NOTE L – EMPLOYEE BENEFIT PLANS

Pension and Postretirement Benefits

We maintain a defined benefit pension plan (the “Retirement Plan”) for employees hired prior to September 1, 2006, and all such employees of our domestic subsidiaries who are not covered by union sponsored plans may participate after one year of service. Employees hired on or after September 1, 2006 with at least one year of service as of June 30, 2008, are eligible to participate in the Cash Balance Plan as of July 1, 2008. Computation of benefits payable under the defined pension plan is based on years of service, up to thirty years, and the employee's highest sixty consecutive months of compensation, which is defined as the participant’s base salary plus overtime (excluding incentive pay), bonuses or other extra compensation, in whatever form. Our funding policy is based on minimum contributions required under ERISA as determined through an actuarial computation. Retirement Plan assets consist primarily of investments in equity and fixed income mutual funds and money market holdings. The target asset allocation range is 30% in fixed income investments and 70% in equity investments. The asset allocation on December 31, 2014 was 28.8%, or approximately $10.3 million, in fixed income investments and 71.2%, or approximately $25.5 million, in equity investments. The asset allocation on December 31, 2013 was 28.5%, or approximately $9.8 million, in fixed income investments and 71.5%, or approximately $24.6 million, in equity investments. The plan’s prohibited investments include selling short, commodities and futures, letter stock, unregistered securities, options, margin transactions, derivatives, leveraged securities, and International Shipholding Corporation securities. The plan’s diversification strategy includes limiting equity securities in any single industry to 25% of the equity portfolio fair value, limiting the equity holdings in any single corporation to 10% of the fair value of the equity portfolio, and diversifying the fixed income portfolio so that no one issuer comprises more than 10% of the aggregate fixed income portfolio, except for issues of the U.S. Treasury or other Federal Agencies. The plan’s assumed future returns are based primarily on the asset allocation and on the historic returns for the plan’s asset classes determined from both actual plan returns and, over longer time periods, market returns for those asset classes. As of December 31, 2014, the plan has assets of approximately $35.8 million and a projected pension obligation of approximately $36.7 million, and as of December 31, 2013, the plan had assets of approximately $34.4 million and a projected pension obligation of approximately $32.9 million. As of December 31, 2014, the plan was underfunded by approximately $963,000. The significant decrease in funding was primarily due to a change in the discount rate from 4.75% to 4.0%, change in the mortality table, and reduced return on plan assets.

Our postretirement benefit plans currently provide medical, dental, and life insurance benefits to eligible retired employees and their eligible dependents.

The following tables summarize our financial assets measured at fair value on a recurring basis as of December 31, 2014 and 2013, respectively, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, as defined in Note Y – Fair Value Measurements.


December 31, 2014		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
(All Amounts in Thousands)
Cash Equivalents
Money Market Funds	$	464	$	-	$	-	$	464

Equities
Domestic Equity Mutual Funds		21,255		-		-		21,255
International Equity Mutual Funds		4,222		-		-		4,222

Fixed Income
Taxable Fixed Income Funds		9,831		-		-		9,831
Total Assets at Fair Value	$	35,772	$	-	$	-	$	35,772


December 31, 2013		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
(All Amounts in Thousands)
Cash Equivalents
Money Market Funds	$	344	$	-	$	-	$	344

Equities
Domestic Equity Mutual Funds		20,939		-		-		20,939
International Equity Mutual Funds		3,676		-		-		3,676

Fixed Income
Taxable Fixed Income Funds		9,455		-		-		9,455
Total Assets at Fair Value	$	34,414	$	-	$	-	$	34,414

The following table sets forth the two plans’ changes in the projected benefit obligation and fair value of assets and a statement of the funded status:


	Retirement Plan				Postretirement Benefits
	Year Ended December 31,				Year Ended December 31,
(All Amounts in Thousands)		2014		2013		2014		2013
Change in Projected Benefit Obligation
Projected Benefit Obligation at Beginning of Year	$	32,897	$	36,617	$	12,530	$	13,084
Service Cost		588		671		22		16
Interest Cost		1,500		1,335		521		531
Actuarial Loss (Gain)		3,113		(4,367)		(342)		(611)
Benefits Paid and Expected Expenses		(1,363)		(1,359)		(646)		(539)
Medicare Part D Reimbursements		-		-		42		49
Projected Benefit Obligation at End of Year	$	36,735	$	32,897	$	12,127	$	12,530


