EMPLOYEE BENEFITS

We offer various benefits to our employees including a noncontributory defined benefit pension plan, an employee/retiree health and dental benefit plan, a profit-sharing plan and an employee stock ownership plan.

Pension and Postretirement Benefit Plans

We offer a noncontributory defined benefit pension plan in which all of our employees are eligible to participate after they have completed one year of service, attained 21 years of age and have met the hourly service requirements. Retirement benefits under our pension plan are based on the number of years of service and level of compensation. Our policy to fund the pension plan on a current basis to not less than the minimum amounts required by the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended, is to assure that plan assets will be adequate to provide retirement benefits. We estimate that we will contribute approximately $6,352 to the pension plan in 2015.

We also offer a health and dental benefit plan to all of our eligible employees and retirees that consists of two programs: (1) the self-funded employee health and dental benefit plan and (2) the self-funded (pre-65) and fully-funded (post-65) retiree health and dental benefit plan (the "postretirement benefit plan"). The postretirement benefit plan provides health and dental benefits to our retirees (and covered dependents) who have met the service and participation requirements stipulated by the postretirement benefit plan. The third party administrators for the postretirement benefit plan are responsible for making medical and dental care benefit payments. Participants are required to submit claims for reimbursement or payment to the claims administrator within twelve months after the end of the calendar year in which the charges were incurred. An unfunded benefit obligation is reported for the postretirement benefit plan in the accompanying Consolidated Balance Sheets.

Investment Policies and Strategies

Our investment policy and objective for the pension plan is to generate long-term capital growth and income, by way of a diversified investment portfolio along with appropriate employer contributions, which will allow us to provide for the pension plan's benefit obligation.

The investments held by the pension plan at December 31, 2014 include the following asset categories:


•	Fixed income securities, which may include bonds, and convertible securities;


•	Equity securities, which may include various types of stock, such as large-cap, mid-cap, small-cap, and international stocks;


•	Pooled separate accounts includes two separate funds, a bond and mortgage separate account and a real estate separate account;


•	An arbitrage fund, which is a fund that takes advantage of price discrepancies, primarily equity securities, for the same asset in different markets;


•	A group annuity contract that is administered by United Life, a subsidiary of United Fire; and


•	Cash and cash equivalents, which include money market funds.

We have an internal investment/retirement committee, which includes our Chief Executive Officer, Chief Investment Officer, and Chief Operating Officer, all of whom receive monthly information on the value of the pension plan assets and their performance. Quarterly, the committee meets to review and discuss the performance of the pension plan assets as well as the allocation of investments within the pension plan.

As of December 31, 2014, we had six external investment managers that are allowed to exercise investment discretion, subject to limitations, if any, established by the investment/retirement committee. We utilize multiple investment managers in order to maximize the pension plan's investment return while mitigating risk. None of our investment managers uses leverage in managing the pension plan. Annually, the investment/retirement committee meets with each investment manager to review the investment manager's goals, objectives and the performance of the assets they manage. The decision to establish or terminate a relationship with an investment manager is at the discretion of our investment/retirement committee.

We consider historical experience for comparable investments and the target allocations we have established for the various asset categories of the pension plan to determine the expected long-term rate of return, which is an assumption as to the average rate of earnings expected on the pension plan funds invested, or to be invested, by the pension plan, to provide for the settlement of benefits included in the projected pension benefit obligation. Investment securities, in general, are exposed to various risks, such as fluctuating interest rates, credit standing of the issuer of the security and overall market volatility. Annually, we perform an analysis of expected long-term rates of return based on the composition and allocation of our pension plan assets and recent economic conditions.

The following is a summary of the pension plan's actual and target asset allocations at December 31, 2014 and 2013 by asset category:



									Target
Pension Plan Assets	2014		% of Total		2013		% of Total		Allocation
Fixed maturity securities - corporate bonds	$	9,035	8.8	%	$	4,489	4.9	%	0	%	-	15	%
Redeemable preferred stock	2,254		2.2		1,381		1.5		0	%	-	10	%
Equity securities⁽¹⁾	58,223		56.6		39,481		42.8		50	%	-	70	%
Pooled separate accounts
Bond and mortgage separate account fund	6,417		6.3		5,657		6.1		0	%	-	40	%
U.S. property separate account fund	9,895		9.6		8,763		9.5		0	%	-	25	%
Arbitrage fund	7,637		7.4		5,516		6.0		0	%	-	10	%
United Life annuity	8,506		8.3		8,101		8.8		5	%	-	10	%
Cash and cash equivalents⁽¹⁾	833		0.8		18,831		20.4		0	%	-	10	%
Total plan assets	$	102,800	100.0	%	$	92,219	100.0	%

(1) Cash and cash equivalents balance as a percent of total plan assets exceeded the target allocation in 2013 as we were in the process of reducing the number of external investment managers and moving funds between managers in early 2014.

