Savings Plans, Pension Plans and Other Postretirement Employee Benefits | 12 Months Ended |
Dec. 31, 2013 |
General Discussion of Pension and Other Postretirement Benefits [Abstract] | ' |
Savings Plans, Pension Plans and Other Postretirement Employee Benefits | ' |
SAVINGS PLANS, PENSION PLANS AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS |
SAVINGS PLANS |
Substantially all of our employees are eligible to participate in 401(k) savings plans. In 2013, 2012 and 2011, we made matching 401(k) contributions on behalf of employees of $1.8 million, $1.6 million and $1.4 million, respectively. Effective January 1, 2011, we closed our defined benefit pension plans to any new salaried and hourly non-represented entrants. In connection with these closures, additional company 401(k) contributions are made for employees hired after that date. |
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS |
We also provide benefits under company-sponsored defined benefit retiree health care plans, which cover certain salaried and hourly employees. Most of the retiree health care plans require retiree contributions and contain other cost-sharing features. |
We recognize the underfunded status of our defined benefit pension plans and other postretirement employee benefit obligations on our Consolidated Balance Sheets. We recognize the changes in that funded status, in the year in which changes occur, through our Consolidated Statements of Comprehensive Income. |
We use a December 31 measurement date for our benefit plans and obligations. |
The change in benefit obligation, change in plan assets and funded status for company-sponsored benefit plans and obligations are as follows: |
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| PENSION PLANS | OTHER POSTRETIREMENT | | | | | | |
EMPLOYEE BENEFITS | | | | | | |
(Dollars in thousands) | 2013 | | 2012 | | 2013 | | 2012 | | | | | | | |
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Benefit obligation at beginning of year | $ | 445,535 | | $ | 418,251 | | $ | 52,033 | | $ | 65,195 | | | | | | | |
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Service cost | 5,318 | | 5,238 | | 94 | | 284 | | | | | | | |
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Interest cost | 17,826 | | 19,986 | | 1,810 | | 2,478 | | | | | | | |
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Plan amendments | — | | 510 | | — | | (6,045 | ) | | | | | | |
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Actuarial loss (gain) | (41,178 | ) | 38,329 | | (2,692 | ) | (4,878 | ) | | | | | | |
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Benefits paid | (33,936 | ) | (36,779 | ) | (3,902 | ) | (5,001 | ) | | | | | | |
Benefit obligation at end of year | 393,565 | | 445,535 | | 47,343 | | 52,033 | | | | | | | |
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Fair value of plan assets at beginning of year | 345,633 | | 312,158 | | — | | — | | | | | | | |
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Actual return on plan assets | 37,157 | | 46,905 | | — | | — | | | | | | | |
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Employer contributions and benefit payments | 1,734 | | 23,349 | | 3,902 | | 5,001 | | | | | | | |
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Benefits paid | (33,936 | ) | (36,779 | ) | (3,902 | ) | (5,001 | ) | | | | | | |
Fair value of plan assets at end of year | 350,588 | | 345,633 | | — | | — | | | | | | | |
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Amounts recognized in the consolidated balance sheets: | | | | | | | | | | |
Current liabilities | $ | (1,772 | ) | $ | (1,775 | ) | $ | (4,929 | ) | $ | (5,113 | ) | | | | | | |
Noncurrent liabilities | (41,205 | ) | (98,127 | ) | (42,414 | ) | (46,920 | ) | | | | | | |
Funded status | $ | (42,977 | ) | $ | (99,902 | ) | $ | (47,343 | ) | $ | (52,033 | ) | | | | | | |
Changes in actuarial assumptions, primarily the increase in the discount rate, used to calculate our pension liabilities resulted in an increase to the funded status of our pension plans at the end of 2013. |
Our company-sponsored pension plans were underfunded at December 31, 2013 and 2012. In 2012, we borrowed against our company owned life insurance plan, based on the cash surrender value that had accumulated over the years, to make a $21.6 million pension contribution. We contributed $9.3 million to our qualified salaried pension plan, $6.8 million to our qualified hourly plan and $5.5 million to our qualified non-represented pension plan, with $11.9 million being discretionary funding. We were not required to make contributions to our qualified defined benefit plans during 2013. |
