11. Pension and Employee Benefit Plans

We sponsor a non-contributory defined benefit pension plan for certain union employees. The plan is funded in accordance with the funding requirements of the Employee Retirement Income Security Act of 1974.

We also sponsor a postretirement health care plan for office employees retired before January 1, 1990. The plan allows retirees who have attained the age of 65 to elect the type of coverage desired.

The Company acquired two defined benefit pension plans covering eligible employees in the United States in connection with the acquisition of Met-Pro. These plans are funded in accordance with the funding requirements of the Employee Retirement Income Security Act of 1974. Met-Pro had frozen the accrual of future benefits for all participants, effective December 31, 2008.

The following tables set forth the plans’ changes in benefit obligations, plan assets and funded status on the measurement dates, December 31, 2013 and 2012, and amounts recognized in our consolidated balance sheets as of those dates.


	Pension Benefits						Other Benefits
	2013			2012			2013			2012
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	8,535		$	7,886			n/a			n/a
Accumulated postretirement benefit obligation		n/a			n/a		$	89		$	146
Projected benefit obligation from acquisition		24,364			—			—			—
Service cost		126			58			—			—
Interest cost		676			328			3			6
Amendments		—			—			44			—
Actuarial (gain)/loss		(509	)		629			8			(43	)
Administrative expenses		(126	)		—			—			—
Benefits paid		(755	)		(366	)		(28	)		(20	)

Projected benefit obligation at end of year		32,311			8,535			116			89

Change in plan assets:
Fair value of plan assets at beginning of year		5,549			5,020			—			—
Fair value of plan assets from acquisition		18,654			—			—			—
Actual return on plan assets		2,291			603			—			—
Employer contribution		209			292			28			20
Administrative expenses		(126	)		—			—			—
Benefits paid		(755	)		(366	)		(28	)		(20	)

Fair value of plan assets at end of year		25,822			5,549			—			—

Funded status	$	(6,489	)	$	(2,986	)	$	(116	)	$	(89	)

Defined benefit liabilities included in accounts payable and accrued expenses	$	—		$	—		$	(21	)	$	(15	)
Defined benefit liabilities included in other liabilities		(6,489	)		(2,986	)		(95	)		(74	)
Deferred tax benefit (expense) associated with AOCL		608			1,505			(18	)		(45	)
AOCL, net of tax		856			2,257			(27	)		(67	)

Net amount recognized	$	(5,025	)	$	776		$	(161	)	$	(201	)

Other comprehensive (income) loss:
Net loss (gain)	$	(1,926	)	$	404		$	8		$	(43	)
Prior service cost		—			—			44			—
Amortization of prior service cost		(1	)		(1	)		—			—
Amortization of net actuarial loss		(370	)		(332	)		14			8

Total recognized in other comprehensive (income) loss	$	(2,297	)	$	71		$	66		$	(35	)

Accumulated other comprehensive (income) loss:
Net (gain) loss	$	1,460		$	3,757		$	(89	)	$	(112	)
Prior service cost		4			5			44			—

Amount recognized in accumulated other comprehensive (income)	$	1,464		$	3,761		$	(45	)	$	(112	)

Weighted-average assumptions used to determine benefit obligations for the year ended December 31:
Discount rate		4.50	%		3.75	%		4.50	%		3.75	%
Compensation increase rate		n/a			n/a			n/a			n/a

Benefits under the plans are not based on wages and, therefore, future wage adjustments have no effect on the projected benefit obligations.

Included in other comprehensive income for our defined benefit plans, net of related tax effect, were a decrease in the minimum liability of $1.4 million in 2013 and an increase of $21,000 in 2012.

The details of net periodic benefit cost for pension benefits included in the accompanying Consolidated Statements of Income for the years ended December 31, 2013 and 2012 are as follows:


	2013			2012
Service cost	$	126		$	58
Interest cost		676			328
Expected return on plan assets		(871	)		(377	)
Net amortization and deferral		370			333

Net periodic benefit cost	$	301		$	342

Weighted-average assumptions used to determine net periodic benefit costs for the years ended December 31:
Discount rate		3.75% to 4.50%			4.25%
Expected return on assets		7.50%			7.50%
Compensation increase rate		n/a			n/a

The basis of the long-term rate of return assumption reflects the current asset mix for the pension plans of approximately 30 to 40% debt securities and 60 to 70% equity securities with assumed average annual returns of approximately 4% to 6% for debt securities and 8% to 12% for equity securities. The investment portfolio for the pension plans will be adjusted periodically to maintain the current ratios of debt securities and equity securities. Additional consideration is given to the historical returns for the pension plan as well as future long range projections of investment returns for each asset category.

The net loss and prior service cost for the defined benefit pension plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2014 are $0.2 million and $1,000, respectively. The net gain and prior service cost for the healthcare plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2014 is $(11,000) and $6,000, respectively.

The net periodic benefit cost (representing interest cost and amortization of net actuarial loss only) for the healthcare plan included in the accompanying consolidated statements of income was $(11,000) and $(3,000) for the years ended December 31, 2013 and 2012, respectively. The weighted average discount rate to determine the net periodic benefit cost for 2013 and 2012 was 3.75% and 4.25%, respectively.

Changes in health care costs have no effect on the plan as future increases are assumed by the retirees.

