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Retirement Plans and Other Post-Retirement Benefits
 12 Months Ended
Dec. 31, 2012
Retirement Plans and Other Post-Retirement Benefits [Abstract]  
RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS
9. RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

We provide non-contributory retirement benefits under both funded and unfunded plans to all U.S. employees and to certain non-U.S. employees. U.S. benefits are based on either a final average pay formula or a cash balance formula for salaried employees, and on a unit-benefit formula for bargained hourly employees. Non-U.S. benefits are based, in the case of certain plans, on average salary and years of service and, in the case of other plans, on a fixed amount for each year of service. U.S. plan provisions and funding meet the requirements of the Employee Retirement Income Security Act of 1974. We use a December 31-measurement date for all of our defined benefit plans.

We also provide certain health care benefits to eligible U.S.-based retired employees and exclude all salaried employees hired after January 1, 2008. These benefits include a comprehensive medical plan for retirees prior to age 65 and fixed supplemental premium payments to certain retirees over age 65 to help defray the costs of Medicare. Claims are paid as reported.

 

                                 
    Pension Benefits     Other Benefits  
In millions   2012     2011     2012     2011  

Change in Benefit Obligation

                                

Balance at beginning of year

   $ 470.2     $ 434.3     $ 56.8     $ 58.5  

Service cost

     11.3       10.3       2.8       2.9  

Interest cost

     23.0       24.2       2.4       2.8  

Plan amendments

     5.5       2.0       –       –  

Participant contributions

     –       –       1.4       1.7  

Actuarial (gain)/loss

     46.7       33.8       4.2       (4.4 ) 

Benefits paid

     (28.3 )      (34.4 )      (4.6 )      (4.7 ) 

Balance at end of year

   $ 528.4     $ 470.2     $ 63.0     $ 56.8  

Change in Plan Assets

                                

Fair value of plan assets at beginning of year

   $ 498.2     $ 526.4     $ 5.3     $ 6.2  

Actual (loss) return on plan assets

     68.1       (2.6 )      0.6       –  

Total contributions

     1.8       8.8       4.6       3.8  

Benefits paid

     (28.3 )      (34.4 )      (4.6 )      (4.7 ) 

Intra plan transfers

     5.9       –       (5.9 )      –  

Fair value of plan assets at end of year

     545.7       498.2       –       5.3  

Funded status at end of year

   $ 17.3     $ 28.0     $ (63.0 )    $ (51.5 ) 

The amount set forth for intra plan transfers represents assets contributed to the pension plan from a post-retirement medical plan sub-account previously established pursuant to Section 420 of the Internal Revenue Code. Benefits due under the post-retirement medical plan continue to be paid for by us.

 

Amounts recognized in the consolidated balance sheets consist of the following as of December 31:

 

                                 
    Pension Benefits     Other Benefits  
In millions   2012     2011     2012     2011  

Other long-term assets

   $ 53.7     $ 59.8     $ –     $ –  

Current liabilities

     (2.0 )      (1.8 )      (4.2 )      (3.4 ) 

Other long-term liabilities

     (34.4 )      (30.0 )      (58.8 )      (48.1 ) 

Net amount recognized

   $ 17.3     $ 28.0     $ (63.0 )    $ (51.5 ) 

The components of amounts recognized as “Accumulated other comprehensive income” consist of the following on a pre-tax basis:

 

                                 
    Pension Benefits     Other Benefits  
In millions   2012     2011     2012     2011  

Prior service cost/(credit)

   $ 17.9     $ 14.9     $ (1.9 )    ($ 2.8 ) 

Net actuarial loss

     237.6       234.0       12.6       9.2  

The accumulated benefit obligation for all defined benefit pension plans was $507.4 million and $451.7 million at December 31, 2012 and 2011, respectively.

The weighted-average assumptions used in computing the benefit obligations above were as follows:

 

                                 
    Pension Benefits     Other Benefits  
     2012     2011     2012     2011  

Discount rate – benefit obligation

     4.28 %      5.09 %      3.58 %      4.45 % 

Future compensation growth rate

     4.00       4.00       –       –  

The discount rates set forth above were estimated based on the modeling of expected cash flows for each of our benefit plans and selecting a portfolio of high-quality debt instruments with maturities matching the respective cash flows of each plan. The resulting discount rates ranged from 3.50% to 4.51% for pension plans and ranged from 3.02% to 3.69% for other benefit plans.