The investment return expectations for the pension plan are used to develop the asset allocation based on the specific needs of the pension plan. Accordingly, equity securities comprise the largest portion of our pension plan assets, as they yield the highest rate of return. The United Life annuity, which is the fourth largest asset category and was originally written by our life insurance subsidiary in 1976, provides a guaranteed rate of return. The interest rate on the group annuity contract is determined annually.

The availability of assets held in cash and cash equivalents enables the pension plan to mitigate market risk that is associated with other types of investments and allows the pension plan to maintain liquidity both for the purpose of making future benefit payments to participants and their beneficiaries and for future investment opportunities.

Valuation of Investments

Fixed Maturity and Equity Securities

Investments in fixed maturity and equity securities are stated at fair value based upon quoted market prices reported on recognized securities exchanges on the last business day of the year. Purchases and sales of securities are recorded as of the trade date.

Pooled Separate Accounts

The pension plan invested in two pooled separate account funds in 2013, a bond and mortgage separate account fund and a U.S. property separate account fund. Investments in the bond and mortgage separate account fund are stated at fair value as provided by the administrator of the fund based on the fair value of the underlying assets owned by the fund. The fair value measurement is classified within Level 2 of the fair value hierarchy. The fair value of the investments in the U.S. property separate account fund is provided by the administrator of the fund based on the net asset value of the fund. The net asset value is based on the fair value of the underlying properties included in the fund. The fair value measurement is classified within Level 3 of the fair value hierarchy. We have not adjusted the net asset value provided by the custodian.

Arbitrage Fund

The fair value of the arbitrage fund is determined based on its net asset value, which is obtained from the custodian and determined monthly with issuances and redemptions of units of the fund made, based on the net asset value per unit as determined on the valuation date. We have not adjusted the net asset value provided by the custodian.

United Life Annuity

The United Life group annuity contract, which is a deposit administration contract, is stated at contract value as determined by United Life. Under the group annuity contract, the plan's investment account is credited with compound interest on the average account balance for the year. The interest rate is equivalent to the ratio of net investment income to mean assets of United Life, net of investment expenses.

Cash and Cash Equivalents

Cash and cash equivalents primarily consist of insured cash and money market funds held with various financial institutions. Interest is earned on a daily basis. The fair value of these funds approximates their cost basis due to their short-term nature.

Fair Value Measurement

The following tables present the categorization of the pension plan's assets measured at fair value on a recurring basis at December 31, 2014 and 2013:



			Fair Value Measurements
Description	December 31, 2014		Level 1		Level 2		Level 3
Fixed maturity securities - corporate bonds	$	9,035	$	—	$	9,035	$	—
Redeemable preferred stock	2,254		2,254		—		—
Equity securities	58,223		58,223		—		—
Pooled separate accounts
Bond and mortgage separate account fund	6,417		—		6,417		—
U.S. property separate account fund	9,895		—		—		9,895
Arbitrage fund	7,637		—		7,637		—
Money market funds	826		826		—		—
Total assets measured at fair value	$	94,287	$	61,303	$	23,089	$	9,895



			Fair Value Measurements
Description	December 31, 2013		Level 1		Level 2		Level 3
Fixed maturity securities - corporate bonds	$	4,489	$	—	$	4,489	$	—
Redeemable preferred stock	1,381		1,381		—		—
Equity securities	39,481		39,481		—		—
Pooled separate accounts
Bond and mortgage separate account fund	5,657		—		5,657		—
U.S. property separate account fund	8,763		—		—		8,763
Arbitrage fund	5,516		—		5,516		—
Money market funds	17,323		17,323		—		—
Total assets measured at fair value	$	82,610	$	58,185	$	15,662	$	8,763

There were no transfers of assets in or out of Level 1 or Level 2 during the period.

The fair value of investments categorized as Level 1 is based on quoted market prices that are readily and regularly available.

