Employee Benefit Plans

12 Months Ended

Dec. 31, 2012

Employee Benefit Plans

Employee Benefit Plans

Note G — Employee Benefit Plans

Prior to January 1, 1999, we maintained a defined benefit pension plan for which most of our employees were eligible.  In conjunction with significant enhancements to the 401(k) plan, we elected to freeze benefits under this defined benefit pension plan (frozen pension plan) as of December 31, 1998.

In 1994, we adopted a non-qualified, unfunded, supplemental pension plan (supplemental pension plan) covering certain employees, which provides for incremental pension payments so that total pension payments equal those amounts that would have been payable from the principal pension plan were it not for limitations imposed by income tax regulation.  The benefits under this supplemental pension plan will continue to accrue as if the principal pension plan had not been frozen.

The overfunded or underfunded status of our defined benefit postretirement plans is recorded as an asset or liability on our balance sheet.  The funded status is measured as the difference between the fair value of plan assets and the projected benefit obligation.  Periodic changes in the funded status are recognized through other comprehensive income.  We currently measure the funded status of our defined benefit plans as of December 31, the date of our year-end consolidated balance sheets.

The status of the defined benefit pension plans at year-end was as follows:

	Year Ended December 31,
In thousands	2012			2011
Change in benefit obligation
Benefit obligation at beginning of year	$	160,225		$	147,721
Service cost	467			457
Interest cost	7,841			8,118
Actuarial loss	18,745			11,533
Benefits paid	(8,201		)	(7,604		)
Benefit obligation at end of year	$	179,077		$	160,225
Change in plan assets
Fair value of plan assets at beginning of year	$	93,002		$	97,497
Actual return on plan assets	9,952			(3,185		)
Contributions	7,421			6,294
Benefits paid	(8,201		)	(7,604		)
Fair value of plan assets at end of year	$	102,174		$	93,002
Funded status at end of year	$	(76,903	)	$	(67,223	)

The following amounts have been recognized in the Consolidated Balance Sheets at December 31:

In thousands	2012		2011
Other current liabilities	$	1,437	$	1,068
Other long-term liabilities	75,466		66,155
	$	76,903	$	67,223

The following amounts have been recognized in accumulated other comprehensive loss at December 31:

In thousands	2012		2011
Net loss	$	54,431	$	48,702
Prior service cost	0		3
	$	54,431	$	48,705

We plan to make total contributions of $4.6 million to our frozen pension plan in 2013 in order to obtain the Pension Protection Act of 2006 full funding limit exemption.

We are not required to make and do not intend to make any contributions to our unfunded, supplemental pension plan in 2013 other than to the extent needed to cover benefit payments.  We expect benefit payments under this supplemental pension plan to total $1.4 million in 2013.  In the event of a change of control, as defined in the plan document, this supplemental pension plan is required to be fully funded.

The following information is presented for pension plans with an accumulated benefit obligation in excess of plan assets:

	December 31,
In thousands	2012		2011
Projected benefit obligation	$	179,077	$	160,255
Accumulated benefit obligation	$	177,442	$	158,097
Fair value of plan assets	$	102,174	$	93,002

The unfunded, supplemental pension plan had an accumulated benefit obligation of $26.6 million and $23.5 million at December 31, 2012 and 2011, respectively.

The following table presents the components of net periodic benefit cost and other amounts recognized in other comprehensive loss:

	Year Ended December 31,
In thousands	2012			2011			2010
Net Periodic Benefit Cost (Pre-tax)
Service cost	$	467		$	457		$	341
Interest cost	7,841			8,118			7,984
Expected return on plan assets	(6,733		)	(7,022		)	(6,163		)
Amortization of prior service cost	4			49			54
Recognized actuarial loss	5,999			4,519			4,081
Net periodic benefit cost	$	7,578		$	6,121		$	6,297
Amounts Recognized in Other Comprehensive Loss (Pre-tax)
Net loss	$	9,548		$	17,222		$	2,681
Prior service cost	(4		)	(49		)	(54		)
Total cost recognized in other comprehensive loss	$	9,544		$	17,173		$	2,627
Net cost recognized in net periodic benefit cost and other comprehensive loss	$	17,122		$	23,294		$	8,924

The estimated net loss for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2013 is $6.6 million.

The weighted-average assumptions used for measurement of the defined pension plans were as follows:

	Year Ended December 31,
	2012		2011		2010
Weighted-average assumptions used to determine net periodic benefit cost
Discount rate	5.02	%	5.62	%	6.20	%
Expected return on plan assets	7.25	%	7.25	%	7.25	%
Rate of compensation increase	3.00	%	4.00	%	4.00	%

	December 31,
	2012		2011
Weighted-average assumptions used to determine benefit obligations
Discount rate	4.15	%	5.02	%
Rate of compensation increase	3.00	%	4.00	%

The discount rate assumptions are based on current yields of investment-grade corporate long-term bonds.  The expected long-term return on plan assets is based on the expected future average annual return for each major asset class within the plan’s portfolio (which is principally comprised of equity investments) over a long-term horizon.  In determining the expected long-term rate of return on plan assets, we evaluated input from our investment consultants, actuaries, and investment management firms, including their review of asset class return expectations, as well as long-term historical asset class returns.  Projected returns by such consultants and economists are based on broad equity and bond indices.  Additionally, we considered our historical 15-year compounded returns, which have been in excess of the forward-looking return expectations.

