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Employee Benefits
12 Months Ended
Dec. 31, 2013
Compensation and Retirement Disclosure [Abstract]  
Employee Benefits
EMPLOYEE BENEFITS
We have pension and/or other retirement benefit plans covering approximately one-third of active employees. In 2007 the Company amended its U.S. qualified and non-qualified pension plans under which accrual of future benefits was suspended for all participants that did not meet the rule of 70 (age plus years of service equal to at least 70 at December 31, 2007). Pension benefits are generally based on years of service and on compensation during the final years of employment. Plan assets consist primarily of equity securities and corporate and government fixed income securities. Substantially all pension benefit costs are funded as accrued; such funding is limited, where applicable, to amounts deductible for income tax purposes. Certain other retirement benefits are provided by general corporate assets.
We sponsor a qualified defined contribution plan covering substantially all U.S. employees. Under this plan, we match 100% of participants’ contributions up to 4% of compensation and 75% of participants’ contributions from over 4% to 8%. Employees that are still eligible to accrue benefits under the defined benefit plan are limited to a 50% match up to 6% of the participants’ compensation.
In addition to pension benefits, certain health care and life insurance benefits are provided to qualifying United States employees upon retirement from IFF. Such coverage is provided through insurance plans with premiums based on benefits paid. We do not generally provide health care or life insurance coverage for retired employees of foreign subsidiaries; such benefits are provided in most foreign countries by government-sponsored plans, and the cost of these programs is not material to us.
We offer a non-qualified Deferred Compensation Plan (DCP) for certain key employees and non-employee directors. Eligible employees and non-employee directors may elect to defer receipt of salary, incentive payments and Board of Directors’ fees into participant directed investments, which are generally invested by the Company in individual variable life insurance contracts we own that are designed to informally fund savings plans of this nature. The cash surrender value of life insurance is based on the net asset values of the underlying funds available to plan participants. At December 31, 2013 and December 31, 2012, the Consolidated Balance Sheet reflects liabilities of $29.7 million and $27.0 million, respectively, related to the DCP in Other liabilities and $15.1 million and $12.3 million, respectively, included in Capital in excess of par value related to the portion of the DCP that will be paid out in IFF shares.
The total cash surrender value of life insurance contracts the Company owns in relation to the DCP and post-retirement life insurance benefits amounted to $56.3 million and $51.4 million at December 31, 2013 and 2012, respectively, and are recorded in Other assets in the Consolidated Balance Sheet.
The plan assets and benefit obligations of our defined benefit pension plans are measured at December 31 of each year.
 
 
U.S. Plans
 
Non-U.S. Plans
(DOLLARS IN THOUSANDS)
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Components of net periodic benefit cost
 
 
 
 
 
 
 
 
 
 
 
Service cost for benefits earned
$
3,644

 
$
3,121

 
$
3,602

 
$
16,423

 
$
12,585

 
$
10,560

Interest cost on projected benefit obligation
23,284

 
24,314

 
24,373

 
31,103

 
30,944

 
34,033

Expected return on plan assets
(26,320
)
 
(24,329
)
 
(25,070
)
 
(47,793
)
 
(43,728
)
 
(45,386
)
Net amortization of deferrals
24,600

 
20,180

 
11,888

 
9,337

 
6,443

 
5,360

Settlements and curtailments

 

 
444

 
215

 
873

 
3,139

Special termination benefits

 

 

 

 

 
738

Net periodic benefit cost
25,208

 
23,286

 
15,237

 
9,285

 
7,117

 
8,444

Defined contribution and other retirement plans
7,326

 
7,039

 
6,550

 
4,094

 
4,837

 
4,113

Total expense
$
32,534

 
$
30,325

 
$
21,787

 
$
13,379

 
$
11,954

 
$
12,557

Changes in plan assets and benefit obligations recognized in OCI
 
 
 
 
 
 
 
 
 
 
 
