Note 16.

Retirement Plans

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

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 two defined contribution plans 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, as of December 31, 2016 and 2015:



		2016		2015

Changes in benefit obligation:
Benefit obligation at beginning of year	$	17,759	$	18,925
Service cost		36		38
Interest cost		746		742
Actuarial loss (gain)		534		(1,148)
Benefits paid		(834)		(798)
Benefit obligation at end of year	$	18,241	$	17,759



Change to plan assets:
Fair value of assets at beginning of year	$	14,235	$	15,205
Actual gain (loss) on plan assets		779		(172)
Employer contribution		-		-
Benefits paid		(834)		(798)
Fair value of assets at end of year		14,180		14,235
Funded status at end of year	$	(4,061)	$	(3,524)



Amounts recognized in the consolidated balance sheet consist of:
Other long-term liabilities	$	(4,061)	$	(3,524)



Amounts recognized in accumulated other comprehensive income consist of:
Net loss	$	4,186	$	3,993

The actuarial loss included in accumulated other comprehensive loss that will be recognized in net periodic pension cost during 2017 is $130, before taxes.

Net periodic pension costs for the three years ended December 31, 2016 are as follows:



		2016		2015		2014
Components of net periodic benefit cost:
Service cost	$	36	$	38	$	23
Interest cost		746		742		771
Expected return on plan assets		(717)		(816)		(968)
Amortization of prior service cost		-		3		1
Recognized net actuarial loss		276		275		65
Net periodic pension cost (income)	$	341	$	242	$	(108)

The weighted average assumptions in the following table represent the rates used to develop the actuarial present value of the projected benefit obligation for the year listed and also the net periodic benefit cost for the following year.



	2016		2015		2014
Discount rate	4.3	%	4.3	%	4.0	%
Expected rate of return on plan assets	5.2	%	5.2	%	5.5	%

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. The decline in the expected rate of return on plan assets reflects a shift in the Plans’ investment strategy toward a higher focus on fixed income investments.

Amounts applicable to the Company’s pension plans with accumulated benefit obligations in excess of plan assets are as follows at December 31:



		2016		2015

Projected benefit obligation	$	18,241	$	17,759
Accumulated benefit obligation		18,241		17,759
Fair value of plan assets		14,180		14,235

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 cash equivalents, bonds, preferred stocks, and common stocks. The investment target ranges and actual allocation of pension plan assets by major category at December 31, 2016 and 2015 are as follows:



	Target		2016		2015
Asset Category
Cash and cash equivalents	0 - 10	%	5	%	9	%
Total fixed income funds	25 - 50		33		35
Total mutual funds and equities	50 - 70		62		56
Total			100	%	100	%

In accordance with the fair value disclosure requirements of FASB ASC 820, “Fair Value Measurements and Disclosures,” the following assets were measured at fair value on a recurring basis at December 31, 2016 and 2015. Additional information regarding FASB ASC 820 and the fair value hierarchy can be found in Note 18 Fair Value Measurements.




		2016		2015

Asset Category
Cash and cash equivalents	$	660	$	1,248
Fixed income funds
Corporate bonds		4,767		4,926
Total fixed income funds		4,767		4,926
Equity funds and equities
Mutual funds		8,753		8,061
Common stock		-		-
Total mutual funds and equities		8,753		8,061
Total	$	14,180	$	14,235

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. 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 currently does not anticipate contributions to its United States defined benefit plans in 2017.

The following benefit payments are expected to be paid:



		Pension
		Benefits

2017	$	894
2018		905
2019		972
2020		1,013
2021		1,078
Years 2022-2026		5,647

United Kingdom Defined Benefit Plan

The Portec Rail Products (UK) Limited Pension Plan covers certain current employees, former employees, and retirees. The plan has been frozen to new entrants since April 1, 1997 and also covers the former employees of a merged plan after January 2002. Benefits under the plan were based on years of service and eligible compensation during defined periods of service. Our funding policy for the plan is to make minimum annual contributions required by applicable regulations.

The funded status of the United Kingdom defined benefit plan at December 31, 2016 and 2015 is as follows:



		2016		2015

Changes in benefit obligation:
Benefit obligation at beginning of year	$	7,862	$	8,797
Interest cost		259		295
Actuarial (gain) loss		1,532		(416)
Benefits paid		(273)		(339)
Foreign currency exchange rate changes		(1,276)		(475)
Benefit obligation at end of year	$	8,104	$	7,862



Change to plan assets:
Fair value of assets at beginning of year	$	6,661	$	6,757
Actual gain on plan assets		265		307
Employer contribution		253		302
Benefits paid		(273)		(339)
Foreign currency exchange rate changes		(1,080)		(366)
Fair value of assets at end of year		5,826		6,661
Funded status at end of year	$	(2,278)	$	(1,201)




Amounts recognized in the consolidated balance sheet consist of:
Other long-term liabilities	$	(2,278)	$	(1,201)


Amounts recognized in accumulated other comprehensive income consist of:
Net loss	$	2,015	$	706
Prior service cost		53		85
	$	2,068	$	791

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



		2016		2015		2014
Components of net periodic benefit cost:
Interest cost	$	259	$	295	$	360
Expected return on plan assets		(290)		(324)		(370)
Amortization of transition obligation		-		-		(50)
Amortization of prior service cost		17		27		30
Recognized net actuarial loss		275		225		185
Net periodic pension cost	$	261	$	223	$	155



	2016		2015		2014
Discount rate	2.7	%	4.0	%	3.6	%
Expected rate of return on plan assets	4.4	%	5.2	%	5.0	%

Amounts applicable to the Company’s pension plans with accumulated benefit obligations in excess of plan assets are as follows at December 31:



		2016		2015

Projected benefit obligation	$	8,104	$	7,862
Accumulated benefit obligation		8,104		7,862
Fair value of plan assets		5,826		6,661

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 2016 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%

Plan assets held within the Portec Rail Plan consist of cash and marketable securities that have been classified as Level 1 of the fair value hierarchy. All other plan assets have been classified as Level 2 of the fair value hierarchy.

The plan assets by category for the two years ended December 31, 2016 and 2015 are as follows:




		2016		2015
Asset Category
Cash and cash equivalents	$	707	$	242
Equity securities		2,617		2,656
Bonds		1,347		1,301
Other		1,155		2,462
Total	$	5,826	$	6,661

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 $231 to the Portec Rail Plan during 2017.

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



		Pension
		Benefits

2017	$	219
2018		238
2019		252
2020		268
2021		274
Years 2022-2026		1,750