PENSION PLANS

The Company has a non-contributory qualified defined benefit pension plan (the “Qualified Pension Plan”). On February 23, 2010, the Company’s Board of Directors approved an amendment to the Qualified Pension Plan that, among other things, closed the Qualified Pension Plan to all new hires on or after March 1, 2010, and changed the benefit calculation for existing employees related to pay and years of service. Specifically, changes in pay were taken into account for benefit calculation purposes until the end of calendar year 2010, the benefit formula was improved to use the highest five years out of the last ten years of service up to December 31, 2010, whether consecutive or not, and years of service will continue to be added for purposes of the benefit calculations through December 31, 2015, with no further accrual of benefits for service thereafter except for vesting purposes.

The Company also has a Supplemental Employees’ Retirement Plan (“SERP”), which is considered a non-qualified pension plan. The SERP provides certain key executives, whose compensation is in excess of the limitations imposed by federal law on the qualified defined benefit pension plan, with supplemental benefits based upon eligible earnings, years of service and age at retirement. During 2010, the Company's Board of Directors also approved an amendment to the SERP that made changes consistent with the pension plan amendment except that the SERP already provided for the use of non-consecutive years of service for benefit calculation purposes and there was no provision needed regarding limitations on future participation because executives already had to be approved for SERP participation by the Board's Personnel & Compensation Committee (the "Committee") and the Board of Directors. The Committee and the Board have not approved any new participants to the SERP since February 28, 2010, and do not intend to do so at any time in the future. The measurement date for both these plans is December 31.

Obligations and Funded Status

The changes in the actuarial present value of the projected benefit obligation and fair value of plan assets are as follows:



	For the year ended December 31,
	Qualified Pension Plan						SERP
	2014			2013			2014			2013
In thousands
Projected benefit obligation at beginning of year	$	641,235		$	706,356		$	9,910		$	12,326
Service cost	11,759			14,347			256			340
Interest cost	28,835			25,596			342			311
Actuarial liability (gain) loss ^(a)	84,848			(78,609		)	660			(458		)
Benefit payments	(28,398		)	(26,455		)	(819		)	(2,291		)
(Curtailment) / Settlement	—			—			—			(318		)
Projected benefit obligation at end of year	$	738,279		$	641,235		$	10,349		$	9,910
Fair value of plan assets at beginning of year	$	555,400		$	557,653		$	—		$	—
Actual return on plan assets	59,731			14,202			—			—
Employer contributions	10,000			10,000			819			2,291
Benefit payments	(28,398		)	(26,455		)	(819		)	(2,291		)
Fair value of plan assets at end of year	$	596,733		$	555,400		$	—		$	—
Funded status at end of year	$	(141,546	)	$	(85,835	)	$	(10,349	)	$	(9,910	)
Accumulated benefit obligation	$	738,279		$	641,235		$	10,349		$	9,910

^(a)The actuarial liability (gain)/loss amount for the qualified pension plan for 2014 and 2013 is principally due to the effect of changes in the discount rate. Additionally, in 2014 a new set of mortality tables was issued by the Society of Actuaries ("SOA"), which impacted the valuation of the Company's obligations under the qualified pension plan and SERP.

14. PENSION PLANS (CONTINUED)

Obligations and Funded Status - continued

The Company has recorded liabilities related to our qualified pension plan and SERP as follows:



	At December 31,
	Qualified Pension Plan						SERP
	2014			2013			2014			2013
In thousands
Current liabilities ^(a)	$	—		$	—		$	(531	)	$	(819	)
Noncurrent liabilities	(141,546		)	(85,835		)	(9,818		)	(9,091		)
Total	$	(141,546	)	$	(85,835	)	$	(10,349	)	$	(9,910	)

^(a) The current liabilities are included in other accruals and payables on the Consolidated Balance Sheets.

Certain amounts included in accumulated other comprehensive income on the Consolidated Balance Sheets represent costs that will be recognized as components of pension cost in future periods. These consist of:



	At December 31,
	Qualified Pension Plan				SERP
	2014		2013		2014		2013
In thousands
Unrecognized (gain) or loss	$	167,329	$	105,269	$	1,609	$	1,040
Unrecognized prior service cost	57		156		—		—
Amount included in accumulated other comprehensive income	$	167,386	$	105,425	$	1,609	$	1,040

The amount of unrecognized loss and prior service cost for the qualified pension plan and the SERP, respectively, that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next year is estimated to be $9.6 million and $0.2 million.

