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 would be 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 would 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. Effective December 31, 2015, the qualified pension plan was frozen with respect to future benefit accruals. Under U.S. Government Cost Accounting Standard (“CAS”) 413 the Company must determine the USG’s share of any pension curtailment adjustment calculated in accordance with CAS. Such adjustments may result in an amount due to the USG for pension plans that are in a surplus position or an amount due to the contractor for plans that are in a deficit position.

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
	2015			2014			2015			2014
In thousands
Projected benefit obligation at beginning of year	$	738,279		$	641,235		$	10,349		$	9,910
Service cost	14,131			11,759			206			256
Interest cost	27,514			28,835			318			342
Actuarial liability (gain) loss ^(a)	(36,245		)	84,848			(155		)	660
Benefit payments	(30,837		)	(28,398		)	(534		)	(819		)
Projected benefit obligation at end of year	$	712,842		$	738,279		$	10,184		$	10,349
Fair value of plan assets at beginning of year	$	596,733		$	555,400		$	—		$	—
Actual return on plan assets	(22,038		)	59,731			—			—
Employer contributions	10,000			10,000			534			819
Benefit payments	(30,837		)	(28,398		)	(534		)	(819		)
Fair value of plan assets at end of year	$	553,858		$	596,733		$	—		$	—
Funded status at end of year	$	(158,984	)	$	(141,546	)	$	(10,184	)	$	(10,349	)
Accumulated benefit obligation	$	712,842		$	738,279		$	10,184		$	10,349

^(a)The actuarial liability (gain)/loss amount for the qualified pension plan for 2015 and 2014 is principally due to the effect of changes in the discount rate.

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
	2015			2014			2015			2014
In thousands
Current liabilities ^(a)	$	—		$	—		$	(530	)	$	(531	)
Noncurrent liabilities	(158,984		)	(141,546		)	(9,654		)	(9,818		)
Total	$	(158,984	)	$	(141,546	)	$	(10,184	)	$	(10,349	)

^(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
	2015		2014		2015		2014
In thousands
Unrecognized (gain) or loss	$	187,331	$	167,329	$	1,236	$	1,609
Unrecognized prior service cost	—		57		—		—
Amount included in accumulated other comprehensive income	$	187,331	$	167,386	$	1,236	$	1,609

The amount of unrecognized loss 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 $12.5 million and $0.2 million. No amounts will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next year related to the prior service cost for the qualified pension plan and the SERP.

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
	2015			2014			2013			2015			2014			2013
In thousands
Service cost for benefits earned during the year	$	14,131		$	11,759		$	14,347		$	206		$	256		$	340
Interest cost on projected benefit obligation	27,514			28,835			25,596			318			342			311
Expected return on plan assets	(44,130		)	(41,047		)	(41,347		)	—			—			—
Amortization of prior service cost	57			98			98			—			—			—
Recognized net loss	9,920			4,106			9,291			218			91			261
Additional amount recognized due to curtailment/settlement	—			—			—			—			—			276
Net pension benefit cost	$	7,492		$	3,751		$	7,985		$	742		$	689		$	1,188
Change in prior service cost	$	—		$	—		$	—		$	—		$	—		$	—
Change in net gain or loss	29,923			66,165			(51,465		)	(155		)	660			(1,052		)
Amortization of prior service cost	(57		)	(98		)	(98		)	—			—			—
Amortization of net loss	(9,920		)	(4,106		)	(9,291		)	(218		)	(91		)	(261		)
Total recognized in other comprehensive income (loss)	$	19,946		$	61,961		$	(60,854	)	$	(373	)	$	569		$	(1,313	)
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	27,438		$	65,712		$	(52,869	)	$	369		$	1,258		$	(125	)

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 2016:



	Qualified Pension Plan				SERP
	2015		2014		2015		2014
In thousands
Contributions	$	10,000	$	10,000	$	534	$	819



	Qualified Pension Plan ^(a)		SERP
In thousands
Expected contributions during 2016	$	10,000	$	530

^(a) The Company contributed $10.0 million to the qualified pension plan in January 2016 and does not intend to make any further contributions to the qualified pension plan in 2016.

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
2016	$	32,020	$	530
2017	33,787		2,972
2018	35,339		509
2019	37,057		496
2020	38,651		482
2021-2025	212,608		4,321

In October 2014, the Society of Actuaries 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 the RP-2000 Scale AA Generational based mortality table was the most appropriate assumption.

Prior to 2014, the Company used the Citigroup Discount Yield Curve in generating its discount rate assumption. Starting in 2014, 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 the Company's discount rate assumption, as the future cash flows of the plan are more closely aligned to the Above Median Double-A Curve. The discount rates used in determining benefit obligations of the pension plans are as follows:



	At December 31,
	Qualified Pension Plan				SERP
	2015		2014		2015		2014
Discount rate	4.17	%	3.80	%	3.47	%	3.15	%

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
	2015		2014		2015		2014
Discount rate	3.80	%	4.60	%	3.15	%	3.60	%
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

Other

In 2015 and prior, we used a single-weighted average discount rate to calculate interest and service cost associated with our defined benefit pension plans. We plan to utilize a "spot rate approach" in the calculation of interest and service cost for these plans for 2016 and beyond. The spot rate approach applies separate discount rates for each projected benefit payment in the calculation of pension interest and service cost. This calculation change is considered a change in accounting estimate and will be applied prospectively in 2016. The use of the spot rate approach is expected to have a favorable impact on pension expense in 2016 of approximately $4.6 million relative to what pension expense would have been had we not changed our approach.

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 2015 and 2014, the expected rate of return on plan assets was 7.5%. During 2015, the actual return on pension plan assets, net of expenses, was (3.4)%.

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 51.1%/48.9%. 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 USG 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 primarily of 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)

Qualified Pension Plan Assets - continued

The fair values of the Company’s qualified pension plan assets at December 31, 2015 and 2014, are as follows:



	Total Carrying Value at December 31, 2015		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	$	10,201	$	10,201	$	—	$	—
Futures contracts	—		—		—		—
Fixed income securities:
U.S. Government and agency securities ^(a)	76,136		—		76,136		—
Bonds:
Corporate fixed income	96,970		—		96,970		—
Foreign fixed income	—		—		—		—
Other fixed income ^(b)	1,530		—		1,530		—
Mutual funds	119,312		119,312		—		—
Common trust funds	196,570		—		196,570		—
Corporate stock	51,153		51,153		—		—
Subtotal	$	551,872	$	180,666	$	371,206	$	—
Accrued income/expense	1,986		73		1,913		—
Total	$	553,858	$	180,739	$	373,119	$	—



	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:
US 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	1,965		47		1,918		—
Total	$	596,733	$	155,571	$	441,162	$	—

^(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.

14. PENSION PLANS (CONTINUED)

Qualified Pension Plan Assets - continued

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 $11.9 million, $11.2 million and $10.4 million in 2015, 2014 and 2013, 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, 2015, of $0.1 million is included in other accruals and payables on the Consolidated Balance Sheet.