Net actuarial (gain) loss
$
(39,754
)
 
$
32,569

 
 
 
$
36,134

 
$
53,469

 
 
Recognized actuarial loss
(24,296
)
 
(19,810
)
 
 
 
(9,536
)
 
(7,181
)
 
 
Prior service cost

 

 
 
 
(873
)
 

 
 
Recognized prior service cost
(304
)
 
(370
)
 
 
 
(15
)
 
(135
)
 
 
Currency translation adjustment

 

 
 
 
5,464

 
6,068

 
 
Total recognized in OCI (before tax effects)
$
(64,354
)
 
$
12,389

 
 
 
$
31,174

 
$
52,221

 
 

During the second quarter 2011, we settled a portion of the Ireland pension plan as discussed in Note 2. As a result, we recorded a settlement charge and a special termination benefit charge of $3.9 million to recognize a portion of the unrecognized loss related to those employees who have accepted the settlement and for additional benefits credited to those participants accepting a settlement. This settlement was funded primarily through pension plan investment trust assets.
In connection with negotiations completed during the second quarter 2011, we have amended the pension plan for one of our North American Ingredients plants. We recorded a curtailment charge of $0.4 million during the second quarter 2011 to recognize a portion of the unrecognized prior service costs associated with the years of service no longer expected to be rendered and credited as service under the plan.
 
 
Postretirement Benefits
(DOLLARS IN THOUSANDS)
2013
 
2012
 
2011
Components of net periodic benefit cost
 
 
 
 
 
Service cost for benefits earned
$
1,526

 
$
1,357

 
$
1,178

Interest cost on projected benefit obligation
4,503

 
5,656

 
5,861

Net amortization and deferrals
(3,040
)
 
(1,770
)
 
(2,552
)
Expense
$
2,989

 
$
5,243

 
$
4,487

Changes in plan assets and benefit obligations recognized in OCI
 
 
 
 
 
Net actuarial (gain)
$
(15,524
)
 
$
(10,921
)
 
 
Recognized actuarial loss
(1,672
)
 
(2,951
)
 
 
Recognized prior service credit
4,712

 
4,721

 
 
Total recognized in OCI (before tax effects)
$
(12,484
)
 
$
(9,151
)
 
 

The amounts expected to be recognized in net periodic cost in 2014 are:
 
(DOLLARS IN THOUSANDS)
U.S. Plans
 
Non-U.S. Plans
 
Postretirement
Benefits
Actuarial loss recognition
$
16,726

 
$
11,867

 
$
734

Prior service cost (credit) recognition
292

 
(90
)
 
4,649


 
Weighted-average actuarial
assumption used to determine expense
U.S. Plans
 
Non-U.S. Plans
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Discount rate
4.10
%
 
4.70
%
 
5.60
%
 
4.14
%
 
4.71
%
 
5.37
%
Expected return on plan assets
7.30
%
 
7.30
%
 
7.75
%
 
6.26
%
 
6.27
%
 
6.55
%
Rate of compensation increase
3.25
%
 
3.25
%
 
3.25
%
 
2.73
%
 
2.88
%
 
2.66
%

















Changes in the postretirement benefit obligation and plan assets, as applicable, are detailed in the following table:
 
 
U.S. Plans
 
Non-U.S. Plans
 
Postretirement Benefits
(DOLLARS IN THOUSANDS)
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Benefit obligation at beginning of year
$
573,706

 
$
523,298

 
$
780,164

 
$
670,231

 
$
119,308

 
$
128,719

Service cost for benefits earned
3,644

 
3,121

 
16,423

 
12,585

 
1,526

 
1,357

Interest cost on projected benefit obligation
23,284

 
24,314

 
31,103

 
30,944

 
4,503

 
5,656

Actuarial (gain) loss
(29,875
)
 
47,547

 
2,655

 
76,786

 
(15,524
)
 
(10,921
)
Plan amendments

 

 
(873
)
 

