Pension and Postretirement Benefits

In the United States, the Company sponsors a defined benefit pension plan that covers approximately 28% of all U.S. employees. In the fourth quarter of 2012, the Company announced that pension eligible employees will no longer earn future benefits in the domestic defined benefit pension plan effective January 1, 2013. The benefits are based on years of service and compensation on a final average pay basis, except for certain hourly employees where benefits are fixed per year of service. This plan is funded with a trustee in respect of past and current service. Charges to expense are based upon costs computed by an independent actuary. The Company’s funding policy is to contribute annually amounts that are allowable for federal or other income tax purposes. These contributions are intended to provide for future benefits earned to date. A number of the Company’s non-U.S. subsidiaries sponsor defined benefit pension plans that cover approximately 14% of all non-U.S. employees. The benefits are typically based upon years of service and compensation. These plans are funded with trustees in respect of past and current service. Charges to expense are based upon costs computed by independent actuaries. The Company’s funding policy is to contribute annually amounts that are allowable for tax purposes or mandated by local statutory requirements. These contributions are intended to provide for future benefits earned to date.

Non-union employees hired after December 31, 2005 are no longer eligible for participation in the ELDEC Corporation (“ELDEC”) and Interpoint Corporation (“Interpoint”) money purchase plan. Qualifying employees receive an additional 2% Company contribution to their 401(K) plan accounts. Certain of the Company’s non-U.S. defined benefit pension plans were also amended whereby eligibility for new participants will cease.

Postretirement health care and life insurance benefits are provided for certain employees hired before January 1, 1990, who meet minimum age and service requirements. The Company does not pre-fund these benefits and has the right to modify or terminate the plan.

A summary of benefit obligations, fair value of plan assets and funded status is as follows:



	Pension Benefits						Postretirement Benefits
(in thousands) December 31,	2012			2011			2012			2011
Change in benefit obligation:
Beginning of year	$	786,592		$	674,136		$	12,562		$	13,108
Service cost	13,503			11,710			107			121
Interest cost	37,653			38,163			497			588
Plan participants’ contributions	1,324			1,389			—			—
Amendments	3			177			—			—
Actuarial loss	104,539			96,558			670			129
Settlement	(466		)	(123		)	—			—
Benefits paid	(35,561		)	(31,911		)	(1,226		)	(1,374		)
Foreign currency exchange impact	15,513			(2,777		)	10			(10		)
Acquisition/divestitures/curtailment	(16,223		)	—			—			—
Adjustment for expenses/tax contained in service cost	(613		)	(730		)
Benefit obligation at end of year	$	906,264		$	786,592		$	12,620		$	12,562
Change in plan assets:
Fair value of plan assets at beginning of year	$	678,250		$	661,319
Actual return on plan assets	73,981			3,192
Foreign currency exchange impact	14,877			(2,059		)
Employer contributions	4,278			47,495
Administrative expenses paid	(1,103		)	(1,056		)
Plan participants’ contributions	1,324			1,389
Settlement	(466		)	(119		)
Benefits paid	(35,561		)	(31,911		)
Fair value of plan assets at end of year	$	735,580		$	678,250		$	—		$	—
Funded status	$	(170,684	)	$	(108,342	)	$	(12,620	)	$	(12,562	)

Amounts recognized in the Consolidated Balance Sheets consist of:



	Pension Benefits						Postretirement Benefits
(in thousands) December 31,	2012			2011			2012			2011
Other assets	$	52,304		$	59,891		$	—		$	—
Current liabilities	(817		)	(1,169		)	(1,188		)	(1,248		)
Accrued pension and postretirement benefits	(222,171		)	(167,068		)	(11,432		)	(11,314		)
	$	(170,684	)	$	(108,346	)	$	(12,620	)	$	(12,562	)

Amounts recognized in accumulated other comprehensive loss (income) consist of:



	Pension Benefits						Postretirement Benefits
(in thousands) December 31,	2012			2011			2012			2011
Net actuarial loss (gain)	$	290,417		$	239,624		$	(707	)	$	(1,518	)
Prior service cost (credit)	141			1,036			(1,127		)	(1,362		)
Transition asset	(2		)	(3		)	—			—
	$	289,556		$	240,657		$	(1,834	)	$	(2,880	)

The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the U.S. and Non-U.S. plans, are as follows:



	Pension Obligations/Assets
	U.S.				Non-U.S.				Total
(in millions) December 31,	2012		2011		2012		2011		2012		2011
Projected benefit obligation	$	506.5	$	455.1	$	399.8	$	331.5	$	906.3	$	786.6
Accumulated benefit obligation	506.3		439.6		370.0		303.9		876.3		743.5
Fair value of plan assets	357.9		336.4		377.7		341.9		735.6		678.3

Information for pension plans with an accumulated benefit obligation in excess of plan assets is as follows:



	Pension Benefits
(in thousands) December 31,	2012		2011
Projected benefit obligation	$	705,007	$	616,411
Accumulated benefit obligation	683,019		580,977
Fair value of plan assets	482,019		448,205

Components of Net Periodic Benefit Cost are as follows:



	Pension Benefits									Postretirement Benefits
(in thousands) December 31,	2012			2011			2010			2012			2011			2010
Net Periodic Benefit Cost:
Service cost	$	13,503		$	11,710		$	11,417		$	108		$	121		$	114
Interest cost	37,653			38,163			36,301			498			588			745
Expected return on plan assets	(51,437		)	(50,620		)	(43,793		)	—			—			—
Amortization of prior service cost	402			421			451			(236		)	(236		)	—
Amortization of net loss (gain)	19,403			6,733			6,985			(139		)	(110		)	(175		)
Recognized curtailment loss	460			—			—			—			—			—
Settlement costs	(125		)	—			2,614			—			—			—
Special termination benefits	—			—			52			—			—			—
Net periodic benefit cost	$	19,859		$	6,407		$	14,027		$	231		$	363		$	684

The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $12.7 million and $0.0 million, respectively. The estimated net gain and prior service cost for the postretirement plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $0.0 million and $0.2 million, respectively.

The weighted average assumptions used to determine benefit obligations are as follows:



	Pension Benefits						Postretirement Benefits
December 31,	2012		2011		2010		2012		2011		2010
U.S. Plans:
Discount rate	4.20	%	5.00	%	5.80	%	3.20	%	4.25	%	4.75	%
Rate of compensation increase	3.50	%	3.50	%	3.50	%
Non-U.S. Plans:
Discount rate	3.93	%	4.56	%	5.40	%
Rate of compensation increase	3.14	%	3.89	%	3.74	%

The weighted-average assumptions used to determine net periodic benefit cost are as follows:



	Pension Benefits						Postretirement Benefits
December 31,	2012		2011		2010		2012		2011		2010
U.S. Plans:
Discount rate	5.00	%	5.80	%	6.10	%	4.25	%	4.25	%	5.30	%
Expected rate of return on plan assets	8.25	%	8.25	%	8.25	%
Rate of compensation increase	3.50	%	3.50	%	3.65	%
Non-U.S. Plans:
Discount rate	4.56	%	5.40	%	5.76	%
Expected rate of return on plan assets	7.00	%	7.01	%	7.13	%
Rate of compensation increase	3.89	%	3.74	%	3.72	%

The long term expected rate of return on plan assets assumptions were determined by the Company with input from independent investment consultants and plan actuaries, utilizing asset pricing models and considering historical returns. The discount rates used by the Company for valuing pension liabilities are based on a review of high quality corporate bond yields with maturities approximating the remaining life of the projected benefit obligations.