Change in Plan Assets
Fair Value of Plan Assets at Beginning of Year	$	34,414	$	28,913	$	-	$	-
Actual Return on Plan Assets		2,125		5,274		-		-
Employer Contributions		600		1,600		604		490
Benefits Paid and Actual Expenses		(1,367)		(1,373)		(646)		(539)
Medicare Part D reimbursements		-		-		42		49
Fair Value of Plan Assets at End of Year	$	35,772	$	34,414	$	-	$	-

(Unfunded) Funded Status	$	(963)	$	1,517	$	(12,127)	$	(12,530)


Key Assumptions
Discount Rate		4.00%		4.75%		4.00%		4.75%
Rate of Compensation Increase		4.50%		4.50%		N/A		N/A

The accumulated benefit obligation for the pension plan was approximately $33.7 million and $30.1 million at December 31, 2014 and 2013, respectively.

The following table shows amounts recognized in accumulated other comprehensive income (loss):


(All Amounts in Thousands)	Retirement Plan				Postretirement Benefits
		Year Ended December 31,				Year Ended December 31,
		2014		2013		2014		2013
Prior Service Credit (Cost)	$	13	$	16	$	(1,087)	$	(1,187)
Net Loss		(8,130)		(4,768)		(2,855)		(3,278)
Accumulated Other Comprehensive Loss	$	(8,117)	$	(4,752)	$	(3,942)	$	(4,465)

The following table provides the components of net periodic benefit cost for the plans:


		Pension Plan								Postretirement Benefits
(All Amounts in Thousands)		Years Ended December 31,								Years Ended December 31,
Components of net periodic benefit cost:		2014			2013			2012			2014			2013			2012
Service cost	$	588		$	671		$	649		$	22		$	16		$	(6)
Interest cost		1,500			1,335			1,426			521			531			471
Expected return on plan assets		(2,453)			(2,229)			(1,987)			-			-			-
Amortization of prior service cost		(3)			(3)			(3)			100			100			(12)
Amortization of Net Loss		83			888			778			80			365			201
Net periodic benefit cost (credit)	$	(285)		$	662		$	863		$	723		$	1,012		$	654

The assumptions used in the measurement of net pension cost are shown in the following table:

Key Assumptions		2014			2013			2012			2014			2013			2012
Discount Rate		4.75	%		3.75	%		4.50	%		4.75	%		3.75	%		4.50	%
Expected Return on Plan Assets		7.25	%		7.75	%		7.75	%		N/A	%		N/A	%		N/A	%
Rate of Compensation Increase		4.50	%		4.50	%		4.50	%		N/A	%		N/A	%		N/A	%

For measurement purposes, the health cost trend was assumed to be 7.4% and the dental care cost trend rate was assumed to be 5.0% in 2015-2069. It is assumed that the health care cost trend will decrease by 1.5% in 2015, increase by 0.2% in 2016, will remain flat in 2017, increase by 0.1% in 2018, and decrease by 0.1% in 2019-2025. The health cost and dental care cost trends above are approximately the same for employees over 65. A one percent change in the assumed health care cost trend rates would have the following effects:


(All Amounts in Thousands)	1% Increase		1% Decrease
Change in total service and interest cost components
for the year ended December 31, 2014	$	61	$	(51)
Change in postretirement benefit obligation as of December 31, 2014	$	1,599	$	(1,331)

The following table provides the expected future benefit payments as of December 31, 2014:


(All Amounts in Thousands)
Fiscal Year Beginning	Retirement Plan		Postretirement Benefits
2015	$	1,662	$	606
2016	$	1,756	$	621
2017	$	1,782	$	645
2018	$	1,877	$	651
2019	$	1,988	$	676
2020-2024	$	12,097	$	3,473

We continue to evaluate ways in which we can better manage these benefits and control the costs of the plans. Any changes in the plans or revisions to assumptions that affect the amount of expected future benefits may have a significant effect on the amount of the reported obligation and annual expense.

In December of 2003, the Medicare Prescription Drug, Improvements, and Modernization Act of 2003 (“Act”) was signed into law. In addition to including numerous other provisions that have potential effects on an employer’s retiree health plan, the Act includes a special subsidy beginning in 2006 for employers that sponsor retiree health plans with prescription drug benefits that are at least as favorable as the new Medicare Part D benefit. We have determined that our plan is actuarially equivalent and as such we qualify for this special subsidy. The law resulted in a decrease in our annual net periodic benefit cost.

In early 2010, Congress passed and the President signed into law the Health Care and Education Affordability Reconciliation Act of 2010. Based on our review and evaluation of the law, we do not believe the impact on our postretirement benefits will be material to us at this time.

