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Pension Plans and Other Postretirement Benefits
 12 Months Ended
Dec. 31, 2012
Pension Plans and Other Postretirement Benefits [Abstract]  
Pension Plans and Other Postretirement Benefits

NOTE 9 - Pension Plans and Other Postretirement Benefits

The Company has the following retirement plans: a defined contribution plan; a 401(k) plan; a defined benefit plan for employees hired on or before December 31, 1998; and certain employees participate in a supplemental defined contribution plan or a supplemental defined benefit plan or both.

After completing the first year of employment, all employees participate in the defined contribution plan. Under this plan, the Company makes contributions to each participant’s account based on eligible compensation and years of service. As of the time of this Annual Report on Form 10-K, contribution percentages are as follows: (1) employees hired on or after April 1, 1997, 5% of eligible compensation; (2) employees hired prior to April 1, 1997 with less than 15 years of service, 6% of eligible compensation; and (3) employees hired prior to April 1, 1997 with 15 or more years of service, 7% of eligible compensation. Participants are 100% vested in this plan after 3 years of service.

All employees of the Company participate in a 401(k) plan. Beginning January 1, 2002, the Company automatically contributes 3% of eligible compensation to each employee’s account, which is 100% vested at the time of the contribution. In addition, employees may voluntarily contribute up to 20% of their eligible compensation into their account. And, employees who are age 50 or over at the end of a calendar year may make additional elective deferral contributions (commonly referred to as catch-up contributions) up to the catch-up contribution limit specified by the IRS.

Effective April 1, 2002, participants stopped accruing benefits under the defined benefit and supplemental defined benefit plans but continue to retain the benefits they had accrued to date. Amounts earned under the defined benefit and supplemental defined benefit plans were frozen based on years of service and the highest 36 consecutive months of earnings while under the plan (through March 31, 2002). Participants are 100% vested in these defined benefit plans.

The Company’s policy with respect to funding the defined benefit plan is to contribute to the plan trust amounts which are actuarially determined to provide the plan with sufficient assets to meet future benefit payments consistent with the funding requirements of federal laws and regulations. For the defined contribution, 401(k) and defined benefit plans, investments have been set aside in separate trust funds. The supplemental retirement plans are unfunded, non-qualified plans.

Employees whose compensation exceeds the limits covered under the qualified plans participate in an unfunded, non-qualified defined contribution plan. The Company accrues an amount for each participant based on their compensation, years of service and account balance. Participants are 100% vested in this plan after 3 years of service.

Total expense recorded for the qualified and non-qualified defined contribution, 401(k), defined benefit and supplemental retirement plans was $10,415, $12,353 and $10,427 for the years ended December 31, 2012, 2011 and 2010, respectively.

 

Qualified Defined Contribution Plan, 401(k) Plan and Non-qualified Defined Contribution Plan

Pension benefits under the qualified defined contribution plan are fully funded. Contributions to employees’ accounts under this plan were expensed in the Company’s Consolidated Statements of Operations. Investments for this plan are set aside in a trust fund and none of the trust fund assets for the plan have been invested in shares of HMEC’s common stock.

The 401(k) plan is fully funded. The Company’s contributions to employees’ accounts under this plan were expensed in its Consolidated Statements of Operations. Investments for this plan are set aside through an annuity contract underwritten by the Company’s principal life insurance subsidiary. The annuity contract includes a fixed return account option and several variable return account options, with the account options selected by the individual plan participants for both the Company and participant portions contributed. One of the variable return account options invests in shares of HMEC common stock.

The non-qualified defined contribution plan is an unfunded plan. Under this plan, distributions are funded at the time payments are made to retirees.

