Note 11: Benefit Plans

Pension and Postretirement Benefit Plans

The Company sponsors a number of pension and postretirement plans worldwide. Benefits are provided to employees under defined benefit pay-related and service-related plans, which are non-contributory in nature. The Company's funding policy for the U.S. defined benefit retirement plans is to annually contribute amounts that equal or exceed the minimum funding requirements of the Employee Retirement Income Security Act of 1974. The Company's annual contributions to the international retirement plans are consistent with the requirements of applicable local laws.

The Company also provides postretirement healthcare and life insurance benefits in the U.S. and South Africa to a limited group of current and retired employees. All of the Company's postretirement benefit plans are unfunded.

The following table provides a reconciliation of the changes in the benefit obligations (the projected benefit obligation in the case of the pension plans and the accumulated postretirement benefit obligation in the case of the other postretirement plans) and in the fair value of plan assets for the years ended December 31, 2011 and 2010. The Company uses a December 31 measurement date for its pension and other postretirement benefit plans.


	Pension Benefits												Other Postretirement Benefits
	U.S. Plans						Non-U.S. Plans						Other Postretirement Benefits
	2011			2010			2011			2010			2011			2010
Reconciliation of benefit obligations:
Obligations as of January 1	$	71,116			71,524		$	219,832			220,326		$	14,896			16,621
Service cost		—			—			1,205			1,054			28			26
Interest cost		3,505			3,738			12,179			11,650			769			888
Participant contributions		—			—			50			—			—			—
Actuarial losses (gains)		5,456			718			(843	)		4,495			1,811			(1,304	)
Plan amendments		—			—			—			127			—			—
Benefit payments		(5,210	)		(4,864	)		(8,109	)		(7,393	)		(1,497	)		(1,428	)
Transfers		—			—			3,238			(769	)		—			—
Effect of foreign currency exchange rate changes		—			—			(3,045	)		(9,658	)		(166	)		93
Benefit obligations as of December 31	$	74,867			71,116		$	224,507			219,832		$	15,841			14,896
Reconciliation of fair value of plan assets:
Fair value of plan assets as of January 1	$	52,169			47,037		$	158,329			150,788
Actual return on plan assets		1,150			5,353			3,734			15,466
Transfers		—			—			2,617			—
Employer contributions		6,578			4,643			5,850			5,227
Participant contributions		—			—			50			—
Benefit payments and plan expenses		(5,210	)		(4,864	)		(8,109	)		(7,409	)
Effect of foreign currency exchange rate changes		—			—			(1,383	)		(5,743	)
Fair value of plan assets as of December 31	$	54,687			52,169		$	161,088			158,329
Funded status as of December 31	$	(20,180	)		(18,947	)	$	(63,419	)		(61,503	)	$	(15,841	)		(14,896	)

Amounts recognized as a component of accumulated other comprehensive income at December 31, 2011 and 2010 that have not been recognized as a component of net periodic benefit cost are presented in the following table:


	Pension Benefits								Other Postretirement Benefits
	U.S. Plans				Non-U.S. Plans				Other Postretirement Benefits
	2011		2010		2011		2010		2011			2010
Net actuarial losses (gains)	$	27,463		20,270	$	33,454		27,540	$	(7,213	)		(10,334	)
Prior-service cost (credit)		1		2		323		363		(259	)		(319	)
Amounts included in accumulated other comprehensive income	$	27,464		20,272	$	33,777		27,903	$	(7,472	)		(10,653	)

The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during the fiscal year ending December 31, 2012, are $3.2 million and zero, respectively. The estimated net gain and prior service credit for the other postretirement benefit plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during the fiscal year ending December 31, 2012, are $0.8 million and $0.1 million, respectively.

Total pension and other postretirement benefit liabilities are included in the following captions in the Consolidated Balance Sheets at December 31, 2011 and 2010:


	2011			2010
Accrued liabilities	$	(2,779	)		(2,910	)
Postretirement benefits other than pensions		(14,462	)		(13,431	)
Other liabilities		(82,199	)		(79,005	)
Total pension and other postretirement accrued benefit liability	$	(99,440	)		(95,346	)

The following table provides information for pension plans with an accumulated benefit obligation in excess of plan assets at December 31:


	U.S. Plans				Non-U.S. Plans
	2011		2010		2011		2010
Projected benefit obligation	$	74,867		71,116	$	223,833		219,120
Accumulated benefit obligation		74,867		71,116		205,957		202,055
Fair value of plan assets		54,687		52,169		160,397		157,569

The accumulated benefit obligation for all U.S. defined benefit pension plans was $74.9 million and $71.1 million at December 31, 2011 and 2010, respectively. The accumulated benefit obligation for all non-U.S. defined benefit pension plans was $206.6 million and $202.8 million at December 31, 2011 and 2010, respectively.