Union Plans

In September 2011, the FASB issued guidance for disclosures of multi-employer pension and other postretirement benefit plans. The guidance requires an employer to provide additional quantitative and qualitative disclosures for these plans. The disclosures provide users with more detailed information about an employer’s involvement in multi-employer pension plans. We adopted this guidance during 2011.

Crew members on our U.S. Flag vessels belong to union-sponsored, multi-employer pension plans. We contributed approximately $2.7 million, $3.0 million, and $3.2 million to these plans for the years ended December 31, 2014, 2013, and 2012, respectively. These contributions are in accordance with provisions of negotiated labor contracts and generally are based on the amount of straight pay received by the union members. As of December 31, 2014, all plans pension protection act zone status is green. Green Zone status means that the Fund is at least 80% funded with a Funding Standard account credit balance that is projected to be positive for more than seven years.

Information from the plans’ administrators can be found in the table below:


Plan	Company	EIN	Pension Protection Act Zone Status	FIP/RP Status Pending/ Implemented (5)	Contribution Amount (In Thousands)			Surcharge Imposed	Expiration Date
					2014	2013	2012
MM&P (1)	WSC	13-100310	Green	Yes	$ 609	$ 664	$ 996	No	9/30/2025 & 9/30/2025
	SCI				$ 378	$ 468	$ 298		6/30/2027
	CGL				$ 790	$ 950	$ 1,039		9/30/2025 & 6/30/2020
MEBA (2)	WSC	51-029896	Green	No	$ 272	$ 259	$ 311	No	9/30/2020
	SCI				$ 127	$ 125	$ 68		6/30/2017
	CGL				$ 257	$ 249	$ 242		9/30/2020 & 6/30/2020
ARA (3)	WSC	13-161999	Green	No	$ -	$ -	$ 2	No	*
	CGL				$ 54	$ 54	$ 52		9/30/15 & 6/30/17
SPP (4)	WSC	13-100329	Green	No	$ 86	$ 80	$ 81	No	9/30/2017 & 12/31/2016
	SCI				$ 85	$ 72	$ 20		6/30/2017
	CGL				$ 90	$ 90	$ 86		12/31/2016 & 6/30/2017
	Total Contributions				$ 2,748	$ 3,011	$ 3,195

	(1) Masters, Mates & Pilots Pension Plan
	(2) MEBA Pension Trust
	(3) American Radio Association Pension Trust
	(4) Seafarers Pension Plan
	(5) Financial Improvement Plan/Rehabilitation Plan
	*In full force and effect until otherwise noted

In 2014 and 2013, due to the changes in the pension regulations and the fact that the MM&P adopted the new amortization periods for the 2008 losses, the plan continues to meet the requirements for the green zone. Due to a critical status in 2011, a rehabilitation plan was adopted and the pension plan is still operating under the changes that were made as a result of the rehabilitation plan.

401(k) Savings Plan

We provide a 401(k) tax-deferred savings plan to all full-time employees. The plan is a defined contribution plan established under the provisions of Section 401(a) of the Internal Revenue Code (the Code) and covers eligible employees of the Company and our domestic subsidiaries. Employees become eligible to participate in the plan on the first day of the calendar month following their date of hire. Effective July 1, 2008, a participant must be age 21 to participate in the plan. The plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). We match 50% of the employee’s first $2,000 contributed to the plan annually. We contributed approximately $111,000, $118,000, and $102,000 to the plan for the years ended December 31, 2014, 2013, and 2012, respectively.

Stock Incentive Plan

In April 2011, the stockholders of International Shipholding Corporation approved the International Shipholding Corporation 2011 Stock Incentive Plan (the “Plan”). The compensation committee of the Board of Directors of the Company will generally administer the Plan, and has the authority to grant awards under the Plan, including setting the terms of the awards. Incentives under the Plan may be granted in any one or a combination of the following forms: incentive stock options under Section 422 of the Internal Revenue Code, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, and other stock-based awards.

A total of 400,000 shares of the Company’s common stock are authorized to be issued under the Plan with 115,078 shares available to be issued. The Company has no other equity compensation plans with shares available for issuance. Officers, directors, and key employees of the Company and the Company’s consultants and advisors will be eligible to receive incentives under the Plan when designated by the compensation committee as Plan participants (See Note S – Stock-Based Compensation).

Life Insurance

We have agreements with the two former Chairmen of the Company whereby their estates or designated beneficiaries will be paid approximately $822,000 and $627,000, respectively, upon death. We reserved amounts to fund a portion of these death benefits, which amount to $822,000 at December 31, 2014 and 2013 and $503,000, and $480,000 at December 31, 2014 and 2013, respectively.