NOTE 16 — PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS:

Pension Plans

In connection with the November 2006 acquisition of Maritrans, the Company assumed the obligations under the defined benefit retirement plan of Maritrans Inc. (“the Maritrans Plan”). As of December 31, 2006, the Company froze the benefits under the Maritrans Plan. At December 31, 2011, the Maritrans Plan is the Company’s only domestic defined benefit pension plan. The Maritrans Plan was noncontributory and covered substantially all shore-based employees and substantially all of the seagoing supervisors who were supervisors in 1984, or who were hired in, or promoted into, supervisory roles between 1984 and 1998 for that period of time. Beginning in 1999, the seagoing supervisors’ retirement benefits are provided through contributions to an industry-wide, multiemployer union sponsored pension plan. Upon retirement, those seagoing supervisors are entitled to retirement benefits from the Maritrans Plan for service periods between 1984 and 1998 and from the multiemployer union sponsored plan for other covered periods. Retirement benefits are based primarily on years of service and average compensation for the five consecutive plan years that produce the highest results.

The Company also has obligations outstanding under an unfunded, nonqualified supplemental defined benefit pension plan, which was terminated in December 2005, to five former employees entitled to deferred benefits and one retiree currently in receipt of benefits.

Certain of the Company’s foreign subsidiaries have pension plans that, in the aggregate, are not significant to the Company’s consolidated financial position.

Multiemployer Pension and Postretirement Benefit plans

Certain of the Company’s domestic subsidiaries are parties to collective-bargaining agreements that require them to make contributions to three jointly managed (Company and union) multiemployer pension plans covering seagoing personnel of U.S. Flag vessels. All three plans, the American Maritime Officers (“AMO”) Pension Plan, the Seafarers Pension Plan (“SIU”) and the Marine Engineers’ Beneficial Association (“MEBA”) Defined Benefit Pension Plan are individually significant (as such term is defined in the accounting standards). This is because of the potential withdrawal liabilities under the AMO Pension Plan and the MEBA Defined Benefit Pension Plan and because the Company’s contributions to the SIU plan constitutes more than 5% of total employer contributions to the plan during each of the pension plan years ending in 2011.

Plan level information is available in the public domain for each of the multiemployer pension plans in which the Company participates. The table below provides additional information about the Company’s participation in the above multiemployer pension plans:

	Pension Protection Act					Contributions made
	Zone Status⁽¹⁾					by the Company
Pension Plan	EIN / Pension Plan Number	2011	2010	Rehabilitation Plan Status	2011		2010		2009

AMO Pension Plan	13-1936709	Red	Red	Implemented	$	805	$	773	$	841

MEBA Pension Plan	51-6029896	Green	Green	None		-		-		-

Seafarers Pension Plan	13-6100329	Green	Green	None		425		374		368
Total Contributions					$	1,230	$	1,147	$	1,209

(1) A "Red" zone status indicates that the plan is less than 65% funded. A "Green" zone status indicates that the plan is at least 80% funded.

The zone status reflected in the above table applies to the plan year ending in the prior calendar year. The plan years for the three union plans end as follows: MEBA and SIU on December 31 and AMO on September 30. The Company’s future minimum contribution requirements under the three multiemployer pension plans shown above are unavailable as of December 31, 2011 because actuarial reports for the 2011 plan years are not yet complete and such contributions are subject to negotiations between the employers and the unions. The MEBA Pension Plan has been fully funded since 1986. There have therefore been no employer contributions since that time, but the plan was expected to experience funding deficiencies beginning in 2012. As a result, in January 2012, MEBA and the employers agreed to reduce pension benefit accrual rates for future service. Additionally, MEBA and OSG agreed to contractual changes transferring pension contribution obligations to the union members through reallocation of amounts paid by OSG for wages and certain other benefits. In October 2009, the AMO plan filed with the Department of Labor as being in critical status as defined by the Pension Protection Act of 2006. The related rehabilitation plan, which was implemented in 2010, eliminated or reduced certain adjustable benefits, including cost of living adjustments, early retirement and disability pensions. In addition, AMO froze their plan effective January 1, 2010 for the future accrual of benefits and imposed a 5% surcharge during 2011 on the contribution rate per man day. The MEBA and SIU plans utilized the special 29-year amortization rules under Pension Protection Act to amortize their investment losses from 2008, instead of 15 years. In order to take advantage of this extended amortization period, the plans are not permitted to increase benefits through the 2012 plan years unless the increases are funded by additional contributions and other conditions are met. The Employee Retirement Income Security Act of 1974 requires employers who are contributors to U.S. multiemployer plans to continue funding their allocable share of each plan’s unfunded vested benefits in the event of withdrawal from or termination of such plans. Based on information received from the trustees of the SIU Pension Plan, the Company is not subject to withdrawal liabilities under that plan. The Company’s withdrawal liabilities under the AMO and MEBA pension plans are unavailable as of December 31, 2011 because actuarial reports are not yet complete. Based on information received from the trustees of the AMO Pension Plan, however, as of September 30, 2011, the Company’s estimated withdrawal liability was approximately $17,736. The Company has no intentions of terminating its participation in any of the three multiemployer pension plans. Accordingly, no provisions have been made for the estimated withdrawal liability as of December 31, 2011.