The accumulated benefit obligation for all defined benefit pension plans was $387.4 million and $438.6 million at December 31, 2013 and 2012, respectively. |
PENSION ASSETS |
We utilize formal investment policy guidelines for our company-sponsored pension plan assets. These guidelines are periodically reviewed by the board of directors. The board of directors has delegated its authority to management to insure that the investment policy and guidelines are adhered to and the investment objectives are met. |
The general policy states that plan assets will 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 will maintain adequate liquidity for meeting expected benefit payments by reviewing, on a timely basis, contribution and benefit payment levels and appropriately revise 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 include the following: |
•Assets are diversified among various asset classes, such as domestic equities, global equities, fixed income, convertible securities and liquid reserves. The long-term asset allocation ranges are as follows: |
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| Domestic and international equities | 15 | % | - | 60% | | | | | | | | | | | | | |
| Fixed income securities | 35 | % | - | 60% | | | | | | | | | | | | | |
| Alternatives | 5 | % | - | 15% | | | | | | | | | | | | | |
| Cash | 0 | % | - | 5% | | | | | | | | | | | | | |
The ranges are more heavily weighted toward equities since the liabilities of the pension plans are long-term in nature and equities historically have significantly outperformed other asset classes over long periods of time. Periodic 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. |
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• | Assets are managed by professional investment managers and may be invested in separately managed accounts or commingled funds. Assets are diversified by selecting different investment managers for each asset class and by limiting assets under each manager to no more than 25% of the total pension fund. | | | | | | | | | | | | | | | | | |
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• | Assets are not invested in Potlatch stock. | | | | | | | | | | | | | | | | | |
The investment guidelines also provide that the individual investment managers are expected to achieve a reasonable rate of return over a market cycle. Emphasis will be placed on long-term performance versus short-term market aberrations. Factors to be considered in determining reasonable rates of return include performance achieved by a diverse cross section of other investment managers, performance of commonly used benchmarks (e.g., Russell 3000 Index, Barclays US Long Credit Index, Morgan Stanley Capital International All Country World Index ex US), actuarial assumptions for return on plan investments and specific performance guidelines given to individual investment managers. |
At December 31, 2013, 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 established by our investment policy. |
The weighted average asset allocations of the pension benefit plans’ assets at December 31 by asset category are as follows: |
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| PENSION PLANS | | | | | | | | | | | | | | |
ASSET CATEGORY | 2013 | | 2012 | | | | | | | | | | | | | | | |
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Domestic equity securities | 20 | % | 22 | % | | | | | | | | | | | | | | |
Debt securities | 38 | | 36 | | | | | | | | | | | | | | | |
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Global/international equity securities | 27 | | 28 | | | | | | | | | | | | | | | |
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Other | 15 | | 14 | | | | | | | | | | | | | | | |
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Total | 100 | % | 100 | % | | | | | | | | | | | | | | |
The pension assets are stated at fair value. Refer to Note 13. Financial Instruments and Concentration of Risk for discussion of the framework for measuring fair value. |
Following is a description of the valuation methodologies used for assets measured at fair value: |
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• | Corporate common and preferred stocks are valued at quoted market prices reported on the major securities markets, and are classified in Level 1. Investments in registered investment company funds for which market quotations are generally readily available are valued at the last reported sale price, official closing price or publicly available net asset value, or NAV, (or its equivalent) on the primary market or exchange on which they are traded, and are classified in Level 1. | | | | | | | | | | | | | | | | | |
