Pensions and Postretirement Benefits

12 Months Ended

Dec. 31, 2012

Pensions and Postretirement Benefits

14. Pensions and Postretirement Benefits

We have several non-contributory defined benefit pension plans covering eligible employees in the United States and several European countries. We also had non-contributory defined benefit pension plans in Canada and Mexico prior to the deconsolidation of GST LLC. Salaried employees’ benefit payments are generally determined using a formula that is based on an employee’s compensation and length of service. We closed our defined benefit pension plan for new salaried employees in the United States who joined the Company after January 1, 2006, and effective January 1, 2007, benefits were frozen for all salaried employees who were not age 40 or older as of December 31, 2006, and other employees who chose to freeze their benefits. Hourly employees’ benefit payments are generally determined using stated amounts for each year of service.

Our employees also participate in voluntary contributory retirement savings plans for salaried and hourly employees maintained by us. Under these plans, eligible employees can receive matching contributions up to the first 6% of their eligible earnings. Effective January 1, 2007, those employees whose defined benefit pension plan benefits were frozen receive an additional 2% company contribution each year. We recorded $6.3 million, $6.0 million and $5.8 million in expenses in 2012, 2011 and 2010, respectively, for matching contributions under these plans.

Our general funding policy for qualified defined benefit pension plans is to contribute amounts that are at least sufficient to satisfy regulatory funding standards. During 2012, 2011 and 2010, we contributed $11.3 million, $5.9 million and $1.3 million, respectively, in cash to our U.S. pension plans. In 2011, we also contributed to our U.S. defined benefit pension plans a GIC received in connection with the Crucible Benefits Trust settlement agreement. Refer to Note 19, “Commitments and Contingencies – Crucible Steel Corporation a/k/a Crucible, Inc.” for additional information about the settlement agreement. The GIC was valued at $21.4 million for purposes of the pension plan contribution. We anticipate there will be a required funding of $19.1 million in 2013. Additionally, we expect to make total contributions of approximately $0.4 million in 2013 to the foreign pension plans. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the defined benefit pension plans with accumulated benefit obligations in excess of plan assets were $270.5 million, $257.7 million and $157.4 million at December 31, 2012, and $243.4 million, $231.4 million and $134.6 million at December 31, 2011, respectively.

We amortize prior service cost and unrecognized gains and losses using the straight-line basis over the average future service life of active participants.

We provide, through non-qualified plans, supplemental pension benefits to a limited number of employees. Certain of our subsidiaries also sponsor unfunded defined benefit postretirement plans that provide certain health-care and life insurance benefits to eligible employees. The health-care plans are contributory, with retiree contributions adjusted periodically, and contain other cost-sharing features, such as deductibles and coinsurance. The life insurance plans are generally noncontributory. The amounts included in “Other Benefits” in the following tables include the non-qualified plans and the other defined benefit postretirement plans discussed above.

The following table sets forth the changes in projected benefit obligations and plan assets of our defined benefit pension and other non-qualified and postretirement plans as of and for the years ended December 31, 2012 and 2011.

	Pension Benefits						Other Benefits
	2012			2011			2012			2011
	(in millions)
Change in Projected Benefit Obligations
Projected benefit obligations at beginning of year	$	244.1		$	197.5		$	5.3		$	4.5
Service cost		5.7			4.8			0.3			0.6
Interest cost		10.5			10.7			0.2			0.2
Actuarial loss		17.9			39.1			0.4			0.4
Benefits paid		(7.1	)		(6.4	)		(0.8	)		(0.4	)
Other		0.2			(1.6	)		—			—
Projected benefit obligations at end of year		271.3			244.1			5.4			5.3
Change in Plan Assets
Fair value of plan assets at beginning of year		135.4			113.3
Actual return on plan assets		19.7			2.2
Administrative expenses		(1.2	)		(1.3	)
Benefits paid		(7.1	)		(6.4	)
Company contributions		11.5			27.6
Fair value of plan assets at end of year		158.3			135.4

	2012			2011			2012			2011
Underfunded Status at End of Year	$	(113.0	)	$	(108.7	)	$	(5.4	)	$	(5.3	)
Amounts Recognized in the Consolidated Balance Sheets
Long-term assets	$	—		$	0.1		$	—		$	—
Current liabilities		(0.3	)		(0.1	)		(0.4	)		(1.1	)
Long-term liabilities		(112.7	)		(108.7	)		(5.0	)		(4.2	)
	$	(113.0	)	$	(108.7	)	$	(5.4	)	$	(5.3	)

Pre-tax charges recognized in accumulated other comprehensive loss as of December 31, 2012 and 2011 consist of:

	Pension Benefits				Other Benefits
	2012		2011		2012		2011
	(in millions)
Net actuarial loss	$	99.5	$	99.1	$	1.1	$	0.9
Prior service cost		1.4		1.4		0.3		0.3
	$	100.9	$	100.5	$	1.4	$	1.2

The accumulated benefit obligation for all defined benefit pension plans was $258.6 million and $232.1 million at December 31, 2012 and 2011, respectively.