14. PENSION PLANS (CONTINUED)

Obligations and Funded Status - continued

The pension plan net periodic benefit costs on the Consolidated Statements of Operations and other amounts recognized in other comprehensive income (loss) on the Consolidated Statements of Comprehensive Income and Consolidated Statements of Shareholders’ Equity were computed using the projected unit credit actuarial cost method and included the following components:



	For the year ended December 31,
	Qualified Pension Plan									SERP
	2014			2013			2012			2014			2013			2012
In thousands
Service cost for benefits earned during the year	$	11,759		$	14,347		$	14,075		$	256		$	340		$	380
Interest cost on projected benefit obligation	28,835			25,596			26,312			342			311			408
Expected return on plan assets	(41,047		)	(41,347		)	(37,878		)	—			—			—
Amortization of prior service cost	98			98			98			—			—			—
Recognized net loss	4,106			9,291			7,844			91			261			169
Additional amount recognized due to curtailment/settlement	—			—			—			—			276			198
Net pension benefit cost	$	3,751		$	7,985		$	10,451		$	689		$	1,188		$	1,155
Change in prior service cost	$	—		$	—		$	—		$	—		$	—		$	—
Change in net gain or loss	66,165			(51,465		)	20,365			660			(1,052		)	815
Amortization of prior service cost	(98		)	(98		)	(98		)	—			—			—
Amortization of net loss	(4,106		)	(9,291		)	(7,844		)	(91		)	(261		)	(169		)
Total recognized in other comprehensive income (loss)	$	61,961		$	(60,854	)	$	12,423		$	569		$	(1,313	)	$	646
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	65,712		$	(52,869	)	$	22,874		$	1,258		$	(125	)	$	1,801

The following tables show the amount of the contributions made to the Qualified Pension Plan and SERP during each period and the amount of contributions the Company expects to make during 2015:



	Qualified Pension Plan				SERP
	2014		2013		2014		2013
In thousands
Contributions	$	10,000	$	10,000	$	819	$	2,291



	Qualified Pension Plan ^(a)		SERP
In thousands
Expected contributions during 2015	$	10,000	$	531

^(a) As of the date of this report, the Company has already contributed this $10.0 million to the qualified pension plan; no further contributions are expected to be made in 2015.

14. PENSION PLANS (CONTINUED)

Obligations and Funded Status - continued

Expected future benefit payments, which reflect expected future service, are as follows:



	Qualified Pension Plan		SERP
In thousands
2015	$	30,713	$	531
2016	32,441		522
2017	34,053		3,014
2018	35,470		500
2019	37,085		488
2020-2024	206,438		4,407

In October 2014, the SOA finalized a new set of mortality tables. Mortality is a key assumption in developing actuarial estimates, and therefore could significantly impact the valuation of the Company's obligations under the qualified pension plan and SERP. The Company reviewed the new mortality data at December 31, 2014. Based on the size and demographics of the plan's participant population, the Company determined RP-2000 Scale AA Generational based mortality table is the most appropriate assumption.

Prior to 2014, the Company used the Citigroup Discount Yield Curve in generating its discount rate assumption. As part of the Company's annual evaluation of its assumptions, the Citigroup Above Median Double-A Curve was deemed to be a more appropriate basis for generating our discount rate assumption, as the future cash flows of the plan are more closely aligned to the Above Median Double-A Curve. The actuarial assumptions used in determining benefit obligations of the pension plans are as follows:



	At December 31,
	Qualified Pension Plan				SERP
	2014		2013		2014		2013
Discount rate	3.80	%	4.60	%	3.15	%	3.60	%

The actuarial assumptions used in determining the net periodic benefit cost of the pension plans are as follows:



	For the year ended December 31,
	Qualified Pension Plan				SERP
	2014		2013		2014		2013
Discount rate	4.60	%	3.70	%	3.60	%	2.85	%
Expected return on plan assets	7.50	%	7.50	%	N/A		N/A
Average rate of increase in compensation levels	N/A		N/A		N/A		N/A

14. PENSION PLANS (CONTINUED)

Qualified Pension Plan Assets

The expected return on plan assets rate was determined based upon historical returns adjusted for estimated future market fluctuations. For 2014 and 2013, the expected rate of return on plan assets was 7.5%. During 2014, the actual return on pension plan assets, net of expenses, was 11.4%.

Plan assets are invested in a diversified portfolio consisting of equity and fixed income securities. The investment goals for pension plan assets are to improve and/or maintain the Plan’s funded status by generating long-term asset returns that exceed the rate of growth of the Plan’s liabilities. The Plan invests assets in a manner that seeks to (a) maximize return within reasonable and prudent levels of risk of loss of funded status; and (b) maintain sufficient liquidity to meet benefit payment obligations and other periodic cash flow requirements on a timely basis. The return generation/liability matching asset allocation ratio is currently 48.5%/51.5%. As the plan’s funded status changes, the pension plan’s Administrative Committee (the management committee that is responsible for plan administration) will act through an immediate or gradual process, as appropriate, to reallocate assets.

Under the current investment policy no Investment Manager may invest in investments deemed illiquid by the Investment Manager at the time of purchase, development programs, real estate, mortgages or private equities or securities of Kaman Corporation without prior written authorization from the Finance Committee of the Board of Directors. In addition, with the exception of U.S. Government securities, managers’ holdings in the securities of any one issuer, at the time of purchase, may not exceed 7.5% of the total market value of that manager’s account.

