NOTE 9 - Pension Plans and Other Postretirement Benefits

The Company sponsors three qualified and two non-qualified retirement plans. Substantially all employees participate in the 401(k) plan and through December 31, 2014 participated in the non-contributory defined contribution plan. Employees who were hired prior to 1998 have a vested accrued benefit in a frozen defined benefit plan. Certain employees participate in a non-qualified defined contribution plan while certain retirees are receiving benefits under the frozen non-qualified defined benefit plan.

Qualified Plans

Employees became eligible to participate in the defined contribution plan after one year of service; contributions were made based on eligible earnings and years of service and were credited to each employee’s individual plan account. The majority of employees received a 5% contribution. Accounts vested after 3 years of service. In November 2014, the Company announced that this fully funded defined contribution plan would be terminated on December 31, 2014 and all participant accounts would become 100% vested and be distributed to all current and former employee participants in 2015.

All employees participate in the 401(k) plan and receive a 100% vested 3% “safe harbor” company contribution based on employees’ eligible earnings. In November 2014, the Company communicated that effective January 1, 2015 it would begin matching each dollar of employee contributions up to a 5% maximum — in addition to maintaining the automatic 3% “safe harbor” contribution. The new matching company contribution vests after 5 years of service. The 401(k) plan is fully funded.

In 2002, participants’ ceased accruing benefits for earnings and years of service in the frozen defined benefit plan. A substantial number of those participants are former employees of the Company who are not eligible to receive an immediate annuity benefit until age 65 and/or are not eligible for a lump sum distribution. In November 2014, the Company announced a cash-out election period or “window” ending in December 2014, for terminated vested participants with accrued lump sum values under $100. During the window, 385 former employees elected to receive a total of approximately $4,200 in lump sum distributions, resulting in approximately $1,600 of additional settlement expense in 2014.

The Company’s policy for the frozen defined benefit plan is to contribute to the plan amounts which are actuarially determined to provide sufficient funding to meet future benefit payments as defined by federal laws and regulations.

For all three qualified plans, all assets are held in their respective plan trusts.

Non-qualified Plans

The non-qualified plans were established for specific employees whose otherwise eligible earnings exceeded the statutory limits under the qualified plans. Benefit accruals under the non-qualified defined benefit plan were frozen in 2002 and all participants are currently in payment status. Both the non-qualified frozen defined benefit plan and the non-qualified contribution plan are unfunded plans with the Company’s contributions made at the time payments are made to participants.

Total expense recorded for the qualified and non-qualified defined contribution, 401(k), defined benefit and supplemental retirement plans was $11,850, $10,295 and $10,415 for the years ended December 31, 2014, 2013 and 2012, respectively.

Contributions to employees' accounts under the qualified defined contribution plan, the 401(k) plan and the non-qualified defined contribution plan, as well as total assets of the plans, were as follows:

		Year Ended December 31,
		2014		2013		2012
Qualified defined contribution plan:
Contributions to employees’ accounts	$	4,580	$	4,616	$	4,148
Total assets at the end of the year		117,720		135,097		141,286
401(k) plan:
Contributions to employees’ accounts		2,753		2,781		2,753
Total assets at the end of the year		132,053		134,897		118,073
Non-qualified defined contribution plan:
Contributions to employees’ accounts		74		110		-
Total assets at the end of the year		-		-		-

Defined Benefit Plan and Supplemental Retirement Plans

The following tables summarize the funded status of the defined benefit and supplemental retirement pension plans as of December 31, 2014, 2013 and 2012 (the measurement dates) and identify (1) the assumptions used to determine the projected benefit obligation and (2) the components of net pension cost for the defined benefit plan and supplemental retirement plans for the following periods:

											Supplemental
		Defined Benefit Plan									Defined Benefit Plans
		December 31,									December 31,
		2014			2013			2012			2014			2013			2012
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	39,483		$	40,994		$	41,736		$	16,706		$	18,192		$	18,012
Service cost		360			360			360			-			-			-
Interest cost		1,679			1,369			1,427			716			616			676
Plan amendments		-			-			-			-			-			-
Actuarial loss (gain)		1,254			624			1,686			2,431			(783	)		817
Benefits paid		(1,737	)		(1,715	)		(1,664	)		(1,329	)		(1,319	)		(1,313	)
Settlements		(6,760	)		(2,149	)		(2,551	)		-			-			-
Projected benefit obligation at end of year	$	34,279		$	39,483		$	40,994		$	18,524		$	16,706		$	18,192
Change in plan assets:
Fair value of plan assets at beginning of year	$	35,879		$	32,757		$	31,653		$	-		$	-		$	-
Actual return on plan assets		2,535			4,396			3,168			-			-			-
Employer contributions		2,000			3,103			2,534			1,329			1,319			1,313
Benefits paid		(1,737	)		(1,715	)		(1,664	)		(1,329	)		(1,319	)		(1,313	)
Expenses paid		(509	)		(513	)		(383	)		-			-			-
Settlements		(6,760	)		(2,149	)		(2,551	)		-			-			-
Fair value of plan assets at end of year	$	31,408		$	35,879		$	32,757		$	-		$	-		$	-
Funded status	$	(2,871	)	$	(3,604	)	$	(8,237	)	$	(18,524	)	$	(16,706	)	$	(18,192	)

Prepaid (accrued) benefit expense	$	10,656		$	12,331		$	11,188		$	(12,024	)	$	(12,479	)	$	(12,855	)

Total amount recognized in Consolidated Balance Sheets, all in Other Liabilities	$	(2,871	)	$	(3,604	)	$	(8,237	)	$	(18,524	)	$	(16,706	)	$	(18,192	)

Amounts recognized in accumulated other comprehensive income (loss) (“AOCI”):
Prior service cost	$	-		$	-		$	-		$	-		$	-		$	124
Net actuarial loss		13,527			15,935			19,425			6,500			4,227			5,213
Total amount recognized in AOCI	$	13,527		$	15,935		$	19,425		$	6,500		$	4,227		$	5,337

Information for pension plans with an accumulated benefit obligation greater than plan assets:
Projected benefit obligation	$	34,729		$	39,483		$	40,994		$	18,524		$	16,706		$	18,192
Accumulated benefit obligation		34,729			39,483			40,994			18,524			16,706			18,192
Fair value of plan assets		31,408			35,879			32,757			-			-			-

The change in the Company’s AOCI for the defined benefit plan for the year ended December 31, 2014 was primarily attributable to loss recognition in 2014, due to settlement accounting as well as loss amortization included in net periodic benefit cost for 2014. This loss recognition was partially offset by liability losses in 2014 due to a decrease in the discount rate as well as a change in the mortality assumption. The change in the Company’s AOCI for the defined benefit plan for the year ended December 31, 2013 was primarily attributable to the performance of the plan assets and an increase in the discount rate, which was partially offset by a change in the mortality assumption. The change in the Company’s AOCI for the defined benefit plan for the year ended December 31, 2012 was primarily attributable to revisions of the discount rate assumption, partially offset by the performance of the plan assets.

										Supplemental
	Defined Benefit Plan									Defined Benefit Plans
	Year Ended December 31,									Year Ended December 31,
		2014			2013			2012			2014			2013			2012
Components of net periodic pension (income) expense:
Service cost:
Benefit accrual	$	-		$	-		$	-		$	-		$	-		$	-
Other expenses		360			360			360			-			-			-
Interest cost		1,679			1,369			1,427			716			616			676
Expected return on plan assets		(2,402	)		(2,238	)		(2,423	)		-			-			-
Settlement loss		2,668			867			1,209			-			-			-
Amortization of:
Prior service cost		-			-			-			-			124			124
Actuarial loss		1,371			1,602			2,367			157			203			171
Net periodic pension expense	$	3,676		$	1,960		$	2,940		$	873		$	943		$	971

Changes in plan assets and benefit obligations included in other comprehensive income (loss):
Prior service cost	$	-		$	-		$	-		$	-		$	-		$	-
Net actuarial loss		(1,037	)		(1,888	)		115			2,431			(783	)		817
Amortization of:
Prior service cost		-			-			-			(2	)		(124	)		(124	)
Actuarial loss		(1,371	)		(1,602	)		(2,367	)		(157	)		(203	)		(171	)
Total recognized in other comprehensive income (loss)	$	(2,408	)	$	(3,490	)	$	(2,252	)	$	2,272		$	(1,110	)	$	522

