NOTE N – EMPLOYEE BENEFIT PLANS

Pension and Postretirement Benefits

We maintain a defined benefit pension plan (“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, 2015 was 30.3%, or approximately $10.6 million, in fixed income investments and 69.7%, or approximately $24.5 million, 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 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, 2015, the plan had assets of approximately $35.1 million and a projected pension obligation of approximately $36.5 million, and as of December 31, 2014, the plan had assets of approximately $35.8 million and a projected pension obligation of approximately $36.7 million. As of December 31, 2015, the plan was underfunded by approximately $1.4 million primarily due to a change in a mortality assumption that increased the projected benefit obligation, which was slightly offset by a decrease to the projected benefit obligation due to a higher than expected discount rate, which increased from 4.00% to 4.50%.

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

We measure the fair value of our financial assets on a recurring basis, which we have summarized and segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value in Note X – Fair Value Measurements.

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:



(All Amounts in Thousands)		Retirement Plan				Postretirement Benefits
		2015		2014		2015		2014
Change in Projected Benefit Obligation
Projected Benefit Obligation at Beginning of Year	$	36,735	$	32,897	$	12,127	$	12,530
Service Cost		593		588		(64)		22
Interest Cost		1,422		1,500		427		521
Actuarial (Gain) Loss		(737)		3,113		(1,931)		(342)
Benefits Paid and Expected Expenses		(1,510)		(1,363)		(684)		(646)
Medicare Part D Reimbursements		-		-		44		42
Projected Benefit Obligation at End of Year	$	36,503	$	36,735	$	9,919	$	12,127

Change in Plan Assets
Fair Value of Plan Assets at Beginning of Year	$	35,772	$	34,414	$	-	$	-
Actual Return on Plan Assets		213		2,125		-		-
Employer Contributions		646		600		640		604
Benefits Paid and Actual Expenses		(1,513)		(1,367)		(684)		(646)
Medicare Part D Reimbursements		-		-		44		42
Fair Value of Plan Assets at End of Year	$	35,118	$	35,772	$	-	$	-

Funded (Unfunded) Status	$	(1,385)	$	(963)	$	(9,919)	$	(12,127)

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

As of December 31, 2015, our Retirement Plan liability was approximately $1.4 million, which was included in other long-term liabilities. Our postretirement benefits obligation was approximately $9.9 million, of which $0.5 million was included in accounts payable and accrued expenses and $9.4 million was included in other long-term liabilities as of December 31, 2015.

As of December 31, 2014, our Retirement Plan liability was approximately $1.0 million, which was included in other long-term liabilities. Our postretirement benefits obligation was approximately $12.1 million, of which $0.6 million was included in accounts payable and accrued expenses and $11.5 million was included in other long-term liabilities as of December 31, 2014.

The accumulated benefit obligation for the pension plan was approximately $33.7 million at December 31, 2015 and 2014.

The following table shows amounts recognized in accumulated other comprehensive loss for the years ended December 31, 2015 and 2014:



(All Amounts in Thousands)		Retirement Plan				Postretirement Benefits
		2015		2014		2015		2014
Prior Service Credit (Cost)	$	9	$	13	$	(982)	$	(1,087)
Net Loss		(9,290)		(8,130)		(867)		(2,855)
Accumulated Other Comprehensive Loss	$	(9,281)	$	(8,117)	$	(1,849)	$	(3,942)

The following table provides the components of net periodic benefit cost and the assumptions used in the measurement of net pension cost for the years ended December 31, 2015 and 2014:



(All Amounts in Thousands)		Pension Plan				Postretirement Benefits
		2015		2014		2015		2014
Components of Net Periodic Benefit Cost
Service Cost	$	593	$	588	$	(64)	$	22
Interest Cost		1,422		1,500		427		521
Expected Return on Plan Assets		(2,543)		(2,453)		-		-
Amortization of Prior Service Cost		(3)		(3)		105		100
Amortization of Net Loss		437		83		57		80
Net Periodic Benefit Cost (Credit)	$	(94)	$	(285)	$	525	$	723

