The Company has four qualified non-contributory defined benefit pension plans covering a significant majority of its employees and an unfunded plan that provides benefits in excess of amounts allowable under current tax law in the qualified plans. The Company closed enrollment in its pension plans to salaried employees hired after December 31, 2005, to Fernandina hourly employees hired after April 30, 2006, to Jesup hourly employees hired after March 4, 2009 and to Wood Products hourly employees hired after February 28, 2011. Currently, all plans are closed to new participants. Employee benefit plan liabilities are calculated using actuarial estimates and management assumptions. These estimates are based on historical information, along with certain assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause the estimates to change.

The Company sold its Wood Products business in March 2013. As a result of the sale, all employees covered by the Wood Products defined benefit pension plan are considered terminated employees. Amendments to the plan in June 2013 resulted in all such employees automatically vesting in the plan. Additionally, a one-time lump sum distribution was offered to terminated Wood Products plan participants or their beneficiaries. Based upon acceptance of that offer by certain participants, $3.0 million was paid from the plan assets during 2013 with a corresponding decrease of $2.8 million in the benefit obligation. As a result of the lump sum distribution, a settlement loss of $0.5 million, net of tax, was recorded in “Income from Discontinued Operations, net” in the Consolidated Statements of Income and Comprehensive Income as it was directly related to the sale of the Wood Products business. For additional information on the sale of the Wood Products business, see Note 3 — Sale of Wood Products Business.

During 2013, the Company amended its postretirement medical plan for active and retired hourly employees at the Jesup mill by placing a limit on Rayonier’s contributions toward retiree medical coverage. The change was accounted for as a negative plan amendment, which resulted in a reduction to the retiree medical liability. The net impact of the reduction was an unrecognized gain in other comprehensive income of $3.4 million ($2.2 million, net of tax) which will be amortized over 13.9 years, the average remaining service period of participants. As a result of the plan change, a gain of $0.1 million was included in the Company’s net periodic benefit cost in 2013.

The following tables set forth the change in the projected benefit obligation and plan assets and reconcile the funded status and the amounts recognized in the Consolidated Balance Sheets for the pension and postretirement benefit plans for the two years ended December 31:



	Pension						Postretirement
	2013			2012			2013			2012
Change in Projected Benefit Obligation
Projected benefit obligation at beginning of year	$	454,470		$	413,147		$	27,582		$	24,833
Service cost	8,452			8,407			1,056			918
Interest cost	16,682			17,284			937			956
Settlement loss	137			—			—			—
Actuarial (gain) loss	(44,786		)	32,666			(3,206		)	2,021
Plan amendments	—			—			(3,372		)	—
Employee contributions	—			—			980			1,136
Benefits paid	(21,317		)	(17,034		)	(1,978		)	(2,282		)
Projected benefit obligation at end of year	$	413,638		$	454,470		$	21,999		$	27,582



Change in Plan Assets
Fair value of plan assets at beginning of year	$	320,699		$	295,655		$	—		$	—
Actual return on plan assets	42,285			41,729			—			—
Employer contributions	1,699			1,565			998			1,146
Employee contributions	—			—			980			1,136
Benefits paid	(21,317		)	(17,034		)	(1,978		)	(2,282		)
Other expense	(1,461		)	(1,216		)	—			—
Fair value of plan assets at end of year	$	341,905		$	320,699		$	—		$	—



Funded Status at End of Year:
Net accrued benefit cost	$	(71,733	)	$	(133,771	)	$	(21,999	)	$	(27,582	)



Amounts Recognized in the Consolidated
Balance Sheets Consist of:
Noncurrent assets	$	3,583		$	—		$	—		$	—
Current liabilities	(1,776		)	(1,702		)	(1,071		)	(1,256		)
Noncurrent liabilities	(73,540		)	(132,069		)	(20,928		)	(26,326		)
Net amount recognized	$	(71,733	)	$	(133,771	)	$	(21,999	)	$	(27,582	)

Net gains or losses, prior service costs or credits and plan amendment gains recognized in other comprehensive income for the three years ended December 31 are as follows:



	Pension								Postretirement
	2013		2012			2011			2013		2012			2011
Net gains (losses)	$	60,171	$	(17,630	)	$	(75,995	)	$	3,206	$	(2,021	)	$	(3,934	)
Prior service cost	—		—			—			—		—			631
Negative plan amendment	—		—			—			3,372		—			—

Net gains or losses and prior service costs or credits reclassified from other comprehensive income and recognized as a component of pension and postretirement expense for the three years ended December 31 are as follows:



	Pension						Postretirement
	2013		2012		2011		2013			2012			2011
Amortization of losses	$	20,914	$	17,578	$	10,372	$	675		$	582		$	570
Amortization of prior service cost	1,356		1,308		1,359		66			80			69
Amortization of negative plan amendment	—		—		—		(105		)	(55		)	—

Net losses and prior service costs or credits that have not yet been included in pension and postretirement expense for the two years ended December 31, which have been recognized as a component of AOCI are as follows:



	Pension						Postretirement
	2013			2012			2013			2012
Prior service cost	$	(5,707	)	$	(7,062	)	$	(49	)	$	(328	)
Net losses	(110,728		)	(191,813		)	(8,057		)	(11,939		)
Negative plan amendment	—			—			3,574			521
Deferred income tax benefit	36,685			61,968			1,571			4,073
AOCI	$	(79,750	)	$	(136,907	)	$	(2,961	)	$	(7,673	)

For pension and postretirement plans with accumulated benefit obligations in excess of plan assets, the following table sets forth the projected and accumulated benefit obligations and the fair value of plan assets for the two years ended December 31:



	2013		2012
Projected benefit obligation	$	388,163	$	482,052
Accumulated benefit obligation	350,605		434,810
Fair value of plan assets	290,848		320,699

The following tables set forth the components of net pension and postretirement benefit cost that have been recognized during the three years ended December 31:



	Pension									Postretirement
	2013			2012			2011			2013			2012			2011
Components of Net Periodic Benefit Cost
Service cost	$	8,452		$	8,407		$	6,782		$	1,056		$	918		$	673
Interest cost	16,682			17,284			18,087			937			956			972
Expected return on plan assets	(25,302		)	(25,477		)	(25,819		)	—			—			—
Amortization of prior service cost	1,296			1,308			1,359			66			80			69
Amortization of losses	20,097			17,578			10,372			675			582			570
Amortization of negative plan amendment	—			—			—			(105		)	(55		)	—
Curtailment expense	60			—			—			—			—			—
Settlement expense	817			—			—			—			—			—
Net periodic benefit cost	$	22,102		$	19,100		$	10,781		$	2,629		$	2,481		$	2,284

The estimated pre-tax amounts that will be amortized from AOCI into net periodic benefit cost in 2014 are as follows:



	Pension		Postretirement
Amortization of loss	$	10,448	$	640
Amortization of prior service cost	1,167		17
Amortization of negative plan amendment	—		(282		)
Total amortization of AOCI loss	$	11,615	$	375

The following table sets forth the principal assumptions inherent in the determination of benefit obligations and net periodic benefit cost of the pension and postretirement benefit plans as of December 31:



	Pension						Postretirement
	2013		2012		2011		2013		2012		2011
Assumptions used to determine benefit obligations at December 31:
Discount rate	4.60	%	3.70	%	4.20	%	4.60	%	3.60	%	4.10	%
Rate of compensation increase	4.60	%	4.60	%	4.50	%	4.50	%	4.50	%	4.50	%
Assumptions used to determine net periodic benefit cost for years ended December 31:
Discount rate	3.70	%	4.20	%	5.25	%	3.60	%	4.10	%	5.10	%
Expected long-term return on plan assets	8.50	%	8.50	%	8.50	%	—		—		—
Rate of compensation increase	4.60	%	4.50	%	4.50	%	4.50	%	4.50	%	4.50	%

At December 31, 2013, the pension plans’ discount rate was 4.60 percent, which closely approximates interest rates on high quality, long-term obligations. Effective December 31, 2013, the expected return on plan assets remained at 8.5 percent, which is based on historical and expected long-term rates of return on broad equity and bond indices and consideration of the actual annualized rate of return. The Company, with the assistance of external consultants, utilizes this information in developing assumptions for returns, and risks and correlation of asset classes, which are then used to establish the asset allocation ranges.

