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PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
12 Months Ended
Dec. 31, 2012
Pension and Other Postretirement Benefit Plans [Abstract]  
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

18.       PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The Corporation maintains fourteen separate and distinct pension and other postretirement defined benefit plans, consisting of seven domestic pensions and other postretirement benefit plans and seven separate foreign pension plans. The Corporation maintains the following legacy domestic plans: a qualified pension plan, a non-qualified pension plan, and a postretirement health-benefits plan (the Curtiss-Wright Plans), and a postretirement health benefits plan for EMD employees. With the acquisition of Williams Controls on December 14, 2012, the Corporation acquired three new domestic plans: a qualified salaried employee pension plan, a qualified hourly employee pension plan, and a postretirement health-benefits plan (the Williams Plans).

The foreign plans consist of three defined benefit pension plans in the United Kingdom, two in Mexico, and one plan each in Canada and Switzerland. In 2010, a defined benefit plan in Norway was terminated and replaced with a defined contribution plan. The total projected benefit obligation related to all foreign plans is $83.0 million as of December 31, 2012. Each plan and further information on the Norway plan termination is described below.

Domestic Plans

The Curtiss-Wright Plans

The Corporation maintains a defined benefit pension plan (the “CW Pension Plan”) covering all employees under four benefit formulas: a non-contributory non-union and union formula for all Curtiss-Wright (“CW”) employees and a contributory union and non-union benefit formula for employees at the EMD business unit.

The formula for CW non-union employees is composed of a “traditional” benefit based on years of credited service, the five highest consecutive years' compensation during the last ten years of service, and a “cash balance” benefit. CW union employees who have negotiated a benefit under the CW Pension Plan are entitled to a benefit based on years of service multiplied by a monthly pension rate. Employees become participants under the CW Pension Plan after one year of service and are vested after three years of service. The formula for EMD employees covers both union and non-union employees and is designed to satisfy the requirements of relevant collective bargaining agreements. Employee contributions are withheld each pay period and are equal to 1.5% of salary. The benefits for the EMD employees are based on years of service and compensation.

On December 31, 2012, the Corporation amended the CW Pension Plan to close the benefit to EMD employees hired after January 1, 2014. Prior to this change, effective February 1, 2010, the Corporation amended the CW Pension Plan to close the traditional benefit to new CW non-union employees. All new employees hired on or after the effective date are eligible for the cash balance benefit.

At December 31, 2012 and 2011, the Corporation had a noncurrent pension liability of $195.9 million and $180.8 million, respectively. The Corporation made $40.1 million of contributions to the CW Pension Plan in 2012 and expects to make a contribution of approximately $35.0 million in 2013. This reduction is largely due to relief provided by the Moving Ahead for Progress in the 21st Century Act (MAP-21), which provides pension plan sponsors with short-term funding relief by stabilizing interest rates used to determine required funding contributions to defined benefit plans. The Corporation expects to make cumulative contributions of approximately $220 million from 2013 through 2017.

The Corporation also maintains a non-qualified restoration plan (the “CW Restoration Plan”) covering those employees of CW and EMD whose compensation or benefits exceed the IRS limitation for pension benefits. Benefits under the CW Restoration Plan are not funded, and, as such, the Corporation had an accrued pension liability of $34.4 million and $23.4 million as of December 31, 2012 and 2011, respectively. The Corporation's contributions to the CW Restoration Plan are expected to be $2.4 million in 2013.

The Corporation provides postretirement health benefits to certain employees (the “CW Retirement Plan”). In 2002, the Corporation restructured the postretirement medical benefits for certain active employees, effectively freezing the plan. The obligation associated with these active employees was transferred to the CW Pension Plan. The plan continues to be maintained for retired employees. The Corporation had an accrued postretirement benefit liability of $0.6 million as of December 31, 2012 and 2011. Benefits under the plan are not funded. The Corporation's contributions to the CW Retirement Plan are not expected to be material in 2013.