Weighted-average assumptions used to determine expense:
Discount rate		4.46	%		3.51	%		3.66	%		4.46	%		3.51	%		3.86	%
Expected return on plan assets		7.50	%		7.50	%		7.50	%		*			*			*
Annual rate of salary increase		*			*			*			*			*			*

Weighted-average assumptions used to determine benefit obligations as of December 31:
Discount rate		3.66	%		4.46	%		3.51	%		3.66	%		4.46	%		3.51	%
Expected return on plan assets		7.50	%		7.50	%		7.50	%		*			*			*
Annual rate of salary increase		*			*			*			*			*			*

_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Not applicable.

The discount rates at December 31, 2014 were based on the average yield for long-term, high-grade securities available during the benefit payout period. To set its discount rate, the Company looks to leading indicators, including the Mercer Above Mean Yield Curve.

The assumption for the long-term rate of return on plan assets was determined by considering actual investment experience during the lifetime of the plan, balanced with reasonable expectations of future growth considering the various classes of assets and percentage allocation for each asset class.

The Company has an investment policy for the defined benefit pension plan that aligns the assets within the plan’s trust to an approximate allocation of 50% equity and 50% fixed income funds. Management believes this allocation will produce the targeted long-term rate of return on assets necessary for payment of future benefit obligations, while providing adequate liquidity for payments to current beneficiaries. Assets are reviewed against the defined benefit pension plan’s investment policy and the trustee has been directed to adjust invested assets at least quarterly to maintain the target allocation percentages.

Fair values of the equity security funds and fixed income funds have been determined from public quotations. The following table presents the fair value hierarchy for the Company’s defined benefit pension plan assets, excluding cash held.

				Fair Value Measurements at
				Reporting Date Using
	Total			Level 1			Level 2			Level 3
December 31, 2014
Asset category
Equity security funds (1)
United States		$	12,718		$	-		$	12,718		$	-
International			2,790			-			2,790			-
Fixed income funds			15,591			-			15,591			-
Total		$	31,099		$	-		$	31,099		$	-

December 31, 2013
Asset category
Equity security funds (1)
United States		$	14,730		$	-		$	14,730		$	-
International			3,579			-			3,579			-
Fixed income funds			17,413			-			17,413			-
Total		$	35,722		$	-		$	35,722		$	-

(1)

None of the trust fund assets for the defined benefit pension plan have been invested in shares of HMEC’s common stock.

There were no Level 3 assets held during the years ended December 31, 2014 and 2013.

In 2015, the Company expects amortization of net losses of $1,626 and $273 for the defined benefit plan and the supplemental retirement plans, respectively, and expects no amortization of prior service cost for the supplemental retirement plans to be included in net periodic pension expense.

Postretirement Benefits Other than Pensions

In addition to providing pension benefits, the Company also provides certain health care and life insurance benefits to a closed group of eligible employees (pre-age 65 and former employees). Postretirement benefits other than pensions of active and retired employees are accrued as expense over the employees' service years. As of December 31, 2006, upon discontinuation of retiree medical benefits Health Reimbursement Accounts (“HRAs”) were established for eligible participants and totaled $7,310.

In December 2013, the Company announced the elimination of postretirement medical coverage for all remaining eligible participants effective March 31, 2014. As a result of this plan change, prior service cost will be amortized over the average working lifetime of active eligible participants.

In November 2014, the Company announced it would no longer sponsor the retiree group life benefit as of December 2014 and offered a conversion option to individual policies. This was the last remaining postretirement benefit other than pensions.

As a result of the changes in the plan for other postretirement benefits, the Company recorded a reduction in its expenses of $2,980, $196 and $431 for the years ended December 31, 2014, 2013 and 2012, respectively.

As of December 31, 2014, the balance of the previously established HRAs was $2,485. Funding of HRAs was $252, $181 and $168 for the years ended December 31, 2014, 2013 and 2012, respectively.