Information for pension plans with an accumulated benefit obligation in excess of plan assets was as follows:

 

                 

In millions

     2012       2011  

Projected benefit obligation

   $ 36.4     $ 31.8  

Accumulated benefit obligation

     32.0       27.9  

Fair value of plan assets

     –       –  

 

Net periodic benefit cost (income) includes the following components:

 

                         
    Year Ended December 31  

In millions

     2012       2011       2010  

Pension Benefits

                        

Service cost

   $ 11.3     $ 10.3     $ 9.5  

Interest cost

     23.0       24.2       23.9  

Expected return on plan assets

     (42.2 )      (42.0 )      (40.3 ) 

Amortization of prior service cost

     2.5       2.6       2.5  

Amortization of actuarial loss

     17.0       13.3       13.6  

One-time settlement charge

     –       2.0       –  
   

 

 

  

Total net periodic benefit cost

   $ 11.6     $ 10.4     $ 9.2  
   

 

 

  

Other Benefits

                        

Service cost

   $ 2.8     $ 2.9     $ 2.9  

Interest cost

     2.4       2.8       3.4  

Expected return on plan assets

     (0.5 )      (0.5 )      (0.5 ) 

Amortization of prior service cost/(credit)

     (0.9 )      (1.2 )      (1.2 ) 

Amortization of actuarial loss

     0.7       0.9       1.5  
   

 

 

  

Total net periodic benefit cost

   $ 4.5     $ 4.9     $ 6.1  

In connection with the December 31, 2010 retirement of our former chief executive officer and the lump-sum distribution in July 2011 of accrued pension benefits due to him, we recorded a $2.0 million one-time pension settlement charge in 2011.

The prior service cost and actuarial net (gain) loss for our defined benefit pension plans that will be amortized from accumulated other comprehensive income (loss) into our results of operations as a component of net periodic benefit cost over the next fiscal year are $3.1 million and $21.3 million, respectively. The comparable amounts of expected amortization for other benefit plans are a credit of $0.5 million and expense of $0.8 million, respectively.

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) were as follows:

 

                     
    Year Ended
December 31		      
In millions   2012     2011      

Pension Benefits

                    

Actuarial loss

   $ 20.6     $ 76.5      

Prior service cost

     5.5       2.1      

Amortization of prior service cost

     (2.5 )      (2.6 )     

Amortization of actuarial losses

     (17.0 )      (13.3 )     
   

 

 

      

Total recognized in other comprehensive loss

     6.6       62.7      
   

 

 

      

Total recognized in net periodic benefit cost and other comprehensive loss

   $ 18.2     $ 73.1      
   

 

 

      

Other Benefits

                    

Actuarial (gain) loss

   $ 4.0     $ (3.8 )     

Amortization of prior service cost

     0.9       1.2      

Amortization of actuarial losses

     (0.7 )      (0.9 )     
   

 

 

      

Total recognized in other comprehensive (income) loss

     4.2       (3.5 )     
   

 

 

      

Total recognized in net periodic benefit cost and other comprehensive loss

   $ 8.7     $ 1.4      

 

The weighted-average assumptions used in computing the net periodic benefit (income) cost information above were as follows:

 

                         
    Year Ended December 31  
     2012     2011     2010  

Pension Benefits

                        

Discount rate – benefit expense

     5.09 %      5.81 %      6.10 % 

Future compensation growth rate

     4.00       4.00       4.00  

Expected long-term rate of return on plan assets

     8.50       8.50       8.50  

Other Benefits

                        

Discount rate – benefit expense

     4.45 %      5.12 %      5.90 % 

Expected long-term rate of return on plan assets

     8.50       8.50       8.50  

To develop the expected long-term rate of return assumption, we considered the historical returns and the future expected returns for each asset class, as well as the target asset allocation of the pension portfolio.

Assumed health care cost trend rates used to determine benefit obligations at December 31 were as follows:

 

                 
     2012     2011  

Health care cost trend rate assumed for next year

     7.68 %      7.90 % 

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

     4.50       4.50  

Year that the rate reaches the ultimate rate

     2028       2028  

Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one percentage-point change in assumed health care cost trend rates would have the following effects:

 

                 
    One Percentage Point  
In millions   Increase     Decrease  

Effect on:

                

Post-retirement benefit obligation

   $ 4.9     $ 4.4  

Total of service and interest cost components

     0.6       0.5  

Plan Assets All pension plan assets in the U.S. are invested through a single master trust fund. The strategic asset allocation for this trust fund is selected by management, reflecting the results of comprehensive asset and liability modeling. The general principles guiding U.S. pension asset investment policies are those embodied in the Employee Retirement Income Security Act of 1974 (ERISA). These principles include discharging our investment responsibilities for the exclusive benefit of plan participants and in accordance with the “prudent expert” standard and other ERISA rules and regulations. We establish strategic asset allocation percentage targets and appropriate benchmarks for significant asset classes with the aim of achieving a prudent balance between return and risk.