Contributions to employees’ accounts under the qualified defined contribution plan, the 401(k) plan and the non-qualified defined contribution plan, as well as total assets of the plans, were as follows:

 

                         
    Year Ended December 31,  
    2012     2011     2010  
       

Qualified defined contribution plan:

                        

Contributions to employees’ accounts

   $ 4,148     $ 4,864     $ 5,252  

Total assets at the end of the year

     141,286       149,675       148,897  

401(k) plan:

                        

Contributions to employees’ accounts

     2,753       2,856       3,011  

Total assets at the end of the year

     118,073       111,370       117,814  

Non-qualified defined contribution plan:

                        

Contributions to employees’ accounts

     -       -       -  

Total assets at the end of the year

     -       -       -  

 

Defined Benefit Plan and Supplemental Retirement Plans

The following tables summarize the funded status of the defined benefit and supplemental retirement pension plans as of December 31, 2012, 2011 and 2010 (the measurement dates) and identify (1) the assumptions used to determine the projected benefit obligation and (2) the components of net pension cost for the defined benefit plan and supplemental retirement plans for the following periods:

 

                                                 
          Supplemental  
  Defined Benefit Plan     Defined Benefit Plans  
  December 31,     December 31,  
    2012     2011     2010     2012     2011     2010  

Change in benefit obligation:

                                                

Projected benefit obligation at beginning of year

   $ 41,736     $ 39,553     $ 38,488     $ 18,012     $ 16,801     $ 15,707  

Service cost

     -       -       -       -       -       -  

Interest cost

     1,427       1,658       1,877       676       799       841  

Plan amendments

     -       -       -       -       -       -  

Actuarial loss

     2,046       4,650       2,817       817       1,755       1,401  

Benefits paid

     (1,664 )      (1,664 )      (3,629 )      (1,313 )      (1,343 )      (1,148 ) 

Settlements

     (2,551 )      (2,461 )      -       -       -       -  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Projected benefit obligation at end of year

   $ 40,994     $ 41,736     $ 39,553     $ 18,192     $ 18,012     $ 16,801  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Change in plan assets:

                                                

Fair value of plan assets at beginning of year

   $ 31,653     $ 29,273     $ 29,006     $ -     $ -     $ -  

Actual return on plan assets

     3,168       911       2,812       -       -       -  

Employer contributions

     2,534       5,926       1,307       1,313       1,343       1,148  

Benefits paid

     (1,664 )      (1,664 )      (3,629 )      (1,313 )      (1,343 )      (1,148 ) 

Expenses paid

     (383 )      (332 )      (223 )      -       -       -  

Settlements

     (2,551 )      (2,461 )      -       -       -       -  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Fair value of plan assets at end of year

   $ 32,757     $ 31,653     $ 29,273     $ -     $ -     $ -  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Funded status

   $ (8,237 )    $ (10,083 )    $ (10,280 )    $ (18,192 )    $ (18,012 )    $ (16,801 ) 
             

Prepaid (accrued) benefit expense

   $ 11,188     $ 11,594     $ 8,270     $ (12,855 )    $ (13,197 )    $ (12,918 ) 
             

Total amount recognized in Consolidated Balance Sheets, all in other liabilities

   $ (8,237 )    $ (10,083 )    $ (10,280 )    $ (18,192 )    $ (18,012 )    $ (16,801 ) 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
             

Amounts recognized in accumulated other comprehensive income (loss) (“AOCI”):

                                                

Prior service cost

   $ -     $ -     $ -     $ 124     $ 249     $ 373  

Net actuarial loss

     19,425       21,677       18,550       5,213       4,566       3,510  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total amount recognized in AOCI

   $ 19,425     $ 21,677     $ 18,550     $ 5,337     $ 4,815     $ 3,883  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
             

Information for pension plans with an accumulated benefit obligation greater than plan assets:

                                                

Projected benefit obligation

   $ 40,994     $ 41,736     $ 39,553     $ 18,192     $ 18,012     $ 16,801  

Accumulated benefit obligation

     40,994       41,736       39,553       18,192       18,012       16,801  

Fair value of plan assets

     32,757       31,653       29,273       -       -       -  

 

The change in the Company’s AOCI for the defined benefit plan for the year ended December 31, 2012 was primarily attributable to revisions of the discount rate assumption, partially offset by the performance of the plan assets. The changes in the Company’s AOCI for the defined benefit plan for the years ended December 31, 2011 and 2010 were primarily related to revisions of the discount rate assumption.

