Employer Sponsored Benefit Plan

12 Months Ended

Dec. 31, 2011

Employer Sponsored Benefit Plan

10. Employer Sponsored Benefit Plan

On July 29, 2010, Lydall’s Board of Directors voted to approve the merger of Lydall’s three domestic defined benefit pension plans into one plan to achieve administrative efficiencies and reduce plan maintenance costs. The effective date of the merger was December 31, 2010.

The domestic defined benefit pension plan, which covers the majority of domestic Lydall employees, is noncontributory and benefits are based on either years of service or eligible compensation paid while a participant is in a plan. The plan is closed to new employees and benefits under the pension plan are no longer accruing.

The Company’s funding policy for its domestic defined benefit pension plan is to fund not less than the ERISA minimum funding standard and not more than the maximum amount that can be deducted for federal income tax purposes.

Plan assets and benefit obligations of the domestic defined benefit pension plan are as follows:

	December 31,
In thousands	2011			2010
Change in benefit obligation:
Net benefit obligation at beginning of year	$	45,950		$	43,886
Interest cost		2,589			2,553
Actuarial loss		6,300			1,250
Gross benefits paid		(1,998	)		(1,739	)
Net benefit obligation at end of year	$	52,841		$	45,950
Change in plan assets:
Fair value of plan assets at beginning of year	$	32,797		$	29,285
Actual return on plan assets		(1,328	)		3,595
Contributions		3,172			1,656
Gross benefits paid		(1,998	)		(1,739	)
Fair value of plan assets at end of year	$	32,643		$	32,797
Net benefit obligation in excess of plan assets	$	(20,198	)	$	(13,153	)
Balance sheet amounts:
Noncurrent liabilities	$	(20,198	)	$	(13,153	)
Total liabilities	$	(20,198	)	$	(13,153	)
Amounts recognized in accumulated other comprehensive income, net of tax consist of:
Net actuarial loss	$	18,466		$	12,459
Net amount recognized	$	18,466		$	12,459

At December 31, 2011, in addition to the accrued benefit liability of $20.2 million recognized for the Company’s domestic defined benefit pension plan, the Company also had an accrued benefit liability of $0.8 million and accumulated other comprehensive loss, net of tax, related to foreign regulatory labor agreements of $0.1 million.

At December 31, 2010, in addition to the accrued benefit liability of $13.2 million recognized for the Company’s domestic defined benefit pension plan, the Company also had an accrued benefit liability of $0.8 million and an insignificant accumulated other comprehensive loss, net of tax, related to foreign regulatory labor agreements.

The domestic defined benefit pension plan liability, net of tax, included in other comprehensive income increased by $6.0 million for the year ended December 31, 2011 and decreased by $0.4 million for the year ended December 31, 2010.

Aggregated information for the domestic defined benefit pension plan with an accumulated benefit obligation in excess of plan assets is provided in the tables below:

	December 31,
In thousands	2011		2010
Projected benefit obligation	$	52,841	$	45,950
Accumulated benefit obligation	$	52,841	$	45,950
Fair value of plan assets	$	32,643	$	32,797

Components of net periodic benefit cost for the domestic pension plan:

	December 31,
In thousands	2011			2010			2009
Service cost	$	-		$	-		$	47
Interest cost		2,589			2,553			2,571
Expected return on plan assets		(2,644	)		(2,329	)		(2,033	)
Curtailment loss		-			-			213
Settlement gain		-			-			(59	)
Amortization of:
Prior service cost		-			-			7
Actuarial net loss		582			590			695
Total net periodic benefit cost	$	527		$	814		$	1,441

It is estimated that $0.9 million of actuarial net loss will be amortized from accumulated other comprehensive loss into net periodic benefit costs for the domestic pension plan in 2012.

The major assumptions used in determining the year-end benefit obligation and annual net cost for the domestic pension plan are presented in the following table:

	Benefit Obligation						Net Cost
For the years ended December 31,	2011			2010			2011			2010			2009
Discount rate		5.00	%		5.74	%		5.74	%		5.96	%		6.12	%
Expected return on plan assets		7.75	%		8.00	%		8.00	%		8.00	%		8.00	%

Plan Assets

The domestic defined benefit pension plan is administered by an Administrative Committee and an Investment Committee, which are appointed by the Board of Directors. The Investment Committee’s responsibilities are to establish a funding policy for the Lydall Pooled Pension Investment Trust (“the Trust”) and to appoint and oversee the investment advisors responsible for the Trust’s investments. The Investment Committee is a named fiduciary under the plan with respect to management of the Trust’s investments. The assets of the domestic defined benefit pension plan are invested in the Trust for the purpose of investment diversification. In determining the expected return on plan assets, the Investment Committee considers the relative weighting of plan assets, the historical performance of marketable debt and equity securities and economic and other indicators of future performance.