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• | Investments in common and collective trust funds, hedge funds and liquidating trusts that maintain investments in mortgage-backed securities, are generally valued based on their respective NAV (or its equivalent), as a practical expedient to estimate fair value due to the absence of readily available market prices. Investments that may be fully redeemed at NAV in the near-term are generally classified in Level 2. | | | | | | | | | | | | | | | | | |
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• | Investments in funds that may not be fully redeemed at NAV in the near-term are generally classified in Level 3. | | | | | | | | | | | | | | | | | |
Fair Value Measurements at December 31, 2013: |
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(Dollars in thousands) | | | | | | | | | | |
ASSET CATEGORY | QUOTED PRICES IN | | SIGNIFICANT | | SIGNIFICANT | | TOTAL | | | | | | | |
ACTIVE MARKETS FOR | OBSERVABLE | UNOBSERVABLE | | | | | | |
IDENTICAL ASSETS | INPUTS | INPUTS | | | | | | |
(LEVEL 1) | (LEVEL 2) | (LEVEL 3) | | | | | | |
Cash and equivalents | $ | 9,673 | | $ | — | | $ | — | | $ | 9,673 | | | | | | | |
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Equity securities: | | | | | | | | | | |
U.S. large cap1 | 32,304 | | — | | — | | 32,304 | | | | | | | |
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U.S. small/mid cap2 | 19,053 | | — | | — | | 19,053 | | | | | | | |
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International companies | 34,773 | | — | | — | | 34,773 | | | | | | | |
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Mutual funds3 | 185,505 | | — | | — | | 185,505 | | | | | | | |
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Collective investments: | | | | | | | | | | |
Developed markets4 | — | | 17,401 | | — | | 17,401 | | | | | | | |
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Emerging markets5 | — | | 41,300 | | — | | 41,300 | | | | | | | |
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Hedge funds6 | — | | — | | 10,579 | | 10,579 | | | | | | | |
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Total | $ | 281,308 | | $ | 58,701 | | $ | 10,579 | | $ | 350,588 | | | | | | | |
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1 | These are managed investments in US large cap equities that track the Russell 1000 Value index. | | | | | | | | | | | | | | | | | |
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2 | These are managed investments in US small/mid cap equities that track the Russell 2500 Growth index. | | | | | | | | | | | | | | | | | |
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3 | The mutual funds were 50% invested in high-quality intermediate and long-term investment grade securities and 50% invested in a diversified portfolio of fixed-income instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts or swap agreements and debt securities. | | | | | | | | | | | | | | | | | |
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4 | These collective investments are invested in equity funds of developed markets outside of the US & Canada, that track the MSCI EAFE index. | | | | | | | | | | | | | | | | | |
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5 | These collective investments are invested in equity funds of emerging markets outside of the US & Canada, that track the MSCI Emerging Markets index. | | | | | | | | | | | | | | | | | |
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6 | The hedge funds are 37% invested in long/short and event-driven equity, 24% invested in long and short credit, 11% in relative value, 10% invested in distressed debt, 6% invested in convertible bond hedging, with the remaining 12% in other investments. | | | | | | | | | | | | | | | | | |
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Fair Value Measurements at December 31, 2012: |
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(Dollars in thousands) | | | | | | | | | | |
ASSET CATEGORY | QUOTED PRICES IN | | SIGNIFICANT | | SIGNIFICANT | | TOTAL | | | | | | | |
ACTIVE MARKETS FOR | OBSERVABLE | UNOBSERVABLE | | | | | | |
IDENTICAL ASSETS | INPUTS | INPUTS | | | | | | |
(LEVEL 1) | (LEVEL 2) | (LEVEL 3) | | | | | | |
Cash and equivalents | $ | 2,085 | | $ | — | | $ | — | | $ | 2,085 | | | | | | | |
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Equity securities: | | | | | | | | | | | |
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U.S. large cap1 | 35,099 | | — | | — | | 35,099 | | | | | | | |
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U.S. small/mid cap2 | 21,516 | | — | | — | | 21,516 | | | | | | | |
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International companies | 9,400 | | — | | — | | 9,400 | | | | | | | |
