13. Pensions and Other Employee Benefits

Pensions

We maintain qualified pension and supplemental retirement plans. These plans are defined benefit pension plans, and members may contribute to the pension plan in order to receive enhanced benefits. Employees hired after June 30, 2006 do not participate in the defined benefit pension plans, but participate in our defined contribution savings plan with an additional Company contribution. Benefits are based primarily on members' compensation and/or years of service. Our funding policy is to fund the pension plan in accordance with the Internal Revenue Code and regulations thereon and to fund the supplemental retirement plans on a discretionary basis. Plan assets are generally invested in equity investments and fixed income investments. Pension plan assets are managed primarily by Russell Investment Corp. ("Russell"), which allocates the assets into funds as we direct.

Other Benefits

In addition to providing pension benefits, we provide certain health care and life insurance benefits for retired employees and dependents. Participants are eligible for these benefits generally when they retire from active service and meet the eligibility requirements for our pension plans. These benefits are funded primarily on a pay-as-you-go basis, with the retiree generally paying a portion of the cost through contributions, deductibles and coinsurance provisions.

Funded Status

The following tables provide a reconciliation of the changes in the plans' benefit obligations and fair value of assets for 2011 and 2010, and a statement of the funded status as of December 31, 2011 and 2010, respectively. We use a December 31 measurement date for the pension plans and other post retirement benefit plans.

		September 30,			September 30,			September 30,			September 30,
	Pension Benefits						Other Benefits
	Year Ended December 31,						Year Ended December 31,
	2011			2010			2011			2010
	(In thousands)						(In thousands)
Reconciliation of benefit obligation
Obligation at beginning of period	$	476,031		$	420,076		$	62,840		$	67,392
Service cost		12,265			10,677			522			672
Interest cost		25,504			24,673			3,198			3,411
Participant contributions		1,469			1,507			2,014			1,968
Plan amendment		—			—			—			(1,386	)
Actuarial loss (gain)		57,824			41,826			1,755			(5,085	)
Benefit payments		(24,080	)		(22,728	)		(4,280	)		(4,132	)

Obligation at December 31,		549,013			476,031			66,049			62,840

Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of period		289,036			256,166			269			507
Actual return on plan assets		(2,453	)		28,133			(2	)		2
Employer contributions		34,110			24,932			2,026			1,924
Participant contributions		1,469			1,507			2,014			1,968
Benefit payments		(22,870	)		(21,702	)		(4,280	)		(4,132	)

Fair value of plan assets at December 31,		299,292			289,036			27			269

Funded status at end of period	$	(249,721	)	$	(186,995	)	$	(66,022	)	$	(62,571	)

The benefit obligations for pensions and other employee benefits exceeded the fair value of plan assets by $315.7 million at December 31, 2011 (the "unfunded benefit obligations"). The unfunded benefit obligations were measured using a discount rate of 4.75% and 5.5% at December 31, 2011 and 2010, respectively. Lowering the discount rate by 0.5% would have increased the unfunded benefit obligations by approximately $36.5 million and $31.6 million as of December 31, 2011 and 2010, respectively. Market conditions and interest rates will significantly affect future assets and liabilities of Loral's pension and other employee benefits plans.

The pre-tax amounts recognized in accumulated other comprehensive loss as of December 31, 2011 and 2010 consist of (in thousands):

		September 30,			September 30,			September 30,		September 30,
	Pension Benefits December 31,						Other Benefits December 31,
	2011			2010			2011		2010
Actuarial (loss) gain	$	(187,275	)	$	(108,826	)	$	9,578	$	12,402
Amendments-prior service credit		19,954			22,673			2,416		3,144

	$	(167,321	)	$	(86,153	)	$	11,994	$	15,546

The amounts recognized in other comprehensive loss during the year ended December 31, 2011 consist of (in thousands):

		September 30,			September 30,
	Pension Benefits			Other Benefits
Actuarial loss during the period	$	(83,828	)	$	(1,768	)
Amortization of actuarial loss (gain)		5,379			(1,056	)
Amortization of prior service credit		(2,719	)		(728	)

Total recognized in other comprehensive loss	$	(81,168	)	$	(3,552	)

Amounts recognized in the balance sheet consist of (in thousands):

		September 30,		September 30,		September 30,		September 30,
	Pension Benefits				Other Benefits
	December 31,				December 31,
	2011		2010		2011		2010
Current Liabilities	$	971	$	1,223	$	3,499	$	3,526
Long-Term Liabilities		248,750		185,772		62,523		59,045

	$	249,721	$	186,995	$	66,022	$	62,571

The estimated actuarial loss and prior service credit for the pension benefits that will be amortized from accumulated other comprehensive income into net periodic cost over the next fiscal year is $11.9 million and $2.7 million, respectively. The estimated actuarial gain and prior service credit for other benefits that will be amortized from accumulated other comprehensive income into net periodic cost over the next fiscal year is $0.4 million and $0.7 million, respectively.

