Note 18.

Retirement Plans

The Company has five retirement plans which cover its hourly and salaried employees in the United States: three defined benefit plans (one active / two frozen) and two defined contribution plans. Employees are eligible to participate in the appropriate plan based on employment classification. The Company's funding to the defined benefit and defined contribution plans are governed by the Employee Retirement Income Security Act of 1974 (ERISA), applicable plan policy and investment guidelines. The Company policy is to contribute at least the minimum in accordance with the funding standards of ERISA.

The Company’s subsidiary, L.B. Foster Rail Technologies (Rail Technologies), maintains two defined contribution plans for its employees in Canada, as well as a post-retirement benefit plan. In the United Kingdom, Rail Technologies maintains both a defined contribution plan and a defined benefit plan. These plans are discussed in further detail below.

United States Defined Benefit Plans

The following tables present a reconciliation of the changes in the benefit obligation, the fair market value of the assets and the funded status of the plans:



		2012		2011
		In thousands
Changes in benefit obligation:
Benefit obligation at beginning of year	$	16,986	$	14,955
Service cost		31		30
Interest cost		748		799
Actuarial losses		980		1,896
Benefits paid		(711)		(694)
Benefit obligation at end of year	$	18,034	$	16,986



Change to plan assets:
Fair value of assets at beginning of year	$	12,088	$	11,433
Actual gain on plan assets		1,127		266
Employer contribution		758		1,083
Benefits paid		(711)		(694)
Fair value of assets at end of year		13,262		12,088
Funded status at end of year	$	(4,772)	$	(4,898)



Amounts recognized in the consolidated
balance sheet consist of:
Other long-term liabilities	$	(4,772)	$	(4,898)



Amounts recognized in accumulated other
comprehensive income consist of:
Net loss	$	4,675	$	4,206
Prior service cost		4		5
	$	4,679	$	4,211

The actuarial loss included in accumulated other comprehensive loss that will be recognized in net periodic pension cost during 2013 is $212,000, before taxes.

Net periodic pension costs for the three years ended December 31, 2012 are as follows:



		2012		2011		2010
Components of net periodic benefit cost:		In thousands
Service cost	$	31	$	30	$	31
Interest cost		748		799		264
Expected return on plan assets		(810)		(764)		(286)
Amortization of prior service cost		1		1		-
Recognized net actuarial loss		194		111		106
Net periodic benefit cost	$	164	$	177	$	115

The weighted average assumptions used to measure the projected benefit obligation for the years ended December 31, 2012 and 2011 are as follows:



	2012		2011
Discount rate	4.0	%	4.5	%

The weighted average assumptions used to determine net periodic benefit costs for the three years ended December 31, 2012:



	2012		2011		2010
Discount rate	4.00	%	5.48	%	6.00	%
Expected rate of return on plan assets	6.50	%	6.70	%	7.75	%

The expected long-term rate of return is based on numerous factors including the target asset allocation for plan assets, historical rate of return, long-term inflation assumptions, and current and projected market conditions. Different asset category compositions between the two defined benefit plans led to two different expected rates of return on plan assets in 2011.

Amounts applicable to the Company’s pension plans with accumulated benefit obligations in excess of plan assets are as follows:



		2012		2011
		In thousands
Projected benefit obligation	$	18,034	$	16,986
Accumulated benefit obligation		18,034		16,986
Fair value of plan assets		13,262		12,088

Plan assets consist primarily of various fixed income and equity investments. The Company’s primary investment objective is to provide long-term growth of capital while accepting a moderate level of risk. The investments are limited to cash and equivalents, bonds, preferred stocks and common stocks. The investment target ranges and actual allocation of pension plan assets by major category at December 31, 2012 and 2011 are as follows:



	Target		2012		2011
Asset Category
Cash and cash equivalents	0 - 10	%	7	%	4	%
Total fixed income funds	30 - 50		31		37
Total mutual funds / equities	50 - 70		62		59
Total			100	%	100	%

In accordance with the fair value disclosure requirements with FASB ASC 820, “Fair Value Measurements and Disclosures,” the following assets were measured at fair value on a recurring basis at December 31, 2012 and 2011. Additional information regarding FASB ASC 820 and the fair value hierarchy can be found in Note 20, Fair Value Measurements.