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Mutual funds3 | 124,453 | | — | | — | | 124,453 | | | | | | | |
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Collective investments: | | | | | | | | | | | |
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U.S. small/mid cap4 | — | | 19,803 | | — | | 19,803 | | | | | | | |
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Developed markets5 | — | | 47,916 | | — | | 47,916 | | | | | | | |
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Emerging markets6 | — | | 40,983 | | — | | 40,983 | | | | | | | |
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Hedge funds7 | — | | — | | 45,693 | | 45,693 | | | | | | | |
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Securities pledged to creditors: | | | | | | | | | | | |
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Money market8 | — | | 1,499 | | — | | 1,499 | | | | | | | |
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Mortgage-backed securities9 | — | | 1,992 | | — | | 1,992 | | | | | | | |
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Subtotal | 192,553 | | 112,193 | | 45,693 | | 350,439 | | | | | | | |
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Payable held under securities lending agreements10 | (4,806 | ) | — | | — | | (4,806 | ) | | | | | | |
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Total | $ | 187,747 | | $ | 112,193 | | $ | 45,693 | | $ | 345,633 | | | | | | | |
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1 | These are managed investments in US large cap equities that track the Russell 1000 Value index. | | | | | | | | | | | | | | | | | |
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2 | These are managed investments in US small/mid cap equities that track the Russell 2500 Growth index. | | | | | | | | | | | | | | | | | |
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3 | The mutual funds were 50% invested in high-quality intermediate and long-term investment grade securities and 50% invested in a diversified portfolio of fixed-income instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures contracts or swap agreements and debt securities. | | | | | | | | | | | | | | | | | |
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4 | These are managed investments in US small/mid cap equities that track the Russell 2500 Value index. | | | | | | | | | | | | | | | | | |
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5 | These collective investments are invested in equity funds of developed markets outside of the US & Canada, that track the MSCI EAFE index. | | | | | | | | | | | | | | | | | |
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6 | These collective investments are invested in equity funds of emerging markets outside of the US & Canada, that track the MSCI Emerging Markets index. | | | | | | | | | | | | | | | | | |
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7 | The hedge funds are 53% invested in long/short and event-driven equity, 11% invested in long and short credit, 14% in relative value, 5% invested in fixed income relative value, 4% invested in distressed debt, with the remaining 13% in other investments. | | | | | | | | | | | | | | | | | |
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8 | The money market holdings are invested in the Mount Vernon Securities Lending Trust Prime Portfolio. | | | | | | | | | | | | | | | | | |
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9 | The mortgage-backed securities are maintained in the U.S. Bank Illiquid Securities Liquidating Trust. | | | | | | | | | | | | | | | | | |
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10 | This category represents a payable under the securities lending agreements. | | | | | | | | | | | | | | | | | |
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The following table sets forth a summary of changes in the fair value of the plans’ Level 3 assets for the years ended December 31: |
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| Hedge Funds | | | | | | | | | | | | |
(Dollars in thousands) | 2013 | | 2012 | | | | | | | | | | | | | |
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Balance, beginning of year | $ | 45,693 | | $ | 42,940 | | | | | | | | | | | | | |
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Sales and settlements | (34,500 | ) | — | | | | | | | | | | | | | |
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Unrealized gains (losses) relating to assets still held at the reporting date | (614 | ) | 2,753 | | | | | | | | | | | | | |
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Balance, end of year | $ | 10,579 | | $ | 45,693 | | | | | | | | | | | | | |
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PLAN ACTIVITY |
