
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 $11,766, $11,192 and $11,271 in 2013, 2012 and 2011, 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 442 participants including 90 active employees as of December 31, 2013.

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 annual compensation in cash to be invested per their election. 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 $6,423, $6,226 and $6,864 during 2013, 2012 and 2011, 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.

We expect to contribute approximately $149 to our U.S. Nonqualified Plan, $919 to our U.S. Retiree Plan, $237 to our U.K. Pension Plan and $41 to our German Pension Plan in 2014. No contributions to the U.S. Pension Plan are expected to be required during 2014. There were no contributions made to the U.S. Pension Plan during 2013. 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.

Weighted-average asset allocations by asset category of the U.S. and U.K. Pension Plans as of December 31, 2013 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	$	746	$	746	$	—	$	—
Mutual Funds:
U.S. Large-Cap	20,597		20,597		—		—
U.S. Small-Cap	6,971		6,971		—		—
International Equities	6,328		6,328		—		—
Fixed-Income Domestic	17,755		17,755		—		—
Investment Account held by Pension Plan ⁽¹⁾	9,733		—		—		9,733
Total	$	62,130	$	52,397	$	—	$	9,733


(1)	This category is comprised of investments in insurance contracts.

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	1,438		1,438		—		—
U.S. Mid-Cap	2,266		2,266		—		—
International Small-Cap	63		63		—		—
Mutual Funds:
Corporate Bonds	18,671		18,671		—		—
U.S. Large-Cap	18,141		18,141		—		—
International Large-Cap	5,662		5,662		—		—
Investment Account held by Pension Plan⁽¹⁾	8,855		—		—		8,855
Total	$	55,797	$	46,942	$	—	$	8,855


(1)	This category is comprised of investments in insurance contracts.

Estimates of the fair value of U.S. and U.K Pension Plan assets are based on the framework established in the accounting guidance for fair value measurements. A brief description of the three levels can be found in Note 10. Equity Securities and Mutual Funds traded in active markets are classified as Level 1. The Investment Account held by Pension Plan invests in insurance contracts for purposes of funding the U.K. Pension Plan and are classified as Level 3. The fair value of the Investment Account are the cash surrender values as determined by the provider which are the amounts the plan would receive if the contracts were cashed out at year end. The underlying assets held by these contracts are primarily invested in assets traded in active markets.

A reconciliation of the beginning and ending balances of the Level 3 investments of our U.K. Pension Plan during the years ended are as follows:



	2013		2012
Fair value at beginning of year	$	8,855	$	7,738
Purchases, sales, issuances and settlements, net	74		—
Net gain	601		739
Foreign currency	203		378
Fair value at end of year	$	9,733	$	8,855

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 us and to maintain a sound actuarially funded status. This objective is accomplished through growth of capital and safety of funds invested. The pension plans' 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 insurance contracts with underlying investments primarily in equity and fixed income securities. Our German Pension Plan is unfunded, which is customary in that country.

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
	2013		2012		2013		2012		2013		2012
Discount rate	4.63	%	3.79	%	4.33	%	4.41	%	4.10	%	3.27	%
Rate of compensation increase	3.00	%	3.00	%	4.50	%	4.50	%	—		—

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
	2013		2012		2011		2013		2012		2011		2013		2012		2011
Discount rate	3.79	%	4.39	%	5.39	%	4.41	%	4.94	%	5.39	%	3.27	%	4.20	%	5.00	%
Expected long-term rate of return on plan assets	6.50	%	7.70	%	7.70	%	4.70	%	4.80	%	5.20	%	—		—		—
Rate of compensation increase	3.00	%	3.00	%	3.00	%	4.50	%	4.60	%	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 Spot Rate is used in determining the discount rate for the U.S. Plans. The expected return on assets assumption on the investment portfolios for the pension 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.

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



	2013		2012
U.S. Pension Plans	$	42,241	$	46,907
U.K. Pension Plan	9,803		8,837
German Pension Plan	897		878

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



	2013		2012
Accumulated benefit obligation	$	12,778	$	3,261
Fair value of plan assets	9,733		—

As of December 31, 2013, the U.S. Nonqualified, the U.K. Pension and the German Pension Plans had an accumulated benefit obligation in excess of plan assets. As of December 31, 2012, the U.S. Nonqualified and the German Pension Plans had an accumulated benefit obligation in excess of plan assets.

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



	2013		2012
Projected benefit obligation	$	13,481	$	12,591
Fair value of plan assets	9,733		8,855

As of December 31, 2013 and 2012, the U.S. Nonqualified, the U.K. Pension and the German Pension Plans had a projected benefit obligation in excess of plan assets.

