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. With the exception of plan participants at one 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 2016 and 2015, and reconcile the funded status to prepaid or accrued cost at December 31, 2016 and 2015:



	Pension Benefits						Other Post- Retirement Benefits
(In Thousands)	2016			2015			2016			2015
Change in benefit obligation:
Benefit obligation, beginning of year	$	303,852		$	325,426		$	7,745		$	8,372
Service cost	231			530			38			44
Interest cost	13,323			13,217			337			325
Effect of actuarial (gains) losses related to the following:
Discount rate change	9,296			(14,687		)	210			(356		)
Retirement rate assumptions and mortality table adjustments	(5,537		)	(5,456		)	(433		)	32
Other	(3,025		)	(746		)	(131		)	(332		)
Plan participant contributions	—			—			634			625
Benefits paid	(15,014		)	(14,432		)	(964		)	(965		)
Benefit obligation, end of year	$	303,126		$	303,852		$	7,436		$	7,745
Change in plan assets:
Plan assets at fair value, beginning of year	$	210,642		$	229,017		$	—		$	—
Actual return on plan assets	11,199			(6,311		)	—			—
Employer contributions	7,732			2,368			330			340
Plan participant contributions	—			—			634			625
Benefits paid	(15,014		)	(14,432		)	(964		)	(965		)
Plan assets at fair value, end of year	$	214,559		$	210,642		$	—		$	—
Funded status of the plans	$	(88,567	)	$	(93,210	)	$	(7,436	)	$	(7,745	)
Amounts recognized in the consolidated balance sheets:
Accrued expenses (current)	$	182		$	210		$	453		$	455
Other noncurrent liabilities	88,385			93,000			6,983			7,290
Net amount recognized	$	88,567		$	93,210		$	7,436		$	7,745

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)	2016			2015			2014			2016			2015			2014
Weighted-average assumptions used to determine benefit obligations:
Discount rate	4.29		%	4.55		%	4.17		%	4.24		%	4.49		%	4.11		%
Expected long-term return on plan assets	6.50		%	7.00		%	7.50		%	n/a			n/a			n/a
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate	4.55		%	4.17		%	4.99		%	4.49		%	4.11		%	4.88		%
Expected long-term return on plan assets	7.00		%	7.50		%	7.75		%	n/a			n/a			n/a
Components of net periodic benefit cost:
Service cost	$	231		$	530		$	869		$	38		$	44		$	43
Interest cost	13,323			13,217			13,397			337			325			387
Expected return on plan assets	(15,980		)	(17,636		)	(18,301		)	—			—			—
Amortization of prior service costs and gains or losses	13,312			16,190			10,688			(214		)	(194		)	(190		)
Settlement/curtailment	—			45			81			—			—			—
Net periodic benefit cost	$	10,886		$	12,346		$	6,734		$	161		$	175		$	240

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, 2016, 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 2021-2025 are as follows:



(In Thousands)	Pension Benefits		Other Post- Retirement Benefits
2017	$	16,165	$	453
2018	16,568		456
2019	17,076		460
2020	17,537		462
2021	17,860		465
2022—2026	92,955		2,322

Amounts recorded in 2016, 2015 and 2014 in accumulated other comprehensive income, before related deferred income taxes, consist of:



	Pension						Other Post-Retirement
(In Thousands)	2016		2015		2014		2016			2015			2014
Prior service cost (benefit)	$	10	$	18	$	87	$	—		$	—		$	—
Net actuarial (gain) loss	145,782		153,570		166,678		(1,756		)	(1,616		)	(1,154		)

Pension expense is expected to be $10.4 million in 2017. The amounts in accumulated other comprehensive income, before related deferred income taxes, that are expected to be recognized as components of net periodic benefit or cost during 2017 are as follows:



(In Thousands)	Pension		Other Post- Retirement
Prior service cost (benefit)	$	5	$	—
Net actuarial (gain) loss	12,329		(245		)

The percentage composition of assets held by pension plans for continuing operations at December 31, 2016, 2015 and 2014 are as follows:



	% Composition of Plan Assets at December 31,
	2016		2015		2014
Pension plans related to continuing operations:
Fixed income securities	8.0	%	12.8	%	14.5	%
Large/mid-capitalization equity securities	14.7		13.8		13.7
Small-capitalization equity securities	5.3		4.0		4.3
International and emerging market equity securities	11.5		10.9		11.0
Total equity securities	31.5		28.7		29.0
Private equity and hedge funds	48.4		52.4		51.2
Other assets	12.1		6.1		5.3
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, 2016, are as follows:



	Target % Composition of Plan Assets *		Expected Long-term Return %
Pension plans related to continuing operations:
Fixed income securities	22.0	%	3.8	%
Large/mid-capitalization equity securities	14.0		8.4
Small-capitalization equity securities	5.0		9.5
International and emerging market equity securities	13.0		8.6
Total equity securities	32.0		8.7
Private equity and hedge funds	46.0		6.3
Total for continuing operations	100.0	%	6.5	%
* 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. The other assets category is 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 11.4 years. The Company expects its required contributions to be approximately $5.5 million in 2017.

Estimates of the fair value of assets held by the Company’s pension plan are provided by unaffiliated third parties. Investments in private equity and hedge funds and certain fixed income securities by the Company’s pension plan are measured at NAV, which is a practical expedient for measuring fair value. These assets are therefore excluded from the fair value hierarchy for each of the years presented. At December 31, 2016 and 2015, 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, 2016
Large/mid-capitalization equity securities	$	31,549	$	31,549	$	—	$	—
Small-capitalization equity securities	11,389		11,389		—		—
International and emerging market equity securities	24,710		11,410		13,300		—
Fixed income securities	17,213		4,441		12,772		—
Other assets	15,853		15,853		—		—
Total plan assets at fair value	$	100,714	$	74,642	$	26,072	$	—
Private equity and hedge funds	103,686
Contracts with insurance companies	10,158
Total plan assets, December 31, 2016	$	214,558
Balances at December 31, 2015
Large/mid-capitalization equity securities	$	29,027	$	29,027	$	—	$	—
Small-capitalization equity securities	8,457		8,457		—		—
International and emerging market equity securities	23,054		10,126		12,928		—
Fixed income securities	22,968		10,626		12,342		—
Other assets	2,727		2,727		—		—
Total plan assets at fair value	$	86,233	$	60,963	$	25,270	$	—
Private equity and hedge funds	110,340
Contracts with insurance companies	10,207
Fixed income securities	3,862
Total plan assets, December 31, 2015	$	210,642

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 $2.2 million at December 31, 2016 and $2.3 million at December 31, 2015. Pension expense recognized for this plan was $0.1 million in 2016, $0.1 million in 2015 and $0.1 million in 2014. This information has been included in the preceding pension benefit tables.

Approximately 78 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 $0.4 million in 2016, $0.4 million in 2015 and $0.5 million in 2014. This information has been excluded from the preceding pension benefit tables.