
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 $11,334, $11,766 and $11,192 in 2014, 2013 and 2012, respectively.

We have a qualified, funded defined benefit retirement plan (the “U.S. Pension Plan”) covering certain current and retired employees in the U.S. 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 394 participants including 81 active employees as of December 31, 2014.

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 $7,475, $6,423 and $6,226 during 2014, 2013 and 2012, 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 $185 to our U.S. Nonqualified Plan, $947 to our U.S. Retiree Plan, $305 to our U.K. Pension Plan and $37 to our German Pension Plan in 2015. No contributions to the U.S. Pension Plan are expected to be required during 2015. There were no contributions made to the U.S. Pension Plan during 2014. 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, 2014 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	$	505	$	505	$	—	$	—
Mutual Funds:
U.S. Large-Cap	12,955		12,955		—		—
U.S. Small-Cap	4,004		4,004		—		—
International Equities	3,788		3,788		—		—
Fixed-Income Domestic	30,652		30,652		—		—
Investment Account held by Pension Plan ⁽¹⁾	9,989		—		—		9,989
Total	$	61,893	$	51,904	$	—	$	9,989


(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, 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.

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 is classified as Level 3. The fair value of the Investment Account is 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:



	2014			2013
Fair value at beginning of year	$	9,733		$	8,855
Purchases, sales, issuances and settlements, net	(96		)	74
Net gain	974			601
Foreign currency	(622		)	203
Fair value at end of year	$	9,989		$	9,733

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% debt securities and 40% equity. 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
	2014		2013		2014		2013		2014		2013
Discount rate	3.76	%	4.63	%	3.38	%	4.33	%	3.39	%	4.10	%
Rate of compensation increase	3.00	%	3.00	%	3.50	%	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
	2014		2013		2012		2014		2013		2012		2014		2013		2012
Discount rate	4.63	%	3.79	%	4.39	%	4.33	%	4.41	%	4.94	%	4.10	%	3.27	%	4.20	%
Expected long-term rate of return on plan assets	5.70	%	6.50	%	7.70	%	5.60	%	4.70	%	4.80	%	—		—		—
Rate of compensation increase	3.00	%	3.00	%	3.00	%	4.50	%	4.50	%	4.60	%	—		—		—

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:



	2014		2013
U.S. Pension Plans	$	45,695	$	42,241
U.K. Pension Plan	10,658		9,803
German Pension Plan	1,027		897

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



	2014		2013
Accumulated benefit obligation	$	13,872	$	12,778
Fair value of plan assets	9,989		9,733

As of December 31, 2014 and 2013, the U.S. Nonqualified, the U.K. Pension 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:



	2014		2013
Projected benefit obligation	$	14,207	$	13,481
Fair value of plan assets	9,989		9,733

As of December 31, 2014 and 2013, 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:



	2014		2013
Healthcare cost trend rate assumption for the next year	7.50	%	8.30	%
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	$	(981	)	$	1,113