The following table provides the components of net periodic benefit cost and other amounts recognized in other comprehensive income, before income tax effects, for the years ended December 31, 2011, 2010 and 2009:


	Pension Benefits																		Other Postretirement Benefits
	U.S. Plans									Non-U.S. Plans									Other Postretirement Benefits
	2011			2010			2009			2011			2010			2009			2011			2010			2009
Net periodic benefit cost (income):
Service cost	$	—			—			—		$	1,205			1,054			1,092		$	28			26			38
Interest cost		3,505			3,738			4,214			12,179			11,650			11,077			769			888			1,069
Expected return on plan assets		(4,118	)		(3,603	)		(3,193	)		(11,256	)		(10,390	)		(9,028	)		—			—			—
Amortization of prior-service cost (credit)		—			—			7			37			29			32			(59	)		(128	)		(165	)
Amortization of net loss (gain)		1,231			1,340			1,787			904			983			(75	)		(1,271	)		(1,446	)		(1,360	)
Net periodic benefit cost (income)		618			1,475			2,815			3,069			3,326			3,098		$	(533	)		(660	)		(418	)
Gain due to settlements or curtailments		—			—			—			—			(818	)		(66	)		—			—			—
Total net periodic benefit cost (income) recognized	$	618			1,475			2,815		$	3,069			2,508			3,032		$	(533	)		(660	)		(418	)
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial loss (gain)	$	8,423			(1,032	)		(3,604	)	$	6,641			(582	)		21,382		$	1,812			(1,304	)		(631	)
Amortization of net actuarial (loss) gain		(1,231	)		(1,340	)		(1,787	)		(904	)		(917	)		75			1,271			1,446			1,360
Prior service cost		—			—			—			—			127			—			—			—			—
Amortization of prior service (cost) credit		—			—			(7	)		(37	)		(29	)		(118	)		59			128			165
Effect of foreign currency exchange rate changes		—			—			—			(442	)		(3,704	)		(28	)		39			(16	)		—
Total recognized in other comprehensive income	$	7,192			(2,372	)		(5,398	)	$	5,258			(5,105	)		21,311		$	3,181			254			894
Total recognized in net periodic benefit cost and other comprehensive income	$	7,810			(897	)		(2,583	)	$	8,327			(2,597	)		24,343		$	2,648			(406	)		476

The discount rate selected to measure the present value of the Company's benefit obligations was derived by examining the rates of high-quality, fixed income securities whose cash flows or duration match the timing and amount of expected benefit payments under a plan. The Company selects the expected long-term rate of return on plan assets in consultation with the plans' actuaries. This rate is intended to reflect the expected average rate of earnings on the funds invested or to be invested to provide plan benefits and the Company's most recent plan assets target allocations. The plans are assumed to continue in force for as long as the assets are expected to be invested. In estimating the expected long-term rate of return on plan assets, appropriate consideration is given to historical performance of the major asset classes held or anticipated to be held by the plans and to current forecasts of future rates of return for those asset classes. Because assets are held in qualified trusts, expected returns are not adjusted for taxes. The following weighted-average actuarial assumptions were used to determine net periodic benefit cost for the years ended December 31:


	Pension Benefits																		Other Postretirement Benefits
	U.S. Plans									Non-U.S. Plans									Other Postretirement Benefits
	2011			2010			2009			2011			2010			2009			2011			2010			2009
Discount rate		5.3	%		5.7	%		6.3	%		5.4	%		5.7	%		6.4	%		5.5	%		6.0	%		6.4	%
Expected long-term rate of return on plan assets		7.8	%		7.8	%		7.8	%		6.8	%		7.2	%		7.0	%		N/A			N/A			N/A
Rate of compensation increases		N/A			N/A			N/A			3.6	%		3.8	%		3.4	%		N/A			N/A			N/A

The following weighted-average actuarial assumptions were used to determine benefit obligations at December 31:


	Pension Benefits																		Other Postretirement Benefits
	U.S. Plans									Non-U.S. Plans									Other Postretirement Benefits
	2011			2010			2009			2011			2010			2009			2011			2010			2009
Discount rate		4.6	%		5.3	%		5.7	%		4.8	%		5.4	%		5.7	%		4.8	%		5.5	%		6.0	%
Rate of compensation increases		N/A			N/A			N/A			3.0	%		3.6	%		3.8	%		N/A			N/A			N/A