The accumulated pension benefit obligation was $530.0 million and $464.2 million at December 31, 2011 and 2010, respectively.

During 2011, we contributed $34.1 million to the qualified pension plan and $2.0 million for other employee post-retirement benefit plans. In addition, we made benefit payments relating to the supplemental retirement plan of $1.2 million. During 2012, based on current estimates, we expect to contribute approximately $41 million to the qualified pension plan and expect to fund approximately $3 million for other employee post-retirement benefit plans.

The following table provides the components of net periodic cost for the plans for the years ended December 31, 2011, 2010 and 2009 (in thousands):

		September 30,			September 30,			September 30,			September 30,			September 30,			September 30,
	Pension Benefits									Other Benefits
	For the Year Ended December 31,									For the Year Ended December 31,
	2011			2010			2009			2011			2010			2009
Service cost	$	12,265		$	10,677		$	9,436		$	522		$	672		$	863
Interest cost		25,504			24,673			24,447			3,198			3,411			3,965
Expected return on plan assets		(23,552	)		(20,641	)		(17,176	)		(12	)		(31	)		(50	)
Amortization of prior service credit		(2,719	)		(2,719	)		(2,719	)		(728	)		(728	)		(481	)
Amortization of net actuarial loss (gain)		5,379			3,536			4,083			(1,056	)		(1,118	)		(471	)

Net periodic cost	$	16,877		$	15,526		$	18,071		$	1,924		$	2,206		$	3,826

Assumptions

Assumptions used to determine net periodic cost:

		September 30,			September 30,			September 30,
	For the Year Ended December 31,
	2011			2010			2009
Discount rate		5.50	%		6.00	%		6.50	%
Expected return on plan assets		8.00	%		8.00	%		8.00	%
Rate of compensation increase		4.25	%		4.25	%		4.25	%

Assumptions used to determine the benefit obligation:

		September 30,			September 30,			September 30,
	December 31,
	2011			2010			2009
Discount rate		4.75	%		5.50	%		6.00	%
Rate of compensation increase		4.25	%		4.25	%		4.25	%

The expected long-term rate of return on pension plan assets is selected by taking into account the expected duration of the projected benefit obligation for the plans, the asset mix of the plans and the fact that the plan assets are actively managed to mitigate risk. The expected long-term rate of return on plan assets determined on this basis was 8.0% for the years ended December 31, 2011, 2010 and 2009. Our expected long-term rate of return on plan assets for 2012 is 8.0%.

Actuarial assumptions to determine the benefit obligation for other benefits as of December 31, 2011 used a health care cost trend rate of 9.0% decreasing gradually to 5% by 2019. Actuarial assumptions to determine the benefit obligation for other benefits as of December 31, 2010, used a health care cost trend rate of 9.0% decreasing gradually to 5% by 2018. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health care cost trend rates for 2011 would have the following effects (in thousands):

		September 30,		September 30,
	1% Increase		1% Decrease
Effect on total of service and interest cost components of net periodic postretirement health care benefit cost	$	276	$	(224	)
Effect on the health care component of the accumulated postretirement benefit obligation	$	5,310	$	(4,490	)

Plan Assets

The Company has established the pension plan as a retirement vehicle for participants and as a funding vehicle to secure promised benefits. The investment goal is to provide a total return that over time will earn a rate of return to satisfy the benefit obligations given investment risk levels, contribution amounts and expenses. The pension plan invests in compliance with the Employee Retirement Income Security Act 1974, as amended ("ERISA"), and any subsequent applicable regulations and laws.

The Company has adopted an investment policy for the management and oversight of the pension plan. It sets forth the objectives for the pension plans, the strategies to achieve these objectives, procedures for monitoring and control and the delegation of responsibilities for the oversight and management of pension plan assets.