The pension plan assets are valued at fair value. The following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.

Short-term Investments – This investment category consists of cash and cash equivalents and futures and options contracts. Cash and cash equivalents are comprised of investments with maturities of three months or less when purchased, including certain short-term fixed-income securities, and are classified as Level 1 investments. Futures contracts and options contracts requiring the investment managers to receive from or pay to the broker an amount of cash equal to daily fluctuations are included in short-term investments and are classified as Level 2 investments.

Corporate Stock – This investment category consists of primarily domestic common stock issued by U.S. corporations. Common shares are traded actively on exchanges and price quotes for these shares are readily available. Holdings of corporate stock are classified as Level 1 investments.

Mutual Funds –Mutual funds are traded actively on public exchanges. The share prices for these mutual funds are published at the close of each business day. Holdings of mutual funds are classified as Level 1 investments.

Common Trust Funds – Common trust funds are comprised of shares or units in commingled funds that are not publicly traded. The values of the commingled funds are not publicly quoted and must trade through a broker. For equity and fixed-income commingled funds traded through a broker, the fund administrator values the fund using the net asset value (“NAV”) per fund share, derived from the value of the underlying assets. The underlying assets in these funds (equity securities, fixed income securities, and commodity-related securities) are publicly traded on exchanges and price quotes for the assets held by these funds are readily available. Holdings of common trust funds are classified as Level 2 investments.

Fixed Income Securities - For fixed income securities, multiple prices and price types are obtained from pricing vendors whenever possible, which enables cross-provider validations. A primary price source is identified based on asset type, class or issue for each security. The fair values of fixed income securities are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences, and are categorized as Level 2. These securities are primarily investment grade securities.

14. PENSION PLANS (CONTINUED)

Plan Assets for Qualified Pension Plan - continued

The fair values of the Company’s qualified pension plan assets at December 31, 2014 and 2013, are as follows:



	Total Carrying Value at December 31, 2014		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
In thousands
Short-term investments:
Cash and cash equivalents	$	12,063	$	12,063	$	—	$	—
Futures contracts	—		—		—		—
Fixed income securities:
U.S. Government and agency securities ^(a)	83,915		—		83,915		—
Bonds:
Corporate fixed income	112,811		—		112,811		—
Foreign fixed income	—		—		—		—
Other fixed income ^(b)	2,080		—		2,080		—
Mutual funds	93,659		93,659		—		—
Common trust funds	240,438		—		240,438		—
Corporate stock	49,802		49,802		—		—
Subtotal	$	594,768	$	155,524	$	439,244	$	—
Accrued income/expense	1,965		47		1,918		—
Total	$	596,733	$	155,571	$	441,162	$	—

14. PENSION PLANS (CONTINUED)

Plan Assets for Qualified Pension Plan - continued



	Total Carrying Value at December 31, 2013			Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
In thousands
Short term investments:
Cash and cash equivalents	$	23,668		$	23,668	$	—		$	—
Futures contracts	(2,196		)	—		(2,196		)	—
Fixed income securities:
US Government and agency securities ^(a)	61,592			—		61,592			—
Bonds:
Corporate fixed income	81,601			—		81,601			—
Foreign fixed income	10,291			—		10,291			—
Other fixed income ^(b)	3,467			—		3,467			—
Mutual funds	71,244			71,244		—			—
Common trust funds	256,949			—		256,949			—
Corporate stock	47,035			47,035		—			—
Subtotal	$	553,651		$	141,947	$	411,704		$	—
Accrued income	1,749			39		1,710			—
Total	$	555,400		$	141,986	$	413,414		$	—

^(a) This category represents investments in debt securities issued by the U.S. Treasury, other U.S. government corporations and agencies, states and municipalities.

^(b) This category primarily represents investments in commercial and residential mortgage-backed securities.

Derivatives are primarily used to manage risk and gain asset class exposure while still maintaining liquidity. Derivative instruments mainly consist of equity futures and interest rate futures.

Other Plans

The Company also maintains a Defined Contribution Plan that has been adopted by most of its U.S. subsidiaries. Employees of the adopting employers who meet the eligibility requirements of the plan may participate. Employer matching contributions are made to the plan based on a percentage of each participant’s pre-tax contribution. For each dollar that a participant contributes, up to 5% of compensation, participating subsidiaries make employer contributions of one dollar. Employer contributions to the plan totaled $11.2 million, $10.4 million and $9.3 million in 2014, 2013 and 2012, respectively.

One of the Company’s acquired U.S. subsidiaries maintains a separate defined contribution plan for its eligible employees. Employer matching contributions are made on a discretionary basis. Additionally, one of our foreign subsidiaries maintains a defined benefit plan of its own for its local employees. The net pension liability associated with these plans as of December 31, 2014, of $0.3 million is included in other accruals and payables on the Consolidated Balance Sheet.