Our German Pension Plan is unfunded, which is customary in that country. The expected return on assets assumption on the investment portfolios for the pension and other postretirement benefit plans is based on the long-term expected returns for the investment mix of assets currently in the portfolio. Management uses historic return trends of the asset portfolio combined with recent market conditions to estimate the future rate of return.

Weighted-average assumptions used to determine benefit obligations as of December 31, are as follows:



	U.S. Pension Benefits				Non-U.S. Pension Benefits				Postretirement Medical Benefits
	2012		2011		2012		2011		2012		2011
Discount rate	3.79	%	4.39	%	4.41	%	4.94	%	3.27	%	4.20	%
Rate of compensation increase	3.00	%	3.00	%	4.50	%	4.60	%	—		—

Weighted-average assumptions used to determine net periodic benefit costs as of December 31 are as follows:



	U.S. Pension Benefits						Non-U.S. Pension Benefits						Postretirement Medical Benefits
	2012		2011		2010		2012		2011		2010		2012		2011		2010
Discount rate	4.39	%	5.39	%	5.88	%	4.94	%	5.39	%	5.69	%	4.20	%	5.00	%	5.60	%
Expected long-term rate of return on plan assets	7.70	%	7.70	%	7.70	%	4.80	%	5.20	%	5.50	%	—		—		—
Rate of compensation increase	3.00	%	3.00	%	3.00	%	4.60	%	5.10	%	5.10	%	—		—		—

The discount rate is used to discount future benefit obligations back to today’s dollars. Our discount rates were determined based on high-quality fixed income investments. The resulting discount rates are consistent with the duration of plan liabilities. The Citigroup Above Median Yield Curve is used in determining the discount rate for the U.S. Plans.

The accumulated benefit obligations as of December 31, for all defined benefit plans are as follows:



	2012		2011
U.S. Pension Plans	$	46,907	$	42,909
U.K. Pension Plan	8,837		7,858
German Pension Plan	878		652

Information for our plans with an accumulated benefit obligation in excess of plan assets as of December 31, is as follows:



	U.S. Pension Plans				Non-U.S. Plans
	2012		2011		2012		2011
Projected benefit obligation	$	48,824	$	44,280	$	10,011	$	8,775
Accumulated benefit obligation	46,907		42,909		9,715		8,510
Fair value of plan assets	46,942		28,237		8,855		7,738

As of December 31, 2012 the U.S Nonqualified and the German Pension Plans had an accumulated benefit obligation in excess of plan assets. As of December 31, 2011, the U.S. Pension Plan, the U.S. Nonqualified, U.K. Pension and German Pension Plans had an accumulated benefit obligation in excess of plan assets.

Assumed healthcare cost trend rates as of December 31, are as follows:



	2012		2011
Healthcare cost trend rate assumption for the next year	9.17	%	10.14	%
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	2031		2031

Assumed healthcare cost trend rates have a significant effect on the amounts reported for healthcare plans. To illustrate, a one-percentage-point change in assumed healthcare cost trends would have the following effects:



	1-Percentage- Point Decrease			1-Percentage- Point Increase
Effect on total of service and interest cost components	$	(54	)	$	61
Effect on postretirement benefit obligation	$	(1,076	)	$	1,227

Summaries related to changes in benefit obligations and plan assets and to the funded status of our defined benefit and postretirement medical benefit plans are as follows:



