RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS

We sponsor noncontributory defined benefit (pension) plans covering most employees. The plans for salaried and hourly employees currently in effect are based on a formula using the participant’s years of service and compensation or using the participant’s years of service and a dollar amount. The plan is closed to new participants, and based on plan changes announced in 2006, pay for active participants of the plan was frozen as of December 31, 2007. Beginning in the first quarter of 2014, with the exception of plan participants at two of our U.S. manufacturing facilities, the plan will no longer accrue benefits associated with crediting employees for service, thereby freezing all future benefits under the plan.

In addition to providing pension benefits, we provide postretirement life insurance and health care benefits for certain groups of employees. Tredegar and retirees share in the cost of postretirement health care benefits, with employees hired on or before January 1, 1993, receiving a fixed subsidy to cover a portion of their health care premiums. We eliminated prescription drug coverage for Medicare-eligible retirees as of January 1, 2006. Consequently, we are not eligible for any federal subsidies.

The following tables reconcile the changes in benefit obligations and plan assets in 2013 and 2012, and reconcile the funded status to prepaid or accrued cost at December 31, 2013 and 2012:



	Pension Benefits						Other Post- Retirement Benefits
(In Thousands)	2013			2012			2013			2012
Change in benefit obligation:
Benefit obligation, beginning of year	$	302,285		$	272,436		$	8,879		$	8,422
Service cost	3,754			3,657			58			58
Interest cost	12,338			13,084			345			385
Effect of actuarial (gains) losses related to the following:
Discount rate change	(26,848		)	26,843			(746		)	549
Retirement rate assumptions and mortality table adjustments	(144		)	—			—			—
Other	(3,058		)	(1,372		)	(382		)	(243		)
Benefits paid	(13,161		)	(12,363		)	(296		)	(292		)
Benefit obligation, end of year	$	275,166		$	302,285		$	7,858		$	8,879
Change in plan assets:
Plan assets at fair value, beginning of year	$	219,035		$	214,647		$	—		$	—
Actual return on plan assets	21,657			14,455			—			—
Employer contributions	5,174			2,296			296			292
Benefits paid	(13,161		)	(12,363		)	(296		)	(292		)
Plan assets at fair value, end of year	$	232,705		$	219,035		$	—		$	—
Funded status of the plans	$	(42,461	)	$	(83,250	)	$	(7,858	)	$	(8,879	)
Amounts recognized in the consolidated balance sheets:
Prepaid benefit cost	$	—		$	—		$	—		$	—
Accrued benefit liability	(42,461		)	(83,250		)	(7,858		)	(8,879		)
Net amount recognized	$	(42,461	)	$	(83,250	)	$	(7,858	)	$	(8,879	)

Assumptions used for financial reporting purposes to compute net benefit income or cost and benefit obligations for continuing operations, and the components of net periodic benefit income or cost for continuing operations, are as follows:



	Pension Benefits									Other Post- Retirement Benefits
(In Thousands, Except Percentages)	2013			2012			2011			2013			2012			2011
Weighted-average assumptions used to determine benefit obligations:
Discount rate	4.99		%	4.21		%	4.95		%	4.88		%	4.10		%	4.90		%
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate	4.21		%	4.95		%	5.45		%	4.10		%	4.90		%	5.35		%
Expected long-term return on plan assets	7.75		%	8.00		%	8.25		%	n/a			n/a			n/a
Components of net periodic benefit cost:
Service cost	$	3,754		$	3,657		$	3,361		$	58		$	58		$	54
Interest cost	12,338			13,084			13,024			345			385			395
Expected return on plan assets	(17,430		)	(19,108		)	(20,448		)	—			—			—
Amortization of prior service costs and gains or losses	15,028			10,377			6,359			(210		)	(241		)	(264		)
Settlement/curtailment	28			99			—			—			—			—
Net periodic benefit cost	$	13,718		$	8,109		$	2,296		$	193		$	202		$	185

Net benefit income or cost is determined using assumptions at the beginning of each year. Funded status is determined using assumptions at the end of each year. Pension and other postretirement liabilities for continuing operations of $50.3 million and $92.1 million are included in “Other noncurrent liabilities” in the consolidated balance sheets at December 31, 2013 and 2012, respectively. The amount of our accumulated benefit obligation is the same as our projected benefit obligation.

At December 31, 2013, the effect of a 1% change in the health care cost trend rate assumptions would be immaterial.

Expected benefit payments for continuing operations over the next five years and in the aggregate for 2019-2023 are as follows:



(In Thousands)	Pension Benefits		Other Post- Retirement Benefits
2014	$	14,398	$	474
2015	15,193		495
2016	15,775		511
2017	16,334		521
2018	16,748		533
2019—2023	89,586		2,696

Amounts recognized in 2013, 2012 and 2011 before related deferred income taxes in accumulated other comprehensive income consist of:



	Pension								Other Post-Retirement
(In Thousands)	2013		2012			2011			2013			2012			2011
Prior service cost (benefit)	$	270	$	(887	)	$	(1,890	)	$	—		$	—		$	—
Net actuarial (gain) loss	116,519		167,009			148,364			(1,773		)	(855		)	(1,401		)