The following table sets forth the assumed health care cost trend rates at December 31:



	Postretirement
	2013		2012
Health care cost trend rate assumed for next year	7.00	%	7.50	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)	5.00	%	5.00	%
Year that the rate reaches the ultimate trend rate	2017		2017

Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement benefit plans. The following table shows the effect of a one percentage point change in assumed health care cost trends:



	1 Percent
Effect on:	Increase		Decrease
Total of service and interest cost components	$	253	$	(208	)
Accumulated postretirement benefit obligation	1,389		(1,183		)

Investment of Plan Assets

The Company’s pension plans’ asset allocation at December 31, 2013 and 2012, and target allocation ranges by asset category are as follows:



	Percentage of Plan Assets				Target Allocation Range
Asset Category	2013		2012		Target Allocation Range
Domestic equity securities	42	%	41	%	40-45%
International equity securities	26	%	25	%	20-30%
Domestic fixed income securities	25	%	26	%	25-30%
International fixed income securities	4	%	5	%	4-6%
Real estate fund	3	%	3	%	2-4%
Total	100	%	100	%

The Company’s Pension and Savings Plan Committee and the Audit Committee of the Board of Directors oversee the pension plans’ investment program which is designed to maximize returns and provide sufficient liquidity to meet plan obligations while maintaining acceptable risk levels. The investment approach emphasizes diversification by allocating the plans’ assets among asset categories and selecting investment managers whose various investment methodologies will be minimally correlative with each other. Investments within the equity categories may include large capitalization, small capitalization and emerging market securities, while the international fixed income portfolio may include emerging markets debt. Pension assets did not include a direct investment in Rayonier common stock at December 31, 2013 or 2012.

Fair Value Measurements

The following table sets forth by level, within the fair value hierarchy (see Note 2 — Summary of Significant Accounting Policies for definition), the assets of the plans as of December 31, 2013 and 2012.



	Fair Value at December 31, 2013						Fair Value at December 31, 2012
Asset Category	Level 1		Level 2		Total		Level 1		Level 2		Total
Domestic equity securities	$	29,293	$	110,401	$	139,694	$	50,653	$	76,251	$	126,904
International equity securities	55,692		31,347		87,039		51,758		27,173		78,931
Domestic fixed income securities	—		85,222		85,222		—		81,045		81,045
International fixed income securities	15,134		—		15,134		15,745		—		15,745
Real estate fund	9,678		—		9,678		10,208		—		10,208
Short-term investments	879		4,259		5,138		29		7,837		7,866
Total	$	110,676	$	231,229	$	341,905	$	128,393	$	192,306	$	320,699

The valuation methodology used for measuring the fair value of these asset categories was as follows:

Level 1 — Net asset value in an observable market.

Level 2 — Assets classified as level two are held in collective trust funds. The net asset value of a collective trust is calculated by determining the fair value of the fund’s underlying assets, deducting its liabilities, and dividing by the units outstanding as of the valuation date. These funds are not publicly traded; however, the unit price calculation is based on observable market inputs of the funds’ underlying assets.

There have been no changes in the methodology used during the years ended December 31, 2013 and 2012.

Cash Flows

Expected benefit payments for the next ten years are as follows:



	Pension Benefits		Postretirement Benefits
2014	$	19,987	$	1,071
2015	21,070		1,170
2016	22,118		1,259
2017	23,149		1,271
2018	24,191		1,394
2019 - 2023	133,459		6,328

The Company has no mandatory pension contribution requirements in 2014, but may make discretionary contributions.

Defined Contribution Plans

The Company provides defined contribution plans to all of its hourly and salaried employees. Company contributions charged to expense for these plans were $4.4 million, $2.7 million and $2.6 million for the years ended December 31, 2013, 2012 and 2011, respectively. Rayonier Hourly and Salaried Defined Contribution Plans include Rayonier common stock with a fair market value of $73.2 million and $89.4 million at December 31, 2013 and 2012, respectively.

As discussed above, all pension plans are currently closed to new employees. Employees not eligible for the pension plans are immediately eligible to participate in the Company’s 401(k) plan and receive an enhanced contribution. Company contributions related to this plan enhancement for the years ended December 31, 2013, 2012 and 2011 were $1.1 million, $1.0 million and $0.9 million, respectively.