PENSION AND POSTRETIREMENT WELFARE PLANS

12 Months Ended

Dec. 31, 2012

PENSION AND POSTRETIREMENT WELFARE PLANS

PENSION AND POSTRETIREMENT WELFARE PLANS

9. PENSION AND POSTRETIREMENT WELFARE PLANS

Pension Plan

        Motor Products has a defined benefit pension plan covering substantially all of its hourly union employees hired prior to April 10, 2002. The benefits are based on years of service, the employee's compensation during the last three years of employment, and accumulated employee contributions.

        The following tables provide a reconciliation of the change in benefit obligation, the change in plan assets and the net amount recognized in the Consolidated Balance Sheet at December 31, 2012 and December 31, 2011 (in thousands):

	December 31, 2012			December 31, 2011
Change in projected benefit obligation:
Projected benefit obligation at beginning of period	$	5,556		$	4,629
Service cost		122			104
Employee contributions		9			11
Interest cost		259			264
Actuarial loss		580			789
Benefits paid		(249	)		(241	)
Projected benefit obligation at end of period	$	6,277		$	5,556
Change in plan assets:
Fair value of plan assets at beginning of period	$	3,418		$	3,425
Actual (loss) return on plan assets		469			(48	)
Employee contributions		9			11
Employer contributions		439			271
Benefits and expenses paid		(249	)		(241	)
Fair value of plan assets at end of period	$	4,086		$	3,418

        The following table reconciles the accumulated other comprehensive income from the prior measurement date to the current measurement date:

	December 31, 2012			December 31, 2011
Excess of projected benefit obligation over fair value of plan assets	$	2,191		$	2,138
Unrecognized loss		(2,088	)		(1,881	)
Accrued pension cost prior to pension adjustments	$	103		$	257
Accumulated Other Comprehensive Income at Current Measurement Date		2,088			1,881
Accrued pension cost at end of period	$	2,191		$	2,138

        The accumulated benefit obligation for the pension plan was $6,032,000 at December 31, 2012 and $5,323,000 at December 31, 2011. The amount of accumulated other comprehensive income expected to be recognized as a plan expense in 2013 is $182,000, which all relates to the amortization of the actuarial loss.

        Benefits expected to be paid from the Plan during each of the next five fiscal years, and in aggregate for the five fiscal years thereafter are:

Year of payment	Amount of Benefit Payment
2013	$	286,000
2014		290,000
2015		320,000
2016		323,000
2017		338,000
2018 - 2022		1,826,000

        Components of net periodic pension expense included in the consolidated statements of operations for years 2012 and 2011 are as follows (in thousands):

	For the year ended December 31, 2012			For the year ended December 31, 2011
Service cost	$	122		$	104
Interest cost on projected benefit obligation		259			264
Amortization of net loss		150			51
Expected return on assets		(245	)		(257	)
Net periodic pension expense	$	286		$	162

        Items subject to deferred recognition are amortized on a straight-line basis over the average remaining service period of active employees expected to receive benefits from the plan. Cumulative gains and losses, including the impact of any actuarial assumption changes, are amortized to the extent that their value exceeds 10% of the greater of the Market Related Value of Assets and the Projected Benefit Obligation

        The weighted average assumptions used to determine the projected benefit obligation were as follows:

	December 31, 2012			December 31, 2011
Discount rate		4.00	%		4.75	%
Rate of compensation increases		5.00	%		5.00	%

        The weighted average assumptions used to determine net periodic pension expense are as follows:

	For the year ended December 31, 2012			For the year ended December 31, 2011
Discount rate		4.75	%		5.75	%
Expected long-term rate of return on plan assets		7.00	%		7.50	%
Rate of compensation increases		5.00	%		5.00	%

        The expected rate of return on plan assets assumption is based on the long-term expected returns for the investment mix of assets currently in the portfolio. Management uses historic return trends of the asset portfolio combined with anticipated future market conditions to estimate the rate of return. The performance of the financial markets and changes in interest rates impact the funding obligations under our pension plan. Significant changes in market interest rates and decreases in the fair value of plan assets may increase our funding obligations and adversely impact our results of operations and cash flows in future periods.