EMD Plan

The Corporation, through an administration agreement with Westinghouse, maintains the Westinghouse Government Services Group Welfare Benefits Plan (the “EMD Retirement Plan”), a retiree health and life insurance plan for substantially all of the Curtiss-Wright EMD employees. The EMD Retirement Plan provides basic health and welfare coverage on a non-contributory basis. Benefits are based on years of service and are subject to certain caps. Effective January 1, 2011, the Corporation modified the benefit design for post-65 retirees by introducing Retiree Reimbursement Accounts (“RRA's) to participants in lieu of the traditional benefit delivery. Participant accounts are funded a set amount annually that can be used to purchase supplemental coverage on the open market, effectively capping the benefit.

The Corporation had an accrued postretirement benefit liability at December 31, 2012 and 2011 of $20.7 million and $20.9 million, respectively. Pursuant to the Asset Purchase Agreement, the Corporation has a discounted receivable from Washington Group International to reimburse the Corporation for a portion of these postretirement benefit costs. At December 31, 2012 and 2011, the discounted receivable included in other assets was $2.0 million and $2.4 million, respectively. The Corporation expects to contribute $1.4 million to the EMD Retirement Plan during 2013.

The Williams Plans

The Corporation acquired two defined benefit pension plans and a postretirement benefit plan with the acquisition of Williams Controls on December 14, 2012. The two defined benefit plans, an hourly employee plan and salaried employee plan, provide a fixed formula benefit to members upon retirement. The postretirement benefit plan provides health care and life insurance benefits for certain of its retired employees. No new employees are being admitted into these plans. As of December 31, 2012, the Corporation had an accrued pension liability of $6.2 million and an accrued postretirement benefit liability of $2.1 million related to these plans. The Corporation expects to contribute $1.2 million into these plans in 2013.

Foreign Plans

Indal Technologies Hourly Plan (Canada)

The Pension Plan for Hourly Employees of Indal Technologies, Inc. (“Indal Plan”) commenced on March 1, 2005 in connection with the acquisition of Indal by the Corporation. This non-contributory defined benefit plan provides monthly benefits to eligible members equal to a member's credited service multiplied by a fixed dollar amount. As of December 31, 2012 and 2011, the Corporation had an accrued pension liability of $1.2 million and $0.9 million, respectively. The Corporation's contributions to the Indal Plan are expected to be $0.7 million in 2013.

Metal Improvement Company – Salaried Staff Pension Scheme (U.K.)

The Corporation maintains the Salaried Staff Pension scheme (“MIC Plan”) for the benefit of Metal Treatment employees in the U.K. This contributory plan provides defined benefits to eligible members equal to one-sixtieth of final pensionable salary for each year of pensionable service. Members contribute at the rate of 9% of their pensionable salary, and the Corporation funds the balance of the cost to provide benefits. The plan provides for early retirement at reduced benefits and was closed to new entrants as of January 1, 2004. As of December 31, 2012 and 2011, the Corporation had an accrued pension liability of $2.4 million and $3.2 million, respectively. The Corporation's contributions to the MIC Plan are expected to be approximately $0.8 million in 2013.

Penny & Giles Pension Plan (U.K.)

The Penny & Giles Pension Plan (“P&G Plan”) is a contributory plan that provides for both defined benefit and defined contribution benefits. Defined benefit members are entitled to final salary related benefits equal to one-sixtieth of final pensionable salary for each year of pensionable service. The P&G Plan provides for early retirement at reduced benefits and was closed to new entrants at time of acquisition in 2002. The following disclosures include information for the Penny & Giles defined benefit section only, which represents the majority of the P&G Plan's costs. As of December 31, 2012 and 2011, the Corporation had an accrued pension liability of $1.0 million and $2.0 million, respectively. The Corporation's contributions to the P&G Plan are expected to be approximately $2.1 million in 2013.

Mechetronics Limited Retirement Benefits Scheme (U.K.)

The Corporation assumed defined benefit obligations as a result of our Mechetronics acquisition on October 1, 2009. The plan is based on final pensionable salary and years of service. As a result of the restructuring of Mechetronics and the consolidation of U.K. operations in 2010, there are no active employees in the pension plan as of December 31, 2010 as the employees became deferred vested participants. As of December 31, 2012 and 2011, the Corporation had an accrued pension liability of $3.0 million. The Corporation's contributions to the plans are expected to be immaterial in 2013.