The AMO, SIU and MEBA collective bargaining agreements expire in March 2012, June 2012 and June 2020, respectively. The collective bargaining agreements also require the Company to make contributions to certain other postretirement employee benefit plans the unions offer to their members. Such contributions were not material during the three years ended December 31, 2011.

Certain other seagoing personnel of U.S. Flag vessels are covered under a defined contribution plan, the cost of which is funded as accrued. The costs of all these plans were not material during the three years ended December 31, 2011.

Postretirement Benefit plans

The Company also provides certain postretirement health care and life insurance benefits to qualifying domestic retirees and their eligible dependents. Contributions at retirement are required under the health care plan for shore-based employees and dependents of seagoing licensed deck officers, while the life insurance plan for all employees and the health care plan for deck officers are noncontributory. In general, postretirement medical coverage is provided to shore-based employees hired by OSG prior to January 1, 2005 and all deck officers who retire and have met minimum age and service requirements under a formula related to total years of service. The Company no longer provides prescription drug coverage to its retirees or their beneficiaries, once they reach age 65. The Company does not currently fund these benefit arrangements and has the right to amend or terminate the health care and life insurance benefits at any time.

Information with respect to the domestic pension and postretirement benefit plans for which the Company uses a December 31 measurement date, follow:

	Pension Benefits						Other Benefits
At December 31,	2011			2010			2011			2010
Change in benefit obligation:
Benefit obligation at beginning of year	$	42,460		$	40,862		$	5,402		$	5,485
Cost of benefits earned (service cost)		-			-			226			223
Interest cost on benefit obligation		2,171			2,212			292			295
Amendments		-			-			-			(639	)
Actuarial losses		4,445			1,605			599			170
Benefits paid		(2,222	)		(2,219	)		(124	)		(132	)
Benefit obligation at year end		46,854			42,460			6,395			5,402
Change in plan assets:
Fair value of plan assets at beginning of year		30,329			26,752			-			-
Actual return on plan assets		(634	)		3,361			-			-
Employer contributions		1,348			2,359			-			-
Benefits paid		(2,146	)		(2,143	)		-			-
Fair value of plan assets at year end		28,897			30,329			-			-
Unfunded status at December 31	$	(17,957	)	$	(12,131	)	$	(6,395	)	$	(5,402	)

The unfunded benefit obligations for the Company’s pension and postretirement benefit plans are included in deferred income taxes and other liabilities in the consolidated balance sheet.

Information for domestic defined benefit pension plans with accumulated benefit obligations in excess of plan assets follows:

At December 31,	2011		2010
Projected benefit obligation	$	46,854	$	42,460
Accumulated benefit obligation		46,854		42,460
Fair value of plan assets		28,897		30,329

	Pension benefits									Other benefits
For the year ended December 31,	2011			2010			2009			2011			2010			2009
Components of expense:
Cost of benefits earned	$	-		$	-		$	-		$	226		$	223		$	205
Interest cost on benefit obligation		2,171			2,212			2,235			292			295			223
Expected return on plan assets		(2,030	)		(1,796	)		(1,451	)		-			-			-
Amortization of prior-service costs		-			-			-			(157	)		(240	)		(240	)
Amortization of transition obligation		-			-			-			20			20			20
Recognized net actuarial loss		30			25			375			122			91			22
Net periodic benefit cost	$	171		$	441		$	1,159		$	503		$	389		$	230