        The Company expects to contribute approximately $276,000 to the pension plan during 2013.

        All plan assets are accounted for at fair value on a recurring basis. Fair values are determined using level one inputs, or quoted prices for identical assets in active markets on the measurement date, as discussed in Note 1.

        The pension plan assets allocation at December 31, 2012 and 2011 was as follows:

	December 31, 2012			December 31, 2011
Cash equivalents		4	%		4	%
Equity securities		65	%		64	%
Fixed income securities		31	%		32	%
Total		100	%		100	%

        The pension assets are managed by an outside investment manager. The Company's investment policy with respect to pension assets is to make investments solely in the interest of the participants and beneficiaries of the plans and for the exclusive purpose of providing benefits accrued and defraying the reasonable expenses of administration. The Company strives to maintain investment diversification to assist in minimizing the risk of large losses. The pension assets are subject to the following ranges for asset allocation percentages based on the Plan's Investment Policy Guidelines:

Equity Securities	55 - 75	%
Fixed Income Securities	25 - 45	%
Cash	0 - 20	%
Total	100	%

Postretirement Welfare Plan

        Motor Products provides postretirement medical insurance and life insurance benefits to current and former employees hired before January 1, 1994 who retire from Motor Products. Employees who retire after January 1, 2005 must have twenty or more years of continuous service in order to be eligible for retiree medical benefits. Partial contributions from retirees are required for the medical insurance benefits. The Company's portion of the medical insurance premiums is funded from the general assets of the Company. The Company recognizes the expected cost of providing such post-retirement benefits during employees' active service periods.

        The following tables provide a reconciliation of the change in the accumulated postretirement benefit obligation and the net amount recognized in the Consolidated Balance Sheet at December 31, 2012 and December 31, 2011 (in thousands):

	December 31, 2012			December 31, 2011
Change in postretirement benefit obligation:
Accumulated postretirement benefit obligation at beginning of period	$	1,378		$	1,249
Service cost		22			22
Interest cost		67			70
Actuarial loss		227			104
Benefits paid, net of participant contributions		(73	)		(67	)
Accumulated postretirement benefit obligation at end of period	$	1,621		$	1,378
Accrued postretirement benefit cost at the beginning of period	$	1,378		$	2,195
Net periodic postretirement cost		28			11
Employer contributions		(73	)		(67	)
Accrued postretirement benefit cost, prior to pension adjustments	$	1,333		$	2,139
Required incremental (liability) asset		288			(761	)
Accrued postretirement benefit cost at end of period	$	1,621		$	1,378

        Net periodic postretirement benefit costs included in the consolidated statements of operations for years 2012 and 2011 are as follows (in thousands):

	For the year ended December 31,
	2012			2011
Service cost	$	22		$	22
Interest cost		67			70
Amortization of prior service credit		(12	)		(12	)
Amortization of gain		(49	)		(69	)
Total benefit costs	$	28		$	11

        The amount of accumulated other comprehensive income expected to be recognized as income to the plan in 2013 is $38,000, of which $26,000 relates to the actuarial gain and $12,000 to the prior service credit.

        Postretirement medical liabilities can be extremely sensitive to changes in the assumed rate of future medical increases, and, therefore the healthcare cost trend rate assumption can have a significant effect on the amounts reported. However, the Company's current contractual obligation requires a per capita fixed Company contribution amount through December 2015.

        The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 4.00% and 4.75% as of December 31, 2012 and 2011, respectively. The weighted average discount rate used to determine the net periodic postretirement benefit cost was 4.75% for 2012 and 5.75% for 2011.

        Benefits expected to be paid from the Plan during each of the next five fiscal years, and in aggregate for the five fiscal years thereafter are:

Year of payment	Amount of Benefit Payment
2013	$	57,000
2014		60,000
2015		67,000
2016		65,000
2017		72,000
2018 - 2022		404,000