Employee Benefit Plans

We maintain multiple employee benefit plans, covering employees at certain locations.

Our qualified U.S. defined benefit pension plan is not open to new entrants. New employees are not eligible to participate in the pension plan. Instead, we make contributions for those employees to an employee-directed investment fund in the Moog Inc. Retirement Savings Plan (RSP). The Company’s contributions are based on a percentage of the employee’s eligible compensation and age. These contributions are in addition to the employer match on voluntary employee contributions.

The RSP includes an Employee Stock Ownership Plan. As one of the investment alternatives, participants in the RSP can acquire our stock at market value. We match 25% of the first 2% of eligible compensation contributed to any investment selection. Shares are allocated and compensation expense is recognized as the employer share match is earned. At September 29, 2012, the participants in the RSP owned 735,643 Class A shares and 1,954,685 Class B shares.

The changes in projected benefit obligations and plan assets and the funded status of the U.S. and non-U.S. defined benefit plans are as follows:



	U.S. Plans						Non-U.S. Plans
	2012			2011			2012			2011
Change in projected benefit obligation:
Projected benefit obligation at prior year measurement date	$	635,798		$	556,010		$	131,914		$	141,022
Service cost	23,347			22,566			4,046			4,804
Interest cost	29,786			28,683			5,864			6,260
Contributions by plan participants	—			—			900			873
Actuarial losses (gains)	108,095			45,358			16,557			(14,825		)
Foreign currency exchange impact	—			—			(1,995		)	(1,601		)
Benefits paid from plan assets	(15,926		)	(15,777		)	(1,430		)	(2,020		)
Benefits paid by Moog	(1,123		)	(905		)	(2,700		)	(2,530		)
Other	—			(137		)	(67		)	(69		)
Projected benefit obligation at measurement date	$	779,977		$	635,798		$	153,089		$	131,914
Change in plan assets:
Fair value of assets at prior year measurement date	$	389,286		$	369,090		$	68,991		$	72,419
Actual return on plan assets	68,074			(23,987		)	11,086			(6,950		)
Employer contributions	1,115			61,004			6,842			7,356
Contributions by plan participants	—			—			900			873
Benefits paid	(17,049		)	(16,682		)	(4,130		)	(4,550		)
Foreign currency exchange impact	—			—			422			(88		)
Other	—			(139		)	(67		)	(69		)
Fair value of assets at measurement date	$	441,426		$	389,286		$	84,044		$	68,991
Funded status and amount recognized in assets and liabilities	$	(338,551	)	$	(246,512	)	$	(69,045	)	$	(62,923	)
Amount recognized in assets and liabilities:
Other assets - non-current	$	—		$	—		$	—		$	372
Accrued and long-term pension liabilities	(338,551		)	(246,512		)	(69,045		)	(63,295		)
Amount recognized in assets and liabilities	$	(338,551	)	$	(246,512	)	$	(69,045	)	$	(62,923	)
Amount recognized in accumulated other comprehensive loss, before taxes:
Prior service cost (credit)	$	42		$	52		$	(305	)	$	(380	)
Actuarial losses	415,524			350,556			29,775			21,547
Amount recognized in accumulated other comprehensive loss, before taxes	$	415,566		$	350,608		$	29,470		$	21,167

Our stock included in U.S. plan assets consisted of 149,022 shares of Class A common stock and 1,001,034 shares of Class B common stock. Our funding policy is to contribute at least the amount required by law in the respective countries.

The total accumulated benefit obligation as of the measurement date for all defined benefit pension plans was $832,303 in 2012 and $692,601 in 2011. At the measurement date in 2012, our plans had fair values of plan assets totaling $525,471. At the measurement date in 2012, three of our plans had fair values of plan assets totaling $37,798, which exceeded their accumulated benefit obligations of $33,438. At the measurement date in 2011, two of our plans had fair values of plan assets totaling $17,856, which exceeded their accumulated benefit obligations of $13,746. The following table provides aggregate information for the other pension plans, which have projected benefit obligations or accumulated benefit obligations in excess of plan assets:



	September 29, 2012		October 1, 2011
Projected benefit obligation	$	892,005	$	748,495
Accumulated benefit obligation	798,865		678,855
Fair value of plan assets	487,673		440,422

Weighted-average assumptions used to determine benefit obligations as of the measurement dates and weighted-average assumptions used to determine net periodic benefit cost are as follows:



	U.S. Plans						Non-U.S. Plans
	2012		2011		2010		2012		2011		2010
Assumptions for net periodic benefit cost:
Discount rate	4.7	%	5.2	%	6.0	%	4.7	%	4.6	%	5.8	%
Return on assets	8.9	%	8.9	%	8.9	%	5.5	%	5.1	%	6.0	%
Rate of compensation increase	3.8	%	3.8	%	4.1	%	3.0	%	3.1	%	3.3	%
Assumptions for benefit obligations:
Discount rate	3.7	%	4.7	%	5.2	%	3.9	%	4.7	%	4.6	%
Rate of compensation increase	4.1	%	3.8	%	3.8	%	2.9	%	3.0	%	2.6	%