As a result of the decrease in the discount rate and freezing all future service benefits for certain plan participants, pension expense is expected to be $7.5 million in 2014. The amounts before related deferred income taxes in accumulated other comprehensive income that are expected to be recognized as components of net periodic benefit or cost during 2014 are as follows:



(In Thousands)	Pension		Other Post- Retirement
Prior service cost (benefit)	$	183	$	—
Net actuarial (gain) loss	11,153		(307		)

The percentage composition of assets held by pension plans for continuing operations at December 31, 2013, 2012 and 2011 are as follows:



	% Composition of Plan Assets at December 31,
	2013		2012		2011
Pension plans related to continuing operations:
Fixed income securities	14.0	%	14.7	%	9.7	%
Large/mid-capitalization equity securities	13.8		10.9		15.9
Small-capitalization equity securities	4.8		5.4		6.2
International and emerging market equity securities	11.7		10.0		14.3
Total equity securities	30.3		26.3		36.4
Private equity and hedge funds	48.3		50.0		41.8
Other assets	7.4		9.0		12.1
Total for continuing operations	100.0	%	100.0	%	100.0	%

Our targeted allocation percentage for pension plan assets and the expected long-term rate of return on assets is as follows:



	Target % Composition of Plan Assets *		Expected Long-term Return %
Pension plans related to continuing operations:
Fixed income securities	32.0	%	5.5	%
Large/mid-capitalization equity securities	10.0		9.2
Small-capitalization equity securities	4.0		10.5
International and emerging market equity securities	13.0		10.3
Total equity securities	27.0		9.9
Private equity and hedge funds	41.0		8.1
Total for continuing operations	100.0	%	7.8	%


*	Target percentages for the composition of plan assets represents a neutral position within the approved range of allocations for such assets.

Expected long-term returns are estimated by asset class and generally are based on inflation-adjusted historical returns, volatilities, risk premiums and managed asset premiums. The portfolio of fixed income securities is structured with maturities that generally match estimated benefit payments over the next 1-2 years. Other assets are primarily comprised of cash and contracts with insurance companies. Our primary investment objective is to maximize total return with a strong emphasis on the preservation of capital. We believe that over the long term a diversified portfolio of fixed income securities, equity securities, hedge funds and private equity funds has a better risk-return profile than fixed income securities alone. The average remaining duration of benefit payments for our pension plans is about 11.4 years. We expect our required contributions to be approximately $0.2 million in 2014.

Estimates of the fair value of assets held by our pension plans are provided by third parties not affiliated with Tredegar. At December 31, 2013, the pension plan assets are categorized by level within the fair value measurement hierarchy as follows:



(In Thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Balances at December 31, 2013:
Large/mid-capitalization equity securities	$	32,134	$	32,134	$	—	$	—
Small-capitalization equity securities	11,063		11,063		—		—
International and emerging market equity securities	27,271		13,488		13,783		—
Fixed income securities	32,601		17,770		14,831		—
Private equity and hedge funds	112,345		—		103,531		8,814
Other assets	7,871		7,871		—		—
Total plan assets at fair value	$	223,285	$	82,326	$	132,145	$	8,814
Contracts with insurance companies	9,420
Total plan assets, December 31, 2013	$	232,705
Balances at December 31, 2012:
Large/mid-capitalization equity securities	$	23,845	$	23,845	$	—	$	—
Small-capitalization equity securities	11,914		11,914		—		—
International and emerging market equity securities	21,827		8,814		13,013		—
Fixed income securities	32,150		18,080		14,070		—
Private equity and hedge funds	109,690		—		101,334		8,356
Other assets	10,256		10,256		—		—
Total plan assets at fair value	$	209,682	$	72,909	$	128,417	$	8,356
Contracts with insurance companies	9,353
Total plan assets, December 31, 2012	$	219,035

For fair value measurements of plan assets using significant unobservable inputs (Level 3), a reconciliation of the balances from January 1, 2012 to December 31, 2013 are as follows:



(In Thousands)	Private equity and hedge funds
Balance at January 1, 2012	$	6,992
Purchases	3,767
Sales	—
Distributions	(2,094		)
Actual return on plan assets still held at year end	(309		)
Transfers in and/or out of Level 3	—
Balance at December 31, 2012	$	8,356
Purchases	2,864
Sales	—
Distributions	(2,567		)
Actual return on plan assets still held at year end	161
Transfers in and/or out of Level 3	—
Balance at December 31, 2013	$	8,814

We also have a non-qualified supplemental pension plan covering certain employees. Effective December 31, 2005, further participation in this plan was terminated and benefit accruals for existing participants were frozen. The plan was designed to restore all or a part of the pension benefits that would have been payable to designated participants from our principal pension plans if it were not for limitations imposed by income tax regulations. The projected benefit obligation relating to this unfunded plan was $2.4 million at December 31, 2013 and $2.8 million at December 31, 2012. Pension expense recognized for this plan was $0.1 million in 2013, $0.1 million in 2012 and $0.1 million in 2011. This information has been included in the preceding pension benefit tables.

Approximately 98 employees at our films manufacturing facility in Kerkrade, The Netherlands are covered by a collective bargaining agreement that includes participation in a multi-employer pension plan. Pension expense recognized for participation in this plan, which is equal to required contributions, was $0.5 million in 2013, $0.5 million in 2012 and $0.6 million in 2011. This information has been excluded from the preceding pension benefit tables.