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PENSIONS | 12 Months Ended
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Dec. 31, 2011
PENSIONS [Abstract] |
PENSIONS |
22. | PENSIONS
Defined contribution scheme The Company operates a defined contribution scheme. The pension cost for the period represents contributions payable by the Company to the scheme. The charge to net income for the years ended December 31, 2011, 2010 and 2009 was $0.8 million, $0.5 million and $0.7 million, respectively. In respect of its Norwegian employees of which there were 13 as of December 31, 2011, the Company is required by Norwegian law to contribute into a multi-employer early retirement plan for the private sector. Accordingly, the Company as a participant in a multi-employer plan recognizes as net pension cost the required contribution for the period and recognizes as a liability any unpaid contributions required for the period. Defined benefit schemes The Company has two defined benefit pension plans both of which are closed to new entrants but which still cover certain employees of the Company. Benefits are based on the employee's years of service and compensation. Net periodic pension plan costs are determined using the Projected Unit Credit Cost method. The Company's plans are funded by the Company in conformity with the funding requirements of the applicable government regulations. Plan assets consist of both fixed income and equity funds managed by professional fund managers. The Company uses a measurement date of December 31 for its pension plans. The components of net periodic benefit costs are as follows:
(in thousands of $) |  | 2011 |  |  | 2010 |  |  | 2009 |
Service cost |  |  | 459 |  |  |  | 485 |  |  |  | 480 |
Interest cost |  |  | 2,729 |  |  |  | 2,891 |  |  |  | 2,742 |
Expected return on plan assets |  |  | (1,168 | ) |  |  | (1,197 | ) |  |  | (1,130 | )
Recognized actuarial loss |  |  | 985 |  |  |  | 954 |  |  |  | 718 |
Net periodic benefit cost |  |  | 3,005 |  |  |  | 3,133 |  |  |  | 2,810 |
The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic pension benefit cost during the year ending December 31, 2012 is $1.3 million. The change in benefit obligation and plan assets and reconciliation of funded status as of December 31 are as follows:
(in thousands of $) |  | 2011 |  |  | 2010 |
Reconciliation of benefit obligation: |  |  |  |  |  |
Benefit obligation at January 1 |  |  | 51,056 |  |  |  | 51,233 |
Service cost |  |  | 459 |  |  |  | 485 |
Interest cost |  |  | 2,729 |  |  |  | 2,891 |
Actuarial loss |  |  | 1,751 |  |  |  | 1,492 |
Foreign currency exchange rate changes |  |  | (114 | ) |  |  | (358 | )
Benefit payments |  |  | (3,451 | ) |  |  | (4,687 | )
Benefit obligation at December 31 |  |  | 52,430 |  |  |  | 51,056 |
The accumulated benefit obligation at December 31, 2011 and 2010 was $51.0 million and $49.5 million, respectively.
(in thousands of $) |  | 2011 |  |  | 2010 |
Reconciliation of fair value of plan assets: |  |  |  |  |  |
Fair value of plan assets at January 1 |  |  | 17,605 |  |  |  | 18,644 |
Actual return on plan assets |  |  | (1,656 | ) |  |  | 1,508 |
Employer contributions |  |  | 2,440 |  |  |  | 2,419 |
Foreign currency exchange rate changes |  |  | (92 | ) |  |  | (279 | )
Benefit payments |  |  | (3,451 | ) |  |  | (4,687 | )
Fair value of plan assets at December 31 |  |  | 14,846 |  |  |  | 17,605 |
(in thousands of $) |  | 2011 |  |  | 2010 |
Projected benefit obligation |  |  | (52,430 | ) |  |  | (51,056 | )
Fair value of plan assets |  |  | 14,846 |  |  |  | 17,605 |
Funded status (1) |  |  | (37,584 | ) |  |  | (33,451 | )
Employer contributions and benefits paid under the pension plans include $2.4 million paid from employer assets for each of the years ended December 31, 2011 and 2010. (1) The Company's plans are composed of two plans that are both underfunded as at December 31, 2011 and 2010. The details of these plans are as follows:
|  | December 31, 2011 |  |  | December 31, 2010 |
(in thousands of $) |  | UK Scheme |  |  | Marine Scheme |  |  | Total |  |  | UK Scheme |  |  | Marine Scheme |  |  | Total |