In the U.S. Plan, the 8.25% expected rate of return on assets assumption for 2012 reflected a long-term asset allocation target comprised of an asset allocation range of 25%-75% equity securities, 15%-35% fixed income securities, 10%-35% alternative assets, and 0%-10% cash. As of December 31, 2012, the actual asset allocation for the U.S. plan was 54% equity securities, 25% fixed income securities, 21% alternative assets, and 0% cash and cash equivalents. The Company periodically reviews the Plan's long-term rate of return assumptions to ensure they are in line with prevailing long-term market outlooks. Accordingly, the expected rate of return on assets assumption for the U.S. Plan has been reduced to 7.75% beginning in 2013.

For the non-U.S. Plans, the 7.00% expected rate of return on assets assumption for 2012 reflected a weighted average of the long-term asset allocation targets for our various international plans. As of December 31, 2012, the actual weighted average asset allocation for the non-U.S. plans was 45% equity securities, 48% fixed income securities, 5% alternative assets/other, and 2% cash and cash equivalents.

The assumed health care cost trend rates are as follows:



December 31,	2012		2011
Health care cost trend rate assumed for next year	7.50	%	8.00	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.75	%	4.75	%
Year that the rate reaches the ultimate trend rate	2019		2019

Assumed health care cost trend rates have a significant effect on the amounts reported for the Company’s health care plans.

A one-percentage-point change in assumed health care cost trend rates would have the following effects:



(in thousands)	One Percentage Point Increase		One Percentage Point (Decrease)
Effect on total of service and interest cost components	$	37	$	(34	)
Effect on postretirement benefit obligation	$	711	$	(655	)

Plan Assets

The Company’s pension plan target allocations and weighted-average asset allocations by asset category are as follows:



		Actual Allocation
Asset Category December 31,	Target Allocation	2012		2011
Equity securities	35%-75%	49	%	48	%
Fixed income securities	20%-50%	37	%	35	%
Alternative assets/Other	0%-20%	13	%	12	%
Money market	0%-10%	1	%	5	%

The Company’s pension investment committees and trustees, as applicable, exercise reasonable care, skill and caution in making investment decisions. Independent investment consultants are retained to assist in executing the plans’ investment strategies. A number of factors are evaluated in determining if an investment strategy will be implemented in the Company’s pension trusts. These factors include, but are not limited to, investment style, investment risk, investment manager performance

and costs.

The primary investment objective of the Company’s various pension trusts is to maximize the value of plan assets, focusing on capital preservation, current income and long-term growth of capital and income. The plans’ assets are typically invested in a broad range of equity securities, fixed income securities, alternative assets and cash instruments. The company’s investment strategies across its pension plans worldwide results in a global target asset allocation range of 35%-75% equity securities, 20%-50% fixed income securities, 0%-20% alternative assets, and 0%-10% money market, as noted in the table above.

Equity securities include investments in large-cap, mid-cap, and small-cap companies located in both developed countries and emerging markets around the world. Fixed income securities include government bonds of various countries, corporate bonds that are primarily investment-grade, and mortgage-backed securities. Alternative assets include investments in hedge funds with a wide variety of strategies.

The Company periodically reviews investment managers and their performance in relation to the plans’ investment objectives. The Company expects its pension trust investments to meet or exceed their predetermined benchmark indices, net of fees. Generally, however, the Company realizes that investment strategies should be given a full market cycle, normally over a three to five-year time period, to achieve stated objectives.

Equity securities include Crane Co. common stock, which represents 4% and 5% of plan assets at December 31, 2012 and 2011, respectively.

The fair value of the Company’s pension plan assets at December 31, 2012, by asset category are as follows:



(in thousands)	Active Markets for Identical Assets Level 1		Other Observable Inputs Level 2		Unobservable Inputs Level 3		Total Fair Value
Cash and Money Markets	$	8,130	$	—	$	—	$	8,130
Common Stocks
Actively Managed U.S. Equities	105,841		—		—		105,841
Fixed Income Bonds and Notes	—		26,875		—		26,875
Commingled and Mutual Funds
U.S. Equity Funds	—		80,171		—		80,171
Non-U.S. Equity Funds	—		178,841		—		178,841
U.S. Fixed Income, Government and Corporate	—		43,182		—		43,182
U.S. Tactical Allocation Balanced Fund	—		18,997		—		18,997
Non-U.S. Fixed Income, Government and Corporate	—		181,073		—		181,073
International Balanced Funds	—		8,836		—		8,836
Alternative Investments							—
Hedge Funds	—		73,430		—		73,430
International Property Funds	—		9,445		—		9,445
Annuity Contract	—		759		—		759
Total Fair Value	$	113,971	$	621,609	$	—	$	735,580

For the year ended December 31, 2012, there were no significant transfers in or out of Levels 1, 2 or 3.

The fair value of the Company’s pension plan assets at December 31, 2011, by asset category are as follows:



(in thousands)	Active Markets for Identical Assets Level 1		Other Observable Inputs Level 2		Unobservable Inputs Level 3		Total Fair Value
Cash and Money Markets	$	38,084	$	—	$	—	$	38,084
Common Stocks
Actively Managed U.S. Equities	93,869		—		—		93,869
Fixed Income Bonds and Notes	—		25,485		—		25,485
Commingled and Mutual Funds
U.S. Equity Funds	—		26,322		—		26,322
Non-U.S. Equity Funds	—		198,655		—		198,655
U.S. Fixed Income, Government and Corporate	—		33,810		—		33,810
U.S. Tactical Allocation Balanced Fund	—		16,455		—		16,455
Non-U.S. Fixed Income, Government and Corporate	—		159,611		—		159,611
International Balanced Funds	—		8,223		—		8,223
Alternative Investments
Hedge Funds	—		67,967		—		67,967
International Property Funds	—		9,011		—		9,011
Annuity Contract	—		758		—		758
Total Fair Value	$	131,953	$	546,297	$	—	$	678,250

In 2011, assets valued at $16 million were transferred from Level 3 to Level 2 due to the expiration of a restriction on fund redemptions.

Additional information pertaining to the changes in the fair value of the Pension Plans’ assets classified as Level 3 for the year ended December 31, 2011 is presented below:




Asset Category (dollars in thousands)	Hedge Funds
Balance at January 1, 2011	$	17,169
Total Realized and Unrealized Gains/Losses	(1,498		)
Purchases, Sales, Settlements Transfers in or out of Level 3	(15,671		)
Balance at December 31, 2011	$	—

The following table sets forth a summary of pension plan assets valued using Net Asset Value (NAV) or its equivalent as of December 31, 2012:

( dollars in thousands)

Fair
Value*

Redemption
Frequency

Unfunded
Commitment

Other
Redemption
Restrictions

Redemption
Notice Period

Archstone Offshore Fund, Ltd(a)

30,605

12 Months

None

90 days written

Evanston Capital Management(a)

25,587

12 Months

None

65 days written

Strategic Value Fund(b)

17,238

12 Months

None

90 days written

U.S. Equity Funds(c)

80,171

immediate

None

Non-U.S. Equity Funds(d)

178,841

immediate

None

Non-U.S. Fixed Income, Government and Corporate(e)

181,073

immediate

None

International Property Funds(f)

9,445

immediate

None

International Balanced Funds(g)

8,836

immediate

None

U.S. Government and Corporate Fixed Income(h)

43,182

immediate

None

U.S. Tactical Allocation Balanced Fund(i)

18,997

immediate

None

* The fair values of the investments have been estimated using the net asset value of the investment


(a)	These funds are alternative assets which seeks to outperform equities while maintaining a lower risk profile than equities.


(b)	This fund is an alternative investment that invests in distressed debt instruments seeking price appreciation.


(c)	These funds invest in U.S. equity securities and seeks to meet or exceed relative benchmarks.


(d)	These funds invest in equity securities outside the U.S. and seek to meet or exceed relative benchmarks.


(e)	These funds invest in Corporate and Governments fixed income securities outside the U.S. and seek to meet or exceed relative benchmarks.