Key Assumptions
Discount Rate		4.00%		4.75%		4.00%		4.75%
Expected Return on Plan Assets		7.25%		7.25%		N/A		N/A
Rate of Compensation Increase		4.50%		4.50%		N/A		N/A

For measurement purposes, the health cost trend was assumed to be 6.9% and the dental care cost trend rate was assumed to be 5.0%. It is assumed that the health care cost trend will decrease by 0.2% in 2016, decrease by 0.7% in 2017, decrease by 0.6% in 2018, increase by 0.1% in 2019, and increase by 0.4% in 2020-2026. 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 as of December 31, 2015:

The following table provides the expected future benefit payments as of December 31, 2015:



(All Amounts in Thousands)
		Retirement Plan		Postretirement Benefits
2016	$	1,764	$	538
2017		1,739		543
2018		1,793		557
2019		1,909		566
2020		2,124		570
2021-2025		12,455		2,833

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.

Union Plans

Crew members on our U.S. flag vessels belong to union-sponsored, multi-employer pension plans. We contributed approximately $2.5 million and $2.7 million to these plans for the years ended December 31, 2015 and 2014, 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, 2015, all plans’ Pension Protection Act zone status was green. Green zone status means 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:



(All Amounts in Thousands)			Pension	FIP/RP
			Protection	Status	Contribution
			Act Zone	Pending/	Amount		Surcharge
Plan	Company	EIN	Status	Implemented (5)	2015	2014	Imposed	Expiration Date
MM&P (1)	WSC	13-100310	Green	Yes	$ 486	$ 609	No	9/30/2025 & 9/30/2025
	SCI				$ 369	$ 378		6/30/2027
	CGL				$ 700	$ 790		9/30/2025 & 6/30/2020
MEBA (2)	WSC	51-029896	Green	No	$ 235	$ 272	No	9/30/2020
	SCI				$ 143	$ 127		6/30/2017
	CGL				$ 281	$ 257		9/30/2020 & 6/30/2020
ARA (3)	WSC	13-161999	Green	No	$ -	$ -	No	*
	CGL				$ 54	$ 54		9/30/15 & 6/30/17
SPP (4)	WSC	13-100329	Green	No	$ 74	$ 86	No	9/30/2017 & 12/31/2016
	SCI				$ 81	$ 85		6/30/2017
	CGL				$ 93	$ 90		12/31/2016 & 6/30/2017
	Total Contributions				$ 2,516	$ 2,748

	(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

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 $103,525 and $111,000 to the plan for the years ended December 31, 2015 and 2014, respectively.

Stock Incentive Plan

In April 2015, the stockholders of International Shipholding Corporation approved the International Shipholding Corporation 2015 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, other stock-based awards, and cash-based performance awards.

A total of 400,000 shares of the Company’s common stock are authorized to be issued under the Plan all of which was available to be issued at December 31, 2015. In January of 2016, the Company issued 60,000 shares to independent directors under this plan reducing the availability to 340,000. Additionally, the Company has 160,759 shares authorized remaining to be issued under the 2011 Stock Incentive Plan. 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

On August 7, 2015, Mr. Niels W. Johnsen, retired Chairman of the Company, passed away. We had an agreement whereby his estates would be paid approximately $822,000 upon his death. This payment was deferred and was fully reserved at December 31, 2015 and 2014.

Additionally, we have a similar agreement with a second former Chairman of the Company whereby his estates or designated beneficiaries will be paid approximately $627,000 upon death. We reserved amounts to fund a portion of these death benefits, which amount to $526,000 and $503,000 at December 31, 2015 and 2014, respectively.

Both of the above mentioned policies are self-insured by the Company.

(All Amounts in Thousands)

1% Increase

1% Decrease

Service and Interest Costs

Postretirement Benefit Obligation