NOTE 12

Savings, Pension and Other Postretirement Employee Benefit Plans

Certain of our employees are eligible to participate in defined contribution savings and defined benefit postretirement plans. These include 401(k) savings plans, defined benefit pension plans including multiemployer plans, and Other Postretirement Employee Benefit, or OPEB, plans, each of which is discussed below.

401(k) Savings Plans

Substantially all of our employees are eligible to participate in 401(k) savings plans, which include a company match component. The company contribution to the Clearwater Paper Corporation 401(k) Plan will be increased in 2012 in order to compensate for the closure to new participants and freezing of benefits to existing participants of the salaried pension plan. In 2011, 2010 and 2009, we made matching 401(k) contributions on behalf of employees of $8.1 million, $5.7 million and $5.5 million, respectively.

Defined Benefit Pension Plans

Substantially all of our salaried employees and a portion of our hourly employees are covered by company-sponsored noncontributory defined benefit pension plans.

In the fourth quarter of 2011, we recorded a curtailment loss of $2.8 million in net Periodic Benefit Cost, and a corresponding decrease in Other Comprehensive Income, as a result of the sale of our sawmill. In addition, we recorded a $0.4 million decrease in our pension liability with a corresponding decrease in Accumulated Other Comprehensive Loss. Effective December 15, 2010, the salaried pension plan was closed to new entrants, and effective December 31, 2011, the salaried pension plan was frozen and ceased accruing further benefits. As a result of these changes to the salaried pension plan, both announced in the fourth quarter of 2010, we recorded a loss of $0.2 million as well as a $14.2 million decrease in our pension liability with a corresponding decrease in Accumulated Other Comprehensive Loss.

Multiemployer Defined Benefit Plans

Hourly employees at two of our manufacturing facilities participate in multiemployer defined benefit pension plans: the Paper Industry Union Management Pension Fund, which is managed by United Steelworkers, or USW, Benefits; and the International Association of Machinist & Aerospace Workers National Pension Fund, or IAM. We make contributions to these plans, as well as make contributions to a trust fund established to provide retiree medical benefits for a portion of these employees, which is also managed by USW Benefits. The risks of participating in these multiemployer plans are different from single-employer plans in the following respects:

Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

If we choose to stop participating in any of our multiemployer plans, we may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

Our participation in these plans for the annual period ended December 31, 2011, is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employee Identification Number, or EIN, and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act, or PPA, zone status available in 2011 and 2010 is for a plan’s year-end as of December 31, 2010, and December 31, 2009, respectively. The zone status is based on information that we received from the plans and is certified by the plans’ actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent but more than 65 percent funded, and plans in the green zone are at least 80 percent funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan, or FIP or a rehabilitation plan, or RP, is either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreement(s) to which the plans are subject. In 2011, the contribution rates for the IAM plan increased from $2.75 an hour to $3.00 an hour, affecting the comparability of the contributions year over year. Similarly, in November of 2011, the USW plan’s contribution rates increased from $2.4285 an hour to $2.6714 an hour. The rate increase was implemented in lieu of the legally required surcharge, paid by the employers, to assist the fund’s financial status. There have been no significant changes that affect the comparability of 2010 and 2009 contributions. We were listed in the USW Plan’s Form 5500 report as providing more than five percent of the total contributions for the years 2010 and 2009. At the date of issuance of our consolidated financial statements, Form 5500 reports for these plans were not available for the 2011 plan years.

Pension

Fund

EIN

Plan

Number

PPA Zone Status

FIP/RP Status Pending/

Implemented

Contributions (in thousands)

Surcharge

Imposed

Expiration Date

of Collective

Bargaining

Agreement

2011

2010

2011

2010

2009

IAM

51-6031295

002

Green

N/A

269

244

238

12/31/2013

USW

11-6166763

001

Red

Implemented

5,648

5,218

4,915

Yes

8/31/2014

Total Contributions:

5,917

5,462

5,153

OPEB Plans

We also provide benefits under company-sponsored defined benefit retiree health care and life insurance plans, which cover certain salaried and hourly employees. Most of the retiree health care plans require retiree contributions and contain other cost-sharing features. The retiree life insurance plans are primarily noncontributory.

Funded Status of Plans

As required by current standards governing the accounting for defined benefit pension and other postretirement plans, we recognized the funded status of our company-sponsored plans on our Consolidated Balance Sheets at December 31, 2011 and 2010. The funded status is measured as the difference between plan assets at fair value (with limited exceptions) and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement employee benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement employee benefit obligation.

We use a December 31 measurement date for our benefit plans.