	Pension Benefits									Other Benefits
	2012			2011			2010			2012			2011			2010
	(in millions)
Net Periodic Benefit Cost
Service cost	$	5.7		$	4.8		$	5.4		$	0.4		$	0.7		$	0.6
Interest cost		10.5			10.7			11.1			0.2			0.2			0.4
Expected return on plan assets		(11.0	)		(9.4	)		(9.1	)		—			—			—
Amortization of prior service cost		0.3			0.3			0.5			0.1			0.1			0.1
Recognized net actuarial loss		9.8			4.7			4.8			—			—			0.1
Curtailment		—			—			0.7			0.1			—			—
Deconsolidation of GST		(2.2	)		(1.5	)		(0.8	)		—			—			—
Net periodic benefit cost		13.1			9.6			12.6			0.8			1.0			1.2
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss
Net loss		9.3			46.2			10.6			0.4			0.3			0.6
Prior service cost		0.4			—			0.4			—			—			0.1
Amortization of net loss		(9.8	)		(4.7	)		(5.0	)		—			—			—
Amortization of prior service cost		(0.3	)		(0.3	)		(0.5	)		(0.1	)		(0.1	)		(0.1	)
Deconsolidation of GST		—			—			(18.2	)		—			—			(3.3	)
Other adjustment		0.8			—			(1.8	)		(0.1	)		—			(0.1	)
Total recognized in other comprehensive income		0.4			41.2			(14.5	)		0.2			0.2			(2.8	)
Total Recognized in Net Periodic Benefit Cost and Other Comprehensive Loss	$	13.5		$	50.8		$	(1.9	)	$	1.0		$	1.2		$	(1.6	)

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 $8.8 million and $0.1 million, respectively. The estimated prior service cost for the other defined benefit postretirement plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $0.1 million.

	Pension Benefits									Other Benefits
	2012			2011			2010			2012			2011			2010
Weighted-Average Assumptions Used to Determine Benefit Obligations at December 31
Discount rate		4.0	%		4.25	%		5.5	%		4.25	%		4.25	%		5.5	%
Rate of compensation increase		3.0	%		4.0	%		4.0	%		4.0	%		4.0	%		4.0	%
Weighted-Average Assumptions Used to Determine Net Periodic Benefit Cost for Years Ended December 31
Discount rate		4.25	%		5.5	%		6.0	%		4.25	%		5.5	%		6.0	%
Expected long-term return on plan assets		8.0	%		8.0	%		8.0	%		—			—			—
Rate of compensation increase		4.0	%		4.0	%		4.0	%		4.0	%		4.0	%		4.0	%

The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. The discount rate was determined using a model, which uses a theoretical portfolio of high quality corporate bonds specifically selected to produce cash flows closely related to how we would settle our retirement obligations. This produced a discount rate of 4.0% at December 31, 2012. As of the date of these financial statements, there are no known or anticipated changes in our discount rate assumption that will impact our pension expense in 2013. A 25 basis point decrease (increase) in our discount rate, holding constant our expected long-term return on plan assets and other assumptions, would increase (decrease) pension expense by approximately $0.7 million per year.

The overall expected long-term rate of return on assets was determined based upon weighted-average historical returns over an extended period of time for the asset classes in which the plans invest according to our current investment policy.

We use the RP-2000 mortality table projected to 2020 by Scale AA to value our domestic pension liabilities.

Assumed Health Care Cost Trend Rates at December 31	2012			2011
Health care cost trend rate assumed for next year		7.5	%		7.7	%
Rate to which the cost trend rate is assumed to decline (the ultimate rate)		5.0	%		5.0	%
Year that the rate reaches the ultimate trend rate		2024			2025

A one percentage point change in the assumed health-care cost trend rate would have an impact of less than $0.1 million on net periodic benefit cost and $0.2 million on benefit obligations.

Plan Assets

The asset allocation for pension plans at the end of 2012 and 2011, and the target allocation for 2013, by asset category are as follows:

	Target Allocation			Plan Assets at December 31,
	2013			2012			2011
Asset Category
Equity securities		65	%		65	%		63	%
Fixed income		35	%		35	%		37	%
		100	%		100	%		100	%

Our investment goal is to maximize the return on assets, over the long term, by investing in equities and fixed income investments while diversifying investments within each asset class to reduce the impact of losses in individual securities. Equity investments include a mix of U.S. large capitalization equities, U.S. small capitalization equities and non-U.S. equities. Fixed income investments include a mix of treasury obligations and high-quality money market instruments. The asset allocation policy is reviewed and any significant variation from the target asset allocation mix is rebalanced periodically. The plans have no direct investments in our common stock.

Other than the guaranteed investment contract, the plans invest exclusively in mutual funds whose holdings are marketable securities traded on recognized markets and, as a result, would be considered Level 1 assets. The guaranteed investment contract would be considered a Level 2 asset whose fair value is based on quoted market prices for outstanding bonds of the insurance company issuing the contract. The investment portfolio of the various funds at December 31, 2012 and 2011 were as follows:

	2012		2011
	(in millions)
Mutual funds – U.S. equity	$	77.0	$	66.7
Fixed income treasury and money market		31.3		27.0
Mutual funds – international equity		26.7		19.6
Guaranteed investment contract		22.7		21.6
Cash equivalents		0.6		0.5
	$	158.3	$	135.4

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

	Pension Benefits		Other Benefits
	(in millions)
2013	$	8.5	$	0.4
2014		9.2		0.2
2015		9.9		0.2
2016		11.0		0.3
2017		12.1		0.3
Years 2018 – 2022		74.8		5.9