Curtiss Wright Antriebstechnik GmbH (“CWAT”) Pension Plan (Switzerland)

CWAT sponsors a defined contribution plan covering 87 employees as of December 31, 2012. Under Swiss Law, there is a guaranteed minimum benefit requirement which must be valued as a defined benefit obligation for U.S. GAAP purposes. As of December 31, 2012 and 2011, the Corporation had an accrued pension liability of $0.3 million. The Corporation's contributions to the plan are expected to be $1.0 million in 2013.

VMETRO ASA Pension Plan

The Corporation assumed defined benefit obligations as a result of our VMETRO acquisition on October 15, 2008. The group pension plan entitles the employees of the Norwegian companies with future benefits based on years of service, the wage level at time of retirement, and benefits from the national insurance plan. Effective December 31, 2010, the Corporation terminated the existing defined benefit plan and replaced it with a defined contribution plan covering employee service beginning on January 1, 2011. The plan termination resulted in one-time curtailment and settlement gains of approximately $1.6 million in 2010. The Corporation did not have an accrued pension liability as of December 31, 2010.

The following table details the components of net periodic pension expense for all Pension Plans:

Components of net periodic benefit expense: (In thousands)  2012  2011  2010
Service cost $ 40,274 $ 36,276 $ 33,332
Interest cost   26,303   26,361   25,248
Expected return on plan assets   (33,585)   (31,635)   (28,904)
Amortization of prior service cost   1,201   1,210   1,111
Recognized net actuarial loss   11,023   5,464   1,815
Cost of settlements/curtailments   -   194   (1,245)
Net periodic benefit cost $ 45,216 $ 37,870 $ 31,357

Net periodic benefit cost, specifically service and interest cost, has increased over the reported periods due to growth in headcount and service accruals related to existing employees under the age and service-based formula in the plan. The recognized actuarial loss has increased over the reported periods, due largely to the decline in the discount rate.

The Cost of settlements/curtailments indicated above represents events that are accounted for under guidance on employers' accounting for settlements and curtailments of defined benefit pension plans. The settlement charge in 2011 is resulting from the retirement of employees in Switzerland and Mexico. In 2010, the gain resulted from the termination of the defined benefit plan in Norway, offset by settlement charges due to workforce reductions in Mexico and retirements in Switzerland.

The following table details the components of net periodic expense for the Corporation's Postretirement Benefit Plans:

(In thousands)  2012  2011  2010
Service cost $ 448 $ 388 $ 578
Interest cost   939   1,009   1,342
Amortization of prior service cost   (629)   (629)   (105)
Recognized net actuarial gain   (682)   (901)   (1,132)
Net periodic postretirement benefit (income) cost $ 76 $ (133) $ 683

   Pension Benefits Postretirement Benefits
(In thousands) 2012  2011 2012 2011
Change in benefit obligation:            
Beginning of year $ 597,146 $ 521,305 $ 21,467 $ 19,972
Service cost   40,274   36,276   448   388
Interest cost   26,303   26,361   939   1,009
Plan participants’ contributions   2,381   2,424   91   381
Amendments   -   118   -   -
Actuarial loss (gain)   55,833   38,045   (377)   1,350
Benefits paid   (37,180)   (27,177)   (1,286)   (1,681)
Business combinations   17,218   -   2,109   -
Special termination benefits   -   143   -   -
Retiree drug subsidy received   -   -   -   48
Settlements   -   (117)   -   -
Currency translation adjustments   3,047   (232)   -   -
End of year $ 705,022 $ 597,146 $ 23,391 $ 21,467
              
Change in plan assets:            
Beginning of year $ 383,149 $ 372,199 $ - $ -
Actual return on plan assets   52,975   (4,454)   -   -
Employer contribution   45,230   40,735   1,195   1,300
Plan participants’ contributions   2,381   2,424   91   381
Business combinations   10,983      -   
Benefits paid   (37,180)   (27,177)   (1,286)   (1,681)
Settlements   -   (117)   -   -
Currency translation adjustments   2,664   (461)   -   -
End of year $ 460,202 $ 383,149 $ - $ -
              