		December 31,
		2012		2011
		In thousands
Asset Category
Cash and cash equivalents	$	984	$	513
Fixed income funds
Government bonds		-		1,342
Corporate bonds		4,168		3,146
Total fixed income funds		4,168		4,488
Equity funds and equities
Mutual funds		7,163		678
Common stock		947		6,409
Total equity funds and equities		8,110		7,087

Total	$	13,262	$	12,088

Cash equivalents. The Company uses quoted market prices to determine the fair value of these investments in interest-bearing cash accounts and they are classified in Level 1 of the fair value hierarchy. The carrying amounts approximate fair value because of the short maturity of the instruments.

Fixed income funds. Investments within the fixed income funds category consist of fixed income corporate debt and U.S. government and various state agency obligations. The Company uses quoted market prices to determine the fair value of these fixed income funds. These instruments consist of exchange-traded government and corporate bonds and are classified in Level 1 of the fair value hierarchy.

Equity funds and equities. The valuation of investments in registered investment companies is based on the underlying investments in securities. Securities traded on security exchanges are valued at the latest quoted sales price. Securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the average of the last reported bid and ask quotations. These investments are classified in Level 1 of the fair value hierarchy.

The Company expects to contribute approximately $555,000 to its United States defined benefit plans in 2013.

The following benefit payments are expected to be paid:



		Pension
		Benefits
		In thousands
2013	$	743
2014		754
2015		766
2016		812
2017		886
Years 2018-2022		5,184

United Kingdom Defined Benefit Plans

During 2010, the Conveyors International Limited Pension Plan (Conveyors plan) was merged with the Portec Rail Products (UK) Limited Pension Plan (Portec Rail Plan) a defined benefit pension plan in the United Kingdom. The combined Portec Rail Plan covers some current employees, former employees and retirees of the original Portec Rail Plan along with former employees of the Conveyors plan. The Portec Rail Plan has been frozen to new entrants since April 1, 1997 and also covers the former employees of the Conveyors plan after January 2002. Benefits under the Portec Rail Plan, including the former Conveyors plan, were based on years of service and eligible compensation during defined periods of service. Our funding policy for the Portec Rail Plan is to make minimum annual contributions required by applicable regulations. Contributions of $297,000 and $235,000 were made to the plan on December 31, 2012 and 2011, respectively.

The funded status of the United Kingdom defined benefit plan at year end is as follows:



		2012		2011
		In thousands
Changes in benefit obligation:
Benefit obligation at beginning of year	$	6,964	$	6,229
Interest cost		338		331
Actuarial losses		652		544
Plan transfers		-		194
Benefits paid		(236)		(309)
Foreign currency exchange rate changes		316		(25)
Benefit obligation at end of year	$	8,034	$	6,964



Change to plan assets:
Fair value of assets at beginning of year	$	5,160	$	5,293
Actual gain (loss) on plan assets		596		(233)
Employer contribution		297		235
Plan transfers		-		194
Benefits paid		(236)		(309)
Foreign currency exchange rate changes		234		(20)
Fair value of assets at end of year		6,051		5,160
Funded status at end of year	$	(1,983)	$	(1,804)



Amounts recognized in the consolidated
balance sheet consist of:
Other long-term liabilities	$	(1,983)	$	(1,804)

Net periodic pension costs for the three years ended December 31, 2012 are as follows:



		2012		2011
Components of net periodic benefit cost:		In thousands
Interest cost	$	338	$	331
Expected return on plan assets		(307)		(337)
Amortization of transition obligation		(49)		(47)
Amortization of prior service cost		23		22
Recognized net actuarial gain		221		107
Net periodic benefit cost	$	226	$	76

The weighted average assumptions used to measure the benefit obligation for the years ended December 31 were as follows:



	2012		2011
Discount rate	4.3	%	4.7	%
Expected rate of return on plan assets	5.2	%	5.7	%

Amounts applicable to the Company’s pension plans with accumulated benefit obligations in excess of plan assets are as follows:



		2012		2011
		In thousands
Projected benefit obligation	$	8,034	$	6,964
Accumulated benefit obligation		8,034		6,964
Fair value of plan assets		6,051		5,160

The Company has estimated the long-term rate of return on plan assets based primarily on historical returns on plan assets, adjusted for changes in target portfolio allocations and recent changes in long-term interest rates based on publicly available information.

Plan assets are invested by the trustees in accordance with a written statement of investment principles. This statement permits investment in equities, corporate bonds, United Kingdom government securities, commercial property and cash, based on certain target allocation percentages.