Pension plan investment policies and strategies are developed on a plan specific basis, which varies by country. At September 29, 2012, the U.S. plans represented 84% of consolidated pension assets, while the non-U.S. plans represented 16% of consolidated pension assets, the largest concentration being in the U.K. (6%). The overall objective for the long-term expected return on both domestic and international plan assets is to earn a rate of return over time to meet anticipated benefit payments in accordance with plan provisions. The long-term investment objective of both the domestic and international retirement plans is to maintain the economic value of plan assets and future contributions by producing positive rates of investment return after subtracting inflation, benefit payments and expenses. Each of the plan’s strategic asset allocations is based on this long-term perspective and short-term fluctuations are viewed with appropriate perspective.

The U.S. qualified defined benefit plan’s assets are invested for long-term investment results. To accommodate the long-term investment horizon while providing appropriate liquidity, the plan maintains a liquid cash reserve of one-month to three-months of benefit distributions. Its assets are broadly diversified to help alleviate the risk of adverse returns in any one security or investment class. The international plans’ assets are invested in both low-risk and high-risk investments in order to achieve the long-term investment strategy objective. Investment risks for both domestic and international plans are considered within the context of the entire plan, rather than on a security-by-security basis.

The U.S. qualified defined benefit plan and certain international plans have investment committees that are responsible for formulating investment policies, developing manager guidelines and objectives and approving and managing qualified advisors and investment managers. The guidelines established for each of the plans define permitted investments within each asset class and apply certain restrictions such as limits on concentrated holdings in order to meet overall investment objectives.

Pension obligations and the related costs are determined using actuarial valuations that involve several assumptions. The return on assets assumption reflects the average rate of return expected on funds invested or to be invested to provide for the benefits included in the projected benefit obligation. In determining the return on assets assumption, we consider the relative weighting of plan assets, the historical performance of total plan assets and individual asset classes and economic and other indicators of future performance. Asset management objectives include maintaining an adequate level of diversification to reduce interest rate and market risk and to provide adequate liquidity to meet immediate and future benefit payment requirements.

In determining our U.S. pension expense for 2012, we assumed an average rate of return on U.S. pension assets of approximately 8.9% measured over a planning horizon with reasonable and acceptable levels of risk. The rate of return assumed an average of 80% in equity securities and 20% in fixed income securities. In determining our non-U.S. pension expense for 2012, we assumed an average rate of return on non-U.S. pension assets of approximately 5.5% measured over a planning horizon with reasonable and acceptable levels of risk. The rate of return assumed an average asset allocation of 40% in equity securities and 60% in fixed income securities.

The weighted average asset allocations by asset category for the pension plans as of September 29, 2012 and October 1, 2011 are as follows:



	U.S. Plans					Non-U.S. Plans
	Target	2012 Actual		2011 Actual		Target	2012 Actual		2011 Actual
Asset category:
Equity	50%-85%	82	%	74	%	40%-60%	39	%	43	%
Debt	15%-30%	15	%	14	%	40%-60%	60	%	55	%
Real estate and other	0%-20%	3	%	12	%	0%-10%	1	%	2	%

The following tables present the consolidated plan assets using the fair value hierarchy, which is described in Note 9 - Fair Value, as of September 29, 2012 and October 1, 2011.



U.S. Plans, September 29, 2012	Level 1		Level 2		Level 3		Total
Shares of registered investment companies:
International equity	$	72,763	$	—	$	—	$	72,763
Large growth stocks	87,062		—		—		87,062
Emerging markets	18,566		—		—		18,566
Common stock:							—
International equity	28,774		—		—		28,774
Large value stocks	17,454		—		—		17,454
Large core stocks	18,409		—		—		18,409
Large growth stocks	19,411		—		—		19,411
Other	16,950		—		—		16,950
Fixed income funds:
Intermediate-term core fixed income	67,046		—		—		67,046
Employer securities	43,893		—		—		43,893
Interest in common collective trust	—		29,105		—		29,105
Money market funds	—		6,630		—		6,630
Cash and cash equivalents	1,759		—		—		1,759
Limited partnerships	—		—		13,604		13,604
Fair value	$	392,087	$	35,735	$	13,604	$	441,426