The changes in benefit obligation, plan assets and funded status for company-sponsored benefit plans as of December 31 are as follows:


	PENSION BENEFIT PLANS						OTHER POSTRETIREMENT EMPLOYEE BENEFIT PLANS
(In thousands)	2011			2010			2011			2010
Benefit obligation at beginning of year	$	272,012		$	278,405		$	141,519		$	150,441
Service cost		7,725			8,018			702			995
Interest cost		15,092			15,374			6,857			7,712
Plan amendments		—			(14,175	)		—			—
Mergers, sales, closures, special term benefits		(422	)		—			—			—
Actuarial losses (gains)		28,552			(590	)		(5,433	)		(9,468	)
Medicare Part D subsidies received		—			—			355			697
Benefits paid		(15,301	)		(15,020	)		(7,290	)		(8,858	)

Benefit obligation at end of year		307,658			272,012			136,710			141,519

Fair value of plan assets at beginning of year		216,650			182,477			16			14
Spin-off adjustment		—			(628	)		2			2
Actual return on plan assets		4,456			24,470			—			—
Employer contribution		12,752			25,351			—			—
Benefits paid		(15,301	)		(15,020	)		—			—

Fair value of plan assets at end of year		218,557			216,650			18			16

Funded status at end of year	$	(89,101	)	$	(55,362	)	$	(136,692	)	$	(141,503	)

Amounts recognized in the Consolidated Balance Sheets:


Current liabilities	$	(264	)	$	(254	)	$	(9,597	)	$	(9,495	)
Noncurrent liabilities		(88,837	)		(55,108	)		(127,095	)		(132,008	)

Net amount recognized	$	(89,101	)	$	(55,362	)	$	(136,692	)	$	(141,503	)

Amounts recognized (pre-tax) in Accumulated Other Comprehensive Loss as of December 31 consist of:


	PENSION BENEFIT PLANS				OTHER POSTRETIREMENT EMPLOYEE BENEFIT PLANS
(In thousands)	2011		2010		2011			2010
Net loss	$	176,439	$	141,614	$	21,258		$	26,693
Prior service cost (credit)		2,525		6,494		(3,906	)		(5,701	)

Net amount recognized	$	178,964	$	148,108	$	17,352		$	20,992

Information as of December 31 for certain pension plans included above with accumulated benefit obligations in excess of plan assets were as follows:


(In thousands)	2011		2010
Projected benefit obligation	$	307,658	$	272,012
Accumulated benefit obligation		307,658		269,456
Fair value of plan assets		218,557		216,650

Pre-tax components of Net Periodic Cost and other amounts recognized in Other Comprehensive Income (Loss) for the years ended December 31 were as follows:

Net Periodic Cost (Benefit):


	PENSION BENEFIT PLANS									OTHER POSTRETIREMENT EMPLOYEE BENEFIT PLANS
(In thousands)	2011			2010			2009			2011			2010			2009
Service cost	$	7,725		$	8,018		$	7,043		$	702		$	995		$	972
Interest cost		15,092			15,375			15,331			6,857			7,712			8,442
Expected return on plan assets		(19,532	)		(19,391	)		(19,881	)		—			—			—
Amortization of prior service cost (credit)		1,193			1,205			1,446			(1,795	)		(1,795	)		(2,112	)
Amortization of actuarial loss		8,382			8,671			6,843			—			2,083			3,549
Curtailments		2,776			183			—			—			—			—

Net periodic cost	$	15,636		$	14,061		$	10,782		$	5,764		$	8,995		$	10,851

Other amounts recognized in Other Comprehensive Income (Loss):


	PENSION BENEFIT PLANS									OTHER POSTRETIREMENT EMPLOYEE BENEFIT PLANS
(In thousands)	2011			2010			2009			2011			2010			2009
Net loss (gain)	$	43,207		$	(19,216	)	$	2,413		$	(5,435	)	$	(9,471	)	$	8,645
Prior service cost (credit)		(2,776	)		(183	)		—			—			—			—
Amortization of prior service (cost) credit		(1,193	)		(1,205	)		(1,446	)		1,795			1,795			2,112
Amortization of actuarial loss		(8,382	)		(8,671	)		(6,843	)		—			(2,083	)		(3,549	)

Total recognized in other comprehensive loss (income)	$	30,856		$	(29,275	)	$	(5,876	)	$	(3,640	)	$	(9,759	)	$	7,208

Total recognized in net periodic cost (benefit) and other comprehensive loss (income)	$	46,492		$	(15,214	)	$	4,906		$	2,124		$	(764	)	$	18,059

The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic cost (benefit) over the next fiscal year are $11.8 million and $0.6 million, respectively. The estimated prior service credit for the OPEB plans that will be amortized from accumulated other comprehensive loss into net periodic cost (benefit) over the next fiscal year is $(1.8) million.