 

                                                 
          Supplemental  
    Defined Benefit Plan     Defined Benefit Plans  
    Year Ended December 31,     Year Ended December 31,  
    2012     2011     2010     2012     2011     2010  

Components of net periodic pension (income) expense:

                                                

Service cost:

                                                

Benefit accrual

   $ -     $ -     $ -     $  -     $ -     $ -  

Other expenses

     360       250       250       -       -       -  

Interest cost

     1,427       1,658       1,877       676       799       841  

Expected return on plan assets

     (2,423 )     (2,419 )     (2,388 )     -       -       -  

Settlement loss

     1,209       1,290       -       -       -       -  

Amortization of:

                                                

Prior service cost

     -       -       -       124       125       124  

Actuarial loss

     2,367       1,824       1,045       171       698       246  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net periodic pension expense

   $ 2,940     $ 2,603     $ 784     $ 971     $ 1,622     $ 1,211  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
             

Changes in plan assets and benefit obligations included in other comprehensive income (loss):

                                                

Prior service cost

   $ -     $ -     $ -     $  -     $ -     $ -  

Net actuarial loss

     115       4,951       2,365       817       1,755       1,401  

Amortization of:

                                                

Prior service cost

     -       -       -       (124 )     (125 )     (124 )

Actuarial loss

     (2,367 )     (1,824 )     (1,045 )     (171 )     (698 )     (246 )
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total recognized in other comprehensive income (loss)

   $ (2,252 )   $ 3,127     $ 1,320     $ 522     $ 932     $ 1,031  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
             

Weighted-average assumptions used to determine expense:

                                                

Discount rate

     3.66 %      4.58 %      5.27 %      3.86 %      4.92 %      5.54 % 

Expected return on plan assets

     7.50 %      7.50 %      7.50 %      *         *         *    

Annual rate of salary increase

     *         *         *         *         *         *    
             

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

                                                

Discount rate

     3.51 %      3.66 %      4.58 %      3.51 %      3.86 %      4.92 % 

Expected return on plan assets

     7.50 %      7.50 %      7.50 %      *         *         *    

Annual rate of salary increase

     *         *         *         *         *         *    

 

* Not applicable.

The discount rates at December 31, 2012 were based on the average yield for long-term, high-grade securities available during the benefit payout period. To set its discount rate, the Company looks to leading indicators, including the Mercer Above Mean Yield Curve.

The assumption for the long-term rate of return on plan assets was determined by considering actual investment experience during the lifetime of the plan, balanced with reasonable expectations of future growth considering the various classes of assets and percentage allocation for each asset class.

 

The Company has an investment policy for the defined benefit pension plan that aligns the assets within the plan’s trust to an approximate allocation of 50% equity and 50% fixed income funds. Management believes this allocation will produce the targeted long-term rate of return on assets necessary for payment of future benefit obligations, while providing adequate liquidity for payments to current beneficiaries. Assets are reviewed against the defined benefit pension plan’s investment policy and the trustee has been directed to adjust invested assets at least quarterly to maintain the target allocation percentages.

Fair values of the equity security funds and fixed income funds have been determined from public quotations. The following table presents the fair value hierarchy for the Company’s defined benefit pension plan assets, excluding cash held, as of December 31, 2012 and 2011.