Non-U.S. Plans, September 29, 2012	Level 1		Level 2		Level 3		Total
Shares of registered investment companies	$	—	$	30,700	$	—	$	30,700
Domestic equity	3,161		142		—		3,303
International equity	9,866		—		—		9,866
Fixed income funds	2,157		16,765		—		18,922
Cash and cash equivalents	748		—		—		748
Insurance contracts and other	—		653		19,852		20,505
Fair value	$	15,932	$	48,260	$	19,852	$	84,044



U.S. Plans, October 1, 2011	Level 1		Level 2		Level 3		Total
Shares of registered investment companies:
Large growth stocks	$	60,550	$	—	$	—	$	60,550
International equity	44,827		—		—		44,827
Emerging markets	16,195		—		—		16,195
Common stock:
International equity	29,886		—		—		29,886
Large value stocks	18,202		—		—		18,202
Large core stocks	15,897		—		—		15,897
Large growth stocks	15,835		—		—		15,835
Other	9,947		—		—		9,947
Fixed income funds:
Intermediate-term core fixed income	56,345		—		—		56,345
Employer securities	37,995		—		—		37,995
Interest in common collective trust	—		27,446		—		27,446
Money market funds	—		45,971		—		45,971
Cash and cash equivalents	1,557		—		—		1,557
Limited partnerships	—		—		8,633		8,633
Fair value	$	307,236	$	73,417	$	8,633	$	389,286



Non-U.S. Plans, October 1, 2011	Level 1		Level 2		Level 3		Total
Shares of registered investment companies	$	—	$	27,929	$	—	$	27,929
Domestic equity	2,728		222		—		2,950
International equity	7,705		—		—		7,705
Fixed income funds	1,567		12,210		—		13,777
Cash and cash equivalents	4,762		—		—		4,762
Insurance contracts and other	—		490		11,378		11,868
Fair value	$	16,762	$	40,851	$	11,378	$	68,991

The following is a roll forward of the consolidated plan assets classified as Level 3 within the fair value hierarchy:



	U.S. Plans			Non-U.S. Plans			Total
Balance at October 2, 2010	$	5,900		$	16,210		$	22,110
Return on assets	(507		)	(6,197		)	(6,704		)
Purchases from contributions to Plans	6,054			1,873			7,927
Proceeds from sales of investments	(2,814		)	—			(2,814		)
Settlements paid in cash	—			(79		)	(79		)
Foreign currency translation	—			(429		)	(429		)
Balance at October 1, 2011	8,633			11,378			20,011
Return on assets	3,026			3,769			6,795
Purchases from contributions to Plans	5,344			5,420			10,764
Proceeds from sales of investments	(3,399		)	—			(3,399		)
Settlements paid in cash	—			(160		)	(160		)
Foreign currency translation	—			(555		)	(555		)
Balance at September 29, 2012	$	13,604		$	19,852		$	33,456

The valuation methodologies used for pension plan assets measured at fair value have not changed in the past two years. Cash and cash equivalents consist of direct cash holdings and institutional short-term investment vehicles. Direct cash holdings are valued at cost, which approximates fair value. Institutional short-term investment vehicles are valued daily. Investments in U.S. treasury obligations are valued by a pricing service based upon closing market prices at year end. Shares of registered investment companies are valued at net asset value of shares held by the plan at year end. Common stocks traded on national exchanges are valued at the last reported sales price. Investments denominated in foreign currencies are translated into U.S. dollars using the last reported exchange rate. Fixed income funds, which primarily consist of corporate and government bonds, are valued using methods, such as dealer quotes, available trade information, spreads, bids and offers provided by a pricing vendor. Investments in limited partnerships are valued based on the net asset value of our share in the fair value of the investments at year end. Common collective trust funds consist of pools of investments used by institutional investors to obtain exposure to equity and fixed income markets. Common collective trust funds held by us invest primarily in investment grade, U.S. denominated fixed income securities. The common collective trusts have no unfunded commitments at September 29, 2012, and there are no significant restrictions on redemptions. Shares held in common collective trust funds are reported at the net unit value of units held by the trust at year end. The unit value is determined by the total value of fund assets divided by the total number of units of the fund owned. Investments in insurance contracts are valued at contract value, which is the fair value of the underlying investment of the insurance company. Securities or other assets for which market quotations are not readily available or for which market quotations do not represent the value at the time of pricing (including certain illiquid securities) are fair valued in accordance with procedures established under the supervision and responsibility of the Custodian of that investment.

Such procedures may include the use of independent pricing services or affiliated advisor pricing, which use prices based upon yields or prices of securities of comparable quality, coupon, maturity and type, indications as to values from dealers, operating data and general market conditions.