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
	2014			2013			2014			2013			2014			2013
Change in benefit obligation:
Benefit obligation at beginning of year	$	43,653		$	48,824		$	11,238		$	10,011		$	13,186		$	14,090
Service cost	493			690			155			142			128			154
Interest cost	1,964			1,803			476			422			497			443
Plan participants' contributions	—			—			21			23			—			—
Actuarial loss (gain)	5,907			(4,901		)	1,421			668			591			(1,001		)
Foreign exchange	—			—			(815		)	265			—			—
Benefits paid	(1,706		)	(2,763		)	(482		)	(293		)	(1,110		)	(500		)
Settlement	(3,284		)	—			—			—			—			—
Benefit obligation at end of year	$	47,027		$	43,653		$	12,014		$	11,238		$	13,292		$	13,186
Change in fair value of plan assets and net accrued liabilities:
Fair value of plan assets at beginning of year	$	52,397		$	46,942		$	9,733		$	8,855		$	—		$	—
Actual return on plan assets	4,236			7,827			974			601			—			—
Employer contributions	242			391			365			343			1,110			500
Plan participants' contributions	—			—			21			23			—			—
Foreign exchange	—			—			(622		)	204			—			—
Benefits paid	(1,706		)	(2,763		)	(482		)	(293		)	(1,110		)	(500		)
Settlement	(3,284		)	—			—			—			—			—
Fair value of plan assets at end of year	51,885			52,397			9,989			9,733			—			—
Funded status at end of year	$	4,858		$	8,744		$	(2,025	)	$	(1,505	)	$	(13,292	)	$	(13,186	)
Amounts recognized in the Consolidated Balance Sheets consist of:
Noncurrent Other Assets	$	7,051		$	10,987		$	—		$	—		$	—		$	—
Current Liabilities	(185		)	(149		)	(37		)	(41		)	(947		)	(919		)
Long-Term Liabilities	(2,008		)	(2,094		)	(1,988		)	(1,464		)	(12,345		)	(12,267		)
Net accrued asset (liability)	$	4,858		$	8,744		$	(2,025	)	$	(1,505	)	$	(13,292	)	$	(13,186	)
Amounts recognized in Accumulated Other Comprehensive Loss consist of:
Prior service (cost) credit	$	(109	)	$	(152	)	$	—		$	—		$	—		$	6
Net actuarial loss	(5,993		)	(2,142		)	(1,682		)	(704		)	(2,178		)	(1,587		)
Accumulated Other Comprehensive Loss	$	(6,102	)	$	(2,294	)	$	(1,682	)	$	(704	)	$	(2,178	)	$	(1,581	)

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
	2014			2013			2012			2014			2013			2012			2014			2013			2012
Service cost	$	493		$	690		$	686		$	155		$	142		$	138		$	128		$	154		$	142
Interest cost	1,964			1,803			1,928			476			422			437			497			443			551
Expected return on plan assets	(2,683		)	(2,911		)	(2,279		)	(539		)	(402		)	(387		)	—			—			—
Amortization of net actuarial loss	147			1,751			1,131			9			9			—			—			201			57
Amortization of prior service cost (credit)	43			73			382			—			—			—			(6		)	(103		)	(580		)
Foreign currency	—			—			—			(61		)	21			16			—			—			—
Settlement credit	356			—			—			—			—			—			—			—			—
Net periodic benefit cost	$	320		$	1,406		$	1,848		$	40		$	192		$	204		$	619		$	695		$	170

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
	2014			2013			2012			2014			2013			2012		2014		2013			2012
Net actuarial loss (gain)	4,353			(9,817		)	2,355			987			467			244		591		(1,001		)	926
Amortization of prior service (cost) credit	(43		)	(73		)	(382		)	—			—			—		6		103			580
Amortization of net actuarial loss	(503		)	(1,751		)	(1,132		)	(9		)	(9		)	—		—		(201		)	(57		)
Total recognized in other comprehensive loss (income)	$	3,807		$	(11,641	)	$	841		$	978		$	458		$	244	$	597	$	(1,099	)	$	1,449
Total recognized in net periodic benefit (cost) and other comprehensive loss (income)	$	4,127		$	(10,235	)	$	2,689		$	1,018		$	650		$	448	$	1,216	$	(404	)	$	1,619

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
2015	$	2,239	$	229	$	947
2016	2,419		235		1,012
2017	2,577		241		1,063
2018	2,724		247		1,064
2019	2,822		254		1,089
2020 to 2024	15,135		1,384		5,294
Total	$	27,916	$	2,590	$	10,469

The following amounts are included in Accumulated Other Comprehensive Loss as of December 31, 2014 and are expected to be recognized as components of net periodic benefit cost during 2015:



	Pension Benefits		Postretirement Medical Benefits
Net actuarial loss	$	1,561	$	140
Prior service cost	42		—