 

                                         
        Fair Value Measurements at
        Reporting Date Using
    Total   Level 1   Level 2   Level 3

December 31, 2012

                                        

Asset category

                                        

Equity security funds (1)

                                        

United States

     $ 13,199       $      -       $ 13,199       $  -  

International

       3,290         -         3,290         -  

Fixed income funds

       16,125         -         16,125         -  
     

 

 

      

 

 

      

 

 

      

 

 

  

Total

     $ 32,614       $ -       $ 32,614       $ -  
     

 

 

      

 

 

      

 

 

      

 

 

  
         

December 31, 2011

                                        

Asset category

                                        

Equity security funds (1)

                                        

United States

     $ 12,784       $ -       $ 12,784       $ -  

International

       2,968         -         2,968         -  

Fixed income funds

       15,756         -         15,756         -  
     

 

 

      

 

 

      

 

 

      

 

 

  

Total

     $ 31,508       $ -       $ 31,508       $ -  
     

 

 

      

 

 

      

 

 

      

 

 

  

 

 

(1)

None of the trust fund assets for the defined benefit pension plan have been invested in shares of HMEC’s common stock.

There were no Level 3 assets held during the years ended December 31, 2012 and 2011.

In 2013, the Company expects amortization of net losses of $1,602 and $203 for the defined benefit plan and the supplemental retirement plans, respectively, and expects amortization of prior service cost of $124 for the supplemental retirement plans to be included in net periodic pension expense.

 

Postretirement Benefits Other than Pensions

In addition to providing pension benefits, the Company also provides certain health care and life insurance benefits to a closed group of eligible employees. Postretirement benefits other than pensions of active and retired employees are accrued as expense over the employees’ service years. Effective January 1, 2007, the Company eliminated the previous group health insurance benefits for retirees 65 years of age and over, including elimination of pharmacy benefits for Medicare eligible retirees, and established a Health Reimbursement Account (“HRA”) for each eligible participant in that closed group. Health care benefits for eligible retirees under 65 years of age will continue to be provided as a bridge to Medicare eligibility. Eligible participants will receive a one-time credit of $10 to their HRA account to use for covered expenses incurred on or after age 65. As of December 31, 2006, HRA accounts were established for eligible participants and totaled $7,310. As of December 31, 2012, the balance of the HRA accounts was $2,907. Funding of HRA accounts was $168, $184 and $315 for the years ended December 31, 2012, 2011 and 2010, respectively. Also, the new plan does not provide life insurance benefits to individuals who retired after December 31, 1993.

As a result of the changes in the plan for other postretirement benefits, the Company recorded a reduction in its expenses of $431, $379 and $350 for the years ended December 31, 2012, 2011 and 2010, respectively.

The following table presents the funded status of postretirement benefits other than pensions of active and retired employees (including employees on disability more than 2 years) as of December 31, 2012, 2011 and 2010 (the measurement dates) reconciled with amounts recognized in the Company’s Consolidated Balance Sheets:

 

                         
    December 31,  
    2012     2011     2010  

Change in accumulated postretirement benefit obligations:

                        

Accumulated postretirement benefit obligations at beginning of year

   $ 3,326     $ 3,489     $ 4,470  

Changes during fiscal year

                        

Service cost

     -       -       -  

Interest cost

     91       122       170  

Medicare prescription reimbursements

     -       -       -  

Employer payments net of participant contributions

     (488 )      (526 )      (744 ) 

Actuarial (gain) loss

     (67 )      241       (407 ) 
   

 

 

    

 

 

    

 

 

  

Accumulated postretirement benefit obligations at end of year

   $ 2,862     $ 3,326     $ 3,489  
   

 

 

    

 

 

    

 

 

  

Unfunded status

   $ (2,862 )    $ (3,326 )    $ (3,489 ) 
       

Total amount recognized in Consolidated Balance Sheets, all in other liabilities

   $ (2,862 )    $ (3,326 )    $ (3,489 ) 
   

 

 

    

 

 

    

 

 

  
       

Amounts recognized in accumulated other comprehensive income (loss) (“AOCI”):

                        

Prior service credit

   $ -     $ -     $ -  

Net actuarial gain

     (900 )      (1,355 )      (2,097 ) 
   

 

 

    

 

 

    

 

 

  

