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 stipulated that years of service would continue to be added for purposes of the benefit calculations only through December 31, 2015, with no further accrual of benefits for service thereafter. Given that 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. During the fourth quarter of 2016, the Company accrued a $0.3 million liability representing our estimate of the amount due to the USG based on our pension curtailment adjustment calculation, which was submitted to the USG for review in December 2016. The Company has maintained its accrual at $0.3 million as of December 31, 2017. There can be no assurance that the ultimate resolution of this matter will not have a material adverse effect on the Company's results of operations, financial position and cash flows.

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. The Board's Personnel & Compensation 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.

13. PENSION PLANS (CONTINUED)

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
	2017			2016			2017			2016
In thousands
Projected benefit obligation at beginning of year	$	728,601		$	712,842		$	10,059		$	10,184
Service cost	4,794			4,596			—			—
Interest cost	24,358			24,488			241			254
Actuarial liability loss ^(a)	47,433			20,588			652			155
Benefit payments	(34,870		)	(33,913		)	(3,056		)	(534		)
Projected benefit obligation at end of year	$	770,316		$	728,601		$	7,896		$	10,059
Fair value of plan assets at beginning of year	$	572,174		$	553,858		$	—		$	—
Actual return on plan assets	96,088			42,229			—			—
Employer contributions	10,000			10,000			3,056			534
Benefit payments	(34,870		)	(33,913		)	(3,056		)	(534		)
Fair value of plan assets at end of year	$	643,392		$	572,174		$	—		$	—
Funded status at end of year	$	(126,924	)	$	(156,427	)	$	(7,896	)	$	(10,059	)
Accumulated benefit obligation	$	770,316		$	728,601		$	7,896		$	10,059

^(a)The actuarial liability loss amount for the qualified pension plan for 2017 and 2016 is principally due to the effect of changes in the discount rate.

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



	At December 31,
	Qualified Pension Plan						SERP
	2017			2016			2017			2016
In thousands
Current liabilities ^(a)	$	—		$	—		$	(942	)	$	(3,061	)
Noncurrent liabilities	(126,924		)	(156,427		)	(6,954		)	(6,998		)
Total	$	(126,924	)	$	(156,427	)	$	(7,896	)	$	(10,059	)

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

The following table presents amounts included in accumulated other comprehensive income on the Consolidated Balance Sheets that will be recognized as components of pension cost in future periods.



	At December 31,
	Qualified Pension Plan				SERP
	2017		2016		2017		2016
In thousands
Unrecognized loss	$	173,214	$	193,764	$	1,410	$	1,209
Amount included in accumulated other comprehensive income	$	173,214	$	193,764	$	1,410	$	1,209

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 $11.1 million and $0.3 million.

13. 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
	2017			2016			2015			2017			2016			2015
In thousands
Service cost for benefits earned during the year	$	4,794		$	4,596		$	14,131		$	—		$	—		$	206
Interest cost on projected benefit obligation	24,358			24,488			27,514			241			254			318
Expected return on plan assets	(42,049		)	(40,767		)	(44,130		)	—			—			—
Amortization of prior service cost	—			—			57			—			—			—
Recognized net loss	13,943			12,694			9,920			146			182			218
Additional amount recognized due to curtailment/settlement	—			—			—			305			—			—
Net pension benefit cost	$	1,046		$	1,011		$	7,492		$	692		$	436		$	742
Change in net gain or (loss)	(6,607		)	19,126			29,923			347			155			(155		)
Amortization of prior service cost	—			—			(57		)	—			—			—
Amortization of net loss	(13,943		)	(12,694		)	(9,920		)	(146		)	(182		)	(218		)
Total recognized in other comprehensive income (loss)	$	(20,550	)	$	6,432		$	19,946		$	201		$	(27	)	$	(373	)
Total recognized in net periodic benefit cost and other comprehensive income (loss)	$	(19,504	)	$	7,443		$	27,438		$	893		$	409		$	369

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 2018:



	Qualified Pension Plan				SERP
	2017		2016		2017		2016
In thousands
Contributions	$	10,000	$	10,000	$	3,056	$	534



	Qualified Pension Plan ^(a)		SERP
In thousands
Expected contributions during 2018	$	10,000	$	942

^(a) The Company contributed $10.0 million to the qualified pension plan in January 2018. Currently, the Company does not intend to make any further contributions to the qualified pension plan in 2018; however, given Tax Reform the Company is evaluating its options.