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



	2013		2012
Healthcare cost trend rate assumption for the next year	8.30	%	9.17	%
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	$	(46	)	$	52
Effect on postretirement benefit obligation	$	(930	)	$	1,050

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
	2013			2012			2013			2012			2013			2012
Change in benefit obligation:
Benefit obligation at beginning of year	$	48,824		$	44,280		$	10,011		$	8,775		$	14,090		$	13,708
Service cost	690			686			142			138			154			142
Interest cost	1,803			1,928			422			437			443			551
Plan participants' contributions	—			—			23			24			—			—
Actuarial (gain) loss	(4,901		)	3,893			668			595			(1,001		)	926
Foreign exchange	—			—			265			411			—			—
Benefits paid	(2,763		)	(1,963		)	(293		)	(369		)	(500		)	(1,237		)
Benefit obligation at end of year	$	43,653		$	48,824		$	11,238		$	10,011		$	13,186		$	14,090
Change in fair value of plan assets and net accrued liabilities:
Fair value of plan assets at beginning of year	$	46,942		$	28,237		$	8,855		$	7,738		$	—		$	—
Actual return on plan assets	7,827			3,818			601			738			—			—
Employer contributions	391			16,850			343			346			500			1,237
Plan participants' contributions	—			—			23			24			—			—
Foreign exchange	—			—			204			378			—			—
Benefits paid	(2,763		)	(1,963		)	(293		)	(369		)	(500		)	(1,237		)
Fair value of plan assets at end of year	52,397			46,942			9,733			8,855			—			—
Funded status at end of year	$	8,744		$	(1,882	)	$	(1,505	)	$	(1,156	)	$	(13,186	)	$	(14,090	)
Amounts recognized in the Consolidated Balance Sheets consist of:
Noncurrent Other Assets	$	10,987		$	698		$	—		$	—		$	—		$	—
Current Liabilities	(149		)	(145		)	(41		)	(39		)	(919		)	(904		)
Long-Term Liabilities	(2,094		)	(2,435		)	(1,464		)	(1,117		)	(12,267		)	(13,186		)
Net accrued asset (liability)	$	8,744		$	(1,882	)	$	(1,505	)	$	(1,156	)	$	(13,186	)	$	(14,090	)
Amounts recognized in Accumulated Other Comprehensive Loss consist of:
Prior service (cost) credit	$	(152	)	$	(224	)	$	—		$	—		$	6		$	109
Net actuarial loss	(2,142		)	(13,711		)	(704		)	(246		)	(1,587		)	(2,789		)
Accumulated Other Comprehensive Loss	$	(2,294	)	$	(13,935	)	$	(704	)	$	(246	)	$	(1,581	)	$	(2,680	)

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
	2013			2012			2011			2013			2012			2011			2013			2012			2011
Service cost	$	690		$	686		$	651		$	142		$	138		$	133		$	154		$	142		$	132
Interest cost	1,803			1,928			2,013			422			437			465			443			551			612
Expected return on plan assets	(2,911		)	(2,279		)	(2,325		)	(402		)	(387		)	(376		)	—			—			—
Amortization of net actuarial loss	1,751			1,131			27			9			—			—			201			57			—
Amortization of prior service cost	73			382			550			—			—			—			(103		)	(580		)	(580		)
Foreign currency	—			—			—			21			16			(18		)	—			—			—
Net periodic benefit cost	$	1,406		$	1,848		$	916		$	192		$	204		$	204		$	695		$	170		$	164

The changes in Accumulated Other Comprehensive Loss for the three years ended December 31, were as follows:



	U.S. Pension Benefits									Non-U.S. Pension Benefits								Postretirement Medical Benefits
	2013			2012			2011			2013			2012		2011			2013			2012			2011
Prior service cost	$	—		$	—		$	233		$	—		$	—	$	—		$	—		$	—		$	—
Net actuarial (gain) loss	(9,817		)	2,355			6,184			467			244		(300		)	(1,001		)	926			72
Amortization of prior service cost	(73		)	(382		)	(550		)	—			—		—			103			580			580
Amortization of net actuarial loss	(1,751		)	(1,132		)	(27		)	(9		)	—		—			(201		)	(57		)	—
Total recognized in other comprehensive income	$	(11,641	)	$	841		$	5,840		$	458		$	244	$	(300	)	$	(1,099	)	$	1,449		$	652
Total recognized in net periodic benefit cost and other comprehensive income	$	(10,235	)	$	2,689		$	6,756		$	650		$	448	$	(96	)	$	(404	)	$	1,619		$	816

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
2014	$	2,021	$	309	$	919
2015	2,353		319		1,026
2016	2,535		328		1,055
2017	2,682		339		1,106
2018	2,808		350		1,091
2019 to 2023	15,087		1,916		5,349
Total	$	27,486	$	3,561	$	10,546

The following amounts are included in Accumulated Other Comprehensive Loss as of December 31, 2013 and are expected to be recognized as components of net periodic benefit cost during 2014:



	Pension Benefits		Postretirement Medical Benefits
Net actuarial loss	$	185	$	43
Prior service cost (credit)	43		(6		)