 

 

Adjustments for expense/tax contained in service cost

 

 
(2,343
)
 
(2,282
)
 

 

Plan participants’ contributions

 

 
2,793

 
2,492

 
1,022

 
979

Benefits paid
(26,157
)
 
(24,574
)
 
(27,571
)
 
(27,234
)
 
(5,314
)
 
(6,482
)
Curtailments / settlements

 

 
(768
)
 
(2,641
)
 

 

Special termination benefits

 

 

 

 

 

Translation adjustments

 

 
16,995

 
19,283

 

 

Benefit obligation at end of year
$
544,602

 
$
573,706

 
$
818,578

 
$
780,164

 
$
105,521

 
$
119,308

Fair value of plan assets at beginning of year
$
405,289

 
$
372,142

 
$
776,188

 
$
702,366

 
 
 
 
Actual return on plan assets
36,199

 
39,306

 
11,970

 
64,765

 
 
 
 
Employer contributions
33,520

 
18,415

 
19,377

 
16,767

 
 
 
 
Participants’ contributions

 

 
2,793

 
2,492

 
 
 
 
Benefits paid
(26,157
)
 
(24,574
)
 
(27,571
)
 
(27,234
)
 
 
 
 
Settlements

 

 
(768
)
 
(2,641
)
 
 
 
 
Translation adjustments

 

 
17,681

 
19,673

 
 
 
 
Fair value of plan assets at end of year
$
448,851

 
$
405,289

 
$
799,670

 
$
776,188

 
 
 
 
Funded status at end of year
$
(95,751
)
 
$
(168,417
)
 
$
(18,908
)
 
$
(3,976
)
 
 
 
 

 
  
U.S. Plans
 
Non-U.S. Plans
(DOLLARS IN THOUSANDS)
2013
 
2012
 
2013
 
2012
Amounts recognized in the balance sheet:
 
 
 
 
 
 
 
Other assets
$

 
$

 
$
14,058

 
$
33,345

Other current liabilities
(3,819
)
 
(3,855
)
 
(651
)
 
(621
)
Retirement liabilities
(91,930
)
 
(164,562
)
 
(32,315
)
 
(36,700
)
Net amount recognized
$
(95,749
)
 
$
(168,417
)
 
$
(18,908
)
 
$
(3,976
)

 
  
U.S. Plans
 
Non-U.S. Plans
 
Postretirement Benefits
(DOLLARS IN THOUSANDS)
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Amounts recognized in AOCI consist of:
 
 
 
 
 
 
 
 
 
 
 
Net actuarial loss
$
145,105

 
$
209,156

 
$
263,930

 
$
231,857

 
$
13,891

 
$
31,087

Prior service cost (credit)
482

 
786

 
(1,330
)
 
(431
)
 
(15,007
)
 
(19,719
)
Total AOCI (before tax effects)
$
145,587

 
$
209,942

 
$
262,600

 
$
231,426

 
$
(1,116
)
 
$
11,368



 
U.S. Plans
 
Non-U.S. Plans
(DOLLARS IN THOUSANDS)
2013
 
2012
 
2013
 
2012
Accumulated Benefit Obligation — end of year
$
536,176

 
$
570,655

 
$
777,188

 
$
745,828

Information for Pension Plans with an ABO in excess of Plan Assets:
 
 
 
 
 
 
 
Projected benefit obligation
$
544,602

 
$
573,706

 
$
43,778

 
$
43,403

Accumulated benefit obligation
536,176

 
570,655

 
41,991

 
41,720

Fair value of plan assets
448,851

 
405,289

 
18,669

 
16,776

Weighted-average assumptions used to determine obligations at December 31
 
 
 
 
 
 
 
Discount rate
4.70
%
 
4.10
%
 
4.18
%
 
4.14
%
Rate of compensation increase
3.25
%
 
3.25
%
 
2.66
%
 
2.73
%

 
(DOLLARS IN THOUSANDS)
U.S. Plans
 
Non-U.S. Plans
 
Postretirement
Benefits
Estimated Future Benefit Payments
 
 
 