The preceding methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although we believe the valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Pension expense for all plans, including costs for various defined contribution plans, is as follows:



	U.S. Plans									Non-U.S. Plans
	2012			2011			2010			2012			2011			2010
Service cost	$	23,347		$	22,566		$	18,718		$	4,046		$	4,804		$	3,139
Interest cost	29,786			28,683			27,067			5,864			6,260			5,868
Expected return on plan assets	(41,970		)	(39,089		)	(35,344		)	(3,832		)	(3,900		)	(3,605		)
Amortization of prior service cost (credit)	9			9			203			(62		)	(60		)	(54		)
Amortization of actuarial loss	17,024			11,292			4,949			875			1,546			521
Settlement loss	—			16			—			—			275			91
Pension expense for defined benefit plans	28,196			23,477			15,593			6,891			8,925			5,960
Pension expense for defined contribution plans	9,114			7,674			6,571			5,105			4,765			6,053
Total pension expense	$	37,310		$	31,151		$	22,164		$	11,996		$	13,690		$	12,013

The estimated net prior service (credit) and net actuarial loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost for pension plans in 2013 are ($55) and $29,348, respectively.

Benefits expected to be paid to the participants of the plans are:



	U.S. Plans		Non-U.S. Plans
2013	$	20,200	$	4,198
2014	23,170		4,503
2015	24,846		5,818
2016	26,856		5,942
2017	29,585		6,321
Five years thereafter	191,882		37,194

We presently anticipate contributing approximately $31,500 to the U.S. plans and $7,300 to the non-U.S. plans in 2013.

We provide postretirement health care benefits to certain domestic retirees, who were hired prior to October 1, 1989. There are no plan assets. The transition obligation is being expensed over 20 years through 2013. The changes in the accumulated benefit obligation of this unfunded plan for 2012 and 2011 are shown in the following table:



	September 29, 2012			October 1, 2011
Change in Accumulated Postretirement Benefit Obligation (APBO):
APBO at prior year measurement date	$	18,025		$	23,860
Service cost	330			491
Interest cost	785			1,103
Contributions by plan participants	1,510			1,453
Benefits paid	(2,634		)	(2,460		)
Actuarial gains	(656		)	(6,521		)
Retiree drug subsidy receipts	96			99
APBO at measurement date	$	17,456		$	18,025
Funded status	$	(17,456	)	$	(18,025	)
Accrued postretirement benefit liability	$	17,456		$	18,025
Amount recognized in accumulated other comprehensive loss, before taxes:
Transition obligation	$	361		$	756
Actuarial (gains) losses	(604		)	52
Amount recognized in accumulated other comprehensive loss, before taxes	$	(243	)	$	808

The cost of the postretirement benefit plan is as follows:



	2012		2011		2010
Service cost	$	330	$	491	$	571
Interest cost	785		1,103		1,345
Amortization of transition obligation	394		394		394
Amortization of prior service cost	—		—		215
Amortization of actuarial loss	—		579		842
Net periodic postretirement benefit cost	$	1,509	$	2,567	$	3,367

The estimated transition obligation and actuarial gain that will be amortized from accumulated other comprehensive loss into net periodic postretirement benefit cost in 2013 are $361 and $0, respectively.

As of the measurement date, the assumed discount rate used in the accounting for the postretirement benefit obligation was 3.3% in 2012, 4.5% in 2011 and 4.8% in 2010. As of the measurement date, the assumed discount rate used in the accounting for the net periodic postretirement benefit cost was 4.5% in 2012, 4.8% in 2011 and 5.5% in 2010.

For measurement purposes, a 7.6%, 6.8% and 8.1% annual per capita rate of increase of medical and drug costs before age 65, medical costs after age 65 and drug costs after age 65, respectively, were assumed for 2012, all gradually decreasing to 4.5% for 2028 and years thereafter. A one percentage point increase in this rate would increase our accumulated postretirement benefit obligation as of the measurement date in 2012 by $696, while a one percentage point decrease in this rate would decrease our accumulated postretirement benefit obligation by $642. A one percentage point increase or decrease in this rate would not have a material effect on the total service cost and interest cost components of the net periodic postretirement benefit cost.

Activity in AOCI related to U.S. pension plans, non-U.S. pension plans and post-retirement health care benefit plans is summarized below:



	September 29, 2012			October 1, 2011
Balance at beginning of period	$	(234,128	)	$	(182,336	)
Net deferral in AOCI of actuarial loss:
Net actuarial loss during period	(90,463		)	(97,899		)
Tax effect	32,990			37,290
	(57,473		)	(60,609		)
Net reclassification from AOCI into earnings:
Reclassification from AOCI into earnings	17,969			13,875
Tax effect	(6,792		)	(5,058		)
	11,177			8,817
Balance at end of period	$	(280,424	)	$	(234,128	)

Employee and management profit sharing reflects a discretionary payment based on our financial performance. Profit share expense was $25,100, $30,025 and $21,100 in 2012, 2011 and 2010, respectively.