Pre-tax components of net periodic cost (benefit) recognized in our Consolidated Statements of Income were as follows: |
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| PENSION PLANS | OTHER POSTRETIREMENT |
EMPLOYEE BENEFITS |
(Dollars in thousands) | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | |
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Service cost | $ | 5,318 | | $ | 5,238 | | $ | 4,456 | | $ | 94 | | $ | 284 | | $ | 446 | |
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Interest cost | 17,826 | | 19,986 | | 21,325 | | 1,810 | | 2,478 | | 3,486 | |
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Expected return on plan assets | (26,092 | ) | (28,755 | ) | (31,804 | ) | — | | — | | — | |
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Curtailment credit | — | | — | | — | | — | | (103 | ) | — | |
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Amortization of prior service cost (credit) | 779 | | 770 | | 684 | | (9,708 | ) | (9,343 | ) | (8,536 | ) |
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Amortization of actuarial loss | 19,929 | | 15,356 | | 9,916 | | 3,209 | | 3,127 | | 3,967 | |
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Net periodic cost (benefit) | $ | 17,760 | | $ | 12,595 | | $ | 4,577 | | $ | (4,595 | ) | $ | (3,557 | ) | $ | (637 | ) |
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Other amounts recognized in our Consolidated Statements of Comprehensive Income were as follows: |
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| PENSION PLANS | OTHER POSTRETIREMENT |
EMPLOYEE BENEFITS |
(Dollars in thousands) | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | |
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Net amount at beginning of year | $ | 161,667 | | $ | 158,883 | | $ | 130,445 | | $ | (20,769 | ) | $ | (18,001 | ) | $ | (16,690 | ) |
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Amounts arising during the period: | | | | | | |
Net loss (gain) | (52,242 | ) | 20,180 | | 57,220 | | (2,692 | ) | (4,878 | ) | (913 | ) |
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Prior service cost (credit) | — | | 510 | | — | | — | | (5,942 | ) | (5,805 | ) |
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Taxes | 20,374 | | (8,069 | ) | (22,316 | ) | 1,050 | | 4,260 | | 2,620 | |
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Net amount arising during the period | (31,868 | ) | 12,621 | | 34,904 | | (1,642 | ) | (6,560 | ) | (4,098 | ) |
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Amounts reclassified during the period: | | | | | | |
Amortization of prior service (cost) credit | (779 | ) | (770 | ) | (684 | ) | 9,708 | | 9,343 | | 8,536 | |
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Amortization of actuarial loss | (19,929 | ) | (15,356 | ) | (9,916 | ) | (3,209 | ) | (3,127 | ) | (3,967 | ) |
Taxes | 8,076 | | 6,289 | | 4,134 | | (2,535 | ) | (2,424 | ) | (1,782 | ) |
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Net reclassifications during the period | (12,632 | ) | (9,837 | ) | (6,466 | ) | 3,964 | | 3,792 | | 2,787 | |
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Net amount at end of year | $ | 117,167 | | $ | 161,667 | | $ | 158,883 | | $ | (18,447 | ) | $ | (20,769 | ) | $ | (18,001 | ) |
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Amounts recognized in accumulated other comprehensive loss on our Consolidated Balance Sheets, net of tax, consist of: |
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| PENSION PLANS | OTHER POSTRETIREMENT | | | | | | |
EMPLOYEE BENEFITS | | | | | | |
(Dollars in thousands) | 2013 | | 2012 | | 2013 | | 2012 | | | | | | | |
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Net loss | $ | 115,404 | | $ | 159,429 | | $ | 16,490 | | $ | 20,090 | | | | | | | |
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Prior service cost (credit) | 1,763 | | 2,238 | | (34,937 | ) | (40,859 | ) | | | | | | |
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Net amount recognized | $ | 117,167 | | $ | 161,667 | | $ | (18,447 | ) | $ | (20,769 | ) | | | | | | |
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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 benefit cost over the next fiscal year are $14.5 million and $0.7 million, respectively. The estimated net loss and prior service credit for OPEB obligations that will be amortized from accumulated other comprehensive loss into net periodic benefit over the next fiscal year are $2.7 million and $9.6 million, respectively. |
EXPECTED FUNDING AND BENEFIT PAYMENTS |