Funded status $ (244,820) $ (213,997) $ (23,391) $ (21,467)
              
   Pension Benefits Postretirement Benefits
(In thousands) 2012  2011 2012 2011
Amounts recognized on the balance sheet            
 Current liabilities $ (2,469) $ (1,069) $ (1,695) $ (1,601)
 Noncurrent liabilities   (242,351)   (212,928)   (21,696)   (19,866)
 Total $ (244,820) $ (213,997) $ (23,391) $ (21,467)
              
Amounts recognized in accumulated other comprehensive income (AOCI)             
 Net actuarial loss (gain) $ 201,218 $ 175,524 $ (10,212) $ (10,516)
 Prior service cost   5,612   6,791   (5,615)   (6,244)
Total $ 206,830 $ 182,315 $ (15,827) $ (16,760)
              
Amounts in AOCI expected to be recognized in net periodic cost in the coming year:            
Loss (gain) recognition $ 17,112 $ 9,979 $ (639) $ (719)
Prior service cost recognition $ 1,201 $ 1,200 $ (629) $ (629)
              
Accumulated benefit obligation $ 644,483 $ 546,635  N/A  N/A
              
Information for pension plans with an accumulated benefit obligation in excess of plan assets:            
Projected benefit obligation $ 639,745 $ 557,316  N/A  N/A
Accumulated benefit obligation   592,660   516,115  N/A  N/A
Fair value of plan assets   398,687   345,640  N/A  N/A

Plan Assumptions

   Pension Benefits Postretirement Benefits 
  2012 2011 2012 2011
Weighted-average assumptions in determination of benefit obligation:            
Discount rate  3.95%  4.46%  3.70%  4.48%
Rate of compensation increase  3.94%  3.96% N/A  N/A 
Health care cost trends:            
 Rate assumed for subsequent year N/A  N/A   8.00%  8.00%
 Ultimate rate reached in 2019 and 2014, respectively N/A  N/A   5.50%  5.50%
Weighted-average assumptions in determination of net periodic benefit cost:            
Discount rate  4.46%  5.16%  4.48%  5.21%
Expected return on plan assets  8.02%  8.14% N/A  N/A 
Rate of compensation increase  3.96%  3.99% N/A  N/A 
Health care cost trends:            
 Rate assumed for subsequent year N/A  N/A   8.00%  8.50%
 Ultimate rate reached in 2019 and 2014, respectively N/A  N/A   5.50%  5.50%

The discount rate for each plan is determined by discounting the plan's expected future benefit payments using a yield curve developed from high quality bonds that are rated Aa or better by Moody's as of the measurement date. The yield curve calculation matches the notional cash inflows of the hypothetical bond portfolio with the expected benefit payments to arrive at one effective rate for each plan.

The overall expected return on assets assumption is based on a combination of historical performance of the pension fund and expectations of future performance. Expected future performance is determined by weighting the expected returns for each asset class by the plan's asset allocation. The expected returns are based on long-term capital market assumptions utilizing a ten-year time horizon through consultation with investment advisors. While consideration is given to recent performance and historical returns, the assumption represents a long-term prospective return.

The effect on the CW and EMD Retirement Plans of a 1% change in the health care cost trend is as follows:

(In thousands) 1% Increase 1% Decrease
Total service and interest cost components $ 1 $ (1)
Postretirement benefit obligation $ 36 $ (34)

Pension Plan Assets

The overall objective for plan assets is to earn a rate of return over time to meet anticipated benefit payments in accordance with plan provisions. The long-term investment objective of the domestic retirement plans is to achieve a total rate of return, net of fees, which exceeds the actuarial overall expected return on assets assumption used for funding purposes and which provides an appropriate premium over inflation. The intermediate-term objective of the domestic retirement plans, defined as three to five years, is to outperform each of the capital markets in which assets are invested, net of fees. During periods of extreme market volatility, preservation of capital takes a higher precedence than outperforming the capital markets.