13. 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
2018	$	34,878	$	942
2019	$	37,000	$	517
2020	$	38,692	$	503
2021	$	39,960	$	2,464
2022	$	41,689	$	469
2023-2027	$	223,256	$	2,018

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 mortality data and 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.

Since 2014, the Company has been using the Citigroup Above Median Double-A Curve, as it is deemed to be the most appropriate basis for generating the Company's discount rate assumption, as the future cash flows of the plan are most 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
	2017		2016		2017		2016
Discount rate	3.50	%	3.98	%	3.15	%	3.43	%

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
	2017		2016		2017		2016
Discount rate	3.98	%	4.17	%	3.43	%	3.47	%
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 2016, the Company began utilizing a "spot rate approach" in the calculation of pension interest and service cost. The spot rate approach applies separate discount rates for each projected benefit payment in the calculation of pension interest and service cost.

13. 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 2017 and 2016, the expected rate of return on plan assets was 7.5%. During 2017, the actual return on pension plan assets, net of expenses, was 17.0%.

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 56.8%/43.2%. 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 not subject to leveling.

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.

13. PENSION PLANS (CONTINUED)

Qualified Pension Plan Assets - continued

The fair values of the Company’s qualified pension plan assets at December 31, 2017 and 2016, are as follows:



	Total Carrying Value at December 31, 2017			Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)		Not subject to leveling
In thousands
Short-term investments:
Cash and cash equivalents	$	35,046		$	35,046	$	—		$	—	$	—
Futures contracts - assets	116			—		116			—		—
Futures contracts - liabilities	(1,384		)	—		(1,384		)	—		—
Fixed income securities	96,318			—		96,318			—		—
Mutual funds	126,955			126,955		—			—		—
Common trust funds⁽¹⁾	314,420			—		—			—		314,420
Corporate stock	70,879			70,879		—			—		—
Subtotal	$	642,350		$	232,880	$	95,050		$	—	$	314,420
Accrued income/expense	1,042			120		873			—		49
Total	$	643,392		$	233,000	$	95,923		$	—	$	314,469



	Total Carrying Value at December 31, 2016			Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)		Not subject to leveling
In thousands
Short term investments:
Cash and cash equivalents	$	21,537		$	21,537	$	—		$	—	$	—
Futures contracts - liabilities	(1,346		)	—		(1,346		)	—		—
Fixed income securities	127,857			—		127,857			—		—
Mutual funds	131,897			131,897		—			—		—
Common trust funds⁽¹⁾	216,354			—		—			—		216,354
Corporate stock	74,348			74,348		—			—		—
Subtotal	$	570,647		$	227,782	$	126,511		$	—	$	216,354
Accrued income/expense	1,527			133		1,394			—		—
Total	$	572,174		$	227,915	$	127,905		$	—	$	216,354

⁽¹⁾ In accordance with ASU 2015-07, Fair Value Measurement (Topic 820), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total pension plan assets.

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.

13. PENSION PLANS (CONTINUED)

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 $12.6 million, $11.9 million and $11.9 million in 2017, 2016 and 2015, respectively.

One of the Company's foreign subsidiaries maintains a defined benefit plan of its own for its local employees. The net pension liability associated with this plan as of December 31, 2017 and 2016, of $0.1 million is included in Other current liabilities on the Company's Consolidated Balance Sheets.