Pension plan assets are invested in trusts comprised primarily of investments in various debt and equity funds. A fiduciary committee establishes the target asset mix and monitors asset performance. The expected rate of return on assets includes the determination of a real rate of return for equity and fixed income investment applied to the portfolio based on their relative weighting, increased by an underlying inflation rate. Our defined benefit pension plan asset allocation by asset category is as follows:


	Target Allocation 2014			Percentage of Plan Assets
	Target Allocation 2014			2013			2012
Asset Category:
Equity securities		70	%		64% - 73	%		69	%
Debt securities		30	%		27% - 36	%		31	%

Total		100	%		100	%		100	%

Estimated pension plan cash obligations are $1.6 million, $1.7 million, $1.8 million, $1.8 million, and $1.9 million for 2014 – 2018, respectively, and a total of $10.2 million for the years 2019 through 2023. Estimated healthcare plan cash obligations are $21,000, $19,000, $17,000, $15,000, and $13,000 for 2014–2018, respectively, and a total of $41,000 for the years 2019 through 2023.

Fair Value Measurements of Pension Plan Assets

Following is a description of the valuation methodologies used for pension assets measured at fair value:

•

Cash and cash equivalents: Cash and cash equivalents consist primarily of cash on deposit in money market funds. Cash and cash equivalents are stated at cost, which approximates fair value.

•

Equity securities: Equity securities consist of various managed funds that invest primarily in common stocks. These securities are valued at the net asset value of shares held by the plans at year-end. The net asset value is calculated based on the underlying shares and investments held by the funds.

•

Debt securities: Debt securities consist of U.S. government and agency securities, corporate bonds and notes, and managed funds that invest in fixed income securities. U.S governmental and agency securities are valued at closing prices reported in the active market in which the individual securities are traded. Corporate bonds and notes are valued using market inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. Inputs may be prioritized differently at certain times based on market conditions. Managed funds are valued at the net asset value of shares held by the plans at year end. The net asset value is calculated based on the underlying investments held by the fund.

The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The levels assigned to the defined benefit plan assets as of December 31, 2013, are summarized in the tables below:


	Level 1		Level 2		Level 3		Total
Pension assets, at fair value:
Cash and cash equivalents	$	1,106	$	—	$	—	$	1,106
Equity securities		17,590		—		—		17,590
Debt securities		7,126		—		—		7,126

Total assets	$	25,822	$	—	$	—	$	25,822

The levels assigned to the defined benefit plan assets as of December 31, 2012, are summarized in the tables below:


	Level 1		Level 2		Level 3		Total
Pension assets, at fair value:
Cash and cash equivalents	$	156	$	—	$	—	$	156
Equity securities		3,840		—		—		3,840
Debt securities		1,553		—		—		1,553

Total assets	$	5,549	$	—	$	—	$	5,549

The Company contributes to a number of multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover its union-represented employees. The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:

•

Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.

•

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.

•

If the Company chooses to stop participating in some of its multiemployer plans, CECO may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.

The Company participation in these plans for the annual period ended December 31, 2013, is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employee Identification Number and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act zone status available in 2013 and 2012 is for the plan’s year-end at December 31, 2012, and December 31, 2011, respectively. The zone status is based on information that the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreement(s) to which the plans are subject.

Pension Fund

EIN/Pension
Plan Number

Pension
Protection
Act Zone
Status
2012

FIF/RP Status Pending/
Implemented

Surcharge
Imposed

Expiration
of Collective
Bargaining
Agreement

Sheet Metal Workers’ National Pension Fund

52-6112463/001

Red

FIF: did not disclose

various

RP: Yes - Implemented

Sheet Metal Workers Local 224 Pension Plan

31-6171353/001

Red

FIF: Yes - Implemented

May 31, 2016

RP: Yes - Implemented

Sheet Metal Workers Local No. 20, Indianapolis Area Pension fund

51-0168516/001

Green

Is not subject

May 31, 2014

Sheet Metal Workers Local No. 177 Pension Fund

62-6093256/001

Green

Is not subject

not available

The Company was not listed in any of the plans’ Forms 5500 as providing more than 5 percent of the total contributions for the plans and plan years. At the date the financial statements were issued, Forms 5500 were not available for the plan years ended December 31, 2013.

We have no current intention of withdrawing from any plan and, therefore, no liability has been provided in the accompanying consolidated financial statements.

Amounts charged to pension expense under the above plans including the multi-employer plans totaled $1.6 million and $1.8 million in 2013 and 2012, respectively.

We have a profit sharing and 401(k) savings retirement plan for non-union employees of certain of our subsidiaries. The plan covers substantially all employees who have 30 days of service, completed 1,000 hours of service and who have attained 18 years of age. The plan allows us to make discretionary contributions and provides for employee salary deferrals of up to 100%. We increased, effective January 1, 2008, the matching contributions to 100% of the first 1% and 50% of the next 5% of the employee deferral for a maximum match of 3.5%. We made aggregate matching contributions and discretionary contributions of $0.4 million during both 2013 and 2012. Effective January 1, 2014, the matching contribution was increased to 100% of the first 3% and 50% of the next 3% of the employee deferral for a maximum match of 4.5%.

The Company has a 401(k) profit sharing plan in which former employees of Met-Pro in the United States are eligible to participate, following the completion of one year of service and after attaining age 21. Pursuant to this plan, employees can contribute up to 25% of their compensation to the Plan. The Company will match up to 50% of the employee’s contribution up to 4% of compensation, plus an additional discretionary contribution ranging from 2% to 4%, based on age and years of service. The Company provided cash contributions to this legacy Met-Pro 401(k) profit sharing plan of $0.2 million for the four months ended December 31, 2013. Effective January 1, 2014, this was merged into the CECO 401(k) retirement savings plan.