Retirement Benefit Plans

Defined Benefit Plans: The Company maintains various defined benefit pension plans that provide benefits based on years of service and average compensation during certain periods. During 2013, the Company amended the Combined Defined Benefit Plan for NACCO Industries, Inc. and its subsidiaries (the “Combined Plan”) to freeze pension benefits for all employees, including those for certain Unconsolidated Mines' employees and cost of living adjustments ("COLA's") for other employees, effective as of the close of business on December 31, 2013. As a result of this amendment, the Company remeasured the Combined Plan and recorded a $1.7 million pre-tax curtailment gain during 2013.

The Company also amended the Supplemental Retirement Benefit Plan (the “SERP”) to freeze all remaining pension benefits. In years prior to 2013, benefits other than COLA’s were frozen for all SERP participants. Effective as of the close of business on December 31, 2013, all COLA benefits under the SERP were eliminated for all plan participants.

Certain executive officers also maintain accounts under various deferred compensation plans that were frozen effective December 31, 2007. All other eligible employees of the Company, including employees whose pension benefits are frozen, receive retirement benefits under defined contribution retirement plans.

During 2014, the Society of Actuaries released a new mortality table, referred to as RP-2014, which is believed to better reflect mortality improvements and is to be used in calculating defined benefit pension obligations. The Company used RP-2014 to measure its projected benefit obligation as of December 31, 2014 and the Company's projected benefit obligation increased by $5.0 million in total for its U.S. Plans and SERP as of December 31, 2014 as a result of RP-2014.

The assumptions used in accounting for the defined benefit plans were as follows for the years ended December 31:



	2014		2013		2012
U.S. Plans
Weighted average discount rates for pension benefit obligation	3.45% - 3.95%		4.00% - 4.75%		3.50% - 3.90%
Weighted average discount rates for net periodic benefit cost	4.00% - 4.75%		3.50% - 4.70%		4.30% - 4.55%
Expected long-term rate of return on assets for pension benefit obligation	7.75	%	7.75	%	7.75	%
Expected long-term rate of return on assets for net periodic benefit cost	7.75	%	7.75	%	8.25	%
Non-U.S. Plan
Weighted average discount rates for pension benefit obligation	3.75	%	4.50	%	4.00	%
Weighted average discount rates for net periodic benefit cost	4.50	%	4.00	%	4.25	%
Rate of increase in compensation levels	3.50	%	3.50	%	3.50	%
Expected long-term rate of return on assets for pension benefit obligation	5.75	%	6.00	%	6.00	%
Expected long-term rate of return on assets for net periodic benefit cost	6.00	%	6.00	%	6.25	%

Set forth below is a detail of the net periodic pension expense (income) for the defined benefit plans for the years ended December 31:



	2014			2013			2012
U.S. Plans
Interest cost	$	2,754		$	2,766		$	3,056
Expected return on plan assets	(4,689		)	(4,513		)	(4,344		)
Amortization of actuarial loss	837			1,822			2,772
Amortization of prior service cost (credit)	32			(47		)	(100		)
Curtailment gain	—			(1,701		)	—
Net periodic pension expense (income)	$	(1,066	)	$	(1,673	)	$	1,384

Non-U.S. Plan
Interest cost	$	196		$	197		$	208
Expected return on plan assets	(296		)	(282		)	(287		)
Amortization of actuarial loss	112			121			131
Net periodic pension expense	$	12		$	36		$	52

Set forth below is detail of other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended December 31:



	2014			2013			2012
U.S. Plans
Current year actuarial (gain) loss	$	8,896		$	(11,503	)	$	3,131
Amortization of actuarial loss	(837		)	(1,822		)	(2,772		)
Current year prior service cost (credit)	360			(1,331		)	—
Amortization of prior service (cost) credit	(32		)	47			100
Curtailment gain	—			1,701			—
Total recognized in other comprehensive (income) loss	$	8,387		$	(12,908	)	$	459
Non-U.S. Plan
Current year actuarial (gain) loss	$	(94	)	$	(735	)	$	45
Amortization of actuarial loss	(112		)	(121		)	(131		)
Total recognized in other comprehensive (income)	$	(206	)	$	(856	)	$	(86	)

The following table sets forth the changes in the benefit obligation and the plan assets during the year and the funded status of the defined benefit plans at December 31:



	2014						2013
	U.S. Plans			Non-U.S. Plan			U.S. Plans			Non-U.S. Plan
Change in benefit obligation
Projected benefit obligation at beginning of year	$	65,099		$	4,603		$	72,977		$	5,212
Interest cost	2,754			196			2,766			197
Actuarial (gain) loss	8,736			301			(4,488		)	(317		)
Benefits paid	(4,262		)	(151		)	(4,715		)	(160		)
Plan amendments	—			—			(1,441		)	—
Foreign currency exchange rate changes	—			(400		)	—			(329		)
Intercompany transfers	512			—			—			—
Projected benefit obligation at end of year	$	72,839		$	4,549		$	65,099		$	4,603
Accumulated benefit obligation at end of year	$	72,839		$	4,549		$	65,099		$	4,603
Change in plan assets
Fair value of plan assets at beginning of year	$	67,170		$	5,186		$	60,012		$	4,961
Actual return on plan assets	5,972			690			11,383			719
Employer contributions	496			20			490			—
Benefits paid	(4,262		)	(151		)	(4,715		)	(160		)
Foreign currency exchange rate changes	—			(459		)	—			(334		)
Intercompany transfers	(701		)	—			—			—
Fair value of plan assets at end of year	$	68,675		$	5,286		$	67,170		$	5,186
Funded status at end of year	$	(4,164	)	$	737		$	2,071		$	583
Amounts recognized in the balance sheets consist of:
Noncurrent assets	$	4,304		$	737		$	8,005		$	583
Current liabilities	(1,110		)	—			(1,138		)	—
Non-current liabilities	(7,358		)	—			(4,796		)	—
	$	(4,164	)	$	737		$	2,071		$	583
Components of accumulated other comprehensive loss (income) consist of:
Actuarial loss	$	26,925		$	1,110		$	18,861		$	1,380
Prior service cost	955			—			626			—
Deferred taxes	(10,683		)	(426		)	(7,854		)	(576		)
Currency differences	—			(43		)	—			—
	$	17,197		$	641		$	11,633		$	804

The actuarial loss and prior service cost included in accumulated other comprehensive income (loss) expected to be recognized in net periodic benefit cost in 2015 are $1.1 million ($0.6 million net of tax) and less than $0.1 million, respectively.

The Company recognizes as a component of benefit cost (income), as of the measurement date, any unrecognized actuarial net gains or losses that exceed 10% of the larger of the projected benefit obligations or the plan assets, defined as the "corridor." Amounts outside the corridor are amortized over the average expected remaining service of active participants expected to benefit under the retiree medical plans or over the average expected remaining lifetime of inactive participants for the pension plans. The (gain) loss amounts recognized in AOCI are not expected to be fully recognized until the plan is terminated or as settlements occur, which would trigger accelerated recognition. Prior service costs resulting from plan changes are also in AOCI.

The Company's policy is to make contributions to fund its pension plans within the range allowed by applicable regulations. The Company expects to contribute less than $0.1 million to its non-U.S. pension plans in 2015.

The Company maintains one supplemental defined benefit plan that pays monthly benefits to participants directly out of corporate funds. All other pension benefit payments are made from assets of the pension plans.

Future pension benefit payments expected to be paid from assets of the pension plans are:



	U.S. Plans		Non-U.S. Plan
2015	$	5,068	$	149
2016	4,751		157
2017	4,581		171
2018	4,491		169
2019	4,494		177
2020 - 2024	23,468		1,245
	$	46,853	$	2,068

The expected long-term rate of return on defined benefit plan assets reflects management's expectations of long-term rates of return on funds invested to provide for benefits included in the projected benefit obligations. In establishing the expected long-term rate of return assumption for plan assets, the Company considers the historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans as well as a forward-looking rate of return. The historical and forward-looking rates of return for each of the asset classes used to determine the Company's estimated rate of return assumption were based upon the rates of return earned or expected to be earned by investments in the equivalent benchmark market indices for each of the asset classes.

Expected returns for U.S. pension plans are based on a calculated market-related value for U.S. pension plan assets. Under this methodology, asset gains and losses resulting from actual returns that differ from the Company's expected returns are recognized in the market-related value of assets ratably over three years. Expected returns for Non-U.S. pension plans are based on fair market value for Non-U.S. pension plan assets.

The pension plans maintain investment policies that, among other things, establish a portfolio asset allocation methodology with percentage allocation bands for individual asset classes. The investment policies provide that investments are reallocated between asset classes as balances exceed or fall below the appropriate allocation bands.

The following is the actual allocation percentage and target allocation percentage for the U.S. pension plan assets at December 31:



	2014 Actual Allocation		2013 Actual Allocation		Target Allocation Range
U.S. equity securities	55.3	%	53.6	%	41.0% - 62.0%
Non-U.S. equity securities	11.3	%	13.0	%	10.0% - 16.0%
Fixed income securities	32.9	%	32.9	%	30.0% - 40.0%
Money market	0.5	%	0.5	%	0.0% - 10.0%

The following is the actual allocation percentage and target allocation percentage for the Non-U.S. pension plan assets at December 31:



	2014 Actual Allocation		2013 Actual Allocation		Target Allocation Range
Canadian equity securities	30.2	%	31.0	%	25.0% - 35.0%
Non-Canadian equity securities	30.1	%	32.0	%	25.0% - 35.0%
Fixed income securities	39.7	%	37.0	%	30.0% - 50.0%
Cash and cash equivalents	—	%	—	%	0.0% - 5.0%

The defined benefit pension plans do not have any direct ownership of NACCO common stock.