The Medicare Prescription Drug Improvement and Modernization Act of 2003 introduced a drug benefit under Medicare Part D and a federal subsidy to sponsors of retiree health care benefit plans that provide an equivalent benefit. Our actuaries determined that certain benefits provided under our plans are actuarially equivalent to the Medicare Part D standard plan and are eligible for the employer subsidy. During 2011 and 2010, we received subsidy payments totaling $0.4 and 0.7 million for each respective year.

Weighted average assumptions used to determine the benefit obligation as of December 31 were:


	PENSION BENEFIT PLANS									OTHER POSTRETIREMENT EMPLOYEE BENEFIT PLANS
	2011			2010			2009			2011			2010			2009
Discount rate		4.90	%		5.70	%		5.75	%		4.95	%		5.60	%		5.75	%
Rate of salaried compensation increase		—			4.00			4.00			—			—			—

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


	PENSION BENEFIT PLANS									OTHER POSTRETIREMENT EMPLOYEE BENEFIT PLANS
	2011			2010			2009			2011			2010			2009
Discount rate		5.70	%		5.75	%		6.15	%		5.60	%		5.75	%		6.15	%
Expected return on plan assets		8.00			8.50			8.50			—			—			—
Rate of salaried compensation increase		4.00			4.00			4.00			—			—			—

The discount rate used in the determination of pension benefit obligations and pension expense was determined based on a review of long-term high-grade bonds as well as management’s expectations. The discount rate used to calculate OPEB obligations was determined using the same methodology we used for our pension plans.

The expected return on plan assets assumption is based upon an analysis of historical long-term returns for various investment categories, as measured by appropriate indices. These indices are weighted based upon the extent to which plan assets are invested in the particular categories in arriving at our determination of a composite expected return.

The assumed health care cost trend rate used to calculate OPEB obligations and expense in 2011 were 7.5% and 8.0%, respectively, with both grading to 4.7% over approximately 60 years. This assumption has a significant effect on the amounts reported. A one percentage point change in the health care cost trend rates would have the following effects:


(In thousands)	1% INCREASE		1% DECREASE
Effect on total of service and interest cost components	$	764	$	(646	)
Effect on postretirement employee benefit obligation		12,841		(11,043	)

The investments of our defined benefit pension plans are held in a Master Trust. The assets of our OPEB plans are held within an Internal Revenue Code section 401(h) account for the payment of retiree medical benefits within the Master Trust.

The Master Trust has a securities lending agreement. The agreement authorizes the lending agent to loan securities owned by the Master Trust to an approved list of borrowers. Under the agreement, the lending agent is responsible for negotiating each loan for an unspecified term while retaining the power to terminate the loan at any time. At the time each loan is made, the lending agent requires collateral equal to, but not less than, 102% of the market value of the loaned securities and accrued interest. The Master Trust directs the agent as to the type of investment pool in which to invest the borrower’s collateral based on established policy with specific limits; accordingly, the right to receive the collateral and obligation to return it are disclosed as a component of Master Trust investments. While the securities are loaned, the Master Trust retains all rights of ownership, except it waives its right to vote such securities. Securities loaned subject to this securities lending agreement totaled $8.1 million at December 31, 2011. These securities are principally corporate common stocks.

Current accounting rules governing fair value measurement establish a framework for measuring fair value, which provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:


Level 1		Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the plans have the ability to access.

Level 2		Inputs to the valuation methodology include: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in inactive markets; • Inputs other than quoted prices that are observable for the asset or liability; and • Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

		If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3		Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Securities in the Master Trust are stated at fair value. Fair value is based upon quotations obtained from national securities exchanges, if available. Where securities do not have a quoted market price, the recorded amount represents estimated fair value. Many factors are considered in arriving at that fair market value. Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used during 2011.

Corporate common and mutual funds: Investments are valued at quoted market prices.

Common and collective trust: The investment in common and collective trusts is based on the fair value of the underlying assets and is expressed in units.

Corporate debt securities: In general, corporate bonds are valued based on yields currently available on comparable securities of issuers with similar credit ratings.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while management believes 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.

The following tables set forth by level, within the fair value hierarchy, the investments at fair value for our company sponsored pension benefit plans:

At December 31, 2011

(In thousands)

Level 1

Level 2

Level 3

Total

Cash and cash equivalents

9,843

—

9,843

Common and collective trusts:

International small cap

—

10,588

—

10,588

Global/International equity

—

13,748

—

13,748

Domestic equity – small/mid cap

—

15,939

—

15,939

International equity emerging markets

—

14,602

—

14,602

Common stocks:

Industrials

5,545

—

5,545

Energy

2,595

—

2,595

Consumer

9,714

—

9,714

Healthcare

4,321

—

4,321

Finance

10,235

—

10,235

Utilities

4,234

—

4,234

Information technology

4,847

—

4,847

Foreign

5,000

—

5,000

Mutual funds:

Foreign large blend

15,048

—

15,048

Long-term bond fund

99,728

—

99,728

Corporate debt securities

—

1,045

—

1,045

Subtotal

171,110

55,922

—

227,032

Payable held under securities lending agreement

(8,475

)

Total investments at fair value

218,557


	At December 31, 2010
(In thousands)	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	12,631	$	—	$	—	$	12,631
Common and collective trusts:
International small cap		—		11,706		—		11,706
Global/International equity		—		15,488		—		15,488
Domestic equity – small/mid cap		—		18,744		—		18,744
International equity emerging markets		—		17,333		—		17,333
Common stocks:
Industrials		7,439		—		—		7,439
Energy		8,888		—		—		8,888
Consumer		9,775		—		—		9,775
Healthcare		5,718		—		—		5,718
Finance		11,527		—		—		11,527
Utilities		5,269		—		—		5,269
Information technology		8,309		—		—		8,309
Foreign		5,299		—		—		5,299
Mutual funds:
Foreign large blend		16,674		—		—		16,674
Long-term bond fund		70,695		—		—		70,695
Corporate debt securities		—		1,290		—		1,290

Subtotal	$	162,224	$	64,561	$	—	$	226,785
Payable held under securities lending agreement								(10,135	)

Total investments at fair value							$	216,650

Our OPEB plan had approximately $18,000 held in cash and equivalents at December 31, 2011, which were categorized as level 1.

In 2010, we established our own formal investment policy guidelines for our company-sponsored plans. These guidelines were set by our benefits committee, which is comprised of members of our management and has been assigned its fiduciary authority over management of the plan assets by our Board of Directors. The committee’s duties include periodically reviewing and modifying those investment policy guidelines as necessary and insuring that the policy is adhered to and the investment objectives are met.

The investment policy limits the investment in Clearwater Paper stock and includes specific guidelines for specific categories of fixed income and convertible securities. Assets are managed by professional investment managers who are expected to achieve a reasonable rate of return over a market cycle. Long-term performance is a fundamental tenet of the policy.

The general policy states that plan assets would be invested to seek the greatest return consistent with the fiduciary character of the pension funds and to allow the plans to meet the need for timely pension benefit payments. The specific investment guidelines stipulate that management is to maintain adequate liquidity for meeting expected benefit payments by reviewing, on a timely basis, contribution and benefit payment levels and appropriately revising long-term and short-term asset allocations. Management takes reasonable and prudent steps to preserve the value of pension fund assets and to avoid the risk of large losses. Major steps taken to provide this protection included:

Assets are diversified among various asset classes, such as domestic equities, global equities, fixed income, convertible securities, venture capital and liquid reserves. The long-term asset allocation ranges are as follows:


Domestic equities			20%-25%
International equities, including emerging markets			20%-25%
Corporate bonds			50%-60%
Liquid reserves			0%-1%

Periodically, reviews of allocations within these ranges are made to determine what adjustments should be made based on changing economic and market conditions and specific liquidity requirements.

Assets were managed by professional investment managers and could be invested in separately managed accounts or commingled funds.

Assets were not invested in securities rated below BBB- by S&P or Baa3 by Moody’s.

The investment guidelines also required that the individual investment managers were expected to achieve a reasonable rate of return over a market cycle. Emphasis was placed on long-term performance versus short-term market aberrations. Factors considered in determining reasonable rates of return included performance achieved by a diverse cross section of other investment managers, performance of commonly used benchmarks (e.g., S&P 500 Index, MSCI World Index, Merrill Lynch Investment Grade Convertibles Index), actuarial assumptions for return on plan investments and specific performance guidelines given to individual investment managers.

At December 31, 2011, eleven active investment managers managed substantially all of the pension funds, each of whom had responsibility for managing a specific portion of these assets. Plan assets were diversified among the various asset classes within the allocation ranges approved by the committee.

Our company-sponsored pension plans were underfunded by $89.1 million at December 31, 2011 and $55.4 million at December 31, 2010. As a result of being underfunded, we are required to make contributions to our qualified pension plans. In 2011 we contributed $12.5 million to these pension plans. We also contributed $0.3 million to our non-qualified pension plan in 2011. Our cash contributions in 2012 are estimated to be approximately $20 million. We do not anticipate funding our OPEB plans in 2012 except to pay benefit costs as incurred during the year by plan participants.

Estimated future benefit payments, which reflect expected future service and expected Medicare prescription subsidy receipts, are as follows for the years indicated:


(In thousands)	PENSION BENEFIT PLANS		OTHER POSTRETIREMENT EMPLOYEE BENEFIT PLANS		EXPECTED MEDICARE SUBSIDY
2012		$15,804		$10,337		$722
2013		16,373		10,623		711
2014		17,061		11,006		809
2015		18,013		11,291		843
2016		18,751		11,741		874
2017–2021		102,292		55,923		4,899