The Company has a defined contribution plan, under Section 401(k) of the Internal Revenue Code, which provides retirement benefits to most U.S. employees. For all employees who choose to participate, the Company matches employee contributions at a 100 percent rate, up to 3 percent of the employee's compensation. For employees not covered by a defined benefit plan, the Company contributes an amount equal to 1.5 percent of the employee's compensation. Employer contributions totaled $6.3 million in 2013, $5.6 million in 2012 and $4.2 million in 2011.

The Company's postretirement medical plan provides certain medical benefits for retired U.S. employees. Employees hired before January 1, 2005, are eligible for these benefits upon retirement and fulfillment of other eligibility requirements as specified by the plan.

The Company has both funded and unfunded noncontributory defined benefit pension plans that together cover most U.S. employees hired before January 1, 2006, certain directors and some of the employees of the Company's non-U.S. subsidiaries. For U.S. plans, benefits are based on years of service and the highest five consecutive years' earnings in the ten years preceding retirement. The Company funds annually in amounts consistent with minimum funding levels and maximum tax deduction limits.

In 2012, the Company assumed the obligations and assets of a defined contribution plan with a guaranteed return that covers employees of an acquired business in Switzerland. The Swiss plan is funded by company and employee contributions. In 2013, the Company transferred responsibility for pension coverage under Swiss law to an insurance company. To effect the change, plan assets were converted to cash and deposited with the insurance company for investment under an insurance contract. Assets of the plan are valued at the amount of benefits liability of the insurance company and classified in the “other” assets category, level 2 in the fair value hierarchy. The transfer of responsibility for current retirees to the new plan carrier was treated as a settlement under ASC 715 and resulted in a reduction of plan obligations and assets, and a small settlement gain.

Investment policies and strategies of the U.S. funded pension plan are based on a long-term view of economic growth and heavily weighted toward equity securities. The primary goal of the plan's investments is to ensure that the plan's liabilities are met over time. In developing strategic asset allocation guidelines, an emphasis is placed on the long-term characteristics of individual asset classes, and the benefits of diversification among multiple asset classes. The plan invests primarily in domestic and international equities, fixed income securities, which include treasuries, highly-rated corporate bonds and high-yield bonds and real estate. The midpoints of the ranges of strategic target allocations for plan assets are 65 percent equity securities, 22 percent fixed income securities and 13 percent real estate and alternative investments.

Plan assets are held in a trust for the benefit of plan participants and are invested in various commingled funds, most of which are sponsored by the trustee. Equity securities are valued using quoted prices in active markets. The fair values for commingled equity and fixed-income funds, international equity funds, and real estate investments are measured using net asset values, which take into consideration the value of underlying fund investments, as well as the other accrued assets and liabilities of a fund, in order to determine a per share market value. Commingled fund and international equity funds are classified as level 2 because the net asset value is not directly traded on an active exchange. Certain trustee-sponsored funds allow redemptions monthly or quarterly, with 10 or 60 days advance notice, while most of the funds allow redemptions daily.

Level 3 assets consist of investments in real estate investment trust funds whose assets are valued at least annually by independent appraisal firms, using market, income and cost approaches. Significant unobservable quantitative inputs used in determining the fair value of each investment include cash flow assumptions, capitalization rates and discount rates. These inputs are subject to change based on changes in economic and market conditions and/or changes in use or timing of exit. Changes in cash flows, discount rates and terminal capitalization rates will result in increases or decreases in the fair values of these investments. It is not possible for us to predict the effect of future economic or market conditions on the estimated fair values of plan assets.

Plan assets by category and fair value measurement level were as follows (in thousands):

			Total		Level 1		Level 2		Level 3
December 27, 2013
Equity
	U.S. Large Cap		$	95,025	$	-	$	95,025	$	-
	U.S. Small/Mid Cap			18,020		-		18,020		-
	International			69,140		-		69,140		-
		Total Equity		182,185		-		182,185		-
Fixed income				48,718		-		40,158		8,560
Real estate and other				49,704		1,149		31,271		17,284
		Total	$	280,607	$	1,149	$	253,614	$	25,844

December 28, 2012
Equity
	Graco common stock		$	7,196	$	7,196	$	-	$	-
	U.S. Large Cap			78,263		-		78,263		-
	U.S. Small/Mid Cap			12,282		-		12,282		-
	International			67,459		-		67,459		-
		Total Equity		165,200		7,196		158,004		-
Fixed income				63,592		-		63,592		-
Real estate and other				17,814		2,676		-		15,138
		Total	$	246,606	$	9,872	$	221,596	$	15,138

A reconciliation of the beginning and ending balances of level 3 plan assets follows:

The Company uses a year-end measurement date for all of its plans. The following provides a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the periods ending December 27, 2013, and December 28, 2012, and a statement of the funded status as of the same dates (in thousands):

		Pension Benefits				Postretirement Medical Benefits
		2013		2012		2013		2012
Change in benefit obligation
	Obligation, beginning of year	$	359,701	$	278,611	$	23,472	$	23,445
	Pension obligation of acquired businesses		-		39,139		-		-
	Service cost		7,447		6,414		626		589
	Interest cost		14,149		13,729		961		986
	Actuarial loss (gain)		(15,653)		31,869		(2,582)		(294)
	Plan changes		3,197		-		-		-
	Benefit payments		(10,762)		(9,717)		(1,135)		(1,254)
	Settlements		(7,430)		-		-		-
	Exchange rate changes		1,622		(344)		-		-
	Obligation, end of year	$	352,271	$	359,701	$	21,342	$	23,472
Change in plan assets
	Fair value, beginning of year	$	246,606	$	181,319	$	-	$	-
	Pension assets of acquired businesses		-		32,132		-		-
	Actual return on assets		40,280		30,861		-		-
	Employer contributions		10,728		12,437		1,135		1,254
	Benefit payments		(10,762)		(9,717)		(1,135)		(1,254)
	Settlements		(7,241)		-		-		-
	Exchange rate changes		996		(426)		-		-
	Fair value, end of year	$	280,607	$	246,606	$	-	$	-
Funded status		$	(71,664)	$	(113,095)	$	(21,342)	$	(23,472)
Amounts recognized in consolidated balance sheets
	Current liabilities	$	1,116	$	850	$	1,256	$	1,254
	Non-current liabilities		70,548		112,245		20,086		22,218
	Total liabilities	$	71,664	$	113,095	$	21,342	$	23,472