The following actuarial assumptions were used to determine other postretirement benefit plans costs and obligations as of December 31:


	2011			2010			2009
Healthcare cost trend rate assumed for next year		9.8	%		7.0	%		8.1	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		5.1	%		5.2	%		5.3	%
Year that the rate reaches the ultimate trend rate		2021			2015			2013

Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement medical plans. The following table provides the effects of a one-percentage-point change in assumed healthcare cost trend rates as of December 31, 2011:


	1% Increase		1% Decrease
Effect on total of service and interest cost components of net periodic benefit cost — increase (decrease)	$	58	$	(50	)
Effect on the postretirement benefit obligation — increase (decrease)		1,094		(965	)

The following table reflects the estimated benefit payments for the next five years and for the years 2017 through 2021. The estimated benefit payments for the non-U.S. pension plans were calculated using foreign exchange rates as of December 31, 2011.


	Pension Benefits				Other Postretirement Benefits
	U.S. Plans		Non-U.S. Plans		Other Postretirement Benefits
2012	$	6,041		7,250		1,685
2013		5,648		8,983		1,714
2014		5,496		8,890		1,719
2015		5,219		9,745		1,719
2016		5,227		9,965		1,675
Aggregate 2017-2021		24,968		61,715		7,208

According to an actuarial assessment, the Company currently provides prescription drug benefits to certain retired employees in the U.S. which are actuarially equivalent to the Medicare prescription drug benefit, and, therefore, the Company qualifies for the federal subsidy introduced in the Medicare Prescription Drug, Improvement and Modernization Act of 2003. The reduction in accumulated postretirement benefit obligation as of December 31, 2011 and 2010 and in net periodic postretirement benefit cost during the years ended December 31, 2011, 2010 and 2009 related to this federal subsidy were not material.

In March of 2010, the Patient Protection and Affordable Care Act (HR 3590) and the Health Care Education and Affordability Reconciliation Act (HR 4872) (the "Acts") became law in the U.S. The Acts did not have a material impact on the Company's financial statements for the year ended December 31, 2010. The Company will continue to assess the accounting implications of the Acts as related regulations and interpretations of the Acts become available.

In 2012, the Company expects to contribute approximately $3.4 million to the U.S. pension plans and approximately $4.5 million to the non-U.S. pension plans. The expected total contributions to the U.S. pension plans include the impact of the Pension Protection Act ("PPA") of 2006, which became effective on August 17, 2006, and the Worker, Retiree, and Employee Recovery Act of 2008 ("WRERA"). While the PPA and WRERA have some effect on specific plan provisions of the U.S. pension plans, their primary effect is to increase the minimum funding requirements for future plan years and to require contributions greater than the minimum funding requirements to avoid benefit restrictions. The Company's expected contributions to the U.S. pension plans in fiscal 2012, covering both the 2011 and 2012 plan years, are forecasted to be more than the required minimum funding requirements and to satisfy the required minimum funded ratio for the U.S. pension plans to prevent any benefit restrictions.

Plan Asset Investment Strategy

The Company's overall investment strategy and objectives for its pension plan assets is to (i) meet current and future benefit payment needs through diversification across asset classes, investing strategies and investment managers to achieve an optimal balance between risk and return and between income and growth of assets through capital appreciation, (ii) secure participant retirement benefits, (iii) minimize reliance on contributions as a source of benefit security, and (iv) maintain sufficient liquidity to pay benefit obligations and proper expenses. The composition of the actual investments in various securities changes over time based on short and long-term investment opportunities. None of the plan assets of Gardner Denver's defined benefit plans are invested in the Company's common stock. The Company uses both active and passive investment strategies.

Plan Asset Risk Management

The Company's Benefits Committee, with oversight from the Audit and Finance Committee of the Board of Directors, is responsible for the ongoing monitoring and review of the investment program including plan asset performance, current trends and developments in capital markets, and appropriateness of the overall investment strategy. The Benefits Committee meets regularly with representatives of the Company's investment advisor to consider potential changes in the plan asset allocation and monitor the performance of investment managers.

The target financial objectives for the pension plans are established in conjunction with periodic comprehensive reviews of each plan's liability structure. The Company's asset allocation policy is based on detailed asset and liability model ("ALM") analyses. A formal ALM study of each major plan is undertaken every 2-5 years or whenever there has been a material change in plan demographics, benefit structure or funded status. In order to determine the recommended asset allocation, the advisors model varying return and risk levels for different theoretical portfolios, using a relative measure of excess return over treasury bills, divided by the standard deviation of the return (the "Sharpe Ratio"). The Sharpe Ratio for different portfolio options was used to compare each portfolio's potential return, on a risk-adjusted basis. The Company selected a recommended portfolio that achieved the targeted composite return with the least amount of risk.