The Company's Board of Directors has delegated primary fiduciary responsibility for pension assets to an investment committee. In carrying out its responsibilities, the investment committee establishes investment policy, makes asset allocation decisions, determines asset class strategies and retains investment managers to implement asset allocation and asset class strategy decisions. It is responsible for the investment policy and may amend such policy from time to time.

Pension plan assets are invested in various asset classes in what we believe is a prudent manner for the exclusive purpose of providing benefits to participants. U.S. equities are held for their long-term expected return premium over fixed income investments and inflation. Non-U.S. equities are held for their expected return premium (along with U.S. equities), as well as diversification relative to U.S. equities and other asset classes. Fixed income investments are held for diversification relative to equities. Alternative investments are held for both diversification and higher returns than those typically available in traditional asset classes. Asset allocation policy is reviewed regularly.

Asset allocation policy is the principal method for achieving the pension plans' investment objectives stated above. Asset allocation policy is reviewed regularly by the investment committee. The pension plans' actual and targeted asset allocations are as follows:

		September 30,			September 30,			September 30,			September 30,
	December 31,
	Actual Allocation						Target Allocation
	2011			2010			Target			Target Range
Equities		58	%		61	%		60	%		50-65	%
Fixed Income		42	%		39	%		40	%		35-50	%

		100	%		100	%		100	%		100	%

The target and target range levels can be further defined as follows:

		September 30,			September 30,
	Target Allocation
	Target			Target Range
U.S. Large Cap Equities		25	%		15-40	%
U.S. Small Cap Equities		5	%		0-10	%
Global Equities		10	%		5-20	%
Non-U.S. Equities		10	%		5-20	%
Alternative Equity Investments		10	%		0-20	%

Total Equities		60	%		50-70	%


Fixed Income		30	%		20-40	%
Alternative Fixed Income Investments		10	%		0-20	%

Total Fixed Income		40	%		30-50	%


Total Target Allocation		100	%		100	%

The pension plan's assets are actively managed using a multi-asset, multi-style, multi-manager investment approach. Portfolio risk is controlled through this diversification process and monitoring of money managers. Consideration of such factors as differing rates of return, volatility and correlation are utilized in the asset and manager selection process. Diversification reduces the impact of losses in single investments. Performance results and fund accounting are provided to the Company by Russell on a monthly basis. Periodic reviews of the portfolio are performed by the investment committee with Russell. These reviews typically consist of a market and economic review, a performance review, an allocation review and a strategy review. Performance is judged by investment type against market indexes. Allocation adjustments or fund changes may occur after these reviews. Performance is reported to the Company's Board of Directors at quarterly board meetings.

Fair Value Measurements

The values of the fund trusts are calculated using systems and procedures widely used across the investment industry. Generally, investments are valued based on information in financial publications of general circulation, statistical and valuation services, discounted cash flow methodology, records of security exchanges, appraisal by qualified persons, transactions and bona fide offers.

The tables below provides the fair values of the Company's pension plan assets at December 31, 2011 and 2010, by asset category. The table also identifies the level of inputs used to determine the fair value of assets in each category. The Company's pension plan assets are mainly held in commingled employee benefit fund trusts.

		September 30,		September 30,			September 30,		September 30,		September 30,
	Fair Value Measurements
Asset Category	Total		Percentage			Quoted Prices In Active Markets For Identical Assets Level 1		Significant Observable Inputs Level 2		Significant Unobservable Inputs Level 3
	(In thousands)

At December 31, 2011:
Equity securities:
U.S. large-cap⁽¹⁾	$	60,813		20	%			$	60,813
U.S. small-cap⁽²⁾		18,010		6	%	$	3,901		14,109
Global ⁽³⁾		20,273		7	%				20,273
Non-U.S.⁽⁴⁾		33,781		11	%		1,037		32,744
Alternative investments:
Equity long/short fund⁽⁵⁾		16,509		6	%				5,952	$	10,557
Real Estate Securities fund⁽⁶⁾		17,689		6	%				5,854		11,835
Private equity fund⁽⁷⁾		6,870		2	%				—		6,870

		173,945		58	%		4,938		139,745		29,262


Fixed income securities:
Commingled funds⁽⁸⁾		100,178		33	%				100,178
Alternative investments:
Distressed opportunity limited partnership⁽⁹⁾		5,217		2	%						5,217
Multi-strategy limited partnerships⁽¹⁰⁾		19,916		7	%		—		—		19,916
Diversified alternatives fund⁽¹¹⁾		—		—							—
Other limited partnerships⁽¹²⁾		36		—			—		—		36