The fair value of fixed maturity securities categorized as Level 2 is determined by management based on fair value information reported in the custodial statements, which is derived from recent trading activity of the underlying security in the financial markets. These securities represent various taxable bonds held by the pension plan.

The fair value of the arbitrage fund and bond and mortgage pooled separate account fund are categorized as Level 2 since there are no restrictions as to the pension plan's ability to redeem its investment at the net asset value of the fund as of the reporting date.

The following tables provide a summary of the changes in fair value of the pension plan's Level 3 securities:



	U.S. property separate account fund
Balance at January 1, 2014	$	8,763
Unrealized gains	1,132
Balance at December 31, 2014	$	9,895



	U.S. property separate account fund
Balance at January 1, 2013	$	—
Unrealized gains	763
Purchases	8,000
Balance at December 31, 2013	$	8,763

Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires us to make various estimates and assumptions that affect the reporting of net periodic benefit cost, plan assets and plan obligations for each plan at the date of the financial statements. Actual results could differ from these estimates. One significant estimate relates to the calculation of the benefit obligation for each plan. We annually establish the discount rate, which is an estimate of the interest rate at which these benefits could be effectively settled, that is used to determine the present value of the respective plan's benefit obligations as of December 31. In estimating the discount rate, we look to rates of return on high-quality, fixed-income investments currently available and expected to be available during the period to maturity of the respective plan's benefit obligations.

In October 2014, the Society of Actuaries finalized a new mortality table and a new mortality improvement scale. These updated tables reflect improved life expectancies and an expectation that the trend will continue. We have reviewed these updated tables and have updated the mortality assumptions based on this information and also based on research provided by our external actuaries. We will continue to monitor mortality assumptions and make changes as appropriate to reflect additional research and our resulting best estimate of future mortality rates.

Assumptions Used to Determine Benefit Obligations

The following actuarial assumptions were used to determine the reported plan benefit obligations at December 31:



Weighted-average assumptions as of	Pension Benefits				Postretirement Benefits
December 31,	2014		2013		2014		2013
Discount rate	3.86	%	4.84	%	3.86	%	4.84	%
Rate of compensation increase	3.00		3.50		N/A		N/A

Decreasing interest rates resulted in a significant decrease in the discount rates we use to value our respective plan's benefit obligations at December 31, 2014 compared to December 31, 2013. As a result, the valuation of the benefit obligations has increased, which has decreased the funded status of those plans as disclosed later in this section.

Assumptions Used to Determine Net Periodic Benefit Cost

The following actuarial assumptions were used at January 1 to determine our reported net periodic benefit costs for the year ended December 31:



Weighted-average assumptions as of	Pension Benefits						Postretirement Benefits
January 1,	2014		2013		2012		2014		2013		2012
Discount rate	4.84	%	4.00	%	4.50	%	4.84	%	4.00	%	4.50	%
Expected long-term rate of return on plan assets	7.50		7.50		8.00		N/A		N/A		N/A
Rate of compensation increase	3.50		3.50		3.75		N/A		N/A		N/A

Assumed Health Care Cost Trend Rates



	Health Care Benefits				Dental Claims
Years Ended December 31,	2014		2013		2014		2013
Health care cost trend rates assumed for next year	7.00	%	7.00	%	4.00	%	4.00	%
Rate to which the health care trend rate is assumed to decline (ultimate trend rate)	4.50	%	4.50	%	N/A		N/A
Year that the rate reaches the ultimate trend rate	2023		2019		N/A		N/A

Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement benefit plan. A 1.0 percent change in assumed health care cost trend rates would have the following effects:



	1% Increase		1% Decrease
Effect on the net periodic postretirement health care benefit cost	$	1,983	$	(1,533	)
Effect on the accumulated postretirement benefit obligation	14,637		(11,650		)

Benefit Obligation and Funded Status

The following table provides a reconciliation of benefit obligations, plan assets and funded status of our plans:



	Pension Benefits						Postretirement Benefits
Years Ended December 31,	2014			2013			2014			2013
Reconciliation of benefit obligation
Benefit obligation at beginning of year	$	123,352		$	131,382		$	48,954		$	44,395
Service cost	5,210			6,300			3,696			3,875
Interest cost	5,874			5,175			2,342			1,759
Actuarial (gain) loss	26,590			(15,161		)	19,832			(1,449		)
Benefit payments and adjustments	(3,426		)	(4,344		)	(272		)	374
Benefit obligation at end of year ⁽¹⁾	$	157,600		$	123,352		$	74,552		$	48,954
Reconciliation of fair value of plan assets
Fair value of plan assets at beginning of year	$	92,219		$	75,276		$	—		$	—
Actual return on plan assets	6,591			14,287			—			—
Employer contributions	7,416			7,000			(272		)	374
Benefit payments and adjustments	(3,426		)	(4,344		)	272			(374		)
Fair value of plan assets at end of year	$	102,800		$	92,219		$	—		$	—
Funded status at end of year	$	(54,800	)	$	(31,133	)	$	(74,552	)	$	(48,954	)


(1)	For the pension plan, the benefit obligation is the projected benefit obligation. For the postretirement benefit plan, the benefit obligation is the accumulated postretirement benefit obligation.

Our accumulated pension benefit obligation was $138,180 and $106,207 at December 31, 2014 and 2013, respectively.

The following table displays the effect that the unrecognized prior service cost and unrecognized actuarial loss of our plans had on accumulated other comprehensive income ("AOCI"), as reported in the accompanying Consolidated Balance Sheets:



	Pension Benefits				Postretirement Benefits
Years Ended December 31	2014		2013		2014		2013
Amounts recognized in AOCI
Unrecognized prior service cost	$	—	$	—	$	—	$	—
Unrecognized actuarial loss	56,943		32,162		32,979		13,147
Total amounts recognized in AOCI	$	56,943	$	32,162	$	32,979	$	13,147

We anticipate amortization of the net actuarial losses for our pension plan in 2015 to be $4,546. We anticipate amortization of the net actuarial losses for our postretirement benefit plan in 2015 to be $2,920.

Net Periodic Benefit Cost

The components of the net periodic benefit cost for our pension and postretirement benefit plans are as follows:



	Pension Plan									Postretirement Benefit Plan
Years Ended December 31,	2014			2013			2012			2014		2013		2012

Net periodic benefit cost
Service cost	$	5,210		$	6,300		$	5,129		$	3,696	$	3,875	$	3,010
Interest cost	5,874			5,175			5,049			2,342		1,759		1,695
Expected return on plan assets	(6,956		)	(5,772		)	(5,345		)	—		—		—
Amortization of prior service cost	—			—			8			—		—		(6		)
Amortization of net loss	2,174			4,989			4,415			898		879		554
Net periodic benefit cost	$	6,302		$	10,692		$	9,256		$	6,936	$	6,513	$	5,253

Effective July 1, 2012, the former employees of Mercer Insurance Group, Inc. became eligible to participate in our pension plan. The inclusion of these employees resulted in an additional $854 of net periodic benefit cost recognized for 2012.

Projected Benefit Payments

The following table summarizes the expected benefits to be paid from our plans over the next 10 years:



	2015		2016		2017		2018		2019		2020 - 2024
Pension benefits	$	4,310	$	4,690	$	4,970	$	5,380	$	5,840	$	39,220
Postretirement benefits	$	1,140	$	1,340	$	1,550	$	1,800	$	2,080	$	15,370

Profit-Sharing Plan and Employee Stock Ownership Plan

We have a profit-sharing plan in which employees who meet service requirements are eligible to participate. The amount of our contribution is discretionary and is determined annually, but cannot exceed the amount deductible for federal income tax purposes. Our contribution to the profit-sharing plan for 2014, 2013 and 2012, was $3,847, $6,029 and $1,812, respectively.

We have an employee stock ownership plan (the "ESOP") for the benefit of eligible employees and their beneficiaries. All employees are eligible to participate in the ESOP upon completion of one year of service, meeting the hourly employment requirements and attaining 21 years of age. Contributions to the ESOP are made at our discretion. When made, these contributions are based upon a percentage of total payroll and are allocated to participants on the basis of compensation. We can make contributions in stock or cash, which the trustee uses to acquire shares of our stock to allocate to participants' accounts. As of December 31, 2014 and 2013, the ESOP owned 214,637 and 220,468 shares of United Fire common stock, respectively. Shares owned by the ESOP are included in shares issued and outstanding for purposes of calculating earnings per share, and dividends paid on the shares are charged to retained earnings. We made contributions to the ESOP of $250 and $100 in 2014 and 2012, respectively. We did not make any contributions to the ESOP in 2013.