The weighted-average assumptions used to determine benefit obligations follow:

	Pension benefits						Other benefits
At December 31,	2011			2010			2011			2010
Discount rate		4.50	%		5.25	%		4.50	%		5.25	%
Rate of future compensation increases		-			-			-			-

The selection of a discount rate for the Maritrans Plan was derived from bond yield curves, which the Company believed as of such dates to be appropriate for ongoing plans with a long duration, such as the Maritrans Plan, and that generally mirror the type of high yield bond portfolio the Company could acquire to offset its obligations under the Maritrans Plan.

The weighted-average assumptions used to determine net periodic benefit cost follow:

	Pension benefits									Other benefits
For the year ended December 31,	2011			2010			2009			2011			2010			2009
Discount rate		5.25	%		5.50	%		5.00	%		5.25	%		5.50	%		5.75	%
Expected (long-term) return on plan assets		6.75	%		6.75	%		6.75	%		-			-			-
Rate of future compensation increases		-			-			-			-			-			-

The assumed health care cost trend rate for measuring the benefit obligation included in Other Benefits above is an increase of 7% for 2012 over the actual 2011 rates, with the rate of increase declining thereafter by 1% per annum to an ultimate trend rate of 5% per annum in 2014. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health care cost trend rates would have the following effects:

	1% increase		1% decrease
Effect on total of service and interest cost components in 2011	$	115	$	(86	)
Effect on postretirement benefit obligation as of December 31, 2011	$	1,091	$	(845	)

Expected benefit payments are as follows:

	Pension benefits		Other benefits
2012	$	2,274	$	184
2013		2,265		195
2014		2,333		209
2015		2,435		211
2016		2,603		218
Years 2017-2021		14,142		1,429
	$	26,052	$	2,446

The expected long-term rate of return on plan assets is based on the current and expected asset allocations. Additionally, the long-term rate of return is based on historical returns, investment strategy, inflation expectations and other economic factors. The expected long-term rate of return is then applied to the market value of plan assets.

The fair values of the Company’s pension plan assets at December 31, 2011, by asset category are as follows:

			Level 1:
			Quoted prices in active
			markets for identical
Description	Fair Value		assets or liabilities
Cash and cash equivalents	$	1,525	$	1,525
Equity securities:
U.S. companies		16,568		16,568
International companies		4,665		4,665
Mutual funds⁽¹⁾		2,889		2,889
U.S. Treasury securities		1,561		1,561
Mortgage-backed securities		1,689		1,689
Total	$	28,897	$	28,897

⁽¹⁾ The mutual fund investments are invested in intermediate term bonds of government and government sponsored entities.

The Maritrans Plan has historically utilized a strategic asset allocation investment strategy that maintains a targeted allocation of 65% equity and 35% fixed income. The allocation is rebalanced periodically after considering anticipated benefit payments.

The Company contributed $1,348, $2,359 and $1,265 to the Maritrans Plan in 2011, 2010, and 2009, respectively. The Company expects that its contribution in 2012 to the Maritrans Plan will be approximately $1,816.

Employee Savings Plans

The Company also has defined contribution plans covering all eligible U.S. employees. Contributions are limited to amounts allowable for income tax purposes. Commencing in 2006, employer contributions include both employer contributions made regardless of employee contributions and matching contributions to the plans. The Company’s contributions to the plan during each of the three years ended December 31, 2011 were not material. All contributions to the plans are at the discretion of the Company.

The Company also has an unfunded, nonqualified supplemental savings plan covering highly compensated U.S. shore-based employees of the Company. This plan provides for levels of hypothetical employer contributions that would otherwise have been made under the Company’s defined contribution plans in the absence of limitations imposed by income tax regulations. The Company’s unfunded obligations under this plan at December 31, 2011 and 2010 was $12,346 and $13,158, respectively, and are included in deferred income taxes and other liabilities in the consolidated balance sheets.