 
 
2014
28,830

 
28,783

 
4,903

2015
30,264

 
29,184

 
5,162

2016
31,512

 
30,043

 
5,448

2017
32,993

 
31,559

 
5,786

2018
34,422

 
34,010

 
6,163

2019 - 2023
186,021

 
181,978

 
35,326

Contributions
 
 
 
 
 
Required Company Contributions in the Following Year (2014)
$
4,136

 
$
20,451

 
$
4,903


We consider a number of factors in determining and selecting assumptions for the overall expected long-term rate of return on plan assets. We consider the historical long-term return experience of our assets, the current and expected allocation of our plan assets and expected long-term rates of return. We derive these expected long-term rates of return with the assistance of our investment advisors. We base our expected allocation of plan assets on a diversified portfolio consisting of domestic and international equity securities, fixed income, real estate and alternative asset classes. The asset allocation is monitored on an ongoing basis.
We consider a variety of factors in determining and selecting our assumptions for the discount rate at December 31. For the U.S. plans, the discount rate was based on the internal rate of return for a portfolio of Moody’s Aaa, Aa and Merrill Lynch AAA-AA high quality bonds with maturities that are consistent with the projected future benefit payment obligations of the plan. The rate of compensation increase for all plans and the medical cost trend rate for the applicable U.S. plans are based on plan experience.
 
 
U.S. Plans
 
Non-U.S. Plans
 
2013
 
2012
 
2013
 
2012
Percentage of assets invested in:
 
 
 
 
 
 
 
Cash and cash equivalents
1
%
 
1
%
 
2
%
 
2
%
Equities
48
%
 
50
%
 
25
%
 
22
%
Fixed income
51
%
 
49
%
 
59
%
 
59
%
Property
0
%
 
0
%
 
8
%
 
9
%
Alternative and other investments
0
%
 
0
%
 
6
%
 
8
%

With respect to the U.S. plans, the expected return on plan assets was determined based on an asset allocation model using the current target allocation, real rates of return by asset class and an anticipated inflation rate. The target investment allocation is 50% equity securities and 50% fixed income securities.
The expected annual rate of return for the non-U.S. plans employs a similar set of criteria adapted for local investments, inflation rates and in certain cases specific government requirements. The target asset allocation, for the non-U.S. plans, consists of approximately: 55%60% in fixed income securities; 20%25% in equity securities; 5%10% in real estate; and 5%10% in alternative investments.
The following tables present our plan assets for the U.S. and non-U.S. plans using the fair value hierarchy as of December 31, 2013 and 2012. Our plans’ assets were accounted for at fair value and are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and their placement within the fair value hierarchy levels. For more information on a description of the fair value hierarchy, see Note 14.
 
 
U.S. Plans for the year ended
 
December 31, 2013
(DOLLARS IN THOUSANDS)
Level 1
 
Level 2
 
Level 3
 
Total
Cash Equivalents
$

 
$
5,694

 
$

 
$
5,694

Equity Securities
 
 
 
 
 
 
 
U.S. Common Stock
38,993

 

 

 
38,993

Non-U.S. Common Stock
343

 

 

 
343

Balanced Funds

 
8,389

 

 
8,389

Pooled Funds

 
165,670

 

 
165,670

Fixed Income Securities
 
 
 
 
 
 
 
Government & Government Agency Bonds

 
8,262

 

 
8,262

Mutual Funds

 
158,646

 

 
158,646

Corporate Bonds

 
54,699

 

 
54,699

Municipal Bonds

 
7,440

 

 
7,440

Total
$
39,336

 
$
408,800

 
$

 
$
448,136

Receivables
 
 
 
 
 
 
$
715

Total
 
 
 
 
 
 
$
448,851

 
 