Investment management objectives include maintaining an adequate level of diversification to balance market risk and to provide sufficient liquidity for near-term payments of benefits accrued under the domestic pension plan and to pay the expenses of administration. The long-term investment objective of the Trust is to achieve a total return equal to or greater than the Trust’s actuarially assumed rate of return, currently 7.75%. Though it is the intent of the Investment Committee to achieve income and growth, that intent does not include taking extraordinary risks or engaging in investment activities not commonly considered prudent under the standards imposed by ERISA. The Investment Committee defines risk as the probability of not meeting the Trust’s objectives and the probability of not meeting the Trust’s liability requirements. The allowable investments include: exchange-traded stocks, over-the-counter common and preferred stocks, warrants, rights, convertible securities, depository receipts and shares, trust certificates, limited partnership interests, shares of other investment companies, real estate investment trusts and equity participation, obligations of foreign governments, obligations of international agencies, obligations issued by the U.S. government, mortgage related and other asset-backed securities, corporate debt securities, inflation-index bonds issued by corporations, structured notes, delayed funding loans and revolving credit facilities, bank certificates of deposit, debt securities issued by state of local governments, and money market funds. Prohibited investments include: venture capital investments, direct investment in real estate properties, CMO derivatives, hedge funds, Lydall, Inc. securities, and commodities.

The Investment Committee’s target asset allocation seeks to control risk through portfolio diversification and takes into account, among other factors, objectives discussed above, current funding levels, cash flow conditions and economic and industry trends. Equity securities include investments in large-cap and mid/small-cap companies primarily located in the United States, non-U.S. equities, and emerging market equities. Fixed income securities include fixed income mutual bond funds and common and collective funds.

The following table presents the target allocation of pension plan assets for 2012, which was revised by the Investment Committee in August, 2011, and the actual allocation of plan assets as of December 31, 2011 and 2010 by major asset category:

	Target Allocation		Actual Allocation of Plan Assets December 31,
Asset Category	2012		2011			2010
Equity securities:
U.S. Large Cap		18% - 38%		30	%		40	%
U.S. Mid/Small Cap		4% - 22%		10	%		14	%
Non-U.S.		15% - 25%		17	%		13	%
Emerging Markets		3% - 9%		5	%		5	%
Fixed income securities:
U.S. Bonds		12% - 38%		30	%		20	%
Non-U.S. Bonds		2% - 8%		5	%		5	%
Real estate investment trusts		0% - 8%		-			-
Cash and cash equivalents		0% - 5%		3	%		3	%

The investments of the Trust are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The asset’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

Equity securities, which consist primarily of common stocks, are valued at the closing price reported in the active market in which individuals securities are traded. Short-term cash funds, mutual funds and real estate investment trusts are valued at the net asset value of shares held by the plan at year end as reported in the active market in which the funds are traded. Common and collective trusts are stated at their net unit values as reported on by the investment manager of the fund, and are based on the fair value of the underlying assets and liabilities, which are primarily marketable securities with quoted market prices.

The Trust’s purchases and sales of securities are recorded on a trade date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

The following table sets forth by level, within the fair value hierarchy, the Trust’s assets at fair value as of December 31, 2011 and December 31, 2010:

December 31, 2011
In thousands	Level 1		Level 2		Level 3		Total
Equity securities:
U.S. Large Cap	$	9,958	$	-	$	-	$	9,958
U.S. Mid/Small Cap		3,332		-		-		3,332
Non-U.S.		5,549		-		-		5,549
Emerging Markets		1,636		-		-		1,636
Fixed income securities:
U.S. Bonds		5,292		4,353		-		9,645
Non-U.S. Bonds		1,493		-		-		1,493
Real estate investment trusts		133		-		-		133
Cash and cash equivalents		897		-		-		897
Total Assets at Fair Value	$	28,290	$	4,353	$	-	$	32,643

December 31, 2010
In thousands	Level 1		Level 2		Level 3		Total
Equity securities:
U.S. Large Cap	$	13,106	$	-	$	-	$	13,106
U.S. Mid/Small Cap		4,720		-		-		4,720
Non-U.S.		4,346		-		-		4,346
Emerging Markets		1,498		-		-		1,498
Fixed income securities:
U.S. Bonds		5,057		1,640		-		6,697
Non-U.S. Bonds		1,514		-		-		1,514
Cash and cash equivalents		916		-		-		916
Total Assets at Fair Value	$	31,157	$	1,640	$	-	$	32,797

Estimated Future Contributions and Benefit Payments

The Company expects to contribute approximately $2.7 million in cash to its domestic defined benefit pension plan in 2012.

Estimated future benefit payments for the next 10 years are as follows:

In thousands	2012		2013		2014		2015		2016		2017-2021
Benefit payments	$	1,988	$	2,089	$	2,218	$	2,303	$	2,353	$	14,204

Employee Savings Plan

The Company also sponsors a 401(k) Plan. Employer contributions to this plan amounted to $1.4 million in 2011, $0.8 million in 2010, and $0.5 million in 2009. In response to the global economic decline, Lydall suspended its matching contribution to its sponsored 401(k) plan in May 2009 for all non-union domestic employees. The company resumed matching contributions in July 2010. Matching contributions by the Company are made on employee pretax contributions up to five percent of compensation, with the first three percent matched at 100% and the next two percent matched at 50%. Prior to the suspension in 2009, the Company’s matching contribution was 100% of employee pretax contributions up to 6% of compensation.