RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS

Tredegar sponsors noncontributory defined benefit (pension) plans covering certain current and former 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 pay for active participants of the plan was frozen as of December 31, 2007. Beginning in 2014, with the exception of plan participants at two of the Company’s U.S. manufacturing facilities, the plan no longer accrues benefits associated with crediting employees for service, thereby freezing all future benefits under the plan.

In addition to providing pension benefits, the Company provides 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. The Company eliminated prescription drug coverage for Medicare-eligible retirees as of January 1, 2006. Consequently, Tredegar is not eligible for any federal subsidies.

The following tables reconcile the changes in benefit obligations and plan assets in 2014 and 2013, and reconcile the funded status to prepaid or accrued cost at December 31, 2014 and 2013:



	Pension Benefits						Other Post- Retirement Benefits
(In Thousands)	2014			2013			2014			2013
Change in benefit obligation:
Benefit obligation, beginning of year	$	275,166		$	302,285		$	7,858		$	8,879
Service cost	869			3,754			43			58
Interest cost	13,397			12,338			387			345
Effect of actuarial (gains) losses related to the following:
Discount rate change	32,089			(26,848		)	732			(746		)
Retirement rate assumptions and mortality table adjustments	17,331			(144		)	(131		)	—
Retiree medical participation rate change	—			—			(390		)	—
Other	490			(3,058		)	218			(382		)
Plan participant contributions	—			—			681			683
Benefits paid	(13,916		)	(13,161		)	(1,026		)	(979		)
Benefit obligation, end of year	$	325,426		$	275,166		$	8,372		$	7,858
Change in plan assets:
Plan assets at fair value, beginning of year	$	232,705		$	219,035		$	—		$	—
Actual return on plan assets	7,466			21,657			—			—
Employer contributions	2,762			5,174			345			296
Plan participant contributions	—			—			681			683
Benefits paid	(13,916		)	(13,161		)	(1,026		)	(979		)
Plan assets at fair value, end of year	$	229,017		$	232,705		$	—		$	—
Funded status of the plans	$	(96,409	)	$	(42,461	)	$	(8,372	)	$	(7,858	)
Amounts recognized in the consolidated balance sheets:
Accrued expenses (current)	$	130		$	—		$	456		$	—
Other noncurrent liabilities	96,279			42,461			7,916			7,858
Net amount recognized	$	96,409		$	42,461		$	8,372		$	7,858

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)	2014			2013			2012			2014			2013			2012
Weighted-average assumptions used to determine benefit obligations:
Discount rate	4.17		%	4.99		%	4.21		%	4.11		%	4.88		%	4.10		%
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate	4.99		%	4.21		%	4.95		%	4.88		%	4.10		%	4.90		%
Expected long-term return on plan assets	7.75		%	7.75		%	8.00		%	n/a			n/a			n/a
Components of net periodic benefit cost:
Service cost	$	869		$	3,754		$	3,657		$	43		$	58		$	58
Interest cost	13,397			12,338			13,084			387			345			385
Expected return on plan assets	(18,301		)	(17,430		)	(19,108		)	—			—			—
Amortization of prior service costs and gains or losses	10,688			15,028			10,377			(190		)	(210		)	(241		)
Settlement/curtailment	81			28			99			—			—			—
Net periodic benefit cost	$	6,734		$	13,718		$	8,109		$	240		$	193		$	202

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. The amount of the accumulated benefit obligation is the same as the projected benefit obligation. At December 31, 2014, the effect of a 1% change in the health care cost trend rate assumptions would not impact the post-retirement obligation.

Expected benefit payments for continuing operations over the next five years and in the aggregate for 2020-2024 are as follows:



(In Thousands)	Pension Benefits		Other Post- Retirement Benefits
2015	$	15,282	$	456
2016	15,932		471
2017	16,527		480
2018	17,004		489
2019	17,555		494
2020—2024	93,535		2,511

Amounts recognized in 2014, 2013 and 2012 before related deferred income taxes in accumulated other comprehensive income consist of:



	Pension							Other Post-Retirement
(In Thousands)	2014		2013		2012			2014			2013			2012
Prior service cost (benefit)	$	87	$	270	$	(887	)	$	—		$	—		$	—
Net actuarial (gain) loss	166,678		116,519		167,009			(1,154		)	(1,773		)	(855		)

Pension expense is expected to be $12.3 million in 2015 as the unfavorable impact of the decrease in the discount rate and change to the mortality rate are partially offset by the freezing all future service benefits for certain plan participants. 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 2015 are as follows:



(In Thousands)	Pension		Other Post- Retirement
Prior service cost (benefit)	$	24	$	—
Net actuarial (gain) loss	16,107		(160		)

The percentage composition of assets held by pension plans for continuing operations at December 31, 2014, 2013 and 2012 are as follows:



	% Composition of Plan Assets at December 31,
	2014		2013		2012
Pension plans related to continuing operations:
Fixed income securities	14.5	%	14.0	%	14.7	%
Large/mid-capitalization equity securities	13.7		13.8		10.9
Small-capitalization equity securities	4.3		4.8		5.4
International and emerging market equity securities	11.0		11.7		10.0
Total equity securities	29.0		30.3		26.3
Private equity and hedge funds	51.2		48.3		50.0
Other assets	5.3		7.4		9.0
Total for continuing operations	100.0	%	100.0	%	100.0	%

Tredegar’s targeted allocation percentage for pension plan assets and the expected long-term rate of return on assets used to determine its benefit obligation at December 31, 2014 are 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		8.8
Small-capitalization equity securities	4.0		9.9
International and emerging market equity securities	13.0		9.8
Total equity securities	27.0		9.4
Private equity and hedge funds	41.0		7.8
Total for continuing operations	100.0	%	7.5	%


*	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. The Company’s primary investment objective is to maximize total return with a strong emphasis on the preservation of capital, and it believes 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 the pension plans is about 12.7 years. The Company expects its required contributions to be approximately $2.4 million in 2015.

Estimates of the fair value of assets held by the Company’s pension plans are provided by third parties not affiliated with Tredegar. At December 31, 2014 and 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, 2014:
Large/mid-capitalization equity securities	$	31,401	$	31,401	$	—	$	—
Small-capitalization equity securities	9,827		9,827		—		—
International and emerging market equity securities	25,224		11,471		13,753		—
Fixed income securities	33,281		12,661		20,620		—
Private equity and hedge funds	117,276		—		106,201		11,075
Other assets	1,741		1,741		—		—
Total plan assets at fair value	$	218,750	$	67,101	$	140,574	$	11,075
Contracts with insurance companies	10,267
Total plan assets, December 31, 2014	$	229,017
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

For fair value measurements of plan assets using significant unobservable inputs (Level 3), a reconciliation of the balances from January 1, 2013 to December 31, 2014 are as follows:



(In Thousands)	Private equity and hedge funds
Balance at January 1, 2013	$	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
Purchases	4,142
Sales	—
Distributions	(2,088		)
Actual return on plan assets still held at year end	207
Transfers in and/or out of Level 3	—
Balance at December 31, 2014	$	11,075

Tredegar also has 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 the 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, 2014 and $2.4 million at December 31, 2013. Pension expense recognized for this plan was $0.1 million in 2014, $0.1 million in 2013 and $0.1 million in 2012. This information has been included in the preceding pension benefit tables.

Approximately 81 employees at the Company’s film products 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 2014, $0.5 million in 2013 and $0.5 million in 2012. This information has been excluded from the preceding pension benefit tables.