Investments and decisions will be made solely in the interest of the Plan’s participants and beneficiaries, and for the exclusive purpose of providing benefits accrued thereunder. The primary goal of the Plan is to ensure the solvency of the Plan over time and thereby meet its distribution objectives. Plan assets will be diversified. All investments in the Plan will be made in accordance with ERISA and other applicable statutes.

Risk is minimized by diversification by asset class, by style of each manager and by sector and industry limits when applicable. The target allocation for the Plan assets are:

 

         

Domestic Equity –

        

Large cap

     39 % 

Small and mid cap

     13  

International equity

     13  

Real Estate Investment Trusts (REIT)

     5  

Fixed income, cash and cash equivalents

     30  

Diversification is achieved by:

 

  i. placing restrictions on the percentage of equity investments in any one company, percentage of investment in any one industry, limiting the amount of assets placed with any one manager; and

 

  ii. setting targets for duration of fixed income securities, maintaining a certain level of credit quality, and limiting the amount of investment in a single security and in non-investment grade paper.

A formal asset allocation review is done periodically to ensure that the Plan has an appropriate asset allocation based on the Plan’s projected benefit obligations. The target return for each equity and fixed income manager will be one that places the manager’s performance in the top 40% of its peers and on a gross basis, exceeds that of the manager’s respective benchmark index. The target return for cash and cash equivalents is a return that at least equals that of the 90-day T-bills.

The Investment Policy statement lists specific categories of securities or activities that are prohibited including options, futures, commodities, hedge funds, limited partnerships, and our stock.

 

The table below presents the fair values of our benefit plan assets by level within the fair value hierarchy, as described in Note 2:

 

                                 
    Fair Value Measurements at December 31, 2012  

In millions

     Total       Level 1       Level 2       Level 3  

Domestic Equity

                                

Large cap

   $ 169.6     $ 169.6     $ –     $ –  

Small and mid cap

     65.7       65.7       –       –  

Other

     1.1       0.8       0.3       –  

International equity

     100.3       61.9       38.4       –  

REIT

     25.4       25.4       –       –  

Fixed income

     164.9       27.2       137.7       –  

Cash and equivalents

     18.7       –       18.7       –  

Total

   $ 545.7     $ 350.6     $ 195.1     $ –  
   
    Fair Value Measurements at December 31, 2011  

In millions

     Total       Level 1       Level 2       Level 3  

Domestic Equity

                                

Large cap

   $ 164.5     $ 164.5     $ –     $ –  

Small and mid cap

     57.7       57.7       –       –  

Other

     0.6       0.5       0.1       –  

International equity

     79.7       48.3       31.4       –  

REIT

     26.4       26.4       –       –  

Fixed income

     157.3       83.4       73.9       –  

Cash and equivalents

     17.3       –       17.3       –  

Total

   $ 503.5     $ 380.8     $ 122.7     $ –  

Cash Flow    We were not required to make contributions to our qualified pension plan in 2012 nor do we expect to make any to this plan in 2013. Benefit payments expected to be made in 2013 under our non-qualified pension plans and other benefit plans are summarized below:

 

         

In thousands

        

Nonqualified pension plans

   $ 2,014  

Other benefit plans

     4,238  

The following benefit payments under all pension and other benefit plans, and giving effect to expected future service, as appropriate, are expected to be paid:

 

                 

In thousands

    
 		 Pension
Benefits		   
  		    
 		 Other
Benefits		   
  

2013

   $ 32,465     $ 4,238  

2014

     32,135       4,557  

2015

     32,179       4,574  

2016

     31,977       4,823  

2017

     31,986       5,104  

2018 through 2022

     156,439       26,328  

Defined Contribution Plans We maintain 401(k) plans for certain hourly and salaried employees. Employees may contribute up to 50% of their earnings, subject to certain restrictions. We will match a portion of the employee’s contribution, subject to certain limitations, in the form of shares of Glatfelter common stock out of treasury. The expense associated with our 401(k) match was $1.7 million, $1.3 million and $1.0 million in 2012, 2011 and 2010, respectively.