Asset allocation is primarily based on a strategy to provide steady growth without undue fluctuations. The target asset allocation percentages for 2012 are as follows:



	Portec Rail
	Plan
Equity securities	Up to 100%
Commercial property	Not to exceed 50%
U.K. Government securities	Not to exceed 50%
Cash	Up to 100%

Substantially all plan assets held within the Portec Rail Plan consists of marketable securities and are classified in Level 1 of the fair value hierarchy.

The plan assets by category for the years ended December 31, are as follows:



		December 31,
		2012		2011
Asset Category		In thousands
Cash and cash equivalents	$	520	$	180
Equity securities		2,250		2,286
Bonds		1,529		965
Commercial property		1,636		1,264
Alternatives		116		465
Total	$	6,051	$	5,160

United Kingdom regulations require trustees to adopt a prudent approach to funding required contributions to defined benefit pension plans. The Company anticipates making contributions of $228,000 to the Portec Rail Plan during 2013.

The following estimated future benefits payments are expected to be paid under the Portec Rail Plan:



		Pension
		Benefits
		In thousands
2013	$	201
2014		232
2015		257
2016		290
2017		313
Years 2018-2022		1,960

Other Post-Retirement Benefit Plan

At Rail Technologies' operation near Montreal, Quebec, Canada, it maintains a post-retirement benefit plan, which provides retiree life insurance, health care benefits and, for a closed group of employees, dental care. Retiring employees with a minimum of 10 years of service are eligible for the plan benefits. The plan is not funded. Cost of benefits earned by employees is charged to expense as services are rendered. The expense related to this plan was not material for 2012 and 2011. Rail Technologies' accrued benefit obligation was $1,130,000 and $879,000 as of December 31, 2012 and 2011, respectively. Benefit payments anticipated for 2012 are not material. Accordingly, this obligation is recognized within other long-term liabilities.

The weighted average assumptions used to measure the benefit obligation for the years ended December 31 were as follows:



	2012		2011
Discount rate	4.4	%	5.3	%
Weighted average health care trend rate	6.6	%	7.0	%

The weighted average health care rate trends downward to an ultimate rate of 4.40% in 2032.

Defined Contribution Plans

The Company has a domestic defined contribution plan that covers all non-union hourly and all salaried employees (Salaried Plan). The Salaried Plan permits both pre-tax and after-tax employee contributions. Participants can contribute, subject to statutory limitations, between 1% and 75% of eligible pre-tax pay and between 1% and 100% of eligible after-tax pay. The Company's employer match is 100% of the first 1% of deferred eligible compensation and up to 50% of the next 6%, based on years of service, of deferred eligible compensation, for a total maximum potential match of 4%. The Company may also make discretionary contributions to the Salaried Plan.

The Company also has a domestic defined contribution plan for union hourly employees with contributions made by both the participants and the Company based on various formulas (Union Plan).

The Company’s Rail Technologies subsidiary maintains a defined contribution plan covering all non-union employees at its Montreal, Quebec, Canada location (Montreal Plan). Under the terms of the Montreal Plan, Rail Technologies may contribute 4% of each employee’s compensation as a non-elective contribution and may also contribute 30% of the first 6% of each employee’s compensation contributed to the Montreal Plan.

The Company’s Rail Technologies subsidiary also maintains a defined contribution plan covering substantially all employees at its United Kingdom locations (U.K. Plan). Benefits under the U.K. Plan are provided under no formal written agreement. Under the terms of the defined contribution U.K. Plan, Rail Technologies may make non-elective contributions of between 3% and 10% of each employee’s compensation.

Finally, the Company’s Rail Technologies subsidiary maintains a defined contribution plan covering substantially all of the employees of at its Burnaby, British Columbia, Canada location (Burnaby Plan). Under the terms of the Burnaby Plan, Rail Technologies makes a non-elective contribution of 4% of each employee’s compensation and may also contribute 30% of the first 6% of each employee’s compensation contributed to the Burnaby Plan.

The following table summarizes the expense associated with the contributions made to these plans. Due to the Company not acquiring Rail Technologies until December 15, 2010, there were no contributions made by the Company to the Montreal, U.K. or Burnaby Plans in 2010.



		2012		2011		2010
		In thousands
Salaried Plan	$	2,028	$	1,846	$	1,700
Union Plan		79		62		34
Montreal Plan		126		101		-
U.K. Plan		116		122		-
Burnaby Plan		143		106		-
	$	2,492	$	2,237	$	1,734