The accumulated benefit obligation as of year-end for all defined benefit pension plans was $326 million for 2013 and $330 million for 2012. Information for plans with an accumulated benefit obligation in excess of plan assets follows (in thousands):

The components of net periodic benefit cost for the plans for 2013, 2012 and 2011 were as follows (in thousands):

		Pension Benefits						Postretirement Medical Benefits
		2013		2012		2011		2013		2012		2011
Service cost-benefits earned during the period		$	7,447	$	6,414	$	4,429	$	626	$	589	$	602
Interest cost on projected benefit obligation			14,149		13,729		13,072		961		986		1,219
Expected return on assets			(18,508)		(15,907)		(15,802)		-		-		-
Amortization of prior service cost (credit)			8		(5)		(5)		(658)		(658)		(658)
Amortization of net loss (gain)			10,456		10,814		5,819		480		395		568
Cost of pension plans which are not significant
	and have not adopted ASC 715		94		121		97		N/A		N/A		N/A
Net periodic benefit cost		$	13,646	$	15,166	$	7,610	$	1,409	$	1,312	$	1,731

Amounts recognized in other comprehensive (income) loss in 2013 and 2012 were as follows (in thousands):

	Pension Benefits				Postretirement Medical Benefits
	2013		2012		2013		2012
Net loss (gain) arising during the period	$	(37,284)	$	17,011	$	(2,582)	$	(294)
Prior service cost (credit) arising during the period		3,197		-		-		-
Amortization of net gain (loss)		(10,456)		(10,814)		(480)		(395)
Amortization of prior service credit (cost)		(8)		5		658		658
Total	$	(44,551)	$	6,202	$	(2,404)	$	(31)

Amounts included in accumulated other comprehensive (income) loss as of December 27, 2013 and December 28, 2012, that had not yet been recognized as components of net periodic benefit cost, were as follows (in thousands):

	Pension Benefits				Postretirement Medical Benefits
	2013		2012		2013		2012
Prior service cost (credit)	$	3,271	$	(123)	$	(2,444)	$	(3,101)
Net loss		73,200		121,146		3,325		6,385
Net before income taxes		76,471		121,023		881		3,284
Income taxes		(26,903)		(43,409)		(317)		(1,182)
Net	$	49,568	$	77,614	$	564	$	2,102

Amounts included in accumulated other comprehensive (income) loss that are expected to be recognized as components of net periodic benefit cost in 2014 were as follows (in thousands):

Assumptions used to determine the Company's benefit obligations are shown below:

		Pension Benefits				Postretirement Medical Benefits
Weighted average assumptions		2013		2012		2013		2012
U.S. Plans
	Discount rate	5.0	%	4.2	%	5.0	%	4.2	%
	Rate of compensation increase	3.0	%	3.0	%	N/A		N/A
Non-U.S. Plans
	Discount rate	2.5	%	2.3	%	N/A		N/A
	Rate of compensation increase	1.3	%	1.3	%	N/A		N/A

Assumptions used to determine the Company's net periodic benefit cost are shown below:

		Pension Benefits						Postretirement Medical Benefits
Weighted average assumptions		2013		2012		2011		2013		2012		2011
U.S. Plans
	Discount rate	4.2	%	4.6	%	5.5	%	4.2	%	4.6	%	5.5	%
	Rate of compensation increase	3.0	%	3.0	%	3.8	%	N/A		N/A		N/A
	Expected return on assets	8.5	%	8.5	%	8.5	%	N/A		N/A		N/A
Non-U.S. Plans
	Discount rate	2.3	%	2.9	%	4.7	%	N/A		N/A		N/A
	Rate of compensation increase	1.2	%	1.2	%	3.0	%	N/A		N/A		N/A
	Expected return on assets	3.0	%	3.0	%	N/A		N/A		N/A		N/A

Several sources of information are considered in determining the expected rate of return assumption, including the allocation of plan assets, the input of actuaries and professional investment advisors, and historical long-term returns. In setting the return assumption, the Company recognizes that historical returns are not always indicative of future returns and also considers the long-term nature of its pension obligations.

The Company's U.S. retirement medical plan limits the annual cost increase that will be paid by the Company to 3 percent. In measuring the accumulated postretirement benefit obligation (APBO), the annual trend rate for health care costs was assumed to be 7.4 percent for 2014, decreasing each year to a constant rate of 4.5 percent for 2026 and thereafter, subject to the plan's annual increase limitation.

At December 27, 2013, a one percent change in assumed health care cost trend rates would not have a significant impact on the service and interest cost components of net periodic postretirement health care benefit cost or the APBO for health care benefits.

The Company expects to contribute $2.3 million to its unfunded pension plans and $1.3 million to the postretirement medical plan in 2014. The Company expects that contributions to the funded pension plan under minimum funding requirements for 2014 will not exceed $9 million, and that the amounts payable in 2014 may be eliminated by available credits. Estimated future benefit payments are as follows (in thousands):