Total amount recognized in AOCI

   $ (900 )    $ (1,355 )    $ (2,097 ) 
   

 

 

    

 

 

    

 

 

  
   
    Year Ended December 31,  
    2012     2011     2010  

Components of net periodic benefit:

                        

Service cost

   $ -     $ -     $ -  

Interest cost

     91       122       170  

Amortization of prior service cost

     -       -       -  

Amortization of prior gain

     (522 )      (501 )      (520 ) 
   

 

 

    

 

 

    

 

 

  

Net periodic income

   $ (431 )    $ (379 )    $ (350 ) 
   

 

 

    

 

 

    

 

 

  

 

In 2013, the Company expects amortization of net gains of $236 to be included in net periodic pension expense.

Sensitivity Analysis and Assumptions for Postretirement Benefits Other than Pensions

A one percentage point change in the assumed health care cost trend rate for each year would change the accumulated postretirement benefit obligations as follows:

 

                         
    December 31,  
    2012     2011     2010  

Accumulated postretirement benefit obligations

                        

Effect of a one percentage point increase

   $ 45     $ 53     $ 59  

Effect of a one percentage point decrease

     (43 )     (50 )     (56 )
       

Service and interest cost components of the net periodic postretirement benefit expense

                        

Effect of a one percentage point increase

   $ 1     $ 2     $ 2  

Effect of a one percentage point decrease

     (1 )     (1 )     (2 )
       

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

                        

Discount rate

     3.51 %      2.95 %      3.68 % 

Healthcare cost trend rate

     7.50 %      8.00 %      8.00 % 

Rate to which the cost trend rate is assumed to decline (ultimate trend rate)

     5.00 %      5.00 %      5.00 % 

Year the rate is assumed to reach the ultimate trend rate

     2022       2022       2021  

Expected return on plan assets

     *       *       *  
       

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:

                        

Discount rate

     2.95 %      3.68 %      4.49 % 

Healthcare cost trend rate

     8.00 %      8.00 %      8.50 % 

Rate to which the cost trend rate is assumed to decline (ultimate trend rate)

     5.00 %      5.00 %      5.00 % 

Year the rate is assumed to reach the ultimate trend rate

     2022       2021       2017  

Expected return on plan assets

     *       *       *  

 

* Not applicable.

The discount rates at December 31, 2012 were based on the average yield for long-term, high-grade securities available during the benefit payout period. To set its discount rate, the Company looks to leading indicators, including the Mercer Above Mean Yield Curve.

 

2013 Contributions

In 2013, there is no minimum funding requirement for the Company’s defined benefit plan. The following table discloses that minimum funding requirement and the expected full year contributions for the Company’s plans.

 

                               
    Defined Benefit Pension Plans    
    Defined   Supplemental   Other
    Benefit   Defined Benefit   Postretirement
    Plan   Plans   Benefits

Minimum funding requirement for 2013

     $ -         N/A         N/A  

Expected contributions (approximations) for the year ended December 31, 2013 as of the time of this Form 10-K (1)

     $ 2,500       $ 1,320       $ 480  

 

N/A - Not applicable.

(1) HMEC’s Annual Report on Form 10-K for the year ended December 31, 2012.

Estimated Future Benefit Payments

The Company’s defined benefit plan may be subject to settlement accounting. Assumptions for both the number of individuals retiring in a calendar year and their elections regarding lump sum distributions are significant factors impacting the payout patterns for each of the plans below. Therefore, actual results could vary from the estimates shown. Estimated future benefit payments as of December 31, 2012 are as follows:

 

                                                 
    2013     2014     2015     2016     2017     2018-2022  

Pension plans:

                                                

Defined benefit plan

   $ 3,971     $ 3,850     $ 3,539     $ 3,234     $ 2,803     $ 13,432  

Supplemental retirement plans

     1,320       1,310       1,300       1,291       1,276       6,071  

Other postretirement benefits

     480       434       427       368       369       892