The fair value of each major category of the Company's U.S. pension plan assets are valued using quoted market prices in active markets for identical assets, or Level 1 in the fair value hierarchy. The fair value of each major category of the Company's Non-U.S. pension plan assets are valued using observable inputs, either directly or indirectly, other than quoted market prices in active markets for identical assets, or Level 2 in the fair value hierarchy. Following are the values as of December 31:



	Level 1				Level 2
	2014		2013		2014		2013
U.S. equity securities	$	37,969	$	35,980	$	864	$	833
Non-U.S. equity securities	7,764		8,701		2,326		2,455
Fixed income securities	22,617		22,125		2,096		1,898
Money market	325		364		—		—
Total	$	68,675	$	67,170	$	5,286	$	5,186

Postretirement Health Care: The Company also maintains health care plans which provide benefits to eligible retired employees. All health care plans of the Company have a cap on the Company's share of the costs. These plans have no assets. Under the Company's current policy, plan benefits are funded at the time they are due to participants.

The assumptions used in accounting for the postretirement health care plans are set forth below for the years ended December 31:



	2014		2013		2012
Weighted average discount rates for benefit obligation	3.25	%	3.85	%	3.05	%
Weighted average discount rates for net periodic benefit cost	3.85	%	3.05	%	3.90	%
Health care cost trend rate assumed for next year	7.0	%	7.0	%	7.0	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)	5.0	%	5.0	%	5.0	%
Year that the rate reaches the ultimate trend rate	2022		2022		2022

Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effects at December 31, 2014:



	1-Percentage-Point Increase		1-Percentage-Point Decrease
Effect on total of service and interest cost	$	17	$	(15	)
Effect on postretirement benefit obligation	$	268	$	(244	)

Set forth below is a detail of the net periodic benefit expense for the postretirement health care plans for the years ended December 31:



	2014			2013			2012
Service cost	$	70		$	77		$	79
Interest cost	118			98			120
Amortization of actuarial loss	66			52			40
Amortization of prior service credit	(107		)	(107		)	(156		)
Net periodic benefit expense	$	147		$	120		$	83

Set forth below is a detail of other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) for the years ended December 31:



	2014			2013			2012
Current year actuarial loss	$	613		$	16		$	295
Amortization of actuarial loss	(66		)	(52		)	(40		)
Amortization of prior service credit	107			107			156
Total recognized in other comprehensive income	$	654		$	71		$	411

The following sets forth the changes in benefit obligations during the year and the funded status of the postretirement health care at December 31:



	2014			2013
Change in benefit obligation
Benefit obligation at beginning of year	$	3,109		$	3,283
Service cost	70			77
Interest cost	118			98
Actuarial loss	613			16
Benefits paid	(376		)	(365		)
Benefit obligation at end of year	$	3,534		$	3,109
Funded status at end of year	$	(3,534	)	$	(3,109	)
Amounts recognized in the balance sheets consist of:
Current liabilities	$	(276	)	$	(257	)
Noncurrent liabilities	(3,258		)	(2,852		)
	$	(3,534	)	$	(3,109	)
Components of accumulated other comprehensive loss (income) consist of:
Actuarial loss	$	1,005		$	457
Prior service credit	(309		)	(415		)
Deferred taxes	475			674
	$	1,171		$	716

The actuarial loss and prior service credit included in accumulated other comprehensive income (loss) expected to be recognized in net periodic benefit cost in 2015 is $0.1 million (less than $0.1 million net of tax) and $0.1 million (less than $0.1 million net of tax), respectively.

Future postretirement health care benefit payments expected to be paid are:



2015	$	276
2016	264
2017	273
2018	292
2019	301
2020 - 2024	1,515
	$	2,921

Defined Contribution Plans: NACCO and its subsidiaries maintain defined contribution (401(k)) plans for substantially all U.S. employees and similar plans for employees outside of the United States. All companies provide employer matching (or safe harbor) contributions based on plan provisions. The defined contribution retirement plans also provide for an additional minimum employer contribution. Certain plans also permit additional contributions whereby the applicable company's contribution to participants is determined annually based on a formula that includes the effect of actual compared with targeted operating results and the age and/or compensation of the participants. Total costs, including Company contributions, for these plans were $7.6 million, $8.0 million and $6.7 million in 2014, 2013 and 2012, respectively.