Projected benefit obligation |  |  | (9,839 | ) |  |  | (42,591 | ) |  |  | (52,430 | ) |  |  | (10,083 | ) |  |  | (40,973 | ) |  |  | (51,056 | )
Fair value of plan assets |  |  | 8,251 |  |  |  | 6,595 |  |  |  | 14,846 |  |  |  | 8,658 |  |  |  | 8,947 |  |  |  | 17,605 |
Funded status at end of year |  |  | (1,588 | ) |  |  | (35,996 | ) |  |  | (37,584 | ) |  |  | (1,425 | ) |  |  | (32,026 | ) |  |  | (33,451 | )
The fair value of the Company's plan assets, by category, as of December 31, 2011 and 2010 were as follows:
(in thousands of $) |  | 2011 |  |  | 2010 |
Equity securities |  |  | 10,051 |  |  |  | 12,758 |
Debt securities |  |  | 2,267 |  |  |  | 2,420 |
Cash |  |  | 2,528 |  |  |  | 2,427 |
|  |  | 14,846 |  |  |  | 17,605 |
The Company's plan assets are primarily invested in funds holding equity and debt securities, which are valued at quoted market price. These plan assets are classified within Level 1 of the fair value hierarchy. The amounts recognized in accumulated other comprehensive income consist of:
(in thousands of $) |  | 2011 |  |  | 2010 |
Net actuarial loss |  |  | 15,876 |  |  |  | 12,347 |
The actuarial loss recognized in the other comprehensive income is net of tax of $0.4 million for the year ending December 31, 2011 and $nil for the years ending December 31, 2010 and 2009. The asset allocation for the Company's Marine scheme at December 31, 2011 and 2010, and the target allocation for 2012, by asset category are as follows:
Marine scheme |  | Target allocation 2012 (%) |  |  | 2011 (%) |  |  | 2010 (%) |
Equity |  |  | 30-65 |  |  |  | 30-65 |  |  |  | 30-65 |
Bonds |  |  | 10-50 |  |  |  | 10-50 |  |  |  | 10-50 |
Other |  |  | 20-40 |  |  |  | 20-40 |  |  |  | 20-40 |
Total |  |  | 100 |  |  |  | 100 |  |  |  | 100 |
The asset allocation for the Company's UK scheme at December 31, 2011 and 2010, and the target allocation for 2012, by asset category are as follows:
UK scheme |  | Target allocation 2012 (%) |  |  | 2011 (%) |  |  | 2010 (%) |
Equity |  |  | 72.5 |  |  |  | 72.5 |  |  |  | 80 |
Bonds |  |  | 22.5 |  |  |  | 22.5 |  |  |  | 20 |
Cash |  |  | 5.0 |  |  |  | 5.0 |  |  |  | - |
Total |  |  | 100 |  |  |  | 100 |  |  |  | 100 |
The Company's investment strategy is to balance risk and reward through the selection of professional investment managers and investing in pooled funds. The Company is expected to make the following contributions to the schemes during the year ended December 31, 2012, as follows:
(in thousands of $) |  | UK scheme |  |  | Marine scheme |
Employer contributions |  |  | 617 |  |  |  | 1,800 |
The Company is expected to make the following pension disbursements as follows:
(in thousands of $) |  | UK scheme |  |  | Marine scheme |
2012 |  |  | 231 |  |  |  | 3,000 |
2013 |  |  | 231 |  |  |  | 3,000 |
2014 |  |  | 231 |  |  |  | 3,000 |
2015 |  |  | 231 |  |  |  | 3,000 |
2016 |  |  | 231 |  |  |  | 3,000 |
2017 - 2021 |  |  | 2,079 |  |  |  | 15,000 |
The weighted average assumptions used to determine the benefit obligation for the Company's plans at December 31 are as follows:
|  | 2011 |  |  | 2010 |
Discount rate |  |  | 4.70 | % |  |  | 5.48 | %
Rate of compensation increase |  |  | 2.52 | % |  |  | 3.48 | %
The weighted average assumptions used to determine the net periodic benefit cost for the Company's plans for the year ended December 31 are as follows:
|  | 2011 |  |  | 2010 |
Discount rate |  |  | 4.70 | % |  |  | 5.48 | %
Expected return on plan assets |  |  | 6.75 | % |  |  | 6.75 | %
Rate of compensation increase |  |  | 2.49 | % |  |  | 3.48 | %
The overall expected long-term rate of return on assets assumption used to determine the net periodic benefit cost for the Company's plans for the years ending December 31, 2011 and 2010 is based on the weighted average of various returns on assets using the asset allocation as at the beginning of 2011 and 2010. For equities and other asset classes, the Company has applied an equity risk premium over ten year governmental bonds.

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