U.S. Plans for the year ended
 
December 31, 2012
(DOLLARS IN THOUSANDS)
Level 1
 
Level 2
 
Level 3
 
Total
Cash Equivalents
$

 
$
1,976

 
$

 
$
1,976

Equity Securities
 
 
 
 
 
 
 
U.S. Common Stock
43,338

 

 

 
43,338

Non-U.S. Common Stock
700

 

 

 
700

Balanced Funds

 
8,077

 

 
8,077

Pooled Funds

 
150,372

 

 
150,372

Fixed Income Securities
 
 
 
 
 
 
 
Government & Government Agency Bonds

 
6,662

 

 
6,662

Mutual Funds

 
123,447

 

 
123,447

Corporate Bonds

 
61,382

 

 
61,382

Municipal Bonds

 
8,696

 

 
8,696

Asset Backed Securities

 

 

 

Total
$
44,038

 
$
360,612

 
$

 
$
404,650

Receivables
 
 
 
 
 
 
$
639

Total
 
 
 
 
 
 
$
405,289


 
Non-U.S. Plans for the year ended
 
December 31, 2013
(DOLLARS IN THOUSANDS)
Level 1
 
Level 2
 
Level 3
 
Total
Cash
$
11,956

 
$

 
$

 
$
11,956

Equity Securities
 
 
 
 
 
 
 
U.S. Large Cap
40,274

 

 

 
40,274

Non-U.S. Large Cap
92,551

 
12,783

 

 
105,334

Non-U.S. Mid Cap
107

 

 

 
107

Non-U.S. Small Cap
29

 

 

 
29

Emerging Markets
57,689

 

 

 
57,689

Fixed Income Securities
 
 
 
 
 
 
 
U.S. Treasuries/Government Bonds
328

 

 

 
328

U.S. Corporate Bonds

 

 

 

Non-U.S. Treasuries/Government Bonds
120,651

 
75,131

 

 
195,782

Non-U.S. Corporate Bonds
65,443

 
189,707

 

 
255,150

Non-U.S. Mortgage-Backed Securities

 

 

 

Non-U.S. Asset-Backed Securities

 
17,895

 

 
17,895

Non-U.S. Other Fixed Income
1,205

 

 

 
1,205

Alternative Types of Investments
 
 
 
 
 
 
 
Insurance Contracts
334

 

 

 
334

Hedge Funds

 

 
15,280

 
15,280

Other
928

 

 

 
928

Absolute Return Funds

 
31,253

 

 
31,253

Private Equity Funds

 

 
7

 
7

Real Estate
 
 
 
 
 
 
 
Non-U.S. Real Estate

 
64,898

 
1,221

 
66,119

Total
$
391,495

 
$
391,667

 
$
16,508

 
$
799,670

 
 
Non-U.S. Plans for the year ended
 
December 31, 2012
(DOLLARS IN THOUSANDS)
Level 1
 
Level 2
 
Level 3
 
Total
Cash
$
14,075

 
$

 
$

 
$
14,075

Equity Securities
 
 
 
 
 
 
 
U.S. Large Cap
28,009

 

 

 
28,009

Non-U.S. Large Cap
116,473

 

 

 
116,473

Non-U.S. Mid Cap
132

 

 

 
132

Non-U.S. Small Cap
35

 

 

 
35

Emerging Markets
25,876

 

 

 
25,876

Fixed Income Securities
 
 
 
 
 
 
 
U.S. Treasuries/Government Bonds
52

 

 

 
52

U.S. Corporate Bonds

 

 

 

Non-U.S. Treasuries/Government Bonds
131,764

 
68,453

 

 
200,217

Non-U.S. Corporate Bonds
64,583

 
182,068

 

 
246,651

Non-U.S. Mortgage-Backed Securities

 

 

 

Non-U.S. Asset-Backed Securities

 

 

 

Non-U.S. Other Fixed Income
1,460

 
9,944

 