The following table presents the funded status of postretirement benefits other than pensions of active and retired employees (including employees on disability more than 2 years) as of December 31, 2014, 2013 and 2012 (the measurement dates) reconciled with amounts recognized in the Company's Consolidated Balance Sheets:

	December 31,
		2014			2013			2012
Change in accumulated postretirement benefit obligations:
Accumulated postretirement benefit obligations at beginning of year	$	1,130		$	2,862		$	3,326
Changes during fiscal year
Service cost		-			-			-
Interest cost		46			92			91
Plan amendment		-			(1,393	)		-
Settlements		(965	)		-			-
Employer payments net of participant contributions		(95	)		(491	)		(488	)
Actuarial (gain) loss		(116	)		60			(67	)
Accumulated postretirement benefit obligations at end of year	$	-		$	1,130		$	2,862
Unfunded status	$	-		$	(1,130	)	$	(2,862	)

Total amount recognized in Consolidated Balance Sheets, all in Other Liabilities	$	-		$	(1,130	)	$	(2,862	)

Amounts recognized in accumulated other comprehensive income (loss) (“AOCI”):
Prior service cost (credit)	$	-		$	(1,341	)	$	-
Net actuarial loss (gain)		-			(604	)		(900	)
Total amount recognized in AOCI	$	-		$	(1,945	)	$	(900	)

	Year Ended December 31,
		2014			2013			2012
Components of net periodic benefit:
Service cost	$	-		$	-		$	-
Interest cost		46			92			91
Curtailment gain		(713	)		-			-
Settlement gain		(1,439	)		-			-
Amortization of prior service cost		(628	)		(52	)		-
Amortization of prior gain		(246	)		(236	)		(522	)
Net periodic income	$	(2,980	)	$	(196	)	$	(431	)

Sensitivity Analysis and Assumptions for Postretirement Benefits Other than Pensions

A one percentage point change in the assumed health care cost trend rate for each year would change the accumulated postretirement benefit obligations as follows:

	December 31,
		2014		2013			2012
Accumulated postretirement benefit obligations
Effect of a one percentage point increase		*		$	-		$	45
Effect of a one percentage point decrease		*			-			(43	)

Service and interest cost components of the net periodic postretirement benefit expense
Effect of a one percentage point increase		*		$	2		$	1
Effect of a one percentage point decrease		*			(2	)		(1	)

Weighted-average assumptions used to determine benefit obligations as of December 31:
Discount rate		3.66	%		4.46	%		3.51	%
Healthcare cost trend rate		*			*			7.50	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)		*			*			5.00	%
Year the rate is assumed to reach the ultimate trend rate		*			*			2022
Expected return on plan assets		*			*			*

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31:
Discount rate		4.46	%		3.51	%		2.95	%
Healthcare cost trend rate		*			7.50	%		8.00	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)		*			5.00	%		5.00	%
Year the rate is assumed to reach the ultimate trend rate		*			2022			2022
Expected return on plan assets		*			*			*

Not applicable.

The discount rates were based on the average yield for long-term, high-grade securities available during the benefit payout period. To set its discount rate, the Company looks to leading indicators, including the Mercer Above Mean Yield Curve.

2015 Contributions

In 2015, there is no minimum funding requirement for the Company’s defined benefit plan. The following table discloses that minimum funding requirement and the expected full year contributions for the Company’s plans.

	Defined Benefit Pension Plans
		Defined	Supplemental
		Benefit	Defined Benefit
		Plan	Plans

Minimum funding requirement for 2015		$ -	N/A
Expected contributions (approximations) for the year ended December 31, 2015 as of the time of this Form 10-K (1)		-	$1,320

N/A - Not applicable.

(1) HMEC’s Annual Report on Form 10-K for the year ended December 31, 2014.

Estimated Future Benefit Payments

The Company’s defined benefit plan may be subject to settlement accounting. Assumptions for both the number of individuals retiring in a calendar year and their elections regarding lump sum distributions are significant factors impacting the payout patterns for each of the plans below. Therefore, actual results could vary from the estimates shown. Estimated future benefit payments as of December 31, 2014 were as follows:

	2015		2016		2017		2018		2019		2020-2024
Pension plans:
Defined benefit plan	$	3,580	$	3,398	$	2,911	$	2,714	$	3,163		$13,659
Supplemental retirement plans		1,320		1,310		1,299		1,286		1,272		6,072