Executive Nonqualified Defined Benefit Plan

12 Months Ended

Dec. 31, 2012

Executive Nonqualified Defined Benefit Plan

Note 14 — Executive Nonqualified Defined Benefit Plan

On August 8, 2008 the Company established The Executive Nonqualified Defined Benefit Plan of Gentherm Incorporated (the “Plan”), an unfunded executive pension plan, with an effective date of April 1, 2008. Daniel Coker, the Company’s President and Chief Executive Officer, is expected to be the only participant in the Plan which will, if fully vested, provide for fifteen annual retirement benefit payments of $300,000 each beginning January 1, 2018. Mr. Coker will become entitled to receive such retirement benefit payments, or a portion thereof, through his continuous service to the Company as follows: Mr. Coker will become proportionally vested in the benefit over a six year period starting on April 1, 2011.

The Company records a projected benefit obligation representing the present value of future plan benefits when earned by the participant. The following table sets forth the benefit obligation, amounts recognized in the Company’s financial statements and the principal assumptions used:

	2012		2011		2010
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	1,142	$	688	$	377
Service cost		317		263		228
Interest cost		45		36		23
Actuarial loss		129		155		60
Net periodic benefit cost		491		454		311
Benefit obligation at end of year	$	1,633	$	1,142	$	688

The benefit obligation is included in the Company’s consolidated balance sheet as a non-current liability. Service and interest cost is included in selling, general and administrative expenses in the Company’s consolidated statements of operations and actuarial losses are included the Company’s consolidated balance sheet as part of accumulated other comprehensive income within shareholders’ equity. Actuarial losses are amortized to selling, general and administrative expense in the Company’s consolidated statements of operations based on the average future service life of the Plan. A discount rate assumption of 3.25%, 4.0% and 5.25% was used to determine the benefit obligation and the net periodic service cost for years ended December 31, 2012, 2011 and 2010, respectively.

Although the Plan is not funded, the Company has established a separate trust having the sole purpose of paying benefits under the Plan. The only asset of the trust is a corporate-owned life insurance policy (“COLI”) on the life of Oscar Marx III, the Chairman of the Company’s Board of Directors. The COLI is valued at fair value using quoted prices listed in active markets (Level 1 input based on the U.S. GAAP fair value hierarchy). The policy value of the COLI was $1,466 and $1,102 as of December 31, 2012 and 2011, respectively, and was included in other non-current assets.

W.E.T. has an established defined benefit plan for retired and current members of its executive management team.

W.E.T. records a projected benefit obligation representing the present value of future plan benefits when earned by the participant. The following table sets forth the benefit obligation and amounts recognized in the Company’s financial statements:

	2012			2011
Change in projected benefit obligation:
Benefit obligation at beginning of year	$	4,250		$	4,280
Service cost		199			7
Interest cost		195			118
Paid pension distributions		(277	)		(167	)
Actuarial (gains)/losses		912			(55	)
Past service cost		—			67
Exchange rate impact		113			—
Benefit obligation at end of year	$	5,392		$	4,250

The following table sets forth the fair value of the plan assets from the date of acquisition to December 31, 2012:

	2012			2011
Change in plan assets:
Plan assets at beginning of year	$	1,098		$	943
Expected return on plan assets		41			21
Net contributions		386			148
Actuarial loss		(11	)		(4	)
Exchange rate impact		34			—
Plan assets at end of year	$	1,548		$	1,098

The beginning of year balance for both the W.E.T. pension benefit obligation and pension plan asset rollforward represents the estimated benefit obligation and pension plan asset fair value as of May 16, 2011, the date the acquisition of W.E.T. Automotive Systems was completed.

The W.E.T. defined benefit plan is underfunded by $3,844 and $3,152 as of December 31, 2012 and 2011, respectively. The portion of the net benefit obligation payable within the next 12 months is included in the Company’s consolidated balance sheet within accrued liabilities. The long-term portion of the net benefit obligation is included in pension benefit obligation. The net periodic benefit cost is included in selling, general and administrative expenses in the Company’s consolidated statement of operations. The following table describes the actuarial assumptions used to determine the benefit obligation and the net periodic service cost:

	2012
Discount rate		3.41	%
Expected long term rate of return on plan assets		3.80	%

Plan assets are comprised of W.E.T’s. pension insurance policies and are pledged to the beneficiaries of the plan. Fair value of the pension insurance policies is determined on the basis of the calculation of the underlying insurance charge. Due to the basis of the calculation, pension plan assets are determined to be Level 2 investments. The expected return on plan assets assumption used to calculate WET’s pension benefit obligation was determined using actual returns realized on plan assets in the prior year.

The schedule of expected pension payments made to W.E.T. defined benefit plan participants over the next 10 years is as follows:

Year
2013	$	285
2014		291
2015		297
2016		302
2017		309
2018 - 2022		1,652
Total	$	3,136

Historical Gentherm has adopted a 401(k) plan to provide all eligible employees a means to accumulate retirement savings on a tax-advantaged basis, and our executive officers are eligible to participate in this plan on the same basis as other participants. Participants may defer specified portions of their compensation and (1) we match 50% percent of employee contributions up to a contribution equal to 2% percent of the employee’s compensation and (2) we may, but are not required to, make additional discretionary contributions. The Compensation Committee has not made any discretionary contribution to the 401(k) Plan since its inception.