 
11,404

Alternative Types of Investments
 
 
 
 
 
 
 
Insurance Contracts
945

 

 

 
945

Hedge Funds

 

 
14,436

 
14,436

Private Equity

 

 
7

 
7

Absolute Return Funds

 
51,156

 

 
51,156

Real Estate
 
 
 
 
 
 
 
Non-U.S. Real Estate

 
65,468

 
1,252

 
66,720

Total
$
383,404

 
$
377,089

 
$
15,695

 
$
776,188


Cash and cash equivalents are primarily held in registered money market funds which are valued using a market approach based on the quoted market prices of identical instruments. Other cash and cash equivalents are valued daily by the fund using a market approach with inputs that include quoted market prices for similar instruments.
Equity securities are primarily valued using a market approach based on the quoted market prices of identical instruments. Pooled funds are typically common or collective trusts valued at their net asset values (NAVs).
Fixed income securities are primarily valued using a market approach with inputs that include broker quotes and benchmark yields.
Derivative instruments are valued by the custodian using closing market swap curves and market derived inputs.
Real estate values are primarily based on valuation of the underlying investments, which include inputs such as cost, discounted future cash flows, independent appraisals and market comparable data.
Hedge funds are valued based on valuation of the underlying securities and instruments within the funds. Quoted market prices are used when available and NAVs are used for unquoted securities within the funds.
Absolute return funds are actively managed funds mainly invested in debt and equity securities and are valued at their NAVs.



The following table presents a reconciliation of Level 3 non-U.S. plan assets held during the year ended December 31, 2013:
 
 
Non-U.S. Plans
(DOLLARS IN THOUSANDS)
Real
Estate
 
Private
Equity
 
Hedge
Funds
 
Total
Ending balance as of December 31, 2012
$
1,252

 
$
7

 
$
14,436

 
$
15,695

Actual return on plan assets
(31
)
 

 
844

 
813

Purchases, sales and settlements

 

 

 

Ending balance as of December 31, 2013
$
1,221

 
$
7

 
$
15,280

 
$
16,508


The following weighted average assumptions were used to determine our postretirement benefit expense and obligation for the years ended December 31:
 
 
Expense
 
Liability
 
2013
 
2012
 
2013
 
2012
Discount rate
4.00
%
 
4.60
%
 
4.80
%
 
4.00
%
Current medical cost trend rate
6.75
%
 
7.00
%
 
6.50
%
 
6.75
%
Ultimate medical cost trend rate
4.75
%
 
4.75
%
 
4.75
%
 
4.75
%
Medical cost trend rate decreases to ultimate rate in year
2021

 
2021

 
2021

 
2021


 
 
Sensitivity of Disclosures to Changes in Selected Assumptions
  
25 BP Decrease in Discount
Rate
 
25 BP Decrease in
Discount Rate
 
25 BP Decrease in
Long-Term Rate of
Return
(DOLLARS IN THOUSANDS)
Change in
PBO
 
Change in
ABO
 
Change in
pension expense
 
Change in pension
expense
U.S. Pension Plans
$
15,781

 
$
15,460

 
$
1,085

 
$
947

Non-U.S. Pension Plans
$
36,246

 
$
32,866

 
$
2,932

 
$
1,989

Postretirement Benefit Plan
N/A

 
$
3,225

 
$
190

 
N/A


The effect of a 1% increase in the medical cost trend rate would increase the accumulated postretirement benefit obligation and the annual postretirement expense by approximately $6.1 million and $0.3 million, respectively; a 1% decrease in the rate would decrease the obligation and expense by approximately $6.1 million and $0.3 million, respectively.
We contributed $30.0 million and $19.4 million to our qualified U.S. pension plans and non-U.S. pension plans in 2013. We made $3.5 million in benefit payments with respect to our non-qualified U.S. pension plan. In addition, $5.3 million of payments were made with respect to our other postretirement plans.