		125,347		42	%		—		100,178		25,169


	$	299,292		100	%	$	4,938	$	239,923	$	54,431


At December 31, 2010:
Equity securities:
U.S. large-cap⁽¹⁾	$	86,866		30	%			$	86,866
U.S. small-cap⁽²⁾		16,002		6	%	$	3,783		12,219
Non-U.S.⁽⁴⁾		53,101		18	%		1,249		51,852
Alternative investments:
Equity long/short fund⁽⁵⁾		11,993		4	%				6,111	$	5,882
Private equity fund⁽⁷⁾		6,934		2	%						6,934

		174,896		61	%		5,032		157,048		12,816


Fixed income securities:
Commingled funds⁽⁸⁾		110,152		38	%				110,152
Alternative investments:
Distressed opportunity limited partnership⁽⁹⁾		3,598		1	%						3,598
Diversified alternatives fund⁽¹¹⁾		353		0	%						353
Other limited partnerships⁽¹²⁾		37		0	%						37

		114,140		39	%				110,152		3,988


	$	289,036		100	%	$	5,032	$	267,200	$	16,804

⁽¹⁾	Investments in common stocks that rank among the largest 1,000 companies in the U.S. stock market.

⁽²⁾	Investments in common stocks that rank among the small capitalization stocks in the U.S. stock market.

⁽³⁾	Investments in common stocks across the world without being limited by national borders or to specific regions.

⁽⁴⁾	Investments in common stocks of companies from developed and emerging countries outside the United States.

⁽⁵⁾

Investments primarily in long and short positions in equity securities of U.S. and non-U.S. companies. We are invested in two funds; one fund has semi-annual tender offer redemption periods on June 30 and December 31and is reported on a one month lag. The other fund has no limitations on redemptions and is reported on a current basis.

⁽⁶⁾

Investments in real estate through both the private and public sector. The pension plan is invested in two funds of funds. One fund invests in global public real estate securities (REITs) while the second fund invests in private real estate investments. The private real estate fund is valued on a quarterly lag.

⁽⁷⁾

Fund invests in portfolios of secondary interest in established venture capital, buyout, mezzanine and special situation funds on a global basis. The pension plan committed to invest up to $10 million in this fund. The remaining outstanding commitment at December 31, 2011 is $1.55 million. The amount invested in the fund, net of distributions, is $6.45 million and $7.30 million at December 31, 2011 and 2010, respectively. Fund is valued on a quarterly lag with adjustment for subsequent cash activity.

⁽⁸⁾	Investments in bonds representing many sectors of the broad bond market with both short-term and intermediate-term maturities.

⁽⁹⁾

Investments mainly in discounted debt securities, bank loans, trade claims and other debt and equity securities of financially troubled companies. This partnership has a one year lock-up period with semi-annual withdrawal rights on June 30 and December 31 thereafter. As of December 31, 2011, $2 million was subject to the lock-up period which will expire in June 2012. This fund is reported on a one month lag.

⁽¹⁰⁾

Investments mainly in partnerships that have multi-strategy investment programs and do not rely on a single investment model. In 2011, the pension plan invested in two limited partnerships that have multi-strategy investment programs. One partnership has quarterly liquidation rights with notice of 65 days while the second partnership has monthly liquidation rights with notice of 33 days. Both funds are reported on a one month lag.

⁽¹¹⁾	Fund is a fund of hedge funds. Fund was closed and unwound its holdings. At December 31, 2010, the remaining assets were sold with the cash proceeds received in 2011.

⁽¹²⁾	The pension plan invested in other partnerships that have reached their end of life and have closed and are unwinding their holdings. Mainly partnerships that provided mezzanine financing.

The significant amount of Level 2 investments in the table results from including in this category investments in commingled funds that contain investments with values based on quoted market prices, but for which the funds are not valued on a quoted market basis. These commingled funds are valued at their net asset values (NAVs) that are calculated by the investment manager or sponsor. Equity investments in both U.S and non-U.S. stocks as well as public real estate investment trusts are primarily valued using a market approach based on the quoted market prices of identical securities. Fixed income investments are primarily valued using a market approach with inputs that include broker quotes, benchmark yields, base spreads and reported trades.