The Corporation's Finance Committee is responsible for formulating investment policies, developing investment manager guidelines and objectives, and approving and managing qualified advisors and investment managers. The guidelines established define permitted investments within each asset class and apply certain restrictions such as limits on concentrated holdings, and prohibits selling securities short, buying on margin, and the purchase of any securities issued by the Corporation.

The Corporation maintains the funds of the CW Pension Plan under a trust that is diversified across investment classes and among investment managers to achieve an optimal balance between risk and return. In accordance with this policy, the Corporation has established target allocations for each asset class and ranges of expected exposure. The Corporation's domestic retirement assets are invested within this allocation structure in three major categories: domestic equity securities, international equity securities, and debt securities. Below are the Corporation's actual and established target allocations for the CW Pension Plan, representing 81% of consolidated assets:

  As of December 31, Target Expected
Asset class 2012 2011 Exposure Range
Domestic equities 50% 50% 50% 40%-60%
International equities 15% 13% 15% 10%-20%
Total equity 65% 63% 65% 55%-75%
Fixed income  33% 34% 35% 25%-45%

As of December 31, 2012 and 2011, cash funds in the CW Pension Plan represented less than 3% of portfolio assets. The Williams Plans, which represent approximately 2% of domestic retirement assets, are more heavily weighted in fixed income resulting in a weighted expected return on assets assumption of 6.75%.

Foreign plan assets represent 16% of consolidated plan assets, with the majority of the assets supporting the U.K. plans. The U.K. foreign plans follow a similar asset allocation strategy, while other foreign plans are more heavily weighted in fixed income resulting in a weighted expected return on assets assumption of 5.66% for all foreign plans.

The Corporation may from time to time require the reallocation of assets in order to bring the retirement plans into conformity with these ranges. The Corporation may also authorize alterations or deviations from these ranges where appropriate for achieving the objectives of the retirement plans.

Fair Value Measurements

The following table presents consolidated plan assets using the fair value hierarchy as of December 31, 2012:

      Quoted Prices      
      in Active      
      Markets for Significant Significant
      Identical  Observable Unobservable
      Assets Inputs Inputs
Asset Category Total  (Level 1)  (Level 2) (Level 3)
              
Cash and cash equivalents $ 17,657 $ 1,887 $ 15,770 $ -
Equity Securities:            
 U.S. Large Cap (a)   132,892   130,771   2,121   -
 U.S. Mid Cap   236   -   236   
 U.S. Small Cap (b)   33,309   33,067   242   -
 Foreign Large Cap (c )   73,242   72,369   873   -
 Foreign Mid Cap   271   271   -   -
 Foreign Index Funds (d)   27,865   2,268   25,597   -
 Balanced Funds (e)   14,957   -   14,957   -
Total Equities $ 282,772 $ 238,746 $ 44,026 $ -
              
Fixed Income Securities:            
 U.S. Corporate Bonds (f)   25,543   -   25,543   -
 U.S. Government Bonds   3,773   3,773   -   -
 U.S. Fixed Income Mutual Fund (g)   65,245   65,245   -   -
 US Other Fixed Income (h)   31,101   28,393   2,708   -
 Foreign Government Bonds (i)   4,236   1,604   2,632   -
 Foreign Corporate Bonds (i)   5,693   2,035   3,658   -
 Foreign Government Index Funds (j)   1,607   -   1,607   -
 Foreign Corporate Bond Index Funds (j)   10,930   -   10,930   -
Total Fixed Income Securities $ 148,128 $ 101,050 $ 47,078 $ -
              
Alternative Investments:            
 Insurance Contracts (k)   10,917   -   -   10,917
Total Alternative Investments $ 10,917 $ - $ - $ 10,917
              
Real Estate:            
 Foreign Real Estate (l)   728   -   -   728
Total Real Estate $ 728 $ - $ - $ 728
Total Assets $ 460,202 $ 341,683 $ 106,874 $ 11,645