(f)	These funds invest in real property outside the U.S.


(g)	These funds invest in a pre defined mix of non-U.S. equity and non-U.S. fixed income securities and seek to meet or exceed the performance of a passive/local benchmark of similar mixes.


(h)	These funds invest in U.S. fixed income securities, corporate, government and agency, and seek to outperform the Barclays Capital Aggregate Index.


(i)	These funds invest in a blend of equities, fixed income, cash and property in the U.S. and seek to outperform a similarly weighted index.

The following table sets forth a summary of pension plan assets valued using Net Asset Value (NAV) or its equivalent as of December 31, 2011:

( dollars in thousands)

Fair
Value*

Redemption
Frequency

Unfunded
Commitment

Other
Redemption
Restrictions

Redemption
Notice Period

Archstone Offshore Fund, Ltd(a)

28,241

12 Months

None

90 days written

Evanston Capital Management(a)

24,055

12 Months

None

65 days written

Strategic Value Fund(b)

15,671

12 Months

None

90 days written

U.S. Equity Funds(c)

26,322

immediate

None

Non-U.S. Equity Funds(d)

198,655

immediate

None

Non U.S. Fixed Income, Government and Corporate(e)

159,611

immediate

None

International Property Funds(f)

9,011

immediate

None

International Balanced Funds(g)

8,223

immediate

None

U.S. Government and Corporate Fixed Income(h)

33,810

immediate

None

U.S. Tactical Allocation Balanced Fund(i)

16,455

immediate

None

* The fair values of the investments have been estimated using the net asset value of the investment


(a)	These funds are alternative assets which seeks to outperform equities while maintaining a lower risk profile than equities.


(b)	This fund is an alternative investment that invests in distressed debt instruments seeking price appreciation.


(c)	These funds invest in U.S. equity securities and seeks to meet or exceed relative benchmarks.


(d)	These funds invest in equity securities outside the U.S. and seek to meet or exceed relative benchmarks.


(e)	These funds invest in Corporate and Governments fixed income securities outside the U.S. and seek to meet or exceed relative benchmarks


(f)	These funds invest in real property outside the U.S.


(g)	These funds invest in a pre defined mix of non-U.S. equity and non-U.S. fixed income securities and seek to meet or exceed the performance of a passive/local benchmark of similar mixes.


(h)	These funds invest in U.S. fixed income securities, corporate, government and agency, and seek to outperform the Barclays Capital Aggregate Index.


(i)	These funds invest in a blend of equities, fixed income, cash and property in the U.S. and seek to outperform a similarly weighted index.

Cash Flows

The Company expects, based on current actuarial calculations, to contribute cash of approximately $15 million to its defined benefit pension plans and $1 million to its other postretirement benefit plan in 2013. Cash contributions in subsequent years will depend on a number of factors including the investment performance of plan assets.

Estimated Future Benefit Payments

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



Estimated future payments (in thousands)	Pension Benefits		Postretirement Benefits
2013	$	36,089	$	1,208
2014	38,174		1,199
2015	39,329		1,204
2016	41,294		1,202
2017	43,085		1,224
2018-2022	243,061		5,494
Total payments	$	441,032	$	11,531

The Company’s subsidiaries ELDEC and Interpoint have a money purchase plan to provide retirement benefits for all eligible employees. The annual contribution in 2012 was 5% of each eligible participant’s gross compensation. The contributions were $2.2 million in 2012, $2.3 million in 2011 and $2.2 million in 2010.

The Company and its subsidiaries sponsor savings and investment plans that are available to eligible employees of the Company and its subsidiaries. The Company made contributions to the plans of $6.4 million in 2012, $6.6 million in 2011 and $3.2 million in 2010.

In addition to participant deferral contributions and Company matching contributions on those deferrals, the Company provides a 2% non-matching contribution to eligible participants. The Company made non-matching contributions to these plans of $3.3 million in 2012, $2.4 million in 2011 and $2.2 million in 2010.