The Company's primary pension plans are in the U.S. and UK which together comprise approximately 77% and 90% of the total projected benefit obligation and plan assets, respectively as of December 31, 2011. The following table presents the long-term target allocations for these two plans as of December 31, 2011:


	U.S. Plan			UK Plan
Asset category:
Cash and cash equivalents		—			4%
Equity		60	%		50%
Fixed income		38	%		26%
Real estate and other		2	%		20%
Total		100	%		100%

Fair Value Measurements

The following tables present the fair values of the Company's pension plan assets at December 31, 2011 and 2010:


	December 31, 2011
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Asset Category
Cash and cash equivalents⁽¹⁾	$	6,205		198		—		6,403
Equity securities:
U.S. large-cap		6,460		22,869		—		29,329
U.S. mid-cap and small-cap		—		3,346		—		3,346
International⁽²⁾		73,388		7,021		—		80,409
Total Equity securities		79,848		33,236		—		113,084
Fixed income securities:
Corporate bonds — domestic		—		18,371		—		18,371
Corporate bonds — international		17,369		11,581		—		28,950
UK Index-Linked Gilts		22,041		—		—		22,041
Diversified domestic securities		—		1,594		—		1,594
Total Fixed income securities		39,410		31,546		—		70,956
Other types of investments:
U.S. real estate⁽³⁾		—		1,289		—		1,289
International real estate⁽³⁾		12,463		—		—		12,463
Other⁽⁴⁾		—		—		11,580		11,580
Total	$	137,926		66,269		11,580		215,775


	December 31, 2010
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Asset Category
Cash and cash equivalents⁽¹⁾	$	16,522		247		—		16,769
Equity securities:
U.S. large-cap		7,645		21,428		—		29,073
U.S. mid-cap and small-cap		—		3,058		—		3,058
International⁽²⁾		81,713		6,648		—		88,361
Total Equity securities		89,358		31,134		—		120,492
Fixed income securities:
Corporate bonds — domestic		—		17,057		—		17,057
Corporate bonds — international		15,904		11,747		—		27,651
UK Index-Linked Gilts		17,113		—		—		17,113
Diversified domestic securities		—		1,187		—		1,187
Total Fixed income securities		33,017		29,991		—		63,008
Other types of investments:
U.S. real estate⁽³⁾		—		—		1,111		1,111
Other⁽⁴⁾		—		—		9,118		9,118
Total	$	138,897		61,372		10,229		210,498

(1)	Cash and cash equivalents consist of traditional domestic and foreign highly liquid short-term securities with the goal of providing liquidity and preservation of capital while maximizing return on assets.

(2)	The International category consists of mutual fund investments focused on companies operating in developed and emerging markets outside of the U.S. These investments target broad diversification across large and mid/small-cap companies and economic sectors.

(3)	U.S. and International real estate consists primarily of equity and debt investments made, directly or indirectly, in various interests in unimproved and improved real properties.

(4)

Other investments consist of insurance and reinsurance contracts securing the retirement benefits. The fair value of these contracts was calculated at the discount value of premiums paid by the Company, less expenses charged by the insurance providers. The insurance providers with which the Company has placed these contracts are well-known financial institutions with an established history of providing insurance services.

Defined Contribution Plans

The Company also sponsors defined contribution plans at various locations throughout the world. Benefits are determined and funded regularly based on terms of the plans or as stipulated in a collective bargaining agreement. The Company's full-time salaried and hourly employees in the U.S. are eligible to participate in Company-sponsored defined contribution savings plans, which are qualified plans under the requirements of Section 401(k) of the Internal Revenue Code. The Company's contributions to the savings plans are in the form of the Company's common stock or cash. The Company's total contributions to all worldwide defined contribution plans in 2011, 2010 and 2009 were $17.7 million, $14.8 million and $15.7 million, respectively.

Other Benefit Plans

The Company offers a long-term service award program for qualified employees at certain of its non-U.S. locations. Under this program, qualified employees receive a service gratuity ("Jubilee") payment once they have achieved a certain number of years of service. The Company's actuarially calculated obligation equaled $3.8 million and $5.0 million at December 31, 2011 and 2010, respectively.

There are various other employment contracts, deferred compensation arrangements, covenants not to compete and change in control agreements with certain employees and former employees. The liability associated with such arrangements is not material to the Company's consolidated financial statements.