The following table presents consolidated plan assets using the fair value hierarchy as of December 31, 2011:

  • This category comprised of two growth and two value-oriented portfolios of U.S. securities benchmarked against the S&P 500 index.
  • This category consists of a portfolio of U.S. securities benchmarked against the Russell 2000 index.
  • This category consists of two international mutual funds benchmarked against the MSCI EAFE index. This category also includes individual foreign equity holdings in the CW Pension Plan.
  • This category is comprised primarily of global equity index mutual funds associated with the U.K. based pension plans.
  • This category consists of three balanced funds associated with the Canadian and U.K. based pension plans composed, in aggregate, of approximately 50% equities and 50% fixed income/cash.
  • This category consists of a portfolio of domestic fixed income securities benchmarked against the Barclays Capital Aggregate Bond Index, with the majority of the portfolio comprised of corporate bonds.
  • This category consists of an actively-managed bond mutual fund comprised of domestic investment-grade debt, fixed-income derivatives, and below investment-grade issues.
  • This category consists of U.S. mortgage backed securities, asset backed securities, municipal bonds, and convertible debt.
  • These categories consist of bond mutual funds for institutional investors associated with the CW Pension Plan as well as our Switzerland and U.K. based pension plans.
  • These categories consist of bond index mutual funds for institutional investors in the U.K. aiming to capture the returns of the iBoxx and Non-Gilt indices for corporates and the FTSE A index for government bonds (gilts).
  • This category consists of a guaranteed investment contract (GIC) in Switzerland. Amounts contributed to the plan are guaranteed by a foundation for occupational benefits that in turn entered into a group insurance contract and the foundation pays a guaranteed rate of interest that is reset annually.
  • This category consists of real estate investment trusts in Switzerland.

 

Valuation

Equity securities and exchange-traded equity and bond mutual funds are valued using a market approach based on the quoted market prices of identical instruments. Pooled institutional funds are valued at their net asset values and are calculated by the sponsor of the fund.

Fixed income securities are primarily valued using a market approach utilizing various underlying pricing sources and methodologies. Real estate investment trusts are priced at net asset value based on valuations of the underlying real estate holdings using inputs such as discounted cash flows, independent appraisals, and market-based comparable data.

Cash balances in the United States are held in a pooled fund and classified as a Level 2 asset. Non-U.S. cash is valued using a market approach based on quoted market prices of identical instruments.

The following table presents a reconciliation of Level 3 assets held during the year ended December 31, 2012 and 2011:

  Insurance Real   
  Contracts Estate Total
December 31, 2010$ 8,903 $ 797 $ 9,700
Actual return on plan assets:        
 Relating to assets still held at the reporting date  188   33   221
 Relating to assets sold during the period  -   3   3
Purchases, sales, and settlements  1,092   (230)   862
Transfers in and/or out of Level 3  -   -   -
Foreign currency translation adjustment  (102)   9   (93)
December 31, 2011$ 10,081 $ 612 $ 10,693
Actual return on plan assets:        
 Relating to assets still held at the reporting date  151   42   193
 Relating to assets sold during the period  -   -   -
Purchases, sales, and settlements  429   57   486
Transfers in and/or out of Level 3  -   -   -
Foreign currency translation adjustment  256   17   273
December 31, 2012$ 10,917 $ 728 $ 11,645

Benefit Payments

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

          
   Pension  Postretirement   
(In thousands)  Plans  Plans  Total
2013 $ 41,156 $ 1,695 $ 42,851
2014   43,992   1,671   45,663
2015   45,581   1,657   47,238
2016   47,843   1,622   49,465
2017   48,088   1,614   49,702
2018 - 2022   269,063   7,834   276,897

Other Pension and Postretirement Plans

The Corporation offers all of its domestic employees the opportunity to participate in a defined contribution plan. Costs incurred by the Corporation in the administration and record keeping of the defined contribution plan are paid for by the Corporation and are not considered material.

In addition, the Corporation had foreign pension costs under various defined contribution plans of $4.8 million, $3.7 million, and $2.8 million in 2012, 2011, and 2010, respectively.