The funded pension plan assets as of December 31, 2012 and 2011, by asset category, are as follows:

In thousands	2012		%		2011		%
Equity securities	$	64,565	63	%	$	59,659	64	%
Debt securities	30,881		30	%	28,238		30	%
Other	6,728		7	%	5,105		6	%
Total plan assets	$	102,174	100	%	$	93,002	100	%

The current economic environment presents employee benefit plans with unprecedented circumstances and challenges, which, in some cases over the last several years, have resulted in large declines in the fair value of investments.  The fair values presented have been prepared using values and information available as of December 31, 2012.

The following tables present the fair value measurements of the assets in our funded pension plan:

			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
In thousands	2012		(Level 1)		(Level 2)		(Level 3)
Equity securities	$	64,565	$	64,565	$	0	$	0
Debt securities	30,881		30,881		0		0
Other	6,728		6,580		148		0
Total	$	102,174	$	102,026	$	148	$	0

			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs
In thousands	2011		(Level 1)		(Level 2)		(Level 3)
Equity securities	$	59,659	$	59,659	$	0	$	0
Debt securities	28,238		28,238		0		0
Other	5,105		5,105		0		0
Total	$	93,002	$	93,002	$	0	$	0

Assets with estimated fair values measured using Level 2 inputs represent unlisted depository receipts.  The fair value of these depository receipts were calculated by our trustee using broker’s quotes.

The investment policy for the Harte-Hanks, Inc. Pension Plan focuses on the preservation and enhancement of the corpus of the plan’s assets through prudent asset allocation, quarterly monitoring and evaluation of investment results, and periodic meetings with investment managers.

The investment policy’s goals and objectives are to meet or exceed the representative indices over a full market cycle (3-5 years).  The policy establishes the following investment mix, which is intended to subject the principal to an acceptable level of volatility while still meeting the desired return objectives:

	Target		Acceptable Range	Benchmark Index
Domestic Equities	50.0	%	35% - 75%	S&P 500
Large Cap Growth	22.5	%	15% - 30%	Russell 1000 Growth
Large Cap Value	22.5	%	15% - 30%	Russell 1000 Value
Mid Cap Value	5.0	%	5% - 15%	Russell Mid Cap Value
Mid Cap Growth	0.0	%	0% - 10%	Russell Mid Cap Growth
Domestic Fixed Income	35.0	%	15% - 50%	LB Aggregate
International Equities	15.0	%	10% - 25%	MSC1 EAFE

The funded pension plan provides for investment in various investment types.  Investments, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risk.  Due to the level of risk associated with investments, it is reasonably possible that changes in the value of investments will occur in the near term and may impact the funded status of the plan.  To address the issue of risk, the investment policy places high priority on the preservation of the value of capital (in real terms) over a market cycle.  Investments are made in companies with a minimum five-year operating history and sufficient trading volume to facilitate, under most market conditions, prompt sale without severe market effect.  Investments are diversified; reasonable concentration in any one issue, issuer, industry or geographic area is allowed if the potential reward is worth the risk.

The following table presents the investments that represented 5% or more of the funded pension plan’s assets as of December 31, 2012 and 2011:

In thousands	2012		%		2011		%
LM Institutional Fund Advisors I, Inc. Western Asset Core Plus	$	16,793	15	%	$	15,470	17	%
State Street Government STIF 15	$	14,419	13	%	$	5,109	6	%
PIMCO Total Return Fund Institutional Class	$	14,088	13	%	$	12,765	14	%

Investment managers are evaluated by the performance of the representative indices over a full market cycle for each class of assets.  The Pension Plan Committee reviews, on a quarterly basis, the investment portfolio of each manager, which includes rates of return, performance comparisons with the most appropriate indices, and comparisons of each manager’s performance with a universe of other portfolio managers that employ the same investment style.

The expected future pension benefit payments for the next ten years as of December 31, 2012 are as follows:

In thousands
2013	$	8,440
2014	8,695
2015	8,947
2016	9,154
2017	9,371
2018 - 2022	50,576
	$	95,183

We also sponsor a 401(k) retirement plan in which we match a portion of employees’ voluntary before-tax contributions.  Under this plan, both employee and matching contributions vest immediately.  Total 401(k) expense recognized in 2012, 2011 and 2010 was $5.0 million, $5.2 million and $5.3 million, respectively.