Additional information pertaining to the changes in the fair value of the pension plan assets classified as Level 3 for the years ended December 31, 2011 and 2010 is presented below:


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Private Equity Fund			Equity Long/Short Fund			Distressed Opportunity Ltd. Partnership			Diversified Alternatives Fund			Other Limited Partnership			Multi Strategy Funds			Real Estate Fund		Total
	(In thousands)
Balance at January 1, 2010	$	6,245		$	5,468		$	3,204		$	3,135		$	218		$	—		$	—	$	18,270
Unrealized gain/(loss)		339			414			394			(884	)		(66	)		—			—		197
Realized gain/(loss)		—			—			—			(697	)		233			—			—		(464	)
Purchases		1,300			—			—			—			35			—			—		1,335
Sales		(950	)		—			—			(1,201	)		(383	)		—			—		(2,534	)

Balance at December 31, 2010	$	6,934		$	5,882		$	3,598		$	353		$	37		$	—		$	—	$	16,804
Unrealized gain/(loss)		786			(325	)		(381	)		2,521			(1	)		(84	)		335		2,851
Realized gain/(loss)		—			—			—			(2,527	)		—			—			—		(2,527	)
Purchases		200			5,000			2,000			—			—			20,000			11,500		38,700
Sales		(1,050	)		—			—			(347	)		—			—			—		(1,397	)

Balance at December 31, 2011	$	6,870		$	10,557		$	5,217		$	—		$	36		$	19,916		$	11,835	$	54,431

Both the Equity Long/Short Fund and the Distressed Opportunity Limited Partnership are valued at each month-end based upon quoted market prices by the investment managers. They are included in Level 3 due to their restrictions on redemption to semi-annual periods on June 30 and December 31.

The Multi-Strategy Funds invest in various underlying securities. Each fund's net asset value is calculated by the fund manager and is not publicly available. The fund managers accumulate all the underlying security values and use them in determining the funds' net asset values.

During 2011, the pension plan received the cash proceeds from its the investment balance in the Diversified Alternatives Fund that was closed and liquidating its remaining assets at December 31, 2010.

The private equity fund and limited partnership valuations are primarily based on cost/price of recent investments, earnings/performance multiples, net assets, discounted cash flows, comparable transactions and industry benchmarks.

The real estate fund is a fund of funds. The fund records its investments at acquisition cost and the value is adjusted quarterly to reflect the fund's share of income, appreciation or depreciation and additional contributions to or withdrawals from the underlying funds. The underlying funds' real estate investments are independently appraised at least once per year and debt is marked to market on a quarterly basis.

The annual audited financial statements of all funds are reviewed by the Company.

Assets designated to fund the obligations of our supplemental retirement plan are held in a trust. Such assets amounting to $0.8 million and $2.1 million as of December 31, 2011 and 2010, respectively, are available to general creditors in the event of bankruptcy and, therefore, do not qualify as plan assets. Accordingly, other current assets included $0.8 million of these assets as of December 31, 2011 and 2010, respectively, and other assets included nil and $1.3 million of these assets as of December 31, 2011 and 2010, respectively.

Benefit Payments

The following benefit payments, which reflect future services, as appropriate, are expected to be paid (in thousands):

		September 30,		September 30,		September 30,
			Other Benefits
	Pension Benefits		Gross Benefit Payments		Medicare Subsidy Receipts
2012		27,281		3,873		265
2013		27,952		4,131		278
2014		28,959		4,383		293
2015		29,671		4,551		310
2016		30,426		4,682		321
2017 to 2021		170,801		24,487		1,773

Employee Savings (401k) Plan

We have an employee savings (401k) plan, to which the Company provides contributions which match up to 6% of a participant's base salary at a rate of 66²/₃%, and retirement contributions. Retirement contributions represent contributions made by the Company to provide added retirement benefits to employees hired on or after July 1, 2006, as they are not eligible to participate in our defined benefit pension plan. Retirement contributions are provided regardless of an employee's contribution to the savings (401k) plan. Matching contributions and retirement contributions are collectively known as Company contributions. Company contributions are made in cash and placed in each participant's age appropriate "life cycle" fund. For the years ended December 2011, 2010 and 2009, Company contributions were $11.5 million, $10.0 million and $8.7 million, respectively. Participants of the savings (401k) plan are able to redirect Company contributions to any available fund within the plan. Participants are also able to direct their contributions to any available fund.