PENSION AND OTHER POSTRETIREMENT BENEFITS

12 Months Ended

Dec. 31, 2011

PENSION AND OTHER POSTRETIREMENT BENEFITS

PENSION AND OTHER POSTRETIREMENT BENEFITS

15. PENSION AND OTHER POSTRETIREMENT BENEFITS

        The Company has two domestic defined benefit pension plans and two plans providing for other postretirement benefits, including medical and life insurance coverage. One of the pension plans and one of the other postretirement benefits plans cover eligible U.S. nonunion employees while the other pension plan and other postretirement benefits plan cover eligible U.S. union employees. According to applicable accounting guidance, the Company uses a December 31 measurement date for both of these plans.

        Both the pension plans and the other postretirement benefit plans were modified during the year ended December 31, 2011. Participants who had 70 or greater points (age plus completed years of service) could elect to stay in the pension and accrue additional benefits or receive the Company's enhanced 401K match which was reinstated as of January 1, 2012. Those with less than 70 points were removed from the pension plan and will not accrue any additional benefits after December 31, 2011. The Company's other postretirement benefit plans are in the process of being eliminated. As a result of this modification, the Company recorded a $5.4 million gain during the year ended December 31, 2011.

        The year-end status of these plans was as follows (in thousands):

	Pension Benefits						Other Benefits
	2011			2010			2011			2010
Change in projected benefit obligation:
Projected benefit obligation at January 1	$	196,820		$	178,857		$	26,783		$	25,087
Service cost		10,634			10,401			476			452
Interest cost		11,211			10,811			1,114			1,481
Participant contributions		137			280			(12,218	)		565
Actuarial loss (gain)		23,180			130			(2,939	)		1,450
Benefits paid		(4,179	)		(3,272	)		699			(1,879	)
Liability gain due to Curtailment		(5,361	)		(387	)		(2,030	)		(373	)
Projected benefit obligation at December 31	$	232,442		$	196,820		$	11,885		$	26,783
Accumulated benefit obligation, December 31	$	226,051		$	184,933		$	—		$	—
Change in plan assets:
Fair value of plan assets at January 1	$	152,015		$	128,331		$	—		$	—
Actual return on plan assets		1,277			16,676			—			—
Employer contributions		9,981			10,000			1,331			1,314
Participant contributions		137			280			699			565
Benefits paid		(4,179	)		(3,272	)		(2,030	)		(1,879	)
Fair value of plan assets at December 31	$	159,231		$	152,015		$	—		$	—
Funded status	$	(73,211	)	$	(44,805	)	$	(11,885	)	$	(26,783	)

        Weighted-average assumptions used (as of the end of the year) in computing the benefit obligation as of December 31, 2011 and 2010 were as follows:

	Pension Benefits						Other Benefits
	2011			2010			2011			2010
Discount rate		5.15	%		5.75	%		3.40 - 5.05	%		4.65 - 5.85	%
Expected return on plan assets		7.10			8.20			N/A			N/A
Rate of compensation increase		2.50			2.50			N/A			N/A

        The following table presents the Company's pension plan investments measured at fair value as of December 31, 2011 and 2010 (in thousands).

	Level 1		Level 2		Level 3		Total
Equity Securities
U.S. equity securities	$	79,773		—		—	$	79,773
Non-U.S. equity securities		14,282		—		—		14,282
Debt Securities
Fixed income funds and cash investment funds		65,176		—		—		65,176
December 31, 2011	$	159,231		—		—	$	159,231

	Level 1		Level 2		Level 3		Total
Equity Securities
U.S. equity securities	$	83,050		—		—	$	83,050
Non-U.S. equity securities		14,561		—		—		14,561
Debt Securities
Fixed income funds and cash investment funds		54,404		—		—		54,404
December 31, 2010	$	152,015		—		—	$	152,015

        See Note 21 of the consolidated financial statements for the description of the levels of the fair value hierarchy.

	Pension Benefits						Other Benefits
	2011			2010			2011			2010
	(in thousands)						(in thousands)
Amounts recognized in the consolidated balance sheet consist of:
Current liabilities	$	(16,875	)	$	(10,675	)	$	(1,229	)	$	(1,494	)
Noncurrent liabilities		(56,336	)		(34,130	)		(10,656	)		(25,289	)
Net amount recognized	$	(73,211	)	$	(44,805	)	$	(11,885	)	$	(26,783	)

	Pension Benefits				Other Benefits
	2011		2010		2011			2010
	(in thousands)				(in thousands)
Amounts recognized in accumulated other comprehensive income before taxes:
Net actuarial loss	$	61,918	$	34,363	$	4,539		$	8,360
Prior service cost (benefit)		39		140		(11,793	)		(6,843	)
Net amount recognized	$	61,957	$	34,503	$	(7,254	)	$	1,517

        The following table sets forth other changes in the benefit obligation recognized in other comprehensive income for the Company's pension and other postretirement benefits plans (in thousands):

	Pension Benefits						Other Benefits
	2011			2010			2011			2010
Net actuarial (gain)/loss	$	29,546		$	(5,262	)	$	(2,939	)	$	1,450
Prior service cost/(credit)		—			—			(12,218	)		—
Amortization of:
Prior service cost/(credit)		(101	)		(61	)		7,268			1,169
Actuarial (gain)/loss		(1,996	)		(1,058	)		(882	)		(553	)
Total recognized in OCI	$	27,449		$	(6,381	)	$	(8,771	)	$	2,066

        The estimated net actuarial loss, and prior service cost, for the defined benefit pension plans included in accumulated other comprehensive income and expected to be recognized in net periodic pension cost during the fiscal year ended December 31, 2012 is $4,109,000 and $14,000 respectively.