	U.S. Pension Benefits						Non-U.S. Pension Benefits						Postretirement Medical Benefits
	2012			2011			2012			2011			2012			2011
Change in benefit obligation:
Benefit obligation at beginning of year	$	44,280		$	38,885		$	8,775		$	8,394		$	13,708		$	13,423
Service cost	686			651			138			133			142			132
Interest cost	1,928			2,013			437			465			551			612
Plan participants' contributions	—			—			24			24			—			—
Plan amendments	—			233			—			—			—			—
Actuarial loss	3,893			4,216			595			40			926			72
Foreign exchange	—			—			411			(63		)	—			—
Benefits paid	(1,963		)	(1,718		)	(369		)	(218		)	(1,237		)	(531		)
Benefit obligation at end of year	$	48,824		$	44,280		$	10,011		$	8,775		$	14,090		$	13,708
Change in fair value of plan assets and net accrued liabilities:
Fair value of plan assets at beginning of year	$	28,237		$	29,483		$	7,738		$	6,917		$	—		$	—
Actual return on plan assets	3,818			357			738			715			—			—
Employer contributions	16,850			115			346			352			1,237			531
Plan participants' contributions	—			—			24			24			—			—
Foreign exchange	—			—			378			(52		)	—			—
Benefits paid	(1,963		)	(1,718		)	(369		)	(218		)	(1,237		)	(531		)
Fair value of plan assets at end of year	46,942			28,237			8,855			7,738			—			—
Funded status at end of year	$	(1,882	)	$	(16,043	)	$	(1,156	)	$	(1,037	)	$	(14,090	)	$	(13,708	)
Amounts recognized in the consolidated balance sheets consist of:
Noncurrent Assets	$	698		$	—		$	—		$	—		$	—		$	—
Current liabilities	145			129			39			38			904			841
Noncurrent liabilities	2,435			15,914			1,117			999			13,186			12,867
Net accrued liability	$	1,882		$	16,043		$	1,156		$	1,037		$	14,090		$	13,708
Amounts recognized in accumulated other comprehensive income (loss) consist of:
Prior service cost	$	224		$	606		$	—		$	—		$	(109	)	$	(689	)
Net actuarial loss	13,711			12,488			246			2			2,789			1,921
Accumulated other comprehensive income	$	13,935		$	13,094		$	246		$	2		$	2,680		$	1,232

The components of the net periodic benefit cost for the three years ended December 31, were as follows:



	U.S. Pension Benefits									Non-U.S. Pension Benefits									Postretirement Medical Benefits
	2012			2011			2010			2012			2011			2010			2012			2011			2010
Service cost	$	686		$	651		$	657		$	138		$	133		$	117		$	142		$	132		$	121
Interest cost	1,928			2,013			2,032			437			465			434			551			612			681
Expected return on plan assets	(2,279		)	(2,325		)	(2,340		)	(387		)	(376		)	(346		)	—			—			—
Amortization of net actuarial loss	1,131			27			22			—			—			—			57			—			—
Amortization of prior service cost	382			550			554			—			—			—			(580		)	(580		)	(579		)
Foreign currency	—			—			—			16			(18		)	(65		)	—			—			—
Net periodic benefit cost	$	1,848		$	916		$	925		$	204		$	204		$	140		$	170		$	164		$	223

The changes in accumulated other comprehensive income for the three years ended December 31, were as follows:



	U.S. Pension Benefits									Non-U.S. Pension Benefits							Postretirement Medical Benefits
	2012			2011			2010			2012		2011			2010		2012			2011		2010
Prior service cost	$	—		$	233		$	—		$	—	$	—		$	—	$	—		$	—	$	—
Net actuarial loss (gain)	2,355			6,184			573			244		(300		)	143		926			72		(892		)
Amortization of prior service cost	(382		)	(550		)	(554		)	—		—			—		580			580		580
Amortization of prior transition asset	—			—			—			—		—			—		—			—		—
Amortization of net actuarial (loss) gain	(1,132		)	(27		)	(22		)	—		—			—		(57		)	—		—
Total recognized in other comprehensive income	$	841		$	5,840		$	(3	)	$	244	$	(300	)	$	143	$	1,449		$	652	$	(312	)
Total recognized in net periodic benefit cost and other comprehensive income	$	2,689		$	6,756		$	922		$	448	$	(96	)	$	283	$	1,619		$	816	$	(89	)

The following benefit payments, which reflect expected future service, are expected to be paid for our U.S. and Non-U.S. plans:



	U.S. Pension Benefits		Non-U.S. Pension Benefits		Postretirement Medical Benefits
2013	$	1,813	$	211	$	904
2014	2,057		252		977
2015	2,373		257		1,070
2016	2,544		263		1,150
2017	2,683		304		1,188
2018 to 2022	14,864		1,966		5,575
Total	$	26,334	$	3,253	$	10,864

The following amounts are included in accumulated other comprehensive income as of December 31, 2012 and are expected to be recognized as components of net periodic benefit cost during 2013:



	Pension Benefits		Postretirement Medical Benefits
Net loss	$	1,754	$	200
Net prior service cost (credit)	73		(103		)