We are required to make a minimum contribution of approximately $1.7 million to our qualified pension plan in 2014. Our non-qualified pension plan is unfunded and benefit payments are paid from our general assets. We estimate approximately $1.8 million in supplemental pension plan payments in 2014. |
Our other postretirement employee benefit plans are unfunded and benefit payments are paid from our general assets they come due. Estimated future benefit payments represent benefit costs incurred during the year by eligible participants. |
Estimated future benefit payments, which reflect expected future service are as follows for the years indicated: |
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(Dollars in thousands) | PENSION PLANS | | OTHER POSTRETIREMENT | | | | | | | | | | | | | |
EMPLOYEE BENEFITS | | | | | | | | | | | | |
2014 | $ | 30,033 | | $ | 4,929 | | | | | | | | | | | | | |
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2015 | | 29,836 | | | 4,835 | | | | | | | | | | | | | |
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2016 | | 29,566 | | | 4,699 | | | | | | | | | | | | | |
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2017 | | 29,287 | | | 4,490 | | | | | | | | | | | | | |
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2018 | | 29,064 | | | 4,248 | | | | | | | | | | | | | |
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2019 – 2022 | | 143,152 | | | 17,734 | | | | | | | | | | | | | |
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ACTUARIAL ASSUMPTIONS |
The weighted average assumptions used to determine the benefit obligation as of December 31 were: |
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| PENSION PLANS | OTHER POSTRETIREMENT | | | | | | |
EMPLOYEE BENEFITS | | | | | | |
| 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | | | | | | | |
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Discount rate | 5.1 | % | 4.15 | % | 4.95 | % | 4.45 | % | 3.7 | % | 4.85 | % | | | | | | |
Rate of salaried compensation increase | 3 | % | 3.5 | % | 3.5 | % | — | | — | | — | | | | | | | |
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The weighted average assumptions used to determine the net periodic benefit (cost) for the years ended December 31 were: |
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| PENSION PLANS | OTHER POSTRETIREMENT | | | | | | |
EMPLOYEE BENEFITS | | | | | | |
| 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 | | | | | | | |
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Discount rate | 4.15 | % | 4.95 | % | 5.65 | % | 3.7 | % | 4.85 | % | 5.4 | % | | | | | | |
Expected return on plan assets | 8 | % | 8 | % | 8.5 | % | — | | — | | — | | | | | | | |
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Rate of salaried compensation increase | 3.5 | % | 3.5 | % | 4 | % | — | | — | | — | | | | | | | |
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The discount rate used in the determination of pension and other postretirement employee benefit obligations in 2013 and 2012 was calculated using hypothetical bond portfolios consisting of “AA” or better rated securities that match the expected monthly benefit payments under our pension plans and other postretirement employee benefit obligations. The portfolios were well-diversified over corporate industrial, corporate financial, municipal, federal and foreign government issuers. |
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 expected rate of return assumption that will be used to determine net periodic cost for 2014 is 7.5%. |
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The assumed health care cost trend rate used to calculate other postretirement employee benefit obligations as of December 31, 2013 was 7.7% for a certain group of participants under age 65 in our hourly plan and our Arkansas participants covered by a collective bargaining agreement, grading ratably to an assumption of 5.0% in 2083. The level of subsidy is frozen for our salaried and non-represented plans and a certain group of participants over age 65 in our hourly plan, so that all future increments in health care costs are borne by the retirees. |
A one percentage point change in the health care cost trend rates would have the following effects on our December 31, 2013 Consolidated Financial Statements: |
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(Dollars in thousands) | 1% INCREASE | | 1% DECREASE | | | | | | | | | | | | | |
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Effect on total service and interest cost components | $ | 33 | | $ | (29 | ) | | | | | | | | | | | | |
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Effect on accumulated postretirement benefit obligation | 519 | | (475 | ) | | | | | | | | | | | | |
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