        The following table sets forth the components of the net periodic benefit cost for the Company's pension and other postretirement benefits plans (in thousands):

	Pension Benefits									Other Benefits
	2011			2010			2009			2011			2010			2009
Service cost	$	10,634		$	10,401		$	10,053		$	476		$	452		$	429
Interest cost		11,211			10,811			9,981			1,114			1,481			1,477
Expected return on plan assets		(13,008	)		(11,671	)		(10,644	)		—			—			—
Amortization of prior service cost		32			61			74			(1,754	)		(1,205	)		(1,295	)
Recognized actuarial loss		1,996			1,058			351			882			553			542
Curtailment (benefit) expense	$	69			—			27		$	(5,514	)	$	(338	)		(1,090	)
Net periodic benefit cost	$	10,934		$	10,660		$	9,842		$	(4,796	)	$	943		$	63

        Weighted-average assumptions used (as of the beginning of the year) to determine net periodic benefit cost for the years ended December 31, 2011, 2010 and 2009 were as follows:

	Pension Benefits									Other Benefits
	2011			2010			2009			2011			2010			2009
Discount rate		4.95 - 5.75	%		6.10	%		6.50	%		3.50 - 4.65	%		6.10	%		6.50	%
Expected return on plan assets		8.20			8.15			8.25			N/A			N/A			N/A
Rate of compensation increase		2.50			4.00			4.00			N/A			N/A			N/A

        The expected long-term rate of return on assets is based on management's expectations of long-term average rates of return to be earned on the investment portfolio. In establishing this assumption, management considers historical and expected returns for the asset classes in which the plan assets are invested.

        For purposes of measuring the benefit obligation associated with the Company's other postretirement benefit plans as of December 31, 2011, as well as the assumed rate for 2012, an 8.50% annual rate of increase in the per capita cost of covered health care benefits was assumed (both medical and prescription drug). The rate was then assumed to decrease to an ultimate rate of 5% for 2019 and thereafter. For purposes of measuring the net periodic benefit cost for 2011 associated with the Company's other postretirement benefits plans, an 8.00% annual rate of increase in the per capita cost of covered medical benefits was assumed and an 8.50% annual rate of increase in the per capita cost of covered prescription drug benefits was assumed. Increasing the assumed health care cost trend rate by 1.0% would increase the benefit obligation as of December 31, 2011 by $347,000 and increase the aggregate of the service and interest cost components of net periodic benefit cost for 2011 by $32,000. Decreasing the assumed health care cost trend rate by 1.0% would decrease the benefit obligation as of December 31, 2011 by $343,000 and decrease the aggregate of the service and interest cost components of net periodic benefit cost for 2011 by $34,000.

        The Company's pension plans' weighted-average asset allocations as of December 31, 2011 and 2010, by asset category were as follows:

	Plan Assets at December 31
Asset Category	2011			2010
Temporary Investment Funds		4	%		2	%
Equity Investment Funds		59			64
Fixed Income Funds		37			34
Total		100	%		100	%

        The Company's pension plans' investment policy includes an asset mix based on the Company's risk posture. The investment policy states a target allocation of 60% equity funds and 40% fixed income funds. Inclusion of the fixed income funds is to provide growth through income and these funds should primarily invest in fixed income instruments of the U.S. Treasury and government agencies and investment-grade corporate bonds. The equity fund investments can consist of a broadly diversified domestic equity fund, an actively managed domestic equity fund and an actively managed international equity fund. The purpose of these funds is to provide the opportunity for capital appreciation, income, and the ability to diversify investments outside the U.S. equity market. Mutual funds are used as the plans' investment vehicle since they have clearly stated investment objectives and guidelines, offer a high degree of investment flexibility, offer competitive long-term results, and are cost effective for small asset balances.

        The Company expects to contribute $16,875,000 to its pension plans and approximately $1,229,000 to its other postretirement benefit plans in 2012. Estimated future benefit payments under our pension and other postretirement plans are as follows:

	Pension Benefits		Other Benefits
	(in thousands)
2012	$	5,111	$	1,229
2013		6,035		1,245
2014		7,025		1,317
2015		8,164		1,316
2016		9,313		1,149
2017 - 2021		67,557		4,077

        Employees of the Canadian, Belgium and United Kingdom operations participate in defined contribution pension plans sponsored by the Company. The Company's expense related to these plans for 2011, 2010, and 2009 was $1,152,000, $1,142,000, and $1,041,000 respectively.

        The Company also sponsors a 401(k) retirement savings plan for all U.S. employees. Under this plan, participants may defer a portion of their earnings up to the annual contribution limits established by the Internal Revenue Service. For associates who do not participate in the Company's pension plans, the plan allows for the Company to make a fixed matching contribution of 50.0% of participant contributions up to the first 6.0% of compensation for both nonunion and union employees; however, matching contributions were suspended in 2011 and 2010.The fixed matched was reinstated beginning January 1, 2012. For participants who are union or nonunion employees, the plan also provides for a discretionary employer contribution based on the Company's profits, as determined by our board of directors. In addition, the plan also provides for an additional employer contribution for individuals who are nearing retirement age. The plan also provides that the Company may make discretionary contributions of common stock to participant accounts on behalf of all actively employed U.S. participants. Company contributions generally vest ratably over a five-year period. A Knoll common stock fund consisting of 1,000,000 shares of common stock into which participants may invest the compensation they elect to defer was established on December 14, 2004. Participant contributions into the Knoll common stock fund are generally limited to no more than 10% of their total account balance in the plan. Participant contributions in the Knoll common stock fund may be transferred into other investment alternatives or distributed in the form of shares of Knoll common stock if so invested at the time of distribution.

        In 2011 and 2010, the Company did not match any 401(k) contributions. The Company's total expense under the 401(k) plan was $3,257,000 for 2009.