Note 5. Employee Benefit Plans

The Company provides pension plans for most full time employees. Generally the plans provide benefits based on years of service and/or a combination of years of service and earnings. Certain retirees are also eligible for medical, dental and vision benefits.

Company Pension Plans

The Company has a defined benefit pension plan, the Farmer Bros. Salaried Employees Pension Plan, for the majority of its employees who are not covered under a collective bargaining agreement (“Farmer Bros. Plan”) and two defined benefit pension plans for certain hourly employees covered under a collective bargaining agreement (the “Brewmatic Plan” and the “Hourly Employees’ Plan”). All assets and benefit obligations were determined using a measurement date of June 30.

The Company amended the Farmer Bros. Plan, freezing the benefit for all participants effective June 30, 2011. After the plan freeze, participants do not accrue any benefits under the plan, and new hires are not eligible to participate in the plan.

The net periodic benefit costs for the defined benefit plans are as follows:

Components of net periodic benefit cost


	Three Months Ended September 30,
	2011			2010
(In thousands)	(Unaudited)
Service cost	$	124		$	1,300
Interest cost		1,525			1,569
Expected return on plan assets		(1,703	)		(1,329	)
Amortization of net (gain)/loss*		342			836
Amortization of prior service cost/(credit)*		5			41

Net periodic benefit cost	$	293		$	2,417

*	These amounts represent the estimated portion of the net (gain)/loss and net prior service cost/(credit) remaining in accumulated other comprehensive income that is expected to be recognized as a component of net periodic benefit cost over the current fiscal year.

Weighted-average assumptions used to determine net periodic benefit cost


	Fiscal
	2012			2011
Discount rate		5.60	%		5.60	%
Expected long-term rate of return		8.25	%		8.25	%
Rate of compensation increase*		3.00	%		3.00	%

*	For Hourly Employees’ Plan only.

Basis used to determine expected long-term return on plan assets

Historical and future expected rates of return of multiple asset classes were analyzed to develop a risk-free real rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk-free real rate of return, and the associated risk premium. A weighted average rate of return was developed based on those overall rates and the target asset allocation of the plans.

Postretirement Benefits

The Company sponsors an unfunded postretirement medical, dental and vision plan that covers qualified non-union retirees and certain qualified union retirees. Under this postretirement plan, the Company’s contributions toward premiums for retiree medical, dental and vision coverage for participants and dependents are scaled based on length of service, with greater Company contributions for retirees with greater length of service, but subject to a maximum monthly Company contribution.

The following table shows the components of net periodic postretirement benefit cost for the three months ended September 30, 2011 and 2010.

Components of net periodic postretirement benefit cost


	Three Months Ended September 30,
	2011			2010
(In thousands)	(Unaudited)
Service cost	$	409		$	474
Interest cost		330			314
Expected return on plan assets		—			—
Amortization of unrecognized net gain		(199	)		(180	)
Amortization of unrecognized transition (asset)/obligation		—			—
Amortization of unrecognized prior service cost/(credit)		(58	)		(58	)

Net periodic postretirement benefit cost	$	482		$	550

Weighted-average assumptions used to determine net periodic postretirement benefit cost


	Fiscal
	2012			2011
Discount rate		5.46	%		5.52	%

The fiscal 2012 estimate of net periodic postretirement benefit cost is also based on July 1, 2010 census data assuming there were no demographic actuarial gains or losses during the fiscal year ended June 30, 2011.